Baltic Dry Index. 1314 +12
LIR Gold Target by 2019: $30,000. Revised due to QE.
“It’s driven by fear,” said James Gaul, a money manager at Boston Advisors LLC in Boston, which oversees about $1.8 billion. “Fear of losing of money on positions for the short- term traders to long-term concerns that the economy is weakening and risky assets aren’t performing as well as they have done, which you can extrapolate into oil prices. Big price moves like these are most often sentiment-driven.”
Washington Post.
Is the global economy rolling over? Was that as good as it got for the recovery? The Baltic Dry Index has been signaling a weakening global economy for some time. For months the Saudis have been saying that oil fundamentals didn’t justify the high prices, even after Libyan oil was largely removed from supply. Apparently, things are so weak in the European fringe called Club Med, the ECB has now abandoned next month’s signaled interest rate rise. In America, applications for jobless benefits jumped by 43,000 to 474,000 in the week ended April 30, the most since August, in Labor Department figures released yesterday. The “experts were all forecasting a fall. Dare the Fed abandon QE programs in the second half of 2011?
Monetary policy elsewhere is becoming tighter. Central banks in the Philippines and Malaysia today raised interest rates, and India this week increased its borrowing costs for the ninth time since March 2010. Rates in China, Asia’s biggest economy, may rise further after its central bank said yesterday that taming inflation is its top priority.
Washington Post.
Below, the great commodity wobble. If China joins in the wobble, a great stock market rout comes next. According to a posting on the excellent website Mish’s Global Economic Analysis, in China copper imports into inventory became the latest way to circumvent bank lending restrictions. Click on the link for more.
http://globaleconomicanalysis.blogspot.com/2011/05/ponzi-financing-involving-copper-trade.html
For months, the Fed’s massive QE programs have fuelled a speculative boom in stocks and to a lesser extent commodities, if the Fed is serious about ending QE next month, it’s probably time “to sell in May and go away”, as the old trading adage puts it. Personally though, I would use the current sell-off to buy calls in wheat, gold and silver. The wheat market looks to me to be heading for serious quantity and quality problems in the northern hemisphere. A blow off in stocks will likely trigger the next Lehman, and a panicky Fed and US Treasury will be back moving heaven and earth via more QE endlessly destroying the fiat currency.
"When paper money systems begin to crack at the seams, the run to gold could be explosive."
Harry Browne
Oil, gold and silver plummet on global economy fears
Oil, gold and silver nose-dived yesterday, as investors sold commodities over worries about the health of the global economy.
By Rowena Mason 11:30PM BST 05 May 2011
It was the biggest drop in the cost of raw materials in almost two years, amid negative economic data that showed the US jobs market is struggling to recover.
Copper, tin, cocoa, coffee, sugar and lead were among others to take a hit - signalling a possible downturn just one day after Glencore, the commodities giant, unveiled the largest ever London flotation. Brent crude futures lost more than $10, or 8.6pc, to settle at $110.80 per barrel per barrel in London, a few weeks after warnings that high prices would strangle growth.
In New York, the benchmark West Texas Intermediate oil future dropped below $100 for the first time since tensions in the Middle East caused the oil price to hit $127 per barrel.
Industry players from Royal Dutch Shell to the oil cartel Opec have noticed that demand for fuel has been dampened by the high prices of recent weeks. American motorists have been feeling the pinch, with gasoline prices at $4 per gallon.
A drop in the price of crude oil will take a while to feed through to drivers, but they will start to see the cost of petrol reduce if the fall is sustained.
----There have been a series of warnings in recent weeks from experts that this year’s spikes in commodity prices have not been supported by fundamentals of supply and demand. Analysts at Goldman Sachs warned its clients to “sell oil, cotton, copper, soybeans and platinum” in a surprise note last month. “We now recommend an underweight allocation to commodities on a three-to-six-month horizon,” it said.
Another alarm bell came from the International Energy Agency, which cautioned it had begun to see the first signs of a downturn in demand.
“Preliminary January and February data suggest that high prices are already starting to dent demand growth,” the energy watchdog said.
MAY 6, 2011
Europe Hits Pause on Rates
HELSINKI—European Central Bank President Jean-Claude Trichet signaled a temporary pause in the ECB's path toward higher interest rates, a sign of caution as officials confront mounting problems along Europe's periphery.
Mr. Trichet rejected speculation in financial markets that Greece will have to restructure its government debt, saying that scenario "is not in the cards" and that Athens must stick to its deficit-reduction targets.
The euro tumbled and German bonds rallied on Mr. Trichet's inflation comments, which suggest the next interest-rate increase won't occur before July. Higher interest rates attract capital from global investors seeking a safe return, a factor in the euro's steady ascent this year.
----Despite the inflation warnings, Mr. Trichet didn't say "strong vigilance" was warranted, a phrase used in the past to signal imminent interest-rate increases.
"They're being a bit cautious" because signaling another rate increase so soon after the first one "would make it hard to rein in market expectations" of an aggressive cycle, said Nick Matthews, economist at Royal Bank of Scotland. Mr. Matthews, who before Thursday's meeting expected a June increase, now doesn't expect one until July.
----One month's difference doesn't matter much by itself, economists said. Still, Mr. Trichet's remarks have an important signaling effect that the ECB isn't in a rush to return rates to more normal levels.
Last month, inflation across the euro bloc surged to a 2½-year high of 2.8%, well above the ECB's target of just under 2%. Many economists expect it to breach 3% by the summer.
"There's a question about Trichet's resolve to fight inflation," said Melvyn Krauss, senior fellow at the Hoover Institution at Stanford University.
Jörg Krämer, chief economist at Commerzbank, said the ailing periphery of Greece, Ireland and Portugal—which combined account for just 6% of euro-zone output--is keeping the ECB from tightening policy as aggressively as the inflation outlook would suggest. "It plays a role when it comes to the speed" of rate increases, he said.
More
Below, crime pays in England it seems, but to get away with it you’ve got to be a crony of the Old Bag Lady of Threadneedle Street.
"Those entrapped by the herd instinct are drowned in the deluges of history. But there are always the few who observe, reason, and take precautions, and thus escape the flood. For these few gold has been the asset of last resort."
Antony C. Sutton
MAY 6, 2011
BOE Still Accentuating the Negative
-----Nevertheless, the bank persists in maintaining emergency levels of monetary stimulus. Official U.K. interest rates remain at 300-year lows.
What's more, a speech by Mervyn King, the bank's governor, this week suggests the bank will aim to keep interest rates well below the rate of inflation for a long time to come.
"The economic consequences of high-level indebtedness now would become more severe if rates were to rise," Mr King said in comments to the European parliament this week. British households are among the most highly indebted in the world.
Mr. King and the rest of the MPC will be aware that throughout history, inflation has been a major mechanism for reducing public and private debt loads. But the governor has consistently denied the bank will seek to inflate away the U.K.'s debt burden by maintaining deeply negative interest rates.
That's not, however, the way things look. Inflation has averaged some 3.2% during the past three years. The bank's base rate has averaged 1.5% over the same time. Later this year, short-term real interest rates are likely to approach a negative 5%.
These negative interest rates are iniquitous for Britain's prudent savers and pensioners, who held back from the speculative mania of the years leading up to the financial crisis, a mania to which the MPC contributed by encouraging the biggest debt binge in history. The bank is now forcing these savers to pay most of the cost of the post-crisis adjustment.
But the repercussions are potentially more serious for the future of the U.K. economy. That's because the bank is engendering a pernicious form of moral hazard by not just socializing bankers' losses, but rewarding the bankers for their failures.
In essence, Mr. King says the U.K. is too heavily indebted for the Bank of England to even consider raising interest rates and so will not raise them until nominal debt levels relative to nominal gross domestic product have fallen sufficiently.
But the U.K.'s GDP growth prospects are distinctly lackluster. The National Institute of Economic and Social Research, an independent research institute, forecasts in its outlook published this week that U.K. GDP growth will come in at just 1.4% this year and 2.0% in 2012. That's well below the latest official estimates of 1.7% and 2.5%, respectively.
So with growth failing to lift the burden of debt, the Bank of England will continue to rely on negative interest rates.
But because banks aren't really passing on the low interest rates, Mr. King must know that most of this wealth transfer from savers won't be going to borrowers, but rather to bankers, in the form of fat interest rate spreads. Banks were meant to use these spreads to recapitalize their balance sheets. But various rescue mechanisms and subsidies granted them by central banks and regulators in the wake of the credit crunch have allowed bankers to take much of this windfall in the form of salary rises and bonuses.
More.
We end for the day with some reasons to go long platinum and palladium, and I don’t mean the theatre on Argyle Street, London, that just celebrated its 100th anniversary. Below, a company that ought to know, thinks that the Russians have finally exhausted their stockpile of palladium, and that has big implications for both metals.
Russian palladium stocks seen 'at or near exhaustion' - Stillwater
TORONTO (miningweekly.com) – Billings, Montana-based Stillwater Mining believes it's likely that Russia's infamous stockpile of palladium metal is either almost or entirely gone, CEO Francis McAllister said on Tuesday.
Any inventories that still remain would probably not have much of an impact on the market if they were sold, especially given the strong industrial demand for the metal, he said at the company's annual shareholders meeting.
Stillwater is one of only two companies that mines palladium as its primary product.
Palladium is mainly used in emissions-reducing autocatalysts, primarily in gasoline engines, but also increasingly in diesel engines, together with platinum
"As fewer and fewer people have confidence in paper as a store of value, the price of gold will continue to rise."
Jerome F. Smith
At the Comex silver depositories Thursday, final figures were: Registered 33.15 Moz, Eligible 69.70 Moz, Total 102.85 Moz.
+++++
Crooks and Scoundrels Corner.
The bent, the seriously bent, and the totally doubled over.
Today, how the once mighty have fallen. The west’s Middle East placemen are all vulnerable to fall this decade. Tomorrow will not be like today which was like yesterday. We are headed to the fall of fiat currency as we know it.
“The history of fiat money is little more than a register of monetary follies and inflations. Our present age merely affords another entry in this dismal register."
Hans F. Sennholz
MAY 6, 2011
Mubarak Security Chief Convicted
CAIRO—An Egyptian court sentenced the former interior minister who oversaw the expansion of the Mubarak regime's vast security apparatus to 12 years in prison for corruption, in the first conviction of a senior former regime official since a popular uprising drove President Hosni Mubarak from power.
The conviction of former Interior Minister Habib al-Adly for money laundering and profiteering stemming from a fraudulent land deal kicks off a string of prosecutions of the former regime's leading figures on corruption charges and other crimes.
Mr. Adly, who pleaded not guilty, was also fined 15 million Egyptian pounds, or $2.5 million. His lawyer couldn't be reached for comment.
Mr. Adly is still awaiting a verdict in a second criminal trial, in which he faces six additional charges, including ordering police to open fire on protesters during the uprising—a charge for which he could face the death penalty. He pleaded not guilty to these charge as well.
The ruling Egyptian military appears intent on showing Egyptians it is responding swiftly to their demands for the trial of former officials, and to placate the popular anger that fueled the 18-day uprising that toppled the regime in February.
The military assumed control of Egypt's government after Mr. Mubarak stepped down on Feb. 11 and is expected to continue ruling until elections are held later this year.
----During his 13 years in the post, Mr. Adly oversaw an internal security apparatus numbering 500,000 people. Human-rights goups say that under his watch, the police use of torture grew into an endemic problem in the Egyptian justice system.
Under Mr. Adly's leadership, the ministry of interior expanded its role in the country's political scene, using its resources and manpower to monitor and in many cases muzzle civil society and political organizations, according to rights groups.
Thousands of detainees were held, in some cases for many years, without ever being charged or put on trial. Under Mr. Adly, the ministry was frequently accused by rights groups of ignoring court orders for the release of detainees.
Rights groups say 846 people died in the 18-day youth-led uprising, which began on Jan. 25. Most of those were killed during the first four days of protests, when Mr. Adly's security forces were still out in the streets. If convicted of ordering police to fire on protesters, Mr. Adly could face the death penalty, according to prosecutors.
Mr. Mubarak, who is being detained in an Egyptian hospital room, is also under investigation for his involvement in the killings of protesters and could similarly face the death penalty if charged and convicted, prosecutors said.
Mr. Adly has also been charged with crimes related to his allegedly ordering police off the streets on Jan. 28, the fourth day of protests, opening up the city's prisons to free hundreds of inmates, and hiring former prisoners and others to attack protesters.
The country has yet to fully recover from those decisions. Many escaped inmates haven't been recaptured and police are still operating at substantially less than full strength. Egyptians say they fear crime rates are on the rise as a result.
More.
"The desire for gold is the most universal and deeply rooted commercial instinct of the human race."
Gerald M. Loeb
Another weekend, and a crisis one too, possibly. Wild gyrations in bull markets, generally lead to unexpected bankruptcies, as the over leveraged, under financed players get their comeuppance from the market. In our new casino capitalist age fuelled by quantitative easing, there has never been so much speculative money chasing unperceived risk. If we make it through the weekend without another Lehman, not to worry, there’s always next week. Stay long physical gold and silver, there’s a lot more innings in the game. Have a great weekend everyone. Time to enjoy all the mayflower in full bloom.
The monthly Coppock Indicators finished April:
DJIA: +182 Up. NASDAQ: +236 Up. SP500: +185 Up.
The Dow and SP 500 and NASDAQ have all reversed from down to up. The Fed’s rigging of the indicators seems to have worked. Note: like all indicators, they were devised for normal markets not markets where the central bank is flooding the economy with new cash. In current conditions where risk is suspended by too big to fail, I doubt any indicators are showing more that where the Fed’s new cash is flowing in our world of casino capitalism.
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