Baltic Dry Index. 3098 -79
LIR Gold Target by 2019: $3,000.
"The secret of life is honesty and fair dealing. If you can fake that, you've got it made."
Groucho Marx
We open this morning with trouble in US debt sales. Hopefully it’s just an aberration, or China sending a shot across America’s bows before the US Treasury publishes its list of currency manipulators on April 15th. At worst it is a sign that US debt sales are now starting to overwhelm the supply of available and willing investors in US debt at current yields. The G-1 is still rushing towards a full scale debt crisis, even if the Euro-zone looks like getting there first. Stay long precious metals, preferably held outside of America and the UK. They both have past form at being unsafe locations to hold precious metals.
"Why a four-year-old child could understand this report. Run out and find me a four-year-old child. I can't make head nor tail out of it."
Timothy Geithner, with apologies to Groucho Marx.
Sell-off in US Treasuries raises sovereign debt fears
Investors are braced for a further sell-off in US Treasuries after dramatic moves last week raised fears that the surfeit of US government debt is starting to saturate bond markets.
By Ambrose Evans-Pritchard Published: 9:06PM BST 28 Mar 2010
The yield on 10-year Treasuries – the benchmark price of global capital – surged 30 basis points in just two days last week to over 3.9pc, the highest level since the Lehman crisis. Alan Greenspan, ex-head of the US Federal Reserve, said the abrupt move may be "the canary in the coal mine", a warning to Washington that it can no longer borrow with impunity. He said there is a "huge overhang of federal debt, which we have never seen before".
David Rosenberg at Gluskin Sheff said Treasury yields have ratcheted up 90 basis points since December in a "destabilising fashion", for the wrong reasons. Growth has not been strong enough to revive fears of inflation. Commodity prices peaked in January and US home sales have fallen for the last three months, pointing to a double-dip in the housing market.
Mr Rosenberg said the yield spike recalls the move in the spring of 2007 just as the credit system started to unravel. "The question is how the equity market is going to handle this back-up in rates," he said.
The trigger for last week's sell-off was poor demand at Treasury auctions, linked to the passage of the Obama health care reform. Critics say it will add $1 trillion (£670bn) to America's debt over the next decade, a claim disputed fiercely by Democrats.
It is unclear whether China is selling US Treasuries after cutting its holdings for three months in a row, or what its motive may be. There are concerns that Beijing may be sending a coded message before the US Treasury rules next month on whether China is a "currency manipulator", though experts say China is clearly still buying dollar assets because it is holding down the yuan against the greenback. Some investors may be selling Treasuries as a precaution against a trade spat.
Looming over everything is the worry that markets will not be able to absorb the glut of US debt as the Fed winds down its policy of bond purchases, starting with an exit from mortgage-backed securities. It currently holds a quarter of the $5 trillion of the MBS market.
The rise in US bond yields has set off mayhem in the 10-year US swaps markets. Spreads turned negative last week, touching the lowest level in 20 years. The effect was to drive credit costs for high-grade companies such as Berkshire Hathaway below that of the US government.
This may have been a technical aberration.
http://www.telegraph.co.uk/finance/economics/7533014/Sell-off-in-US-Treasuries-raises-sovereign-debt-fears.htmlBack in Europe, the EU’s great, the good, the not so good, the awful, the shifty and the downright dishonest, all got together last week to kow-tow to Germany and dither over a viable assistance plan for the tax and work shy Greeks. What emerged left the Greeks and Club Med even worse off than before. In effect, Germany told the Greeks to financially “drop dead” first, i.e. get shut out of the debt market, before being allowed to apply to the IMF and EU assistance. The others in the Euro-zone all willingly went along. Below, the Telegraph covers the worst of all worlds. Seen from Athens, actually defaulting and exiting the Euro-zone, now looks a fitting response.
"Too bad ninety percent of the politicians give the other ten percent a bad reputation."
Henry Kissinger.
Europe has left Greece hanging in the windHowever you dress it, the Greek package agreed by EU leaders is a capitulation to German-Dutch demands. There will be no European debt union as long as Angela Merkel remains Iron Chancellor of Germany.
By Ambrose Evans-Pritchard Published: 8:48PM BST 28 Mar 2010
The Frankfurter Allgemeine summed up the deal succinctly: "No member of Europe's monetary union should be liable for the debts of another state. Bilateral credit from Berlin for Athens is not the same as German acceptance of responsibility for Greek debt."
This shatters the assumption since Maastricht that monetary union leads inexorably to fiscal union. By drawing the IMF into Euroland's affairs, Germany has broken the spell and reduced EMU to a fixed-exchange system with knobs on, like the 1930s Gold Standard that it so resembles. No wonder Jean-Claude Trichet at the European Central Bank is cross.
Far from stemming contagion, the deal leaves Club Med exposed. Underlying default risk has risen for Greece, Portugal, Italy and Spain, as well as for Ireland, Slovakia and Malta even if credit markets keep missing the point. The world's top holder of EU debt does understand. Greece is the "tip of the iceberg", said the deputy-governor of China's central bank. "The main concern today, obviously, is Spain and Italy."
The 'rescue' resolves nothing for Greece, either short-term or long-term. The EU statement said "no decision has been taken to activate the mechanism." Precisely. The joint EU-IMF facility can be activated only ultima ratio – as a last resort – once Greece is shut out of debt markets and not until eurozone stability is threatened.
“So they want Greece to reach the point of bankruptcy before they help us?” asked Greek opposition leader Antonis Samaras
Greece is worse off than before. It cannot decide when to invoke the mechanism. It has given up its right as an IMF member to go to the fund when it wants, leaving it prisoner to Europe's deflation dictates. "The IMF would be a lot softer than Europe," said Ken Rogoff, the fund's former chief economist.
Lorenzo Bini Smaghi, an ECB board member, said the deal has at least averted "Europe's Lehman". I agree that there is an equivalence of sorts between America's sub-prime and the Club Med bust and that a European banking system with wafer-thin capital buffers and a cupboard full of skeletons cannot risk a Greek debacle at this juncture, but what exactly has been averted? Roughly €22bn (£19.8bn) in joint IMF-EU funds might be available, some coming from states in trouble themselves. This is not enough. No encore is likely. Germany will not pay twice.
Erik Nielsen from Goldman Sachs said Greece must raise €24.7bn by late May. The noose then tightens. Long-term debt amortisations are 7pc of GDP this year, 10.2pc on 2011, 11.8pc in 2012, 9.7pc in 2013, and 10.4pc in 2014. "Greece faces both a liquidity crisis and a solvency crisis. It is not clear that European policy-makers fully appreciate the scale of the problems," he wrote in a report, Here Comes The IMF.
Mr Nielsen said Greek data released last month show that the budget deficit is 16pc of GDP on a "cash basis", rather than the official 12.7pc on an "accrual basis". The IMF is watching closely, having warned last June that Greece's "cash fiscal data show consistently weaker results than accrual data, which has been inadequately explained." Translation: the real deficit is 16pc.
Greece is drowning.
http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/7532852/Europe-has-left-Greece-hanging-in-the-wind.htmlWhy does any of this matter? Below, one of America’s best economic writers spells it out in detail. I recommend following the link to read John Mauldin’s whole excellent article.
"If the financial system goes down, our business is going down and, trust me, yours and everyone else's is going down, too."
Lloyd Blankfein. CEO Goldman Sachs. November 8, 2009
What Does the Greek Debt Crisis Mean For Your?Mar 27, 2010 - 06:36 AM By:
John_Mauldin-----Now, we come to a critical point in our discussion of the critical state. Again, read this with the markets in mind:
"In this simplified setting of the sandpile, the power law also points to something else: the surprising conclusion that even the greatest of events have no special or exceptional causes.
After all, every avalanche large or small starts out the same way, when a single grain falls and makes the pile just slightly too steep at one point. What makes one avalanche much larger than another has nothing to do with its original cause, and nothing to do with some special situation in the pile just before it starts. Rather, it has to do with the perpetually unstable organization of the critical state, which makes it always possible for the next grain to trigger an avalanche of any size."
Now let's couple this idea with a few other concepts. First, one of the world's greatest economists (who sadly was never honored with a Nobel), Hyman Minsky, points out that stability leads to instability. The longer a given condition or trend persists (and the more comfortable we get with it), the more dramatic the correction will be when the trend fails. The problem with long-term macroeconomic stability is that it tends to produce highly unstable financial arrangements. If we believe that tomorrow and next year will be the same as last week and last year, we are more willing to add debt or postpone savings for current consumption. Thus, says Minsky, the longer the period of stability, the higher the potential risk for even greater instability when market participants must change their behavior.
Relating this to our sandpile, the longer that a critical state builds up in an economy or, in other words, the more fingers of instability that are allowed to develop connections to other fingers of instability, the greater the potential for a serious "avalanche."
And that's exactly what happened in the recent credit crisis. Consumers all through the world's largest economies borrowed money for all sorts of things, because times were good. Home prices would always go up and the stock market was back to its old trick of making 15% a year. And borrowing money was relatively cheap. You could get 2% short-term loans on homes, which seemingly rose in value 15% a year, so why not buy now and sell a few years down the road?
-----Greed took over. Those risky loans were sold to investors by the tens and hundreds of billions all over the world. And as with all debt sandpiles, the fault lines started to show up. Maybe it was that one loan in Las Vegas that was the critical piece of sand; we don't know, but the avalanche was triggered.
-----But it wasn't contained. It caused banks to realize that what they thought was AAA credit was actually a total loss. And as banks looked at what was on their books, they wondered about their fellow banks. How bad were they? Who knew? Since no one did, they stopped lending to each other. Credit simply froze. They stopped taking each other's letters of credit, and that hurt world trade. Because banks were losing money, they stopped lending to smaller businesses. Commercial paper dried up. All those "safe" off-balance-sheet funds that banks created were now folding. Everyone sold what they could, not what they wanted to, to cover their debts. It was a true panic. Businesses started laying off people, who in turn stopped spending as much.
------Let me be a little controversial here. The blame game that is now going on is in many ways way too simplistic. The world system survived all sorts of crises over the recent decades and bounced back. Why is now so different?
Because we are coming to the end of a 60-year debt supercycle. We borrowed (and not just in the US) like there was no tomorrow. And because we were so convinced that all this debt was safe, we leveraged up, borrowing at first 3 and then 5 and then 10 and then as much as 30 times the actual money we had. And we convinced the regulators that it was a good thing. The longer things remained stable, the more convinced we became they would remain that way.
And while the government is trying to make up the difference for consumers who are trying to (or being forced to) reduce their debt, even governments have limits, as the Greeks are finding out.
If it were not for the fact that we are coming to the closing innings of the debt supercycle, we would already be in a robust recovery. But we are not. And sadly, we have a long way to go with this deleveraging process. It will take years.
You can't borrow your way out of a debt crisis, whether you are a family or a nation. And as too many families are finding out today, if you lose your job you can lose your home. What were once very creditworthy people are now filing for bankruptcy and walking away from homes, as all those subprime loans going bad put homes back onto the market, which caused prices to fall, which caused an entire home-construction industry to collapse, which hurt all sorts of ancillary businesses, which caused more people to lose their jobs and give up their homes, and on and on.
It's all connected. We built a very unstable sandpile and it came crashing down and now we have to dig out from the problem. And the problem was too much debt. It will take years, as banks write off home loans and commercial real estate and more, and we get down to a more reasonable level of debt as a country and as a world.
And here's where I have to deliver the bad news. It seems we did not learn the lessons of this crisis very well. First, we have not fixed the problems that made the crisis so severe. We have not regulated credit default swaps, for instance. And European banks are still highly leveraged.
Why is Greece important? Because so much of their debt is on the books of European banks. Hundreds of billions of dollars worth. And just a few years ago this seemed like a good thing. The rating agencies made Greek debt AAA, and banks could use massive leverage (almost 40 times in some European banks) and buy these bonds and make good money in the process. (Don't ask Dad why people still trust rating agencies. Some things just can't be explained.)
Except, now that Greek debt is risky. Today, it appears there will be some kind of bailout for Greece. But that is just a band-aid on a very serious wound. The crisis will not go away. It will come back, unless the Greeks willingly go into their own Great Depression by slashing their spending and raising taxes to a level that no one in the US could even contemplate. What is being demanded of them is really bad for them, but they did it to themselves.
But those European banks? When that debt goes bad, and it will, they will react to each other just like they did in 2008. Trust will evaporate. Will taxpayers shoulder the burden? Maybe, maybe not. It will be a huge crisis. There are other countries in Europe, like Spain and Portugal, that are almost as bad as Greece. Great Britain is not too far behind.
The European economy is as large as that of the US. We feel it when they go into recessions, for many of our largest companies make a lot of money in Europe. A crisis will also make the euro go down, which reduces corporate profits and makes it harder for us to sell our products into Europe, not to mention compete with European companies for global trade. And that means we all buy less from China, which means they will buy less of our bonds, and on and on go the connections. And it will all make it much harder to start new companies, which are the source of real growth in jobs.
And then in January of 2011 we are going to have the largest tax increase in US history. The research shows that tax increases have a negative 3-times effect on GDP, or the growth of the economy. As I will show in a letter in a few weeks, I think it is likely that the level of tax increases, when combined with the increase in state and local taxes (or the reductions in spending), will be enough to throw us back into recession, even without problems coming from Europe. (And no, Melissa, that is not some Republican research conspiracy. The research was done by Christina Romer, who is Obama's chairperson of the Joint Council of Economic Advisors.)
And sadly, that means even higher unemployment.
-----And this next time, we won't be able to fight the recession with even greater debt and lower interest rates, as we did this last time. Rates are as low as they can go, and this week the bond market is showing that it does not like the massive borrowing the US is engaged in. It is worried about the possibility of "Greece R Us."
Bond markets require confidence above all else. If Greece defaults, then how far away is Spain or Japan? What makes the US so different, if we do not control our debt? As Reinhart and Rogoff show, when confidence goes, the end is very near. And it always comes faster than anyone expects.
http://www.marketoracle.co.uk/Article18229.htmlAt the Comex silver depositories Friday, final figures were: Registered 54.25 Moz, Eligible 61.55 Moz, Total 115.80 Moz.
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Crooks & Scoundrels Corner.
The bent, the seriously bent, and the totally doubled over.
Today, discredited global warming in full retreat. While one winter doesn’t a summer make, the northern hemisphere winter of 2009-2010 fits in better with the arrival of global cooling due to the new Dalton Minimum in sunspots, than it does in the extinction of the polar bears and the disappearance of the Himalayan glaciers by 2035. Who needs carbon taxes and carbon futures except the great financial squids that speculate in them, backed up by too big to fail, should they get the gambling wrong.
Two thousand scientists, in a hundred countries, engaged in the most elaborate, well organized scientific collaboration in the history of humankind, have produced long-since a consensus that we will face a string of terrible catastrophes unless we act to prepare ourselves and deal with the underlying causes of global warming.
Al Gore, Sept. 9, 2005.
Cold 'hits Mongolia herders hard'
The International Red Cross has appealed for help for thousands of Mongolian herders who have lost their livestock because of extreme cold.
The Red Cross said that millions of animals had perished during the country's hardest winter in years.
It says it needs over $900,000 (£603,000) to provide emergency assistance to the worst-hit families and restock herds.
A BBC correspondent says those animals who survived are running out of food.
In recent months temperatures in Mongolia have dropped below -40C.
Local residents call it a "dzud" - a severe winter following a very dry summer, which has left reserves of fodder low.
Almost half of the country's population are herders or farmers whose main assets are their livestock.
According to the Red Cross, nearly 10% of Mongolia's livestock have died since December.
The agency said it needed money to provide emergency food aid to more than 3,000 families who have lost the bulk of their herds and to help them restore or diversify their livelihoods.
"The needs are steadily growing as more and more herders face up to the reality that many of their animals are dying," Ravdan Samdandobji, secretary-general of the Mongolian Red Cross, said in the statement.
"More and more people are left distraught and increasingly destitute."
China Has ‘Test’ Meeting Grains Goal, Premier Says
March 25, 2010, 11:50 PM EDT
March 26 (Bloomberg) -- China, the biggest grain user, faces a test meeting a crop-output target because of drought in the southwest and a cold winter in the north, Premier Wen Jiabao said, underscoring the challenges brought on by bad weather.
Meeting this year’s goal of growing 500 million metric tons of grains will be a “test for sure,” the Xinhua News Agency reported, citing Wen. Wheat output in China may fall because of the cold weather, Wen was cited by the state agency as saying during a trip to drought-hit Yunnan from March 19-21.
China’s leaders have prioritized food security to ensure that the world’s most populous nation has adequate supplies and stockpiles. Rivers in China’s southwest have plunged to record low levels, according to the Ministry of Water Resources. About 18 million people are short of drinking water, Xinhua reported.
“There is little prospect for meaningful rainfall until May” in the southwest, forecaster
Accuweather Inc. said in an e-mail. “The drought is badly affecting the planting of crops” and a serious shortage of water in reservoirs will make it even harder for planting to be sustained, it said.
China set the 500 million ton target in February and the goal is lower than last year’s harvest of 530.8 million tons, Xinhua said in the report late yesterday. Output had increased in the six years to 2009, the report said.
‘Having an Impact’
“The cold weather and drought are definitely having an impact on China’s wheat crop,” Jay O’Neil, an adviser to the U.S. Grains Council, said by phone from Shandong today. Still, it’s too soon to tell what the outcome may be because wheat is a “hardy” crop that can recover if conditions improve, he said.
Germans lose fear of climate change after long, hard winter
Published: 27 Mar 10 13:17 CETGermans are losing their fear of climate change, according to a survey, with just 42 percent worried about global warming
It seems the long and chilly winter has taken its toll on climate change sensibilities despite the fact that weather has nothing to do with climate. The latest figure is a clear drop from the 62 percent of Germans who said they were scared of such changes just last autumn. The new survey, carried out by polling company Infratest for Der Spiegel magazine, showed a quarter of those questioned thought Germany would profit from climate change rather than be badly affected by it. Many people have little faith in the information and prognosis of climate researchers with a third questioned in the survey not giving them much credence. This is thought to be largely due to mistakes and exaggerations recently discovered in a report of the intergovernmental panel on climate change, the IPCC.
Germany’s Leibniz Community, an umbrella organisation including many climate research institutes, broke ranks by calling for the resignation of IPCC head Rajendra Pachauri.
Climate research has been put, “in a difficult situation,” said Ernst Rietschel president of the Leibniz Community. He said sceptics have been given an easy target by the IPCC and said Pachauri should take on the responsibility and resign.
http://www.thelocal.de/sci-tech/20100327-26163.html
Global warming -- at least the modern nightmare vision -- is a myth. I am sure of it and so are a growing number of scientists. But what is really worrying is that the world's politicians and policy makers are not.
David Bellamy. UK botanist and TV presenter.
The monthly Coppock Indicators finished February:
DJIA: +95 UP. NASDAQ: +291 UP. SP500: +118 UP. The great Bull market goes on with the all three continuing higher in positive numbers.
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Help the LIR fight Banksterism, the EU, and for sound money.
If you can, help the LIR stay around and make a difference. Please make a donation at the PayPal link on the website or better still become a sponsor for what looks like an exciting 2010. Capitalism not banksterism.
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Sunspots – A 22 year colder world? (From 2004?)
Spotless Days March 28
Current Stretch: 0 days
2010 total: 6 days (7%)
2009 total: 260 days (71%)
Since 2004: 776 days
The long minimum seems to have ended.
-----But something is unusual about the current sunspot cycle. The current solar minimum has been unusually long, and with more than 670 days without sunspots through June 2009, the number of spotless days has not been equaled since 1933.
----During the period from 1645 to 1715, the Sun entered a period of low activity now known as the Maunder Minimum, when through several 11- year periods the Sun displayed few if any sunspots. Models of the Sun's irradiance suggest that the solar energy input to the Earth decreased during that time and that this change in solar activity could explain the low temperatures recorded in Europe during the Little Ice Age.
----The same data were later published [Penn and Livingston, 2006], and the observations showed that the magnetic field strength in sunspots were decreasing with time, independent of the sunspot cycle. A simple linear extrapolation of those data suggested that sunspots might completely vanish by 2015.These observations caused researchers to wonder whether the characteristics of sunspots are different now than in other solar cycles.
http://www.leif.org/EOS/2009EO300001.pdfBig freeze could signal global warming 'pause'
The Arctic conditions which have brought Britain to a standstill over the past week could be the start of a "pause" in global warming, some scientists believe.
Published: 9:20AM GMT 11 Jan 2010
http://www.telegraph.co.uk/earth/environment/globalwarming/6965342/Big-freeze-could-signal-global-warming-pause.htmlSunspot cycle 24: Together with sunspot cycle 25, the next two global cooling cycles. The new “Dalton Minimum?” Twenty Eight months now with low sunspots numbers, and counting. February was the 28th month of yet another low number of 18.6
Smoothed sunspot numbers (SSN). 2007, Oct. 0.9. The end of cycle 23.
Sunspot cycle 24: Nov 1.7. Dec 10.1. Jan 3.4. Feb 2.2. Mar 9.3 April 2.9. May: 2.9. June 3.1. July 0.5. August 0.5. Sep 1.1 Oct. 2.9. Nov. 4.1 Dec 0.8. Jan 1.5. Feb 1.4. Mar 0.7. Apr 1.2. May 2.9. June 2.6. July 3.5. Aug. 0.0. Sep 4.2. Oct 4.6. Nov 4.2. Dec 10.6 Jan 13.1 Feb 18.6
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This week’s featured links: Silver & Gold Miners + Rare Metals.
With US trillion dollar deficits stretching as far as the eye can see, and voodoo economics the order of the day at the central banks, I think it is now time to begin selectively scaling into precious metals companies that mostly meet the following criteria:
Adequate cash reserves. Good management. Strong in-ground reserves or prospects. NAFTA based, or else located in countries with strong rule of law.
The story of rare earths and metals is mostly one of China producing and exporting, Japan, America and everyone else importing. Vital to our new technologies, and lifestyle, and critical to hybrid and electric cars, Rare Earth Elements and Heavy Rare Earths, are a strategic choke point held in China’s hands. Lately China has been squeezing that choke point. I think that AVL at Thor Lake Canada, has a property of global importance. A property with the ability to offer NAFTA access to REEs and HREs for the decades ahead. As America and the west move to reduce over dependence on oil from unstable regions, we will see demand for rare metals take off.
We will be adding more REEs as appropriate.
Warning.
Sadly we are all in unexplored territory. The world has never before suffered a severe recession/depression while operating on fiat currency. As is widely apparent, the central banks haven’t a clue and are making up the rules as the flounder along. They never saw it coming they claim, although it was obvious to many fine writers though not unfortunately in the mainstream media, that a giant financialised derivatives gambling economy would always end badly. There are no experts now, for the simple reason that we have never before faced such a sudden synchronised and deep collapse in the global economies.
The unfortunate fact that we are operating on fraudulent currencies is highly likely to mean it all ends many months from now, in a fiat currency revulsion, but only after the monetary authorities have first tried pouring in endless amounts of newly created money. A derivatives gambling world with an estimated quadrillion dollars of face value has to be unwound and the losses absorbed. In this sort of investing environment, cash, gold and silver and tangible assets are favoured over stocks and intangible assets.
As always if thinking about making an investment, it’s important to do one’s own due diligence. No one has more at risk in an investment than you do yourself. In these difficult economic times, there will likely be several false bottoms before the real one arrives and hindsight allows us to confirm that the bottom is in. Even then, a “V” shaped rebound is highly improbable. A double dip recession seems likely. Beware the false "statistical" government subsidised "recovery." It is a "recovery" bought from a future of fiat currency collapse.
Graeme Irvine
