MIKE

Archive for February, 2011

By Michael Piromgraipakd
February 28th, 2011

Silver broke it’s 30 year high again today, briefly climbing above $34. Investors are buying on the dips to get their hands on as much physical silver as possible. The current prices are artificially being manipulated by the government and this is evident via supply shortages and extremely low prices in relation to the price of gold. This presents a very good investment opportunity for people who cannot afford Gold as an investment.

Eric Sprott is one of the leading thinkers in the commodity investment space. In the following video, Eric discusses how the government statistics for silver investment demand are being significantly under-stated. He compiles evidence from a few of the funds who hold physical silver, and illustrates how the official government numbers are severely downplayed by two fold. Mr. Sprot targets the price of silver to $50 or more this year and believes there will be a severe shortage in supply of physical silver.

by Tyler Durden
Zero Hedge
02/27/2011 14:07 -0500

Looks like speculation that the Egyptian Central Bank’s gold stash may have been just modestly plundered is starting to play out. According to Reuters. “Egypt has issued a ministerial decree immediately banning the export of gold in all its forms, including jewelery and ornaments, until June 30, the official news agency MENA said on Sunday. “This decision, which comes in light of the exceptional circumstances the country is passing through …, is to preserve the country’s wealth until the situation stabilizes,” MENA said. Egypt’s currency has come under pressure after some of the country’s main sources of foreign currency, including tourism and foreign investment, collapsed after the protests that ousted President Hosni Mubarak erupted on Jan. 25.” Obviously, this “emergency” step would not be required if the E(gyptian)CB was still in full possession of its purported stash of the inedible metal. Whether the decline is due to alleged Mubarak sequestering of the shiny metal, or by other members of the former ruling regime is unclear, but one thing is certain: the WGC is long overdue in adjusting the Egyptian gold holdings from 75.6 tonnes to their real current value… far lower. As for Egyptian fiat: that is as freely exportable now as ever. If only anyone wanted it. But yes, somehow emerging markets are manipulating their currencies lower than fair value, the conventional wisdom claims.

Reuters Article:

CAIRO (Reuters) – Egypt on Sunday banned the export of gold for the next four months, a measure bankers said seemed aimed at preventing businessmen and former government officials who acquired capital illegally from transferring it abroad.

An official from a gold mine in Egypt said he was confident it was not aimed at gold production but at individual exports.

A decree banning the export of gold in all its forms, including jewelry and ornaments, was issued by newly appointed Trade Minister Samir el-Sayyad. It takes effect immediately and continues until June 30, the official news agency MENA reported.

“This decision, which comes in light of the exceptional circumstances the country is passing through …, is to preserve the country’s wealth until the situation stabilises,” MENA said.

The MENA statement made no mention of whether the ban included exports of gold from mining. But an official from the flagship Sukari gold mine of Centamin Egypt said he was confident the order did not affect the mine’s operation.

“For Centamin this is not a problem … I know 100 percent that this is not a problem for us,” said Youssef el-Raghy, managing director for the Sukari gold mine, adding that the ruling appeared aimed at individuals taking gold out of Egypt not producers of gold like Centamin.

The Egyptian pound has come under pressure after some of the country’s main sources of foreign currency, including tourism and foreign investment, collapsed after the protests that ousted President Hosni Mubarak erupted on January 25.

But bankers said the decision on gold exports seemed designed more to stop individuals from expatriating funds under the radar than to stem major capital outflows.

“It is most likely aimed at the big guys — the top officials and businessmen who are under suspicion,” said John Sfakianakis, a Riyadh-based economist with Bank Saudi Fransi. “They are blocking capital flight in a new asset class.”

A banker in Cairo also said it seemed aimed at former officials or executives trying to smuggle gold or wealth out of the country.

Read the entire article HERE.

February 28, 2011
National Inflation Association (NIA)

The National Inflation Association (NIA) announced in its November 5th, 2010, food price projection report that food inflation would take over as America’s biggest crisis in calendar year 2011, surpassing the mortgage crisis and high unemployment, which were the top economic concerns of Americans in 2010. NIA’s food price projection report received worldwide media attention including being featured by Glenn Beck on the FOX News Network. NIA’s prediction about food inflation was strongly reiterated by NIA’s President Gerard Adams on November 12th when he was a guest on the FOX Business Network. NIA then included this prediction as one of its ‘Top 10 Predictions for 2011′ released on January 4th, 2011. We are less than two months into 2011 and already massive food inflation is beginning to affect American citizens in a major way, but not the way most people expected.

The Federal Reserve has held interest rates at near zero percent for over two years, which has flooded the world with trillions of dollars in excess liquidity. The world first saw our rapidly accelerating monetary inflation through rapidly rising gold prices. Gold is the best gauge of inflation and predictor of future inflation. It comes as no surprise to NIA members that gold prices were the first to see major gains as a result of massive inflation.

In late-2009 with gold prices soaring through the roof, the mainstream media wasn’t smart enough to figure out that inflation was the cause of rising gold prices. In fact, all of the economists that the mainstream media follows were forecasting deflation. On December 10th, 2009, with gold at $1,100 per ounce, Nouriel Roubini, professor of economics at New York University’s Stern School of Business said, “all the gold bugs who say gold is going to go to $1,500, $2,000, they’re just speaking nonsense”. Roubini went on to say ,”I don’t believe in gold” and “gold can go up for only two reasons.” Roubini pointed to inflation as being one of those reasons, but said, “we are in a world where there are massive amounts of deflation because of a glut of capacity, and demand is weak, and there’s slack in the labor markets with unemployment above 10 percent in all the advanced economies.”

NIA recognized from the very beginning that despite adverse signs from the bond market, gold and U.S. stock prices were rising solely due to inflation, and there was no economic recovery. In fact, in an article released on December 28th, 2009, NIA wrote, “In 2009, we saw the monetary inflation created by the Federal Reserve’s zero percent interest rates drive up the prices of U.S. stocks, without dramatically increasing the prices of U.S. consumer goods. We consider 2009 to have been a brief period of euphoria, before a rapid increase in the prices of food, energy, clothes and other necessities Americans need to live and survive.”

NIA first warned about food inflation in our October 30th, 2009, article entitled, ‘U.S. Inflation to Appear Next in Food and Agriculture’. In this article, NIA said, “Prices are rising all around us, yet agricultural commodities have for the most part been left behind and remain at historically depressed levels. Fundamentals for agriculture are improving on a daily basis. A worldwide shortage of farmers combined with food inventories falling to record lows is setting up the perfect storm for an explosion in agriculture prices.” From the release of this article on October 30th, 2009, to their highs this month, we have seen an explosion in agriculture futures with wheat gaining 52%, cotton gaining 177%, corn gaining 72%, soybeans gaining 49%, coffee gaining 86%, orange juice gaining 37%, and sugar gaining 86%.

Luckily for the U.S., because of the dollar’s status as the world’s reserve currency, the U.S. has been able to export its food inflation to the rest of the world. America’s food inflation crisis is so far manifesting itself in Arab nations. It started out early last month with citizens in Algeria marching to the capital chanting, “Bring us Sugar!” It then spread to riots in Tunisia, which saw 14 civilian deaths when protesters clashed with police. Afterwards came the Egyptian Revolution, which saw 365 civilian deaths and thousands more injured, leading up to the resignation of Egyptian President Hosni Mubarak on February 11th. In recent days, the civil revolt has reached Libya, the third largest oil producer in Africa and holder of Africa’s largest oil reserves.

Although the U.S. is largely self-sufficient when it comes to the production of food, oil is a very important commodity used in agriculture production and the U.S. needs to import most of its oil. With oil prices soaring through the roof, Arab nations are getting their revenge on the U.S. for the food inflation they are suffering from. Oil is the second largest expense that affects retail prices of food in our supermarkets after the cost of agricultural commodities. The reason a 50% increase or more in nearly all agricultural commodities hasn’t caused food prices in U.S. supermarkets to rise by 50% or more in recent months, is because Americans have been blessed with cheap oil. The surging price of oil means that America’s food inflation crisis is now imminent.

All American citizens need to be ready for nationwide civil unrest, rioting, looting, and protesting later this year, even worse than what is occurring in Arab nations. The Arab world will survive this crisis because they have oil reserves that they can export to Asian countries when the U.S. can no longer afford to import oil. However, America’s survival is dependent on the world’s confidence in a piece of paper that has no intrinsic value and is being debased as fast as humanly possible.

The Federal Reserve is 100% responsible for the world’s political turmoil and upheaval of governments. As NIA continues to educate the world about the Federal Reserve’s destructive monetary policies, we are witnessing surging anger over the Federal Reserve’s ability and willingness to steal from the incomes and savings of the American middle class by printing money and transferring this wealth through cheap and easy credit to bankers on Wall Street who produce nothing tangible for the U.S. economy. At the very least, NIA believes this anger will lead to large “End the Fed” protests later this year, which NIA first predicted would occur last year (we overestimated America’s eagerness to learn the truth about the U.S. economy and inflation). Worst case scenario, by the end of 2011, we will see the world rush to dump their U.S. dollars and an outbreak of hyperinflation.

Our good friend Gerald Celente first forecast the current North African crisis in an article he wrote in his autumn ‘Trends Journal’ entitled ‘Off With Their Heads 2.0′. In fact, Celente wrote another article just days before the riots in Tunisia entitled ‘Youth of the World Unite’, which accurately predicted with precise details the deadly riots we now are seeing in Arab nations. Celente will be a guest in NIA’s upcoming must see documentary about the U.S. college bubble that is getting ready to collapse.

As accurate as Celente was about the North African crisis, we believe even he was surprised by just how fast the upheaval took place. Absolutely nobody in the mainstream media saw this crisis coming at any time during the recent weeks and months leading up to it.

Read the entire article HERE.

ByAlix Steel, , On Monday February 28, 2011, 9:57 am EST

NEW YORK (TheStreet ) — Gold was the hot metal in 2010 but silver has grabbed the early lead in the race to be 2011′s precious metal winner.

As gold prices struggle to break through to and hold new highs, contending with a gloomy triple top, silver prices are on a tear, reaching 30-year highs, up 11% already this year.

The metal settled at a high of $32.86 an ounce Tuesday after hitting an intra-day 30-year high of $34.33, but these levels are still a far cry from their $50 record.

Silver hit an all-time high of $50 an ounce in 1980 after the famous (or infamous) Hunt brothers bought the metal aggressively for 7 years; at one time owning more than 200 million ounces of silver.

The silver bubble burst soon thereafter, shedding 50% of its value almost immediately, and over the last 30 years the metal has traded as low as $4.

The appeal of silver is three-fold. First, it’s the “poor man’s gold,” but performs the role of a hard asset, a form of money that retains more value than paper currencies. Silver, like gold, is also a safe-haven asset. There’s been a lot of safe-haven headlines of late with the explosion of violence in the Middle East, rising food prices, riots, inflation, conflict between North and South Korea, and high unemployment.

Vote: Where will gold prices finish in 2011?

Silver is also an industrial metal, with about 60% of its usage coming from the sector, which makes the metal a good play on a global economic recovery. Experts say, however, that industrial demand will not likely be as big of a support to higher silver prices in 2011 as it was in 2010, forcing investment demand to pick up the slack,

So far, no problem. The iShares Silver Trust has added 113.88 tons in February as traders jumped in. There have also been rumors that Asian buyers were gobbling up shares of the SLV in order to take physical delivery, which they have to do in 50,000 share lots.

Backwardation in the futures market, where the spot month price is higher than the future months, points to a supply crunch and has been a green light for some traders that silver is headed higher.

David Morgan, founder of Silver-Investor.com, says he could see silver prices as high as $45 in 2011 “and if things get really crazy we could go beyond that.”

Jeb Handwerger, editor of GoldStockTrades.com, sees $40 silver on the back of Middle East unrest.

Phil Streible, senior market strategist at Lind-Waldock, is a bit more conservative expecting a silver correction to the $31 level. Long term for 2011, however, Streible still sees $39-$42 silver.

“It’s just not going to be in one shot … unless some significant supply and demand structure changes … I think we chop our way up there,” he says.

Bob Archer, president and chief executive officer of Great Panther Silver, told TheStreet that he expects silver prices could crest $40 this in 2011.

“Silver is, for the first time in a long time, starting to get in the mainstream of investor awareness,” said Archer.

“Silver is a tiny, tiny market. The more money that flows into a tiny market, the more the price shoots up.”

The expert traders have weighed in and now we want to know what you think:

Read the entire article HERE.

GATA or The Gold Anti-Trust Action Committee was organized in January 1999 to advocate and undertake litigation against illegal collusion to control the price and supply of gold and related financial securities. The committee arose from essays by Bill Murphy, a financial commentator, and by Chris Powell, a newspaper editor in Connecticut, published at Murphy’s Internet site, www.lemetropolecafe.com.

Murphy’s essays reported evidence of collusion among financial institutions to suppress the price of gold. Powell, whose newspaper had been involved in antitrust litigation, replied with an essay proposing that gold mining and investor interests should act on Murphy’s essays by bringing suit against the financial institutions involved in the collusion against gold.

The response to these essays was so favorable that the committee was formed and formally incorporated in Delaware. Murphy became chairman and Powell secretary/treasurer.

GATA underwrote the federal anti-trust lawsuit of its consultant, Reginald H. Howe — Howe vs. Bank for International Settlements et al. — which was pursued in U.S. District Court in Boston from 2000 to 2002. While the Howe suit was dismissed on a jurisdictional technicality, it became the model for Blanchard Coin and Bullion’s anti-trust lawsuit against Barrick Gold and J.P. Morgan Chase & Co., which was filed in U.S. District Court in New Orleans in 2002 and prompted Barrick Gold’s decision to stop selling gold in advance for 10 years.

GATA continues to expose and oppose collusion against a free market in gold, other precious metals, currencies, and related securities.

GATA is recognized by the U.S. Internal Revenue Service as a tax-exempt educational and civil rights organization and it welcomes financial contributions.

James Turk, Director of the GoldMoney Foundation and Founder of GoldMoney, interviews GATA’s Secretary/Treasurer Chris Powell. The 34-minutes interview, recently shot in London, offers deep insights into the workings of the gold market. Chris discloses in detail all of the different actions that GATA is currently taking. The gold price suppression scheme is being explained from A to Z. This video is a must-watch for anyone with a clear interest in gold and free monetary markets.

See the original post HERE.

GATA.org

By Craig Trudell and David Welch
Bloomberg Businessweek

Feb. 24 (Bloomberg) — General Motors Co. fell to the lowest since its initial public offering in November as rising oil prices dimmed the outlook for truck sales after the largest U.S. automaker’s most profitable year since 1999.

GM slid $1.57, or 4.5 percent, to $33.02 at 4:15 p.m. in New York Stock Exchange composite trading. The shares earlier fell as low as $32.05, less than the $33 initial offering price in November.

Chief Executive Officer Dan Akerson is speeding the development and introduction of new models, including more fuel- efficient cars that may sell better as gas prices rise. GM used larger discounts and sales incentives in January and February to lure buyers before vehicle introductions pick up in 2012.

“The worst-case scenario is that GM uses pricing to get them through this gap in new product they’re in, and then you combine that with oil spiking,” Nicholas Colas, chief market strategist at BNY ConvergEx Group in New York, said in a telephone interview.

Crude oil for April delivery reached $103.41 today, the highest intraday price since Sept. 29, 2008, on concerns an uprising in Libya may reduce supply.

GM, which emerged from bankruptcy in July 2009, today reported fourth-quarter net income of $510 million and $4.67 billion for 2010, the largest annual profit since its predecessor earned $6 billion in 1999. The full-year comparison excludes a $127.1 billion profit in the third quarter of 2009, when GM accounted for its post-bankruptcy recapitalization.

Fourth-Quarter Profit

Net income in the quarter was 31 cents a share, Detroit- based GM said today in a statement. Excluding a charge related to a purchase of preferred shares from the U.S. Treasury Department, profit was 52 cents a share. The average estimate of 13 analysts surveyed by Bloomberg was for profit of 44 cents.

Sales rose to $36.9 billion, topping the $34.6 billion average estimate. Revenue for 2010 climbed to $135.6 billion.

The drop in GM shares may be an overreaction to events in Libya and rising oil prices, said David Whiston, an equity analyst with Morningstar Inc. in Chicago. There was no fundamental change in GM’s performance that would scare investors away from the stock, he said.

GM increased fourth-quarter North American truck production 22 percent from a year earlier to about 463,000 units, while car production rose 2.1 percent to about 240,000 vehicles.

Truck Sales, Inventories

The inventory of trucks could be a concern if oil prices rise because of violence in the Middle East, said Whiston, who has a $46 target price on GM’s shares. Trucks and sport-utility vehicles accounted for 72 percent of GM’s U.S. sales last year, according to Autodata Corp.

Whiston said oil prices would have to stay elevated to change his outlook on GM.

“If this is temporary, I won’t change my valuation at all,” he said.

GM added U.S. market share in the quarter, helping it earn $5.75 billion in 2010 before interest and taxes in North America. Market share in its most profitable market held above 19.3 percent in each month during the quarter after sinking as low as 18 percent in September, according to Woodcliff Lake, New Jersey-based Autodata.

Akerson, who led GM through the IPO that raised more than $23 billion from common and preferred shares in November, said GM is better prepared for higher oil prices. The Chevrolet Volt plug-in hybrid and Cruze compact started deliveries last year, and the Sonic subcompact and Buick Verano small car are coming later this year.

‘Have to React’

“Energy is going to be more expensive,” Akerson said on a conference call. “We have prepared for that. We are going to have to react.”

Average regular unleaded gasoline prices in the U.S. rose 5 percent this year to $3.23 a gallon yesterday, according to AAA. Akerson said that consumers may start to shift their car buying preferences if gasoline reaches $4 a gallon.

GM had said fourth-quarter earnings would be “significantly lower” than earlier periods because of spending for new cars including the Volt and Cruze. Chief Financial Officer Chris Liddell told reporters that the results were at the “top end” of the company’s expectations.

GM spent about $1 billion more in the fourth quarter on marketing and engineering than in the previous three months, Liddell told reporters today in Detroit.

“Some of the factors that we talked about that were going to be in place in the fourth quarter will go away,” he said, adding that first-quarter earnings will improve on a sequential basis.

GM Europe’s Loss

GM repeated that it plans to break even in its European operations by the end of 2011. The pretax loss in the region widened to $568 million in the fourth quarter from $559 million in the third quarter. The full-year pretax loss was $1.76 billion.

Earnings before interest and taxes for GM’s international operations, which include China, fell to $334 million from $516 million in the previous three months.

GM paid down about $13 billion of debt and preferred shares last year and reduced its pension obligations by about $6 billion, Liddell said. The pension was underfunded by about $11.5 billion as of Dec. 31, he said.

Consumers paid an average of $33,793 for GM’s models during the last three months of 2010, up 14 percent from a two-year low in the third quarter of 2009 and the most for any period since then, according to online auto researcher Edmunds.com.

After reducing incentive spending last year, GM increased promotions in January to $3,663 per vehicle, according to Autodata. GM kept most of those deals in February and offered to forgive the last three payments of an existing lease for those customers.

Read the entire article HERE.

LIST OF BAILOUT RECIPIENTS:

http://projects.propublica.org/bailout/list/index

By Daniel R. Amerman, CFA

Overview

The United States government and other nations have increasingly adopted an official economic policy of cheating their own savers, with particular damage inflicted on long-term retirement investors that follow conventional investment practices. This may sound like wild “conspiracy theory” talk, but interestingly enough, the facts involved are not in dispute.  Instead they are the very core of official government policy pronouncements, as well as the financial reporting thereof. Going from lofty principles espoused by public servants to the practical matter of deliberately and massively cheating a nation’s savers and retirees is not a matter of looking at different facts, but of simply changing the “spin” on well established and accepted facts.

The alternative “spin” that we will apply in this article is one of informed common sense from a free-market perspective. This intuitive, free-market “spin” is radical stuff compared to conventional financial and economic analysis, but I think you will find it easy to follow.

Step outside the herd, apply a little common sense, and it is child’s play to convincingly demonstrate that it is official Federal Reserve and Treasury policy to cheat investors in US treasury bonds, notes and bills, as well as in all related categories, such as savings accounts, interest-bearing checking accounts, money market funds, bank certificates of deposit, as well as corporate and municipal debt.

Free Markets Versus Manipulated Markets

Modern portfolio theory is based upon two core assumptions: that investors are rational and that prices are determined by the market. If you remove either one of those assumptions, then the whole edifice of modern financial theory essentially shatters and collapses.

For financial theory to work, investment prices and yields need to be determined by rational buyers and rational sellers finding a place where they can agree upon a price on a particular day or at a particular minute.  Without that free market price to provide discipline – the foundations fall apart.

If you don’t have a free market price, but you instead have a price determined by a force outside of the market, then you have a manipulated price.  If the manipulation is to force prices too low, then the seller is cheated, and if the manipulation is to force prices too high, then the buyer is cheated.  If there is any kind of manipulation, then by definition someone is being cheated when compared to a free market.

The state of many of the investment markets in the United States in 2011 is that nobody is getting a free market price for just about anything.  This is crucially important, because no matter how purportedly laudable the public policy interest goal is (as explained in the media), every time there is an intervention to manipulate prices, then somebody is being cheated to pay for it.  When government policy deliberately forces artificial prices upon a market because politicians don’t want the market price to prevail, then in every transaction in that market one side is either paying too much, or one side is getting paid too little.  This is not the conventional “spin”, but it is an intellectually valid perspective that has powerful real world consequences for the current and future lifestyles of many tens of millions of responsible savers and investors.  This issue also includes stocks, but this article will focus on instruments that pay interest to investors.

Manipulated Interest Rates

Let’s consider the traditional role of the Federal Reserve in trying to determine the federal funds rate, which is how the Fed tries to influence or control all short-term interest rates in the United States. This is not exactly a new or disputed fact, indeed for decades one of the most reliable parts of the business reporting cycle is the media anticipating and then analyzing the results of every committee meeting, trying to see where the Fed is moving interest rates.

This is where the common sense free market “spin” part comes in. In other words, the most heavily covered aspect of Federal Reserve activity on a traditional basis is trying to guess how the Federal Reserve is going to manipulate interest rates. Are they going to attempt to override the market to move interest rates up or override market forces to move them down? After all, that is the whole idea.  If the Federal Reserve accepted the judgment of the market for interest rate levels, there would be no need to intervene.

The overwhelming emphasis of the historically unprecedented Federal Reserve interventions in recent years has been to keep interest rates as low as they can possibly be. Indeed, much lower than they would be in a rational market. What this means is the Federal Reserve has been manipulating short-term interest rates so that purchasers of short-term securities, as well as all savers in general, are being systemically cheated out of the yields they would otherwise get in a free market.

This a fascinating example of how the remarkable becomes the norm almost without comment – when that serves the interests of powerful special interest groups.  It has been a very long time since anyone in the US has been rewarded for responsibly saving their money in savings, money market or interest-bearing checking accounts.  The paltry interest rates have lagged well behind even the official rate of inflation.  For an economically rational person – saving money has been actively discouraged as an incidental by-product of government policy.  While periodically “tsk-tsking” those irresponsible average citizens and saying they really should be saving more, what the government has actually been effectively encouraging is the exact opposite – because artificially low interest rates better serve bank and corporate borrowing needs.

In the 20th Century the Federal Reserve intervened in just one corner of the markets, that of short term interest rates, with a primary focus on interbank lending.  These interventions historically had a powerful influence (albeit not direct control) on short term interest rates of all kinds, but they had a lesser influence on medium term interest rates, and still less of an influence on long term interest rates.  The overall economy and general asset values were also influenced, but the Federal Reserve was only one of numerous influences; it didn’t truly control and manipulate the overall markets.

Now let’s consider our current situation where food prices are spiking, energy prices are soaring, and the Federal Reserve for the first time since the Civil War is engaged in a massive policy of straight up monetization (i.e. creating money out of thin air to directly fund endless federal deficits). This is surely a combination of circumstances that in a free market would lead to soaring interest rates. Inflation is not merely on the horizon, rather it is all around us when we look at food costs, fuel, heating and health care.  The Federal Reserve is basically flicking lit matches at pools of gasoline when it comes to the future value of the dollar with its policy of monetization.  Indeed, the (successful) strategy being pursued by the US in waging currency warfare is to threaten to destroy the value of the dollar through monetary creation.

Arguably, free market interest rates should be soaring, as investors seek protection from inflation.  Yet when we look at short-term interest rates they are some of the lowest in financial history. Because the free market has nothing to do with what we as savers are being paid, this is an entirely manipulated market.

Indeed  the Federal Reserve has been radically increasing market interventions to try to manipulate interest rates in areas where traditionally it has not been able to do so because of previously (but no longer) limited Federal Reserve powers.

One unprecedented intervention was that for over a year, between 2009 and 2010, the Federal Reserve created an almost entirely artificial mortgage market to essentially fund every mortgage being originated in the US, and keep mortgage rates well below what market interest rates would have been.  This manipulation was so overt and massive that not enough buyers could be found, so the Fed had to directly create over $1 trillion in new money to fund the purchase of effectively all new conforming mortgage originations (on a net basis) at far below market yields, as covered in my article “Creating A Trillion From Thin Air”.

http://danielamerman.com/articles/Trillions.htm

While the powerful price and yield distortions drove many buyers away, there was still a continuous and functioning market, meaning every day private buyers were grossly overpaying for mortgage securities.  That is, on a net basis, Federal Reserve monetary creation put enough new money into the market to effectively fund the purchase of all newly created mortgage securities, but it did not comprise the entire trading volume of the market; private parties bought and sold from each other every trading day at the manipulated prices.  Individuals who knew little about the unprecedented Federal Reserve actions, but who were following the traditional strategy of the last several decades of boosting yields above Treasury bonds via buying agency mortgage securities, or who bought into funds following that strategy, were being quite blatantly cheated and were paying much more than they should have had to, because of the artificial market.

The stated purpose of QE2 (the second round of so-called “quantitative easing”, aka running the printing presses) is for the Federal Reserve to directly manipulate medium and long-term treasury bond rates with the idea of encouraging corporate borrowing.   I wrote about this in detail when QE2 was first announced, but despite the Fed openly stating exactly what it planned to do, few financial writers seem to understand exactly what the Fed is in fact doing.

As announced by the Fed, and described in my article “Radical Difference Between Monetization 1 and QE2″ linked below, the Federal Reserve is not actually directly funding the Treasury.  Even though the Federal Reserve is directly creating money out of thin air at a rate approximately equal to the US budget deficit, and using the money to buy Treasury Bonds, the Fed is buying them in the market rather than directly – and they aren’t the same securities.  Part of the reason is that it is illegal for the Fed to directly fund the Treasury (though a simple act of Congress could cure that at any time if need be).   The bigger reason is that the Federal Reserve is attempting to manipulate all interest rates in the US through controlling short, medium and long term Treasury Bond rates, so it is using the money not to directly fund, but to intervene wherever it thinks the market is most in need of intervention.  By controlling the secondary rather than the primary market (my apologies for the jargon), the Fed takes control of all interest rates.

http://danielamerman.com/articles/Monetize1.htm

As discussed in the article above, the Federal Reserve has an unlimited supply of dollars, and is using not just the massive creation of money, but the knowledge of other buyers and sellers that the Fed is in charge, to effectively control the markets in US Treasury securities.  If a financial firm were to risk its capital and take a huge position speculating that interest rates will rise to an impermissible degree, the Fed has unmatched resources to force interest rates down, force a major trading loss, and quash the uncooperative firm in question.  On the other hand, so long as the investment banks follow the lead of the Fed (and they are), then they make “free money” and trading profits without end by following the script fed to them by their cronies at the Fed and the Treasury, profiting from the easiest counterparty in the world to trade against, that being the government.

The ripple effects of this overtly manipulated and rigged insider’s game reach into our day to day lives all across the nation.  That is because Treasury yields are the base from which virtually all other interest rates are determined.  Whether we are talking about certificates of deposit, corporate bonds, municipal bonds, junk bonds, fixed rate annuities, credit cards, prime-based lending, or home equity lines – the base is the Treasury yield for that maturity, and then a spread is added to it.  Control the Treasury yields – and one controls almost everything (other than the spread).

When interest rates in general are manipulated, what does that mean for savers and investors?

When you put your savings into a money market fund, and the policy of the US government is to force interest rates to unnaturally low levels – you are being cheated out of the yield you should be receiving.

When you buy a corporate bond or corporate bond fund – you are being cheated by overt government market interventions that have the explicitly stated purpose of lowering corporate borrowing costs.  This is where that “spin” comes back in.  How does a government lower borrowing costs for multinational corporations, enabling them to take the proceeds and invest them overseas?  (Taking the money and investing it out of country seems to be the most common behavior so far.)

The government does so by manipulating the market so that investors receive much lower interest payments than they would receive in a free market.  In other words, it directly creates benefits for corporations and banks by cheating ordinary investors out of the income they would receive if free market forces governed.  Boil it down to another level, and this is a fairly straight up redistribution of wealth from average citizens to corporate interests.

Wherever the investor goes, whatever interest-bearing investment they look to – there is no escaping the cheating, because there is no escaping the unprecedented direct government control over interest rates.  Even as inflation rises (in the real world rather than the also manipulated world of government statistics), there is nowhere for the fixed-income investor to find compensation for current inflation or inflationary pressures.  Which, in a free market, would likely be the dominant market forces at this point.

Adding to the irony – and the tragic dilemma for us all – is that the market manipulation is being paid for by the Federal Reserve creating brand new money out of the nothingness, so to speak, at the rate of about $1,000 per US household per month.  This is creating perhaps the greatest inflationary pressures of our lifetime.  In other words, government policy is to risk the value of all of our savings in the future, in order to fund a program of cheating us out of market interest rates today. And this thereby ensures that none of us are compensated for the inflationary risks, or are able to prepare for the destruction of the value of our money by way of conventional methods.

It’s all in the “spin”, and this paradigm is not that difficult to see when a common sense and free-market perspective is introduced.

Arbitraging Market Manipulations

At the beginning of this article, I promised to take some well-accepted facts, put a free market “spin” on them, and convincingly demonstrate that tens of millions of investors were being cheated out of their investment returns by their own government.  Are you convinced?  Do you accept the systemic cheating?

If you do, then you have the potential to do something about it.  Maybe even do something extraordinary.  Remember, the whole idea behind manipulating markets is that one set of either buyers or sellers gets cheated, and the other gets an incredibly good deal which they should not otherwise be able to get.

Now the problem for the average investor is that what we are told to do is to be the sucker in each one of these situations. We want to be the ones who put as much as possible of our savings into money market accounts, or into buying the certificates of deposit. Where things grow interesting and challenging – but the rewards can potentially become extraordinary – is when we figure out how to change our financial profile so that we are the beneficiaries of market manipulations rather than being the victim of these manipulations.

It isn’t easy, and there are several hurdles.  The first difficulty is the one that most people will never get past, and that is to truly reject the overwhelming Voice Of Authority when it comes to the conventional financial “wisdom”.  That overwhelming voice that resounds from the universities, from the investment houses, from millions of financial representatives of one kind or another, from the newspapers, magazines and financial websites, and from our friends and relatives.  What was covered in this article could be called no more than common sense in some ways, but it is radical common sense, almost on a different continent from the overwhelming force and authority of the conventional perspective.

This overwhelming Voice of Authority is intellectually bankrupt for the reasons discussed in this and other articles.  It is a voice that systematically cheats tens of millions of responsible savers and investors every year in numerous ways.  It is a voice that we must learn to reject if we are not to be cheated.

For most of us, we are who we are, and are in the position in life that we are in, and there is only so much of our financial profile that can be changed.  I’ve worked on these issues for a long time, and the way I see it – that doesn’t mean that we have to accept victim status.  Instead, it heightens the importance of identifying what we can change, what is within our control.  We can then go ahead and make those changes, because achieving highly positive results in the areas we can control is arguably the only way of protecting ourselves from damage in those areas that we can’t control.

To protect ourselves, we must take what we can control, and position it so that market manipulations redistribute wealth to us rather than away from us.  This is the core of what must be done.  Yet, there is the major difficulty that most of the manipulation profits will go to the government, major banks and corporations, and other powerful insiders.  We can and should scream in moral outrage, but that’s not likely to change the way things are.  Most of the redistributions of wealth are simply inaccessible to the average person.

That said, there are trillions of dollars in manipulations happening on a national and even global scale.  So much is changing so fast that there are also numerous “open doors” in unexpected places.  There are opportunities to reposition ourselves so that wealth is redistributed to us instead of taken from us.  These doors are still open now, but many are starting to close and our time to access them is limited, at least in the US.

Read the entire article HERE.

 
Contact Information:
Daniel R. Amerman, CFA
Website: http://danielamerman.com/
E-mail:  mail@the-great-retirement-experiment.com

By NICK TIMIRAOS
Wall Street Journal – Real Estate
February 22, 2011

The housing crash may have been more severe than initial estimates have shown.

The National Association of Realtors, which produces a widely watched monthly estimate of sales of previously owned homes, is examining the possibility that it over-counted U.S. home sales dating back as far as 2007.

The group reported that there were 4.9 million sales of previously owned homes in 2010, down 5.7% from 5.2 million in 2009. But CoreLogic, a real-estate analytics firm based in Santa Ana, Calif., counted just 3.3 million homes sales last year, a drop of 10.8% from 3.7 million in 2009. CoreLogic says NAR could have overstated home sales by as much as 20%.

While revisions wouldn’t affect reported home-price numbers, they could show that the housing market faces a bigger overhang in inventory, given the weaker demand.

In December, NAR said that it would take 8.1 months to sell some 3.6 million homes listed for sale at the current pace, but the number of months it would take could be even higher if sales are revised down. Any revisions wouldn’t have an impact on homeowners, but it could have consequences for the real-estate industry. Downward revisions would show that “this horrific downturn in the housing market has been even more pronounced than what people thought, and people already thought it was pretty bad,” said Thomas Lawler, an independent housing economist.

NAR said the data, which are used by economists, investors and the real-estate industry to gauge the health of the housing market, could be revised downward this summer. Lawrence Yun, chief economist at NAR, wasn’t specific about whether and by how much the revisions could reduce reported sales, and he raised the possibility that the CoreLogic estimates have understated the number of home sales. “This is a very important issue, and we are looking at it carefully right now,” Mr. Yun said.

Economists say any overstatement is the result of difficulty tracking data during market corrections. “This is an economic data issue, not a gaming-the-numbers issue,” said Sam Khater, senior economist at CoreLogic. “Any time you get big shifts in the market, the numbers go haywire for a bit.”

Over the past decade, a growing number of housing-research firms have sprouted up, offering new ways to track home sales.

CoreLogic, which was spun off from First American Financial Corp. last year, measures sales by tracking property records through local courthouses. The firm says its data covers approximately 85% of all home sales tracked by NAR.

NAR, which is due to report January home sales on Wednesday, uses a sample of sales data reported by local multiple-listing services to calculate monthly changes in sales.

To produce estimates of annual sales, it uses a model that is benchmarked to the figures reported in the decennial U.S. Census. The model requires making certain assumptions for population growth and other measures in between the census surveys.

Those models could have over-counted sales due to recent consolidation among multiple-listing services, which has resulted in those firms having wider coverage of housing markets. NAR’s tally could be distorted if the firms “are sending us more home sales because they have a larger coverage area, but without informing us” that their reach has grown, said Mr. Yun.

Because not every home sale goes through a multiple-listing service, NAR must also make additional assumptions. For example, it must estimate what share of transactions are “for-sale by owner,” and the housing downturn has sharply reduced that segment of the market. Consequently, the NAR could over-estimate sales if it hasn’t properly adjusted for a smaller “for-sale by owner” share, said Mr. Yun.

Read the entire article HERE.

Richard (Rick) Mills
AheadOfTheHerd
02/23/2011

Urbanization is a macro-trend. In 1800, 2% of the global population was urban; by 1950, it was 30%. Today, half of all people on the planet live in cities. This is an economic migration; historically, poverty rates are 4x higher in rural than urban areas. The UN forecasts there will be 1.5 billion more people living in cities by the year 2030.

Investing in copper might be the simplest way to profit from the ongoing global urbanization.

China has one-fifth of the world’s population and India has another 1.2 billion people. India’s economy expanded at 8.9% in the quarter ended September 30, while China’s economy expanded at 9.8% in the quarter ended December 31.

China and India consume a lot of copper. The key driver of increased copper consumption in both countries is infrastructure buildout—power, construction, energy and transportation.

India’s power production needs to rise by 15%–20% annually, which means, according to the International Energy Agency (IEA), India needs to invest $1.25 trillion by 2030 into its energy infrastructure. Because of this investment into new infrastructure India’s annual copper demand is expected to more than double to nearly 1.5 million tons (Mt.) by 2012—up from a current 600,000 tons (Kt.). India usually exports 100–150 Kt./year, but its copper exports are likely to cease and indeed Indians might become large copper buyers.

With less than one-third of the population, India’s urban areas generate over two-thirds of the country’s GDP and account for 90% of government revenues. A McKinsey Global Institute report called India Urban Awakening predicts that 590 million people, or 40% of India’s population, will live in cities by 2030, up from 340 million today.

China’s current urbanization rate of 46% is much lower than the average level of 85% in developed countries and is lower than the world average of 55%. China has set a goal of a 65% urbanization rate in 2050. Over the coming 40 years, that means 20 percentage points of urban growth per year. This translates into 300 million rural residents becoming urban residents over this time period. Last year, the disposable income of the Chinese urban population stood at 17,175 yuan per capita while the net income of the rural population was 5,153 yuan per person.

The annual per-capita consumption of copper in India is 0.47 kg., China’s is 5.4 kg. and the world average is 2.7 kg. China’s urbanization plans and forecast GDP are expected to drive Chinese copper consumption from the current 5.4 kg./capita to an astounding 10 kg./capita by the end of the decade.

Australian equity research firm Resource Capital Research (RCR) said it expects the copper market to move from a small surplus in 2010 to a deficit of around 400 Kt. by 2011. According to JPMorgan, the world refined copper market will have a 500 Kt. deficit in 2011. The International Copper Study Group said global copper demand will rise by 4.49% in 2011. Supply disruptions have cancelled out modest mine supply growth.

A glance at the following two charts confirms the growing demand for copper while inventory levels at the London Metal Exchange hint at the supply deficit.

With metal analysts calling for a 10%–30% rise in the 2011 copper spot price, you could probably make money buying shares of JJC-iPath—an index composed of copper futures contracts traded on the New York Commodities Exchange (JJC is up 50% in the last six months). Or you could buy shares in one of the big multinational copper miners. Freeport McMoran (FCX-NYSE), BHP Billiton (BHP-ASX) or Xstrata (XTA-LSE) are up a collective 58% in the last year.

But to make the big gains, you have to get in ahead of the money flow. Potash has recently given us an excellent example on how to do that and what signals investors should watch for as the process plays out.

Potash is the primary ingredient in fertilizer; it’s also a mined resource with global demand being driven by a macro trend. What’s been happening is a trickledown effect and is a three phase process:

PHASE #1: A barrage of bullish headlines in the mainstream media: “Potash Profits Up” “Spike in Food Prices Bullish for Potash” “Potash Export Prices Rising,” etc.

PHASE #2: A flood of investment dollars into the senior potash companies. Potash Corp (POT-NYSE), Agrium (AGU-NYSE) and MOSAIC (MOS-NYSE) are all up about 120% in the last 12 months.

PHASE #3: Snowballing investor interest in the “junior” (smaller-cap) explorers. This third phase is typically riskier and more profitable than phase #2.

Nine months after the potash majors began their climb, Amazon Mining (TSX.V:AMZ), Encanto Potash (EPO-TSX.V) and Western Potash (WPX-TSX.V) all caught fire—catalyzed by news stories of food price inflation. In the last three months all three aheadoftheherd.com sponsor companies have seen stock price increases an average of plus 200%.

“You’re seeing a catch-up phase, there’s capital flowing into the sector and it’s moving down into smaller-cap names.” Robert Winslow, Wellington West Capital Markets

Copper has just completed phase #1 (a barrage of bullish headlines), and phase #2 (the majors have had their run).

Phase #3 is about to begin. VMS Ventures, Copper Fox, Far West Mining, Hana Mining, Nevada Copper, Redhawk Resources and Western Copper are all good companies seemingly well positioned to benefit from this next phase.

Catalyst Copper

I am going to single out one company, Catalyst Copper TSX.V – CCY, which appears to have everything going for it—including a “tell” in the fundamentals that suggests it may be about to be revalued.

Catalyst has the right to earn 60% of the La Verde Project. La Verde is a Mexican copper porphyry project with NI 43-101-compliant resource of 2.1 billion pounds (Blb.) of Measured and Indicated (M&I) copper and an Inferred Resource of 1.3 Blb. copper.

Catalyst Copper is currently earning into a 3.4 Blb. copper deposit that’s open in all directions. Today its 60% share would equal 2 Blb. copper—9.6 lb./share—the current spot price of copper is $4.46/lb. With Catalyst currently trading at $0.22, investors would be buying copper in the ground for $0.02/lb.

Catalyst Copper, with partner Teck Resources, commenced an aggressive 20,000m drill program for 2011. CEO John Greenslade just raised $850 million for Baja Mining and he is on record as stating that CCY is a “more straightforward project.”

But here’s the tell: for the last year, CCY has traded about 500,000 shares a day. A lot of that trading is “seed stock” changing hands. Since February 1, 2011—the average daily volume has jumped to about 1,840,000—while the stock has risen to .22.

180,000 people a day move from the country to the city. Urban infrastructure devours copper. Over the next 12 months that demand might drive investment dollars into juniors with big resources like Catalyst Copper.

Read the entire article HERE.

by Tom Gjelten
NPR

As governments across the Arab world look for ways to calm their angry populations, one challenge in particular stands out: how to address the spiraling cost of food.

Coincidence or not, the uprisings in Tunisia and Egypt came just as world food prices hit a record high. The World Bank reported this week that the cost of food is now at “dangerous” levels.

High prices are far more burdensome for people in the developing world because they typically spend a much higher percentage of their income on food. Many also buy raw food commodities — grain rather than packaged bread, for example — and it is those commodity prices that have increased most dramatically. Wheat prices have doubled in the past six months alone.

“Many households are buying raw rice,” notes Joseph Glauber, chief economist at the U.S. Department of Agriculture. “They’re milling it themselves. For them, a big increase in [raw] rice prices or a big increase in wheat prices is translated into a sizable increase [in food costs].”

In an interview with member station WAMU’s Diane Rehm, World Bank President Robert Zoellick described the high cost of food as an “aggravating factor” behind the unrest in the Middle East, even if it is not a primary cause.

“You had a large unemployed population and people clearly fed up with the political system,” Zoellick said. “But one of the reasons I think this is an important issue today is, those countries are going through something between transitions and revolutions. That’s where I’m most concerned about food now.”

Many governments in the Arab world subsidize the purchase of food already, but not nearly enough to counteract higher prices. If those governments now increase those food subsidies again in response to the rising discontent, they will be hard-pressed to improve delivery of other public services.

The policy challenge is complicated, but the basic economic problem is simple: The supply of food is not enough to meet the demand.

Across the world, food stocks are down in part because of unfavorable weather, ranging from drought to floods, in Russia, Pakistan, Europe, North America and Australia.

“Production of many crops was affected negatively by these unfavorable weather developments,” says Abdolreza Abbassian, the chief food and grain economist for the United Nation’s Food and Agriculture Organization. “This has led to tighter markets, and prices are reflecting that.”

The demand for food, meanwhile, has been growing, especially in big developing countries like China.

“Sixty percent of all soybeans traded in the world go to China right now,” notes the USDA’s Glauber. “Forty percent of all cotton goes to China, and … a fifth of all vegetable oil.”

This imbalance between tight supplies and growing demand inevitably pushes food prices up.

But government policies also play a role. World Bank officials intend to make that point during the current meeting in Paris of finance ministers from the Group of 20 industrialized and developing countries. Among the issues to be discussed is the imposition of food export limits, another factor in rising world prices.

In the U.S., government corn policies are part of the problem. Since 2006, the U.S. Congress has used tax credits and industry mandates to divert part of the U.S. corn crop to the production of ethanol, a biofuel.

The ethanol tax credit costs U.S. taxpayers $6 billion a year. It also drives up food prices. The more ethanol is produced, the less corn is left to feed livestock or people. The key justification for the ethanol policies is to reduce dependence on imported oil, but the policies come at a cost.

“It sets up a trade-off or conflict between the perceived national security benefits of providing a substitute for imported crude oil versus the increased food prices,” says Bruce Babcock, an agricultural economist at Iowa State University. “There is no doubt at all that expansion of the ethanol industry has increased the cost of producing meat, dairy, eggs and food around the world.”

The U.S. government now requires oil companies to blend ethanol into their gasoline products. It gives them a tax credit for each gallon of ethanol they produce, and it limits ethanol imports. According to Babcock’s calculations, the policies together push the price of corn as much as 40 percent above what it would otherwise be.

It is one more factor contributing to the spiraling cost of food around the world and causing hardship for food consumers in the Middle East and beyond.

Read the entire article HERE.

Transcript of Interview:

Heard on Morning Edition

February 18, 2011 – STEVE INSKEEP, host:

It’s MORNING EDITION from NPR News. Good morning. I’m Steve Inskeep.

People rising up in the Arab world have been demanding political rights, but the timing of these uprisings may have a lot to do with economics. We’re going to hear a lot this morning about the changes still underway in one of the most critical regions of the world. And we begin with a simple world-wide fact: the cost of food is rising.

NPR’s Tom Gjelten reports on what’s behind the increase and what nations, including the U.S., could do about it.

TOM GJELTEN: Perhaps it was a coincidence, but the uprisings in Tunisia and Egypt came just as world food prices hit a record high. Consumers here in the United States may not have noticed, but for people in the developing world, the impact has been dramatic. They spend a much higher percentage of their income on food. They also buy raw food – grains rather than packaged bread, for example – and it’s those commodity prices that have jumped the most.

Joseph Glauber is chief economist at the U.S. Department of Agriculture.

Mr. JOSEPH GLAUBER (U.S. Department of Agriculture): Many households are buying raw rice, they’re milling it themselves, so for them a big increase in rice prices or a big increase in wheat prices, you know, are translated into a sizable increase.

GJELTEN: World Bank president Robert Zoellick this week said he thinks the spiraling cost of food is an aggravating factor behind the protests in the Arab world, even if not the primary cause. Here was Zoellick discussing the unrest on NPR’s DIANE REHM SHOW.

Mr. ROBERT ZOELLICK (President, World Bank): You had a large unemployed population and people clearly fed up with the political system. But one of the reasons that I think this is an important issue today is, those countries are going through something between transitions and revolutions, and that’s where I’m most concerned about food now.

GJELTEN: With governments facing new political pressures, how they respond to rising food costs will be a key challenge. Many subsidize the purchase of food already, but not enough to counteract higher prices. And if governments now increase those food subsidies, they’ll be harder pressed to deliver on other services.

So it won’t be easy for governments to address this fundamental economic problem: the supply of food is not enough to meet the demand for food.

Abdolreza Abbassian of the UN’s Food and Agriculture Organization attributes the food shortages in part to bad weather.

Mr. ABDOLREZA ABBASSIAN (UN Food and Agriculture Organization): From Russia to Pakistan to U.S., Canada, North Europe, and before the year ended in Australia, so production of many crops were affected negatively.

GJELTEN: Meanwhile, the demand for food goes up because there are more people to feed.

Economist Joseph Glauber points to big developing countries like China.

Mr. GLAUBER: I think 60 percent of all soybeans traded go to China right now, 40 percent of all cotton goes to China, and even things like vegetable oil, about a fifth of all vegetable oil.

GJELTEN: That supply/demand imbalance pushes prices up.

But government policies are also important. World Bank officials intend to make that point when they meet this weekend in Paris with finance ministers from the planet’s top economic powers – the G-20. They will highlight the practice of limiting food exports, for example. That also drives up prices.

Here in the United States, government corn policies are part of the problem. Since 2006, through tax credits and mandates, the U.S. Congress has set aside more and more of the corn crop to make ethanol, a biofuel. The ethanol tax credit costs U.S. taxpayers $6 billion a year. Plus, the more ethanol is produced, the less corn is left to feed livestock or people.

Bruce Babcock, an agricultural economist at Iowa State University, says the justification for promoting ethanol production is that it means less dependence on foreign oil. But there is a cost.

Professor BRUCE BABCOCK (Iowa State University): It sets up basically a conflict between the perceived national security benefits of providing a substitute for imported crude oil versus the increased food prices. Because there’s no doubt at all that expansion of the ethanol industry has increased the cost of producing meat, dairy, eggs, and food around the world.

GJELTEN: The U.S. government now requires oil companies to blend ethanol into their gasoline products. It gives them a tax credit for each gallon of ethanol they produce. And it limits ethanol imports.

Economist Bruce Babcock says these policies together push the price of corn as much as 40 percent above what it would otherwise be – one more factor contributing to the spiraling cost of food around the world and causing hardship for food consumers in the Middle East and beyond.

Tom Gjelten, NPR News, Washington.