May 29 (Bloomberg) -- Silver headed for its biggest monthly gain in 22 years and gold rose to a three-month high in New York and London as a weaker dollar increased demand for precious metals as an alternative investment.
The U.S. Dollar Index, heading for its biggest monthly drop this year, fell today on speculation gains in equities spurred demand for higher-yielding assets. Precious metals typically move inversely to the U.S. currency. Gold is set for its best month since November.
“Extreme dollar weakness is adding to the momentum,” Pradeep Unni, an analyst at Richcomm Global Services in Dubai, said today in a note. “Ascending oil prices, concerns of inflation and fears of massive U.S. debt have certainly been supporting” both metals, he said.
Silver futures for July delivery climbed 2 percent to $15.46 an ounce on the New York Mercantile Exchange’s Comex division as of 8:32 a.m. in New York. The contract has rallied 25 percent this month. Silver for immediate delivery climbed 2 percent to $15.445 an ounce in London.
Gold futures for August delivery advanced as much as $15.30, or 1.6 percent, to $978.50 in New York, the highest since Feb. 25, and are up 9 percent this month. Gold for immediate delivery rose $13.45, or 1.4 percent, to $972.90 in London.
The metal rose to $972 in the morning “fixing” in London, used by some mining companies to sell production, from $957.75 at yesterday’s afternoon fixing.
Economic Outlook
European and Asian equities climbed today. The MSCI World Index is set for a third consecutive monthly increase, the first such gain since the credit crisis began in August 2007, as investors speculated the $12.8 trillion pledged by the U.S. government and the Federal Reserve will end the first global recession since World War II.
Silver “is very correlated to gold, but silver does have industrial application that gold doesn’t,” Mark O’Byrne, managing director of brokerage Gold and Silver Investments Ltd. in Dublin, said today by phone. “The ‘green shoots’ story is more positive for silver. It’s a very small market compared to gold. Even small amounts of money coming in can move up the price a lot.”
An ounce of spot gold in London now buys about 63 ounces of silver, the lowest ratio since September, according to data compiled by Bloomberg. That compares with 84 in October, the highest level since March 1995.
By Nicholas Larkin and Glenys Sim
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Friday, May 29, 2009
Following Their Government, Chinese Catching Gold Fever
(China Daily) - Bitten by the gold bug, Chinese investors are now rushing to hoard the yellow metal as fears over the global recession deepen.
The increased sales of gold bars and gold jewelry in Shanghai, Beijing, Guangzhou, and other large cities are reflected in the precious metal's price surge on the Shanghai Gold Exchange (SGE), which trades in gold contracts for forward deliveries. Gold prices quoted on the SGE have increased by an average 6.74 percent in the past month to the current level of about 209 yuan a gram.
"Gold demand in China in the first quarter rose to 114 tons, up 2 percent over the same period last year, solely boosted by an increase in jewelry demand," according to the latest Gold Demand Trends report for the first quarter of 2009 published by the World Gold Council.
The report said global demand for gold rose 38 percent year-on-year to 1,016 tons, representing a 36 percent rise in value. China is the world's second largest gold consuming country after India.
Inspired by the increase in the government gold reserves, the more savvy investors are also buying shares of Chinese gold producers on the Shanghai Stock Exchange and the smaller Shenzhen Stock Exchange.
In late April, Hu Xiaolian, the head of China's foreign exchange agency, said China's gold reserves had risen 75.67 percent to 1,054 tons since 2003. Analysts said they expect the Chinese government would continue to raise its gold holdings as the renminbi becomes increasingly internationalized.
"China's gold reserves may serve as backing for the yuan as Beijing is stepping up the promotion of its use overseas," said Albert Cheng, director of the World Gold Council's Far East Division.
"As we know, in late April, the People's Bank of China announced its gold reserves had risen 454 tons since 2003 to 1,054 tons, a signal that the central bank is taking gold as a reliable hedge against financial uncertainties," said Cheng.
According to Cheng, China now plays a greater role in the global gold market. Based on its increased holdings, China is fifth-largest gold reserve nation after the United States, Germany, France, and Italy. In addition, China is also the world's largest gold producer and the second-largest gold jewelry consumer next to India.
"China's demand for gold bullion reached 68.9 tons in 2008, up 176 percent from 25 tons in 2007," said Cheng.
Cheng said gold differs greatly from other investments. "You cannot make a fortune overnight from gold trading, but you won't lose your shirt instantly in gold trading either," he said. For personal investors, Cheng's advice is: It is never too late to enter the gold market, because gold purchases pay off in the long run.
Gold-related shares on the Chinese bourses have also rallied in recent days. Zhongjin Gold Co. surged by 9.29 percent to 76.73 yuan on Wednesday, while Shandong Gold Mining edged up by 5.55 percent to close at 44.5 yuan.
"The declining value of the dollar along with the worsening economic outlook are forcing investors to seek other anti-inflationary investment tools, like gold," said Xiao Zheng, analyst at Ping An Securities.
Immediate-delivery gold prices reached a three-month high on May 22 in New York at $959.75 per ounce, the highest since Feb 26, a reflection of growing fears on worsening global economic outlook and devaluation of the greenback, analysts said.
The precious metal has moved up by 19.73 percent from this year's low of $801.59 an ounce on January 15. Gold prices on the Shanghai Gold Exchange (SGE) also saw a monthly growth of 6.74 percent, from 195.42 yuan on April 22 to 209.05 yuan on Monday.
The global economic indicators have also not exactly been rosy. The latest figures released by the US Commerce Department showed a further sign of economic decline. Buildings permits fell 3.3 percent to a record low of 494,000. The Dollar Index, a measure of the greenback against Euro, Japanese yen, British pound, Canadian dollars, Swiss franc, and Swedish krone, lost 3.4 percent this week on speculation that the US government's creditworthiness may be weakening.
"Key indices are pointing to a downside trend. Investors prefer to stock value-retaining gold," said Xiao. He added that gold outperforms other non-ferrous metals.
Huang Hao, analyst at Sealand Securities, said the recovering demand from India, the world's largest gold consumer in May, is also an important reason for the recent gold price hike.
By Wang Ying
China Daily, Beijing
Friday, May 29, 2009
Read Entire Article
The increased sales of gold bars and gold jewelry in Shanghai, Beijing, Guangzhou, and other large cities are reflected in the precious metal's price surge on the Shanghai Gold Exchange (SGE), which trades in gold contracts for forward deliveries. Gold prices quoted on the SGE have increased by an average 6.74 percent in the past month to the current level of about 209 yuan a gram.
"Gold demand in China in the first quarter rose to 114 tons, up 2 percent over the same period last year, solely boosted by an increase in jewelry demand," according to the latest Gold Demand Trends report for the first quarter of 2009 published by the World Gold Council.
The report said global demand for gold rose 38 percent year-on-year to 1,016 tons, representing a 36 percent rise in value. China is the world's second largest gold consuming country after India.
Inspired by the increase in the government gold reserves, the more savvy investors are also buying shares of Chinese gold producers on the Shanghai Stock Exchange and the smaller Shenzhen Stock Exchange.
In late April, Hu Xiaolian, the head of China's foreign exchange agency, said China's gold reserves had risen 75.67 percent to 1,054 tons since 2003. Analysts said they expect the Chinese government would continue to raise its gold holdings as the renminbi becomes increasingly internationalized.
"China's gold reserves may serve as backing for the yuan as Beijing is stepping up the promotion of its use overseas," said Albert Cheng, director of the World Gold Council's Far East Division.
"As we know, in late April, the People's Bank of China announced its gold reserves had risen 454 tons since 2003 to 1,054 tons, a signal that the central bank is taking gold as a reliable hedge against financial uncertainties," said Cheng.
According to Cheng, China now plays a greater role in the global gold market. Based on its increased holdings, China is fifth-largest gold reserve nation after the United States, Germany, France, and Italy. In addition, China is also the world's largest gold producer and the second-largest gold jewelry consumer next to India.
"China's demand for gold bullion reached 68.9 tons in 2008, up 176 percent from 25 tons in 2007," said Cheng.
Cheng said gold differs greatly from other investments. "You cannot make a fortune overnight from gold trading, but you won't lose your shirt instantly in gold trading either," he said. For personal investors, Cheng's advice is: It is never too late to enter the gold market, because gold purchases pay off in the long run.
Gold-related shares on the Chinese bourses have also rallied in recent days. Zhongjin Gold Co. surged by 9.29 percent to 76.73 yuan on Wednesday, while Shandong Gold Mining edged up by 5.55 percent to close at 44.5 yuan.
"The declining value of the dollar along with the worsening economic outlook are forcing investors to seek other anti-inflationary investment tools, like gold," said Xiao Zheng, analyst at Ping An Securities.
Immediate-delivery gold prices reached a three-month high on May 22 in New York at $959.75 per ounce, the highest since Feb 26, a reflection of growing fears on worsening global economic outlook and devaluation of the greenback, analysts said.
The precious metal has moved up by 19.73 percent from this year's low of $801.59 an ounce on January 15. Gold prices on the Shanghai Gold Exchange (SGE) also saw a monthly growth of 6.74 percent, from 195.42 yuan on April 22 to 209.05 yuan on Monday.
The global economic indicators have also not exactly been rosy. The latest figures released by the US Commerce Department showed a further sign of economic decline. Buildings permits fell 3.3 percent to a record low of 494,000. The Dollar Index, a measure of the greenback against Euro, Japanese yen, British pound, Canadian dollars, Swiss franc, and Swedish krone, lost 3.4 percent this week on speculation that the US government's creditworthiness may be weakening.
"Key indices are pointing to a downside trend. Investors prefer to stock value-retaining gold," said Xiao. He added that gold outperforms other non-ferrous metals.
Huang Hao, analyst at Sealand Securities, said the recovering demand from India, the world's largest gold consumer in May, is also an important reason for the recent gold price hike.
By Wang Ying
China Daily, Beijing
Friday, May 29, 2009
Read Entire Article
Thursday, May 28, 2009
U.S. Inflation to Approach Zimbabwe Level, Faber Says
May 27 (Bloomberg) -- The U.S. economy will enter “hyperinflation” approaching the levels in Zimbabwe because the Federal Reserve will be reluctant to raise interest rates, investor Marc Faber said.
Prices may increase at rates “close to” Zimbabwe’s gains, Faber said in an interview with Bloomberg Television in Hong Kong. Zimbabwe’s inflation rate reached 231 million percent in July, the last annual rate published by the statistics office.
“I am 100 percent sure that the U.S. will go into hyperinflation,” Faber said. “The problem with government debt growing so much is that when the time will come and the Fed should increase interest rates, they will be very reluctant to do so and so inflation will start to accelerate.”
Federal Reserve Bank of Philadelphia President Charles Plosser said on May 21 inflation may rise to 2.5 percent in 2011. That exceeds the central bank officials’ long-run preferred range of 1.7 percent to 2 percent and contrasts with the concerns of some officials and economists that the economic slump may provoke a broad decline in prices.
“There are some concerns of a risk from inflation from all the liquidity injected into the banking system but it’s not an immediate threat right now given all the excess capacity in the U.S. economy,” said David Cohen, head of Asian economic forecasting at Action Economics in Singapore. “I have a little more confidence that the Fed has an exit strategy for draining all the liquidity at the appropriate time.”
Action Economics is predicting inflation of minus 0.4 percent in the U.S. this year, with prices increasing by 1.8 percent and 2 percent in 2010 and 2011, respectively, Cohen said.
By Chen Shiyin and Bernard Lo
Read Entire Article
Prices may increase at rates “close to” Zimbabwe’s gains, Faber said in an interview with Bloomberg Television in Hong Kong. Zimbabwe’s inflation rate reached 231 million percent in July, the last annual rate published by the statistics office.
“I am 100 percent sure that the U.S. will go into hyperinflation,” Faber said. “The problem with government debt growing so much is that when the time will come and the Fed should increase interest rates, they will be very reluctant to do so and so inflation will start to accelerate.”
Federal Reserve Bank of Philadelphia President Charles Plosser said on May 21 inflation may rise to 2.5 percent in 2011. That exceeds the central bank officials’ long-run preferred range of 1.7 percent to 2 percent and contrasts with the concerns of some officials and economists that the economic slump may provoke a broad decline in prices.
“There are some concerns of a risk from inflation from all the liquidity injected into the banking system but it’s not an immediate threat right now given all the excess capacity in the U.S. economy,” said David Cohen, head of Asian economic forecasting at Action Economics in Singapore. “I have a little more confidence that the Fed has an exit strategy for draining all the liquidity at the appropriate time.”
Action Economics is predicting inflation of minus 0.4 percent in the U.S. this year, with prices increasing by 1.8 percent and 2 percent in 2010 and 2011, respectively, Cohen said.
By Chen Shiyin and Bernard Lo
Read Entire Article
Gold vs. Silver: There Is No Debate
It is mildly amusing that when the precious metals markets are in confirmed uptrends, the perennial debate of whether it is best to own gold or silver always comes to the fore.
Both gold and silver, historically, have been money (merely utility in exchange). Gold in nature is approximately 15 times as scarce as silver. All the gold mined since the dawn of man, if molded into a cube, is said to fit inside a baseball diamond.
Silver would nearly fill the stadium. China, now the world's largest gold producer, had a silver standard as gold was more plentiful in China than silver, a bias that the west took full advantage of up through the 1870s. Silver imports by the Spanish Empire from their New World holdings were so large that it collapsed the European silver market. England, then on a bi-metalic standard, quickly switched to a pure gold standard. The Spanish Empire never recovered from the experience.
In the United States, the debate raged incessantly as to how the ratio would be "fixed" after the discovery of the Comstock Lode with western mining interests' best known champion, Senator William Jennings Bryan, being the foremost proponent of a lower ratio. Seems it is an old debate. The good news is, you can own both. If/when the world returns to honest, stable money, you will need both: gold for the larger acquisitions and silver to make change.
While we await such an event, ratio trade the two metals to increase your holdings of precious metals.The ratio fluctuates wildly over time. In the 1970s and 1980s I used 28:1 and 40:1 as points that I would switch. At 40:1, I would be in silver. When the ratio dropped down to 28:1, I would exchange silver holdings for gold. Each time I switched, my stack of precious metals would increase in size even after dealing with the spread.
Find a precious metals dealer who will work with you on that. You maybe able to locate one that will only charge the spread on one of the metals and not both when you switch. Since then, the ratio has moved up. At one point it was even at 100:1. I now use 45:1 and 70:1 as switch points. See your tax accountant as to the benefits of such a program. Think 1031 Tax Deferred Exchange.
For those who do not want to break the rear axle of your automobile moving your silver when it comes time to switch, think about using ETFs that only reflect the price of the two metals. There are a variety of ways to accomplish this, from being in just one or the other to being long one and short the other. IF your objective is to accumulate the actual physical metals, do not use ETFs as a substitute for physical ownership. Rather, take profits from your switching trades and purchase the actual metals themselves. Gold vs. silver? No debate. Accumulate both.
By Market Sniper
Read Entire Article
Both gold and silver, historically, have been money (merely utility in exchange). Gold in nature is approximately 15 times as scarce as silver. All the gold mined since the dawn of man, if molded into a cube, is said to fit inside a baseball diamond.
Silver would nearly fill the stadium. China, now the world's largest gold producer, had a silver standard as gold was more plentiful in China than silver, a bias that the west took full advantage of up through the 1870s. Silver imports by the Spanish Empire from their New World holdings were so large that it collapsed the European silver market. England, then on a bi-metalic standard, quickly switched to a pure gold standard. The Spanish Empire never recovered from the experience.
In the United States, the debate raged incessantly as to how the ratio would be "fixed" after the discovery of the Comstock Lode with western mining interests' best known champion, Senator William Jennings Bryan, being the foremost proponent of a lower ratio. Seems it is an old debate. The good news is, you can own both. If/when the world returns to honest, stable money, you will need both: gold for the larger acquisitions and silver to make change.
While we await such an event, ratio trade the two metals to increase your holdings of precious metals.The ratio fluctuates wildly over time. In the 1970s and 1980s I used 28:1 and 40:1 as points that I would switch. At 40:1, I would be in silver. When the ratio dropped down to 28:1, I would exchange silver holdings for gold. Each time I switched, my stack of precious metals would increase in size even after dealing with the spread.
Find a precious metals dealer who will work with you on that. You maybe able to locate one that will only charge the spread on one of the metals and not both when you switch. Since then, the ratio has moved up. At one point it was even at 100:1. I now use 45:1 and 70:1 as switch points. See your tax accountant as to the benefits of such a program. Think 1031 Tax Deferred Exchange.
For those who do not want to break the rear axle of your automobile moving your silver when it comes time to switch, think about using ETFs that only reflect the price of the two metals. There are a variety of ways to accomplish this, from being in just one or the other to being long one and short the other. IF your objective is to accumulate the actual physical metals, do not use ETFs as a substitute for physical ownership. Rather, take profits from your switching trades and purchase the actual metals themselves. Gold vs. silver? No debate. Accumulate both.
By Market Sniper
Read Entire Article
FDIC Fund Running Dry
Yahoo Finance
May 27, 2009
As the FDIC has had to step in to take over more and more insolvent banks, the fund has dwindled to dangerously low levels. At the same time, the number of problem banks continues to grow at a rapid pace.
At the end of the first quarter there were 305 ‘problem institutions’ with a total of $220.0 billion in assets, up from 252 institutions and $159.4 billion in assets at the end of 2008. At the end of the quarter, the Deposit insurance fund was at just $13.0 billion, or 0.27% of insured deposits, a decline of 24.7% in the quarter alone.
The first graph (from http://www.calculatedriskblog.com/) shows the steep drop in the coverage ratio. Just a year ago, the fund was equal to 1.01% of covered deposits. The current level is its lowest since the first quarter of 1993, when we were digging out from the S&L fiasco.
However, don’t worry about losing the money in your checking account if your bank goes under. Congress has already approved a $500 billion line of credit to the FDIC. Without a doubt, that line of credit is going to have to be tapped. This does emphasize the insanity of having the FDIC provide the guarantees for the PPIP [Public-Private Investment Program]. The fund simply does not have the resources available to do it. The money for the inevitable large losses that the fund will take on the program will come from that line of credit.
Read Entire Article
May 27, 2009
As the FDIC has had to step in to take over more and more insolvent banks, the fund has dwindled to dangerously low levels. At the same time, the number of problem banks continues to grow at a rapid pace.
At the end of the first quarter there were 305 ‘problem institutions’ with a total of $220.0 billion in assets, up from 252 institutions and $159.4 billion in assets at the end of 2008. At the end of the quarter, the Deposit insurance fund was at just $13.0 billion, or 0.27% of insured deposits, a decline of 24.7% in the quarter alone.
The first graph (from http://www.calculatedriskblog.com/) shows the steep drop in the coverage ratio. Just a year ago, the fund was equal to 1.01% of covered deposits. The current level is its lowest since the first quarter of 1993, when we were digging out from the S&L fiasco.
However, don’t worry about losing the money in your checking account if your bank goes under. Congress has already approved a $500 billion line of credit to the FDIC. Without a doubt, that line of credit is going to have to be tapped. This does emphasize the insanity of having the FDIC provide the guarantees for the PPIP [Public-Private Investment Program]. The fund simply does not have the resources available to do it. The money for the inevitable large losses that the fund will take on the program will come from that line of credit.
Read Entire Article
Wednesday, May 27, 2009
What Is Even More Enticing than Gold? Silver.
The dollar is out. The U.S. dollar index has fallen 5% last week.
Treasury bonds are quickly falling out of favor. The yield on 10-year Treasury bonds has climbed from 2.5% to almost 3.5% since March signaling inflation fears and an unwillingness to fund ballooning government borrowing.
Is this a sign of things to come?
Well, if you take a look at the mainstream headlines, you’d think so.
An editorial headline on Bloomberg proclaims, “Dollar is dirt, Treasuries are toast, and AAA is gone.”
Even CBS News is warning, “Inflation could be coming to a U.S. dollar near you.”
To me, it seems just like a typical overreaction in the short-term.
Yes, the long-run trend for the dollar is down as the Fed keeps printing more and more of them and monetizing government debt. And yes, the prospects for gold get brighter and brighter with each passing week.
But there’s no reason to lose your head here. It’s going to take a few years for all this to play out. And the window of opportunity is still wide open to buy precious metals, real assets, and assets not denominated in the dollar (like ADRs).
That’s why, despite the strong interest in gold at the moment, I encourage you to continue to look for value in the sector. Right now, there seems to be some exceptional value in an asset which is so undervalued, it could outpace gold by 400% or more.
I’m talking about Silver.
When Gold Climbs, Silver Soars
In the past few weeks gold has been getting a lot of attention. With all the big money finally taking a liking to gold, the attention is justified. Remember, a turn in the big money’s attitude towards gold must happen before gold can break through the $1,000 mark and stay there.
The excitement surrounding gold’s surge has only pushed silver further onto the back burner. (You don’t hear about any major hedge funds loading up on silver do you?) And that’s the point. Gold is hot and silver is – in a relative sense - not.
So if you want to find an investment which isn’t so hot but still has a lot of potential in an inflationary environment, you’d want to look at silver. When you do, it won’t take long to realize silver – at current levels – could easily trounce gold in the months and years ahead.
That’s right. Silver has a much brighter future than gold. All you have to do is look at the silver / gold ratio to see how potentially lucrative the situation has become.
Ratios Don’t Lie
We’ve looked at a few ratios in the past. The reason is because ratio analysis can help identify value even in volatile markets. For instance, we looked at how the gold / oil ratio was signaling oil was a buy back in January. Oil prices are up almost 50% since then.
We looked at gold / gold stocks ratio back in December. We saw that gold stocks were significantly undervalued relative to gold. Since early December, gold is up a respectable 22% while gold stocks – as a group - have rebounded 70%.
That’s the value of ratio analysis. They can quickly show you how undervalued some assets are relative to other others. And if you’re able to find them at extreme points, you can get into a trade or investment with less risk and greater upside.
Right now, the gold / silver ratio (the measure of how many ounces of silver can be bought for an ounce of gold) is at an extreme and working its way back to historical norms.
by Andrew Mickey
Read Entire Article
Treasury bonds are quickly falling out of favor. The yield on 10-year Treasury bonds has climbed from 2.5% to almost 3.5% since March signaling inflation fears and an unwillingness to fund ballooning government borrowing.
Is this a sign of things to come?
Well, if you take a look at the mainstream headlines, you’d think so.
An editorial headline on Bloomberg proclaims, “Dollar is dirt, Treasuries are toast, and AAA is gone.”
Even CBS News is warning, “Inflation could be coming to a U.S. dollar near you.”
To me, it seems just like a typical overreaction in the short-term.
Yes, the long-run trend for the dollar is down as the Fed keeps printing more and more of them and monetizing government debt. And yes, the prospects for gold get brighter and brighter with each passing week.
But there’s no reason to lose your head here. It’s going to take a few years for all this to play out. And the window of opportunity is still wide open to buy precious metals, real assets, and assets not denominated in the dollar (like ADRs).
That’s why, despite the strong interest in gold at the moment, I encourage you to continue to look for value in the sector. Right now, there seems to be some exceptional value in an asset which is so undervalued, it could outpace gold by 400% or more.
I’m talking about Silver.
When Gold Climbs, Silver Soars
In the past few weeks gold has been getting a lot of attention. With all the big money finally taking a liking to gold, the attention is justified. Remember, a turn in the big money’s attitude towards gold must happen before gold can break through the $1,000 mark and stay there.
The excitement surrounding gold’s surge has only pushed silver further onto the back burner. (You don’t hear about any major hedge funds loading up on silver do you?) And that’s the point. Gold is hot and silver is – in a relative sense - not.
So if you want to find an investment which isn’t so hot but still has a lot of potential in an inflationary environment, you’d want to look at silver. When you do, it won’t take long to realize silver – at current levels – could easily trounce gold in the months and years ahead.
That’s right. Silver has a much brighter future than gold. All you have to do is look at the silver / gold ratio to see how potentially lucrative the situation has become.
Ratios Don’t Lie
We’ve looked at a few ratios in the past. The reason is because ratio analysis can help identify value even in volatile markets. For instance, we looked at how the gold / oil ratio was signaling oil was a buy back in January. Oil prices are up almost 50% since then.
We looked at gold / gold stocks ratio back in December. We saw that gold stocks were significantly undervalued relative to gold. Since early December, gold is up a respectable 22% while gold stocks – as a group - have rebounded 70%.
That’s the value of ratio analysis. They can quickly show you how undervalued some assets are relative to other others. And if you’re able to find them at extreme points, you can get into a trade or investment with less risk and greater upside.
Right now, the gold / silver ratio (the measure of how many ounces of silver can be bought for an ounce of gold) is at an extreme and working its way back to historical norms.
by Andrew Mickey
Read Entire Article
Tuesday, May 26, 2009
China Warns Federal Reserve Over 'Printing Money'
China has warned a top member of the US Federal Reserve that it is increasingly disturbed by the Fed's direct purchase of US Treasury bonds.
By Ambrose Evans-Pritchard
His recent trip to the Far East appears to have been a stark reminder that Asia's "Confucian" culture of right action does not look kindly on the insouciant policy of printing money by Anglo-Saxons.
Mr Fisher, the Fed's leading hawk, was a fierce opponent of the original decision to buy Treasury debt, fearing that it would lead to a blurring of the line between fiscal and monetary policy – and could all too easily degenerate into Argentine-style financing of uncontrolled spending.
Mr Fisher, the Fed's leading hawk, was a fierce opponent of the original decision to buy Treasury debt, fearing that it would lead to a blurring of the line between fiscal and monetary policy – and could all too easily degenerate into Argentine-style financing of uncontrolled spending.
However, he agreed that the Fed was forced to take emergency action after the financial system "literally fell apart".
Nor, he added was there much risk of inflation taking off yet. The Dallas Fed uses a "trim mean" method based on 180 prices that excludes extreme moves and is widely admired for accuracy.
"You've got some mild deflation here," he said.
Read Entire Article
By Ambrose Evans-Pritchard
His recent trip to the Far East appears to have been a stark reminder that Asia's "Confucian" culture of right action does not look kindly on the insouciant policy of printing money by Anglo-Saxons.
Mr Fisher, the Fed's leading hawk, was a fierce opponent of the original decision to buy Treasury debt, fearing that it would lead to a blurring of the line between fiscal and monetary policy – and could all too easily degenerate into Argentine-style financing of uncontrolled spending.
Mr Fisher, the Fed's leading hawk, was a fierce opponent of the original decision to buy Treasury debt, fearing that it would lead to a blurring of the line between fiscal and monetary policy – and could all too easily degenerate into Argentine-style financing of uncontrolled spending.
However, he agreed that the Fed was forced to take emergency action after the financial system "literally fell apart".
Nor, he added was there much risk of inflation taking off yet. The Dallas Fed uses a "trim mean" method based on 180 prices that excludes extreme moves and is widely admired for accuracy.
"You've got some mild deflation here," he said.
Read Entire Article
Home prices still falling at record pace in first quarter
WASHINGTON (MarketWatch) -- U.S. home prices fell a record 19.1% in the first quarter compared with a year earlier, according to the national Case-Shiller home price index released Tuesday.
On a month-to-month basis, prices in 20 selected cities fell 2.2% in March and were down 18.7% in the past year.
"We see no evidence that a recovery in home prices has begun," said David Blitzer, chairman of the index committee for Standard & Poor's, which compiles the Case-Shiller index.
The continued declines in the Case-Shiller index are at odds with a similar price index published by the Federal Housing Finance Agency, which has increased the past two months. The FHFA index uses only conforming loans written or guaranteed by Fannie Mae and Freddie Mac.
In recent months, single-family housing starts, new-home sales and existing home sales appear to be stabilizing at very low levels. But some analysts are skeptical that the housing market has bottomed.
"We can cheer all the data under the sun but until prices stabilize, I imagine that no sustainable gain in the pace of sales will be seen," wrote Dan Greenhaus, equity strategist for Miller Tabak & Co. With inventories still very high, "downward pressure on home prices should continue for the foreseeable future."
Falling home values have helped to plunge the global economy into chaos because financial institutions made too many bad bets that U.S. home prices would never fall. Homeowners have lost trillions of dollars of wealth.
With prices still falling at a rapid pace, millions of homeowners are finding themselves owing more on their house than it is worth. They cannot sell for what they owe, and they cannot refinance their loan. They cannot borrow against their home to finance their consumption.
Seventeen of 20 cities saw prices fall in March, with record declines in Minneapolis, Detroit and New York. Prices rose 0.3% in Charlotte and 0.1% in Denver. Prices were flat in Dallas.
Prices in all 20 cities have fallen significantly in the past year. Prices in the best market -- Denver -- are down 5.5%. Prices in three cities -- Phoenix, Las Vegas and San Francisco -- are down 30% or more in the past year.
From the peak, home prices are down 32.2%, and on average are at the same level they were at in late 2002. From their peak, prices are down more than 50% in Las Vegas and Phoenix.
The Case-Shiller index tracks repeat sales on the same properties over time, but it closely tracks only 20 cities, not the whole country.
Read Entire Article
On a month-to-month basis, prices in 20 selected cities fell 2.2% in March and were down 18.7% in the past year.
"We see no evidence that a recovery in home prices has begun," said David Blitzer, chairman of the index committee for Standard & Poor's, which compiles the Case-Shiller index.
The continued declines in the Case-Shiller index are at odds with a similar price index published by the Federal Housing Finance Agency, which has increased the past two months. The FHFA index uses only conforming loans written or guaranteed by Fannie Mae and Freddie Mac.
In recent months, single-family housing starts, new-home sales and existing home sales appear to be stabilizing at very low levels. But some analysts are skeptical that the housing market has bottomed.
"We can cheer all the data under the sun but until prices stabilize, I imagine that no sustainable gain in the pace of sales will be seen," wrote Dan Greenhaus, equity strategist for Miller Tabak & Co. With inventories still very high, "downward pressure on home prices should continue for the foreseeable future."
Falling home values have helped to plunge the global economy into chaos because financial institutions made too many bad bets that U.S. home prices would never fall. Homeowners have lost trillions of dollars of wealth.
With prices still falling at a rapid pace, millions of homeowners are finding themselves owing more on their house than it is worth. They cannot sell for what they owe, and they cannot refinance their loan. They cannot borrow against their home to finance their consumption.
Seventeen of 20 cities saw prices fall in March, with record declines in Minneapolis, Detroit and New York. Prices rose 0.3% in Charlotte and 0.1% in Denver. Prices were flat in Dallas.
Prices in all 20 cities have fallen significantly in the past year. Prices in the best market -- Denver -- are down 5.5%. Prices in three cities -- Phoenix, Las Vegas and San Francisco -- are down 30% or more in the past year.
From the peak, home prices are down 32.2%, and on average are at the same level they were at in late 2002. From their peak, prices are down more than 50% in Las Vegas and Phoenix.
The Case-Shiller index tracks repeat sales on the same properties over time, but it closely tracks only 20 cities, not the whole country.
Read Entire Article
NO NEW LEASE ON TRILLIONS IN DEBT
By MARK DeCAMBRE
COMMERCIAL REAL ESTATE LOANS ARE COMING DUE
A trillion-dollar storm is gathering over the commercial real estate landscape that's threatening to add further pain to an already bruised US economy.
At the center of the worries is some $3.5 trillion in debt backed by everything from strip malls to offices and apartments across the nation -- the lion's share of which is badly underwater because this recession followed a five-year commercial property boom fueled by easy money and loose underwriting standards.
Now the owners of the less-than-full malls, apartment complexes and office buildings are succumbing to the worst economic collapse since the Great Depression -- because they can't refinance the debt.
The commercial debt securitization market is dead.
"Because there is no securitization the system cannot process the wave of maturities coming due," said Scott Latham, commercial property broker at Cushman & Wakefield.
"This is arguably the most important fact we're going to be dealing with. If there's no mortgage market that can feed the machine you're just not going to have deals," he said. "It's going to be years before we recover and even when that happens we're going to discover that we're in a new paradigm," Latham added.
About $1.4 trillion in real estate debt is set to mature over the next four years, with some $204 billion coming due this year alone.
Most of that debt won't be able to be refinanced or restructured because lending standards have tightened and commercial real estate values have cratered since last year, according to Deutsche Bank analyst Richard Parkus.
The debt behind the commercial real estate boom, commercial mortgage-backed securities, or CMBS, entails pooling together commercial mortgages in apartment buildings, shopping malls or trophy offices in different locations, packaging them into bonds and selling them to investors.
CMBS issuance reached its peak with $230 billion transactions completed in 2007. Last year, as the market was dying, a relatively anemic $12 billion in activity was seen, according to industry newsletter Commercial Mortgage Alert.
The last time the markets saw a tsunami like this one was in the late 1980s during the savings and loan crisis, when builders overwhelmed the markets with commercial supply that went vacant for years.
However, this commercial real estate crisis, fueled primarily by developers and property investors getting easy access to relatively cheap loans, may be even worse than what's come before. That's especially the case since Average Joes and Janes are by extension huge landlords via pensions, endowments and mutual funds -- which have big commercial property exposure over the past few years.
Broadly speaking, commercial real estate values are off by as much as 40 or 50 percent by some estimates.
Read Entire Article
COMMERCIAL REAL ESTATE LOANS ARE COMING DUE
A trillion-dollar storm is gathering over the commercial real estate landscape that's threatening to add further pain to an already bruised US economy.
At the center of the worries is some $3.5 trillion in debt backed by everything from strip malls to offices and apartments across the nation -- the lion's share of which is badly underwater because this recession followed a five-year commercial property boom fueled by easy money and loose underwriting standards.
Now the owners of the less-than-full malls, apartment complexes and office buildings are succumbing to the worst economic collapse since the Great Depression -- because they can't refinance the debt.
The commercial debt securitization market is dead.
"Because there is no securitization the system cannot process the wave of maturities coming due," said Scott Latham, commercial property broker at Cushman & Wakefield.
"This is arguably the most important fact we're going to be dealing with. If there's no mortgage market that can feed the machine you're just not going to have deals," he said. "It's going to be years before we recover and even when that happens we're going to discover that we're in a new paradigm," Latham added.
About $1.4 trillion in real estate debt is set to mature over the next four years, with some $204 billion coming due this year alone.
Most of that debt won't be able to be refinanced or restructured because lending standards have tightened and commercial real estate values have cratered since last year, according to Deutsche Bank analyst Richard Parkus.
The debt behind the commercial real estate boom, commercial mortgage-backed securities, or CMBS, entails pooling together commercial mortgages in apartment buildings, shopping malls or trophy offices in different locations, packaging them into bonds and selling them to investors.
CMBS issuance reached its peak with $230 billion transactions completed in 2007. Last year, as the market was dying, a relatively anemic $12 billion in activity was seen, according to industry newsletter Commercial Mortgage Alert.
The last time the markets saw a tsunami like this one was in the late 1980s during the savings and loan crisis, when builders overwhelmed the markets with commercial supply that went vacant for years.
However, this commercial real estate crisis, fueled primarily by developers and property investors getting easy access to relatively cheap loans, may be even worse than what's come before. That's especially the case since Average Joes and Janes are by extension huge landlords via pensions, endowments and mutual funds -- which have big commercial property exposure over the past few years.
Broadly speaking, commercial real estate values are off by as much as 40 or 50 percent by some estimates.
Read Entire Article
Friday, May 22, 2009
German firm plans gold ATMs to meet growing demand
* Gold ATMs intended to whet appetite for physical gold
* Private investor inquiries doubling every six weeks
* Plan is for 500 gold ATMs in Germany, Switzerland, Austria
By Peter Starck
FRANKFURT, May 19 (Reuters) - Private investors should hold up to 15 percent of their wealth in physical gold, according to a German asset management company which plans to set up 500 "Gold-To-Go" ATMs in Germany, Switzerland and Austria this year.
A gold-dispensing automatic teller machine (ATM) was on display at Frankfurt's main railway station for a one-day marketing test on Tuesday.
A one-gram (0.0353 ounce) piece of gold, the size of a child's little fingernail and about as thin, cost 31 euros ($42.25) -- a 30 percent premium to the spot market price.
The flat rectangular piece, bearing the imprint of Belgian metals and speciality materials firm Umicore (UMI.BR: Quote, Profile, Research), came out of the cash-only ATM in a tin box, including a certificate of authenticity.
"This is more than a marketing gimmick," said Thomas Geissler, chief executive of TG-Gold-Super-Markt.de, the company planning to set up the 500 gold ATMs at a cost of 20,000 euros apiece.
"It is an appetizer for a strategic investment in precious metals. Gold is an asset everyone should have, between 5 and 15 percent of your liquid assets in physical gold," he told Reuters in an interview.
DEMAND
Private investor demand for gold is on the rise in Germany and elsewhere as a result of the financial markets crisis, which has made many investors wary of holding traditional assets such as equities, bonds or mutual funds investing in such securities.
"In absolute numbers, the demand for physical gold is still tiny in Germany," Geissler said. "But in relative terms, the growth is explosive, inquiries have been doubling every six weeks," Geissler said of the trend in recent months.
Read Entire Article
* Private investor inquiries doubling every six weeks
* Plan is for 500 gold ATMs in Germany, Switzerland, Austria
By Peter Starck
FRANKFURT, May 19 (Reuters) - Private investors should hold up to 15 percent of their wealth in physical gold, according to a German asset management company which plans to set up 500 "Gold-To-Go" ATMs in Germany, Switzerland and Austria this year.
A gold-dispensing automatic teller machine (ATM) was on display at Frankfurt's main railway station for a one-day marketing test on Tuesday.
A one-gram (0.0353 ounce) piece of gold, the size of a child's little fingernail and about as thin, cost 31 euros ($42.25) -- a 30 percent premium to the spot market price
The flat rectangular piece, bearing the imprint of Belgian metals and speciality materials firm Umicore (UMI.BR: Quote, Profile, Research), came out of the cash-only ATM in a tin box, including a certificate of authenticity.
"This is more than a marketing gimmick," said Thomas Geissler, chief executive of TG-Gold-Super-Markt.de, the company planning to set up the 500 gold ATMs at a cost of 20,000 euros apiece.
"It is an appetizer for a strategic investment in precious metals. Gold is an asset everyone should have, between 5 and 15 percent of your liquid assets in physical gold," he told Reuters in an interview.
DEMAND
Private investor demand for gold is on the rise in Germany and elsewhere as a result of the financial markets crisis, which has made many investors wary of holding traditional assets such as equities, bonds or mutual funds investing in such securities.
"In absolute numbers, the demand for physical gold is still tiny in Germany," Geissler said. "But in relative terms, the growth is explosive, inquiries have been doubling every six weeks," Geissler said of the trend in recent months.
Read Entire Article
Dollar Is Dirt, Treasuries Are Toast, AAA Is Gone
(Bloomberg) -- The odds on the dollar, Treasury bonds and the U.S. government’s AAA grade all heading for the dumpster are shortening.
While currency forecasting is a mug’s game and bond yields can’t quite decide whether to dive toward deflation or surge in anticipation of inflation, every time I think about that credit rating, I hear what Agent Smith in the “Matrix” movies called “the sound of inevitability.”
Currency markets have been in a weird state of what looks almost like equilibrium for the past couple of months. What’s really going on is something akin to an evenly matched tug of war that fails to move the ribbon tied around the center of the rope, giving the impression of harmony while powerful forces do silent battle until someone slips.
“All currencies are being debased dramatically by their central banks at extraordinary speeds and so in relative terms it appears there is no currency problem,” Lee Quaintance and Paul Brodsky of QB Asset Management said in a research note earlier this month. “In reality, however, paper money is highly vulnerable to a public catalyst that serves to acknowledge it is all merely vapor money.”
Flesh Wounds
Why pick on the dollar, though? Well, not necessarily because the U.S. economy is in worse shape than those of the euro area, the U.K. or Japan. The biggest problem is that external investors -- particularly China -- have more skin in the dollar game than in euros, yen or pounds, which makes the U.S. currency the most likely candidate to meet the cleaver in a crisis of confidence about post-crunch government finances.
China owns about $744 billion of U.S. Treasury bonds in its $2 trillion of foreign-exchange reserves.
Chinese exports, though, are dropping as the global economy weakens, with overseas shipments declining 23 percent in April from a year earlier, leaving a nation that has already expressed concern about its U.S. investments with less to spend in future.
‘Heavy Hand of Government’
Those kinds of concerns are starting to surface in a steepening of the U.S. yield curve, driven by an increase in 10- and 30-year U.S. Treasury yields. The 10-year note currently yields 3.23 percent, about 235 basis points more than the two- year security, which marks a near doubling of the spread since the end of last year.
“When the government parks its tanks on capitalism’s lawns, that spells trouble for those who invest, add value and create jobs,” says Tim Price, director of investments at PFP Wealth Management in London. “Trillion-dollar bailouts do not only leave massive public-sector deficits in their wake, they also leave the presence of the heavy hand of government all over industry and markets, so the outlook for government bonds is less promising than the economic textbooks on deflation would have us believe.”
Earlier this month, the U.S. reported the first budget deficit for April in 26 years, with spending exceeding revenue by $20.9 billion, even though that’s the month when taxpayers have to stump up to the Internal Revenue Service and the government’s coffers should be overflowing. So far this fiscal year, the U.S. shortfall is $802.3 billion, more than five times the $153.5 billion gap in the year-earlier period.
By - Mark Gilbert
Read Entire Article
While currency forecasting is a mug’s game and bond yields can’t quite decide whether to dive toward deflation or surge in anticipation of inflation, every time I think about that credit rating, I hear what Agent Smith in the “Matrix” movies called “the sound of inevitability.”
Currency markets have been in a weird state of what looks almost like equilibrium for the past couple of months. What’s really going on is something akin to an evenly matched tug of war that fails to move the ribbon tied around the center of the rope, giving the impression of harmony while powerful forces do silent battle until someone slips.
“All currencies are being debased dramatically by their central banks at extraordinary speeds and so in relative terms it appears there is no currency problem,” Lee Quaintance and Paul Brodsky of QB Asset Management said in a research note earlier this month. “In reality, however, paper money is highly vulnerable to a public catalyst that serves to acknowledge it is all merely vapor money.”
Flesh Wounds
Why pick on the dollar, though? Well, not necessarily because the U.S. economy is in worse shape than those of the euro area, the U.K. or Japan. The biggest problem is that external investors -- particularly China -- have more skin in the dollar game than in euros, yen or pounds, which makes the U.S. currency the most likely candidate to meet the cleaver in a crisis of confidence about post-crunch government finances.
China owns about $744 billion of U.S. Treasury bonds in its $2 trillion of foreign-exchange reserves.
Chinese exports, though, are dropping as the global economy weakens, with overseas shipments declining 23 percent in April from a year earlier, leaving a nation that has already expressed concern about its U.S. investments with less to spend in future.
‘Heavy Hand of Government’
Those kinds of concerns are starting to surface in a steepening of the U.S. yield curve, driven by an increase in 10- and 30-year U.S. Treasury yields. The 10-year note currently yields 3.23 percent, about 235 basis points more than the two- year security, which marks a near doubling of the spread since the end of last year.
“When the government parks its tanks on capitalism’s lawns, that spells trouble for those who invest, add value and create jobs,” says Tim Price, director of investments at PFP Wealth Management in London. “Trillion-dollar bailouts do not only leave massive public-sector deficits in their wake, they also leave the presence of the heavy hand of government all over industry and markets, so the outlook for government bonds is less promising than the economic textbooks on deflation would have us believe.”
Earlier this month, the U.S. reported the first budget deficit for April in 26 years, with spending exceeding revenue by $20.9 billion, even though that’s the month when taxpayers have to stump up to the Internal Revenue Service and the government’s coffers should be overflowing. So far this fiscal year, the U.S. shortfall is $802.3 billion, more than five times the $153.5 billion gap in the year-earlier period.
By - Mark Gilbert
Read Entire Article
Thursday, May 21, 2009
U.S. Insurer of Pensions Sees Flood of Red Ink
WASHINGTON — The deficit at the federal agency that guarantees pensions for 44 million Americans tripled in the last six months to a record high, reaching $33.5 billion, largely as a result of surging bankruptcies among companies whose pensions it expects it will soon need to take over.
The agency, the Pension Benefit Guaranty Corporation, faced a shortfall of just $11 billion as of October. The combined effect of lower interest rates, losses on its investment portfolio and rising numbers of companies filing for bankruptcy produced the jump in its projected deficit, officials said Wednesday.
Because the agency has $56 billion in assets — most of which is invested in Treasury bonds — it is not facing any prospect of default in the short term, officials said.
“The P.B.G.C. has sufficient funds to meet its benefit obligations for many years because benefits are paid monthly over the lifetimes of beneficiaries, not as lump sums,” the agency’s acting director, Vince Snowbarger, testified Wednesday at a Senate hearing. “Nevertheless, over the long term, the deficit must be addressed.”
The financial troubles are just a small part of the challenges facing the pension agency, which was created by Congress in 1974 and today is responsible for pension programs covering 1.3 million people. It pays about 640,000 people actual benefits worth about $4.3 billion a year.
The P.B.G.C.’s former director, Charles E. F. Millard, was subpoenaed to testify at the hearing Wednesday. But he cited his constitutional right to avoid self-incrimination and declined to answer any questions.
Mr. Millard, who resigned in January, has been accused by the agency’s inspector general of having inappropriate contact with companies including BlackRock, JPMorgan Chase and Goldman Sachs, all of which competed for and won contracts to help manage $2.5 billion of the agency’s funds. Those contracts will now most likely be canceled.
Employers nationwide with so-called defined-benefit, or traditional, pension plans pay fees to the P.B.G.C. in return for a promise that it will take over their pension plan if a company fails.
On Tuesday, for example, the agency announced that it had assumed the pension plan once run by the Lenox Group, a bankrupt maker of tableware, giftware and collectibles based in Eden Prairie, Minn. Assuming control of pensions for this company’s 4,300 workers will cost the agency an estimated $128 million — the difference between what Lenox had in its pension fund and what the total estimated obligations are.
In the last six months, 93 companies whose pension plans are covered by the agency have filed for bankruptcy, including Chrysler, whose failure alone could cost the agency $2 billion. A bankruptcy by General Motors would make the situation worse. G.M. had 670,000 workers as of late last year in its pension system, whose collapse would cost the agency an estimated $6 billion.
Options to close the $33.5 billion deficit include a federal bailout by taxpayers, a change in insurance premiums it charges employers or increasing its investment returns.
Last year, the agency’s board voted to allow it to shift its investment strategy to put more money into stocks, private equity and real estate, in an effort to reduce the deficit.
If that shift had taken place, the losses would most likely have been larger. But only a relatively small amount of the funds have already been shifted to stocks, so the losses on the investment portfolio were responsible for just $3 billion of the jump in the deficit in the last six months.
Senator Herb Kohl, Democrat of Wisconsin and chairman of the Senate Special Committee on Aging, which held the hearing Wednesday, blamed poor supervision by the agency’s board and management, at least in part, for the troubles, adding that he intended to introduce legislation that would expand the board and require it to meet at least four times a year. The board has not met in person since February 2008.
“The role of P.B.G.C. is too crucial to allow its governance to slip through the cracks,” Mr. Kohl said.
By ERIC LIPTON
Read Entire Article
The agency, the Pension Benefit Guaranty Corporation, faced a shortfall of just $11 billion as of October. The combined effect of lower interest rates, losses on its investment portfolio and rising numbers of companies filing for bankruptcy produced the jump in its projected deficit, officials said Wednesday.
Because the agency has $56 billion in assets — most of which is invested in Treasury bonds — it is not facing any prospect of default in the short term, officials said.
“The P.B.G.C. has sufficient funds to meet its benefit obligations for many years because benefits are paid monthly over the lifetimes of beneficiaries, not as lump sums,” the agency’s acting director, Vince Snowbarger, testified Wednesday at a Senate hearing. “Nevertheless, over the long term, the deficit must be addressed.”
The financial troubles are just a small part of the challenges facing the pension agency, which was created by Congress in 1974 and today is responsible for pension programs covering 1.3 million people. It pays about 640,000 people actual benefits worth about $4.3 billion a year.
The P.B.G.C.’s former director, Charles E. F. Millard, was subpoenaed to testify at the hearing Wednesday. But he cited his constitutional right to avoid self-incrimination and declined to answer any questions.
Mr. Millard, who resigned in January, has been accused by the agency’s inspector general of having inappropriate contact with companies including BlackRock, JPMorgan Chase and Goldman Sachs, all of which competed for and won contracts to help manage $2.5 billion of the agency’s funds. Those contracts will now most likely be canceled.
Employers nationwide with so-called defined-benefit, or traditional, pension plans pay fees to the P.B.G.C. in return for a promise that it will take over their pension plan if a company fails.
On Tuesday, for example, the agency announced that it had assumed the pension plan once run by the Lenox Group, a bankrupt maker of tableware, giftware and collectibles based in Eden Prairie, Minn. Assuming control of pensions for this company’s 4,300 workers will cost the agency an estimated $128 million — the difference between what Lenox had in its pension fund and what the total estimated obligations are.
In the last six months, 93 companies whose pension plans are covered by the agency have filed for bankruptcy, including Chrysler, whose failure alone could cost the agency $2 billion. A bankruptcy by General Motors would make the situation worse. G.M. had 670,000 workers as of late last year in its pension system, whose collapse would cost the agency an estimated $6 billion.
Options to close the $33.5 billion deficit include a federal bailout by taxpayers, a change in insurance premiums it charges employers or increasing its investment returns.
Last year, the agency’s board voted to allow it to shift its investment strategy to put more money into stocks, private equity and real estate, in an effort to reduce the deficit.
If that shift had taken place, the losses would most likely have been larger. But only a relatively small amount of the funds have already been shifted to stocks, so the losses on the investment portfolio were responsible for just $3 billion of the jump in the deficit in the last six months.
Senator Herb Kohl, Democrat of Wisconsin and chairman of the Senate Special Committee on Aging, which held the hearing Wednesday, blamed poor supervision by the agency’s board and management, at least in part, for the troubles, adding that he intended to introduce legislation that would expand the board and require it to meet at least four times a year. The board has not met in person since February 2008.
“The role of P.B.G.C. is too crucial to allow its governance to slip through the cracks,” Mr. Kohl said.
By ERIC LIPTON
Read Entire Article
Dollar stops being Russia's basic reserve currency
The US dollar is not Russia’s basic reserve currency anymore. The euro-based share of reserve assets of Russia’s Central Bank increased to the level of 47.5 percent as of January 1, 2009 and exceeded the investments in dollar assets, which made up 41.5 percent, The Vedomosti newspaper wrote.
The dollar has thus lost the status of the basic reserve currency for the Russian Central Bank, the annual report, which the bank provided to the State Duma, said.
In accordance with the report, about 47.5 percent of the currency assets of the Russian Central Bank were based on the euro, whereas the dollar-based assets made up 41.5 percent as of the beginning of the current year. The situation was totally different at the beginning of the previous year: 47 percent of investments were made in US dollars, while the euro investments were evaluated at 42 percent.
The dollar share had increased to 49 percent and remained so as of October 1. The euro share made up 40 percent. The rest of investments were based on the British pound, the Japanese yen and the Swiss frank.
The report also said that the reserve currency assets of the Russian Central Bank were cut by $56.6 billion. The losses mostly occurred at the end of the year, when the Central Bank was forced to conduct massive interventions to curb the run of traders who rushed to buy up foreign currencies. The currency assets of the Central Bank had grown to $537.6 billion by October 2008. Therefore, the index dropped by almost $133 billion within the recent three months.
The majority of Russian companies, banks and most of the Russian population started to purchase enormous amounts of foreign currencies at the end of 2008. The dollar gained 16 percent and the euro 13.5 percent over the fourth quarter. The demand on the US dollar was extremely high, and the Central Bank was forced to spend a big part of its dollar assets, experts say.
The change of the structure of the currency portfolio of the Bank of Russia has not affected the official peg of the dual currency basket, which includes $0.55 and 0.45 EUR.
The investments of the Bank of Russia in state securities of foreign issuers have been considerably increased, the report said. About a third of Russia’s international reserves are based on US Treasury bonds.
Russia became one of the largest creditors of the US administration last year, the US Department of the Treasury said. Russia increased its investments in the debt securities of the US Treasury from $32.7 billion as of December 2007 to $116.4 billion as of December 2008
Read Entire Article
The dollar has thus lost the status of the basic reserve currency for the Russian Central Bank, the annual report, which the bank provided to the State Duma, said.
In accordance with the report, about 47.5 percent of the currency assets of the Russian Central Bank were based on the euro, whereas the dollar-based assets made up 41.5 percent as of the beginning of the current year. The situation was totally different at the beginning of the previous year: 47 percent of investments were made in US dollars, while the euro investments were evaluated at 42 percent.
The dollar share had increased to 49 percent and remained so as of October 1. The euro share made up 40 percent. The rest of investments were based on the British pound, the Japanese yen and the Swiss frank.
The report also said that the reserve currency assets of the Russian Central Bank were cut by $56.6 billion. The losses mostly occurred at the end of the year, when the Central Bank was forced to conduct massive interventions to curb the run of traders who rushed to buy up foreign currencies. The currency assets of the Central Bank had grown to $537.6 billion by October 2008. Therefore, the index dropped by almost $133 billion within the recent three months.
The majority of Russian companies, banks and most of the Russian population started to purchase enormous amounts of foreign currencies at the end of 2008. The dollar gained 16 percent and the euro 13.5 percent over the fourth quarter. The demand on the US dollar was extremely high, and the Central Bank was forced to spend a big part of its dollar assets, experts say.
The change of the structure of the currency portfolio of the Bank of Russia has not affected the official peg of the dual currency basket, which includes $0.55 and 0.45 EUR.
The investments of the Bank of Russia in state securities of foreign issuers have been considerably increased, the report said. About a third of Russia’s international reserves are based on US Treasury bonds.
Russia became one of the largest creditors of the US administration last year, the US Department of the Treasury said. Russia increased its investments in the debt securities of the US Treasury from $32.7 billion as of December 2007 to $116.4 billion as of December 2008
Read Entire Article
Day of reckoning looms for the U.S. dollar
Alia McMullen, Financial Post
The U.S. dollar's day of reckoning may be inching closer as its status as a safe-haven currency fades with every uptick in stocks and commodities and its potential risks - debt and inflation - are brought under a harsher spotlight.
Ashraf Laidi, chief market strategist at CMC Markets, said Wednesday a "serious case of dollar damage" was underway.
"We long warned about the day of reckoning for the dollar emerging at the next economic recovery," Mr. Laidi said in a note.
Mr. Laidi said economic recovery would weigh on the greenback as real demand for commodities, coupled with improved risk appetite, caused investors to seek higher yields in emerging markets and commodity currencies. This would draw investment away from the U.S. dollar, which was dragged down by growing debt and the risk quantitative easing would eventually spark a surge in inflation.
The U.S. dollar slid against most major currencies Wednesday, hitting a five-month low of US$1.3775 against the euro and pushing the Canadian dollar up US1.21¢ to a seven-month high of US87.69¢.
John Curran, the senior corporate dealer at Canadian Forex, said the U.S. dollar would likely fall further in the next week, with the Canadian dollar likely reaching about US88.35¢, at which point it could break higher to test the US92.35¢ level.
"The U.S. dollar is continuing to slide as investor appetite is gaining momentum," Mr. Curran said. "People are getting comfortable about taking on a little more risk."
The rise in the Canadian dollar has moved in lock-step with the improvement in equity markets since March 9. Over this time, the S&P 500 has risen by 34%, the S&P/TSX composite index has gained 35% and the Canadian dollar has increased by 14%, equal to almost US11¢. Since Feb. 18, light-crude oil has risen by 46% to US$62.12.
But as risk appetite and equities improve, Mr. Curran said it was unlikely the U.S. dollar would embark on a long-term decline.
"While things are beginning to thaw, it doesn't mean it's full-on summertime just yet," he said. "A lot of people are looking for the Canadian dollar to strengthen dramatically again towards par. I'm not sure about that just yet."
Nevertheless, concern has been mounting that the increasing U.S. debt load, as well as a potential inflation time bomb in the form of the quantitative easing, could drag down the greenback. Garnering attention is the risk the United States could lose its triple-A sovereign credit rating, which reflects the chance of the borrower defaulting on its debt.
"By many measures, the U.S. appears just a few short steps away from losing its coveted triple-A status, unless the recovery turns out to be considerably stronger than expected and the fiscal repair is faster than commonly expected," said Douglas Porter, deputy chief economist at BMO Capital Markets. "A downgrade could boost the cost of funding U.S. debt at the margin, but underlying inflation and fiscal fundamentals will ultimately be the primary driver."
Despite the risk, Paul Ashworth, chief economist at Capital Economics, said the United States was unlikely to lose its rating. But, in the event of a downgrade, he said it would probably not have a lasting impact on the U.S. dollar.
However, he said a big threat lurked in the country's expanded monetary base, which now stands at about US$1.8-trillion. While the expanded monetary base was needed to feed economic growth and ward off deflation under the Fed's quantitative easing plan, Mr. Ashworth said such high levels could fuel rampant inflation once broader monetary conditions improved.
He said it remained to be seen how much success the Fed will have when it decides to end its quantitative-easing plan and shrink the monetary base.
Read Entire Article
The U.S. dollar's day of reckoning may be inching closer as its status as a safe-haven currency fades with every uptick in stocks and commodities and its potential risks - debt and inflation - are brought under a harsher spotlight.
Ashraf Laidi, chief market strategist at CMC Markets, said Wednesday a "serious case of dollar damage" was underway.
"We long warned about the day of reckoning for the dollar emerging at the next economic recovery," Mr. Laidi said in a note.
Mr. Laidi said economic recovery would weigh on the greenback as real demand for commodities, coupled with improved risk appetite, caused investors to seek higher yields in emerging markets and commodity currencies. This would draw investment away from the U.S. dollar, which was dragged down by growing debt and the risk quantitative easing would eventually spark a surge in inflation.
The U.S. dollar slid against most major currencies Wednesday, hitting a five-month low of US$1.3775 against the euro and pushing the Canadian dollar up US1.21¢ to a seven-month high of US87.69¢.
John Curran, the senior corporate dealer at Canadian Forex, said the U.S. dollar would likely fall further in the next week, with the Canadian dollar likely reaching about US88.35¢, at which point it could break higher to test the US92.35¢ level.
"The U.S. dollar is continuing to slide as investor appetite is gaining momentum," Mr. Curran said. "People are getting comfortable about taking on a little more risk."
The rise in the Canadian dollar has moved in lock-step with the improvement in equity markets since March 9. Over this time, the S&P 500 has risen by 34%, the S&P/TSX composite index has gained 35% and the Canadian dollar has increased by 14%, equal to almost US11¢. Since Feb. 18, light-crude oil has risen by 46% to US$62.12.
But as risk appetite and equities improve, Mr. Curran said it was unlikely the U.S. dollar would embark on a long-term decline.
"While things are beginning to thaw, it doesn't mean it's full-on summertime just yet," he said. "A lot of people are looking for the Canadian dollar to strengthen dramatically again towards par. I'm not sure about that just yet."
Nevertheless, concern has been mounting that the increasing U.S. debt load, as well as a potential inflation time bomb in the form of the quantitative easing, could drag down the greenback. Garnering attention is the risk the United States could lose its triple-A sovereign credit rating, which reflects the chance of the borrower defaulting on its debt.
"By many measures, the U.S. appears just a few short steps away from losing its coveted triple-A status, unless the recovery turns out to be considerably stronger than expected and the fiscal repair is faster than commonly expected," said Douglas Porter, deputy chief economist at BMO Capital Markets. "A downgrade could boost the cost of funding U.S. debt at the margin, but underlying inflation and fiscal fundamentals will ultimately be the primary driver."
Despite the risk, Paul Ashworth, chief economist at Capital Economics, said the United States was unlikely to lose its rating. But, in the event of a downgrade, he said it would probably not have a lasting impact on the U.S. dollar.
However, he said a big threat lurked in the country's expanded monetary base, which now stands at about US$1.8-trillion. While the expanded monetary base was needed to feed economic growth and ward off deflation under the Fed's quantitative easing plan, Mr. Ashworth said such high levels could fuel rampant inflation once broader monetary conditions improved.
He said it remained to be seen how much success the Fed will have when it decides to end its quantitative-easing plan and shrink the monetary base.
Read Entire Article
Wednesday, May 20, 2009
Could President Obama Ban U.S citizens from Holding Gold?
Back in 1933, at a time of economic crisis, President Roosevelt forced U.S. Citizens to sell their gold at $20 an ounce - and then subsequently revalued the metal to $35/oz. Could President Obama, a Roosevelt disciple, have similar plans in mind?
(LONDON) - Whether one believes in the GATA premise that the gold price is being held down by a gigantic conspiracy between the World's Central Banks, Governments and some major banking institutions or not, there is little doubt that governmental-initiated currency manipulation does occur, and if one looks at gold as money then it is logical that some degree of manipulation here also takes place at Central Bank level.
Whether one can call this a global conspiracy, or part of the general process of stabilising currencies and exchange rates, depends perhaps on which side of the fence you are sitting. In a way this is similar to the terrorist/freedom fighter debate!
But, history does tell us that the US government, in the days of a fixed gold price, did intervene in a very direct manner with President F.D. Roosevelt banning the "hoarding of gold coin, gold bullion, and gold certificates" and thus forcing US citizens to sell to Federal Reserve at $20 an ounce. Subsequently the Fed raised the price of gold to $35 an ounce.
President Obama is known to be a Roosevelt disciple and he must be well aware of what was done at the time, given the parallels of the U.S economy between the present time and the 1930s. There must be a temptation to try the same tactic, and then raise the gold price dramatically in a move which would certainly support reserves within those nations which still have major gold holdings.
Indeed, if monetary authorities worldwide sees the gold price really start to take off, this kind of process has to become even more of a temptation as a big global move into gold could exacerbate the global financial crisis in that it would show that people no longer have faith in the economic status quo (it can be argued that already they don't) and the the current crisis of confidence could be severely worsened by such a rush.
In an article published late last year, Mark Mahaffey of Hinde Capital, argued that such a possibility existed and pointed out that "the fear for anyone who is in credit is that the financial system could become geared towards negating debt which, in turn, would destroy the value of their assets. One way of bypassing this threat is to buy gold. However a general shift to gold would undermine the power of central banks and their influence on the economy."
Of course the monetary situation nowadays is completely different and the banning of gold holdings, and subsequent revaluation would be much harder to accomplish domestically - and even more so globally. Back in 1933 the dollar was on the gold standard which meant that, in theory at least, each dollar could be exchanged for the same value in gold. Nowadays all currencies are effectively fiat money with no solid backing (except perhaps of a fiat dollar), and to revert to a gold standard would require an upward revaluation of the gold price beyond belief.
But, there is a precedent out there and while we think the idea is unlikely, it might appeal to someone who is prepared to try radical means to stabilise the economy if all other measures fail.
And - consider this thought - are shortages of gold coins from national mints due to a total underestimation of demand, or part of government policies to control gold flows into private hands. We think the former, but the conspiracy theorists no doubt have other views.
By Lawrence Williams
Read Entire Article
(LONDON) - Whether one believes in the GATA premise that the gold price is being held down by a gigantic conspiracy between the World's Central Banks, Governments and some major banking institutions or not, there is little doubt that governmental-initiated currency manipulation does occur, and if one looks at gold as money then it is logical that some degree of manipulation here also takes place at Central Bank level.
Whether one can call this a global conspiracy, or part of the general process of stabilising currencies and exchange rates, depends perhaps on which side of the fence you are sitting. In a way this is similar to the terrorist/freedom fighter debate!
But, history does tell us that the US government, in the days of a fixed gold price, did intervene in a very direct manner with President F.D. Roosevelt banning the "hoarding of gold coin, gold bullion, and gold certificates" and thus forcing US citizens to sell to Federal Reserve at $20 an ounce. Subsequently the Fed raised the price of gold to $35 an ounce.
President Obama is known to be a Roosevelt disciple and he must be well aware of what was done at the time, given the parallels of the U.S economy between the present time and the 1930s. There must be a temptation to try the same tactic, and then raise the gold price dramatically in a move which would certainly support reserves within those nations which still have major gold holdings.
Indeed, if monetary authorities worldwide sees the gold price really start to take off, this kind of process has to become even more of a temptation as a big global move into gold could exacerbate the global financial crisis in that it would show that people no longer have faith in the economic status quo (it can be argued that already they don't) and the the current crisis of confidence could be severely worsened by such a rush.
In an article published late last year, Mark Mahaffey of Hinde Capital, argued that such a possibility existed and pointed out that "the fear for anyone who is in credit is that the financial system could become geared towards negating debt which, in turn, would destroy the value of their assets. One way of bypassing this threat is to buy gold. However a general shift to gold would undermine the power of central banks and their influence on the economy."
Of course the monetary situation nowadays is completely different and the banning of gold holdings, and subsequent revaluation would be much harder to accomplish domestically - and even more so globally. Back in 1933 the dollar was on the gold standard which meant that, in theory at least, each dollar could be exchanged for the same value in gold. Nowadays all currencies are effectively fiat money with no solid backing (except perhaps of a fiat dollar), and to revert to a gold standard would require an upward revaluation of the gold price beyond belief.
But, there is a precedent out there and while we think the idea is unlikely, it might appeal to someone who is prepared to try radical means to stabilise the economy if all other measures fail.
And - consider this thought - are shortages of gold coins from national mints due to a total underestimation of demand, or part of government policies to control gold flows into private hands. We think the former, but the conspiracy theorists no doubt have other views.
By Lawrence Williams
Read Entire Article
Letter From a Chrysler Dealer
May 19, 2009
My name is George C. Joseph. I am the sole owner of Sunshine Dodge-Isuzu, a family owned and operated business in Melbourne, Florida. My family bought and paid for this automobile franchise 35 years ago in 1974. I am the second generation to manage this business.
We currently employ 50+ people and before the economic slowdown we employed over 70 local people. We are active in the community and the local chamber of commerce. We deal with several dozen local vendors on a day to day basis and many more during a month. All depend on our business for part of their livelihood.
We are financially strong with great respect in the market place and community. We have strong local presence and stability.
I work every day the store is open, nine to ten hours a day. I know most of our customers and all our employees. Sunshine Dodge is my life.
On Thursday, May 14, 2009 I was notified that my Dodge franchise, that we purchased, will be taken away from my family on June 9, 2009 without compensation and given to another dealer at no cost to them.
My new vehicle inventory consists of 125 vehicles with a financed balance of 3 million dollars. This inventory becomes impossible to sell with no factory incentives beyond June 9, 2009.
Without the Dodge franchise we can no longer sell a new Dodge as "new," nor will we be able to do any warranty service work. Additionally, my Dodge parts inventory, (approximately $300,000.) is virtually worthless without the ability to perform warranty service. There is no offer from Chrysler to buy back the vehicles or parts inventory.
Our facility was recently totally renovated at Chrysler’s insistence, incurring a multi-million dollar debt in the form of a mortgage at Sun Trust Bank
HOW IN THE UNITED STATES OF AMERICA CAN THIS HAPPEN?
THIS IS A PRIVATE BUSINESS NOT A GOVERNMENT ENTITY
This is beyond imagination! My business is being stolen from me through NO FAULT OF OUR OWN. We did NOTHING wrong.
This atrocity will most likely force my family into bankruptcy. This will also cause our 50+ employees to be unemployed. How will they provide for their families? This is a total economic disaster.
HOW CAN THIS HAPPEN IN A FREE MARKET ECONOMY IN THE UNITED STATES OF AMERICA?
I beseech your help, and look forward to your reply. Thank you.
Sincerely,
George C. Joseph
President & Owner
Sunshine Dodge-Isuzu
Read Entire Article
My name is George C. Joseph. I am the sole owner of Sunshine Dodge-Isuzu, a family owned and operated business in Melbourne, Florida. My family bought and paid for this automobile franchise 35 years ago in 1974. I am the second generation to manage this business.
We currently employ 50+ people and before the economic slowdown we employed over 70 local people. We are active in the community and the local chamber of commerce. We deal with several dozen local vendors on a day to day basis and many more during a month. All depend on our business for part of their livelihood.
We are financially strong with great respect in the market place and community. We have strong local presence and stability.
I work every day the store is open, nine to ten hours a day. I know most of our customers and all our employees. Sunshine Dodge is my life.
On Thursday, May 14, 2009 I was notified that my Dodge franchise, that we purchased, will be taken away from my family on June 9, 2009 without compensation and given to another dealer at no cost to them.
My new vehicle inventory consists of 125 vehicles with a financed balance of 3 million dollars. This inventory becomes impossible to sell with no factory incentives beyond June 9, 2009.
Without the Dodge franchise we can no longer sell a new Dodge as "new," nor will we be able to do any warranty service work. Additionally, my Dodge parts inventory, (approximately $300,000.) is virtually worthless without the ability to perform warranty service. There is no offer from Chrysler to buy back the vehicles or parts inventory.
Our facility was recently totally renovated at Chrysler’s insistence, incurring a multi-million dollar debt in the form of a mortgage at Sun Trust Bank
HOW IN THE UNITED STATES OF AMERICA CAN THIS HAPPEN?
THIS IS A PRIVATE BUSINESS NOT A GOVERNMENT ENTITY
This is beyond imagination! My business is being stolen from me through NO FAULT OF OUR OWN. We did NOTHING wrong.
This atrocity will most likely force my family into bankruptcy. This will also cause our 50+ employees to be unemployed. How will they provide for their families? This is a total economic disaster.
HOW CAN THIS HAPPEN IN A FREE MARKET ECONOMY IN THE UNITED STATES OF AMERICA?
I beseech your help, and look forward to your reply. Thank you.
Sincerely,
George C. Joseph
President & Owner
Sunshine Dodge-Isuzu
Read Entire Article
Tuesday, May 19, 2009
Local Banks Face Big Losses
Journal Study of 940 Lenders Shows Potential for Deep Hit on Commercial Property
Commercial real-estate loans could generate losses of $100 billion by the end of next year at more than 900 small and midsize U.S. banks if the economy's woes deepen, according to an analysis by The Wall Street Journal.
Such loans, which fund the construction of shopping malls, office buildings, apartment complexes and hotels, could account for nearly half the losses at the banks analyzed by the Journal, consuming capital that is an essential cushion against bad loans.
Total losses at those banks could surpass $200 billion over that period, according to the Journal's analysis, which utilized the same worst-case scenario the federal government used in its recent stress tests of 19 large banks. Under that scenario, more than 600 small and midsize banks could see their capital shrink to levels that usually are considered worrisome by federal regulators. The potential losses could exceed revenue over that period at nearly all the banks analyzed by the Journal.
The potential losses on commercial real estate are by far the largest problem facing the midsize and small banks, easily exceeding losses on home loans, which could total about $49 billion, according to the Journal's analysis. Nearly one-third of the banks could see their capital slip to risky levels because of commercial real-estate losses, the Journal found.
The Journal, using data contained in banks' filings with the Federal Reserve, examined the financial health of 940 small and midsize banks. It applied the loan-loss criteria that the Fed used in its stress tests of the largest banks.
The findings are a stark reminder that the U.S. banking industry's problems stretch far beyond the 19 giants scrutinized in the government stress tests. Regulators and investors have focused on too-big-to-fail banks such as Bank of America Corp. and Citigroup Inc. But more than 8,000 other lenders throughout the country are being squeezed by the recession and real-estate crash.
[potential losses through 2010]
"They are in just much worse shape" than the big banks, says Terry McEvoy, an Oppenheimer & Co. analyst who reviewed the Journal's analysis. "There is a lot less earnings power at these banks."
The Fed this month estimated that the 19 stress-tested banks could face losses of $599 billion if the agency's gloomiest economic scenario comes true. For the 10 large companies found to need additional capital, most of the shortfalls are manageable.
Few smaller banks are likely to attract the bargain-hunting investors now expressing interest in recapitalizing the industry's giants. Many smaller banks are trying to bolster their capital by selling assets and making fewer loans.
A further drop in lending threatens to prolong the recession. "It's certainly a challenge for the economy," says Allen Tischler, a senior credit officer at Moody's Investors Service.
Banks unable to replenish capital could face a tightening regulatory vise. Some of the weakest institutions are likely to fail, although few analysts predict anything close to the 1,256 closings between 1985 and 1992. Regulators have seized 58 banks since the start of 2008, including 33 so far this year.
By MAURICE TAMMAN and DAVID ENRICH
Read Entire Article
Commercial real-estate loans could generate losses of $100 billion by the end of next year at more than 900 small and midsize U.S. banks if the economy's woes deepen, according to an analysis by The Wall Street Journal.
Such loans, which fund the construction of shopping malls, office buildings, apartment complexes and hotels, could account for nearly half the losses at the banks analyzed by the Journal, consuming capital that is an essential cushion against bad loans.
Total losses at those banks could surpass $200 billion over that period, according to the Journal's analysis, which utilized the same worst-case scenario the federal government used in its recent stress tests of 19 large banks. Under that scenario, more than 600 small and midsize banks could see their capital shrink to levels that usually are considered worrisome by federal regulators. The potential losses could exceed revenue over that period at nearly all the banks analyzed by the Journal.
The potential losses on commercial real estate are by far the largest problem facing the midsize and small banks, easily exceeding losses on home loans, which could total about $49 billion, according to the Journal's analysis. Nearly one-third of the banks could see their capital slip to risky levels because of commercial real-estate losses, the Journal found.
The Journal, using data contained in banks' filings with the Federal Reserve, examined the financial health of 940 small and midsize banks. It applied the loan-loss criteria that the Fed used in its stress tests of the largest banks.
The findings are a stark reminder that the U.S. banking industry's problems stretch far beyond the 19 giants scrutinized in the government stress tests. Regulators and investors have focused on too-big-to-fail banks such as Bank of America Corp. and Citigroup Inc. But more than 8,000 other lenders throughout the country are being squeezed by the recession and real-estate crash.
[potential losses through 2010]
"They are in just much worse shape" than the big banks, says Terry McEvoy, an Oppenheimer & Co. analyst who reviewed the Journal's analysis. "There is a lot less earnings power at these banks."
The Fed this month estimated that the 19 stress-tested banks could face losses of $599 billion if the agency's gloomiest economic scenario comes true. For the 10 large companies found to need additional capital, most of the shortfalls are manageable.
Few smaller banks are likely to attract the bargain-hunting investors now expressing interest in recapitalizing the industry's giants. Many smaller banks are trying to bolster their capital by selling assets and making fewer loans.
A further drop in lending threatens to prolong the recession. "It's certainly a challenge for the economy," says Allen Tischler, a senior credit officer at Moody's Investors Service.
Banks unable to replenish capital could face a tightening regulatory vise. Some of the weakest institutions are likely to fail, although few analysts predict anything close to the 1,256 closings between 1985 and 1992. Regulators have seized 58 banks since the start of 2008, including 33 so far this year.
By MAURICE TAMMAN and DAVID ENRICH
Read Entire Article
Hedge Funds Making Big Bets on Gold
NEW YORK -(Dow Jones)- Hedge fund firms Paulson & Co. and Lone Pine Capital made big bets on gold during the first quarter, becoming the No. 1 and No. 2 shareholders, respectively, in the SPDR Gold Trust (GLD) exchange-traded fund, according to regulatory filings.
Paulson & Co. - run by John Paulson, who had already been beefing up his exposure to gold companies - bought 31.5 million shares of the ETF during the first quarter, according to its mandatory end-of-first-quarter holdings report with the Securities and Exchange Commission. That stake would be worth more than $2.8 billion if Paulson still holds all those shares at present.
Stephen Mandel's Lone Pine bought 26.5 million shares of the ETF, which would be worth $2.4 billion if it still holds those shares. Lone Pine didn't immediately return a message seeking comment.
Many hedge fund managers have been increasing their gold investments lately. More than 28% of the SPDR Gold Trust ETF's outstanding stock was owned by hedge funds as of the end of the first quarter, according to Factset Research Systems.
The increased bets on gold come as the price of the yellow metal have remained high, above $900 an ounce. Funds also see hard assets as insurance against further turmoil in the financial system, including a decline in the value of paper currency.
Most active investing in gold has been by Paulson.
In March, Paulson paid $1.3 billion to buy Anglo American PLC's (AAUK) remaining stake in South African miner AngloGold Ashanti Ltd. (AU). Paulson also recently introduced to investors a new share class pegged on the price of gold.
David Einhorn of Greenlight Capital, who had also been buying more gold-exposed stocks, added to his SPDR Gold Trust position during the first quarter as well.
Paulson, a merger arbitrager by trade, became the highest-paid hedge fund manager in 2007 when he bet against securities tied to subprime mortgages. His funds also produced double-digit gains in 2008, when the industry as a whole showed an average loss of 19%, according to Hedge Fund Research.
Mandel's Lone Pine, which according to Factset now has almost 20% of its equity portfolio in the ETF, stumbled last September along with other hedge funds. The firm, however, was not among the funds reported to have barred investors from withdrawing money from its funds.
-By Joseph Checkler, Dow Jones Newswires; 201-938-4297; joseph.checkler@dowjones.com
Read Entire Article
Paulson & Co. - run by John Paulson, who had already been beefing up his exposure to gold companies - bought 31.5 million shares of the ETF during the first quarter, according to its mandatory end-of-first-quarter holdings report with the Securities and Exchange Commission. That stake would be worth more than $2.8 billion if Paulson still holds all those shares at present.
Stephen Mandel's Lone Pine bought 26.5 million shares of the ETF, which would be worth $2.4 billion if it still holds those shares. Lone Pine didn't immediately return a message seeking comment.
Many hedge fund managers have been increasing their gold investments lately. More than 28% of the SPDR Gold Trust ETF's outstanding stock was owned by hedge funds as of the end of the first quarter, according to Factset Research Systems.
The increased bets on gold come as the price of the yellow metal have remained high, above $900 an ounce. Funds also see hard assets as insurance against further turmoil in the financial system, including a decline in the value of paper currency.
Most active investing in gold has been by Paulson.
In March, Paulson paid $1.3 billion to buy Anglo American PLC's (AAUK) remaining stake in South African miner AngloGold Ashanti Ltd. (AU). Paulson also recently introduced to investors a new share class pegged on the price of gold.
David Einhorn of Greenlight Capital, who had also been buying more gold-exposed stocks, added to his SPDR Gold Trust position during the first quarter as well.
Paulson, a merger arbitrager by trade, became the highest-paid hedge fund manager in 2007 when he bet against securities tied to subprime mortgages. His funds also produced double-digit gains in 2008, when the industry as a whole showed an average loss of 19%, according to Hedge Fund Research.
Mandel's Lone Pine, which according to Factset now has almost 20% of its equity portfolio in the ETF, stumbled last September along with other hedge funds. The firm, however, was not among the funds reported to have barred investors from withdrawing money from its funds.
-By Joseph Checkler, Dow Jones Newswires; 201-938-4297; joseph.checkler@dowjones.com
Read Entire Article
Brazil and China Eye Plan to Axe Dollar
Financial Times
Brazil and China will work towards using their own currencies in trade transactions rather than the US dollar, according to Brazil’s central bank and aides to Luiz Inácio Lula da Silva, Brazil’s president.
The move follows recent Chinese challenges to the status of the dollar as the world’s leading international currency.
Mr Lula da Silva, who is visiting Beijing this week, and Hu Jintao, China’s president, first discussed the idea of replacing the dollar with the renminbi and the real as trade currencies when they met at the G20 summit in London last month.
An official at Brazil’s central bank stressed that talks were at an early stage. He also said that what was under discussion was not a currency swap of the kind China recently agreed with Argentina and which the US had agreed with several countries, including Brazil.
“Currency swaps are not necessarily trade related,” the official said. “The funds can be drawn down for any use. What we are talking about now is Brazil paying for Chinese goods with reals and China paying for Brazilian goods with renminbi.”
Henrique Meirelles and Zhou Xiaochuan, governors of the two countries’ central banks, were expected to meet soon to discuss the matter, the official said.
Mr Zhou recently proposed replacing the US dollar as the world’s leading currency with a new international reserve currency, possibly in the form of special drawing rights (SDRs), a unit of account used by the International Monetary Fund.
In an essay posted on the People’s Bank of China’s website, Mr Zhou said the goal would be to create a reserve currency “that is disconnected from individual nations”.
In September, Brazil and Argentina signed an agreement under which importers and exporters in the two countries may make and receive payments in pesos and reals, although they may also continue to use the US dollar if they prefer.
By Jonathan Wheatley in São Paulo
Read Entire Article
Brazil and China will work towards using their own currencies in trade transactions rather than the US dollar, according to Brazil’s central bank and aides to Luiz Inácio Lula da Silva, Brazil’s president.
The move follows recent Chinese challenges to the status of the dollar as the world’s leading international currency.
Mr Lula da Silva, who is visiting Beijing this week, and Hu Jintao, China’s president, first discussed the idea of replacing the dollar with the renminbi and the real as trade currencies when they met at the G20 summit in London last month.
An official at Brazil’s central bank stressed that talks were at an early stage. He also said that what was under discussion was not a currency swap of the kind China recently agreed with Argentina and which the US had agreed with several countries, including Brazil.
“Currency swaps are not necessarily trade related,” the official said. “The funds can be drawn down for any use. What we are talking about now is Brazil paying for Chinese goods with reals and China paying for Brazilian goods with renminbi.”
Henrique Meirelles and Zhou Xiaochuan, governors of the two countries’ central banks, were expected to meet soon to discuss the matter, the official said.
Mr Zhou recently proposed replacing the US dollar as the world’s leading currency with a new international reserve currency, possibly in the form of special drawing rights (SDRs), a unit of account used by the International Monetary Fund.
In an essay posted on the People’s Bank of China’s website, Mr Zhou said the goal would be to create a reserve currency “that is disconnected from individual nations”.
In September, Brazil and Argentina signed an agreement under which importers and exporters in the two countries may make and receive payments in pesos and reals, although they may also continue to use the US dollar if they prefer.
By Jonathan Wheatley in São Paulo
Read Entire Article
Monday, May 18, 2009
The Housing Bubble: Greenspan's Wayward Son
Peter Schiff
When, during the invasion of Iraq, the United States Government issued its famous deck of playing cards with the 52 arch villains of the Iraqi police state, Saddam Hussein's face adorned the Ace of Spades. If the Obama Administration wanted to engage in a similar public relations campaign for the real estate crisis, the top card should be reserved for Alan Greenspan.
Yet in a speech this Tuesday before the National Association of Realtors, Sir Alan “the-bubble-blower” claimed that his low interest rate policies in the early and middle years of this decade had no effect on mortgage rates or real estate prices. As a result, he claims no responsibility for the subprime mortgage crisis. But even current Treasury Secretary Timothy Geithner, who shared interest rate policy responsibility as governor of the New York Fed during the Greenspan regime, recently admitted that overly accommodative policy helped inflate the bubble. So what does Greenspan know that everyone else doesn't?
His primary defense is that mortgage rates were a function of long-term interest rates which were simply not responding to the movement in short term rates, which he did control. While it is true that the flow of capital from foreign creditors with excess dollars did keep long rates low despite rising short rates, this “conundrum” was not the leading factor in the housing bubble. Although rates on thirty-year fixed rate mortgages are based on long-term bonds, by 2005 such loans had become an endangered species. The housing bubble was all about adjustable-rate mortgages with 1-7 year teaser rates primarily based on the Fed funds rate.
The rock bottom teaser rates, permitted by the 1% Fed funds rate, were the primary reason that many home buyers were able to qualify for mortgages they couldn't otherwise afford, and in turn, to bid up home prices to bubble levels. By pushing down the cost of short-term money, the Fed enabled homebuyers to make big bets on rising real estate prices. Without the Fed's help, few borrowers would have “qualified” for these risky mortgages and real estate prices never would have been bid up so high.
Greenspan expresses exasperation now, as he did then, that his careful nudging of interest rates higher by quarter point increments did not translate into corresponding increases in long-term rates. Unfortunately, according to Greenspan, the markets would not cooperate with his wise guidance, and to his dismay, mortgage rates fell despite his best efforts. As they say in Texas, this dog will just not hunt. If the “measured pace” of his quarter point hikes were too slow to produce the desired effect, why didn't Greenspan jack up the pressure? With interest rates far below the official inflation rate for many years during the bubble, he certainly had plenty of room to maneuver. The claim that he was unhappy results of his rate hikes, despite his having done nothing to adjust that policy, is ridiculous.
In addition to his colossal errors on interest rate policy there were many other ways Greenspan blew air into the real estate bubble. One example was what the market called the “Greenspan put.” By creating the perception in word and deed (since proven accurate) that the Fed would backstop any major market or economic declines, lenders became more comfortable making risky loans. In an often quoted 2004 speech, Greenspan went so far as to actively encourage the use of adjustable-rate mortgages and praised home equity extractions for their role in contributing to economic growth. In fact, rather than criticizing homeowners for treating their houses like ATM machines, he often praised the innovative ways in which such homeowners were “managing” their personal balance sheets. Greenspan was as much a proponent of leverage for homeowners on Main Street as he was for bankers on Wall Street.
The bottom line is that Greenspan fathered the housing bubble and now he refuses to acknowledge kinship of his wayward child. His denial of responsibility is an act of stunning bravado, and is a testament to his ability to turn even the simplest of situations into an impenetrable tangle of theories and statistics. The private sector jokers who now hold top dishonors in our pack of economic villains are easily trumped by the Maestro. The fact that Greenspan still has any credibility shows just how little understanding the general public, including Wall Street and the media, actually have about this crisis.
Read Entire Article
When, during the invasion of Iraq, the United States Government issued its famous deck of playing cards with the 52 arch villains of the Iraqi police state, Saddam Hussein's face adorned the Ace of Spades. If the Obama Administration wanted to engage in a similar public relations campaign for the real estate crisis, the top card should be reserved for Alan Greenspan.
Yet in a speech this Tuesday before the National Association of Realtors, Sir Alan “the-bubble-blower” claimed that his low interest rate policies in the early and middle years of this decade had no effect on mortgage rates or real estate prices. As a result, he claims no responsibility for the subprime mortgage crisis. But even current Treasury Secretary Timothy Geithner, who shared interest rate policy responsibility as governor of the New York Fed during the Greenspan regime, recently admitted that overly accommodative policy helped inflate the bubble. So what does Greenspan know that everyone else doesn't?
His primary defense is that mortgage rates were a function of long-term interest rates which were simply not responding to the movement in short term rates, which he did control. While it is true that the flow of capital from foreign creditors with excess dollars did keep long rates low despite rising short rates, this “conundrum” was not the leading factor in the housing bubble. Although rates on thirty-year fixed rate mortgages are based on long-term bonds, by 2005 such loans had become an endangered species. The housing bubble was all about adjustable-rate mortgages with 1-7 year teaser rates primarily based on the Fed funds rate.
The rock bottom teaser rates, permitted by the 1% Fed funds rate, were the primary reason that many home buyers were able to qualify for mortgages they couldn't otherwise afford, and in turn, to bid up home prices to bubble levels. By pushing down the cost of short-term money, the Fed enabled homebuyers to make big bets on rising real estate prices. Without the Fed's help, few borrowers would have “qualified” for these risky mortgages and real estate prices never would have been bid up so high.
Greenspan expresses exasperation now, as he did then, that his careful nudging of interest rates higher by quarter point increments did not translate into corresponding increases in long-term rates. Unfortunately, according to Greenspan, the markets would not cooperate with his wise guidance, and to his dismay, mortgage rates fell despite his best efforts. As they say in Texas, this dog will just not hunt. If the “measured pace” of his quarter point hikes were too slow to produce the desired effect, why didn't Greenspan jack up the pressure? With interest rates far below the official inflation rate for many years during the bubble, he certainly had plenty of room to maneuver. The claim that he was unhappy results of his rate hikes, despite his having done nothing to adjust that policy, is ridiculous.
In addition to his colossal errors on interest rate policy there were many other ways Greenspan blew air into the real estate bubble. One example was what the market called the “Greenspan put.” By creating the perception in word and deed (since proven accurate) that the Fed would backstop any major market or economic declines, lenders became more comfortable making risky loans. In an often quoted 2004 speech, Greenspan went so far as to actively encourage the use of adjustable-rate mortgages and praised home equity extractions for their role in contributing to economic growth. In fact, rather than criticizing homeowners for treating their houses like ATM machines, he often praised the innovative ways in which such homeowners were “managing” their personal balance sheets. Greenspan was as much a proponent of leverage for homeowners on Main Street as he was for bankers on Wall Street.
The bottom line is that Greenspan fathered the housing bubble and now he refuses to acknowledge kinship of his wayward child. His denial of responsibility is an act of stunning bravado, and is a testament to his ability to turn even the simplest of situations into an impenetrable tangle of theories and statistics. The private sector jokers who now hold top dishonors in our pack of economic villains are easily trumped by the Maestro. The fact that Greenspan still has any credibility shows just how little understanding the general public, including Wall Street and the media, actually have about this crisis.
Read Entire Article
Japan Loses Top Foreign Rating
TOKYO (Reuters) - Moody's stripped Japan of its coveted AAA rating on its foreign currency debt on Monday, rekindling some speculation that other major economies may pay for their efforts to revive growth with credit downgrades.
Unlike many of its peers in the top triple-A category, the world's No.2 economy relies mainly on domestic funding and Moody's combined the cut in the largely symbolic foreign rating with an upgrade by a notch to domestic government bonds.
The move, which Moody's said would unify all Japanese government debt at a new Aa2 level, had limited impact on the Japanese bond market bracing for record debt supply to finance the government's record spending.
It coincided with a survey of Japanese manufacturers that showed sentiment edged up from record lows this month, keeping alive hopes that a disastrous first quarter marked a low point in Japan's and the world economy's worst recession in six decades.
But as governments from Beijing to Washington have committed trillions of dollars to kickstart their economies, ballooning debt and deficits raised questions about the ability of nations such as United States or Britain to keep their top credit grades.
"The move to lower Japan's foreign currency bond rating from Aaa opens the way for speculation about whether Moody's will take similar actions on other triple-A ratings," said Kenro Kawano, senior rates strategist at Credit Suisse in Tokyo.
Analysts, however, did not expect markets to change their view of the local debt market, with the Japan saddled with the biggest public debt among industrialized nations, but also able to tap a vast pool of domestic savings.
"What we are seeing is an appropriate normalization across Japan's various debt obligations. Given the size of Japan's overall public deficit it obviously should not enjoy the highest rating," said Glenn Maguire, economist with Societe Generale in Hong Kong.
LINGERING DOUBTS
Major stock markets in Europe and most of Asia fell on Monday, reflecting lingering doubts about the strength and timing of the long-awaited economic recovery as signs of improvement ahead go hand in hand with evidence of immediate pain.
Tokyo shares .N225 closed 2.4 percent down and the index of top European shares .FTEU3 was 1 percent lower tracking Wall Street losses on Friday. But a gauge of Asian markets outside of Japan .MIAPJ0000PUS rose 1.7 percent, pulled up by gains in India .BSESN, where stocks soared as much as 17 percent after a resounding election victory by the ruling Congress party.
Monday's monthly Reuters survey of Japan's top companies followed Friday's better-than-expected machinery orders data for April and a U.S. consumer survey showing confidence at its highest since last September's collapse of Lehman Brothers.
U.S. industrial output fell at a slower pace in April and a top European Central Bank policymaker also offered some encouragement on Monday, saying the ECB has already done enough to help the euro zone economy.
However, tentative signs of life came against a backdrop of deeper-than-feared first-quarter declines in the U.S. and euro zone economies and signs that companies around the world are still struggling with a slump in global trade and demand.
The euro area economy shrank 2.5 percent in January-March, more than forecast, dragged down by a sharp 3.8 percent slump in Germany, data showed on Friday.
By Rika Otsuka and Izumi Nakagawa
Read Entire Article
Unlike many of its peers in the top triple-A category, the world's No.2 economy relies mainly on domestic funding and Moody's combined the cut in the largely symbolic foreign rating with an upgrade by a notch to domestic government bonds.
The move, which Moody's said would unify all Japanese government debt at a new Aa2 level, had limited impact on the Japanese bond market bracing for record debt supply to finance the government's record spending.
It coincided with a survey of Japanese manufacturers that showed sentiment edged up from record lows this month, keeping alive hopes that a disastrous first quarter marked a low point in Japan's and the world economy's worst recession in six decades.
But as governments from Beijing to Washington have committed trillions of dollars to kickstart their economies, ballooning debt and deficits raised questions about the ability of nations such as United States or Britain to keep their top credit grades.
"The move to lower Japan's foreign currency bond rating from Aaa opens the way for speculation about whether Moody's will take similar actions on other triple-A ratings," said Kenro Kawano, senior rates strategist at Credit Suisse in Tokyo.
Analysts, however, did not expect markets to change their view of the local debt market, with the Japan saddled with the biggest public debt among industrialized nations, but also able to tap a vast pool of domestic savings.
"What we are seeing is an appropriate normalization across Japan's various debt obligations. Given the size of Japan's overall public deficit it obviously should not enjoy the highest rating," said Glenn Maguire, economist with Societe Generale in Hong Kong.
LINGERING DOUBTS
Major stock markets in Europe and most of Asia fell on Monday, reflecting lingering doubts about the strength and timing of the long-awaited economic recovery as signs of improvement ahead go hand in hand with evidence of immediate pain.
Tokyo shares .N225 closed 2.4 percent down and the index of top European shares .FTEU3 was 1 percent lower tracking Wall Street losses on Friday. But a gauge of Asian markets outside of Japan .MIAPJ0000PUS rose 1.7 percent, pulled up by gains in India .BSESN, where stocks soared as much as 17 percent after a resounding election victory by the ruling Congress party.
Monday's monthly Reuters survey of Japan's top companies followed Friday's better-than-expected machinery orders data for April and a U.S. consumer survey showing confidence at its highest since last September's collapse of Lehman Brothers.
U.S. industrial output fell at a slower pace in April and a top European Central Bank policymaker also offered some encouragement on Monday, saying the ECB has already done enough to help the euro zone economy.
However, tentative signs of life came against a backdrop of deeper-than-feared first-quarter declines in the U.S. and euro zone economies and signs that companies around the world are still struggling with a slump in global trade and demand.
The euro area economy shrank 2.5 percent in January-March, more than forecast, dragged down by a sharp 3.8 percent slump in Germany, data showed on Friday.
By Rika Otsuka and Izumi Nakagawa
Read Entire Article
Friday, May 15, 2009
Gold: 'It's a Bargain at $930 an Ounce'
London Telegraph
From a long-term perspective, gold is a bargain at recent prices in the $900 to $930 an ounce . . . and will remain so even as it begins to move into a higher trading range.
Recent gold-market developments and technical price action – along with broader economic and financial-market developments – suggest gold is bracing for a resumption of its long march upward and a retest of its historic high in the months ahead.
First and foremost, the bullish outlook for gold rests on the increasing likelihood of accelerating U.S. inflation in the years to come – and an associated unprecedented rise in investor demand for the yellow metal.
This nascent inflation has not yet been reflecting in world financial markets. But, judging from anecdotal evidence and the financial press – and the warnings of a growing number of institutional investment managers – we believe a gradual, subtle, but important, upward shift in inflation expectations is already under way.
Inflation doves (and others fearing imminent deflation) point to the currently low, almost negligible, rates of consumer price inflation and the narrow interest-rate spread between ordinary US Treasury securities and US Treasury Inflation-Protected Securities (TIPS) as evidence that inflation and inflation expectations remain subdued. This – along with other important factors that we'll discuss in subsequent posts – has helped keep gold prices down in recent months.
We think those looking at the US Consumer Price Index are focused on the wrong inflation indicator. Instead, a look at the gross domestic product price deflator, a broader, more reliable, and less volatile inflation indicator – rising at an annual rate of 2.9pc in this year's first quarter – should be enough to put fear in the hearts of economic policy-makers . . . but, as far as we can tell, they're looking at the CPI and still worrying more about deflation.
Importantly, in our view, if only a small percentage of investors become worried about inflation, gold could, and likely will, benefit long before any sign of a broad-based rise in inflation expectations appears in the interest-rate differential between ordinary Treasury securities and TIPS, the so-called TIPS spread.
Because of the relative size of the markets, a small shift of investor interest toward gold can have a magnified effect on the metal's price . . . but the same small shift in interest away from ordinary Treasury securities in favour of TIPS may have no noticeable impact on relative interest rates between the two types of securities.
By Jeffery Nichols
Read Entire Article
From a long-term perspective, gold is a bargain at recent prices in the $900 to $930 an ounce . . . and will remain so even as it begins to move into a higher trading range.
Recent gold-market developments and technical price action – along with broader economic and financial-market developments – suggest gold is bracing for a resumption of its long march upward and a retest of its historic high in the months ahead.
First and foremost, the bullish outlook for gold rests on the increasing likelihood of accelerating U.S. inflation in the years to come – and an associated unprecedented rise in investor demand for the yellow metal.
This nascent inflation has not yet been reflecting in world financial markets. But, judging from anecdotal evidence and the financial press – and the warnings of a growing number of institutional investment managers – we believe a gradual, subtle, but important, upward shift in inflation expectations is already under way.
Inflation doves (and others fearing imminent deflation) point to the currently low, almost negligible, rates of consumer price inflation and the narrow interest-rate spread between ordinary US Treasury securities and US Treasury Inflation-Protected Securities (TIPS) as evidence that inflation and inflation expectations remain subdued. This – along with other important factors that we'll discuss in subsequent posts – has helped keep gold prices down in recent months.
We think those looking at the US Consumer Price Index are focused on the wrong inflation indicator. Instead, a look at the gross domestic product price deflator, a broader, more reliable, and less volatile inflation indicator – rising at an annual rate of 2.9pc in this year's first quarter – should be enough to put fear in the hearts of economic policy-makers . . . but, as far as we can tell, they're looking at the CPI and still worrying more about deflation.
Importantly, in our view, if only a small percentage of investors become worried about inflation, gold could, and likely will, benefit long before any sign of a broad-based rise in inflation expectations appears in the interest-rate differential between ordinary Treasury securities and TIPS, the so-called TIPS spread.
Because of the relative size of the markets, a small shift of investor interest toward gold can have a magnified effect on the metal's price . . . but the same small shift in interest away from ordinary Treasury securities in favour of TIPS may have no noticeable impact on relative interest rates between the two types of securities.
By Jeffery Nichols
Read Entire Article
Congress Must Audit the Federal Reserve
On May 5, Rep. Alan Grayson (D-FL) grilled Federal Reserve inspector general Elizabeth Coleman. What knowledge did she have of Bloomberg's report that the Fed had made trillions of dollars in off-balance sheet transactions? Did she know who received the trillion dollars that was added to the Fed's balance sheets since last September? Was there any investigation into why the Fed didn't rescue Lehman Brothers, a move that sent shock waves through the financial sector?
To all of these questions, Coleman professed total ignorance, and assured the Congress there were presently no investigations taking place.
What madness is this? The economy is in shambles, and the group most responsible for keeping our financial system stable has no answers and doesn't care to find any. The Federal Reserve is accountable to no one. It has no budget, no Congressional committee monitors its operations, and although the Government Accountability Office (GAO) is tasked with auditing the Fed, it is so constrained as to be useless.
The GAO is prohibited from auditing: transactions for or with a foreign central bank, government, or government financing organization; deliberations, decisions, or actions on monetary policy matters; transactions made under the direction of the Federal Open Market Committee; and any communication among members of the Board of Governors and employees of the Fed related to the above.
When the Democratic Chairman of the House Banking Committee, Henry Gonzales, introduced a modest proposal for opening the Fed up to Congressional scrutiny in 1993, President Clinton rejected Gonzales' bill. The bill merely asked for a Congressional audit of the Fed's operations, with minutes and video of policy meetings released to Congress in a timely manner. Clinton argued that Gonzalez's reforms would "run the risk of undermining market confidence in the Fed."
Clinton's argument is hard to believe even on the surface: shouldn't the assurance that Congress has knowledge of the Fed's activities improve confidence in the market? Why should "market confidence" depend on more secrecy than is accorded to the Pentagon?
Since the government is not accountable to the market, but only to the public and Congress, if there is no Congressional oversight and no election, there is no accountability at all. Indeed, the Fed is essentially an oligarchy of the banking elite. When the President names a Fed chairman, it's from a list of people already approved by the Fed's Board of Governors. The Federal Reserve System, by the way, is privately owned.
As Congressman Barney Frank, a co-sponsor of the Gonzales bill, put it: "If you take the principles that people are talking about nowadays," such as "reforming government and opening up government—the Fed violates it more than any other branch of government."
That was 1993. Today, the Fed has no standpoint of credibility to claim that its secrecy protects market confidence. By all appearances, trillions of dollars are going missing. HR1207, and its companion bill in the Senate, S604, would amend the code to remove the restrictions on the GAO audits noted above, and mandate a full audit by the end of 2010. The bill has 134 co-sponsors in the House, with wide bi-partisan support, including Lynn Woolsey (D-CA), co-chair of the Progressive Caucus; Stephanie Sandlin (D-SD), chair of the Blue Dog Coalition; Ron Paul (R-TX), the bill's sponsor whose Rally for the Republic competed with the Republican National Convention in Minneapolis and drew 10,000 people; and Pete Sessions (R-TX), chair of the Republican Congressional Campaign Committee. In the Senate, the sponsor is Bernie Sanders.
Puzzlingly, Rep. Frank, who now heads the House Financial Services Committee, is stonewalling on the bill. And given their reputation for championing transparency and accountability, it's remarkable that none of Washtenaw County's representatives in Congress—Reps. Dingell and Shauer, Senators Stabenow and Levin—have co-sponsored the bill. As their constituents, it is our responsibility to get them on board. The collapse of our financial institutions has devastated our country, and it's unconscionable that Congress has abdicated its responsibility to protect the taxpayers from the irresponsible actions of the privately-owned, publicly-accountable central bank.
We are collecting signatures on an ongoing basis at www.campaignforliberty.com (there's a big banner on the home page) for a petition to Congressman Dingell to join the 149 members of Congress co-sponsoring this bill. Or, call or write his district office at 301 West Michigan, Suite 305, Ypsilanti, MI, 48197, tel (734) 481-1100. And feel free to drop Rep. Frank a line, too, and remind him the wisdom of his words in 1993.
By Adam DeAngeli
Read Entire Article
To all of these questions, Coleman professed total ignorance, and assured the Congress there were presently no investigations taking place.
What madness is this? The economy is in shambles, and the group most responsible for keeping our financial system stable has no answers and doesn't care to find any. The Federal Reserve is accountable to no one. It has no budget, no Congressional committee monitors its operations, and although the Government Accountability Office (GAO) is tasked with auditing the Fed, it is so constrained as to be useless.
The GAO is prohibited from auditing: transactions for or with a foreign central bank, government, or government financing organization; deliberations, decisions, or actions on monetary policy matters; transactions made under the direction of the Federal Open Market Committee; and any communication among members of the Board of Governors and employees of the Fed related to the above.
When the Democratic Chairman of the House Banking Committee, Henry Gonzales, introduced a modest proposal for opening the Fed up to Congressional scrutiny in 1993, President Clinton rejected Gonzales' bill. The bill merely asked for a Congressional audit of the Fed's operations, with minutes and video of policy meetings released to Congress in a timely manner. Clinton argued that Gonzalez's reforms would "run the risk of undermining market confidence in the Fed."
Clinton's argument is hard to believe even on the surface: shouldn't the assurance that Congress has knowledge of the Fed's activities improve confidence in the market? Why should "market confidence" depend on more secrecy than is accorded to the Pentagon?
Since the government is not accountable to the market, but only to the public and Congress, if there is no Congressional oversight and no election, there is no accountability at all. Indeed, the Fed is essentially an oligarchy of the banking elite. When the President names a Fed chairman, it's from a list of people already approved by the Fed's Board of Governors. The Federal Reserve System, by the way, is privately owned.
As Congressman Barney Frank, a co-sponsor of the Gonzales bill, put it: "If you take the principles that people are talking about nowadays," such as "reforming government and opening up government—the Fed violates it more than any other branch of government."
That was 1993. Today, the Fed has no standpoint of credibility to claim that its secrecy protects market confidence. By all appearances, trillions of dollars are going missing. HR1207, and its companion bill in the Senate, S604, would amend the code to remove the restrictions on the GAO audits noted above, and mandate a full audit by the end of 2010. The bill has 134 co-sponsors in the House, with wide bi-partisan support, including Lynn Woolsey (D-CA), co-chair of the Progressive Caucus; Stephanie Sandlin (D-SD), chair of the Blue Dog Coalition; Ron Paul (R-TX), the bill's sponsor whose Rally for the Republic competed with the Republican National Convention in Minneapolis and drew 10,000 people; and Pete Sessions (R-TX), chair of the Republican Congressional Campaign Committee. In the Senate, the sponsor is Bernie Sanders.
Puzzlingly, Rep. Frank, who now heads the House Financial Services Committee, is stonewalling on the bill. And given their reputation for championing transparency and accountability, it's remarkable that none of Washtenaw County's representatives in Congress—Reps. Dingell and Shauer, Senators Stabenow and Levin—have co-sponsored the bill. As their constituents, it is our responsibility to get them on board. The collapse of our financial institutions has devastated our country, and it's unconscionable that Congress has abdicated its responsibility to protect the taxpayers from the irresponsible actions of the privately-owned, publicly-accountable central bank.
We are collecting signatures on an ongoing basis at www.campaignforliberty.com (there's a big banner on the home page) for a petition to Congressman Dingell to join the 149 members of Congress co-sponsoring this bill. Or, call or write his district office at 301 West Michigan, Suite 305, Ypsilanti, MI, 48197, tel (734) 481-1100. And feel free to drop Rep. Frank a line, too, and remind him the wisdom of his words in 1993.
By Adam DeAngeli
Read Entire Article
Capitalism Could Fail Like Communism
CNBC
A sustainable recovery will occur only when the corporate system will be cleaned of losses and capitalism risks collapsing if this does not happen, Marc Faber, the author of “The Gloom, Boom & Doom Report,” told CNBC Friday.
The central banks will continue to print money at full speed, but long-term this strategy will lead to a fall in purchasing power and living standards, especially in developed countries, Faber said.
The years 2006 and 2007 were “the peak of prosperity” and the world economy is not likely to return soon to that level, he added.
“I think the final low in markets will occur when the system is cleaned out,” Faber said.
Unless the system is cleaned out of losses, “the way communism collapsed, capitalism will collapse,” according to Faber. “The best way to deal with any economic problem is to let the market work it through.”
US Will Go Bust
The Federal Reserve’s policy of printing money is destabilizing the markets and creating “enormous volatility” said Faber, who in his latest “Gloom, Boom & Doom Report” wrote that it was money printing that had pushed stock prices up.
Read Entire Article
A sustainable recovery will occur only when the corporate system will be cleaned of losses and capitalism risks collapsing if this does not happen, Marc Faber, the author of “The Gloom, Boom & Doom Report,” told CNBC Friday.
The central banks will continue to print money at full speed, but long-term this strategy will lead to a fall in purchasing power and living standards, especially in developed countries, Faber said.
The years 2006 and 2007 were “the peak of prosperity” and the world economy is not likely to return soon to that level, he added.
“I think the final low in markets will occur when the system is cleaned out,” Faber said.
Unless the system is cleaned out of losses, “the way communism collapsed, capitalism will collapse,” according to Faber. “The best way to deal with any economic problem is to let the market work it through.”
US Will Go Bust
The Federal Reserve’s policy of printing money is destabilizing the markets and creating “enormous volatility” said Faber, who in his latest “Gloom, Boom & Doom Report” wrote that it was money printing that had pushed stock prices up.
Read Entire Article
Thursday, May 14, 2009
FDIC Planning For Huge Bank Failure?
The Pragmatic Capitalist
Late reports this evening are citing an anonymous source that says the FDIC is preparing some sort of superfund that could handle the failure of a large “systemically important financial institution.”
Reuters reports:
“Another source familiar with the FDIC’s plans said on Tuesday that the agency was considering seeking to create a new fund to help deal with any resolution of systemically important financial institutions.”
The details on this story out of Reuters are very vague so this is mostly speculation, but such a development would not be shocking to anyone familiar with the state of the U.S. banking sector. FDIC losses are quickly mounting and they are certainly ill-prepared to handle a major failure. Shoring up the FDIC is a wise insurance policy if nothing else. Or they could be preparing some U.S. banks for the same fate as Chrysler and GM. A welcome development in my opinion.
As regular readers know, the recent government induced rally [4] created the perfect environment in which to raise capital [5], but these capital raises only place band aids on axe wounds. The patient is suffering from cancer and we’re performing chemo to no avail. The tumors must be removed. Instead, we continue to allow the banks to operate with the toxic assets on their balance sheets. The government knows real estate losses and credit card losses are mounting. They also know the TALF & PPIP will not succeed as the banks have no incentive to sell assets.
Is there a chance the economy rebounds sharply and these banks are able to earn their way out of this crisis? Certainly, but the odds of a prolonged and sluggish recovery are far too high in my opinion to allow these banks to operate in their current state. The government knows they can’t prop up 8,000 banks forever and I suspect they are none too pleased with the stress test results if the economy were to remain sluggish for longer than expected. The only resolution: FDIC receivership. In this case, perhaps a rather large one….
Read Entire Article
Late reports this evening are citing an anonymous source that says the FDIC is preparing some sort of superfund that could handle the failure of a large “systemically important financial institution.”
Reuters reports:
“Another source familiar with the FDIC’s plans said on Tuesday that the agency was considering seeking to create a new fund to help deal with any resolution of systemically important financial institutions.”
The details on this story out of Reuters are very vague so this is mostly speculation, but such a development would not be shocking to anyone familiar with the state of the U.S. banking sector. FDIC losses are quickly mounting and they are certainly ill-prepared to handle a major failure. Shoring up the FDIC is a wise insurance policy if nothing else. Or they could be preparing some U.S. banks for the same fate as Chrysler and GM. A welcome development in my opinion.
As regular readers know, the recent government induced rally [4] created the perfect environment in which to raise capital [5], but these capital raises only place band aids on axe wounds. The patient is suffering from cancer and we’re performing chemo to no avail. The tumors must be removed. Instead, we continue to allow the banks to operate with the toxic assets on their balance sheets. The government knows real estate losses and credit card losses are mounting. They also know the TALF & PPIP will not succeed as the banks have no incentive to sell assets.
Is there a chance the economy rebounds sharply and these banks are able to earn their way out of this crisis? Certainly, but the odds of a prolonged and sluggish recovery are far too high in my opinion to allow these banks to operate in their current state. The government knows they can’t prop up 8,000 banks forever and I suspect they are none too pleased with the stress test results if the economy were to remain sluggish for longer than expected. The only resolution: FDIC receivership. In this case, perhaps a rather large one….
Read Entire Article
Former Official Slams Fed for Inflation Risk
JEKYLL ISLAND, Georgia (Reuters) - A sharp critic of the Federal Reserve and prominent authority on monetary policy on Tuesday slammed the U.S. central bank for risking inflation and warned that government action had "caused, prolonged and worsened" the country's financial crisis.
John Taylor, a former undersecretary of the Treasury for international affairs and author of the widely cited Taylor Rule of central banking, ran his own numbers for the U.S. economy and said the Fed's monetary stance was way too loose.
"My calculation implies that we may not have as much time before the Fed has to remove excess reserves and raise the rate," he said in remarks prepared for a financial markets conference hosted by the Federal Reserve Bank of Atlanta.
"We don't know what will happen in the future, but there is a risk here and it is a systemic risk," he said.
He noted a recent Financial Times report of internal Fed estimates using the Taylor Rule. This found interest rates should be minus 5 percent at the moment to compensate for the headwinds on the U.S. economy.
But Taylor said that his own analysis suggested a rate of 0.5 percent, indicating that the Fed could have a lot less time to raise interest rates than it may currently think.
In addition, the Fed has pumped hundreds of billions of dollars into the economy to support credit markets in the face of a severe U.S. recession, and may find it very hard to remove this expansion by shrinking its balance sheet in the future.
"While Federal Reserve officials say that they will be able to sell newly acquired assets at a sufficient rate to prevent these reserves from igniting inflation, they or their successors may face political difficulties in doing so.
"That raises doubts and therefore risks. The risk is systemic because of the economy-wide harm such an outcome would cause," Taylor said.
Taylor used these cases to illustrate examples of where government intervention had magnified market failures and turned them into system-wide problems.
However, he saw much more risk coming from the planned U.S. government budget deficits, which could place the Fed under extreme pressure to allow inflation, as this would diminish the debt burden.
"The emphasis should be on proposals to stop the systemically risky budget deficits projected out as far as the eye can see, to exit from extraordinary monetary policy actions, and to end the bailout mentality," he said.
Giving the Fed formal responsibility for ensuring the soundness of the broader financial system would interfere with the Fed's task of ensuring stable and low inflation and sustainable economic growth, Taylor said. Congress is considering giving systemic risk oversight powers to a regulatory agency as a way to prevent the future financial crises.
"Locating a systemic risk regulator at the Fed is not a good idea because it would interfere with its essential monetary policy function," Taylor said.
Taylor questioned whether a systemic risk regulator would have been able to prevent the financial crisis in the first place. For example, a systemic regulator would not have been able to prevent the Fed from holding rates low for so long, he said.
By Mark Felsenthal and Alister Bull
Read Entire Article
John Taylor, a former undersecretary of the Treasury for international affairs and author of the widely cited Taylor Rule of central banking, ran his own numbers for the U.S. economy and said the Fed's monetary stance was way too loose.
"My calculation implies that we may not have as much time before the Fed has to remove excess reserves and raise the rate," he said in remarks prepared for a financial markets conference hosted by the Federal Reserve Bank of Atlanta.
"We don't know what will happen in the future, but there is a risk here and it is a systemic risk," he said.
He noted a recent Financial Times report of internal Fed estimates using the Taylor Rule. This found interest rates should be minus 5 percent at the moment to compensate for the headwinds on the U.S. economy.
But Taylor said that his own analysis suggested a rate of 0.5 percent, indicating that the Fed could have a lot less time to raise interest rates than it may currently think.
In addition, the Fed has pumped hundreds of billions of dollars into the economy to support credit markets in the face of a severe U.S. recession, and may find it very hard to remove this expansion by shrinking its balance sheet in the future.
"While Federal Reserve officials say that they will be able to sell newly acquired assets at a sufficient rate to prevent these reserves from igniting inflation, they or their successors may face political difficulties in doing so.
"That raises doubts and therefore risks. The risk is systemic because of the economy-wide harm such an outcome would cause," Taylor said.
Taylor used these cases to illustrate examples of where government intervention had magnified market failures and turned them into system-wide problems.
However, he saw much more risk coming from the planned U.S. government budget deficits, which could place the Fed under extreme pressure to allow inflation, as this would diminish the debt burden.
"The emphasis should be on proposals to stop the systemically risky budget deficits projected out as far as the eye can see, to exit from extraordinary monetary policy actions, and to end the bailout mentality," he said.
Giving the Fed formal responsibility for ensuring the soundness of the broader financial system would interfere with the Fed's task of ensuring stable and low inflation and sustainable economic growth, Taylor said. Congress is considering giving systemic risk oversight powers to a regulatory agency as a way to prevent the future financial crises.
"Locating a systemic risk regulator at the Fed is not a good idea because it would interfere with its essential monetary policy function," Taylor said.
Taylor questioned whether a systemic risk regulator would have been able to prevent the financial crisis in the first place. For example, a systemic regulator would not have been able to prevent the Fed from holding rates low for so long, he said.
By Mark Felsenthal and Alister Bull
Read Entire Article
"I'm Gonna Make You An Offer You Cant Refuse" - Hank Paulson
Documents Reveal How Paulson Forced Banks To Take TARP Cash
Remember the infamous meeting when then Treasury Secretary Hank Paulson had the heads of 9 major banks come down to Washington? It was then that he made them the offer they couldn't refuse. Take TARP cash, or else!
Now Judicial Watch -- the conservative watchdog organization which was famous for giving the Clinton administration fits -- has uncovered secret documents from that meeting via the Freedom of Information Act. A few of them are really quite stunning.
The first 1-pager is Paulson's talking points for the bank. It basically confirms that he put a gun to all their heads. It says they must agree to take their cash, and that if they protested, then each bank's regulator would force them to take it anyway.
See Actual Documents Here
Read Entire Article
Remember the infamous meeting when then Treasury Secretary Hank Paulson had the heads of 9 major banks come down to Washington? It was then that he made them the offer they couldn't refuse. Take TARP cash, or else!
Now Judicial Watch -- the conservative watchdog organization which was famous for giving the Clinton administration fits -- has uncovered secret documents from that meeting via the Freedom of Information Act. A few of them are really quite stunning.
The first 1-pager is Paulson's talking points for the bank. It basically confirms that he put a gun to all their heads. It says they must agree to take their cash, and that if they protested, then each bank's regulator would force them to take it anyway.
See Actual Documents Here
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UBS suggests gold has potential US$2,500/oz upside
GOLD EQUITIES UNDERPERFORMANCE TO CONTINUE
Despite the worst global recession in 70 years, UBS has upgraded commodities from underweight to a small overweight, especially in precious metals.
UBS Investment Research has moved gold to overweight from neutral, citing the "broad uncertainties in the current macroclimate."
In their Q-Series: Gold research, analysts Daniel Brebner and James Luke, strategist John Reade and economist Larry Hatheway said they have determined that "future returns on gold are likely to be positively asymmetric, with potential upside US$2,500/oz."
The team also suggested that the current environment as "having a ‘low margin of error' for central bankers."
"We would characterize the prospects for deflation/inflation as becoming more extreme, and have illustrated this concept as a wider than usual probability cone for inflationary outcomes. The higher potential for policy error is generating considerable interest in certain assets that are perceived as ‘stores of values', including gold," they said.
In their analysis, UBS forecast downside risks up until the year 2015 being limited to a probability cone of caUS$500/oz (down ca50% from current levels) vs. upside risks of a probability cone of caUS$2,5000/oz (ca160%).
The "opportunity cost" that investors experience in holding gold bullion is declining, UBS asserts, which is generating some capital inflows into the commodity; "furthermore, given the current deflationary pressures it is possible that this cost could continue to decline over the near term."
UBS also suggests that central banks are not likely to sell much gold. "With the cost of fixing the global financial system likely to run into the multi-trillions of dollars, the utility of gold fixing this gaping hole needs to be seriously questioned, at least in the sense that selling reserves would not bring sufficient revenues to make a difference."
Furthermore, the analysts advise, "if a central bank were to sell gold in large quantities there would potentially be the risk that, despite the recognition that its currency was not backed by gold, confidence could deteriorate further."
"Even more dangerous for a central bank being a large seller would be the appearance of a large buyer," they added. "If, for instance, an Asian or Middle Eastern central bank were to bid for a large tonnage of gold, the implications would potentially be: (1) highly supportive for the gold price; and (2) a potential political powder keg for the seller."
Meanwhile, although there is a possibility the IMF could sell gold to fund economic bailouts, UBS asserts "a potential sale is likely to be well flagged to the market, thus not significantly impacting the gold impart."
Although investors question if a new gold standard will be adopted to support flagging currencies, UBS analysts also do not believe that proponents of a return to the gold standard have made much headway due to institutional, economic, and political reasons.
By Dorothy Kosich
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Despite the worst global recession in 70 years, UBS has upgraded commodities from underweight to a small overweight, especially in precious metals.
UBS Investment Research has moved gold to overweight from neutral, citing the "broad uncertainties in the current macroclimate."
In their Q-Series: Gold research, analysts Daniel Brebner and James Luke, strategist John Reade and economist Larry Hatheway said they have determined that "future returns on gold are likely to be positively asymmetric, with potential upside US$2,500/oz."
The team also suggested that the current environment as "having a ‘low margin of error' for central bankers."
"We would characterize the prospects for deflation/inflation as becoming more extreme, and have illustrated this concept as a wider than usual probability cone for inflationary outcomes. The higher potential for policy error is generating considerable interest in certain assets that are perceived as ‘stores of values', including gold," they said.
In their analysis, UBS forecast downside risks up until the year 2015 being limited to a probability cone of caUS$500/oz (down ca50% from current levels) vs. upside risks of a probability cone of caUS$2,5000/oz (ca160%).
The "opportunity cost" that investors experience in holding gold bullion is declining, UBS asserts, which is generating some capital inflows into the commodity; "furthermore, given the current deflationary pressures it is possible that this cost could continue to decline over the near term."
UBS also suggests that central banks are not likely to sell much gold. "With the cost of fixing the global financial system likely to run into the multi-trillions of dollars, the utility of gold fixing this gaping hole needs to be seriously questioned, at least in the sense that selling reserves would not bring sufficient revenues to make a difference."
Furthermore, the analysts advise, "if a central bank were to sell gold in large quantities there would potentially be the risk that, despite the recognition that its currency was not backed by gold, confidence could deteriorate further."
"Even more dangerous for a central bank being a large seller would be the appearance of a large buyer," they added. "If, for instance, an Asian or Middle Eastern central bank were to bid for a large tonnage of gold, the implications would potentially be: (1) highly supportive for the gold price; and (2) a potential political powder keg for the seller."
Meanwhile, although there is a possibility the IMF could sell gold to fund economic bailouts, UBS asserts "a potential sale is likely to be well flagged to the market, thus not significantly impacting the gold impart."
Although investors question if a new gold standard will be adopted to support flagging currencies, UBS analysts also do not believe that proponents of a return to the gold standard have made much headway due to institutional, economic, and political reasons.
By Dorothy Kosich
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Wednesday, May 13, 2009
Japan 'Would Avoid Dollar Bonds'
Japan's opposition party says it would refuse to buy American government bonds denominated in US dollars, if elected.
The chief finance spokesman of the Democratic Party of Japan, Masaharu Nakagawa, told the BBC he was worried about the future value of the dollar.
Japan has been a major buyer of US government bonds, helping the US finance its Federal budget deficits.
But, he added, it would continue to buy bonds only if they were denominated in yen - the so-called samurai bonds.
"If it's [in] yen, it's going to be all right," Mr Nakagawa said in an interview with the BBC World Service.
"We propose that we would buy [the US bonds], but it's yen, not dollar."
However observers say that, while the move would be a remarkable policy shift, it was unlikely that Mr Nakagawa's party will win the forthcoming election, due before mid-September, despite the unpopularity of the ruling Liberal party.
Risk
Such yen-denominated bonds would mean that America, rather than Japan, would be exposed to the risk of future falls in the value of the US currency.
Mr Nakagawa's demand echoes doubts about the future of the dollar expressed earlier this year by the Chinese Premier and the governor of China's central bank.
Both China and Japan have run large trade surpluses with the US for many years and have tended to invest the dollar surpluses in safe US Treasury bonds.
But both countries are worried that the value of these foreign exchange holdings could be jeopardised by a fall in the dollar.
Beijing, for example, has said it will issue its own bonds to fund any further lending to the International Monetary Fund and is believed to be diversifying out of dollars and into euros.
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The chief finance spokesman of the Democratic Party of Japan, Masaharu Nakagawa, told the BBC he was worried about the future value of the dollar.
Japan has been a major buyer of US government bonds, helping the US finance its Federal budget deficits.
But, he added, it would continue to buy bonds only if they were denominated in yen - the so-called samurai bonds.
"If it's [in] yen, it's going to be all right," Mr Nakagawa said in an interview with the BBC World Service.
"We propose that we would buy [the US bonds], but it's yen, not dollar."
However observers say that, while the move would be a remarkable policy shift, it was unlikely that Mr Nakagawa's party will win the forthcoming election, due before mid-September, despite the unpopularity of the ruling Liberal party.
Risk
Such yen-denominated bonds would mean that America, rather than Japan, would be exposed to the risk of future falls in the value of the US currency.
Mr Nakagawa's demand echoes doubts about the future of the dollar expressed earlier this year by the Chinese Premier and the governor of China's central bank.
Both China and Japan have run large trade surpluses with the US for many years and have tended to invest the dollar surpluses in safe US Treasury bonds.
But both countries are worried that the value of these foreign exchange holdings could be jeopardised by a fall in the dollar.
Beijing, for example, has said it will issue its own bonds to fund any further lending to the International Monetary Fund and is believed to be diversifying out of dollars and into euros.
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Dollar Index Goes Negative - Time to Buy Gold
US Dollar Index Enters Downtrend
After failing to take out its March highs on its most recent rally, the US Dollar index has since broken below its recent lows and entered into a new downtrend. The Dollar index also recently broke below its 200-day moving average, which is another negative technical sign.
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Tuesday, May 12, 2009
Dollar's Purchasing Power Annihilated
This is the chart they don't want you to see: the purchasing power of the dollar over the past 76 years has declined by 94%. And based on current monetary and fiscal policy, we have at least another 94% to go. The only question is whether this will be achieved in 76 months this time. (Click chart to enlarge.)
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U.S. Bank Shares: Pump Almost Over, Get Ready for the Dump
Seeking Alpha
For the past couple of weeks, bank shares have grown in share price faster than a steroid-induced bicep. There has not been much reported by the media in terms of negative news about the U.S. financial industry from Ben Bernanke, bank CEOs, or even the Federal Reserve, even though the bank stress tests resembled a public relations campaign much more than a stress test. Despite the rosy picture painted by the financial media of the U.S. banking industry and the consensus that “the worst is behind us now” by financial executives, the 3-ring circus that is the U.S. Federal Reserve, the U.S. financial industry, and the U.S. Treasury still can’t seem to get their stories straight.
Consider the following highlights (or lowlights depending on your viewpoint) from a story released by Bloomberg on May 11th:
“Bank of New York Mellon Corp., Capital One Financial Corp., U.S. Bancorp and BB&T Corp. will sell shares to repay U.S. aid after stress tests showed they don’t need additional cushion against a deeper recession. BNY Mellon, the world’s largest custody bank, said today it will sell $1 billion of stock in a public offering and may use the funds to repurchase preferred shares sold to the U.S. Treasury under the Troubled Asset Relief Program. Capital One said it would sell 56 million shares of common stock to raise as much as $1.55 billion, U.S. Bancorp said its sale would total about $2.5 billion and BB&T began a public offering of $1.5 billion of stock while reducing its dividend.”
“Regulators examining the 19 largest U.S. lenders last week said the four firms wouldn’t need more capital to survive a deeper, longer recession. U.S. Bancorp Chief Executive Officer Richard Davis and BB&T CEO Kelly King had both said they wanted to repay their $6.6 billion and $3.1 billion in TARP funds as quickly as possible. BNY Mellon got $3 billion from TARP.”
“This was something that was really hanging over the group, so a lot of peoples’ viewpoint on it is that, ‘Hey, the worst-case scenario got taken out, this group’s going to still be around,’” said Kevin Fitzsimmons, a Sandler O’Neill & Partners LP analyst. “
“Capital One, the McLean, Virginia-based credit-card lender that received $3.56 billion from TARP, said in a statement it would sell shares at $27.75 each, an 11 percent discount to the bank’s $31.34 closing price on May 8. The shares dropped $4.24, or 14 percent, to $27.10 at 4:03 p.m. in New York Stock Exchange composite trading.”
“KeyCorp, which the government deemed needed an additional $1.8 billion in capital after the stress test, today registered to sell as much as $750 million in common shares. The bank said it expects to raise about $739.4 million from the offering after expenses and commissions.”
“Cleveland-based KeyCorp, which last month slashed its dividend to 1 cent, said that because of the economic and regulatory environment the company didn’t expect to increase the quarterly dividend “for the foreseeable future and could further reduce or eliminate our common shares dividend.”
“We firmly believe this action is in the long-term best interests of our shareholders and our company because of the risk and uncertainty associated with being a TARP participant,” BB&T’s CEO Kelly King said in a statement. King said the decision to cut the dividend was “the worst day in my 37-year career.”
“Banks that accepted TARP money are subject to government oversight and restrictions on compensation that that they say put them at a disadvantage to competitors. Banks that want to repay the funds must get approval from the government and show they can sell debt in the public market without federal backing.”
“U.S. Bancorp also plans to sell $1 billion of five-year notes without a government guarantee as soon as today, according to a person familiar with the offering who declined to be identified because terms aren’t set.”
“Wells Fargo & Co., which the government said needed $13.7 billion in additional capital, raised $8.6 billion selling shares last week, more than planned. Goldman Sachs Group Inc. in April, before stress test results were released, said it would raise $5 billion to repay federal rescue funds. Principal Financial Group Inc., the Des Moines, Iowa-based life insurer, today said it would offer 42.3 million shares to raise funds for “general corporate purposes.”
“Morgan Stanley last week raised $8 billion by selling stock and debt. The stress tests found that New York-based Morgan Stanley needed $1.8 billion in additional common equity as a buffer against potential losses.”
So let’s analyze the most pertinent points from above:
Bank of New York Mellon Corp. (BK), Capital One Financial Corp. (COF), U.S. Bancorp (USB) and BB&T Corp. (BBT) will sell shares to repay U.S. aid after stress tests showed they don’t need additional cushion against a deeper recession. If there is a better example of an oxymoron, I don’t know one. So if these four financial institutions don’t need any more capital whatsoever, why do they need to execute significant secondary offerings that will inevitably massively dilute shareholder value. If they are so well capitalized as the stress test results indicated, why can’t they repay the TARP money from operational earnings?
Banks that accepted TARP money are subject to government oversight and restrictions on compensation. BB&T’s CEO Kelly King stated that he was cutting dividends and diluting shareholder value by offering another $1.5 billion of stock to help payback TARP money more quickly because it was in the best interests of shareholders. US Bancorp is conducting a secondary offering of $2.5 billion of new shares as well as an additional $1 billion offering of corporate debt and Capital One is offering $1.5billion of more shares.
Since when is slashing dividends and diluting shareholder stock in the best interests of shareholders, unless the shareholders are the executives that have used this pump and dump scheme to dump stock at artificially high prices and now can begin the process of paying back TARP money so they can start raising their compensation levels to obscene, exorbitant amounts again?
By - J.S. Kim
Read Entire Article
For the past couple of weeks, bank shares have grown in share price faster than a steroid-induced bicep. There has not been much reported by the media in terms of negative news about the U.S. financial industry from Ben Bernanke, bank CEOs, or even the Federal Reserve, even though the bank stress tests resembled a public relations campaign much more than a stress test. Despite the rosy picture painted by the financial media of the U.S. banking industry and the consensus that “the worst is behind us now” by financial executives, the 3-ring circus that is the U.S. Federal Reserve, the U.S. financial industry, and the U.S. Treasury still can’t seem to get their stories straight.
Consider the following highlights (or lowlights depending on your viewpoint) from a story released by Bloomberg on May 11th:
“Bank of New York Mellon Corp., Capital One Financial Corp., U.S. Bancorp and BB&T Corp. will sell shares to repay U.S. aid after stress tests showed they don’t need additional cushion against a deeper recession. BNY Mellon, the world’s largest custody bank, said today it will sell $1 billion of stock in a public offering and may use the funds to repurchase preferred shares sold to the U.S. Treasury under the Troubled Asset Relief Program. Capital One said it would sell 56 million shares of common stock to raise as much as $1.55 billion, U.S. Bancorp said its sale would total about $2.5 billion and BB&T began a public offering of $1.5 billion of stock while reducing its dividend.”
“Regulators examining the 19 largest U.S. lenders last week said the four firms wouldn’t need more capital to survive a deeper, longer recession. U.S. Bancorp Chief Executive Officer Richard Davis and BB&T CEO Kelly King had both said they wanted to repay their $6.6 billion and $3.1 billion in TARP funds as quickly as possible. BNY Mellon got $3 billion from TARP.”
“This was something that was really hanging over the group, so a lot of peoples’ viewpoint on it is that, ‘Hey, the worst-case scenario got taken out, this group’s going to still be around,’” said Kevin Fitzsimmons, a Sandler O’Neill & Partners LP analyst. “
“Capital One, the McLean, Virginia-based credit-card lender that received $3.56 billion from TARP, said in a statement it would sell shares at $27.75 each, an 11 percent discount to the bank’s $31.34 closing price on May 8. The shares dropped $4.24, or 14 percent, to $27.10 at 4:03 p.m. in New York Stock Exchange composite trading.”
“KeyCorp, which the government deemed needed an additional $1.8 billion in capital after the stress test, today registered to sell as much as $750 million in common shares. The bank said it expects to raise about $739.4 million from the offering after expenses and commissions.”
“Cleveland-based KeyCorp, which last month slashed its dividend to 1 cent, said that because of the economic and regulatory environment the company didn’t expect to increase the quarterly dividend “for the foreseeable future and could further reduce or eliminate our common shares dividend.”
“We firmly believe this action is in the long-term best interests of our shareholders and our company because of the risk and uncertainty associated with being a TARP participant,” BB&T’s CEO Kelly King said in a statement. King said the decision to cut the dividend was “the worst day in my 37-year career.”
“Banks that accepted TARP money are subject to government oversight and restrictions on compensation that that they say put them at a disadvantage to competitors. Banks that want to repay the funds must get approval from the government and show they can sell debt in the public market without federal backing.”
“U.S. Bancorp also plans to sell $1 billion of five-year notes without a government guarantee as soon as today, according to a person familiar with the offering who declined to be identified because terms aren’t set.”
“Wells Fargo & Co., which the government said needed $13.7 billion in additional capital, raised $8.6 billion selling shares last week, more than planned. Goldman Sachs Group Inc. in April, before stress test results were released, said it would raise $5 billion to repay federal rescue funds. Principal Financial Group Inc., the Des Moines, Iowa-based life insurer, today said it would offer 42.3 million shares to raise funds for “general corporate purposes.”
“Morgan Stanley last week raised $8 billion by selling stock and debt. The stress tests found that New York-based Morgan Stanley needed $1.8 billion in additional common equity as a buffer against potential losses.”
So let’s analyze the most pertinent points from above:
Bank of New York Mellon Corp. (BK), Capital One Financial Corp. (COF), U.S. Bancorp (USB) and BB&T Corp. (BBT) will sell shares to repay U.S. aid after stress tests showed they don’t need additional cushion against a deeper recession. If there is a better example of an oxymoron, I don’t know one. So if these four financial institutions don’t need any more capital whatsoever, why do they need to execute significant secondary offerings that will inevitably massively dilute shareholder value. If they are so well capitalized as the stress test results indicated, why can’t they repay the TARP money from operational earnings?
Banks that accepted TARP money are subject to government oversight and restrictions on compensation. BB&T’s CEO Kelly King stated that he was cutting dividends and diluting shareholder value by offering another $1.5 billion of stock to help payback TARP money more quickly because it was in the best interests of shareholders. US Bancorp is conducting a secondary offering of $2.5 billion of new shares as well as an additional $1 billion offering of corporate debt and Capital One is offering $1.5billion of more shares.
Since when is slashing dividends and diluting shareholder stock in the best interests of shareholders, unless the shareholders are the executives that have used this pump and dump scheme to dump stock at artificially high prices and now can begin the process of paying back TARP money so they can start raising their compensation levels to obscene, exorbitant amounts again?
By - J.S. Kim
Read Entire Article
Markets Losing Steam
Stock prices fell yesterday. We would not be surprised to see them fall some more – not simply because the stock market has just achieved its biggest two-month advance since the 1930s, but also because the economy remains just as ill as it was on March 9th, when the stock market rally first started.
The only thing about the economy that has changed during the last two months is the way folks TALK about it. Back in early March, when the Dow was making 12-year lows, the news media carried continuous stories of doom and gloom. A second Great Depression was all but certain.
But now that the Blue Chip index has jumped a whopping 2,000 points, most members of the financial press have recanted their faith in doom and gloom. “The economy is recovering,” they say. “The macro- economic data are showing signs of ‘improvement’ and ‘stabilization.’” Judgment Day has come and gone, they believe. Only the land of milk and honey and TARP fund re-payments awaits.
“While the [economic] numbers are still bad, they’re less bad,” beamed one typical professional investor last Friday.
And so what?
Falling more slowly is still falling…and it will never be rising.
So let’s take a dispassionate look at some of the recent economic reports…and then decide whether these data show signs of “improvement” and “stabilization.”
Last Friday, the Labor Department announced that 539,000 workers lost their jobs during the month of April. Jubilant investors cheered the job losses as “less than expected.” But the Labor Department simultaneously revised the job losses for February and March to totals that were 66,000 more than originally reported.
In other words, if you add the revised losses from February and March to the April total, you get 605,000 jobs lost in April, not 539,000. But even if we take the Labor Department’s numbers at face value, we wind up with 1,238,000 lost jobs since the stock market rally began in early March. What other signs of “stabilization” have surfaced since the rally began? Here’s a short list:
• Industrial production fell for the sixth straight month – hitting the lowest level since 1998.
• The ISM Index of business activity dropped for the seventh straight month.
• Factory utilization fell to it lowest level since recording- keeping for this data series began in 1967.
• The S&P/Case-Shiller Index of home prices fell for the 25th straight month.
• An additional 600,000 families lost their homes to foreclosure.
• The number of homeowners who fell 60 days behind on their mortgage payments grew to more than 5 million.
• The number of homeowners who owe more on their mortgages than their houses are worth grew to more than 8 million.
Obviously, investors do not collude with one another to ignore ominous economic data. It just happens. Happy delusions are infectious. We humans sometimes see what we want to see…and fail to see what we don’t want to see.
By Eric Fry
Read Entire Article
The only thing about the economy that has changed during the last two months is the way folks TALK about it. Back in early March, when the Dow was making 12-year lows, the news media carried continuous stories of doom and gloom. A second Great Depression was all but certain.
But now that the Blue Chip index has jumped a whopping 2,000 points, most members of the financial press have recanted their faith in doom and gloom. “The economy is recovering,” they say. “The macro- economic data are showing signs of ‘improvement’ and ‘stabilization.’” Judgment Day has come and gone, they believe. Only the land of milk and honey and TARP fund re-payments awaits.
“While the [economic] numbers are still bad, they’re less bad,” beamed one typical professional investor last Friday.
And so what?
Falling more slowly is still falling…and it will never be rising.
So let’s take a dispassionate look at some of the recent economic reports…and then decide whether these data show signs of “improvement” and “stabilization.”
Last Friday, the Labor Department announced that 539,000 workers lost their jobs during the month of April. Jubilant investors cheered the job losses as “less than expected.” But the Labor Department simultaneously revised the job losses for February and March to totals that were 66,000 more than originally reported.
In other words, if you add the revised losses from February and March to the April total, you get 605,000 jobs lost in April, not 539,000. But even if we take the Labor Department’s numbers at face value, we wind up with 1,238,000 lost jobs since the stock market rally began in early March. What other signs of “stabilization” have surfaced since the rally began? Here’s a short list:
• Industrial production fell for the sixth straight month – hitting the lowest level since 1998.
• The ISM Index of business activity dropped for the seventh straight month.
• Factory utilization fell to it lowest level since recording- keeping for this data series began in 1967.
• The S&P/Case-Shiller Index of home prices fell for the 25th straight month.
• An additional 600,000 families lost their homes to foreclosure.
• The number of homeowners who fell 60 days behind on their mortgage payments grew to more than 5 million.
• The number of homeowners who owe more on their mortgages than their houses are worth grew to more than 8 million.
Obviously, investors do not collude with one another to ignore ominous economic data. It just happens. Happy delusions are infectious. We humans sometimes see what we want to see…and fail to see what we don’t want to see.
By Eric Fry
Read Entire Article