The rumor going around this morning, is that the banks are all right on the night, and not in major deep dookie any longer. Hmmmm… Didn’t I tell you over a week ago that this was going to be the case? I said it because… I just don’t believe the Gov’t is going to “spook” the markets right now and release the “real results”… Of course I don’t know that to be a fact, it’s just my hunch. I could be all wet… But, at least I got the first part correct, if in fact the results print as rumored…

But then, Bloomberg printed a story last night that showed a handful of banks needing between $34 Billion and $2 Billion in additional capital… So… Let’s see which set of books the Gov’t reveals, eh?

OK… So the currencies all sold off on the news yesterday morning that the banks would need more capital, and then came back overnight on the latest rumor… As I said yesterday, the markets are all about the stress tests right now… Actually, I’m surprised the Gov’t didn’t delay them one more day so that the focus would be on the stress tests tomorrow, instead of the Jobs Jamboree!

Speaking of the Jobs Jamboree that will take place tomorrow… The ADP Challenger report printed yesterday and indicated that tomorrow’s Jobs data will show less jobs lost, and a number below 600K for the first time in 5 months! ADP says the jobs lost were 491K… And believe me now and hear me later on this, the media will eat this up, and be all ecstatic about the fall from 600K to 491K… As if… 491K is a “good number”! Well, yes, it’s better than 600K… But the reporting should all be balanced… Like… “Is this the turning point in job losses? Yes, their still almost 500,000 for the month, but that’s a fall of over 100,000. While one monthly report does not make a trend, just like one swallow doesn’t make a summer, this is good news, and we’ll be watching for signs of further improvement in May.”

I’m watching the Big Dog, euro, rally right now, from an overnight low of 1.3250, to its current level of 1.3330… As German March Manufacturing Orders surprised this morning with a rise of 3.3% in March. The European Central Bank (ECB) is meeting right now, and is expected to cut rates 25 BPS to 1.25%… I read a couple of stories yesterday regarding the ECB… The writers were saying how the Eurozone economy is in shambles and needs a larger than 25 BPS rate cut… But, I argue with that… The ECB wants to keep some rate cut arrows in their quiver, in case they need more rate cut stimulus in the coming months… They shouldn’t shoot them all now! That’s what the Fed did, and we know what that led to… Quantitative Easing!

But the Big Winner of yesterday and last night is the Aussie dollar (A$)… It’s on a moon shot, since the Reserve Bank of Australia (RBA) left rates unchanged the night before, and issued a balanced statement afterward, with emphasis on waiting to see the affects of the previous rate cuts. The A$ got an additional boost this morning when it was reported that the unemployment rate in Australia fell for the first time in 8 months! The A$ is 75-cents and change this morning, heading to 76-cents… A 7-month high!

Some commodities have been rising in price recently… I’ve chronicled the rise in the Oil price, but here’s one you don’t hear about every day, except of course if you listen to our friend, Jim Rogers, every day! I can hear Jim Rogers talking about sugar as if he’s sitting right here next to me… Sugar is heading to a 28-year high, as the crop in India fell short of expectations… And Wheat had gained 3 consecutive days now, on low yield estimates for the U.S. crop… I hear you Jim!

I would think that if the bank stress tests “somehow” show no insolvency risk, that risk taking will be back on the table, BIG TIME! So… I would think that if risk taking is back on the table, Gold, currencies and other commodities will be singing a different tune… A tune of Happy days are here again, The skies above are clear again, So let’s sing a song of cheer again, Happy days are here again… OK, admit it, you after singing along with this, you had a vision of Bugs Bunny dancing with a cane singing the song! HA!

Speaking of India… Yesterday, I told you about how the currency was rallying, and how my Currency Capitalist colleague, Ashish Advani, gave the currency the thumbs up in last month’s letter, and how Standard Chartered Plc was now bullish on rupees… Well, now add Society General (SOCGEN) to the list of rupee flag wavers! SOCGEN believes the rate cuts in India are a thing of the past, and it will be all seashells and balloons for the rupee going forward…

And while I’m talking about an Asian currency… I might as well head over to China and talk about how their stimulus continues to hit the nail on the head, and help to bring China’s economy out of their slowdown and doldrums. The Peoples Bank of China (PBOC) issued a report yesterday saying that the economy performed “better than expected” in the 1st QTR. This improved performance is helping the “managed currency” (renminbi) to gain ground VS the dollar once more…

I had a reporter follow up with me yesterday on my thoughts toward what China had on their minds… The reported asked me if I thought the Chinese would be under more pressure to allow the renminbi to float, if they are really pursuing a “wider use of the renminbi”… I said… I thought the Chinese would receive pressure to allow the renminbi to float, but no more than what they received in the past from the combo of Paulson, Schumer and Graham… (the U.S.!)

The Bank of England (BOE) is also meeting this morning to discuss rates… I would think it is almost inevitable that the BOE would leave rates unchanged… This has been the prevalent thought in the markets for a week now, and has led to the pound sterling making a very auspicious rally to 1.5170! What I think the BOE needs to do now, is to sit down with the markets and tell them what direction their Quantitative Easing (QE) is going… Will they limit the purchases, or increase them, etc… Not that any QE is good, but to be honest and transparent with the markets would be a step in the right direction for a central bank!

Yesterday, Norway’s Norges Bank lowered their internal rate 50 BPS to and internal rate of 1.5%. I was hoping they would only cut 25 BPS, but… This has all the makings of “the last rate cut”… You know, one big blow out to end the summer… Or… A star burns brightest right before it burns out… But, I now believe this will be the last cut in Norway…

Recall many moons ago I called this a “race to zero” regarding Central Banks around the world cutting interest rates? Well… It certainly has panned out that way, eh?

Have you ever heard of the book, “Black Swan”? The author Nassim Nicholas Taleb describes his theory of “Black Swan” as a large-impact, hard-to-predict, and rare event beyond the realm of normal expectations. Obviously we’ve had a few “Black Swans” in the past 2 years, eh? Any way, the thing I’m going for here is Mr. Taleb was speaking at a conference yesterday, and had this to say about commodities and Gold… “The global economy is heading into a big deflation though the risks of inflation are increasing as governments print more money. Gold and copper may rally massively as a result.”

Speaking of Gold… It has rallied the past two days, but could be just waiting in the wings for confirmation of two things… 1. the bank stress tests don’t show major problems… And 2. the Jobs Jamboree does show falling job losses… Silver has really gotten on the rally tracks too, outperforming Gold the past two days! Silver is back above $14… And that’s good news… That is unless you’ve dilly dallied your days away, and not taken advantage of the cheaper prices that have been available for some time now!

Hey! Remember last year, when I was involved in the Sovereign Society’s FX University and the Currency Tours? Well… We’re not going to go city to city this year… Instead, we’ll hold an FX University Currency Seminar for 3 days in Scottsdale AZ in Sept! So, if you missed the traveling troupe last year, we’ll be doing it even bigger and better this year! Mark your calendars for Sept. 24-27. You can find out more by visiting www.sovereignsociety.com

No word from the BOE or ECB, so I’ll just head to the Big Finish now… No wait! The BOE’s decision just flashed across the screens… Let’s see here… Oh, the BOE left rates unchanged (as expected, see above), and the announced that they will increase the size of their asset purchase program (Quantitative Easing) by 50 Billion sterling to 125 Billion sterling… Well… Let’s see here, the pound sterling is taking on some water after this announcement, as it should! Too bad for the sterling rally… But increasing QE is not healthy for a currency!

The ECB decision will come in about 45 minutes… I’ll be well on my way to figuring out my currency positions and trades needed by then… So, I’ll just go to the Big Finish now, for real this time!

Currencies today 5/7/09: A$ .7565, kiwi .5935, C$ .8575, euro 1.3330, sterling 1.5085, Swiss .88, rand 8.3440, krone 6.4875, SEK 7.8525, forint 208.75, zloty 3.2325, koruna 19.9250, yen 99.20, sing 1.4675, HKD 7.75, INR 49.27, China 6.8215, pesos 13, BRL 2.1130, dollar index 84, Oil $57.91, Silver $14.11, and Gold… $921.30

Source: It’s All About The Stress Test

The Silverton Bank was supposedly a key cog in the Southeast, according to the Wall Street Journal, and bankers in Georgia are saying that Silverton’s collapse could take down at least 8 to 12 other banks with ties to Silverton. Domino dancing…
(All day, all day) Watch them all fall down
(All day, all day) Domino dancing
(All day, all day) Watch them all fall down
(All day, all day, domino dancing)

I’m not being flippant about this folks… I’m trying to point out that the rot on the vine is deeper than the media and the leaders of this country would have you believe them to be. I keep coming back to that interview with Ron Paul that I saw in March, where he said, “people are saying that problems in other countries are worse than ours… Those people are wrong!”

Oh, and did you hear that Boston’s most storied newspaper, the Boston Globe, is going to be shut down? And one more item… Those “stress tests”? Well, wouldn’t you know it, the results are being delayed, due to the Banks debating the findings… Well, they have that right to do so… Maybe, the regulators didn’t understand something in their accounting methods, or something like that… Unfortunately, I believe the banks’ debating will be like arguing with an umpire over balls and strikes!

OK… Enough of the blood in the streets! Let’s talk about some good things… Like last week when the Bank of Canada (BOC) decided to do a Nancy Reagan, and just say “no” to Quantitative Easing… Let’s hope they don’t end up with egg on their collective faces should they need to implement Quantitative Easing at some point in the future… But I’m sure they have weighed all the facts to this point. Canada’s Banks are in tip top shape, compared to their neighbors to the south, and I’ll explain this about the Canadian dollar / loonie once more for those new to class… When Oil returns to higher levels, the loonie will follow… This currency is so juiced by energy prices, and Oil is the Big Kahuna…

And remember what you heard here first, last month, and that is that China would be the first to come out of the economic doldrums… I had someone ask me last week, why I thought China’s stimulus worked better than anyone else’s… Ahhh grasshopper, I’ve explained that before… But again, it’s very simple… With China being a Communist Country, they can dictate not only to whom the stimulus goes to, but HOW the stimulus is used… Imagine if you will the initial $150 Billion that was sent out last spring… If there were stipulations on how it was to be spent, maybe you’d have something, or better yet… The initial $700 Billion in TARP funds… They didn’t have strings attached, and the receivers didn’t use the funds to loan out, as “requested by the Treasury”, they threw it in the nearly empty treasure chest and sat on it… See the difference in the two methods?

It appears that the so-called “decoupling” is back on the table, as China and India seem to be coming out of the economic doldrums long before the U.S., Europe, and Japan will… Hmmmm…

OK… The Chinese renminbi has begun to move higher again, just when everyone thought the Chinese would batten down the hatches on currency appreciation. This is only happening because the Chinese economy is beginning to show signs of improvement.

Those signs of improvement in China are doing wonders for the Aussie dollar (A$)… Don’t look now, but the A$ has climbed past 73-cents! Aussie’s kissin’ cousin across the Tasman, New Zealand, is not seeing the same kind of McLovin the A$ is seeing… The Reserve Bank of New Zealand (RBNZ) left the door open to further rate cuts last week, while the Reserve Bank of Australia (RBA) is giving signals that the rate cuts may be nearing an end. The Tale of Two Central Banks…

A long time readers sent me a link to a story on Morningstar regarding our fave shiny metal… Gold… Here’s a snippet…

“Jon Nadler, a senior analyst at Kitco Bullion Dealers, points out that all of the world’s above-ground gold amounts to around 0.6% of total global wealth, so even if gold were at $10,000 per ounce, the metal would only amount to 6% of total global wealth.” (I know Jon, so I just had to use his quote!)

Here’s another snippet from someone else… “Singapore, Norway, Saudi Arabia and other member nations of the Organization of the Petroleum Exporting Countries are likely already increasing their allocation to gold, or likely to do so in the coming months. They would be somewhat ignorant and financially and economically illiterate not to do so.”

Everyone at the Total Wealth Symposium in Bermuda last week was talking about Gold… I see that it has slipped back below the $900 level, which I have taken as the line in the sand for buying opportunities… Could it go lower? Of course it could, but that wouldn’t change my mind as far as a sub $900 level being a buying opportunity to get it cheaper than where most people see it going…

Did you see that China announced last week that they had increased their holdings of Gold by 76% in the past 6 years? Hmmm… No wonder the last 6 years have been so kind to holders of the shiny metal, eh?

And… How about this for some “good news”… Ford outsold Toyota in April! Now, that’s something you don’t see every day! Well, maybe when Ford was selling their pick-em-up trucks like funnel cakes at a state fair… But not often, at least not to my recollection.

OK… The data cupboard is pretty feeble this week until we get to the end of the week, where the April Jobs Jamboree gets printed. We’ll see Pending Home Sales, Construction Spending today, and then not much, until later in the week… The initial forecast for jobs in April are showing a job loss of 606K… The weekly numbers show this forecast to be quite understated… But, as I’ve explained many times in the past, the Bureau of Labor Statistic (BLS) doesn’t use those Weekly Initial Jobless Claims… The BLS uses a survey of corporations, and then puts the survey in their witch’s caldron and stirs in the Birth / Death model, and comes out with “their number”…

Bad news for my little river town this past week, as Chrysler closed down the plant that had been operating in our city since the 60’s. Good thing we decided back in the late 90’s to diversify our income stream in the city! I was an alderman then, and recall this to be my greatest fear, that the city depended on one corporate entity so much… And the alderman at that time made great strides to diversify the city’s portfolio of income streams… So… That today, when the bad news hits, it doesn’t hit as hard as it would have if no diversification had taken place. You see… The overall risk to the portfolio was reduced!

Well, what does that lesson teach us? It should teach us the diversification is the most important monetary thing anyone should be thinking about! Diversification so that the asset classes in your portfolio have a low correlation to one another. That they have different pricing mechanisms. Currencies and metals represent the best diversifying assets to your already existing portfolio of stocks, bonds, mutual funds, and land… It is a proven fact that by adding currencies and metals to a portfolio, you will reduce the over risk in the portfolio! And…. Remember… 94% of a portfolio’s return is based on asset class selection…

Just thought I would give you an example of diversification in real life, and then apply it to the lesson for today… That’s how I always tried to explain things to my kids, and the older two are teachers today, and probably use the same methods for explanation!

The U.K. is on holiday today, as they decided to do May Day on the 4th! Either way, it was a 3-day weekend for those that celebrated May Day!

Currencies today 5/4/09: A$ .7330, kiwi .5720, C$ .8415, euro 1.3230, sterling 1.4845, Swiss .8770, rand 8.38, krone 6.5750, SEK 8.08, forint 218, zloty 3.33, koruna 20.14, yen 99.30, sing 1.4815, HKD 7.75, INR 49.90, China 6.8220, pesos 13.76, BRL 2.1725, dollar index 84.77, Oil $52.89, Silver $12.61, and Gold… $890.60

Source: The Rot On The Vine Goes Deeper

]]> http://www.contrarianprofits.com/articles/the-rot-on-the-vine-goes-deeper/16138/feed 0 http://www.contrarianprofits.com/articles/china-announces-a-stimulus-plan/14563 http://www.contrarianprofits.com/articles/china-announces-a-stimulus-plan/14563#comments Thu, 05 Mar 2009 13:00:11 +0000 Chuck Butler http://www.contrarianprofits.com/?p=14563 China to grow 8%? An end for Mark-to-markets?  What will the ECB do today?  Gold at a discount…. And Now… Today’s Pfennig!

We have the Bank of England (BOE) and the European Central Bank (ECB) meeting today. Look for rate cuts from both of them, as recessions are deepening in both camps. The BOE doesn’t have many arrows in their quiver, while the ECB has held some in reserve. I doubt the ECB would go for a “huge honkin’” rate cut today, as they are normally more stick in the mud thinking… The BOE will probably move rates nearer to zero…

The currencies all had a day to bounce yesterday, more on that in a minute… But the day on the trampoline…

• After recording its worst financial results ever last year, Warren Buffet’s Berkshire Hathaway Inc. (BRK.A, BRK.B) announced it would cut manufacturing jobs and close facilities to buffer itself against the recession. “Berkshire’s operating companies have taken and will continue to take cost reduction actions in response to the current economic situation, including curtailing production, reducing capital expenditures, closing facilities and reducing employment to partially compensate for the declines in demand,” the firm said in a regulatory filing yesterday, Bloomberg reported.

• By trading over-the-counter fixed-income derivatives, JPMorgan Chase & Co. (JPM) generated $5 billion in profits last year, Bloomberg reported citing two sources. The unit was among the most profitable for the company.

• Italian pharmaceutical company Recordati SpA is targeting higher profits and revenue in 2009 and is proposing a 16% increase in its dividend, Reuters reported. “The sales in the first two months are substantially in line with the expectations for the entire year for revenues of about 750 million euros ($946 million), operating profit of about 155 million euros ($195 million) and net profit of about 105 million euros ($132 million),” the company said in a statement.

• China may announce plans to double its $585 billion (4 trillion yuan) economic stimulus this week, Bloombergreported. “It would be a terrific boon to confidence to announce it at the NPC,” Stephen Green, Shanghai-based head of China research at Standard Chartered Bank plc, told Bloomberg.

• With job losses mounting and consumer confidence flagging, new sales contracts on existing homes fell a seasonally adjusted 7.7% in January, the National Association of Realtors said yesterday (Tuesday).  That means the index is down 6.4% from a year ago, MarketWatch.com reported. In December, the pending home sales index rose 4.8%, compared with a prior estimate of a 6.3% gain. The index is based on signed sales contracts; the contracts typically are signed a month or two before the sale is closed, which is when the sales are included in the NAR’s existing-home sales report. “We expect similarly soft home sales in the near term, but buyers are expected to respond to much improved affordability conditions and from the $8,000 first-time buyer tax credit” in the stimulus package, said NAR Chief Economist Lawrence Yun said in a statement. Pending sales for January fell in the Northeast, the South and the Midwest, but did actually rise in the West, the NAR said.

Source: Global Investment News Briefs Wednesday, March 4, 2009

The government earlier this week cited 19 Web sites – including Baidu, Google, Sohu, Sina, and Tianya – as purveyors of vulgar content that is morally or politically destructive.

Some results produced by search engines had “large amounts of pornographic links [and] after notification from the complaint center, the site did not take effective countermeasures,” the State Council Information Office said in a statement.

“Some Web sites have exploited loopholes in laws and regulations,” said Cai Minzhao, deputy chief of the Information Office. “They have used all kinds of ways to distribute content that is low-class, crude, and even vulgar, gravely damaging mores on the Internet.”

Cai made clear the “gravity and threat of vulgar current infesting the Internet,” and reminded Web sites that they are liable to face “stern punishment.”

While some of the companies reprimanded agree that it is their responsibility to self-censor, others were caught off guard by Beijing’s sudden crackdown.

“We find this extremely strange and are still figuring out what exactly happened,” a manager at Sohu.com Inc. (SOHU) told the Financial Times.

Cui Jin, a Google public relations officer in Beijing told Reuters that she had no comment on the citations, but added that the company abided by regulations.

“If [users] find content that is contrary to Chinese law, they can report it to Google. And if we find it’s truly illegal, we’ll deal with it according to the law,” said Cui.

If companies are confused, some analysts suggest it may be because Beijing is hiding its true motives for the sudden effort. While the government singled out “vulgar” and “crude” material not suitable for younger audiences, the real goal may be to clamp down political dissent in what has the potential to be a bumpy year.

“I’d guess that this is in response to all the sensitive dates in 2009. They want to tighten up,” Wang Junxiu, a Chinese pioneer of blogging platforms and a critic of censorship, told Reuters. “This is about more than pornography. We’ve had crackdowns on pornography since the start and they’ve never worked, so there must be more than that… It’s a warning.”

This year will mark the 20th anniversary of the infamous Tiananmen Square protest of 1989.

Unemployment, driven by the global financial crisis, is set to reach its annual growth target of 8% – a level many economists believe will contribute to social unrest.

“Unemployment among university graduates and migrant workers, caused by the global economic downturn and the shrinking of export industries will put much stress on Chinese society in 2009, even social risks,” Han Kang, vice-president of the National School of Administration in Beijing, told Xinhua.

“The 4-trillion-yuan stimulus plan, intended to boost the economy and ensure the 8% growth rate, may not create as many steady jobs as expected,” he added.

Whatever the reason, Beijing has been tightening the reigns on news organizations for infractions such as referring to Taiwan as a country, since the close of the Olympic Games.

In its bid to host the 2008 Olympic Games, Beijing liberalized its stance on Internet censorship. The government made even more concessions when journalists covering the Games openly criticized regulations they considered restrictive and overbearing. However, the Web sites of prominent Western news outlets such as the British Broadcasting Corporation (BBC) and Voice of America, which were accessible during the games, have since been re-blocked.

Beijing TRS Information Technology, China’s leading provider of search technology and text mining solutions told the Financial Times that it is working closely with the government to better “manage” public opinion.

“On high-end applications, Chinese police now basically use TRS technology,” He Zhaohui, marketing manager at TRS told the FT. “We did such systems for eight police stations in Shanghai. The work formerly done by 10 Internet police officers can now be done by one.”

Before implementing the new practices, government officials were simply typing keywords or phrases into search engines and probing the results, He said. Now with TRS’ advanced text-mining technology, authorities are able to anticipate and monitor threats rather than expunge unacceptable content after its publication.

“For example, some Internet propaganda departments supervise forums of university students – students tend to have more extreme opinions,” He said.

Still, others believe Beijing is fighting an uphill, if not futile, battle in trying to keep its citizens in the dark.

“The free flow of information in China now is huge,” said Nicholas Bequelin, Asia researcher for Human Rights Watch told Daily Tech. “Jailing journalists, closing down Web sites and blocking foreign Web sites, even arresting people like [dissident writers] Hu Jia and Liu Xiaobo, it’s illusory to think that’s going to stop Chinese society from demanding more accountability, rights and more transparency.”

Source: Internet Censorship Intensifies as China Attempts to Curb Online Vulgarity, Political Dissent

This from Money Morning:

Between September 2007 and June 2008, oil prices doubled, gold rose 30% and commodities, in general, advanced by a similar percentage.

So why, six months later, when prices have fallen back below last year’s levels, does everybody think they won’t rise again? The difficulties of extraction haven’t gone away, nor have the prospects of increasing consumption in the faster-growing emerging markets such as China. Yes, the prices of commodities are severely affected by marginal moves in supply and demand, but this is ridiculous!

Rest assured, commodities prices will rebound in the New Year. The reasons will soon become quite clear.

The decline in commodities prices since the summer is broad-based. The Reuters Continuous Commodities Index traded recently at 341, down 25% from a year earlier and off about 45% from its June high. At $48 a barrel, oil is trading at less than one-third of its June high. And gold, which appreciated less than other commodities in the spring, is still down 18% from the $1,000-per-ounce level it reached earlier this year.

Conventional wisdom blames the decline in commodity prices squarely on the global recession. Since the rise in demand from emerging markets – particularly the huge consumption bases of China and India – had caused the previous run-up, it seems natural that the absence of that demand growth would cause prices to decline. After all, that happened in 1982, when a deep recession in the United States spread to a number of other countries. Oil prices plunged from $40 a barrel to a mere $10, breaking the back of the Organization of the Petroleum Exporting Countries (OPEC) in the process.

This time around, however, the math doesn’t seem to work. For one thing, the world as a whole is by no means locked into recession. We in the rich countries think of our economies as spiraling into a deep decline, but the reality is that we may only be witnessing a secular shift caused by the narrowing of income differentials between rich and poor countries as globalization proceeds.

In countries such as China, India and Brazil – three of the four so-called “BRIC” economies – growth has slowed and many are suffering imbalances in their financial structures, but there is little sign of actual decline in any of them. Indeed, if China’s recently announced $590 billion infrastructure investment serves to redirect growth toward domestic consumers, it is possible that the demand for oil and other commodities there may show very little dip at all; it takes a great deal of iron ore and other commodities to produce $100 billion worth of railroads, for example, one of China’s stated objectives.

On the supply side, OPEC was full of spare capacity in the 1980s. South Africa and the Soviet Union were still expanding gold production, and the explorations of the 1970s had produced surpluses of many other commodities. But in the past two and a half decades, things have changed.

Oil, for example, remains in short supply. Both deep offshore fields – like those discovered by Petroleo Brasileiro SA, or Petrobras (ADR: PBR), in the Tupi Complex – and the tar sands (like the ones in Canada and Venezuela), are economically unfeasible with oil trading at such a low price. And, if prices remain low, the expansion and exploration of new sources of production will be curtailed even further.

More importantly, though, supply and demand is only one of the reasons commodity prices rise and fall. What really spurred the big price rise in commodities that took place earlier this year was the explosion in the money supply throughout the world.

Money supply, unlike demand, is something that hasn’t evaporated with the economic downturn. In fact, it has actually ramped up. Even though money markets have become illiquid, central banks throughout the world are forcing down interest rates and pumping out liquidity by every means they can think of [Indeed, the policymaking arm of the U.S. Federal Reserve meets today (Tuesday), and is expected to cut rates yet again. For a related story, click here].

Meanwhile, governments everywhere (except Germany) are implementing massive “stimulus packages” that will destabilize budgets and insert huge additional demand into the global economy. Since the governments will have to borrow the money to finance those stimulus packages – and the budget deficits that are inevitable in an economic downturn – central banks will be compelled to pump out even more money to accommodate all the increased debt; otherwise, interest rates would go through the roof and finance for the private sector would become unobtainable, hardly the object of this whole costly exercise.

The future is thus one of rapidly increasing inflation, combined with a healthy recovery in global demand, at least in the emerging markets, as Europe and the United States may suffer deep recessions this time around.

To take advantage of this likely trend, I would recommend a broad portfolio of shares whose prices are closely linked to the prices of major commodities. Among those you might consider:

• Vale (ADR:RIO): As a gigantic Brazilian iron ore producer, Vale will benefit enormously from China’s new infrastructure program (Think of all those steel rails!). The stock is currently trading at just over $12 a share with a Price/Earnings ratio (P/E) of about 7.0 and a yield of slightly more than 1.0%.

• Rio Tinto PLC (ADR:RTP): Another huge mining conglomerate, the long-and-bloody attempted takeover of Rio Tinto by BHP-Billiton Ltd. (ADR: BHP) recently fell apart. At $93, Rio Tinto shares have a yield of 5.8% and a prospective P/E of about 3.0. The company is overleveraged, so somewhat dangerous, but you’d be getting paid for the risk.

• Suncor Energy Inc. (NYSE:SU): The largest pure player in the Canada’s Athabasca tar sands, Suncor’s marginal cost of production from operating facilities is about $30 per barrel and the cost of opening new facilities is about $60 per barrel. It’s currently trading with a P/E of 8.0 but has a yield of less than 1.0%, as it needs all its cash.

• SPDR Gold Trust (NYSE:GLD)exchange-traded fund (ETF): The largest ETF that invests in gold, GLD has more than 750 tons of the “yellow metal” held in trust.

Yanzhou Coal Mining Co. (ADR:YZC): China’s largest coal miner, Yanzhou has a P/E of 4.0, yields 3.5% and enjoys low costs – not to mention a super-close proximity to the gigantic market that is China.

Source: Five Ways to Profit from the New Year Rebound in Commodity Prices

This from Fleet Street Invest:

The fools in Washington, Wall Street and in the City cheering on China’s spending binge are really missing the big question. Where exactly is all that money going to come from?

I’ll tell you. China will pay for its economic boost by destroying the US dollar. Let me explain… China is sitting on some $2 trillion in foreign currency reserves. Between 60 and 70% of that is invested in dollar assets like US Treasury bonds and government-backed companies.

All that cash has effectively subsidised American consumers. It has allowed them to live far beyond their means. But it really does little to benefit China’s citizens. Right now, the ten year US government bond yields just 2.99%.

At the same time, the American government is set to issue a record level of new Treasury bonds to fund its own bail-out plans. The Paulson and Obama plans together will cost at least $1.4 trillion. That is a colossal amount of money. And it will have to be funded by issuing new debt.

As far as I can see, that leaves the US Federal Reserve as the only reliable buyer of Treasuries. And to pay for that flood of new paper they are going to have to run the printing presses overtime. They are going to have to create more “money” out of nothing air. The faster those presses spin, the faster the dollar is going to lose value.

The analysts are living in a fool’s paradise

The threat to the US dollar is so glaringly obvious you would think that just about every analyst would have picked up on it. But they haven’t. Because they are still stuck in a view of the world that should have died when the global financial crisis began last year.

They argue that China benefits from subsidising US consumers. Why? Because it means they keep buying cheap Chinese goods.

Most analysts still believe that China wants to preserve the status quo. So they will borrow or print the money to fund their economic stimulus plan. Some analysts go even further. They actually expect that China will help bankroll America’s bailout with a major increase in their dollar holdings.

They are living in a fool’s paradise.

You see, American consumers aren’t buying Chinese goods the way they were a year ago. Just look at the figures. US retail sales had their biggest monthly fall since 1992 last month. China has no great incentive to prop up the US.

Bailing out America would be not just stupid, but highly dangerous

The plain fact is that China won’t unnecessarily debase its currency or burden the country with debt to fund their stimulus plan when they have $2 trillion in foreign currency reserves sat there earning paltry returns.

It would not just be stupid to do this. It would be incredibly dangerous…because it risks unleashing massive inflation. Soaring inflation in the late 1980s was a major cause of the social unrest that culminated in the Tiananmen Square protests in 1989. China’s leaders won’t risk a re-run.

China is going to start selling down its US dollar holdings massively in order to fund its domestic investment programme. That means the US dollar is going to have its teeth well and truly kicked-in.

This is vital to bear in mind as a non-US investor. If you have any dollar-denominated holdings in your portfolio, you had better be jolly sure that the profit that you expect to make on them is enough to cover losses from the collapse of the dollar.

Source: Why US Dollar Investments Are a Ticking Time Bomb

That said, China’s economy is still on track to post impressive growth during a global financial crisis. Unfortunately, this growth won’t meet initial forecasts.

In its latest quarterly report, the World Bank revised China’s growth downward to 7.5% from an earlier projection of 9.2%. The change reflects the World Bank’s view that Beijing isn’t doing enough to shift the country’s reliance away from waning exports to more robust domestic growth.

The Chinese economy grew by 11.9% 2007, in what appears to be the peak in double-digit expansion since 2002. Now facing single-digit prospects in 2009, China’s slower-than-expected advance call into question the global economy overall.

While most pundits see diminished U.S. consumer spending impacting China’s exports, emerging markets worldwide contributed significantly to the export boom of the past few years.

Latin America, Eastern Europe, Russia, Southeast Asia and other regions able to cash in on skyrocketing prices of fossil fuels, metals and grains are themselves suffering from the market turmoil. As commodity prices plummet, the expanding middle classes of these emerging nations begin to contract – reducing spending on consumer goods coming into their countries from China.

Reading between the lines, the World Bank also seems to be saying that the worldwide recession will be here for years to come – further hampering China’s ability to stimulate its economy.

The World Bank’s report also challenges the effectiveness of China’s new $586 billion stimulus package announced earlier this month. The package called for a massive national infrastructure build-out. Given the World Bank’s view of China’s over-reliance on exports, the new stimulus plan could ultimately prove to be a “bridge to nowhere” with no substantial growth for the long-term returns that emerging markets count on for these massive projects.

Obviously, the much ballyhooed stimulus plan isn’t enough to carry the day in China.

The latest rate cut, to 5.58% for loans and 2.52% for deposits, was the fourth cut since September.

Now, potentially like the U.S., China’s lower growth rate next year would rely heavily on higher public spending, according to the World Bank report. This could be a harbinger of how the incoming Obama administration would attempt to fix the U.S. economy based on recent news stories.

Taking into account China’s stimulus plan and other domestic projects, Beijing’s spending would add 4 percentage points in 2009 to the economy compared with 1.5 percentage points in 2007.

Another drain on China’s coffers could be subsidies for the increasing ranks of unemployed factory workers. Shrinking exports mean lower demand for products.

The government has announced new measures to support the economy, out of fear that the crisis and growing unemployment could cause increased public protests, according to AsiaNews.

Facing an epidemic of protests, Public Safety minister Meng Jianzhu warned that local regulators could face “social problems affecting stability.” In particular, there is the danger that the slowdown in exports will cause widespread unemployment.

Gunagzhou province provides a snapshot of where unemployment is heading.

A recent Chinese media report cited data from the Guangzhou Train Station, which showed in early October that the number of departing passengers compared to the same period last year had increased by 128,000.

Guangzhou is one of China’s largest manufacturing export centers.

This from Taipan Daily’s Emerging Markets blog:

Right now, copper spot prices are an anemic $1.65 per pound. That’s an amazing drop from above $4 back in June.

And yet, one Chilean copper mine is actually expanding.

The mine is called Dona Ines de Collahuasi. It’s Chile’s third largest copper mine and is located in an historical copper mining area. Back in 1880, a large, high-grade copper and silver vein was found. It’s one of the world’s largest copper resources.

Right now, the mine produces roughly 440,000 tons of copper a year.

But the mine has just approved a $64 million project that will increase annual output by 30,000 tons. And that’s just the first expansion.

At the end of the first quarter of 2009, a $750 million expansion plan will boost production to 650,000 tons a year. After that expansion is complete, the mine intends to increase production to a full one million tons of copper a year by 2014.

That’s an astounding move.

And one that will need some major financial backers, particularly if copper prices don’t recover. It’s a good thing some big companies own this mine.

I’m talking about Anglo American (Nasdaq:AAUK) and Xstrata (LON:XTA), each with a 44% stake. There’s also a Japan’s Mitsui (Nasdaq:MITSY), owning 12%.

The CEO of the mine, Jon Evans, told the newspaper Diario Financiero, “The mid and long-term plans are the same, therefore our expansion plans are also the same.” Which may pay off in the long run… If it can survive depressed copper prices.

And copper prices have continued to fall, despite a huge cash injection by China to its economy. China is the largest user of many of the industrial metals, like iron ore, aluminum, zinc, and, of course, copper.

So with China’s economy slowing (albeit to 7.5%), the country will use less of those materials.

Now, China’s been part of the reason why copper prices had more than doubled since 2002. If Chinese demand continues to slow, that could mean a long time before we see copper prices begining to climb again.

Which would mean that Anglo American, Xstrata and Mitsui will have to wait for the returns on these major expansion.

But it would also mean that they’d be ahead of the game once things begin to turn around… If they can afford it.

Source:Copper: Chilean Investment Still Expanding

Well… We might as well get right into this… I’m sure you heard that the Jobs Jamboree was awful on Friday. UGH! Jobs are dropping like the temperatures outside, and there doesn’t seem to be anything to stop them from dropping either! For the record… October’s jobs losses were worse than expected (-200K) and came in at -240K… OUCH! But the real kicker, something the mass media might not have covered, was found in the September revision… Recall that September’s Jobs data showed a negative -159K… Well, that number was revised to -284K! Double OUCH!

I would have to think, given the size of the Sept. revision, that October’s -240K will be revised to near 300K… The job losses are beginning to accelerate folks, and that’s a spiral that’s difficult to come out of. And as far as these revisions are concerned… That’s a fact of life in a slowing economy… You see, it’s all based on Past Performance, and there’s no way the models they use can adjust to this, and therefore they have to wait for the “hard evidence” to show up… Maybe they could use different models? Yeah, right… They might do that right after they get rid of their “inflation expectations” …

So… With the Jobs Jamboree circling the bowl on Friday, the deep, dark, dangerous clouds hovered over the U.S. economy once again, and at first, the recent Trading theme began to trade the dollar higher… But apparently, someone with an ounce of brains on the trading floor, said, “Wait! This is crazy”! And the dollar began to sell off, which went into the afternoon market, which on a Friday, after London heads to the pubs, and it’s already Saturday in Japan, there’s not much volume or liquidity, and that can lead to boredom or wild crazy moves… This was more of the boredom Friday afternoon.

In the overnight markets last night, the euro has tacked on some minor gains VS the dollar, but once again the Trading Theme hangs over the currencies like the Sword of Damocles.

We used to have a local newspaper that would carry a weekly article called, “news of the weird”, and as you can imagine the articles would be quite entertaining… Well… The reason I bring this up, is, I was reading an article on Friday, and it reminded me of “news of the weird”…

Here goes… Michael Alix, chief risk officer at Bear Stearns from 2006 until its demise in March, was named senior vice president in the Bank Supervision Group of the New York Fed on Oct. 31.

OK… I could just leave that one alone… Or… I could rip the Fed for hiring the guy who was the watchdog over risk at Bear Stearns… To do just that for the Fed! I mean come on! Shouldn’t this guy have just slipped off quietly? But, to his credit, the Fed thought enough of his abilities to hire him… I just have to question, what the heck is going on at the Fed! We all know that the Fed’s balance sheet is growing bigger all the time with “risky assets”, and they need someone to manage that risk… And they picked the guy from Bear Stearns, the now defunct Bear Stearns…

Now, was that “news of the weird” or what?

OK, back to currencies, economies and anything else I can think of to write about! OH! AIG’s bailout is swelling to $150 Billion, and the insurer posts another huge loss! I know the market participants have become “Comfortably Numb” with the “numbers” being thrown at these losses and bailouts these days… But come on! This is real money! President Reagan used to say, that’s billion with a Capital B!

On Friday, I mentioned the possibility of a Russian ruble devaluation of 30% and how I was glad we didn’t offer that currency… A few readers took exception with that and pointed out the losses in Aussie dollars… Well… The point I was simply trying to make is that with a devaluation it happens overnight… So, you wake up and your investment is 30% underwater, without you having a chance to “get out”… That’s all…

Did you hear about China’s big deal this weekend? Here’s how the Wall Street Journal reported it… “China’s government set plans for 4 trillion yuan, or $586 billion, in spending and stimulus measures through the end of 2010 aimed specifically to target people’s livelihood in an effort to offset the impact of slowing global growth and unlock the spending power of its vast population.”

Now, I can hear the “hey Chuck, how come you’re not ripping China for their stimulus announcement?” Ahhh grasshopper, Spending money you have in your war chest is one thing, while spending money you don’t have, and putting it on the taxpayers bill is another…

The currencies are all liking the China announcement, as it gives hope that the U.S. recession doesn’t cut too deep for the rest of the world… I think the currencies also like the fact that there appears to be a new “sheriff” in town… A new “white knight” if you will… China… And why not, they’ve been packing away Billions each month in Trade Surpluses!

The Chinese announcement came at the G20 meeting of finance ministers that was held in Brazil over the weekend… The finance ministers agreed to take “all necessary measures” to get financial markets back to normal and counter the backlash of the credit crisis. OK… You know me… And I think these things are nothing but boondoggles… For instance… The Finance Ministers make that big announcement, but give us nothing, not even a bone, about how or what they will do to make that announcement come to fruition!

Today… The Treasury Dept will discuss TARP… This is the “Troubled Assets Relief Program” that’s part of the bailout… This should be interesting…

The data cupboard is bare today, and tomorrow is a Holiday… Veteran’s Day. Wednesday, when we come back, will be pretty bare too! So, we don’t get any real data until Thursday, when the Trade Deficit for September is printed, along with the Monthly Budget Statement… Then on Friday, we get Retail Sales for October… The Butler Household Index (BHI) indicates that the Retail Sales figure for October will be very disappointing.

It’s been a while since I talked about the BHI… This is a simple observation by yours truly as to how many shopping bags I see come into the house during a month… I call it the BHI… And it has been quite indicative of what we will see in the national Retail Sales data. I made it up folks… It’s not real, except in my mind and in the Pfennig! ( I once had someone send me an email and tell me they tried to Goggle BHI, and didn’t get anything! HA!)

In New Zealand, a new government took over this past weekend, and I’m sure they are real happy about that, given the problems going on globally, and in New Zealand… The change went off without a lot of fanfare, and hardly noticed by the markets…

So… As I get ready to go to the Big Finish, the euro has pushed past the 1.29 handle, and the currencies as a whole look better overall… But remember this move higher for the currencies can be erased in a NY Minute, if the Trading Theme is put back into place. The good news for currencies is that there isn’t any real economic data for a few days this week, which means the deep, dark, dangerous clouds will lift temporarily…

Currencies today 11/10/08: A$ .6950, kiwi .6030, C$ .8540, euro 1.2920, sterling 1.58, Swiss .8525, ISK (no quote) rand 9.8850, krone 6.7350, SEK 7.7270, forint 205.20, zloty 2.8050, koruna 19.5350, yen 99.10, baht 34.90, sing 1.4875, HKD 7.75, INR 47.37, China 6.8260, pesos 12.66, BRL 2.1205, dollar index 85.13, Oil $64.40, Silver $10.34, and Gold… $752.90

That’s it for today… Don’t forget tomorrow is Veteran’s Day! Banks will be closed, and no mail will be delivered. Our Trading Desk will not be live. So, if you forget and call, we won’t be here… There will be some in to get caught up, etc. but phones will not be answered. It’s a holiday!

Source: U.S. Payrolls Plunge!