Precious metals have always been intriguing to investors because they tend to hold their value. In times of geopolitical crisis or currency devaluation, for example, the value of paper money might fluctuate, but a hard asset will always be worth something. As a result, historically, precious metals have been considered a “safe haven” in times of economic and financial instability.

That brings us to why gold is on a tear today. It declined in 2008 and early 2009 as panicked investors rushed into cash in an attempt to weather the financial crisis. But sometime in the middle on 2009, when investors began to move their money from the sidelines, gold started to rally. It returned 32.59% through the third quarter of 2009, vs. 19.26% for stocks.

The question is, where can we expect gold to go from here? In order to predict whether gold prices will skyrocket or come crashing down, it’s important to understand the principal factors that affect the price of any commodity: supply and demand.

The supply side of the equation is not particularly relevant in regard to gold because gold supplies remain fairly constant. That’s because production has not significantly increased due to a lack of new mining sites. Should supplies increase, however, investors may want to be cautious.

The demand side of the equation, then, is the one gold investors must look at. And as we noted above, demand for gold tends to increase when investors have a lack of confidence in the U.S. economy and financial markets.

That’s certainly the case today. In fact, we see two factors, that could lead gold to outperform in the near future: inflation and currency devaluation. In response to the financial crisis of 2008 and 2009, the Federal Reserve injected massive amounts of liquidity into the money markets. Ultimately, that increase in the money supply could devalue the U.S. dollar and lead to inflation. In fact, the U.S. dollar is already shockingly low. On October 14, 2009, it fell to a 14-month low against the euro, hitting $1.4947, the weakest since August 2008, according to Bloomberg. And while inflation is not yet a problem, economists are on the lookout for it.

These conditions led Standard & Poor’s (S&P) to raise its gold price assumption for 2010 from $750 per ounce to $800 per ounce. “Investors seeking a hedge against inflation risks and uncertainty in the financial markets continue to support gold prices,” the S&P analysts write. “The metal’s properties as a safe haven, and to a lesser extent the demand for jewelry, also support its longer-term price prospects.”

S&P’s estimate, however, may be on the low side. As of November 2009, gold was trading at more than $1,000 per ounce. And since gold exceeded $1,000 per ounce level, the price has been extremely resilient, with no meaningful pullback seen. There have been periods of profit-taking, but increased demand quickly appears on any weakness in price.

In sum, then, good old-fashioned gold fever is back—and investors who are looking for a promising trend may want to consider investing in it and other precious metals.

But don’t consider gold an investment only for troubled times. One of the greatest advantages of precious metals exists regardless of economic and market conditions. Precious metals tend to perform differently from other assets. As a result, investing in precious metals may be a good diversification strategy for a portfolio comprised mainly of stocks, bonds and real estate—in all environments.

This article was written by OilPrice.com – who offer free information and analysis on Energy and Commodities. The site has sections devoted to Fossil Fuels, Alternative Energy, Metals, Oil prices and Geopolitics. To find out more visit their website at: http://www.oilprice.com

China has used depressed commodities prices to stock up on long-term supplies of raw materials such as oil, copper, and iron.  And it’s used structural weakness in the U.S. financial system as justification for replacing the dollar as the world’s main reserve currency.

Now, the Red Dragon is looking to make headway on the highway by winning global market share in the automotive market while U.S. heavyweights spin out.

“We aren’t afraid of the financial crisis,” Zhou Fuquan, vice president of Geely Automobile Holdings Ltd. (PINK: GELYF), told Bloomberg News. “On the contrary, we hope it will penetrate even further as it has provided us with some opportunities.”

Geely is China’s biggest private automaker, but that isn’t exactly saying much. The company’s annual output is just 300,000 units, and its market share in China is a meager 3%. Still, Hangzhou- based Geely is determined to become a global player in the auto industry. It has ambitions to sell 2 million cars a year, including 1.3 million overseas – even though right now the company generates just 5% of its sales from abroad.

Of course, that’s why the financial crisis has been more of a financial opportunity for Geely. In March, Geely bought key assets from bankrupt Australian gearbox maker Drivetrain Systems International – the world’s second-largest maker of automatic transmissions.

“The economic downturn provides us with very good overseas acquisition opportunities,” Daniel Dai, vice president for international business at Geely, told China Daily. “We get the best technology with the best price.”

Geely has also set up a joint venture with Manganese Bronze Holdings PLC (MBH) to produce the TX4 London Taxi in Shanghai. MBH supplies taxis to Saudi Arabia, Turkey, and Spain as well, boosting Geely’s global presence.

For months, analysts have speculated that Geely will continue to its overseas expansion by launching a bid for Ford Motor Co.’s (NYSE: F) Volvo unit. Ford, which is the only “Big Three” auto company to not receive government aid, last December started looking to offload the Swedish car brand in an effort to pay off the debt it accrued when the company borrowed $23.5 billion in 2006.

Geely said on Sept. 9 that it might partner with a state-owned investment company to bid for Volvo. And earlier this week, the company announced that it would raise $334 million in funds from Goldman Sachs Group Inc. (NYSE: GS) through a convertible bond offering to “fund the capital expenditures of the group, potential acquisitions by the group and for general corporate purposes of the group.”

However, some analysts have pointed out that the Goldman capital falls well short of the roughly $2 billion Ford is asking for Volvo. They believe Geely instead will use the money to increase capacity and market the models it already has to buyers outside of its home market.

“The management is planning to expand its distribution channel to foreign countries,” Richard Li, research director at Celestial Asia Securities Holdings, told Forbes magazine. “This deal can provide this company enough funds so that the cash flow will be upgraded long term.”

And if nothing else, Goldman’s investment could be enough to instill investor confidence in the small Chinese carmaker.

Almost a year ago to the day Berkshire Hathaway Inc. (NYSE: BRK.A, BRK.B) subsidiary MidAmerican Energy Holdings Co. agreed to pay roughly $230 million for a 9.89% stake in Chinese car and battery producer BYD Co. Ltd. Since then, BYD’s shares have jumped more than fivefold in that time.

“A big name investor certainly helps boost stock prices and brand recognition,” Li Lixi, a Northeast Securities Co. analyst in Shanghai, told Bloomberg. “Goldman’s investment in Geely may repeat the impact that [Warren] Buffett had on BYD.”

Geely’s Hong Kong shares yesterday (Wednesday) surged to their highest in more than nine years on the news of Goldman’s investment.

The Race to Build a Competitive Chinese Brand

Geely isn’t the only Chinese companies looking to use the financial crisis as an opportunity to broaden its global reach either. Other Chinese companies, including Beijing Automotive Industry Holdings Co. (BAIC), SAIC Motor Corp. Ltd., and Sichuan Tengzhong Heavy Industrial Machinery Co., are determined take the lead in what has become a race to be the first world-renowned Chinese automotive company.

“It takes decades to establish a recognized, renowned brand,” Jim Hossack, an industry analyst at researcher AutoPacific Inc., told Bloomberg. “China wants to do it much faster, perhaps within as little as five years.”

BAIC on Sept. 9 joined Koenigsegg Group in its bid for GM’s Saab division. Koenigsegg – backed by U.S. and Norwegian investors – in June agreed to buy Saab from GM, but struggled with financing the deal.

SAIC group, the parent of China’s largest automaker, had also considered coming to Koenigsegg’s aid in the Saab bid. But ultimately it was BAIC that came through with the $420 billion in financing needed to close the deal.

“This is a great opportunity for us to partner up with a brand like Saab that we believe has a great future with a new business plan and new ownership,” Wang Dazong, general manager of Beijing Auto, said in a statement posted on its Web site.

Koenigsegg and BAIC will form a joint venture to market Saab cars in China, where the brand has little-to-no presence. BAIC will also gain valuable technology from the Swedish car company.

“Chinese manufacturers are hoping to buy up technology that will help them catch up to world standards on both the product and the development side more quickly than they would on their own,” Christoph Stuermer, automotive analyst at IHS Global Insight Inc., told the Financial Times.

However, not every Chinese endeavor has been greeted with success. Shanghai-based SAIC in 2004 paid $500 million for 49% of Ssangyong Motor Co. just to watch the South Korean carmaker go into receivership in February. And Sichuan Tengzhong Heavy Industrial Machinery’s attempted takeover of GM’s Hummer brand is still being stalled by China’s central government.

“It’s not in coordination with our nation’s industrial policy,” Vice Minister of Commerce Chen Jian said after sending back Sichuan’s application to acquire the Hummer brand for $100 million.

Still, Chinese auto companies won’t be satisfied until they race ahead of their Western counterparts.

“I’m fighting for what’s in overseas automakers’ rice bowls,” Geely founder Li Shufu told Bloomberg. “I want to build Geely into a global first-tier automaker.”

Source: Financial Crisis Gives Chinese Car Companies a Chance to Get Up to Speed

Gold Slowly Gaining Ground on the Franc

Though it did play that role in the worst of the financial crisis starting in late 2007, the Swiss currency has failed to maintain its relative purchasing power vis-à-vis gold since 2001 (see gold in Swiss franc terms above).

Since late 2001 when the dollar peaked, the Swiss franc has gained a cumulative 36%. This compares to gold rising a cumulative 130% in Swiss franc terms or from 4.5 to 10.35 now. The Swiss franc has lagged behind gold this decade. That’s not a surprise. Since 2005, all currencies are trailing bullion as the yellow metal continues to rally. Gold hasn’t recorded a losing calendar year since this rally started almost nine years ago.

The Swiss franc is still a good currency – much better than its peers. But in this world of competitive devaluations and the slow death of the post-Breton Woods exchange rate mechanism, the franc is no longer a bastion of strength.

Today, that role has been replaced by gold.

Source: Global Investor: Gold King of the Currency Hill in the 21st Century

The financial services industry in the United States and Europe is still reeling from the financial crisis, shedding tens of thousands of jobs each month – even a year after the crisis hit its apex.

However, recent evidence suggests that the financial services industry in Asia – particularly China, which was largely isolated from the toxic assets that caused the crisis – is starting to rebound.

Indeed, many global financial firms are picking up hiring in Asia even as broad unemployment continues to rise. The reason: These financial firms want to be most active in the region of the world that has the best potential for growth, as well as the best opportunities for profit.

“The death of the industry has been greatly exaggerated,” Matthew Hoyle, founder of Matthew Hoyle Financial Markets, a Hong Kong-based headhunter for the banking and hedge fund industries, told the New York Times. “I am actually quite excited about the prospects for the rest of the year,” adding that “Things have picked up here — unlike in Europe and the United States, where that’s absolutely not the case,” he added.

Financial firms slashed 19,000 jobs in August – the 21st consecutive monthly drop for the industry, according to payroll processing firm Automatic Data Processing (ADP). The finance and insurance sector has shed 332,000 jobs since the recession began in December 2007. And the losses will likely keep piling on.

Labor Department data set to be released today (Friday) is expected to show the U.S. unemployment rate surged to 9.6% in August after dipping to 9.4% in July. From December 2007 to July 2009, the economy as a whole shed 6.7 million jobs.

“There’s a gradual improvement in labor markets underway in the sense that the monthly losses are diminishing,” said Joel Prakken, chairman of Macroeconomic Advisors LLC and an ADP spokesman. “The disappointing news it that we have several more months to go of job losses.”

There’s a similar story unfolding in Europe, as well. The unemployment rate across the 27 European Union countries rose to 9% in July from 8.9% in June, while the unemployment rate for the 16 countries that use the euro jumped to 9.5%, according to Eurostat.

As in the United States, many of the job losses have been sustained in the financial services sector. European banks and financial firms have cut 140,000 jobs since the third quarter of 2007, according to data compiled by Bloomberg.

About 84,000 European finance jobs are expected to hit the chopping block this year, according to a recent report by City of London Corp.That’s nearly ten times the number of finance jobs the region lost in 2008.

As the Europe’s largest employer of financiers, the United Kingdom will be most affected. It is expected to lose up to 35,000 finance jobs this year.

Employment at British, French and German financial services firms won’t return to its early-2008 highs until at least 2013 the report said. Even then, the United Kingdom will have 10,000 fewer finance jobs than it did in 2008.

The EU financial services industry employed about 1.4 million people and was worth about $315 billion (219 billion euros) at its peak in 2008, according to City of London. However, the entire industry will shrink 6.2% in 2009 and not return to growth until 2011.

“I’m fairly optimistic on the financial sector returning to profitability, but that won’t necessarily feed through to dramatic employment growth,” Alistair Milne, a senior finance lecturer at London’s Cass Business School, told Bloomberg.

Financial firms will be focused on “growth efficiency” over the next four years and “earning money out of the staff they’ve got at traditional businesses” such as fixed income, equity trading and derivatives trading, Milne said.

Asian Growth a Beacon for Financial Firms

While the financial services sectors in the United States and Europe continue to shrink, finance firms operating in Asia are already rebuilding.

Standard Chartered Bank said last month that it would recruit 850 bankers in the next 12 to 18 months. The majority of those hires will take place in China, but significant numbers will also to be added in Singapore and Malaysia.

“We have aspirations to double the industry growth rate and double our customer numbers in three years,” Foo Mee Har, Standard Chartered’s global head of premium banking, told the Telegraph.

Household wealth in Asia, outside Japan, was expected to grow by 12% annually until 2012, she added.

Meanwhile, HSBC Holdings PLC (NYSE ADR: HBC) said last week that it is recruiting more than 100 staff members in Hong Kong, and it plans to add 1,000 employees in mainland China this year.

Vincent Cheng Hoi-chuen, chairman of HSBC’s Asia-Pacific unit, even said that his company hopes Shanghai will grow into a financial center that rivals Hong Kong.

“I sincerely hope that Shanghai will become a financial center, as China is able to have two centers, given its size,” he said. “There should be enough capacity for companies to list in both or either market at the same time, despite more and more companies planning to go public in the capital market.”

And Australia and New Zealand Banking Group, which competes with Standard Chartered, expects to increase its staff in the retail banking business in China more than 10-fold to over 500 by 2012. The company is currently moving ahead with a plan to open more than 20 branches in the country by 2012, up from three currently.

In addition to these recently released plans:

• Bank of America Corp. (NYSE: BAC) added five senior staff to its Asia Pacific Commodities team and JP Morgan Chase & Co. (NYSE: JPM) added seven members to corresponding Asia commodities unit.
• Credit Suisse Group AG (NYSE: CS) added nine specialists to its Asia sales and trading business. (Credit Suisse’s Asia-Pacific operations are on track to contribute 25% of the firm’s total revenue in coming years.)

• And Citigroup Inc. (NYSE: C) said it plans to expand its commodity team in Asia at a “double-digit” pace in a bid to capitalize on rising demand for raw materials.

“Asia will be the biggest contributor to growth in commodity consumption,” Ananth Doraswamy, regional head of commodities, toldBloomberg in an interview from Singapore. “We will need more people in energy trading and metal sales, as well as agricultural products.”

A survey by Singapore-based recruiting firm Robert Walters showed that job advertisements in Hong Kong, Singapore, China and Japan jumped 6.4% in the April-June quarter from the three months prior, the New York Times reported.

That’s not surprising considering that unemployment in Hong Kong, Singapore, and Japan – at 5.4%, 3.3%, and 5.7% respectively – are still relatively low when compared to the United States and Europe. And while unemployment is still an issue in China, that country’s economy expanded by 7.9% in the second quarter, exceeding most analysts’ expectations, and lending credence to Beijing’s goal of 8% annual growth.

Indeed, the finance industry seems to have found greener pastures in Asia, where economic growth is still taking place.

“Asia is seen as a growth market,” Robert Walters’ Mark Ellwood toldThe Times. “Companies are not going out all guns blazing again, but there is once again an appetite to hire in certain areas.”

Finance Jobs Going Where the Growth Is – Asia ]]> http://www.contrarianprofits.com/articles/finance-jobs-going-where-the-growth-is-%e2%80%93-asia/20377/feed 0 http://www.contrarianprofits.com/articles/what-chinese-money-buys-gold-goes-green/20331 http://www.contrarianprofits.com/articles/what-chinese-money-buys-gold-goes-green/20331#comments Thu, 03 Sep 2009 12:00:09 +0000 Chris Mayer http://www.contrarianprofits.com/?p=20331 U.S. banks are going bad as quickly as a bunch of over-ripe peaches in the summer heat. On the heels of the Colonial Bank failure comes another sizable bank failure.

Guaranty Bank in Texas became the 81st U.S. bank to fail this year. It was the 11th largest bank failure in U.S. history. This kind of thing is becoming so regular it is hardly news when it happens.

But what’s interesting to point out about this one is that the FDIC sold Guaranty to Banco Bilbao Vizcaya Argentaria of Spain. This is the first time regulators have sold a failed bank to a foreign lender. Such a turn of events would have been unthinkable only a decade ago.

So the world turns. When…

The FDIC currently insures bank depositors up to $250,000 – up from $100,000 prior to the financial crisis. So far this year, 81 banks have failed, costing the FDIC an estimated $21.5 billion.

And the situation is almost certainly going to get worse.

A Growing List of Troubled Banks

The FDIC reported yesterday (Thursday) that the number of distressed banks rose to the highest level in 15 years during the second quarter, thanks to an economic malaise that’s saddling banks with a growing level of bad loans.

The number of troubled banks rose to 416 at the end of June from 305 at the end of March. The FDIC hasn’t had that many banks on its “problem list” since June 1994, when there were 434, the agency said. Assets at these troubled institutions totaled $299.8 billion – the worst level since the end of 1993, according to the FDIC.

The FDIC’s insurance fund, as of March 31, was down to its last $13.5 billion. Bank failures in the second quarter cost the insurance fund an estimated $9.1 billion. These hits were mostly offset by an emergency special assessment of $6.2 billion and an additional $2.6 billion raised as part of the regular quarterly assessment on FDIC-insured banks.

The FDIC just took another hit due to the recent failure of Colonial Bank, which cost the fund an estimated $2.8 billion, and the failure last week of Guaranty Bank, which cost an estimated $3 billion. FDIC Chairman Sheila C. Bair is determined to not have an insolvent FDIC turn to the U.S. Treasury Department to draw on a $500 billion line of credit set up for just this purpose, although that move is clearly inevitable.

In a fatalistic twist of irony, however, the FDIC’s demand for another special assessment in the fourth quarter and another expected special assessment in the first quarter of 2010 may tip several more banks into failure.

Although there seems to be a desperate need for private equity capital to come running to the rescue, the reality unfortunately isn’t that simple.

A Disappointing Decision

As most all consumers and investors know, the FDIC only covers insured deposits. However, the ongoing cost of a busted bank becomes higher for the FDIC if the agency cannot merge that failed institution with a healthy player, or can’t sell it outright. When The FDIC can’t find a willing partner or buyer, the agency must instead manage the “unwinding” of every failed bank’s stockpile of illiquid and toxic assets. With so many more banks in trouble and so many fewer banks willing to acquire additional suspect assets, private equity firms have offered to step up and buy failed banks these professional investors believe can be turned around.

On July 9, the FDIC published and sought comments on its “Proposed Statement of Policy on Qualifications for Failed Bank Acquisitions.” The controversial proposed policy statement suggested tough terms and conditions under which the federal agency would be willing to sell failed banks to non-traditional buyers – specifically, private equity firms.

A total of 61 comments were filed during the 30-day comment period – most of them from private-equity firms, their lawyers, financial-services trade associations and lobbyists. There were also comments from academics, four U.S. senators and six individuals. The FDIC also received 3,190 form-letter comments in support of the controversial proposal.

The FDIC issued its final decision on the matter on Wednesday. The new version was much weaker, once again underscoring the federal government’s proclivity for weakening banking regulations – a willingness we’ve repeatedly warned will have dire consequences for the U.S. financial system, as well as for the broader economy.

These alterations are setting the stage for an escalation in bank failures. The real losers will once again be the U.S. taxpayers, who will end up footing the bill for the FDIC’s failure to take a tough stand.

How much weaker were the new regulations, when compared with the earlier proposals? In one instance, instead of the initially proposed requirement that new investors maintain a 15% Tier 1 common equity capital ratio – three times what traditional bank holding companies are required to maintain – the new entry hurdle is only a 10% ratio.

Private equity firms will be spared the requirement of other bank holding companies and will not be called upon as a “source of strength,” should their investment in a bank need shoring up.

Bank holding companies have to make their resources available if their banking operation requires support. But private equity companies don’t want to expose their vast pools of capital to any one investment. Just as Cerberus Capital Management LP refused to put any more money into its failed Chrysler LLC investment – leaving taxpayers to bail it out – firms are loathe to be put into a position to support a bank holding with anything more than what was deemed as a suitable capital investment at the outset.

The FDIC granted other compromises granted in favor of private equity buyers. For instance, the agency spared them from having to cross-guarantee their portfolio-bank investments – unless they owned at least 80% of two or more banks.

Getting “Real” About Private Equity

Private equity interests certainly didn’t get everything they wanted. For one thing, the final policy statement prohibits “insider” and “affiliated” loan transactions and strips firms of using a controversial “silo” structure to obfuscate ownership and control positions.

The final policy statement reads like the painful enunciation of a split decision in a controversial heavyweight title fight. The valiant efforts Bair, the FDIC chairman, to keep the howling wolves of private equity at the door and out of the banking henhouse were ultimately undermined by the rapidly dwindling coffers of the Deposit Insurance Fund, which brought the FDIC to its knees. The compromises in the final policy statement grant the private-equity crowd a lot of what it was lobbying for while only momentarily sparing the FDIC the embarrassment of being knocked out.

But make no mistake. That day of reckoning is on its way. And not even the entrepreneurially gifted private-equity set will be able to keep that from happening.

Let’s be clear: We’re not saying that the private-equity sector is made up of angels (angel investors, yes, but outright angels, no way). Indeed, as we’ve demonstrated in past columns, the private-equity set is actually a group of uber-capitalists who are hell-bent on turning their gargantuan ambitions into extraordinary wealth – and who aren’t above shopping for regulators or hardballing Congress to get what they want.

Private-equity players demanded – and got – the FDIC to agree to share whatever losses they might incur, whereby the government (meaning taxpayers) must bear the brunt of the losses incurred when risky loan pools are acquired.

In all fairness to private equity firms, acquiring banks also have loss-sharing agreements with the FDIC. But they are regulated entities and private equity firms are not. Nor will private equity firms willingly become regulated in order to buy banks.

And there are actually some advantages in having private equity investors acquire failed banks – including a host of issues that critics describe as “self-serving,” grousing that the private-equity benefits come only at a cost to taxpayers.

Given the new set of rules, private equity firms can swoop in and pick up failed banks by banding together and dividing the equity commitment and investment liability assumed upon purchase. If there is no recourse against other private equity firm assets or even any cross-guarantees against other acquired banks, unless they are 80% owned, the consortiums cannot be called upon and certainly not relied upon to be a “source of strength” for their depository, taxpayer-backed portfolio banks.

Regardless of any rules on self-dealing, as sure as “bank” is a four letter word, private equity firms will find a legal way to lend from their taxpayer-backed banks to leverage their other portfolio companies and extract their usual exorbitant fees. If they don’t lend to their own portfolio companies, they will surely lend to other private equity firms’ portfolio companies in a modified version of the “club deals” that bind them together. These firms have a mutual interest in generating deal fees and in controlling their lucrative franchises.

A Glimpse of What’s to Come

The problem with banks is that they became too leveraged. When they couldn’t amass assets on their books, against which they had to set aside “reserves,” they established “off-balance-sheet” vehicles to acquire leveraged pools of assets. They were leveraged inside and out.

But now the originators of the leveraged-buyout business model want to control taxpayer-backed banks, to apply another round of leverage to already crippled banks in order to squeeze out all the profits possible. Although this comes at a cost to duped and already drained taxpayers, regulators, legislators and the American public would be foolish to expect anything else from the private equity crowd. If the FDIC thinks it has a problem now, wait until the next implosion of leveraged banks happens.

In a comment letter to the FDIC on the original policy proposal, the Private Equity Council, an industry advocacy group, without recognizing the irony of its comment, suggested that mandating higher capital ratios for private equity buyers of failed banks would actually increase the risk at those banks because their owners would essentially have to employ more leverage to generate sufficient returns to meet the higher capital standards – while still generating returns high enough to satisfy the investors in their private-equity funds.

If that’s not an advance look at the next round of financial-sector problems we could be facing, we are deluding ourselves.

Private equity should be allowed to buy banks, but should also be held to a higher standard. They have a proven record of success at leveraging companies when they have access to cheap funding, and they also have a record of spectacular failures that resulted from their leverage. The last thing that American banks need – especially right now – is a hyper-aggressive management that leverages them to the hilt in order to generate “acceptable” rates of return for a select group of private investors.

Unfortunately, we’ve once again placed ourselves in a position where the viable solutions to the problems that were created will end up causing an entirely new set of problems – problems that always seem to provide a benefit to the old crony network while leaving the battered U.S. taxpayer as the ultimate victim.

We have no one to blame but ourselves.

More town hall meetings and more vocal opposition to being duped and used by Wall Street would be a good place to start.

Source: Desperate for Capital, the FDIC Backs Away From Tougher Rules Governing Private Equity Purchases of Failed U.S. Banks

Fertilizers are a key part in meeting that challenge. And the farmers are financially in good shape to buy more. The debt-to-equity ratio for the U.S. farmer is only around 10-15%.

Overseas, farmers are subsidized directly. In India, the government picks up the tab of higher fertilizer costs. As Doyle pointed out: “With low grain stocks and low yields and 1.2 billion people, they’re not going to drop the ball. They’ll continue to support the Indian farmer.” China has also started to subsidize the Chinese farmer, helping out with seed, machinery and fertilizer.

But since fertilizer application rates fell around the world this year, it is hard to imagine a strong harvest. We will see. As grain inventories are already low, I expect we’ll need a strong planting season in early 2010. That means a strong demand for fertilizers.

At current pricing for potash, there is no incentive to boost production by investing in new capacity. The financial crisis also laid low any plans for more potash. A greenfield project — that is, one started from scratch — needs a higher price to make it work.

As Doyle pointed out, the cost for a 2-million-tonne facility in Saskatchewan is approaching $3 billion. That doesn’t include the infrastructure you need around it. Plus, it would take nearly a decade to get that new project generating a return on investment.

So from an investment point of view, potash still looks very good.

Source: One Commodity Worth Buying

Good day… We had a very busy day on the desk yesterday, as our newest MarketSafe offering, based on the BRIC currencies, is making the phones ring off the hook. But while we were busy, the currency traders had another slow day as the dollar just drifted throughout the day. The return chart for the last 24 hours shows only one currency made more than a .5% move vs. the US$; and that was the South African Rand which increased .75%.

The markets were watching Ben Bernanke’s congressional testimony through most of the day, but those waiting for a surprise were disappointed. Bernanke stuck to the script which he had laid out the day before in the Wall Street Journal, and the members of the House Financial Services Committee couldn’t get him to commit to any ‘new’ stimulus programs. Bernanke said the economy is showing “tentative signs of stabilization” but the central bank intends to continue to maintain its “highly accommodative” monetary policy for “an extended period”. He indicated that the Fed stands ready to tighten policy, but only after the economic recovery takes hold and pressures holding down inflation diminish.

The Fed Chairman also reiterated his desire to keep the Fed independent from additional congressional oversight. As Chuck reported a while back, 275 legislators sponsored a bill to repeal the immunity of the central bank from audits of monetary policy. Bernanke said the bill would “open a Pandora’s box” for Congress’s Government Accountability Office to probe monetary policy. While I don’t necessarily think the folks in Congress are any more adept at handling the financial crisis (more on that later), I am a fan of opening up the books and letting the ‘owners of the government’, (the taxpayers) see just what all of their taxes are being spent on. Again, I’m not advocating that the Fed should seek congressional approval for every move they make, but I do think an after the fact audit is a good thing. I just get the feeling Bernanke and his pals are trying to hide something.

When pushed about this bill to audit the Fed, Bernanke pushed back at Congress and told them they need to cut the ‘unsustainable’ budget deficits. The Senate took a somewhat symbolic step toward this yesterday, by killing the F22 Raptor fighter jet program. If you hadn’t been following this, it is an excellent example of how spending can spiral out of control. Back in April, Defense Secretary Robert Gates decided, with President Obama’s backing, to scrap the program once it had delivered the 187 F-22s already in production. F-22 supporters in Congress ignored what the military wanted, and went ahead and budgeted another 2 billion dollars to continue production. I know 2 billion is next to nothing with the trillions that we have been talking about, but every little bit counts. If the US Government is going to get spending under control, they have to start somewhere; and killing a program that creates a plane that the military says they don’t need, and don’t want is a good first step.

Budget deficits aren’t the exclusive problem of the US. The Pound Sterling has been coming under some selling pressure lately as the UK budget deficit swelled to a record $21.4 billion in June. This was the largest monthly budget deficit ever recorded, and is increasing pressure on Prime Minister Gordon Brown to commit to a credible plan to cut spending. Recent data coming out of the UK doesn’t paint a pretty picture of the economy. Yesterday data showed that UK house price declines will persist until 2012, and another report predicted gross domestic product will keep falling until the final quarter of this year. BOE policy makers voted unanimously to maintain their asset purchase program in July, another sign that they still feel the UK economy is on shaky ground.

While the BOE and the Fed continue to use their reserves to purchase their own debt, China announced it would be looking to use its huge stash of cash to make purchase assets which have a bit more intrinsic value. A story in the FT yesterday stated that Beijing will use its foreign exchange reserves, the largest in the world, to support and accelerate overseas expansion and acquisitions by Chinese companies, according to Wen Jiabao, the country’s premier.

In an interview published in state-controlled media, the chairman of China Development Bank said Chinese outbound investment would accelerate but should focus on resource-rich developing economies. “Everyone is saying we should go to the western markets to scoop up [underpriced assets],” said Chen Yuan. “I think we should not go to America’s Wall Street, but should look more to places with natural and energy resources.”

This is a shot across the bow for the US, and a huge boost to countries which are commodity rich, including Australia, Brazil, and Africa. This is further evidence that China is looking to slow its purchases of US treasuries, and reduce its reliance on the US dollar as its reserve currency. Investments will focus not on monetary instruments, but on physical assets in resource rich developing economies.

This may account for some of the increase we saw in the South African rand yesterday. The South African rand is now the best performing currency vs. the US$ in 2009, with an increase of over 22.5%. The news will also benefit the Brazilian real which recently climbed to the highest in more than nine months as stronger earnings and higher metal prices bolstered the outlook for Latin America’s largest economy. The Brazilian real is the number two performer year to date vs. the US$, with an increase of approx. 21.5%. Anyone want to guess at #3 on the list?

It is the Australian dollar which has gained just over 15% vs. the US$ in 2009. Australia’s economy is performing better than expected, with GDP rising .4% in the first quarter, helped by consumer spending and increased commodity exports. Policy makers have left interest rates unchanged two weeks ago for a third month, but the bias seems to be shifting toward tightening rates. Australia could end up being the first of the major economies to start raising rates again, which would be a big boost for this currency.

The Bank of Canada will announce their rate policy today, and are expected to leave rates unchanged. Commodity price rebounds have helped push the Canadian dollar higher, and the loonie’s strength could threaten Canada’s nascent recovery. The big boss, Frank Trotter traveled out to Vancouver to join Chuck yesterday, and had this to report after his plane landed:

“Making the approach into Vancouver has always been a treat. This time, for my first time ever we landed to the west – drifting down down along the Fraser River Valley with Ranier on the left and the Olympic Peninsula in the distance affording a great view out to Vancouver Island across the straights. Once down I jumped in the cab and headed for the Agora Financial ‘Decade of Reckoning’ Conference.

“So are you guys picking up down south?” I was jolted out of my observation of the heavy traffic at 2pm. “Haven’t hit bottom yet I suspect” I replied to the cabby with an understatement. He told me that business was down, but okay. That restaurants were not full but they weren’t closing. That work continues for this winter’s Olympics, but everyone wonders if people will have money to travel. I’ll check in after hearing what some of the experts say at the conference over the next couple days; until then this is a pretty decent place to build a gulch.”

I look forward to sharing both Frank and Chuck’s views from the big Agora Financial Conference up in beautiful Vancouver.

As I mentioned in the opening paragraph, or new BRIC MarketSafe CD is proving to be extremely popular with investors. One reason is the tremendous upside potential of these 4 emerging market currencies without any downside risk. It also gives investors the opportunity to invest into the Russian ruble, a currency which we are not able to offer in any other investment. The ruble has shown some good strength vs. the US$ recently, gaining over 2% in the past 5 days. The ruble has rallied 16 percent in five months, as oil prices have climbed. While recent moves have been excellent, the Russian ruble continues to be a very volatile currency. The only way I would suggest individuals invest into this currency is with the downside protection provided by our MarketSafe CD.

Currencies today 7/22/09: A$ .8158, kiwi .6566, C$ .9064, euro 1.4216, sterling 1.6447, Swiss .9371, rand 7.7793, krone 6.2904, SEK 7.609, forint 191.15, zloty 2.9993, koruna 18.1720, yen 94.43, sing 1.4430, HKD 7.750, INR 48.5225, China 6.8313, pesos 13.286, BRL 1.8980, dollar index 78.897, Oil $64.80, 10-year 3.48%, Silver $13.475, and Gold… $947.40

That’s it for today… And for me the rest of the week. I am heading out to San Diego tomorrow morning for a family reunion. Mike Meyer will be Pfilling in for me and Chuck for the next two mornings. The phone calls are already starting up again this morning, so I’ll hit the send button and log into the phones. Hope everyone has a wonderful Wednesday!

Source: Bernanke Sticks to his Script

China has once again snatched the leadoff spot in our daily lineup. And once again, they’ve knocked the cover off the ball.

The Chinese economy expanded at a dizzying 7.9% in the second quarter, their government announced yesterday. That far exceeds analyst expectations and China’s still-impressive 6.1% first-quarter growth. Conveniently, the second-quarter jump — plus revised GDP growth expectations of 8% in the third quarter and 9% in the fourth — puts China perfectly on track for the 8% annual growth they promised earlier this year.

Looking through the fine print of today’s data… oy, these are some la-la land numbers:

• New lending in the first half soared 201% compared to the year before
• First-half property sales up 53% per annum
• Chinese home prices are growing at a 10% annualized pace
• First-half auto sales up 17% per annum
• Retail sales up 15% in the first half
• Inflation down 1.1% from a year ago.

Of course, not all is well over there. Exports, the backbone of the Chinese economy, are down 22% so far this year. Construction starts, another staple of Chinese growth, just ended 11 straight months of decline. But still, today’s numbers show nothing short of a V-shaped recovery for China. Too good to be true? Maybe.
But here’s one more amazing Chinese stat for today, one we don’t doubt: China’s official foreign reserves now exceed a record $2.13 trillion. At least $763 billion of this sea of money is pure U.S. debt. In spite of all the global turmoil and market ups and downs, China has remained the world’s steadiest accumulator of sovereign debt — namely American Treasuries… a fact of life that will surely haunt us one day.

Another Chinese debt auction failed this morning. That’s the third time in the last two weeks that the Chinese government was unable to sell as much debt as it planned. In order to continue financing their rabid growth, maybe they’ll have to start selling some assets — like, call us crazy, American IOUs.
By the way, despite China’s unwavering appetite, global demand for American Treasuries fell by the most this year during May. According to yesterday’s TIC flow data from the Fed, the global community was a net seller of U.S. debt back then. Net selling exceeded $22 billion, the lowest demand for American debt since November.

Mexico is in deep trouble. The Mexican economy might shrink 7% in 2009, the U.N. forecasts.

“Mexico is the biggest concern in the region,” said Alicia Barcena, head of the UN’s Economic Commission for Latin America and the Caribbean. “It’s an economy that depends very heavily on exports to the U.S., it’s one of the countries with the biggest fall in remittances and it’s also being hit by swine flu. Recovery for Mexico will be difficult and highly complicated.”
Back in the U.S., here comes another financial systemic risk crisis. The drama du jour is at CIT, a commercial lender not to be confused with Citigroup.

CIT is a small-to-midsize business lender that actually has a lot more in common with Lehman Bros. Like Lehman, the company’s business model is reliant on debt and easy credit — CIT relies on money borrowed from capital markets to finance its loans. And also like Lehman, CIT is saddled with debt of its own — about $35 billion worth.

Having already bailed out CIT with $2.3 billion in TARP bucks, the Obama administration gave the company the cold shoulder (thank heavens) when CIT came knocking for more earlier this week. Evidently, their moronic board was counting on renewed government aid. Now the company has just a matter of days to raise as much as $3 billion. Fat chance, says the market:

This time last week, we compared some eerie similarities between 2008 and 2009… investor attitudes, market behavior and economic indicators are lining up a bit too close for comfort. And now this — what would be the biggest banking failure since Lehman. Oy, could get interesting. Most media outlets are downplaying CIT’s peril, but we’re not so quick to brush it off. Its bankruptcy won’t likely produce a Lehman style meltdown, but on Monday, tens of thousands of businesses might not have a primary source of financing. In this credit environment, do you think it’ll be easy for them to get fast loans from someone else?
CIT’s plight isn’t helping the dollar one bit. Coupled with the stock rallies this week, the dollar index fell as low as 79.3 yesterday, its lowest level since June 11. As we write, it’s at 79.5.
Sounds like a good day to by some gold, eh? You wouldn’t be alone today, or this month, for that matter… the spot price has risen to $935 this morning, up about $30 from early July.
“The idea that Chinese yuan could replace the dollar strikes us as ridiculous today,” writes Chris Mayer. “I am sure the typical British subject in 1922 — when the Empire ruled over 458 million people and a quarter of world’s land area — would have found equally ridiculous the idea that in two decades, his cherished pound would play second fiddle to the U.S. dollar of the former colonies.

“I don’t know what currency will be the currency of choice two decades hence. I will be surprised if it is the U.S. dollar alone. And not knowing is a good reason to own some gold.”
California’s lousy economy and gold’s worthy valuation has caused a second gold rush. We’ve heard more than one report lately of way more prospectin’ activity than normal in Southern California. For example, Keene Engineering, which makes gold-finding equipment for the average Joe, reported recently that business has doubled in 2009.

It makes sense. Times are tough, jobs are sparse, wages are low, taxes are rising… and here’s perhaps the one true “free lunch” in America. Good luck, fellas.
“If you’re American and are going to be storing things,”writes Doug Casey, “you probably can’t go wrong building a stash of cigarettes.” Of course, Mr. Casey advocates a healthy private stash of precious metals, but when pressed for what else we should stockpile, he said this:

“They keep raising the taxes on cigarettes — a pack now costs $10 in some places in the U.S. That’s 50 cents per individual cigarette. Even if you don’t smoke — or perhaps especially if you don’t smoke — every time you return to the U.S., you should buy the maximum amount of duty-free cigarettes allowed and store them.

“The other thing Americans should do is buy a lot of shotgun shells, 9 mm, .45, .223 and .308 ammo. Even if you don’t shoot, you can set those aside and store them too, because they’re going to be taxed and regulated to the nth degree. And properly stored, they keep for a very long time.

“In fact, anything regulated by the Bureau of Alcohol, Tobacco, Firearms and Explosives — one of the most corrupt, dangerous and useless of all federal bureaucracies — is likely to go up considerably in both price and value. It’s perverse that the U.S. has a bureaucracy to regulate the things you need for a hunting trip or a good party. Maybe their next trick will be to convert the DEA into the Bureau of Sex, Drugs and Rock ’n’ Roll.’”

That’s vintage Doug, for sure. Hearing him talk about stockpiling cigarettes reminds us of last year’s Investment Symposium, when Mr. Casey lit up during his presentation — not because he really wanted to, but because the (very accommodating) people at the Fairmont told him he couldn’t. What followed was an onslaught against Uncle Sam, the TSA, investment bankers and others who likely deserved it. We expect no less from Doug when we meet next week… stay tuned.
But market makers aren’t too concerned about all we’ve mentioned above. Earnings season is front and center, and blue chips are beating expectations left and right.

Most indexes climbed over 1% yesterday, driven mostly by an earnings beat from JP Morgan. Their $2.7 billion in profits gave hope to Bank of America and Citigroup — which both topped earnings estimates before the opening bell this morning. We also saw GE, Google and IBM print better-than-expected earnings after the bell. Most of their earnings beats look to have been priced in yesterday. Thus, the market is at a standstill as we write.
Stocks also got a boost yesterday from the latest jobless claims report. New claims fell by 47,000 last week, says the Labor Department, to 522,000. That’s the lowest level since January. Continuing claims fell by a whopping 642,000, to 6.2 million… a record decline so large, it’s hard to believe.
Oil’s back on the rise, thanks to this week’s sudden stock optimism. Light sweet crude is at $62 a barrel as we write.
“I am sick and tired of people going on and on about the poor and health care,” writes a reader of our recent health care debate. “I’ve been poor. I’ve been ‘trailer trash.’ And you know what? I even got sick a few times. For the most part, unless you have a bone sticking out, blood gushing or some terminal illness, a person generally gets over it. Most anyone, even with a government indoctr- , er, education, can figure out to take some NyQuil, eat the lost days’ pay and sleep it off. On the rare occasion I had to see a doctor, I worked (what a concept!) and paid cash for the office visit. And if I had been unfortunate enough to be in a traumatic accident, the hospital would have patched me back together, insurance or not, because they have to by law. Granted, I might have still been working to pay off the debt even now, which is why I found myself being really freakin’ careful not to put myself in any accidents. Funny how that works.

”If people feel so obligated to help the poor, by God, give to charities. I, like most people who are grateful for the opportunity to earn a living, believe firmly in tithing and giving to charities regularly, even in this economic misallocation. Yes, that’s right. I didn’t say crisis, or downturn or anything else. Every problem we are now facing can be narrowed down to two things: the government legislating activities counter to what the market would normally do and the people who took advantage of it.”

The 5: It’s been fun bouncing these reader mails back and forth this week. Per usual, we’ll bump this one to the blog to make space for whatever evokes rabid response from you next week. If you’ve got more to say on health care, take it to the blog.

Source: China Booms, The CIT Crisis, A Bizarre Commodity Worth Stockpiling, Vancouver and More!

An OPEC report predicting it could take years for demand for its crude to recover from the financial crisis added to bearish sentiment.

U.S. light crude for August delivery dropped $1.24 to $61.69 a barrel by 1444 GMT. It settled $1.12 lower at 62.93 a barrel on Tuesday, ending a fifth straight day of losses.

London Brent crude fell $1.15 to $62.08.

U.S. government weekly data showed gasoline stocks had risen by 1.9 million barrels, more than expectations for a 600,000 barrel increase.

Distillate stocks, including diesel, climbed by 3.7 million barrels, compared with an expected two million barrel rise. They stood at their highest level in nearly 25 years.

Figures from the American Petroleum Institute (API) late on Tuesday also showed distillate stocks and gasoline stocks had risen more than expected.

“It looked like gasoline demand had started to get better and now suddenly looks bad. It could be for a couple of reasons: it could be a price response or it could just be that the economy is just not out of the woods yet,” said Tony Nunan, risk manager at Mitsubishi Corp in Tokyo.

Oil prices have dropped from peaks above $70 a barrel last month, the highest this year, as expectations of an early economic recovery have faltered and U.S. fuel stocks have risen in line with subdued demand.

REGULATORY FEARS

The market was also monitoring the meeting of the Group of Eight major industrialised nations in the central Italian city of L’Aquila, which continues until Friday.

Oil analysts largely dismissed the G8 calls for reduced volatility in energy markets.

They said a statement from U.S. regulator the CFTC this week that it was considering tougher position limits to try to curb speculation was far more significant. It could add to selling pressure, although it would take months for any regulatory changes to take effect, they said.

“It does dampen sentiment,” said Mike Wittner of Societe Generale.

Analysts said the impact would be greater on U.S. crude than on the European benchmark Brent, which is mostly overseen by British regulator the FSA.

Brent’s current premium to U.S. crude could also be explained by the disruption of supplies of Nigerian oil, which has helped to boost other Atlantic basin crudes, including Brent.

Nigeria’s most prominent militant group said on Wednesday it had sabotaged oil pipelines, as it deepened a six-week long offensive against Africa’s biggest energy industry.

The enforced shut-in of Nigerian crude has helped to tighten supplies from the Organization of the Petroleum Exporting Countries.

Discipline from the group has lapsed and compliance with agreed output curbs has been estimated at around 75 percent, down from peaks of roughly 80 percent earlier this year.

OPEC’s 2009 World Oil Outlook released on Wednesday said consumption of its crude would not return to 31 million barrels per day (bpd), the level it averaged in 2008 before the economic crisis cut oil use, until 2013.

In the medium term, consumption would fall to 84.2 million bpd this year from 85.6 million bpd last year, and rise to 87.9 million bpd by 2013, the report said. The 2013 figure was 5.7 million bpd less than previously expected.

LONDON (Reuters)