• World Bank President Robert Zoellick warned in a letter to the Group of Eight nations that the global economy is not out of the woods yet and they should be cautious about pulling back on stimulus programs.  Dated July 1, the letter was addressed to G8 host Italian Prime Minister Silvio Berlusconi and said interventions by central banks and governments appeared to have “broken the fall in the global economy” by stabilizing financial markets and boosting demand. “Yet 2009 remains a dangerous year. Recent gains could be reversed easily, and the pace of recovery in 2010 is far from certain,” Zoellick wrote in the letter obtained byReuters on Monday.  The G8 heads of government are expected to issue a statement on the situation of the world economy during their meeting in the central Italian city of L’Aquila.

• The Institute for Supply Management’s index of U.S. service industries contracted last month at the slowest pace in nine months, as measures of new orders and employment improved.  The survey of non-manufacturing firms, which make up almost 90% of the economy, rose to 47 — higher than forecast — from 44 in May, according to data from the Tempe, Ariz.-based group. Readings of less than 50 signal contraction.  The index’s third straight monthly improvement reflects signs of stabilization in housing and consumer spending. That combined with leaner inventories means companies may start expanding output again in coming months, Bloomberg News reported.

• Anglo-Australian mining company Rio Tinto PLC (ADR NYSE: RTP) has agreed to sell its U.S. packaging business to Wisconsin-basedBemis Co. Inc. (NYSE: BMS) for $1.2 billion in cash and stock.   Bemis, a food-and-beverage packager, will acquire 23 operations spread across the U.S., Canada, Mexico, South America and New Zealand that package and wrap such things as meats, cheese, bagged lettuce and snack foods, the Wall Street Journalreported.  The deal should push its sales from $3.8 billion to $5.3 billion annually and significantly boosts Bemis’s role in many foods and beverages purchased in U.S. grocery stores.

• Economic worries pushed crude oil prices below $65 a barrel Monday for the first time since May 27 as investor doubts over a potential rebound in the global economy increased, Reutersreported.  Prices fell more than 3% to $64 a barrel, after touching a five-week low of $63.40 in overnight trading.  London Brent crude fell $1.29 from Friday’s close to trade at $64.32 a barrel.  Crude has fallen more than 13% after reaching nearly $74 a barrel on June 11 on optimism that an economic recovery could bolster demand.  But recent weak economic data — including a poor U.S. jobs report last week — has weighed on markets.

• Writeoffs for Bank of America Corp. (NYSE: BAC) may rise as much as 10% to $7.6 billion when it reports its second quarter results on July 17, according to a Credit Suisse Group AG (NYSE ADR: CS) report obtained by Bloomberg News. Among the bad debts was $1.9 billion related to home equities, and 10.4% of credit card loans. Stress tests conducted by the U.S. government in May estimated the lender may face $136 billion in loan losses through next year.

• Moody’s Investors Service put Brazil’s credit ratings on review for an increase to investment grade, citing the country’s “demonstrated resilience to shocks” in the global economy, Bloomberg News reported. “Confronted with a wide array of adverse conditions, the Brazilian authorities’ policy response has been effective in containing the impact of the global crisis, thus providing evidence of increased resilience to shocks, a characteristic integral to an investment-grade credit profile,” Moody’s said.

• Justice Department officials have begun an initial review of the largest telecom companies such as Verizon Communications Inc. (NYSE: VZ) and AT&T Inc. (NYSE: T) are anti-competitive,The Wall Street Journal reports. While no company is being singled out at this point, the investigation could explore whether wireless carriers hurt smaller competitors by signing exclusivity deals with phone handset makers, such as AT&T’s deal with Apple Inc. (Nasdaq: AAPL) that makes it the sole carrier of Apple’s popular iPhone. Together, Verizon and AT&T control 60% of the 270 million wireless subscribers.

• Marc Andreessen, co-author of the first web browser, has started a venture capital fund with longtime business associate Ben Horowitz for new companies with new technology ideas, The New York Times reported. The duo’s company, called Andreessen Horowitz, has raised $300 million for tech-related investments, and will risk as little as $50,000 on new ideas. Any successful ideas will get up to $50 million for the companies to grow globally. Five-year returns in the venture capital industry were just 6% last year, a far cry from 2000’s 48% at the dot-com bubble’s peak. Andreessen is a director at Facebook Inc., which started with just $500,000 but has since raised $600 million.

Investment News Briefs Tuesday, July 7, 2009

Some traders booked profits on the euro’s slide on Thursday, while analysts said currency movements were aggravated due to thin volumes as U.S. markets were closed for the Independence Day holiday.

On Thursday, data showed U.S. employers cut a greater-than-expected 467,000 jobs in June, leading to heightened risk aversion on the back of pessimism about the recovery of the U.S. economy.

The bleak data pressured the euro and currencies perceived to be higher risk such as the Australian and New Zealand dollars, but the single European currency found its footing on Friday after selling subsided.

This kept the euro hovering at the $1.40 level, as some market players judged the sell-off in the euro — which knocked it from a near three-week high around $1.42 hit earlier in the week — may have been overdone.

“The big drift downwards that we saw (on Thursday) was simply stop-loss selling and that has now unwound,” said Robert Minikin, senior currency strategist at Standard Chartered in London.

He added a slight recovery in the euro versus the yen after a 2 percent fall on Thursday indicated lower risk aversion.

At 1217 GMT, the euro was at $1.4006, up 0.5 percent from U.S. levels at 2130 GMT. On Thursday, the pair fell as low as $1.3927, its lowest since June 25.

The euro also recovered against the yen to trade up half a percent at 134.39 yen. The Australian dollar climbed 0.7 percent against the dollar to $0.7983, while the New Zealand dollar rose 1 percent at $0.6333.

The dollar index, which tracks the dollar’s value against a basket of currencies, was up slightly at 80.290.

DIVERSIFICATION DEBATE Earlier in the session, the euro showed little reaction to data showing the euro zone Services Purchasing Managers Index (PMI) in June stood at 44.7, down from May’s seven-month high of 44.8.

Separate figures showed euro zone retail sales fell 0.4 percent on the month in May, more than forecasts for a 0.1 percent slide.

With the U.S. non-farm payrolls out of the way, investors will likely focus on a Group of Eight (G8) meeting on July 8-10 for any further debate on currency diversification plans.

A Japanese official said on Friday major countries should support the dollar as the key international currency at the summit, although emerging nations may discuss a new global reserve currency on the sidelines.

China has asked for a debate on a new global reserve currency when leaders from the G8 meet with the G5 emerging economies next week in Italy, a G8 source told Reuters.

“In the short term, moderate USD strength is likely to be in the global interest in terms of keeping long-term rates down and relieving what may emerge as commodity price pressures on inflation down the road,” Barclays Capital Research said in a note to clients.

“So while it may be early to sell USD, the fact that the (diversification) discussion has become so public suggests that USD weakness would accompany a global recovery as confidence is restored in the medium and long term,” the note said.

LONDON, July 3 (Reuters)

Hoorah! The dollar is saved! How do we know? The Russian finance minister told us so!

The dollar is in “good shape” according to Alexei Kudrin, who cautioned the Group of Eight conference in Lecce, Italy, over the weekend that, “It’s too early to speak of an alternative [to the U.S. dollar].”

Even politicians from the Former Soviet Union have the right to their opinion, of course, just as we reserve the right to disrespectfully disagree. And, so it appears, do other members of the same, somewhat confused Rusky government. A few days before Kudrin was heard drumming up support for his unlikely ally at the G8 roundtable, Russia’s president, Dmitry Medvedev joined China’s central bank Governor Zhou Xiaochuan in suggesting the world may need another benchmark for settling international debts.

From where came this unlikely champion of U.S. currency, we wonder, and is he really looking out for the John Q. Citizens of Anytown, U.S.A.? Not likely. Politicians, as we know, are invariably brewed from near equal parts malice and fraud. Some are a little more evil, others a little more deceptive. Kudrin, rather than simply trashing the greenback outright, understands that a gradual move toward an unspoken alternative currency might behoove his own nation’s global position over the long run.

For starters, Russia has some 138.4 billion of those dollars stashed under a few tones of soviet concrete in Moscow. If the value of the greenback drops too quickly, the buildings atop that stash risk caving in themselves. Other countries with big dollar reserves understand this too, which is one reason China, the largest U.S. creditor, doesn’t simply dump $767.9 billion of U.S. debt on the open market.

It’s also why, speaking just a few days before the abovementioned G8 party, Japan’s finance minister, Kaoru Yosano, described his faith in the U.S. Treasury securities as “unshakable.”

“We have complete trust in the fact that the U.S. views its strong-dollar policy as fundamental,” Mr. Yosano said in an interview in Tokyo without, we might add, even cracking a smile. But we can think of 686.7 billion reasons Mr. Yosano might resist the urge to burst into uncontrollable fits of laughter. If word gets out that all those green notes aren’t worth the numbers printed on them, what can Mr. Yosano hope to get for them? The same goes for Mr. Kudrin and Mr. Guido Mantega of Brazil, who sits on over 125 billion of them himself.

The case could be made that the abovementioned fellows are actually more responsible stewards of the greenback than either Greenspan or Bernanke, who both actively sought to devalue it by running the presses and lending at ridiculously depressed levels.

It’s all smoke and mirrors, mind you. Everyone knows the world can’t continue to trade in shells if every time the tide comes in another 300 billion of them turn up on the shoreline. What world leaders are doing is simply protecting the value of their own reserves by trying to pretend the tide won’t come in again. It will, of course, and then we’ll see everyone scrambling for coconuts, crushing the broken shells under their feet as they run.

Source: A Currency for Comrades

OK… Well, the Russian Finance Minister, Kudrin, threw a cat among the pigeons yesterday, when he stated that Russia has confidence in the U.S. currency. The markets have reacted violently to this statement, sending the dollar much higher, and the currencies led by the euro, much lower. An overreaction? I think so! But… These are the types of things you watch happen, and be glad you’re not a currency “trader”! For, you would have either experienced a huge loss or gain, or… Been stopped out, and not allowed to participate in the large move… I’m not the “trading” type… I’m all about diversification… So that, when things like this happen, you realize that it’s just “noise” in the markets, and the only thing it creates for you is an opportunity to buy at cheaper levels!

It sure sounds like, looks like, and smells like, a coordinated effort by those that have the most to lose should the dollar continue on it’s downward path of the last 3 months, to get put a lid on their losses… Makes sense… But you have to wonder about what they are really thinking and doing… I’m talking about China, Russia, and Japan, who have ALL stated in the past weeks that “the dollar is fine, and there’s no substitute reserve currency”… These statements all give dollar bulls a boost, and tell them that these countries are not going to back away from dollars and dollar denominated assets.

Now… There’s a BRIC meeting coming up soon… Brazil, Russia, India and China… And while the Finance Ministers of these countries are at the meeting, I doubt seriously that they will hold the same amount of “love” for the dollar… But that sentiment will be kept to themselves, as they don’t want to send the dollar spiraling downward. These BRIC nations had it all going for them until July of last year. They were sent spiraling downward like most assets until March of this year. I would have to think that the Finance Ministers of these countries would be interested in knowing how they can avoid another downward spiral caused by dollar buying… And… This… Would be the key, folks… I don’t know what it would be, but if they did something like a currency swap / foreign exchange line between each other for trade, that would be colossal! Which is bigger than HUGE!

Well… The G-8 meeting this past weekend was centered on an “exit strategy” for the countries that have implemented the various forms of stimulus. I did see one comment on currency that came out of the meeting… German Finance Minister Steinbrück said he had “no problem with the level of the euro” Now that comment alone should have underpinned the euro coming into Monday’s trading… But again, the cat thrown among the pigeons, but Kudrin, has really taken control of the markets’ mindset today.

We will see central bank meetings from Japan, Norway, and Switzerland this week… Don’t expect much from any of them, as interest rates are near to the bone for all… Norway’s Norges Bank has an internal rate of 1.50%, which does give them some leeway for a cut, but again, I just don’t expect anything from any of these Central Banks this week…

In that old comparison thing, when you say this car is uglier than that car… The Eurozone has lost 1.22 million jobs in the first QTR of 2009. Unemployment here is near a 10-year high, and not looking as though it will stop the bleeding any time soon… However, we are all aware of the rot in the U.S. employment picture… In the same period (1st QTR 2009) the U.S. lost 1.912 million jobs… And… We all know the “games people play now, every night and every day now” at the BLS! So… Which car is uglier?

So… As we lead off the this 3rd week of June, we have not only the currencies but, commodities and stocks all in the red from the Kudrin words… (see above, in case you skipped over that, which I can’t imagine any one would do! HA!)

Speaking of commodities… Gold has hit a 3-week low. The shiny metal has had to endure 3 weeks of battering by China, Japan, and now Russia regarding the reduced need for an alternative to the dollar… I wouldn’t think too much of this move… Again, it’s “noise”, and soon the Kudrin words will be a thing of the past, and we’ll get back to the underlying fundamentals of a weak dollar trend eventually… But! It does give those that were thinking they wanted to buy Gold, but it was too expensive, the opportunity to grab some now!

As I turned the computers on this morning, the currencies have lost even more ground, so they haven’t found a stop level yet.

Today, we’ll see the color of the TIC’s data… You know, the Net Security Purchases… This data will be from the month of April…

We’ll also see National Home Builders House price index for this month. I know that quite a few economists believe that the housing markets meltdown has bottomed… But I think this data will prove otherwise.

Wednesday, Big Ben Bernanke and FDIC Chair Sheila Blair speak… You never know what will come out of the mouths of these two! So… We had better keep an eye out, and our ears to the ground, for you never know when you might get another quote from Big Ben like the helicopter speech of a few years ago! Don’t recall that one? Ahhh…

When asked how he would deal with deflation as the Head of the Fed (obviously before he was the Fed Head!) Big Ben reminded everyone that the Gov’t had this technology called a printing press… (he’s talking about printing money here ) and that he would throw dollars from a helicopter to keep deflation from happening…

Well… Minus the helicopter, he’s kept his word, eh? The Printing Press is working overtime and he sure is passing out the dollars to keep deflation from hitting us hard… (personally, I think he failed miserably, but that’s just me!)

So… I see that the President is going ahead with his plans to give the Fed sweeping regulatory powers… Not that I don’t want to see some changes… But again, I ask… The Fed? They’ve done such a masterful job of protecting the value of the dollar since they were created, eh? NOT! 94% loss in value since the Fed took over! Nice job! UGH!

Time to get this out the door, so on to the Big Finish!

Currencies today 6/15/09: A$ .8015, kiwi .6325, C$ .8840, euro 1.3855, sterling 1.6450, Swiss .9170, rand 8.0610, krone 6.4240, SEK 7.8280, forint 202, zloty 3.25, koruna 19.37, yen 98.20, sing 1.4570, HKD 7.7505, INR 48.15, China 6.8363, pesos 13.51, BRL 1.9260, dollar index 80.95, Oil 70.95, 10-year 3.76, Silver $14.33, and Gold $934

That’s it for today… Thanks to all that sent along notes regarding my continuing battle with cancer… Yes, it’s been two years… Seems like a lot longer! This coming weekend will be Father’s Day weekend… Always a good time at my house! The kids will all be here, little Delaney Grace, and others… So… I’m looking forward to that. Two years ago, I spend Father’s Day in the hospital with my kids, so this time around it should be in our beautiful back yard! OK… I’m very late! I hope you have a Marvelous Monday!

Chuck Butler

Source: Throwing A Cat Among The Pigeons!

Top financial officials from the Group of Eight (G8) industrialized nations on Friday issued an upbeat evaluation of the global financial crisis, describing signs that markets were stabilizing around the world and warning that it was necessary to devise “exit strategies” to disengage from stimulus programs that have been put in place.

The G8 met for two days in Lecce, Italy. Eight world finance ministers – including U.S. Treasury Secretary Timothy F. Geithner, and his global counterparts from Britain, Canada, France, Germany, Italy, Japan and Russia – also agreed to create “a set of common principles and standards governing the conduct of international business and finance,”The Washington Post reported.

In a communiqué called “the Lecce Framework” – which described the strategy for obtaining those goals – the finance ministers called on government leaders to fill in the regulatory gaps that led to the global financial crisis, including breakdowns caused by financial firms that operated in multiple economies.

Strikingly more rigorous initiatives already are being adopted in Europe, where new measures aimed at creating more-rigorous oversight of the credit-rating agencies – especially those involved with creating securitized securities, whose U.S. breakdowns have been identified as a key contributor to the credit crisis. The United States will offer its own broad proposals for “more conservative standards” when it unveils a much-anticipated reform plan to overhaul domestic financial regulation later this week, Geithner said in an interview after the meeting.

The U.S. will include tougher proposed capital standards and oversight for banks, better coordinated oversight of global financial institutions, and improve monitoring and transparency in global derivatives markets,The Post reported.

“Because risk does not respect borders, we will put forward several international proposals in our reform package to help raise standards globally,” Geithner told journalists after the meeting.

With recent rebound in stock markets and a flurry of upbeat economic reports, finance ministers said they were cautiously optimistic about the state of the world economy.

Market Matters

Despite some last minute drama at U.S. Supreme Court, Chrysler LLC closed on its deal with Fiat SpA (OTC ADR: FIATY) and effectively moved beyond bankruptcy.  While Supreme Court Justice Ruth Bader Ginsburg gave the would-be deal-breakers (Indiana pension funds) some false hope, the Supreme Court ultimately disallowed their objections andlet the transaction proceed.

General Motors Corp. (OTC: GMGMQ) announced the hiring of a formerAT&T Inc. (NYSE: T) exec to guide its rebirth and moved closer to selling its Saab unit as it “speeds” through its own restructuring.

In a “sign of financial repair,” the U.S. Treasury Department has granted its blessing to 10 major banks to repay $68 billion in Troubled Asset Relief Program (TARP) loans; JPMorgan Chase & Co. (NYSE: JPM) ($25 bln), Morgan Stanley (NYSE: MS)($10 bln), and American Express(NYSE: AXP) ($3.4 bln) expect to take the plunge in the next few days.

And in a sign of renewed economic strength, Texas Instruments Inc. (NYSE: TXN) raised its outlook for the second quarter amid growing demand for semiconductors.  Meanwhile, Bank of America Corp. (NYSE: BAC) and U.S. Federal Reserve officials took a grilling from (grandstanding) politicos as the “he said/he said” controversy over theMerrill Lynch (NYSE: SAR) acquisition continued.  The Obama administration ended its plan to limit compensation within financials and also is reevaluating prior proposals about consolidating regulatory bodies.

In transactional news, BlackRock Inc. (NYSE: BLK) acquired ETF-giantBarclays Global Investors to form the largest global asset manager.

Energy prices continued the upward trek as an International Energy Agency suggested that global demand for 2009 would be stronger than previously predicted.  On the supply side, a BP PLC (NYSE ADR: BP)report showed that global reserves fell in 2008, the first such decline in 10-years.  Crude surged past $72 a barrel for the first time this year as traders analyzed the supply/demand issues in conjunction with the ongoing prospects for an economic recovery.  Likewise, gas prices rose again (for 42 straight days) to above $2.60 per gallon nationally and consumers began to feel the pinch at the pumps as summer travel season arrives.  Inflation anyone?

Economically Speaking

Economists are at it again.  With little substantive data on the calendar,The Wall Street Journal announced results of its latest forecasting survey and a majority of respondents expect the recession to end by late summer (though the subsequent recovery may not be as swift as many had hoped).  About half even believe the Fed will be inclined to raise the benchmark Federal Funds rate (from virtually 0% today) by the middle of 2010.  Despite the potential for an economic rebound, the labor market is expected to remain weak as unemployment is projected to climb just below 10% by the end of the year.

On the inflation front, the rapid rise in oil prices does not seem to be worrying most economists surveyed (or they simply have not been paying attention), as they pegged the price of crude at $72 a barrel by December 2010, very close to today’s level.

Retail sales rose in May for the first time in three months, though much of the increase reflected rising gasoline prices which is bad news for a consumer-driven economy. Discretionary spending seems to be going to the gas pumps rather than for household or luxury items.  Still, consumer sentiment is improving as the latest Reuters/University of Michigan confidence index rose to its highest level in nine months.

The trade deficit jumped for the second month in a row as oil imports climbed, also the result of higher crude prices.  Home foreclosures actually declined in May, a positive sign for housing, though its elevated level was still the third highest ever reported.  The Fed “Beige Book“ was released during the week and the messages were mixed, at best.  While certain regions of the country have begun to experience resurgence in economic activity (or, at least, less contraction), others remained quite weak and ongoing challenges in the labor markets threaten to hinder any sustained recovery.  Despite the recent increase in interest rates, many Fed watchers do not expect the policymakers to commit to additional Treasury and mortgage-related securities purchases at the next open market committee meeting.

Weekly Economic Calendar

Source: G8 Finance Chiefs Express Cautious Optimism About the State of the World Economy

Silver gained about a dime in Far East trading, but got sold off hard the second that Hong Kong closed…but began to rise (along with gold) around 7:00 a.m. NY time. From there, it oscillated either side of $16.50 until New York closed for the weekend. It’s obvious (at least to me) that someone didn’t want any excitement in the precious metals today…at least not in gold and silver…although platinum and palladium seemed to do OK.

Open interest on Thursday was once again of the strange variety. Gold o.i. only dropped 891 contracts on a price fall of about eleven bucks…not a lot. And even though silver was down a bit on Thursday, the o.i. was up again…for the third day in a row! This time by 1,157 contracts. Is this shorting…new spreads??? It will, of course, be in next week’s COT. It seems like we’re always waiting for the next report, as the current one never provides us with what we really want to know…like what’s happening right now.

However, we do have the latest Commitment of Traders report. There weren’t a lot of changes in silver, but the bullion banks did improve their position by about 1,500 contracts as the tech funds pitched their longs. The tech funds (in the Non-Commercial category) only added 161 longs to their position, but went short 1,193 contracts. The bullion banks in the Commercial category added 3,643 contracts to their long position, but also added another 2,087 contracts to their short position…which nets out to the 1,500 contracts mentioned above.

But the big story is in gold. I guess I was wrong this time, as everything that should have been reported, obviously was. The COT showed about a 19,000 contract improvement in the bullion banks’ short position, as the tech funds in the Non-Commercial category not only pitched a pile of longs, but went short by a bunch too. To be precise, the tech funds tossed 11,369 longs and put on a whopping 7,594 short contracts! That’s a lot…and they’ve added more since the Tuesday cut-off. The bullion banks hiding in the Commercial category not only added 1,731 contracts to their long position, but covered a more than impressive 17,359 contracts in their short position. There’s your 19,000 contract improvement right there.

I feel that the Thursday/Friday time period was the absolute bottom…but I’ll wait to see what the G8 has up their respective sleeves this weekend before I break out the bubbly.

I note the following headlines in John Williams’ latest commentary over at shadowstats.com…and they are as follows: 1) Inflationary recession and banking crisis continue to intensify, 2) Market fantasies of contained crisis begin to fade, 3) Severe inflation surge in offing, 4) Evidence mounts for manipulation of key headline economic numbers.

The first story today is from The Telegraph out of London and is another offering from Ambrose Evans-Pritchard. Does this guy ever sleep? If you think that the $US has its problems, the Euro doesn’t seem to be much better off these days. The story is entitled “Support for euro in doubt as Germans reject Latin bloc notes”. It’s well worth the read and is linked here.

The second story is also from The Telegraph and is entitled “Russia plans Arctic military build-up”. This story is certainly no surprise to me, as the rush to claim whatever oil and gas reserves may be left on this planet is now on in earnest. The link is here.

I didn’t attend the funeral, but I sent a nice letter saying I approved of it. – Mark Twain

Despite the enormous influence that the Beatles had on music in Britain and around the world, this rock tune is still #1 in Britain, and will probably remain so until long after I’ve left this world. The youtube.com video in question is linked here.

I see in a Bloomberg story that foreclosures were up 48% in May and repossessions have doubled. “One in every 483 U.S. households either lost their home to foreclosure, received a default notice or were warned of a pending action.” But, hey…the Dow was up…so everything is fine.

Enjoy what’s left of your weekend and I’ll see you early on Tuesday morning.

Casey Research correspondent-at-large Ed Steer is a keen observer of the financial scene and a board member of GATA.org.

Source: And Then There’s This…Saturday, June 14th, 2008