After 54 years of near-single-party rule – not to mention two decades of economic malaise – it’s not surprising that voters eager for change delivered a landslide election victory to the opposition in that key Asian nation.

Last weekend’s Japanese election represents a major milestone for Japan, and may well change the world’s second-largest economy in unexpected ways. Many of things we think we know about Japan may simply have been policies of a Liberal Democratic Party (LDP), which has been in power for all but about 11 months over the past 54 years.

The “new Japan” may in certain respects be very different.

For example, we think of Japan as a country dedicated to exports. The big exporters are aided by cheap loans. Upon retirement, senior government bureaucrats get jobs with those exporters, a practice known as amakudari – descent from heaven. Not surprisingly, Japan runs a more or less permanent trade surplus.

Under the new Democratic Party of Japan government of Yukio Hatoyama, that may change. Hatoyama has pledged to end “amakudari” – even as he reorients the economy towards domestic spending. If he succeeds, the exporters may do less well, but the economy may be more balanced. As a result, Japan’s economy may finally begin the economic recovery that Japanese consumers have been awaiting for 20 years.

Japan is also famous for its infrastructure spending – at its peak in 2001, state-funded infrastructure spending was equal to 6.5% of that country’s gross domestic product (GDP) – a level that’s twice that of Japan, the next-biggest spender.

While anyone who has dealt with Northern Virginia traffic knows that infrastructure spending can be a good thing, much of Japan’s spending was wasted on remote rural areas, which happened to be homes to politically connected LDP barons.

Hatoyama has promised to redirect about 3% of GDP from infrastructure spending to payments to individuals. He will pay each family with children $3,000 per child per year. This should help Japan’s demographic problem – its population is declining and is heavily weighted towards retirees. It will also boost consumer spending, especially among middle-income families.

Hatoyama’s program offers no supply-side remedies for Japan’s economic ailments. Those were the policy of Junichiro Koizumi (Japan’s prime minister from 2001-2006), who seemed to be bringing Japan back from recession. Koizumi’s faction lost out in the LDP power struggle, but may make a comeback. Big-spending Prime Minister Taro Aso has resigned from the party leadership, and his most likely successor, former Japanese Health Minister Yoichi Masuzoe, is a supporter of Koizumi’s approach.

Nevertheless’ Hatoyama’s policies will reorient Japan’s economy towards domestic spending. The danger is Japan’s budget deficit (8.9% of GDP in 2009, according to estimates by The Economist) and its debt. With GDP down this year and spending up, the International Monetary Fund (IMF) has estimated Japan’s debt at 217% of GDP by the end of 2009. Only one country has recovered from debt that high – Britain, whose debt hit about 250% of GDP in 1815, only to reach that level again in 1945, at the end of two huge wars.

Hatoyama must hope that Japan’s recovery from this recession is a swift one. A sharp bounce in GDP, maybe 5%-6% growth in the first year, would make the debt level much less daunting, and allow good progress towards balancing the budget. After almost 20 years of near-recession, that’s perhaps not too much to ask.

For investors, Japan looks attractive. The stock market is still trading at less than 30% of its 1990 high. However, the Japanese companies you have heard of are not the ones to buy. They are too large and too oriented towards exports. The construction companies should also be avoided – they have benefited from the fixation on infrastructure.

However, buying smaller Japanese companies is a problem, because they do not have actively traded American Depositary Receipts (ADRs) so you really have to buy them on the Tokyo Stock Exchange. The good news is that some brokers, notably E*TRADE Financial Corp. (Nasdaq: EFTC), will allow you to trade Japanese shares.

If you intend to trade on the Tokyo exchange, you might want to look at some of the Japanese retailers and consumer-goods companies. Even with these more-upbeat prospects, though, you should be careful not to overpay – a Price/Earnings (P/E) ratio of 20 should be your upper limit.

For those without access to the Tokyo market, there are two alternatives. One is the exchange-traded fund (ETF) covering the entire Japanese market, the iShares MSCI Japan Index (NYSE: EWJ). That has market capitalization of $5.26 billion, meaning it has adequate liquidity.

However, too much of it will also be invested in shares of the big exporters and construction companies.

The other alternative therefore is a mutual fund, the Fidelity Japan Smaller Companies Fund (Nasdaq: FJSCX). That has expenses of 1.1% and a total size of $394 million. It represents the most readily available way of investing in domestic Japan.

With the new government, Japan will look very different in a few years. Profit opportunities will arise.

As investors, we should look to capitalize on these changes – as well as the opportunities they create.

Source: Landslide Election Victory in Japan Will Lead to an Avalanche of Future Profits for Global Investors

An interesting new wrinkle in the new agreement that it will “allow the International Monetary Fund to join as a signatory if it wishes”, which it already desperately wishes so that the IMF can aggrandize more power by being a “player” with all the fiat currencies it will collect and then be able to wield like a bludgeon.

And this 400 tons of gold per year certainly sounds like a lot, but in reality, how much gold is there?

Well, the article notes that the “gold holdings of the 10 largest signatories total more than 11,000 tons, valued at $350 billion”, and I remember writing down somewhere that the US has about 8,000 tons of gold and the IMF has 3,217 tonnes.

In case you were wondering, I casually mix up “ton” and “tonne” all the time, probably because they are almost the same, so I never bother to try to keep them straight because I am lazy and I don’t care anymore.

For the record, though, one metric tonne contains 32,150.72 Troy ounces, so 11,000 tonnes is 353.661 million ounces of central bank signatory holdings which, at almost $1,000 per ounce, is where I assume they get the valuation of $350 billion.

This, in case you were wondering why I said the words “Central Bank Gold Agreement” with such a sneering tone of scorn and loathing disrespect, is because this is another slimy, five-year, corrupt deal whereby the gold that governments accumulated over the centuries, by committing a continuous series of outrageous, murderous atrocities to acquire, are now selling the gold to get a little “spending money”, to save a little money by not having to pay the expenses of storing the gold, and to happily drive down the market price of gold.

I know what you are thinking! You are thinking to yourself, “Why in the world would the central banks be selling their gold, which drives down the price of gold, which plays right into the hands of The Mogambo, who is happy to buy gold at these bargain prices because he knows that the price of gold will rise meteorically as inflation in the prices of consumer goods rise meteorically in response to the money supply rising meteorically thanks to the Federal Reserve creating it and the federal government borrowing it and then immediately spending it in meteorically-rising amounts for years and years and years, which makes buying gold such a no-brainer that he is known to squeal with girlish delight, ‘Whee! This investing stuff is easy!’”

Well, obviously, since I know that governments send their secret agents to spy on me all the time and sabotage my life, we can be sure that they are not keeping the price of gold down for my benefit! Hahahaha!

No, what they want to do is drive the price of gold down so that the price of gold does not rise against their currencies, which is what you would normally expect from the inflation in prices that would result from these selfsame repellent, dishonorable, corrupt, thieving governments creating additional excessive amounts of paper, fiat money to try to buy their way out of the national inflationary bankruptcy they caused with their prior years of creating and spending excessive amounts of paper, fiat money! Hahaha!

Puru Saxena of Saxena Wealth Management notes, “It is interesting to note that only 160,000 tons of gold has ever been mined from the face of this planet and at US$950 per ounce, it is worth US$4.9 trillion. Now, consider that the total amount of paper money in circulation (currencies, savings, deposits, money-markets and CDs) is worth US$60 trillion, or approximately twelve times the value of the gold in existence.” Wow! Twelve times!

The way I am screaming hysterically that everyone should buy gold reminds me that gold rises in price because its value remains relatively constant, because of all of its valuable inherent properties, while the purchasing power of the paper money used to bid for gold goes down and down, each unit of money buying less and less gold and each unit of gold buying more and more money, which tips everyone off that “That Screaming Mogambo Weirdo (SMW) was right! We’re freaking doomed by inflation! We gotta buy gold, silver and oil right away!” which, naturally, makes their prices rise even further! Whee!

But by flooding the market with government gold, this short-circuits this “canary in a coal mine” (or more properly “Mogambo in a raging snit”) inflation alarm so that us proletariat chumps don’t panic at the horror of huge inflations in prices that are usually reflected in the price of gold which, unfortunately, always follow a huge inflation in the money supply.

This time, because it involves a commodity, I figure that it has the added benefit that slimy insiders/bullion banks can now do all kinds of slimy arbitrage tricks by buying government gold at a (theoretically) falling market price as 400 tons a year come barreling into the market to swamp demand with a deluge of supply, as well as leasing government gold at almost zero percent rates, maybe somehow running it through some Exchange Traded Funds that are shorted for some reason that I don’t understand, maybe hedging risk in the futures and options markets, perhaps bundling together a few derivatives to “lay off risk”, and making money, money, money with which to pay taxes, taxes, taxes, which I figure is the whole point, from the government’s perspective.

It’s like a license to print money while driving down the market price of gold to help disguise the inflationary horrors of, for example, a federal government deficit of 13% of GDP!

The federal budget deficit is almost 1 out of every 8 dollars of national economic activity, and the total amount of government spending will sure be, when including the inevitable future Supplemental Appropriations, over $5 trillion this year, which means that federal government spending – by itself! – is 35.7% of America’s $14 trillion GDP!

Now if you can get me to shut up my screaming, screaming, screaming in horror at such fiscal insanity for one lousy minute, I will add in another $1.5 trillion for the spending by the states and another half trillion by local governments and school boards, and suddenly we are looking at (ignoring double counting the federal aid to the states which is included in the state’s budgets) a potential of $7 trillion in total governmental spending, which is HALF OF GDP!!

I am sure that you noticed the two exclamation points, the way my voice is now screeching at full volume and revolting specks of spittle are flying through the air as I stomp around the room, cursing loudly and incoherently, that I am upset that governments now spend half of the entire economic output of the Entire Freaking Country (EFC)!

If you are a true Junior Mogambo Ranger (JMR), your blood suddenly turned cold and a sense of doom fell upon you.

Now, imagine the horror of those who are NOT, alas, Junior Mogambo Rangers (JMRs), and thus who probably do not buy gold, silver and oil because they do not know that they should be doing that when their government is acting fiscally and monetarily insane!

When you do know, however, investing is easy! Whee!

Source: Canary in a Gold Mine

The credit crisis has shifted the balance of power. Not since the days of the conquistadors has there been such an imbalance. Back then the Pope was the ultimate power and carved the New World in two between Spain and Portugal. Now it’s the split between old and new economies.

The levels of debt raised by the developed nations to bail out their banking systems is crippling compared to the emerging nations.  According to recent International Monetary Fund forecasts by 2014 the debt of economies in the developed world are expected to be more than 114% of GDP (up from 78% in 2006).  The forecasts for the emerging economies (including China) is just 35% (down from 38% in 2006).

With most of the developed nations in the worst economic condition since the second world war, the balance of power is clearly shifting in favor of the large emerging nations. China and India in particular.

Added to their new found lack of financial flexibility, the G-8 nations have another major problem: a lack of harmony in their thinking. Germany and Canada have been calling for a steady wind down of the emergency liquidity measures while the UK and US continue to favor pumping cash into the economies.

On the other hand the leaders of 5 major developing Economies (China, India, Brazil, Mexico and South Africa) are holding their own parallel meeting. This follows on from the first ever BRIC (Brazil, Russia, India, China) summit held last month in Russia. The developing powers are quickly putting in place their own structures and the old world is in danger of being left out of the new world order. The closer these developing powers become politically the less likely the dollar is to remain as the world’s reserve currency. Remember the BRIC nations currently hold some US$1.1 trillion of US government debt. At the BRIC summit Russia was calling for a move away from the US dollar.  It feels more and more like a whenrather than an if situation.

As investors, we are often faced with difficult decisions, especially those which involve putting cold hard facts ahead of personal feelings. We are entering such a phase now. We need to put aside our personal nationalism in the face of an obvious global power shift. Jim Rogers said in an interview last year that the best investment you could give your kids today is to buy them Chinese lessons. We agree.

As far as our financial portfolios are concerned we need to make sure we are having our piece of the emerging pie. There are unique risks to investing in the emerging world (e.g. political instability, weak legal systems etc) and you really have to do your homework. I would recommend keeping your exposure to less than 10% of your total portfolio. Also stick to highly liquid assets, like stocks and bonds. You don’t want to wake up finding that you never really owned that real estate you bought in China and it has been bulldozed to build a sports stadium, now do you?

While the long-term outlook for oil prices remains bullish, don’t be surprised to see a near-term correction. After tumbling to a low of $33.98 a barrel on Feb. 12, crude oil more than doubled in price, soaring to $69.82 on the New York Mercantile Exchange (Nasdaq: CME) – before tumbling nearly 4% on Thursday on a worse-than-expected jobs report.

Indeed, Money Morning predicted precisely that kind of a run-up for crude oil, first in January and then again on April 16.

As a basis for those previous analyses of the oil market, we cited the declining value of the U.S. dollar, falling production, and the possibility that demand for oil would soar as the global economy emerges from the worst financial crisis since World War II. And those factors continue to suggest that the price of oil will rise over the long-term.

However, while we still believe the long-term outlook for oil prices is bullish, it’s important to note that the recent oil price rally is not supported by supply/demand fundamentals. It is the result of a shift in market sentiment and a corresponding reversal in U.S. stocks, not a material change in the global economy.

And because the five-month rally has proceeded at an exceptionally quick pace, it’s made prices more volatile. That means prices could experience a significant correction in the short-term.

So here’s what you need to know as we approach a major inflection point for one of the world’s most volatile commodities.

What to Make of Oil’s Recent Rally

Prior to Thursday’s stumble, oil prices had soared about 106% since sliding below $34 a barrel in February. The main reason for this jump has been the so-called “green shoots” of economic recovery led investors to believe oil was oversold and that the global economy will return to growth much sooner than originally predicted.

This is highlighted by the fact that the U.S. stock market has experienced an almost simultaneous recovery. The Dow Jones Industrial Average is up about 5% from February, and 30% from mid-March. Meanwhile, the Standard & Poor’s 500 Index has climbed about 11% since Feb. 12 and is up more than 30% from its March lows.

“Historically, equities have been a leading indicator of economic growth and commodities have been a coincident indicator,” Hussein Allidina, head of commodities research at Morgan Stanley (NYSE: MS), toldCNNMoney.com. “Right now, you’re seeing commodities and equities move up together as money comes back in at the same time.”

However, there are other factors at work, including the declining value of the U.S. dollar and a shift in the futures market.

Because oil is priced in dollars, any decline in value of the U.S. currency drives crude oil prices higher.   During last year’s huge run-up in oil prices, the U.S. dollar fell to a record low of $1.59 against the euro, though it subsequently rebounded. Since oil began its current rally on Feb. 12, the dollar has fallen about 10%, declining to about $1.40 against the euro.

Additionally, many speculators reversed their positions on oil from short to long, and that can also pull prices higher.

“Prospects for equity markets and the global economy, backed up by exchange rate fluctuations, expectations about future oil market tightness, and, by inference, a shift of money into or out of futures markets can all influence short-term prices,” the International Energy Agency (IEA) said in its June Oil Market Report. “Indeed, it is tempting to conclude that the shift in [New York Mercantile Exchange] WTI noncommercial positions from a net 11,000 short in early May to 40,000 net long a month later is sufficient explanation for the surge in prices” of more than 20% during May and into early June.

On top of that, some $3.8 billion has flowed into oil-and-gas exchange traded funds (ETFs) this year, compared with $1.4 billion in the first half of 2008, Goran Trapp, head of global oil trading at Morgan Stanley, toldBusinessWeek.

“Considering that supply seems ample and demand is weak, the fact that oil is going up looks kind of weird,” Adam Sieminski, chief energy economist at Deutsche Bank AG (NYSE: DB), told CNN. “But those factors are being overwhelmed by a huge sigh of relief that we’re not going to have the Great Depression. A lot of money is coming out of mattresses.”

But while investors’ perceptions of the economic recovery – and, by extension, the oil market – have changed, the underlying supply and demand fundamentals have not. There is still a glut of oil on the market and not enough demand to soak it up.
Investors seemed to undergo a min-epiphany of that reality on Thursday, when disappointing jobless numbers raised concern “about the strength and timing of a recovery,” James Williams, an economist at energy-research firm WTRG Economics, told MarketWatch.com.

August crude futures dropped $2.58 a barrel, or 3.7%, to settle at $66.73, the lowest closing level for a front-month contract since June 3,MarketWatch said.
That development supports the conclusions put forth in some recent research.

In its five-year forecast for the worldwide oil market, the IEA last week cut its five-year forecast for global crude demand and predicted that consumption won’t rebound to last year’s levels until 2012 – at the earliest.

“The deep economic recession that has spread worldwide in the past year has taken a severe toll on oil demand,” the IEA said in its Medium-Term Oil Market Report. “This marks a break after several years of strong oil demand growth.”

The IEA cut its oil demand estimates for every year through 2013 by about 3 million barrels per day (bpd). According to the agency, world oil demand would grow at an average annual rate of 0.6%, or 540,000 bpd, annually over the 2008 to 2014 period, reaching 89 million barrels a day by 2014.

Those estimates are based on the International Monetary Fund (IMF) forecast for global economic growth of about 5% a year between 2012 and 2014. In the IEA’s “lower GDP scenario,” in which the global economy expands by 3% a year, demand won’t reach 2008 levels until 2014.

With oil demand not expected to reach 2008 levels for another three years at least, the fact that oil prices are climbing more rapidly than they did in last year – when demand was high, supplies were tight, and the U.S. dollar was trading at significantly lower levels than it is today – is a red flag for many analysts.

“There may be enough momentum to carry us up to just $72.50 [a barrel], but then I think the correction is going to be just that dramatic,” Guy Gleichmann, president of the United Strategic Investors Group, told The Wall Street Journal.

Additionally, a continued rise in oil prices could threaten the economic recovery by raising production costs and hurting consumers at the pumps.

Oil prices between $30 and $40 per barrel were like an “additional stimulus package,” Fatih Birol, the IEA’s chief economist, said last month. “But now this stimulus package is losing its strength and it will be definitely a problem for the global economy if prices continue to rise.”

Prices at above $70 a barrel “may well strangle the economic recovery,” Birol said.

If that’s true, oil prices, should they continue to rise, would only be setting themselves up for a bigger tumble when the economy slips back into recession later in the year.

Still Bullish Long-Term

While the short-term outlook for oil remains murky, if not bearish, the long-term outlook for crude is still strong, thanks to the weakness of the U.S. dollar and the probability that demand will eventually return.

In fact, the IEA estimates that oil demand will strengthen in India and Saudi Arabia this year, despite a 3% decline in global consumption.

And China, which has been using low commodities prices to stock up on resources, plans to increase strategic crude oil reserves by 160% to 270 million barrels during the next five years. Citing an unidentified official from China’s National Energy Administration, Nikkei English News said that Beijing would spend $4.39 billion (30 billion yuan) on stockpiling facilities with a capacity to hold 169 million barrels of crude oil.

“The wild card is really the Chinese,” said Money Morning Investment Director Keith Fitz-Gerald. “Don’t forget the Chinese are trying todiversify away from the dollar, and there are only two ‘non-currency currencies’ on the planet: gold and oil.”

And with the expansive monetary policy being employed by the U.S. Federal Reserve, the value of the dollar seems destined to retest the lows it reached in 2008.

The U.S. Federal Reserve has cut its benchmark lending rate to a range of 0.0% to 0.25%, and the central bank plans to purchase up to $300 billion in long-term U.S. Treasury securities and $750 billion of mortgage-backed securities as it pursues a policy of quantitative easing.

“Our forecast has been that oil will be at $100 in 2015 and it could happen faster if the economy recovers,” Deutsche Bank’s Sieminski toldCNN.

Goldman Sachs Group Inc. (NYSE: GS) raised its 2009 oil price forecast to $85 a barrel from $65 and said prices would reach $95 a barrel in 2010. Other analysts agree.

J.P. Morgan Chase & Co. (NYSE: JPM) lifted its forecast for the average price of oil in 2009 to $55.63 a barrel from $49.38, though the investment bank noted “global demand and inventory levels look horrendous.”

“We’re concerned about oil prices rising so rapidly in the near-term,” Hussein Allidina, head of commodities research at Morgan Stanley, toldCNN. “But the bet in the long-term is one way, and that’s just up.”

Source: Oil Prices Due for a Short-Term Setback, Although Long-Term Outlook Remains Bullish

Editor’s Note: This oil preview is the latest installment of a new Money Morning series that will make economic projections for key U.S. sectors for the last half of 2009. As part of that series, look for forecasts for housing, energy, U.S. stocks and the emerging markets. ]]> http://www.contrarianprofits.com/articles/oil-prices-due-for-a-short-term-setback-although-long-term-outlook-remains-bullish/18735/feed 0 http://www.contrarianprofits.com/articles/china-is-preparing-for-a-massive-dollar-freefall-are-you/18439 http://www.contrarianprofits.com/articles/china-is-preparing-for-a-massive-dollar-freefall-are-you/18439#comments Mon, 29 Jun 2009 13:00:43 +0000 Contrarian Profits http://www.contrarianprofits.com/?p=18439 China is making preparations for the ultimate demise of the dollar … and so should you.  Stories knocking the dollar never get much exposure in the mainstream media (many outlets wrongly consider it unpatriotic to bash the buck).

But here’s the story in a nutshell. Li Lianzhong, a senior economist in the ruling Chinese Communist Party, directly attacked the dollar yesterday. Li’s message is simple: China should buy more gold because the dollar is poised for a fall. Li also said that China should use more of its $1.95 trillion in foreign reserves to buy energy resource assets.

Speaking at a forex and gold forum, Li asked the very valid question, “Should we buy gold or U.S. Treasurys? The U.S. is printing…

Good day… And a Happy Friday to one and all! The end of what seemed to be a very long week… The last weekend in June, can you believe that? Next week, we’ll be getting ready for the 4th of July celebrations! WOW!

Well… What a volatile week it has been in the currencies! Up, down, all around, and settling back to levels that we saw before the Fed’s FOMC meeting earlier this week. Suddenly, investors are looking for yield again… Looks like they are “Desperately Seeking (not Susan) Yield! And why not? The Fed, and the Bank of Canada (BOC) have come out and said that there will be no interest rate hikes until we’ve turned quite a few pages on the 2010 calendar.

So, with investors clamoring for yield, the dollar gets taken to the woodshed… As I said earlier this week, one of these probes above 1.40, need to take hold of the figure and build on it, otherwise we’re doomed to remain in the 1.35-1.40 range, and range trading is for the birds! Talk about counting flowers on the wall, and watching paint dry! UGH!

I was shocked yesterday to see but a few emails asking me more about the SDR’s story that I talked about… Men, women, boys and girls, all… This is important stuff! Don’t take it lightly! There’s a movement underway that could end up costing you dearly, if you do not take the diversification steps…

I think it is important to know that the BRIC countries (Brazil, Russia, India, and China) are serious about replacing the dollar with a “global currency” i.e. the IMF’s SDR’s… And… That the BRIC’s want more power on the World’s stage… And why not? These countries currently have almost 3 Trillion in foreign reserves… And… A very large piece of the world’s population… (Thanks for that fodder, Kevin!)

OH! And guess who was banging the drum for a “super-sovereign” currency overnight? China, that’s who! So… They’re Baaaaaaaaccccckkkkk! OK… This was the People’s Bank of China (the Central Bank), that made this statement, along with a call for the IMF to manage part of member’s foreign exchange reserves… Hmmm… OK, I just said that China wants more power on the world stage, and here they are saying that their puppet will be the IMF! OK, I took some liberty with that, but it’s the way I see it!

OK… Back to what’s going on in the currencies today… Hmmm… The dollar is getting taken to the woodshed to end the week, that’s what’s happening! And the currency leading the pack with regards to performance VS the dollar, drum roll please…. The Brazilian real… A 3 day “winning streak” has the real back to levels it saw before the Brazilian Central Bank (BCB) cut rates about 10 days ago…

The way I see it, and long time readers know this will be interesting in the least, is that investors want to invest in the BRIC countries, but there’s very little liquidity there in each of those currencies, along with very little yield, except… In Brazil… Liquidity isn’t what the majors enjoy, in fact it’s still traded on what’s called a “non-deliverable forward”, which means it can only settle in dollars, with no deliverability, but… It’s traded easier and less costly than the other BRIC’s and… It has the highest interest rate available… So… You can see why investors are buying reals…

Having said that though… You must know about the volatility… Look at what happened this week… On Monday, we started the week with the real at 1.9750, only to see it rocket to 2.0326 in one day’s trading, a near 3% move / loss in one day! Then we saw it rally back to 1.9795 the next day, and after 3 days of gains the real sits at 1.9420 this morning, thus generating a “gain” for the week! And… The other thing, is that Brazil is considered an Emerging Market… And long time readers have learned over the years that when one Emerging Market gets slammed, they all get taken to the woodshed… So… Be careful out there!

A high yield currency that far removed from the early days of trading like Brazil, but offers yield, is the New Zealand dollar / kiwi… And kiwi has been held back, although still posting a gain VS the dollar, overnight as 1st QTR GDP printed at a negative -1%, thus marking the 5th consecutive quarter of negative growth in New Zealand…

I’m probably out there on the big fat limb (to hold me up, of course!) by myself on this one, but… I personally believe that both the Reserve Bank of New Zealand (RBNZ) and the Reserve Bank of Australia (RBA) have seen the lows in their interest rates, and no further rate cuts will come from these respective Central Banks. I know, that last week, we were all hyped up about future rate hikes from the RBA in 2010, and we probably got a little ahead of ourselves with that thought… I’m probably ahead of the curve on the “end of rate cuts” talk… But that’s where I like to be!

So… When the world’s investors are looking for yield, they don’t have to go to Brazil, or India… They can go to the old reliables… Australia and New Zealand, with a reduced fear of further rate cuts… At least that’s they way I see it! And yes, I could be wrong…

And how about Gold and Silver this week? What a week on Mr. Toad’s Wild Ride for precious metals… The main thing though is that they are finishing the week with a rally, and Gold which was trading at $922 on Monday, is $944.85!

And how about that grilling that Big Ben Bernanke received yesterday by legislators over the Fed’s conduct in the Bank of America (BOA) takeover of Merrill Lynch… You may recall that BOA’s CEO, Ken Lewis said he was “bullied” into taking over Merrill and not disclosing to his shareholder all of Merrill’s losses that were on the books… Big Ben denies that he participated in any bullying… (doesn’t that lead to Paulson then? Did Big Ben just throw Paulson under the bus?)… Any way… Big Ben did little to convince the legislators that the Fed didn’t keep their hands out of the cookie jar… And that, my friends, may be the foot in the door that we’ve been looking for… Maybe, just maybe, because you never know, but with the legislators having questions about the Fed and Big Ben, they probably aren’t in any mood to hand over the regulatory powers that the President wants to give them…

And… My old fave Central Banker, NOT! Big Al Greenspan was back in the news last night… I’m trying to figure out how he and I got on the same side of the ship… But, here was Big Al, my nemesis for years, talking about inflation being a concern… Let’s listen in to Big Al… Alan Greenspan, former chairman of the Federal Reserve, said the threat of inflation needs to be confronted because it poses a threat to economic recovery. “Excess capacity is temporarily suppressing global prices. But I see inflation as the greater future challenge,” Greenspan said. “If political pressures prevent central banks from reining in their inflated balance sheets in a timely manner, statistical analysis suggests the emergence of inflation by 2012.”

Of course, I think inflation will be showing its ugly face next year, not 3 years from now!

And on the data front… The Weekly Initial Jobless Claims “surprised” economists by moving back up, after falling last week… 627,000 unemployed Americans filed for unemployment claims last week… No “green shoots” here! In fact… We need to see if we can use these so-called Green Shoots that the President and Big Ben keep talking about, for ethanol… They’ve got to be good for something! HAHAHAHAHAHAHAHA! I must say that a reader gave me that line!

And here’s Warren Buffett on Green Shoots… “I had a cataract operation on my left eye about a month ago and I thought maybe now I’ll be able to see green shoots. We’re not seeing them. Whether it’s retailing, manufacturing, wherever. We have a big utility operation. Industrial demand is down like we’ve never seen it for a simple thing like electricity. So it hasn’t happened yet. It will happen. I want to emphasize that. But it hasn’t happened yet.”

And… Then… There was this… A good story to end the week and head to the Big Finish with…

Barclays Capital Inc. (Barclays) the world’s third largest currency trader, have lowered their one-year forecast for the dollar, saying foreign investors will reduce their purchases of U.S. assets… Barclays referred to the dollar’s status as “safe-haven paradise lost”, due to the ballooning fiscal deficit and the printing of money by the Central Bank… Barclays believes that the euro will be trading at 1.50 in a year…

Hmmm… Nothing new there for Pfennig readers, but, I always find it to be good to see others with their BIG research departments, no divisions, yeah, divisions, that’s bigger than a department! Wait, get back on track, here Chuck! Yes, the Big research divisions, that finally come around to what little old me has been saying for months now… Oh! And that “little old me” has just got to crack up any one that knows me, and have seen me lately!

And one more thing… Oil is back to $71 this morning, as there has been more problems in Nigeria… Let’s hope these problems go away!

Currencies today 6/26/09: A$ .8055, kiwi .6450, C$ .8710, euro 1.4085, sterling 1.6490, Swiss .9210, rand 7.9680, krone 6.4250, SEK 7.8125, forint 196.20, zloty 3.1975, koruna 18.50, yen 95.40, sing 1.4540, HKD 7.75, INR 48.21, China 6.8338, pesos 13.18, BRL 1.9420, dollar index 79.86, Oil $71.07, 10-year 3.55%, Silver $14.25, and Gold… $945.65

That’s it for today… Well… Today marks the 2-year anniversary of the surgery that removed my cancer ridden femur, and replaced it with a prosthetic. Quite an ordeal, but… Here I am! Rock you like a hurricane! Oops, sorry, got carried away there! I’m so happy that’s behind me now! Well… Michael Jackson has died at 50 years old… When I think of Michael Jackson, I just remember my two oldest kids, playing that Thriller album over and over again. The heat wave over us continues, but is expected to back off next week… My little buddy, Alex, turns 14 on Sunday. WOW! We began a tradition when he was quite young, of the two of us going to breakfast on his birthday. Two years ago, when I was in the hospital, my darling daughter, Dawn, brought Alex to the hospital with breakfast, so we could continue the tradition. I hope I can continue celebrating with him for many years to come. So… Happy Birthday Alex! Real long time readers might recall when Alex was 3, and would sit on my lap as I wrote the Pfennig from home, and every once in awhile the text would look like this… 9087lkndy7, and I would say, “sorry, Alex is helping me again”… Alex has already made me aware that he can get his drivers permit next year… YIKES! OK, time to head off into the sunrise… (not sunset, as I’m writing at daybreak, HAHAHAHA) The currencies are having a Fantastico Friday, so why don’t we joining them?

Source: Desperately Seeking Yield

This didn’t last long, and minutes before London closed for the day, a rally began that lasted almost until the end of Comex trading…and gold finished virtually on its high of the day at 5:15 p.m. I wonder how high gold would have finished in New York if the usual N.Y. bullion banks hadn’t showed up in the first couple of hours of Comex trading…or beat the gold price down in Hong Kong earlier in the day?

However, if you look carefully at the US$ chart for Monday, you will note that the gold price ‘lost’ about $11 while the US$ ‘rallied’ about 43 basis points. But on Tuesday, gold ‘gained’ back about $3 while the US$ got hammered for 1.07 cents. Funny how that works, isn’t it?

Silver’s performance on Tuesday was almost a carbon copy of gold’s.

Open interest changes for Monday’s big down day in both metals is as follows…gold o.i. actually rose 1,329 contracts to 374,970…on volume of 102,936. Either someone was shorting the hell out of the gold market…or all the shorts that were covered, disappeared under an avalanche of increased spread trades…either of these actions will result in an increase in open interest on a price decline. Silver’s 49 cent loss peeled off an impressive 4,536 contracts from open interest. Total silver o.i now stands at 106,844. Volume on Tuesday was a monstrous 51,216 contracts!

In the Comex Delivery Report yesterday, there 118 gold contracts and 16 silver contracts delivered. We’re getting close to the end of the June delivery month…only three or four days left…and we’re down to several hundred contracts to deliver in gold and a handful of silver contracts. There were no changes in either GLD or SLV yesterday…but surprise, surprise…the U.S. Mint has updated their eagle production for the second day in a row. They’ve reported minting another 10,000 one ounce gold eagles along with another 175,000 silver eagles…bringing the June totals of each up to 103,000 and 1,945,000 respectively. Not too shabby! And lastly, I note that over at the Comex-approved warehouses, another substantial chunk of silver was removed from their inventories. This time it was 999,555 ounces.

In other gold news, the usual N.Y. commentator had the following to report…”This morning the European Central Bank reported a fall in ‘gold and gold receivables’ of €20 million…’reflecting the sale of gold by one Eurosystem central bank.’ This is 0.9 tonnes, and compares with 0.945 tonnes reported last week. [This is] far below the 9.6 tonnes weekly pace notionally needed to sell the Second Washington Agreement on Gold quota evenly, let alone the pace which would be needed to sell the annual 500 tonne amount by the end of September, when the second WAG year ends.

“After a decade of public official sales in the 400-500 tonne range from European Banks, it appears that the [circa] 400 tonne IMF sale Congress recently approved, is desperately needed if this pace of sales [or documentation of sales] is to be sustained.

“The Gartman Letter, which adroitly abandoned gold early on Monday, suggests that only a house rule against reversing positions too quickly stops a short being put on, envisaging $875-$885 as a target. [Gold's 200-day moving average - Ed] ‘Never’ is not a word wisely employed near gold, but this would require [Indian] rupee weakness of astonishing magnitude.”

Three stories today…with the first two about real estate. The first story is about the upcoming debacle in commercial real estate in the United States. It’s a story from the Financial Times in London…and bears the headline “Worries over systemic risk in CMBS sector”. “A big question mark hangs over one large part of the market that is still dysfunctional: the market for securities backed by commercial mortgages.” I thank Craig McCarty for the story…and the link is here.

The second real estate story involves the U.S. residential real estate market and the upcoming resets/foreclosures in the option ARMs arena. I have mentioned this issue many times over the last couple of years…and ran a story on it about ten days ago. Here’s another. Karl Denninger, over at market-ticker.denninger.net, may have been born at night…but it wasn’t last night, and I’m not about to argue with what he has to say in this piece entitled “More OptionARM Falsehoods”. I consider it a ‘must read’…and the link is here.

And lastly is the latest commentary from silver analyst Ted Butler. His piece this week is entitled “Straight Talk on Manipulation”. I consider Ted’s knowledge of the silver market to be definitive. Everything he writes is a ‘must read’ as far as I’m concerned…and so is this. The link is here.

The first anniversary of the CFTC’s latest investigation into the bullion banks’ price management of the silver [and gold] market is fast approaching. I note that someone may have had a special one-ounce silver coin minted in honour of that occurrence. It’s not in particularly good taste, but speaks the truth nevertheless…and if I could get my hands on some, I’d buy them in a heartbeat…and send one to each of the ‘usual suspects’ at the CFTC. I thank Casey Research’s John Grandits for the photo below.

The past seventy-five years have seen the growth of government from a relatively small entity charged with defending the borders, adjudicating disputes and delivering the mail; to a bloated nightmare creature whose tentacles reach into every corner of our existence. – Doug Hornig, Casey Research

In the next 72 hours we have another bond auction, a Fed meeting and options expiry for the July contract in gold and silver. If there ever was a reason to sit on the precious metals prices…these reasons would be a start. And I note that even Bill King over at the King Report says “the DJIA, S&P500, gold, CRB and oil are a strong sell on a daily basis”…and that “bonds and the dollar, both weekly sells, are close to signaling a daily buy.” There isn’t a precious metals bull in sight…and the bullion banks are still sitting there with grotesque short positions in both metals.

I think I’ll open another bottle of wine.

See you on Thursday.

Source: And Then There’s This…Wednesday, June 24th, 2009

This situation existed until well into early morning trading in London. Then, moments before Hong Kong closed, and at the London a.m. gold fix…someone decided that “hey, the US$ is screaming to the upside and we better do something about the gold price.” In just a few minutes, gold responded with an abrupt drop of eight bucks. Then, in the face of a continuing rising US$, gold had the audacity to gain back two dollars over the next couple of hours during London trading. But fifteen minutes before the Comex opened in New York…along came another not-for-profit seller…and gold was down another eight bucks to its lows of the day. From there, it gained back almost four dollars of that. The blue and red traces tell all.

You just knew it was going to be a bad day for silver by the way it got trashed in New York on Sunday night…while the gold price was just about ruler flat. Anyway, by the time that trading was done on the Comex in New York about 19 hours later…silver was down 49 cents.

Monday’s [and this year's] gold price action [and the media comments about it] were nicely summed up by Bill Murphy over at lemetropolecafe.com yesterday. Here’s what he had to say…”Today, [the press] are all reporting again that ‘gold is down on strong dollar’, even though from the time gold hit $990 two weeks ago the dollar has done nothing more than rise from 79.5 to 80.5, a whopping 1% change compared to the $70 decline in gold and $2.50 drop in silver thanks to massive COMEX shorting. Apparently, the deflation scapegoat is back in fashion for describing gold’s decline.

“Even more comical is realizing that when gold hit $1,007 in February, just four months ago, the dollar was 87.5, or seven points HIGHER than today, and the Dow was 7,200, or 1,500 points LOWER than today. Back then, 10-year Treasury yields were below 3%, compared to closer to 3.75% today, and ‘Dr. Copper’ was $1.50 compared to $2.20 today! Thus, that gold SURGE clearly coincided with real ‘deflation fears’, as opposed to today when the press reports that gold is now plunging due to ‘deflation fears.’

“Not only that, when gold hit $1,030 in March 2008, the dollar was 77, or three points LOWER than today, while the Dow was 12,500, or 4,000 points higher today.”

If you’re confused…you shouldn’t be. The gold price is not joined at the hip with the US$ or the Dow…it goes up or down depending on who is long or short on the Comex…nothing else. Did the gold or silver price go down because of the US$ on Monday? No it didn’t. It [and silver] only declined because the price was engineered lower. Does the gold chart above look like normal market action…moving with the US$ tick for tick…or does it look like someone’s dicking with it? You have to be deaf, dumb, blind and/or stupid not to recognize price management staring you in the face yesterday.”

Changes in open interest for Friday’s trading made no sense to either Ted Butler or myself. Gold open interest fell 3,372 contracts to 373,641…on volume of 64,694 contracts. Silver o.i. went the other way…up a whopping 3,640 contracts to 111,380…on volume of 32,130 contracts. Ted said [and I totally agreed] that this big o.i. increase in silver must have been spread related. Monday’s trading activity in gold wasn’t very busy either…about 87,800 contracts…a quiet day. Friday was quiet as well [64,694]…so it must be the summer doldrums setting in.

In other gold news, I note [with some surprise] that the Comex Delivery Report stated that there were no deliveries in either gold or silver yesterday. That’s the first time that’s happened since I’ve started reporting these numbers. There were no changes over at SLV…and GLD holdings slipped a very minor 29,260 ounces. And over in Switzerland at Zürcher Kantonalbank, I see that their gold ETF reported a tiny increase of 1,534 ounces…while their silver ETF added a more respectable 176,273 ounces. I thank Carl Loeb for those numbers. The U.S. Mint was kind enough to update their eagle production numbers yesterday. Since they reported last week, they have minted another 15,000 one ounce gold eagles…bringing June production up to 93,000. In silver eagles, they minted another 325,000…now up to 1,770,000 for the month. And over at the Comex-approved warehouses…another 262,325 ounces of silver were withdrawn.

I see [courtesy of Bill Buckler over at the-privateer.com] that there’s another story about these gold vending machines being installed in Germany. This story is from the timesonline.co.uk…and bears the headline “Germans flock to gold bars vending machine at Frankfurt airport”. The link is here.

While the stock market has rallied nicely since bottoming on March 9th, the economy continues to struggle. For some perspective on the current economic recession, today’s chart illustrates the duration of all US recessions since 1900. As today’s chart illustrates, the five longest recessions all began prior to 1930. The length of the current recession (now in its 18th month) is above average and the longest recession since the Great Depression. I thank P.S. for sending this along.

And from the King Report on Monday morning…”ASI reports that rail traffic for the week ended June 13 hit a new low. ASI/Transwatch notes that lumber and crushed stone are good leading indicators for ‘future construction’. After a precipitous decline both rebounded smartly in Q1 and traded sideways for most of Q2. But now they appear to be rolling over.”

Today’s first story is only two paragraphs long. Short thought it is…you need to spend the 30 seconds it takes to read. It’s from forbes.com and is headlined “IMF says dollar adjustment might be needed”. Really? Who would have thunk that? The chief economist over at the IMF puts it rather succinctly…and the link is here.

I don’t normally run political commentary in my daily column, but I do have all the time in the world for Texas Congressman, Ron Paul. His latest on the war supplemental appropriations bill that was passed last week in Congress is entitled “International Bailout Brings Us Closer to Economic Collapse”. I thank P.S. for this story…and the link is here.

The next three stories have to do with one of the many criminal organizations that operates in the public domain. You can even buy shares in this one, as it’s a publicly traded company. That company is Goldman Sachs (NYSE:GS). GS is joined at the hip with the U.S. Treasury Department, just as JPMorgan (NYSE:JPM) is with the Federal Reserve. Here are three stories [and a cartoon] that came out over the past weekend.

The first is posted over at zerohedge.blogspot.com. It’s entitled “Filings Disclose Goldman Sachs’ AIG Collateral Demands Were Reason For AIG Implosion”. I thank Craig McCarty for the story, and the link is here.

The second story on GS is posted over at alternet.org. It bears the title “Suck on Our Yachts”: Goldman Sachs Issues Non-Apology for Destroying the World Economy”. “Goldman Sachs chief Lloyd Blankfein says he’s sorry, then proceeds to brag about screwing us all.” The author is Matt Taibbi…a writer for Rolling Stone magazine. The story is courtesy of lemetropolecafe.com and the link is here.

The last story on GS is this one from the Sunday edition of The Guardian in London. It’s entitled “Goldman to make record bonus payout”. I thank Florida reader, Donna Badach, for this story…and the link is “here.

The Goldman Sachs cartoon below is at least one year old…if not two…and very apropos. I kept it tucked away in my computer because I knew there might come a time when I could use it again. That time is now.

Today it is not big business that we have to fear. It is big government. – Wendell Phillips

Yesterday, the bullion banks managed to get both gold and silver to both close below their respective 50-day moving averages. I doubt that is a coincidence. Ted Butler feels that we are about halfway through the liquidation process, but ‘da boyz’ still have lots of firepower left to take both metals down considerably lower than they are now…as they are totally in control of the precious metals market at the moment. I note, as I put this commentary to bed, that both gold and silver made a rally attempt in the thinly-traded Hong Kong market starting about 3:00 p.m. in their afternoon…only to run into some opposition in early London trading this morning. With options expiry for the July contract coming up on Thursday, the next couple of days’ activity could prove interesting.
See you tomorrow.

Source: And Then There’s This…Tuesday, June 23rd, 2009

And how about the US$? It was heading for the nether parts of the earth. So it’s a pretty good bet that the call went out that when Mickey’s big and little hands were pointing at the number 12…it was time to intervene…and they did.

Open interest changes for Thursday showed that gold o.i. rose a smallish 1,177 contracts to 377,013…on volume of 85,231 contracts. In silver, o.i. fell 418 contracts to 107,740…on 23,898 contracts traded. Nothing to see here, folks.

The Commitment of Traders [for positions held at the end of trading on Tuesday, June 16th] showed some improvement in the grotesque short positions that the bullion banks are currently carrying. In silver, it wasn’t much of a change…as the bullion banks only reduced their net short position by 1,348 contracts…and are still net short 228.0 million ounces. The full-colour silver COT report is linked here.

In gold, the COT numbers were in line with what Ted expected. The bullion banks reduced their net short position by a respectable 17,679 contracts. But…and it’s a big but…the bullion banks are still net short an obscene 20.7 million ounces of gold…more than 25% of world production. The full-colour gold COT graph is here.

Is there any good news in this COT report? Not really. The sky-high short positions in both metals still exist…and there hasn’t been any further improvement in them since the Tuesday cut-off. Past history indicates that 100% of the time, there is only one way that these scenarios end…and that’s with a plunge to the downside as the bullion banks start the avalanche, pull their bids, and cover their shorts while they ring the cash register. The really scary part is that, with almost no significant reduction in the bullion banks short position since the peak in price during the first few days of June, the gold price is already down about $55…and silver is down more than two bucks. To make matters worse, we haven’t even broken through the 50-day moving average to the downside in either metal…but are hovering just above them. So…if the bullion banks get really serious about this…it could get ugly in a hurry.

But…on the other hand, as I’ve said before, we could go up in price from here and establish new record highs before the bullion banks finally pull the plug. That scenario is not unheard of…and has actually happened a couple of times during the last ten years. The other wonderful-to-contemplate scenario is that they get totally overrun as gold and silver prices explode and the bullion banks…led by JPMorgan (NYSE: JPM)…crash and burn. But what are the chances of that being allowed to happen at this particular point in time? Nothing that I’d bet the ranch on.

The Comex Delivery Report for Friday showed that only 15 gold contracts were delivered…and so were another 97 silver contracts. That brings June’s silver deliveries to 1,021 contracts…5.1 million ounces. It was well under four million ounces at the beginning of the week. The GLD, SLV and U.S. Mint showed no changes. And over at the Comex-approved warehouses, another 722,988 ounces of silver were withdrawn. Total silver inventories in all four warehouses at week’s end were 118,590,889 troy ounces.

In other gold news yesterday, I noted that The Central Bank of the Russian Federation had updated their gold reserves. In May, they added another 100,000 ounces, bringing their total reserves up to 17.4 million “fine troy ounces”…as they so eloquently put it.

Today’s first offering is a story out of the Financial Times in London that went to press late on Friday afternoon. Whether this is a tempest in a teapot…or the beginning of real trouble…is yet to be determined, but the headline reads “Turkish army on defensive over alleged plot”…and the link is here.

The next story is from timesonline.co.uk. It’s the only interesting gold story that I could find this late on a Friday night. The headline reads “Submarine hunts for Tsarist gold ‘worth billions’ in Lake Baikal”. I know a fair amount about Lake Baikal…and all I can do is wish them luck, because they’re going to need it. The link is “here.

And lastly is a piece from the Asia Times by veteran Indian diplomat, M.K. Ghadrakumar. I’ve been reading his commentary for years, and I’ve always been impressed with his grasp of the issues…especially in his own back yard. The essay is entitled “Beijing cautions U.S. over Iran” and the link is here.

Government has no wealth of its own. Before it gives anything to anyone, it must take it from those who produce it. – John Stossel

Today’s blast from the past was part of the “British Invasion” of the 1960s when The Beatles…followed by many other groups…took North America by storm. I was in Grade 11 when this song came out. The video is in black and white…but it matters not. Turn up your speakers and then click here.

So…IMF gold is now supposedly in play. We’ll see. There have been several stories out there trying to put lipstick on this pig, by saying that this is wonderful news. The press release from the World Gold Council comes to mind. The story is a negative…but only if the gold actually sees the open market, which I strongly doubt. It’s been two days since this news broke, and so far there’s been no sign of panic in the streets…as the decision has obviously been priced into the market already. My only concern…as it should be yours…is this grotesque short position by the ‘8 or less’ traders in general…and the ‘3 or less’ U.S. bullion banks in particular. What these institutions do, will determine what the gold [and silver] price does in the next few weeks and months.

It was ever thus.

Enjoy the rest of your weekend and I’ll see you bright and early on Tuesday morning.

Source: And Then There’s This…Monday, June 22nd, 2009