"...the refusal of Asian central banks to permit the needed appreciation of their currencies against the $ may end up having the same impact on the adjustment process of the overvalued currencies. The 1930s seemed to show..., that when currencies could not adjust, countries became protectionist. So if the overvalued $ cannot adjust except against the euro, & if the already overvalued euro has to bear the brunt of any further adjustment, will American & European politicians be forced into the “second-best” option of trade protection? No prizes for guessing what I think." - Michael Pettis http://mpettis.com/2009/11/what-rebalancing-of-chinese-and-american-consumption/
Saturday, November 7, 2009
"...the refusal of Asian central banks to permit the needed appreciation of their currencies against the $ may end up having the same impact on the adjustment process of the overvalued currencies. The 1930s seemed to show..., that when currencies could not adjust, countries became protectionist. So if the overvalued $ cannot adjust except against the euro, & if the already overvalued euro has to bear the brunt of any further adjustment, will American & European politicians be forced into the “second-best” option of trade protection? No prizes for guessing what I think." - Michael Pettis http://mpettis.com/2009/11/what-rebalancing-of-chinese-and-american-consumption/
Investing in Farmland... Ned Schmidt discusses this Cliff Küle theme: best types of land, optimal sizes for investment, land uses, renting land to farmers, location, ... first 27 minutes of link below - other 2 discussions on this audio include rare earth metals & uranium...2 more CK themes http://www.netcastdaily.com/broadcast/fsn2009-1107-3a.mp3
Friday, November 6, 2009
The 5 Biggest Systemic Threats... Michael Milken lists: i) corporate credit is not the same as leverage, with some US companies leveraged 100-to-1... ii) mortgages in real estate are never an investment-grade asset... iii) interest rates are volatile & unpredictable... iv) The US AAA rating is misleading... v) sovereign debt is a big, if not the biggest, risk.... Courtesy of Deal Journal & Zerohedge - http://www.zerohedge.com/article/michael-milken-five-biggest-systemic-threats (3*)
US Risks Default...according to Eric Sprott & David Franklin "what happened to Lehman is now happening to the US government"... National Post article is based on prior article posted on www.cliffkule.com... "The United States Government is on a trajectory to default on its obligations. In its current financial condition, it will not be able to fund its... budget deficits & unfunded Social Security & Medicare...on top of its current debt obligations".. shows interesting data from the Q2 "Flow of Funds Report" published by the Fed -that the Fed purchased as much as 1/2 of the newly issued treasuries in the second quarter - "Printing new dollars to support an almost $9-trillion budget deficit that stretches out over the next 10 years puts the U.S. on the road to ruin,... major governments of the world have noticed & are taking action"... http://network.nationalpost.com/np/blogs/fpcomment/archive/2009/11/04/eric-sprott-and-david-franklin-u-s-risks-default.aspx (5*)
Is a Currency & Bond Market Crisis Ahead?... Michael Pento discusses... 5 minute audio - click on image above or link below to activate... http://www.greenfaucet.com/mid-week-reality-check-is-a-currency-and-bond-market-crisis-ahead/75045
No Energy Investment?..a National Security Risk... the President of MIT says what we need is a federal funding effort, modeled on the National Institutes of Health, to sustain energy research at a level that will reduce US dependence on imported oil & gas... http://www.bloomberg.com/apps/news?pid=20601087&sid=a5CkzdiY5rBo&pos=9
Gold Price is No Bubble... James West writes that declaring gold in a bubble demonstrates complete ignorance or disregard for the fundamental drivers of the bull market in gold... "The popular perception is growing that gold is indeed a monetary standard, and a store of value that can be trusted in both turbulent and stable economic conditions... on the supply side, there is no availability. No one is selling. The miners are mining as much as they can as fast as they can... On the demand side, nothing but more, more and more demand. No trustworthy currency in sight"... http://news.goldseek.com/GoldSeek/1257354120.php (3*)
"Gold is no longer being driven by jewelry demand, as in the recent past. It is investment demand that's wagging the yellow dog's tail. It's a loss of confidence in the U.S. dollar and U.S. government policies around the world that's driving gold to record levels. As it has been for thousands of years, gold is the safest store of wealth, not so much something to be fashioned into a necklace." - Fred Hickey, The High-Tech Strategist
Thursday, November 5, 2009
Charles Gasparino says:"It is outrageous that they (Goldman Sachs) are being subsidized by the federal government (American taxpayers) as a commercial bank, meaning they can borrow cheaply to take risk,-so we are setting ourselves up for this to happen again." speaking of his new book-THE SELLOUT (highly recommended).
Cliff Küle says: If you don't have time to read the book, watch the 7 minute video. Keep reflecting on "our world & its money" until you understand just how outrageous it is for a government to tax its citizens in order to help its friends become über-wealthy. Do not be "the mark" that believes Democrats or Republicans are the fault-they are a decoy. The fault occurred when control of the money was taken away from the people many decades ago (& given to bankers). When a nation's money is not "of the people" or "by the people", how can it be "for the people"? The government did as Thomas Jefferson implored to never do. We are living through the consequences.
Cliff Küle says: If you don't have time to read the book, watch the 7 minute video. Keep reflecting on "our world & its money" until you understand just how outrageous it is for a government to tax its citizens in order to help its friends become über-wealthy. Do not be "the mark" that believes Democrats or Republicans are the fault-they are a decoy. The fault occurred when control of the money was taken away from the people many decades ago (& given to bankers). When a nation's money is not "of the people" or "by the people", how can it be "for the people"? The government did as Thomas Jefferson implored to never do. We are living through the consequences.
Wanna Invest in Brazil?... Mina Kimes emphasizes Brazil has a fast-growing domestic economy & is largely insulated - exports account for less than 1/4 of the country's GDP... "The key point for investors is that Brazilian stocks are still cheaper than those of other powerhouses like China and India. On average, they are trading at 12.9 times next year's estimated earnings, compared with China's 19.1 and India's 18.4"... http://money.cnn.com/2009/10/27/pf/brazil_stocks.fortune/index.htm
"Audit the FED" has been Gutted
Visit msnbc.com for Breaking News, World News, and News about the Economy
Who cares about the US$?... Axel Merk discusses groups who care & groups who do not seem to care... points out different ways to address what may be a continued threat to the $... prefers diversification into baskets of currencies, this is what central banks are doing... "While some may dream of a return to the gold standard, the trend over the past 100 years has been moving in the opposite direction, albeit with an increasing gold element in recent years for some countries. We don’t think there will be a world currency sponsored by the IMF – such a concept looks good on the drawing board, but national interests differ too widely"... http://www.321gold.com/editorials/merk/merk110509.html (3*)
US Debt - How Will It End?... Desmond Lachman cites research by Professors Rogoff & Reinhart on the history of sovereign debt defaults - in 800 yrs, they found 2 regularities: 1. countries most at risk of defaulting on their government debts are those that are overly dependent on capital from abroad ; 2. sovereign debt default or restructuring tends to be highly disruptive to economic performance in general & to inflation performance in particular... Lachman see 3 options for the US debt end game: 1. massive reduction of expenses & revenue enhancing , 2. default on debt obligations, 3. print $ to inflate the debt away... sees option 3 as the more likely end-game... http://network.nationalpost.com/np/blogs/fpcomment/archive/2009/11/04/how-u-s-debt-end-game-might-occur.aspx (4*)
Boasting of Glory... John Browne warns that before we start celebrating one quarter of modest growth, it should be realized that the driving force is not the consumer but rather the government that is doing the spending now... "To finance its largesse, the government is now borrowing at a rate that has ordinary citizens and the international community extremely concerned... Rather than dancing in the dollars falling from helicopters, we should be concerned about their worth when they hit the ground"... http://www.safehaven.com/article-14926.htm (4*) (cartoon courtesy of Ingram Pinn)
Bond Bubble About to Burst?... Thomas Kee says there is not much cash left to buy agency & mortgage-backed securities - recommends shorting bonds & hedging with gold... "In the early part of this decade, shorting Internet stocks was one of the most rational investments an objective investor could ever have made. At the end of the credit bubble, shorting financial stocks was an easy way to make money. Now, as the Treasury bubble begins to wind down, the easy money will be made from shorting Treasury bonds"... http://www.marketwatch.com/story/the-treasury-bubble-is-about-to-burst-2009-11-02 (3*)
Wednesday, November 4, 2009
Buying a Railroad Now?... Jeff Matthews questions if Buffett has gone bonkers or if the $44 billion Burlington Railroad buy is another stroke of brilliance.. says Buffett has not lost his mind - the buy is a long-term play on economic recovery & possibly global warming... it includes a potential "option" in the form of 32,000 miles of rights-of-way that could eventually form the backbone of a nationwide broadband network...
Capitalism & the Future..Niall Ferguson urges a shift from 'too-big-to-fail' ... discusses what the role of govt should be in the economy & the recovery efforts, based on Adam Smith's & the Founding Fathers' view... worries about THE major distortion in the world economy today - depreciation of the Chinese currency (due in part to being largely pegged to the US$)... 7 minutes long... http://tinyurl.com/ygkhcyh
Why is Oil Already So High?... Jeff Rubin (M-AA*) asks why no one seems to acknowledge "the inconvenient truth that conventional oil supply (i.e. the type of low-cost fuel you can afford to burn) has not grown since 2005, and may never grow again".. that doesn't mean the world is running out of oil, with 165 billion barrels of oil stuck in Canadian oil sands, & maybe even more in Venezuela's tar sands... ".. what the world has run out of is the oil that it can afford to burn"... http://www.theglobeandmail.com/blogs/jeff-rubins-smaller-world/why-is-oil-already-so-high/article1350584/ (3*) (chart above courtesy of Goldman Sachs Research, time period over the next few years)
US - Now a Net Exporter of Oil Distillates?... http://tonto.eia.doe.gov/oog/info/twip/twiparch/091028/twipprint.html
Mother of Carry Trades Will Lead to Asset Bust... Nouriel Roubini (M-AA*) warns using cheap US$ to invest in riskier higher-return assets will quickly reverse once the US$ strengthens... foresees the Fed keeping interest rates low, weakening the US$ for a long time, making the unwinding all the more painful... "It's going to eventually occur but it's going to be six months from now, a year from now... In the meanwhile the bubble's going to become bigger globally and the bigger the bubble the bigger is going to be the crash."
Gold Countries Slide Show... Click on image above or link below to activate slide show - the countries with the most of this precious metal... Central bank & government holdings are believed to account for about 20.5% of the world's gold, at approximately 29,634 tons...Cliff Question: Who audits govrnments ? http://www.cnbc.com/id/33242464/?slide=1
What “the best” (former bears) are saying now… The Moneyshow analyzes over a dozen bears, says "the answer is encouraging, because almost all of the market strategists and economists who correctly and repeatedly warned us to sell, or to get to a 'maximum defensive position'—have turned bullish—in some cases within weeks of the March bottom"... Bernie Schaffer: "Isn’t this the wall of worry that suggests further upside?"... Jim Stack - points out that the average number of days before a 10% correction is 308, currently we are only 158 days into this rally... http://www.moneyshow.com/investing/articles.asp?aid=editor-17988&iid=EDITOR&page=1 (4*)
Could America Go Broke?... Robert Samuelson considers this question, points out US borrowing so much that it's conceivable that one day lenders may not lend or the US may not continue to pay on its debt... "some advanced country might decide that a partial or complete default, though dire, would be less damaging economically and politically than the alternatives... Deprived of international or domestic credit, defaulting countries in the past have suffered deep economic downturns, hyperinflation, or both"... http://www.washingtonpost.com/wp-dyn/content/article/2009/11/01/AR2009110101704.html (3*)
Pension Funds in Emerging Markets?... Thao Hua says pension funds are putting their assets into emerging markets but still have a long way to go, some money managers point they need to increase their allocations closer to 35% of total assets to provide a reasonable weighting of emerging markets to the global economy... currently pension funds are only allocating about 5% or less for emerging markets... http://www.pionline.com/apps/pbcs.dll/article?AID=/20091102/PRINTSUB/311029968 (3*)
Tuesday, November 3, 2009
India Buys 1/2 of IMF's Gold... gold jumped to record prices after this purchase by India, raising speculation there may be more official purchases... Bloomberg reporters: "Central banks, the biggest holders of gold, may diversify out of the dollar and buy bullion as ballooning U.S. debt and low interest rates weaken the currency" - quote Dennis Gartman: "It is but a matter of time until China and the IMF announce much of the same"... Mike Hewitt points out this is "further evidence of central banks switching from the position of net sellers to net buyers"... http://www.bloomberg.com/apps/news?pid=20601087&sid=aoGPCVrFoel8&pos=2& http://dollardaze.org/blog/?post_id=00730
The New "S&L" Crisis: Bailouts for States... Diane Garnick says get ready for lots of state & local "user fees" as the new crisis in state & local governments deepens... says if the private sector got bailouts, difficult to see why state & local govts will not get them... recommends investing in municipal bonds - "The munis are the place to go. I think we have that safety net from the [Federal] government"...
Forget Inflation, Deflation Is a Bigger Danger... Mortimer Zuckerman says the massive reserves on bank balance sheets would normally encourage banks to lend & increase their profits... but instead of lending, banks have just increased their reserves at the Fed - this is not inflationary... the govt may be borrowing more, but consumers & businesses borrowing less, paying down debt - this is deflationary... "But there is a limit to the Fed's ability to confront deflation, since it cannot cut nominal rates below zero in order to induce economic growth. Therefore, risking inflation is a better bet than erring on the side of deflation... monetary authorities must have the will to reverse policy quickly, tightening instead of easing. It is not something politicians like doing. Hence, they have been prone to running up huge and long-term fiscal deficits—deficits that, at some point, risk the financial stability and economic strength of America"... http://www.usnews.com/articles/opinion/mzuckerman/2009/11/02/forget-inflation-deflation-is-a-bigger-danger.html (4*) (cartoon courtesy of Grant's Interest Rate Observer)
Cliff Note: approximately 70% of all derivatives are interest rate related - even after "netting" (total net exposures) of all the above derivative amounts, imagine what could happen if & when interest rates begin to rise or change rapidly... Table - click to enlarge - courtesy of http://www.marketoracle.co.uk/Article14617.html
"The trifling economy of paper, as a cheaper medium, or its convenience for transmission, weighs nothing in opposition to the advantages of the precious metals... it is liable to be abused, has been, is, and forever will be abused, in every country in which it is permitted." -Thomas Jefferson to John W. Eppes, 1813
Bill Moyers with Economist James Galbraith... discusses if we are out of the crisis, how to help the middle class... "Our problem now, our big social and environmental problem, is energy. It's climate change. It's the greenhouse gas emission issue. If we built a set of institutions that could deal with that problem effectively, you could employ a large part of the labor force for a generation, dealing with that. And you'd then make that profitable for private enterprise to get into in a serious way"...
US Paying for Failure to Nationalize Banks... Joseph Stiglitz (M-AA*) says banks would be lending & economy stronger if the govt had more influence over them... Geithner says on "Meet the Press" (see video below) the country’s economic recovery hinges in part on banks taking more risk & restoring credit flow to businesses... Stiglitz concludes: "We have this very strange situation today in America where we have given banks hundreds of billions of dollars and the president has to beg the banks to lend and they refuse. What we did was the wrong thing. It has weakened the economy and has increased our deficit, making it more difficult for the future"... http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aGR4KXaGwxd8 (4*)
Monday, November 2, 2009
US Treasury Secretary Tim Geithner on "Meet the Press"
Dylan Ratigan: "... in the past 9 months, not only has the administration failed to fix anything, they have actually made things much worse for anyone who isn't a Wall Street banker..... -- the process of taking back our country for all citizens must begin now. This is why I think we must ask if U.S. Treasury Secretary Timothy Geithner is still the right person for the job..." http://www.huffingtonpost.com/dylan-ratigan/why-keep-geithner_b_341908.html
Visit msnbc.com for Breaking News, World News, and News about the Economy
Worry about Japan not America... Ambrose Evans-Pritchard says Japan is drifting helplessly towards a dramatic fiscal crisis - for 20 yrs it has been able to borrow cheaply from a captive bond market, "allowing it to push public debt beyond the point of no return"... quotes Simon Johnson: "a real risk that Japan could end up in a major default"... http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/6480289/It-is-Japan-we-should-be-worrying-about-not-America.html
Be Prepared for the Worst... Ron Paul writes that government intervention in the economy will end badly... says the recovery is false & reminiscent of the 1930s when experts were certain the worst of the Depression was over but it wasn't - points out it was govt interventionist policies that caused the Depression to worsen... says history is now repeating - "Anytime the central bank intervenes to pump trillions of dollars into the financial system, a bubble is created that must eventually deflate... The only remaining option is to have the Fed create new money out of thin air. This is inflation. Higher prices lead to a devalued dollar and a lower standard of living for Americans. The Fed has already overseen a 95% loss in the dollar's purchasing power since 1913. If we do not stop this profligate spending soon, we risk hyperinflation and seeing a 95% devaluation every year"...http://www.forbes.com/forbes/2009/1116/opinions-great-depression-economy-on-my-mind.html (4*)
Debt Deflation - Just Beginning?... David Meier presents 70 page slide show on debt deflation, inflation vs. deflation, Minsky moments, Fed views & how to position a portfolio...
Debt Deflation October 2009
Debt Deflation October 2009
Risk Management on Investment Returns... John Hussman (M-AA*) analyzes how we should approach uncertainty in the current investment environment... focuses on the concept of convexity - a curved investment return profile... concludes: "In short, a convex return profile – what we view as the hallmark of an effective risk-managed investment strategy – is the result of repeatedly accepting greater levels of market risk in conditions that have historically been associated with strong return/risk profiles, and repeatedly avoiding market risk in conditions that have historically been associated with poor return/risk profiles"... do not trust the prevailing view that the economy is in a sustainable recovery... http://www.hussmanfunds.com/wmc/wmc091102.htm (3*)
Mother of All Carry Trades Faces Inevitable Bust... Nouriel Roubini (M-AA*) says the US$ now being used as a carry trade currency - borrow low-cost US$, invest with leverage globally in riskier assets paying higher yields or returns, pay back loans with lower US$... "But one day this bubble will burst, leading to the biggest co-ordinated asset bust ever: ... The Fed and other policymakers seem unaware of the monster bubble they are creating. The longer they remain blind, the harder the markets will fall"... http://www.ft.com/cms/s/0/9a5b3216-c70b-11de-bb6f-00144feab49a.html (4*) (may need to register for free with FT first)
Oil-Inflation Correlation?... chart above shows historical relationship between the annual change in oil price & the yr-on-yr change in the US Consumer Price Index (CPI)... if oil price remain around current levels, will the CPI rise?... Chart (click to enlarge) courtesy of Plexus Asset Management, based on data from I-Net Bridge...
Sunday, November 1, 2009
Sunday Night Special - MIT Lecture by President Obama on America's Leadership in Clean Energy...
"Today's frontiers can't be found on a map. They're being explored in our classrooms and our laboratories, in our start-ups and our factories. And today's pioneers are not traveling to some far flung place. These pioneers are all around us -- the entrepreneurs and the inventors, the researchers, the engineers -- helping to lead us into the future, just as they have in the past. This is the nation that has led the world for two centuries in the pursuit of discovery. This is the nation that will lead the clean energy economy of tomorrow, so long as all of us remember what we have achieved in the past and we use that to inspire us to achieve even more in the future.”
"Today's frontiers can't be found on a map. They're being explored in our classrooms and our laboratories, in our start-ups and our factories. And today's pioneers are not traveling to some far flung place. These pioneers are all around us -- the entrepreneurs and the inventors, the researchers, the engineers -- helping to lead us into the future, just as they have in the past. This is the nation that has led the world for two centuries in the pursuit of discovery. This is the nation that will lead the clean energy economy of tomorrow, so long as all of us remember what we have achieved in the past and we use that to inspire us to achieve even more in the future.”
Up Against a Wall of Debt... Robert Samuleson asks how much can governments borrow?... "The idea that the government of a major advanced country would default on its debt - that is, tell lenders that it won’t repay them all they’re owed - was, until recently, a preposterous proposition. Well, it’s still a very, very long shot, but it’s no longer entirely unimaginable"... http://www.newsweek.com/id/220163 (4*)
Trepidation as Fed prepares to end easing... Michael Mackenzie, Saskia Scholtes & Aline van Duyn provide perspective on investors starting to worry about what happens once the Fed starts to slow down & exit from its programs of buying mortgage debt & money printing...
http://www.ft.com/cms/s/0/9d392982-c4b0-11de-8d54-00144feab49a.html (3*) (may need to register for free with FT first)
http://www.ft.com/cms/s/0/9d392982-c4b0-11de-8d54-00144feab49a.html (3*) (may need to register for free with FT first)
"Blackout : Coal, Climate & the Last Energy Crisis"... book by Richard Heinberg... 1/2 hour interview with Richard... with US using coal for 50% of its electricity production & China-India's growth based almost entirely on coal-generated electricity, coal has drawbacks including peak coal production less than 2 decades away, increasing expenses to transport coal & negative climate effects... click on image above or link below to activate (first 36 minutes):http://www.netcastdaily.com/broadcast/fsn2009-1031-2.mp3
Catching the Argentina Flu ? John Mauldin (M-AA*) quotes Niall Ferguson: "Inflation is a monetary phenomenon, as Milton Friedman said. But hyperinflation is always and everywhere a political phenomenon, in the sense that it cannot occur without a fundamental malfunction of a country's political economy"... Mauldin: hyperinflation if the Obama administration does not put a credible plan to lower the deficit over time & sticks to it, plus if the Fed decides to accommodate the US govt to spend money - "I do not think the US will experience hyperinflation as long as the Fed maintains its independence"... if hyperinflation happens, recommends owning hard assets, gold, foreign currencies, stocks.... http://news.goldseek.com/MillenniumWaveAdvisors/1257091200.php
Gold to Make New Highs Above $2000... says Frank Holmes (M-AA*)... sees likely new inflation-adjusted high before current gold bull market over... predicts several 10% price swings in the near future... but sees negative interest rates combined with massive deficits as a recipe for gold to go higher...
"The unlimited emission of bank paper has banished all her [England's] specie, and is now, by a depreciation acknowledged by her own statesmen, carrying her rapidly to bankruptcy, as it did France, as it did us, and will do us again, and every country permitting paper to be circulated, other than that by public authority, rigorously limited to the just measure for circulation." -Thomas Jefferson - (Note: Why have Americans of recent generations rejected the principles of the founding father who wrote the Declaration of Independence?)
"Correction in Oil" Coming... Frank Holmes says energy prices usually peak around this time of the year - "Usually when it's coldest in NY is when oil prices are actually making their bottom"... but long-term foresees higher prices, cites high correlation between money supply growth and crude prices...
On why a federal government is formed: "(1) The common DEFENSE (national security); (2) the PRESERVATION OF PEACE, as well against internal convulsions as external attacks; (3) the regulation of commerce with other nations and between states; (4) the superintendent of our intercourse, political and commercial, with foreign countries (foreign affairs)." - Alexander Hamilton, Federalist Paper No.23, 1787. Cliff Note: no bailout function? the Founding Fathers had a reason to believe in strict limits on the size & power of government
Huge Crash in Commercial Real Estate Coming... Wilbur Ross: "All of the components of real estate value are going in the wrong direction simultaneously... Occupancy rates are going down. Rent rates are going down and the capitalization rate -- the return that investors are demanding to buy a property - are going up"... US office vacancies hitting 5 yr high, shopping center vacancies highest since 1992... concludes: "I think it’s going to take quite a while to work itself out"... http://www.bloomberg.com/apps/news?pid=20601103&sid=amPXzjQV3nGQ (3*)
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