A follow on to the above is a comment on the Sinclair site about the $4 Billion hedge fund bust from natural gas miscues. If they also had exposure to oil, or others did as well, it could explain a further part of the decrease in oil.
This calculator is fun. Shows that 4c in 1913 has the same buying power as $1.03 today! And this is using the BLS's canned stats. Imagine if the unfudged numbers were plugged in.
roadrunner >>
There has been tons of money made in the oil and gas market. Somone took the otherside of Amaranth's trade.
I manage money. I earn money. I save money . I give away money. I collect money. I don’t love money . I do love the Lord God.
The overall stock markets have been no better than break even since around 1996-1999. And if you factor in inflation, you are on the losing end. True, that someone could have dumped all their assets into small caps or international funds the past 5 years but how many of us or our friends at work did that with their 401k's?? Probably close to none. Probably the same number that took sole advantage of commodities the past 5 years. There's always a winning flagship, but very few ride it all alone without diversification.
The average guy (90%+ of all stock holders) has seen no gains the past 5 years and is getting battle fatigue if you ask me.
You probably don't need to look any further than GS or JPM to find the "happy" fellow at the other end of the Amaranth trade. You might find that they helped to accentuate the bad end of that trade as well. When GS/JPM make money, the govt makes money. Working "with" the govt certainly has its perks in the trading arena (lol)
Since the battle between gold and the stock market will continue and either side will massage the numbers to make a point, lets get to some economic news.
Homebuilders slashed prices by nearly 10% in the latest month. The biggest decline since 1970. The actual number may be quite larger as homebuilders use incentives such as vacations or new cars to entice buyers. New home inventory is still at highs and new home sales are down 15% this year. Some analysts say this is pointing to a bottom. I say it sure is. Look out below!!
In related news, durable goods orders made their biggest jump in 6 years. This was almost entirely due to new airplane orders to Boeing. Afterall, we know airplanes are more important than dishwashers or automobiles- whose sales dropped 6%.
Meanwhile, corporate earning have been quite robust helping to push the Dow into record levels. Other indices have done very well also. The problem is that there is just too much money floating around. Corporations are flush and are buying back stock at record paces. The push into large stocks has me a bit worried though as I read it as a sign of a flight to quality, although there may be too much money to allow a major correction to occur. In fact, I wouldnt be surprised to see panic buying in coming weeks.
That flight to quality for all the sloshing liquidity will eventually find its way again to commodities, gold & silver, and even coins.
Interesting that booked (rather than delivered) aircraft orders is what moves Wall Street. A year later when orders are pared or cut out entirely, no one pays attention. And those booked orders get tossed right into GDP. I don't even know if the cut orders are ever removed, but who cares a year or two down the road.
The Worlds investment markets are just lost in a sea of printed-paper. In every country billionaires are now as common as dirt. If you don’t have a job that pays at least one million per year you are not even on the radar.
Even in communist countries the billions flow like water. Just in the past year, three of China's Big Four banks have successfully gone public, selling $42 billion worth of stock to international investors.
If the money raised for these three communist banks were to go into the Gold market the price of Gold would rocket to thousands per ounce.
Trillions of paper dollars move every day flowing through the worlds electronic investment systems, and the debt, and currency printing press churn out additional billions in paper each month.
The only real stability market, that in Gold, is now lost to pure speculation, moving on rumors, oil prices, currency moves, rather than the true inflation that is being created world wide.
How long can this go on? Who knows. This paper game will go on until someone big panics and starts a landside, and then markets will collapse over night, as computers try to adjust.
In the mean time we can expect that America will be for sale as Europe has been over the last two decades, the Asian, and Arab devils may own it all before the end comes.
As far as the real-estate markets go I think we can expect to see foreign money pouring in to soak up housing and other real-estate weakness, renting the properties back to over extended Americans, who become labor slaves and tenants.
Timely discussion, there does seem to be a lot going on with the dynamics of our economy and the interaction with the world-wide marketplace.
Residential Housing: In Houston, new homes are selling at a rate that represents a 6% rise over last years sales rate. Prices for new homes rose by 2.9%. Also, as a companion statistic, the demand for rental housing (apartments/condos) is under pressure, there is more demand than normal for stock. In Fort Worth and other areas of Texas, office vacancys and home price declines are starting to have a negative impact on growth and this seems to be more of the trend across the country. On the other side of the coin, surely there are similar nuggets of economic strength such as Houston that can be found in other parts of the US that balance the negativity of what we are seeing in some urban areas.
I can't say that foreign money will soak up all the housing weakness we are going to see in the US, not at current market levels. Once the houses have settled to a well discounted price (set on the market for too long), then the foreign money may flow in but the foreign money isn't stupid, they are not going to pay top money for weak property but they will pay fair money for distressed property and work it back up into a money producer.
Money: Houston top tier restaurants are having a boom year, there is a lot of money awash in the crowds these days. There are a lot of people with a lot of money...that's not new news but still something to be considered. There may be a lot more immigration into the US and a lot of people that are on the bottom side of the equation but there are a lot more people with a lot more money than there was a year or two ago and that money is moving around, a lot, there is a lot of activity.
Gold: I'm a believer. At some point the pressure to but the proceeds from the blooming international trade market into something that is isn't overly speculative will become a necessity for cash flush enterprises. That money, or at least a fair amount would have to go to land or gold and we are talking about a lot of money i.e. the situation with the US energy companies and the Chinese banks, there are many other examples. Once the pressure comes and the paper gold deficits are settled, physical metal will be one of the prized assets. There is plenty of gold, if there isn't, folk will just mine more but still, but "Good as Gold" is not just an idiom.
Outsourcing: Actually, we are experiencing insourcing. Foreign companies setting up shop in the US. International folk are buying the US and bringing their business here and buying real estate and hiring US workers to run the companies. We have effectively taken all the worker bee jobs and moved them into cheaper labor pools overseas in developing countries and replaced them with skilled jobs working for foreign companies here...nice play. The unfortunate downside of this is that the US workers with limited or minimum skills are shut out or knocked down the economic ladder a notch or two. Reality is that factories and the labor pool they use are dinosaurs as far as businesses go because the cost of insuring and paying benefits to a labor rich enterprise is just too onerous for the stock holders, there just has to be a better way of making money than hiring huge labor pools at US rates.
Energy: Interesting scenario, in a conceptual way. The war with Israel and Palestine and Lebanon...hardly moved oil, in fact, after the hub bub, it settled lower. OPEC moving to lower production...oil went lower. Korea detonating a nuclear device...oil went lower. N Korea and Iran nuclear progress...oil went lower. Serious set backs in Iraq with civil war type scenarios evolving...oil went lower. What to make of this...did major suppliers just want the money and 60 is good, 50 is good, but at 70 they just can't sell it all because of the price. These major suppliers have to move the supply, it's coming down a pipe into a hole and the machine is on. They really have to sell as much as they make and they sell it to make money. Perhaps the intertia of all this production is actually going more to selling all the production rather than being overly sensitive to the price per barrel. Get the money, move the oil, forget the third world BS seems to be a way to look at this.
How can this guy get away with this? Telling the truth out in the open like that.
Saturday October 28, 9:32 pm ET By Matt Crenson, AP National Writer
GAO Chief Takes to Road, Warns Economic Disaster Looms Even As Many Candidates Avoid Issue.
AUSTIN, Texas (AP) -- David M. Walker sure talks like he's running for office. "This is about the future of our country, our kids and grandkids," the comptroller general of the United States warns a packed hall at Austin's historic Driskill Hotel. "We the people have to rise up to make sure things get changed."
From the hustings and the airwaves this campaign season, America's political class can be heard debating Capitol Hill sex scandals, the wisdom of the war in Iraq and which party is tougher on terror. Democrats and Republicans talk of cutting taxes to make life easier for the American people.
What they don't talk about is a dirty little secret everyone in Washington knows, or at least should. The vast majority of economists and budget analysts agree: The ship of state is on a disastrous course, and will founder on the reefs of economic disaster if nothing is done to correct it.
Walker doesn't want to make balancing the federal government's books sexy -- he just wants to make it politically palatable. He has committed to touring the nation through the 2008 elections, talking to anybody who will listen about the fiscal black hole Washington has dug itself, the "demographic tsunami" that will come when the baby boom generation begins retiring and the recklessness of borrowing money from foreign lenders to pay for the operation of the U.S. government.
Walker can talk in public about the nation's impending fiscal crisis because he has one of the most secure jobs in Washington. As comptroller general of the United States -- basically, the government's chief accountant -- he is serving a 15-year term that runs through 2013.
This year Walker has spoken to the Union League Club of Chicago and the Rotary Club of Atlanta, the Sons of the American Revolution and the World Future Society. But the backbone of his campaign has been the Fiscal Wake-up Tour, a traveling roadshow of economists and budget analysts who share Walker's concern for the nation's budgetary future.
"You can't solve a problem until the majority of the people believe you have a problem that needs to be solved," But Walker isn't optimistic that the government will be able to tackle its fiscal challenges so soon.
"Realistically what we hope to accomplish through the fiscal wake-up tour is ensure that any serious candidate for the presidency in 2008 will be forced to deal with the issue," he says. "The best we're going to get in the next couple of years is to slow the bleeding."
Reserves set to surpass US$1 trillion By Jin Rong (China Daily) Updated: 2006-10-30 06:25
China's foreign exchange reserves look set to hit the US$1 trillion mark at the end of this month or beginning of November. But as the figure rises, so does the debate over how to best manage it.
The reserves, already the world's biggest, surged to US$987.9 billion at the end of September, largely driven by a burgeoning foreign trade surplus and massive inflow of foreign direct investment (FDI).
In the first nine months of the year FDI stood at US$42.59 billion, although this was a 1.52 per cent drop year-on-year.
Reserves grew on average US$18.8 billion each month from January to September, statistics from the central bank show.
"How to manage such a huge reserve is a big challenge," said Yi Xianrong, a research fellow at the Institute of Finance Research under the Chinese Academy of Social Science.
"The crux of the problem is that you have to keep the value stable or increasing," Yi said.
The ballooning foreign reserves, many economist say, is a major reason behind the loose money supply. This is because the central bank has to issue additional money to mop up the excess US dollars in the market, resulting in excessive liquidity in the banking system.
And the fluctuating foreign exchange rate also poses a huge risk, economists say.
In a bid to minimize such risks, the central bank should diversify its existing US dollar-dominated foreign reserves structure, and increase its holdings of euros or other major international currencies, said Li Yongsen, a finance professor at Renmin University of China.
Above link discusses the questionable activities and lack of enforcement by the SEC and DTCC (depository trust clearing corp) in the timely settling of stock trades. The lack of compliance certainly helps the naked short seller move a market without fear of having to actually obtain the shares. Good reading and another nice investigation by Mr. Kirby. No doubt this is one of the vital tools in short selling gold shares.
We want nice things for everyone! It does not matter if we have no money we can just borrow it everyone else does!
U.S. Voters Approve Bonds by Boatload, More Coming:
By Joe Mysak Nov. 8 (Bloomberg) -- Welcome to the Golden Age of Public Finance.
“That's the message voters sent to the municipal market yesterday, as they approved the majority of the record $78.6 billion in bonds placed on the ballot this year.
Voters in California approved all $43 billion in bonds they were asked to consider this year, and in the wee small hours looked poised to approve most of the $10 billion in local issues.
The election of 2006 marks a watershed for the municipal market. Never before have voters had to consider so many bond issues. Never before had they approved so many.
The previous record was 2002, when voters passed $41 billion of the $47 billion in bonds under consideration, for an approval ratio of 87 percent, according to the Bond Buyer newspaper.
Stay with me here. The people who approved these bond issues, most of them, I'd bet, grew up in the 1970s. What does that have to do with it? These are people who are used to having nice things.
By comparison, those who grew up in the Great Depression and the 1940s were used to making do. They were suspicious of government, and of debt.”
Metals should respond positively. Metal always goes up in times of bad consequence? That's the nice thing about metal, it's a no BS deal, it's only about the money. Worse situation=higher metal so we are seeing an appropriate response. It's good to be blue.
Oh, almost forgot ...bend over and place your wallet on the table.
Metals should respond positively. Metal always goes up in times of bad consequence? That's the nice thing about metal, it's a no BS deal, it's only about the money. Worse situation=higher metal so we are seeing an appropriate response. It's good to be blue.
Oh, almost forgot ...bend over and place your wallet on the table.
It's all good. >>
Have to agree with all that you say. A free spending president and a free spending congress..... keep you wallet open.
Looks like a great time for buy and hold on silver and gold. If you stay in stocks... better know what you are doing.
So what this $250 trillion derivative market illustrates is the degree of interconnectedness in modern financial marketplaces. It shows - if you like - how many dominoes have been lined up with the potential to fall if one institution fails. This interconnectedness has grown from about $5 trillion in 1986 to the $250 trillion balance today - which is about 50 times in 20 years.
The above quote taken from an article by the bullion vault. I found the growth in derivatives over the past 20 years to be surprising. 22% per year on average. Realize that now, 20% growth per year today is $50 Trillion per year! Simply stated, derivatives have not been much of a player in past decades. This time it will be different.
The PEAK OIL theory doesnt hold water. So says the largest independant research group......
Peak Oil Theory – “World Running Out of Oil Soon” – Is Faulty; Could Distort Policy & Energy Debate November 14, 2006
-------------------------------------------------------------------------------- Related Topics: Geopolitics , Global , Industry Structure , Oil , Prices / Markets
Correct Model for Post-2030 Oil Supply is Undulating Plateau
In contrast to a widely discussed theory that world oil production will soon reach a peak and go into sharp decline, a new analysis of the subject by Cambridge Energy Research Associates (CERA) finds that the remaining global oil resource base is actually 3.74 trillion barrels -- three times as large as the 1.2 trillion barrels estimated by the theory’s proponents -- and that the “peak oil” argument is based on faulty analysis which could, if accepted, distort critical policy and investment decisions and cloud the debate over the energy future.
Complete Press Release
CAMBRIDGE, Mass., November 14, 2006 – In contrast to a widely discussed theory that world oil production will soon reach a peak and go into sharp decline, a new analysis of the subject by Cambridge Energy Research Associates (CERA) finds that the remaining global oil resource base is actually 3.74 trillion barrels -- three times as large as the 1.2 trillion barrels estimated by the theory’s proponents -- and that the “peak oil” argument is based on faulty analysis which could, if accepted, distort critical policy and investment decisions and cloud the debate over the energy future.
“The global resource base of conventional and unconventional oils, including historical production of 1.08 trillion barrels and yet-to-be-produced resources, is 4.82 trillion barrels and likely to grow,” CERA Director of Oil Industry Activity Peter M. Jackson writes in Why the Peak Oil Theory Falls Down: Myths, Legends, and the Future of Oil Resources. The CERA projection is based on the firm’s analysis of fields currently in production and those yet-to-be produced or discovered.
“The ‘peak oil’ theory causes confusion and can lead to inappropriate actions and turn attention away from the real issues,” Jackson observes. “Oil is too critical to the global economy to allow fear to replace careful analysis about the very real challenges with delivering liquid fuels to meet the needs of growing economies. This is a very important debate, and as such it deserves a rational and measured discourse.” “This is the fifth time that the world is said to be running out of oil,” says CERA Chairman Daniel Yergin. “Each time -- whether it was the ‘gasoline famine’ at the end of WWI or the ‘permanent shortage’ of the 1970s -- technology and the opening of new frontier areas has banished the specter of decline. There’s no reason to think that technology is finished this time.”
The report emphasizes the importance of focusing on the critical issues. “It is not helpful to couch the debate in terms of a superficial analysis of reservoir constraints. It will be aboveground factors such as geopolitics, conflict, economics and technology that will dictate the outcome.” The report also points to such aboveground questions as timing and openness to investment, infrastructure development, and the impact of technological change on demand for oil
Undulating Plateau
The new report describes CERA’s liquids supply outlook as “not a view of endless abundance.” However, based on a range of potential scenarios and field-by-field analysis, CERA finds that not only will world oil production not peak before 2030, but that the idea of a peak is itself “a dramatic but highly questionable image.”
Global production will eventually follow an “undulating plateau” for one or more decades before declining slowly. The global production profile will not be a simple logistic or bell curve postulated by geologist M. King Hubbert, but it will be asymmetrical – with the slope of decline more gradual and not mirroring the rapid rate of increase -- and strongly skewed past the geometric peak. It will be an undulating plateau that may well last for decades.
During the plateau period in later decades, according to the CERA analysis, demand growth will likely no longer be largely met by growth in available, commercially exploitable natural oil supplies. Non-traditional or unconventional liquid fuels such as production from heavy oil sands, gas-related liquids (condensate and natural gas liquids), gas-to-liquids (GTL), and coal-to-liquids (CTL) will need to fill the gap.
Critical Issue
CERA argues that understanding the difference between a plateau and a peak followed by a precipitous decline, as well as the timing of events, is critical to the global energy future. “Corporations, governments, and other groups, including nongovernmental organizations, need to have a coherent description of how and when the undulating plateau will evolve so that rational policy and investment choices can be made,” according to the report.
“It is likely that the situation will unfold in slow motion and that there are a number of decades to prepare for the start of the undulating plateau. This means that there is time to consider the best way to develop viable energy alternatives that would eventually provide the bulk of our transport energy needs and ensure that there is a useable production stream of conventional crude for some time to come,” CERA concludes.
Peak Theory Shortcomings
The CERA review also finds that current “peak oil” advocacy suffers from several problems:
The peak argument is not presented in the context of a credible systematic evaluation of available data; its proponents have not made available a transparent and detailed analysis that would allow an objective and rational discussion. At base “their methodology is to impute decline curves against currently proven reserves and declare that the game – and the argument – is over.” The underlying analytical model formulated by the late M. King Hubbert both fails to recognize that recoverable reserve estimates evolve with time and are subject to significant change, and it also underplays the substantial impact of technological advances. Consequently, total annual production at the high point in 1970 was 600 million barrels higher – 20 percent -- than Hubbert’s projection of peak production for the US Lower 48, although he correctly anticipated its timing within two years. Hubbert’s method requires accurate knowledge of the ultimate recoverable reserves of an area, but his 1956 analysis could never have incorporated the impact of giant discoveries in Alaska and the deepwater Gulf of Mexico, and therefore couldn’t have predicted the production profile for the U.S. As a result, total cumulative U.S. production between the high point in 1970 and 2005 exceeded Hubbert’s predictions by the equivalent of more than 10 years of US production at present rates. Hubbert-posited post-peak reservoir decline curve assumptions are rebutted by observation that the geometry of typical oilfield production profiles is often distinctly asymmetrical and does not generally show a precipitous mirror-image decline in production after an apparent peak, even without the application of new technology or enhanced oil recovery techniques. As a result, in the US Lower 48 where Hubbert came closest to accurately forecasting a peak, oil production in 2005 was some 66 percent higher than projected by Hubbert, and cumulative production between 1970 and 2005 was some 15 billion barrels higher, a variance equal to more than eight years of US production at present rates. Those who believe a peak is imminent tend to consider only proven remaining reserves of conventional oil, which they currently estimate at about 1.2 trillion barrels. In the view of many petroleum geologists, this is a pessimistic estimate because it excludes the enormous contribution likely from probable and possible resources, those yet to be found, and plays down the importance of unconventional reserves in the Canadian oil sands, the Orinoco tar belt, oil shale and GTL projects. CERA believes the global inventory is some 4.8 trillion barrels, of which about 1.08 trillion barrels have been produced, leaving 3.72 trillion conventional and unconventional barrels, an order of magnitude that will allow productive capacity to continue to expand well into this century. The “peak oil” argument is frequently supported with data indicating that new exploration finds are not sufficient to replace annual production. Their data sets have serious deficiencies. The peak argument is an incomplete and therefore misleading analysis because it ignores the role of development (vs exploration) projects in expanding reserves, fails to understand economic factors that can point company and national strategies to emphasize development vs exploration work. By focusing on “discovery” and ignoring the increased knowledge and confidence about field volumes, it disregards the fact that revisions, additions and exploration together have generated resource growth of 320 billion barrels – 80 billion barrels more, or one-third more, than total production – during the period from 1995 to 2003. CERA draws both on its own data bases and those of its parent company IHS, which has the world’s most complete proprietary data bases on oil production and resources. Hubbert’s method does not incorporate economic or technical factors that influence productive capacity; most importantly, it ignores the impact of both price and demand, both major drivers of production. Peakists’ projections of the date a peak would be reached continue to come and go, the most recent targeted around Thanksgiving Day 2005, give or take a few weeks. Signposts
“It is no longer sensible to allow the issues about future supplies to be clouded in a debate grounded in a flawed technical argument,” the CERA report concludes. “There is general agreement that a peak or plateau of sorts will develop in the next 50 years, and it is not helpful to couch the debate in terms of a superficial analysis of reservoir constraints.” The report emphasizes the importance of the aboveground factors cited earlier.
“There is a need to identify the signposts that will herald the onset of the inevitable slowdown of production growth and ensure that policymakers outside the energy community have a clear understanding of possible outcomes and risks.”
Cambridge Energy Research Associates (CERA), an IHS company, is a leading advisor to energy companies, consumers, financial institutions, technology providers, and governments. CERA (www.cera.com) delivers strategic knowledge and independent analysis on energy markets, geopolitics, industry trends, and strategy. CERA is based in Cambridge, Massachusetts, and has offices in Bangkok; Beijing; Calgary; Dubai; Johannesburg; Mexico City; Moscow; Mumbai; Oslo; Paris; Rio de Janeiro; San Francisco; Tokyo; and Washington, DC.
For more information on CERA's Global Oil Advisory Service or our other service please visit our service offerings page.
<< <i>Peak Oil Theory – “World Running Out of Oil Soon” – Is Faulty; Could Distort Policy & Energy Debate November 14, 2006 >>
This is all real nice but they forgot to mention whether it was soaring demand or insufficient supply that has caused the price of oil to quadruple in the last few years. Maybe it's all that energy we're wasting hauling around corn and making ethanol that has caused the price to soar.
I'm sure many people will breath a little more easily when there is actually oil coming from sand and tar. In the meantime the cup is continuing to become less full.
Modern science has made great strides the last several decades in solving our energy problems, and in reality there should never be an energy shortage ever. There is enough energy in a 4x6 foot block of concrete to run all of the U.S. energy needs for a year once it is unlocked. Much of today’s market prices are simply manipulated, as are so many others.
The problem I see in the oil patch itself has more to do with what our dollar will buy us in the future. We simply cannot continue to print all this paper money, and debt, and expect the world to continue to be fooled.
Absolutely the only reason we have been able to continue this disastrous path over the last two decades is by bribing other countries with the American market for products. If that changes due to the belt tightening from Boomers on retirement, or from legislation from our new liberal congress passing tariffs, the game is done, and we can still see $100 plus oil.
Nov. 15 (Bloomberg) -- Robert E. Rubin, the longest-serving Treasury secretary under former President Bill Clinton, and former Federal Reserve Chairman Paul Volcker said foreign investors probably won't keep increasing their dollar holdings, raising the risk of a slump in the U.S. currency.
``It's incredible people have gone on so long holding dollars,'' Volcker said during a panel discussion at the event. ``At some point, you will get a situation where people have had enough,''
<< <i>Peak Oil Theory – “World Running Out of Oil Soon” – Is Faulty; Could Distort Policy & Energy Debate November 14, 2006 >>
This is all real nice but they forgot to mention whether it was soaring demand or insufficient supply that has caused the price of oil to quadruple in the last few years. Maybe it's all that energy we're wasting hauling around corn and making ethanol that has caused the price to soar.
I'm sure many people will breath a little more easily when there is actually oil coming from sand and tar. In the meantime the cup is continuing to become less full. >>
Cladking,
I know you are aware of this already but I will post a link for others. oil sands
Well my Friends another year has gone by, and much of what we began to predict two years ago is again taking shape. The world is still being flood with MORE paper money and debt of all kinds. The all mighty U.S. dollar is dropping like a rock, and the metals, as well as U.S. and World coins have had yet another banner year.
One thing that has changed this year is that it now appears that the European countries are starting to feel the effects of their socialist systems also, as they go further into debt printing money for the masses.
As we do each year we would all appreciate anyone’s predictions for 2007.
Mine are as follows:
The dollar will continue its decline.
Interest rates will be increased in order to roll the debt.
Gold will go to $700 and be stable.
Silver will see $17
The news will fill with stories of how the U.S. must curb its spending, and foreigners will be reluctant to buy more bonds.
The new Democratic congress will do nothing to fix anything.
CURRENT MARKETS TODAY:
Gold ……..$648.75
Silver…….$13.97
Euro……...$1.3338
Dow………12,194
Peter Schiff December 1, 2006
While Americans were busy digesting their Thanksgiving feasts, the rest of the world was barfing up dollars…
When foreigners finally decide that they have had enough, their reluctance to accumulate additional dollars will mean that America’s perpetual shopping spree will finally come to a screeching halt.
This week the U.S. dollar was carved up like a Thanksgiving turkey. Against the Swiss franc, euro, British pound, and Japanese yen, the dollar lost 3%, 2.2%, 2% and 1.8% of its value respectively. To put those declines into perspective, in terms of the euro the Dow Jones’s 60 point plus decline this week translates into the equivalent of a 320 point decline when measured in euros. In fact, year to date the Dow is only up by about 3.5% when priced in euro’s, compared to its 14.5 % advance when measured in depreciating U.S. dollars. From its high in 2000, the euro price of the Dow is down by over 27%. In terms of gold, the world’s only legitimate money, the picture is even worse. Priced in gold the Dow is off better than 50% from its 2000 peak, and actually down over 7% thus far this year. So much for Wall Street’s phony rally!
At the risk of over using the term, one conundrum is the relative strength in the bond market given the dollar’s recent weakness. From our creditors’ perspectives, the only thing worse than holding dollars is holding future claims to dollars, which is what bonds in fact represent. When foreigners begin factoring ten percent plus annual dollar declines into U.S. bond yields, bond prices will head south fast.
Martin W. Hennecke December 1, 2006
Regular readers of websites like this one will already be well informed of the onrushing financial collapse and national bankruptcy of the United States, as this topic is receiving ample coverage nowadays from an abundance of writers and economists.
What a large number of even the more educated US Dollar bear-and US financial crisis expectation camp however do NOT seem to be aware of is the global nature of the problem. It is completely wrong to assume, for example, that the Euro or the British Pound are inherently ‘hard’ and healthy currencies that would provide protection from a plunging US Dollar.
Germany, France and UK face junk debt status. It has also largely gone unnoticed that Germany’s capital city Berlin just went officially bankrupt, and that Standard & Poor’s has revised its rating outlook for Germany since publication of the above chart, stating that the country may loose its triple-A credit rating on sovereign bonds already in 2007, which would speed up the previous sovereign default projection as above by roughly 10 years. Weimar II is much closer than most people would imagine.
It is the same old story time and time again that repeats itself. Governments go too deep into debt, lose control of their budget deficits, and then have to hyperinflate their currencies to get out of un-payable debt.
What lies ahead therefore is yet another replacement of the major present currencies with new ones. Life will go on, but those holding the present (old) money or bonds are at risk of loosing everything while those holding precious metals can simply, after the crisis, use the metal to exchange it for the new currency, with no loss and very possibly actually with substantial gains.
Giving the rise of Asia, and China in particular, precious metals should, at worst, have a very limited downside due to increasing demand from this region, even if a financial crisis should not materialize for whatever reason. In particular silver prices are actually likely to soar in any scenario due to extremely low prices today – the metal still trades at a 90% inflation-adjusted discount over 1980s levels –, incredibly low global silver bullion stockpiles, which have been reduced from around 10 billion ounces at the end of WWII to a few hundred million ounces today.
1. Economy sinks into a mild recession in late Spring. 2. The dollar flirts with a major selloff. If it breaks under 80 it could get quite ugly. 3. Weakness in housing finally hits home--forclosures hit record highs, while average selling prices decline by at least 10% in most markets. 4. Commodity prices stay confined at the upper end of the recent trading ranges. 5. The 3 bears may finally catch Goldilocks. Although foreign investors may help free her. 6. We will hear again, "The British are coming, the British are coming." 7. If you want to beat the market next year, then remember, "Jack be nimble, Jack be quick."
It's no secret that when the FED announced the abolishment of M3 reporting the gold market took off strongly in mid-2005. This seemed to be the fuel to take it to its peak in May. The above graphs show an M3 growth rate that has been constantly increasing. M3 was at 3-7% when the announcement to abolish it was made. M3 is now increasing at around 11% per year and growing (ie the FED is pumping some serious liquidity into the system even if not via M2).
For those who are tracking M2 and M1 all is well because those are steady or decreasing. We can all sleep tight because M3 is no longer tracked and therefore of no interest to Wallstreet or Economists.
Leave it to Rob Kirby to come up with another fascinating idea. Here he suggests that the US has been swapping real gold for gold still in the ground. This way there is a much larger supply of gold "available" to continue to dump on the market to suppress the price when needed. He then suggests that those holding shares of US mining stocks might not get the bang they should as gold prices increase.
Oreville, some of the author's statements appear a bit strange:
The Federal Reserve Bank ceased publishing "M3" data in March, making it nearly impossible for anyone to know how much cash is being printed. China said this act made it impossible to tell how much a Dollar is worth.
I have a link above as to what M3 is running based on economists who are continuing to track it. Certainly Chinese economists are doing the same thing. More the issue, is the Chinese KNOW what M3 is doing AND are not happy about the 11% growth.
The Chinese are worried about the drop in the dollar? They should be worried more about the Yuan considering they are printing money at 2X the rate we are (in the 18-20%/year range). Their inflation and devaluation rates should be far in excess of ours. Maybe one could say that the link with our dollar is helping the Yuan up to some extent.
The U.S. has no plans whatsoever to reduce deficit spending or ability pay down any of its existing debt without printing money to pay it off.
The US is not printing money at this point to pay anything off. But we are certainly dumping boat loads of liquidity into the system by other means other than M1 or M2. Hence the need to remove M3 from public display.
For these reasons China has decided to implement an aggressive sell-off of U.S. Dollars before the rest of the world does so.
This is not a statement someone in their position should make as it only costs them more money. If anything, I would say this is exactly the opposite of how they are going to react in the near term. Let some smaller nations continue dropping dollars to slowly ease the pricing (what China and the US ultimately want). But China isn't likely to start dropping hundreds of billions of dollars anytime soon imo. They knew years ago where things were headed, why all the fuss in Dec. 2006? The Chinese have stopped the rate of borrowing our dollars the past 2 years while the UK and offshore accounts (via GS, JPM, etc) have picked up the buying.
The US borrows $2 Billion a day to float the economy. Even $1 TRILLION isn't off the scale anymore. Curiously, the out of touch Congress thinks China is being unfair by keeping it's currency undervalued. If they brought it up it would induce further hardships on our economy as prices in Walmart would escalate. A weaker Yuan is keeping some of our inflationary effects overseas. Sure, jack up the Yuan and let's bring higher prices to our stores. The real culprit is Congress themselves not being able to spend within our means. Let's not blame that on China.
The FED has been walking a narrow path between recession and inflation. Everytime Congress spends more money we don't have the path got more narrow. A few years ago the FED became a tight rope walker and Congress continued to spend. They donned better shoes as the path be- came rozor thin and yet we spent. The world supported the razor and we spent more.
So now they're threatening to end support.
This will take an act of Congress to affect. How ironic that the dems will have a chance to teach us fiscal responsibility and a Republican president will tell us about tax increases.
They'd better get off the dime NOW or we may all meet at the bottom soon.
"China said this act made it impossible to tell how much a Dollar is worth. " Re: M3 report ending.
In a GLOBALIZATION of the world and economies, it's funny that someone else is screaming FOUL. and threatening to sell me my money back for a yuan. Correct me if I am yuang, but who is calling the kettle black here ? (what's a yuan buy ? ) Our dollar is pretty good in my pocket Heck all they gotta do is check gross sales receipt at their main store, WAL MART. It isn't hard to figure out what our dollar is worth.
Well my friends another year nearly over and deeper in debt, and as usually the guys in Washington are COOKING THE BOOKS!
By MARTIN CRUTSINGER, AP Economics Writer Fri Dec 15, 5:49 PM ET WASHINGTON -
The federal deficit for 2006 would have been 81 percent higher than the $247.7 billion that was reported two months ago if the government had to use the same accounting methods as private companies. That was the finding Friday when the administration released a 166-page "Financial Report of the United States Government" for the 2006 budget year that ended on Sept. 30.
The report, released by the Treasury Department and the president's Office of Management and Budget, found that under the accrual method of accounting, the deficit for 2006 would have totaled $449.5 billion, not the widely reported $247.7 billion incurred under the cash system of accounting.
Under the accrual method, expenses are recorded when they are incurred rather than when they are paid. That tends to raise costs for liabilities such as pensions and health insurance.
Ten years ago, Congress ordered the government to start issuing annual reports using the accrual method of accounting in an effort to show the finances in a way that was comparable with the private sector.
In this year's report, as in every one that has been issued, Congress' auditing arm, the Government Accountability Office, said that it could not sign off on the books because of problems in the reporting. Comptroller General David M. Walker, the head of GAO, said in a letter included in the report that 53 percent of the government's total assets were included in agencies that could not be audited properly.
Hopefully everybody is vested in what ever their strategy is for this economic melee that is about to unfold. It's not like we haven't known about this confrontation, we've been talking about it here for a while and getting ourselves prepared. I agree with the point that this is actually good for the US.
From a previous post in this thread at the first of the year: "So, here's to '06. This new year is poised to welcome a new financial age, in my view. Real estate is in transition, metal is in transition, energy is in transition, then you have disasters, terrorism, and markets. There is a change in the wings for the world order as China, the sleeping giant, wakens and begins to take steps into the brave new world with 1920's infrastructure and a huge, bright, ambitious population that thursts for freedom, both economic and political. China is covered in pollution and filth and an ancient form of government, possibly the last of the significant communist political systems that is doomed to failure if it doesn't adapt to a 21st century world. The US is no longer the only gorilla in the jungle and must share with China as old Europe is challenged to either fade into the past or find some way to become relevant in the future."
This is exceedingly good news for gold. If the dollar tanks today gold will soar and pull silver along with it. But silver bulls should be cautious since the threat of recession is a significant detriment to high silver prices. If Congress and the FED allow recession then the best bet is to rotate out of silver and into other hard assets.
If the talk is of the status quo and maintaining rates then look for lower silver.
2007 is defiantly shaping up, as the year the dollar will begin to get dump! The PM’S should have a great year.
By Matthew Brown Dec. 27 (Bloomberg) -- The United Arab Emirates will convert 8 percent of its foreign-exchange reserves from dollars into euros before September after the U.S. currency slumped this year, the country's central bank governor said.
The U.A.E. has started ``in a limited way'' to sell part of its dollar reserves, Sultan Bin Nasser al-Suwaidi said in an interview in Abu Dhabi on Dec. 24. ``We will accumulate euros each time the market appears to dip,'' as part of a plan to expand the country's holding of euros to 10 percent of the total from 2 percent today, he said.
The Gulf state is among oil producers including Iran, Venezuela and Indonesia, looking to shift their currency reserves into euros or price their oil products in the 12- nation currency. The dollar has slumped almost 10 percent against the European currency in 2006 as growth in the euro region outpaced the U.S. for the first time in five years.
Gulf Arab energy producers will earn as much as $500 billion from oil sales this year, the International Monetary Fund forecasts. The region's central banks reserves represent a fraction of the currency holdings of state-owned investment firms such as Abu Dhabi Investment Authority which is estimated to have over half-a-trillion dollars under management.
``It is a recognition of the vulnerability of the dollar over the coming year,'' Simon Williams, economist with HSBC Holdings Plc in a telephone interview from Dubai, U.A.E. today. ``This is not confined to the U.A.E. There's a general awareness across the Gulf of the benefits of diversifying currency holdings.''
U.S. Deficit Widens The U.S. current account deficit widened to $225.6 billion in just the third quarter, while oil producers in the Middle East and central Asia will run a surplus of $322 billion for all of 2006, according to the IMF.
China, the second-largest holder of U.S. debt, reduced purchases of U.S. treasuries by 1.7 percent in the first 10 months of the year, according to Treasury Department data.
An article by Casey showing many parallels to our own fiat money system and the games required by "good" people to try and juggle it to the finish line. Only that never happens.
An article by Casey showing many parallels to our own fiat money system and the games required by "good" people to try and juggle it to the finish line. Only that never happens.
An article by Casey showing many parallels to our own fiat money system and the games required by "good" people to try and juggle it to the finish line. Only that never happens.
roadrunner >>
That was interesting to read, thanks. >>
I agree. It's very interesting. It's very well written as well.
It's a shame that the author misses the point and blames the money rather than the politicians who spend it. This article should be required reading for all bankers and politicians.
I'd be happy with politicians (of all parties) reading the constitution "
AMEN
I have no other articles to post at this time, but my gut is just going nuts. I think that 2007 may be the year that the SH hits the fan! If so the paper markets are going to just melt. I for one cannot bring my self to take all the money in the bank and go shopping, but something is afoot here.
As far as thisd goes, "Aiyeee! ..... PEAK COINS!!!!!"
Cladking's point is important -- there is nothing inherently wrong with paper (and electronic) money, but in any monetary system, even one backed by gold, there is a potential for politicians and regulators to abuse the system for their short term ends.
There is one other area where I think the article is weak -- the suggestion that living beyond our means will lead to inflation, now, as it did in 1790s France. In the current situation, we are living beyond our means by taking on high levels of debt. This can be a source of potential instability, especially if that debt is external to the political economy (e.g. - US debt to China). But, unless the monetary authorities inflate the money supply in order to reduce the burden on debtors, borrowing is not inherently inflationary.
In fact, there is also a risk of sudden contraction of the debt, which of course is deflationary.
My feelings at the start of the new year are somewhat in contrast to Goldsaint's -- my gut feeling is that we are seeing a relatively soft landing to US real estate markets, and the economy is adjusting fairly well to higher interest rates; a year from now the oddities that resulted in part from the late 1990s bubble may be fully behind us.
I don't plan to liquidate my own (small) precious metals holdings any time soon, but I don't expect them to yield more than many alternative investments over the next year.
Less supply and the same demand makes the stock market go up!
By Alistair Barr, Market Watch Last Update: 12:01 AM ET Dec 29, 2006
U.S. stock market shrinks by $600 billion
SAN FRANCISCO (Market Watch) -- 2006 was the year of the incredible shrinking stock market, when a record amount of shares left public markets amid a flurry of leveraged buyouts and share repurchases.
If the supply of equities continues to dwindle and retail investors also rediscover their former penchant for U.S. stock mutual funds, it could mean the market in 2007 would get a significant push higher, some strategists said.
Still, others are dubious about the benefits of the recent LBO boom and warned that an unexpected spike in interest rates next year could derail stock markets.
If it's not clear that the original author realizes that monetary excess is the source of the inflation, it's certainly something that the presenter of the ariticle (Doug Casey) continually comments about, and exactly the reason he presented it.
But, unless the monetary authorities inflate the money supply in order to reduce the burden on debtors, borrowing is not inherently inflationary.
That's basically what the FED and Treasury have been doing for the past 93 years, inflating the money supply. Over the past 10 years the amount of monetary inflation has been significantly increased to an average of 6-8% per year. This was the primary driver in stock and home appreciation. Eventually the monetary inflation has to show up across the board in commodity pricing. M3 (though now longer officially reported), is now increasing at over 10% per year. I see little chance of it actually falling back in 2007.
I would think that by definition, monetary authorities increase the monetary supply to reduce the burden on debtors (US Govt)....and efficiently transfer the wealth to the lenders (Banks).
That's basically what the FED and Treasury have been doing for the past 93 years, inflating the money supply. Over the past 10 years the amount of monetary inflation has been significantly increased to an average of 6-8% per year. This was the primary driver in stock and home appreciation. Eventually the monetary inflation has to show up across the board in commodity pricing. M3 (though now longer officially reported), is now increasing at over 10% per year. I see little chance of it actually falling back in 2007.
roadrunner >>
I've always suspected that this would manifest itself in increasing velocity of money because of the nature of the way they are pushing money into the system. There is a huge amount of money in the available but it seems everytime more is added that velocity decreases and the effects are postponed. Eventually the economy improves and people start spending and inflation suddenly will reappear.
What factors may cause the velocity of money to increase?
Presumably, in a generally prosperous economy with an aging population, there should be a modest downward trend in velocity. But, I think you are saying that trends in velocity tend to be reinforcing, so that once the velocity picks up, an increase may continue for some time, and inflation may exceed that expected by simply looking at money supply.
(Perhaps two years ago there was an extremely interesting op-ed piece in the WSJ by Milton Friedman, in which Friedman presented data to show that Alan Greenspan had a remarkable ability to understand and intuit changes in velocity.)
By the way, am I a lone voice in feeling somewhat optimistic about 2007?
I'm also positive about 2007 as well. I feel precious metals, energy, a number of commodities, and their associated stocks will do very well in 2007-2008. While not bullish at what the overall S&P or housing market will do in 2007, I think there is a good chance that the powers to be will engineer at least a muddle-by year that keeps the credit engine churning. All that liquidty sloshing about (and the new 10% that will be dumped in) should keep things floating adequately for now.
Suppose six castaways are stranded on a deserted island, five Asians and one American. Further, suppose that the castaways decide to divide the work load among them in the following manner: (for the purpose of simplicity, the only desire the castaways work to satisfy is hunger) one Asian is put in charge of hunting, another in charge of fishing, and a third in charge of finding vegetation. A fourth is put in charge of preparing the meal, while a fifth is given the task of gathering firewood and tending to the fire. The American is given the job of eating.
So, on our island five Asians work all day to feed one American, who spends his day sunning himself on the beach. He is employed in the equivalent of the service sector, operating a tanning salon which none of the Asians on the island utilize. At the end of the day, the five Asians present a painstakingly prepared feast to the American, who sits at the head of a special table, built by the Asians specifically for this purpose.
Realizing that subsequent banquets will only be forthcoming if the Asians are alive to provide them, he allows them just enough scraps from his table to sustain their labor for the following day.
Modern day economists would say that this American is the lone engine of growth driving the island’s economy and that without his ravenous appetite, the Asians on the island would be unemployed. The reality, of course, is that the best thing the Asians could do to improve their lots would be to vote the American off the island. Without the American consuming all of their food, there would be a lot more available for them to eat.
Alternatively, they could spend less time on their food related tasks, devoting the extra time to greater leisure or to satisfying other needs, which currently go unfulfilled as much of their scarce resources are devoted to feeding the American.
Now some of you might be thinking that this analogy is flawed, as in the real world economy, Americans pay for their food, so real world Asians providing the meals receive value in exchange for their effort. O.K. lets assume that the American on our island pays for his food in the same manner real world American pay for theirs, buy issuing IOU’s. Let’s assume that at the end of the meal, the Asians present the American with a bill, which he pays by issuing IOU’s claiming to represent future payments of food.
However, all the castaways know that the IOU’s can never be collected, as the America has no food, or the means or even the intention, of providing any in the future. But the Asians accept them anyway, and each night add them to the piles of IOUs collected on previous days. Are the Asians better off as a result of this accumulation? Are they any less hungry? Of course not.
Now let’s assume another Asian castaway washes up onto the island, and assumes the role of central banker. Now each day the central banker taxes the other Asians on the island by confiscating a portion of the scraps of food the American throws them each day from his table. The central banker than agrees to return these morsels to the other Asians each day, in exchange for each Asian’s daily accumulation of the American’s IOU’s, less a small percentage for himself, because the central banker also has to eat.
Does the existence of a central banker change anything? Do the Asians have any more to eat because their own central banker gives them back a portion of the food he took from them in the first place? Do the American’s IOU’s have any more value because they can now be exchanged in this manner? Of course not.
Well, if it does not make sense for the six make-believe Asians to support one make-believe American, it does not make sense for billions of real world Asians to support millions of real world Americans. The fact that they do so in exchange for worthless IOU’s in no way alters this reality.
There is no question that in the short-run, by allowing the U.S. dollar to collapse (in effect voting millions of American’s off the island), there will be some temporary disruptions to Asian economies. Of course there will be some initial losers, particularly among those Asians who currently profit from this arrangement. However, these profits come only at the expense of far greater losses borne by the broader Asian population.
In the end, the cessation of America’s excess consumption, which is a burden that the Asians now disproportionately bear, not a benefit that they enjoy, will be the best thing that can happen to the Asian people. Like the serfs being liberated from their lords, their scarce resources will finally be freed to satisfy their own needs and desires, and their standards of living will rise accordingly. In addition, since their savings would then be available to finance additional capital investments, rather than being squandered by American consumers, their future standards of living will rise that much faster as well.
Unfortunately for Americans, being kicked off the Asian gravy train means its time to get back to work. In simple terms, this means a whole lot more hunting and fishing, and a whole lot less eating.
<< <i>What factors may cause the velocity of money to increase?
Presumably, in a generally prosperous economy with an aging population, there should be a modest downward trend in velocity. But, I think you are saying that trends in velocity tend to be reinforcing, so that once the velocity picks up, an increase may continue for some time, and inflation may exceed that expected by simply looking at money supply.
(Perhaps two years ago there was an extremely interesting op-ed piece in the WSJ by Milton Friedman, in which Friedman presented data to show that Alan Greenspan had a remarkable ability to understand and intuit changes in velocity.)
By the way, am I a lone voice in feeling somewhat optimistic about 2007? >>
I'm an eternal optimist so I'm often wrong. I don't expect the overall economy to improve remarkably but I do expect some growth. Unfortunately much of this growth will be the result of negative things like health care spending and insurance rates. The stock market still has a lot of sideways movement left before an explosive move to higher levels. Precious metals should continue to fair reasonably well and gold should resume its run sometime in 2007. Silver may not join it but is still poised for an historic price increase.
The dollar will finally establish some new lows in the high 70's, and bonds will continue under light pres- sure.
There can be several triggers to increased velocity of money but most are probably demographic. The most likely scenario is in a few years when the economy heats up a little and a significant labor shortage developes. Wages at the low end of the pay scale soar, generational transfer of wealth peaks, and birth rates increase. This coupled with the expanding world economy causing supply shortages will sharply increase velocity. There's already so much money around that inflation could be significant if the rate at which it changes hands picks up. Concurrently increased tax revenue will barely keep up increased costs so more money would need to be thrown in the mix.
3. Americans are losing high pay industrial jobs to third world countries.
4. America assumes the enormous burdon of policeman to the free world.
5. If the third word do not sell their crap to America, where are they gonna sell them?
6.Americas real standard of living has gone down as the third world standards of living rises. It happens in this manner:
in 1950, a factory worker could support and raise a family, buy a home and enjoy a pension and benefits while the wife, could stay at home and take care of the family.
Today, the husband works two jobs , the wife works and a home is now considered a luxery.
We are the first generation that must support our aging parents as well as our grown children. We do this by borrowing on our assets, to subsidize their existence.
7. Yes , America does consume more of the worlds raw resources then ther countries. All economies are really shell games, with unbacked currencies. When the games ends, world wars begin, over fuel, food, water, minerals and land. We are all living in a dream world and that world is ending as the disparity of wealth in our country and around the world, is ever expanding. The degree of the wealth in all nations is in the hands of a few. The amount of that wealth is obscene.
Is any CEO really worth 100,000,000 dollars a year? Is the head of Goldman Sachs really worth a 56,000,000 dollar annual bonus?Are stock brokers worth millions in bonuses?
Is it fair that the minimum wage is less now in real value then 1950?
Why are Americans showing such an increased desire to own precious metals? Perhaps, the answer is, its better then squeezing a lump of coal in a hot room and hoping it will turn into a diamond.
We are told that we are living in a new paradigme, the economic rules have changes, there is a safety net. In reality, pensions, where they still exist, are underfunded, FDIC is underfunded, American's as well as our government ,are under enormous debt that is increasing faster then revenues can mitigate. To all things there is a season, and the season of plenty, is approaching a horrific end.
Comments
<< <i>More oil, gold, silver manipulation
A follow on to the above is a comment on the Sinclair site about the $4 Billion hedge fund bust from natural gas miscues. If they also had exposure to oil, or others did as well, it could explain a further part of the decrease in oil.
BLS inflation calculator 1913 to DATE - try it!
This calculator is fun. Shows that 4c in 1913 has the same buying power as $1.03 today! And this is using the BLS's canned stats.
Imagine if the unfudged numbers were plugged in.
roadrunner >>
There has been tons of money made in the oil and gas market. Somone took the otherside of Amaranth's trade.
I give away money. I collect money.
I don’t love money . I do love the Lord God.
The nasdaq has doubled from its 2002 lows
Don't think so.
I give away money. I collect money.
I don’t love money . I do love the Lord God.
The average guy (90%+ of all stock holders) has seen no gains the past 5 years and is getting battle fatigue if you ask me.
You probably don't need to look any further than GS or JPM to find the "happy" fellow at the other end of the Amaranth trade. You might find that they helped to accentuate the bad end of that trade as well. When GS/JPM make money, the govt makes money. Working "with" the govt certainly has its perks in the trading arena (lol)
roadrunner
Homebuilders slashed prices by nearly 10% in the latest month. The biggest decline since 1970. The actual number may be quite larger as homebuilders use incentives such as vacations or new cars to entice buyers. New home inventory is still at highs and new home sales are down 15% this year. Some analysts say this is pointing to a bottom. I say it sure is. Look out below!!
In related news, durable goods orders made their biggest jump in 6 years. This was almost entirely due to new airplane orders to Boeing. Afterall, we know airplanes are more important than dishwashers or automobiles- whose sales dropped 6%.
Meanwhile, corporate earning have been quite robust helping to push the Dow into record levels. Other indices have done very well also. The problem is that there is just too much money floating around. Corporations are flush and are buying back stock at record paces. The push into large stocks has me a bit worried though as I read it as a sign of a flight to quality, although there may be too much money to allow a major correction to occur. In fact, I wouldnt be surprised to see panic buying in coming weeks.
Knowledge is the enemy of fear
Interesting that booked (rather than delivered) aircraft orders is what moves Wall Street. A year later when orders are pared or cut out entirely, no one pays attention. And those booked orders get tossed right into GDP. I don't even know if the cut orders are ever removed, but who cares a year or two down the road.
roadrunner
Even in communist countries the billions flow like water. Just in the past year, three of China's Big Four banks have successfully gone public, selling $42 billion worth of stock to international investors.
If the money raised for these three communist banks were to go into the Gold market the price of Gold would rocket to thousands per ounce.
Trillions of paper dollars move every day flowing through the worlds electronic investment systems, and the debt, and currency printing press churn out additional billions in paper each month.
The only real stability market, that in Gold, is now lost to pure speculation, moving on rumors, oil prices, currency moves, rather than the true inflation that is being created world wide.
How long can this go on? Who knows. This paper game will go on until someone big panics and starts a landside, and then markets will collapse over night, as computers try to adjust.
In the mean time we can expect that America will be for sale as Europe has been over the last two decades, the Asian, and Arab devils may own it all before the end comes.
As far as the real-estate markets go I think we can expect to see foreign money pouring in to soak up housing and other real-estate weakness, renting the properties back to over extended Americans, who become labor slaves and tenants.
How so?
Their jobs have already been sent abroad
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Residential Housing: In Houston, new homes are selling at a rate that represents a 6% rise over last years sales rate. Prices for new homes rose by 2.9%. Also, as a companion statistic, the demand for rental housing (apartments/condos) is under pressure, there is more demand than normal for stock. In Fort Worth and other areas of Texas, office vacancys and home price declines are starting to have a negative impact on growth and this seems to be more of the trend across the country. On the other side of the coin, surely there are similar nuggets of economic strength such as Houston that can be found in other parts of the US that balance the negativity of what we are seeing in some urban areas.
I can't say that foreign money will soak up all the housing weakness we are going to see in the US, not at current market levels. Once the houses have settled to a well discounted price (set on the market for too long), then the foreign money may flow in but the foreign money isn't stupid, they are not going to pay top money for weak property but they will pay fair money for distressed property and work it back up into a money producer.
Money: Houston top tier restaurants are having a boom year, there is a lot of money awash in the crowds these days. There are a lot of people with a lot of money...that's not new news but still something to be considered. There may be a lot more immigration into the US and a lot of people that are on the bottom side of the equation but there are a lot more people with a lot more money than there was a year or two ago and that money is moving around, a lot, there is a lot of activity.
Gold: I'm a believer. At some point the pressure to but the proceeds from the blooming international trade market into something that is isn't overly speculative will become a necessity for cash flush enterprises. That money, or at least a fair amount would have to go to land or gold and we are talking about a lot of money i.e. the situation with the US energy companies and the Chinese banks, there are many other examples. Once the pressure comes and the paper gold deficits are settled, physical metal will be one of the prized assets. There is plenty of gold, if there isn't, folk will just mine more but still, but "Good as Gold" is not just an idiom.
Outsourcing: Actually, we are experiencing insourcing. Foreign companies setting up shop in the US. International folk are buying the US and bringing their business here and buying real estate and hiring US workers to run the companies. We have effectively taken all the worker bee jobs and moved them into cheaper labor pools overseas in developing countries and replaced them with skilled jobs working for foreign companies here...nice play. The unfortunate downside of this is that the US workers with limited or minimum skills are shut out or knocked down the economic ladder a notch or two. Reality is that factories and the labor pool they use are dinosaurs as far as businesses go because the cost of insuring and paying benefits to a labor rich enterprise is just too onerous for the stock holders, there just has to be a better way of making money than hiring huge labor pools at US rates.
Energy: Interesting scenario, in a conceptual way. The war with Israel and Palestine and Lebanon...hardly moved oil, in fact, after the hub bub, it settled lower. OPEC moving to lower production...oil went lower. Korea detonating a nuclear device...oil went lower. N Korea and Iran nuclear progress...oil went lower. Serious set backs in Iraq with civil war type scenarios evolving...oil went lower. What to make of this...did major suppliers just want the money and 60 is good, 50 is good, but at 70 they just can't sell it all because of the price. These major suppliers have to move the supply, it's coming down a pipe into a hole and the machine is on. They really have to sell as much as they make and they sell it to make money. Perhaps the intertia of all this production is actually going more to selling all the production rather than being overly sensitive to the price per barrel. Get the money, move the oil, forget the third world BS seems to be a way to look at this.
JMHO
How can this guy get away with this? Telling the truth out in the open like that.
Saturday October 28, 9:32 pm ET
By Matt Crenson, AP National Writer
GAO Chief Takes to Road, Warns Economic Disaster Looms Even As Many Candidates Avoid Issue.
AUSTIN, Texas (AP) -- David M. Walker sure talks like he's running for office. "This is about the future of our country, our kids and grandkids," the comptroller general of the United States warns a packed hall at Austin's historic Driskill Hotel. "We the people have to rise up to make sure things get changed."
From the hustings and the airwaves this campaign season, America's political class can be heard debating Capitol Hill sex scandals, the wisdom of the war in Iraq and which party is tougher on terror. Democrats and Republicans talk of cutting taxes to make life easier for the American people.
What they don't talk about is a dirty little secret everyone in Washington knows, or at least should. The vast majority of economists and budget analysts agree: The ship of state is on a disastrous course, and will founder on the reefs of economic disaster if nothing is done to correct it.
Walker doesn't want to make balancing the federal government's books sexy -- he just wants to make it politically palatable. He has committed to touring the nation through the 2008 elections, talking to anybody who will listen about the fiscal black hole Washington has dug itself, the "demographic tsunami" that will come when the baby boom generation begins retiring and the recklessness of borrowing money from foreign lenders to pay for the operation of the U.S. government.
Walker can talk in public about the nation's impending fiscal crisis because he has one of the most secure jobs in Washington. As comptroller general of the United States -- basically, the government's chief accountant -- he is serving a 15-year term that runs through 2013.
This year Walker has spoken to the Union League Club of Chicago and the Rotary Club of Atlanta, the Sons of the American Revolution and the World Future Society. But the backbone of his campaign has been the Fiscal Wake-up Tour, a traveling roadshow of economists and budget analysts who share Walker's concern for the nation's budgetary future.
"You can't solve a problem until the majority of the people believe you have a problem that needs to be solved,"
But Walker isn't optimistic that the government will be able to tackle its fiscal challenges so soon.
"Realistically what we hope to accomplish through the fiscal wake-up tour is ensure that any serious candidate for the presidency in 2008 will be forced to deal with the issue," he says. "The best we're going to get in the next couple of years is to slow the bleeding."
By Jin Rong (China Daily)
Updated: 2006-10-30 06:25
China's foreign exchange reserves look set to hit the US$1 trillion mark at the end of this month or beginning of November. But as the figure rises, so does the debate over how to best manage it.
The reserves, already the world's biggest, surged to US$987.9 billion at the end of September, largely driven by a burgeoning foreign trade surplus and massive inflow of foreign direct investment (FDI).
In the first nine months of the year FDI stood at US$42.59 billion, although this was a 1.52 per cent drop year-on-year.
Reserves grew on average US$18.8 billion each month from January to September, statistics from the central bank show.
"How to manage such a huge reserve is a big challenge," said Yi Xianrong, a research fellow at the Institute of Finance Research under the Chinese Academy of Social Science.
"The crux of the problem is that you have to keep the value stable or increasing," Yi said.
The ballooning foreign reserves, many economist say, is a major reason behind the loose money supply. This is because the central bank has to issue additional money to mop up the excess US dollars in the market, resulting in excessive liquidity in the banking system.
And the fluctuating foreign exchange rate also poses a huge risk, economists say.
In a bid to minimize such risks, the central bank should diversify its existing US dollar-dominated foreign reserves structure, and increase its holdings of euros or other major international currencies, said Li Yongsen, a finance professor at Renmin University of China.
Above link discusses the questionable activities and lack of enforcement by the SEC and DTCC (depository trust clearing corp) in the timely settling of stock trades. The lack of compliance certainly helps the naked short seller move a market without fear of having to actually obtain the shares. Good reading and another nice investigation by Mr. Kirby. No doubt this is one of the vital tools in short selling gold shares.
primer on the silver market
roadrunner
We want nice things for everyone! It does not matter if we have no money we can just borrow it everyone else does!
U.S. Voters Approve Bonds by Boatload, More Coming:
By Joe Mysak
Nov. 8 (Bloomberg) -- Welcome to the Golden Age of Public Finance.
“That's the message voters sent to the municipal market yesterday, as they approved the majority of the record $78.6 billion in bonds placed on the ballot this year.
Voters in California approved all $43 billion in bonds they were asked to consider this year, and in the wee small hours looked poised to approve most of the $10 billion in local issues.
The election of 2006 marks a watershed for the municipal market. Never before have voters had to consider so many bond issues. Never before had they approved so many.
The previous record was 2002, when voters passed $41 billion of the $47 billion in bonds under consideration, for an approval ratio of 87 percent, according to the Bond Buyer newspaper.
Stay with me here. The people who approved these bond issues, most of them, I'd bet, grew up in the 1970s.
What does that have to do with it? These are people who are used to having nice things.
By comparison, those who grew up in the Great Depression and the 1940s were used to making do. They were suspicious of government, and of debt.”
Metals should respond positively. Metal always goes up in times of bad consequence? That's the nice thing about metal, it's a no BS deal, it's only about the money. Worse situation=higher metal so we are seeing an appropriate response. It's good to be blue.
Oh, almost forgot ...bend over and place your wallet on the table.
It's all good.
<< <i>Now that we are turning blue...
Metals should respond positively. Metal always goes up in times of bad consequence? That's the nice thing about metal, it's a no BS deal, it's only about the money. Worse situation=higher metal so we are seeing an appropriate response. It's good to be blue.
Oh, almost forgot ...bend over and place your wallet on the table.
It's all good. >>
Have to agree with all that you say. A free spending president and a free spending congress..... keep you wallet open.
Looks like a great time for buy and hold on silver and gold. If you stay in stocks... better know what you are doing.
Yepper, it ain't gonna be pretty.
Bullion Vault
The above quote taken from an article by the bullion vault. I found the growth in derivatives over the past 20 years to be surprising. 22% per year on average. Realize that now, 20% growth per year today is $50 Trillion per year! Simply stated, derivatives have not been much of a player in past decades. This time it will be different.
roadrunner
Peak Oil Theory – “World Running Out of Oil Soon” – Is Faulty; Could Distort Policy & Energy Debate
November 14, 2006
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Related Topics: Geopolitics , Global , Industry Structure , Oil , Prices / Markets
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Correct Model for Post-2030 Oil Supply is Undulating Plateau
In contrast to a widely discussed theory that world oil production will soon reach a peak and go into sharp decline, a new analysis of the subject by Cambridge Energy Research Associates (CERA) finds that the remaining global oil resource base is actually 3.74 trillion barrels -- three times as large as the 1.2 trillion barrels estimated by the theory’s proponents -- and that the “peak oil” argument is based on faulty analysis which could, if accepted, distort critical policy and investment decisions and cloud the debate over the energy future.
Complete Press Release
CAMBRIDGE, Mass., November 14, 2006 – In contrast to a widely discussed theory that world oil production will soon reach a peak and go into sharp decline, a new analysis of the subject by Cambridge Energy Research Associates (CERA) finds that the remaining global oil resource base is actually 3.74 trillion barrels -- three times as large as the 1.2 trillion barrels estimated by the theory’s proponents -- and that the “peak oil” argument is based on faulty analysis which could, if accepted, distort critical policy and investment decisions and cloud the debate over the energy future.
“The global resource base of conventional and unconventional oils, including historical production of 1.08 trillion barrels and yet-to-be-produced resources, is 4.82 trillion barrels and likely to grow,” CERA Director of Oil Industry Activity Peter M. Jackson writes in Why the Peak Oil Theory Falls Down: Myths, Legends, and the Future of Oil Resources. The CERA projection is based on the firm’s analysis of fields currently in production and those yet-to-be produced or discovered.
“The ‘peak oil’ theory causes confusion and can lead to inappropriate actions and turn attention away from the real issues,” Jackson observes. “Oil is too critical to the global economy to allow fear to replace careful analysis about the very real challenges with delivering liquid fuels to meet the needs of growing economies. This is a very important debate, and as such it deserves a rational and measured discourse.”
“This is the fifth time that the world is said to be running out of oil,” says CERA Chairman Daniel Yergin. “Each time -- whether it was the ‘gasoline famine’ at the end of WWI or the ‘permanent shortage’ of the 1970s -- technology and the opening of new frontier areas has banished the specter of decline. There’s no reason to think that technology is finished this time.”
The report emphasizes the importance of focusing on the critical issues. “It is not helpful to couch the debate in terms of a superficial analysis of reservoir constraints. It will be aboveground factors such as geopolitics, conflict, economics and technology that will dictate the outcome.” The report also points to such aboveground questions as timing and openness to investment, infrastructure development, and the impact of technological change on demand for oil
Undulating Plateau
The new report describes CERA’s liquids supply outlook as “not a view of endless abundance.” However, based on a range of potential scenarios and field-by-field analysis, CERA finds that not only will world oil production not peak before 2030, but that the idea of a peak is itself “a dramatic but highly questionable image.”
Global production will eventually follow an “undulating plateau” for one or more decades before declining slowly. The global production profile will not be a simple logistic or bell curve postulated by geologist M. King Hubbert, but it will be asymmetrical – with the slope of decline more gradual and not mirroring the rapid rate of increase -- and strongly skewed past the geometric peak. It will be an undulating plateau that may well last for decades.
During the plateau period in later decades, according to the CERA analysis, demand growth will likely no longer be largely met by growth in available, commercially exploitable natural oil supplies. Non-traditional or unconventional liquid fuels such as production from heavy oil sands, gas-related liquids (condensate and natural gas liquids), gas-to-liquids (GTL), and coal-to-liquids (CTL) will need to fill the gap.
Critical Issue
CERA argues that understanding the difference between a plateau and a peak followed by a precipitous decline, as well as the timing of events, is critical to the global energy future. “Corporations, governments, and other groups, including nongovernmental organizations, need to have a coherent description of how and when the undulating plateau will evolve so that rational policy and investment choices can be made,” according to the report.
“It is likely that the situation will unfold in slow motion and that there are a number of decades to prepare for the start of the undulating plateau. This means that there is time to consider the best way to develop viable energy alternatives that would eventually provide the bulk of our transport energy needs and ensure that there is a useable production stream of conventional crude for some time to come,” CERA concludes.
Peak Theory Shortcomings
The CERA review also finds that current “peak oil” advocacy suffers from several problems:
The peak argument is not presented in the context of a credible systematic evaluation of available data; its proponents have not made available a transparent and detailed analysis that would allow an objective and rational discussion. At base “their methodology is to impute decline curves against currently proven reserves and declare that the game – and the argument – is over.”
The underlying analytical model formulated by the late M. King Hubbert both fails to recognize that recoverable reserve estimates evolve with time and are subject to significant change, and it also underplays the substantial impact of technological advances. Consequently, total annual production at the high point in 1970 was 600 million barrels higher – 20 percent -- than Hubbert’s projection of peak production for the US Lower 48, although he correctly anticipated its timing within two years.
Hubbert’s method requires accurate knowledge of the ultimate recoverable reserves of an area, but his 1956 analysis could never have incorporated the impact of giant discoveries in Alaska and the deepwater Gulf of Mexico, and therefore couldn’t have predicted the production profile for the U.S. As a result, total cumulative U.S. production between the high point in 1970 and 2005 exceeded Hubbert’s predictions by the equivalent of more than 10 years of US production at present rates.
Hubbert-posited post-peak reservoir decline curve assumptions are rebutted by observation that the geometry of typical oilfield production profiles is often distinctly asymmetrical and does not generally show a precipitous mirror-image decline in production after an apparent peak, even without the application of new technology or enhanced oil recovery techniques. As a result, in the US Lower 48 where Hubbert came closest to accurately forecasting a peak, oil production in 2005 was some 66 percent higher than projected by Hubbert, and cumulative production between 1970 and 2005 was some 15 billion barrels higher, a variance equal to more than eight years of US production at present rates.
Those who believe a peak is imminent tend to consider only proven remaining reserves of conventional oil, which they currently estimate at about 1.2 trillion barrels. In the view of many petroleum geologists, this is a pessimistic estimate because it excludes the enormous contribution likely from probable and possible resources, those yet to be found, and plays down the importance of unconventional reserves in the Canadian oil sands, the Orinoco tar belt, oil shale and GTL projects. CERA believes the global inventory is some 4.8 trillion barrels, of which about 1.08 trillion barrels have been produced, leaving 3.72 trillion conventional and unconventional barrels, an order of magnitude that will allow productive capacity to continue to expand well into this century.
The “peak oil” argument is frequently supported with data indicating that new exploration finds are not sufficient to replace annual production. Their data sets have serious deficiencies. The peak argument is an incomplete and therefore misleading analysis because it ignores the role of development (vs exploration) projects in expanding reserves, fails to understand economic factors that can point company and national strategies to emphasize development vs exploration work. By focusing on “discovery” and ignoring the increased knowledge and confidence about field volumes, it disregards the fact that revisions, additions and exploration together have generated resource growth of 320 billion barrels – 80 billion barrels more, or one-third more, than total production – during the period from 1995 to 2003. CERA draws both on its own data bases and those of its parent company IHS, which has the world’s most complete proprietary data bases on oil production and resources.
Hubbert’s method does not incorporate economic or technical factors that influence productive capacity; most importantly, it ignores the impact of both price and demand, both major drivers of production.
Peakists’ projections of the date a peak would be reached continue to come and go, the most recent targeted around Thanksgiving Day 2005, give or take a few weeks.
Signposts
“It is no longer sensible to allow the issues about future supplies to be clouded in a debate grounded in a flawed technical argument,” the CERA report concludes. “There is general agreement that a peak or plateau of sorts will develop in the next 50 years, and it is not helpful to couch the debate in terms of a superficial analysis of reservoir constraints.” The report emphasizes the importance of the aboveground factors cited earlier.
“There is a need to identify the signposts that will herald the onset of the inevitable slowdown of production growth and ensure that policymakers outside the energy community have a clear understanding of possible outcomes and risks.”
Cambridge Energy Research Associates (CERA), an IHS company, is a leading advisor to energy companies, consumers, financial institutions, technology providers, and governments. CERA (www.cera.com) delivers strategic knowledge and independent analysis on energy markets, geopolitics, industry trends, and strategy. CERA is based in Cambridge, Massachusetts, and has offices in Bangkok; Beijing; Calgary; Dubai; Johannesburg; Mexico City; Moscow; Mumbai; Oslo; Paris; Rio de Janeiro; San Francisco; Tokyo; and Washington, DC.
For more information on CERA's Global Oil Advisory Service or our other service please visit our service offerings page.
© 2006, Cambridge Energy Research Associates, Inc. All rights reserved. CERA and the CERA logo are registered trademarks of Cambridge Energy Research Associates, Inc.
Knowledge is the enemy of fear
upcoming meeting of the Israel PM and President Bush. If, as reported,
Iran is within three months of an operational nuclear device, the discussions
will undoubtably involve whether and when, decisive measures are to be taken.
The results of these meetings, will evidence themselves by the end of the year.
Camelot
<< <i>Peak Oil Theory – “World Running Out of Oil Soon” – Is Faulty; Could Distort Policy & Energy Debate
November 14, 2006 >>
This is all real nice but they forgot to mention whether it was soaring demand or insufficient supply that has caused the price of oil to quadruple in the last few years. Maybe it's all that energy we're wasting hauling around corn and making ethanol that has caused the price to soar.
I'm sure many people will breath a little more easily when there is actually oil coming from sand and tar. In the meantime the cup is continuing to become less full.
Thanks for the article.
Modern science has made great strides the last several decades in solving our energy problems, and in reality there should never be an energy shortage ever. There is enough energy in a 4x6 foot block of concrete to run all of the U.S. energy needs for a year once it is unlocked. Much of today’s market prices are simply manipulated, as are so many others.
The problem I see in the oil patch itself has more to do with what our dollar will buy us in the future. We simply cannot continue to print all this paper money, and debt, and expect the world to continue to be fooled.
Absolutely the only reason we have been able to continue this disastrous path over the last two decades is by bribing other countries with the American market for products. If that changes due to the belt tightening from Boomers on retirement, or from legislation from our new liberal congress passing tariffs, the game is done, and we can still see $100 plus oil.
Nov. 15 (Bloomberg) -- Robert E. Rubin, the longest-serving Treasury secretary under former President Bill Clinton, and former Federal Reserve Chairman Paul Volcker said foreign investors probably won't keep increasing their dollar holdings, raising the risk of a slump in the U.S. currency.
``It's incredible people have gone on so long holding dollars,'' Volcker said during a panel discussion at the event. ``At some point, you will get a situation where people have had enough,''
<< <i>
<< <i>Peak Oil Theory – “World Running Out of Oil Soon” – Is Faulty; Could Distort Policy & Energy Debate
November 14, 2006 >>
This is all real nice but they forgot to mention whether it was soaring demand or insufficient supply that has caused the price of oil to quadruple in the last few years. Maybe it's all that energy we're wasting hauling around corn and making ethanol that has caused the price to soar.
I'm sure many people will breath a little more easily when there is actually oil coming from sand and tar. In the meantime the cup is continuing to become less full. >>
Cladking,
I know you are aware of this already but I will post a link for others. oil sands
Knowledge is the enemy of fear
Well my Friends another year has gone by, and much of what we began to predict two years ago is again taking shape. The world is still being flood with MORE paper money and debt of all kinds. The all mighty U.S. dollar is dropping like a rock, and the metals, as well as U.S. and World coins have had yet another banner year.
One thing that has changed this year is that it now appears that the European countries are starting to feel the effects of their socialist systems also, as they go further into debt printing money for the masses.
As we do each year we would all appreciate anyone’s predictions for 2007.
Mine are as follows:
The dollar will continue its decline.
Interest rates will be increased in order to roll the debt.
Gold will go to $700 and be stable.
Silver will see $17
The news will fill with stories of how the U.S. must curb its spending, and foreigners will be reluctant to buy more bonds.
The new Democratic congress will do nothing to fix anything.
CURRENT MARKETS TODAY:
Gold ……..$648.75
Silver…….$13.97
Euro……...$1.3338
Dow………12,194
Peter Schiff
December 1, 2006
While Americans were busy digesting their Thanksgiving feasts, the rest of the world was barfing up dollars…
When foreigners finally decide that they have had enough, their reluctance to accumulate additional dollars will mean that America’s perpetual shopping spree will finally come to a screeching halt.
This week the U.S. dollar was carved up like a Thanksgiving turkey. Against the Swiss franc, euro, British pound, and Japanese yen, the dollar lost 3%, 2.2%, 2% and 1.8% of its value respectively. To put those declines into perspective, in terms of the euro the Dow Jones’s 60 point plus decline this week translates into the equivalent of a 320 point decline when measured in euros. In fact, year to date the Dow is only up by about 3.5% when priced in euro’s, compared to its 14.5 % advance when measured in depreciating U.S. dollars. From its high in 2000, the euro price of the Dow is down by over 27%. In terms of gold, the world’s only legitimate money, the picture is even worse. Priced in gold the Dow is off better than 50% from its 2000 peak, and actually down over 7% thus far this year. So much for Wall Street’s phony rally!
At the risk of over using the term, one conundrum is the relative strength in the bond market given the dollar’s recent weakness. From our creditors’ perspectives, the only thing worse than holding dollars is holding future claims to dollars, which is what bonds in fact represent. When foreigners begin factoring ten percent plus annual dollar declines into U.S. bond yields, bond prices will head south fast.
Martin W. Hennecke
December 1, 2006
Regular readers of websites like this one will already be well informed of the onrushing financial collapse and national bankruptcy of the United States, as this topic is receiving ample coverage nowadays from an abundance of writers and economists.
What a large number of even the more educated US Dollar bear-and US financial crisis expectation camp however do NOT seem to be aware of is the global nature of the problem. It is completely wrong to assume, for example, that the Euro or the British Pound are inherently ‘hard’ and healthy currencies that would provide protection from a plunging US Dollar.
Germany, France and UK face junk debt status.
It has also largely gone unnoticed that Germany’s capital city Berlin just went officially bankrupt, and that Standard & Poor’s has revised its rating outlook for Germany since publication of the above chart, stating that the country may loose its triple-A credit rating on sovereign bonds already in 2007, which would speed up the previous sovereign default projection as above by roughly 10 years. Weimar II is much closer than most people would imagine.
It is the same old story time and time again that repeats itself. Governments go too deep into debt, lose control of their budget deficits, and then have to hyperinflate their currencies to get out of un-payable debt.
What lies ahead therefore is yet another replacement of the major present currencies with new ones. Life will go on, but those holding the present (old) money or bonds are at risk of loosing everything while those holding precious metals can simply, after the crisis, use the metal to exchange it for the new currency, with no loss and very possibly actually with substantial gains.
Giving the rise of Asia, and China in particular, precious metals should, at worst, have a very limited downside due to increasing demand from this region, even if a financial crisis should not materialize for whatever reason. In particular silver prices are actually likely to soar in any scenario due to extremely low prices today – the metal still trades at a 90% inflation-adjusted discount over 1980s levels –, incredibly low global silver bullion stockpiles, which have been reduced from around 10 billion ounces at the end of WWII to a few hundred million ounces today.
1. Economy sinks into a mild recession in late Spring.
2. The dollar flirts with a major selloff. If it breaks under 80 it could get quite ugly.
3. Weakness in housing finally hits home--forclosures hit record highs, while average selling prices decline by at least 10% in most markets.
4. Commodity prices stay confined at the upper end of the recent trading ranges.
5. The 3 bears may finally catch Goldilocks. Although foreign investors may help free her.
6. We will hear again, "The British are coming, the British are coming."
7. If you want to beat the market next year, then remember, "Jack be nimble, Jack be quick."
Knowledge is the enemy of fear
It's no secret that when the FED announced the abolishment of M3 reporting the gold market took off strongly in mid-2005. This seemed to be the fuel to take it to its peak in May. The above graphs show an M3 growth rate that has been constantly increasing.
M3 was at 3-7% when the announcement to abolish it was made.
M3 is now increasing at around 11% per year and growing (ie the FED is pumping some serious liquidity into the system even if not via M2).
For those who are tracking M2 and M1 all is well because those are steady or decreasing. We can all sleep tight because M3 is no longer tracked and therefore of no interest to Wallstreet or Economists.
gold swaps for "deep gold"
Leave it to Rob Kirby to come up with another fascinating idea. Here he suggests that the US has been swapping real gold for gold still in the ground. This way there is a much larger supply of gold "available" to continue to dump on the market to suppress the price when needed. He then suggests that those holding shares of US mining stocks might not get the bang they should as gold prices increase.
roadrunner
The Washington Post confirmed that China's negotiators insist they will sell ALL of their America currency reserves!
China seems to be virtually in a war of words with the US delegation which sent the largest delegation to any country in recent memory.
We could see some very strange things happening as soon as Monday.
Silver, gold and platinum could possibly reverse their Friday losses and more.
Reuters Report - U.S. lawmakers urge action after China meeting
Turner Radio Network - CHINA TO DUMP ONE TRILLION IN U.S. RESERVES!!!! Tells visiting Bush administration officials they will not sit back and lose their shirts as U.S. Dollar collapses; they are getting out fast and large!!!!!!
Many more reports coming out as well.
The Federal Reserve Bank ceased publishing "M3" data in March, making it nearly impossible for anyone to know how much cash is being printed. China said this act made it impossible to tell how much a Dollar is worth.
I have a link above as to what M3 is running based on economists who are continuing to track it. Certainly Chinese economists are doing the same thing. More the issue, is the Chinese KNOW what M3 is doing AND are not happy about the 11% growth.
The Chinese are worried about the drop in the dollar? They should be worried more about the Yuan considering they are printing money at 2X the rate we are (in the 18-20%/year range). Their inflation and devaluation rates should be far in excess of ours. Maybe one could say that the link with our dollar is helping the Yuan up to some extent.
The U.S. has no plans whatsoever to reduce deficit spending or ability pay down any of its existing debt without printing money to pay it off.
The US is not printing money at this point to pay anything off. But we are certainly dumping boat loads of liquidity into the system by other means other than M1 or M2. Hence the need to remove M3 from public display.
For these reasons China has decided to implement an aggressive sell-off of U.S. Dollars before the rest of the world does so.
This is not a statement someone in their position should make as it only costs them more money. If anything, I would say this is exactly the opposite of how they are going to react in the near term. Let some smaller nations continue dropping dollars to slowly ease the pricing (what China and the US ultimately want). But China isn't likely to start dropping hundreds of billions of dollars anytime soon imo. They knew years ago where things were headed, why all the fuss in Dec. 2006? The Chinese have stopped the rate of borrowing our dollars the past 2 years while the UK and offshore accounts (via GS, JPM, etc) have picked up the buying.
The US borrows $2 Billion a day to float the economy. Even $1 TRILLION isn't off the scale anymore. Curiously, the out of touch Congress thinks China is being unfair by keeping it's currency undervalued. If they brought it up it would induce further hardships on our economy as prices in Walmart would escalate. A weaker Yuan is keeping some of our inflationary effects overseas. Sure, jack up the Yuan and let's bring higher prices to our stores. The real culprit is Congress themselves not being able to spend within our means. Let's not blame that on China.
roadrunner
spends more money we don't have the path got more narrow. A few years ago the FED became
a tight rope walker and Congress continued to spend. They donned better shoes as the path be-
came rozor thin and yet we spent. The world supported the razor and we spent more.
So now they're threatening to end support.
This will take an act of Congress to affect. How ironic that the dems will have a chance to teach us
fiscal responsibility and a Republican president will tell us about tax increases.
They'd better get off the dime NOW or we may all meet at the bottom soon.
In a GLOBALIZATION of the world and economies, it's funny that someone else is screaming FOUL.
Correct me if I am yuang, but who is calling the kettle black here ? (what's a yuan buy ? )
Our dollar is pretty good in my pocket
Heck all they gotta do is check gross sales receipt at their main store, WAL MART. It isn't hard to figure out what our dollar is worth.
Year end prediction:
Gold $683.59
Silver$ 14.35
By MARTIN CRUTSINGER, AP Economics Writer Fri Dec 15, 5:49 PM ET
WASHINGTON -
The federal deficit for 2006 would have been 81 percent higher than the $247.7 billion that was reported two months ago if the government had to use the same accounting methods as private companies. That was the finding Friday when the administration released a 166-page "Financial Report of the United States Government" for the 2006 budget year that ended on Sept. 30.
The report, released by the Treasury Department and the president's Office of Management and Budget, found that under the accrual method of accounting, the deficit for 2006 would have totaled $449.5 billion, not the widely reported $247.7 billion incurred under the cash system of accounting.
Under the accrual method, expenses are recorded when they are incurred rather than when they are paid. That tends to raise costs for liabilities such as pensions and health insurance.
Ten years ago, Congress ordered the government to start issuing annual reports using the accrual method of accounting in an effort to show the finances in a way that was comparable with the private sector.
In this year's report, as in every one that has been issued, Congress' auditing arm, the
Government Accountability Office, said that it could not sign off on the books because of problems in the reporting.
Comptroller General David M. Walker, the head of GAO, said in a letter included in the report that 53 percent of the government's total assets were included in agencies that could not be audited properly.
Is that like the "whats a henway" joke?
Hopefully everybody is vested in what ever their strategy is for this economic melee that is about to unfold. It's not like we haven't known about this confrontation, we've been talking about it here for a while and getting ourselves prepared. I agree with the point that this is actually good for the US.
From a previous post in this thread at the first of the year:
"So, here's to '06. This new year is poised to welcome a new financial age, in my view. Real estate is in transition, metal is in transition, energy is in transition, then you have disasters, terrorism, and markets. There is a change in the wings for the world order as China, the sleeping giant, wakens and begins to take steps into the brave new world with 1920's infrastructure and a huge, bright, ambitious population that thursts for freedom, both economic and political. China is covered in pollution and filth and an ancient form of government, possibly the last of the significant communist political systems that is doomed to failure if it doesn't adapt to a 21st century world. The US is no longer the only gorilla in the jungle and must share with China as old Europe is challenged to either fade into the past or find some way to become relevant in the future."
along with it. But silver bulls should be cautious since the threat of recession is a significant
detriment to high silver prices. If Congress and the FED allow recession then the best bet is
to rotate out of silver and into other hard assets.
If the talk is of the status quo and maintaining rates then look for lower silver.
2007 is defiantly shaping up, as the year the dollar will begin to get dump!
The PM’S should have a great year.
By Matthew Brown
Dec. 27 (Bloomberg) -- The United Arab Emirates will convert 8 percent of its foreign-exchange reserves from dollars into euros before September after the U.S. currency slumped this year, the country's central bank governor said.
The U.A.E. has started ``in a limited way'' to sell part of its dollar reserves, Sultan Bin Nasser al-Suwaidi said in an interview in Abu Dhabi on Dec. 24. ``We will accumulate euros each time the market appears to dip,'' as part of a plan to expand the country's holding of euros to 10 percent of the total from 2 percent today, he said.
The Gulf state is among oil producers including Iran, Venezuela and Indonesia, looking to shift their currency reserves into euros or price their oil products in the 12- nation currency. The dollar has slumped almost 10 percent against the European currency in 2006 as growth in the euro region outpaced the U.S. for the first time in five years.
Gulf Arab energy producers will earn as much as $500 billion from oil sales this year, the International Monetary Fund forecasts. The region's central banks reserves represent a fraction of the currency holdings of state-owned investment firms such as Abu Dhabi Investment Authority which is estimated to have over half-a-trillion dollars under management.
``It is a recognition of the vulnerability of the dollar over the coming year,'' Simon Williams, economist with HSBC Holdings Plc in a telephone interview from Dubai, U.A.E. today. ``This is not confined to the U.A.E. There's a general awareness across the Gulf of the benefits of diversifying currency holdings.''
U.S. Deficit Widens
The U.S. current account deficit widened to $225.6 billion in just the third quarter, while oil producers in the Middle East and central Asia will run a surplus of $322 billion for all of 2006, according to the IMF.
China, the second-largest holder of U.S. debt, reduced purchases of U.S. treasuries by 1.7 percent in the first 10 months of the year, according to Treasury Department data.
An article by Casey showing many parallels to our own fiat money system and the games required by "good" people to try and juggle it to the finish line. Only that never happens.
roadrunner
<< <i>Late 18th century French hyper-inflation
An article by Casey showing many parallels to our own fiat money system and the games required by "good" people to try and juggle it to the finish line. Only that never happens.
roadrunner >>
That was interesting to read, thanks.
Chance favors the prepared mind.
<< <i>
<< <i>Late 18th century French hyper-inflation
An article by Casey showing many parallels to our own fiat money system and the games required by "good" people to try and juggle it to the finish line. Only that never happens.
roadrunner >>
That was interesting to read, thanks. >>
I agree. It's very interesting. It's very well written as well.
It's a shame that the author misses the point and blames the money rather than the politicians who spend it. This article should be required reading for all bankers and politicians.
AMEN
I have no other articles to post at this time, but my gut is just going nuts. I think that 2007 may be the year that the SH hits the fan! If so the paper markets are going to just melt. I for one cannot bring my self to take all the money in the bank and go shopping, but something is afoot here.
As far as thisd goes, "Aiyeee! ..... PEAK COINS!!!!!"
2007 may see more great increases.
Camelot
There is one other area where I think the article is weak -- the suggestion that living beyond our means will lead to inflation, now, as it did in 1790s France. In the current situation, we are living beyond our means by taking on high levels of debt. This can be a source of potential instability, especially if that debt is external to the political economy (e.g. - US debt to China). But, unless the monetary authorities inflate the money supply in order to reduce the burden on debtors, borrowing is not inherently inflationary.
In fact, there is also a risk of sudden contraction of the debt, which of course is deflationary.
My feelings at the start of the new year are somewhat in contrast to Goldsaint's -- my gut feeling is that we are seeing a relatively soft landing to US real estate markets, and the economy is adjusting fairly well to higher interest rates; a year from now the oddities that resulted in part from the late 1990s bubble may be fully behind us.
I don't plan to liquidate my own (small) precious metals holdings any time soon, but I don't expect them to yield more than many alternative investments over the next year.
By Alistair Barr, Market Watch
Last Update: 12:01 AM ET Dec 29, 2006
U.S. stock market shrinks by $600 billion
SAN FRANCISCO (Market Watch) -- 2006 was the year of the incredible shrinking stock market, when a record amount of shares left public markets amid a flurry of leveraged buyouts and share repurchases.
If the supply of equities continues to dwindle and retail investors also rediscover their former penchant for U.S. stock mutual funds, it could mean the market in 2007 would get a significant push higher, some strategists said.
Still, others are dubious about the benefits of the recent LBO boom and warned that an unexpected spike in interest rates next year could derail stock markets.
But, unless the monetary authorities inflate the money supply in order to reduce the burden on debtors, borrowing is not inherently inflationary.
That's basically what the FED and Treasury have been doing for the past 93 years, inflating the money supply. Over the past 10 years the amount of monetary inflation has been significantly increased
to an average of 6-8% per year. This was the primary driver in stock and home appreciation. Eventually the monetary inflation has to show up across the board in commodity pricing. M3 (though now longer officially reported), is now increasing at over 10% per year. I see little chance of it actually falling back in 2007.
I would think that by definition, monetary authorities increase the monetary supply to reduce the burden on debtors (US Govt)....and efficiently transfer the wealth to the lenders (Banks).
roadrunner
<< <i>
That's basically what the FED and Treasury have been doing for the past 93 years, inflating the money supply. Over the past 10 years the amount of monetary inflation has been significantly increased
to an average of 6-8% per year. This was the primary driver in stock and home appreciation. Eventually the monetary inflation has to show up across the board in commodity pricing. M3 (though now longer officially reported), is now increasing at over 10% per year. I see little chance of it actually falling back in 2007.
roadrunner >>
I've always suspected that this would manifest itself in increasing velocity of money
because of the nature of the way they are pushing money into the system. There is
a huge amount of money in the available but it seems everytime more is added that
velocity decreases and the effects are postponed. Eventually the economy improves
and people start spending and inflation suddenly will reappear.
Presumably, in a generally prosperous economy with an aging population, there should be a modest downward trend in velocity. But, I think you are saying that trends in velocity tend to be reinforcing, so that once the velocity picks up, an increase may continue for some time, and inflation may exceed that expected by simply looking at money supply.
(Perhaps two years ago there was an extremely interesting op-ed piece in the WSJ by Milton Friedman, in which Friedman presented data to show that Alan Greenspan had a remarkable ability to understand and intuit changes in velocity.)
By the way, am I a lone voice in feeling somewhat optimistic about 2007?
I'm also positive about 2007 as well. I feel precious metals, energy, a number of commodities, and their associated stocks will do very well in 2007-2008. While not bullish at what the overall S&P or housing market will do in 2007, I think there is a good chance that the powers to be will engineer at least a muddle-by year that keeps the credit engine churning. All that liquidty sloshing about (and the new 10% that will be dumped in) should keep things floating adequately for now.
roadruner
Suppose six castaways are stranded on a deserted island, five Asians and one American. Further, suppose that the castaways decide to divide the work load among them in the following manner: (for the purpose of simplicity, the only desire the castaways work to satisfy is hunger) one Asian is put in charge of hunting, another in charge of fishing, and a third in charge of finding vegetation. A fourth is put in charge of preparing the meal, while a fifth is given the task of gathering firewood and tending to the fire. The American is given the job of eating.
So, on our island five Asians work all day to feed one American, who spends his day sunning himself on the beach. He is employed in the equivalent of the service sector, operating a tanning salon which none of the Asians on the island utilize. At the end of the day, the five Asians present a painstakingly prepared feast to the American, who sits at the head of a special table, built by the Asians specifically for this purpose.
Realizing that subsequent banquets will only be forthcoming if the Asians are alive to provide them, he allows them just enough scraps from his table to sustain their labor for the following day.
Modern day economists would say that this American is the lone engine of growth driving the island’s economy and that without his ravenous appetite, the Asians on the island would be unemployed. The reality, of course, is that the best thing the Asians could do to improve their lots would be to vote the American off the island. Without the American consuming all of their food, there would be a lot more available for them to eat.
Alternatively, they could spend less time on their food related tasks, devoting the extra time to greater leisure or to satisfying other needs, which currently go unfulfilled as much of their scarce resources are devoted to feeding the American.
Now some of you might be thinking that this analogy is flawed, as in the real world economy, Americans pay for their food, so real world Asians providing the meals receive value in exchange for their effort. O.K. lets assume that the American on our island pays for his food in the same manner real world American pay for theirs, buy issuing IOU’s. Let’s assume that at the end of the meal, the Asians present the American with a bill, which he pays by issuing IOU’s claiming to represent future payments of food.
However, all the castaways know that the IOU’s can never be collected, as the America has no food, or the means or even the intention, of providing any in the future. But the Asians accept them anyway, and each night add them to the piles of IOUs collected on previous days. Are the Asians better off as a result of this accumulation? Are they any less hungry? Of course not.
Now let’s assume another Asian castaway washes up onto the island, and assumes the role of central banker. Now each day the central banker taxes the other Asians on the island by confiscating a portion of the scraps of food the American throws them each day from his table. The central banker than agrees to return these morsels to the other Asians each day, in exchange for each Asian’s daily accumulation of the American’s IOU’s, less a small percentage for himself, because the central banker also has to eat.
Does the existence of a central banker change anything? Do the Asians have any more to eat because their own central banker gives them back a portion of the food he took from them in the first place? Do the American’s IOU’s have any more value because they can now be exchanged in this manner? Of course not.
Well, if it does not make sense for the six make-believe Asians to support one make-believe American, it does not make sense for billions of real world Asians to support millions of real world Americans. The fact that they do so in exchange for worthless IOU’s in no way alters this reality.
There is no question that in the short-run, by allowing the U.S. dollar to collapse (in effect voting millions of American’s off the island), there will be some temporary disruptions to Asian economies. Of course there will be some initial losers, particularly among those Asians who currently profit from this arrangement. However, these profits come only at the expense of far greater losses borne by the broader Asian population.
In the end, the cessation of America’s excess consumption, which is a burden that the Asians now disproportionately bear, not a benefit that they enjoy, will be the best thing that can happen to the Asian people. Like the serfs being liberated from their lords, their scarce resources will finally be freed to satisfy their own needs and desires, and their standards of living will rise accordingly. In addition, since their savings would then be available to finance additional capital investments, rather than being squandered by American consumers, their future standards of living will rise that much faster as well.
Unfortunately for Americans, being kicked off the Asian gravy train means its time to get back to work. In simple terms, this means a whole lot more hunting and fishing, and a whole lot less eating.
$20 Saint Gaudens Registry Set
<< <i>What factors may cause the velocity of money to increase?
Presumably, in a generally prosperous economy with an aging population, there should be a modest downward trend in velocity. But, I think you are saying that trends in velocity tend to be reinforcing, so that once the velocity picks up, an increase may continue for some time, and inflation may exceed that expected by simply looking at money supply.
(Perhaps two years ago there was an extremely interesting op-ed piece in the WSJ by Milton Friedman, in which Friedman presented data to show that Alan Greenspan had a remarkable ability to understand and intuit changes in velocity.)
By the way, am I a lone voice in feeling somewhat optimistic about 2007? >>
I'm an eternal optimist so I'm often wrong. I don't expect the overall economy to improve remarkably
but I do expect some growth. Unfortunately much of this growth will be the result of negative things
like health care spending and insurance rates. The stock market still has a lot of sideways movement
left before an explosive move to higher levels. Precious metals should continue to fair reasonably well
and gold should resume its run sometime in 2007. Silver may not join it but is still poised for an historic
price increase.
The dollar will finally establish some new lows in the high 70's, and bonds will continue under light pres-
sure.
There can be several triggers to increased velocity of money but most are probably demographic. The
most likely scenario is in a few years when the economy heats up a little and a significant labor shortage
developes. Wages at the low end of the pay scale soar, generational transfer of wealth peaks, and birth
rates increase. This coupled with the expanding world economy causing supply shortages will sharply
increase velocity. There's already so much money around that inflation could be significant if the rate at
which it changes hands picks up. Concurrently increased tax revenue will barely keep up increased costs
so more money would need to be thrown in the mix.
Much depends on oil prices and labor supply.
This is very good!
2. Americans work longer hours then europeans.
3. Americans are losing high pay industrial jobs to
third world countries.
4. America assumes the enormous burdon of policeman
to the free world.
5. If the third word do not sell their crap to
America, where are they gonna sell them?
6.Americas real standard of living has gone down as the third world
standards of living rises. It happens in this manner:
in 1950, a factory worker could support and raise a family, buy a home and
enjoy a pension and benefits while the wife, could stay at home and
take care of the family.
Today, the husband works two jobs , the wife works and a home is now
considered a luxery.
We are the first generation that must support our aging parents as well as
our grown children. We do this by borrowing on our assets, to subsidize their
existence.
7. Yes , America does consume more of the worlds raw resources then ther
countries. All economies are really shell games, with unbacked currencies.
When the games ends, world wars begin, over fuel, food, water, minerals
and land. We are all living in a dream world and that world is ending as the disparity
of wealth in our country and around the world, is ever expanding. The degree of the
wealth in all nations is in the hands of a few. The amount of that wealth is obscene.
Is any CEO really worth 100,000,000 dollars a year? Is the head of Goldman Sachs
really worth a 56,000,000 dollar annual bonus?Are stock brokers worth millions in bonuses?
Is it fair that the minimum wage is less now in real value then 1950?
Why are Americans showing such an increased desire to own precious metals?
Perhaps, the answer is, its better then squeezing a lump of coal in a hot room
and hoping it will turn into a diamond.
We are told that we are living in a new paradigme, the economic rules have changes,
there is a safety net. In reality, pensions, where they still exist, are underfunded, FDIC
is underfunded, American's as well as our government ,are under enormous debt that is
increasing faster then revenues can mitigate. To all things there is a season, and the season
of plenty, is approaching a horrific end.
Camelot