http://soberlook.com/2012/08/monetary-expansion-dollar-and-commodity.html
( On further review , Dave may be right on the Fed holding off on actually enacting QE 3 until after the election - if they move in September , commodity prices will spike again.... )
Dollar weakness to any commodity trader is a signal to buy - which is not necessarily linked to demand fundamentals. Those who don't believe this should only take a look at the following chart comparing the dollar (DXY) with the CRB commodity index.
What's important to point out here is that the commodity price movements have been much larger than the dollar movements. In fact on a percentage basis the CRB range in the graph above is almost double the dollar range. That means even for currencies that are not in any way tied to the dollar (although a number of emerging market currencies are), when the dollar weakens, commodity prices move higher even if denominated in these other currencies. Commodity price increases due to dollar weakness therefore propagate globally even in nations whose currencies are not linked to the dollar. This empirical relationship drives global commodity markets even if supply/demand fundamentals don't warrant such adjustments. But when one faces tight and uncertain supply conditions to begin with (as we have now for agricultural commodities), dollar weakness will force an even larger commodities swings to the upside.In 2011 the CIA was chastised for not being able to see the Arab Spring coming. Where did all that pro-democracy fervor come from all of a sudden? Why wasn't the CIA able to see key signs of the movement earlier? The answer has less to do with zeal for democracy and more to do with not being able to buy food. As food prices spiked across the Arab world, so did the protests.
Certainly in the long run macroeconomic fundamentals should play out. But we don't live in "the long run". Global markets take seconds to reprice, usually far overshooting/distorting the "fundamentals". And, as the Arab Spring showed, people don't wait for these fundamentals to settle to their expected levels.
and here's Dave .......
People accuse me of being unpatriotic and ungrateful for not voting. But, au contraire, I would argue that anyone who does vote is affirming and legitimizing an illegitimate system. Our Governmental system bears no resemblance to the system ratified and put in place by the Constitution and our "elected" officials - nearly every one of them - is either a complete fraud (Obama) or thoroughly corrupt.
Moving along, I wanted to point out that as of Tuesday's debt issuance by the Government, our national Treasury debt officially exceeds $16 trillion. The debt ceiling limit put in place in 2010 is $16.394 trillion. It was lifted to this level at the end of January 2012. At this rate of new debt issuance, roughly $114 billion per month, the Government will exceed its legal debt limit by the beginning of December. And please keep in mind that there is off-balance-sheet Government guaranteed debt in the form of Fannie Mae, Freddie Mac, FHA and General Motors. That extra $8-10 trillion gets conveniently left out of everyone's discussion. But not mine.
Furthermore, a report was released earlier this week showing that the 50 individual States collectively have over $4 trillion in outstanding bonds, unfunded pension commitments and budget gaps: LINK If you add that to the debt that is an obligation of the U.S. Treasury (vs. all the "legacy" liabilities like under-funded Federal pensions, social security, medicare, etc), you have around $30 Trillion in Federal and State direct debt. That's about 200% of GDP. That ratio makes Greece and Spain look like "gold standard" countries.When will this debt/dollar bubble finally burst? Anyone's guess is as good as mine, but mathematically this can not go on much longer. Either the Government has to shut everything down except the functions provided in the Constitution or the Fed has to crank up the printing press in a major way. I will say that anyone who owns Treasury bonds, from the Chinese Central Bank to the lowliest American retiree, is a complete idiot. I'd rather own a big bag of shit. At least I can sell the bag of shit for use as crop fertilizer.
Circling back to my endorsement of that particular passage from Ryan's speech last night (honestly, that was actually the only part I heard as I had clicked on to CNN randomly and there it was. It was also the first time I've heard Ryan give a speech - his voice makes him sound like a high-pitched pin-head - it's bad enough that he looks like Pee Wee Herman), it was clearly a massive missile fired at Obama's comment that American business owners owe their success to the Government. I don't think anything I've heard Obama say has pissed me off more than that. Obama owes his "success" to the Government and to all the socialist programs put in place like Affirmative Action which have enabled Obama throughout his life.
Obama has been a lifelong beneficiary of public spending and the public payroll. In fact, Obama has made more than enough money off of his book deals to live comfortably and I have this modest proposal: Obama should be the first person on Capitol Hill who gives up his Taxpayer and debt-financed salary plus benefits in order to help solve our catastrophic debt problem . And he should step forward as a leader and call on all members of Congress who have personal wealth to give up their Congressional pay and benefits. I think as public servants this is the least they all can do.
I've been making the argument for at least a year now that the United States is in much worse shape financially and structurally than is Europe. The highly visible insolvency problems of several EU-member countries are being used as a "deflection" device by Wall Street and politicians to help cover-up the much larger insolvency problem in this country.
To be sure, if any one of the countries in the EU on the verge of collapse actually collapses, it will trigger widespread financial destruction globally - although primarily in the U.S., Europe and the U.K. But this is because of the well-hidden, off-balance-sheet OTC derivatives exposure of the Too Big To Fail U.S. banks and their Anglo-European counterparts (primarily JP Morgan, Citibank, Morgan Stanley, Goldman, Bank of America, Deutsche Bank, HSBC, Barclays, Soc Gen). In fact, I've maintained all along that the primary goal of QE/LTRO (Fed/ECB/BOE) has been to keep the big banks, and their parent Central Banks, from collapsing. Secondarily the purpose of this money printing has been to create the funding which finances the respective Governments. The "save the economy and create jobs" mantra - pimped especially hard in the U.S. - is nothing more than a smoke-screen grabbed on to by the politicians for political expedience.What amazes the most is the way that much bigger leverage/insolvency issues in the United States get swept under the rug while everyone points a finger at Greece, Spain or Italy. But for those who bother to dig under the surface, both California and Illinois present equally as catastrophic fiscal conditions as their EU counterparts. In fact, California measured as an individual financial/economic "system" is bigger than Greece, Italy and Spain combined. While the Fed creates credit availability to keep big European banks solvent, the Federal Government in this country (i.e. all the Taxpayers collectively) quietly provides funding to keep the States of California and Illinois from collapsing.
If you look at the United States' finanical situation on a macro level:
What the article fails to address is that the seeds of our Ponzi-fueled destruction were sewn by the Bretton Woods Agreement and the shift from a global economic system based on the gold standard to one based on "faith." Now, you can argue all you want about the validity of faith-based religion, and none of us will ever live long enough to know if "One" exists or not. But we know for a fact that throughout the last 5,000 years of history faith-based currency systems end in catastrophic failure and world war.
And in the U.S., all the signals that our fiat, faith-based Governmental system - which rests on a nothing but a "full faith and credit" currency system - is in the latter stages of a catastrophic collapse: widespread corruption by business and political leaders, full enabling of this corruption by the Government, imperialism, extreme economic decay (see Detroit, Cleveland, et al), totalitarian "creep," and the extreme devaluation of the currency. Wash, rinse, repeat: "Those who cannot remember the past are condemned to repeat it" - George Santayana, Spanish philosopher.
The golden truth is that once the election is over in the U.S., I fully expect that the global infatuation with the daily vicissitudes in Europe will shift to the catastrophic debt bubble in the U.S. Especially since I fully expect that Congress will loosen up the laws and kick the "fiscal cliff" down the road some more. And this will be fully financed by the Fed with "open-ended" QE in the form of large-scale mortgage and Treasury bond purchases. At that point I expect that our Asian financiers (China, Japan) will come realize that, while Europe is at least having conversations and making an attempt at solving its financial predicament, the U.S. is whistling in the dark as it heads down the path of collapse.You need to move a large portion of your investment wealth into physical gold and silver, or you will be swept under the tide of George Santayana's prescient warning...
( On further review , Dave may be right on the Fed holding off on actually enacting QE 3 until after the election - if they move in September , commodity prices will spike again.... )
FRIDAY, AUGUST 31, 2012
Monetary expansion, the dollar, and commodity prices
Economists continue to insist that there is no connection between Fed's monetary expansion and increases in commodity prices, particularly agricultural products globally (discussed here). Here is a typical comment:
If it is commonly believed that the FOMC can cause a worldwide food shortage then we are truly in a dark age of macro. The FOMC has no ability to raise the price of commodities relative to national income, and I can't even imagine the rationale that monetary expansion could somehow increased prices internationally (that is, denominated in foreign currencies). The only way they could raise food prices in real terms is if they could spur increased food consumption domestically, which would be much more likely if they strengthened the dollar than if they weakened it. The FOMC can cause a lot of trouble, but this is just not on the list of problems they can cause, and certainly not via monetary expansion.Unfortunately macroeconomic theory here diverges from market experience. Monetary expansion in the recent past corresponded with significant dollar weakness. The chart below shows the dollar weakening during both QE1 and QE2. "Twist" on the other hand did not involve monetary expansion and only focused on reducing the average duration of treasuries.
 |
| Source: BNP Paribas |
Dollar weakness to any commodity trader is a signal to buy - which is not necessarily linked to demand fundamentals. Those who don't believe this should only take a look at the following chart comparing the dollar (DXY) with the CRB commodity index.
 |
| Source: Bloomberg |
 |
| Source: Bloomberg |
Certainly in the long run macroeconomic fundamentals should play out. But we don't live in "the long run". Global markets take seconds to reprice, usually far overshooting/distorting the "fundamentals". And, as the Arab Spring showed, people don't wait for these fundamentals to settle to their expected levels.
and here's Dave .......
FRIDAY, AUGUST 31, 2012
The Action In The Metals Today
If you read between the lines of Bernanke's headline comments, he essentially is saying that he's ready to print a lot of money if "necessary." That's why the metals where ambushed hard yesterday, it's why the dollar dropped like a rock on no other news overnight, it's why they took the metals down as the headlines hit and it's why the metals spiked hard after the initial hit today. We actually removed all hedges from our fund yesterday after the ambush because I suspected this would be the case.
This is highly orchestrated at this point and frighteningly Orwellian. The metals are getting ready for a big move higher and all of the short-term trading geeks/computer funds using rsi's and macd's are going to get hammered on shorts or miss out on a very big run if they are flat.
Bernanke's speech was exactly what I thought it would be in terms of FOMC policy promotion: basically a regurgitation of the last FOMC meeting statement. You don't need to dissect his statements word for word the way that bald idiot on CNBC (Steve Liesman) likes to do. If you look at what he says contextually, it's easy to see that he's ready to drop a massive printed money into the system once the election is over. I don't think its coincidental that the Treasury debt ceiling will be hit about a month AFTER the election. Remember: the purposes of money printing are 1) to keep the banks solvent/liquid and 2) to finance Treasury debt. Per the latter, we know that during one trailing 12 month period after QE2 was announced, the Fed indirectly bought 90% of all new Treasury debt issued. For all of 2011, the Fed bought something like 60% of all Treasury debt issued.
That's why I can't understand why newsletter "experts" like The King Report and Phoenix Capital, the latter featured on Zerohedge, are so adamant about their view that there will not be any more QE. If that's the case, how will the Government fund its operations? It's really that simple. It's not about the economy, stupid.
The bottom line is that today's move in the metals took a lot of people by surprise. In addition, the open interest in silver has declined quite a bit this week in what is likely aggressive short-covering by JP Morgan. In other words, something is going on behind "the curtain" which we are not seeing that has triggered short covering by "insiders" to the market. Next week should be interesting, to say the least.
I hope everyone has fun holiday weekend. The tennis U.S. Open will be in full swing this weekend - hopefully Andy Roddick lasts a few more rounds before he retires and college football kicks into full gear, as does the Friday night lights of high school football.
This is highly orchestrated at this point and frighteningly Orwellian. The metals are getting ready for a big move higher and all of the short-term trading geeks/computer funds using rsi's and macd's are going to get hammered on shorts or miss out on a very big run if they are flat.
Bernanke's speech was exactly what I thought it would be in terms of FOMC policy promotion: basically a regurgitation of the last FOMC meeting statement. You don't need to dissect his statements word for word the way that bald idiot on CNBC (Steve Liesman) likes to do. If you look at what he says contextually, it's easy to see that he's ready to drop a massive printed money into the system once the election is over. I don't think its coincidental that the Treasury debt ceiling will be hit about a month AFTER the election. Remember: the purposes of money printing are 1) to keep the banks solvent/liquid and 2) to finance Treasury debt. Per the latter, we know that during one trailing 12 month period after QE2 was announced, the Fed indirectly bought 90% of all new Treasury debt issued. For all of 2011, the Fed bought something like 60% of all Treasury debt issued.
That's why I can't understand why newsletter "experts" like The King Report and Phoenix Capital, the latter featured on Zerohedge, are so adamant about their view that there will not be any more QE. If that's the case, how will the Government fund its operations? It's really that simple. It's not about the economy, stupid.
The bottom line is that today's move in the metals took a lot of people by surprise. In addition, the open interest in silver has declined quite a bit this week in what is likely aggressive short-covering by JP Morgan. In other words, something is going on behind "the curtain" which we are not seeing that has triggered short covering by "insiders" to the market. Next week should be interesting, to say the least.
I hope everyone has fun holiday weekend. The tennis U.S. Open will be in full swing this weekend - hopefully Andy Roddick lasts a few more rounds before he retires and college football kicks into full gear, as does the Friday night lights of high school football.
Ring The Bell: Treasury Debt Now Over $16 Trillion - A Modest Proposal
Behind every small business, there’s a story worth knowing. All the corner shops in our towns and cities, the restaurants, cleaners, gyms, hair salons, hardware stores – these didn’t come out of nowhere. A lot of heart goes into each one. And if small businesspeople say they made it on their own, all they are saying is that nobody else worked seven days a week in their place. Nobody showed up in their place to open the door at five in the morning. Nobody did their thinking, and worrying, and sweating for them. After all that work, and in a bad economy, it sure doesn’t help to hear from their president that government gets the credit. What they deserve to hear is the truth: Yes, you did build that. - Paul Ryan, Republican VP Candidate, RNC SpeechI just want to preface that my using that passage from Ryan's speech last night in no way is an endorsement of the Romney/Ryan ticket for the Presidency. In fact, as I've stated on this blog previously, I firmly believe the best way to get real change in this country is if no one shows up to vote on election day, which would de facto invalidate our Government.
People accuse me of being unpatriotic and ungrateful for not voting. But, au contraire, I would argue that anyone who does vote is affirming and legitimizing an illegitimate system. Our Governmental system bears no resemblance to the system ratified and put in place by the Constitution and our "elected" officials - nearly every one of them - is either a complete fraud (Obama) or thoroughly corrupt.
Moving along, I wanted to point out that as of Tuesday's debt issuance by the Government, our national Treasury debt officially exceeds $16 trillion. The debt ceiling limit put in place in 2010 is $16.394 trillion. It was lifted to this level at the end of January 2012. At this rate of new debt issuance, roughly $114 billion per month, the Government will exceed its legal debt limit by the beginning of December. And please keep in mind that there is off-balance-sheet Government guaranteed debt in the form of Fannie Mae, Freddie Mac, FHA and General Motors. That extra $8-10 trillion gets conveniently left out of everyone's discussion. But not mine.
Furthermore, a report was released earlier this week showing that the 50 individual States collectively have over $4 trillion in outstanding bonds, unfunded pension commitments and budget gaps: LINK If you add that to the debt that is an obligation of the U.S. Treasury (vs. all the "legacy" liabilities like under-funded Federal pensions, social security, medicare, etc), you have around $30 Trillion in Federal and State direct debt. That's about 200% of GDP. That ratio makes Greece and Spain look like "gold standard" countries.When will this debt/dollar bubble finally burst? Anyone's guess is as good as mine, but mathematically this can not go on much longer. Either the Government has to shut everything down except the functions provided in the Constitution or the Fed has to crank up the printing press in a major way. I will say that anyone who owns Treasury bonds, from the Chinese Central Bank to the lowliest American retiree, is a complete idiot. I'd rather own a big bag of shit. At least I can sell the bag of shit for use as crop fertilizer.
Circling back to my endorsement of that particular passage from Ryan's speech last night (honestly, that was actually the only part I heard as I had clicked on to CNN randomly and there it was. It was also the first time I've heard Ryan give a speech - his voice makes him sound like a high-pitched pin-head - it's bad enough that he looks like Pee Wee Herman), it was clearly a massive missile fired at Obama's comment that American business owners owe their success to the Government. I don't think anything I've heard Obama say has pissed me off more than that. Obama owes his "success" to the Government and to all the socialist programs put in place like Affirmative Action which have enabled Obama throughout his life.
Obama has been a lifelong beneficiary of public spending and the public payroll. In fact, Obama has made more than enough money off of his book deals to live comfortably and I have this modest proposal: Obama should be the first person on Capitol Hill who gives up his Taxpayer and debt-financed salary plus benefits in order to help solve our catastrophic debt problem . And he should step forward as a leader and call on all members of Congress who have personal wealth to give up their Congressional pay and benefits. I think as public servants this is the least they all can do.
and....
TUESDAY, AUGUST 28, 2012
The U.S. Is In Much Worse Shape Than Europe
The United States should be ashamed. While many experts criticize the Europeans for not pulling together politically, U.S. indebtedness is far greater and more dangerous to the world economy. - Jack Mintz, Palmer chair, School of Public Policy, University of Calgary (article link below)This will be a bit of a rant day for me. The markets and the news flow has down-shifted to low-gear ahead of the Labor Day Weekend. I was playing tennis with friend this past weekend who is a long-time financial "adviser" for Lincoln Financial. Of course before we started he wanted to discuss how everything was looking good for the economy and the markets. I was like, "huh, what data are you looking at?" He pointed to the S&P 500 earnings. I quickly shot that down by explaining that if you used 1980 GAAP accounting standards on today's earnings, the S&P 500 earnings would be at least cut in half, especially now that financials represent about 15% of the S&P 500 index my market cap weight and we know all the fraudulent accounting games being played by the big banks and insurance companies to generate earnings. That deflated him a bit. Then I pointed out several other factoids about our system of which he is aware but - like most everyone else - chooses to ignore. The bottom line is that 99% of all financial advisers get paid well to sell fairy tales and most Americans with any kind of investment portfolio left after 2008 have been set up for a complete wipe-out once the focus on the problems in Europe shift to the bigger problems in this country.
I've been making the argument for at least a year now that the United States is in much worse shape financially and structurally than is Europe. The highly visible insolvency problems of several EU-member countries are being used as a "deflection" device by Wall Street and politicians to help cover-up the much larger insolvency problem in this country.
To be sure, if any one of the countries in the EU on the verge of collapse actually collapses, it will trigger widespread financial destruction globally - although primarily in the U.S., Europe and the U.K. But this is because of the well-hidden, off-balance-sheet OTC derivatives exposure of the Too Big To Fail U.S. banks and their Anglo-European counterparts (primarily JP Morgan, Citibank, Morgan Stanley, Goldman, Bank of America, Deutsche Bank, HSBC, Barclays, Soc Gen). In fact, I've maintained all along that the primary goal of QE/LTRO (Fed/ECB/BOE) has been to keep the big banks, and their parent Central Banks, from collapsing. Secondarily the purpose of this money printing has been to create the funding which finances the respective Governments. The "save the economy and create jobs" mantra - pimped especially hard in the U.S. - is nothing more than a smoke-screen grabbed on to by the politicians for political expedience.What amazes the most is the way that much bigger leverage/insolvency issues in the United States get swept under the rug while everyone points a finger at Greece, Spain or Italy. But for those who bother to dig under the surface, both California and Illinois present equally as catastrophic fiscal conditions as their EU counterparts. In fact, California measured as an individual financial/economic "system" is bigger than Greece, Italy and Spain combined. While the Fed creates credit availability to keep big European banks solvent, the Federal Government in this country (i.e. all the Taxpayers collectively) quietly provides funding to keep the States of California and Illinois from collapsing.
If you look at the United States' finanical situation on a macro level:
[Larry] Kotlikoff’s calculations show that U.S. unfunded liabilities total US$222-trillion, the highest of all major OECD countries (12% of the time value of U.S. GDP) once accounting for monetary public debt, Social Security deficits and public-health-care unfunded liabilities. One can quibble with some of the calculations, but no one can doubt that the U.S. is in serious fiscal trouble, more so than any other developed economy.The reference is to Boston University's Larry Kotlikoff, here's the article LINK As the article goes on to explain, the U.S. - and really the whole world - has been operating under a catastrophic Ponzi scheme system, in which debt is used to pay off debt, and now money is printed up by Central Banks to pay off maturing debt and create even more new debt. It's going on all over the developed world, but its at its most extreme in the United States. And Kotlikoff's numbers only reflect the insolvency of the U.S. Government. That problem is more than doubled if you include the underfunding of State and private pension plans plus the massive real estate and credit card/student loan debt in this country.
What the article fails to address is that the seeds of our Ponzi-fueled destruction were sewn by the Bretton Woods Agreement and the shift from a global economic system based on the gold standard to one based on "faith." Now, you can argue all you want about the validity of faith-based religion, and none of us will ever live long enough to know if "One" exists or not. But we know for a fact that throughout the last 5,000 years of history faith-based currency systems end in catastrophic failure and world war.
And in the U.S., all the signals that our fiat, faith-based Governmental system - which rests on a nothing but a "full faith and credit" currency system - is in the latter stages of a catastrophic collapse: widespread corruption by business and political leaders, full enabling of this corruption by the Government, imperialism, extreme economic decay (see Detroit, Cleveland, et al), totalitarian "creep," and the extreme devaluation of the currency. Wash, rinse, repeat: "Those who cannot remember the past are condemned to repeat it" - George Santayana, Spanish philosopher.
The golden truth is that once the election is over in the U.S., I fully expect that the global infatuation with the daily vicissitudes in Europe will shift to the catastrophic debt bubble in the U.S. Especially since I fully expect that Congress will loosen up the laws and kick the "fiscal cliff" down the road some more. And this will be fully financed by the Fed with "open-ended" QE in the form of large-scale mortgage and Treasury bond purchases. At that point I expect that our Asian financiers (China, Japan) will come realize that, while Europe is at least having conversations and making an attempt at solving its financial predicament, the U.S. is whistling in the dark as it heads down the path of collapse.You need to move a large portion of your investment wealth into physical gold and silver, or you will be swept under the tide of George Santayana's prescient warning...
