Republican John Boehner and Obama were told by Tim Geithner that they need to come up with a plan before Asian markets open sunday evening in order to avoid a strong market reaction. Boehner has also said that Democrats and Republicans need to come up with a detailed legislative proprosal by July 27th in order to give both houses (Senate and Representatives) enough time to organize and vote on the bill by August 2nd.
In other news, investment analysts have said that the IRS took in more revenue than expected over the past month, meaning there may be enough money to extend default another week in case a bill doesn't get passed.
I don't believe they will be able to come to an agreement on paying the treasury bill. I am wondering whether this will cause an increase or decrease in copper and precious metals. The tea party is firm in their beliefs. None of the tea party republicans agreed with the original bank bailouts that lead us to this debt. Although the banks have paid back the money, we didn't pay down the debt the US issued to give it to them. Now that republicans are in control, no more bailouts for these republicans and they are holding firm. Most tea party republicans live far away from washington and new york where the pain will be felt the most of default. They live in midwestern states, whose economies will not be destroyed by financial instruments that will go down in a default. The reaction in the long run will be better, as the economy will start to improve after the initial downfall, and people will have more confidence in US debt if we lower it.
Sunday, July 24, 2011
Sunday, July 10, 2011
What's going to happen in commodity prices
If you follow our posts on commodityworldnews.com you will see there is a new demand pressure on the gold and silver market. An asian marketplace has opened in 2011 and last friday small futures contracts for gold and silver became available through 350 million Bank of China savings accounts. Anyone with a Bank of China savings account has access to these 10 oz gold future contracts. The exchange is located in Southwest China, the video is available in my previous post. Due to this development and the massive bailouts about to happen in Europe, gold and silver will continue to go up. Corporate earnings are coming out next week, and if US earnings numbers come out poor, the prices of commodities will retreat (with the exception of copper and nickel as monetary metals.) If earnings come out neutral or positive, it will be a matter of time before they will be bad, and when that happens commodity prices will fall hard.
Another downward pressure on a segment of commodities, underreported but discussed in a previous post, is the incredibly great growing season in the Northeast and Midwest for farms. Due to record high prices in April and May reports are in that US farmers planted the most combined acreage for corn, wheat, rice, and soybeans ever, and the weather has been PERFECT FOR GROWING. If there are no anomalies the rest of the season, a bumper harvest in everything planted. I see firsthand effects of this in my landscaping business, bushes and gardens in full sun are growing at surprising rates. I am going to trim certain full sun hedges four times this year, that I previously trimmed only twice a year. And because the farmland east of the mississippi is the best producing farmland in the world, the growth rates this year will keep world food prices from rising above $6.50 per 60 lbs for corn or spring wheat. We have had the hottest season in 100 years east of the mississippi in 2010, and the rainiest year in 100 years in 2009. Now we will have one of the best growing seasons in a 100 years. Also, with the good harvest, farmers will be able to buy large new equipment and prepare more land for next year, keeping food prices in check and farms profitable.
In the short and intermediate term prices of everything but food prices will inflate upward. When corporate earnings turn south this quarter or next year, commodity indexes will be cut in half from their highs while only monetary metals will continue way up. Stock prices will follow the commodity indexes down by half. But the Dow Jones and S&P (priced in dollars, not gold) could hit new highs with all the government bailouts and liquidity infusions before this happens. The only thing moving sharply up now is monetary metals (best bets are gold and silver) Food prices may fall sharply when the harvest numbers come in and there is a report of growth in China slowing at the same. This could happen anytime between now and October. Click on one ad while you're here if you like my posts, to keep me going.
Another downward pressure on a segment of commodities, underreported but discussed in a previous post, is the incredibly great growing season in the Northeast and Midwest for farms. Due to record high prices in April and May reports are in that US farmers planted the most combined acreage for corn, wheat, rice, and soybeans ever, and the weather has been PERFECT FOR GROWING. If there are no anomalies the rest of the season, a bumper harvest in everything planted. I see firsthand effects of this in my landscaping business, bushes and gardens in full sun are growing at surprising rates. I am going to trim certain full sun hedges four times this year, that I previously trimmed only twice a year. And because the farmland east of the mississippi is the best producing farmland in the world, the growth rates this year will keep world food prices from rising above $6.50 per 60 lbs for corn or spring wheat. We have had the hottest season in 100 years east of the mississippi in 2010, and the rainiest year in 100 years in 2009. Now we will have one of the best growing seasons in a 100 years. Also, with the good harvest, farmers will be able to buy large new equipment and prepare more land for next year, keeping food prices in check and farms profitable.
In the short and intermediate term prices of everything but food prices will inflate upward. When corporate earnings turn south this quarter or next year, commodity indexes will be cut in half from their highs while only monetary metals will continue way up. Stock prices will follow the commodity indexes down by half. But the Dow Jones and S&P (priced in dollars, not gold) could hit new highs with all the government bailouts and liquidity infusions before this happens. The only thing moving sharply up now is monetary metals (best bets are gold and silver) Food prices may fall sharply when the harvest numbers come in and there is a report of growth in China slowing at the same. This could happen anytime between now and October. Click on one ad while you're here if you like my posts, to keep me going.
Friday, July 8, 2011
Explaining price action in gold. Buyers in china? Also, Legendary commodity trader Andrew McGuire gives his opinion on new chinese exchange
The chinese government stated on July 1st that they had 30% more than reported loans to municipalities for construction projects on their books. So there is possibly 30% more public sector economic activity than previously realized in China. There is another Chinese economic story. A new physical precious metals exchange, accesible to all Asians opened up in China. Here is a post from Ned Naylor Leyland's blog 24hourgold.com which helps explain recent gold price action from the last 5 trading days.
Published : June 29th, 2011
"Today was the inauguration ceremony replete with myriad ministers and mandarins from central and regional government.
This initiative is supported at the highest levels in China with SOEs as shareholders, the support of the Beijing Gold Exchange and SAFE (State Administration of Foreign Exchange).
PAGE are buying into the concept that leverage has its limits and that leasing must also be carefully monitored.
This new exchange is international facing, in line with Yunnan province being China's formal gateway to trade with its neighbours.
This exchange with a FIX (8am Beijing time) has major ramifications has the potential to improve price discovery and show up the shabby efforts of its competitor markets.
The biggest bombshell however, is the offer of Rmb contracts for international investors, agreed by SAFE.
The international part of the Exchange's business is expected to be available by Q4.
Meanwhile, plugged straight into the platform are the customers of Agricultural Bank of China (320million retail + 2.7million corporate) who are able to trade 10oz mini-contracts.
To give an idea of the scale here, if 1% of their customers bought one contract that would represent around 100tonnes of physical.
Published : June 29th, 2011
"Today was the inauguration ceremony replete with myriad ministers and mandarins from central and regional government.
This initiative is supported at the highest levels in China with SOEs as shareholders, the support of the Beijing Gold Exchange and SAFE (State Administration of Foreign Exchange).
PAGE are buying into the concept that leverage has its limits and that leasing must also be carefully monitored.
This new exchange is international facing, in line with Yunnan province being China's formal gateway to trade with its neighbours.
This exchange with a FIX (8am Beijing time) has major ramifications has the potential to improve price discovery and show up the shabby efforts of its competitor markets.
The biggest bombshell however, is the offer of Rmb contracts for international investors, agreed by SAFE.
The international part of the Exchange's business is expected to be available by Q4.
Meanwhile, plugged straight into the platform are the customers of Agricultural Bank of China (320million retail + 2.7million corporate) who are able to trade 10oz mini-contracts.
To give an idea of the scale here, if 1% of their customers bought one contract that would represent around 100tonnes of physical.
Wednesday, July 6, 2011
Irish, Spanish credit default prices rise and german bonds rally
July 6 (Bloomberg) -- Italian and Spanish government bonds fell for a third straight day after Moody's Investors Service cut Portugal's credit rating below investment grade, raising concern the region's debt crisis will infect more nations.
Portuguese two-year yields and credit-default swaps surged. The 10-year Italian yield reached the highest since November 2008 as Handelsblatt reported that 40 percent of investors in Germany see contagion spreading to Spain and Italy. German bunds rose the most in almost two weeks, even as the nation prepared to sell 4 billion euros ($5.8 billion) of two-year notes.
"The latest rating move on Portugal succeeded in reintroducing a new round of uncertainty, which will support demand for safe-haven assets, at least in the near term," said Charles Diebel, head of market strategy at Lloyds Bank Corporate Markets in London.
The yield on 10-year Italian securities advanced 11 basis points to 5.10 percent at 8:41 a.m. in London. That pushed the difference in yield, or spread, to similar-maturity German debt 17 basis points wider to 216 basis points. The 4.75 percent securities maturing in September 2021 fell 0.81, or 8.10 euros per 1,000-euro face amount, to 97.74.
Two-year Portuguese yields surged 155 basis points to 14.50 percent. Spanish 10-year yields rose seven basis points to 5.55 percent, increasing the spread over bunds to 258 basis points.
The Markit iTraxx SovX Western Europe Index of swaps on 15 governments rose six basis points to 236 at 8 a.m. in London. An increase signals deteriorating perceptions of credit quality.
Portuguese Downgrade
Portugal is scheduled to auction as much as 1 billion euros of three-month bills today.
Moody's cut the long-term government bond rating for Portugal to Ba2, or junk, from Baa1, and said the outlook is negative. Discussions to involve private investors in a new rescue plan for Greece make it more likely that the European Union will require the same pre-conditions in the case of Portugal, Moody's said in a statement.
A new proposal on investor participation in a Greek aid plan will be discussed in Paris today, the Financial Times said, citing two people involved in the talks.
Ten-year bund yields fell six basis points to 2.95 percent. They reached 3.05 percent on July 1, the most since June 9. Two- year German note yields also slid, falling four basis points, to 1.61 percent.
A report today will probably show German factory orders dropped 0.5 percent in May after gaining 2.8 percent a month earlier, according to the median estimate of 33 economists surveyed by Bloomberg.
German bonds returned 0.1 percent this year, compared with 2.6 percent for U.S. Treasuries and 2.1 percent for U.K. gilts, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Greek bonds handed investors a loss of 15 percent, while Portuguese securities lost 19 percent, the indexes show.
--With assistance from Emma Charlton and Anchalee Worrachate in London. Editors: Keith Campbell, Matthew Brown.Chinese banks gave more loans over the last few years than previously reported
By TOM ORLIK
How bad can things get for China's banks? Temasek Holdings isn't waiting around to find out.The Singapore state investment fund, manager of a $133 billion portfolio and the biggest foreign investor in China's banking sector, has sold 49% of its shares in Bank of China and 8% of its China Construction Bank holdings for a total of US$3.6 billion. The timing of that move and the involvement of long-term strategic investor Temasek ring alarm bells about the outlook for the mainland's banking sector.
Last week, China's National Audit Office announced that the banking sector is exposed to some $1.3 trillion in local-government debt. In the days that followed, press reports said that local-government financing vehicles in Shanghai and Yunnan could default on their debts.
Those debts are an insignificant fraction of the total owed across the sector, but investors are concerned they represent the tip of a default iceberg. Concern about the overhang of bad debts, and the absence of a clear resolution plan from the government, mean bank valuations have taken a hit. Bank of China is down 13% since the beginning of June, and China Construction Bank is off 14%.
Temasek has yet to comment on its divestment. A longer-term desire to diversify its assets may have played a role. But it's also possible it is trying to get ahead of the curve, with rumors that Bank of America—the second-largest investor in China Construction Bank—plans to sell down a portion of its holdings.
Sales into a weak market, even if Temasek has come out US$1.2 billion up on its initial investment according to WSJ calculations, also suggest a certain nervousness. Markets seem to have drawn the conclusion that major investors are concerned about hidden risks in the banks. And the negative signal couldn't have come from a more significant stakeholder.
Temasek has been the largest single institutional investor in Bank of China— holding 12.5% of the stock before Wednesday's sale—and the third-largest in China Construction Bank. When Royal Bank of Scotland, Bank of America and UBS sold down their holdings in China's banks during the financial crisis, Temasek won political points with Chinese officials by actually increasing its exposure.
Bank of China fell 3.6% in Hong Kong on Wednesday amid heavy trading following the Temasek news, and China Construction Bank wasn't far behind.
The bigger question, however, is what lies ahead. Two factors loom large: the extent of bad debts in the system, and the banks' scope to grow through the problems. The signs aren't encouraging on either front.
A report by Moody's estimates that nonperforming loans in the banking system could rise to 8%-12% from the current 1.1%. At the same time, a two-year lending bonanza has seen China's loan-to-GDP ratio soar to 127% in 2010 from 101% in 2008. Bad debts will add to the banks' costs. Past excesses mean that even when the government eases its credit controls, the scope to grow through the problem by pushing more loans out the door is limited.
Whether nonperforming loans actually rise to the feared levels remains unclear, given how little is known about asset quality at China's banks. But Temasek's sales suggest not everyone is giving them the benefit of the doubt.
Write to Tom Orlik at Thomas.orlik@wsj.com
Tuesday, July 5, 2011
Possibility of major gov't maniuplation + law change
Here is an interview with Bert Dohmen and David McAlvany
Bert: Yes, in my book, Prelude to Meltdown, which was written in late 2007, I said that we were going to go into something similar to 1929, or maybe worse, and the first chance of a sustainable bottom, the first chance, is 2017, and that is just going by cycles. After a major credit bubble burst, it usually takes 17 years to get the system back to basics. But I think when you consider what is happening right now in Washington, I think the actual bottom will take much longer to form. Everything that can be done wrong, is being done, in Washington, and I don’t see any chance of that major trend to reverse to the more positive side.
David: I mentioned earlier that we could see the gloves come off, with D.C. treating New York as the scapegoat for many of the misdirected policies that they, actually, have put in play. We did see a change of rules, as you mentioned, right in the middle of the Chrysler unwind, wherein creditors got the short end of the stick. I am reminded of what governments can do when put under extreme duress. It is not something we have seen since perhaps the 1990s, with any great frequency. But capital controls – used to prevent hot money from entering and abruptly leaving a market, or to prevent flight capital in the event of a banking or currency crisis. Sage advice, if you will? What are the probabilities, and are there other, more reasonable means of the government taking the gloves off, so to say?
Bert:The thing right now is, people have to really consider that the impossible is possible. I was just at a hedge fund conference a few weeks ago. Over 1700 hedge fund guys were there. On the panel was Senator Chris Dodd, and he said that, in 2008, during the crisis, the country was within ten minutes of the government shutting down the banking system. Within ten minutes. I thought that was an incredible statement. These idiots that caused the crisis were ready to shut down and create a real global crisis, by shutting down the banking system. What use would that have been? They would have really compounded their original stupidity by not having recognized what I, and other people, did recognize, one year ahead of time, namely, that we were heading into a majorfinancial
crisis.
So, with that kind of thinking, where they would just shut down the entire banking system, good banks and bad banks alike, it means that there is absolutely no limit to what they will do, and that is what I warn people in the futures markets about. They can close down the futures markets in an instant, and they will. My prediction is that sometime over the next five years, they will close down the futuresmarket . Especially people who are invested in gold futures and silver futures, metals futures, they should be aware of this.
This happened one other time, but it wasn’t done by the government, it was done by the exchange, itself. Do you remember Bunker Hunt, the Hunt brother that tried to corner the silver market in 1980? The exchange just said, “Okay, effective tomorrow morning, no new buying will be allowed, only selling will be allowed. If anybody would have said that they would do that one week ahead of that, they would have probably put him away because they would have thought him insane. But the exchange did it, and the exchange got away with it, and of course, that is when silver really plunged. So anything is possible right now. There is absolutely nothing in Washington that is no longer possible. As investors, I think we have to take that into consideration.
here is transcript of the entire interview
Bert: Yes, in my book, Prelude to Meltdown, which was written in late 2007, I said that we were going to go into something similar to 1929, or maybe worse, and the first chance of a sustainable bottom, the first chance, is 2017, and that is just going by cycles. After a major credit bubble burst, it usually takes 17 years to get the system back to basics. But I think when you consider what is happening right now in Washington, I think the actual bottom will take much longer to form. Everything that can be done wrong, is being done, in Washington, and I don’t see any chance of that major trend to reverse to the more positive side.
David: I mentioned earlier that we could see the gloves come off, with D.C. treating New York as the scapegoat for many of the misdirected policies that they, actually, have put in play. We did see a change of rules, as you mentioned, right in the middle of the Chrysler unwind, wherein creditors got the short end of the stick. I am reminded of what governments can do when put under extreme duress. It is not something we have seen since perhaps the 1990s, with any great frequency. But capital controls – used to prevent hot money from entering and abruptly leaving a market, or to prevent flight capital in the event of a banking or currency crisis. Sage advice, if you will? What are the probabilities, and are there other, more reasonable means of the government taking the gloves off, so to say?
Bert:The thing right now is, people have to really consider that the impossible is possible. I was just at a hedge fund conference a few weeks ago. Over 1700 hedge fund guys were there. On the panel was Senator Chris Dodd, and he said that, in 2008, during the crisis, the country was within ten minutes of the government shutting down the banking system. Within ten minutes. I thought that was an incredible statement. These idiots that caused the crisis were ready to shut down and create a real global crisis, by shutting down the banking system. What use would that have been? They would have really compounded their original stupidity by not having recognized what I, and other people, did recognize, one year ahead of time, namely, that we were heading into a major
So, with that kind of thinking, where they would just shut down the entire banking system, good banks and bad banks alike, it means that there is absolutely no limit to what they will do, and that is what I warn people in the futures markets about. They can close down the futures markets in an instant, and they will. My prediction is that sometime over the next five years, they will close down the futures
This happened one other time, but it wasn’t done by the government, it was done by the exchange, itself. Do you remember Bunker Hunt, the Hunt brother that tried to corner the silver market in 1980? The exchange just said, “Okay, effective tomorrow morning, no new buying will be allowed, only selling will be allowed. If anybody would have said that they would do that one week ahead of that, they would have probably put him away because they would have thought him insane. But the exchange did it, and the exchange got away with it, and of course, that is when silver really plunged. So anything is possible right now. There is absolutely nothing in Washington that is no longer possible. As investors, I think we have to take that into consideration.
here is transcript of the entire interview
Sunday, July 3, 2011
The Jim Rogers does an interview on CNN Money on June 20th about the Commodity Correction
The most consistently successful commodities investor I know of, and an accomplished world travelers, Jim Rogers, founder of the legendary Quantum Fund and holder of stock certificates in over 40 countries. He's an independent investor, and he was right on the money with the financial collapse, telling people to buy puts on the investment banks in 2007. He sounded like a voice in the dark back then but he was the ONLY voice of reason as it turned out. And the genuine way he talks clues you in to that. Here's a video of the legendary Jim Rogers
This time commodities will crash BEFORE the stock market. in '08 stocks crashed before commodities
Harry Dent has had it right on the button and he's on top of the situation again here. He is uber wealthy off his own investments, authorship, and financial advising. Rule #1 on commodities investing Listen to the guys who made the most money in it before.
Corn Prices Plumment on American June Weather
American Farmers planted higher than expected amounts of Corn this year, due to record high prices of $7.50 per 60 lb bushel of corn at planting time. June brought moderate temperatures throughout the midwest and northeast growing regions and there was consistent rain right to the end of the month when the last seedlings became established. Once established, corn has low water requirements.
Also, there is new equipment and techniques being adopted by farmers that no commodity news reporting agencies are talking about. It is called direct seeding. This year, for the first time, it is estimated most corn land in the US were planted with direct seeding, where instead of being plowed over, the ground is left undisturbed and a 2 inch slice is made between last years rows and seeds are dropped in by a hydraulic tube. The slice is then closed over by a flattening wheel directly in back of the seed dropper. This process protects the land and the seeds from drying out during germination by leaving last years stubble as a mulch to trap moisture. Direct seeding was shown to have the same results as plowing. That is why everyone is doing it this year! It costs farmers less in operating costs because they no longer have to run a tractor plow, saving on gas and giving them more money and time to plant more corn! This was a highly underappreciated aspect of this year's corn crop.
Also underappreciated was the amazing productivity of America's breadbowl farmland during a good weather season. The rain cooperated on time and seeds planted in May and early June have been established. Traders realized this too late, and sold quickly last week. Corn plunged 25% in two weeks of trading to a friday closing current price of $5.96 per 60 pound bushel of maize kernels.
Also, there is new equipment and techniques being adopted by farmers that no commodity news reporting agencies are talking about. It is called direct seeding. This year, for the first time, it is estimated most corn land in the US were planted with direct seeding, where instead of being plowed over, the ground is left undisturbed and a 2 inch slice is made between last years rows and seeds are dropped in by a hydraulic tube. The slice is then closed over by a flattening wheel directly in back of the seed dropper. This process protects the land and the seeds from drying out during germination by leaving last years stubble as a mulch to trap moisture. Direct seeding was shown to have the same results as plowing. That is why everyone is doing it this year! It costs farmers less in operating costs because they no longer have to run a tractor plow, saving on gas and giving them more money and time to plant more corn! This was a highly underappreciated aspect of this year's corn crop.
Also underappreciated was the amazing productivity of America's breadbowl farmland during a good weather season. The rain cooperated on time and seeds planted in May and early June have been established. Traders realized this too late, and sold quickly last week. Corn plunged 25% in two weeks of trading to a friday closing current price of $5.96 per 60 pound bushel of maize kernels.
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