Daily Updates

“Throughout history, there have been bull markets in raw materials every 30-40 years. Supply and demand regularly get out of balance, leading to recurring periods of rising (and declining) prices. During the 1980’s and 1990’s, natural resources had been in a bear market for about 25 years (e.g. sugar peaked in 1973, oil in 1981, etc.). Declining markets attract little in the way of increased productive capacity, and this bear market was no different. Virtually no one built an offshore drilling rig, or opened a lead mine, or developed a sugar plantation during this period. Quite the opposite – productive equipment deteriorated, was cannibalized or scrapped while other capacity closed and/or depleted.”….read more HERE

“I’m rapidly losing faith in this whole game, Barry.”

I received a disturbing email from promising young man who works at a well known shop. He expressed his frustration with the entire absurdity of his job, with Wall Street, and with the ridiculousness he sees swirling all around him.

My reply to him follows:

XXXXXXX,

I cannot restore your faith or improve your morale (Only you can do that). What I can do is share with you what I have learned over two decades, and perhaps in these words you might find some small comfort.

Yes, there is an insanity to the markets that can make you mad if you let it. Instead, learn to see the delightful absurdity of it all. Revel in the stupidity, learn to read when the ‘wisdom of the crowd’ turns into an angry mob. Find some Zen in the foolishness of others.

Step back and look for the variant perception . . . then wait for it to become a money maker.

Consider this was an issue from 1996 or 97 until the collapse in 2000, and from 2005 to the collapse in 2008-09. It is a 3 or 4 or even 5 year time lag between the earliest inklings of recognition of mass stupidity/insanity, to any eventual collapse.

Time is always on the side of the patient. Study, learn, absorb all you can. You are waiting for the next opportunity to make your bones, your fortune, your reputation. It will come along eventually — if you wait for it and are in a position to take advantage when the moment arrives. As Pasteur said, “Chance favors the prepared mind.”

You must become a philosopher, a historian, a statistician, a trial lawyer, and a psychologist when looking at Mr. Market. Simply reading the data and trying to trade/invest off of it is a sucker’s game. The noise so totally outweighs the signal that it is easy to caught up in distractions. For the vast majority of investors, dollar cost averaging into Indexes — then forgetting about it til retirement — is their best bet. Its not my favorite strategy, but anything else is too complex for mom and pop to work for them.

But you work in the business, and your clients want/need to outperform, so you must give them something value added. You need to be able to comment on the madhouse — and you can do so acerbically, mockingly, derisively at times — while recognizing, acknowledging, and waiting for the technical set up to bet against the crowd.

The saying goes “The trend is your friend.” The smart money adds ” ‘cept the bend at the end.” The momo crowd, the lemmings, the mad money all pile onto that trend as the trees grow to the sky. Especially at the end — that’s when the weight of the sheeples, the johnny-come-latelies ultimately pressures that tree, and is what causes that deadly “bend at the end.”

You must learn patience, young grasshopper. You must have faith that EVENTUALLY, the sorta kinda, almost efficient market will figure it out. That is when money returns to its rightful owners. There will be long periods of time when the blowhards, the jackasses, the arrogant, the ignorant will be eating better than you. During the dot com bubble, the dumber you were, the more money you made. Many of those who understood how silly things were missed out on the boom.

But this state of affairs is temporary. Eventually, the knaves starve to death under the oppressive force of their own ignorance. Be patient. The day of reckoning is often surprisingly late in its arrival, but it will not be denied. The beast must be fed.

Trust me when I tell you, its worth the wait . . .

 

Welcome to The Big Picture!

This site is written by and for investment professionals, as well as anyone else interested in investing, markets, and the economy. We key in on what you should — and more importantly, what you should not — do with your money. I have been writing about these topics for ~15 years, and blogging since 2003.

By sheer accident, it has become one of the best reviewed finance blogs on the web.

The writing is designed to be very accessible — no PHD required. Hell, no college degree is required. If I can make this stuff understandable to my right brain art teacher wife and my 74 year old retired real estate agent mom, than I can help you learn the basics of markets, investing and the economy

Mining, gold, capital markets, S&P/TSX Global Gold Index, PDAC 2010, exploration
Dundee’s Mineral Exploration Stock Watch List, which is released a few days before PDAC kicks off, comes in at 140 pages this year. The popular report reviews 43 companies deemed to have excellent prospects and worthy of a closer look. Many of them are taking part in PDAC. Hopefully, Dundee’s guide will help investors find the next “ten bagger,”

…..read more HERE

Brits Pounded As Debts, Deficits Hit Home.
Next Up: Us!

Boy are things getting ugly in the U.K. The British currency, the pound, is getting crushed. The price of long-term British debt securities, called gilts, is heading down. And the cost of default insurance on the country’s debt is rising steadily.

My takeaway: This is but a preview of what’s to come here in the U.S.

Why the Crisis Is Coming
To a Head in the U.K.

Britain’s finances are in shambles. The country’s budget deficit is running at more than 12 percent of gross domestic product, roughly the same as in Greece. In fact, for the first time, the country recorded a whopping $6.7 billion deficit in January … much worse than the $3.9 billion SURPLUS economists were expecting.

The U.K. government is planning to sell $349 billion in debt this year, the most ever, to cover its deficit. But demand is flagging, with foreign investors dumping the most U.K. sovereign debt in nine months in January and yields generally rising.

Then a few days ago, the crisis came to a head. The catalyst: New polling data that threw the British political outlook into chaos. Polls showed that the Conservative Party’s lead over the Labour Party shrunk to its lowest level in more than two years.

It now appears that neither party could come out of spring elections with a clear majority, leaving the U.K. with a “hung” parliament. That would make it much more difficult for the government to reduce the nation’s debts and deficits.

With all of that, it’s no wonder …

  • The British pound plunged six days in a row, its longest series of declines since October 2008.
  • The yield on 10-year U.K. government debt recently hit 4.27 percent, compared with a low last fall of 3.44 percent.
  • The cost of protecting against a British debt default in the credit default swap market surged to more than 101 basis points, or $101,000 per $10 million of debt. That’s up from around 44 bps in the fall.

 

Striking Similarities …

You don’t need a Ph.D. in economics to see the striking similarities between the situation in the U.K. and the situation here in the U.S. …

  • Our debt situation is totally out of control, with the national debt on track to double over the next decade to almost $19 trillion.
  • Our budget picture is a mess, with $8.5 trillion in deficits projected over the next 10 years.
  • Our foreign creditors are starting to sell our bonds, with China alone dumping $34.2 billion of Treasuries in December, the most ever.
  • And politically, we’re facing the same gridlock and inaction as the U.K.
  • Just look at the deficit commission nonsense …

President Obama had to create an 18-member panel by executive order because Congress voted down an earlier proposal. Since it’s a presidential commission, Congress can just ignore any findings. And those findings won’t even be released until December 1, for purely political reasons (that’s after the mid-term Congressional elections).

Lastly, just like the U.K., we have bailed out, backstopped, or otherwise taken over so many institutions and segments of the capital markets that our own balance sheet is getting shakier and shakier.

As PIMCO Chief Investment Officer and “bond guru” Bill Gross just noted in a monthly commentary:

“If core sovereigns such as the U.S., Germany, U.K., and Japan ‘absorb’ more and more credit risk, then the credit spreads and yields of these sovereigns should look more and more like the markets that they guarantee. The Kings, in other words, in the process of increasingly shedding their clothes, begin to look more and more like their subjects. Kings and serfs begin to share the same castle.”

Bottom line: We’re running this country’s finances off the rails. And just like in Greece … Ireland … Spain … and now the U.K., it’s going to come back to haunt us.

So consider dumping your long-term U.S. bonds, and buying some gold as a hedge against global debt and deficit problems. Or if you’re more aggressive, check out a service like my Crisis Opportunity ETF Trader, where my subscribers are positioned to profit from this unfolding fiscal nightmare.

Until next time,

Mike

 

Among the first analysts to call the housing slide, Mr. Larson’s policy paper, “How Federal Regulators, Lenders and Wall Street Created America’s Housing Crisis: Nine Proposals for a Long-Term Recovery,” received broad media coverage following its July 2007 submission to the Federal Reserve and FDIC.  In the paper, Mr. Larson accurately predicted the long-term impact of the deepening subprime mortgage crisis on the broader economy that the nation faces today.

Mr. Larson holds B.A. and B.S. degrees from Boston University.

This investment news is brought to you by Money and Markets. Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://www.moneyandmarkets.com.

 

The Taylor Rule and Interest Rates

Posted by Chuck Butler - The Daily Pfennig

on Friday, 5 March 2010 15:04

In This Issue..

* ECB extends stimulus measures…                                             
* Deutsche Bank’s rating is downgraded…                                            
* Canadian to wipe out their deficit…                                                   
*Has Gold reversed its downward trend?
And Now… Today’s Pfennig!

A Jobs Jamboree Friday!

Ed Note: The Taylor Rule is explained just under the Gold Chart Below

Good day… And a Happy Friday to one and all! I don’t know about you… But I’m going to do my best to make this a Fantastico Friday! Hey! I have a new baseball cap! Last week in Scottsdale, a gentleman stopped by to say that he loved baseball as much as I did, and he was from Raleigh N.C, and he would send me a Durham Bulls baseball cap if I would wear it… And lo and behold in the mail yesterday was that ball cap! I’ll wear it with pride, my friends!

OK… All the euphoria about the end of the euro selling got deep sixed yesterday on two counts… 1. The European Central Bank (ECB) decided to extend stimulus measures, which led the markets to believe that the ECB would remain on hold with their interest rates, and once again, the markets believed that the U.S. would begin to raise rates before the ECB… 2. Moody’s downgraded Deutsche Bank (Germany’s largest bank) ”

Chart via Money Talks

euro

Well.. On the first count… I still believe the markets are barking up the wrong tree when they believe that the Fed is going to begin rate hikes soon… And on the second count… Poor Germany… They’ve got to be feeling like Charlie Brown in the old song… Charlie Brown, he’s a clown… Why’s everybody always picking on me?…

For when is Moodys going to have the intestinal fortitude to downgrade U.S. debt… When? I ask… Just when? Or… Even the financial institutions that are still walking on eggshells here in the U.S.? But nooooooooo! Let’s go pick on Germany’s largest bank!

Now… Here’s what I found yesterday to be the biggest story… That Greece was going to seek the aid of the IMF… Whoa there partner! The ECB is going to have none of that! And I told Chris Gaffney just that yesterday… For if the IMF were to come in to save Greece, the ECB would have egg all over their faces.. And an admission that the ECB can’t deal with problems in its own region…

Instead… I proposed this last week at our editors meeting in Scottsdale, again yesterday to Chris, and now here with you… That the European Union, set up its own monetary fund, and call it the European Monetary Fund, to act like the IMF, but it would be made up of nothing but European nations, and would help when times got bad… Sounds like a viable plan to me! Hey! Maybe, they should put me in charge over there! HA!

And looky there! I’m now seeing a story on ECB President Trichet saying that Trichet pressed Greece to halt their flirtation with the IMF, and instead work with European Union officials to tame their deficits…

So… All this back and forth, I’ve got it, no you’ve got it, no the sun is in my eyes, bull going around the Eurozone, has tied the euro to the dollar’s tracks once more… Where’s Big John, slow talking John, slow walking John? Come on! Someone has to ride in to save this region from itself!

Well… Today, being the first Friday of the month, is a Jobs Jamboree Friday here in the U.S…. I would have to think that the Gov’t officials who claim that the stimulus created / saved jobs last year, would be dreading the print of the Jobs report… You see, somewhere along the line, that line about “saving jobs” is nothing but rearranging the deck chairs on the Titanic… All the while, the job losses, albeit not as deep as they were a year ago, continue to mount… And that’s what’s expected this morning… More job losses…

I’ll tell you this now, so you when you hear it on your cable news station, or wherever you get your news, that February’s job losses are going to be blamed on the weather… That’s right, all the snow in February will be blamed for the job losses… More rearranging going on I see!

The data yesterday, again, did not inspire me to think that the Fed is going to raise rates any time soon… Pending Home Sales here in the U.S. fell 7.6%! That’s right… The number of buyers who agreed to purchase previously occupied homes fell sharply in January, a sign that demand for housing is sinking. (I’m sure there was some reference to the snowy weather too!)

The National Association of Realtors says its seasonally adjusted index of sales agreements fell 7.6 percent from December to a January reading of 90.4. It was the lowest reading since last April.

The Weekly Initial Jobless Claims printed at 469,000, putting the 4-week avg. at 470,750… So, the job losses keep coming… What the Bureau of Labor Statistics claims is that on the other side of the job losses there is job creation going on… Well, that’s what I call “ghost jobs”…

The U.S. Factory Order printed a very solid 1.7% gain in January, so that was good! The bad part is that the gain was dominated by a one time increase in aircraft… So, don’t get too lathered up with that number!

Ok… Enough of that!

Yesterday, I told you that Canada was going to present their budget… And… I took a peek at it… WOW! Canada is planning on cutting their deficit spending, and bringing their balance sheet back to balanced by 2014! Now… We have to take this with a grain of salt, given the known fact that in 1999, the U.S. Budget Office predicted that in 10 years, (that was last year) that we would be nearing a budget surplus! Yeah, like that even had a chance to happen, once 9/11 happened, and 8 years of the previous administration spending, and so far one year of the new administration spending!

But, getting back to Canada for a minute, for they deserve this moment in the spotlight… I applaud the Canadian Gov’t for their efforts to cut spending… And before anyone gets the idea that Canada’s deficit is similar to ours, you need to think again… For the Canadian Deficit is a mere $54 Billion!

Hey! It sure looks to me as though Gold has reversed its downward mini-trend! I don’t know if you’ve been keeping score at home or not, but Gold has quietly inched higher and higher, until it erased the downward movement! This should get interesting from here… And.. I hope you took advantage of the price dip in Gold… It sure was very much cheaper for a while there!

CB0305

My friend, David Galland, was talking about the Taylor Rule, in his most excellent newsletter yesterday… This Taylor Rule is a formula that calculates what the Fed Funds rate should be, based on inflation, and other data… It showed that during the years around 2004, when I claimed rates were too low, for too long and fueled the housing bubble, the calculation confirms that rates were too low… And for now? Well, for now, it shows that the Fed Funds rate should be 4%… Not .25%… Lucy! You’ve got some xplainin’ to do!

And this leads me to say, once again, that the Fed is and will continue to be behind the inflation 8-ball… And that my friend, will lead us down the road of inflation! Yes, monetary inflation, not wage inflation, for that couldn’t happen in a million years, when you have 21% unemployment! The Fed will bungle this operation, and we’ll be left holding the bag… You see, buying those mortgage backed ARM’s from lenders is going to have unintended consequences for the Fed… To raise interest rates, the Fed would take HUGE losses on the Trillion dollar ARM’s holdings… To not raise interest rates, the Fed will, and already is, allowing inflation to rule the roost…

So… That’s just peachy, eh? We’ve got the reduced purchasing power of a weak dollar, and whatever dollar value we have left is going to be eaten away by inflation… WOW! Where do I sign up for that? Shoot Rudy, that’s pretty good stuff right there.. Yes sir, may I have another?

Then there was this… I noticed the other day, that there were quite a few people that responded to my note about my left eye, that had no idea what was going on… So… Here’s the catch-up… For all you long time readers, you’ll want to skip ahead to the Recap…

In June of 2007, I was diagnosed with renal cell cancer of my left kidney… The cancer had spread to my right hip and femur, and later to my left eye… I had very aggressive surgeries to remove my kidney, and two weeks later, my right hip and 2/3 of my femur, which were replaced with a prosthesis… 1 year of chemo… And then the mass was found on my left eye, which received laser treatment, injections in the eye, and radiation… They thought the mass was shrunk… Unfortunately, yesterday, I found out that it has grown, thus the complete loss of vision in my eye..

I tell people all the time, and I’m serious about this… The Good Lord has only allowed me to get cancer in places that I have two of… Kidney, hip/ leg, and eye…

To recap… The currency rally, led by the euro, from Wednesday, faded yesterday, when the ECB announced extended stimulus plans, which led many to believe the U.S. rates would be higher soon… Deutsche Bank saw their rating cut by Moodys… Today is a jobs jamboree, and Canada is taking steps to eliminate their deficit!

Currencies today 3/5/10: American Style: .9035, kiwi .69, C$ .9695, euro 1.3595, sterling 1.5035, Swiss .9290, European Style: rand 7.47, krone 5.92, SEK 7.1450, forint 196.15, zloty 2.8540, koruna 18.98, RUB 29.82, yen 89.30, sing 1.40, HKD 7.7630, INR 45.65, China 6.8264, pesos 12.71, BRL 1.7880, dollar index 80.51, Oil $79.15, 10-year 3.60%, Silver $17.30, and Gold… $1,135.50

That’s it for today… Well… I’m into the home stretch now… Less than a week to go before I head to Jupiter to get more stupider! Alex auditioned for the high school jazz band yesterday. He told me last night at dinner at his fave restaurant, that he didn’t anticipate making the band, as there is an upper classman already in the jazz band that plays the guitar, but he just wanted to experience the audition thing… That’s cool I guess… We were at this restaurant last night, and there were hardly any people in the place! Sign of the times, or did we just “luck out”? My beloved Missouri Tigers have a tough one on their hands tomorrow, as the big bad KY basketball team comes to Columbia Mo. Then all the conference Tournaments start, and before we know it the brackets for the Big Dance will be in our hands! And our Blues have a 5-game winning streak going after their win last night… So… All in all, things are looking up for them, and because of that 5-game winning streak, I’m going to say that this IS a Fantastico Friday! I hope you have one too!

Chuck Butler
President
EverBank World Markets
1-800-926-4922
1-314-647-3837

test-php-789