Saturday, May 15, 2010

World Financial Report, May 14, 2010

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Gold's 'ugly sister' gets a second look

Silver's gains in recent months have significantly outpaced gold's, with silver climbing around 30% since early February, compared with gold's nearly 17% price gain.

And some analysts say silver hasn't yet caught the attention it deserves.

Investors "are not taking notice yet it looks like the world is far more focusing on gold," said Gijsbert Groenewegen, a managing partner at Silver Arrow Capital Management.

That's fair to say given that silver's more than two-year high above $19 pales in comparison to gold's highest-ever settlement price of more than $1,243 an ounce in New York for its most-active futures contract. (more)

A few other markers of continued troubles in the housing market for you:

First, Zillow reports 23% of homeowners with mortgages were underwater during the first quarter. Nearly one-third of homes sold in March sold for less than the sellers paid


In the first quarter, 96.5% of all new mortgages written were backed by either Fannie Mae, Freddie Mac or the Federal Housing Administration. A trend that’s been in place since the top of the housing bubble in 2006 has reached its logical conclusion.

The mortgage market in the U.S. has been effectively nationalized.

First Gold, Now Europe Running Out Of Silver

Earlier we noted that the Austrian mint was on its way to depleting its gold reserves following "panicked buying" from Europeans, who now openly fear the demise of their currency. Now, courtesy of Slim Beleggen, we understand that the situation in the silver market is just as bad and has also spilled over to Germany: the contagion is no longer one of sovereign debt, but of precious metal physical inventory. The primarily silver focused (but holding gold as well) Kronwitter precious metal online retailer is not only not accepting any orders, but has entirely taken down its website. (more)

Dollar Jump Resembles ‘08 Crash

On Wednesday, I wrote about the troubling signal given by the Volatility Index (VIX) as it surged in a manner which resembled the 2008 crash. Today we can add another market indicator to the “trouble” list – The US Dollar.

I’ve mentioned the inverse relationship between the US Dollar and stocks several times. This relationship began in 2002 and continues today. The chart below shows that as the market bottomed in March 2009, the Dollar index hit a major top.

Why is the dollar surging? Europe. The real reason (in my view) that our stock market has been so effected by European issues is the dollar dynamic. The US Dollar Index measures the US Dollar against a basket of foreign currencies, the largest of which is the Euro. As the Euro (The largest component of the basket) drops, the Dollar will rise. (more)

The Economist - 15 May 2010

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A Message from Argentina: Our Sympathies to the People of Greece!

There are disconcerting parallels between Argentina’s catastrophic decade, 1991-2001, which ended in massive default, and Greece’s recent and impending difficulties. In both cases, international credit organisations were to blame and both countries were beset by widespread protests and riots over austerity measures imposed by the IMF. Argentinian economist Adrián Salbuchi offers a hard-hitting analysis of this engineered crisis which knows no boundaries.

When Argentinians watch the news today and see the terrible things that are happening in Greece, we cannot but say, “Hey!! This is EXACTLY like Argentina in December 2001 and beginning of 2002…!”. Then too, Argentina underwent its worst systemic banking, public debt and monetary collapse which led to social turmoil, mad violence, rioting, and social war. The turmoil was so bad, that it forced then president Fernando de la Rúa’s government to resign, especially because of his notorious pro-banker cartel economy minister, Domingo Cavallo, generating a political vacuum that led to Argentina having 5 (five!!) presidents in that terrible last week of December 2001. (more)

Business Week - May, 17 2010

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Inflation is currently roaring in China

  • Consumer prices rose 2.8% year over year in April -- their fastest pace in 18 months
  • Producer prices rose a staggering 6.8%
  • Housing prices rose 12.8% -- their highest since records began five years ago.

The housing numbers are even more astounding when you consider Beijing’s attempt to slam the brakes midmonth.

Among the measures taken: A demand for higher down payments, and a ban on lending for the purchase of third homes (!)

Sure enough, it put a lid on home sales month over month…

But it did absolutely nothing to put a lid on prices.

Something’s got to give. Either interest rates have to rise, the yuan allowed to float or both. But when that happens is anyone’s guess.

Chart of the Day