Thursday, June 3, 2010

McAlvany Weekly Commentary, June 2, 2010

Israel in the Crosshairs: An Interview with Israeli Ambassador Yehuda Avner

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Experts: Oil to Hit $85 in Rebound from 20 Percent Fall

Oil has dropped 20 percent recently, dipping beneath $65 a barrel, but oil traders don’t believe that slump will continue.

The proof: December 2018 oil futures on the New York Mercantile Exchange recently were above $90. And Bank of America Merrill Lynch sees oil averaging $85 next year.

“The price is holding at decent levels” for delivery in later years, Paul Tosseti, an analyst for PFC Energy consultants, told Bloomberg.

“You need a certain level for all these high-priced resources that are coming on-stream — deepwater Gulf of Mexico, deepwater Brazil and the Canadian oil sands. That’s the dynamic part of the non-OPEC oil supply.” (more)

Fiscal and monetary tightening to crash global stock markets?

Those who decided to ‘Sell in May and go away’ have been well rewarded in the worst May for the Dow since 1940. The Dow Jones Index fell by 7.9 per cent in May and the more broadly based S&P 500 by 9.9 per cent, its worst May performance since 1962.

Is this a red light flashing danger ahead, or should investors buy on this dip? Investment gurus are all over the place. Is this a falter on the ‘Road to Recovery’ or the end of a long bear market rally?

ArabianMoney thinks fiscal and monetary tightening suggest a far bigger stock market decline is in prospect, and these things tend to happen rather suddenly, although the warning signs are always pretty clear if you care to look. (more)

U.S. Inflation to Approach Zimbabwe Level, Faber Says

The U.S. economy will enter “hyperinflation” approaching the levels in Zimbabwe because the Federal Reserve will be reluctant to raise interest rates, investor Marc Faber said.

Prices may increase at rates “close to” Zimbabwe’s gains, Faber said in an interview with Bloomberg Television in Hong Kong. Zimbabwe’s inflation rate reached 231 million percent in July, the last annual rate published by the statistics office.

“I am 100 percent sure that the U.S. will go into hyperinflation,” Faber said. “The problem with government debt growing so much is that when the time will come and the Fed should increase interest rates, they will be very reluctant to do so and so inflation will start to accelerate.” (more)

Surging Bank Rate Stirs Fear of New Credit Meltdown

The London interbank offered rate, or Libor, recently jumped to a 10-month high, and that has some investors worried that a second credit-market meltdown is coming.

The Libor is what banks charge each other for short-term loans. The rate recently increased 12 days in a row amid concern about Europe’s debt crisis.

"The direction is telling you where the economy is heading. It's very bad," says Michael Pento, chief market strategist at Delta Global Advisors.

"We didn't learn much from the 2008-2009 credit crisis,” he told CNBC. (more)

Into the Abyss: The Cycle of Debt Deflation

ne of the most famous quotations of Austrian economist Ludwig von Mises is that “There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion or later as a final and total catastrophe of the currency involved.” In fact, the US economy is in a downward spiral of debt deflation despite the bold actions of the federal government and of the US Federal Reserve taken in response to the financial crisis that began in 2008 and the associated recession. Although the vicious circle of debt deflation is not widely recognized, precisely what von Mises described is happening before our eyes.

A variety of positive economic data has been reported in recent months. Retail sales rose 0.4% in April 2010 as consumer spending rose and the US gross domestic product (GDP) grew at a rate of 3%. In May 2010, home sales rose to a five-month high and consumer confidence rose 17% (from 57.7 to 63.3). Industrial production rose 0.8% and durable goods orders rose 2.9%, more than had been forecast. However, the modest gains reported represent the continuing adaptation of economic activity at dramatically lower levels compared to the pre-recession period and most of the reported gains have been substantially manufactured by massive government deficit spending. (more)

Bob Chapman John Stadtmiller - June 01 2010-

Wednesday's Analytical Charts for Gold, Silver and Platinum