Wednesday, June 9, 2010

Jay Taylor: Turning Hard Times Into Good Times

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Forget PIIGS, US Debt Is Out of Control

The markets are in turmoil because of worry about the so-called PIIGS (Portugal, Ireland, Italy, Greece, and Spain) debts. In Fiscal Crises: The Next Shoe, I opined that Greece is just the canary in the coal mine and that when we look homeward, we have our own huge debt issues, which aren't significantly different from those of the PIIGS countries. I believe that the only reason the European contagion hasn't yet spread to America is because of the dollar’s status as the world’s reserve currency. That era is coming to an end, and it would behoove America to get its house in order.

A May 14, 2010 Barron’s piece entitled We’re Not Greece -- Yet (D. Henniger) referred to a Royal Bank of Canada (RY) study that concluded that “Although the states of California, New York, New Jersey, Massachusetts, and Illinois are comparable in terms of economic output and population to Portugal, Ireland, Italy, Greece, and Spain, RBC finds that states’ debt burden are nowhere near that of the PIIGS.” This, “even after including unfunded liabilities for states’ employees’ pension and other benefits.” As you'll see below, I take issue with the above conclusion, and the first half of this piece will deal with why. Basically, citizens of each US state are responsible not only for the debt burdens of their states and localities, but they're also responsible for their proportionate share of the federal debt. As you'll see, the combination of the two produces debt ratios far in excess of those of the PIIGS. (more)

Fed's Evans: Interest Rates to Stay Low for Some Time

Low inflation and high unemployment in the United States justify the Federal Reserve keeping benchmark interest rates ultra-low for "quite some time," Chicago Fed President Charles Evans said on Tuesday.

"We have a little bit more risk with the European situation; the (U.S.) outlook looks good but not so strong as to reduce the unemployment rate very quickly; I don't see inflationary pressures at the moment," Evans told business leaders in Chicago in response to an audience question.

"So I think we will continue to have an accommodative policy stance for quite some time," he said. (more)

Time-Tested Indicator Predicts Big Gains for Gold Stocks

The increase in gold prices over the last five years has outperformed virtually every other asset class. From the low $400 range in 2005, gold has soared almost 300% to over $1200 per ounce.
Although many gold stocks have seen substantial gains since 2005, the overall price gains of gold stocks has underperformed the price appreciation of the metal as can be seen by viewing the PHLX Gold&Silver Index, comprised of 16 major gold and silver producers. While the price of gold has appreciated almost 200%, the XAU has lagged considerably with a gain of 96%. (more)

Experts Fear European Deflation as Deadly Threat

Some economists and policymakers are beginning to worry that a danger of deflation in Europe, similar to the situation that strangled Japanese growth for most of the 1990s, is a bigger threat than inflation.

“It’s nuts: how can they be concerned about the inflationary impact of this?” says Carl B. Weinberg, chief economist of High Frequency Economics.

“If I were the head of the ECB, I would be printing money to avert the decline in the money supply,” he told the New York Times.

Deflation is commonly defined as a decrease in the general price level of goods and services. Deflation occurs when the annual inflation rate falls below zero percent (a negative inflation rate), resulting in an increase in the real value of money — allowing one to buy more goods with the same amount of money. (more)

Why The END Of Cheap Chinese Labor Is Near

Last month, nearly 2,000 Chinese workers went on strike at a Honda transmission factory in southern China. The strike eventually spread across the mainland, halting production at all four of Honda's factories in China.

One Honda worker on strike posted a question online to his fellow workers: "Our parents have suffered from this cheap labor market and now they are getting old. Do we want to follow in the footstep of our parents?"

A new generation is shaking China's labor landscape, according to Reuters. With the support of the Chinese government, they are demanding higher wages. And if recent weeks are any indication, companies that depend on them to mass-produce electronics, auto parts and other goods sold around the world will answer their call.

The end of cheap Chinese labor may be near. Here are some of the most telling signs: (more)

Real Move in Gold to Come

Two More Gulf Spills?

The BP oil spill is still dominating headlines, 50 days after the Deepwater Horizon rig exploded. But how much oil leaks into the Gulf on any other day of the year? Satellite images and photographs from the region indicate that there may be two other offshore drilling units leaking oil into the ocean.

John Amos, head of the West Virginia-based nonprofit SkyTruth, was looking at satellite images of the oil from the Deepwater Horizon site when he noticed what appeared to be another small slick of oil about 11 miles off the coast of Louisiana and about 40 miles from the major spill. Amos' group uses the images to assess environmental problems; he was among the first independent experts to point out that the spill estimates from BP and the government were far too low, which has now been confirmed. Amos reported a "small but persistent leak or oily discharge" at a second site in the Gulf, one that appeared to be coming from platform 23051 in the Gulf of Mexico. It can be seen on multiple satellite images of the region. Minerals Management Service (MMS) records indicate that the platform belongs to Taylor Energy Company. (more)

Goldman Bashing Is The New Chinese Black

And you thought Goldman had it bad in the US. The FT reports: "Many people believe Goldman Sachs, which goes around the Chinese market slurping gold and sucking silver, may have, using all kinds of deals, created even bigger losses for Chinese companies and investors than it did with its fraudulent actions in the US,” read the opening lines of an article in the China Youth Daily, a state-owned daily newspaper, last week." Matt Taibbi - you have met your match, and the outcome is picturesque indeed - a vampire squid that slurps and sucks its way to every loose ounce of gold and silver. But fear not, all those millions of ounces in GLD are perfectly safe and sound. (more)

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