Wednesday, June 16, 2010

Jay Taylor: Turning Hard Times Into Good Times

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Russia Prepares to Buy Canada, Australia Dollars for First Time

Russia may add the Australian and Canadian dollars to its international reserves for the first time after fluctuations in the U.S. dollar and euro.

“Adding the Australian dollar is being discussed,” Alexei Ulyukayev, the central bank’s first deputy chairman, said in an interview at an event hosted by Bloomberg in Moscow. “There are pros and cons. We have added the Canadian dollar but haven’t yet begun operations” with the currency.

Russia’s reserves are made up of 47 percent U.S. dollars, 41 percent euros, 10 percent British pounds and 2 percent Japanese yen, Ulyukyaev said in November. That’s a shift from 2006, when the central bank said it held 50 percent of its reserves in dollars, 40 percent in euros and the remaining 10 percent in yen and pounds. Russia’s international reserves, the world’s third biggest, reached $458.2 billion on May 14. (more)

Trading A Trend Day In The Emini

Trend days can be the best days for some day traders and the absolute worst days for others. Tuesday was a classic trend day where the market gapped higher and slowly and methodically pushed higher all day.

I like to use the 20-period exponential moving average on the 5-minute charts to determine the trend. You can see the market never closed below it during the day and that should have kept trend followers long at least a portion of their trade for the entire day. (more)

Fed Monetizing and S&P 500 Index

And now that the Fed is (mostly) done manipulating the stock market, traders are fleeing stocks. (Geesh, do we detect a trend?)

“There is a clear relationship,” writes James Turk of, “between the rise in the S&P 500 Index from its March 2009 low and the Federal Reserve’s purchase of U.S. government debt instruments, which it calls ‘quantitative easing’ (QE). Another term for it is money ‘printing.’

“The Fed is simply turning U.S. government debt into more dollar currency, which of course debases the dollar. It also explains the correlation in the above chart.

“Note how the S&P Index started climbing with the commencement of QE. The S&P dropped early this year when the Fed announced QE would end. Interestingly, the stock market soon rallied thereafter, probably because few believed that the Fed would really take away the ‘punch bowl.’ But it did, and the S&P has been in a downtrend ever since...

“Now that the Fed has stopped printing, the S&P 500 Index not only stopped rising, but began falling to reflect the true state of underlying economic conditions. Consequently, I expect that there will be new calls in Congress for another stimulus package, but more immediately, it seems likely that the Federal Reserve will recommence its purchases of U.S. government paper. Quantitative easing, I expect, is about to get a second chance at reviving the moribund U.S. economy.”

Letter from Bill Murphy

The gold industry is truly daffy. Not a week goes by when a number in this industry fail to give credence to my decade long statement: Never have so many known so little about their own industry. It is truly astounding and NEVER changes as the years go by…

*The World Gold Council promoted jewelry consumption until very recently as its main focus … even as gold has been in a ten year bull market and the most consistent investment around.

*The senior gold producers finance the World Gold Council even though this outfit has done little to deal with the real issues affecting the gold price. As a rule producers are afraid of going with the GATA line because of fear of losing mining permits and financing by the bullion banks … those same bullion banks which encouraged that they hedge below $300 an ounce … those same bullion banks (like Goldman Sachs and JP Morgan Chase) who made HUGE fees for the transactions they concocted. The reason for a WGC is to have them do the infighting for the producers. Instead, the WGC just lets The Gold Cartel do whatever they want and says nothing … and the producers remain compliant.

*The WGC has an alliance with GFMS, the industry stat group, which is usually neutral to bearish. For the most part they have missed the move all the way up and constantly understated demand, refusing to deal with the gold flow used to suppress the price. GFMS’s latest is a joint promotion with Société Generale which is looking for $800 gold by the end of the year. They deserve each other.

*The mainstream gold world analysts have been neutral to bearish on the price of gold most of the way up … and still are. The mainstream financial market press never calls them on it and asks them how they could have got it so wrong. Barclays is calling for gold to drop to $800 by the end of this year. JP Morgan is looking for $950 gold in the years ahead. When they are proved wrong AGAIN, the financial market press will continue to give them all passes and then ask for their next predictions.

*Just as confounding are the commentaries from some of the bullion dealers. Nitwit Nadler comes to mind. He has been wrong most of the way up too and has one of the worst predicative commentaries in the history of markets (Prechter gives him a run for his money on gold). Is the guy that dumb or is he talking his book … perhaps like other dealers which have sold unallocated over and over via their gold ponzi schemes?

Any of you that glance at Kitco, know that The Nitwit scours the net looking for the gold bears and their commentary. He found another bullion dealer yesterday who is as clueless as he is…

The Next Housing Crisis

Did the Federal Reserve collude with the big banks to hold millions of houses off the market until the Fed finished adding $1.25 trillion to the banks reserves? Did the Fed do this to make it appear that its bond purchasing plan (quantitative easing) was stabilizing prices when, in fact, it was the reduction in supply that stopped prices from plunging? It sure looks that way. This is from Bloomberg News:

"U.S. home foreclosures reached a record for the second consecutive month in May, with increases in every state, as lenders stepped up property seizures, according to RealtyTrac.Inc.

“Bank repossessions climbed 44 per cent from May 2009 to 93,777, the Irvine, California-based data company said today in a statement. Foreclosure filings, including default and auction notices, rose about 1 per cent to 322,920. One out of every 400 U.S. households received a filing." (Bloomberg) (more)

Food prices to rise by up to 40% over next decade, UN report warns

Food prices are set to rise as much as 40% over the coming decade amid growing demand from emerging markets and for biofuel production, according to a United Nations report today which warns of rising hunger and food insecurity.

Farm commodity prices have fallen from their record peaks of two years ago but are set to pick up again and are unlikely to drop back to their average levels of the past decade, according to the annual joint report from Paris-based thinktank the OECD and the UN Food and Agriculture Organisation (FAO).

The forecasts are for wheat and coarse grain prices over the next 10 years to be between 15% and 40% higher in real terms, once adjusted for inflation, than their average levels during the 1997-2006 period, the decade before the price spike of 2007-08. Real prices for vegetable oils are expected to be more than 40% higher and dairy prices are projected to be between 16-45% higher. But rises in livestock prices are expected to be less marked, although world demand for meat is climbing faster than for other farm commodities on the back of rising wealth for some sections of the population in emerging economies. (more)

Bob Chapman

Bizarre Bull Market

Perhaps we spent too much money buying and destroying perfectly good “clunker” cars. Amazingly, despite all the economic indicators to the contrary, the market for used cars in America is booming. Last week, the Manheim Used Vehicle Value Index hit 121, an all-time high.

“We can trace the strength in the Manheim Index back to the ‘cash for clunkers’ giveaway,” writes Dan Amoss. “The government’s destruction of the used car supply has boosted prices temporarily. But the other factor in used car pricing -- demand -- will remain weak as the U.S. population of registered autos stagnates or shrinks.

“Upticks in the Manheim Index can boost reported earnings for car rental companies. Strength in used vehicle prices will boost one-time gains from selling depreciated cars out of the fleet. This happens because a rental company buys a new car, books depreciation charges against it as it is rented out, and then sells it (hopefully) above its book value a few years later.

“But this effect is only temporary; it will reverse once the index turns back down. Its effect on earnings should be viewed as a ‘one-time’ item.

“If rental car companies want to maintain earnings power, they must reinvest the sale proceeds from old cars into a new car. This negates the fantasy that car rental companies ever generate consistent free cash flow. They can generate free cash flow when they’re aggressively shrinking fleets, but in that scenario, these stocks would deserve very, very low earnings multiples.”

Chart of the Day