Thursday, September 9, 2010

McAvity Weekly Commentary

Looking Ahead to an Exit Strategy

Join us! David will be speaking in New Orleans at the New Orleans Investment Conference October 27th -30. Click here to learn more.

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Loonie Likely Heading Back to Earth

The Canadian dollar has seen a nice rally since about 2002, and hit parity with the U.S. dollar in April of this year. I’m a long-term bull on the Canadian dollar, but I believe that once the dust settles from the Bank of Canada’s decision to increase its key lending rate, the Canada dollar could face a short-term correction. I believe it’s overvalued right now.

The Bank of Canada has increased its key short-term lending rate three times this year. On September 8, the rate was increased to one percent. The BOC stated the global recovery was “proceeding” but “uneven.” Read the full statement . The Canadian dollar jumped on the news, and the December futures contract climbed above 0.96300 in early trade.

Despite increasing rates, however, the Canadian dollar has not skyrocketed to parity with the U.S. dollar, or beyond. (It had seen parity in April 2010, but hasn’t retested the level since.) Another rate increase looks doubtful right now. The BOC said any further monetary tightening “would need to be carefully considered in light of the unusual uncertainty surrounding the outlook.” (more)

Gerald Celente / Trends Research:Market Self-Deception Continues on the Flimsiest of Excuses

A statistically meaningless increase in August private sector jobs data “eased recession concerns,” Bloomberg reported on September 3. Private sector jobs gains came in 27,000 above the consensus forecast of 40,000.

We see the touted jobs gain as nothing but statistical noise. The Bureau of Labor Statistics' 95 percent confidence interval in reporting of monthly change is +/- 129,000 jobs. Yet, “stocks climbed around the world” as a result of a statistically meaningless jobs gain. The flimsy jobs report “sent stocks to their best pre-Labor Day week in two decades” (MarketWatch).

“The worst fears were not realized,” declared Stephen Stanley, chief economist at Pierpont Securities. “The double-dip talk was probably misplaced,” said Maury Harris, chief economist at UBS Securities.

These are strong conclusions to be drawn from a statistically insignificant result. But anything will do to fend off reality.

Looking behind the headlines at the BLS August jobs report, we see an unsettling picture. Total nonfarm payroll jobs fell by 54,000 from the previous month, due to a 121,000 decline in state employment jobs and federal census worker employment. (more)

The $9.1 trillion bailout price tag – American households have lost $6.8 trillion in residential real estate values while mortgage debt has increased.

“It takes two to speak truth, one to speak and another to hear.” -Henry David Thoreau

For those following the housing boom and bust carefully, the solution to let prices correct is not a novel concept. That is why it is surprising to see headlines, four years after home values peaked and have been falling, arguing for home values to fall. The equation is simple because people that make less money can only afford a certain amount of home. The only reason to keep home prices inflated artificially was to appease those with tremendous amounts of housing debt. It took four years for some to see the light (many have not) yet trillions of dollars are now out the door under false pretenses for something that was going to happen anyway. In the end we have created the biggest moral hazard with housing as the centerpiece in this modern game of Monopoly. Yet after all the pain and economic suffering that Americans have suffered and with obvious culprits, nothing has occurred to fundamentally change our banking system. To that issue we focus our attention today

Banking Stockholm Syndrome

Some people still believe in the narrative that we had to save the banking system. There is a legitimate case for this. But did we have to save in the way that we did? Absolutely not. Under pressure and fire the biggest looting of American wealth has occurred and no revolution was necessary. Remember when good old Hank Paulson gave us a three page memo requesting $700 billion for “troubled assets” which was a nice euphuism for toxic mortgage crap? Some have forgotten the days of September 2008 when the word bailout seemed to be a daily utterance. By the way, the vast majority of those toxic mortgages still sit on the balance sheet of banks even after the money is now out the door. (more)

Global Collapse of the Fiat Money System: Too Big To Fail Global Banks Will Collapse Between Now and First Quarter 2011,

Readers of my articles will recall that I have warned as far back as December 2006, that the global banks will collapse when the Financial Tsunami hits the global economy in 2007. And as they say, the rest is history.

Quantitative Easing (QE I) spearheaded by the Chairman of Federal Reserve, Ben Bernanke delayed the inevitable demise of the fiat shadow money banking system slightly over 18 months.

That is why in November of 2009, I was so confident to warn my readers that by the end of the first quarter of 2010 at the earliest or by the second quarter of 2010 at the latest, the global economy will go into a tailspin. The recent alarm that the US economy has slowed down and in the words of Bernanke “the recent pace of growth is less vigorous than we expected” has all but vindicated my analysis. He warned that the outlook is uncertain and the economy “remains vulnerable to unexpected developments”.

Obviously, Bernanke’s words do not reveal the full extent of the fear that has gripped central bankers and the financial elites that assembled at the annual gathering at Jackson Hole, Wyoming. But, you can take it from me that they are very afraid. (more)

EHedger Closing Grain Commentary 9/8/10

It was a fairly uneventful day in the grain markets as everyone awaits the Supply and Demand report from the USDA on Friday morning at 7:30am. Corn and beans settled lower with December corn finishing 3 ¾ lower at $4.62 ½ while November beans were 3 ¼ lower at $10.48 ¾. The downside leader was Chicago wheat which settled the day 24 ½ lower in the December contract at $7.11.

This morning Stats Canada released a report that showed higher than expected stocks for Wheat and Canola. This contributed to the sell-off in the wheat market and helped push Canola six dollars lower. For the most part everyone is waiting to see what the USDA report will say and the markets will likely continue to chop around until we have this new data. With only 6% of the corn crop harvested it is still hard to determine what the final yield will be. We should have more accurate information this week after many producers will be deeper into harvest. I am still convinced that everyone is ready for a bad corn yield number on Friday. These are levels that are profitable for most producers, in our opinion being adequately hedged at these levels is a good idea. (see hedge recommendations.)

This morning the USDA announced the sale of 115,000 mt of US Soybeans to China for 2010-2011 delivery. The bean market traded higher early in the session before finishing 3 ¼ cents lower. In our opinion the bean market is solid throughout the majority of the corn-belt. For those producers that need to catch up on sales these levels appear attractive to us. Please give your broker a call if you would like to look at strategies to protect these levels before the report on Friday.

50 Mind Blowing Facts About America That Our Founding Fathers Never Would Have Believed

If our Founding Fathers were alive today, what would they think of America? Surely they would be very proud that the United States stretches from the Atlantic to the Pacific and has built some of the most amazing cities that the world has ever seen. They would probably be surprised that the country they founded went on to become the greatest economic machine in the history of the world, and they would be absolutely astounded by things like our interstate highway system and the Internet. However, there are quite a number of things that they would be horrified about as well. The fact that over 40 million Americans are dependent on the federal government for their daily food would be deeply disturbing to our founders. Also, the fact that the U.S. government has accumulated the greatest mountain of debt in human history would be incredibly distressing to George Washington, Thomas Jefferson and the rest of the founders. But perhaps most of all, our founders would be absolutely disgusted that the land where Americans could once be free to pursue life, liberty and the pursuit of happiness has become so tightly regulated and controlled that Americans dare not even squeak without the permission of the federal government.

Needless to say, our founders would certainly not understand many of our institutions or many of the advanced technologies that we have today. But without a doubt they would be able to grasp how far we have fallen as a nation and how far we have strayed from the fundamental principles that they enshrined in our founding documents. The United States is a much different place today than it was in 1776, and unfortunately many of the changes have been for the worse.

The following are 50 mind blowing facts about modern America that our Founding Fathers never would have believed.... (more)

Andy Xie: The Financial Industry Is A 'Gigantic Parasite' We Don't Need Anymore

These are pretty strong words, given they are coming from ex-Morgan Stanley Andy Xie:


But institutional investors are intermediaries, too. Why should savers give them money to manage? Not for superior performance: More than 90 percent of institutional investors underperform market indexes. The main justification is that they bring down costs of information acquisition and processing, as well as transactions. This justification looks shakier by the day. Any individual can have access to as much information as a fund manager at virtually no cost. I'm afraid the financial services industry is likely to decline structurally.

As financial services industry loses value-added to customers and the real economy, it is increasingly dependent on gaming the system and profiting from customer ignorance. This makes the industry and financial market more volatile and bubble-prone. In the last financial crisis, the financial sector survived by holding the real economy hostage. (more)

US dollar falls to 15-year low against the Yen on recovery fears

The steady rise in the value of the yen in recent weeks has unnerved Japanese authorities who see the trend as a threat to the country's exports and ultimate recovery.

The gain in the yen was also supported by the absence of new measures from the Bank of Japan, whose policymakers convened Tuesday, to stem the upward momentum.

The bank kept its key interest rate unchanged at 0.1pc to continue nurturing a moderate recovery and signalled stronger concern about the impact of a surging yen.

"We are aware that Japanese exporters have been significantly affected by the yen's strength," Masaaki Shirakawa, governor of the Bank of Japan, said.

"We are very carefully watching the impact of the stronger yen on the Japanese economy."

The central bank last week extended a multi-billion-dollar loan programme to counter the effects of a strong yen on the Japanese economy. (more)

U.S. stocks reclaim bulk of day-ago losses

(MarketWatch) -- U.S. stocks ended higher on Wednesday, as a successful sovereign debt auction in Portugal helped ease concerns about Europe, but with gains capped after the Federal Reserve confirmed the U.S. economy is slowing.

In its survey by 12 regional banks, the Fed reported conditions mixed or decelerating in five regions and growing at a moderate pace in five. Read more about Fed's Beige Book.

In Ohio, President Barack Obama argued for giving tax cuts to Americans making $250,000 or less, and against continuing tax cuts for wealthier Americans, saying the country can't afford the $700 billion price tag.

The Dow Jones Industrial Average (DOW:DJIA) rose 46.32 points, or 0.5%, to end at 10,387.01, about 40 points shy of returning to positive for 2010.

Twenty-four of its 30 components rose, with aluminum giant Alcoa Inc. (NYSE:AA) paving the gains, up 2%.

Hewlett-Packard Co. (NYSE:HPQ) fell the most among the blue chips, losing 2.8% after UBS AG downgraded the computer manufacturer from buy to neutral. UBS also cut Intel Corp. (NASDAQ:INTC) , with the chip manufacturer off 1.2%. (more)

Chart of the Day: Crude Oil Futures Seasonality

Crosstalk - America's Depression