Thursday, March 3, 2011

Saudi Arabia in Serious Trouble: Stocks Down 13 Days in a Row

While the Saudi government would have us believe that everything is fine and dandy in their country, recent action in the Saudi stock market suggests otherwise. As shown in the chart below, the Saudi Tadawul All Share Index has declined for 13 straight days, and it is now down more than 20% since peaking in January.

Back in late January, the TASI saw a one-day decline of over 6% on 1/29 when tensions began to escalate in Egypt. When things settled down in Cairo, the TASI rebounded back above its 50-day moving average, but it then began to roll over again when tensions moved to Libya. Watching the charts must be a popular past time in Saudi Arabia, because once the index broke below its January lows, the bottom literally fell out of the index. With the March 11th Day of Rage coming up in Saudi Arabia next week, are traders in this market anticipating a replay of Egypt or Libya?

Jeff Rubin: Only A Recession Stands in the Way of $200 Oil

gas pumpWith very limited excess capacity in Saudi Arabia and the rest of OPEC, further production shutdowns in the convulsing Middle East will soon push oil prices to new record highs. The Brent futures contract, the world’s benchmark price, almost reached $120 per barrel in London last week. With gasoline soon to cost six pounds a gallon (£1.32 pounds/liter), the British government is already considering alternative rationing systems to the brute price mechanism at the pumps.

Amid the chaos sweeping through the Middle East, it is easy to lose sight of where oil prices were trading before the political protests began. Brent was north of $100 per barrel before protestors started sweeping into Cairo’s Tahrir Square. The triple digit price for oil was due to runaway global demand, which by the end of last year had soared to more than a record 87 million barrels per day. It was yet not about potential supply shocks from Libya or anywhere else in the Middle East.

Now throw in supply disruptions from the world’s largest oil producing region, and it isn’t hard to find a path to $200 per barrel oil.

When I first predicted $200 per barrel oil prices in 2008 as the chief economist of CIBC World Markets, it was in the context of expecting another four years of global economic growth. Of course, that didn’t take into account the impact of triple digit prices on fuel-dependent GDP growth. Even $147 per barrel prices brought global economic growth to a screeching halt.

It is all the more remarkable that despite triggering the world’s deepest post-war recession and a rare, albeit temporary decline in global oil consumption, oil prices had already soared back to triple digit levels even before the Arab revolt.

And it will be difficult to keep prices from moving even higher as investors start piling on the oil bandwagon, particularly when they see most of Saudi Arabia’s much touted four million a barrel a day excess capacity is largely of the fictional variety while, at the same time, noticing how little effect monetary tightening is having on restraining China’s exploding fuel demand.

What speculators will have to worry about is where things are going. If we learned anything from the last recession, it was our oil dependent, transport heavy, global economy doesn’t run very well on $147 per barrel crude.

And other than bailing out bankrupt investment banks and automobile companies at the cost of record public-sector deficits, not much has changed in our economies over the past three years to suggest our next encounter with that these kinds of prices will lead to a different result.

We are moving inexorably closer to another oil price induced recession. And when we get there, oil demand and oil prices will once again collapse.

The only question is will we see $200 per barrel oil first?

Source: Jeff Rubin's Smaller World

9 Ways to Save on Car Maintenance

By David Muhlbaum, Contributing Editor,

Even as cars evolve to need less-frequent care, maintenance and replacement costs can take a big bite out of your wallet. Don't worry, we're not going to try to teach you how to rebuild an engine or even dirty your hands—just how to make smart decisions that will keep you rolling for less.

Keep the right parts dry.

I see this all the time in my neighborhood: Drivers come home and park the car in front of the garage door. Then when rain threatens, they run out to pull it inside lest their car get rained on. Or, when it gets dark, they pull the car in for the night.

Ouch! Here's what's wrong with that: Starting a cold engine is when the bulk of its wear occurs. That's in part because all the oil is sitting at the bottom, rather than distributed around the parts that move. But also, when your engine runs and doesn't get warm, the byproducts of combustion, including water, collect in the oil and can over time turn it into a noxious sludge that attacks the motor from the inside. On a longer trip, your car's engine gets hot and the water is boiled out of the oil and the engine—no worries there. So: avoid short trips when you can—especially the short and pointless ones.

Give regular fuel a try.

Even if your car says premium fuel recommended—or even required—few really need it. Most late-model cars can adjust to regular fuel because engines are now equipped with knock sensors, which adjust the engine's timing automatically when they detect uncontrolled burning—the tell-tale 'pinging'—and forestall any engine damage. You may experience a slight decrease in power and fuel economy, but even the mileage loss won't come anywhere near the difference between regular and premium.

A key exception: If your car is turbo- or supercharged and specifies super, follow the manual. And for Pete's sake, you're doing neither your car nor your wallet any favors by putting higher-grade gas in a car that calls for regular.

Don't change the oil more than you need to.

Sure, Uncle Marvin changed his oil every 3,000 miles and his Studebaker ran forever. But oils have evolved, and so have engines. Even Jiffy Lube's not running the "every 3,000 miles" pitch anymore. Stick to the manual's recommendations and refuse all entreaties from service managers and ad campaigns, especially ones for oil additives.

Note that your manual may tell you to follow your car's electronic oil-use sensors rather than go by a specific mileage. Don't get me wrong. Oil is your engine's lifeblood and it's critical to change it. But doing so more often than your vehicle's manufacturer recommends simply doesn't pay off.

Find a local mechanic you trust and show him your business.

Too many car owners flit from shop to shop, forking over fortunes on major repairs. Here's a better strategy: Identify a gas station owner or repair shop manager in your neighborhood you like, make sure he knows you are creating business for him, get to know him on a first-name basis and be friendly. It's amazing how a bond of trust like this can save you money. I work with someone whose trusty local gas station owner came to his house to jump-start his battery in an emergency, and charged him nothing.

Have you considered a warehouse store for your tires?

No, they won't make you buy a dozen at a time. Costco, Sam's Club and BJ's Wholesale Club all offer tires and will mount them for you, too. You'll be able to tap into your club's satisfaction guarantees on top of the warranties the tire makers offer, and note that the installation costs include services you'd often pay extra for elsewhere such as lifetime balancing, rotation and flat repair. It pays to do some looking ahead on your club's Web site to check availability—the clubs don't always keep inventory outside some relatively common sizes—but they can order you just about anything.

Know thy hybrid.

You go out to start up your hybrid and nothing happens. Don't fret. In addition to whatever exotic chemical composite hybrids have to run the drive system, they have a conventional 12-volt lead acid battery that powers the headlights, radio and dome lights that kids are so good at leaving on overnight. So see if it's just a jump start you need before you call for more serious help.

Prius owners—there IS a 12 volt battery in there—you just can't see it. Consult your owner's manual for how to jump start.

You bought a car. You didn't marry the dealer.

Independent shops are fighting back against dealer marketing efforts that play on consumer fears of voiding a warranty. If you have your maintenance done on time with quality parts—and keep your paperwork—federal law is on your side if push comes to shove over a warranty claim. Check out the Magnuson-Moss Warranty Act. If your dealer makes you happy by giving you a loaner car, fine. Enjoy it. But it's frequently the more expensive choice for basic servicing.

One reason often cited for taking a car to the dealership for maintenance work is that dealers—as representatives of car manufacturers—are more likely to see if there are any outstanding recalls on your car. But, you can do a lot of this research yourself, either by checking with your independent shop, or by looking up your car online in the government's database.

Tire rotation? Don't spin your wheels.

Tire rotation is one of the least critical of maintenance issues. If you don't do it, your tires will wear out a bit more quickly, true. But here's a case where you can skimp. I wouldn't pay extra to have it done. If the car's already in the air for an inspection or other service, ask your friendly mechanic to put the wheels back on in different spots. Or, if you bought them at a warehouse store as we suggested, they'll take care of it.

Note also that more and more tires are directional—which makes rotation less feasible because the tires can only go on either the left or right side of the car. What's a directional tire? Look for a v-shaped tread pattern.

No ignoring the oil light.

Let's play this one safe. You see something come on about oil? Pull over as soon as you safely can and turn off the engine.

Sure, it's possible that the light has something to do with oil level or an oil-change interval, but in case it's the oil-pressure light, you need to act in minutes, if not seconds, to keep your engine from destruction.

Now that you're safely stopped, open up your owner's manual and look up "oil" to see what you're dealing with. Maybe it's just an oil change warning and you can keep going to your destination. But if it is the oil pressure, you could have a serious problem and will likely need a tow.


David Rosenberg gives us the 15 reasons why he is bullish about the Canadian Dollar:

1. Better growth than in the U.S.A. and without need for stimulus

2. Responsible central bank, limiting growth in its balance sheet

3. Better fiscal backdrop

4. More conservative political environment

5. Triple the exposure to raw material than the U.S.A.

6. Investors get 115 basis points premium over Treasuries at the front end of
the government yield curve

7. Canada in the top 15 net oil exporters globally … U.S.A. top importer

8. TSX dividend yield at 2.36%; S&P 500 dividend yield at 1.82%

9. Housing market in balance in most of the metro areas; no foreclosure
supply coming

10. Inflation is low and stable with minimal risk of deflation

11. Economic recovery being fuelled principally by business spending

12. Corporate tax rates on a sliding scale down

13. Immigration and capital flows running at record levels

14. Vancouver rated top city in the world to live

15. Stable banking system with consistent dividend growth

Intermediate Term High for Stocks

The current decline is most likely a correction of the move from September to February.

Here’s the latest from Steven Vincent at

Here's the introduction to the latest BullBear Market Report:

Intermediate Term High for Stocks

The fear of a disruptive pan-Arabic revolution appears to have triggered a correction in world equities markets. Today’s high marked the B wave of an ABC corrective pattern and C down is now underway. My take at this time is that the downward correction is not yet over and a better buying opportunity lies ahead. While there is some risk of a resumption of the bear market it does not appear to be high at this time. Analysis suggests that we are in a relatively minor correction within the context of a larger bull trend. The current decline is most likely a correction of the move from September to February.

Having said that, there are some signs of danger for world equities. The divergence between developed market equities and emerging markets persists, with many key EM indices showing signs of potentially rolling over into bear markets.

The US Dollar Index bears watching at this time. Very long term, long term and intermediate term charts are all playing with breaks of support. The fact that the Dollar has refused to rally even as selling has hit world stock markets does not auger well.

Dollar sensitive commodities such as Crude Oil, Gold and Silver may be sniffing out a major downwards revaluation of the greenback. Crude and Silver appear to be in high level consolidations before a continuation. Gold is hovering just above an important resistance level and just below its all time highs.

US Treasuries have rebounded and broken their downtrend as stocks have faltered. There has been a nearly perfect inverse correlation between Treasuries and stocks. In my current view, we should be looking for the correction in bonds to end for a shorting opportunity in Treasuries and a buying opportunity in stocks.

Certainly the inflation profile does seem to be in effect at this time. Dollar and Treasuries weak, gold and crude oil strong, stocks strong but faltering; the message of the market may favor the inflationist view at this time. While a major breakdown could come in the dollar, this wouldn't be the first time that it has threatened a major decline and yet pulled back from the brink. Crude Oil has been news driven to the current breakout highs; news driven spikes can be reversed sharply. And it's possible that gold is putting in a fifth wave high here. But sometimes it just is what it is. With so many key markets hovering at critical levels, traders should look sharp and be ready. Tradeable moves may be in the near future of these markets.

McAlvany Weekly Commentary

Conversations from the Bahamas. Interviews with Frank Suess and Richard Rahn

A Look at This Weeks Show:

- FATCA. One big fat mess
- Erosion of financial privacy worldwide
- The importance of fraternity to liberty

About the Guests:
Frank R. Suess heads up the BFI group of companies as CEO and Chairman and personally advises a select group of BFI’s high net-worth clients around the world.

Richard W. Rahn is a senior fellow of the Cato Institute and the Chairman of the Institute for Global Economic Growth. He is also a weekly economic columnist for The Washington Times, and serves on the editorial board of the Cayman Financial Review.

Currency Extinction Event: Collapse By Christmas *Video*

Micro-doc producer SGT Bull and guest Michael Woody O’Brien discuss the seriousness of middle east oil supply issues, hyperinflation and how we may see a full-on collapse by the end of the year. In this two part interview, a variety of additional topics are brought up, including the importance of preparedness in the event of a currency extinction event, as well as the rumor that the United States has tendered an agreement giving China the right to exercise Emminent Domain as payment for debts.

O’Brien: I’m kind of where John Williams is with Shadow Stats right now. I think his economic numbers of where the inflation is right now is the most accurate thing we have. I find myself saying if we get to $150 to $200 a barrel oil…

SGT Bull: It’s over

O’Brien: I think it’s already over for the economy. The numbers are faker than a three dollar bill or Pamela Anderson’s chest. I think that, at the end of the day, I can’t see how we get to this Christmas in anything that resembles the status quo.

This is one of those kind of questions, I know everybody asks this and everybody wants to answer. And, if it would help people get prepared, I would tell everybody, it could be Monday.

SGT Bull: It doesn’t matter, we just know it’s coming. The biggest blessing we have is if you know it’s coming, but it ain’t here yet, we’ve got time. And that’s the biggest blessing we have at this point. If tomorrow’s another day to go out to Sam’s Club and buy three bags of rice to prepare, then great.

O’Brien: I think the focus people need to have right now is the dollar is toast. And, when that happens, when the dollar collapses, our way of life is going to change. And at that moment, when that happens, there will only be one question that will matter. And, that question is, are you ready?

If collapse happens on Monday morning are you ready? Do you have a supply of water and storable food to get you through if it lasts a week? Do you have gold and silver to use as barter if it lasts a month? Do you have relationships with farmers that you’ve bought directly from farmers out of their barn if it lasts for six months? There is an infrastructure that’s required to survive collapse. There’s things you’re going to need that you won’t be able to buy anymore.

All signs point to the notion that the power elite, who control the US dollar, US debt, international policy, and military force, are in the last phase of the government bubble – arguably the largest bubble in the history of humanity. One can’t help but think that this is being done either on purpose or simply out of pure ignorance; given the evidence we subscribe to the former. If we are truly destined to see a currency extinction event, as Mr. O’Brien refers to it, then it can happen without warning at anytime. And it will be so quick that most people won’t realize what has happened until grocery store shelves are empty.

BILL GROSS: June 30, 2011 Will Be Viewed As America's New "D-Day"

  • A successful handoff from public to private credit creation has yet to be accomplished, and it is that handoff that ultimately will determine the outlook for real growth and stability.
  • Because quantitative easing has affected all risk spreads, the withdrawal of nearly $1.5 trillion in annualized check writing may have dramatic consequences.
  • Who will buy Treasuries when the Fed doesn’t? The question really is at what yield, and what are the price repercussions if the adjustments are significant.

The Gross family legend is rather full of Paul Bunyan tall tales passed down over the years but none perhaps more self- revealing than “The Day When I Gave the Waitress a Negative Tip.” Admittedly I was young and full of testosterone but the service was terribly sloooww and I was in a big hurrrryyy! Finally presented with a $2.00 bill, I took two bucks and wrote the following on a nearby napkin: “Thanks for the sh…ty service, negative tip – you owe me 25 cents.” I didn’t stick around to see the reaction, but I’m sure it was a unique experience for the young lady. I was, of course, like any 21-year-old, in the business of establishing a repertoire of “unique” experiences and this was but one notch on my Paul Bunyan Axe.

These days, my negative two-bit tip would hardly leave a dent in the estimated $25 billion annual pool of tips left at American restaurants. No matter. What was revealing at the moment back in 1965 was what it said about me: impatient, willing to disappoint people (at least strangers) and a little inconsiderate of some people. Maybe a little imaginative too. In any case, social scientists have recently confirmed that tipping does send a message and that it is more about the man or the woman in the mirror than the quality of the service. The primary reason for tipping appears to be social approval. Theoretically it is a power tool, a financial weapon that commands “treat or trick,” but studies since the 1940s have shown that most people do not have the requisite nerve to stiff a waitress even for unreasonable service. And too, William Grimes, in The New York Times, pointed out a decade ago that a waitress who touched her customers when asking if the meal was OK, raised her tip from 11 to 14% of the tab. Waiters’ personal introductions, as well as crouching at the table when taking an order, also worked famously. And here’s an interesting tidbit: Solo diners leave an average tip of 19.7% while a five-some drops all the way to 13.2%. Evidently, the size of the tip is a factor, and a reason why restaurants charge 16%+ for groups of six or more. That surely would have enraged Leo Crespi, who at the turn of the 20th century proposed the formation of a National Anti-Tipping League. While ahead of his time, he would likely play second fiddle to yours truly 65 years later who invented the “negative tip.” Recently my 22-year-old son, Nick, carved a notch on his own Paul Bunyan Axe with a negative $1.00 tip adjusted for 45 years of inflation. Tip off the old block, I’d say! (more)

Silver guru Morgan: Get ready for a major correction

While David Morgan still expects to see silver hit $40 an ounce this year, he says the gold:silver ratio could come back toward 50 or even 60 and, adds, a correction could be on the way.

Silver continues to hit new highs and headlines as investors look to it as, among other things a safe haven but, there are some that think caution is warranted in the short term.

Speaking to's Metals Weekly podcast, silver guru and author of the Morgan Report, David Morgan said that, although he is still very bullish about silver in the long term "with everybody screaming that silver can only go up from this point onward", he is beginning to get cautious.

Firstly, he says, " sentiment is too high and secondly gold hasn't really confirmed this move yet - it's very close to breaking out, it has a triple top around the US$1,424 level... and it hasn't broken through there significantly yet."

Morgan says that if gold does break out significantly, then silver is likely to continue its run but, he says current indications are that gold is looking to correct.

"With all of this geopolitical tension it [gold] should be soaring to new highs and it's not doing so. I've seen it time and again that people say gold is the best thing you can buy right now and I see it not reacting as favourably as it should be to what's going on, on the ground on the political front. When that takes place the smart money usually is backing off the gold trade."

Morgan goes on to add that he believes there is a bit of an inflection point occurring in the market at the moment and that a correction may be on the way.
" My best guess is that we will see a consolidation fairly soon and we will probably see gold outperforming silver for a while still."

In other words, he says, the gold:silver ratio could come back to around 50:1 or even a 60:1 perhaps, depending on the kind of sentiment that takes over in the market.
"I haven't ruled out a deflationary sentiment - I don't think we're going to see true deflation, but with food prices doing what they're doing globally - let's face it, even a metal head like myself is more realistic than that, meaning that the top tier is food, water and energy. And, with food prices growing - that could take some of the wind out of metals at some point in the future."

Longer term

Over the longer term however, Morgan is far more bullish on silver and maintains that the metal will hit $40 per ounce this year.

And, once again, one of the major reasons for the growth is China. But, unlike in gold where we have seen a significant uptick in Chinese investment demand, it is in the industrial space that Morgan believes the Chinese have the biggest role to play when it comes to the silver market.

"The amount of silver buying in China by the population is not really that significant and most of it is on paper,"he says.

"More important," he adds, "is what the industrialisation of China will mean to the silver market in China. I heard about that almost a decade ago - if you go back about 10 years ago and the amount of silver used on a per capita basis in China was one-seventieth of anybody in North America. So it's common sense to see as China becomes more and more technologically capable and starts to narrow the difference between their technology level and what it is in North America, that just by that alone we should see a massive increase in silver usage from the industrial side that very few people think about."

Silver is used in the majority of high-tech devices, albeit in very small amounts but, as Morgan points out, as China develops you have to begin multiplying all of those small amounts by 1.4bn.

" I'm not denying that there's physical investment demand in China," he says, "I'm merely pointing out that if every Chinese citizen had the lifestyle of the average North American citizen, that there would be a 70-fold increase on a per capita basis for silver than there was a decade ago."

WSJ: Muni Default Estimate: $100 Billion

A consulting firm founded by economist Nouriel Roubini said there could be close to $100 billion of municipal-bond defaults over the next five years as state and local government-debt problems damp the U.S. economic recovery.

That figure would by most estimates represent a significant increase over defaults in recent history, but it doesn't appear to be as dire as a prediction last year by analyst Meredith Whitney.

Mr. Roubini is known for his prescient warnings about the 2008 financial crisis. In weighing in on the muni-bond market, his firm joins a chorus of high-profile commentators who have offered their take on the fate of the once-staid market. It took a dive late last year and in recent weeks has made up some losses.

The report, by David Nowakowski and Prajakta Bhide at Roubini Global Economics and released to clients Monday, says state and local debt problems aren't "systemic" in nature, nor will they "infect the financial system." The authors of the report declined to comment.

Most of the defaults will occur among special government projects and revenue-generating entities that aren't considered viable, it says. "Defaults will continue to be isolated events.''

Tracking the total number of defaults can be difficult because they are concentrated among small bonds that aren't rated by national rating firms. Those firms typically track the bonds they rate.

S&P/Investortools Municipal Bond Index, which includes $1.27 trillion of municipal debt outstanding, reported $2.65 billion in defaults last year down from $2.9 billion of new defaults in 2009.

Combined defaults of rated and unrated bonds were as high as $8.5 billion in 2008, according to some estimates.

The Roubini report says that relying on the history of low default rates in the municipal debt market is "Pollyannaish."

"Avoiding a crisis will involve real austerity that has only partially been implemented thus far," the report states.

Still, the report points out that recovery rates for investors on defaulted muni bonds are typically about 80%, "far higher" than for corporate bonds. It also said an analysis of the Chapter 9 bankruptcy provision for municipalities shows bondholders retain strong protections.

Ms. Whitney, an independent analyst who correctly predicted future bank troubles in 2007, last year made a controversial prediction of 50 to 100 sizable muni-bond defaults, totaling "hundreds of billions of dollars."