Friday, May 13, 2011

Peter Schiff: More Stimulus Will Destroy Economy

Financial analyst Peter Schiff joins RT to answer why the debt ceiling should not be raised, and discusses his future political plans.

Schiff believes Republicans in Congress should refuse to allow the debt ceiling to be raised, but wouldn’t bet on that happening. “Just because we don’t go deeper into debt doesn’t mean we have to default on the money we’ve already borrowed,” says Schiff. “If we don’t restructure the debt, we’re going to inflate it away.”

Schiff argues that the world will stop accepting dollars if the US continues to print money. “The problem is every time the government stimulates the economy to create an artificial boom to postpone the pain, they make the inevitable bust that much worse.”

Gold at 1500, Gold Miners at 52w Low, Time To Double Down?

While gold is at $1,500 an ounce, Kinross Gold and Jaguar Mining hit 52w low today. Is this an opportunity to go long with them? or in fact these are the proof that the best way to invest in gold is to buy physical?

Investors buy gold mining companies and hope for the leverage they are supposed to provide over gold prices. But these companies like any other companies face operating issues that include:

1. Operating cost increase

2. Capital cost increase

3. Political crisis and therefore the risks

4. Mines are normally in the middle of nowhere and not easy to operate

5. Incompetent management - bad acquisitions

kinross gold stock

On the other hand, it is really hard not make money when your cash costs are below $800 an ounce! Is this time to double down? See the video below.

In 6 Days, JP Morgue Has 41% More Physical Silver.

It has been 6 days since I last looked at the CRIMEX warehouses to see where the inventory of silver is. Despite the massive sell off in the paper, there is 1.5 million LESS ounces in the vaults. In a REAL market of REAL supply and REAL demand, one would think that there must be a lot of new supply or less demand, right? Well, we live in Bizarro Bankster World where banksters can rig the paper game by raising margin requirements that force speculative paper buyers to dump their positions like they did the the Hunt Brothers. They can also naked short the paper market and never settle with unlimited fiat dollars and impotent and co-opted regulators waiting for their cushy bankster consulting jobs. The 8 largest banks are net short 150 days of GLOBAL silver production. There is not historical equivalent to this massive, unsettled short position. This is why I have only said to buy REAL physical silver as a Silver Bullet to bring this corrupt enterprise down and a Silver Shield to protect your family for a mathematically, inevitable global fiat currency collapse.

5/5/11 Report…

And today’s…

What we did not see in the Bizarro Bankster World, is a huge influx of REAL physical silver into the vaults despite over 8 times the global production of silver being paper traded last week. (Read…Observations of a Silver Smack Down and I Smell BS in the Silver Market.) And demand must be up, because despite the massive sell off, there is LESS silver in their hands. We are now below 33 million ounces in the registered category and at 101 million ounces overall.

In fact the only depository that is up in inventory is, drum roll please……. JP Morgue. Their brand spanking new depository has 41% MORE silver in it’s vaults than it did just 6 days ago. They went from 461,000 ounces to 651,000 in less than a week. Could Blythe and the Banksters be playing a huge paper game to get MORE physical silver? Maybe once JP Morgues vaults are full they will cover their silver shorts and send silver to the moon? Maybe Blythe can ride a real Silver Rocket, this time on the right side of history…

Friday update…

One day later JPM adds another 100,000 ounces overnight increasing its total holdings of REAL physical silver by 15%. And none of the holdings are in the registered category. Hmmmm…

Wake Some People Up!

Eric Sprott Says Banks Still Have Too Much Leverage on Balance Sheets

Eric Sprott, the Canadian money manager who in 2008 predicted banking stocks would collapse, said U.S. savers will eventually pull their money out of banks that are carrying too much leverage on their balance sheets.

Banks are levered 20 to 1 and their portfolios are mainly comprised of government bonds and mortgages, the founder of Sprott Asset Management Inc., said today at the SALT, or SkyBridge Alternatives, Conference in Las Vegas.

House prices keep going down, the number of people under water keeps getting worse,” said Sprott, 66, who is chief executive officer of the Toronto-based firm. “That leverage is going to work massively against anybody whose lender is in that area. The dominoes are starting to fall.”

Sprott said the “ultimate event” is that savers will take their money out of banks and invest in precious metals such as gold, which he says is now the world’s reserve currency. Sprott, who earlier this month predicted gold may climb to $2,000 an ounce before year’s end, said he started buying the metal in 2000.

“If you’re in Ireland today, you don’t have any money in banks, particularly if you’re non-Irish," he said. "If you’re in Greece you’re taking your money out. In Portugal you probably have concerns. If you have a fear of the banking system, you go to things like gold.”

Sprott, whose hedge funds and mutual funds mostly invest in energy and metals, said silver was “manipulated down” last week after it fell $6 in 13 minutes on a Sunday evening when trading was light.

Mortgage rates at 2011 low, but many won't benefit

Mortgage rates have hit lows for the year and could soon near the decades-low levels of last year.

Those rates are providing an incentive for buyers, along with falling home prices. They're tempting for refinancers, too.

Still, analysts say the combination isn't likely to lift the depressed housing industry or contribute much to the overall economy. In many metro areas, real estate is straining under the weight of foreclosures, higher down-payment requirements, tighter credit, still-high unemployment and buyers' expectations of even lower prices.

"If people aren't confident about the economy, about jobs and home prices, they certainly aren't going to sign up for the biggest purchase of their lives," said Greg McBride, a senior analyst at

But for those with jobs, money and creditworthiness, today's rates can be tantalizing.

This week, a qualified buyer could expect to finance a home over 30 years at an average fixed rate of 4.63 percent, according to mortgage buyer Freddie Mac. That's the lowest average rate in five months. In November, the rate hit a four-decade low of 4.17 percent.

The 15-year fixed mortgage, popular with refinancers, is down to 3.82 percent. That's also the lowest point since December.

Mortgage rates have fallen for four straight weeks, tracking the yield on the 10-year Treasury note. The 10-year yield has dropped as investors have snapped up Treasurys and other safe securities because of uncertainties about the global economy and the volatile prices of oil and other commodities.

Weak sales and a growing belief that prices have yet to hit bottom five years after the housing bubble burst have become a major obstacle for the economy. Homebuilding is down. Fewer first-time buyers are entering the market. The pace of home sales remains far below the level economists view as healthy.

But the biggest threat is foreclosures, said Mark Vitner, a senior economist at Wells Fargo. A wave of foreclosures is forcing down prices in most major U.S. cities.

About 3.7 million homeowners are at serious risk of losing their houses, according to the Mortgage Bankers Association. Foreclosures typically drag down the prices of nearby homes, putting even more homeowners in a financial bind.

More than a quarter of homeowners can't sell their homes because they owe more on their mortgage than their house is worth. And many would-be buyers are holding off on a purchase, mindful that prices might fall further.

"What good is a low rate if you're upside down on your mortgage?" said J. Philip Faranda, who runs a real estate firm in Westchester County, N.Y.

Even those who do feel ready to buy are having a harder time qualifying for a mortgage. The average credit score for a loan backed by Fannie Mae and Freddie Mac has jumped to 760, compared with 720 four years ago, according to the government-run mortgage buyers that back 90 percent of new loans. Fewer than half of American adults have credit scores as high as 760.

And banks are insisting on higher down payments. The median down payment rose to 22 percent last year in at least nine major U.S. cities, according to a survey by, a real estate data firm. That's up from 4 percent in 2006.

"Lenders are reluctant to hand out loans unless you can bring some skin to the deal, in the form of a bigger deposit," said Patrick Newport, U.S. economist for HIS Global Insight. "Until that changes, low mortgage rates aren't going to make that much of a difference. Credit is simply hard to get."

Home-loan financing has remained tight despite a wave of hiring, stronger consumer and business spending and a steadily rising economy. About 92 percent of banks say credit standards on mortgage loans have remained basically unchanged, according to the Federal Reserve's senior loan office opinion survey released last month. About 45 percent said demand for home loans has been moderately weaker.

"There aren't many buyers with deep enough pockets who can put 20 to 25 percent down," said Julie Longtin, a real estate agent with RE/MAX Cityside in Providence, R.I.

And only two-thirds of Americans view homeownership as a safe investment, down from 83 percent in 2003, according to a Fannie Mae survey this year. Few economists see home values rebounding this year.

"The concern is, `Are values going to go up at this point, or go down or flatline?'" said Ben Coleman, broker-owner of Century 21 Hartford Properties in San Francisco. "I've seen where interest rates were dropping, and it's almost like a `ho-hum.'"

The rate on the 30-year mortgage has spent most of the past year below 5 percent. Until last year, that would have been considered a bargain. This time, even those who could afford to buy will likely take a pass.

"What really may be the catalyst for buyers is when rates start moving back up," said Mark Zandi, chief economist at Moody's Analytics. "Rates are low and still seem to be falling, so there's no pressure now to pull the trigger."

Producer Price Index: More Evidence of Inflation

Today's release of the Producer Price Index (PPI) for April again reinforces the pattern of higherinflation. The year-over-year unadjusted producer price increase was the largest since September 2008:

The Producer Price Index for finished goods rose 0.8 percent in April, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. This advance followed increases of 0.7 percent in March and 1.6 percent in February. At the earlier stages of processing, prices received by manufacturers of intermediate goods climbed 1.3 percent in April, and the crude goods index rose 4.0 percent. On an unadjusted basis, prices for finished goods moved up 6.8 percent for the 12 months ended April 2011, the largest year-over-year gain since an 8.8-percent increase in September 2008. March 2010. More...

Here is an overlay of the Headline and Core (ex food and energy) PPI for finished goods since 2000, seasonally adjusted (hence the 6.6% YoY change versus the 6.8% unadjusted mentioned in the press release). As we can see, Core PPI declined significantly during 2009 but has been rising modestly since the late spring of last year.

As the next chart shows, Core PPI is more volatile than Core CPI. For example, during the last recession producers were unable to pass cost increases to the consumer. Likewise in 2010 the Core PPI generally rose while Core CPI generally fell. But in recent months that pattern has begun to change.

Tomorrow's CPI will be very closely watched. Will we see additional evidence that the much publicized evidence of worldwide inflation is coming home to roost in the U.S. household budget?

Why Copper Is the Metal to Watch

In recent weeks, metals of all sorts--precious and industrial--have taken a beating in a major selloff in the commodities market. Experts cite a number of reasons, including speculation, increased margin requirements (how much collateral investors have to put down), and concerns that the economic recovery may not be as strong as previously thought. But experts say the losses in copper are the most troubling.

While scarce precious metals like gold and silver are often perceived as safe havens or inflation hedges because of their inherent value, copper is an industrial metal that's seen as a leading indicator for the future of global economic growth. It's often called "Dr. Copper" because of its past success in forecasting the direction of the economy.

"Oftentimes, the price action in copper indicates what's going on in the global economy because it's used so much for so many industrial purposes," including electrical wiring, says Sean Brodrick, small-cap and natural resource analyst for the blog Uncommon Wisdom Daily. "The breakdown we're seeing in copper right now looks quite ominous."

The price of copper fell about 5 percent last week, to below $4 per pound for the first time this year, and Brodrick believes it could continue to decline. His target price for the metal is $3.50 per pound.

As the price of copper falls, the assumption is that economic activity, manufacturing, and construction are slowing down, says Christian Magoon, CEO of asset management consultant firm Magoon Capital. "You would expect [the price of] copper to be hurt by poor economic conditions," he adds.

Experts say a growing number of concerns about the stability of the global recovery are weighing on the industrial metal. A number of mixed economic reports have come out recently in the United States. The jobs report in April showed improvements, but the unemployment rate still remains stubbornly high. And last month's first-quarter GDP report revealed an economy growing at a sluggish pace of 1.8 percent because of a number of factors, including higher oil prices.

Economic growth also looks threatened overseas. Copper's course is greatly influenced by economic activity in China. "China's at the center of [the demand for copper] because they're by far the biggest consumer in the emerging markets story," says Ted Wright, director of portfolio management for Genworth Financial Asset Management. Brodrick says the Chinese government occasionally tries to interfere in the copper market to push the price of the metal down. In recent months, the Chinese government has been forced to raise interest rates a number of times because of inflation concerns. Higher interest rates generally cause a slowdown in economic growth.

Investors in copper-related funds have benefited from copper's rise in recent months. Two exchange-traded funds, Global X Copper Miners (symbol COPX) and First Trust ISE Global Copper Index (NasdaqGM: CU -News), track copper mining companies or other copper-related stocks. Over the past 12 months, both funds have gained about 50 percent. But over the past month, the funds are each down about 10 percent.

Fair Value for Oil is $60

According to Rex Tillerson, CEO of Exxon Mobil, oil should really only be worth 60-70 bucks a barrel right now - Market Beat's Mark Gongloff notes that this would mean its current price is somewhere around 40% overvalued.

The name of Tillerson's game is ending the oil company subsidy debate as soon as possible. He's at the Senate Finance Committee hearing on the subject as we speak. Tillerson's gambit is to put "speculation" on trial rather than allow the conversation to focus on "greedy oil execs".

In truth, big producers like Exxon are not necessarily in favor of skyrocketing oil prices. They are typically hedged anyway thus that upside capture simply isn't there. They are then faced with climbing acquisition and exploration costs as everybody on the equipment and services side raises prices.

The integrateds have done very well for themselves thus far in 2011 - first quarter profits for the big five majors totaled around $34 billion. The last thing they want is too much of a spotlight on this, and nothing focuses that spotlight like $100 oil prices or 4 bucks a gallon at the pump.

Here's a look at the way big oil executives view the price of crude and what it means for them:

A huge sign of a top in commodities

From Bloomberg:

Glencore International Plc received enough demand from investors for its $11 billion initial public offering to sell the shares more than twice over, according to three people with knowledge of the matter.

Highbridge Capital Management LLC, a hedge fund owned by JPMorgan Chase & Co., proposed a $500 million investment, said one of the people, who declined to be identified because the information isn't yet public. The last orders for the offer are due on May 18, with final pricing to be disclosed the following day, according to a term sheet for the sale.

Demand for stock in the world's largest commodities trader has weathered a rout in raw materials prices last week, the biggest in two years, which wiped out $99 billion of market value. The IPO, the largest since General Motors Co. sold stock in November, will give Glencore a value of $61 billion if priced at the midpoint of its offer range, the company said last week.

Glencore is offering as many as 1.25 billion shares. London shares are priced at 480 pence ($7.84) to 580 pence each, a prospectus published last week shows. The company today priced stock to be listed in Hong Kong, representing 2.5 percent of the total offer, at HK$61.24 ($7.88) to HK$79.18.

Citigroup Inc., Credit Suisse Group AG and Morgan Stanley are among banks managing the IPO. Current holders may sell additional shares for tax purposes, while an overallotment options brings the total offer to $11 billion.

Cornerstone Investors

Demand was spurred by interest from so-called cornerstone investors, including Abu Dhabi's sovereign wealth fund and BlackRock Inc., which agreed to buy 31 percent of the shares in total, three people with knowledge of matter said last week, declining to be identified because the information is private.

Glencore's inclusion in the U.K.'s FTSE-100 Index of stocks also likely fueled demand as it promotes buying by funds tracking the benchmark, Paul Galloway, a London-based analyst at Sanford C. Bernstein Ltd., wrote in a May 6 report.

Dave Millar, a spokesman for New York-based Highbridge, and Simon Buerk, a spokesman for Baar, Switzerland-based Glencore, both declined to comment when contacted by Bloomberg News.

Glencore "has got characteristics that are quite attractive and that is because it's not a pure commodity-related play, that it is quite defensive," JPMorgan's Ian Henderson, a manager of about $10 billion in natural-resource assets, said in a May 6 interview. "In theory Glencore should outperform in periods of commodity price weakness. So it does have a role to play in portfolios."

Commodities Slump

Slumping commodities, on the other hand, erode the value of Glencore's corporate investments. The trader's 10 largest holdings, including a 34.5 percent stake in Xstrata Plc, fell 7.4 percent last week, slashing about $2.4 billion off their value, according to an index of the company's investments.

Slower U.S. services growth and fewer German manufacturing orders helped drive the Standard & Poor's GSCI Index of 24 raw materials down 11 percent, the most since December 2008.

Global investors have tempered their optimism about the U.S. and world economies and plan to put more of their money in cash and less in commodities over the next six months, a Bloomberg survey found.

Almost 1 in 3 of those questioned said they will hold more cash, while 30 percent intend to reduce investments in commodities, according to a quarterly Bloomberg Global Poll of 1,263 investors, analysts and traders who are Bloomberg subscribers. Both results were the highest since the survey began asking the question last June.

Market 'Froth'

Much of last week's slump in commodity prices was the result of "froth" in the market, "a lot of speculators who are taking long-term positions on commodities," Glencore Chief Executive Officer Ivan Glasenberg, speaking from London, told a Hong Kong press conference today. "We still see strong demand in Asia, continue to see mining companies struggling to produce, to increase production to meet this demand. Underlying fundamentals remain strong."

Glencore is eligible as a "fast entrant" to the FTSE U.K. Index Series and will be included in the FTSE-100 Index on May 25, FTSE said in a May 6 statement.

Inclusion in the index ensures Glencore "will become an essential investment for index-tracking funds," Bernstein's Galloway said. Such funds may buy about 13 percent of the equities on offer in the IPO, he said.

"The fact that it is going be in the index early on means that there is going to be natural buying," Henderson said.

Glencore is ending more than three decades of operating as a closely held partnership. The company changed its name from Marc Rich & Co. after management bought out former fugitive U.S. financier Rich in 1994. It employs 2,700 people at trading units in 40 nations and about 54,800 people at industrial units in more than 30 countries.

Aabar Investments PJSC, an investment arm of the Abu Dhabi government, is investing $850 million, and BlackRock is buying $360 million of shares, making them the two biggest cornerstone investors. Credit Suisse, Fidelity Investments, Government of Singapore Investment Corp., UBS AG, Zijin Mining Group Co. and a number of hedge funds are also investing, the prospectus shows.

Dollar Index Breaks Above 50-DMA

While commodities as a whole started to fall apart again today, it should not be too much of a surprise to see strength in the dollar. With today's 1% rally, the US Dollar Index is now up nearly 4% off its lows a week ago, and it is now trading back above its 50-day moving average for the first time since January 13th.

SLV Trading At A Record Discount To NAV

Probably the strangest development in the world of ETFs today is that the silver ETF, SLV, was trading at a discount to its most recently disclosed NAV of 38.1932 at well over 10% earlier, when the spot price of silver dropped to just over $32: an all time record. So momentum-based and emotional is the trading in precious metal ETFs now that there appear to be gaping arbitrage opportunities within these high volume products. Granted, the NAV is updated once a day, and we expect that should today's silver paper price not revert to the NAV, that the NAV will decline. Alternatively, if the price drops, the discount to NAV could creep to yet another all time low. And while these are merely artificial ETF mechanics, which can and should not be traded merely for the sake of their manifestation in the market, the reality is that total COMEX silver just dropped to another fresh all time low, following another 250k ounce reclassification from Registered to Eligible, and the withdrawal of 444k ounces, offset by the receipt of 109.760 ounces by JPMorgan (of all COMEX banks).