Thursday, June 4, 2009

Peter Grandich on BNN

Record Levels of Deficit Spending

Economic recovery is wishful thinking

Last week we got a whole series of bad reports on the state of the economy. New and existing home sales both remain near their lowest level for the downturn, as house prices continue to drop at the rate of 2% a month. New orders for capital goods, a key measure of investment demand, fell by 2% in April. Excluding the volatile transportation sector, new orders were still down by 1.5%.

On Friday, the Chicago Purchasing Managers Index fell by more than 5 percentage points from its April level, approaching its low for the downturn. The employment component of the index did hit a new low.

These reports might have led to gloomy news stories, but not in the US media. The folks who could not see an $8tn housing bubble are still determined to find the silver lining in even the worst economic news. (more)

GOLD Is Set To Double This Coming Fall

Since its March 10 low of 666, the S&P 500 has rallied more than 20%. Pundits and media commentators alike have taken this to mean that the bear market is over and that stocks should once again be the primary asset class for investors.

The bullish bias has taken professional money managers as well.

Barron's "Big Money Poll" (a survey of 100 money managers nationwide) produced an overwhelmingly bullish skew: 60% of respondents were either bullish or extremely bullish about stocks for 2009. All told, 66% expect to put more money to work in equities within 12 months.

Lest you start believing these guys know what they're talking about, let's consider their collective track record for the financial crisis thus far: (more)

Too Far Too Fast? What's Likely To Happen Now?

This year's bad economic news overshadowed the aspect of geopolitical risk, which again reared its ugly head over the past few weeks. North Korea has conducted a new nuclear test and fired short range missiles. Iran has made several moves that in slower news cycles would have dominated the headlines. Israel, worried about the situation in Iran, is conducting a five day drill, dubbed 'Turning point 3," to prepare Israel's rapid response capabilities in the event of simultaneous missile strikes and terrorist attacks. All this is bad enough without mentioning other flash points, such as Afghanistan, Pakistan, Nigeria and Venezuela. (more)


Last week, the U.S. bond market fell substantially and yields rose as investors finally began to see the obvious: Quantitative Easing (the purchase of U.S. Treasury bonds by the Federal Reserve) and its potential inflationary pressures are weakening the U.S. dollar.

As most economists will tell you, the U.S. economy is in a depression. Statistically speaking, most depressions are deflationary and therefore accompanied by a fall in interest rates. However, the bond market’s recent behavior provides evidence that the current depression is not deflationary. On the contrary, inflationary pressures are building and interest rates are rising. Bond investors, looking ahead and seeing a light, are realizing that it is the headlight of an oncoming train…and this oncoming train is the trillions of dollars of U.S. bonds which must be floated by the Federal Reserve in the next few years. The consequences of this flotation will include a weakening of the dollar and an increase in interest rates. Investors are finally awakening to this trend which we believe will continue for some time. (more)

McAlvany Weekly Commentary

Tim Geithner In China: A Comedy of Errors
By admin ⋅ June 3, 2009 ⋅

Click here to listen

The Top 10 Reasons to Hold Gold: Part 1

Christopher Barker
May 26, 2009

Within the inflation debate, few investment topics stoke such contentious discussions as gold. Whatever Fools think about the metal, they hold those views strongly. As the relevance of gold in the context of macroeconomic developments grows even clearer, I offer this consolidated treatment of the top 10 reasons to hold gold through the next several years.

1. Awash in a sea of trillions
First, retire the notion that gold is a commodity. With its pedigree as an ancient and universally recognized physical store of value, gold is held by central banks as a reserve currency. Gold remains a crucial anchor for the planet's relatively short-lived and frankly unimpressive experiment with unbacked fiat paper money. While paper money can become encumbered by debt, obligations, and the ravages of a printing press, gold cannot. (more)

German debts set to blow 'like a grenade'

Germany's financial regulator BaFin has warned that the toxic debts of the country's banks will blow up "like a grenade" unless they take advantage of the government's bad bank plans to prepare for the next phase of the crisis.
Jochen Sanio, BaFin's president, said the danger is a series of "brutal" downgrades of mortgage securities by the rating agencies, which would eat into the depleted capital reserves of the banks and cause broader stress across the credit system. "We must make the banks immune against the changes in ratings," he said. (more)

Betting the farm

Garry Whit

Monday, June 01, 2009

You are going to have to get used to the fact that you will have to spend a greater proportion of your income on food in the future - after decades of spending less.

That's according to Joakim Helenius, chairman of Trigon Agri, an integrated soft commodities producer in the Ukraine and Russia. He believes that food inflation has only just started - and he is not alone.

Commodities perma-bull Jim Rogers thinks people should not buy shares - he says they should buy commodities instead, especially agricultural commodities. (more)