BNN: Top Picks

Jeff Black, director and portfolio manager, Crestridge Asset Management, shares his top picks.


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Markets could correct in October-November: Marc Faber

You are known as Mr Contrarian in India. You always like to advise the reverse of what the global consensus is. The current global consensus is ‘buy emerging markets and sell US bonds’. What is your take?

That’s correct and there in general, I am still positive about economic growth in the emerging world. But what disturbs me at the present time is that in late August, sentiment was very negative worldwide and people said that Dow will drop to 1000 and so forth and so on. Suddenly now, the consensus is that you have to be in equities, you have to be in gold, you have to be in assets because central banks around the world will print money. That is correct, they will print money. But sentiment has become so universally bullish that about all assets, including especially emerging economies - in US dollar terms - are up. The Indian market this year is already up 19%, Malaysia 28%, the Philippines, Indonesia and Thailand each over 40%.

We already have big moves and I see all the brokers upgrading the earnings estimates and so forth. So I become a little bit apprehensive about this universal bullishness. I would rather think that after a strong month of September - when everybody was expecting September to be a horrible month - October and November may be bad months. In the past, October has frequently been a disastrous month like we had the October 1987 crash, we had the late September-early October 1929 crisis. In 1976 and 1978, we had very bad months in October and November. So who knows, out of this present bullishness, we could have some kind of a sharp correction developing. (more)

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McAlvany Weekly Commentary

The Corruption of Capitalism: An Interview with Richard Duncan

Posted on 29 September 2010.

Richard Duncan is the author of The Corruption of Capitalism and The Dollar Crisis: Causes, Consequences, Cures – the bestseller that accurately predicted the global economic crisis that began in the 2008 and the government’s unorthodox policy response to it. Since beginning his career as an equities analyst in Hong Kong in 1986, Duncan has served as a global head of investment strategy at ABN AMRO Asset Management in London, worked as a financial sector specialist for the World Bank in Washington DC, and headed equity research departments for James Capel Securities and Salomon Brothers in Bangkok. He also worked as a consultant for the IMF in Thailand during the Asian Crisis and is now chief economist at Blackhorse Asset Management.

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What’s Really in the Social Security Trust Fund?

“You’re kidding, right?” a Daily Reckoning reader wrote after our briefing from last week: “The End of Social Security As We Know It.” “Are you the only ones who believe in the accounting farces that are the Social Security and Medicare ‘Trust Funds’? Every dollar in both of those funds has been spent by the US Treasury…”

We weren’t kidding, dear reader… There’s only so much reckonin’ we can do in one day. Last week we chronicled a turning point for retirement in America: On September 30, the Social Security Trust Fund will officially begin paying out more than it’s taking in. Now, you – and many others who wrote in – provide an inadvertent introduction to our final question in this Social Security Series: What, exactly, is in that fund?

The quick answer is this, as we noted Saturday. “With $2.6 trillion left in the Social Security war chest, there is no immediate threat to the status quo.”

The Social Security Trust Fund is, in fact, worth roughly $2.6 trillion. The status quo is safe at the moment. But as you hinted, there isn’t a single US dollar in that fund…and anyone who thinks the money they’ve been sending the government to pay for retirement is neatly stacked in a giant vault – some super-sized swimming pool of money – has the wrong idea. (more)

RUMOR?: Federal Reserve Note to be Devalued in Next Few Days - Stock in Food NOW

This arrived from one my long time friends who never passes on info unless he's pretty sure it's true.

Folks,

In the last 24 hours I have had reports that the Government is about to devalue the Federal Reserve Note in the next several days. If the information I received is correct then the reduction is going to be major, approximately 10% of its present value.

If this happens there will be major increases in the cost of food, gasoline and almost everything that is real product, not paper. Therefore I recommend that you consider buying some food ahead of this change. That means that you need to do it today or at the latest tomorrow.

Obviously this could be an error, but I do know that the 82nd Airborne has been put on 18 hour alert for deployment in this country and that I have verified. The only reason I can see to do that is to help control populations in big cities where we could see major rioting. At the time I first found out about that I could not figure out why, but this currency change could be the explanation.

In any case being prepared with some additional food is wise I believe. Most of us can't do anything about the fuel cost, but we can do what we can with the other things that are going to change in price if this devaluation occurs. (more)

Dave

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U.S. Economy "Close to a Destructive Tipping Point," Glenn Hubbard Says

"America is very close to a destructive tipping point," co-authors Glenn Hubbard and Peter Navarro warn in their new book Seeds of Destruction. "We must change how we conduct our politics and economics...or we will inevitably go the way of all once-great nations and suffer an irreversible decline."

Hubbard, dean of Columbia Business School, joined Dan Gross and I to discuss the "major structural imbalances" facing America, chief among them being the government's profligate spending.

Hubbard, you may recall, was chairman of the President's Council of Economic Advisers during George W. Bush's first term. As you might expect, he is a strong advocate of smaller government and lower taxes. But Hubbard and Navarro, a business professor at UC Irvine, are also harshly critical of Bush's "gross mismanagement" of the fiscal stimulus bequeathed to his administration by President Clinton. Specifically, Hubbard chastises his former boss for the creation of a new unfunded federal mandate, Medicare Part D.

But if Bush was a big spender, President Obama is "taking it to a whole other level," Hubbard says, citing the familiar critiques of ObamaCare and Financial Reform and "excess government spending" in general. (more)

Another Downleg in Housing Prices

By Dirk van Dijk

In July, home prices started to slip again, but unevenly across the country. The Case-Shiller Composite 10 City index (C-10) rose 0.03% on a seasonally adjusted basis, and is up 4.01% from a year ago. The broader Composite 20 City index (which includes the cities in the C-10) fell by 0.13% on the month and is up 3.13% from a year ago.

In June, the year-over-year gains were 5.02% for the C-10 and 4.22% for the C-20, so it looks like the year-over-year gains are rolling over. Of the 20 cities, only four posted gains on the month, while 16 saw prices fall. Year-over-year, 10 metro areas saw gains and 10 suffered losses. In June, 15 were up year over year and 5 were down.

There is a seasonal pattern to home prices, and thus it is better to look at the seasonally adjusted numbers than the unadjusted numbers. Most of the press makes the mistake of focusing on the unadjusted numbers. While the 4.01% rise in the C-20 is good news, it hardly makes up for the damage that was done in the popping of the housing bubble, and it is also unlikely to last. (more)

Gerald Celente, Trends Research: The Future Has Arrived

Gold is trading at $1309 per ounce as fears of a currency crisis spread worldwide. Most of those fears will soon be realized, and then some. "Current events form future trends." Today, all across Europe, people are taking to the streets to protest massive bailouts to save the banks while austerity measures and taxes are imposed upon them.

As a former subscriber to the Trends Journal, none of this should come as a surprise. Virtually every aspect of the current dire situation was foretold. The EU-meltdown and continent-wide strikes were confidently predicted in the Trends Journal^® over the years – even as the IMF and Central Banks were talking "recovery."

We have not often missed, and in most cases, what may appear to be misses, are simply postponements; results of some new scheme dreamed up by the power structures to forestall still more (white) shoes dropping. And drop they will.

But, on the plus side, as many grateful subscribers report back to us, by listening to Trends Journal forecasts and putting money in gold, they multiplied their investments by as much as 500 percent. Others thank us for trend insights that inspired them to branch out in new directions and start up new ventures. (more)

Today in Commodities: Interim Tops and Bottoms

Crude oil broke out to the upside today, confirming that the next leg is likely higher, closing back above the 50 day MA; in November at $77.35. From here next stop should be $79.15 and a settlement above that level should bring $82/83 in the month of October. Heating oil was able to close above previous resistance gaining nearly 3.50% today, and RBOB looks bullish as well, trading up by 2.35% today. A settlement over the $2/gallon level in November is required for confirmation in RBOB. Natural gas is biding time trading sideways today dancing around the $4/level. We’re suggesting scaling into November and December futures and purchasing at the money December call spreads. We’ve revised our upside target in the November contract from $4.76 to $4.53.

We remain convinced that the indices are overstretched to the upside, thinking the 10% rally in the last month will be cut in half. The next leg lower should drag the S&P to 1087 and 10000 in the Dow.

In the last 2 weeks cocoa has gone from oversold to overbought lifting prices back above the 50 day MA having gained 10%. We will be looking to get clients short December 10′ or March 11′ contracts in the next few days…stay tuned. Sugar looks toppy but it has for the last 10-15% so wait for confirmation of a top. Cotton was down limit today giving up 3.8%. Another market that we feel is over priced and we’ve again put shorts on our radar. Some clients got short coffee yesterday and we’re temporarily rewarded today with coffee down 1.69%. This is an unrealized profit so we’re not celebrating just yet. My downside target is $1.72 and then $1.65. On that clients should be able to pick up 35-50% on their options… stay tuned. Clients were advised to take a small loss on their feeder cattle today; just over $100 including fees/per position. As long as live cattle hold the trend line in December at 98.50 we will remain bullish. (more)

'Euro teetering on the edge, austerity measures inevitable'

Don't Get Shaken Off the Gold Bull Market

The question now is not whether Gold will go higher or not. Most of us know the primary trend is higher and will continue in the years ahead. The real question is three-fold. Are you invested? How much are you invested? Will you hold on? Going forward, as the bull strengthens and as more come on board the last question becomes most pertinent. Let me present you with some quotes that will elucidate my point.

Jesse Livermore once said: "It was never my thinking that made the big money for me. It always was my sitting. Got that? My sitting tight! Men who can both be right and sit tight are uncommon."

I believe Richard Russell said that the job of a bull market is to throw off as many people as possible along the way. After all, if everyone jumped on board all at once, the bull market wouldn't be sustainable.

Finally, consider this wisdom from Dr. Marc Faber. "An investor could have done very well over the last 30 years with just a handful of investment decisions. In 1970, a long-term investor should have bought gold, silver, and oil (commodities); in 1980, he should have sold his gold and oil and bought Japanese stocks; then, in 1989, he should have switched out of Japanese stocks into the S&P 500 or, ideally, into the Nasdaq, which he should have sold at the beginning of 2000." (more)

World gripped by 'international currency war'

The Guardian,
The world is in the midst of an "international currency war" according to Brazil's finance minister as governments force down the value of their currencies to boost their struggling economies.

The comments are the first public admission made by a senior policymaker about a practice which has become increasingly widespread since the global economic downturn.

Many countries, notably China, have been deliberately weakening their currencies by selling them on foreign exchanges or keeping interest rates artificially low to make their exports cheaper.

Economists fear that such moves are resulting in increasing currency volatility and instability. Increasing competition among individual countries to devalue also makes it harder to mount a co-ordinated policy response to the economic downturn, particularly amid fears of a renewed slowdown. (more)

10 Things Your Real Estate Broker Won't Say

1. “Your open house is really just a networking party for me.”

Hire a real estate broker to sell your home, and one of the first things he’ll likely suggest is hosting an open house so that potential buyers can casually check out your property on a weekend afternoon. But while open houses are promoted as a great way of finding a buyer, a National Association of Realtors study found that their success rate is quite slim.

No matter. Holding an open house serves another important purpose—for the broker. “It gives him a database of clients,” says Sean McNeill, an independent real estate broker based in New York City who says that he doesn’t like open houses, preferring to match clients with appropriate buyers. “At open houses, you get all kinds of people walking in. Some are [trying] to see how much they should sell their own places for; others just want to get a look at what’s out there.” All are perfect pickings for a broker looking to increase his roster of buyers and sellers. “Think about it,” McNeill says. “The broker is devoting a couple hours of a weekend. He won’t do that unless it helps him in a big way.” But it doesn’t necessarily mean that a seller should forego an open house altogether—says McNeill, “It’s still a real good way to showcase your house.”

2. “My fees are negotiable.”

Brokers like to make it sound as if their fees are engraved in stone, but that’s rarely the case. During the housing bubble, for example, as the number of brokers sharply increased, so did the competition for listings—one broker says he lowered his fee by a full percentage point just to give himself an edge.
The broker we spoke with, who asked not to be named, says that sellers should always shop around for better terms and has some suggestions for the best conditions to induce brokers to lower their fees: “If somebody’s willing to commit to me for selling one place and buying another,” or “If you’re in a particularly desirable neighborhood with a house that will bring a lot of traffic” for an open house. And with a lot of smaller brokers, he says, “all you need to do is ask and they’ll lower the commission. (more)

Former China Adviser: US Dollar Is 'One Step Nearer' to Crisis

The U.S. dollar is “one step nearer” to a crisis as debt levels in the world’s largest economy increase, said Yu Yongding, a former adviser to China’s central bank.

Any appreciation of the dollar is “really temporary” and a devaluation of the currency is inevitable as U.S. debt rises, Yu said in a speech in Singapore today.

“Such a huge amount of debt is terrible,” Yu said. “The situation will be worsening day by day. I think we are one step nearer to a U.S.-dollar crisis.”

Yu also said China is worried about the safety of its foreign-exchange reserves including those invested in U.S. Treasuries as the U.S. currency weakens, reiterating his earlier views on the dollar assets. The U.S. will record a $1.3 trillion budget deficit for the fiscal year ending Sept. 30, the Congressional Budget Office said Aug. 19.

The estimated budget deficit for this fiscal year would be equivalent to 9.1 percent of gross domestic product, the CBO said. That would make it the second-largest shortfall in 65 years, exceeded only by the 9.9 percent in 2009. (more)

Jay Taylor: Turning Hard Times Into Good Times

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On the Brink of a Secular Bull Market in Precious Metals

In our “Commentary on Gold” dated November 11, 2008, we made some outlandish claims about the lack of performance by three undisputed experts on gold. One claim that we made was that “…when the price of stocks fall so too does the price of gold, and to a greater degree, gold & silver stocks.” This was said after the precious metals and the XAU and HUI indexes had already hit their final lows on October 24, 2008 and October 27, 2008 respectively. We demonstrated our claim through research performed by David Marantette which showed that from 1975 to 2001, declines of 10% or more in the Dow Jones Industrial Average resulted in larger declines in the gold stock indexes and the price of gold. We completed the research by providing the data from 2001 to 2007.

The point of our December 9, 2008 article was best summed up in our closing paragraph:

“The long term trend in gold and silver stocks as demonstrated by the Philadelphia Gold Stock Index (XAU), which was initiated in November 2000, will eventually head permanently higher. The continuation of that trend will be among the key indicators that the bear market in stocks is at or near an end.” (more)

Meredith Whitney: Next Shoe to Drop Is Municipal Bonds Markets

(more here)

How Realistic Is $5,000 Gold?

Taking into account 11 key measurements based on historical movements and price ratios, gold is likely to exceed $5,000 and silver is likely to exceed $200 within the next 5 years. If silver reverts to its historical ratio of 16 to 1 with gold, then it could rise even higher. Let me explain. Words: 795

So says Chris Mack (tradeplacer.com) in a recent article* which Lorimer Wilson, editor of www.munKNEE.com, has reformatted into edited [...] excerpts below for the sake of clarity and brevity to ensure a fast and easy read. (Please note that this paragraph must be included in any article reposting to avoid copyright infringement.) Mack goes on to say:

In recent weeks gold and silver have broken through their multi-month consolidation levels, and investors are wondering where the precious metals are headed. On a short term basis both gold and silver are overbought and due for a correction that may retest the breakout levels of $1,250 on gold and $20 on silver.

$1,500 Gold and $30 Silver By 2011
On a longer term basis, gold is at an all time high and silver is at a 30 year high. These breakout levels were key because they removed any supply of sellers wanting to sell near their previous purchase prices. The result will be a vacuum in price discovery, because virtually any investor in gold and silver now has a profitable trade and the price will have to rise until enough of these investors decide to take gains. Projecting from the size of the consolidation in precious metals the next key level where sellers arise could be near $1,500 gold and $30 silver by 2011. (more)

Chart of the Day

Peak Oil? Why not Peak Water

globalresearch.com,

Peak Oil? Why not Peak Water, after all, water is much more crucial to life than oil ever will be and it's being consumed in vast quantities by the same economic system that chows oil?

In fact, water is a far more potent and relevant symbol of the way capitalism chows the planet than is oil. Although it too is a finite resource, it also a renewable resource through the process of recycling, something that is done by nature in another of its amazing cycles that keep (kept?) the biosphere stable; what we call homeostasis where life, chemistry, physics and geology all meet. Water is thus far more symbolic of the irrationality of capitalist production than is oil, where even a renewable resource is consumed by capitalism.

This is why I just cannot get my head around the fact some on the left (who I think should know better) are buying into the 'peak oil' BS. 'Running out of oil' is essentially a problem for capitalism, but not for you and me. In fact, 'running out of oil' maybe a blessing in disguise. Just think, we could once again be living in a world without plastic bags![1]

Clearly, oil and gas are non-renewable resources[2] but then so is every other element, mixture and compound present on Earth.[3] What makes oil so important is its centrality to capitalist production and especially its ability to wage war, that's why there's all the fuss about it[4]. But why has the left bought into this 'peak oil' BS? (more)

Faber: "Accumulate Gold and Keep it as Cash"

Taleb Bullish on Canada

(Bloomberg) -- U.S. President Barack Obama and his administration weakened the country’s economy by seeking to foster growth instead of paying down the federal debt, said Nassim Nicholas Taleb, author of “The Black Swan.”

“Obama did exactly the opposite of what should have been done,” Taleb said yesterday in Montreal in a speech as part of Canada’s Salon Speakers series. “He surrounded himself with people who exacerbated the problem. You have a person who has cancer and instead of removing the cancer, you give him tranquilizers. When you give tranquilizers to a cancer patient, they feel better but the cancer gets worse.”

Today, Taleb said, “total debt is higher than it was in 2008 and unemployment is worse.”

Obama this month proposed a package of $180 billion in business tax breaks and infrastructure outlays to boost spending and job growth. That would come on top of the $814 billion stimulus measure enacted last year. The U.S. government’s total outstanding debt is about $13.5 trillion, according to Treasury figures. (more)

15 Bone Chilling Signs That Part Two Of The Double Dip Housing Crash Has Begun

These are harrowing times for anyone trying to sell a home or for anyone who is trying to make a living in the housing industry. But unfortunately, there are a whole lot of signs that things are about to get quite a bit worse. U.S. home sales have hit record lows in recent months. An increasing number of sellers have started to reduce their asking prices, and there are signs that home prices are already starting to slip substantially in many areas of the country. Meanwhile, the inventory of unsold homes in the United States continues to rapidly increase. Home foreclosures and bank repossessions of homes continue to set all-time records. What this all means is that the U.S. housing market is being absolutely flooded with homes for sale at a time when there are very few buyers. There is way too much supply and not nearly enough demand and as a result home prices are being pressured downward. The home buyer tax credits that the U.S. government was bribing home buyers with helped stabilize the U.S. housing market for a while, but now the tax credits have expired and things are getting scary out there.

In a previous article about this housing crisis, I detailed how there simply is not going to be a "recovery" in the U.S. housing market until there is a jobs recovery. But at this point, even the most optimistic cheerleaders for the economy are admitting that unemployment is going to remain high for quite some time.

But if the American people do not have good jobs then they can't buy homes. (more)

Dow `Super Boom' to Drive Average to 38,820 by 2025, Hirsch Says

Bloomberg,

The Dow Jones Industrial Average will surge to 38,820 in an eight-year “super boom” beginning in 2017, according to Jeffrey A. Hirsch, editor in chief of the “Stock Trader’s Almanac.”

“All previous major economic booms and secular bull markets were driven by peace, inflation from war and crisis spending, and ubiquitous enabling technologies that created major cultural paradigm shifts and sustained prosperity,” he wrote in a press release sent with the 44th edition of the book.

Hirsch’s forecast comes more than a decade after James K. Glassman and Kevin A. Hassett predicted the Dow would rise to 36,000 by 2005 in “Dow 36,000,” a New York Times bestseller. The 114-year-old average ended 1999 at 11,497.12 and sank as low as 7,286.27 in 2002 following the Internet bubble. The Dow then jumped to a record 14,164.53 in 2007 and fell to 6,547.05 in March 2009 after the worst financial crisis since the 1930s.

“He’s got some crazy number on there,” said Frank Ingarra, a Stamford, Connecticut-based money manager at Hennessy Advisors Inc., which oversees about $900 million. “We’ve had probably one of the worst 10-year periods in history, and I think there’s just too much overhang with the government for it to get to those numbers.” (more)

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Gold’s next hurdle is 1980’s inflation-adjusted peak

(MarketWatch) — Gold hit a long-anticipated high-water mark Friday, briefly breaking through $1,300 an ounce. But the precious metal still has a long way to go to reclaim its inflation-adjusted all-time highs.

A gold investor who bought an ounce of the metal at its January 1980 peak would need gold to advance by more than $1,000 an ounce from today’s record levels to come out ahead when 30 years of inflation are taken into account.

People who bought gold in 1980 “have not even halfway broken even,” said Jon Nadler, a senior analyst with Kitco Metals.

On Friday, gold for December delivery, the most active contract, posted an intraday high of $1,301.60 an ounce and closed at $1,298.10 an ounce on the Comex division of the New York Mercantile Exchange. That was its sixth record high in the past seven sessions. Read more on metals stocks.

The $1,300 mark “was the line in the sand between bulls and bears,” said Adam Klopfenstein, a senior market strategist at Lind-Waldock in Chicago.

Gold bulls had been yearning to cross that mark since gold first made forays into record high territory in May, amid the flare-up of the European debt crisis. Even many gold bears had admitted gold was on track to hit $1,300 an ounce later this year or next year. (more)

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Rare Earth Investment Potential Is Great... If You Are Patient

Rare earth metals are becoming all the rage in investing circles. It began with James Dines’ recommendation in May 2009.

Europium

Dines has been known to forecast long term bull markets before they begin with surprising accuracy, so it was no surprise that his recommendation to invest in Rare Earth minerals jump started the buzz and put rare earth investing on the map for the general public.

Since that newsletter was published, several rare earth stocks have taken off. Most notably, Molycorp (MCP) has spiked to 28.49 since the IPO in August. Clearly investors are front running the stock since domestic development of rare earths lags that of Chinese competitors. China accounts for 95% of rare earth mineral supply. Here is a chart showing crucial mineral production areas, including rare earth. (more)

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Japan: the next global time bomb?

We try to avoid hyperbole as much as possible at Hedgeye, the research firm where I work as an analyst. But after researching Japanese demographics and pension obligations, we have to say that in our opinion, they present one of the most dangerous potential risks to global investing over the next 10-20 years.

For background, let's explain Japan's demographic headwinds, which often get bandied about without much supporting data. For starters, with 22.7% of its population above the age of 65 (as of 2009), Japan has the world's oldest population. That figure will continue to grow; Japanese government projections raise the ratio to 29.2% by 2020 and 39.6% by 2050.

Currently, the ratio of retirees to working-age Japanese is 35.5%. In just 10 years time, retirees will make up 48%. In a society notorious for luxurious pension packages, going from a 3-to-1 to almost a 2-to-1 ratio in contributors-to-retirees in a matter of just a decade is frightening to say the least. And it doesn't get any better: By 2050, the ratio of retirees to working-age population will reach 76.4%, according to projections from Japan's Ministry of Health, Labour and Welfare. (more)

Watch out for bond mines

by Andrew Pyle, Wealth Advisor ScotiaMcLeod,
Last week, the Federal Reserve did something it had done 13 times prior. It kept its official fed funds target rate unchanged at 0 to 0.25 per cent.

I know – a big snore. But wait, the Fed also repeated the less common promise to unveil the sequel to quantitative easing, the so-called QE2.

Yes, that stimulative tease was conditional on things in the economy not getting any better and, more importantly, on inflation staying below what the Fed considers satisfactory.

However, even though there was no date set for when the Fed might engage in bond buying, nor how it would do so, the fixed income market ate it up all the same.

Look Out Below

Following the announcement, the U.S. two-year Treasury yield dropped to a record low 0.41 per cent and longer-dated bond yields fell sharply as well. Throw in a sluggish equity market after the FOMC and we saw the 10-year U.S. yield dip back below 2.6 per cent and the 30-year fell under the 3.75 per cent mark - both not too far from the lows seen back in late-August. (more)

BNN: Berman's Call

Larry Berman takes your calls and email questions on stocks, ETFs, bonds and more.


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Thriving with Gold and Juniors in the Greater Depression

by Doug Casey,

The Gold Report: Doug, at a recent conference you said that the U.S. ought to default on its national debt now. Why that rather than letting it play out?

Doug Casey: Several other things almost equally radical should be done besides defaulting on the debt. I recognize that an outright default is most unlikely, but the national debt should be defaulted on for several reasons.

To start with, once the U.S. government defaults on its debt, people will think twice before lending it any more money; giving politicians the ability to borrow is like giving a teenager a bottle of whisky and the keys to a Corvette. A second reason is that the debt is an albatross around the necks of the next several generations; it’s criminal to make indentured servants out of people who aren’t even born yet. A third reason would be to overtly punish those who have been lending money to the government, enabling it to do all the stupid and destructive things that the government does with that money.

The debt will be defaulted on one way or another. The trouble is they’re almost certainly going to default on it through inflation, by destroying the currency, which is much worse than defaulting on it overtly. That’s because inflation will wipe out the relatively few people who are prudent in this country, those who are actually saving money. Because they generally save in the form of dollars, they’re going to wipe them out financially.

It’s just horrible. Runaway inflation will reward the profligates who are in debt—people who’ve been living above their means. And punish the producers who’ve been saving and trying to build capital. That’s in addition to the fact it will destroy millions of productive enterprises. A runaway inflation is the worst thing that can happen to a society, short of a major war. They just should default on it honestly, as it were. (more)

When Investors Fail, This Is a Reason Why...

David B. Armstrong/ US News,

It seems obvious, but one way your financial plan or investment strategy will fail is if you buy high and sell low. Simple enough, right? With interest rates at an historical low, it makes you wonder why billions of dollars are flowing out of equity portfolios and into bond portfolios.

To most investors, bonds provide a sense of safety and stability. The problem is that they are subject to market and interest-rate risk. This means that the market prices of bonds do change, a fact that almost anyone who has owned them over the past 12 to 18 months can happily tell you.

The actual math behind bond pricing can quickly become complicated, but remember that there are two primary forces at work every day in the bond market: the demand (or lack of) for bonds and the direction of interest rates. These forces, separately or together, will cause bond prices to move. When interest rates go lower, the prices of bonds go up. When investor demand for bonds increases, so does the price a seller demands to sell them.

The problem is that the converse is true as well. (more)

Central Banks No Longer Selling Gold (Duh Factor: 10/10)

Something funny (and quite revolutionary) happened during the CBGA's (Central Bank Gold Agreement) year ending this Sunday - the group of 15 signatory banks sold a mere 6.2 tonnes of gold, a massive 96% decline from the year earlier, according to provisional data.This means that unlike in the past, when it was central banker prerogative #1 to sell some gold and every year just to keep all the longs on their toes, this year the trend has finally changed. As the FT reports, "the sales are the lowest since the agreement was signed in 1999 and well below the peak of 497 tonnes in 2004-05." And yes, we do love the FT's brilliant summation of the change in mindset: "In the 1990s and 2000s, central banks swapped their non-yielding bullion for sovereign debt, which gives a steady annual return. But now, central banks and investors are seeking the security of gold." Hm, when all of Europe (as well as America) is a smoldering heap of bearer bonds that will never get paid, and China is putting up a building today, only to blow it up yesterday, and boast a GDP growth rate of one gajillion, the FT may want to change the bolded assumption. Back to the Captain Obvious narrative of the original article: "The lack of heavy selling is important for gold prices both because a significant source of supply has been withdrawn from the market, and because it has given psychological support to the gold price. On Friday, bullion hit a record of $1,300 an ounce." So market zero supply, and demand that is growing exponentially, means higher prices, eh? All those Voodoo 101 classes, and Poison Ivy college loans sure are paying off in droves... (more)

David Tepper Hedge Fund Legend Video Interview On CNBC

Banks Keep Failing, No End in Sight

Wall Street journal,

The largest number of bank failures in nearly 20 years has eliminated jobs, accelerated a drought in lending and left the industry's survivors with more power to squeeze customers.

Some 279 banks have collapsed since Sept. 25, 2008, when Washington Mutual Inc. became the biggest bank failure on record. That dwarfed the 1984 demise of Continental Illinois, which had only one-seventh of WaMu's assets. The failures of the past two years shattered the pace of the prior six-year period, when only three dozen banks died.

Two more banks went down last Friday, and failures are expected to "persist for some time," according to a report issued Tuesday by Standard & Poor's. In the second quarter of this year, the Federal Deposit Insurance Corp. increased its number of problem banks by 6% to 829.

Between failures and consolidation, the number of U.S. banks could fall to 5,000 over the next decade from the current 7,932, according to the top executive of investment-banking firm Keefe, Bruyette & Woods Inc.

The upside of failures is that they can represent a healthy cleansing of a sector that grew too fast, with bank assets more than doubling to $13.8 trillion in the decade that ended in 2008. Many banks that failed were opportunistic latecomers. Of the failed banks since February 2007, 75 were formed after 1999, according to SNL Financial. (more)

Economist: China Property Bubble Leaks Slowly

It’s Shanghai hairy-crab season.

To cook them, you put them in a container with cold water. They feel like they’re back in a lake and get comfortable. You then cover it with a heavy top and light a fire below. You can hear scratching sounds. They start faintly, then furiously, then faintly again, then nothing. When it’s quiet for a few minutes, you lift the top and see the crabs all golden brown. Dip them in vinegar and ginger for a delicious meal.

China’s property speculators are like crabs in cold water already. They feel good, kicking their legs once in a while. They don’t see any danger. Little do they know the heavy top has been lowered over their heads and a fire is lit below. They will be cooked, but they just don’t know it yet.

In April, I told readers I would let them know when China’s property bubble was about to burst. The market has now peaked. It will trend down gradually for the rest of the year. When expectations of a yuan revaluation reverse and capital outflows ensue, probably in 2012, the market will deflate faster. (more)

Where is the Bottom for Housing? We May Not Know for Years Housing

How far are we from a bottom in U.S. home prices? There are many estimates that there could be another 10% or more for the national average and median prices to decline. This author estimated that 2010 had a most probable decline around 11% from December 2009, with further declines possible in 2011. Little decline has actually been seen as prices are quite near where they were nine months ago. However, in the past couple of months predictions of further price declines have increased. Two weeks ago I pointed out that the outlook for home prices may be degrading.

20% Price Decline to the Bottom? (more)

Power Up Your Portfolio With Uranium

The world is demanding more energy, at lower costs, with a smaller environmental footprint. The need is great, and with an increasing portion of the population moving from agrarian communities to developed cities, the global consumption of electricity is rising sharply.

In the past, emerging markets like China and India have been able to meet this rising demand by building coal-fired electricity plants, with the obvious byproducts being pollution and poor health. But emerging markets are increasingly turning to alternative sources of energy – generating power through cleaner processes and using renewable sources.

“Grid parity” or renewable energy at a comparable price to traditional measures is still not possible for technologies such as wind and solar, but nuclear energy costs are very close to matching coal and natural gas with much less fallout in the way of carbon emissions.

Of course, the term “nuclear” brings up images of Chernobyl and Three-Mile-Island, but over the past few decades the technology of nuclear power generation has become much safer and the threat of a nuclear accident is now very small. Even staunch environmentalists often concede that the risks associated with reactors (and the disposal of nuclear waste) is less of a danger than the harmful gases typically emitted from traditional energy sources.

The bottom line is that, for the next several decades, nuclear energy production is likely to increase as developed and emerging markets alike seek to meet rising energy demands in a responsible and efficient manner. (more)

AMEX Gold BUGS Index Update

Sorry for the delay in posting this article...the amount of time for deducing the Elliott Wave count has occupied an inordinate amount of time. The present behaviour of the HUI leaves only the presented Elliott Wave count as being plausible at the moment. There are many undercurrents in the market at present and often how they blend to create sudden vortexes or expansions in strength of flow are impossible to predict. If the HUI were to take out 450 in the coming correction, then I would have to revise my thinking...however, analysis on gold, and the broad stock market indices support the presented ideas of this article (at least for the moment). With today's analysis, keep in mind that risk capital should have extremely tight stops to preserve money. As mentioned for the past 5 months or so, any move above 505 for two consecutive closes places termination of the next upward move somewhere between 900 to 1000. One important thing to consider is that stock dividend yields are outperforming bonds for the first time in awhile...generally under such circumstances, smart money rotates into stocks, which provides a hand to the market. Under such conditions, expect the stock market to exhibit strength. (more)

The Ten Things You Should Be Doing NOW and Everyday

“Must Do” #1: Stay Alert and in the Know.

For the last fourteen weeks, we’ve examined the new economic realities that confront us on a daily basis. Our discussions have centered on a groundbreaking documentary, “The Fall of America and the Western World” which let us in on the thoughts, principles and policies of right wing, left wing, centrist and independent economic and political thinkers.

Each week we’ve offered practical advice on things you can do to prepare for further economic deterioration and ultimately, your survival. This marks the last of our articles — we thought it would be advantageous to summarize our previous tips on what you should be doing starting right now and going forward to best position yourself to keep your head above water…

TIP ONE: Get Real. You must realize you are being lied to by the media, the politicians and the experts. If you don’t accept this reality, then you will not be serious in your efforts to change your situation.

TIP TWO: Be Prepared. Figure out what you’ll need to survive and examine what you have. This will tell you what you don’t have. Start a plan so you can get what you need, but don’t yet have. (more)

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Average property-price gap in US cities varies by more than $1m

As America's depressed housing market bumps along the bottom, a yawning chasm has opened between the haves and the have-nots in the world's biggest economy, with average house prices in US cities varying from $68,000 (£43,000) to $1.8m (£1.12m).

A study of typical prices for four-bedroom homes has concluded that you could buy 26 houses in the motor city of Detroit for the cost of one in the Californian enclave of Newport Beach, which is the wealthiest housing market in the US and is known to television viewers as the setting for the stylish teen drama The OC.

New research by the estate agency Coldwell Banker found that the average house price in Newport Beach was $1.83m in the six months to August. Second in the rich league was the Silicon Valley enclave of Palo Alto, home to Hewlett-Packard and Facebook, where property changes hands for $1.48m; followed by the New York commuter town of Rye, with an average price of $1.33m. (more)

US Economic Calendar

Date	Time (ET)	Statistic	For	Actual	Briefing Forecast	Market Expects	Prior	Revised From
Sep 28	9:00 AM	Case-Shiller 20-city Index	Jul	-	3.1%	3.4%	4.23%	-
Sep 28	10:00 AM	Consumer Confidence	Sep	-	54.0	52.9	53.5	-
Sep 29	10:30 AM	Crude Inventories	09/25	-	NA	NA	0.970M	-
Sep 30	8:30 AM	GDP - Third Estimate	Q2	-	1.6%	1.6%	1.6%	-
Sep 30	8:30 AM	GDP - Deflator	Q2	-	1.9%	1.9%	1.9%	-
Sep 30	8:30 AM	Initial Claims	09/25	-	450K	457K	465K	-
Sep 30	8:30 AM	Continuing Claims	09/18	-	4450K	4450K	4489K	-
Sep 30	9:45 AM	Chicago PMI	Sep	-	55.0	56.0	56.7	-
Oct 1	8:30 AM	Personal Income	Aug	-	0.3%	0.3%	0.2%	-
Oct 1	8:30 AM	Personal Spending	Aug	-	0.3%	0.3%	0.4%	-
Oct 1	8:30 AM	PCE Prices - Core	Aug	-	0.1%	0.1%	0.1%	-
Oct 1	9:55 AM	U Michigan Consumer Sentiment - Final	Sep	-	67.0	67.1	66.6	-
Oct 1	10:00 AM	Construction Spending	Aug	-	-0.7%	-0.5%	-1.0%	-
Oct 1	10:00 AM	ISM Index	Sep	-	55.0	54.5	56.3	-
Oct 1	2:00 PM	Auto Sales	Sep	-	NA	3.8M	3.7M	-
Oct 1	2:00 PM	Truck Sales	Sep	-	NA	4.9M	4.96M	-

The Economist – 25 September 2010

The Economist is a global weekly magazine written for those who share an uncommon interest in being well and broadly informed. Each issue explores the close links between domestic and international issues, business, politics, finance, current affairs, science, technology and the arts.


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BP's Shock Waves How the oil giant's catastrophic spill in the Gulf could trigger another financial meltdown

By Matt Taibbi,
The following is an article from the September 30, 2010 issue of Rolling Stone. This issue is available now on newsstands, and via Rolling Stone's premium subscription plan . To read the rest of the new issue, you must be a subscriber to All Access. Already a subscriber? Continue on to The Archives . Not a member and want to learn more? Go to our All Access benefits page .

It was sickening enough when British oil giant BP set new standards for corporate scumbaggery in the Deepwater Horizon oil spill, turning the Gulf of Mexico into its own personal toilet and imperiling entire species of wildlife in an attempt to save a few nickels. But with the Gulf geyser finally capped, there's still a way for BP to cause an even more unthinkable disaster: an AIG-style, derivative-fueled financial shitstorm. If the company decides to declare bankruptcy — a very real possibility with these bastards — it could trigger chaos in our casino system of finance, underscoring the insane levels of leverage and systemic risk we have left in place, even after the global economic crash of 2008.

The first serious whiff of trouble came on June 15th, when Barack Obama manned up and went on national TV to tell the nation that he wasn't going to let BP worm its way out of this one. "We will make BP pay for the damage their company has caused," he declared, vowing to push BP to set aside $20 billion to clean up its mess and compensate victims. (more)

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Brazil Crops Shrivel as Amazon Dries Up to Lowest in 47 Years

Drought in Brazil, the world’s biggest producer of coffee, sugar and oranges, is harming crops and drying the Amazon River to its lowest in 47 years.

The Amazon’s 18-meter (59-feet) level on Sept. 20 was the least since 1963, disrupting transportation of food, fuel and medicines in northern Brazil, the National Water Agency said in an e-mailed statement. Growers in Brazil’s Southeast expect the drought will pare output of the nation’s key commodities.

Sugar rose to the highest price in seven months in New York today and has jumped 29 percent this month because of concern the South American drought threatens global supplies. Orange juice gained 15 percent this month and coffee soared 33 percent this year. The dry weather will persist at least until mid- October, said Willians Bini, a meteorologist at Sao Paulo-based weather forecaster Somar Meteorologia.

“Farmers will have to be really patient because rains are delayed for at least a month,” Bini said in a Sept. 20 telephone interview. (more)

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Weekly Visual CFTC Commitment Of Traders Summary - September 24: Treasury Spec Contracts At 2010 High

Before we present the traditional weekly charts summarizing the CFTC's Commitment of Traders report, we would like to present the literal surge in net spec positions in US Treasuries, across the 2, 5, and 10-Year spectrum. For the first time in 2010, net non-commercial spec positions for all three series are positive, and the cumulative across the three has surged to a 2010 high of 190,264 contracts. There may not be a bubble in treasuries (there is), but with every speculator now openly betting on a continued rise in USTs, it means someone has to take the other side of the trade. Kinda like when all those hedge funds holding Apple are hoping that nothing ever happens to Steve Jobs. (perhaps the irony that the fate of Apple and thus of the entire US stock market, rests in the fate of one very, very thin man, is worthy of its own post).

Commitment of Traders Report

Commitment of Traders Financials

Alaska’s New Gold Rush

By Louis James, Senior Editor, Casey’s International Speculator

Alaska is one of the most prospective and yet most underexplored areas in the world. There are good reasons for the neglect, most notably the long, cold winters and the lack of infrastructure. Whether the latter is a result of, or a cause of, there being few people in the state is an open question.

One clear result, however, is a rather small economy: Alaska’s 2009 GDP was US$47.3 billion, comparable to that of the Dominican Republic or Bulgaria. The state is ranked 44th by GDP among its U.S. peers.

In terms of metals, Alaska produces gold, silver, copper, lead, and zinc. Being well endowed with natural resources, Alaska’s mining history dates back to the early 1800s, when Russian explorers prospected the region, looking for placer gold. But not until after Russia sold Alaska to the United States did exploration activities start to develop rapidly, both on placer and hard rock deposits.

Alaska has undergone not one but a series of gold rushes, the most famous being the 1890s Klondike Gold Rush, which actually centered on gold found just over the border in the Yukon Territory. That event drew many immigrants and spawned numerous settlements on the way to the Klondike, one of the principal routes having been through Alaska. Almost 13 million ounces of gold were produced by placer miners in the area. Since the end of the 19th century, mining has become an integral part of the state’s economy. (more)

World Financial Report

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Taleb Says Unawareness of Deficit Risk Has Him `Extremely Bearish' on U.S.

Nassim Nicholas Taleb, author of “The Black Swan,” said he’s concerned budget deficits in the U.S. are spiraling out of control and may now represent a bigger problem than in countries such as Greece.

“The U.S. is probably the worst of all,” Taleb told Canada’s BNN television network in an interview today. “They are addicted to debt. We have an administration that, unlike the European administrations, is not aware of the risks of mounting deficits, of the addiction to public deficits and to big government.”

Taleb told the cable network, “People are complaining about Greece, but Greece has the IMF putting some discipline in their system. Who can discipline the U.S. government?”

Greece this year has imposed a series of austerity measures, including wage and pension cuts and higher sales taxes, in exchange for a 110 billion-euro ($148 billion) rescue from the European Union and International Monetary Fund. U.S. President Barack Obama inherited what the National Bureau of Economic Research said this week was the deepest U.S. recession since the Great Depression. The government’s outstanding debt is about $13.5 trillion, according to Treasury figures. (more)

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Rosenberg: Seven Investment Strategies For a Deflationary Environment

INVESTMENT STRATEGY IN A DEFLATIONARY ENVIRONMENT

1. Focus on safe yield: High-quality corporates (non-cyclical, high cash reserves, minimal refinancing needs). Corporate balance sheets are in very good shape.
2. Equities: focus on reliable dividend growth/yield; preferred shares (“income” orientation). Starbucks just caught on to the importance of paying out a dividend.
3. Whether it be credit or equities, focus on companies with low debt/equity ratios and high liquid asset ratios – balance sheet quality is even more important than usual. Avoid highly leveraged companies.
4. Even hard assets that provide an income stream work well in a deflationary environment (ie, oil and gas royalties, REITs, etc…).
5. Focus on sectors or companies with these micro characteristics: low fixed costs, high variable cost, high barriers to entry/some sort of oligopolistic features, a relatively high level of demand inelasticity (utilities, staples, health care — these sectors are also unloved and under owned by institutional portfolio managers).
6. Alternative assets: allocate significant portion of asset mix to strategies that are not reliant on rising equity markets and where volatility can be used to advantage.
7. Precious metals: A hedge against the reflationary policies aimed at defusing deflationary risks — money printing, rolling currency depreciations, heightened trade frictions, and government procurement policies.

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Deutsche Bank Warns Of Big Treasury Overshoot, Sees 10-Year Yields Going To 1.5%

At least for now, Deutsche Bank is in the bond uber-bull camp:

Our rate forecast of 2% in the 10Y Treasury yield by the end of the year continues to be our view after the Fed’s statement that it was “prepared to provide additional accommodation if needed”. Chiefly, our rate view is based on the fundamentals of the economy. But the possible announcement of QE2 in November creates the possibility of the market overshooting compared to our rate forecast, with 10Y yields moving substantially below 2%.

We think that low interest rates will persist for the next several years, establishing a new equilibrium. The lasting period of low rates is due primarily to the following 4 factors: (1) The continued weakness of household balance sheets, with households repairing their balance sheets by reducing their spending over the next several years, (2) The payments on underwater mortgages will dampen spending and boost savings — a paper from the New York Fed stated that the savings rate would have to rise 0.8 percentage points, (3) The stagnation of firms’ pricing power, thereby raising the possibility of deflation, and making job growth difficult, and (4) Low potential GDP growth, with the CBO estimation of 2.1-2.3%, owing to the secular reduction in capital spending during the crisis. Thus the markets will likely have to adjust to a new growth level that is lower than the business cycle averages in the last several decades.

Interview With Robert Schiller

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