The Economist - 30th October - 05th November 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.
In addition to regular weekly content, Special Reports are published approximately 20 times a year, spotlighting a specific country, industry, or hot-button topic. The Technology Quarterly, published 4 times a year, highlights and analyzes new technologies that will change the world we live in.


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Rice Advances for a 13th Day, Longest Winning Streak Since at Least 1989

Rice rose for a 13th day in Chicago, the longest winning streak since at least 1989, after the Philippines said storms caused 523,013 metric tons of crop losses.

The Philippines, the world’s biggest rice buyer, last year produced 9.8 million tons of the grain and imported 2.2 million tons, according to data from the U.S. Department of Agriculture. Rice has added 17 percent since Oct. 11, the last time futures fell. The current streak of gains is the longest for data compiled by Bloomberg going back to 1989.

Rough rice for January delivery climbed 7.5 cents, or 0.5 percent, to $15.245 per 100 pounds at 1:13 p.m. London time on the Chicago Board of Trade, the highest price for the most- active contract since Jan. 4. The grain has jumped 57 percent since the end of June as hot weather in the U.S., last year’s fourth-largest exporter, curbed production. (more)

Dividend Stocks for the Next Decade

Some of the best dividend stocks in the world are characterized by strong competitive advantages, which have allowed them to charge premium prices for their recognizable brands, which in turn have translated into rising profits. Most of those companies are also characterized by high returns on invested capital, which means that they generate more capital than they could successfully reinvest back into the business and still retain their high returns. As a result these companies manage to provide an ever increasing stream of dividend income to their long-term shareholders. While stock prices move higher during bubbles and lower during recessions, investors keep getting paid for holding their stocks. In fact, because dividends keep getting increased, some early investors in companies such as Abbott (ABT) have managed to generate mind-boggling yields on cost of their original investments. These early investors understood very well that a dividend payment should not come at the expense of growing the business and vice versa. While their stocks have typically been characterized by yields similar to those of the market, their dividend growth component has more than paid back for itself.

While dividend growth investing has been hugely successful for many investors, it is very important to understand that it could be profitable for future investors as well. The stocks which have had long histories of rising dividend payments are frequently found in such lists as the S&P Dividend Aristocrats or Mergent's Dividend Achievers. These stocks are a strong example of Newton’s law of physics that a body in motion keeps getting in motion.

The following six stocks have not only delivered consistent annual dividend increases to shareholders, but also above average capital gains over the past decade as well. The companies include: (more)

Baby Boomers: Get Out of the Stock Market Now, the Rug is Being Pulled Out By Insiders

If you're a baby boomer who still believes in the stock market since the financial collapse of 2008, listen up. The floor of this Ponzi scheme is about to drop out, leaving you punching a clock for some time to come and holding an empty retirement bag for your effort. The engineered crash is coming and the elite are jumping ship in droves -- you should join them and get out ASAP.

Stock market insider selling has now reached record highs. The trend has been increasing for the last several years, but now the ratios are getting beyond ridiculous. Earlier this month, Zero Hedge reported that the insider selling-to-buying ratio is 2341 to 1. Tyler Durden wrote:

After last week saw an insider selling to buying ratio of 1,411 to 1, this week the ratio has nearly doubled, hitting a ridiculous 2,341 to 1. And while Wall Street's liars and CNBC's clowns will have you throw all your money into "leading" techs like Oracle and Google, insiders in these names sold a combined $200 million in stock in the last week alone.

Today, CNBC reported that the insider selling activity at some of the largest traded companies is at an all-time high. This can't be a good sign of things to come. The article points to the analysis of Alan Newman, a market strategist who tracks insider trading: "The overwhelming volume of sell transactions relative to buy transactions by company insiders over the last six months in key leading sectors of the market is the worst . . . ever." CNBC reported that industry leaders have a staggering 3177 to 1 insider sell-to-buy ratio: (more)

Today in Commodities: Full Docket

Next week could be a game changer… four Central bank meetings, China’s Manufacturing PMI, mid-term elections and two unemployment reports. Fasten your seat belt!

Look at a daily chart of December Crude; prices remained within the ascending triangle all this week. Before we reach the apex next week we expect a break lower to $77/78. On the week prices will finish virtually unchanged. Different story in natural gas as prices are above the 20 day MA for the first time in months and 15% off their lows from Monday. Our suggestion at this time is longs in December or January futures trailing stops or bull call spreads. On the December contract we could see 50-70 cents upside from here in the coming weeks.

Indices remain rangebound with the Dow H/L this week a 230 point range and the S&P trading range just over 25 points. It will take a trade below the 20 day MA for clients to add to their small bearish ES put positions. If and when, we should see prices back off 5-8%. Traders are advised to exit their bearish plays in Treasuries today; some at a loss and some at a profit depending on your positioning. We wish not to have exposure in 30-year bonds or 10-year notes into the hectic schedule next week. (more)

Commitment Of Traders: The Speculative Treasury Bubble Pops As Dollar Longs Continue Rising

Today's CFTC Commitment of Trader data confirms that the dollar strengthening trend from last week continues: net spec commercial positions in the USD are now well off their lows from three weeks ago and are up to 5,850, after hitting a 2010 low of -1,580. At the same time, both JPY and EUR spec positions declined (by -2,727 and -6,243 positions, respectively) as the rotation into the dollar, as brief as it may end up being, accelerated. Whether this was merely momentum chasing or an expectation of a less efficient QE2 can be answered by looking at select commodity positions. A quick glance at wheat, soybeans, coffee, corn and oats shows that pretty much all 5 representative commodities saw their net long spec positions increase again. So QE2 is definitely going to manifest itself in more inflation, or so at least claim the speculators. Yet not is as it seems: a look at Treasury specs shows a combined drop across the 2, 5 and 10Y space of 123,835 contracts to 186,892, only the second largest drop in 2010, which occurred after the cumulative total hit a 2010 record of 310,727 the week prior! In other words, even as specs were discounting an increase in inflation and a potential increase in the value of the dollar, the bond bubble officially popped. (more)

75 Ways That The Government And The Financial Elite Will Be Sucking Even More Of The Life Blood Out Of The American People In 2011

The American people are experiencing financial death by a thousand cuts and most of them don't even realize it. The U.S. government, state governments, local governments and the financial elite are draining us financially in dozens upon dozens of different ways, and yet we have become so programmed to accept it that it just seems normal to us. 2011 is rapidly approaching, and a whole slate of federal taxes is scheduled to go up, state taxes are being increased from coast to coast, local governments are finding new and creative ways to stick it to us and the financial elite are becoming more predatory than ever. Meanwhile, the incomes of many average Americans are actually going down. According to the Census Bureau's annual survey of income and poverty in the United States, of the 52 largest metro areas in the nation, only the city of San Antonio did not see a decline in median household income during 2009. Tens of millions of Americans are flat broke and they are getting pissed off. According to a new poll conducted by CNBC, 92 percent of Americans believe that the U.S. economy is either "fair" or "poor". The American people desperately want someone to fix the economy, but instead our "leaders" are trying to come up with new and creative ways to drain even more money out of us.

In no particular order, the following are 75 ways that the U.S. government, state governments, local governments and the financial elite will be sucking even more of the life blood out of the American people in 2011....

#1 State governments across the U.S. are raising fees and taxes in so many different ways it is staggering. A reader named Richard recently sent me an email in which he described the shock that he experienced when he recently received his license plate renewal notice in the mail....(more)

The scary actual U.S. government debt

Boston University economist Laurence Kotlikoff says U.S. government debt is not $13.5-trillion (U.S.), which is 60 per cent of current gross domestic product, as global investors and American taxpayers think, but rather 14-fold higher: $200-trillion – 840 per cent of current GDP. “Let’s get real,” Prof. Kotlikoff says. “The U.S. is bankrupt.”

Writing in the September issue of Finance and Development, a journal of the International Monetary Fund, Prof. Kotlikoff says the IMF itself has quietly confirmed that the U.S. is in terrible fiscal trouble – far worse than the Washington-based lender of last resort has previously acknowledged. “The U.S. fiscal gap is huge,” the IMF asserted in a June report. “Closing the fiscal gap requires a permanent annual fiscal adjustment equal to about 14 per cent of U.S. GDP.”

This sum is equal to all current U.S. federal taxes combined. The consequences of the IMF’s fiscal fix, a doubling of federal taxes in perpetuity, would be appalling – and possibly worse than appalling.

Prof. Kotlikoff says: “The IMF is saying that, to close this fiscal gap [by taxation], would require an immediate and permanent doubling of our personal income taxes, our corporate taxes and all other federal taxes. (more)

Signs Hyperinflation Is Arriving

This post is gonna be short and sweet—and scary:

Back in late August, I argued that hyperinflation would be triggered by a run on Treasury bonds. I described how such a run might happen, and argued that if Treasuries were no longer considered safe, then commodities would become the store of value.

See, how come I don’t look as cool when I make my predictions?

Such a run on commodities, I further argued, would inevitably lead to price increases and a rise in the Consumer Price Index, which would initially be interpreted by the Federal Reserve, the Federal government, as well as the commentariat, as a good thing: A sign that “the economy is recovering”, a sign that “normalcy” was returning.

I argued that—far from being “a sign of recovery”—rising CPI would be the sign that things were about to get ugly.

I concluded that, like the stagflation of ‘79, inflation would rise to the double digits relatively quickly. However, unlike in 1980, when Paul Volcker raised interest rates severely in order to halt inflation, in today’s weakened macro-economic environment, that remedy is simply not available to Ben Bernanke. (more)

Bloomberg Businessweek – 01 November 2010

Bloomberg Businessweek - World's leading business magazine.
Timely, useful, provocative, innovative. Each issue of Businessweek features in-depth perspectives on the financial markets, industries, trends, technology and people guiding the economy. Draw upon Businessweek's timely incisive analysis to help you make better decisions about your career, your business, and your personal investments.

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John Taylor: "November Will See The Flash Point That Begins The Market's Reversal"

John Taylor, who has not made any friends at the administration with his recent comparison of Ben Bernanke to Hitler, has released his latest letter whose purpose is to disabuse what Traxis flip flopper extraordinaire Barton Biggs (or rather is praying, due to his high single digit negative YTD P&L), as well as many others believe, will be a 10% boom in stocks prices following November 3. Wrong. As this whole rally has been liquidity driven, all that will take to reverse it, is for someone to step between the Chairman and his favorite Hewlett Packard. That someone: anti-Fed crusader Ron Paul, who will see this as his last mandate (and chance) to leave a memorable mark on the Fed's modus operandi: "After the Republican victory things will change. The Fed will be hamstrung, as Ron Paul, a conservative standard-bearer and harsh critic of the Fed, will head the sub-committee overseeing its actions. Liquidity expansion or new programs will probably drop sharply under his watch. Paul would argue that the Fed’s unfettered ability to “debase” the currency is about to come to an end" Which is why all those who believe "more of the same" will continue indefinitely, may be wise to hedge their bets. Taylor also looks at the game theory between the Fed and the ECB: "As the US authorities turn to a tighter monetary and fiscal policy, driving the country into a recession, causing the US and its banking system to withdraw liquidity forcing the dollar higher, the ECB will be forced to be more accommodative. Our analysis argues that the month of November will see the flash point that begins to reverse the markets’ optimistic course." (more)

Globalization Creates Unemployment: American Job Loss Is Permanent

Now that a few Democrats and the remnants of the AFL-CIO are waking up to the destructive impact of jobs offshoring on the US economy and millions of American lives, globalism’s advocates have resurrected Dartmouth economist Matthew Slaughter’s discredited finding of several years ago that jobs offshoring by US corporations increases employment and wages in the US.

At the time I exposed Slaughter’s mistakes, but economists dependent on corporate largess understood that it was more profitable to drink Slaughter’s kool-aid than to tell the truth. Recently the US Chamber of Commerce rolled out Slaughter’s false argument as a weapon against House Democrats Sandy Levin and Tim Ryan, and the Wall Street Journal had Bill Clinton’s Defense Secretary, William S. Cohen, regurgitate Slaughter’s claim on its op-ed page on October 12.

I sent a letter to the Wall Street Journal, but the editors were not interested in what a former associate editor and columnist for the paper and President Reagan’s Assistant Secretary of the Treasury for Economic Policy had to say. The facade of lies has to be maintained at all costs. There can be no questioning that globalism is good for us. (more)

Real Growth in US Stocks, 1871-2010

Is hard currency on its way out? Introducing the new virtual world currency.

When discussing reserve currency alternatives to the US dollar, conversation almost inevitably returns to the International Monetary Fund’s “synthetic reserve asset,” the Special Drawing Right (SDR).

However, the SDR basket of currencies is noticeably antiquated in its design, including only the currencies of industrialized nations… namely British Pounds, Euros, Japanese Yen, and US Dollars. This week, foreign exchange manager Overlay Asset Management has announced a currency basket it’s launching in order to offer a more up-to-date “virtual world reserve currency.”

According to the Financial Times:

“[Overlay Asset Management's] Wealth Preservation Currency Index consists of the currencies of the world’s 15 largest economies, weighted by their gross domestic product, adjusted for purchasing power parity. The PPP element ensures a higher weighting to emerging market currencies than is commonplace in other currency baskets, with the Chinese renminbi (accessed through non-deliverable forward contracts) accounting for 16 per cent, Indian rupee 6 per cent and Brazilian real 4 per cent. (more)

Stockhouse Short Report: Is the REE bubble about to burst?

U.S. research report tells investors in rare earth element stocks to be wary. It says the world could be awash in rare earth elements if and when the Mountain Pass mine gets into production.

A U.S. research report is raising red flags in the direction of rare earth stocks, including Canadian junior Rare Element Resources Ltd. (TSX: V.RES, Stock Forum) (AMEX: REE, Stock Forum), and telling investors to be wary.

The report by “Shareholder Watchdog’’ follows a surge in the value of Rare Element Resources shares, which traded at $13.91 on Thursday. That’s up from $2 in July.

Although the Vancouver junior has zero revenue, and posted a loss of $1.7 million or 6 cents a share in the year ended June 30, 2010, (compared to a year earlier loss of $1.2 million or 5 cents), it has a market value of $447 million, based on the 32million shares outstanding.

Rare earth elements are a collection of seventeen chemical elements with tongue twisting names such as scandium, yttrium. Found in the earth’s crust, they are applied in a wide range of devices, including superconductors, and magnets.

Stocks in the sector have skyrocketed amid concerns about export restrictions in China, currently the source of 95% of the world’s production. (more)

AAII Bullish Sentiment Hits a Two Year High

According to the American Association of Individual Investors (AAII), bullish sentiment this week rose to 51.23%, which is the highest reading since May 2008. So what do high levels of bullish sentiment portend for the prices of equities going forward?

Imminent Big Bank Death Spiral

The mortgage & foreclosure scandal runs so deep that ordinary observers can conclude the US financial foundation is laced with a cancer detectable by ordinary people. The metastasis is visible from the distribution of mortgage bonds into the commercial paper market, money market funds, the bank balance sheets, pension funds under management, foreign central banks, and countless financial funds across the globe. Some primary features of the cancerous tissue material are mortgage bond fraud, major securities violations, absent linkage to property title, income tax evasion, forged foreclosure documents, duplicate property linkage to single mortgage bonds, NINJA (no income, no job or assets) loans to unqualified buyers, and more. In fact, more is revealed it seeems each passing week toward additional facie to high level and systemic fraud. The world is watching. The growing international reaction will be amplified demand for Gold, from recognition that the USDollar & USEconomy have RICO racketeering components extending to Wall Street banks and Fannie Mae mortgage repositories.

The centerpiece question, when the US bond fraud is coupled with European sovereign debt distress, comes down to WHAT IS MONEY? The answer is Gold & Silver and not much of anything else. Other assets like crude oil or farmland are effective hedges against tainted money, but when they contain debt tethers, they too are vulnerable. Huge flows of funds are fleeing traditional asset groups. Some mistakenly still believe the USTreasurys to be a safe haven. A shock of cold water comes to them when that bubble goes into reverse perhaps several months later after reaching 2% yields. The big magnificent epiphany in the last couple years has been that a house is not a hard asset, but rather a debt instrument extension. Important questions have arisen as to what assets are free from counter-party debt risk. The grand demands for physical gold prove that the futures gold contracts are not money either, but tainted Wall Street and London securities contracts that keep the system going. (more)

Uranium and Mining Stocks Recovering

The Energy Report: Between the first quarter of 2009 and the first half of 2010, uranium tested $40 on the downside about three times. Has it found solid support? Also, what minimum level does it need to maintain for companies to be profitable?

Geordie Mark: That's a very good question. Certainly it has had a lot of technical support at $40 with a lot of buying strength coming in at that level. I'd say there's been even more buying strength recently. So that's a lot of strength. For the ultimate strength of investment health of this sector, I think we're looking at numbers north of $65. In fact, it would probably have to be higher than that to warrant risking venture capital for exploration. Also, you need to see higher prices for investment in large-scale, leveraged development-stage projects. Spot is now around $52, and we see positive movement there in terms of pricing with the long-term price at $60.

TER: You see positive movement, but it sounds like mining uranium is risky now. Is that right?

GM: Yes, mining does have technical risk. That's correct. As part of an offset to that, the projects we see going into production, certainly over the next year or so, are the lower-cost projects involving lower capital expenditure for development. Those are called in-situ recovery operations and they have a low-cost basis. So you're looking at cash costs of $30 per pound or less. They are the ones that can accommodate the current commodity price, but not the larger-scale projects requiring significant injection of capital. That's why we've seen delays in that development pipeline; $40 spot prices make it difficult to justify large, higher-cost projects. However, in our view, we do need those larger projects to sustain increasing demand. (more)

Long-term housing prospects hinge on an economic recovery for working Americans first – No housing bottom until middle class recovers a foothold in th

The housing market can have no sustainable recovery without the employment market improving. It is incredible that over three years into this crisis that there has been little focus on coupling employment with housing. Banks argue that many are simply not paying their mortgage yet they want the Federal government to ease lending restrictions. Who are they going to lend to? Over 95 percent of all mortgages now being originated are government backed. It is disturbing that all bank bailouts including the Fed forcing the interest rate lower merely focus on one aspect of the financial equation. The reality is, without a burgeoning middle class housing will never recover. Even the rising default rates in government backed loans, many “plain vanilla” loans are defaulting in record numbers because people are not able to service their debt.

We need a backdrop to the current foreclosure problems. The financial industry simply dominates too much of our economy and now has deep connections in our political system. Let us first look at mortgages currently in foreclosure: (more)

JPMorgan, HSBC sued for alleged silver conspiracy

* Hundreds of millions in illegal profit alleged

* Triple damages sought in one of two lawsuits

* CFTC proposed new tools to thwart price manipulation (Adds adviser comment, details)

By Jonathan Stempel

NEW YORK, Oct 27 (Reuters) - JPMorgan Chase & Co (JPM.N) and HSBC Holdings Plc (HSBA.L) were hit with two lawsuits on Wednesday by investors who accused them of conspiring to drive down silver prices, and reaping an estimated hundreds of millions of dollars of illegal profits.

The banks, among the world's largest, were accused of manipulating the market for COMEX silver futures and options contracts from the first half of 2008 by amassing huge short positions in silver futures contracts that are designed to profit when prices fall.

"Defendants reaped hundreds of millions of dollars, if not billions of dollars in profits" from the conspiracy, one of the complaints said.

The respective plaintiffs, Brian Beatty and Peter Laskaris, each said they traded COMEX silver futures and options and contracts, and lost money because of the alleged manipulation.

Beatty lives in Connecticut and Laskaris in New York, court records showed. The lawsuits seek class-action status, damages that may be tripled and other remedies. The defendant banks are major participants in the silver market. (more)

George Carlin ~ The American Dream

Emini Futures And The Falling Dollar

When in doubt, sit it out? That may be the mantra of many traders today. The Initial Jobless Claims actually came in better than expected falling 21,000 to 434,000. This was about the best number in the last 2 years. The high of today in the E-Mini S&P 500 of $1187.50 was reached at 7:30 AM CST, but by 11:30 AM CST, we descended to the low of the day at $1173.50.

After the first couple of hours, we saw coiling and a pretty choppy session. Emphasis is still on the Election and the FOMC with the buzz reflecting sentiment about the potential Election results and the Fed’s next move. It is my thought that in such a fragile time frame, that the Fed may walk softly and want to alleviate fears of any severe change. It may be after the impact of the two events that ideas or rumors in fact create more of a stir in the marketplace the latter part of next week.

The US Dollar traded lower on the day creating a question mark regarding its typical inverse relationship with the E-Mini S&P 500. We traded within the CFRN Weekly Trade Zones of $1185 - $1186 and $1178 - $1179 today.

Tomorrow, we look forward to the GDP numbers which consists of 70% consumer spending. It will be interesting to potentially see a positive report with so many citizens still out of work. The market may still shrug off any positive report to focus on the events of next week. We may see lower volume that could cause more erratic moves in the market. (more)

China Urges Bernanke: Stop Printing Dollars!

Too many dollars rolling off Washington’s printing presses are giving China a huge case of “imported inflation,” according to Chinese Commerce Minister Chen Deming.

"Given the current situation, companies have thought ahead and prepared for exchange rate fluctuations as well as an increase in labor costs," Chen said, Breitbart.com reports.

"But because the issuance of dollars is out of control, and international commodities prices are continuing to rise, China is confronted with imported inflation, which has created major uncertainties for businesses.”

While Beijing pledged several months ago that it would allow the yuan to trade more freely, U.S. and European policymakers believe the currency is still undervalued by as much as 40 percent.

Critics of China in the U.S. assert that the Chinese government is artificially undervaluing its currency to give itself an unfair advantage in exporting goods. (more)

The Rare Earth Bubble Is About To Go Into Overdrive

We've been writing a lot lately about the mania for rare earth stocks.

Companies like MolyCorp and Rare Elements are surging despite having no revenue (let alone income).

All that moves them are headlines. Every time China reduces exports to Japan, they surge. When a German economic minister mentions that his country is at the whim of China, they surge.

And now, there's a new reason they can surge: A rare earth ETF. Gone is the need to do any research or anything like that. Just buy the Market Vectors Rare Earth/Strategic Metals ETF (REMX), which will begin trading today, and your work is done. So long as the bubble continues, you're in good shape.

CFTC's Chilton Admits Silver Market Subject To "Fraudulent" Influences, Says Manipulation Should Be Prosecuted

If this is not some nasty and quite early April Fool's joke, this is very, very bad news for JPMorgan:

• BN CFTC CHILTON MAKES STATEMENT ON SILVER MARKET
• BN * SILVER PRICES SUBJECT TO "FRAUDULENT" INFLUENCES, CHILTON SAY
• BN *"REPEATED ATTEMPTS" MADE TO INFLUENCE SILVER MARKET, CHILTON
• BN *SILVER MANIPULATION SHOULD BE PROSECUTED, CHILTON SAYS

Now... where are all of those tin foil hats...

The below has just appeared on Reuters. It seems the CFTC has its cross sights on quote stuffers. It is about damn time.

The U.S. futures regulator laid out plans on Tuesday for how it could use new and beefed-up legal tools to foil traders who seek to manipulate prices or defraud investors.

The Commodity Futures Trading Commission said it also wants to ask for comments on whether to crack down on certain practices used by high-frequency traders -- such as "quote-stuffing" -- but it stopped short of immediately proposing new rules specifically aimed at algorithmic trading. (more)

Economic Crisis and The Protest Movement: French Lessons for U.S. Workers

The world watches as France once again erupts in protests, demonstrations, and strikes. So much is at stake. If France's corporate-dominated government is able to increase the retirement age, other governments will be empowered to follow through with their plans to do the same.

If labor, student, and community groups succeed in stopping the pension reform -- or toppling the government -- workers in other countries will likewise be inspired to fight back and organize in the French fashion.

The worldwide recession has encouraged business-focused governments to pursue the kind of anti-worker policies they've been discussing for years. There is common agreement among these governments on a global scale as to the necessity for these polices. Working people disagree.

There have already been massive demonstrations or general strikes in Greece, Ireland, Italy, Spain, Portugal and elsewhere. In the U.K., massive cuts to the public sector -- 500,000 job cuts -- have been announced that could cause a similar backlash. (more)

Chart of the Day: Homes in Australia and Hong Kong overvalued, in Japan and Germany undervalued Housing

Amidst record unemployment, US companies hoard $1 trillion of cash

(Reuters) - U.S. companies are hoarding almost $1 trillion in cash but are unlikely to spend on expanding their business and hiring new employees due to continuing uncertainty about the strength of the economy, Moody's Investors Service said on Tuesday.

As the economy stabilizes companies are also more likely to spend on share repurchases and mergers and acquisitions, Moody's added.

Companies cut costs, reduced investment in plants and equipment and downsized operations in order to boost cash holdings during the recession. As the corporate bond market reopened many companies also boosted cash levels by selling debt and refinancing near-term debt maturities.

The US unemployment rate, meanwhile, sits at a whopping 9.2 percent. (A graph of the unemployment rates state by state can be found here). (more)

The 40-Year Food Outlook

The short-term (1-3 year) outlook for agricultural commodities is bullish enough. When you start looking out decades, the picture becomes one of an epic bull market.

Feast on the following highlights from an August report by the United Nations Food and Agriculture Organization, working with the Organization for Economic Cooperation and Development…

• World population will grow 2.3 billion by 2050, to over 9 billion
• Nearly all this growth will come in developing countries
• This population growth will require a 70% increase in global food production
• In developing countries, production will need to nearly double
• Making this happen will require annual investment averaging $209 billion.

And if you break out the details, that $209 billion figure is just the private investment required if the percentage of the world that goes hungry stays static. (more)

Where can we find 20,000 tonnes of gold?

Having broken out convincingly into new high ground, gold and silver have now paused for breath. Despite the sharpness of this week’s reaction, their performance indicates good underlying strength.

This is not to say there is no speculative froth – of course there is. Rather, speculators play a distant second fiddle in this market. Bullion is still doing what it has been doing for the last year: when the commercials on Comex hit the price it backs off rapidly on little volume, until someone very big takes the opportunity to clean the market out. It becomes another ratchet on the torturer’s rack for the commercial shorts, who find that every time this happens they end up being stretched further.

On last week’s rise there were early signs of panic, as the commercials attempted to reduce their exposure. However, the commercials’ net short position on Comex is still a very high 933 tonnes. Convention suggests that the commercials know best, and even if they have an extreme position, they will still crush you. And indeed, the big commercials, being too big to fail and with the comfort of the Fed’s antipathy to gold, could increase their short positions even further. This is now developing into the biggest game of chicken the markets will probably ever see. (more)

Insider Selling Volume at Highest Level Ever Tracked

The overwhelming volume of sell transactions relative to buy transactions by company insiders over the last six months in key leading sectors of the market is the worst Alan Newman, editor of the Crosscurrents newsletter, has ever seen since he began tracking the data.

The strategist looked at insider trading activity amongst the top ten companies that make up the Nasdaq such as Apple [ AAPL 307.83 -0.22 (-0.07%) ], Google [ GOOG 616.47 -2.13 (-0.34%) ] and Amazon [ AMZN 167.51 -2.44 (-1.44%) ].

Then he analyzed the biggest members of the Retail HOLDRs ETF like Gap [ GPS 19.34 -0.34 (-1.73%) ], Target [ TGT 52.73 -0.41 (-0.77%) ] and Costco [ COST 62.98 -0.70 (-1.10%) ], as well as the top insiders in the semiconductor industry at companies such as Altera [ ALTR 31.04 +0.71 (+2.34%) ], Broadcom [ BRCM 41.56 +4.34 (+11.66%) ] and Sandisk [ SNDK 37.87 +0.68 (+1.83%) ].

The largest companies in three of the most important leading sectors of the market have seen their executives classified as insiders sell more than 120 million shares of stock over the last six months. Top executives at these very same companies bought just 38,000 shares over that same time period, making for an eye-popping sell to buy ratio of 3,177 to one.

McAlvany Weekly Commentary

Jim Rogers Interview: Why History and Philosophy are so Important to the Decisions of Today

Posted on 27 October 2010.

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Many companies top earnings forecasts

The stock market might seem boring lately, but earnings are providing plenty of excitement.

Nearly half the companies in the Standard & Poor's 500 index have reported their third-quarter earnings, and a record 81% have delivered results that are better than expected, says John Butters of Thomson Reuters. If the season ends this way, it'll beat the record set in the third quarter of 2009, when 79% of companies beat expectations.

Companies actually have beaten expectations handily for a while. In fact, three-quarters of companies topped expectations on average the past four quarters, Butters says. But this past quarter was off the charts, considering that 62% of companies historically beat expectations. Just 13% of companies have missed profit forecasts, and 5% have matched them this quarter, Butters says.

"Investors are getting surprised with the strength of corporate earnings," says Michael Farr of Farr Miller & Washington. "It's been great." (more)

3 Tech Dogs Attempting Turnarounds

It's good to be Apple (AAPL: 308.05, -0.79, -0.25%) now. Giant gains in sales, earnings and market share make headlines. Headlines get the attention of potential customers. Their curiosity leads to further sales, earnings and market share gains. And so on.

For the three companies below, momentum has been carrying them in the opposite direction in recent years. Each has suffered setbacks in market share and steep share price declines (at least some of which can be traced to Apple's success).

Humbled companies can be good to stock investors, provided their managers have figured out what's wrong and are willing and able to fix it. With Wall Street's expectations low for such companies, it doesn't take much good news to give shares a lift. The odds are perhaps against these companies, but each has its fans among Wall Street analysts. Here's a look at their arguments in favor of buying shares. (more)

The Top 10 Ways to Save Money

I recently reached a milestone in my life on Twitter: The number of people following my tweets passed the 1,000 mark. I’m still a piker compared with champion Twitterers like Ashton Kutcher, but four figures sounds impressive to me. To thank everyone, I promised that I would tweet my top ten savings tips.

I’ve always believed that the trick to saving money is just that -- a trick. You don’t have to win the lottery, strike it rich on Wall Street or even earn a six-figure salary to build a comfortable savings cushion. You just have to play psychological tricks on yourself to stay focused on spending less and keeping more cash in your pocket.

Over the years, we’ve written about a lot of these strategies in Kiplinger’s Personal Finance, and the promise I made on Twitter encouraged me to mentally cull through those tactics to choose the ones that I think are most practical and effective. And here they are, each in Twitter-ready form of 140 characters or less (with a bonus for visitors to Kiplinger.com).

1. Start right away. Don’t wait till you make more money. The more you make, the more you spend. For ideas on how to make a salary of any size go further, see our story on easy ways to stretch your paycheck.

2. Start small. It will add up to big piles of money over time. To see how fast your money will grow, plug in your numbers at our How much will my savings be worth? calculator. (more)

Greece Likely to Default By 2013 as Debts Remain, El-Erian Says

Greece is likely to default over the next three years because budget-cutting won’t be enough to reduce the nation’s debt burden, Pacific Investment Management Co. Chief Executive Officer Mohamed A. El-Erian said.

It’s in Greece’s interest to default “as long as you can contain the contagion to other countries and it is done through orderly restructuring and repricing to retain competitiveness,” El-Erian said at a conference sponsored by the Economist magazine in New York yesterday. Like Latin America’s “lost decade” in the 1980s, “the alternative doesn’t promise growth and employment generation,” he said.

The extra yield, or spread, investors demand to hold Greek debt instead of similar-maturity German bonds jumped to a two- week high today. The European Union and International Monetary Fund approved a 110 billion-euro ($153 billion) aid package on May 2 in exchange for Greece agreeing to cut public-sector wages and pensions and raise taxes on fuel, alcohol and cigarettes. (more)

Chart of the Day

Mish: Thanks to Fed, Bubble Builds in Junk Bonds; We Know How Bubbles End

The Fed's misguided policies have not done a thing for small businesses, the unemployment rate, or the real economy in general but they have induced a mad dash for yield in junk bonds, easily in a bubble state right now.

Byran Keogh writing for Bloomberg says Fed-Induced Rally Makes Riskiest Debt Priciest

The lowest-rated junk bonds are the most expensive corporate debt following a Federal Reserve- induced rally in high-risk assets, adding to concern fixed- income securities are overvalued.

The extra yield investors demand to hold global bonds rated CCC or lower instead of government debt is about 10.1 percentage points, or 3.4 percentage points narrower than the average over the past 12 years, according to Bank of America Merrill Lynch index data. Debt with B ratings is the only other part of the market trading tighter than its historical average.

The rally in the lowest-rated company bonds has sparked a surge in issuance. MGM Resorts International, the biggest casino operator on the Las Vegas Strip, Energy Future Holdings Corp. and other companies have sold $6.5 billion of bonds this month rated CCC+ or lower by Standard & Poor’s or Caa1 or lower by Moody’s Investors Service, data compiled by Bloomberg show. (more)

U.S. consumers’ confidence rises in October

(MarketWatch) — Consumer confidence rose in October, though it remains near historically low levels, with a monthly gauge compiled by the Conference Board increasing to 50.2.

“Consumers’ assessment of the current state of the economy is relatively unchanged, primarily because labor market conditions have yet to significantly improve,” said Lynn Franco, director of the Conference Board’s consumer research center, in a statement Tuesday.

Although economists declared that the recession officially ended last year, the nation’s employment market remains weak. Earlier this month, the government reported that nonfarm payrolls fell 95,000 during September, while private-sector payrolls gained a modest 64,000.

Economists polled by MarketWatch had expected a confidence reading of 50 for October.

The Conference Board’s index helps analysts compare fluctuations in confidence, with a reading of 100 for the base year of 1985. Generally when the economy is growing at a good clip, confidence readings are at 90 and above. (more)

BNN: Top Picks

Nick Majendie, senior portfolio manager and director, Majendie Wealth Management shares his top picks.

click here for audio

Silver Subject to Price Manipulation, Chilton Says

As an investigation of the silver market by the top U.S. commodity regulator entered a third year, a member of the Commodity Futures Trading Commission said today there have been “repeated attempts” to influence prices.

“There have been fraudulent efforts to persuade and deviously control that price,” said Commissioner Bart Chilton at a hearing today in Washington, alleging there have been violations of the Commodity Exchange Act. “Any such violation of the law in this regard should be prosecuted,” he said.

The five-member commission began investigating allegations of price manipulation in the silver futures market in September 2008. The CFTC said in a report that year that it had received “numerous letters, e-mails and phone calls” during the last 20 to 25 years alleging prices were being manipulated downward.

The CFTC proposed today new rules against manipulation and disruptive trading practices. Proving manipulation has challenged courts and lawmakers since the early attempts to regulate U.S. commodity markets in the 1920s. (more)

U.S. facing $120 trillion on plastic

Warning that the U.S. dollar today is backed only by "promises" from the same politicians who created today's economic disaster, longtime monetary expert Craig R. Smith documents in a new book that the nation already faces some $120,000,000,000,000 ($120 trillion) in debt, deficit and unfunded liabilities.

And unless something drastic and dramatic happens, America soon could follow the pattern established in Germany's Weimar Republic shortly after World War I when it created 1,000,000,000,000,000,000,000 (1 sextillion) Marks, destroying its own economy with hyperinflation, crashing its currency, wrecking social values of thrift and work and paving Hitler's rise to power.

The analysis comes in "Crashing the Dollar: How to Survive a Global Currency Collapse," by Smith, who is founder and chairman of Swiss America Trading Corp., and co-author Lowell Ponte, a contributing editor at Newsmax magazine.

The book says that while the problems have been developing for some time, "President Barack Obama and liberal Democratic policies are pushing the United States toward inflation or even hyperinflation, and … this could destroy the U.S. dollar and other major currencies." (more)

Record-low mortgage rates will be gone in 2011: MBA

(MarketWatch) — Mortgage rates may be as low as they’ll get — rates are on course to rise, slowly moving toward 5% by the end of next year, according to the Mortgage Bankers Association’s economic forecast, released Tuesday at the group’s annual convention here.

The group predicts rates on the 30-year fixed-rate mortgage will average 4.4% in the fourth quarter of 2010, increasing to a 4.7% average in the first quarter of 2011, and climbing to 5.1% by the end of next year. That’s barring any “blockbuster” announcement from the Federal Reserve next month, said Jay Brinkmann, chief economist of the MBA.

The Fed has said it could take more policy actions to stimulate growth, and Brinkmann said that’s likely to come in the form of an additional purchase of Treasury securities. But the market has already anticipated that, and the move has already been priced into current rates, he added.

Brinkmann said he expects a pickup in purchase originations next year, but 2011 volume for mortgages to buy a home will still only be roughly at its 2009 level. Refinance business, however, is expected to drop next year, as mortgage rates begin their rise from record lows. (more)

What Would You Do if Your Income Disappeared?

What would you do if your sole source of income dried up tomorrow?

Would you be prepared? Do you have a plan?

In the Age of Turmoil, many income sources that were considered ‘stable’ in the old system will be at risk; this includes retirement pensions, investment income, salaries and wages, and small business profits.

For example, retirees living on company pensions could easily see their monthly stipends fall due to corporate bankruptcies. And while public pensions like Social Security are unlikely to change in the short-term, this broken system will undoubtedly see massive restructuring in the next decade.

Meanwhile, many small business owners and self-employed professionals may suffer reduced revenue as market conditions and consumer priorities shift; this has already happened to many businesses in the retail and real estate sectors.

For salaried workers, we live in a rather bizarre time when corporate profits are surging, yet revenue growth is lackluster. Companies are cutting back on expenses by reducing their headcounts and squeezing every ounce of productivity out of a smaller workforce. (more)

Humor

Pound forecast to tumble on 'insane' spending cuts

"I think what Britain is doing is absolutely insane" John Taylor, the founder of the $8bn FXConcepts fund, told The Sunday Telegraph. "The Conservatives will lose their stomach for this."

Reducing Britain's £156bn budget deficit is the cornerstone of the government's plan for restoring the economy's health. George Osborne, the Chancellor of the Exchequer, told Parliament last week that the £81bn in spending cuts would pull "Britain back from the brink."

Although Mr Osborne's plan has won support from many economists, there remains concern that it will damage a recovery that is already showing signs of faltering.

"The last retail sales numbers were pretty ugly and then we have to go through the VAT hit," said Mr Taylor, who at 67 is one of the oldest operators in the foreign-exchange markets. The pound will fall below 1.40, possibly this year, he expects. Sterling reached 1.43, its weakest against the dollar this year in May.

The Bank of England has publicly welcomed sterling's decline since the financial crisis erupted in 2008, but the central bank is not alone. Having already yanked hard on monetary and fiscal levers, an increasing number of governments are eyeing a weaker currency as a way of securing their share of an uneven global recovery. (more)

Uranium Index Stocks

Why Dollar's Loss Is Wheat's Gain

Whatever goes up comes down as life moves in cycles especially in the trading world. Testimony to the fact is that United States of America was the world's most expensive wheat producer in the first half of the year but now with the recent slide in the US dollar, the US suppliers are not only more competitive than their European counterparts despite higher freight costs, but the country is expected to dominate the international wheat market until the end of the year as the weak dollar makes the country's exports the cheapest in the world.

Weak Dollar Driving Wheat Prices

The movement in the dollar index has a lot of effect on commodities and other currencies, even if it does not replicate the action of the index. The dollar has been hovering around its lowest level against the euro since January and at 1215 GMT.

The euro was at $1.3949, up from $1.3888 in early trade, while US wheat futures at the Chicago Board of Trade (CBOT) ended mostly higher Friday since dry growing regions may not receive as much relief as they previously expected. (more)

No Gold Or Silver Bubble Says Sprott's John Embry

On one hand, one has professional stock bubble top-tickers (of the variety that would benefit from some error-checking)-cum-amateur precious metal pundits claiming that the gold bubble is unmistakable. On the other, there are those who have made hundreds of millions of dollars for their investors actually investing in precious metals, such as in this case Sprott's John Embry, who states that there is no bubble in either gold or silver. "Jim Rogers, who is one of the world's leading authorities on commodities, dealt with the bubble issue recently by recounting an interesting anecdote. While addressing a group of high-end money managers, he inquired as to how many of them held gold or silver in their accounts, and remarkably, 75% replied they had never owned either precious metal. When gold is trading at several multiples of the current price at some point in the future, you can be assured that every single person at a similar gathering would be long and then discussion of a bubble might be legitimate. In my considered, opinion we are many years and thousands of dollars away in price from that debate." Whom does one believe? That's obviously rhetorical. Amusingly, Embry takes a stab at the Financial Times, which he dubs a conduit for the establishment: "The FT has been speaking much less disparagingly about gold recently. The paper consistently denigrated gold and its change in tone might be instructive." Of course, a variety of second-rate media outlets are more than happy to step in and fill the "goldbug" bashing void in the FT's absence.


Embry Oct22 -

WSJ: Deficit Panel May Cut Mortgage-Interest Tax Break

The popular mortgage-interest tax deduction could be eliminated by a bipartisan commission charged with finding ways to chop the deficit, The Wall Street Journal reported.

The Journal also reported that child tax credits and payment for health insurance with pretax dollars all could be cut by the deficit panel, which will issue recommendations on balancing the budget by 2015.

The report hinted that these tax breaks could be preserved at a lower level.

The Journal reported that the panel is expected to steer clear Medicare, Medicaid, Social Security and a broad rewrite of the tax code in its short-term recommendations. The panel could still make long-term recommendations to change these issues, but they would be less concrete, the Journal reported.

The Obama administration said earlier this month the federal deficit hit a near-record $1.3 trillion for the just-completed budget year, the Associated Press reported. That means the government had to borrow 37 cents out of every dollar it spent as tax revenues continued to lag while spending on food stamps and unemployment benefits went up as joblessness neared double-digit levels in a struggling economy. (more)

Is Today's Rate of Unemployment Higher than During the Great Depression of the 1930s?

It is difficult to compare current unemployment with that during the Great Depression. In the Depression, unemployment numbers weren't tracked very consistently, and the U-3 and U-6 statistics we use today weren't used back then. And statistical "adjustments" such as the "birth-death model" are being used today that weren't used in the 1930s.

But let's discuss the facts we do know.

The Wall Street Journal noted in July 2009:

The average length of unemployment is higher than it's been since government began tracking the data in 1948.

***

The job losses are also now equal to the net job gains over the previous nine years, making this the only recession since the Great Depression to wipe out all job growth from the previous expansion.

The Christian Science Monitor wrote an article in June entitled, "Length of unemployment reaches Great Depression levels".

60 Minutes - in a must-watch segment - notes that our current situation tops the Great Depression in one respect: never had we had a recession this deep with a recovery this flat. 60 Minutes points out that unemployment has been at 9.5% or above for 14 months: (more)

Chart of the Day

Dollar at Risk of Becoming 'Toxic Waste': Charts

The dollar's slump could get far worse if the dollar index takes out last year's low, Robin Griffiths, technical strategist at Cazenove Capital, told CNBC Monday.

"If the (dollar index) takes out the low that was made roughly a year ago I really think that will not only encourage more sales, it will cause a little bit of minor panic," Griffiths said. "A year ago it was deemed too cheap, if it goes any lower than that it's actually become toxic waste."

The dollar [.DXY 77.11 0.005 (+0.01%) ] resumed its recent downtrend Monday in the wake of a meeting of finance ministers from the Group of 20 nations at the weekend. The meeting failed to yield a definitive agreement on currencies, putting selling pressure on the greenback.

"The dollar is being trashed, we've actually had effectively devaluation of about 14 percent in the last two months," Griffiths said.

His view is contrary to that of HSBC foreign exchange strategist David Bloom, who told CNBC that a continuation of the currencies war after the G20 might put pressure on risky assets, causing a flight to safety into the dollar. (more)

The Great IMF Fire-Sale of the UK has Begun

The British Government is about to sell off over half of all UK Forests that are currently under the control of the Forestry Commission to private corporations as the asset-stripping of the UK is begun on behalf of the International Monetary Fund and the Big Six Beast Banks.

Caroline Spelman, the environment secretary, has just announced plans to sell around half of our forests to the mega-corporations – that is 150,000 hectares of prime woodland – as well as numerous other properties. The New Forest, Sherwood Forest, and the Forest of Dean could be targeted for sale.

The Sunday Telegraph provided a map of which forests are owned by the state through the Forestry Commission:

The vast majority of these forests are in Wales, West Scotland and the North East of England.

Most of these forests will be sold off to housing developers, timber merchants, power generators and Centre-Parcs Ltd for golf courses and holiday camps. Our right of access to these forests will be severely curtailed, and we will have lost a great natural resource that can never be bought back for the People. (more)

Technically Precious With Merv

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What's Next For Gold? A Technical Look At The Past Week's Big Pullback

You may have expected yet another bumper week for the shiny metal. However, this week marked the first time since mid-summer that Gold has run into some head wind. After a massive bull run reaching new all-time nominal records nearly every week, Gold has retraced about 3% this week. Is this the beginning of the end or was it just a minor pause in an otherwise massive long-term up-trend?

While taking nothing away from this amazing bullish move in Gold during the past decade, we have been expressing concerns about a possible bubble and listed a number of caveats about loading up on Gold indiscriminately. Most notably, the concerns are two-fold: a) Gold is not a traditional investment in that it provides no inherent yield or return other than price appreciation and b) Gold is a commodity nonetheless and as such exposed to significant volatility. You can review some of our previous comments on Gold at FXIS/Gold. With regard to external and fundamental factors causing concerns, John Authors of the Financial Times expresses these concerns much more elegantly than I can. Please consider: Remember 1980: all that glisters is not gold. (more)

CFTC Weekly Options Update: Total Treasury Spec Longs Surge By 40% To 2010 Record, Dollar Inflection Point Reached?

This week's CFTC Commitment of Traders confirms that market momentum schizophrenia is persisting: in the past week Treasury net non-commercial spec long positions across the curve (2s, 5s and 10s) surged from 221k to 311k, a 41% increase. In other words the momo crowd is betting the farm that treasury prices not only won't stop going higher, but that the entire curve with be transposed lower with a slight preference for the belly (as Morgan Stanley now expects). The Combined total is more than half a million contracts compared to early April when the 10 year was threatening to break out of the 4% range (dashed line Chart 1). Yet this is in contradiction to the options activity within selected commodities, which after taking a slight breathers have continued to see increasing spec demand to the upside (Chart 2). Lastly, and probably most importantly, looking at currencies shows that the unprecedented surge in bearish bets in the dollar may be over: for the first time since the end of August, dollar net spec bets have actually gotten marginally bullish.

Commitment of Traders Report Traditional Commodities

Commitment of Traders Financials

California Is Broke – 19 Reasons Why It May Be Time For Everyone To Leave The State Of California For Good

Back in the 1960s and 1970s, there was a seemingly endless parade of pop songs about how great life was in California, and millions of young Americans dreamed of moving to the land of sandy beaches and golden sunshine. But now all of that has changed. Today, millions of Californians are dreaming about leaving the state for good. The truth is that California is broke. The economy of the state is in shambles. The official unemployment rate has been sitting above 12 percent for an extended period of time, and poverty is everywhere.

For many Californians today, there are very few reasons to stay in the state but a whole lot of reasons to leave: falling housing prices, rising crime, budget cuts, rampant illegal immigration, horrific traffic, some of the most brutal tax rates in the nation, increasing gang violence and the ever present threat of wildfires, mudslides and natural disasters. The truth is that it is easy to understand why there are now more Americans moving out of California each year than there are Americans moving into the state. California has become a complete and total disaster zone in more ways than one, and an increasing number of Californians are deciding that enough is enough and they are getting out for good.

Sadly, the state of California is facing such a wide array of social, economic, and political problems that it is hard to even document them all. It is really one huge gigantic mess at this point. (more)

The Government Pulls a Bernie Madoff on Social Security and Lays Out the Sad Truth

When Bernie Madoff realized he could no longer meet all the demands of his investors that wanted their money, he walked into the offices of the SEC and admitted as much.

The government has just pulled a Madoff. They have admitted that they don't have the money to pay everyone out they have promised to pay out via Social Security. Specifically, those under 30 are going to get really screwed.

Business Insider's Bruce Kasting explains how bad the situation is, but keep in mind that this is based on CBO projections, and there is no chance the CBO has run the truly negative scenarios, where the government can't pay its Treasury debt--which is mostly what the Social Security Trust fund holds. Factor that in and the odds drop for everyone that they are going to get paid in full : (more)