McAlvany Weekly Commentary, March 10, 2010

An Interview with Russell Napier; Capitals Controls, Conscription of Assets, the US Bond Market End Game

Russell Napier is a consultant with CLSA writing on issues affecting global equity markets. After studying law, he began his investment career at Baillie Gifford in Edinburgh managing funds in the Japanese, then the US and finally the Asian markets. Moving to London he was responsible for managing Asian portfolios. In 1995 he relocated to Hong Kong to become the Asian strategist for CLSA. He occupied that position full time until 1999 during which he was ranked number one for Asian strategy in all major industry polls. Since 1999, apart from fulfilling a consultancy roll for CLSA, Russell has created and established a new course called A Practical History of the Financial Markets which is taught through Edinburgh Business School.

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Defaults Signal Bursting Muni Junk Bubble After Surge

Investors in search of better returns poured $7.8 billion into high-yield municipal bond funds last year, pushing assets to a two-year high. They may start experiencing losses as early as this year as default risks grow.

“People are starving for yield because rates are at zero,” said Paul Tramontano, co-chief executive officer of New York- based Constellation Wealth Advisors, which manages about $4 billion. “They’re taking more risk than they think.”

Below-investment grade munis are typically issued by companies raising debt through a municipality for a project with a public interest such as hospitals, nursing homes, housing developments and sports stadiums, said Eric Jacobson, director of fixed-income research for Morningstar Inc. (more)

Rosenberg: S&P 500 Overvalued by 26 Percent

Star economist David Rosenberg is sticking to his guns that the economy and the stock market are in trouble.

He wrote in a letter to clients of his firm Gluskin Sheff + Associates that some of them say he’s too bearish, and other believe he’s changing his views when he mentions positive news.

“I am not changing my macro or market view, but merely providing some color on why it is that the equity market refuses to go down even in the face of what has been a slate of disappointing economic news over the course of the past month,” Rosenberg wrote, according to the Financial Times. (more)

GATA Claims To Have Evidence Of "Massive Physical Short Gold And Silver Positions That Can Not Be Covered"

In a letter to the CFTC's Chairman, Gary Gensler, GATA Chairman William Murphy shares the following bombshell:

"GATA has evidence that there are enormous physical short positions in the gold and silver markets that cannot be covered."

Even as the CFTC is meeting later this month to establish position limits in the gold, silver, and other precious metals' markets, it could be none other than the CFTC's core banks, and Mr. Gensler's former Goldman bosses, that form the very core of the biggest market manipulation collusion syndicate in the history of the commodity markets.

Because of the decades-long interference with the gold market, we estimate that the free-market price of gold is multiples of the current price. Growing stress caused by burgeoning physical bullion demand is threatening to lead to a price explosion, which will restore to the market the balance that regulation has failed to maintain. In our view, the Comex paper market will become dysfunctional, with "force majeure" having to be declared as the concentrated shorts are unable to deliver on their obligations." (more)

Canadian dollar likely to trump US greenback: experts

The Canadian dollar, or loonie as it is affectionately called here, is likely to soar above parity with the US greenback this year, experts at a Canadian bank said Wednesday.

Canadian Imperial Bank of Canada (CIBC) chief economist Avery Shenfeld said the Canadian dollar had already gained several cents in recent weeks as the market firms up expectations of an interest rate hike in July.

If as expected, the central bank "is out in front of the US Federal Reserve by a couple of quarters" in raising interest rates, the Canadian dollar could reach 1.02 dollars versus the US dollar by September, before dipping back to 0.97 dollars by year end," Shenfeld said. (more)

Budget deficit sets record in February

The government ran up the largest monthly deficit in history in February, keeping the flood of red ink on track to top last year's record for the full year.

The Treasury Department said Wednesday that the February deficit totaled $220.9 billion, 14 percent higher than the previous record set in February of last year.

The deficit through the first five months of this budget year totals $651.6 billion, 10.5 percent higher than a year ago.

The Obama administration is projecting that the deficit for the 2010 budget year will hit an all-time high of $1.56 trillion, surpassing last year's $1.4 trillion total. The administration is forecasting that the deficit will remain above $1 trillion in 2011, giving the country thrree straight years of $1 trillion-plus deficits. (more)

BNN: Marc Faber, Buy Gold, Forget U.S. Equities

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S & P - New Highs Coming, Or At A Top?

This weekly chart shows an up channel that captures the market activity, to date. Back in July 2008,
there was a reaction low at the 1200 area, noted by "Support Rally" on chart, extended into the future.
This past support will/may act as resistance into the future, the broken portion of that horizontal line.
There is a second reaction low, from March 2008, that does not show, but it is the higher horizontal line,
drawn for the same reason. The initial 1200 level would be the first potential resistance, using past
market activity as a guide. (more)

Cramer Abandons Ship on Blue Chip Oil Stocks

“…Now, after that is Exxon, off 2.1% since the year began. This petro-giant is totally problematic. No great yield. Nothing new until the XTO, that natural gas deal closes and it hasn’t budged as oil has run to $80 a barrel. I don’t see it helps us out at all. I think Exxon will be lucky to creep to $70. That’s only up three from here. No more than that. Kind of a boat rowed gently up the stream. Then there’s Chevron. Off 3.5% for the year. My charitable trust has become a seller of chevron, but merely scaling out as the company said many good things today at the analyst meeting. I am not fretting. In fact, I think this $74 and change stock can row its way to $80 perhaps with a leisurely portage now and then.” (more)

Chart of the Day