Saturday, April 9, 2011

Apartment Vacancies Drop to 3 Year Low, as Rents Rise - Apartment REITs Benefit

Lost in the tragedy that is the U.S. housing market (ex Washington D.C. and Manhattan) is a potential boom time in the rental market. With modest building of new units, and a flood of new renters (many of which were home owners over the past 5 years), we do seem to have the perfect storm brewing. Homeownership rates - which bubbled to nearly 70% at the peak of the mania are STILL above the long term average by a few %.

In stock market terms, the obvious play here are the apartment REITs - however, I think the market has sniffed this out well in advance as the stocks of names such as Equity Residential (EQR),Essex Property (ESS) and AvalonBay Communities (AVB) have been in a steady trend up, with little relent.

Via Bloomberg:

  • U.S. apartment vacancies dropped to the lowest in almost three years in the first quarter as the weak homebuying market fueled demand in what is usually a slow period for rentals. The vacancy rate declined to 6.2 percent from 8 percent a year earlier and 6.6 percent in the fourth quarter of 2010, the New York-based research firm said in a report today. The rate was the lowest since it reached 6.1 percent in the second quarter of 2008.
  • Unemployment of close to 9 percent and a surge in home foreclosures have pushed many people to rent, driving a rebound in multifamily properties during the past year.Construction of apartments has climbed from a 50-year low on expectations that rents will increase and more people will seek to lease.
  • “There is a bias against homeownership at this point, especially if you feel home prices won’t rise and you can wait,” Victor Calanog, chief economist at Reis. “Most of the applications for construction and building loans are for multifamily buildings.”
  • Effective rents, or what tenants actually pay, increased in 75 of the 82 markets Reis tracks, to an average $991 a month from $967 a year earlier and $986 in the fourth quarter.
  • Landlords’ asking rents also climbed, to $1,047 from $1,027 a year earlier and $1,043 in the previous quarter, according to the report.
  • Home ownership in the U.S. dropped from a peak of 69.2 percent in 2004 to 66.5 percent at the end of 2010, with each percentage point representing about 1.1 million households, according to the Census Bureau.
  • Developers have stepped up rental projects in anticipation of rising demand.AvalonBay Communities Inc. (AVB), the second-biggest publicly traded U.S. apartment owner, started 11 developments in 2010 with a combined 2,446 apartment units.

Paul Tustain: Gold Is Sending A Signal That The Monetary System Is In Grave Danger

"When a country's public debt exceeds 90% of GDP, that is the magic number. You get to 90%, there is no way back, and that is the number that the U.S. is going through pretty much as we speak. It is also the number which the UK has gone through; all of the PIGS are going through it, as well. They are all going past the 90% debt to GDP ratio. Obviously, Japan is miles past it already. It's up to 200%+. There does not appear, in the historical analysis, to be any great likelihood of getting back from that level of debt safely. There is this strong evidence that above 90% debt to GDP, you will experience either a cataclysmic default or some form of very serious inflation."

So observes Paul Tustain, gold market analyst and founder of BullionVault. In his view, gold serves as a beacon who's price is currently signalling the monteary system is in grave danger. He and Chris discuss the primary factors driving the price of gold and smart strategies for investors looking to build or maintain their holdings of the metal.

Click the play button below to listen to Chris' interview with Paul Tustain (runtime 56m:55s):

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In this podcast, Paul covers:

  • The differences between unallocated and allocated buillion and the market problem that led Paul to found BullionVault
  • How central banks have recently shifted to become net buyers of gold after a long period of dis-hording bullion, and how this - combined with surging private investment - has sent demand for the metal skyrocketing
  • Why we're currently experiencing inflation & deflation at the same time: our monetary policy is pushing more and more money into short-term investments, driving up the price of the things we use today (food, fuel, etc) and and lowering prices of the things we finance over longer periods (like houses)
  • Paul's approach to valuing gold and why he sees $3,844/ounce as a defensible (and conservative) estimate of it's appropriate value
  • Paul's perspective on silver, gold miners and ETFs
  • The purpose and advantages of the allocated custodial bullion purchasing & storage model thatBullionVault offers

Click here to read the transcript

Sun Spots Solar Activity and the Financial Markets Part II

If you have not already read the first part of my analysis on Solar Activity and the Financial Markets, please do so here, as it provides important background for part II.

In that article I provided evidence that rising solar activity into a solar peak is correlated with periods of inflation and that in historical secular commodities bull markets the relative pricing of hard assets to stocks has each time peaked at the solar peak. Commodities are sought after in inflationary times and their prices are a key ingredient in consumer price inflation levels, producing a feedback loop, but given that stocks also usually perform well in inflationary times is there any correlation between stocks and solar cycles?

Below is a long term Dow Jones Industrial Average stock index chart, with solar peaks marked as black spots and solar minimums as red spots. Click here for a larger image.

It is immediately apparent that solar peaks show some correlation with peaks in stocks. In fact, buying at each solar minimum and selling at the next maximum (3-5 years later) has returned average gains of 70%.

An even better strategy would have been buying and holding stocks over multiple solar cycles, being out of the market specifically for just a half-cycle around 1930 and 1970. This strategy returned 10-fold gains each time measured from solar minimum to solar maximum over a multi-decade period. Pattern continuation would imply that the half-solar-cycle from March 2000 to December 2008 set up a potential 10-fold increase from the December 2008 solar minimum to a Dow level of around 85,000 by the 2030s (and that the March 2009 low was the definitive low). If that target seems excessive, then bear in mind that this is the nominal Dow, not real inflation-adjusted, and that such an increase would only be in line with history. That timescale would also fit well with an average secular stocks bull between the 2010s and 2030s, powered by technological paradigm shifts from AI, nanotech, biotech, geoengineering, alternative energy, or other fields. Consider that technological evolution is exponential in pace and the last secular stocks bull delivered internet, mobile phones, DNA indentification, fibre optics and more.

Here is the data supporting the shorter term strategy of buying at solar minimums and selling at the next cycle maximum for an average 70% gain:

Why might stocks consistently outperform in these periods from solar minimum to maximum, and underperform from solar peak down to the next solar minimum, particularly as higher solar activity can cause higher geomagnetism on Earth which affects humans biologically negatively and adversely affects stock market returns (see first article)?

Well, there is a slight lag in geomagnetic peaks after solar cycle peaks, as shown below, and this fits well with why we have seen an economic recession follow each solar cycle maximum in the last century - it corresponds to the peak in geomagnetism. Historically, this post-solar-peak period has been one of human apathy and peace. Conversely, the period into the solar peak has been one of human excitability, pro-action and economic inflation, which fits well with stock market gains.

Source: Susan Macmillan, British Geological Survey

Solar Cycle 24 began around December 2008 with a solar minimum and it is predicted to peak in July 2013. An average gain of 70% for the Dow over this period would translate as 14500 by mid 2013 (which would mean a new nominal all time high).

A recession has closely followed solar peaks for each solar cycle in the last 100 years. The average recession duration is 1 year. The average length of recession-induced stocks bear markets is 1 year 4 months. As the stock market is forward looking, and a leading indicator, we could therefore find the the stock market peaks around the beginning of 2013 and then declines into the solar peak in mid 2013, and then declines through a recession into 2014.

Dow-Commodities ratios and consumer price inflation should peak at extremes at the solar peak (as has occurred each time in the last century), suggesting commodities should push on all the way into mid-2013 whilst stocks lag in the last few months. This final divergence occurred in previous secular inversions in history. If the Dow were at 14500 at this relative peak point, then historical Dow-commodity ratio extreme inversion points can be our guide as to where gold and oil should then be.

The Dow-gold ratio has thus far made a low of 6.86 in this secular bull/bear, so a greater extreme than this needs to be reached. However, based on the 200 year Dow-Gold ratio chart anything beneath this level may qualify as a turning point, but note that levels of 1-2 were hit in the last 2 secular instances.

If Dow-gold bottoms at 6 and Dow is 14500: gold is $2400.
If Dow-gold bottoms at 1 and Dow is 14500: gold is $14500.


The Dow-oil ratio, based on historic extreme turning points, could bottom at 75 or below.

If Dow-oil bottoms at 75 and Dow is 14500: oil is $200.
If Dow-oil bottoms at 50 and Dow is 14500: oil is $300.

Source: Approximity

Understand that Dow 14500 is calculated on AVERAGE historic gains only so should not be given too much emphasis. However, my recent pieces of analysis on the cyclical stocks bull suggest such a 17% gain from current levels to be more pessimistic than optimistic, as a market top. Previously I have reasoned for minimum targets of $2000 gold and $150 oil. The above calclulations therefore suggest we should not be suprised to reach some way higher.


In summary, there is a correlation between stock market performance and solar cycles. A profitable strategy over the last century would have been to buy at the solar minimum and sell at the next solar maximum, and repeat for an average 70% gain in each instance.

An even more profitable strategy would have been to buy and hold over 2-3 decades in between 3 specific half solar cycles. This strategy would have produced 10-fold gains each time, and pattern continuation suggests such a repetition from the solar minimum at the end of 2008 looking out to the 2030s, in line with a further secular stocks bull.

Looking shorter term to the solar peak around mid-2013, stocks should track yet higher, and this implies commodities much higher, as an extreme relative pricing of commodities over stocks should be reached around that solar peak, before a secular inversion.

John Hampson

Gold Is Still Cheap Despite Record Surge: Marc Faber

The Federal Reserve’s money-printing policies continue to make gold an attractive investment even though it has hit a succession of new highs recently, Marc Faber, author of the Gloom Boom & Doom report, told CNBC.

Experts: Gasoline to Hit $4 This Summer as Oil Nears $113 Read more: Experts: Gasoline to Hit $4 This Summer as Oil Nears $113

Oil surged above $112 per barrel Friday following a drop in the dollar and continued jitters about shipments from the world's major oil suppliers.

Benchmark West Texas Intermediate for May delivery jumped $2.45, or 2.2 percent, to $112.75 per barrel in afternoon trading on the New York Mercantile Exchange. Crude oil set new 30-month highs almost every day this week.

Analysts said oil moved higher as the dollar plunged against other major currencies. Oil is traded in dollars and tends to rise when the greenback falls and makes crude cheaper for investors holding foreign currency.

Oil also climbed on fears that violence in Nigeria ahead of the country's national election this weekend could lead to supply interruptions. And in Venezuela a massive blackout appears to have affected some refineries, analysts said. The two countries supply a combined 2 million barrels of oil per day to the U.S.

If crude prices keep rising, experts say, gasoline prices could hit $4 a gallon across the U.S. this summer.

Pump prices have jumped from $3.07 to $3.74 per gallon since the beginning of the year. The swift rise forced the Oil Price Information Service to boost its retail gasoline price forecast to a range of $3.75 to $4 per gallon this year. OPIS chief oil analyst Tom Kloza said it may not be long before the national average tests the all-time record of $4.11 per gallon set in July 2008.

Further price hikes could do serious damage to the U.S. economy, he said. For consumers, "gas prices have more relevance on an emotional level than a lot of other things that they pay for," Kloza said. "People pay more attention to gasoline than phone service, cable TV or other services," Kloza said.

The national average for a gallon of gas is now 88.3 cents higher than the same time last year, according to OPIS, AAA, and Wright Express. It's already above $4 per gallon in California, Alaska and Hawaii, and it's almost there in Connecticut, Washington, D.C., Illinois and New York.

Oil and gasoline prices began a steady rise in February, as the Libyan rebellion shut down the country's daily exports of 1.5 million barrels of oil. Libya produces about 2 percent of world demand, and analysts say making up for those losses will severely reduce the ability of other oil-producing countries to increase production in the future. Saudi Arabia and other OPEC countries are covering some of the shortfall in Libyan crude, which went mainly to refineries in Europe.

Barclays Capital has said that Libya's oil exports probably will be offline for several months. As fighting continues, more traders are going along with that prediction.

"The market is being forced to consider a possible major loss of Libyan barrels probably through the rest of this year and into next," analyst Jim Ritterbusch said Friday.

Experts point to several other factors that have pushed oil and gasoline to record levels. The U.S. economy added hundreds of thousands of jobs this year. That means gasoline demand could increase this year as more workers join the daily commute. And last month's devastating earthquake and tsunami in Japan put further pressure on oil prices. Japan is expected to boost oil and natural gas imports while some of its nuclear power plants are offline.

In other Nymex trading for May contracts, heating oil added 11 cents at $3.3192 per gallon and gasoline futures gained 8 cents at $3.2622 per gallon. Natural gas lost 2 cents at $4.042 per 1,000 cubic feet.

In London, Brent crude rose $3.61 to $125.87 on the ICE Futures exchange.

The Economist - 09th April-15th April 2011

The Economist - 09th April-15th April 2011
English | 124 pages | PDF | 40.90 Mb

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.

Utah's New Gold Confiscation Law

A few weeks ago, stories came out about Utah's legislation enabling gold and silver as legal tender for state debts. The story excited hard money advocates and those favoring alternative currencies to the currently floundering US dollar. For those who wanted to maintain their purchasing power through hard money and avoiding the constant devaluation of fiat money issued by the federal government, the Utah legislation seemed like a long-awaited first step in that direction. Dreams of other state legislatures ratifying similar legislation danced about in our heads. Would US States really exercise their Constitutional rights by offering a true money alternative to the Federal fiat dollar?

The Utah house had passed legislation making gold and silver legal tender for state debts. Now all that was required was Governor approval. This week, hard money advocates joyously cheered as the legislation received the Governer's signature. But nobody following the development mentioned a key point about this legislation that would turn it from a legitimate hard money system to a State gold confiscation scheme.

Rejoice or Reject?

The poison pill of this legislation turned out to be in the fine print. While gold and money are finally legal tender in Utah for all state debts, such as taxes, they are only valued at the face amount on the coins. Bullion dealers and collectors will tell you that the face amount stamped on a coin issue, whether it be an American Eagle or a Austrian Philharmonic, are really nostalgic deference to a time in which gold and silver were actually the coins of the various realms and their exchange rates to fiat paper money were relatively equal. Since then, the US dollar has lost 95% of its purchasing power while the amount stamped on US gold and silver coins has not changed.

What is the face amount on an American Gold Eagle? $50. So, that is the value you receive for your 1 oz. American gold Eagle when you exchange it for the privilege of paying your taxes and fees in Utah. What is an American gold Eagle really worth? As of the writing of this article, the 1 oz gold coin goes for $1451.28 plus any markup you pay to the dealer.

So for about $1500 in federal fiat greenbacks, you can reduce your Utah state taxes and fees by $50. As my favorite movie ticket counter clerk always says, "Such a deal, such a deal!"

Exchange Rate Follies

This basically amounts to a 1-30 exchange rate in favor of the state of Utah. So let me get this straight. Utah citizens get the right to pay their taxes to the state using one of the very few assets currently maintaining its purchasing power, for the low low exchange fee of 3000%. Such a deal indeed!

Now that exchange rate usury is official in Utah, I can think of several other ways they can take advantage of their citizens. Airport currency exchange booths should immediately begin exchanging 1 Euro for every $30.

State car license tags will not longer be payable in cash, but require that you instead turn in your car to pay the yearly fee. What a boon to the local car market that would be!

Home refinancings will once again boom as homeowners are required to pull out an additional 20% equity every year to cover their property taxes. I am sure mortgage lenders and brokers are rushing to their state legislatures as we speak.

Perhaps, instead of messing around with fiat money devaluation or hard money confiscation at all, we should just attach a promissory note to each birth certificate. Each child will be required to pay their first ten years pay into a general state fund to be used for whatever entitlement legislation makes it through the system. Each paycheck thereafter is taxed at 15% to maintain growth in these programs. Why bother with taxes and exchange fees when you can simply mortgage the person themselves? It would circumvent all the pomp and circumstance of current politics and get straight to the matter; the state is going to give you bread to live on at the expense of your labor, and they will take an extra fee for administering those programs to boot. After all, legislative salaries must stay competitive to the market place!

Will Anyone Actually Use This Law?

As demonstrated, this law amounts to voluntary confiscation of ones gold and silver. At least with a lottery, you have a chance, albeit small, of getting a payout capable of funding your retirement. And in some cases, legalized gambling does lead to the occasional bloke walking out of the casino with money in his pocket. The Utah legal tender (AKA gold confiscation) law offers no such upside.

Of course, the answer is that anyone smart enough to invest in gold and silver are not going to be silly enough to actually exchange their coinage for pennies on the dollar through this program. What then, if the legislation is doomed before it begins, is the point of the charade?

It is pretty obvious to even the casual economic observer that fiat money is devaluing across the world in what appears to be a race to the bottom. Governments are getting closer to defaulting on their debts and rating agencies are actually, in some cases, downgrading sovereign debt. None of them yet has the stones to take on the US debt, but that will come in time.

What the Utah law does is fill two needs. One, the circus of the legislature pretending to pass legislation challenging the supremecy of the US fiat dollar, when actually no such thing has occured. Secondly, it sets precedents for other state legislatures to do the same thing. Precedent is very important in American common law, when the state actually recognizes the value of the precedent and chooses not to ignore it. Now, Utah's gold and silver legal tender laws offer states unwilling to use devalued fiat money to play the ponzi game and kick the can down the road a way to appear to be doing something when in reality they are doing nothing.

And the charade of government efficacy in the US continues ...

Feeling Depressed? 27 Depressing Statistics About The U.S. Economy That Will Make You Feel Even Worse

Courtesy of Michael Snyder: 27 Depressing Statistics About The U.S. Economy That Will Make You Feel Even Worse

depressionIf you know someone that believes that the U.S. economy is in great shape, just show that person the following statistics. But please don't show these statistics to anyone that is feeling depressed or that has just lost a job - it might push such a person over the edge.

The sad truth is that the U.S. economy is in the midst of a long-term decline and it is coming apart at the seams. Right now the Obama administration and the Federal Reserve are attempting to "paper over" our economic problems with massive amounts of government debt and paper currency, but in the end it is not going to work. When you analyze the numbers objectively, it leads to the inescapable conclusion that we are headed for another Great Depression.

That is a very depressing thought, but there is no denying that decades of debt and incredibly bad decisions are starting to catch up with us. The economic pain that is coming is going to be absolutely mind blowing.

It would be nice if our politicians and our business leaders suddenly started making incredibly wise decisions so that we could bring the U.S. economy in for a "soft landing", but the chance of that happening is so small that it is not even worth mentioning.

It is time for all of us to face up to the truth. In this day and age it is really easy to get caught up in the trap of feeling depressed, but once we understand exactly how bad our problems are it can be empowering because then we can start focusing on solutions.

The following are 27 depressing statistics about the U.S. economy that are almost too crazy to believe....

#1 The Obama administration projects that the federal budget deficit will be approximately $1,600,000,000,000 this year. Right now the Republicans and the Democrats are fighting tooth and nail over budget cuts. The Republicans are proposing to cut the budget deficit by 3.8%. The Democrats only want to cut it by 2.1%.

#2 The U.S. economy actually grew more between 1930 and 1940 than it did during the decade that recently ended.

#3 Over the last decade, the number of Americans without health insurance has risen from about 38 million to about 52 million.

#4 Agricultural commodities are absolutely soaring. The price of corn has more than doubled over the last 12 months. Considering the fact that corn is in literally thousands of our food products, that is a very frightening statistic.

#5 Between 1999 and 2009, real median household income in the United States declined by 5.0%.

#6 It is being estimated that total U.S. government debt will grow by 42 percent by the year 2015.

#7 According to the Pentagon, the cost of the first week of attacks on Libya was 600 million dollars.

#8 The average American now spends approximately 23 percent of his or her income on food and gas.

#9 According to the U.S. Energy Department, the average U.S. household will spend approximately $700 more on gasoline in 2011 than it did during 2010.

#10 It is being projected that for the first time ever, the OPEC nations are going to bring in over a trillion dollars from exporting oil this year. Their biggest customer is the United States.

#11 According to the Economic Policy Institute, almost 25 percent of U.S. households now have zero net worth or negative net worth. Back in 2007, that number was just 18.6 percent.

#12 China produced 19.8 percent of all the goods consumed in the world last year. The United States only produced 19.4 percent.

#13 The United States has lost an average of 50,000 manufacturing jobs per month since China joined the World Trade Organization in 2001.

#14 The U.S. trade deficit with China in 2010 was 27 times larger than it was back in 1990.

#15 U.S. home values have fallen an astounding 6.3 trillion dollars since the peak of the real estate market in 2005.

#16 According to RealtyTrac, one out of every 45 U.S. households was hit with a foreclosure filing in 2010.

#17 The number of homes that were actually repossessed reached the 1 million mark for the first time ever during 2010.

#18 New home sales in the United States set a brand new all-time record low in the month of February.

#19 Now home sales in the United States are now down 80% from the peak in July 2005.

#20 The financial condition of American families continues to deteriorate rapidly. In 2010, one out of every eight American families had at least one family member that was unemployed. That number was the highest it has been since the U.S. Labor Department began keeping track of that statistic back in 1994.

#21 There are now more than 6 million Americans that the government says have given up looking for work completely.

#22 According to the U.S. Bureau of Labor Statistics, the average length of unemployment in the U.S. is now an all-time record 39 weeks.

#23 Americans now owe more than $900 billion on student loans, which is also an all-time record high.

#24 Average household debt in the United States has now reached a level of 136% of average household income.

#25 According to the Federal Reserve, between 2007 and 2009 median household net worth in the United States fell by 23 percent.

#26 The Federal Reserve also says that median household debt in the United States has risen to $75,600.

#27 According to a recent article posted on the website of the American Institute of Economic Research, the purchasing power of a U.S. dollar declined from $1.00 in 1913 to 4.6 cents in 2009. Sadly, the Federal Reserve is working very hard to get rid of the little bit of purchasing power that the U.S. dollar has left.

Brent surges $4 as dollar fall stirs commods funds

Oil prices surged the most in three weeks on Friday, with Brent jumping $4 a barrel to a 32-month high as a sinking dollar triggered a fresh rush of fund buying across the commodities spectrum.

U.S. crude topped $113 but trailed Brent, which closed out its best weekly gain since February. Deepening violence in Libya and concerns about unrest in Saudi Arabia and Nigeria lent new impetus to a rally that is threatening to crimp global growth and add to growing inflation concerns.

Analysts said Friday's sharp gains in oil, wheat, copper and gold -- while stocks slipped -- stemmed from a big wave of second-quarter investment. Oil drew extra support from fears that the war in Libya was starting to inflict lasting damage on the oil sector.

"Troubles in Libya mean Gaddafi has caused damage to the Sirte basin, which has about two-thirds of their oil. There's dollar weakness and some very large fund action piling into the market in oil and base metals," said Rob Montefusco, an oil trader at Sucden Financial.

ICE Brent crude for May rose $3.98 to settle at $126.65 a barrel, highest settlement since July 2008. It reached $126.91 in post-settlement trading.

U.S. crude rose $2.49 to settle at $112.79. It reached $113.20 post-settlement, the highest intraday price since September 2008.


The dollar index .DXY measuring the greenback against a basket of currencies weakened as the euro jumped to a 15-month peak against the dollar following the European Central Bank's interest rate hike.

A weaker dollar often lifts dollar-denominated commodities because they become attractive as a hard-asset inflation hedge and demand can be stoked by cheaper prices for consumers using other currencies.

"New investment flows at the start of the quarter are driving oil and gold this morning, with the strong rise over the past week attracting trend followers and more fund money," said Michael Guido, director of hedge fund energy sales at Macquarie Bank in New York.

"The uptrend is still very much intact, with key technical levels being taken out."

Brent's 14-day Relative Strength Index, a technicians' measure to gauge whether a contract is overbought or oversold, approached 80 -- a level only hit three times before and never surpassed, according to Reuters data. U.S. crude trading volumes above 600,000 lots neared the 30-day average, rebounding from late March when activity hit the lowest this year.


In addition to the Libyan conflict, investors eyed protests in top oil exporter Saudi Arabia and unrest in Syria, Yemen and attacks intended to interfere with elections in OPEC-member Nigeria, which produces 1.9 million barrels per day of oil.

Libya's civil war has cut the normal output of 1.6 million barrels per day (bpd) by 80 percent to between 250,000 and 300,000 bpd, according to a senior government official.

NATO leaders have acknowledged the limits of their air power, with analysts predicting a drawn-out conflict.

On Silver's Exponential Price Feedback Loop

And as if silver bulls needed some more good news, here is a report from the Morgan Stanley metals desk...

I was told on Wednesday that big buying went thru on Tuesday in may atm silver calls which should make the market short gamma.

A short gamma position will become shorter as the price of the underlying asset increases. As the market rallies, you are effectively selling more and more of the underlying asset as the delta becomes more negative.

So what that means is that the SELLER of the calls, probably bought Physical to delta hedge themselves neutral. As this market jumps just about 1-2% daily (this week alone +6.5%) they would need to now re hedge to bring themselves back to neutral by BUYING more Physical as SILVER goes higher, essentially driving the market Higher still and so the chase goes theoretically moving the market higher causing them to buy more to hedge and moving the market higher, thus buying into rallies.

Now they could BUY puts also to create positive Gamma as well to offset some of that pain they are not bound to the Physical for their hedge. Lots of what if's but that’s the idea.

On the other side if Silver were to gap lower, this would not help either as they would need to SELL Physical into a falling market to re-hedge themselves.

Great in a slow steady market, nightmare in a volatile

Translation: ever-accelerating feedback loop (both higher and lower). Vol is about to go off the charts.

World Food Prices Seen Rebounding on Grain Rally After Falling From Record

World food prices that fell from a record last month may rebound, the United Nations said, after grains rallied on reports of shrinking stockpiles.

An index of 55 food commodities dropped 3 percent to 229.8 points from an all-time high of 236.8 in February, the UN’s Rome-based Food and Agriculture Organization said in an online report today. That was the first slide since June and came as wheat fell 6.6 percent and corn 5.2 percent in Chicago trade last month.

Prices have rallied since as U.S. corn stockpiles fell to their lowest since 2007 and soybean inventories shrank to the smallest since 2003. Costlier food contributed to riots across northern Africa and the Middle East that toppled leaders in Egypt and Tunisia and is driving up inflation, spurring central banks to consider higher interest rates that may slow growth.

“We may see that prices spring back and resume the upward trend,” Concepcion Calpe, an economist at the FAO, said in a phone interview today. “Demand for food, feed and biofuel is very strong and the production increase may not be sufficient to increase stocks to safe levels.”

Corn Stockpiles Falling

Corn has more than doubled in the past 12 months amid concern that higher planting in the U.S., the world’s largest grower, won’t be sufficient to rebuild global stocks. U.S. corn stockpiles at the start of March fell to 6.52 billion bushels, the lowest for the date in four years, the Department of Agriculture reported last month.

The situation for corn “is the most preoccupying,” Calpe said.

Wheat surged 68 percent in the past 12 months and soybeans gained 45 percent as flooding inCanada, China and Australia and drought in Russia and Europe ruined crops. China is now contending with an increase in pests in its wheat-growing regions while U.S. crop conditions are rated at their worst since 2002.

“Last year we had much bigger inventories of everything. Now we have much lower inventories and no sign of rationing on the demand side,” Abdolreza Abbassian, a senior economist at the FAO, said ahead of the report. “We’re going to see more volatility, rather than less, in prices.”

Japan Crisis

The FAO’s food-price index fell for eight months in a row after reaching its previous peak in June 2008, a situation that probably won’t be repeated this year, Calpe said.

“It’s very unlikely to continue to fall,” Calpe said. “The fear is that the price index has fallen not because of fundamentals but because of events that go beyond the market itself, for example Japan.”

Japan was hit by its strongest earthquake on record on March 11, followed by a tsunami that crippled a nuclear plant north of Tokyo, causing radiation to leak. Food prices fell last month on concern Japan might cut food imports, Calpe said.

The FAO’s cereal price index declined to 251.9 points from 258.6 in March and its cooking-oil gauge fell to 259.9 from 279.3, the first drop in nine months for both. The index for sugar declined for a second month to 372.3 points from 418.2.

Stable rice prices and good harvests in sub-Saharan Africa and Asia last year have warded off a food crisis, according to Abbassian. Rice futures gained 8.2 percent in the past 12 months in Chicago trading.

Planting More Corn

Farmers in the U.S., the world’s largest exporter of corn, wheat and soybeans, will plant their second-most acres of the grain since 1944, according to a government survey last week. Inventories will still take more than a year to rebuild to a comfortable level, the USDA’s chief economist, Joe Glauber, said yesterday.

Global food prices probably will rise in this century’s first half because of an expanding population, higher incomes, slower growth in yields and the effect of climate change, Ross Garnaut, the Australian government’s climate-change adviser, said last month.

“In a lot of countries you have positive income growth, and this has a positive effect on demand for a lot of products, including meat,” Calpe said.

The FAO’s meat price index continued to climb in March, advancing to 168.6 points from 167.9, while the gauge for dairy prices jumped to 234.4 points from 230.

Food output will have to climb by 70 percent from 2010 to 2050 as the world population swells to 9 billion and rising incomes boost meat and dairy consumption, the FAO forecasts. Producing 1 kilogram (2.2 pounds) of pig meat can take 3.5 kilograms of feed, USDA data shows.

The number of hungry people in the world will increase as higher food prices are passed on in domestic markets, according to Abbassian. The number of undernourished people globally declined last year to 925 million from more than 1 billion in 2009. About 44 million people have been pushed into poverty since June by the “dangerous levels” of food prices, World Bank President Robert Zoellick said in February.

Grain Production

“People will be hurt,” Abbassian said. “We’re not talking about normal prices here. The sort of price rises we’re getting, it doesn’t look like something that’s going to go away, like in 2007-08. It may be much longer.”

World grain production in 2010-11 is forecast to drop 1.1 percent to 2.24 billion metric tons, the UN agency said in a separate report today, little changed from its March outlook. Cereal usage is estimated at 2.28 billion tons, exceeding production. The FAO raised its projection for ending stockpiles by 1.7 million tons to 479 million tons.

Global wheat output will be 654.8 million tons, up 1.1 million tons from the previous UN outlook. The harvest of coarse grains including corn and barley will be 1.11 billion tons, 2.7 million tons less than forecast in March. Milled-rice output is seen at 466.5 million tons, little changed from a month ago.