When I sat down to write The Perfect Financial Storm in the summer of 2000, my storm analogy was based on three storm fronts colliding with each other. Like the real storm on Halloween 1991, three economic forces were turning into storms fronts. The first and foremost storm was developing in the credit markets as a vast mountain of debt was being created. This ocean of money, which had ignited a boom, was now turning into a bust. In order to avoid the consequences of a deflating credit bubble, the Fed embarked on a massive monetary stimulus program. The Federal Reserve was using all of its powers in an effort to stave off the bust and bring temporary relief by manipulating the financial system with the creation of more credit. The result is that today interest rates are at historic lows and credit expansion within the financial system has accelerated even more.
The Fed is now pulling out all stops from lowering interest rates, monetizing debt and using unconventional means to prop up the markets and the economy. It is believed that “unconventional” equates to intervening in the financial markets. In statements going back to 1989, recent research papers and comments made during FOMC meetings, the Fed has made reference to ”unconventional” measures in case current monetary policy becomes ineffective. (more)The company's initial public offering Thursday is set to be the largest IPO in history, selling about $20 billion in common and preferred shares.
Strong investor demand led the company to increase both the number and price of shares being offered, boosting the overall IPO size from about $13 billion in the last two days.
But the question for investors is whether the century-old behemoth, just 16 months from a federal bailout and bankruptcy reorganization, can achieve the kind of growth that rival Ford has recently.
Ford Motor's stock (F, Fortune 500) has returned 65% since the start of the year -- more than ten times the value of its low point in early 2009.
Ford has been praised for being the only U.S. automaker to avoid a bailout or bankruptcy. It has been gaining U.S. market share with attractive and critically-acclaimed new models. (more)
The WGC has released its complete Third Quarter gold market outlook. To summarize: major demand is seen out of China and India, whose surging populations will buy ever more PM due to "rising income levels, high savings rates and strong economic growth." Demand is seen coming from the jewelry sector, as well as from institutions, including central banks, and a jump in industrial demand "on the back of renewed growth in the electronics industry, due to the majority of semi-conductors being wired by gold." Nonetheless, even as demand continues growing, supply is rising as well: "On the supply side, we reiterate our projection that total mine supply is likely to trend higher. This is due to mine project expansions, a ramping up of production to meet the recovery in gold demand and the diminishing scope for producer de-hedging in 2010. Higher supply is also expected to come from China, Australia and US, although this may be partially offset by lower output from countries such as South Africa and Peru due to declining ore grades and rising costs." Ultimately, the only important question is whether QE will ever end. Anything less than a Yes answer, means there is virtually no upside limit to gold, absent an occasional correction. (more)
With all the talk of needing to further regulate speculators, hedge funds and other financiers, it's somewhat ironic that the biggest player in the financial markets is the Federal Reserve. It is not a federal agency or subject to a full independent audit, despite operating with a highly leveraged and inexhaustible pile of assets backed by the country itself.Copper retreated on Wednesday to its lowest level in nearly two months as euro zone debt concerns sent investors fleeing from risk and as speculation mounted that top consumer China might raise interest rates.
Three-month copper on the London Metal Exchange CMCU3 fell to $8,085 at 1113 GMT, having dropped more than 5 percent to close at $8,150 a tonne on Tuesday. It earlier hit a session low of $7,920, its lowest since late September.
The metal used in power and construction hit a record high of $8,966 last week, but a combination of worries about monetary policy tightening, a firmer dollar and a flight from risk have since sent prices down.
"Concerns over euro zone sovereign debt are really what is at the forefront of the market's mind at the moment. What you're seeing is broad-based risk reduction," Gayle Berry, an analyst at Barclays Capital, said.
"Fundamentals are still strong, inventories are still falling ... it's a short term knee-jerk reaction to something that's not really impacted metal market fundamentals." (more)
For those interested, below is a list of the most heavily shorted stocks as a percentage of float in the Russell 1,000. When markets go up, these stocks typically outperform. When markets go down, they usually lead the declines.
As shown, Tesla Motors (TSLA) is by far the most heavily shorted stock in the Russell 1,000 with 64.4% of its float sold short. Alliance Data (ADS) ranks a distant second at 36.6%, followed by Green Dot (GDOT), Ciena (CIEN), and J Crew (JCG). Other notables on the list include NetFlix (NFLX), First Solar (FSLR), and Garmin (GRMN).
