Silver – 8 Hour Chart Update

Based on open interest numbers from yesterday’s price action, we had a significant number of fresh short positions instituted in Silver on its run towards $50. Combined with record volume ( a mind boggling 319,024 ) it looks like we had a blow off top in silver for the time being. That high near $49.80 will now serve as the new resistance level beyond which silver is going to have to move before we can get a fresh leg higher in this market.

The market is now in the process of probing lower seeking to uncover support. Precisely at what level that will arise is unclear. It has found a bit of a respite from the selling near $44.60 but that looks fairly flimsy at this point. More substantial support lies closer to $43.50. Beyond that it looks as if $42 will be the next level.

To have a shot at making another run towards its recent peak, silver will have to close above $47.25, or the gap left from its Sunday evening open.

Dan Norcini

Two Railroad Stocks Charging Ahead: NSC, UNP

When Warren Buffett starts investing billions of dollars into a sector, you can bet it’s an industry on the rise. Buffett’s Berkshire Hathaway bought Burlington Northern Santa Fe for $26.5 billion last year. The company helped Berkshire’s profit jump 43 percent in the fourth quarter.

Burlington Northern isn’t the only railroad humming down the track. Norfolk Southern (NSC), the country’s fourth-largest railroad, and Union Pacific (UNP), the nation’s biggest, are seeing strong business too. So it’s a good time to consider their stocks.

Norfolk Southern

Norfolk Southern saw its profit surge 31 percent in the fourth quarter to $402 million from $307 million a year earlier, topping analysts’ estimates. Revenue rose 14 percent to $2.39 billion.

All three of the company’s business divisions recorded double-digit revenue increases amid strong demand from industrial customers. And Norfolk Southern expects the good times to continue rolling. "We have every reason to believe that 2011 will be an even stronger year for us" than 2010, CEO Wick Moorman said in a statement.

Many analysts like the stock, noting that the company has generated a free cash flow of about $1 billion during five of the past six years. “Medium-term trends in NSC's primary markets remain favorable and support rising traffic,” writes Standard & Poor’s analyst Kevin Kirkeby, who has a four-star buy rating on the stock.

Union Pacific

The company reported record first-quarter net income of $639 million, up 24 percent from $516 million a year earlier. Sales rose 13 percent to $4.49 billion, exceeding analysts’ estimates.

Even rising oil prices couldn’t keep Union Pacific’s profit down. Increased volume for all the commodities carried by the company buoyed its business. And Union Pacific expects volume to keep climbing, as the economy sustains its recovery. Meanwhile, the company can impose fuel surcharges to make up for its own higher energy costs.

"So far we haven't heard anything that puts the rail volume, pricing, or margin (ex-fuel) thesis at risk," Jefferies & Co. analysts write. Of seven analysts tracked by Yahoo, five have buy or equivalent ratings, and the other two are neutral.

UK is Bigger Fiscal Mess than Spain or Portugal; Fiat Currencies Don't Float

For all the attention focused on the US dollar, especially silly hyperinflation calls, one might think there are few problems elsewhere.

That is not the case, however, as reckless credit expansion in China is the fastest in the G7 by far, Japan has the highest debt-to-GDP ratio and the UK is a certifiable fiscal-deficit basket-case.

With a spotlight on the latter, please consider UK has third biggest budget deficit in Europe

Britain’s shortfall in its finances amounted to 10.4pc of gross domestic product (GDP) in 2010, according to data for each of the EU’s 27 member states from the statistics agency Eurostat.

That meant the UK had a bigger deficit, or annual shortfall, than the recently bailed-out Portugal and also Spain, which is viewed as the next euro-using nation to potentially need international aid.

The largest deficit in proportion to the size of the country’s economy was seen in Ireland, where the extra borrowing needed to shore up the banks left its deficit at 32.4pc of GDP.

Greece, which received a €110bn bail-out last year, was second with a deficit of 10.5pc, followed by the UK. Spain, at 9.2pc, and Portugal, at 9.1pc, were in fourth and fifth place.

The data showed the Greek finances were in an even poorer state than previously thought, as the latest figure – while trimmed from the previous year’s 15.4pc – was higher than the latest 9.6pc estimate from the European Union and the International Monetary Fund.

In terms of total debt, the UK fared much better, although it was still among the 14 EU member states burdened with a debt higher than 60pc of GDP last year. EU member states are supposed to keep their debt under the 60pc level.

The debt figures, which refer to a government’s total borrowing over time, rather than the latest yearly shortfall, showed Greece was again in the worst position with a debt equivalent to 142.8pc of its GDP, followed by Italy at 119pc and Belgium at 96.8pc.

The UK was in the ninth weakest position with a debt standing at 80pc of GDP, which was worse than Spain’s 60.1pc. The average debt across the 16 members that use the euro hit a record 85.1pc, up from 79.3pc the previous year.

Given the fiscal mess in the UK, one might expect the British Pound to be among the weaker currencies in relation to the US dollar. Indeed, the following chart shows that to be the case.

British Pound vs. US Dollar Monthly Chart



Note that the British pound is 22% down from its 2008 peak vs. the US dollar in spite of retrace of a portion of its loss, and in spite of US dollar weakness against nearly everything else.

I suspect the Yen will have a date with sanity at some point as well.

Fiat Currency Rule Number 1

The above discussion leads us to saying of a friend of mine "Clyde" who is fond of pointing out "Fiat currencies don't float, they sink at varying rates."

S&P 500 Climbs to Highest Since 2008 on Earnings

Stocks surged, sending the Standard & Poor’s 500 Index to its highest level since June 2008, as earnings at companies from Ford Motor Co. (F) to 3M Co. beat analyst estimates. Treasuries rose and the dollar fell versus the euro for a sixth day as a Federal Reserve policy meeting began.

The S&P 500 increased 0.9 percent to 1,347.24 at 4 p.m. in New York and the Stoxx Europe 600 Index gained 0.3 percent. The dollar matched the longest losing streak versus the euro in almost two years amid speculation the Fed will consider measures to keep interest rates low. Ten-year Treasury yields slid five basis points to 3.32 percent, the lowest level in a month. Oil was little changed at $112.21 a barrel and gold and silver fell.

Before today, the S&P 500 had failed to top its 2011 high reached on Feb. 18 even as it closed less than 1 percent below the peak on eight days in April. Stocks rallied today as Ford, 3M and United Parcel Service Inc. (UPS) joined the 79 percent of S&P 500 companies that have topped analyst earnings estimates since April 11. Investors also awaited the end of a Fed meeting tomorrow to gauge the central bank’s outlook for interest rates and its economic stimulus program known as quantitative easing.

“Corporate performance is excellent,” said Stephen Wood, the New York-based chief market strategist for Russell Investments, which manages about $155 billion. “The underlying economic performance in the United States has been a pleasant surprise. Our expectation is that the Fed ends QE2 in the summer and the growth baton will be handed from policy to the private economy. That’s providing rationale for the stock market to move forward.”

Dollar Index, S&P 500

The Dollar Index, used to track the U.S. currency against six trading partners, fell 0.3 percent to 73.779, the lowest since August 2008 on a closing basis, on speculation the Fed will signal plans to keep interest rates near zero for an extended period. Twelve of 16 major peers rose against the U.S. currency, with the euro strengthening 0.4 percent to $1.4642.

The S&P 500 rose for the fourth time in five days, erasing yesterday’s decline. Industrial companies rose 1.8 percent as a group to lead gains among all 10 of the index’s main industries. Ford, the second-largest U.S. carmaker, climbed 2.4 percent after first-quarter profit grew 22 percent to the most in the period since 1998 amid higher prices for fuel-efficient models.

3M Co. (MMM) said it had first-quarter profit of $1.49 a share, topping the average analyst estimate of $1.44 a share. The stock rose 1.9 percent. UPS, the world’s largest package-delivery company, climbed 0.9 percent after also boosting its full-year forecast amid increasing demand for international shipping.

Improving Confidence

Stocks extended gains after confidence among U.S. consumers increased more than forecast in April, signaling the improving labor market is helping Americans weather rising fuel costs. The Conference Board’s confidence index rose to 65.4 from a revised 63.8 reading in March. The median forecast of economists surveyed by Bloomberg News projected an advance to 64.5.

Treasury two-year note yields lost three basis points to 0.61 percent, the lowest level in more than a month, even after the U.S. sold $35 billion of the securities at a higher-than- forecast yield. The notes drew a yield of 0.673 percent, compared with a forecast of 0.669 percent in a Bloomberg News survey of 8 of the Federal Reserve’s 20 primary dealers. The bid-to-cover ratio, which gauges demand by comparing total bids with amount of securities offered, was 3.06, below the 3.42 average at the past 10 sales.

Five stocks climbed for every two that fell in the Stoxx Europe 600. UBS AG (UBSN), Switzerland’s largest bank, rallied 3.9 percent after attracting the highest wealth management inflows since the end of 2007 in the first quarter. Parmalat SpA (PLT) jumped 11 percent after Groupe Lactalis bid for holdings in Italy’s biggest dairy company it doesn’t already own.

China Slumps

The MSCI Emerging Markets Index was little changed after China’s Shanghai Composite Index slid 0.9 percent. Industrial & Commercial Bank of China Ltd. lost 0.3 percent in Hong Kong after the world’s largest lender by market value and three rivals were told last month to maintain capital adequacy ratios of at least 11.8 percent in 2011, one person said, declining to be identified as the plan isn’t public. Agricultural Bank of China Ltd., the nation’s fourth biggest, should target 11.7 percent, two people said.

Yields on government securities from Greece, Ireland and Portugal reached records amid speculation the heavily indebted nations won’t be able to avoid restructuring. Costs to insure Greek and Portuguese debt climbed to records.

The yield on Irish two-year government notes climbed to a euro-era record of 12.09 percent. Portuguese two-year yields touched a euro-era record of 11.74 percent.

The yield on Greece’s 10-year bonds rose as much as 47 basis points to 15.38 percent. Greece’s 2010 budget gap was 10.5 percent of gross domestic product, more than a percentage point wider than the government estimated, according to figures from Europe’s statistics agency today.

Credit-default swaps on Greek government bonds increased 13 basis points to 1,345 basis points and Portuguese swaps climbed six basis points to 666.

Corn Seen Topping Wheat on Demand

Corn may become costlier than wheat for the first time since 1984 as demand for livestock feed and ethanol grows, increasing expenses for Tyson Foods Inc. (TSN) and boosting sales at Syngenta AG. (SYNN)

Futures will average a record $8 a bushel in the three months ending Sept. 30, more than the $7.70 a bushel estimated for wheat, said Abah Ofon, an agricultural commodity analyst atStandard Chartered Plc (STAN) in Singapore. Corn will be 11 percent more expensive than wheat in three months, according to Goldman Sachs Group Inc. (GS) Corn in Chicago traded at $7.60, up 2.1 percent, at 3:21 p.m. Singapore time.

Surging costs of corn, an ingredient in livestock and poultry feed, may spur global food prices to rebound to a record, prompting central banks from Beijing to Brasilia to increaseinterest rates. While the gains may raise feed costs for Tyson, the largest U.S. meat processor, they would benefit Syngenta, the world’s biggest agricultural-chemical maker, as farmers seek to protect their crops from pests and diseases.

“There’s only a limited amount of wheat that you can switch into feed at any given time,” according to Ofon, who correctly predicted in January that wheat would trail corn. That will limit wheat’s capacity to benefit from surging corn prices, he said. Wheat was 49 percent costlier than corn on average in the past five years, and last traded at $8.545.

Wheat will decline to $7.75 a bushel in three months while corn may advance to $8.60 a bushel, Goldman Sachs predicted in a report April 21.

Syngenta, Tyson

Sales by Syngenta expanded 14 percent to $4.02 billion in the first quarter from a year ago as farmers in Europe and the U.S. advanced purchases of chemicals aimed at protecting crops against pests and diseases, John Ramsay, chief financial officer, said in a teleconference on April 15.

“We’re already seeing indications that the crop enhancement market for corn and soybeans in the U.S. will be up strongly this year,” Ramsay said.

Tyson and other meat processors have faced higher feed costs as corn and soybean prices advanced to their highest levels since 2008. Corn and soybean meal represent 42 percent of Tyson’s cost of raising chicken, which made up 34 percent of its sales in 2010, according to the company.

Corn may advance to $8 a bushel, said Luke Mathews, a commodity strategist atCommonwealth Bank of Australia, while Alex Bos, an analyst at Macquarie Group Ltd., said futures may climb as high as $10 a bushel if U.S. farmers plant less than the government estimates.

Corn, Ethanol

Global stockpiles will drop for a third year to 111 million metric tons in 2011-2012, or about 13 percent of consumption, the International Grains Council said on April 20. That would be the smallest ratio of inventory to consumption since 1974, according to U.S. Department of Agriculture data.

Increasing demand for corn in China, the world’s second- largest user, may force the nation to end exports of the grain and rely on overseas suppliers, Jay O’Neil, an adviser at the U.S. Grains Council, said in Singapore today.

“As we go into 2012, there’ll be no more exports from China and very possibly imports,” O’Neil said at a conference.

China was estimated by the USDA to ship 100,000 tons in the 2010-2011 marketing year, down from 151,000 tons a year earlier. The Asian nation’s annual corn exports have plunged six times since the marketing year ended 2003, when shipments were at a record 15.2 million tons, according to USDA data.

Food Prices

An estimate of 2 million tons of corn imports by China “is rational,” as the country’s production struggles to keep pace with demand, John Baize, who runs international agricultural trade and policy consulting company John Baize and Associates said at a conference in Singapore.

Baize’s estimate for China’s corn imports compares with the USDA forecast of 1.5 million tons.

While the United Nations Food & Agriculture Organization’s Food Price Index dropped from its record in March, harvests may not increase enough to rebuild global stockpiles to “safe levels” as demand for food, livestock feed and biofuel increase, said Concepcion Calpe, an economist at the FAO, on April 7.

About 7 percent of the U.S. corn crop was planted as of April 17, down from 16 percent a year earlier, according to the USDA. At least a third of the crop should be planted by May 1 or yield potential may be diminished, said Greg Grow, the director of agribusiness for Archer Financial Services Inc. in Chicago.

Expanding Acreage

Acreage in the U.S., the world’s largest grower and exporter, will expand 4.5 percent to 92.178 million acres (37.3 million hectares) this year, the second-largest since 1944, the USDA estimates.

Corn use in ethanol production will jump 35 percent to 5 billion bushels this season from two years ago, the USDA said April 8. A by-product of processing is dried distillers’ grain with solubles, a competitor of feed wheat.

Increasing supplies of so-called DDGS will provide poultry and livestock farmers with a cheaper alternative, discouraging them from switching to wheat, according to Simon Clancy, manager for export brokerage at FCStone Australia Pty.

The last time the most-active corn futures contract in Chicago closed at a premium to wheat was on June 18, 1984, according to data compiled by Bloomberg.

BNN: FED Lookahead and the US Dollar

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The Dollar, Gold and Silver: A 20-Year Perspective

Click for a larger image

I received several emails requesting a similar chart for Silver. Here, courtesy of myStockcharts.com subscription (which gives me access to 20 years of data) is the same overlay with the addition of Silver.

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Over the past nine years Gold and Silver have had approximately the same gain, but the paths have been rather different, with Gold the more orderly of the two. Guessing the trajectory of precious metals is just that — a guess. There are so many significant unknowns: the end of QE2, the possible advent of a QE3, a political showdown over the debt ceiling, a potential inflationary spike, EU sovereign debt issues, to mention some of the most obvious.

The accelerating contour of Silver over the past several months does have bit of a bubble look. But we're living in highly uncertain times, and the speed and depth of the Silver correction, when it inevitably comes, may or may not create a peak that clearly passes as a bubble.