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Forget Unocal. Real China Risk Is Treasuries: William Pesek Jr.
July 7 (Bloomberg) -- Watching the U.S. Congress miss the big picture in the age of globalization has become a common occurrence. The latest example: Its tantrum over China's push to buy Unocal Corp.
There's no convincing reason to block Cnooc Ltd.'s $18.5 billion bid for the No. 8 U.S. oil company. Sure, there may be some national security issues at the margin. It's also a bit dodgy for China's state-owned banks to subsidize the deal. Yet steps like divestiture can deal with such concerns.
Here's an even bigger problem: The dustup is distracting Congress from the real threat to their nation's economic future -- fiscal irresponsibility. And China's role in enabling that trend should keep politicians up at night.
China isn't hoarding Treasuries conspiratorially. Its $230 billion of U.S. debt holdings aren't the financial Trojan horse some fear -- a way for China to attack the U.S. economy from within. Those holdings have everything to do with maintaining China's 8.3 peg to the dollar.
The upshot is that Asia's No. 2 economy has a disturbing amount of leverage over the U.S. If U.S. politicians want to protect national security, they should be looking at how much their government is becoming indebted to China.
Dumping the Debt?
What if China began dumping U.S. debt? It wouldn't even have to be about politics. Such a move might come if China decided to float its currency or it thought U.S. yields would rise, forcing it to accept losses on dollar holdings.
That might happen if record U.S. budget and current-account deficits send the dollar lower. The budget deficit was a record $412.6 billion in the fiscal year ended Sept. 30, and a current- account deficit is 6.4 percent of the economy.
All this may sound a bit hyperbolic, especially when you consider China may have much to lose by letting the yuan surge or precipitating a massive drop in U.S. bond prices. Yet it's still an option for a nation that may want to flex its muscles in Washington.
The U.S. used to fear Japan, the biggest holder of U.S. debt, in this regard. Japanese officials in the past have made not-so-veiled threats about pulling the plug on U.S. debt. In June 1997, for example, Prime Minister Ryutaro Hashimoto said ``actually, several times in the past, we have been tempted to sell large lots of U.S. Treasuries.''
Risky to Avoid Risk
The inference, which slammed markets, was clear. The prime minister had just come from a Group of Eight summit in Denver that featured considerable U.S. chest thumping about its booming economy. Japan's leader was merely reminding Washington that while it had created a robust, productive and innovative economy, Asia holds the deed.
Whether China or others in Asia would suddenly dump their $1.1 trillion of U.S. Treasury holdings is anyone's guess. Yet it would be a mistake to ignore the risk.
The U.S. likes to claim its profligate ways are a matter of necessity amid weak demand in Europe and Asia. Such arguments ignore how the Bush administration peddled dodgy financial intelligence in order to push through huge tax cuts. This is less about the U.S. borrowing to bail out the global economy than its own fiscal policies.
For better or worse, China and other Asia nations have made it possible for the U.S. to live far beyond its means. This region ships vast amounts of its savings to the West, holding down U.S. bond yields and supporting the dollar.
Congress and Reality
Yet there's a big flaw in U.S. arguments that deficits don't matter: They will matter if Asian central banks helping the U.S. paper over them change their minds. All it would take for the whole arrangement to come undone is for some of them to shift currency reserves into euros or yen.
Granted, that hasn't happened. Those predicting a dollar crash have been humbled by its resilience. Remember, though, that the support of Asia's monetary authorities is what's allowing the U.S. to confound its critics. If Asians reverse course, look out.
It's here where Congress's efforts on Unocal seem so perplexing. Rather than hyperventilating over Chinese companies buying up household-name U.S. ones, Congress should be panicking over fiscal realities.
Why not let China take a trade surplus that totaled $162 billion last year and invest some of those dollars in U.S. companies? For one thing, foreign direct investment in the U.S. has been sluggish since the 2000-2001 recession. For another, such investments are harder to unload quickly than debt.
The Problem
The Unocal brouhaha threatens to do additional damage to relations between the U.S. and China -- two economies that need each other more than they like to admit. And just as on issues like farm subsidies and China's currency policy, the U.S. risks reminding the world it only favors globalization when it's on the winning side of it.
Perhaps what bothers Congress is that a developing nation like China is managing to shake up the world's wealthiest. Just as U.S. officials lost sleep over Japan's rise 20 years ago, they worry about how China may alter the global status quo and exert influence over the U.S.
China will indeed do that, yet not for the reasons some in Congress think. It's not China's ownership of companies that's a problem -- it's the IOUs.
To contact the writer of this column:
William Pesek Jr. in Bangkok, through the Tokyo newsroom at
wpesek@bloomberg.net.
Rogue
YDHCF....the "ownership" that doesn't add up was one of the "black marks" that dogged CYD when it was trading for pennies. That didn't stop it from running from pennies to $37 in a few short years. "Investers" decided to convienantly "forget" and ownership issues dogging the company.
I own YDHCF as the same sort of intelligent speculation as CYD was when it was priced in the pennies.
Rogue
A Process of Elimination:
A Speculation on Gold and the Credit Cycle
http://www.tocquevillefunds.com/press/archives.php?id=90
The Speculation
Capital flows into gold under one scenario only: when the lack of investment returns elsewhere, the desire for safety, and the ascendance of a risk-averse psychology at large converge.
In other words, investors come to gold through a process of elimination. It is an odyssey of discovery and realization that investment vehicles thought to be potentially rewarding are in fact filled with hazard and adversity. The current gold cycle began with the collapse of the Nasdaq bubble. The collapse eliminated investor passion for highly speculative equities with little or no operating history trading at absurd valuations. That was five years ago and marked the beginning of a secular downturn in credit. The Nasdaq peak represented the culmination of a credit cycle that commenced in June 1982, when 30 year treasuries were priced to yield 13.92%
The high water mark of the credit cycle, in our opinion, should be measured not by the quantity of debt outstanding, as some would argue. Surely, the Fed’s energetic effort to prop up the post 2000 economy has resulted in significantly more debt outstanding than before the Nasdaq crash. Instead, the apex of the credit cycle must be identified in a less quantifiable manner. It is the degree of fantasy present in investor expectations as to future returns. The fact that there is more General Motors paper outstanding than five years ago is not due to GM’s improved credit standing or a heightened level of expectations for returns. Obviously, the reality is quite the opposite. A most useful objective measure of credit excess (and fantasy) is the ratio of the Dow Jones Industrial Average to the price of an ounce of gold. The DJII traded at 40x the price of an ounce of gold in 2000. Today, that ratio is 24x. At the bottom of credit cycles in the previous 100 years, that ratio was more or less 1x. A rising gold price merely anticipates future downgrades in financial assets of all stripes, including equities, debt, and currencies.
Source: Ashley Ouyang
Some Recent Examples
The first half of 2005 has been noteworthy in that two important capital havens have been soundly discredited: (1) multiple categories of speculative debt instruments and (2) the euro. The demise of both is still in progress. Junk credit will be buried in due course by a global slowdown. European politics and protectionism will take care of the euro.
Investor preferences shifted towards yield instruments as a consequence of the post 2000 adversities in Nasdaq equities and the prolonged episode of zero to negative real interest rates. Having been burned in insanely valued equities, investors mistakenly equated yield with safety. Promoters of toxic Nasdaq merchandise simply reconfigured their production lines to crank out junk credit instruments. Fed-engineered forty year lows in real interest rates forced investors to reach for the sky.
The still-unfolding crack up of financial engineering in the fixed-income sector illustrates what it takes for investors to transit from greed to safety. Investors who positioned complex debt instruments thought to be insulated from volatile and unpredictable returns have learned a difficult lesson. This is especially true for Fund of Fund investors. Opaque financial structures known as Collateralized Debt Obligations (CDO) hedged with Credit Default Swaps (CDS) were promoted as “uncorrelated” yield enhancers. These were almost tailor-made for the Fund of Funds world that promised their investors steady month to month returns and low volatility (returns that were predictable enough, in fact, to be leveraged in their own right).
This obscure credit sector has enjoyed such rapid growth in recent years that it has become the world’s largest non sovereign debt market, according to Mari Koi of Wolf International in a paper published April 30, 2005. She states that “In a low real interest rate environment, correlation among assets is assumed to be constant and stable. This brings us to CDO’s and synthetic credit securities in particular. They are long real yields at excessively high prices, they are leveraged with little margin for error, they rely on uncertain liquidity as new complex instruments, there is some misinformation, many of the buyers do not mark these securities….. Last and most important, credit derivatives have implied negative gamma with their extreme reliance on correlation assumptions and a structure that implodes as credits move out of the mix.” In other words, these core investments in the hedge fund and fund of fund sectors are misunderstood and often mispriced. Rising nominal interest rates will poison them.
Even more significant than junk credit, the euro’s fall from grace marks a resounding defeat for financial engineers and technocrats. The previous high correlation between dollar weakness vs. the euro and gold illustrates the predisposition of financial markets to trust in the constructs of academics and technocrats. From mid 2002 to year-end 2004, both gold and the euro rose exactly 40% against the US dollar.
Why bother with gold, investors such as Warren Buffet must have asked, when you can invest in a far more liquid alternative to bet on a weak US dollar? The investment case for a weak dollar has not changed simply because of the exodus of speculative capital from the euro. Where does the smart money go now that the euro has been defrocked?
Since January 1st, 2005, gold has risen 10% against the euro. With traders overwhelmingly bearish on the euro, a decent rally is most likely around the corner. Despite the recent bad news, the euro is most likely here to stay for longer than the bearish trading view anticipates. As noted by Dan Norcini in a June 7, ’05 dispatch, the NYBOT speculative position (net short) is the largest in four years. In the previous instance, the speculators were net long (and wrong) when the trade-weighted dollar touched the low end of its trading range (80):
Source: Dan Norcini
However, a euro rally will not erase its considerable flaws (see our web site article “Euro Trash, March ‘05). Where will the euro trade if Italy becomes the Argentina of Europe? To project a complete demise of the euro would be a stretch. However, we are comfortable in asserting that the esteem in which it is held is likely to slip further with the euro price of gold having pierced the top of a three year range bounded by 350 euros/oz. The current price of 358 euros/ounce is a positive sign that dollar bears are beginning to look beyond the euro.
Source: Bloomberg
What we have is a horse race between the euro and the dollar as to which can first attain full investment dishonor. After all, both are core components of ”the so-called international monetary system…in fact, an elaborate exercise in price-fixing…..a giant pool operation” manipulated by the Asian Central Banks. (Grant’s June 3, ’05) The shift in the global balance of power is perhaps reflected in the futile calls by US officials for Chinese revaluation. With deaf ears to the administration, the Chinese will act according to their own timetable. If our administration’s influence on the matter of dollar valuation is as scant as it appears, then what is our currency really worth? In fixing the value of the renminbi, the Chinese control the terms of the relationship. It is not the place of the debtor to dictate terms to the lender. The end game is clearly a significant devaluation of the US currency, but against what and when?
The advance of the gold price signifies more than investor disenchantment. The debris field of financial instruments is the evidence of progressive credit deflation. Nasdaq securities priced at infinity, CDO’s, CDS’s, derivatives and fiat currencies are or were conduits for credit, resource allocators essential to economic activity. Their impairment threatens economic shrinkage.
A credit squeeze shows up as widening spreads between higher and lower quality debt (see chart). It is also depicted by a falling Barron’s Confidence Index (see chart).
Source: Fred Kalkstein
Source: Fred Kalkstein
Perhaps this is why the Fed is showing signs of abandoning its “less accommodative” stance. While still talking a tough game on inflation, Dallas Federal Reserve Bank President Richard Fisher stated (June 1st on CNBC) that “we’re clearly in the eighth or ninth inning of a tightening cycle.” The Fed has significantly augmented its balance sheet over past eight weeks in what has been a conditioned reflex to financial problems going back to 1987. Since the recent GM downgrade, Fed holdings of Treasuries have risen by more than $7 billion, after a lengthy period of no growth (see chart)
Source: MacroMavens, LLC
Regardless of whether there are one or two more 25 bp increases in the Fed Funds rate, real interest rates throughout the yield curve will remain at historically low levels, whenever the Fed declares victory. Monetary policy is hemmed in, as has been amply demonstrated elsewhere, by the consumer’s vulnerability to rising interest rates. This is especially pertinent now that the residential mortgage market, propped up by inflated collateral value and perverse credit standards, has become a preferred avenue for credit expansion. The gap between what the Fed is saying and what it is doing is attracting considerable attention. As noted by columnist Bill Jamieson, “Apprehension over the health of the US credit market has been heightened by talk of a further development. This is that the Federal Reserve has been pumping huge amounts of liquidity. This brought back anxious memories of a feared liquidity shortage just before the collapse of Long Term Capital Management in 1998.” (Financial Times 6/9/05)
Expanding credit spreads, a declining Barron’s confidence index, the flight to quality, the Fed response of liquidity creation all add up to a credit squeeze. More paper, perhaps, but less credit. The recession in credit that began in 2000 has many years to run and will eventually expose all misallocated capital. The process is self-reinforcing. The tipping point for confidence will be the moment when Fed liquidity injections are recognized to be ineffectual and even damaging.
What comes next after the Nasdaq, CDO’s, junk debt, and the Euro? There are plenty of candidates including hedge funds, housing and a still overvalued stock market. These overvalued asset classes can and will continue to levitate and attract capital flows as long as real interest rates remain at historic lows. Low real interest rates are the foundation of financial market speculation, and the lubricant of global economic growth.
The mother of all bubbles is US Treasuries, where pricing is driven not by crowd psychology, but rather by the policy dictates of our Asian trading partners. As noted by Jim Bianco (Arbor Research), “There seems to be little to no talk that the bond market might be in a bubble. Real estate, Google, the dollar and many other markets are being deemed ‘bubbles’…..Maybe the bond market is the bubble.” (6/10/05) A bubble without an accompanying mania seems implausible and without precedent. The most recent “commitment of traders” number suggests sentiment is neutral, with commitments of large speculators at 68% of the 52 week high. For the US treasury bubble, the missing manias are to be found in markets and economic sectors linked by their dependence on mispriced capital
It is worth noting that the foreign central banks were net sellers of US Treasuries in March. It was short covering by hedge funds that provided the bid to offset dispositions by foreign central banks. Over the past two months reported (March and April), foreign buying failed to cover the trade deficit. Since April of 2002, according to Arbor Research, foreign central bank buying has been insufficient to cover the budget and trade deficit on a cumulative basis.
Bridgewater Daily Observations notes that “at current prices there is net more than 8% of Chinese GDP flowing into China via the private sector.” (Waiting on the Inevitable, June 7, 2005) ”This type of BoP imbalance is essentially unprecedented. The BoP imbalance is due to the massive labor arbitrage between China and the rest of the world. Everyday that China holds their currency below market value they have to do more to keep it where it is, because the investment into China makes their labor more productive (factories open in China but close elsewhere) at the same time that the price essentially does not change.” Bridgewater goes on to note that “there are virtually no cases (in history) of one improperly pegged exchange rate being repegged at another improper level (i.e. that which doesn’t rectify the BoP imbalance) and sticking for long.” Bridgewater found that the average devaluation in 56 cases since 1930’s was 25%.
A Few Fundamentals to Consider
The notion that capital will flow into gold is a speculation on macroeconomic events external to gold. It is helpful to this speculation that the goings on in the world of gold itself are quite supportive of a substantially higher gold price. In brief, the metal is very tight.
Even though trading houses in New York and Europe seem to find plenty of paper gold to trade in a knee jerk fashion according to the news of the day, the real stuff is hard to come by. It is hard to mine and it is hard to buy in any large quantities. Just ask managers of the Swiss precious metal refineries. Their daily run rates are 30% above year ago levels and their managers are not above making urgent but discrete inquiries for gold in quantity. They are running seven days a week when they can get their hands on metal, less when they cannot. According to one contact, there is almost no metal in storage. The turnaround time for incoming metal, whatever the source is 4 to 5 days at most.
Gold is tight based on the CFTC numbers indicating that speculators are sufficiently bearish to be short 757 tonnes (gross) as of June 7, 2005, or one third of annual mine production. The net large speculative trader position ranks in the 22nd percentile of the past 52 weeks. Gold becomes “toppy” when they approach the 90th percentile. It is tight because mine production declined 4.9% in 2004 and appears likely to decline over the next three to five years. Mining companies continue to generate poor returns on capital and are struggling to replace reserves. It is tight because central banks disposing gold under the Frankfurt agreement (500 tonnes per year) have already sold 384.7 tonnes throught the first week of June, an average of 10 tonnes per week. Over the remaining 14 weeks of the fiscal year ending in September, they will be limited to 7.6 tonnes per week, a 24% decline from the average pace, and an even sharper decline from the recent three weeks’ pace of 12.2 tonnes. Finally, gold is tight because total end user consumption, as tabulated by the World Gold Council, rose 9.5% in 2004, and 25.8% in the first quarter of 2005 vs. ’04.
An important reason, but by no means the only one, for the jump in consumption is the success of the gold ETF, particularly GLD (listed on the NYSE) sponsored by the World Gold Council. GLD and related series listed in London and Australia represents 1/10 oz of ounce of physical gold and is now backed by 236 tonnes (includes all listings) which has been taken out of the market. By capital market standards, GLD is tiny, with a market capitalization of only $3.2 billion. For example, if the market cap of GLD were to grow to $30 billion, still modest by capital market standards, it would require gold purchases equal to 90% of annual global gold production at today’s prices. Unlike mining or internet stocks, share creation is not a simple matter of investment banking fees and printing capacity. Share creation requires incremental purchases of physical gold. In this sense, the ETF is a dynamically reflexive investment structure, a potential time bomb for short positions.
The global market cap of mining shares is about $100 billion. Investing in shares is subject to a long list of risks including geopolitical, cost pressures, labor disruptions, mine accidents, and environmental lawsuits to name a few. However, the greatest risk by far is share dilution by financially unsophisticated managements. Over the last two years ending December 31, 2004, the share count for the entire industry rose 33%. Is it any wonder that the shares and share indexes have lost some momentum in light of the additional supply? We wholeheartedly support the scathing comments of Graham French speaking at a mining conference in April of this year: “This industry is so blasé that 90 percent of capital raising is done without consulting shareholders.” We would add that the industry consumes huge quantities of capital on which it generates poor returns. It cannot afford to take its shareholders for granted.
While we favor gold shares in most instances over the metal because they offer leverage to the gold price, we can understand why risk-averse investors looking for the protection of gold without the risk of mining would prefer the metal itself. Gold entails no business risk, only the possibility of overpaying. In our view, the potential pool of risk averse investors is considerably larger than the share oriented risk tolerant investor group. Physical gold comprises an asset class at least 10 times that of the mining shares. Therefore in time, it seems reasonable to expect the ETF and similar initiatives to have a market cap proportional in size to the underlying disparity.
The recent weakness in the gold shares is a good proxy for investor sentiment. It is at rock bottom. This is confirmed by the Hulbert Gold Newsletter Sentiment Index which has recently matched record low readings. The May 23rd Market Vane sentiment gold barometer was 61% bulls, the lowest since 57% on May 13, 2004 when gold was $379. The bullish consensus was in the 40’s in April ‘03 when gold was $320. The peak recent reading was 83% in October of 2004 when the gold price was slightly below $430.
The dollar price of gold bullion is trading within 3% of a seventeen year high, despite negative sentiment. Over the past five years, the dollar gold price has increased 50% vs. a 16% decline in the S&P 500 and a 18% decline for the trade weighted dollar. Swooning sentiment while gold trades within a few percentage points away from a seventeen-year high? Sounds like a bull market to us. It is the nature of every bull market to take along as few as possible. The recent shakeout, which began in earnest in early March, has done an excellent job of chilling investment sentiment. The early stages of all bull markets are characterized by widespread skepticism. Gold remains in a multiyear bull market that will last another decade. The deflowering of the euro represents a major milestone along the way.
Whenever it happens, the demise of the bubble in US Treasuries will take down the many related bubbles based on a mispricing of risk free capital. Problematic fundamentals, notwithstanding the near term “Laffer Curve” improvement to the federal budget deficit, will eventually gain the upper hand. Foreign central banks will eventually decide to move towards the exit. First they will buy less, later on they will sell outright. Timing the tipping point is problematic for most, including us. Those who feel able to predict the precise moment when foreign central banks turn their backs on the dollar should wait until then to position gold. All others are advised to start now.
In his 1871 treatise entitled The Origin of Money, Carl Menger demonstrated that money was a social institution long before governments adopted and enforced legal tender laws. Precious metals were universally adopted by all societies because they offered, among all other commodities, superior liquidity, scarcity and portability: “Money has not been generated by law. In its origin it is a social and not a state institution.” Governments did not adopt gold as monetary backing until the 1840’s when England and France held 40 tonnes. This is not to suggest that state issued currency cannot function for a time as a satisfactory medium of exchange. However, over generations, it has proved to be a poor store of value.
We believe that the divestiture of gold reserves by central banks (at a measured pace, of course) offers the possibility of the eventual privatization of gold. There could be no better monetary outcome for the private sector than for all gold to be removed from central bank vaults. Citizens would then be free to choose how to hold their wealth, as they did before legal tender laws became the standard. We have no doubt that sufficient buying power exists through the exchange of questionable paper assets to support a bid much higher than the current dollar price. Would it be possible for gold instruments such as the ETF and Bank Receipts to coexist with fiat currencies? We may be witnessing the dawn of just such an outcome. In a free market for both, gold would offer the superior alternative for capital preservation, while fiat currencies may periodically offer a more convenient medium of exchange.
Nearly sixty years ago, Beardsley Ruml (Chairman of the New York Fed) wrote: “The necessity for a government to tax in order to maintain both its independence and its solvency” is no longer true because of the “vast new experience in the management of central banks” and “the elimination, for domestic purposes, of the convertibility of currency into gold.” (American Affairs, Jan. 1946) These few phrases foreshadow the sixty year evolution of the Federal Reserve from a traditional central bank into a central planning agency. (See our web site article “Beardsley Ruml’s Road to Ruin,” November 2004) Convenient though government sponsored currencies such as the dollar and the euro may be, they are first and foremost tools of government policy and serve the interests of the private economy as an afterthought. The dichotomy of monetary interest between the public and private sector will be exposed as the current secular credit contraction runs its course. It will culminate in a grass roots mandate for sound money, and will be expressed as a dollar gold price well into four digits.
John Hathaway
Rogue
A Process of Elimination:
A Speculation on Gold and the Credit Cycle
http://www.tocquevillefunds.com/press/archives.php?id=90
The Speculation
Capital flows into gold under one scenario only: when the lack of investment returns elsewhere, the desire for safety, and the ascendance of a risk-averse psychology at large converge.
In other words, investors come to gold through a process of elimination. It is an odyssey of discovery and realization that investment vehicles thought to be potentially rewarding are in fact filled with hazard and adversity. The current gold cycle began with the collapse of the Nasdaq bubble. The collapse eliminated investor passion for highly speculative equities with little or no operating history trading at absurd valuations. That was five years ago and marked the beginning of a secular downturn in credit. The Nasdaq peak represented the culmination of a credit cycle that commenced in June 1982, when 30 year treasuries were priced to yield 13.92%
The high water mark of the credit cycle, in our opinion, should be measured not by the quantity of debt outstanding, as some would argue. Surely, the Fed’s energetic effort to prop up the post 2000 economy has resulted in significantly more debt outstanding than before the Nasdaq crash. Instead, the apex of the credit cycle must be identified in a less quantifiable manner. It is the degree of fantasy present in investor expectations as to future returns. The fact that there is more General Motors paper outstanding than five years ago is not due to GM’s improved credit standing or a heightened level of expectations for returns. Obviously, the reality is quite the opposite. A most useful objective measure of credit excess (and fantasy) is the ratio of the Dow Jones Industrial Average to the price of an ounce of gold. The DJII traded at 40x the price of an ounce of gold in 2000. Today, that ratio is 24x. At the bottom of credit cycles in the previous 100 years, that ratio was more or less 1x. A rising gold price merely anticipates future downgrades in financial assets of all stripes, including equities, debt, and currencies.
Source: Ashley Ouyang
Some Recent Examples
The first half of 2005 has been noteworthy in that two important capital havens have been soundly discredited: (1) multiple categories of speculative debt instruments and (2) the euro. The demise of both is still in progress. Junk credit will be buried in due course by a global slowdown. European politics and protectionism will take care of the euro.
Investor preferences shifted towards yield instruments as a consequence of the post 2000 adversities in Nasdaq equities and the prolonged episode of zero to negative real interest rates. Having been burned in insanely valued equities, investors mistakenly equated yield with safety. Promoters of toxic Nasdaq merchandise simply reconfigured their production lines to crank out junk credit instruments. Fed-engineered forty year lows in real interest rates forced investors to reach for the sky.
The still-unfolding crack up of financial engineering in the fixed-income sector illustrates what it takes for investors to transit from greed to safety. Investors who positioned complex debt instruments thought to be insulated from volatile and unpredictable returns have learned a difficult lesson. This is especially true for Fund of Fund investors. Opaque financial structures known as Collateralized Debt Obligations (CDO) hedged with Credit Default Swaps (CDS) were promoted as “uncorrelated” yield enhancers. These were almost tailor-made for the Fund of Funds world that promised their investors steady month to month returns and low volatility (returns that were predictable enough, in fact, to be leveraged in their own right).
This obscure credit sector has enjoyed such rapid growth in recent years that it has become the world’s largest non sovereign debt market, according to Mari Koi of Wolf International in a paper published April 30, 2005. She states that “In a low real interest rate environment, correlation among assets is assumed to be constant and stable. This brings us to CDO’s and synthetic credit securities in particular. They are long real yields at excessively high prices, they are leveraged with little margin for error, they rely on uncertain liquidity as new complex instruments, there is some misinformation, many of the buyers do not mark these securities….. Last and most important, credit derivatives have implied negative gamma with their extreme reliance on correlation assumptions and a structure that implodes as credits move out of the mix.” In other words, these core investments in the hedge fund and fund of fund sectors are misunderstood and often mispriced. Rising nominal interest rates will poison them.
Even more significant than junk credit, the euro’s fall from grace marks a resounding defeat for financial engineers and technocrats. The previous high correlation between dollar weakness vs. the euro and gold illustrates the predisposition of financial markets to trust in the constructs of academics and technocrats. From mid 2002 to year-end 2004, both gold and the euro rose exactly 40% against the US dollar.
Why bother with gold, investors such as Warren Buffet must have asked, when you can invest in a far more liquid alternative to bet on a weak US dollar? The investment case for a weak dollar has not changed simply because of the exodus of speculative capital from the euro. Where does the smart money go now that the euro has been defrocked?
Since January 1st, 2005, gold has risen 10% against the euro. With traders overwhelmingly bearish on the euro, a decent rally is most likely around the corner. Despite the recent bad news, the euro is most likely here to stay for longer than the bearish trading view anticipates. As noted by Dan Norcini in a June 7, ’05 dispatch, the NYBOT speculative position (net short) is the largest in four years. In the previous instance, the speculators were net long (and wrong) when the trade-weighted dollar touched the low end of its trading range (80):
Source: Dan Norcini
However, a euro rally will not erase its considerable flaws (see our web site article “Euro Trash, March ‘05). Where will the euro trade if Italy becomes the Argentina of Europe? To project a complete demise of the euro would be a stretch. However, we are comfortable in asserting that the esteem in which it is held is likely to slip further with the euro price of gold having pierced the top of a three year range bounded by 350 euros/oz. The current price of 358 euros/ounce is a positive sign that dollar bears are beginning to look beyond the euro.
Source: Bloomberg
What we have is a horse race between the euro and the dollar as to which can first attain full investment dishonor. After all, both are core components of ”the so-called international monetary system…in fact, an elaborate exercise in price-fixing…..a giant pool operation” manipulated by the Asian Central Banks. (Grant’s June 3, ’05) The shift in the global balance of power is perhaps reflected in the futile calls by US officials for Chinese revaluation. With deaf ears to the administration, the Chinese will act according to their own timetable. If our administration’s influence on the matter of dollar valuation is as scant as it appears, then what is our currency really worth? In fixing the value of the renminbi, the Chinese control the terms of the relationship. It is not the place of the debtor to dictate terms to the lender. The end game is clearly a significant devaluation of the US currency, but against what and when?
The advance of the gold price signifies more than investor disenchantment. The debris field of financial instruments is the evidence of progressive credit deflation. Nasdaq securities priced at infinity, CDO’s, CDS’s, derivatives and fiat currencies are or were conduits for credit, resource allocators essential to economic activity. Their impairment threatens economic shrinkage.
A credit squeeze shows up as widening spreads between higher and lower quality debt (see chart). It is also depicted by a falling Barron’s Confidence Index (see chart).
Source: Fred Kalkstein
Source: Fred Kalkstein
Perhaps this is why the Fed is showing signs of abandoning its “less accommodative” stance. While still talking a tough game on inflation, Dallas Federal Reserve Bank President Richard Fisher stated (June 1st on CNBC) that “we’re clearly in the eighth or ninth inning of a tightening cycle.” The Fed has significantly augmented its balance sheet over past eight weeks in what has been a conditioned reflex to financial problems going back to 1987. Since the recent GM downgrade, Fed holdings of Treasuries have risen by more than $7 billion, after a lengthy period of no growth (see chart)
Source: MacroMavens, LLC
Regardless of whether there are one or two more 25 bp increases in the Fed Funds rate, real interest rates throughout the yield curve will remain at historically low levels, whenever the Fed declares victory. Monetary policy is hemmed in, as has been amply demonstrated elsewhere, by the consumer’s vulnerability to rising interest rates. This is especially pertinent now that the residential mortgage market, propped up by inflated collateral value and perverse credit standards, has become a preferred avenue for credit expansion. The gap between what the Fed is saying and what it is doing is attracting considerable attention. As noted by columnist Bill Jamieson, “Apprehension over the health of the US credit market has been heightened by talk of a further development. This is that the Federal Reserve has been pumping huge amounts of liquidity. This brought back anxious memories of a feared liquidity shortage just before the collapse of Long Term Capital Management in 1998.” (Financial Times 6/9/05)
Expanding credit spreads, a declining Barron’s confidence index, the flight to quality, the Fed response of liquidity creation all add up to a credit squeeze. More paper, perhaps, but less credit. The recession in credit that began in 2000 has many years to run and will eventually expose all misallocated capital. The process is self-reinforcing. The tipping point for confidence will be the moment when Fed liquidity injections are recognized to be ineffectual and even damaging.
What comes next after the Nasdaq, CDO’s, junk debt, and the Euro? There are plenty of candidates including hedge funds, housing and a still overvalued stock market. These overvalued asset classes can and will continue to levitate and attract capital flows as long as real interest rates remain at historic lows. Low real interest rates are the foundation of financial market speculation, and the lubricant of global economic growth.
The mother of all bubbles is US Treasuries, where pricing is driven not by crowd psychology, but rather by the policy dictates of our Asian trading partners. As noted by Jim Bianco (Arbor Research), “There seems to be little to no talk that the bond market might be in a bubble. Real estate, Google, the dollar and many other markets are being deemed ‘bubbles’…..Maybe the bond market is the bubble.” (6/10/05) A bubble without an accompanying mania seems implausible and without precedent. The most recent “commitment of traders” number suggests sentiment is neutral, with commitments of large speculators at 68% of the 52 week high. For the US treasury bubble, the missing manias are to be found in markets and economic sectors linked by their dependence on mispriced capital
It is worth noting that the foreign central banks were net sellers of US Treasuries in March. It was short covering by hedge funds that provided the bid to offset dispositions by foreign central banks. Over the past two months reported (March and April), foreign buying failed to cover the trade deficit. Since April of 2002, according to Arbor Research, foreign central bank buying has been insufficient to cover the budget and trade deficit on a cumulative basis.
Bridgewater Daily Observations notes that “at current prices there is net more than 8% of Chinese GDP flowing into China via the private sector.” (Waiting on the Inevitable, June 7, 2005) ”This type of BoP imbalance is essentially unprecedented. The BoP imbalance is due to the massive labor arbitrage between China and the rest of the world. Everyday that China holds their currency below market value they have to do more to keep it where it is, because the investment into China makes their labor more productive (factories open in China but close elsewhere) at the same time that the price essentially does not change.” Bridgewater goes on to note that “there are virtually no cases (in history) of one improperly pegged exchange rate being repegged at another improper level (i.e. that which doesn’t rectify the BoP imbalance) and sticking for long.” Bridgewater found that the average devaluation in 56 cases since 1930’s was 25%.
A Few Fundamentals to Consider
The notion that capital will flow into gold is a speculation on macroeconomic events external to gold. It is helpful to this speculation that the goings on in the world of gold itself are quite supportive of a substantially higher gold price. In brief, the metal is very tight.
Even though trading houses in New York and Europe seem to find plenty of paper gold to trade in a knee jerk fashion according to the news of the day, the real stuff is hard to come by. It is hard to mine and it is hard to buy in any large quantities. Just ask managers of the Swiss precious metal refineries. Their daily run rates are 30% above year ago levels and their managers are not above making urgent but discrete inquiries for gold in quantity. They are running seven days a week when they can get their hands on metal, less when they cannot. According to one contact, there is almost no metal in storage. The turnaround time for incoming metal, whatever the source is 4 to 5 days at most.
Gold is tight based on the CFTC numbers indicating that speculators are sufficiently bearish to be short 757 tonnes (gross) as of June 7, 2005, or one third of annual mine production. The net large speculative trader position ranks in the 22nd percentile of the past 52 weeks. Gold becomes “toppy” when they approach the 90th percentile. It is tight because mine production declined 4.9% in 2004 and appears likely to decline over the next three to five years. Mining companies continue to generate poor returns on capital and are struggling to replace reserves. It is tight because central banks disposing gold under the Frankfurt agreement (500 tonnes per year) have already sold 384.7 tonnes throught the first week of June, an average of 10 tonnes per week. Over the remaining 14 weeks of the fiscal year ending in September, they will be limited to 7.6 tonnes per week, a 24% decline from the average pace, and an even sharper decline from the recent three weeks’ pace of 12.2 tonnes. Finally, gold is tight because total end user consumption, as tabulated by the World Gold Council, rose 9.5% in 2004, and 25.8% in the first quarter of 2005 vs. ’04.
An important reason, but by no means the only one, for the jump in consumption is the success of the gold ETF, particularly GLD (listed on the NYSE) sponsored by the World Gold Council. GLD and related series listed in London and Australia represents 1/10 oz of ounce of physical gold and is now backed by 236 tonnes (includes all listings) which has been taken out of the market. By capital market standards, GLD is tiny, with a market capitalization of only $3.2 billion. For example, if the market cap of GLD were to grow to $30 billion, still modest by capital market standards, it would require gold purchases equal to 90% of annual global gold production at today’s prices. Unlike mining or internet stocks, share creation is not a simple matter of investment banking fees and printing capacity. Share creation requires incremental purchases of physical gold. In this sense, the ETF is a dynamically reflexive investment structure, a potential time bomb for short positions.
The global market cap of mining shares is about $100 billion. Investing in shares is subject to a long list of risks including geopolitical, cost pressures, labor disruptions, mine accidents, and environmental lawsuits to name a few. However, the greatest risk by far is share dilution by financially unsophisticated managements. Over the last two years ending December 31, 2004, the share count for the entire industry rose 33%. Is it any wonder that the shares and share indexes have lost some momentum in light of the additional supply? We wholeheartedly support the scathing comments of Graham French speaking at a mining conference in April of this year: “This industry is so blasé that 90 percent of capital raising is done without consulting shareholders.” We would add that the industry consumes huge quantities of capital on which it generates poor returns. It cannot afford to take its shareholders for granted.
While we favor gold shares in most instances over the metal because they offer leverage to the gold price, we can understand why risk-averse investors looking for the protection of gold without the risk of mining would prefer the metal itself. Gold entails no business risk, only the possibility of overpaying. In our view, the potential pool of risk averse investors is considerably larger than the share oriented risk tolerant investor group. Physical gold comprises an asset class at least 10 times that of the mining shares. Therefore in time, it seems reasonable to expect the ETF and similar initiatives to have a market cap proportional in size to the underlying disparity.
The recent weakness in the gold shares is a good proxy for investor sentiment. It is at rock bottom. This is confirmed by the Hulbert Gold Newsletter Sentiment Index which has recently matched record low readings. The May 23rd Market Vane sentiment gold barometer was 61% bulls, the lowest since 57% on May 13, 2004 when gold was $379. The bullish consensus was in the 40’s in April ‘03 when gold was $320. The peak recent reading was 83% in October of 2004 when the gold price was slightly below $430.
The dollar price of gold bullion is trading within 3% of a seventeen year high, despite negative sentiment. Over the past five years, the dollar gold price has increased 50% vs. a 16% decline in the S&P 500 and a 18% decline for the trade weighted dollar. Swooning sentiment while gold trades within a few percentage points away from a seventeen-year high? Sounds like a bull market to us. It is the nature of every bull market to take along as few as possible. The recent shakeout, which began in earnest in early March, has done an excellent job of chilling investment sentiment. The early stages of all bull markets are characterized by widespread skepticism. Gold remains in a multiyear bull market that will last another decade. The deflowering of the euro represents a major milestone along the way.
Whenever it happens, the demise of the bubble in US Treasuries will take down the many related bubbles based on a mispricing of risk free capital. Problematic fundamentals, notwithstanding the near term “Laffer Curve” improvement to the federal budget deficit, will eventually gain the upper hand. Foreign central banks will eventually decide to move towards the exit. First they will buy less, later on they will sell outright. Timing the tipping point is problematic for most, including us. Those who feel able to predict the precise moment when foreign central banks turn their backs on the dollar should wait until then to position gold. All others are advised to start now.
In his 1871 treatise entitled The Origin of Money, Carl Menger demonstrated that money was a social institution long before governments adopted and enforced legal tender laws. Precious metals were universally adopted by all societies because they offered, among all other commodities, superior liquidity, scarcity and portability: “Money has not been generated by law. In its origin it is a social and not a state institution.” Governments did not adopt gold as monetary backing until the 1840’s when England and France held 40 tonnes. This is not to suggest that state issued currency cannot function for a time as a satisfactory medium of exchange. However, over generations, it has proved to be a poor store of value.
We believe that the divestiture of gold reserves by central banks (at a measured pace, of course) offers the possibility of the eventual privatization of gold. There could be no better monetary outcome for the private sector than for all gold to be removed from central bank vaults. Citizens would then be free to choose how to hold their wealth, as they did before legal tender laws became the standard. We have no doubt that sufficient buying power exists through the exchange of questionable paper assets to support a bid much higher than the current dollar price. Would it be possible for gold instruments such as the ETF and Bank Receipts to coexist with fiat currencies? We may be witnessing the dawn of just such an outcome. In a free market for both, gold would offer the superior alternative for capital preservation, while fiat currencies may periodically offer a more convenient medium of exchange.
Nearly sixty years ago, Beardsley Ruml (Chairman of the New York Fed) wrote: “The necessity for a government to tax in order to maintain both its independence and its solvency” is no longer true because of the “vast new experience in the management of central banks” and “the elimination, for domestic purposes, of the convertibility of currency into gold.” (American Affairs, Jan. 1946) These few phrases foreshadow the sixty year evolution of the Federal Reserve from a traditional central bank into a central planning agency. (See our web site article “Beardsley Ruml’s Road to Ruin,” November 2004) Convenient though government sponsored currencies such as the dollar and the euro may be, they are first and foremost tools of government policy and serve the interests of the private economy as an afterthought. The dichotomy of monetary interest between the public and private sector will be exposed as the current secular credit contraction runs its course. It will culminate in a grass roots mandate for sound money, and will be expressed as a dollar gold price well into four digits.
John Hathaway
Rogue
Mobile home madness: Prices top $1 million
Mobile home madness: Prices top $1 million
By Matt Krantz, USA TODAY
7/6/2005
MALIBU, Calif. — The crazy California real estate market has come to this: a million-dollar trailer.
Location, location: Charley Chartoff put a $1.4 million price tag on his mobile home in Malibu, Calif.
By Stephanie Diani for USA TODAY
A two-bedroom, two-bathroom mobile home perched on a lot in Malibu is selling for $1.4 million. This isn't a greedy seller asking a ridiculous amount no one will pay. (Photo gallery: Mobile home boasts of spectacular views)
Two others sold in the area recently for $1.3 million and $1.1 million. Another, at $1.8 million, is in escrow. Nearby, another lists for $2.7 million.
"Those are the hottest (prices) I've ever heard," says Bruce Savage, spokesman for the Manufactured Housing Institute. He says prices in another hot spot, Key West, Fla., top $500,000. As if the price isn't tough enough to swallow, trailer buyers:
•Don't own the land. As with most mobile homes sold in Malibu, the land is owned by the proprietor of the trailer park, in this case, Point Dume Club.
•Still pay rent. Not owning the land means paying what's called "space rent" that is as high as or higher than many mortgages in other parts of the USA. On the $1.4 million trailer, space rent is $2,700 a month.
•Can't get mortgages. Since the buyers don't own the land, most of the mobile homes are paid for in cash or with a personal property loan that usually amounts to $100,000 or less, says Clay Dickens, mortgage loan agent at Community West Bank.
Why would anyone pay seven figures for a trailer? It gets you more than the typical mobile home. The $1.4 million trailer is in a gated, guarded community with a shared tennis court and panoramic views of the Pacific Ocean. It also is on a larger-than-usual "triple-wide" lot.
Buyers are willing to pay such prices just to get into Malibu, where the average list price is $4.4 million, says Coldwell Banker broker Rick Wallace.
But, it's still a trailer with a modest kitchen and faux wood floors. Many still have trailer hitches attached.
Sellers couldn't be happier. Charley Chartoff, a 29-year-old Coldwell Banker Realtor, is selling the $1.4 million trailer after living there about three years. Chartoff won't say how much he paid, but neighbors say prices have climbed about threefold in that time.
Developers are partially driving the rise. Janet Levine at Maliblue Holdings has bought several old homes and is installing high-end "mobile villas" to put up for sale. Levine and others bristle at the term "trailer." To be permitted in the park, the home must be perched on piers (a high-end version of up on blocks).
Some neighbors, though, can only marvel at the prices. Longtime resident Jim Schwartz, 92, says he got an $800,000 offer for his trailer home, which is not for sale. He declined. But, "You come to me with $1 million, and we'll talk about it," he says.
LINK: http://www.usatoday.com/money/perfi/housing/2005-07-05-million-dollar-trailers_x.htm
Rogue
Disgusting "Sign of the Times"...
http://www.infowars.com/articles/media/harvey_triumphs_smallpox_blankets_slavery.htm
Veteran Radio Host Paul Harvey Triumphs Smallpox Blankets To Native Americans, Black Slavery
Advocates Genocide, Ethnic Cleansing, Biological Warfare To Fight War On Terror
PRISON PLANET.com / July 5 2005
By Paul Joseph Watson & Alex Jones
83-year-old veteran talk show host Paul Harvey, whose show is syndicated by ABC to over 1,000 radio stations, has reached further into the abyss of zealotry and extremism by suggesting America should be less moral than its enemies in the war on terror and resort to carnal genocide in order to succeed.
In comments broadcast to over 18 million listeners, Harvey stated the following.
After the attack on Pearl Harbor, Winston Churchill said that the American people…he said, the American people, he said, and this is a direct quote, “We didn’t come this far because we are made of sugar candy.”
That was his response to the attack on Pearl Harbor. That we didn’t come this far because we are made of sugar candy.
And that reminder was taken seriously. And we proceeded to develop and deliver the bomb, even though roughly 150,000 men, women and children perished in Hiroshima and Nagasaki. With a single blow, World War II was over.
Following New York, Sept. 11, Winston Churchill was not here to remind us that we didn’t come this far because we’re made of sugar candy.
So, following the New York disaster, we mustered our humanity.
We gave old pals a pass, even though men and money from Saudi Arabia were largely responsible for the devastation of New York and Pennsylvania and our Pentagon.
We called Saudi Arabians our partners against terrorism and we sent men with rifles into Afghanistan and Iraq, and we kept our best weapons in our silos.
Even now we’re standing there dying, daring to do nothing decisive, because we’ve declared ourselves to be better than our terrorist enemies -- more moral, more civilized.
RELATED:
PAUL HARVEY: AH, GENOICDE AND SLAVERY, NOW THAT’S A GOOD DAY!
Paul Harvey's Tribute to Slavery, Nukes, Genocide
Audio clip of the dialogue.
Our image is at stake, we insist.
But we didn’t come this far because we’re made of sugar candy.
Once upon a time, we elbowed our way onto and into this continent by giving small pox infected blankets to native Americans.
Yes, that was biological warfare!
And we used every other weapon we could get our hands on to grab this land from whomever. And we grew prosperous.
And, yes, we greased the skids with the sweat of slaves.
And so it goes with most nation states, which, feeling guilty about their savage pasts, eventually civilize themselves out of business and wind up invaded, and ultimately dominated by the lean, hungry and up and coming who are not made of sugar candy.
The disgusting bigotry and Nazi-like nature of these comments are the furthest yet that any Neo-Con has gone in attempting to justify harsher prosecution of the war on terror.
The scale of this sickness dwarfs even previous comments by Michael Savage and Rush Limbaugh.
Rush Limbaugh suggested that the Abu Ghraib prison guards were "just having fun" and "blowing off some steam."
The official official US Army report into Abu Ghraib lists the activities that Limbaugh defines as harmless fun. They include;
- Breaking chemical lights and pouring the phosphoric liquid on detainees.
- Sodomizing a detainee with a chemical light.
- Positioning a naked detainee on a MRE Box, with a sandbag on his head, and attaching wires to his fingers, toes, and penis to simulate electric torture.
- Raping children.
- A male MP guard having sex with a female detainee (rape)
- Beating detainees to death.
All of the above are great ways to relax according to Rush Limbaugh. Raping children and beating people to death is "harmless fraternity fun."
Limbaugh then equalled his depravity last month when he released a line of merchandise that depicted the Guantanamo Bay detention camp in Cuba as a holiday home.
Harvey has gone even further, advocating what amounts to mass genocide and ethnic cleansing. Does giving smallpox infected blankets to native Americans epitomise President Bush's vision of spreading freedom and democracy around the world?
In the 18th century, the British fought France and its Indian allies for possession of what was to become Canada during the French and Indian Wars (1754-63).
At the time of the Pontiac rebellion in 1763, Sir Jeffrey Amherst, the Commander-in-Chief of the British forces in North America, wrote to Colonel Henry Bouquet: 'Could it not be contrived to send smallpox among these disaffected tribes of Indians? We must use every stratagem in our power to reduce them.' The colonel replied: 'I will try to inoculate the [Native American tribe] with some blankets that may fall in their hands, and take care not to get the disease myself.' Smallpox decimated the Native Americans, who had never been exposed to the disease before and had no immunity.
This is what Paul Harvey is advocating.
Harvey is seen by many as the conscience of America, having been on the radio since 1933.
To have an individual of that gravitas openly advocate black slavery and genocide as a necessary tool tells us one of two things.Either Mr. Harvey has gone completely senile in his old age or he represents a growing trend of perversion amongst Neo-Conservatives who have gleefully proclaimed themselves to be morally bankrupt and have urged the US government to do the same and apply it to the construction of a decadent empire.
And to conservatives reading this article, we are by no means saying that those on the extreme left are any different. During Clinton's tenure, many liberals tried to justify the brutal siege on the Waco Church in 1993. This represents the same mindset, the specific targeting and elimination of minority groups to further a jackboot agenda. The Muslims are just the latest victims of this crusade and they certainly won't be the last.
The liberals couldn't ram through the entirety of their police state agenda, so they just put on sheep's clothing and returned as self-proclaimed conservatives and are now attempting to destroy America.
One of Paul Harvey's peers, Michael Savage has continually advocated the arrest of anyone who criticizes the government. Last year he called for the arrest of a New York Times journalist for publishing an anti-US photograph under the reasoning that the editor was committing sedition by promoting enemy propaganda.
On several occasions, Savage has even gone as far as to call for anti-government dissenters to be put in forced labor camps. The danger of this is all the more immediate when one considers the fact that three years ago FEMA began work on constructing entire mini-cities for purposes of internment.
It is common knowledge that this 'bastion of conservatism' was once a liberal hippy. He still advocates the books and philosophy of literary beatniks Jack Kerouac and William Burroughs, whose books included glorification of drug use.
Mr. Wiener, like a plethora of other so-called right-wing talk show hosts, is a dangerous anti-American who hates freedom and what the founding fathers created. While he has a first amendment right to voice his comments, we feel the need to challenge them and will continue to monitor his subversive and extremist activities.
Paul Harvey is an even greater threat to liberty and he will likewise be scrutinized.
The argument that America has to be less moral than its enemies is paving the way for the American government to be less moral to its own people.
Harvey's sentiments go against everything America is supposed to stand for. Does the biblical philosophy of treat others as you wish to be treated mean anything to Harvey?
Harvey's argument lacks further credibility in light of the fact that the so-called 'terrorists' who would be at the brunt of Harvey's ire are in the vast majority of cases no terrorists at all.
Consistent figures have indicated that as high as 90% of Iraqis arrested at checkpoints and hauled away to prison camps have no connection to car bombings. In most cases they don't have their papers in order or are accused of stealing wood. Do these crimes justify the use of biological warfare and nuking entire countries?
The LA Times reported that no leaders of Al-Qaeda were identified as being at Guantanamo. That's because the US government ordered all the poor cavemen who were shoved onto the front lines by the Taliban to be arrested, while they safely evacuated 8,000 Al-Qaeda and Taliban cream (by accident of course) from Kunduz in Afghanistan.
The justification of dropping nuclear bombs on countries is also a mindless argument. Many Neo-Cons called for 'levelling Fallujah' after American contractors were killed in the city. So next time there are a handful of murders in your city the government should solve the problem by letting loose a few A-Bombs?
We demand a public apology and a retraction of Mr. Harvey's comments. Failing this, we extend an invitation for Mr. Harvey to appear on The Alex Jones Show and defend his comments.
Contact ABC and Paul Harvey and voice your disgust at the promotion of black slavery and genocide.
CONTACT:
ABC Radio Networks
John.E.McConnell@abc.com
abcradio@abc.com
Phone: 212-456-5387
Paul Harvey
Irma.N.Aviles@abc.com
Phone: (312) 889-4085
Disney Corporation
Phone: 818-560-1000
Rogue
Sleestack...look at YDHCF,Yantai Dahua Holdings Company Inc.
I think I may be the only one that owns it on this board???
It is a profitable Chinese paper company that is trading at .10 cents and a P/E of 5. It has interests in paper companies in China. Is expanding into cigarette papers. It's a cheap "option" on "investing" in the growth of the Chinese economy and Chinese currency apreciation. Believe me... China will grow with or without "US".
Easy "10 bagger" and possibly a "100 bagger" in future years. I know someday I'll probably wish I had more than 60,000 shares. Reminds me a bit of CYD when it traded for pennies. If this thing ever pays a dividend (remote possibility going forward?) it'll be another "Jackpot" for me.
It's a very exciting "speculation" IMHO.
Rogue
PDGE seems to have "AOBO-itis".....those cheap PP shares really suck and give a company a "stigma".
I don't think it has bottomed here yet at all....but it could certainly be higher 6 months (or anytime in the interim) from now than the current quote.
But who knows??....to reach .25 cents would mean a heck of a lot of "tax-loss selling" pressure down the road, and I guess that's possible too.
Rogue
Happy Fourth FA and everyone else lurking on your board!
Rogue
I used to respect this guy.......this is crap.
He's expecting 1-2% inflation going forward??
How the hell are we going to do that with oil at $60 per barrel and a possible re-valuation of the Chinese currency?
Is he expecting a collapse in energy prices or something? Oil and energy is a part of EVERYTHING we consume......those costs get passed on in higher prices.
This forecast is laughable without an explanation of his inflation(1% to 2%) figures.
It's as laughable as the official government figures.
Looks as if Bill Gross is now an official government "shill".
Rogue
VMC Chat board?....I like the idea. I only suggest that it be "wide open"......INCLUDING POLITICS!!
The political rumblings right now are SO DAMN RELEVANT to investing it's not funny. China tariffs and trade war brewing and all!
Let's let it rip!!
Rogue
Am I the new "Gold Guru"??? LOL!!....Gold was down hard today. I predicted it!
From a Silicon Investor board:
Message Boards / Gold, Mining, and Natural Resources : Welcome to Slider's Dugout
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Public Reply / Prvt Reply / Mark as Last Read / File / Keep Previous 10 / Next 10 / Previous / Next
To: isopatch who wrote (105) 6/29/2005 12:55:08 AM
From: roguedolphin Read Replies (2) of 137
Gold breaking $430?....Watch out for big manipulation down on possible quiet final trading day before the long holiday weekend.
"They" like to manipulate gold down under those circumstances....."they've" done it before.
Rogue
Rogue
It would be really cool to somehow set up this board to have everyone's picks updated real-time in percentage gains or loss.
That would be entertaining and interesting.
Rogue
If my 6 top picks all qualify....anyone who hasn't picked yet and needs a nice batch at the last minute can use my second set of 6 picks!
(Please give credit if you win the contest though).
LOL!!!
Rogue
My top picks...
1. CHAR
2. GULF
3. HPCO
4. EGY
5. NXG
6. YIWA
Backup picks..
1. PDGE
2. CXTI
3. TRAC
4. HEMA
5. AWRCF
6. DFNS
Rogue
My top picks...
1. CHAR
2. GULF
3. HPCO
4. EGY
5. NXG
6. YIWA
Backup picks..
1. PDGE
2. CXTI
3. TRAC
4. HEMA
5. AWRCF
6. DFNS
Rogue
POCI...new yearly low today on the open. The selling seems over with. Could be all "sold out" technically and ready for another swing higher.
Good buy as a speculative or "zip-code changer" company in my opinion.
Looks as if it may close on the high of the day....Key reversal???
Could be a signal for traders to jump on the long side again.
Rogue
AOBO.....watch out below for private placements (sweetheart deals) of millions of shares at less than half the current market price!
They may burn shareholders again.
LOL!
Rogue
Skeptical....Great thought provoking post concerning GFCI! You raise valid concerns. Keep penning that sort of stuff and I'm "peoplemarking" you!
Rogue
Has IHUB been acting more like Raging Bull recently???....
or is something wrong with my computer or DSL connection??
Rogue
EGY.....Of course I could be completely wrong. But it does "feel" as if it wants to go lower. Oil may be correcting here too for a bit. Sometimes I pay more attention to the technicals and get "blind-sided" by fundamentals and news....sometimes it's the other way around.
I'm pretty much out of "inventory" in the oil stock arena. I've sold and booked profits on the recent run-up in oil and oil stocks. I'm looking to replenish my positions if we get some pullbacks of note.
Rogue
EGY.....no position right now. Relative strength has been poor for it's peer group.
It seems as if it wants to grind lower. I'm looking for a test of the former reaction lows near $3. If it breaks support it could be a good time to buy any capitualation or "throw in the towel" type selling.
Just my technical perspective on EGY.
Rogue
Buffet....Just off the top of my head. Does anyone remember a few years ago when Buffet said he feared a nuclear attack or incident on Washington DC someday???
When I first heard that I flipped.
I remember hearing a guy on an alternative radio program once around 1997 talking about the very intersting city of Phoenix Arizona. He was talking about it's founding out in the middle of the desert for esoteric reasons. Also it's name...."Phoenix", or the Egyptian Bennu Bird..... "Out of the Ashes of Destruction....Rises the Phoenix".
His point was that Washington DC would be destroyed and a new "emargency" government would arise in Phoenix Arizona which would ultimately be the capital of the "New World Order" according to a "Grand Plan" or something like that.
It could be just BS.....but if it ever happens in our lifetime, Don't point fingers at me!!! I just heard it on a slightly wacky radio program years ago!!
Rogue
Argentina had a massive financial crash and government instability about 3 years ago or so. There was massive rioting and unrest and governments were overthrown in a short time frame.
The banks were shut down over there and when they were reopened months later the Argentina $/US dollar peg was broken and the savings of the nation was decimated.
Some people were wiped out....I imagine some had benefitted from the economic chaos.
Can the US dollar /China dollar unbreaking of the peg cause similar problems? We have so many "imbalances" in our financial system it's only a matter of time before chaos.
Buffet even said as much....it could happen in 3 months or 5 years was pretty much HIS qoute.
Rogue
Rogue
It was 1981 I do believe when Paul Volckler raised short term rates to 23% to stop inflation.Long rates were over 14% back then. The economic scene then was much different than today......but I think we have a much more potential inflation threat today then we have ever had.
The Chinese yuan/US dollar peg could be a cataclyst for all kinds of fireworks. Oil priced in US dollars is a ticking time-bomb. Volckler and anyone who is a student of economics knows we are on the verge of some real changes and disasters.
It will destroy many but create oppurtunities for those who are awake to the facts.
Rogue
Hey ....that's not fair. Why not debate energy issues here for all to see???
I don't give a crap about politics..........just the
TRUTH!!!!!!!
Bring it on!
Rogue
Lentinman....I seriously hope you don't. It would be probably be diagnosed as Alzheimer's disease if you did.
Very big problem when young adults in their 40's have Alzheimer's as I was startled to find out recently. Something's very wrong today with that.
Do a little research on "prions" and you will see this could be almost "Biblical" in it's dire consequences. Come to think of it....I believe the Bible does warn against feeding animals their own species.
Rogue
Mad Cow....from what I understand many cases of "mad cow" or CJD are mistakenly being diagnosed as "alzheimers disease".
It was a real "eye-opener" for me to hear that adults in their early forties are now being diagnosed with Alzheimers. How can this be?? Something doesn't seem right.
The gestation period for CJD or "mad cow" is about 20 years in humans I have heard. So if you eat a burger today that is infected with "prions" you may not pay the price for another 20 years.
Check out more about "mad cow" and prions here.....
http://www.rense.com/health/CJD-CWD-BSE.htm
.....truly fascinating. I think the problem is much bigger than anyone thinks. Tainted meat you may have eaten 10 or 15 years ago may eventually kill you.
Rogue
US fears backlash after second mad cow case confirmed 2 hours, 56 minutes ago
CHICAGO (AFP) - The multi-billion-dollar US cattle industry braced for a possible backlash against its products after authorities confirmed the country's second case of mad cow disease.
Taiwan, a major export market, immediately suspended US beef imports, just months after partially lifting an earlier ban.
"The suspension on US beef imports will take effect immediately," a cabinet statement quoted Premier Frank Hsieh as saying on Saturday.
Taiwan had in March partially lifted a ban on US beef imposed in December 2003, after a first case of bovine spongiform encephalopathy ( BSE) was reported in the United States.
The US was Taiwan's third largest beef supplier, selling some 14,000 tonnes or 55 million dollars' worth of beef in 2002 and 19,225 tonnes worth 76.5 million dollars in 2003 before the first ban.
Confirming the case after the close of US financial markets on Friday, US officials insisted that meat from the animal, which died in November, had not entered the food supply.
"This animal was blocked from entering the food supply because of the firewalls we have in place," said Agriculture Secretary Mike Johanns.
A vast US screening program has turned up just one confirmed case of BSE after more than 388,000 tests, he stressed.
"There is absolutely no question in my mind that Americans can and should continue to be very confident in their beef supply. And the same is true for our international friends," he said.
But he said he had ordered changes in rules governing the handling of meat samples when screening tests yield inconclusive results.
"After careful consideration and consultation with scientists, I am calling for a change in our testing," Johanns said.
"The protocol we developed just a few years ago to conduct the tests... might not be the best option today," he said. "Science is ever evolving."
An initial screening of the animal's meat in November 2004 was inconclusive, and confirmatory tests were negative.
More tests ordered this month using another internationally recognized confirmatory test, the Western blot, proved positive.
The diagnosis of mad cow disease, which eats away at the brain when passed to humans, was then confirmed by the Veterinary Laboratories Agency in Weybridge, England.
Henceforth, two confirmatory tests will be conducted simultaneously, Johanns said, and rules for the handling of suspect samples will be codified.
The US Department of Agriculture said it had started an investigation to determine the sick animal's herd of origin.
It was born before the United States imposed a ban on feed containing animal brains, the suspected source of mad cow disease, in August 1997.
The beef industry also moved quickly to reassure the public.
"The bottom line for consumers remains the same: Your beef is safe," said Terry Stokes, chief executive officer of the National Cattlemen's Beef Association.
The 45-billion-dollar (37-billion-euro) US beef industry has already been suffering from declining domestic demand as a result of shifting consumer tastes. Average beef consumption has fallen 20 percent from 80.9 pounds a year in the 1970's to 64.6 pounds a year in 2000, according to the USDA.
Most Americans probably won't be dissuaded from eating steaks, said Troy Vetterkind, a commodities broker for E. Hedger in Chicago.
The real concern is whether the news will further delay the lifting of a ban on US beef in several major export markets, he said.
Beef futures had already been trading lower after it was announced earlier this month that US officials had sent an inconclusive test to Britain for further study.
Vetterkind predicted a mass exodus when markets reopen Monday.
"It's going to cause a panic sell-off," he said. "I think you could look at cattle futures 150 to 300 points lower."
The first US case was found in the northwestern state of Washington in 2003. Major export markets such as Japan have had bans on US beef since then.
The new case has also caused concern in Canada, where the first US case of mad cow originated.
US imports were suspended in May 2003 after Canada's first case of the disease appeared.
Canadian Prime Minister Paul Martin said Friday he hoped the new case in the United States would not further delay the reopening of the US border to Canadian beef imports.
About 150 people, mainly in Britain, have died of the human form of mad cow disease, Variant Creutzfeldt-Jakob disease (vCJD), since it first surfaced in the 1990s. Experts believe the pathogen leapt the species barrier to humans through the consumption of contaminated beef.
Rogue
GOOG.....those puts ultimately may pay off big. My gut tells me we go big time "blowoff parabolic" in GOOG before the big bear takes Google down.
Rogue
Mad Cow.....they want to keep the lid on this story.
A few weeks ago I heard of the murder of a very well known and respected physician that had been lobbbying the medical profession to test donated blood for something to do with Mad Cow.
There is "meat" to this story....no pun intended.
Good Mad Cow DD at......
www.rense.com
Rogue
GOOG....maybe it will have that "exhuastion run" above $300 with huge volume on the "blowoff" top???
Give the insiders the price and volume to dump and get their cash??
It looks as if it wants to go "parabolic" here.
Possible??
Rogue
Things are getting very intersting on the world financial scene......volatility will most likely be increasing.
The "status qou" of recent may be upset....if you know what I mean?
Rogue
Beware of (fixing) the China problem
Anger over China's trade policies nears a boil. Greenspan warns against protectionist backlash.
June 23, 2005: 10:53 PM EDT
By Krysten Crawford, CNN/Money staff writer
NEW YORK (CNN/Money) - The mood on Capitol Hill was angry Thursday as Fed Chairman Alan Greenspan and Treasury Secretary John Snow arrived to defend the Bush administration's policy toward China.
Greenspan and Snow, testifying before the Senate Finance Committee, came under fire from some legislators impatient over the administration's handling of U.S.-China trade relations, which the lawmakers consider too accommodating.
The complaints about China's trade policies are well-known: At a record $162 billion in 2004, the U.S. trade deficit with China is the country's biggest by far. The main culprit: cheaper Chinese goods -- the result, critics say, of China pegging its currency, the yuan, to the dollar at an artificially low rate.
Meanwhile, rampant counterfeiting in China of American goods costs U.S. industry billions of dollars in lost sales every year.
But fears over China's growing economic muscle boiled over Thursday.
On Wednesday, one of China's largest oil producers, state-owned CNOOC Ltd., made an $18.5 billion unsolicited offer to buy Unocal, the nation's ninth largest oil and gas company. The overture renewed concerns about foreign ownership of critical U.S. resources -- especially by China.
"The problem once again is fairness and reciprocity," said Charles Schumer, the Democrat senator from New York who has co-sponsored a bill with South Carolina Republican Lindsey Graham to impose stiff tariffs on China over its trade policies.
China, continued Schumer, would not allow a U.S. company to take over a major Chinese operation. "We know countless instances where that hasn't been allowed," he said, pointing to the many hoops that U.S. companies often have to jump through to invest in China, including partnering with local companies or getting permission from China's military brass.
The hearing comes as Chinese interest in buying American companies appears to be growing. Earlier this week, a top Chinese appliance maker joined in a $1.3 billion bid for Maytag Corp. And in April IBM completed the sale of its personal computer business to China's Lenovo Group.
No obvious solutions
Schumer wasn't the only senator to express outrage at Thursday's hearing over the state of U.S.-China economic relations. And while everyone agreed that the trade imbalance, intellectual property rights and China's currency continue to be serious problems, there was considerable disagreement -- mostly along party lines -- about the best solution.
A series of pending legislative proposals, including the Schumer-Graham bill, call for across-the-board tariffs against Chinese imports, spurred by U.S. manufacturers who say China's imports are undervalued by as much as 40 percent -- and that tens of thousands of U.S. jobs have been lost as a result.
Several Democratic senators said it's time to force China, which joined the World Trade Organization (WTO) in 2001, to play by international rules.
Greenspan and Snow, clearly worried that spiraling U.S. deficits are driving Congress toward trade action against China, sought to soften the angry mood by pointing out the possible consequences should the U.S. retaliate.
Greenspan warned lawmakers that moves to limit China's involvement in the U.S. economy with tariffs could end up backfiring.
A U.S. policy of protectionism, he said, would threaten the growth in worldwide living standards since the end of World War II. He noted too that moves by China toward a more market-driven economy have benefited the world, and the United States in particular.
"My basic concern," said Greenspan, "is that, if we are forced to implement a very significant unilateral tariff, the dangers to the overall international financial system, in my judgment, are very large."
As for China's monetary policy, Greenspan said a more flexible currency "would be helpful to China's economic stability" and hence to that of the global economy, given its rising importance as a world trading power.
But he also questioned the idea that a higher-valued yuan would give the U.S. economy the boost that proponents expect.
"Some observers mistakenly believe that a marked increase in the (yuan's) value relative to the U.S. dollar would significantly increase manufacturing activity and jobs in the United States," said Greenspan. "I'm aware of no credible evidence that supports such a conclusion."
Moving toward a float?
Snow has led the Bush administration's push to get China to ease the yuan's peg at about 8.28 to the dollar -- in place for nearly a decade. He said financial diplomacy was working and that China could and should adopt a more flexible currency, which, if it made Chinese goods more expensive in the United States, could help U.S. manufacturers compete.
Snow said Thursday that he believes China is prepared to introduce some flexibility to its currency now, paving the way to an eventual shift to a full float system.
Tariffs are not the way to go, he said.
"Action on any of the punitive legislative proposals before Congress now would be counterproductive to our efforts at this time," Snow said.
Several legislators scoffed at the pleas by Greenspan and Snow to let the WTO and other existing venues for trade disputes handle the battle over China's economic policies.
"(T)his problem (is) getting worse and worse and worse," complained Sen. John Kerry, the Massachusetts Democrat. He said the discussion about China's currency policy has gone on for too long. He called the easy availability of counterfeit Hollywood movies on China's streets a "joke," but one that has "serious consequences" for U.S. companies.
"Are you powerless (to do anything about these issues) or are you oblivious or is it a combination of the two?" Kerry demanded of Snow.
The Treasury secretary responded: "We're not satisfied with this situation at all." Top of page
Find this article at:
http://money.cnn.com/2005/06/23/news/economy/greenspan_china/index.htm
Rogue
KOZUH.....I see you're getting high on your own methane gas again!
Or is it the methane gas of all your "hero shills"??
LOL!!!!!!!!
Rogue
Lentinman....I'm glad I still have my cutting edge! Anyone is welcome to debate what I see as the truth!
We're a sad nation living in financial denial. Hopefully we can save the Republic!
Rogue
Great Post FA!!!.....I think we're getting pretty close to the unraveling point.
I started in the financial markets back in 1982 as a young 18 year old. This economic system we have is a mess....I agree with old Fed Chairman Volckler. I've never seen it so bad..... and we have an entire nation living in denial.
I haven't always felt this way but I have to be honest about what I see.
Rogue
XOM....I'm out of "inventory" in the oil stock category(sold everything recently into this rally). I need a nice healthy pullback to start building positions again.
Rogue
FNM...will this be a good play on the possible/impending housing collapse??
Any thoughts out there??
Rogue
Correct.....China is the world economic power no matter what that ass Kudlow would say.
If the Chinese currency appreciates as much as the Jap Yen did when it was undervalued their economy will be much larger than ours soon enough.
Those people that say the Chinese need "US" are not correct. They will do well on their own providing for their own.
Can you imagine if they wanted to price OIL in their currency instead of US dollars?? As if the US dollar isn't toilet paper already.
Rogue