Eurozone Inflation Jumps the 2% Barrier

Friday, September 28, 2007

Higher pasta prices in Italy, petrol for 1.20 Euros and much more per litre, espresso shots for 4 Euros and double-digit raises for communal and federal services finally show up in the Eurozone's official inflation rate - which is laughed at at best in Europe.
A first estimate of Eurostat arrived at an annualized inflation rate of 2.1% in September after 1.7% in August.

ECB Pumps Up Markets With Another 50 Billion
It won't get any better. Surging food and energy prices are complemented by fresh money from the ECB. According to data on its website the ECB created another 50 billion Euros in a 3-month repo that drew an average weighted rate of 4.63%, significantly above its target rate of 4%.
Don't expect to find information on the volume of bids on the site of the "transparent" ECB, which also did not announce this repo beforehand to the wider public. This new transaction reverses almost half of the drain of 114 billion Euros last week. Money created solely for the purpose of supporting unsupportable securities prices.

Central Banks Fooling the Public
It is amazing that central banks appear to be one-trick ponies that try to douse the fire with gasoline. All that new money - and not a single unit of service or product created. Do central banks really believe the public can be fooled much longer with wads of paper?
Fiat money is the cheapest product in the world. Just go to Zimbabwe, the country of starving millionaires.
Well, the game will go on as long as the general public buys into the ridiculous official inflation rates which are completely out of sync with consumers daily experiences at the cash register.
Based on these unreal inflation rates central banks fix interest rates at levels that are below actual inflation.

The ECB's Dilemma
The ECB is in a big dilemma. Its monetary policy is currently failing. Inflation is above the target rate of 2% and M3 has been ignored in all policy decisions since the inception of the Euro. M3 currently grows at 11.7% annually, more than double the target rate of 4.5%.
While these indicators would justify a rate hike, such a move could push Europe into a recession. Export oriented economies like Germany fear any further advances of the Euro. France, Spain and Italy are on the brink of a recession already. Any rate hike would burden budgets further.
Taking clues from a speech by vice president Lucas Papademos the ECB will probably sit on its hands at the next council meeting as the turmoil in capital markets is still being evaluated. It will also depend on others. Papademos said the ECB holds close contact with the Federal Reserve, raising my suspicion that exchange rates will see huge distortions.
I should also emphasise that ... the ECB and the Eurosystem have been in close contact with other central banks in the world, notably the Federal Reserve System. While each monetary authority took decisions to attain its own objectives and in line with its own assessment and operational framework, it is unquestionable that this liquidity squeeze which had manifestly global dimensions called for a response with commensurately global cooperation.
I uphold my statement that precious metals will prove to be the best currencies in the near future - as they have been in the past 6000 years. Gold reached a new 28-year high today at $745 per ounce.

There Will Always be Enough "Liquidity"

Central banks have shored up financial markets again with freshly digitized money. New money that has no corresponding value in the economy and is solely used to support unsupportable prices of illiquid investment instruments.
After the give-in of the Bank of England earlier this week, which came to the rescue of financial institutions where managers are obviously not worth their money but still want to cash bonuses before bankruptcies. After this 10 billion pounds stint in the UK the European Central Bank said its discount window has handed out 3.9 billion Euros on Wednesday.
According to the Wall Street Journal,
the heavy use of the marginal lending facility -- the highest since October 2004, when banks borrowed €7.9 billion -- surprised money-market dealers, as it is regarded as lending of last resort.
"It is most remarkable, because it happened not at the end of the statement period but in the middle of it," said Jose Alzola, chief European economist at Citigroup.
The rate at which banks can subscribe to the deal is well above current interbank rates and a percentage point above the ECB's minimum refinancing bid rate of 4.00%. "There is no economic rationale for that; markets are flush with liquidity," said Cornelia Bahn, a trader at WGZ Bank.
On Tuesday, the ECB pumped an extra €33 billion of one-week money into the markets in view of overwhelming demand for its regular main refinancing tender. The ECB allotted €190 billion funds, compared with liquidity needs of €157 billion.
The ECB had withdrawn almost 114 billion Euros from its short term financing operations in the week ending September 21, the weekly financial statement shows.
Eurozone M3 Growth Slowed Marginally in August
Surprisingly the ECB's massive injections of freshly digitized money into a system suffering from a credibility problem did not blow up money supply M3 significantly.
According to an ECB press release the high levels were maintained:
The annual rate of growth of M3 stood at 11.6% in August 2007, after 11.7% in July 2007. The three- month average of the annual growth rates of M3 over the period June 2007 - August 2007 rose to 11.4%, from 11.1% in the period May 2007 - July 2007.
Lending to all sectors rose again in August. Consumers still seem not to take notice of rapidly deteriorating economic conditions in Europe.
The Federal Reserve system did not sit on its hands either. Data from the Fed New York shows it allotted $38 billion in 4 repos on Thursday and accepted primarily MBS and agency backed collateral.
One thing can be taken for granted: Central banks will continue on the path of reckless monetary inflation, cheered by indebted governments who seem to understand shit about monetary policy.
Fed chairman Ben Bernanke can be expected to continue to manufacture the cheapest-cost product the Fed has to offer - (electronic) cash.
As we know the Fed can only guarantee cash, but not its purchasing power.
In the Eurozone the situation appears a bit different. ECB president Jean-Claude Trichet wants to keep inflation in check but is bullied by French president Sarkozy whose government could break on higher rates. But word from Trichet is missing. Where is he, asks not only Edward Hugh.
Ironically the ECB could be forced to lower rates again to rein the runaway Euro which endangers the gentle economic blossom in the stronger Eurozone members and threatens recession for countries like Spain and Italy.
Don't let yourself fool from the current calm in markets. This could be the silence before the perfect storm. If you look for a safe shelter, try gold. At the time of writing it trades at $738 per ounce.

Treasury Signals Derivatives Mess Is Far From Over

Thursday, September 27, 2007

It appears as if the US Treasury expects a fallout in the derivatives market. Anthony Ryan, the Treasury's assistant secretary for financial markets, said on Wednesday that investors and their fiduciaries must do a better job of evaluating the risks of increasingly complex securitized derivatives products, Reuters reported.
Addressing an International Swaps and Derivatives Association (ISDA) conference in New York Ryan reminded his audience on the differences between investing and gambling.
Insufficient understanding or failure to perform an independent and adequate due diligence prior to making an investment decision is simply unacceptable. That's not investing - that's gambling.
In clear language I assume it means something along the lines of "it is your fault when you bought illiquid crap."
According to Ryan the Presidents Working Group on Financial Markets, also dubbed the "Plunge Protection Team," has launched an examination of recent market turmoil, including the impact of securitization and the role of ratings agencies in credit and mortgage markets.
On Tuesday, the Treasury had asked pension fund investors and asset managers to make recommendations as to what information hedge funds should disclose to protect investors and strengthen US capital markets.
Given the continuing problems in money markets where even massive doses of fresh money are of no help the real mess is probably only about to begin. Nobody has exact or even approximate figures for the current size of the derivatives market but all estimates range in the hundreds of trillions. There must be a lot of bag holders out there and right now is the time where every fund manager with pricing problems in his portfolios waits for the other ones to drop theirs first.
Such action will come as banks and funds have to dress up their balance sheets for what will certainly not be a good Q3 2007.
At the moment the market appears way too quiet for all the problems that did not get solved by the Fed's recent rate cut. And these problems are in the vast majority.

The Federal Reserve Dollar Loses Its Face

Tuesday, September 25, 2007

The Federal Reserve (not US) Dollar slumped to a new alltime low on Tuesday, trading at more than $1.4150 to the Euro.
The USD index slid to the new record low of 78.14.

weak dollar

PICTURE: Certainly not as good as gold. In 94 years the Federal Reserve Dollar has lost more than 95% of its value. Drawing courtesy of Milt Priggee.

Numbers Speak a Clear Language

Thursday, September 20, 2007

A list of today's records reads like this:
  • Gold climbs to a 28-year high at $737
  • Oil closes at the all-time high of $83.32
  • The Federal Reserve Dollar falls to an all-time low at $1.41 to the Euro
  • The Canadian Dollar trades on a par with the Federal Reserve Dollar for the first time since 1975
Next to this Thursday proved that the 2-hour relief rally in Treasuries after the Fed's rate cut was only such. The 10-year yield raced 15 basis points to 4.67%.
Maybe these rapid moves base on first signs that now Saudi Arabia says "bye bye" to the Federal Reserve Dollar, a currency moving closer to its collapse with every day.
From The Telegraph:
Saudi Arabia has refused to cut interest rates in lockstep with the US Federal Reserve for the first time, signalling that the oil-rich Gulf kingdom is preparing to break the dollar currency peg in a move that risks setting off a stampede out of the dollar across the Middle East.
"This is a very dangerous situation for the dollar," said Hans Redeker, currency chief at BNP Paribas.
"Saudi Arabia has $800bn (£400bn) in their future generation fund, and the entire region has $3,500bn under management. They face an inflationary threat and do not want to import an interest rate policy set for the recessionary conditions in the United States," he said.
There are indeed few fiat currencies one can safely hide behind these days.
The British Pound got whacked after the Bank Of England made a U-turn and will now bail out banks who had lent money to the wrong clientele.
From the International Herald Tribune:
The Bank of England has abruptly reversed its policy of refusing to ease lending standards, offering to inject cash into British money markets amid criticism that it had not done enough to stem a credit squeeze that has undercut one of the largest European economies.
Days earlier, the governor of the Bank of England, Mervyn King, said the bank would not follow the Fed and the European Central Bank by putting cash into a system where banks had stopped lending because of volatile conditions, saying such moves encouraged risky behavior by banks and sowed the seeds of future financial crises.
The central bank said it would provide funds at a three-month maturity and would accept "mortgage collateral" at an auction of £10 billion, or $20 billion, in loans next week in order to "alleviate the strains in longer-maturity money markets." The bank will still charge a penalty rate of 6.75 percent, it said.
The bank said it would also make three further offerings at "weekly intervals" to reduce the gap between the benchmark rate of 5.75 percent and the rate banks charge to lend to one another. Banks have been reluctant to lend to one another because they prefer to keep their own money while it remains unclear how much longer the credit squeeze might last.

Still not convinced inflation turns from an isolated problem into a wide-spread fire?
Turn to China which today announced a price freeze on many commodities. China's inflation rate climbed to an 11-year high of 6.5%.
From chinadaily:
China's top economic planner has ordered a suspension in government orchestrated price hikes in the latest efforts to keep inflation in check.
"In principle, there will be no new price-raising measures by the government this year," the National Development and Reform Commission (NDRC) said in a notice, co-signed by five other agencies including Ministry of Commerce and Ministry of Finance, published on its website on Wednesday.
An approval from the NDRC is needed if any local government feels it has to increase prices on certain products "under special conditions", according to the notice.
The order applies only to prices under government control, such as gas, oil, water, electricity, and other prices of crucial goods and services that affects the livelihood of the public, including public fares.
Although the government has no control over most of the prices in China, this price control measure will help prevent a hike in firms' costs, thereby eliminating part of the pressure for further price increases.

For my part this is enough bad inflation news to follow a simple investment strategy: Long precious metals. The leverage - if at all - is up to your taste.

Nanny Benny

Wednesday, September 19, 2007

The kid cried and Nanny Benny was quick to wipe off the tears and say, "everything will be allright."
Only problem in the current Fed fairy tale: Both parties involved have forgotten about the burning house!
Jim Cramer can uncork a bubbly. His outcry on tout TV was answered swiftly and generously by the Fed. Forget about $81 crude oil and fiscal philandering, let's keep the markets party going at truly all costs.
Today's 50bp rate cut to a Fed funds rate of 4.75%, the first in 4 years, will backfire after an initial relief rally.
The aggressive move (on the wrong side) after 17 ascending baby steps may appeal to banks suffering from a credit crunch that is rather a credibility crunch. It will also appeal to debtors whose mortgage adjustment will be delayed for another year and may even offer the chance for some to refinance at a better rate. It will also appeal to the big spenders in the White House.
But will it also appeal to creditors financing the permanent US spending spree?
Let's not forget that only a month ago the Fed's predominant concern was inflation. Oil was trading for a good $10 less than now.
Gold's surge to a new 16-month high proves this point.
This rate cut is a band-aid to a patient with gangrene. What was the cure after the internet bubble is now becoming the poison for markets where we find out that despite all the nice talk there happened no real risk diversification but almost everybody preferred to lean on the side of permanently low rates and rising house prices. Extending this excess will make the next big correction in stock markets only stronger.
This will probably only sink in once foreign investors begin to pick up their chips from the dollar table and wager them elsewhere.

Venezuela Dumps Federal Reserve Dollar for Oil Payments

Monday, September 17, 2007

Venezuela will not accept Federal Reserve Dollars for payments of oil deliveries anymore.
Venezuelan President Hugo Chavez instructed Petroleos de Venezuela SA, the state oil company, to convert its investment accounts from dollars to euros and Asian currencies to reduce risk,
Bloomberg reported.
Chavez, speaking in his weekly address on national television, said the U.S. has bought goods from around the world, paying with paper that is "a bubble."
The world's oil trading system has primarily used dollars for decades, helping to make the dollar into a global currency. Iran in July requested yen rather than dollars for all shipments to Japan, boosting that currency.
Chavez has said in the past that he wants to divert Venezuelan oil sales from the USA to other clients, especially China.
Venezuela and China will work together on a $10 billion project to build six refineries and a shipping company to make Venezuela one of China's most important suppliers. Still, the U.S. continues to import 1.36 million barrels a day of crude and refined products from Venezuela, more than half its estimated 2.4 million barrels a day of output.
Crude oil jumped above the $80 mark after this announcement.

Greenspan's Kiss & Tell

Easy Al will keep 'em forecasts coming. Former Federal Reserve chairman Alan Greenspan will continue to rattle markets with his economic predictions. His successor Ben Bernanke won't be delighted to hear Greenspan repeatedly defending his public comments on the economy, interest rates and whatever else the former Fedhead elects worthy his suddenly very clear speech.
Otherwise today's interview on CBS (which was cut short by my cable provider in favor of elegant and silent killer whales after two thirds) informed us that Greenspan prefers, ahem, "interesting" orange wallpaper and reads - surprise surprise - economic stuff at breakfast. Rumours he negotiates a 10-page photo-strip with "Beautiful Homes" have not been confirmed yet. He still wears no logo polo shirts so sponsoring for the right sum should be no problem.
Relaxed to the max Mr. Greenspan's economic services firm is prepared to bring paying clients such economic wisdom as there will be severe 2-digit declines in house prices. Draw no wrong conclusions though. Greenspan argues in his book due on Monday that this is not the catastrophic result of his low interest rate policy in the Fed but that house prices are somehow connected to former communist workers in Europe becoming capitalists. Great, many of them have a mortgage now too. If that was meant by freedom?
On TV he stubbornly defended his position to keep his loudspeaker on. His predecessor at the Fed, Paul Volcker has been adhering to a "no comment" standard on rate issues since he retired.
Greenspan promised he will be different and is seemingly oblivious to the fact that he captained the period of the fastest and deepest rate cuts in history.
In his book he will tell us that the Fed could not regulate the banks who lowered loan standards close to Ninjas (no income no job or assets.)
Has he lost it? The Fed is by law the banking supervisory body and it was also during his tenure that the Glass-Stegall act was repealed.
Mr. Greenspan has had his weaknesses in forecasting economic events. We now know he sees a recession coming. Retire in peace.

US Mint Suspends Gold Coin Sales Due to Raising Prices

Friday, September 14, 2007

Is the USA running out of gold?
The US Mint has suspended all sales of most bullion coins on Thursday. A visit to its website shows that all golden American Eagle coins are "not available." This info is hidden on the product pages without a corresponding press release. The US Mint had limited bullion coin sales to a maximum of 10 ounces per order earlier. The Mint will reprice these coins by September 27, it said. Confirmed orders will still be shipped.
US gold reserves have not been audited in more than 40 years and are valued at $42 in the Fed's publications. The USA does not take part in the central bank gold sales agreement which runs until September 2009 and limits gold sales to 500 tons per year.
The info page for the 2007 American Eagle says,
"due to the increasing market value of gold, the American Eagle Gold Uncirculated Coins are temporarily unavailable while pricing for this option can be adjusted; therefore, no orders can be taken at this time. We expect products to be available with adjusted pricing on or after September 27, 2007."
Take note that there is a shortage in bullion silver on the retail level in Europe.
Gold surged to a new 2007 high of $717 per ounce on Friday.

ECB Gives Banks Another Fix

Wednesday, September 12, 2007

Eurozone banks scrambled for another round of freshly minted money handed out by the ECB in dimensions not seen before.
Two weeks after their last extraordinary 3-month repo with a volume of 50 billion Euros the ECB injected another 75 billion Euros into the money market at markedly higher rates on Wednesday after draining 60 billion on Tuesday. This contradicts the calm picture ECB president Jean-Caude Trichet had delivered to the European Parliament only a day earlier.
The new 3-month tender was allotted at a marginal rate of 4.35% and a weighted average of 4.52% or 10 basis points lower than the last 3-month repo but still significantly above the ECB's target rate of 4%. The 3-month Euribor was quoted at 4.74% on Wednesday.
The ECB website does not offer information about the actual volume banks bid for and in genral does not provide a conclusive overview of its money creation process. The ECB's website also lacks all the statements about the money market handed out to the wire services. Not exactly an example of parallel information.
The Fed NY does it comparably better here. The Federal Reserve allotted $13 billion in a one-day repo today out of a total bid for $41 billion at rates just below 5%.
According to the latest weekly financial statement the ECB's balance sheet grew 50 billion to 1,207 trillion Euros, mainly through the refinancing operations. The trash can, called other assets, was served with a gain of 5 billion and now stands at an unprecedented 260 billion Euros.

Seven Seas Full of Free Energy

A cancer researcher has found a way to burn salt water with radio frequencies, exciting scientists about the use of the world's most abundant element to generate energy. In the light of today's new record oil price, quickly approaching the $80 barrier this is a most remarkable innovation. Better hedge those energy stocks.
From a Yahoo report:
John Kanzius happened upon the discovery accidentally when he tried to desalinate seawater with a radio-frequency generator he developed to treat cancer. He discovered that as long as the salt water was exposed to the radio frequencies, it would burn.
The discovery has scientists excited by the prospect of using salt water, the most abundant resource on earth, as a fuel.
Rustum Roy, a Penn State University chemist, has held demonstrations at his State College lab to confirm his own observations.
The radio frequencies act to weaken the bonds between the elements that make up salt water, releasing the hydrogen, Roy said. Once ignited, the hydrogen will burn as long as it is exposed to the frequencies, he said.

Watch a demonstration video after the jump.

The scientists want to find out whether the energy output from the burning hydrogen - which reached a heat of more than 3,000 degrees Fahrenheit - would be enough to power a car or other heavy machinery.
"We will get our ideas together and check this out and see where it leads," Roy said. "The potential is huge."

Look Here For an Inflation Proof Currency

I knew it. This headline draws attention these days. As the world wakes up to the fact that all currencies are created out of thin air by a simple entry into the electronic ledgers of the world's central banks investors begin to look for investments whose safety does not depend on an agency rating.
This chart from the World Gold Council may help your investment decisions.

GRAPH: This chart is a very graphic description what happens once nations abolish the gold standard in favor of unbacked fiat currencies. Remember: No fiat currency has existed longer than a human's lifespan and the Federal Reserve Dollar is already a Methusalem at 94 years. Chart courtesy of World Gold Council
The accompanying text makes a very important point: In the very long term only gold has proven absolutely inflation proof.
The value of gold, in terms of the real goods and services that it can buy, has remained largely stable for many years. In 1900, the gold price was $20.67/oz, which equates to about $503/oz in today's prices. In the two years to end-December 2006, the actual price of gold averaged $524. So the real price of gold changed very little over a century characterised by sweeping change and repeated geopolitical shocks. In contrast, the purchasing power of many currencies has generally declined.
Now put the fact of understated inflation figures in the past 2 decades and the resulting under-valuation of gold into the equation and you arrive at a surefire winner for the coming years until the system has cleared out all credit-fuelled excesses of this speculative past made possible by low interest rates which effectively hurt the interests of that rare species: the net positive saver. Gold has to make it past the $2,000 mark only to catch up to its nominal high in real terms.
Money Supply M3 Now Growing at More Than 14% YoY
If you need more evidence that the future of the current currency system looks bleak, delivers the horror news. As the Fed does not publish these figures anymore in good old Soviet style (hide bad statistics) shadowstats calculates an appoximative continuation of M3 that shows that money supply is out of control. I wonder if they can do it for less than the Fed.
All those so-called "liquidity" "rescue" operations were nothing else than the creation of new money without a corresponding value. I faintly remember from some textbooks that this is called monetary inflation. Deducting 4% GDP growth from 14% M3 growth results in a true monetary inflation rate of 10%. I think prices at your grocery store align better with this rate than the funny "core" rate.

GRAPH: If you want to fend off inflation, only gold will do the job. M3 growth accelerated to an annual record rate of 14% thanks to the "liquidity" "rescue" operations of the Federal Reserve. According to the rule of thumb 14% M3 growth minus 4% GDP growth result in a true inflation rate of 10%. Chart courtesy of
Do you need any more proof that gold will be a very promising investment in the near future? This bull market is still in its very early stages as the general public has no gold under their mattresses yet. Just imagine what will happen upon the rediscovery of gold as the ultimate currency: 5.5 billion people will bid for some 5 billion ounces of gold. Get yours today.

My Question About 9/11

Tuesday, September 11, 2007

If jet fuel burns at 980 centigrades and steel melts between 1,325 and 1,530 centigrades, what really happened to bring down the first skyscrapers by fire in history?
A more intense discussion of this physical impossibility would be the best service the world can give to those who perished in this hellfire.
My thoughts are with all innocent victims of 9/11 and its worldwide aftermath that leads to a totalitarian world in which peaceful protest will soon become impossible if citizens do not execute their rights.
For more on the growing similarities between the Bush administration and the Nazis click here. It has only become worse since.

Liquidity and Safety Are Two Pairs of Shoes

Monday, September 10, 2007

Long dated US Treasuries reversed part of their dramatic gains on Monday, dragged down by worries that foreign investors were actually dumping US debt paper in last week's run-up. According to a Bloomberg report America's creditors actively pursue a diversification of their assets, shifting away from the Federal Reserve Dollar. The next Treasury Inflow Capital data will bring more clues about the amounts moved.
Investors are correct by doing so. Last week's flight into US Treasuries was a flight into liquidity but certainly not a flight into safety unless one is satisfied with nominal and not real returns.
It appears a bit illogic to consider debt obligations from the biggest debtor the world has ever seen as a safe investment. Let us not forget that the AAA rating for US IOU's has never changed since debt has been rated. The paramount difference is, though, that the USA was the world's biggest creditor when it aquired its AAA rating. Now it is the biggest debtor and to keep the US economy as a going concern it needs foreign investments like a vampire thrives on blood.
It is true, the USA will always be able to pay off its debts as it is the only nation in the world that indebts itself solely in its own currency. The game of ever expanding credit can go on - as long as investors play along.
This is not very likely, now that the whole world has agreed on the fact that the financial system built on credit excesses is under severe stress and especially US debts have become the hot potato nobody wants to hold.
The seize up in interbank lending has provoked the Sunday Times to call the current mess oozing from mortgages into everything else "the worst crisis for 20 years." Banks have stopped lending to each other in order to allow a rollover of $113 billion in commercial paper due later this week. This is more demand than a month earlier when the liquidity crisis started. And the other big headache is still out there:
The prospect of serious market indigestion from maturing commercial paper is not the only headache for the banks. Globally, they have $380 billion of loans and bonds to be laid off from leveraged buyouts and other private-equity deals at a time when the markets have shifted sharply against them.
ECB Starts Panicking
Bankers on the continent are getting cold feet too. ECB president Jean-Claude Trichet warned in an appearance at the Bank for International Settlements (BIS) on Monday,
"There is a probability of fallout on the real economy in the USA."
We will have to follow very carefully what happens particularly in the USA. We will remain ... alert, (there is) no time for complacency,"
he added.
Trichet will testify at an extraordinary hearing of the European Parliament on Tuesday.
Trichet will not be in the loop of US Treasury secretary Henry Paulson who will meet with the recently installed new leaders of the Britain and France next week. A spokesman said Paulson had been trying to schedule trips to meet with Brown and Sarkozy since well before problems with U.S. subprime mortgages began roiling global financial markets last month.
China Changes Policy and Will Go Shopping
Paulson will need new allies in financing the unsustainable US deficits as China has announced major policy changes that will allow Chinese companies to invest abroad. According to, the central bank will scrap unnecessary controls on foreign exchange reserves to fund local firms'outbound investment. Governor Zhou Xiaochuan said,
"we will remove unnecessary restrictions on reviewing sources of foreign exchange funds, as well as on foreign currency purchase and profit remittance.
We will also allow domestic firms to use their own foreign exchanges or buy foreign funds with local currency yuan to invest abroad."
The governor noted the central bank will explore ways to buy shares in foreign banks so as to provide more convenient financial services for the overseas operations of domestic businesses.
"We encourage them to raise capital through various means including bank loans, stock listings and bond sales,"
he said, adding their domestic operations can provide warrants for the fundraising once they get official go-ahead.
It seems as China will propel itself to the #1 rank of international investors at the blink of an eye.
Other news that influenced my thinking today is the roundup of a widespread discussion of moral hazard at nakedcapitalism.
And there is a new blog on the block. Mark Shivers has started "The Talking Fed" and aims to cover all speeches by Fed members.

Greenspan Suffers From Acute Total Amnesia

Friday, September 07, 2007

Alan Greenspan takes another step down. After his transformation from "Maestro" to "Easy Al" he now fights for the nickname "Greenshill", at least when one follows his comments from Friday. Alan Greenspan, the man solehandedly responsible for the mortgage mess concluded in a speech to economists that today's turmoil resembles the sentiment before the crises of '87 and '98. According to him the mortgage malaise has infected the rest of the economy. This assessment comes from the man who preferred to douse every monetary inflationary excess with more of the poison that caused all exaggerations in the first place.
Greenspan must suffer from acute total amnesia. It was him who once praised the doubtful fact that all Americans could buy a house because there were such financial innovations like zero down ARMs.
Greenspan did not turn a nation into homeowners. Greenspan pushed a whole nation into the highest debt ever, be it on the private, communal or federal level.
To say now that bubbles cannot be defused until the fever breaks is an outright lie. It was in his hands to pinch the bubbles and he never did. Instead of taking the punch bowl away Greenspan laced it with evermore liquidity and now we look at a toxic cocktail and he starts trying to shift the blame.
This crisis will play out as all crises. Denial > anxiety > fear > depression > panic.

Silver Costs 10% More in China

Thursday, September 06, 2007

Attention silver investors. Silver is bought and sold some 10% above the global spot price in China, a Reuters dispatch informs, quoting Ellison Chu, senior manager at Standard Bank London in Hong Kong.
"There's a huge price difference between the domestic price in China and the international price. The demand is quite strong in China these days.
The price in China is 10 percent higher than in the international market."
This news is insofar interesting as it raises the question whether the global spot price is valid anymore. Obviously not when such discrepancies occur.
A similar gap between the spot price and prices actually paid occurred in late 2006 when silver bullion was bought at prices some 10% higher than spot prices would have indicated in Europe. This was because of a supply shortage as I was told by sellers who predict that the supply problem will only grow in the near future.
According to the report demand for silver comes from all corners: Jewellery, photography, industrial and investment demand.
Silver again outperformed gold on Thursday and is expected to go a lot higher in mining circles. Nobody wants to be quoted but the prices I hear for 2008 range between $20 and $30 based on growing demand and a continuing supply deficit.
A list of silver companies can be found here.

Central Banks Continue on Path of Monetary Inflation

The European Central Bank donned its two masks again on Thursday. With one hand the ECB decided at its monthly meeting of the governing council to leave the key interest rates unchanged while the other hand continued to create fresh money, showering bidding banks with 42.2 billion Euros in a new overnight tender that drew an average rate of 4.13% or 13 basis points more than the current key overnight rate.
The Bank of England (BoE) left its key interest rate unchanged at 5.75% too.
In the USA the Federal Reserve allotted a total of new $23 billion in a 1- and 2-week tender besides replacing yesterday's 1-day repo.
And they want to make us believe markets are returning to normal. Money market rates tell a very different picture and I rather rely on the data than the propaganda coming from central banks. And in this reality banks are scrambling to borrow funds at rates significantly higher than what the priests of ever expanding credit would like to see implemented.
if there were no crisis, why did the ECB announce the creation of more new fiat money on Thursday. According to a press release the ECB will stage another additional 3-month tender on September 11. What is worrisome for those who see an inseparable link between inflation and money creation is the fact that the ECB set no maximum amount for this repo. So we can expect that banks will be showered with a new unprecedented cascade of credit.
Need more proof that the liquidity and credibility crisis has reached new heights? Take Australia. The Reserve Bank of Australia announced today it would accept more crap as collateral in its repos in the coming 6 weeks.
To see how the Fed sets the discount margins of the asset and mortgage backed crap in its repos follow this link for more outrage. The Fed now accepts MBS and ABS without a market price at 70% to 90% of their face value. Call it outright manipulation and putting value onto debt that has none!
But they begin to cover their backs. After the long denial that there is a banking crisis Fed governor Randall S. Kroszner told bankers how the Fed assesses crises. A short snip:
As a final thought, I counsel policymakers and market participants alike to remember that no two crises are the same.
He is at least honest to the point by saying the Fed has no clue either how to overcome the current crisis.
Not so ECB president Jean-Claude Trichet. Money supply explodes but in his new view the ECB needs more data to learn about the crisis. As this borders on the surreal here a hint to Trichet: Look at your exploding money supply and the ECB statutes where it says that money supply M3 growth should not exceed 4.5%. This target has never been reached since the inception of the Euro.
As this leads to the conclusion that monetary policy has failed one more time I am happy that I am not alone with this view: Gold raced to a new 2007 high of $696 per ounce and this is probably only the prelude to a new all-time high to be seen within the next 6 months.

Full Basket of Worries in the EU

Tuesday, September 04, 2007

While the world is focused on the lips of Fed chairman Ben Bernanke, recent European data show that the old world is sliding into a growth problem that could be used by ECB president Jean-Claude Trichet to cut rates at the next governors' meeting.
Eurostat released declining GDP growth figures for both the Eurozone and the EU27, stemming from higher consumer expenditures but decrasing business investment. Compared with the second quarter of 2006, seasonally adjusted GDP rose by 2.5% in the euro area and by 2.8% in the EU27, after +3.2% and +3.3% respectively for the previous quarter.
Q3 started on a negative note datawise. Eurozone producer prices advanced 0.3% MOM in July after a gain of 0.1% in June. The July YOY figure stands at 1.8%, helped by a decline in energy prices.
ECB Pours Markets One More
The European Central Bank poured one more for banks suffering from a backlog in clogged deals now believed to hover around the $500 billion mark.
It allocated 256 billion Euros in its regular tender, 46 billion more than last week.
While it is a bit difficult, to say the least, to navigate the ECB website, the latest weekly financial statement shows that the monetary expansion has slowed and the ECB has tempoarily drained 65 billion Euros and shrunk the balance sheet a cool 60 billion Euros to a total of 1.16 trillion Euros. Gold sales have come to a virtual halt in the last week of August.
UK MP's to Grill BoE about Credit Crunch
The Independent informs us that british parlamentarians will grill Bank of England officials about the current credit crunch that forced Barclays Bank to borrow 1.9 billion Pounds at the emergency credit facility.
Likely subjects for questions will include the Bank of England's emergency credit facility, the role of the credit rating agencies, and the stability of the financial system.
"We will ask how the emergency facility is being used, what the Bank's view of liquidity is, how we got into this position, and what reassurances the Bank can provide as to the stability of the entire system," Michael Fallon, the senior Conservative member on the committee, said.
Textbook Economic Decline In the USA
The outlook in the USA is not better. Plunging car sales come as the second milestone on the path of bursting bubbles after housing. Next will be credit cards. The Boston Globe runs a story that says credit card offers aimed at subprime debtors jumped 41% in the first half of 2007. Offers to those in the best credit grade fell 13%, paradoxically. Debtors paying their mortgage with their credit card. And you still want to own bank shares?
In order not to forget inflation at the gate of 100 million firearm owners here a snip from a story on rising ammunition prices from KHQA Online.
Russ Merkel is the Co-Owner of Merkels in Quincy and Manager of the store's hunting and fishing department. He said of the ammunition increase, "I can say in 37 years I've been involved in this business, I can't remember any other period of time we've had this much inflation, this much of a cost increase in ammo."
Merkel noticed ammo prices started going up last year....and by the end of 2006, they had gone up 60 percent. Most gun owners didn't notice last year because retailers had stocked up on ammo before the increase went into effect.
But this year is a different story.
Here's an example of the increase. This is a 40 pack of 223 Winchesters. Last year this box sold for around $8.50. This year the same box costs $15.95.
It will get worse. American-made ammo companies just announced they'll increase prices by 15 percent on September 1st and add yet another increase at the first of the year.
Negative Millionaires
The coming recession will create a new consumer class. The "negative millionaire" who not only has nothing but a million of debt on top of it.

Wikinvest Wire