PIMCO Files For Inflation-Linked Bond Active ETF

November 10th, 2010

On November 9th, PIMCO filed a preliminary prospectus with the SEC for an actively-managed ETF called the PIMCO Global Advantage Inflation-Linked Bond Strategy Fund. PIMCO currently has 4 actively-managed ETFs on the market, all of which are bond ETFs. After WisdomTree Investments, PIMCO has been the most successful in the Active ETF space, with total assets amongst those 4 Active ETFs in excess of $500 million at the end of October.

Aside from the 4 actively-managed ETFs that PIMCO already has on the market, it also has two Active ETFs under filings with the SEC – the Government Limited Maturity Strategy Fund (GOVY) and the Prime Limited Maturity Strategy Fund (PPRM).

This latest filing will focus on the inflation-linked bond market. Inflation-linked bonds are securities that are structured to provide protection against inflation. With many central banks around the world, especially in developed markets, continuing to follow loose monetary policies and some like the US Fed going to the extent of implementing extensive quantitative easing, the excess flow of money in the world economy has stoked fears for inflation in the longer term. As such, there could well be strong demand for this new offering being planned from PIMCO.

The Global Advantage Inflation-Linked Bond Strategy Fund will invest in inflation-linked bonds that are economically tied to at least three developed and emerging market countries. The value of an inflation-linked bond’s principal or interest is adjusted to track the official inflation figures so that the investor’s income does not lose its value in real terms. The effective duration of the fund will be kept under 2 years and it will invest in securities rated Baa or higher. There are no restrictions to investing in securities issued by non-US issuers and the fund can invest in instruments economically tied to emerging markets. The fund’s primary benchmark is the Barclays Capital Universal Government Inflation-Linked Bond Index. The expenses and ticker of the fund have not yet been disclosed.

The portfolio manager of the fund is Mihir Worah, who is a Managing Director at PIMCO. Worah is the portfolio manager for the existing PIMCO Real Return Fund (PRTNX), a mutual fund that has been around since 1997 and provides real returns through investments in inflation-linked bonds. The fund differs from the actively-managed ETF being proposed in that it has a longer average duration of over 4 years. However, performance wise, the fund has been able to beat its benchmark – Barclays Capital US TIPS Index – in every time horizon. It has returned 7.40% since inception and 12.12% in the last 1 year, compared to the benchmark which returned 6.93% and 10.42% respectively. While no guarantee of future performance, that track record should give potential investors in proposed Active ETF some confidence in the manager’s ability to perform in the inflation-linked bond market.

ETF, Mutual Fund

PIMCO Files For Inflation-Linked Bond Active ETF

November 10th, 2010

On November 9th, PIMCO filed a preliminary prospectus with the SEC for an actively-managed ETF called the PIMCO Global Advantage Inflation-Linked Bond Strategy Fund. PIMCO currently has 4 actively-managed ETFs on the market, all of which are bond ETFs. After WisdomTree Investments, PIMCO has been the most successful in the Active ETF space, with total assets amongst those 4 Active ETFs in excess of $500 million at the end of October.

Aside from the 4 actively-managed ETFs that PIMCO already has on the market, it also has two Active ETFs under filings with the SEC – the Government Limited Maturity Strategy Fund (GOVY) and the Prime Limited Maturity Strategy Fund (PPRM).

This latest filing will focus on the inflation-linked bond market. Inflation-linked bonds are securities that are structured to provide protection against inflation. With many central banks around the world, especially in developed markets, continuing to follow loose monetary policies and some like the US Fed going to the extent of implementing extensive quantitative easing, the excess flow of money in the world economy has stoked fears for inflation in the longer term. As such, there could well be strong demand for this new offering being planned from PIMCO.

The Global Advantage Inflation-Linked Bond Strategy Fund will invest in inflation-linked bonds that are economically tied to at least three developed and emerging market countries. The value of an inflation-linked bond’s principal or interest is adjusted to track the official inflation figures so that the investor’s income does not lose its value in real terms. The effective duration of the fund will be kept under 2 years and it will invest in securities rated Baa or higher. There are no restrictions to investing in securities issued by non-US issuers and the fund can invest in instruments economically tied to emerging markets. The fund’s primary benchmark is the Barclays Capital Universal Government Inflation-Linked Bond Index. The expenses and ticker of the fund have not yet been disclosed.

The portfolio manager of the fund is Mihir Worah, who is a Managing Director at PIMCO. Worah is the portfolio manager for the existing PIMCO Real Return Fund (PRTNX), a mutual fund that has been around since 1997 and provides real returns through investments in inflation-linked bonds. The fund differs from the actively-managed ETF being proposed in that it has a longer average duration of over 4 years. However, performance wise, the fund has been able to beat its benchmark – Barclays Capital US TIPS Index – in every time horizon. It has returned 7.40% since inception and 12.12% in the last 1 year, compared to the benchmark which returned 6.93% and 10.42% respectively. While no guarantee of future performance, that track record should give potential investors in proposed Active ETF some confidence in the manager’s ability to perform in the inflation-linked bond market.

ETF, Mutual Fund

Uranium – Our “Trade of the Decade” Heats Up!

November 9th, 2010

At the start of the year, your California editor dubbed uranium the “Trade of the Decade.”

Uranium may or may not be the Trade of the Decade, but it has been a pretty decent trade of the year. So far in 2010, the uranium price has soared 35% – triple the return of the S&P 500 Index.

The phrase, “Better lucky than good,” comes to mind…and your California editor never hesitates to give Lady Luck her due. But sometimes, good fortune germinates and blossoms from the seeds of timely analysis and insight.

Your financial market observers here at The Daily Reckoning did not simply toss their Trade of the Decade into the hat and walk away; they have continued to detail the bullish case for uranium – and for selected uranium mining companies – month after month.

Early in 2010, for example, Chris Mayer, the mind behind both Capital & Crisis and Mayer’s Special Situations, penned no less than five Daily Reckoning columns advocating investments in uranium. The last of these columns, “Cameco Corp. is a ‘Buy’”, extolled the virtues of North America’s largest uranium miner. The stock has soared to 53% since then.

Taking the baton from Chris in mid-summer, Byron King, editor of Outstanding Investments, sang uranium’s praises in two additional Daily Reckoning columns, while also suggesting specific ways to play the trend. All three of the stocks he recommended in his October 25 column, “More Nukes!”, have jumped spritely during the last two weeks.

Rising Uranium Price

After such impressive gains for stocks like Cameco, it is reasonable to ask if the uranium story is spent…or if it is just beginning to heat up. Your California editor posed that exact question yesterday to both Chris Mayer and Byron King. And both of these accomplished investors replied that the uranium bull market is far from over. Therefore, given the still-bullish outlooks of Messrs. Mayer and King – and the fact that uranium remains your California editor’s Trade of the Decade – we will reprise a few key aspects of the bullish case for this unique energy source, as presented in the previous editions of The Daily Reckoning

From “Uranium – A Place to Hide” by Chris Mayer:

Robert Mitchell, a general partner at Portal Capital, gives us the 21st-century version of some timeless investing advice.

“In the world of commodities, demand is rarely the compelling reason to get long,” Mitchell begins. “Instead, you want to own a commodity where supply is incapable of responding to even a small bump in bids.” In other words, buy the commodities where it is most difficult to produce more. Though hardly a new insight, it’s one that investors sometimes forget. One commodity that aces this simple test is uranium.

As Mitchell sums up: “Uranium is well below cost of production, with a superb demand curve.” We’ve made the demand case before, too, and we won’t rehash it here. Suffice it to say that a slate of new nuclear plants means a robust demand for uranium for years to come. There are few commodities positioned as well for the next several years.

From “Trade of the Decade: Sell Everything, Part II: by Eric Fry:

Buy uranium. This unique energy source is a “backdoor play” on the growth of Emerging Markets.

There are 436 nuclear reactors in 30 countries around the world. But here’s the important thing; there are over 200 new plants in some stage of planning, engineering or construction. And most of these new plants will open in a Developing World nation.

But there’s not even enough uranium coming from the world’s mines right now to supply the current power plants across the world, let alone a couple hundred more. Thus, the uranium story is really quite simple. It is a supply and demand story. There is a lot of demand and not much supply. Any questions so far?

Mined supply of uranium satisfies only about 55% of total demand. The rest of the supply comes from somewhere else. These secondary sources of uranium come primarily from old nuclear warheads. But no one really knows how this enormous supply gap will resolve itself in the future. This is what we do know: when you get a supply deficit, prices rise. And I think that will be the case with uranium…

One way to participate in a long-term rise in the uranium price would be to take a position in the Market Vectors Nuclear Energy ETF (NYSE:NLR). Most of the holdings of NLR are on foreign exchanges. So it’s a great way to play nuclear energy on the New York Stock Exchange, yet obtain exposure to the international nuclear market without the hassle of foreign trading.

This ETF is one of Byron King’s recommendations. So if this trade works, I’ll be back in 10 years to accept my high-fives; if it doesn’t work, talk to Byron King about it.

From Uranium and Specialty Metals: A Few of My Favorite Things, Part II by Chris Mayer:

One of the best investments you can make right now is to pick up relatively secure, low-cost uranium – the feedstock for nuclear reactors…

There is a surge in demand coming in the next decade from the hundred or so new reactors expected to come online. Yet the industry is about 400 million pounds short of meeting that demand, as shown in the chart below.

Supply and Demand in the Uranium Market

The market has been in deficit for years, as it burns off Cold War stockpiles, which are finite and dwindling. Another way to look at it: Uranium demand is on its way to hitting 226 million pounds per year. Yet last year, the top dogs – which make up 90% of the market – produced only about 110 million pounds of uranium.

So essentially, the industry needs to produce almost four times that to meet the estimated new demand through 2018. On an annual basis, the industry will need to about double in size.

It gets even more interesting…

Most of the best mines are already in production. As with everything else in the resource world these days, the low-hanging fruit is all gone. Future grades will be lower, meaning we’ll have to mine a lot more ore to get a given amount of uranium. Furthermore, the new mines are in more geologically and politically challenging locales.

From “Uranium is Heating Up” by Byron King:

Uranium prices appear to be bottoming, as China buys major supplies from Cameco (NYSE:CCJ). On June 24, China agreed to buy more than 10,000 tons of uranium oxide – yellowcake – over 10 years from Cameco.

According to Thomas Neff, a physicist and uranium industry analyst at the Massachusetts Institute of Technology, China is buying unprecedented amounts of uranium. Based on public information, China may purchase about 5,000 metric tonnes of yellowcake this year. That’s more than twice as much as China consumes.

Clearly, China is building up stockpiles for its long list of new reactors. According to the China Nuclear Energy Association, China plans to build at least 60 new reactors by 2020. The average 1,000-megawatt reactor costs about $3 billion. Loading a new reactor requires about 400 tonnes of uranium to start. Take 60 reactors, times 400 tonnes each. That’s 24,000 tonnes of uranium (over 52 million pounds) – about all of the world’s current output for one year.

New nuclear plants represent a game-changing aspect for future uranium demand and pricing….

Now we’re going to see an explosion (no pun intended) of uranium demand from China, on top of the existing user base (plus other new demand from India and numerous other locales in the world)…

Thus, don’t be surprised to see uranium in shortage by the second half of this decade. Looking ahead, there’s just not enough new production in the planning stages. The world needs new mines, but startup costs are much more expensive than 10 or 20 years ago.

Meanwhile, much of the world’s uranium comes from mines that have been in operation for a long time. That, and decommissioned nuclear warheads from the Cold War days. But this latter source is nearing exhaustion.

Bottom line in all of this is that we’re right at the bottom of the curve for uranium pricing. Going forward, we’re watching as the new demand unfolds, to make uranium investments all that much more valuable.

The uranium story isn’t over yet. Stay tuned!

Eric J. Fry
for The Daily Reckoning

Uranium – Our “Trade of the Decade” Heats Up! originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”

Read more here:
Uranium – Our “Trade of the Decade” Heats Up!




The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.

Commodities, ETF, Uncategorized

Uranium – Our “Trade of the Decade” Heats Up!

November 9th, 2010

At the start of the year, your California editor dubbed uranium the “Trade of the Decade.”

Uranium may or may not be the Trade of the Decade, but it has been a pretty decent trade of the year. So far in 2010, the uranium price has soared 35% – triple the return of the S&P 500 Index.

The phrase, “Better lucky than good,” comes to mind…and your California editor never hesitates to give Lady Luck her due. But sometimes, good fortune germinates and blossoms from the seeds of timely analysis and insight.

Your financial market observers here at The Daily Reckoning did not simply toss their Trade of the Decade into the hat and walk away; they have continued to detail the bullish case for uranium – and for selected uranium mining companies – month after month.

Early in 2010, for example, Chris Mayer, the mind behind both Capital & Crisis and Mayer’s Special Situations, penned no less than five Daily Reckoning columns advocating investments in uranium. The last of these columns, “Cameco Corp. is a ‘Buy’”, extolled the virtues of North America’s largest uranium miner. The stock has soared to 53% since then.

Taking the baton from Chris in mid-summer, Byron King, editor of Outstanding Investments, sang uranium’s praises in two additional Daily Reckoning columns, while also suggesting specific ways to play the trend. All three of the stocks he recommended in his October 25 column, “More Nukes!”, have jumped spritely during the last two weeks.

Rising Uranium Price

After such impressive gains for stocks like Cameco, it is reasonable to ask if the uranium story is spent…or if it is just beginning to heat up. Your California editor posed that exact question yesterday to both Chris Mayer and Byron King. And both of these accomplished investors replied that the uranium bull market is far from over. Therefore, given the still-bullish outlooks of Messrs. Mayer and King – and the fact that uranium remains your California editor’s Trade of the Decade – we will reprise a few key aspects of the bullish case for this unique energy source, as presented in the previous editions of The Daily Reckoning

From “Uranium – A Place to Hide” by Chris Mayer:

Robert Mitchell, a general partner at Portal Capital, gives us the 21st-century version of some timeless investing advice.

“In the world of commodities, demand is rarely the compelling reason to get long,” Mitchell begins. “Instead, you want to own a commodity where supply is incapable of responding to even a small bump in bids.” In other words, buy the commodities where it is most difficult to produce more. Though hardly a new insight, it’s one that investors sometimes forget. One commodity that aces this simple test is uranium.

As Mitchell sums up: “Uranium is well below cost of production, with a superb demand curve.” We’ve made the demand case before, too, and we won’t rehash it here. Suffice it to say that a slate of new nuclear plants means a robust demand for uranium for years to come. There are few commodities positioned as well for the next several years.

From “Trade of the Decade: Sell Everything, Part II: by Eric Fry:

Buy uranium. This unique energy source is a “backdoor play” on the growth of Emerging Markets.

There are 436 nuclear reactors in 30 countries around the world. But here’s the important thing; there are over 200 new plants in some stage of planning, engineering or construction. And most of these new plants will open in a Developing World nation.

But there’s not even enough uranium coming from the world’s mines right now to supply the current power plants across the world, let alone a couple hundred more. Thus, the uranium story is really quite simple. It is a supply and demand story. There is a lot of demand and not much supply. Any questions so far?

Mined supply of uranium satisfies only about 55% of total demand. The rest of the supply comes from somewhere else. These secondary sources of uranium come primarily from old nuclear warheads. But no one really knows how this enormous supply gap will resolve itself in the future. This is what we do know: when you get a supply deficit, prices rise. And I think that will be the case with uranium…

One way to participate in a long-term rise in the uranium price would be to take a position in the Market Vectors Nuclear Energy ETF (NYSE:NLR). Most of the holdings of NLR are on foreign exchanges. So it’s a great way to play nuclear energy on the New York Stock Exchange, yet obtain exposure to the international nuclear market without the hassle of foreign trading.

This ETF is one of Byron King’s recommendations. So if this trade works, I’ll be back in 10 years to accept my high-fives; if it doesn’t work, talk to Byron King about it.

From Uranium and Specialty Metals: A Few of My Favorite Things, Part II by Chris Mayer:

One of the best investments you can make right now is to pick up relatively secure, low-cost uranium – the feedstock for nuclear reactors…

There is a surge in demand coming in the next decade from the hundred or so new reactors expected to come online. Yet the industry is about 400 million pounds short of meeting that demand, as shown in the chart below.

Supply and Demand in the Uranium Market

The market has been in deficit for years, as it burns off Cold War stockpiles, which are finite and dwindling. Another way to look at it: Uranium demand is on its way to hitting 226 million pounds per year. Yet last year, the top dogs – which make up 90% of the market – produced only about 110 million pounds of uranium.

So essentially, the industry needs to produce almost four times that to meet the estimated new demand through 2018. On an annual basis, the industry will need to about double in size.

It gets even more interesting…

Most of the best mines are already in production. As with everything else in the resource world these days, the low-hanging fruit is all gone. Future grades will be lower, meaning we’ll have to mine a lot more ore to get a given amount of uranium. Furthermore, the new mines are in more geologically and politically challenging locales.

From “Uranium is Heating Up” by Byron King:

Uranium prices appear to be bottoming, as China buys major supplies from Cameco (NYSE:CCJ). On June 24, China agreed to buy more than 10,000 tons of uranium oxide – yellowcake – over 10 years from Cameco.

According to Thomas Neff, a physicist and uranium industry analyst at the Massachusetts Institute of Technology, China is buying unprecedented amounts of uranium. Based on public information, China may purchase about 5,000 metric tonnes of yellowcake this year. That’s more than twice as much as China consumes.

Clearly, China is building up stockpiles for its long list of new reactors. According to the China Nuclear Energy Association, China plans to build at least 60 new reactors by 2020. The average 1,000-megawatt reactor costs about $3 billion. Loading a new reactor requires about 400 tonnes of uranium to start. Take 60 reactors, times 400 tonnes each. That’s 24,000 tonnes of uranium (over 52 million pounds) – about all of the world’s current output for one year.

New nuclear plants represent a game-changing aspect for future uranium demand and pricing….

Now we’re going to see an explosion (no pun intended) of uranium demand from China, on top of the existing user base (plus other new demand from India and numerous other locales in the world)…

Thus, don’t be surprised to see uranium in shortage by the second half of this decade. Looking ahead, there’s just not enough new production in the planning stages. The world needs new mines, but startup costs are much more expensive than 10 or 20 years ago.

Meanwhile, much of the world’s uranium comes from mines that have been in operation for a long time. That, and decommissioned nuclear warheads from the Cold War days. But this latter source is nearing exhaustion.

Bottom line in all of this is that we’re right at the bottom of the curve for uranium pricing. Going forward, we’re watching as the new demand unfolds, to make uranium investments all that much more valuable.

The uranium story isn’t over yet. Stay tuned!

Eric J. Fry
for The Daily Reckoning

Uranium – Our “Trade of the Decade” Heats Up! originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”

Read more here:
Uranium – Our “Trade of the Decade” Heats Up!




The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.

Commodities, ETF, Uncategorized

Money Creation and Price Inflation Cause Justified Paranoia

November 9th, 2010

I have to admit that I am getting so jaded by the horrific monetary and fiscal insanities of the Federal Reserve and the Congress that new horrific fiscal and monetary insanities seem to now sort of “bounce off” my numbed senses.

I also seem to be more hypersensitive these days, which may or may not be associated with Mogambo Hysterical Syndrome (MHS), a tragic condition where the sufferer of MHS has the terrifying mental stress of carrying foretold knowledge of the certain economic doom of price inflation as a result of the creation of too much money, especially when used to fund the expansion of the welfare-and-government/bread-and-circuses state that the American economy has become.

Sufferers of the tragedy of MHS, in case you were wondering, instinctively buy gold, silver, guns, good grub and build some kind of weird Mogambo Last Line Of Retreat (MLLOR) bunker out of, for example, sofa cushions, or perhaps steel-reinforced concrete bristling with surveillance gear and large-caliber weaponry.

Parenthetically, bunkers of MLLOR class do not have cannons around my neighborhood, as it seems to be impossible to get a zoning variance to install an anti-aircraft cannon, even though I carefully explained to them, Occam’s Razor-like, “Invisible helicopters and flying saucers from outer space invading the Earth are not going to shoot themselves down, you morons!”

But after a while you get a kind of “permanent stunned” feeling, like hearing my family telling me, for the thousandth time, that “normal” husbands and fathers do not have nightmares about devouring inflation in prices that will be caused by the Federal Reserve creating so, so many new dollars, particularly so that the insane Obama administration can deficit-spend us into a Devouring Hellhole Of Un-Payable Debt (DHOUPD) to support a gigantic welfare-state that is spending half of GDP!

And I am absolutely sick of hearing how “normal husbands and fathers” are not forcing their families to skimp and scrape, hoarding every dime like Scrooge-like misers so that I can feverishly invest as much money as I possibly, possibly can into gold, silver and oil as fearful protection against the foul Federal Reserve creating so much new money that terrifying inflation in prices is, as we professionals say in official economics jargon, Guaran-Freaking-Teed (GFT).

Now, however, their unkind words bounce off of me, and I sit around a lot, watching TV in a kind of catatonic stupefaction and in my underwear so that the kids will be too grossed-out to stay in the same room with me.

But suddenly, alone and benumbed as I am, something stirs inside me at the scary fact that the Gross Domestic Product Deflator for the 3rd quarter came out as 2.3%, which is inflation of 2.3%, which is up from the 1.9% of the 2nd quarter!

The cynical, hysterical pessimist in me immediately computes the percentage change, and finds that the rate of inflation increased by 21% in one quarter! Gaaahhh!

Of course, the screaming in fear aside, the statistic is virtually meaningless, but not completely, as it is obviously indicative of trend, and by the way that my heart is pounding, pounding, pounding at rising inflation we also know that a 2.3% GDP deflator is a lot in an economy that has its GDP growing at only 2%! Gaaahhh!

In short, prices are rising faster than the economy is growing, a horror hinted at by the second use of “Gaaahhh!” a word used to indicate a blood-curdling scream of horror.

And it is by this that you can identify the people who do NOT own gold, silver and oil, as they are the ones saying “Gaaahhh! We’re Freaking Doomed (WFD)!”

And it is also by this that you can identify the people who DO own gold, silver and oil, as they are ones saying, “Whee! This investing stuff is easy!”

The Mogambo Guru
for The Daily Reckoning

Money Creation and Price Inflation Cause Justified Paranoia originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”

Read more here:
Money Creation and Price Inflation Cause Justified Paranoia




The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.

Uncategorized

Money Creation and Price Inflation Cause Justified Paranoia

November 9th, 2010

I have to admit that I am getting so jaded by the horrific monetary and fiscal insanities of the Federal Reserve and the Congress that new horrific fiscal and monetary insanities seem to now sort of “bounce off” my numbed senses.

I also seem to be more hypersensitive these days, which may or may not be associated with Mogambo Hysterical Syndrome (MHS), a tragic condition where the sufferer of MHS has the terrifying mental stress of carrying foretold knowledge of the certain economic doom of price inflation as a result of the creation of too much money, especially when used to fund the expansion of the welfare-and-government/bread-and-circuses state that the American economy has become.

Sufferers of the tragedy of MHS, in case you were wondering, instinctively buy gold, silver, guns, good grub and build some kind of weird Mogambo Last Line Of Retreat (MLLOR) bunker out of, for example, sofa cushions, or perhaps steel-reinforced concrete bristling with surveillance gear and large-caliber weaponry.

Parenthetically, bunkers of MLLOR class do not have cannons around my neighborhood, as it seems to be impossible to get a zoning variance to install an anti-aircraft cannon, even though I carefully explained to them, Occam’s Razor-like, “Invisible helicopters and flying saucers from outer space invading the Earth are not going to shoot themselves down, you morons!”

But after a while you get a kind of “permanent stunned” feeling, like hearing my family telling me, for the thousandth time, that “normal” husbands and fathers do not have nightmares about devouring inflation in prices that will be caused by the Federal Reserve creating so, so many new dollars, particularly so that the insane Obama administration can deficit-spend us into a Devouring Hellhole Of Un-Payable Debt (DHOUPD) to support a gigantic welfare-state that is spending half of GDP!

And I am absolutely sick of hearing how “normal husbands and fathers” are not forcing their families to skimp and scrape, hoarding every dime like Scrooge-like misers so that I can feverishly invest as much money as I possibly, possibly can into gold, silver and oil as fearful protection against the foul Federal Reserve creating so much new money that terrifying inflation in prices is, as we professionals say in official economics jargon, Guaran-Freaking-Teed (GFT).

Now, however, their unkind words bounce off of me, and I sit around a lot, watching TV in a kind of catatonic stupefaction and in my underwear so that the kids will be too grossed-out to stay in the same room with me.

But suddenly, alone and benumbed as I am, something stirs inside me at the scary fact that the Gross Domestic Product Deflator for the 3rd quarter came out as 2.3%, which is inflation of 2.3%, which is up from the 1.9% of the 2nd quarter!

The cynical, hysterical pessimist in me immediately computes the percentage change, and finds that the rate of inflation increased by 21% in one quarter! Gaaahhh!

Of course, the screaming in fear aside, the statistic is virtually meaningless, but not completely, as it is obviously indicative of trend, and by the way that my heart is pounding, pounding, pounding at rising inflation we also know that a 2.3% GDP deflator is a lot in an economy that has its GDP growing at only 2%! Gaaahhh!

In short, prices are rising faster than the economy is growing, a horror hinted at by the second use of “Gaaahhh!” a word used to indicate a blood-curdling scream of horror.

And it is by this that you can identify the people who do NOT own gold, silver and oil, as they are the ones saying “Gaaahhh! We’re Freaking Doomed (WFD)!”

And it is also by this that you can identify the people who DO own gold, silver and oil, as they are ones saying, “Whee! This investing stuff is easy!”

The Mogambo Guru
for The Daily Reckoning

Money Creation and Price Inflation Cause Justified Paranoia originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”

Read more here:
Money Creation and Price Inflation Cause Justified Paranoia




The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.

Uncategorized

The Ongoing Uranium Story: Profit Opportunities Continue

November 9th, 2010

Just two weeks ago, in the October 25 edition of The Daily Reckoning, we offered a few kind words for the investment potential of uranium. “Nuclear energy is enjoying a global renaissance,” we remarked, “one that will produce numerous profit opportunities for forward-looking investors.”

As it turns out, forward-looking investors did not have to look very far forward to seize said profit opportunities. Byron King, editor of Outstanding Investments, identified three specific “uranium plays” in that edition of The Daily Reckoning: Cameco (NYSE:CCJ), and Denison Mines (AMEX:DNN), as well as direct investments in uranium via Uranium Participation Corp. (TSX:U). These stocks have jumped 20%, 31% and 13% respectively during the two weeks since.

So what gives? What’s lighting a fire under the uranium price. We posed that question yesterday to a handful of knowledgeable investors. Chris Mayer, editor of Capital & Crisis was the first to respond:

“It’s nothing more than what we have already been talking about: the uranium price was so low it was not supporting new investment and we’ve got lots of demand on tap. Prices had to rise! Plus, there have been some production shortfalls at big mines.”

Chris is still bullish on uranium…and so are we…

Eric Fry
for The Daily Reckoning

The Ongoing Uranium Story: Profit Opportunities Continue originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”

Read more here:
The Ongoing Uranium Story: Profit Opportunities Continue




The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.

Commodities, Uncategorized

The Ongoing Uranium Story: Profit Opportunities Continue

November 9th, 2010

Just two weeks ago, in the October 25 edition of The Daily Reckoning, we offered a few kind words for the investment potential of uranium. “Nuclear energy is enjoying a global renaissance,” we remarked, “one that will produce numerous profit opportunities for forward-looking investors.”

As it turns out, forward-looking investors did not have to look very far forward to seize said profit opportunities. Byron King, editor of Outstanding Investments, identified three specific “uranium plays” in that edition of The Daily Reckoning: Cameco (NYSE:CCJ), and Denison Mines (AMEX:DNN), as well as direct investments in uranium via Uranium Participation Corp. (TSX:U). These stocks have jumped 20%, 31% and 13% respectively during the two weeks since.

So what gives? What’s lighting a fire under the uranium price. We posed that question yesterday to a handful of knowledgeable investors. Chris Mayer, editor of Capital & Crisis was the first to respond:

“It’s nothing more than what we have already been talking about: the uranium price was so low it was not supporting new investment and we’ve got lots of demand on tap. Prices had to rise! Plus, there have been some production shortfalls at big mines.”

Chris is still bullish on uranium…and so are we…

Eric Fry
for The Daily Reckoning

The Ongoing Uranium Story: Profit Opportunities Continue originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”

Read more here:
The Ongoing Uranium Story: Profit Opportunities Continue




The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.

Commodities, Uncategorized

Major Reversal Day On Gold and Silver, Could Be A Climax Top

November 9th, 2010

After trading through both bull and bear markets and witnessing hysteria and panic, I’ve learned that whatever method you use to buy stocks, you must have a discipline to sell. When I buy, I look for support levels and oversold conditions so that a reversal could bring about a major gain and the downside risk is calculated. As I wrote in my buy signal in gold in late July, the conditions were ideal for a major move to the upside. Now the conditions are reaching the extreme opposite, it’s overbought and surpassing measured moves and upper resistance lines which mark prior turning points.


Click to enlarge

The majority of traders become reckless at extremely overbought levels and are often stuck when markets correct to find support. They abandon their methods as their accounts grow in value and don’t factor in how events may change. Right now gold is the easy trade as most of the reports from the media outlets are bullish for gold and silver in light of the second round of quantitative easing (QE2), but is it the prudent trade? Could events trade in Washington or globally which could put short-term pressure on commodity prices?

The most dangerous trade is the painless trade, when siding with the consensus. People have a herding desire when coming to the market. They feel most comfortable when others are doing the same. This is the characteristic that’s the downfall for most traders as the market humbles the greatest number of people. The best trades are the uncomfortable ones, when you go against the crowd. The best way to remain emotionless is sticking to a plan. If one has a method, he can avoid the psychological challenges that the markets present during panics or hysteria. Although it may not be popular, it eventually works out as the panic subsides.

Many investors are now buying precious metals aggressively and borrowing on margin, which I believe is too late and dangerous. Many are concerned that they’ve missed the boat and are panicking into the gold and silver market. It’s important to have a technical mechanism to move to the sidelines as latecomers chase the market higher. The volume on the Silver ETF (SLV) is reaching record highs and I’m concerned about a climax top. It’s very hard to sustain a move of this magnitude without a major correction. Although it takes courage taking profits during a bubble, I’ve learned through many experiences how important it is to stick to a method and sell into strength. There’s significant risk of a correction and limited potential on the upside short term.

After being in the precious metals markets for years, I’ve learned its volatility. I’ve seen great euphorias followed by panics. Gold and silver is reaching a level of euphoria, so stay tuned for any signs of weakness.

Read more here:
Major Reversal Day On Gold and Silver, Could Be A Climax Top

Commodities, ETF

Can Foreign Intervention Save the US Dollar?

November 9th, 2010

The Federal Reserve’s $900 billion asset purchasing program may help the US economy…or maybe it won’t. But one thing is certain – the US dollar will be the biggest loser. In fact, just about every currency you can name is set to eclipse the greenback over the next few months.

Even before the Fed announcement, several major currencies had already appreciated considerably against the US dollar in the last 2-3 months. It now takes US$1.01 to buy one Australian dollar (AUD) – up 20% from $0.80.back in June. The British pound (GBP) has gained 12.6% since June. And even the much-derided euro (EUR) has managed to increase 17% in value.

Some of the rise can be attributed to improvement in these economies in the last four months or so. The Australian economy is in the middle of one of the biggest mining booms in the country’s history. British economic releases have done a positive turnaround – giving buy signals for the British pound.

But that’s only half the story driving the US dollar lower. Investors are tired of low interest rates and rather lackluster investment returns, so they are seeking yields and returns elsewhere. For a US-based investor, investing in Australian-based treasuries can mean a yield of 4.5% greater than benchmark US rates. And Australian interest rates are expected to climb higher in the first half of the New Year as the economy revs up by an annualized gross domestic product rate of 3-3.5%. This will help to support the case for further rate increases, attracting more Australian dollar buyers and US dollar sellers.

Emerging currencies will surge against the US dollar, too – particularly the Brazilian real (BRL), South African Rand (ZAR) and South Korean won (KRW).

Like Australia, the case for Brazil and South Africa revolves around commodities – in this case, raw materials and gold.

Higher commodity prices have helped the Brazilian economy rise by an estimated 7.2% this year. This kind of rapid growth could also spur inflation. So Brazil’s central bank, Banco Central do Brasil, has increased rates to 10.75%, or 10.5% over comparable US central bank rates. The exponentially high yield has attracted foreign investors to the country and will continue to do so, making it very difficult to hold onto a falling dollar.

All this assumes the countries involved allow their currencies to appreciate naturally. But we know central banks and governments condemn a rapid appreciation of their currencies. So policymakers have resorted to bank interventions and competitive practices to force down their currencies – the so-called “currency wars.”

Brazil’s government has already tripled the tax rate paid by foreign investors, while South Korea is beginning to audit holdings in FX transactions. Even the Bank of Japan continues to monitor opportunities for direct market intervention.

Those drastic actions might seem like a good reason to bet against a steep climb in foreign currencies. But history has always held true: intervention or competitive currency practices rarely work.

The clearest example dates back to Sept. 16, 1992, when England moved to protect the pound’s exchange rate. It spent 3.3 billion pounds shoring up the currency, only to lose to overwhelming speculative forces. The quick infusion of cash disappeared as the sterling depreciated through its mandated lower limit.

More recently, Japan has been fighting to take control of its currency, too. In September, under pressure from the Ministry of Finance to keep the exchange rate above 82 yen per dollar (JPY), the Bank of Japan directly intervened in global FX markets. It spent $12-13 billion to halt an appreciating yen – and promptly failed. The USDJPY exchange rate has strengthened even more, hovering around 81.23 per dollar.

There are numerous other stories from the last 10 years that show intervention won’t work. Speculators and investors will always demand higher yielding currencies, making each intervention just a short break from the longer-term trend.

So, with nothing drawing investors back to the US dollar, the currency looks to be done for in the medium term. US investors will seek out higher-yielding currencies, backed by rising economic prospects. And since central banks have been ineffective in controlling their own currencies, further appreciation is inevitable.

Richard Lee
for The Daily Reckoning

Can Foreign Intervention Save the US Dollar? originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”

Read more here:
Can Foreign Intervention Save the US Dollar?




The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.

Commodities, Uncategorized

Can Foreign Intervention Save the US Dollar?

November 9th, 2010

The Federal Reserve’s $900 billion asset purchasing program may help the US economy…or maybe it won’t. But one thing is certain – the US dollar will be the biggest loser. In fact, just about every currency you can name is set to eclipse the greenback over the next few months.

Even before the Fed announcement, several major currencies had already appreciated considerably against the US dollar in the last 2-3 months. It now takes US$1.01 to buy one Australian dollar (AUD) – up 20% from $0.80.back in June. The British pound (GBP) has gained 12.6% since June. And even the much-derided euro (EUR) has managed to increase 17% in value.

Some of the rise can be attributed to improvement in these economies in the last four months or so. The Australian economy is in the middle of one of the biggest mining booms in the country’s history. British economic releases have done a positive turnaround – giving buy signals for the British pound.

But that’s only half the story driving the US dollar lower. Investors are tired of low interest rates and rather lackluster investment returns, so they are seeking yields and returns elsewhere. For a US-based investor, investing in Australian-based treasuries can mean a yield of 4.5% greater than benchmark US rates. And Australian interest rates are expected to climb higher in the first half of the New Year as the economy revs up by an annualized gross domestic product rate of 3-3.5%. This will help to support the case for further rate increases, attracting more Australian dollar buyers and US dollar sellers.

Emerging currencies will surge against the US dollar, too – particularly the Brazilian real (BRL), South African Rand (ZAR) and South Korean won (KRW).

Like Australia, the case for Brazil and South Africa revolves around commodities – in this case, raw materials and gold.

Higher commodity prices have helped the Brazilian economy rise by an estimated 7.2% this year. This kind of rapid growth could also spur inflation. So Brazil’s central bank, Banco Central do Brasil, has increased rates to 10.75%, or 10.5% over comparable US central bank rates. The exponentially high yield has attracted foreign investors to the country and will continue to do so, making it very difficult to hold onto a falling dollar.

All this assumes the countries involved allow their currencies to appreciate naturally. But we know central banks and governments condemn a rapid appreciation of their currencies. So policymakers have resorted to bank interventions and competitive practices to force down their currencies – the so-called “currency wars.”

Brazil’s government has already tripled the tax rate paid by foreign investors, while South Korea is beginning to audit holdings in FX transactions. Even the Bank of Japan continues to monitor opportunities for direct market intervention.

Those drastic actions might seem like a good reason to bet against a steep climb in foreign currencies. But history has always held true: intervention or competitive currency practices rarely work.

The clearest example dates back to Sept. 16, 1992, when England moved to protect the pound’s exchange rate. It spent 3.3 billion pounds shoring up the currency, only to lose to overwhelming speculative forces. The quick infusion of cash disappeared as the sterling depreciated through its mandated lower limit.

More recently, Japan has been fighting to take control of its currency, too. In September, under pressure from the Ministry of Finance to keep the exchange rate above 82 yen per dollar (JPY), the Bank of Japan directly intervened in global FX markets. It spent $12-13 billion to halt an appreciating yen – and promptly failed. The USDJPY exchange rate has strengthened even more, hovering around 81.23 per dollar.

There are numerous other stories from the last 10 years that show intervention won’t work. Speculators and investors will always demand higher yielding currencies, making each intervention just a short break from the longer-term trend.

So, with nothing drawing investors back to the US dollar, the currency looks to be done for in the medium term. US investors will seek out higher-yielding currencies, backed by rising economic prospects. And since central banks have been ineffective in controlling their own currencies, further appreciation is inevitable.

Richard Lee
for The Daily Reckoning

Can Foreign Intervention Save the US Dollar? originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”

Read more here:
Can Foreign Intervention Save the US Dollar?




The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.

Commodities, Uncategorized

A Look Forward at the Final Stage of the Gold Bull Market

November 9th, 2010

“Is gold going vertical?”

The question was put to us by our Family Office strategist, Rob Marstrand.

“We could be getting to the final stage of this bull market faster than we thought,” he added.

Yesterday, the price of gold rose to new record – over $1,400. This was also the day that news reached the world that the head of the World Bank had defected. Mr. Zoellick jumped the fence…he’s no longer among the dopes.

You know who we’re talking about…the vain and foolish economists who think central planning will work. “Give the economy more liquidity!” “Raise rates!” “More fiscal stimulus!” “More austerity.”

These guys act like they know what they are talking about. But they are quacks. Mountebanks. Phonies.

Not Zoellick. He said it was time to begin talking about a new gold standard.

Gold jumped $5. What can stop it now?

But there’s always a surprise, isn’t there? We know that the dollar is going the way of all paper – to the dump. Maybe the surprise is how long it takes to get there.

Maybe gold is going vertical. Or maybe it is just toying with us.

A friend came to us over the weekend. He had four Austrian Corona 1 oz. gold coins. He wanted to sell them.

“I just need some cash now. It breaks my heart to sell them, but I’ve got to pay expenses.”

The expenses were a little unusual. He was buying a ticket for a Vietnamese woman and her children to come to the US to live. But that’s another story…

Somehow, your author has gotten a local reputation as a buyer of gold coins. So much the better. We’re not trading. We’re not investing. We’re just adding a coin now and then to our collection. We buy. We put them away. We forget about them.

“But at $1,400 an ounce?” you ask. “Isn’t gold in a bubble?”

Well, yes…and no. We liked buying the coins much more at $500 than we do today at $1,400. The price makes us a little nervous.

Gold is in a bull market, not yet a bubble. It will probably stay in a bull market for a long time – until they re-establish a gold standard for paper money…or until the international monetary system cracks up…whichever comes first.

But there’s something a little dangerous about $1,400 gold. Too much, too fast. Of course, in the final stage of the bull market, the yellow metal will trade for far more. Ordinary people will buy gold to protect themselves from inflation. They’ll get sick of watching prices on bread, diapers and gasoline go up. They’ll be desperate to grab hold of something more stable. They’ll buy gold at almost any price.

But we’re not there yet. There’s very little consumer price inflation now. The inflation we’re experiencing so far is the monetary kind – an inflation of the monetary base, not consumer prices. No one particularly cares about this kind of inflation. The other kind of inflation – in the CPI – could still be years ahead.

Right now, the economy is still de-leveraging. Bloomberg has the news:

US households cut their debt last quarter, borrowing less against homes and closing credit card accounts, according to a survey by the Federal Reserve Bank of New York.

Consumer indebtedness totaled $11.6 trillion at the end of September, down $110 billion, or 0.9 percent from the end of June, according to the New York Fed’s quarterly report on household debt and credit. Households have slashed about $1 trillion from outstanding consumer debts since the peak in the third quarter of 2008, the New York Fed said.

US households, facing a jobless rate that’s persisted near a 26-year high, have slashed debt and increased savings following the worst financial crisis since the Great Depression. That’s pared consumer spending and slowed the economic recovery, helping to prompt the Fed’s decision last week to start another round of unconventional monetary stimulus.

“Consumer debt is declining but only part of the reduction is attributable to defaults or charge-offs,” Donghoon Lee, a senior economist at the New York Fed, said in a statement. “Americans are borrowing less and paying off more debt than in the recent past. This change, which we continue to study carefully, can be a result of both tightening credit standards and voluntary changes in saving behavior.”

People still lack jobs…which means, they still lack money. And while they lack money, they need to cut back on their spending – which helps keep prices down.

The common man is not fretting about inflation. He’s not worrying about his savings or the cash in his pocket. He’s not desperate to get out of the dollar. Au contraire, he’d like to get into some cash…so he could pay his bills.

Which brings us back to this weekend’s transaction. If the gold market had entered its third and final stage, our friend wouldn’t have come over to offer us gold coins. Instead, he’d be holding onto his gold and would be desperate to get more of it.

“But what if he needed to buy something – like airline tickets?” you ask. “You can’t buy things with gold.”

True enough. But when we get to the last stage of the gold market…when gold really does go vertical…gold will be the LAST thing people will sell. Gold may have gone up $5 yesterday. But in the final stage it will go up a hundred dollars per day…or more.

Yes, dear reader, the excitement is still ahead. More hurrahs for the gold market. More profits for gold investors.

Trouble is, it could be far ahead.

Bill Bonner
for The Daily Reckoning

A Look Forward at the Final Stage of the Gold Bull Market originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”

Read more here:
A Look Forward at the Final Stage of the Gold Bull Market




The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.

Uncategorized

A Look Forward at the Final Stage of the Gold Bull Market

November 9th, 2010

“Is gold going vertical?”

The question was put to us by our Family Office strategist, Rob Marstrand.

“We could be getting to the final stage of this bull market faster than we thought,” he added.

Yesterday, the price of gold rose to new record – over $1,400. This was also the day that news reached the world that the head of the World Bank had defected. Mr. Zoellick jumped the fence…he’s no longer among the dopes.

You know who we’re talking about…the vain and foolish economists who think central planning will work. “Give the economy more liquidity!” “Raise rates!” “More fiscal stimulus!” “More austerity.”

These guys act like they know what they are talking about. But they are quacks. Mountebanks. Phonies.

Not Zoellick. He said it was time to begin talking about a new gold standard.

Gold jumped $5. What can stop it now?

But there’s always a surprise, isn’t there? We know that the dollar is going the way of all paper – to the dump. Maybe the surprise is how long it takes to get there.

Maybe gold is going vertical. Or maybe it is just toying with us.

A friend came to us over the weekend. He had four Austrian Corona 1 oz. gold coins. He wanted to sell them.

“I just need some cash now. It breaks my heart to sell them, but I’ve got to pay expenses.”

The expenses were a little unusual. He was buying a ticket for a Vietnamese woman and her children to come to the US to live. But that’s another story…

Somehow, your author has gotten a local reputation as a buyer of gold coins. So much the better. We’re not trading. We’re not investing. We’re just adding a coin now and then to our collection. We buy. We put them away. We forget about them.

“But at $1,400 an ounce?” you ask. “Isn’t gold in a bubble?”

Well, yes…and no. We liked buying the coins much more at $500 than we do today at $1,400. The price makes us a little nervous.

Gold is in a bull market, not yet a bubble. It will probably stay in a bull market for a long time – until they re-establish a gold standard for paper money…or until the international monetary system cracks up…whichever comes first.

But there’s something a little dangerous about $1,400 gold. Too much, too fast. Of course, in the final stage of the bull market, the yellow metal will trade for far more. Ordinary people will buy gold to protect themselves from inflation. They’ll get sick of watching prices on bread, diapers and gasoline go up. They’ll be desperate to grab hold of something more stable. They’ll buy gold at almost any price.

But we’re not there yet. There’s very little consumer price inflation now. The inflation we’re experiencing so far is the monetary kind – an inflation of the monetary base, not consumer prices. No one particularly cares about this kind of inflation. The other kind of inflation – in the CPI – could still be years ahead.

Right now, the economy is still de-leveraging. Bloomberg has the news:

US households cut their debt last quarter, borrowing less against homes and closing credit card accounts, according to a survey by the Federal Reserve Bank of New York.

Consumer indebtedness totaled $11.6 trillion at the end of September, down $110 billion, or 0.9 percent from the end of June, according to the New York Fed’s quarterly report on household debt and credit. Households have slashed about $1 trillion from outstanding consumer debts since the peak in the third quarter of 2008, the New York Fed said.

US households, facing a jobless rate that’s persisted near a 26-year high, have slashed debt and increased savings following the worst financial crisis since the Great Depression. That’s pared consumer spending and slowed the economic recovery, helping to prompt the Fed’s decision last week to start another round of unconventional monetary stimulus.

“Consumer debt is declining but only part of the reduction is attributable to defaults or charge-offs,” Donghoon Lee, a senior economist at the New York Fed, said in a statement. “Americans are borrowing less and paying off more debt than in the recent past. This change, which we continue to study carefully, can be a result of both tightening credit standards and voluntary changes in saving behavior.”

People still lack jobs…which means, they still lack money. And while they lack money, they need to cut back on their spending – which helps keep prices down.

The common man is not fretting about inflation. He’s not worrying about his savings or the cash in his pocket. He’s not desperate to get out of the dollar. Au contraire, he’d like to get into some cash…so he could pay his bills.

Which brings us back to this weekend’s transaction. If the gold market had entered its third and final stage, our friend wouldn’t have come over to offer us gold coins. Instead, he’d be holding onto his gold and would be desperate to get more of it.

“But what if he needed to buy something – like airline tickets?” you ask. “You can’t buy things with gold.”

True enough. But when we get to the last stage of the gold market…when gold really does go vertical…gold will be the LAST thing people will sell. Gold may have gone up $5 yesterday. But in the final stage it will go up a hundred dollars per day…or more.

Yes, dear reader, the excitement is still ahead. More hurrahs for the gold market. More profits for gold investors.

Trouble is, it could be far ahead.

Bill Bonner
for The Daily Reckoning

A Look Forward at the Final Stage of the Gold Bull Market originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”

Read more here:
A Look Forward at the Final Stage of the Gold Bull Market




The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.

Uncategorized

Gold and Silver Surge Higher

November 9th, 2010

Front and center today, we have gold and silver piling on to their strong performance versus the dollar yesterday. Gold tipped the scales at over $1,400 yesterday afternoon, and hasn’t looked back, adding another $9 this morning! I think that Friday’s sell-off was profit-taking by the hedge funds, etc. and what we are seeing now is more of the “run to wealth providers” as more and more analysts believe that the FOMC is just kidding itself if it thinks $600 billion of quantitative easing (QE) is going to be enough!

In fact, Laurence Meyer, former Fed Head, and vice chairman of Macroeconomic Advisors had this to say about the latest announcement by the Fed Heads of their QE2…. “This is not a very powerful program. The more reluctant they are to expand the balance sheet, the less stimulus they will be putting into the economy and the weaker the recovery will continue to be.” Before the FOMC announcement last week, Meyer had calculated what would happen if the FOMC pumped $1.5 trillion into the economy via QE2… He estimated that if that happened, 2/10ths of a percentage point would come off of the unemployment rate, and economic growth would increase by 3/10ths of a percentage point.

OK… You all know that I’m not enamored with most of these guys that believe that quantitative easing when the market is flush with liquidity like it is right now, is the most prudent thing to do… But now I’ve got to ask the question… Is risking runaway inflation, and the other dastardly things that go along with a ballooning balance sheet for a central bank, worth 2/10ths of a percentage point gain in unemployment, and 3/10ths in GDP growth? I hardly think so! And if little old me sitting here without the gray matter that all the researchers for the Fed Heads have, sees that, then these guys should see it too!

Hey, one thing that got lost in the shuffle last week was the fact that the European Central Bank (ECB) decided to begin an exit from the stimulus they have provided the economies of the 16-nation Union. Of course, that doesn’t exactly mean they are going to exit from the stimulus, but, at least the ECB is talking about it, which is in a completely opposite direction from the FOMC… The implied move to exit does this, folks… It pushes interest rates higher, even if the “official rate” isn’t moved by the ECB. To prove this point, look at Denmark, who has a peg to the euro (EUR), which leads them to keep their interest rates in line with the ECB… After the ECB announcement last Thursday, Denmark has been in panic mode, because if the Eurozone rates begin to move higher, then Denmark will have to keep up, otherwise the peg to the euro gets all out of whack…

You wouldn’t believe the strong move higher versus the dollar that the Chinese allowed the renminbi (CNY) to have overnight! WOW! This is the largest move I’ve seen the Chinese allow since the dropping of the dollar peg in July of 2005. OK… I’ve got to think that this is just “window dressing” for the G-20 summit this weekend in Seoul… The Chinese can point to the move the renminbi has made in the past couple of months, and say, “Hey! We’re doing our part!”

The move could also be to appease the lawmakers in the US and keep them from voting to approve trade sanctions versus China. That could be a case of too little too late, but we’ll have to see, as the mood in Congress could have very well changed since last Tuesday. Again… I’m not for any protectionism measures, as I see grave things, or I should say, grave unintended consequences coming from protectionism measures… Can you say Smoot-Hawley? I thought you could! For non-history buffs, go ahead and Google Smoot-Hawley, and you’ll see that most economists blame these protectionism measures as one of the key reasons the Great Depression was so bad.

If you do not stop to learn from the mistakes that took place in history, then you will repeat them… It’s that simple…

OK… Enough of that! I would love to be in the room this weekend at the G-20 meeting, or better yet a fly on the wall in the back room discussions and deals… I see where US Treasury Secretary Geithner is softening his tone toward the demands for an agreement on Current Account Deficit targets… That’s not a good thing, folks… Wouldn’t it be better for Geithner to come out sandbagging the target and then slowly adjust them higher, than to come out with both guns a-blazin’, and have to back off, and look weak? I’ll tell you what I saw when I heard that he had backed off his earlier demands for Current Account Deficit targets…that we’re going to slide right back into the deficit hole we came from without any change to our deficit spending ways.

So… Did you hear about the kiwi-fruit problem in New Zealand? Apparently, New Zealand kiwi-fruit vines are showing problems and now the US has banned kiwi-fruit imports from New Zealand. This industry accounts for about 1 billion, which for New Zealand is BIG! And that’s the reason for the weakness in the New Zealand dollar/kiwi (NZD). Remember about six years ago, when the pound sterling got the snot knocked out of it, when the mad cow problem rose up? It will take some time for the water to pass under the bridge for New Zealand, just like it did for the UK, but it will…

I’ve gone this long without talking about the dollar and the currencies, except renminbi and kiwi… So… The dollar’s rally was stopped yesterday mid-morning, and the currencies rallied Monday afternoon. There wasn’t much movement overnight, and we’re back to selling dollars this morning…

Did you see where German Finance Minister: Schauble got a little feisty with his counterpart in the US, Tim Geithner, because of Geithner’s constant criticizing of countries for achieving high export surpluses and not doing enough to stimulate their domestic economies. This one hits home with Germany so Fin Min Schauble had this to say back to Mr. Geithner… “The German export successes are not the result of some sort of currency manipulation, but of the increased competitiveness of companies. The American growth model, on the other hand, is in a deep crisis. The United States lived on borrowed money for too long, inflating its financial sector unnecessarily and neglecting its small and mid-sized industrial companies. There are many reasons for America’s problems, but they don’t include German export surpluses.”

You tell him! Besides… Germany has not played the Asian game of weakening their currency to gain exports… Germany has had to live with the offset currency to the dollar’s weakness for the last eight years!

OK… I’m going to go back to China for a few minutes… I gave a presentation last week and made the call that the Chinese renminbi would be the next reserve currency of the world. It could take 15 years, but… At the rate the Chinese are adding countries to do currency swap agreements, it could be even sooner… Well, then today I see on the Bloomie a story that plays well with that call… HSBC Holdings Plc believes that the currency swap agreements in place right now, will begin to be about $2 trillion annually within 5-years, and will equal at least 1/2 of China’s total trade…

That’s right! As I’ve explained before, but for those that either are new to class or missed class… These currency swap agreements that China signs with other countries, allows a greater distribution of the renminbi, for the trade that goes on between China and the other country is only in those two currencies… US dollars are removed from the settlement… For instance, if China buys $1 billion worth of oil from Brazil, the trade is not settled in dollars, as it was in the past. It is a swap of renminbi and real…

The list of countries wanting to remove dollars from their trade settlements, for renminbi is just going to grow, folks… And that’s not a good thing for the dollar… In fact, it’s an awful thing for the dollar…

But remember, before you get mad at China for doing this to the dollar, you need to remember this was all brought on by our deficit spending… Another of those unintended consequences to deficit spending, eh?

And then coming back to gold for a minute too… The latest problems in the Eurozone periphery countries is helping to drive gold higher, too… I didn’t want you to think that I didn’t see that going on…

Then there was this… Have you ever heard of The National Inflation Association? (NIA) Well you should! My fave managing editor, Kat Van Rohr, sent me a link to a story that will shake you to your roots… $77 for a can of coffee? Or $15 for a Hershey bar? Well, the NIA guys believe that inflation is coming our way like a Tsunami! Here’s a snippet…

The average American family currently spends only 13% of their total annual expenditures on food and they spend 34% of their total annual expenditures on housing. NIA projects that by the year 2015, Americans will be spending as much as 40% of their annual expenditures on food, and as little as 10% of their annual expenditures on housing.

NIA believes that because this decade’s Real Estate bubble was so large, Real Estate prices will likely overcorrect to the downside and the median US home will be worth only 500 ounces of silver at some point this decade. Therefore, if you buy just $13,000 worth of physical silver today, NIA believes you will be able to pay cash (without any mortgage) for an average American home within the next 5 to 10 years.

I believe that we’ll see inflation like this, but I think what we’ll see first is corporations trying to keep a lid on prices and they’ll do that by reducing the size of the item you buy… We’re beginning to see this already, with cereal boxes shrinking, and your local sandwich shop has probably reduced the size of the sandwich you used to buy. (Which for me could be a good thing!)

To recap… Gold and silver were the star performers yesterday, with gold trading past $1,400, and silver trading past $27… Today there’s more gold and silver buying, and now silver is trading over $28! WOW! The thinking that the FOMC’s $600 billion QE isn’t going to be enough, and the Eurozone periphery country problems is really pushing gold and silver higher, and higher… Kiwi is getting sold on the news that kiwi-fruit vines have a disease, and the US has banned the fruit from New Zealand. And the Chinese renminbi takes a huge step up in value versus the dollar overnight…

Chuck Butler
for The Daily Reckoning

Gold and Silver Surge Higher originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”

Read more here:
Gold and Silver Surge Higher




The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.

Real Estate, Uncategorized

Gold and Silver Surge Higher

November 9th, 2010

Front and center today, we have gold and silver piling on to their strong performance versus the dollar yesterday. Gold tipped the scales at over $1,400 yesterday afternoon, and hasn’t looked back, adding another $9 this morning! I think that Friday’s sell-off was profit-taking by the hedge funds, etc. and what we are seeing now is more of the “run to wealth providers” as more and more analysts believe that the FOMC is just kidding itself if it thinks $600 billion of quantitative easing (QE) is going to be enough!

In fact, Laurence Meyer, former Fed Head, and vice chairman of Macroeconomic Advisors had this to say about the latest announcement by the Fed Heads of their QE2…. “This is not a very powerful program. The more reluctant they are to expand the balance sheet, the less stimulus they will be putting into the economy and the weaker the recovery will continue to be.” Before the FOMC announcement last week, Meyer had calculated what would happen if the FOMC pumped $1.5 trillion into the economy via QE2… He estimated that if that happened, 2/10ths of a percentage point would come off of the unemployment rate, and economic growth would increase by 3/10ths of a percentage point.

OK… You all know that I’m not enamored with most of these guys that believe that quantitative easing when the market is flush with liquidity like it is right now, is the most prudent thing to do… But now I’ve got to ask the question… Is risking runaway inflation, and the other dastardly things that go along with a ballooning balance sheet for a central bank, worth 2/10ths of a percentage point gain in unemployment, and 3/10ths in GDP growth? I hardly think so! And if little old me sitting here without the gray matter that all the researchers for the Fed Heads have, sees that, then these guys should see it too!

Hey, one thing that got lost in the shuffle last week was the fact that the European Central Bank (ECB) decided to begin an exit from the stimulus they have provided the economies of the 16-nation Union. Of course, that doesn’t exactly mean they are going to exit from the stimulus, but, at least the ECB is talking about it, which is in a completely opposite direction from the FOMC… The implied move to exit does this, folks… It pushes interest rates higher, even if the “official rate” isn’t moved by the ECB. To prove this point, look at Denmark, who has a peg to the euro (EUR), which leads them to keep their interest rates in line with the ECB… After the ECB announcement last Thursday, Denmark has been in panic mode, because if the Eurozone rates begin to move higher, then Denmark will have to keep up, otherwise the peg to the euro gets all out of whack…

You wouldn’t believe the strong move higher versus the dollar that the Chinese allowed the renminbi (CNY) to have overnight! WOW! This is the largest move I’ve seen the Chinese allow since the dropping of the dollar peg in July of 2005. OK… I’ve got to think that this is just “window dressing” for the G-20 summit this weekend in Seoul… The Chinese can point to the move the renminbi has made in the past couple of months, and say, “Hey! We’re doing our part!”

The move could also be to appease the lawmakers in the US and keep them from voting to approve trade sanctions versus China. That could be a case of too little too late, but we’ll have to see, as the mood in Congress could have very well changed since last Tuesday. Again… I’m not for any protectionism measures, as I see grave things, or I should say, grave unintended consequences coming from protectionism measures… Can you say Smoot-Hawley? I thought you could! For non-history buffs, go ahead and Google Smoot-Hawley, and you’ll see that most economists blame these protectionism measures as one of the key reasons the Great Depression was so bad.

If you do not stop to learn from the mistakes that took place in history, then you will repeat them… It’s that simple…

OK… Enough of that! I would love to be in the room this weekend at the G-20 meeting, or better yet a fly on the wall in the back room discussions and deals… I see where US Treasury Secretary Geithner is softening his tone toward the demands for an agreement on Current Account Deficit targets… That’s not a good thing, folks… Wouldn’t it be better for Geithner to come out sandbagging the target and then slowly adjust them higher, than to come out with both guns a-blazin’, and have to back off, and look weak? I’ll tell you what I saw when I heard that he had backed off his earlier demands for Current Account Deficit targets…that we’re going to slide right back into the deficit hole we came from without any change to our deficit spending ways.

So… Did you hear about the kiwi-fruit problem in New Zealand? Apparently, New Zealand kiwi-fruit vines are showing problems and now the US has banned kiwi-fruit imports from New Zealand. This industry accounts for about 1 billion, which for New Zealand is BIG! And that’s the reason for the weakness in the New Zealand dollar/kiwi (NZD). Remember about six years ago, when the pound sterling got the snot knocked out of it, when the mad cow problem rose up? It will take some time for the water to pass under the bridge for New Zealand, just like it did for the UK, but it will…

I’ve gone this long without talking about the dollar and the currencies, except renminbi and kiwi… So… The dollar’s rally was stopped yesterday mid-morning, and the currencies rallied Monday afternoon. There wasn’t much movement overnight, and we’re back to selling dollars this morning…

Did you see where German Finance Minister: Schauble got a little feisty with his counterpart in the US, Tim Geithner, because of Geithner’s constant criticizing of countries for achieving high export surpluses and not doing enough to stimulate their domestic economies. This one hits home with Germany so Fin Min Schauble had this to say back to Mr. Geithner… “The German export successes are not the result of some sort of currency manipulation, but of the increased competitiveness of companies. The American growth model, on the other hand, is in a deep crisis. The United States lived on borrowed money for too long, inflating its financial sector unnecessarily and neglecting its small and mid-sized industrial companies. There are many reasons for America’s problems, but they don’t include German export surpluses.”

You tell him! Besides… Germany has not played the Asian game of weakening their currency to gain exports… Germany has had to live with the offset currency to the dollar’s weakness for the last eight years!

OK… I’m going to go back to China for a few minutes… I gave a presentation last week and made the call that the Chinese renminbi would be the next reserve currency of the world. It could take 15 years, but… At the rate the Chinese are adding countries to do currency swap agreements, it could be even sooner… Well, then today I see on the Bloomie a story that plays well with that call… HSBC Holdings Plc believes that the currency swap agreements in place right now, will begin to be about $2 trillion annually within 5-years, and will equal at least 1/2 of China’s total trade…

That’s right! As I’ve explained before, but for those that either are new to class or missed class… These currency swap agreements that China signs with other countries, allows a greater distribution of the renminbi, for the trade that goes on between China and the other country is only in those two currencies… US dollars are removed from the settlement… For instance, if China buys $1 billion worth of oil from Brazil, the trade is not settled in dollars, as it was in the past. It is a swap of renminbi and real…

The list of countries wanting to remove dollars from their trade settlements, for renminbi is just going to grow, folks… And that’s not a good thing for the dollar… In fact, it’s an awful thing for the dollar…

But remember, before you get mad at China for doing this to the dollar, you need to remember this was all brought on by our deficit spending… Another of those unintended consequences to deficit spending, eh?

And then coming back to gold for a minute too… The latest problems in the Eurozone periphery countries is helping to drive gold higher, too… I didn’t want you to think that I didn’t see that going on…

Then there was this… Have you ever heard of The National Inflation Association? (NIA) Well you should! My fave managing editor, Kat Van Rohr, sent me a link to a story that will shake you to your roots… $77 for a can of coffee? Or $15 for a Hershey bar? Well, the NIA guys believe that inflation is coming our way like a Tsunami! Here’s a snippet…

The average American family currently spends only 13% of their total annual expenditures on food and they spend 34% of their total annual expenditures on housing. NIA projects that by the year 2015, Americans will be spending as much as 40% of their annual expenditures on food, and as little as 10% of their annual expenditures on housing.

NIA believes that because this decade’s Real Estate bubble was so large, Real Estate prices will likely overcorrect to the downside and the median US home will be worth only 500 ounces of silver at some point this decade. Therefore, if you buy just $13,000 worth of physical silver today, NIA believes you will be able to pay cash (without any mortgage) for an average American home within the next 5 to 10 years.

I believe that we’ll see inflation like this, but I think what we’ll see first is corporations trying to keep a lid on prices and they’ll do that by reducing the size of the item you buy… We’re beginning to see this already, with cereal boxes shrinking, and your local sandwich shop has probably reduced the size of the sandwich you used to buy. (Which for me could be a good thing!)

To recap… Gold and silver were the star performers yesterday, with gold trading past $1,400, and silver trading past $27… Today there’s more gold and silver buying, and now silver is trading over $28! WOW! The thinking that the FOMC’s $600 billion QE isn’t going to be enough, and the Eurozone periphery country problems is really pushing gold and silver higher, and higher… Kiwi is getting sold on the news that kiwi-fruit vines have a disease, and the US has banned the fruit from New Zealand. And the Chinese renminbi takes a huge step up in value versus the dollar overnight…

Chuck Butler
for The Daily Reckoning

Gold and Silver Surge Higher originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”

Read more here:
Gold and Silver Surge Higher




The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.

Real Estate, Uncategorized

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