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Posts Tagged ‘portugal’

Barack Obama Has Destroyed The Future of America In Order To Improve His Chances Of Winning The Next Election

August 30th, 2012

Michael Snyder: Barack Obama has destroyed the future of America in order to improve his chances of winning the next election.  Under Obama, 5.3 trillion dollars has been ruthlessly stolen from our children and our grandchildren.  That money has been used to pump Read more…

Economy, Government

This Is What Happens When You Allow Your Country To Become Enslaved To The Bankers

August 20th, 2012

Michael Snyder: Why are Greece, Spain, Italy, Portugal and so many other countries experiencing depression-like conditions right now?  It is because they have too much debt.  Read more…

Economy, Financials

European Default Inevitable — Sell Your Gold?

October 7th, 2011

In the prequel to this article (European Default Inevitable — Sell Your Gold?), I discussed the fact that safe-haven-seeking investors could be in for a surprise when they run to buy gold after a Greek default and find huge sellers in Read more…

ETF, Mutual Fund, Uncategorized

Signs Pointing to Another Round of Global Recession

June 4th, 2011

Bryan RichOver the past several weeks it’s become clear that the global economy is turning down …

*Japan returned to recession last month. So did Denmark.

*Malaysia, Botswana, Ireland, Australia, Portugal and Norway all posted negative GDP growth in the most recent quarter.

*The euro zone, laden with insolvent countries, is growing at just 0.8 percent. And Germany, the star of the euro zone, is only growing at 1.5 percent — well below its trend growth.

*And there is an increasing likelihood that Europe is in store for a destabilizing economic shock — through a euro member sovereign debt default or a member departure from the monetary union. At best, euro-zone countries could get another extension to put off those aforementioned scenarios, through even more stifling austerity measures.

Given that backdrop, Europe could be quick to follow Japan and Denmark into recession.

As for the UK: The new coalition government came in last year slashing spending and raising taxes in order to curtail its bulging deficit. Yet its deficit has barely budged. Nor has its economy. In fact, it’s flat lined for the past six months — no growth.

How about the Largest
Economy in the World?

This was expected to be a gangbuster year for the U.S. recovery, many private economists were foreseeing above 4 percent growth — some estimates were as high as 5 percent. But it’s turning out to be quite different …

The annualized growth for the first quarter is coming in at just 1.8 percent! That’s not only well below expectations, but well below the country’s historical growth trend, even following unprecedented government stimulus.

That was last quarter. This quarter is looking even worse …

  • The U.S. housing market is at new post-bubble burst lows, exceeding the decline marked in the Great Depression.
  • Manufacturing activity just recorded the worst slide since 1984.
  • Confidence has plunged to six month lows.
  • And employment growth has now slowed sharply.
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At Least We Have China
to Lean on, Right?

Not so fast.

Throughout the global financial crisis where more than 60 countries were simultaneously in recession, China’s economy still put up solid — in some cases, eye popping — growth. Of course, it took the largest fiscal stimulus package in the world (relative to GDP) to produce that growth. But it was in China’s direction where the rest of the world looked, to spearhead a global recovery.

Don't expect China to prop up the global economy during the next recession.

Don’t expect China to prop up the global economy during the next recession.

This time, this downturn, China won’t be there to open up the spigot of money on its economy. Nor will China have such easy money to spread around the world. Its economy is already overheated. That’s why the Chinese have been in a fight to shut the spigot and mop up the money. And it’s proving a difficult fight.

Moreover, this time a recession would be accompanied by a sovereign debt crisis that could make the fallout that followed the failure of Lehman Brothers look like just the opening act.

But the next wave of economic pain shouldn’t take anyone by surprise. In fact, history shows us it’s exactly what we should be expecting following a widespread synchronized global financial crisis and global recession … more booms, more busts, more shocks and a long bumpy road to recovery.

In sum: If the recent data is truly signaling another round of recession, and if the crisis in global sovereign debt does, in fact, play out according to history (i.e. defaults), then expect this round of economic downturn to be worse than the first. After all, the global government ammunition that created the first technical recovery has been all but exhausted.

With that scenario in mind, the answer on whether global investors should be in “risk-on” or “risk-off” mode is pretty simple.

Regards,

Bryan

Read more here:
Signs Pointing to Another Round of Global Recession

Commodities, ETF, Mutual Fund, Uncategorized

Gold and Silver Part Ways?

June 3rd, 2011

By Raghu Gullapalli, contributing writer

GLD SLV

 Just this morning an absolutely abysmal jobs report was released. This latest news on top of the steady stream of poor economic reports over the past week will no doubt conspire to push the market down. The S&P 500 is down to 1,300 levels and may well seek out the long-term support at 1,250. And on top of all this domestic turbulence, lies the desperate situation in the Eurozone and their dealings with the PIIGS; Portugal, Ireland, Italy, Greece and Spain.

 Economists of all stripes are talking about a double dip recession and under those circumstances you would think there would be a flight to the security of precious metals. While recent increases in margin requirements may reduced the fervor for such investments than in recent months, it will not completely dampen the enthusiasm of many for Exchange Traded Funds (ETF) that can be erstwhile proxies. After all in the midst of all this new terrible news, what is the dollar doing? Tanking!

Much of the speculation has been shaken out of the Silver trade, especially after the dramatic 30% pullback from its all time highs in the first two weeks of May. Despite these more reasonable prices, and its recent range bound state, there has been little or no appetite for Silver.  iShares Silver Trust (SLV) is continuing to trade below its 55 day moving average but comfortably above the 210 day moving average.  Smartstops has the short-term stop at $33.09  and the long-term stop at $32.58

ETF, Uncategorized

Gold Rallies in the Ugly Face of Financial Markets

June 2nd, 2011

There is beauty in life, and there is truth. The two are not mutually exclusive, necessarily, though a coincidence can be rare. Often times, the truth is not as attractive as we would like for it to be. And sometimes beauty is but a lie. But every once in a while, the two converge…and the result is rarely displeasing.

More on truth and beauty below, but first, a look at the unusually ugly, perennially untrustworthy financial markets…

The Dow was down by as much as 78 points in morning trading today, adding to yesterday’s 280 point shellacking. Not as attractive as some might have hoped, in other words, but probably more in line with the true, underlying economic trends of the day. The 30 bluest chips on the US market are down more than 500 points (4.1%) over the past month. The newspapers, as usual, are in a scramble trying to determine the cause of the sudden market unrest. And, as usual, they miss the forest for the trees.

Ventured one stock analyst earlier in the week, as quoted by MarketWatch:

“While it is clear economic statistics have softened, we believe this is largely attributable to Japan, the European debt debacle, the Middle East and our continuing weird weather.”

To which he might as well have added, “and the now-confirmed double dip in the US housing market…and generation-high unemployment…and the unreliability of official statistics…and the rise in commodity prices…and the deathly creep of inflation…and the lackluster performance of the home team in this or that local circus/sporting event…”

While it is true that markets react to events such as those described above, it is a mistake to assume that said events occur in a vacuum. Far from being the cause of market distress, they are in fact symptoms of a much greater problem. It is a problem that ratings agency Moody’s – typically late on the scene – addressed just this morning, when it threatened to “place the US government’s rating under review for possible downgrade” if there is no progress made on increasing the statutory debt limit in coming weeks.

Apparently investors needed a friendly reminder from the ratings agencies that the world’s largest economy is also the world’s (and perhaps history’s) largest debtor. Never mind about Greece, or Portugal, or even Spain. Let’s remember for a moment who is holding, by far, the biggest bag of I.O.U.s…about 14.3 trillion of them, at last count.

Gold, that magnificently honest metal, responded to Moody’s announcement exactly as you would expect it to respond. It rallied. In fact, it rallied by about $15 within a couple of hours.

In many ways, gold can be seen as a kind of “BS barometer.” The less trustworthy a currency becomes, the less respect gold affords it.

Over the medium haul – which is to say, the past decade – the anti-dollar hedge has performed this task rather admirably. At the turn of the century, one greenback was worth about 1/250th an ounce of gold. Today, the world’s temporarily preferred fiat money is barely worth 1/1,500th of an ounce.

Gold is beautiful for many reasons, but chief among them must be the fact that it doesn’t tell lies. Gold is beautiful and it is true, in other words…and it is also beautiful because it is true. It responds dutifully, dispassionately to safe haven demand; demand nurtured by reckless and untrustworthy policies perpetrated by those in a position to manipulate dishonest paper currencies.

Expect gold, therefore, to continue “calling BS” on the United States’ commitment to a “strong dollar policy” in the months and years ahead.

Joel Bowman
for The Daily Reckoning

Gold Rallies in the Ugly Face of Financial Markets originally appeared in the Daily Reckoning. The Daily Reckoning provides over half a million subscribers with literary economic perspective, global market analysis, and contrarian investment ideas.

Read more here:
Gold Rallies in the Ugly Face of Financial Markets




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 Rallies in the Ugly Face of Financial Markets

June 2nd, 2011

There is beauty in life, and there is truth. The two are not mutually exclusive, necessarily, though a coincidence can be rare. Often times, the truth is not as attractive as we would like for it to be. And sometimes beauty is but a lie. But every once in a while, the two converge…and the result is rarely displeasing.

More on truth and beauty below, but first, a look at the unusually ugly, perennially untrustworthy financial markets…

The Dow was down by as much as 78 points in morning trading today, adding to yesterday’s 280 point shellacking. Not as attractive as some might have hoped, in other words, but probably more in line with the true, underlying economic trends of the day. The 30 bluest chips on the US market are down more than 500 points (4.1%) over the past month. The newspapers, as usual, are in a scramble trying to determine the cause of the sudden market unrest. And, as usual, they miss the forest for the trees.

Ventured one stock analyst earlier in the week, as quoted by MarketWatch:

“While it is clear economic statistics have softened, we believe this is largely attributable to Japan, the European debt debacle, the Middle East and our continuing weird weather.”

To which he might as well have added, “and the now-confirmed double dip in the US housing market…and generation-high unemployment…and the unreliability of official statistics…and the rise in commodity prices…and the deathly creep of inflation…and the lackluster performance of the home team in this or that local circus/sporting event…”

While it is true that markets react to events such as those described above, it is a mistake to assume that said events occur in a vacuum. Far from being the cause of market distress, they are in fact symptoms of a much greater problem. It is a problem that ratings agency Moody’s – typically late on the scene – addressed just this morning, when it threatened to “place the US government’s rating under review for possible downgrade” if there is no progress made on increasing the statutory debt limit in coming weeks.

Apparently investors needed a friendly reminder from the ratings agencies that the world’s largest economy is also the world’s (and perhaps history’s) largest debtor. Never mind about Greece, or Portugal, or even Spain. Let’s remember for a moment who is holding, by far, the biggest bag of I.O.U.s…about 14.3 trillion of them, at last count.

Gold, that magnificently honest metal, responded to Moody’s announcement exactly as you would expect it to respond. It rallied. In fact, it rallied by about $15 within a couple of hours.

In many ways, gold can be seen as a kind of “BS barometer.” The less trustworthy a currency becomes, the less respect gold affords it.

Over the medium haul – which is to say, the past decade – the anti-dollar hedge has performed this task rather admirably. At the turn of the century, one greenback was worth about 1/250th an ounce of gold. Today, the world’s temporarily preferred fiat money is barely worth 1/1,500th of an ounce.

Gold is beautiful for many reasons, but chief among them must be the fact that it doesn’t tell lies. Gold is beautiful and it is true, in other words…and it is also beautiful because it is true. It responds dutifully, dispassionately to safe haven demand; demand nurtured by reckless and untrustworthy policies perpetrated by those in a position to manipulate dishonest paper currencies.

Expect gold, therefore, to continue “calling BS” on the United States’ commitment to a “strong dollar policy” in the months and years ahead.

Joel Bowman
for The Daily Reckoning

Gold Rallies in the Ugly Face of Financial Markets originally appeared in the Daily Reckoning. The Daily Reckoning provides over half a million subscribers with literary economic perspective, global market analysis, and contrarian investment ideas.

Read more here:
Gold Rallies in the Ugly Face of Financial Markets




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

Germany to Push Aid to Greece

May 31st, 2011

The currencies, led by the resurgent euro (EUR), are stronger across the board versus the dollar, this morning. A German newspaper reported that Germany was considering dropping its push for early restructuring of Greek debt before they would facilitate aid for Greece. This news has lifted a heavy weight from the euro’s shoulders, and the single unit is up to 1.4410… I would have to think that when the boys and girls return from the Hamptons, the US traders would tend to like this news too, and the euro could see a further push higher today.

I would like to think that this Greek debt thing can all be put to bed…but I’m not naïve… And I didn’t just fall off the turnip truck! Their debt problems have become a huge albatross hanging on the neck of the euro… And some people/analysts believe this will eventually be the end of the euro…or that we end up with a “northern euro” and a “southern euro”…

All I’ll say about that is that in 2005 – when the euro suffered “no votes” and the US had an amnesty tax – these same analysts said the euro would collapse… It didn’t… In 2008, when the financial meltdown brought about a huge dollar rally, these same analysts again said the euro would collapse… In fact, one analyst – with whom I traveled on the FX University Tours – told the audiences that not only would the euro collapse, but that the dollar was going to go on a multi-year rally… Neither one happened… And then in January of 2010, when Greece’s problems first appeared on the scene, the euro got sold, and those same analysts called for a collapse of the euro again… It didn’t happen… Of course if they just keep crying wolf, eventually they might be right, but… When will that be? HA!

While I think the euro will suffer periods of deep-rooted selling, it’s like I’ve described to you before… It’s ugly… But what’s uglier? Greece, Ireland and Portugal… Or California, Michigan and Illinois? And in the end, that’s what it’s all about… Who’s uglier?

The New Zealand dollar/kiwi (NZD) has really caught some strong wind in its sails for the past week. In fact, overnight, kiwi hit a post-float high of 0.8254 (right now at 0.8240)… Think about that for a minute, folks… This country has experienced some devastating earthquakes, and just like I said when it all happened, the kiwis are strong people and are likely to rebound quickly, along with the currency… And now, here we are at the end of May, and the currency just hit an all-time high! Remember last week when I told you that the kiwi hadn’t traded at 81-cents since before the financial meltdown…. Well, it’s stronger than that now!

The thing that really kicked kiwi higher overnight was the printing of a very strong rebound of Business Confidence in May…

New Zealand’s kissin’ cousin across the Tasman, Australia, is seeing some mixed trading, with the Aussie dollar (AUD) stronger, but being held back by rumors that Australia will print negative growth for the second quarter… After the floods, cyclones, and other things the Aussies have had to deal with in the past year, one would expect that a battening down of the hatches at home would occur, and GDP would take a temporary hit, which is exactly what I see here…

Yesterday, Canada printed a very strong follow-through for their economy… Following up on the fourth quarter 3.1% growth, first quarter GDP printed at 3.9%… I would think that Bank of Canada Governor Carney, would back off his concern that the strength of the Canadian dollar/loonie (CAD) wasn’t a problem for the economy… Or maybe I’m just “wishin’, and hopin’, and thinkin’ and prayin’” that he would… But for some strange reason, something keeps telling me that Carney isn’t going to use the strong loonie to his advantage. Why would he? He was educated here and at Oxford… Same old teachings to economists that become central bankers… Let’s see… There’s another one on the tip of my tongue… Oh yeah! Big Ben Bernanke!

So… In the end, the loonie has everything going for it right now… A strong economy… Oil over $100 (actually at $102 this morning)… And their other raw materials rising in price. Yes, all the things that scream “rate hikes” … Maybe, eventually, Carney will see the writing on the wall! Until then, the loonie should remain underpinned by the strong data…

OH! And the Bank of Canada (BOC) meets this morning to discuss rates… With Carney’s current frame of mind on the strength of the loonie, I doubt that we’ll see a rate hike today…

And then in Brazil… Where just a couple of weeks ago it looked like the government’s attempts to stem the gains in the real (BRL) were beginning to work… The real goes on a 3-day rally that has the currency back below 1.60…

And as I look at the screens, gold and silver are posting positive numbers, this morning… Silver continues to work its way back in the good graces of metals investors, and gold just carries on despite all the calls for the opposite to happen to the shiny metal… Not from me, of course! But from people that don’t “get it” about gold…

And then here in the US we just finished a week where we saw below-forecast economic growth, and a weaker-than-expected consumer spending number for the first quarter… And foreclosures that are really gearing up again. Then we’ll end this week with a Jobs Jamboree… The downside risks for jobs growth will hang over the markets this week, like the Sword of Damocles… Until we get to Friday, however, when we have some other data that won’t be dollar-friendly…

First, today, we’ll see the color of the March S&P/CaseShiller Home Price Index, which will most likely show further rot on the vine for home prices… And with each disappointing data print, the whispering campaign for further stimulus that began last week (but that Pfennig readers knew about for months) will get a little louder…

And with a quick look to the “bond page” on my Bloomie, I see that 10-year Treasury yields continue to slip (3.10%)… Well with US yields grinding lower, the rate differentials – which I talked about as coming back as a fundamental for currencies – just work against the dollar…

The “other country with a huge debt burden” (Japan) saw Moody’s put their credit rating on review for a possible downgrade… The rating agency, Fitch, had announced the same thing last Friday… I really don’t think that these shots across Japan’s bow by the ratings agencies have much to do with the yen’s ability to remain strong or not… Basically, yen (JPY) is weaker today because of the rise in risk appetite… Which means that dollars and yen get sold…

Then there was this… From USA Today

Two years have passed since the Great Recession ended, but the US recovery is weak. Previously, deep US recessions were followed by robust rebounds, but that’s not happening this time. A survey by the Pew Charitable Trusts found that 55% of Americans think the US economy is poor. “We’re two years into a recovery, and everybody’s yelling, ‘Are we there yet?’” says Wells Fargo economist Mark Vitner. “You should be putting the recession behind you and talking about where growth is coming from. Instead, we’re still dealing with residual problems from the recession.”

Yes… This is what I’ve been talking about… And I chuckle about the “official end of the recession being June 9, 2009… Yeah, tell that to the over 20% of Americans still looking for jobs!

And I can’t forget to explain something I talked about in Friday’s “First Quarter US GDP Sends the Dollar to the Woodshed”… I was really remiss in not talking about the difference between the US’s GDP and Sweden’s… What I was thinking and then forgot to type, was that the US economy had received trillions of dollars of stimulus, while Sweden had not received any… Which is why I was more impressed with Sweden’s GDP than ours… Hope that helps explain my thought..

To recap… There are reports that the Germans will give Greece aid without requiring a restructuring of the debt first… This news has the euro rallying and dragging all the other currencies along for the rally versus the dollar. Kiwi hit a post-float high overnight, and Aussie dollars remain strong in spite of the rumors of a disappointing quarter for growth. The Bank of Canada meets today, but no rate hike is expected, as Governor Carney is not happy with the loonie strength right now.

Chuck Butler
for The Daily Reckoning

Germany to Push Aid to Greece originally appeared in the Daily Reckoning. The Daily Reckoning provides over half a million subscribers with literary economic perspective, global market analysis, and contrarian investment ideas.

Read more here:
Germany to Push Aid to Greece




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

European Debt Crisis Accelerating … Again!

May 27th, 2011

Mike LarsonOh boy, here we go again! After trying to paper over the problem for several months, the European Central Bank (ECB) is rapidly losing its battle against the debt crisis in the “PIIGS” countries — Portugal, Ireland, Italy, Greece, and Spain.

In the past several days …

* Greek 10-year note yields blew out to a new record high of 17 percent, compared with 7.8 percent a year ago …

* Portuguese yields surged as high as 9.7 percent from 4.6 percent a year ago, while Irish yields hit a new crisis high of 10.8 percent …

* Plus, the crisis spread more aggressively to larger European economies like Spain and Italy. The premium investors demanded to hold Spanish bonds over core German debt surged to a four-month high, while Italian bond yields rose sharply.

Standard & Poor’s put Italy’s “A+” credit rating on negative watch, citing the country’s large debt load (120 percent of GDP) and slowing economic growth. Meanwhile, the Socialist party in Spain was routed in elections. That raised concern the government won’t be able to push through unpopular programs to reduce that country’s budget deficit.

Worse, the European debt crisis is intensifying at the same time that evidence of a U.S. economic slowdown is mounting! So if you haven’t taken protective action yet — or better yet, taken steps to profit — it’s time to get moving!

You Can’t Combat a SOLVENCY Crisis with
Programs to Fight a LIQUIDITY Crisis!

More than a year ago, key policymakers in Europe pushed through a massive $1.1 trillion bailout program to fight what was then a big run-up in yields on sovereign debt in the PIIGS.

Those programs were designed to restore liquidity to the market for government bonds, and to give governments some breathing room. The ECB subsequently extended hundreds of billions of euros in loans against government bond collateral — debts issued by the PIIGS — to keep troubled banks afloat.

Those moves restored some semblance of LIQUIDITY to the government bond market. But the problem isn’t liquidity, it’s SOLVENCY! The governments of the PIIGS countries simply borrowed and spent too much. And now they don’t have the economic growth and tax revenue to pay those debts back at their full face value.

The only real way out of this crisis is to crunch the debts: Haircut the bonds, reduce the countries’ debt burdens, and set the stage for longer-term healthy growth. But the ECB and hundreds of private banks are standing in the way because that would force them to realize billions and billions of euros in losses. That, in turn, would open up huge capital holes in the balance sheets of many banks and lead to outright failures.

So we get this game of “extend and pretend.” It lasts for a while until the crisis gets so severe, that no amount of subterfuge can hold back the flood. Then government bond prices tank, government bond yields soar, and stock markets get hammered across the board.

Advertisement

U.S. Fed Playing Same Game as ECB …
and the Results Are Just as Lousy!

The Fed isn't doing anything to restore solvency.

The Fed isn’t doing anything to restore solvency.

I believe the market action in Europe has major implications for the U.S. down the road. Why? Many of the “solutions” from the Federal Reserve and federal government for the banking and housing sectors have also been designed to restore liquidity. They do NOT solve the real problem — that we borrowed and lent too much money against collateral (houses, commercial real estate, etc.) that is still declining in value.

Is it any wonder, then, that bank stocks are rolling over again?

That the shares of mortgage insurance companies — which make banks whole when borrowers default — are setting new cycle lows?

That home prices are once again plumbing new depths in some markets — and dangerously close to doing so nationwide?

Or that the U.S. economy is slowing fast, as I’ve been telling you the past few weeks?

My recommended responses to these multiple crises are clear and straightforward: Take profits off the table on longer-term investments, and target profits from downside moves in key sectors and asset classes!

Until next time,

Mike

Read more here:
European Debt Crisis Accelerating … Again!

Commodities, ETF, Mutual Fund, Real Estate, Uncategorized

Preparing Your Investments for an Inflationary Future

May 26th, 2011

Let the boxing match begin!…In the near corner, we find deflation, with its furious fists of debt liquidation and credit contraction… And in the far corner, we’ve got Ben Bernanke’s printing press, with its menacing inflationary uppercut.

Inflation will win this contest eventually, but the match might go the full 12 rounds.

Deflation is no slouch. He packs a mean punch. Borrowers of all types – from single-family mortgage-holders to national governments – are defaulting on their loans…or moving rapidly in that direction. As the weakest of these borrowers fails, asset prices fall and confidence wanes, both of which produce additional defaults. Once this vicious cycle gains fury, all but the strongest – or least leveraged – borrowers endure.

If Greece defaults, for example, Ireland might follow…and so might Portugal and Spain, etc. If Greece defaults, a contagion becomes quite likely, as the folks who are kicking in their tax dollars to the European Central Bank and the IMF begin to realize that their bailouts are futile. Eventually, the taxpayers from relatively solvent nations resist pouring their capital down Greek, Irish or Portuguese rat holes. Eventually, the bailouts end and the defaults – politely known as “restructurings” – begin.

Aware of this grim prospect and fearful of deflationary forces in general, the Central Banks of America and Europe have been counterpunching with various combinations of money-printing, subsidized lending and debt-financed bailouts. In other words, all the classic inflationary responses, plus a few innovations like quantitative easing.

The match between deflation and inflation looks like a draw so far. The global economy is not slipping into a deflationary abyss. On the other hand, inflationary effects are popping up in numerous inconvenient places.

Based on official US data, the Consumer Price Index (CPI) is up 3.2% over the last 12 months, while the Producer Price Index (PPI) is up 6.8%. Both numbers are higher than in recent history, but neither one seems particularly terrifying…on the surface.

When you dig down into the numbers, however, you discover that these inflation rates are accelerating rapidly. During the first four months of this year, the CPI has jumped 9.7% annualized, while the PPI has soared at a 12.8% annualized pace.

Import prices are also rocketing higher – up 2.2% in April, after a 2.6% jump the previous month. Year-over-year, import prices are up a hefty 11.1%. But once again, the trend is accelerating. For the first four months of this year, import prices have increased at a 26.7% annualized rate!

Let’s put these facts and figures into a real-world context. Based on the lowest of these various inflation data, the CPI, the average US wage earner has made no progress whatsoever during the last four years…

US average per capita weekly earnings have increased about 12% since the beginning of 2006. But since the CPI has increased the same amount, that means inflation has wiped out all the growth of weekly earnings.

If, as we suspect, the forces of inflation continue to prevail in this contest, hard asset investments should perform well, at least relative to most other options. But this analysis is not new news to faithful Daily Reckoning readers. It’s probably not even new news to unfaithful Daily Reckoning readers. (You know who you are!)

We’ve been singing the praises of hard assets like gold and silver for many, many years. In fact, we’ve been talking up had assets for so long that our analysis would be growing tiresome by now…if not for the fact that it has been profitable.

Even so, your editor does not wish to grow tiresome to anyone – not to his kids, not to his girlfriend and certainly not to his Daily Reckoning readers. So he will add a nuance to his monotonous “buy hard assets” mantra.

Here goes: If inflation takes hold as we expect, the allocations in your portfolio that are not hard asset investments should, nevertheless, possess hard asset attributes. When allocating to specific stocks, for example, insist that those stocks possess two key attributes:

1) Significant exposure to non-dollar revenues.
2) Significant pricing power, even in an inflationary cycle.

A strong balance sheet and solid cash flow also help.

Eric Fry
for The Daily Reckoning

Preparing Your Investments for an Inflationary Future originally appeared in the Daily Reckoning. The Daily Reckoning provides over half a million subscribers with literary economic perspective, global market analysis, and contrarian investment ideas.

Read more here:
Preparing Your Investments for an Inflationary Future




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.

OPTIONS, Uncategorized

Preparing Your Investments for an Inflationary Future

May 26th, 2011

Let the boxing match begin!…In the near corner, we find deflation, with its furious fists of debt liquidation and credit contraction… And in the far corner, we’ve got Ben Bernanke’s printing press, with its menacing inflationary uppercut.

Inflation will win this contest eventually, but the match might go the full 12 rounds.

Deflation is no slouch. He packs a mean punch. Borrowers of all types – from single-family mortgage-holders to national governments – are defaulting on their loans…or moving rapidly in that direction. As the weakest of these borrowers fails, asset prices fall and confidence wanes, both of which produce additional defaults. Once this vicious cycle gains fury, all but the strongest – or least leveraged – borrowers endure.

If Greece defaults, for example, Ireland might follow…and so might Portugal and Spain, etc. If Greece defaults, a contagion becomes quite likely, as the folks who are kicking in their tax dollars to the European Central Bank and the IMF begin to realize that their bailouts are futile. Eventually, the taxpayers from relatively solvent nations resist pouring their capital down Greek, Irish or Portuguese rat holes. Eventually, the bailouts end and the defaults – politely known as “restructurings” – begin.

Aware of this grim prospect and fearful of deflationary forces in general, the Central Banks of America and Europe have been counterpunching with various combinations of money-printing, subsidized lending and debt-financed bailouts. In other words, all the classic inflationary responses, plus a few innovations like quantitative easing.

The match between deflation and inflation looks like a draw so far. The global economy is not slipping into a deflationary abyss. On the other hand, inflationary effects are popping up in numerous inconvenient places.

Based on official US data, the Consumer Price Index (CPI) is up 3.2% over the last 12 months, while the Producer Price Index (PPI) is up 6.8%. Both numbers are higher than in recent history, but neither one seems particularly terrifying…on the surface.

When you dig down into the numbers, however, you discover that these inflation rates are accelerating rapidly. During the first four months of this year, the CPI has jumped 9.7% annualized, while the PPI has soared at a 12.8% annualized pace.

Import prices are also rocketing higher – up 2.2% in April, after a 2.6% jump the previous month. Year-over-year, import prices are up a hefty 11.1%. But once again, the trend is accelerating. For the first four months of this year, import prices have increased at a 26.7% annualized rate!

Let’s put these facts and figures into a real-world context. Based on the lowest of these various inflation data, the CPI, the average US wage earner has made no progress whatsoever during the last four years…

US average per capita weekly earnings have increased about 12% since the beginning of 2006. But since the CPI has increased the same amount, that means inflation has wiped out all the growth of weekly earnings.

If, as we suspect, the forces of inflation continue to prevail in this contest, hard asset investments should perform well, at least relative to most other options. But this analysis is not new news to faithful Daily Reckoning readers. It’s probably not even new news to unfaithful Daily Reckoning readers. (You know who you are!)

We’ve been singing the praises of hard assets like gold and silver for many, many years. In fact, we’ve been talking up had assets for so long that our analysis would be growing tiresome by now…if not for the fact that it has been profitable.

Even so, your editor does not wish to grow tiresome to anyone – not to his kids, not to his girlfriend and certainly not to his Daily Reckoning readers. So he will add a nuance to his monotonous “buy hard assets” mantra.

Here goes: If inflation takes hold as we expect, the allocations in your portfolio that are not hard asset investments should, nevertheless, possess hard asset attributes. When allocating to specific stocks, for example, insist that those stocks possess two key attributes:

1) Significant exposure to non-dollar revenues.
2) Significant pricing power, even in an inflationary cycle.

A strong balance sheet and solid cash flow also help.

Eric Fry
for The Daily Reckoning

Preparing Your Investments for an Inflationary Future originally appeared in the Daily Reckoning. The Daily Reckoning provides over half a million subscribers with literary economic perspective, global market analysis, and contrarian investment ideas.

Read more here:
Preparing Your Investments for an Inflationary Future




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.

OPTIONS, Uncategorized

Three Paths Out of the Government Debt Trap

May 25th, 2011

Claus Vogt

The governments of Portugal, Ireland, Italy, Greece, and Spain have a problem very similar to the U.S. and many other countries. It’s easy to describe: Too much debt as the result of living beyond their means for way too long. So looking at the PIIGS is like opening a window to the future of the United States.

The PIIGS are at the forefront of a development that will soon reach global proportions. And there is no easy way out. But most of the voters and their leaders still don’t get it. And many who do get it simply look the other way because they don’t like what they see.

I don’t like it either. But I always knew that something like this couldn’t go on forever. There are economic laws that can’t be aborted … not by political will, not by chicanery and not by central bank arrogance. Greenspan, Bernanke, Geithner surely knew this when they made their reckless decisions.

Now it’s too late. There is no easy way out, just hardship and struggle. And the longer we wait to address the problem the harder it gets.

The way I see it, there are three possible paths governments can take …

Path #1 — Budget Cuts:
Nobody likes the
bitter medicine!

Demonstrations against budget cuts have spread throughout Europe.

Demonstrations against budget cuts have spread throughout Europe.

In Spain and Greece for instance, citizens are demonstrating, striking, revolting. Think about it: Anti-government protests, publicly shouting for the economic crisis to go away.

While at the same time they’re not willing to accept the necessary steps to get the economy back on a healthy and sustainable growth path! Why? Because in the short run it would bring more hardship.

There is also an important psychological force in play …

Political leaders of all stripes have consistently told voters that it was possible to get something for nothing, to bring about growth and wealth creation by printing money and going ever deeper into debt.

Now it’s backfired! And voters are dead set against doing what it takes to make things right.

The U.S. is still behind the PIIGS. But with actual and planned budget deficits of more than $1 trillion as far as the eye can see, it will quickly catch up.

That brings me to …

Path #2 — Government Defaults:
Ignite global banking crisis!

Default is an option, of course. And financial history is littered with examples of governments opting for this escape hatch. For the have-nots this solution sounds attractive.

They seem to have nothing to lose. They may think that after defaulting on its debts the government will go on exactly as before, and the world can turn back to what seemed to be normal for too long. That the lenders, such as China, who were treated badly and robbed with the stroke of a pen would quickly be back lending fresh money to the robbers.

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And maybe they would. But I think it’s wishful thinking, a mirage.

They’ll likely say, “Fool me once, shame on you. Fool me twice, shame on me.”

There is another argument against the default escape hatch. Big banks and insurance companies are major holders of government debt. A default would throw us into another banking crisis, larger than the one of 2008, and possibly of biblical proportions.

Major financial institutions  could face cataclysmic losses if governments default.

Major financial institutions could face cataclysmic losses if governments default.

The financial industry has an influential lobby. They will try everything to avoid a default and protect their interests. They stand a very good chance of succeeding, at least in the UK and the U.S.

Now, let’s look at the political favorite …

Path #3 — Crank Up the Presses:
Kick the can, once again!

If the majority of voters oppose spending cuts and the financial industry exerts enough pressure to sideline defaults, there is just one option left: Money printing.

That’s exactly what Ben Bernanke has always recommended. This advice was his ticket to the Fed chairmanship. And the case for him getting what he wants seems to grow stronger by the day.

As an investor you should understand these interrelations. Inflation is not a necessity, but a political choice. To me it seems to be the most probable one. That’s why I keep recommending gold as an insurance policy against runaway inflation.

Short term I expect a price correction in gold. If this turns out to be the case, you should consider it a buying opportunity. Either coins, bars or an ETF like GLD.

Best wishes,

Claus

Read more here:
Three Paths Out of the Government Debt Trap

Commodities, ETF, Mutual Fund, Uncategorized

What Will Happen As QE2 Ends?

May 24th, 2011

The euro (FXE) slid compared to the US dollar (UUP) after meeting and reversing at its long-term downtrend resistance line two weeks ago. About four weeks prior to that, I alerted readers that the euro could reverse lower supporting precious metal prices. In a March 28 article I wrote, “Watch for a move out of the euro to support precious metals prices as the euro reaches its descending upper resistance level. For the past two years the euro and the dollar have done this inverted dance wherein one goes up and the other goes down. But one thing I am not fooled about is the fact that they are both in secular long-term downtrends.”

The euro continued to press higher on the hopes of a recovery from July of 2010 until May of 2011. The decline in the euro is due to expectations of further bailouts in Europe and the European Central Bank taking a very dovish position by not raising interest rates. Greece is on the brink of default and Portugal may receive additional assistance. We are witnessing pressure put on the euro and capital flowing into the US dollar which has forced some UD dollar (UDN) bears to cover their aggressive short positions. This short covering rally in the US dollar has caused a commodity (DBC) de-leveraging forcing hedge funds to raise cash reducing their exposure to commodity-related equities.

Don’t forget that the US is dealing with its own domestic economic issues combined with a renewed commitment to democratize the Middle East, which will require additional borrowing. Investors and traders are asking: Where will this money come from? The US has already hit its debt limit and has been warned of a credit downgrade.

Many are concerned by the reported end of quantitative easing II (QE2). However, noises are being made about the possibility of the imposition of QE3, which could possibly be tonic for gold and silver prices.

At present gold may be basically pricing in the possibility of sovereign default risk. Witness the pleas of Greece for immediate aid. Other members of PIIGS nations may not be far behind. The biggest threat to our thinking is a continuing dip in risk appetite initiated by the end of QE2 or as stated a heightening in the eurozone debt crisis. This may be causing this US dollar spike as capital flows to safe havens and investors close their short-dollar wagers.

AT my firm, we feel that such a move would possibly be transitory in nature. Should QE3 not be instituted, Ben Bernanke has a whole bunch of other arrows in his quiver. Monetary printing by any other name may be just as effective as it is surreptitiously instituted. There is a strong possibility that the Fed will remain faithfully wedded to aggressive monetary policy in order to lower unemployment and extricate the nation from its economic mess. A black swan may be steaming toward us. As remote as it may seem, the possibility of a US financial default may be in the cards. But then, isn’t that what black swans are always about?

Read more here:
What Will Happen As QE2 Ends?

Commodities

Storm Warning!

May 19th, 2011

An Interview with Addison Wiggin by Chris Martenson

Welcome to Crash Concepts where the economy, energy, and the environment are explored. Up next, fresh ideas and insights into the factors that are driving the world and shaping your future. Presenting information you can’t afford to live without, here’s Chris Martenson.

Chris Martenson: Welcome to another chrismartenson.com podcast. I am your host, Chris Martenson, and today we have the pleasure of speaking with Addison Wiggin, executive publisher of Agora Financial, LLC, the independent economic forecasting and financial research firm he runs with Bill Bonner. Agora’s wide-ranging operations include the influential econo-blog, The Daily Reckoning, bestselling publications such as Financial Reckoning Day Fallout, and The New Empire of Debt, both of which Addison coauthored with Bill.

Addison, you’re a man of many talents. I’m delighted to have you here today.

Addison Wiggin: Well thanks for having me, Chris. I’m happy to be here.

Chris Martenson: For many years now you’ve been prolific in your efforts to wake up the investing public to the risks that lie ahead. Your books, The Demise of the Dollar, Empire of Debt, Financial Reckoning Day, your movie, I.O.U.S.A., all predicted a future that is increasingly now unfolding before our eyes. I’m wondering if you’re experiencing some emotional conflict here.

Your predictions have become soundly validated, yet that means sort of the dire outcome you feared is arriving. What’s it like for you to be at this time in history?

Addison Wiggin: Well it is kind of an interesting time because we had gotten used to, for well over a decade, being mocked by people in the mainstream press and even people in my own family… There’s a whole generation of Americans today that don’t understand the very nature of capitalism – the savings and investment that led to the United States being one of the more prosperous countries the world has ever known…

Chris Martenson: Yeah, so what’s a big surprise for you in this story so far? What’s unfolded maybe a little differently than you thought?

Addison Wiggin: Actually the thing that has been most surprising to me has been the willingness with which politicians in Washington have abandoned the very causes and ideas that led us to be a prosperous society in the first place. I suspected they would do it all along, but just to give you an anecdote in August of 2008 right before the last presidential election, we premiered I.O.U.S.A. This was before stimulus and bailouts, before trillion-dollar deficits. We had spent two-and-a-half years making a movie about the disastrous state of the financial balance sheet in Washington. We were running history deficits of what now seemed like a quaint $450 billion, and we had a mounting pile of unfunded liabilities.

We made the movie and released in August of 2008 for a reason, we wanted it to be part of the national conversations during the presidential campaign season. In August of 2008 we got Warren Buffet together with Pete Peterson, David Walker, the former Comptroller General, we premiered the movie, and we held a national town hall meeting with the intention of making deficit spending and unfunded liabilities a part of the conversation that was going on in Washington prior to electing the new president. We broadcasted on CNBC, we thought we made a big splash. Less than six weeks later, Lehman Brothers declared bankruptcy.

And we were already on sort of the wrong course to fiscal mayhem, and after September 17th, 2008 we jumped course and we got on a faster track and I guess my biggest surprise is how quickly people were willing to engage in the amount of stimulus bailouts and deficit-spending. They just kind of abandoned any kind of fiscal defense to a much greater degree than I thought was even possible.

Chris Martenson:
I found that surprising as well… And it was just surprising that money was just thrown everywhere at this problem…

Addison Wiggin: Right, even, even the voices that we followed for a couple of years while filming I.O.U.S.A., David Walker principally amount them. He fully supported the stimulus spending, even though we were documenting his efforts to wake people up to what was happening with the fiscal condition of the United States… It was just surprising to me that for all these people that we’ve elected to office and for the amount of study and intelligence that they presumably have, they rolled over and threw out all common sense and just went for it.

Chris Martenson: Given what you just saw, and the anecdotes you just shared with us, how do we reverse this, what do we do from this point forward?

Addison Wiggin: Well the prescription for what to do would probably come with a lot of political baggage. It depends on what form you think the government should take. Should the government play the role of providing a safety net for all citizens? Should the government be involved in providing security around the world for national interest companies to do business in places that are otherwise hostile to us? I happen to believe we shouldn’t be doing either of those things because we can’t afford them, not because politically, I think that they’re bad ideas, just that we’ve never done the hard work of figuring out how to balance those interests with the tax code that we currently run.

Everything is out of whack. We can’t be the policeman to the world and provide a safety net for all citizens if we don’t have the tax rates or the income to the government that supports all that. It seems like common sense, and it should be common sense, but something happens when you take it from a discussion that you and I might have to the political level, which is often just driven by emotion and public speech. Somehow the desire to continue promising that the government can solve all problems meets with jubilation and most people want to just keep going and they never want to actually accept that at some point unsustainable activities have to end, I mean it’s the nature of the word…

I struggle to think that we’re even capable of putting together a set of solutions that will work. It might be too late.

Chris Martenson: Well I share that view, and this is not just a US issue. World history, and also current events, recent current events shows that governments will reform, and they will undertake austerity and they will live within their means when the bond mark has forced them too.

Addison Wiggin:
Right, absolutely.

Chris Martenson: Greece is in the middle of it, Portugal’s in the middle of it, Ireland’s right in the middle of it, Spain’s gonna get there… So this has been my view for a long time, that the United States will reform when the bond market forces it to. And that day will come. Nobody knows when or how long we can kick the can down the road… But sooner or later, the bond market will revolt… Would you share this view, that there is a day of reckoning here?

Addison Wiggin: Well I would definitely share that view, and I think that it does come when the government has to raise interest rates beyond what it can already afford just to get the money that it needs to continue… It’s not unheard of, even in our own history, but when you mention that, when you talk about that, the fact that we might lose control of our ability to fund these massive deficits in this current environment, people think that you’re a kook, that you don’t understand something that they do understand.

But, in fact, there will be a point where investors will look at their return from the US government, and they’ll say, I want more to put my money at risk…

Chris Martenson: Well sure. And think about what would happen to the housing market right now. It’s nothing good in terms of upward price mobility. So one of my views is that we’re all speculators now… What’s your view on QE and is more QE a good idea here, or is Bernanke trapped either way?

Addison Wiggin: Well you mentioned Bill Gross, if you take his point of view, when QE2 dries up, who’s going to buy Treasuries then? That was the position that he took when he started unloading Treasuries from Pimco’s bond fund. I think the Fed is between a rock and a hard place because they have to continue to be the buyer of last resort in order to keep Treasury [yields] where they are. But the Fed is…at the end-game from what they’ve been trying to do. They’ve been trying to play both sides of the trade, keep Treasuries where they are, keep the government funded but at the same time avoid any kind of a fiscal restraint that would make Treasuries viable, or even attractive to the investment crowd.

Chris Martenson: Yeah, well the 10-year at what, 3.5%, 3.4%, somewhere in that zone depending on which day we’re talking about. That’s a pretty low rate of interest over the next ten years, given everything that I see on the radar screen. And without the Fed stepping in there buying, influencing the prices, manipulating, whatever you want to call it…

It’s just a self-referential piece of ridiculousness, so there we are, and we’re all speculating now in terms of what the Fed’s going to do next. But what does this future mean to investors and what sorts of recommendations are you making to those that are looking to preserve wealth in this interesting period we’re in?

Addison Wiggin:
Well…we just recommend that people recognize that this is actually happening. Most people tend to think that the government is made up of a bunch of smart people who really know what’s going on. Even the readers that write back to us, they say things like, well the Fed wouldn’t be doing this kind of thing if there wasn’t a very good reason for it.

There’s a high degree of trust left in Bernanke’s hands, in Timothy Geithner’s hands. So even now, part of our goal is just to get people to recognize that there is a possibility that Treasuries might not get funded the way they have in the past. And if you take that piece out of the financial puzzle, then everything else begins to unravel very quickly. And that’s why I believe we have gold going to the prices it has that we’ve seen in recent weeks. Silver, precious metals, many of the commodities, because people are looking for tangible good outside of the financial system, things that seem to make more sense.

So we’ve been recommending commodities and precious metals, and energy markets.

To be continued…

Regards,

Addison Wiggin,
for The Daily Reckoning

Storm Warning! originally appeared in the Daily Reckoning. The Daily Reckoning provides over half a million subscribers with literary economic perspective, global market analysis, and contrarian investment ideas.

Read more here:
Storm Warning!




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

What the IMF Chief’s Arrest Means for the European Debt Crisis

May 16th, 2011

The big news over the weekend was the arrest of Dominique Strauss-Kahn who is the managing director of the IMF and had his sights on the French Presidency. Strauss-Kahn was arrested while sitting on a plane bound for a meeting with German Chancellor Angela Merkel to discuss the European sovereign debt crisis. His arrest will undoubtedly complicate the negotiations underway today in Europe.

While Strauss-Kahn awaits his first court appearance on attempted rape charges, Greece will be pleading their case for a restructuring of the 110 billion euro bailout they received from European governments and the IMF. Germany in particular is demanding Greece make deeper budget cuts in exchange for extending the maturities or increasing the amount of aid.

German Chancellor Angela Merkel has been taking a tough line with Greece, and has also been wanting the owners of Greek debt to share in the costs of any restructured bailout. This is making many of the largest European banks a bit nervous, as they hold a large amount of the Greek debt. But over the weekend the parliamentary leader of Merkel’s Christian Democratic bloc seemed to leave an opening for Greece to squeeze into. Volker Kauder suggested that there could be a ‘soft restructuring’ of the Greek debt which would involve the extending of the maturities.

If you ask investors, Greece is all but guaranteed to default on their debt no matter how long the maturities are extended. 85% of international investors surveyed this week by Bloomberg said Greece would default, and a majority also believe Portugal and Ireland will be unable to pay back their debts. The outlook in Europe has certainly taken a darker path since the beginning of the year when it looked like the worst of the European sovereign debt crisis had passed.

But the economies of Portugal, Greece, and Ireland are still struggling to recover. Portugal’s economy slipped back into recession during the first quarter of the year. GDP in Portugal was announced this morning and showed it had dropped 0.7% from the previous quarter when it was down 0.6%. Economists had predicted the drop, and it confirms that additional aid may be needed as the PIIGS economies struggle to recover.

Even with all of the sovereign debt worries, some are still predicting the euro (EUR) will rise. Société Générale SA raised its year-end forecast for the euro against the dollar on last week’s higher German and French growth numbers. Société Générale, the second-largest French bank forecasts the euro will reach $1.52 by year-end and $1.55 in 12 months. The head of foreign exchange strategy at the bank cited the higher growth figures, and expectations of higher rates compared to the US dollar as reasons for the increase in their call for the euro. Growth in Europe is twice that of the US, and the ECB will be raising rates sooner than the Fed. Interest rate differentials are important in currency valuations, and especially when a central bank is seen as being ‘in front’ of the inflation curve. While the US could be caught leaving rates too low for too long, the ECB looks to start tightening in an attempt to head off inflation.

To no one’s surprise, consumer prices in the US rose in April led by increases in food and fuel. The CPI increased 0.4%, which was expected, but the FOMC pays more attention to the ‘core’ measure ex food & energy which increased just 0.2% on the month. The YOY figures were a bit more disturbing, with the overall number rising 3.2% and the core number showing a 1.3% increase. To see the ‘real’ inflation numbers, readers should go to John Williams’ website, where the inflation rate is reported using the traditional calculation methods and is shown to be in double digits (10.7% YOY in April). Here is the website for those readers who aren’t familiar with it.

Business economists aren’t falling for the ‘official’ CPI numbers, and are beginning to get worried by the higher prices. A survey conducted by the National Association of Business Economics showed that economists’ growth expectations have been lowered. Consumer and business spending will probably increase less than projected three months ago, while employment forecasts were revised up.

Climbing prices in the US along with the sovereign debt crisis in Europe have again combined to put fear back into the minds of investors Friday and over the weekend. Risk was taken off the table, and the US dollar and Japanese yen (JPY) were the big winners. Equity markets and commodities all traded lower Friday, and continued to drop in early European trading.

Lower commodity prices pushed the value of the ‘commodity currencies’ down again on Friday. The New Zealand dollar (NZD) and South African rand (ZAR) were the most dramatic victims, falling nearly 2% versus the US dollar in the past two days. The Brazilian real (BRL) and Australian dollar (AUD) also got sold as the commodities, which are so important to both economies, decreased in price. The Australian dollar was also pushed lower by a report that showed Australian home loan approvals fell to the lowest in more than 10 years in March. Many investors now feel the Reserve Bank will delay future interest rate increases as another report released last week showed that employers unexpectedly cut jobs in April.

The Canadian dollar (CAD) fell to a six-week low as commodities and equities losses sapped demand for the loonie. The general ‘risk off’ sentiment that swept through the trading desks on Friday caused investors to sell everything except the US dollar and Japanese yen, and the Canadian dollar got sold. It seemed like a knee-jerk reaction, as I typically don’t consider the Canadian dollar a ‘high yielding’ currency. If the Canadian dollar continues to fall, it could present an excellent opportunity for those who felt like they had ‘missed the boat’ on getting into the Canadian dollar over the past few years.

The Indian rupee (INR) is getting sold in the currency markets in spite of a report that showed India’s inflation was faster than estimated in April. Higher prices will add to growing pressure for another interest rate increase following the 50 basis point increase on May 3rd. India’s economy is expected to grow at an 8% pace in 2011 after growing 8.6% last year. The government raised fuel prices by 5 rupees a liter last week, the biggest increase since June of 2008. I would expect to see the Reserve Bank of India continue to move rates even higher as they try to combat inflation, which should give good support to the Indian currency.

And finally, the US is set to hit its $14.3 trillion debt limit later today. Over the weekend Republicans spelled out their demands for spending cuts, which will need to accompany their votes for an increase in the debt ceiling. Everyone realizes the ceiling will be raised, but Republican congressmen are taking advantage of the timing to push major spending reforms as part of the deal. Senate Republican leader Mitch McConnell is calling for a two-year spending cap, as well as cuts to both discretionary and mandatory spending in the near and long term. Democrats agree that spending needs to be slowed, but also want to raise taxes. President Obama and Treasury Secretary Geithner have struck a dire tone, warning the Republicans about the ‘irrevocable damage’ to the nation’s economy, which would result from even a short-term default. I certainly wish they would look at the ‘irrevocable damage’ they are doing to the long-term prospects of the economy by continuing to print money!

To recap: The IMF chief was pulled off the plane as he headed to a meeting on the Greek situation; the euro sold off as the Greek crisis continues. US CPI numbers showed inflation is moderate, but still picking up. A commodity selloff has pushed all of the ‘commodity currencies’ down. The Indian rupee sold off in spite of a report that will likely force further rate increases by the Indian reserve bank. And the US debt ceiling will be hit today, but there isn’t really any doubt that it will be raised.

Chris Gaffney
for The Daily Reckoning

What the IMF Chief’s Arrest Means for the European Debt Crisis originally appeared in the Daily Reckoning. The Daily Reckoning provides over half a million subscribers with literary economic perspective, global market analysis, and contrarian investment ideas.

Read more here:
What the IMF Chief’s Arrest Means for the European Debt Crisis




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

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