Ben Takes Out the SNB?

Welcome to the global consequences of QE2

Subject: Ben Takes Out the SNB?

Source: zero hedge - on a long enough timeline, the survival rate for everyone drops to zero

Author: Bruce Krasting

There are a dozen different barometers for economic stress in the EU. They are all pointing higher. CDS and bond spreads are going through the roof. There are riots again. While it is not a new story, the fact that Belgium is now going center stage in the EU mess is a very interesting elevation of risk. Geographically speaking, we have reached the core.

For me, the best measure of stress has always been the EURCHF. That pair is sending off alarms. We are just a tad above the all time low of 1.2770. I see no reason why a new low should not be set by the NY open.

The strong Swissie, weak Euro story has been with us for quite a while now. This graph shows how far we have travelled on this cross.

It is easy to blame all of the weakness in the EURCHF on the ongoing circus in Disney Euro Land. But I think there is more to the story. The recent meltdown in the cross started on 11/3/2010, the day that QE-2 became a reality (surprised?). I never have believed in coincidences, this time is no exception.

As of the end of the third quarter the Swiss National Bank reported reserves in Euros totaling 90.9b. If the year-end rate is the same as today it translates into a three-month loss of CHF 5.5b (USD 5.6b). On a population-adjusted basis this would be the equivalent of a $214b loss in the US. On a GDP comparison this is equal to $160b. Can you imagine if the Federal Reserve had a loss in three months of that magnitude? Ron Paul would shut them down. This is a big deal for little Switzerland.

The problem that the market faces is that the year is not over. Liquidity between now and year-end is going to get thinner and thinner. Big risk taking and big FX books are not in the cards this holiday. That being the case, some unanticipated things might occur.

Watch out for gaps in currency trading for a bit. If that starts to happen and volatility jumps up it will spread to other markets. I think markets have been "thin" across the board for some time. Equities are just robots moving paper for the most part. The big jump in global bond yields of late stinks a bit of liquidity issues. FX volume has been heavy, but are there folks who are willing to take on big new risk if money starts moving? I wouldn't think so. If money decides it does have to make a move over the next few weeks, then it's likely to have an out-sized impact. 

 

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Who are the few who control one trillion Israeli shekels? - Haaretz Daily Newspaper | Israel News

Who are the few who control one trillion Israeli shekels?

Overlapping ownerships of financial and non-finance companies portend danger that worsens as the large organizations get stronger, and the small and medium ones grow weaker.

By Rotem Starkman

To whom are Israel's pension managers loyal? Their bosses, who own multitude companies, or to us? What can be said is that the tycoons' overlapping ownership of both finance and non-finance companies is not good news for pension savers, not least because of the potential for conflicts of interest.

One Thursday in August, IDB made a dramatic announcement: the sprawling investment group would invest $250 million in a huge billion-dollar fund targeting overseas. Company publicists excitedly invited a few journalists to IDB offices in the Azrieli towers.

Present was Nochi Dankner, who controls the entire group, including Koor, through which the investment was to be made; Lior Hannes, director at Koor; IDB CEO Haim Gavrieli; and Roy Meltzer, a former journalist who advises the group.

The four politely explained to journalists at length that this was an unprecedented alliance with important investors from Saudi Arabia and Qatar and that the fund will invest in emerging markets - Latin America, the Far East, even Africa. They said it could be expected to return gains of 15% to 20% a year, and that Dankner himself would serve as IDB's representative in the fund.

Websites celebrated. Newspapers devoted whole pages to the story. One commentator even wrote that Dankner had figured out how to bypass the diplomatic pitfalls of the region's politicians, and suggested he was close to achieving world peace.

The following Sunday, Ido Dissentchik, head of the Clal Insurance investment committee and the person responsible for the company's investment policy, praised the deal fulsomely. In the name of millions of Clal Insurance policy-holders he is responsible for, Dissentchik said, "We have to thank Nochi Dankner for making this opportunity possible."

But an inquiry into the details reveal that the picture is a little bit more
complicated than that.

The fund will be managed by the Swiss bank Credit Suisse, of which IDB owns a minority stake. The other investors are the same companies that are IDB's partners in Credit Suisse and some of the bank's managers.

Half of IDB's investment, $125 million, will come from its subsidiary company Clal Insurance, and out of that, $92 million will come from policy-holders' money. Apparently this is all above board and everyone will earn lots of money.

But it is clear that the conflation of Dankner's ownership of IDB, his interests in Credit Suisse and his international business interests, and his control over public funds and the people that manage it - in other words, his good friend Dissentchik and the other Clal Insurance managers - could potentially lead to problems.

Dankner is not alone

The managers of Clal Insurance are good, professional people, and Dankner, too, is a worthy man, a man of character.

But can we sleep tight in the assurance that these same investment managers vetted the deal their boss tossed at then thoroughly? Did they compare alternatives? Did they ask him tough questions? Did they haggle over percentages?

Neither the policy-holders of Clal Insurance, nor their investment manager representatives, nor Dissentchik himself were present at the journalists' meeting. Could that imply that they weren't really there when they were supposed to fight for the rights of the policy-holders, either?

Dankner, naturally, is just one example of a businessman who in addition to owning multiple companies, controls billions of shekels of the public's money (in the case of Dankner, over NIS 160 billion).

Yitzhak Tshuva, owner of the Delek Group and the El-Ad Group, also has controlling interests in Phoenix and the Excellence investment company, that together control over NIS 90 billion.

In the past, Phoenix gave the flailing Delek real estate company a loan using policy-holder money. Would it have extended the loan if Tshuva hadn't owned both companies?

The overlapping ownerships of financial and non-finance companies portend danger that worsens as the large organizations gain in strength, and the small and medium organizations grow weaker.

All the bank owners in Israel own other businesses. Shari Arison owns Bank Hapoalim, a major construction company and a large investment company.

The Ofer family, owners of Mizrahi-Tefahot Bank, also owns the Israel Corporation and numerous real estate holdings. Liora Ofer, Yuli Ofer's daughter, recently bought a chain of malls owned by British Israel and the Ramat Aviv and Savyonim malls, that were previously owned by Lev Leviev's Africa Israel group.

Muzi Wertheim, the Ofer family's partner in Mizrahi-Tefahot Bank, also owns the biggest soft drink company in Israel, the Central Bottling Company (commonly known as Coca Cola Israel) and the concession for Channel Two. Zadik Bino, controlling owner of the First International Bank of Israel group, which also includes Bank Otsar Hahayal and Bank Massad, also controls Paz Oil.

Matthew Bronfman controls Bank Discount and simultaneously owns the IKEA Israel chain. Bronfman also has a large interest in the Super-Sol chain which is controlled by Dankner.

These are the people who control roughly a trillion shekels worth of the public's money.

They may have acquired this control by perfectly legal means. But it would seem preferable that this control not coincide with owning vast business empires.

Vermus is left alone

In August 2009, exactly a year before the IDB-Credit Suisse fund announcement, Lev Leviev admitted that his company Africa Israel couldn't meet its liabilities after 2011. Leviev owed the public NIS 7.5 billion shekels.

The man who lead the struggle against Leviev, forcing him to reach a better deal with the public of investors, was the investment house Psagot, owned by the investment fund York Capital Management.

Just about every investment firm in the land had lent money to Africa Israel (by buying its bonds). Their managers generally preferred to concede the money to Leviev and to sit on the side. Why didn't they fight by his side?

The Africa Israel incident was merely emblematic of a wider phenomenon that intensified during the 2008 crisis. The conflicts of interest in the capital market grew insufferable.

People owning companies unlikely to repay debt also owned an insurance company, investment company, or bank that lent money to that same company.

In other words, a person could become their own creditor and determine the fate of their policy-holders' money, although they have a huge personal stake in the decision.

Just as egregious, this clique of people who borrow and lend money share the same social circles. One must ask: To what degree will the investment and insurance company managers be willing to come into conflict with their bosses' friends?

Psagot was the first that, a few months later in November 2009, publicly demanded that rich businesspeople's ownership of institutional investors be dealt with. "The Bachar reform dealt with the banks' conflicts of interest," Vermus said. "But the latest crisis bared the problem of the conflicts of interest among the people managing others' money. We must deal with rich business people's ownership of institutional investors."

In a vote that Dankner tried to pass a month and a half later, the opponents were independent investment companies like Psagot and DS Apex. Those that supported the deal, among others, were the managers of the Tshuva group investment company.

So when Psagot and Vermus got caught up in a Israel Securities Authority investigation for alleged securities manipulation, few shed tears. The investment company that fought the good fight for the public was weakened and could no longer carry the banner of the battle.

Financial Incest

Former Bank of Israel Governor David Klein spoke of the capital market as an incestuous pit in 2003, and called for fundamental restructuring.

"Isn't the financial family endangering itself with incest? It's not clear who the parents are and who the children are, who is whose sibling and who is married to whom," Klein said at that time.

"Can an insurance company be its own grandmother? Can a retirement fund be its mother's mother? Can two banks be brothers because they have the same father? Can a trust fund be the daughter of a bank, and at the same time also its sister, since both are the mothers of the same insurance company?" Klein continued.

"Who appointed the board of directors of a particular financial body, its investment committee members and its managers? Who controls the marketing budget? Who carries out the market sale and purchase of securities? Do the fees imposed on the customers reflect a competitive market structure?

"Is there a connection or dependency on databases? How many financial bodies have the same accountant, and do accountants also perform advisory roles? It's obvious that the stabilization impetus demands of us that we act to minimize centralization," Klein concluded.

His compelling speech laid the groundwork for establishing the Bachar Committee, which severed ties between the banks, and provident and mutual funds.

The Bachar Committee was not the first that tackled financial incest. It was preceded by a committee headed by David Brodet, then treasury general manager and today chairman of Bank Leumi. The committee determined that the connection between the bank as a funder of financial companies and the bank as the owners of said companies is destructive, because the bank has obvious conflicts of interest and is likely to make bad decisions.

The Brodet Committee forced the banks to sell their controlling interests in REAL companies like Koor, Clal, Delek, Africa Israel, Poalim Investments and Migdal. That recommendation, that was implemented to the letter, was the basis for the formation of the business empires that we know today – those of Yitzhak Tshuva, Nochi Dankner, Lev Leviev and others.

The Brodet Committee only did a quarter of the work necessary. The Bachar Committee completed another quarter of the job, and the two together contributed no small amount to the decentralization of the market, helping to create a healthier, more competitive financial environment.

But the division between those that do business and those that fund them is not yet complete.

In fact, most of the banks and insurance companies in Israel today are controlled businesspeople that also own non-finance companies.

Controlling a lender, such as a bank, investment company or insurance company grants its owner great powers: information on competitors, influence on whole sectors, the ability to fund businesses that they favor, and reciprocal relationships with other funding bodies that can help them circumvent other regulatory restrictions.

In the market jargon of the 1980s, they called policy-holders prepared to take on any assignment "soldiers" - who could be counted upon to salute when the owner needs them. They fulfill orders and don't ask questions.

Now the soldiers want to come home to mom and dad, to parents that will take care of them and only them - and have no other interests but theirs.

Who are the few who control one trillion Israeli shekels? - Haaretz Daily Newspaper | Israel News

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Q&A: Ron Paul on His New Perch to Fight the Fed - Real Time Economics - WSJ

Q&A: Ron Paul on His New Perch to Fight the Fed

December 16, 2010, 1:43 PM ET

Getty Images

Rep. Ron Paul (R)

Next month, Rep. Ron Paul (R., Tex.) will strengthen his place as a thorn in the side of the Federal Reserve when he becomes chairman of a House subcommittee that oversees U.S. monetary policy. That will give the longtime critic of the central bank an opportunity to question the Fed more aggressively about its role in the U.S. and the global economy. 

In an interview, Paul said he plans to use the position to gain more support for his movement to audit the Fed’s monetary-policy operations. A version of his measure made it into the financial overhaul-legislation last year, leading to recent details about the Fed’s emergency lending programs (with more to come down the road about who borrows from the Fed). But Paul calls the audit provision and the Fed’s releases “incomplete.” We talked with the author of “End the Fed” about his new role. (Read a previous Q&A on Mr. Paul’s views) 

Here are excerpts:
What will be your first priority in leading the subcommittee?

To perform oversight of the Federal Reserve. That’s the purpose of the committee and that’s what I’ll do. The best oversight is to get transparency of the Fed, which means we need a full audit of the Fed. We’ve gained a lot of attention on that and it’s been popularized to the point where we had 320 cosponsors last year. We’re moving along and I think the markets are moving in our direction, too. It used to be that it [the Fed] was sacred. I think it’s QE2 [the Fed's $600 billion bond-buying program] that’s caught the attention of so many in not realizing how casually they can create money.
You don’t think the Fed will ever pull that money back?
Yeah, some of that goes back and forth. But even if that’s the case it still means that’s the amount of money you’re playing with. Every time they do something it has a consequence. The monetary effect is still there whether or not they end up with anything of value [in the Fed's holdings]. But ultimately it won’t be of value whether you hold Treasury bills or derivatives.
The panel you’ll be leading hasn’t gotten much attention in the past. What can a subcommittee chairman really do?
I think it’s more calling attention and getting information and acting as oversight. There will be legislation that we can talk about. We can talk about auditing the Fed. Even in the other committees, everything is a reflection of popular demand. There’s getting to be a bigger demand now for more information. I’d certainly like to have competition with the Fed to legalize competing currencies. That’s not going to happen, but we sure can talk about it. Most people recognize that the dollar reserve standard, there’s nothing permanent about it. Even the international bankers are talking about a new currency or using gold even. The big question is should we move further away from national sovereignty and our constitution and give it to an international body and try some crazy Bretton Woods standard again, which is doomed to fail. Or should we look to our traditions and have sound money.
Over the past year, we’ve seen a lot more information about the Fed coming to both Congress and the public. Do you think it’s made a difference?
It hasn’t changed policy. I think it’s made the difference that we understand it a little bit better. And it hasn’t gone well for the Fed. The popularity of the Fed has changed. They’re being challenged from all angles right now. … It isn’t so much what I will do. It’s going to be that these policies are doomed to fail. They always want me to attack Bernanke. It isn’t the individuals. It’s not Greenspan, it’s not Bernanke, it’s the system and it’s not viable. They cannot practice central economic planning through the Federal Reserve. They cannot have stable prices, whatever that means. They cannot prevent prices from going up when the time comes for prices to go up. The perfect example of their ineptness is their mandate to have full employment.
A number of Republicans want to change the Fed’s dual mandate to focus on inflation. What effect do you think it would have?
Probably not a whole lot. But I like the subject because it does go after the Fed. They assume too much responsibility. It brings up the subject of unemployment. Since they have totally failed on that this is a great time to talk about, what good is a mandate?
What percentage of Congress do you think supports your view of wanting to end the Fed? Are you concerned that your views would differ from a lot of Republicans?
Oh it wouldn’t be very many. As a matter of fact, I don’t even take the position that tomorrow I’m going to end the Fed. I want competition. In my book, “End the Fed,” I talk about just allowing competition in currencies. … I think things are shifting. I did it for 25 years and nobody even cared. And now with every Republican supporting my audit bill last year, I would say that’s a reason for me to be encouraged.

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Q&A: Ron Paul on His New Perch to Fight the Fed - Real Time Economics - WSJ

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Debt Factoids on Our National Debt Are Puzzling - And Scary - Seeking Alpha

If you’re interested in the subject of our national debt, there is a new must read report from the Congressional Budget Office (CBO) on the topic. It includes some odds and ends that I found interesting.
We know that there is a law called the debt ceiling. We also know that we will (again) hit that limit early in 2011. Many think that this will be a line in the sand fight with the new Congress. Phooey. According to the CBO report, suspending issuance of maturing cash management bills in the supplementary financing program will cost $200 billion; suspending flows and redeeming securities in government accounts, $124 billion; from the civil service retirement fund, "at least" $200 billion; from the exchange stabilization fund, $20 billion; and swapping debt with the federal financing bank, $15 billion. Total: $560 billion.

Conclusion: If there is to be a fight over the debt limit, it could be a long one.

The CBO is speaking with forked tongue in this report. A critical issue: How do we define what debt is at the federal level?

There are so many components to the puzzle. I give the CBO an A+ for this position:

CBO believes it is appropriate and useful to policymakers to include Fannie Mae’s and Freddie Mac’s financial transactions with other federal activities in the budget. The two entities do not represent a net asset to the government but a net liability — that is, their impact on the government’s financial position is a negative one.

So how does CBO actually account for F/F? It gets a D- for this:

Neither CBO nor the Administration currently incorporates debt or MBSs issued by Fannie Mae (FNMA.OB) and Freddie Mac (FMCC.OB).

That’s interesting. They say they “should” do it, but they don’t. Who makes that decision?

The Administration’s Office of Management and Budget (OMB) makes the ultimate decision about whether the activities of Fannie Mae and Freddie Mac will be included in the federal budget.

The White House decides which categories of debt are included when determining what constitutes debt? That is convenient. When did that happen? We are not talking chicken scratch here. The good folks over at the Fannie and Freddie have piled up $6 trillion in debt. We would blow out the debt ceiling set by Congress by over 40% if that came on the books. So it stays off the books. But the debt is staring us in the face. Funny system.

This also caught my eye:

Payments of interest from the FFB to the Treasury have been less than $1 billion annually in recent years but are projected to increase (to as much as $6 billion) because of higher loan activity (particularly by the Department of Energy's Advanced Technology Vehicles Manufacturing program and the Rural Utilities Service). As of September 30, 2010, the FFB portfolio totaled $60 billion.

Hello, what is this? For interest to rise at the FFB from $1 billion to $6 billion, it would have to imply that there is at least a four- or five-fold increase in the balance sheet. This means that there is a plan to grow the FFB by $250 billion. Who is going to be the beneficiary of that? That is a hell of a lot of money. Is the FFB going to fund a solar build-out? The existing portfolio of Department of Energy loans:

Another (minor) data point of interest: The federal government has a number of trust funds that are used as accounting vehicles to store up IOUs from the government. The principal accounts and current holdings:

Social Security Trust Fund…….2.6t
Civil Service Retirement Fund...0.8t
Military Retirement Fund……...0.3t
Medicare……………………….0.3t
All others…….………………...0.6t

Total:…………………………..4.6 trillion

These funds are all anticipated to grow over the next decade. One has a growth rate that is way out of whack with the others:

The Military Retirement Fund is growing at three times the rate of the others. The raw numbers are $282 billion for 2010 and $1.012 trillion for 2020. That's a 10-year increase of $730 billion (a 350% increase). What is that about? Are we planning on a new war, or have we just not accounted for the retirement costs of the military properly over the past decade or two? I suspect (hope) it is the latter.

We have all seen a form of this chart elsewhere. It is nothing to be proud of. Yes, there are a few countries in worse shape than us. But Italy, Greece and Belgium are now making front-page news with their debt. And the U.S. will have a different outcome than Japan.

This chart of trust fund assets is central to our problem. Notice that these funds are scheduled to grow by more than $2 trillion. It sounds nice that the nation has trust funds where money is squirreled away someplace safe -- money that can be used to pay bills (Social Security) when they come due over the next 20 years.

But there is no money in the trust funds. They have IOUs that obligate future taxpayers to come up with the cash when needed. The trust funds have nothing to do with “savings” in the traditional sense.

This has been going on since 1983, when Greenspan created the accounting gimmick and the huge surpluses that followed. The fact is we do have future liabilities, and there have been some savings set aside for that. But the money has been spent on funding past deficits. So, really, there are no savings.

I am not sure there is a fix to this problem. I do know that the bills on this are coming due in the next five years or so. I don’t think we will make it another 10 years without having to confront this problem.

Debt Factoids on Our National Debt Are Puzzling - And Scary - Seeking Alpha

JP Morgan confirms its dominant position in Copper

JP Morgan confirms its dominant position in Copper

Making the rounds this morning. Dominant position could be as high as 90% of LME Warehouse inventories!

JP Morgan confirms its dominant position in Copper

The head "raw materials" of JP Morgan acknowledged that his bank has invested $ 1.1 billion on stocks of copper on the London Metal Exchange
Copyright Reuters
Copyright Copyright Reuters Reuters

    *
      One speaker monopolizes the mysterious Copper LME
    *
      Handling, there's nothing to see on the copper

Ian Henderson, chairman of JP Morgan Global Resources, has strong convictions about the copper market. He confirmed on Tuesday morning in a meeting for investors in Paris that "JP Morgan had bought more than half of stocks of copper on the London Metal Exchange to $ 1.1 billion. A dominant position which has fueled speculation on the red metal, since it makes the physical metal CCAEC more difficult. In total, the bank now owns about 122,222 tonnes of copper.

For two weeks the market questioned the idendity the holder of these stocks. According to figures published by the London Metal Exchange, a player had between 50 and 79% of reserves in the marketplace, which has warehouses all over the world. Among the potential holders of the metal, the BlackRock fund and ETF Securities, working in prevalence of Exchange Traded Funds on copper, had been cited. The name of JP Morgan also circulated. This is the first time that the bank recognizes.

The manager explained this decision by solid fundamental reasons. "We met there is little the leaders of Codelco, the largest copper producer in the world with 12% market share. They explained that their production would have to be halved in five years," says the specialist, who has over thirty-five years of experience in commodities. With $ 70 billion of assets under management, JPMorgan Global Resources is the first strike force in the world for raw materials.

Frontrunning: December 13

Submitted by Tyler Durden on 12/13/2010 07:59 -0500

• Must read: The eurozone is in bad need of an undertaker (Ambrose Evans-Pritchard)
• If China Blows Up, So Will Every Other Market (Forbes)
• China Risks `Rush' to Tighten in 2011 After Inflation Surges (Bloomberg)
• China Said to Plan for at Least $1.1 Trillion of New Lending (Bloomberg)
• Spotlight On Banks' Exposure in Europe (WSJ)
• Backers and critics see passage of Obama tax deal (Reuters)
• Irish Sovereign Debt Default Would Be Far From Armageddon (Bloomberg)
• Paul Myners Op-Ed: Break up Britain’s uncompetitive big banks (FT)
• No New Normal for 2011 in Forecasts for 11% S&P 500 Gain (Bloomberg)
• Obama signals brighter vision of tax reform (FT)
• Japan Said to Consider Extension of Tax Break on Dividends, Capital Gains (Bloomberg)
• Push for shake-up of EU rescue facility (FT)
• Banks Reduce Greek, Irish Holdings in Second Quarter, BIS Says (Bloomberg)
• EU Should Pull Financial Support If Targets Missed, OECD Says (Bloomberg)
• ECB's Stark Says Greece Is on Track but Needs Structural Reform (WSJ)
• U.S. to hold pivotal trade talks with China and then EU (Reuters)
• The Ponzi Scheme That Changed My Life (NYT)
• Krugman now opposes raising $850 billion in debt for short-term stimulus (NYT)

Economic Highlights:

• UK Rightmove House Prices for December -3.0% m/m 0.4% y/y. Previous -3.2% m/m 1.3% y/y.
• Switzerland Producer & Import Prices for November -0.2% m/m 0.1% y/y - lower than expected. Consensus 0.1% m/m 0.3% y/y. Previous -0.4% m/m 0.3% y/y.
• Sweden AMV Unemployment Rate for November 4.3% - lower than expected. Consensus 4.4%. Previous 4.5%.
• UK PPI Input NSA for November 0.9% m/m 9.0% y/y - higher than expected. Consensus 0.5% m/m 8.3% y/y. Previous 2.1% m/m 8.0% y/y.

Latest News From RAN Squawk

12-13 08:05: Baltic Dry index falls 0.9% to 2,076 points

12-13 08:04: FedEx (FDX) on the road to delivering its busiest day in co's history

12-13 08:04: Ford (F) of Europe November sales gain, 51-country sales rise 0.5%, 19-country Nov. sales fall 11%

12-13 08:03: Spain's Treasury targets up EUR 6bln in debt issue on Tuesday and Thursday

12-13 08:02: Cisco (CSCO) completes aquisition of Linesider

12-13 07:58: UBS raises Nike (NKE) to buy from neutral, and raises price target to USD 100 from USD 84

12-13 07:52: Market talk of US bank on the bid in EUR/HUF, trades 278.21 last

12-13 07:52: Japanese Finance Minister Noda says PM decides to lower corporate tax by 5%

Latest News From The Fly On The Wall

12-13 08:05: Magal Security signs a $21.4M contract for the Port of Mombasa

12-13 08:04: Fonar UPRIGHT MRI customer wins jury decision vs. CareCore National

12-13 08:04: Cisco completes acquisition of LineSider

12-13 08:03: Nektar should be bought on any near-term weakness, says ThinkEquity

12-13 08:02: Mechel announces launch of new U.S.-based coal processing plant

12-13 08:00: First Horizon files to sell $250M in common stock

12-13 07:59: Take-Two target raised to $15 from $12 at ThinkEquity

12-13 07:57: Bernstein recommends avoiding Research in Motion into the report

View article...

Taylor says U.S. headed for recession | Reuters

Taylor says U.S. headed for recession

Mon, Dec 6 2010

By Gertrude Chavez-Dreyfuss

NEW YORK (Reuters) - The U.S. economy is headed for a new recession, said John Taylor, chairman and chief investment officer of FX Concepts, which should likely benefit the dollar and weigh on commodity prices.

"It's a new recession. We're already growing, but the numbers show that the U.S. government is still the primary creator of this growth," Taylor said on Monday at the Reuters Investment Outlook Summit.

Taylor runs the world's largest currency hedge fund with assets under management of around $8.5 billion.

"I would argue that by the middle of next year, we will be in a recession and our fiscal hands will be tied," he said.

Taylor has maintained in previous interviews that the Federal Reserve's quantitative easing program, designed as a way to help jump-start the economy, won't necessarily prevent a recession.

Banks in a recession tend to demand the repayment of loans, and if the debt is denominated in the U.S. currency -- and in most cases they are -- then investors are squeezed as they scramble to find dollars to repay the debt. That should be dollar-positive, Taylor said.

This was what happened in late 2008 when panic in the markets -- precipitated by the collapse of U.S. investment bank Lehman Brothers -- drove the safe-haven dollar higher against most major currencies.

"It's kind of perverse. When the U.S. economy is doing badly, the dollar goes up and when the economy is doing well, the dollar goes down."

Taylor's remarks dovetailed with Federal Reserve Chairman Ben Bernanke's comments on Sunday on the CBS program "60 Minutes". Bernanke said the Fed could end up buying more than the $600 billion in U.S. government bonds it has committed if the economy fails to respond or unemployment stays high.

The U.S. economy grew at a modest 2.5 percent annual rate in the third quarter. Stronger growth is needed to create large numbers of new jobs and make a dent in unemployment, currently at 9.8 percent.

EURO COULD FALL APART

For now, all eyes are on the euro zone, which is facing a debt crisis. Theoretically, at some point the euro could fall apart, Taylor said,

"What Europe has done is not enough. They have to have eurobonds," said Taylor. "You can't lend money to Ireland or Greece. You're just piling on more debt to them, and it's getting harder and harder to repay."

Taylor said Portugal could be the next country to seek a bailout after Ireland, with Spain after that. This will push the euro to parity versus the dollar by next year, he forecast. In early New York trading, the euro was down 1 percent at $1.3277.

In October, he told Reuters in an interview that the euro would most likely peak between $1.43-$1.45 in November and was most negative on the euro versus the dollar at a time when almost everybody was selling the greenback because of the quantitative easing factor.

On November 4, the euro hit a high of $1.4283 on electronic trading platform EBS and was downhill from there.

Taylor recommended selling the euro against the Swiss franc, a currency whose economy has fared better than most European countries.

The FX Concepts chief was also bearish on commodities, predicting that this asset class will slow down next year as the U.S. economy goes into recession. That should be negative for commodity-linked currencies such as the Australian and Canadian dollars.

He said the Australian dollar, which has been the best performing currency so far among currencies from the Group of 10 rich nations, with gains of about 10 percent on the year, could slide 15-20 percent.

FX Concepts employs several investing strategies. Its global currency program, which invests in both developed and major emerging market currencies, dipped 4.26 percent in November, but its annual return for 2010 is estimated at 12.03 percent.

(Reporting by Gertrude Chavez-Dreyfuss; Editing by Andrew Hay)

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Taylor says U.S. headed for recession | Reuters

China: Central Bank Reserve Ratios Increased

China: Central Bank Reserve Ratios Increased December 10, 2010 China has ordered lenders to put more money into the central bank for the third time in five weeks to counter the threat of inflation after November's lending and trade surplus exceeded analysts' estimates, Bloomberg reported Dec. 10. According to a statement on the People's Bank of China website, reserve requirements will increase 50 basis points beginning Dec. 20. The move has resulted in reserve ratios of 18.5 percent for the biggest banks, excluding any additional curbs for individual lenders not announced to the public. Terms of Use | Privacy Policy | Contact Us  © Copyright 2010 Stratfor. All rights reserved.

FW: Frontrunning: December 9

Frontrunning: December 9

Submitted by Tyler Durden on 12/09/2010 08:16 -0500

• Senate Leaders Set to Begin Debate on Tax Cuts (WaPo)
• Democrats Are Seeking Changes to Tax Deal, Reid Says (Bloomberg)
• Merkel Seeks Calm After Juncker E-bond Blast (FT)
• The rise of behavioural thinking in economics and finance (fund strategy)
• Hilsenrath speaks: Fed Unlikely to Alter Monetary Policy (WSJ)
• How west can reverse a decade of decline (FT)
• Steve Forbes: Why Ben Is Addicted To Failure (Forbes)
• Jon Weil: Operation Broken Trust may be a fitting name. Unfortunately it’s for all the wrong reasons. The public already knows not to trust the government (Bloomberg)
• Are We Subsidizing Unemployment? (IBD)
• Coalition Row Pushes Back Likely Election Date to March (Irish Times)
• Trichet Says Excess Forex Volatility, Disorderly Moves Adverse (Bloomberg)
• North Korea Claims Waters Around Shelled Island (WSJ)
• China is 'doing right thing' to curb inflation: Jim Rogers (China Daily)
• Peter Ehrlich on a journalist conspiracy theory to bring down the eurozone (FT Deutschland, h/t Miles)
• King May Oversee `Uneasy Truce' as BOE Stays Split on Growth (Bloomberg)
• India's Inflation Holds Above `Tolerance Level,' Subbarao Says (Bloomberg)

Economic data highlights:

• France Non-Farm Payrolls for 3Q 0.1% - lower than expected. Consensus 0.3%. Previous 0.3%.
• Germany CPI for Nov 0.1% m/m 1.5% y/y - in line with expectations.Consensus 0.1% m/m 1.5% y/y. Previous 0.1% m/m 1.5% y/y.
• UK Halifax House Prices -0.1% m/m higher than expected -0.7% y/y - in line with expectations.Consensus -0.3% m/m -0.7% y/y. Previous 1.8% m/m 1.2% y/y.
• BOE announces Rates 0.5% - in line with expectations. Consensus 0.5%. Previous 0.5%.

View article...

Scoreboard percentages for 2010 so far

Scoreboard percentages for 2010 so far --

Dow..........+9.15%
S&P..........+9.83%
Gold..........+28.3%
Silver..........+73.8%
Palladium..........88%
Coffee..........+50.4%
Cotton..........+88.3

Gold showing its safe haven properties - INDEPENDENT VIEWPOINT | Mineweb

Gold showing its safe haven properties

The yellow metal is currently testing the resistance at $1425. A break above this level could establish a new trading zone for gold

Author: David Levenstein
Posted: Tuesday , 07 Dec 2010
Mineweb.com - The world's premier mining and mining investment website

JOHANNESBURG -
One major reason investors look to gold as an asset class is because it will always maintain an intrinsic value. Gold will not get lost in an accounting scandal or a market collapse. Economist Stephen Harmston of Bannock Consulting had this to say in a 1998 report for the World Gold Council, "...although the gold price may fluctuate, over the very long run gold has consistently reverted to its historic purchasing power parity against other commodities and intermediate products. Historically, gold has proved to be an effective preserver of wealth. It has also proved to be a safe haven in times of economic and social instability. In a period of a long bull run in equities, with low inflation and relative stability in foreign exchange markets, it is tempting for investors to expect continual high rates of return on investments. It sometimes takes a period of falling stock prices and market turmoil to focus the mind on the fact that it may be important to invest part of one's portfolio in an asset that will, at least, hold its value."
Today is the scenario that the World Gold Council report was referring to in 1998.
A bad economy can sink poorly run banks. Bad banks can sink an entire economy. And, perhaps most importantly to the rest of the world, the integration of the global economy has made it possible for banking and economic failures to destabilize the world economy. As banking crises occur, the public begins to distrust paper assets and turns to gold for a safe haven. When all else fails, governments rescue themselves with the printing press, making their currency worth less and gold worth more. Gold has always increased in value when confidence in government is at its lowest. Isn't this the current scenario in the world?
And, although not evident as yet, but soon to become apparent, a number of factors are conspiring to create the perfect inflationary storm: extremely expansionary monetary policies of the major Western governments, a long term decline in the dollar and the euro, higher oil prices, a mammoth trade deficit in the US, and America's status as the world's biggest debtor nation.
The early 1980s presented an once-in-a-lifetime opportunity to buy stocks. Today, economic and political conditions appear to offer a similar opportunity in tangible assets. The macroeconomic and political landscape has not looked like this since the hard asset bull markets of the 1970s. The global economic and financial market climate looks increasingly precarious. Financial imbalances have never been greater. Many countries have experienced housing bubbles and now have huge budget deficits as well as burgeoning national debt. Global trade imbalances are at unprecedented levels. The U.S. has no ability whatsoever to pay back its enormous debt, which has been stated at around $50 trillion plus dollars and not the $14 trillion the government state. If this is true, then the interest payments alone on the US debt are unsustainable. To make matters worse the biggest buyers of US debt no longer want this paper and instead are trying to cut their exposure.
The US national debt has grown so huge that the only way to pay for it is to borrow more, just like a huge Ponzi scheme. In the coming decade, we may witness one the greatest meltdowns in monetary history, as the dollar and euro decline in value. And, as this happens gold will become an important component in the global financial system.
The recent $600 billion quantitative easing plan is simply hiding the fact the US economy doesn't have the economic base to grow its way out of this mess. And, as far as I am concerned it is not going to help reduce the high rate of unemployment either. If the latest non-farm payroll figures are anything to go by, then one can clearly see how ineffective the Fed's program of quantitative easing has been regarding the reduction of the high level of unemployment in the US. The latest figures that were released on Friday, showed an expansion in employment of only 39,000 in November compared to markets expectations of 142,000. And, overall unemployment also jumped sharply from 9.6% to 9.8%. Even if the US economy was able to add say 50,000 new jobs per month, it would take around 15 years to get back to the levels that were last seen before this financial crisis that began in August 2007.
Furthermore as the U.S. maintains its low interest rate policy and billions of dollars flow to other countries around the world for higher returns, we will see a wave of reactive monetary policies from other countries in order to protect their currencies from increasing in value as the dollar continues to weaken. This chain reaction will send the dollar lower, but it will also make gold's $1,400 an ounce price look like a bargain by the end of next year.
If you think this scenario is bad, think again. It gets worse when we consider the conditions prevailing in the Eurozone. Only last week the European Union warned that the turmoil over Eurozone debt is now a threat to growth, which will slow next year. The EU Commission said growth in the 16-nation Eurozone economy will slow to 1.5% next year from 1.7% this year but then pick up to 1.8% in 2012. It also adjusted radically downwards Ireland's growth forecast, to 0.9% next year, from 3%.
Last week as borrowing costs for Ireland, Portugal and Spain soared, spreads on Italian and Belgian bonds jumped to a post-EMU high as the selloff extended beyond Ireland, Portugal, and Spain, raising concerns that the crisis could start to turn systemic.
While I do not want to appear as a doctor of gloom, the reality of the current situation is not good. We have massive government budget deficits, burgeoning national debt, expansionary monetary policies that will not rectify the high levels of unemployment but will debase the value of the US dollar and euro, and slow GDP growth in most western countries. We also have governments falsifying economic data, and price manipulation in gold and silver. We also have bank bailouts as well as country bailouts. And, we have politicians who are not trustworthy, corrupt bankers, traders and government officials, not to mention geopolitical tensions. In such a scenario, one would be well advised not to be hoodwinked by the usual political rhetoric and take precautionary measures to protect your wealth. The one sure way to do this is to own gold and silver.
TECHNICAL ANALYSIS

Since October, the price of gold has held above $1325 an ounce. Now, it is testing the resistance at $1425. A beak above this level could establish a new trading zone for the yellow metal.
About the author
David Levenstein began trading silver through the LME in 1980, over the years he has dealt with gold, silver, platinum and palladium. He has traded and invested in bullion, bullion coins, mining shares, exchange traded funds, as well as futures for his personal account as well as for clients. www.lakeshoretrading.co.za
Information contained herein has been obtained from sources believed to be reliable, but there is no guarantee as to completeness or accuracy. Any opinions expressed herein are statements of our judgment as of this date and are subject to change without notice.


Mineweb.com - The world's premier mining and mining investment website Gold showing its safe haven properties - INDEPENDENT VIEWPOINT | Mineweb

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(BN) Copper Faces 2-Year Shortage, Peak Over $10,000, Trafigura Says

(BN) Copper Faces 2-Year Shortage, Peak Over $10,000, Trafigura Says
2010-12-07 09:29:56.282 GMT

By Claudia Carpenter
Dec. 7 (Bloomberg) -- Copper supplies will lag demand for
at least the next two years, with prices peaking over $10,000 a
metric ton in the second quarter next year, according to
Trafigura Beheer BV, which considers itself the world's second-
largest trader of industrial metals.
Copper will move from a balanced market this year to
shortages of 800,000 tons in both 2011 and 2012 at current
prices, Simon Collins, head of refined metals at Trafigura in
Lucerne, Switzerland, said in an interview yesterday. That's
even before demand climbs as exchange-traded funds backed by the
metal are introduced, he said.
Such funds "will result in higher prices, which in turn
will affect price-sensitive demand and price-sensitive supply,"
Collins said. "Consumers are concerned about an ETF.
Inventories are already relatively low."
Copper prices are up 21 percent this year, and reached a
record $8,973.50 a ton today, partly as manufacturers and other
buyers who anticipate shortages build inventories to meet demand
for next year, Collins said. Imports into China, the world's
largest consumer, typically are strongest in the second quarter,
helping to boost copper prices and leading gains in lead, nickel
and aluminum, he said. Copper stockpiles tracked by the London
Metal Exchange have slid 30 percent this year.
In 2006, the copper market was also forecast to have a
large deficit when higher prices brought the market further into
balance than originally estimated, Collins said. If prices rise,
next year's deficit may be only 400,000 tons, he said.
Copper Trading
Trafigura trades about 1 million tons of copper a year,
Collins said. Glencore International AG is the largest trader of
industrial metals, according to Trafigura estimates.
Trafigura is preparing for more metals demand by customers
and increasing its warehouse capabilities through its subsidiary
NEMS, with plans to expand in the U.S. next year for the first
time with storage facilities in Baltimore and New Orleans, as
well as in China, Collins said. He declined to give an estimate
of the investment.
Copper demand may rise if JPMorgan Chase & Co., BlackRock
Inc. and ETF Securities Ltd. start ETPs backed by the metal, in
line with plans announced by all three companies in October.


For Related News and Information:
Top commodities: CTOP <GO>
Top shipping: SHIP <GO>
Searches: NSE <GO>
Commodity curves: CCRV <GO>
--Editors: Dan Weeks, John Deane.
To contact the reporter on this story:
Claudia Carpenter in London at +44-20-7330-7304 or
ccarpenter2@bloomberg.net
To contact the editor responsible for this story:
Claudia Carpenter at +44-20-7330-7304 or
ccarpenter2@bloomberg.net

FW: Frontrunning: December 7

Frontrunning: December 7

Submitted by Tyler Durden on 12/07/2010 07:58 -0500

• Australia
• Citigroup
• Consumer Confidence
• European Central Bank
• Fat Cats
• Germany
• North Korea
• Norway
• Reuters
• Switzerland
• Unemployment
• United Kingdom
• White House

• Draconian Budget Set to Pass After Lowry Gives His Backing (Irish Times)
• Euro Collapse 'Possible' Amid Deepening Divisions Over Bail-out (Telegraph)
• China Outstrips Fed With Liquidity Risking 2011 Inflation Spike (Bloomberg)
• Deal Struck on Tax Package (WSJ)
• Dublin Woos MPs Ahead of Budget Vote (FT)
• China Buys Most Korean Bonds in 6 Months as Won Falls (Bloomberg)
• EU Rules Out Immediate Aid Boost, Banks on ECB to Fight Crisis (Bloomberg)
• The theatrical farce continues: Obama Summons CEOs to White House for Talks Amid Change (Bloomberg)
• U.S. Ends Citigroup Investment With $10.5 Billion Stake Sale (Bloomberg)
• RBA Keeps Rate Unchanged, Sees Inflation Contained (Bloomberg)
• China Hits Back at Criticism over North Korea (Reuters)
• I Opt-out of California (New Geography)
• Obamanomics: Only fat cats prosper (NYP)
• Folding the Fed: Central bank isn't equipped to save the economy (Washington Times)

Economic Highlights

• Norway Consumer Confidence for Q4 26.5-higher than expected. Consensus 23.6. Previous 22.7.
• Switzerland Unemployment Rate 3.6%-in line with expectation. Consensus 3.6%. Previous 3.5%.
• Australia Wholesale Price Index 0.8% m/m 7.7% y/y. Previous -0.2% m/m 7.0% y/y.
• Denmark Industrial Production -4.8%m/m. Previous 2.4% m/m.
• Denmark Industrial Orders 3.3% m/m.Previous -27.3% m/m.
• Sweden Budget Balance SEK 13.7B. Previous -16.6B.
• Norway Industrial Production 8.6% m/m -2.4% y/y. Previous 1.8% m/m -10.9% y/y.
• Norway Industrial Production Manufacturing -0.3% m/m 4.0% y/y-lower than expected. Consensus 0.4% m/m 4.7% y/y. Previous 1.6% m/m 3.3% y/y.
• UK Industrial Production -0.2% m/m 3.3% y/y-lower than expected. Consensus 0.3% m/m 3.9% y/y. Previous 0.4% m/m 3.8% y/y.
• UK Manufacturing Production 0.6% m/m 5.8% y/y-higher than expected. Consensus 0.3% m/m 5.4% y/y. Previous 0.1% m/m 4.8% y/y.
• Germany Manufacturing Orders 1.6% m/m 17.9% y/y-lower than expected. Consensus 1.9% m/m 18.6% y/y. Previous -4.0% m/m 14.0% y/y.
• Irish parliament votes on 2011 budget.

Latest News From RAN Squawk

12-07 08:26: Germany's Soffin fund is likely to post a loss in 2010

12-07 08:24: IMF's Strauss-Kahn says Greece have taken bold measures in his visit to Athens today

12-07 08:16: Greek PM says Greek attempts are being acknowledged, and Greece correcting chronic problems

12-07 08:16: 3M (MMM) says India and Latin America gathering momentum in China like fashion

12-07 08:13: Baltic Dry index falls 0.3% to 2,173 points

12-07 08:13: Iran nuclear negotiator Jalili says Iran will not discuss uranium enrichment halt at Istanbul meeting

12-07 08:12: Fifth Third Bancorp (FITB) says expects 2010 losses to be lower than original baseline scenario submission

12-07 08:11: German Finance Minister reiterates no ground to debate a larger EFSF

Latest News From The Fly On The Wall

12-07 08:26: Senate Banking, Housing and Urban Affairs Committee to hold a hearing

12-07 08:26: Rambus deal with Elpida being undervalued by Street, says Capstone

12-07 08:25: Baytex increases dividend by 11% to C20c

12-07 08:25: Verizon CEO says FiOS nears making up for losses in voice wireline

12-07 08:24: Pharmacyclics reports updated clinical results of phase ia Btk-inhibitor trial

12-07 08:23: Air Products initiated with a Neutral at Susquehanna

12-07 08:23: LTX-Credence should be bought on weakness, says DA Davidson

12-07 08:23: The SEC to hold a field hearing

The Zero Hedge Team

Tyler Durden - Founder
Marla Singer - Foil
Travis - Author
Cornelius - Author
Sacrilege - Senior Researcher

View article...