Daily Digest

Daily Digest 10/18 - Production Declines, South Korea's Gold Holdings, French Strikes

Monday, October 18, 2010, 10:50 AM
  • As South Korea Sets Off To Formally Expand Its Gold Holdings, Is China Far Behind?
  • Bitter Feud at ECB over Monetary Policy
  • Production in U.S. Unexpectedly Falls for First Time in a Year
  • Japan Goes From Dynamic to Disheartened
  • Bienvenue en France (mais, nous sommes fermés)
  • Retail Theft Reaches New Level of Insanity
  • Vaclav Smil's Energy Myths and Realities

Crash Course DVDThe 3-disc Crash Course features a handy presenter’s pack for guiding group showings (NTSC or PAL)

Economy

As South Korea Sets Off To Formally Expand Its Gold Holdings, Is China Far Behind?

Today's most important piece of news for holders of precious metals comes from the far East, where Kim Choong-soo, governor of South Korea’s central bank, told a parliamentary committee on Monday, that the country: "needs to give careful consideration to the matter of increasing gold volumes in the foreign reserves.” In other words, as the FT summarizes, "South Korea, holder of the world’s fifth-biggest foreign exchange reserves, is considering expanding its small holdings of gold to diversify its dollar-heavy portfolio."

Bitter Feud at ECB over Monetary Policy; BOE to Expand Stimulus; Japan's Great Deflation; Will the US Follow?

Although there is a huge debate amongst Fed members regarding US monetary policy, especially the merits of Quantitative Easing, that debate can easily be described as relatively friendly discussion.

Things are quite different in the EU where there is a bitter feud between ECB president Jean-Claude Trichet and Trichet's rumored replacement, Bundesbank President Axel Weber.

Production in U.S. Unexpectedly Falls for First Time in a Year

Production in the U.S. unexpectedly dropped in September for the first time in more than a year, showing the industry that led the economy out of the recession is cooling.

Output at factories, mines and utilities fell 0.2 percent, the first decline since the recession ended in June 2009, figures from the Federal Reserve showed today. Factory production also decreased 0.2 percent, reflecting declines in consumer durable goods, like appliances and furniture.

Crash Course DVDThe 3-disc Crash Course features a handy presenter’s pack for guiding group showings (NTSC or PAL)

Japan Goes From Dynamic to Disheartened

Like many members of Japan’s middle class, Masato Y. enjoyed a level of affluence two decades ago that was the envy of the world. Masato, a small-business owner, bought a $500,000 condominium, vacationed in Hawaii and drove a late-model Mercedes.

But his living standards slowly crumbled along with Japan’s overall economy. First, he was forced to reduce trips abroad and then eliminate them. Then he traded the Mercedes for a cheaper domestic model. Last year, he sold his condo — for a third of what he paid for it, and for less than what he still owed on the mortgage he took out 17 years ago.

Bienvenue en France (mais, nous sommes fermés)

Is there or isn’t there going to be enough fuel for Paris’ Charles de Gaulle airport to keep functioning after Monday? A near-national strike was set to grip France for another day on Monday. Truck drivers, refinery operators and rail staff have all now joined forces in protesting against President Nicolas Sarkozy’s plans to raise the retirement age by two years.

According to Bloomberg, unions have called for a fourth day of national strikes to begin on October 19.

But it’s ongoing strikes at France’s main refineries — now heading into their third week — which are really threatening to grind the country’s infrastructure to a halt.

Retail Theft Reaches New Level of Insanity

What are shoplifters nabbing, and why? Are cultural trends mirrored by criminal activity?

Yesterday, AOL ran a package of Minyanville articles about those objects that are most wanted -- and least paid-for -- across the country.

The list included meat, books, OTC pills, alcohol, baby formula, razors, Brighton jewelry,cosmetics, and gadgets, games, and smartphones.

Energy

Vaclav Smil's Energy Myths and Realities

Vaclav Smil, professor of Environment and Environmental Geography at the University of Manitoba in Winnipeg, has written a new book called “Energy Myths and Realities.” In the book, he looks at a number of things he considers myths:

1. The future belongs to electric cars 2. Nuclear electricity will be too cheap too meter 3. Soft-energy illusions (local generation, etc.) 4. Running out: Peak oil and its meaning 5. Sequestration of carbon dioxide 6. Liquid fuels from plants 7. Electricity from wind 8. The pace of energy transitions

10 Comments

saxplayer00o1's picture
saxplayer00o1
Status: Diamond Member (Offline)
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Re: Daily Digest 10/19 - Production Declines, South Korea's ...

"BEIJING - AN ADVISER to China's central bank on Monday issued a thinly veiled warning to the United States not to print more money to stimulate growth, as IMF and top central bank officials met in Shanghai.

Xia Bin, a member of the monetary policy committee of the People's Bank of China (PBOC), also said a key task to strengthen the global economic recovery was to 'improve the flaws in the dollar-denominated international monetary mechanism'. "

"Earlier on Monday, state media accused the United States of 'double standards' and blamed the loose monetary policies of the world's top economy for triggering global currency tensions. -- AFP "

..............1A) US has 'double standards' in currency dispute: China

"US policies of "printing money" and holding interest rates near zero were the main cause of the currency dispute, said a commentary by the Xinhua news agency, carried Monday in the central bank-backed Financial News.

"In the eyes of some American politicians it is entirely reasonable to print money and keep the dollar exchange rate low, but it is illegal for other countries to protect their economic and financial security by pushing down exchange rates," it said.

"This is clearly a double standard.""

FEDERAL Reserve Bank of Chicago president Charles Evans said on Saturday the US is in a “bona fide liquidity trap” and needs “much more” monetary accommodation in the face of high unemployment and inflation that is too low.

"“If you reach the conclusion that we are in a liquidity trap, or even near a perilous liquidity trap, more accommodation is not data- dependent or a close call,” the regional bank chief said in Boston on Saturday. He advocated targeting a path for the price level as a way to stop the inflation rate from falling.

Central bankers, seeking ways to boost flagging growth after lowering interest rates almost to zero and buying 1,7-trillion of securities, are weighing strategies for raising inflation expectations as well as expanding the balance sheet by purchasing Treasuries, according to minutes of the Fed’s September 21 meeting released last week."

"South Korea, holder of the world’s fifth-biggest foreign exchange reserves, is considering expanding its small holdings of gold to diversify its dollar-heavy portfolio.

“We need to give careful consideration to the matter of increasing gold volumes in the foreign reserves,” Kim Choong-soo, governor of South Korea’s central bank, told a parliamentary committee on Monday.

Such a move would have a powerfully bullish effect on the gold market. With just 14 tonnes of gold – or 0.2 per cent of $290bn reserves – Seoul is one of the smallest holders of gold among large economies. The world average is about 10 per cent, according to the World Gold Council, while countries such as the US, Germany and France hold well over 50 per cent of their reserves in gold.

South Korea would join other Asian countries including China, India, Thailand and Bangladesh in adding gold to its reserves. With emerging market countries buying gold and central banks in Europe halting their programmes of sales, central banks are set to become net buyers of gold this year for the first time since 1988, according to GFMS, the precious metals consultancy."

"Gov. Sanford Friday renewed his call to state citizens to urge government officials to formulate creative means of addressing one of the most serious problems faced by South Carolina in the coming years - the State Retirement System’s $12 billion unfunded liability, which makes up more than half of the state’s $21 billion debt owed by future generations.

“Just this week 54 million Americans on Social Security were told that the federal government would not be giving them a cost-of-living increase for the second-straight year, marking the first time this has happened in a generation,” Gov. Sanford said. “This comes on the heels of news that Social Security is already paying out more money than it’s taking in, and may be completely insolvent in 25 years. Yet this fiscal nightmare is not confined to the federal government, as states and cities now harbor more than $3.5 trillion in unfunded pension liabilities - promises made but not paid for in capitals across this nation.

“South Carolina is facing the same nightmare scenario. In 1999, our state’s Retirement System (SCRS) was underfunded by just $177 million, meaning that state employees’ pensions were basically assured and the system was almost fully funded. Since then, SCRS’s unfunded liability has grown on average by more than a billion dollars every year - totaling $12 billion today. More so, the SCRS is now funded at less than 70 percent, which would violate federal law were it in the private sector. Add to this the roughly $10 billion in health care related liabilities, and South Carolina taxpayers and their children are on the hook for more than $21 billion."

  • Other news, headlines and opinion:

ECB's Trichet Rejects Weber's Call to End Bond Purchase Program

Portugal fears more cuts may be needed: minister

Spanish Banks' Bad Debt Levels Rise In August To 5.6% Of Loans

China's Zhang Says Obama Seeking `Votes' With Clean Energy Subsidy Probe

Service Demand Declines as Japan's Recovery Loses Momentum Due to Yen Rise

Belgium simmers as political stalemate continues

City faces $20.6-million shortfall to balance 2011 budget: report (Vancouver)

California cities are lowering standards to raise revenue

As food stamp use grows, some lawmakers eye program's funding for other priorities

Underfunding to worsen with further easing (Pensions)

Money Flooding Asia Poses `Instability' Threat, IMF Head Says in Shanghai

Blanchflower Says U.K. `Desperately in Danger' of Renewed Slump

Seven Million U.S. Mortgages Past Due or in Foreclosure: LPS

Wall St blames homeowners in foreclosure fiasco

Fed buys $6.26 bln in bonds; Treasurys stay up

Doug's picture
Doug
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Short US debt?

Eric Englund has opined that US Gov't debt is the next big bubble and that we might profit from shorting it.

http://financialsense.com/contributors/eric-englund/the-next-big-short-us-treasury-bonds

Quote:

Egon von Greyerz, of Matterhorn Asset Management, certainly thinks so. He believes, indeed, there is a bond bubble of global proportions. Here is what he stated in a recent article:

The bond market is the biggest bubble in financial markets worldwide, in our opinion. Investors around the world are worried about the state of financial markets and therefore believe that government bonds represent a safe haven. These investors will receive the most enormous shock on two accounts. Firstly, no government will be able to repay the debts outstanding. So there will either be government defaults, moratoria, or money printing that totally destroys the value of the bonds. Secondly, interest rates are likely to go up significantly to at least 10–15%, totally destroying the value of the bonds.

Financial-market luminaries, such as Marc Faber, Jim Rogers, and Peter Schiff do believe U.S. Treasury bonds are in a bubble. In fact, in this interview, Jim Rogers states he is considering shorting U.S. Treasury bonds. If Rogers is thinking about shorting bonds, you should too.

Englund states that he owns MUTF:RYJUX, an inverse bond mutual fund.  He goes on:

Quote:

For up-to-date information, with respect to the debt and liabilities the U.S. is racking up at warp speed, I suggest visiting U.S. Debt Clock.org. As of October 15, 2010, the national debt was approaching $13.6 trillion and unfunded liabilities were approaching $111 trillion. One would suppose even Alexander Hamilton would be alarmed at such surreal figures. Ah, but the bond market is forecasting tranquility and absolute safety for the next 30 years.

This is exactly why I like the idea of being short U.S. Treasury bonds. Wall Street analysts, for the most part, will not sound the alarm indicating a bond bubble has emerged. After witnessing the subprime-mortgage collapse and then the ensuing bailout of Wall Street, I have concluded Wall Street is a criminal enterprise designed to separate you from your money. So don’t expect any help from these crooks. As for the rating agencies, such as Fitch, Moody’s, and Standard & Poor’s, they won’t sound the alarm simply due to the fact that they are incompetent. After Enron, MBIA, and the entire subprime mortgage-backed securities disaster, who takes the rating agencies seriously anymore? So while institutions and individuals flee to the alleged safety of long-term U.S. Treasuries, AAA rating and all, the "shorts" properly view Uncle Sam as a subprime borrower; and have detected an opportunity to profit when the Treasury-bond bubble bursts.

While I doubt there are many on this site that would argue we should be investing in US debt, I'm curious to get others' takes on the notion of shorting it and what other ways there are of doing so.  Could gold be considered a way of shorting it?

Doug

(edited to add heading)

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joemanc
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Re: Daily Digest 10/18 - Production Declines, South Korea's ...

Doug - Jim Rogers said about a year ago that he had to cover his bond shorts because Ben Bernanke has a lot more money than he does. I'm itching to short bonds too, but I won't do it unless the herd piles in. What do you think Captain Sheeple?

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Re: Short US debt?

Doug, for the best eye opening discussion on GOLD found on the internet, follow this link ...

http://fofoa.blogspot.com/

I will say that if you are thinking about investing in gold then invest by taking PHYSICAL POSSESSION OF YOUR GOLD!  There simply is no other option that you can trust.

 

 

Doug's picture
Doug
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Posts: 3158
Re: Short US debt?
alcatwize wrote:

Doug, for the best eye opening discussion on GOLD found on the internet, follow this link ...

http://fofoa.blogspot.com/

I will say that if you are thinking about investing in gold then invest by taking PHYSICAL POSSESSION OF YOUR GOLD!  There simply is no other option that you can trust.

I've been buying pms for some time now.  My question was whether it could be considered a short.  On reflection, I realized it isn't.  A hedge, possibly, but not a short as I understand those terms.

Doug

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nickbert
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Bank of America starts thaw in foreclosure freeze

Well now isn't THIS interesting?...

Bank of America plans to resume 100K foreclosures in 23 states, suggesting thaw in freeze

http://finance.yahoo.com/news/Bank-of-America-starts-thaw-apf-2257980810.html?x=0

Bank of America said Monday that it plans to resume seizing more than 100,000 homes in 23 states next week. It said it has a legal right to foreclose despite accusations that documents used in the process were flawed.

Ally Financial Inc's GMAC Mortgage unit is also resuming foreclosures once documents are fixed. Gina Proia, a spokeswoman for Ally, said that "as we review the affected files and take any remediation needed, the foreclosure process then resumes."

Analysts expect other lenders to correct problems with the way they handled documents and proceed with a wave of foreclosures that have depressed the housing market. They are likely to follow because foreclosure practices were similar from bank to bank, said banking analyst Nancy Bush of NAB Research.

So it seems to me that there are three (likely) possibilities behind this news:

1) BofA has figured that if the foreclosure stoppage continues they are sunk or at least severely pinched, so they're going to charge ahead, try to fix or deal with any problem cases as they come, and hope the legal costs don't bite into their profits too much.  Sort of a bluff, or perhaps an "easier to ask forgiveness than permission" thing.

2) BofA and/or the other big banks have put lots of money in the right (or wrong, depending on your POV) hands and got something cooking in Congress and/or the White House that they expect will smooth some of the mess over, and are proceeding without delay.

3) BofA and/or the other big banks have arranged a drug deal with the Fed to either receive gobs of money to offset the costs of legal challenges or have the Fed take those problematic assets off their hands as they're identified in exchange for freshly printed moolah.

So what do ya think?.... Doors 1, 2, or 3?

I'm thinking number 1, with a number 3 deal in the works but not yet final.  Number 2 seems a little less likely to me because of Congress being off for a little while longer.

- Nickbert

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pinecarr
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Re: Daily Digest 10/18 - Production Declines, South Korea's ...

Interesting, Nickbert!  I take Door #1, with the amendment that they choose to just "appear" like they are going to fix things.  Why break with a grand tradition?

I don't know if anyone else saw this yet, but James Kunstler has a write-up that resonates with the feelingscape these days...the guy's almost poetic despite the fact it's so depressing...oh, wait, there's a genre for that isn't there; the tragedy?  Well, at least future generations might get some good literature out of the mess caused by these morons (that was for you, Davos!:). 

From http://kunstler.com/blog/2010/10/wait-for-it.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+clusterfucknation+%28Clusterfuck+Nation%29:

This is therefore what the late, great Eudora Welty might have called... a still moment - the boundless interval of grave recognition that something momentous is occurring.

Where we stand is something like the doorway of a surrealist painting leading to a blue sky dotted with puffy little clouds - which is deceptively reassuring, until you realize that the solid earth is nowhere in sight.

The truth is, nobody has a clue what happens next, most particularly the folks in charge of things.

Way to nail it, Jim!

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pinecarr
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"America Will Not Engage In Dollar Devaluation" - whew!!

Wow, it looks like my worries in the last post were about nothing!  Per a  new article in the Telegraph at 

http://www.telegraph.co.uk/finance/currency/8072427/US-Treasury-chief-Timothy-Geithner-says-America-will-not-engage-in-dollar-devaluation.html"

Timothy Geithner, the US Treasury Secretary, said the United States would not engage in a currency war by devaluing the dollar to boost the country's flagging economy.

 

Whew!!!!  No worries now!!

-Where's a big audience of eyes-open, "I laugh at your BS, Tim"  students when you need them?

Doug's picture
Doug
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Re: Daily Digest 10/18 - Production Declines, South Korea's ...

Pinecarr

I think Kunstler learned his journalism and writing skills from Hunter S. Thompson, the creator of gonzo journalism.Cool Entertaining for sure, but with only a tenuous connection to the world of reality, and that distorted by a drugged out haze.

Doug

saxplayer00o1's picture
saxplayer00o1
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Re: Daily Digest 10/18 - Production Declines, South Korea's ...

 

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