Daily Digest

Daily Digest - June 18

Friday, June 18, 2010, 10:44 AM
  • Something Doesn't Fit
  • Jobless Thursday - Productivity and Prices are Peaking
  • Greenspan Says U.S. May Soon Reach Borrowing Limit
  • US Dollar: The Mother of All Bubbles
  • Chanos Shorts Oil Majors, Ford, Hasn't 'Played' BP
  • Jon Stewart Shows our Last 8 Presidents Paying Lip Service to Energy Independence 
  • Nuclear Agency Weighs a Plan to Dilute Waste
  • What We Learned From Tony Hayward And Joe Barton At The BP Hearings

Economy

Something Doesn't Fit (jdargis)

Take the recent surge in the gold price to a nominal record of $1,251.20 an ounce. Owning gold is traditionally seen as offering protection against inflation. And inflation is very bad news for owners of government bonds. But the ten-year Treasury bond yields just 3.3%, a level that is towards the low end of the historical range.

There is something remarkable about this combination. You would expect the performance of gold and Treasury bonds to be inversely correlated. When gold was at its real all-time high in 1980, the ten-year Treasury-bond yield was 10.8%. Fixed-income investors had suffered years of negative real returns in the 1970s.

Jobless Thursday - Productivity and Prices are Peaking (Ilene)

Close enough, right? Of course we don’t base our decisions on pattern matching (which can give you many false positives) but when we feel the fundamentals are the same AND the market movement looks the same, then we get pretty interested in watching how that pattern is playing out! so today should be a flat day and we most likely flatline into expirations, which would be good as we still need to form a base but the question remains - do we have enough good news and data to take us back to the top of our range at 10,700 (1,140 on S&P)?

Greenspan Says U.S. May Soon Reach Borrowing Limit (mhoop)

Greenspan rebutted “misplaced” concern that reducing the deficit would put the economic recovery in danger, entering a debate among global policy makers about how quickly to exit from stimulus measures adopted during the financial crisis. U.S. Treasury Secretary Timothy F. Geithner said this month that while fiscal tightening is needed over the “medium term,” governments must reinforce the recovery in private demand.

US Dollar: The Mother of All Bubbles (hucklejohn)

This is my fundamental currency thesis that I have been following since 1997, and it appears to be valid so far. I do not see the resolution in hyperinflation per se, but I do think the new dollar will have a value of about 10% of the current dollar. I think a hyperinflation requires a loss of confidence against some external standard. So the object is to weaken any that might appear.

At some point they will merely knock a zero off the current dollar and demand their surrender for new dollars. That should play havoc with those holding large bundles of 'cash.' For example, if you have $100,000 in savings, and it will afterwards be worth 10,000 in new dollars.

Energy

Chanos Shorts Oil Majors, Ford, Hasn't 'Played' BP (Davos)

Jim Chanos, founder of Kynikos Associates Ltd., talks with Bloomberg's Erik Schatzker about BP Plc's Gulf of Mexico oil spill and the performance of the oil industry.

Jon Stewart Shows our Last 8 Presidents Paying Lip Service to Energy Independence (Megan)

All of them have talked about it, and yet America is still dependent on foreign oil. From the looks of this clip, we'll probably stay that way for another 8 Presidents.

Nuclear Agency Weighs a Plan to Dilute Waste (jdargis)

At issue is whether a site in Utah that is licensed to accept only the mildest category of radioactive waste, called Class A, could accept far more potent materials, known as Class B and C wastes, by blending the three together.

What We Learned From Tony Hayward And Joe Barton At The BP Hearings (jdargis)

"I am not a drilling engineer," he said at several points. "I am not an oceanographic scientist," he said at another. "I'm not a cement engineer, I'm afraid," he lamented. Even the people he brought with him were defined by what they didn't know. Before responding to one question, Hayward consulted with a technical adviser, then turned back to the microphone. The adviser was "not a cement expert," so neither one of them could answer.

Please send article submissions to: [email protected]

13 Comments

saxplayer00o1's picture
saxplayer00o1
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Re: Daily Digest - June 18

"June 18 (Bloomberg) -- China, owner of the world’s largest foreign currency reserves, should increase its holdings of precious metals and oil as part of a diversification strategy, a member of the National People’s Congress said."

"“China should adjust the asset structure of its foreign reserves and achieve the goals of making the investment safe, liquid, and preserving and adding value,” Yin said."

"June 18 (Bloomberg) -- Illinois sold $300 million of Build America Bonds at a yield premium over Treasuries about 40 percent higher than two months ago after lawmakers failed to close a $13 billion budget deficit for the year starting July 1.

The fifth most-populous U.S. state sold the taxable debt maturing in 2035 priced to yield 7.1 percent yesterday, or 297 basis points over the 2040 Treasury to which it was benchmarked, according to data compiled by Bloomberg. Illinois offered Build Americas of similar maturity at spreads of 205 basis points and 210 basis points in two April issues, Bloomberg data show. A basis point is 0.01 percentage point."

"June 18 (Bloomberg) -- China’s finance ministry offered higher-than-expected yields at bond auctions today as a shortage of cash in the banking system damped demand for the 43.8 billion yuan ($6.4 billion) of notes it was selling to raise funds for local governments.

The 28.6 billion yuan of three-year notes sold drew bids for 1.02 times the amount offered and the 15.2 billion yuan of five-year debt was subscribed 1.06 times. The average ratio at previous treasury bond auctions this year was 1.7 times.

“The abnormally high yields suggest the auction would have failed if the ministry could have settled for less than the planned sales amount,” said Hu Hangyu, a Beijing-based fixed- income analyst with Citic Securities Co., China’s biggest listed brokerage. "

"MADRID, June 18 (Reuters) - Bad loans held by Spanish banks rose to 5.39 percent of total loans in April after easing slightly to 5.21 percent in March, data from the Bank of Spain showed on Friday.

That was a rise of 2.5 billion euros ($3.1 billion) in the total amount of bad loans from the previous month.

Including debt via credit cards and credit institutions the bad debt rate rose to 5.5 percent, or 100 billion euros."

..........................4A) IMF visit fuels speculation on Spain bailout (AFP)

..........................4B) Spanish economy: IMF head meets government

"Louisiana's state treasurer estimated environmental and economic damages from the Gulf of Mexico oil spill could range from USD 40 billion to USD 100 billion, and that the BP USD 20 billion escrow fund was not enough.

Louisiana is eager to learn the details of a special fund BP Plc agreed to create to compensate those affected by the oil gushing into the Gulf of Mexico from an accident at one of the company's oil wells, Louisiana Treasurer John Kennedy told Reuters Insider on Thursday."

......................5A) Moody's cuts BP by 3 notches, may cut again

"Government pension problems, considered California's problem, might actually be Beverly Hills' problem.
That is the prediction of some City officials who are in charge of crunching numbers to forecast the financial stability of Beverly Hills.
Those forecasters might just be right.
City Treasurer Eliot Finkel states in 2008 Beverly Hills had an employee retirement obligation (CalPERS) of approximately $485 million; $46 million was unfunded.
From 2008-2009, CalPERS reported a loss of 23.4 percent of its entire investment portfolio. Finkel theorizes the loss will increase the City's total unfunded liability by approximately $149 million (paid back over 30 years)
The loss will not affect Beverly Hills until 2011-2012 because CalPERS is two years behind in reporting.
The loss could improve in the next few years, if the stock market turns around."

 

"creating "dead zones" where oxygen is so depleted that nothing lives.
"This is the most vigorous methane eruption in modern human history," Kessler said."

"WASHINGTON (MarketWatch) -- The Treasury Department said it plans to sell $108 billion in notes next week. This is a $5 billion reduction from the prior auctions for the 2-year, 5-year and 7-year notes at the beginning of June and is down from a peak of $118 billion offered in April. The U.S. government said it will auction $40 billion in 2-year notes, $38 billion in 5-year notes and $30 billion in 7-year notes."

  • Other news and headlines:

Greenspan: We're In Danger Of Being The Next Greece!

Gold Rises to a Record in London, New York on European Concern

Historian warns of looming political crisis

Medvedev Says He 'Cannot Rule Out' Collapse of Euro

White House begins new stimulus push

Mining Deals Plunge in Australia After Rudd Tax Plan

Pension 'reform' will cost Pa. $52 billion (Opinion)

Bank of Japan's Shirakawa Sees Chinese Bubble Risk

County leaders pass budget with at least 725 layoffs (Sacramento)

Mayor Cory Booker proposes massive layoffs, benefits cuts to offset $180M budget gap (Newark..up to 2,000 workers)

Japan's Moneylenders Brace for Losses, Rules Shakeout

1300 NY Pensioners Receive Six-figure Pensions and Top state retirees earn $200k+ pensions

Calif. prisons suspend inmate visits to save money

50-percent tax hike for Albany County homeowners? ("county could run out of money before year's end")

BP Oil Spill: Against Gov. Jindal's Wishes, Crude-Sucking Barges Stopped by Coast Guard

 

...........Sort of a long weekend, so I guess there will be a different comment #1 on Saturday and Sunday. Enjoy the weekend.

Davos's picture
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Re: Daily Digest - June 18

I'd like to point out that the only part of the Chanos clip I submitted that I personally found to be very important was from at ot about the :28 second to the 1:05 minute point.

I've, and I'm sure many others, have always wondered: Do the big oil companies know of Peak Oil?

Chanos surmises that the large oil companies are actually liquidating by not replacing their reserves. In such a capitol intensive sector I think this point is beyond profound. 

To me it answers the question.

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Re: Daily Digest - June 18

So much bad news on a daily basis but the house prices here in Australia are still going up. I no longer understand what is driving our economy. It appears that we will be OK as long as China is OK as nothing else (US or EU) seem to have any impact on the Australian economy.

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Re: Daily Digest - June 18

   Australian property is in a bubble, caused by uncontrolled lending and maybe some of the cash flowing into your mining industry from China. Like all bubbles it will end the same way.  Look out for 110% LTV mortgages with salary multiples of 5, interest only,  then you'll know the game is nearly up!

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Re: Daily Digest - June 18
Davos wrote:

I'd like to point out that the only part of the Chanos clip I submitted that I personally found to be very important was from at ot about the :28 second to the 1:05 minute point.

I've, and I'm sure many others, have always wondered: Do the big oil companies know of Peak Oil?

Chanos surmises that the large oil companies are actually liquidating by not replacing their reserves. In such a capitol intensive sector I think this point is beyond profound. 

To me it answers the question.

Davos:

Exxon-Mobil's example explains it. They've bought back a lot of their stock rather than devote that money to exploration/development, and they've purchased within the U.S.

On the other hand, Mexico's Pemex produces, but their production will increasingly be for domestic consumption. Most of the profits go towards subsidizing Mexico's federal budget.

Brazil's Petrobras has a lot of deepwater reserves, so that looks like a possible area of production growth.

Poet

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Re: Daily Digest - June 18

From Chuck Butler's Daily Pfenning at Everbank (talk about alarming news...)

A dire report circulating in the Kremlin today that was prepared for Prime Minister Putin by Anatoly Sagalevich of Russia's Shirshov Institute of Oceanology warns that the Gulf of Mexico sea floor has been fractured “beyond all repair” and our World should begin preparing for an ecological disaster “beyond comprehension” unless “extraordinary measures” are undertaken to stop the massive flow of oil into our Planet’s eleventh largest body of water.

Interesting to note in this report is Sagalevich stating that he and the other Russian scientists were required by the United States to sign documents forbidding them to report their findings to either the American public or media, and which they had to do in order to legally operate in US territorial waters.
However, Sagalevich says that he and the other scientists gave nearly hourly updates to both US government and BP officials about what they were seeing on the sea floor.

Why did we have to hear about this from the Russians?

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Re: Daily Digest - June 18
RW wrote:

From Chuck Butler's Daily Pfenning at Everbank (talk about alarming news...)

A dire report circulating in the Kremlin today that was prepared for Prime Minister Putin by Anatoly Sagalevich of Russia's Shirshov Institute of Oceanology warns that the Gulf of Mexico sea floor has been fractured “beyond all repair” and our World should begin preparing for an ecological disaster “beyond comprehension” unless “extraordinary measures” are undertaken to stop the massive flow of oil into our Planet’s eleventh largest body of water.

Interesting to note in this report is Sagalevich stating that he and the other Russian scientists were required by the United States to sign documents forbidding them to report their findings to either the American public or media, and which they had to do in order to legally operate in US territorial waters.
However, Sagalevich says that he and the other scientists gave nearly hourly updates to both US government and BP officials about what they were seeing on the sea floor.

Why did we have to hear about this from the Russians?

This is unfortunate...I like Chuck Butler and his writing style.  The unfortunate part is that he's repeating a piece of writing that sources from one "Sorcha Faal" who, politely speaking, is extremely unreliable.  I tracked down the source of his material just to be sure.

There's enough bad news floating around without picking up some internet fantasies.

Here's a sampling of Sorcha Faal "scoops" from 2007:

US President Orders Military To Begin Jailing All Civilian Protestors

To War Putin Orders Russian Military Forces To Attack US Forces During Iran Invasion????

Russia, China Order Forces To Highest Alert As US Forces Mass On Iranian Border

Pravda: Imus Fired After He Threatened to Reveal 9/11 secrets

Massive ULF 'Blast' Detected In US Bridge Collapse Catastrophe

US 'Shoot on Site' Order Issued For Escaping Americans Australia To Imprison All Muslims In Concentration Camps

The good news is, it's a false alarm.

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Re: Daily Digest - June 18

I could not find this in the last few day's reports at http://www.dailypfennig.com.  Can you provide a link? 

Also, when I search for a credible news source for this using "Shirshov Institute of Oceanology Gulf of Mexico fractured", all I get are conspiracy blogs and a letter from "Live Oak, FL" addressed to to Governor Charlie Crist, Sen. Charles Dean, Rep. Debra Boyd at http://www.congress.org/congressorg/bio/userletter/?letter_id=5346366691.  Are you aware of any credible source for this story?

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Re: Daily Digest - June 18

Thanks for the due diligence, Chief.  Chuck has been on my radar less than a year and I thought of him as a 'reliable' source of info. Lesson learned, regardless of source, always do your own due dilegence.

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Re: Daily Digest - June 18
RW wrote:

Thanks for the due diligence, Chief.  Chuck has been on my radar less than a year and I thought of him as a 'reliable' source of info. Lesson learned, regardless of source, always do your own due dilegence.

No worries here; this turned into a good chance to reinforce the importance of due diligence.

Glad you see it the same way.

Have a great weekend!

Chris Martenson

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RW
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Re: Daily Digest - June 18

batkinso,

It's in the link you provided for the phennig, 2 paragraphs above "To recap..."

Fortunately, the Chief and you already know there is no credible source.

Best,

RW

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View on Norway?

Hi All,

I'm sorry to go off-topic like this, but does anyone have a view on how Norway fits into the global picture?

Here in Norway, the crisis is over, and never really started. We've divested ourselves of most parts of our industrial-export companies over the last decades, and are currently mainly selling oil and fish, produced at competitive production costs. The state is a net buyer of foreign debt, and government deficit spending is financed by over-consuming the interest from the 0.5 trillion USD 'oil fund', at a few ten-billion USD a year. Hardly a critical situation as I see it for now.

Privately held debt is fairly high, with the banks being the prime debtors (bank-issued debt is at about USD50k pr citizen - source http://www.ssb.no/brutgjeld/tab-2010-06-17-01.html). At the peak of the crisis, the banking-sector was bailed out as 'too big to fail', so that's certainly a risk factor.

I'd also worry about the energy-dependency of the fish-industry, but I have not yet had any chance to investigate what'll happen there if oil-production drops significantly.

To me, the high level of debt is the biggest risk factor, and any changes which would cause problems there may certainly also reduce the value of the 'oil-fund' which the state would be able to draw on to bail the banks out.

Are there any other views? What else could I look for?

Yours,

-S

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Defecit Terrorists strike UK

interesting article about how the austerity measures in the UK will bring about a possible depression.  I think it is advocating that the UK  spends itself out of its ecomical quagmire .  I would be interested to know your thoughts on this Chris.

http://www.informationclearinghouse.info/article25766.htm

 

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