Thursday, April 28, 2011

Corn futures go limit down as rain fears dry up


Corn futures fell their maximum daily limit, with wheat dropping 3%, as weather forecasts raised hopes further of a window for US spring sowings, besides providing much-needed moisture to winter grains.
Corn for July dipped the $0.30-a-bushel limit in Chicago to lock at $7.29 ¼ a bushel, its lowest level of the month. The new crop December lot went limit down too.
Crop prices as of 17:40 GMT
Chicago wheat: $7.40 a bushel, -4.8%
Kansas wheat: $8.73 ½ a bushel, -4.3%
Minneapolis wheat: $9.13 a bushel, -3.6%
Chicago corn: $7.17 a bushel, -4.7%
Chcgo soybeans: $13.37 a bushel, -3.0%
Chicago's May lot, denied limits by the expiry process, stood 35.25 cents, down at $7.17 a bushel with half an hour's trading to go.
The falls followed the release of forecasts showing that, after rains this weekend, much of the US Corn Belt was set for drier weather, opening up a window for sowings.
"The thought is we are going to get going next week. The Corn Belt is ready to go," Mike Mawdsley at Market 1 said.
Benson Quinn Commodities said: "Corn planting is expected to commence in earnest early next week in many areas of the central and western Midwest."
'Pretty good weather'
Furthermore, latest weather forecasts eased farmers' fears of rainfall returning in earnest around May 6-7.
"This system is not significant and it's just an ordinary cold front moving through the Midwest," weather service said.
"That means that a lot of areas are going to see a stretch of pretty good weather which will allow things dry out."
Between April 30 and May 8, total rainfall in the upper Plains and western Corn Belt could drop below half an inch, falling on only 30% of the area.
Selling in corn was also spurred by weekly US export sales data which, at 349,000 tonnes, fell short of market estimates.
Wheat futures milled
Forecasts improved for rain-deprived wheat crops too, in northern Europe and China, where rain is forecast, as well as in the US hard red winter wheat belt, which has received some long-awaited rain this week, and where more is forecast.
Kansas hard red winter wheat for July and its equivalent in Chicago, of the soft red winter variety, tumbled more than 4%.
Minneapolis spring wheat was the least affected, given some support by forecasts of continued wet weather in Canada, a big grower of the high protein crop, which is attempting a delayed start to spring sowings.
The July contract in Minneapolis dropped 3.5% to $9.21 ¼ a bushel.
However, many observers retained some doubts about whether the market had overreacted in the extent of its sell-off, with potentially freezing areas ahead for areas such as Iowa, Minnesota and Wisconsin.
"The problem is the temperature. You will have to go down to northern Kansas, central Mississippi to see temperatures above 70 degrees [Fahrenheit] in the next seven-to-eight days," veteran meteorologist David Tolleris at said.
Mr Mawdsley, based in Iowa said: "It's cold. Even if we get crop in the ground, which we haven't yet, it has still got to germinate."
Mr Tolleris also questioned the degree to which the rain landing on parched hard red winter wheat crops would help.
"We will get some showers over most of the winter wheat area. But nothing over half an inch. That's not enough to do anything" in terms of improving crops.

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Rise in Jobless Claims Bears Watching

By Kathleen Madigan

April is turning out to be the cruelest month for jobless claims.

New filings for jobless benefits unexpectedly jumped 25,000 in the April 23 week. The increase could hint that businesses are cutting labor costs to offset the prolonged surge in raw-material costs. But the strength of the U.S. recovery — which slowed in the first quarter — is highly dependent on stronger job growth.

New filings for jobless benefits were in a steady decline since August. But after falling to as low as 385,000 in the April 2 week, they have taken a turn in the wrong direction. New claims have been above 400,000 for three weeks in a row.

Two reasons partly explain the unexpected jump in the latest week. First, the Japan tragedy has slowed parts shipments leading to the shutdown of some U.S. auto plants. Second, the week included Good Friday when some businesses were closed.

Even so, the four-week moving average, which smooths out weekly volatility, stands at its highest since mid-February. That hints something less temporary is lifting claims.

What if claims are rising because some businesses are trying to offset their higher bills for materials and energy by paring their biggest expense: labor?

Although factory surveys and earnings reports have indicated many businesses have already or are planning to raise their selling prices, the increases may not be enough to cover soaring commodity costs. Companies then will look at other costs. That means payrolls.

Post-recession, companies have been very successful at holding down labor costs. Friday’s report on employment costs is expected to show compensation up only 0.5% in the first quarter, or about 1.8% from a year ago. During the last expansion, labor costs frequently grew close to a 4% pace, on a yearly basis.

To be sure, the rise in job openings shows many businesses are adding staff. Those new hires, though, are being offset by the unexpected rise in layoffs. The end result could be slower payroll gains and weaker income growth going forward.

If so, consumer spending may not accelerate from its modest first-quarter pace. Real consumer spending rose at an 2.7% annual rate last quarter, down from 4.0% in the fourth quarter.

Overall, real gross domestic product grew just 1.8%. The slowdown from the fourth quarter’s 3.1% pace was expected, in part because extreme winter weather curtailed some activity last quarter.

Even so, demand was very weak last quarter. Real final sales — GDP minus inventories — rose just 0.8% last quarter after surging by 6.7% in the fourth.

A reacceleration in demand needs stronger labor markets. The jump in new filings hints that the labor markets may not be healing as quickly as economists expect or job seekers want.

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GDPs, Gold, Silver and double dips- June's the month!

Undeniably there has been some GDP growth but as Ben Bernanke said yesterday at what point does Quantitative Easing stop making sense. The truth is that the payback in jobs is the monitor he is using

The UK yesterday managed to balance the GDP deficit from Q4 2010 with a 0.5 % increase in GDP. Usually UK GDP is revised slightly upwards as more figures come to light. The UK is mid stream in major economies and ahead on GDP compared with some European economies. The UK has taken their pain much earlier than most in recognition of how badly the economy was previously managed. Luckily there was an election at a key point when financial decisions needed making and the public were willing to take the pain. The US has yet to do that. It's been playing make believe for too long now.

Of late it is the other way round in the US where GDP is normally revised downwards. So now despite the $3 trillion that has been pumped into the world economy since 2008 the broader figures and forecasts suggest, at best, low GDP growth. In a real sense this will turn negative as inflation takes hold and GDP increase will be more than counteracted by increased prices. Real output will turn negative, unless now, we are heading for deflation or stagflation. The Central Banks are rightly terrified of that. June 2011 was always going to be a key month.

Gold and silver, the two Precious metals which really reflect what people think are now surging ahead. I was hoping that May would see a low or pullback, I'm not so sure now. I think we will have to wait until second week of June. Mid June might mark a "long term" low point for gold and silver before a ballistic rise move into 2012.

Why the second week of June? I think by then the full reality of the end of quantitative easing will be realised by many and I expect to see a broad sell off in the stock market . This undoubtedly will catch many large investors unaware and they will be forced to sell off (buying opportunity) in Precious Metals to cover losses elsewhere. If stock doesn't go down then maybe we are heading an even bigger fall later in the year. You can only prop up the markets for so long.

You do wonder why these intelligent financial forecasters and large investors can't see the writing on the wall. It happens every time.

A key point that seems to be constantly re-iterated, and as highlighted in Ciaran Mckenna's article of yesterday, in a report on Ireland was the statement by Peter Nyberg (a Finnish banking expert) who said
"It appears now with hindsight to be almost unbelievable that intelligent professionals in the banking sector appear not to have been aware of the size of the risks they were taking".

This seems to still sum up the approach of many.

Mr Bernanke said everything that needed to be said. If anything, he was perhaps a little to honest with his appraisal. The dollar sank low. Perhaps now after the end of QE, the US and Fed are looking to try and maintain any increase in job numbers through a weak dollar and exports. The weak dollar though is only going to put more pressure on oil and food prices and inflation will feed through off these into the US economy eventually and more importantly the rest of the world (ROTW). So now as long as the dollar is still the reserve currency the ROTW will feel the pain of rising prices before the US before it itself feels it.

The US will then play another card to keep inflation under control (for them) they will put up interest rates. Remember the remit of the Fed is to make life tolerable in the US and the ROTW be damned.

The US scenario painted above will play out into next year. Interest rates will start rising at the end of Q2 2012 and the dollar will see some balancing but going into the close of 2011 the dollar will continue to weaken.

There are already new skeletons coming out of the cupboard . An interesting article in todays Telegraph by Philip Aldrick highlighted how Barclays has taken $12.3 of rotten credit market assets off its balance sheet and into a new Cayman Islands company called Protium.

Greek debt it has been announced is much worse than at first thought. To insure $10 million pounds worth of Greek debt costs $1.3 million. They have about $400 billion dollars worth of debt (160% of GDP). Indeed Credit markets are now getting a 25% return on a two year loan!. Obviously this is unsustainable.

A crisis meeting with EU officials has been set for May 9th and the situation is now so urgent they are trying to bring this forward to May 5th. Next week.

Bloomberg TV interviewee Paul O'Neill, ex-Secretary of the Treasury uses strong words in a desperate plea to get people to realise the gravity of the US situation. When he said

"People who are threatening not to pass the debt ceiling are our version of Al-Qaeda terrorists. They're really putting our whole society at risk" - he refers to Ron Paul trying to round up 50% of the congress vote to stop it happening. See video

He goes on about the current situation where financial tricks are being used to the US financially through May to July as a sop to political decision making that should be made but needs to put off by the politicians. One thing he doesn't explain though that even if the debt ceiling is raised, who is going to buy that debt? Sounds like QE3 in another form as the Fed will have to buy it's won debt.

The list goes on ...... Ireland, Spain, Portugal. June is now a key month and we can only wonder which will be the next trigger for the new banking crisis.

Silver Implied Volatility Rises Over 50

Yesterday, in the awkwardly titled Is Volatility a Better Play for Silver than Direction? I noted that silver implied volatility had managed to push to heretofore unseen heights and argued that future projections based on SLV options prices had led to a high probability short volatility setup.

Of course, no sooner had I posted than SLV began to climb rapidly in price, bringing implied volatility along for the ride. The pattern has continued for the first half of today’s trading session, with silver futures above $49/oz. and the SLV ETF pushing above 48.

The chart below, from, shows the intraday price and implied volatility (red line shows implied volatility for May options) action in SLV for the past five trading sessions. Note that for the most part, silver implied volatility has had a strong positive correlation with the price of the underlying ETF. This is largely because silver is making new highs and traders see the potential for a big move should silver futures break out above $50/oz.

In terms of trading, I still like the idea of a short volatility play on silver and am currently actively managing several positions with both a volatility and directional component.

For directional traders, the lure of huge momentum play is often too much to resist. For options traders, who are essentially trading volatility more than anything else when all is said and done, playing volatility Whac-A-Mole can be similarly enticing. If you jump on this trade, just make sure you are the one doing the whacking…

Related posts:
SLVIV5d042811 stocks

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Missing Best & Worst Days in Markets

By Barry Ritholtz

It has been a while since we last showed a Best & Worst days chart, so we are overdue for another update.
Today’s version is courtesy of Mike Gayed of Pension Partners, and it shows what your returns look like if you were merely a Buy & Hold investor, if you were unlucky enough to miss the 5 best days, or lucky enough to avoid the 5 worst ones:

Missing the 5 Best/Worst Days, S&P500


by Cullen Roche

In a research report this morning Liz Ann Sonders of Charles Schwab discussed the prospects of QE3:
“… what about QE3?
Bernanke didn’t quite close the door on QE3, but made it seem much less likely, noting the “trade-offs” are getting “less attractive” and the need to keep “inflation under control.” This suggests that even if QE3′s not off the table, the bar is set pretty high for its initiation.
That’s great news to us, having believed for some time that the risks of another round of quantitative easing greatly outweigh the benefits.”
Ben Bernanke showed his cards yesterday and it looks like he’s leaning towards completing QE2 and is hesitant to consider QE3. This is a welcome development for the US economy. Despite persistent chatter about QE3 the evidence is beginning to show that QE2 was not the panacea that so many expected it to be. In fact, I have yet to see one good argument proving that QE2 did anything positive. The final nail in the coffin should be this morning’s GDP figures for Q1. Real GDP, at just 1.8%, has been on the decline ever since the program started!

The Fed has attempted to deny that QE2 had any damaging impact on the US economy. And while that might be up for debate, the mere fact that we are having a debate over it should be enough for the Fed to stop with “experimental” policies. Sometimes, it’s best just to cut your losses. The bottom line is that QE is not helping the US economy at this juncture according to the growth data. In fact, this program cannot help the US economy at this juncture. This is crystal clear to anyone who understands how a modern banking system works. As I’ve previously discussed, this program was destined to fail from the beginning due to its focus on size and not price. The very thought of QE3 should be absurd to anyone who is objectively studying the transmission mechanism through which QE works and its clear results from the last 8 months.

If the Fed were to attempt to correct its errors in implementation via QE3 (by targeting price) I fear the cries over “debt monetization” and “money printing” would be even worse than they were during QE2. Despite their arguments to the contrary, it’s clear to anyone with a functioning set of eyes that the Fed has sparked a massive boom in speculative commodity bets. This has been a direct contributor to the slow-down in real GDP. Were the markets to begin pricing in QE3 I fear this would only exacerbate the current situation. 

“Transitory” inflation could become something worse. Because of that, I believe it is best that we simply step back from the operating table and accept the fact that this is not the time to be experimenting with the livelihoods of American citizens.

7 Reasons Leaders Always Fail to See Catastrophe Coming

By Barry Ritholtz

Paul Farrell notes that “Many, many experts did predict and warn of the 2008 meltdown years in advance.” Yet it seems that business, finance and political leaders ALWAYS fail to see the next collapse coming. Why is that?

To answer this, Farrell channels Jeremy Grantham:
“Why do national leaders fail over and over to learn the lessons of history? Grantham said it best in a Barron’s interview a couple years ago: “Why is it that several dozen people saw this crisis coming for years? I described it as being like watching a train wreck in very slow motion. It seemed so inevitable and so merciless, and yet the bosses of Merrill Lynch and Citi and even Treasury Secretary Paulson and Fed Chairman Bernanke, none of them seemed to see it coming.”
Farrell enumerates seven reasons this always has, and is likely again, to lead to more trouble. He advises you to not forget any of the following elements:
1. Many, many experts did predict and warn of the 2008 meltdown years in advance.
2. Wall Street banks, corporate executives and Washington politicians are short-term decision-makers.
3. Most business, banking and financial leaders are short-term thinkers, focused on today’s trades, quarterly earnings and annual bonuses. Long-term historical thinking is a low priority.
4. As a result, it is virtually certain that America’s leaders will focus on upbeat, good news and always miss the next meltdown because warnings of a coming catastrophe are ignored.
5. Warnings from the few with a long-term perspective will always be dismissed during every investment cycle and every future recession/recovery cycle. Always. It’s in their DNA, trapped in their brain cells and demanded by their followers.
6. If you are a typical left-brain Wall Street or corporate executive, it’s virtually certain that you will miscalculate the timing/impact of the next meltdown, the next big collapse that’s off your radar. As a result, your company’s assets are at risk of suffering massive losses that are “predictable, not random.” But because you’re in denial, you will not deem it necessary to take steps to protect your assets.
7. If you’re a right-brain thinker, your longer-term historical perspective will give you a clear advantage in preparing for the next crash and the depression that follows.
File this away, and look back at it in a few years — I like to do that with Outlook or Yahoo Calendars, and get a pop message. This one is scheduled for 2014 . . .

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Silver Parabolic Blowoff, Gold Price Steady

The virtues of gold (GLD) and silver (SLV) are being addressed far and wide. My readers know the steady drumbeat of praise that is reaching a crescendo for the white metal scares the hell out of me. The driving forces behind silver’s price come from investors, industrial demands and a global shortage. The world simply is using more silver than the mines produce and new silver discoveries are becoming difficult to find. These factors are becoming truisms for public consumption. A parabolic rise has formed in silver as gold advances on to our measured target of $1600. 

Please note that at these times of extreme optimism volatile pullbacks become more prevalent. Parabolic rises must be approached with caution. Silver has rallied moving exponentially while gold is still moving linear.; 

This metric of $1600 gold is important to us as it may signal a profit taking opportunity for precious metals. Silver is in a roaring uptrend and has now exceeded my late January target of $40. Gold Stock Trades believes that high quality silver mining shares (SIL) will catch up to silver bullion even as the silver bullion price may stall or consolidate. There will be unavoidable pullbacks in silver’s secular uptrend and it would not be wise initiating long positions at these extremely overbought levels. Silver has a very high probability of shaking out investors as pullbacks follow overbought conditions. 

We have seen investors scrambling to own silver and gold. What a difference a few weeks make. In July of 2010 and January of 2011, we saw two major buying opportunities for precious metals investors to position themselves at discount prices. Now gold and silver prices are selling at a premium. Silver is reaching extremely risky levels, yet miners are still poised to breakout. 

Remember that I am recommending partial profits if your winnings enable you to play with the house’s money and you are still holding silver from our August Buy Signal. (Please click the above links to review the momentous breakouts and key turning points.) 

Other readers who have not been able to build a position can wait for the inevitable pullback as additional buying opportunities. From my experience it is prudent to wait for technical corrections before getting aggressive with any commodity. We firmly believe that any corrections on the way up will represent more reasonable entry points on this uptrend. Always remember that parabolic rises can encounter severe downturns particularly in silver which tends to be volatile. Let’s wait for long term support and a shakeout to reinitiate our short term positions.

One of the reasons for such volatile action in the white metal is the large short position in silver taken by major financial institutions such as JP Morgan and HSBC, which are the subject of a new lawsuit that charges them with price manipulation of the silver market. I believe these short sellers have been wrong all the way up and Monday’s record volume may have been capitulation by the silver shorts. I believe the accumulation of gold and silver is a form of savings in sound money, but I am not adding to positions when the precious metals market is reaching these extremely overbought levels.

There are six banks that now control the London based precious metals storage market. Interpretation...there is not enough silver to cover the trades being made which counts in part to silver’s record rise of 144% over the past 12 months and up 22% this past month alone. There is one additional consideration, global hedge funds own one half of one percent (.005) of their overall portfolios in precious metals. Should these funds increase their holdings to one percent (.01) this would result in a large increase in demand.

I feel a pullback may be in order as the recycling of scrap increases. I don’t expect it to last very long. Above all do not even think of shorting silver. I reiterate buy on dips as the price of silver is capable of doubling in the next twenty four months. I do not expect the silver to gold ratio to drop below 30:1 in the short term.

Is this a secular long term top in gold and silver? I do not believe so. We are witnessing a powerful up move in gold and especially silver, where a healthy correction would be normal. There is a flight to quality away from fiat currency namely U.S. dollars. If the dollar (UUP) continues to lose value, your holdings of precious metals and mining stocks (GDX) will prove to be a prudent decision.

It must be noted that Evo Morales from Bolivia threw a shock into major silver miners especially Pan American Silver (PAAS) and Coeur D’Alene Mines (CDE) by saying he would use force majeure to take over the mining industry. This caused an immediate drop in the prices of these stocks. On Friday, he backed off by saying he did not mean it. Nevertheless, the markets don’t trust socialists such as Hugo Chavez of Venezuela and Morales of Bolivia. 

Witness the sad story of Crystallex (KRY) which has spent ten years and was shovel ready to begin mining on Las Cristinas when Hugo decided to hand the permits over to his Russian friends at Rusoro Mining (RML.V), a Canadian Based Russian Company. Such geopolitical uncertainty can only limit supply in an already tight market. Silver is such a small market that it doesn’t take much to start a stampede. If you sell your silver you are stuck with paper money. I would rather look to high quality and overlooked natural resource stocks in geopolitically friendly jurisdictions with great relative strength to the sector.

A Dearth of Bulls

by Bespoke Investment Group

he S&P 500 closed at a new bull market high yesterday, but based on the most recent bullish sentiment reading from the American Association of Individual Investors (AAII) you would not know it. In the last week, bullish sentiment did increase, but at a current level of 37.90% sentiment is hardly ebullient. 

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The Dollar Index, How Bad Could It Get?

This week we have had the Treasury Secretary confirm our strong dollar policy and the Fed Chairman reiterate it. Yet with every speech the US Dollar Index goes lower. But we should not worry right, after all we have always had a strong dollar policy and the Treasury and the Fed will step it up if that is threatened right? Sounds good, but look at what the charts are saying.

US Dollar Index, 21 Year Monthly Chart
usd monthly 21 years e1303947737545 stocks

There are several chilling aspects in this 21 year monthly chart of the US Dollar Index. The first is that it has traded below 80 three times in the past 3 years. This is an area that it does not have a print anywhere else on this chart. 21 years above 80. In fact the Federal Reserve Bank of Atlanta has the data back to January 1973, and the Index has never been this low. Second After coming off of a double top in 2001 and 2002 at about 120 it bounced at 80 and then has been in a symmetrical triangle until the break out continuation lower last month. There are two targets that come out of this pattern. The first is the triangle target at 56, the second is the continuation of the downtrend to 40. There is no guarantee it will reach those targets but those are staggering levels. Finally notice that all of the Simple Moving Averages (SMA), the Relative Strength Index (RSI) and the Moving Average Convergence Divergence (MACD) indicator are pointing to lower prices. There is not a hint of divergence from price. And the Bollinger Bands (BB) are expanding as it moves lower.

US Dollar Index, 3 Year Weekly Chart
usd wk 3yr e1303948544168 stocks

Focusing in on the weekly timeframe allows an examination of the price action and symmetrical triangle of the last three years to get some shorter term targets. First notice that there are 2 sets of Head and Shoulders tops operating. The one labeled in blue has a target of at least 71.75. That is the first target. The second Head and Shoulders, with two heads and labeled in red, has a target of 59.80. There is a bright spot on this chart in that the moves from June 2010 to August and then August to November both lasted about 8 points so on a Measured Move (MM) the current 73.31 level would satisfy the MM from January 2011 lower. Maybe a stall to come now. But the technicals are set up for a continuation lower. The SMA, RSI and MACD are all sloping down, and the BB are moving lower to facilitate more downside.

Bottom line, if Timmy and Ben and Barack from Hawaii want to convince me and the World that they are for a strong dollar they have some work to do. Major work. There is not one iota of evidence in the price history to back up their claim. Maybe this is why the financial world gives the policy zero credit.

As always you can see details of individual charts and more on my StockTwits feed and on chartly.)

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Volatility Will Go On in World's Largest Cocoa Supplier

By: Peter Guest

International shipping companies have resumed deliveries of cocoa from the Ivory Coast, the world’s largest supplier of the bean, easing supply concerns that pushed the price to record highs in March. However, analysts say the commodity will remain volatile for the foreseeable future.

The Ivory Coast supplies around 40 percent of the world’s cocoa but a protracted political crisis, which spilled over into widespread violence earlier this year, saw deliveries halted. 

Presidential elections in November 2010 led to a stalemate, with incumbent president Laurent Gbagbo refusing to relinquish power to the challenger, Alassane Ouattara, who was declared the winner by international observers. The deadlock was finally broken on April 11 2011, when forces loyal to Ouattara stormed the presidential palace and arrested Gbagbo.

In March, when the deadlock appeared to be descending into full-scale civil war, London Cocoa futures ran up to £2,400 ($3,965) per ton as investors priced in political risk and speculators tried to hook onto the market’s rise. Prices have now dipped to late 2010 levels at around £1,900 per ton. 

The international community resorted to economic measures to try to undermine Gbagbo. The European Union imposed sanctions designed to halt the export of cocoa, the incumbent’s principal source of revenue. The lifting of the ban and the resumption of shipments marks a return to relative normality.

“The fact that we are now seeing ships leaving should reassure the market that the infrastructure is working,” Brenda Sullivan, head of research at Sucden Financial told “We’ve had confirmation that the mechanics are working.”

There are 500,000 tons of cocoa waiting in port in the main export hubs of Abidjan and San Pedro, and a further 300,000 tons still on trees waiting for processing, according to analyst estimates.

The political strife had led to considerable speculation and volatility, Keith Flury, senior commodity analyst at Rabobank International said. “That’s going to simmer down. But I don’t think it’s going to be a calm and settled market.”

Information on the state of the cocoa industry in the country is scarce, noted Flury, who said that the Ivory Coast has been “a little bit of a black box”. 

However, the fact that the financial sector largely ceased to function during the past month of crisis as sanctions bit and Gbagbo’s government attempted to nationalize international institutions will reduce farmers’ ability to bring in crops and to invest in inputs for the next season. 

Damage Already Done?

Banks are reopening – Reuters reports that Sociéte Générale will resume operations from Thursday – but the damage may have already been done.

Although political tensions came to a head towards the end of 2010, the country’s last civil war ended in 2003 with the de facto division of the Ivory Coast into north and south. 

Gbagbo’s mandate to rule expired in 2005, but he continued to delay elections for a further five years. Investors shied away from the country during that period, and the cocoa sector received insufficient backing. Plantations have aged and become less productive, and some infrastructure has deteriorated.

Short-term drivers are bearish, due to the effects of the existing Ivorian surplus reaching the market and the strong mid-crop, but this will only last until the beginning of the next season in October, Kona Haque, commodity strategist at Macquarie Bank, told

“West Africa had really good crops because of La Niña,” Haque said. “We’re not expecting another La Niña next year. We expect the longer-term decline trend to be resumed from next season onwards.”

“There are some replanting initiatives taking place, but for every new tree that’s planted there are several hundred getting older and producing less,” She added. “We see a three-to-four- year period of it getting worse before it gets better.” 

Unless other countries can bring supplies on stream, exposure to the Ivory Coast means that the combination of residual political tension and long-term decline will continue to rock markets.

"I don’t think you’re going to see non-volatile prices for some time,” Haque said.

Nice Impulse In Soybeans

Soybeans have been lagging corn and wheat recently in the grains, but the pattern shows that by early next week July soybeans should be ready to move substantially higher. Corn should lead the group higher and breakout by early Monday followed by wheat and then soybeans.


Please note that I do not trade futures using elliott wave or intraday, but use elliott wave to inform my trading decisions. I use the same methodology that I use on the stock market and stocks, but with faster moving averages and tighter stops, typically a 3 day high or low stop or PSAR stop.

My adventure in trading futures began last year when I formed a partnership with a long time friend. We got all of the paperwork completed and started trading in March. So far so good as the approaches that I have frequently presented here for stocks has worked quite well. The fact is that trend following is trend following. You may have to adjust the parameters a little to accommodate different markets, but the process is the same.

The biggest thing that must be understand is the risk with futures. I am continually amazed at how the PR campaigns from various brokers talk about how small an account you can have to trade futures, but the fact is that you really need $250k to comfortably trade a diversified account within the natural swings and volatility of the various commodities. Perhaps you can trade a smaller account if you concentrate on a single market, but then you don’t have the benefit of diversification, which can really be a problem when you go through the inevitable period of multiple losses in a row.

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Morning markets: weak dollar stymies grain price correction


Did investors overdo it on the bearish side in the last session?
Suspicions were raised by the nature of the fall in the last session, in which Chicago's July corn contract, for instance, fell a dime a bushel in the last 15 minutes, and soybeans $0.15 a bushel.
"It appears the trend following fund community was also interested in liquidating length prior to the [US Federal Reserve interest rate] decision," Brian Henry at Benson Quinn Commodities.
"I don't believe the trade was overly concerned about the possibility of a major policy change. The concern may have stemmed from Ben Bernanke's town hall explanation taking place after the Ag markets were closed."
At Phillip Futures, Ker Chung Yan said: "Traders worried that [Mr Bernanke's] comments would sway the dollar or other markets that influence commodities."
Shares rise
Mr Bernanke, the Fed chairman, gave a landmark press conference late on Monday, which, in the end, was viewed as signalling that the central bank was unlikely to go hard on turning off the taps of easy monetary policy – an idea well received on markets.
Tokyo's Nikkei index closed up 1.6%, and Hong Kong shares added 0.5%.
(That said, Shanghai stocks remained in a downswing, for a fifth successive session, shedding 0.9%, and most Chinese agricultural commodity futures were lower too – notably, again, cotton and bar, again, sugar.)
Slow spring sowings
The dollar, meanwhile, declined in the absence of any hint of any imminent moves to tighten monetary policy. The greenback fell 0.7% against a basket of currencies to its lowest since July 2008, making dollar-denominated assets, such as crops, more competitive as exports.
And that allowed some vent to thoughts that maybe too much weather premium had been removed from crops in the last session.
"The weather pattern maybe shifting, but it hasn't completely let go of its grip just yet," Mr Henry said, noting in particular the threat to US spring wheat sowings.
"The trade will begin to hear about limited spring wheat planting progress in the northern regions. Pace is going to be slow through the weekend."
Indeed, current planting delays, meant the September Minneapolis (spring wheat) lot "is quickly becoming an old crop contract also", rather than representing newly harvested grain.
'Just laughed'
At rival broker Market 1, Mike Mawdsley noted that the threat of damp to corn sowing was hardly over either.
"Our contact in Arkansas has registered near 12 inches in the last few days. Our Illinois contact 5.1 inches since Friday, and our Indiana contact just laughed," he said.
"If anyone is slated to get above normal rainfall in the next two weeks, it is these same areas."
As an additional prop to confidence, Standard Chartered analyst Abah Ofon said that he remained "bullish on corn on expectations of strong demand and sub-optimal US acreage", with seeding plans harmed by the poor weather.
May corn added 1.0% to $7.59 ½ a bushel, with the July lot gaining 0.9% to $7.66 ¼ a bushel as of 07:20 GMT (08:20 UK time).
Chart fillip
Mr Ofon was less upbeat over wheat, forecasting the grain will "eventually trade lower on larger US wheat acreage, improved summer weather and bigger exportable surpluses from the Black Sea region".
Nonetheless, the weather risks helped July wheat add 0.7% to $8.17 ¼ a bushel in Chicago, 0.6% to $9.28 ¾ a bushel in Kansas, and 0.5% to $9.58 ½ a bushel in Minneapolis - where that September contract added 0.6% to $9.54 ¾ a bushel.
Chicago's July lot had the extra technical boost of at least managing to bounce off its 50-day moving average in the last session, seen as showing limits to selling pressure.
And even soybeans joined in this time, adding 0.8% to $13.88 ½ a bushel for May delivery, and the same to $13.95 a bushel for July.
'Stand against high prices'
New crop cotton, a rival to corn and soybeans for acres in many southern US states, also found its feet, gaining 0.3% to 125.00 cents a pound for December delivery.
The old crop July lot remained in its downward spiral amid signs of high prices having switched off demand, shedding 0.6% to 153.39 cents a pound, and taking above 20% its losses this month.
"Cotton for $2.00 a pound appears to be a thing of the past, as mills take a stand against high prices by cancelling orders," Mr Ker said.
"Many mills are seeing lower yarn demand at current prices, industry experts say, though overall demand for cotton and cotton products is seen strong enough to support historically-high prices in the medium term."
Data later
Further evidence of spiked orders may come later when the US Department of Agriculture releases weekly US export sales data, which have shown a string of negative data, ie cancellations, for old-crop cotton.
For wheat, the market is expecting sales to beat last week's 303,000 tonnes, potentially by a 50% margin, with corn seen coming in in line with, or better than, the previous figure of 857,000 tonnes.
Soybeans are viewed doing well matching last week's figure 555,000 tonnes, falling potentially to 350,000 tonnes.
Also, the day will bring official US data on the March soybean crush, estimated at 139.3m bushels, up some 10m bushels month on month, but below last year's 156.1m bushels.

U.S. Debt Saturation and Money Illusion

Most of the clearly evident financial problems that surround us today stem from one cause - Debt Saturation.
Most, intuitively, sense this to be a correct assessment but few can either prove it or articulate it to the less sophisticated. Let me arm you to be the "Nostradamus" amongst your friends and colleagues in explaining the problem and what the future therefore foretells.

However, let me make it very clear, this will not make you popular. Smart maybe, but highly likely to make you unwanted at the social gatherings of the genteel.

The first thing you will need in your role of 'all seeing' is the back of an envelope, or a somewhat clean napkin at your next luncheon. You will need only a few simple facts to go along with your prop.


First, if you could total the world's balance sheets you would find that it would approximate $200 Trillion. In putting together this total you would discover that 75% of all financial assets are debt assets worth $150 Trillion. To most of us, debt is the epitome of a liability. To banks, however, it is not. It is considered an asset and recorded as such a banks ledger. Your liability is their asset.

The historical debt payment over a long period of time is 6% per annum. The Federal Reserve's dividend payment to its holders of capital was originally established in 1913 at precisely this 6% and is still accrued accordingly. Remember also, in a fractional reserve, fiat based banking system money can only be loaned into existence. 

Today we have approximately $9 Trillion (6% of $150T) in annual debt payments that must be absorbed annually by increased productivity of the working classes.

Consider that the US Economy at approximately $15 Trillion is 25% of the global economy. Therefore the global economy approximates $60 Trillion ($62T officially, but we will use round numbers so we don't lose anyone in the arithmetic).

The working class therefore has to increase productivity by $9T divided by $60T or 15% annually to absorb the current global usury charges. 

In the last few years of explosive debt growth we have passed the point of the global economy being able to grow and improve productivity at a fast enough rate, not to be literally consumed by this existing debt burden.
Unfortunately, it gets worse.

One of the problems in using GDP as a measure of growth is that it includes government spending. In the case of the US, it is approaching 25% of the output of the country. Within that, approximately $3.7 Trillion is $490B in interest payments or 13% of US expenditures. This actually means that there is an additional 3% that must be added to the 15% or nearly 18%.

This is called Debt Saturation.


A very unpopular chart to deficit spending hawks is the chart showing the change in GDP as a ratio to the change in debt. The easiest way to understand this chart is to consider how much the economy will grow for every dollar of increased debt. As you can see, the effect of increased debt has been steadily losing its ability to increase economic growth and since the financial crisis has decidedly turned negative. 

Increased debt is now counterproductive to the growth of the economy because the economy simply does not have sufficient productive investments to absorb it. We may have plenty of investments but they are mal-investments. They are investments that simply cannot pay the debt financing utilized.

The Korean Times recently illustrated that despite a booming Asian environment, technology firms are now struggling to cover interest payments. One in three firms on the Kosdaq failed to earn sufficient money to cover interest payments in 2010. The interest coverage ratio, otherwise dubbed times interest earned (TIE), refers to the measure of a firm’s ability to honor its debt payments. 280 out of 876 Kosdaq-listed outfits, or 32 percent, could not reach the benchmark reading of one in the interest coverage ratio.
1- Non Performing Loans
The mal-investment is just too large to contain and is showing up in ever-increasing levels of non-performing loans. This is despite rolling over loans at false asset values.

Non-performing bank assets are increasing globally! The above chart from Reggie Middleton's BoomBustBlog graphically depicts this indisputable trend. What is this signaling three years after the financial crisis?

The rise in the above US non-performing assets is alarming. It reflects a 9.5% change since 2005. Everything is not at all well in the US banking sector.

Equally concerning is what is happening in Central and Eastern Europe where the change is 7%. I personally consider Central and Eastern Europe to be the unaddressed 'sub-prime' problem of Europe. I suspect it will eventually replace the PIIGS in financial media news coverage.

2- Chronic Unemployment
The money lenders look at unemployment in a different fashion than the average person and would have us easily confused by its adjustments, birth-death models and other deceiving statistics. To them it is not about how many of our fellow citizens are unemployed, but rather simply how many net new jobs are being created to pay for the annual usury assessment fee of the $9 Trillion we previously discussed. Herein lies their problem. 

The internet has had a profound impact on the increase in productivity. Schumpeter's creative destruction is an engine running at full throttle. Vast swaths of jobs are being made obsolete through the adoption of new technology. The 'clerical' industry has almost disappeared in the span of 15 years through operational innovations such as supply chains. This has been tremendous for corporate profits allowing them to maintain highly leveraged balance sheets. The problem is that it has been solely at the expense of real job growth. No matter what a corporation does to make money, it eventually comes down to a consumer having the money to pay for the goods or services it produces. 

We have reached the saturation point where we have insufficient real income growth to maintain the leveraged balance sheets of corporations. Government social nets are becoming burdened with making up the difference in either transfer payments (i.e.45 Million on food stamps in the US) or subsidies ( North Africa paying 28% of country budgets toward food subsidies for the unemployed population to survive). There are examples everywhere if you care to look. I have written extensively on this in my series on Innovation and in articles such as "Fearing the Gearing".

3- Money Velocity Doesn't Increase with Money Printing
Debt Saturation occurs when aggregate income no longer supports debt burdens. When governments print money, eventually Money Velocity increases as people incorporate inflation expectations into their buying behavior. When we examine the Federal Reserve's Money Velocity statistics we see that something is very different this time.

Despite increases in MZM, M1 and M2 money velocity maintains its downward slope with little suggestion of wanting to reverse trend.

We presently have inflation in what people NEED along with shrinking real disposable incomes. Since people must pay for their NEEDS with short term money (cash, check or credit card), there is little ability for them to adjust to inflation when they are living from paycheck to paycheck. If their disposable incomes were higher they would stockpile and turn their money over faster. Additionally, money as a multiplier would flow through our society. Instead, today the money does not move through multiple hands but is returned almost immediately to the banks as debt payment, since most intermediaries are also burdened with debt.



First, You must understand the impact of mal-investments and the brake that debt is now applying to the Global Economy.

World Real GDP, adjusted for inflation on a year-over-year basis has plummeted. According to the World Bank this growth indicator has gone negative with the world's real GDP actually shrinking Y-o-Y.

The global growth engine has not only stalled but has clearly hit an unexpected brick wall.

Secondly, You must understand the significance of the stalled and possibly fatally ill "Shadow Banking" Credit Engine.

Similar to moving about on an airplane or train it is hard to determine the speed you are traveling, because you have a limited frame of reference. In a casual conversation with your fellow travelers it is easily forgotten or unnoticed that you are moving at a rapid speed. This is the situation we find ourselves in as the Shadow Banking System fails to rebound and the debt it once created is not being replaced. The liabilities of the Shadow Banking System are shrinking. These leveraged liabilities are now shrinking the global money supply despite every effort of central banks to combat it. The Central Banks are losing the battle. Like glacial tectonic shifts they are undermining the abilities of financial institutions to continue to carry and roll-over non performing debt. 

Finally, You Must be Aware of: "Money Illusion"

The overlay below of the Nominal and Real (ShadowStats inflation-adjusted) Dow illustrates the concept of Money Illusion, the tendency of people to think of currency in nominal, rather than real, terms. Below the Dow series is the Consumer Price Index (CPI) from 1913 and with estimates for the earlier years. 

The above chart reflects what is actually going on in the financial markets. The secular bear market that began in 2000 is still underway. Since the 2009 lows we are experiencing a Cyclical Bull Market counter rally that is to be fully expected as part of a Secular Bear Market.
The chart to the right is adjusted for inflation based on published CPI numbers. If ShadowStats inflation numbers are used, as is the case in the above chart, then the chart to the right would more clearly resemble longer term secular bear markets already experienced.


There is nothing magic in any of this and it has all been well documented, unfortunately by the Russians when they studied the capitalist system to identify its fundamental weaknesses. The Kondratieff long wave shows that the capitalist system suffers the build up and purging of debt on a generational basis on the frequency approaching 55 year cycles. We have extended this natural cycle by means of un-natural acts which I have written about in my extensive "Extend & Pretend" series of articles. Even in the days of old the king resorted to "jubilee" to cleanse the system. Of course we are much too sophisticated for such a simple solution today.

We have papered over the realities of "Too Big to Fail" by not allowing the proven tenets of capitalism to work. We have Anti-trust laws under the Sherman act to address 'too big', Control Fraud Laws to address questionable ethical behavior for the sake of profit (like mortgage fraud, liars loans etc) and Bankruptcy laws to liquidate failed enterprises to force debt holders to take haircuts and swap debt for equity. Instead we allow the prevalent game of Regulatory Arbitrage to run without restriction or detection. Existing laws are not being exercised in an attempt to protect what amounts to the emergence of a crony capitalist system. Benito Mussolini had a somewhat different world for the merging of corporate and government interests that I will leave for readers to recollect who have a historical penchant. It is not a word easily digested in the polite 'cocktail chatter' of today's genteel upper middle class.

Welcome to Kondratieff's Long Wave Cycle


In your new role as 'Nostradamus' to your friends you can safely predict a decade ahead to be a secular bear market in financial assets, in real terms. Nominal values may not show this clearly but it will be very evident in the reduced standard of living most Americans will experience.

You are going to have to work harder and harder, for less and less to survive at a lower and lower standard of living.

This will all be required to support the annual $9T debt bondage we have assumed as our politicos add additional 'stimulus' to a suffocating and debt saturated global economy. 

Currency Dead End Paradoxes, The Besieged U.S. Dollar

Several very important currency effects are at work. Most economists are either silent on the factors or wrong footed on the dynamic. That is not surprising since they have been incorrectly analyzing, interpreting, and forecasting the financial crisis as it built up in 2005 and 2006, and as it exploded in 2007 and 2008 to surprise almost all of them, even as it has failed to recover in 2009 and 2010 in contrary fashion to their deceptive rosy positions. The major currencies must be examined for some key paradoxes. As the monetary system crumbles into its final phase, the foundation under which the major currencies stand, trade, and change is breaking down. Refer to the sovereign debt structure, overly burdened by runaway government debt. 

The focus here is on some important paradoxes that go directly against both common sense and traditional economic logic. The unusual under-currents have confused most economists to the point that the economist profession has become a laughingstock to the American households, a chain of promotional carnival barkers for Wall Street in pursuit of annual bonuses, a heretic priesthood to parade in front the media cameras, and a den of USGovt harlots in search for official gatekeeper posts. They understand pitifully little within the USEconomy, within the US banking industry, and within the fracturing latticework in global finance. My acrimony toward their profession has been the most consistent theme of the Hat Trick Letter for seven full years. The following paradoxes are powerful contradictions that fly in the face of standard economic theory.
During the deterioration and crack-up phase underway, the clueless cast of economists remains befuddled and confused. The imbalances are so great that almost none of their theory has merit. They know not how to stimulate anything but big US bank balance sheets with endless grants. They would do well to discard their advanced textbooks and adopt the Sound Money Theory of the Von Mises crowd, which has provided excellent expert guidance during every phase of the Western world financial system breakdown. Consider the paradoxes after an introduction to an important deception by the financial pharmacy that doles out poison pills under central bank sponsorship. Witness Greece and Ireland, which took the IMF poison pills under coercion, washed down the gullet by fiat credit based liquidity of the most toxic variety. If electronic engineers were as incompetent as economists, then cars would not work and computers would not work and communications devices would not work. If industrial engineers were as incompetent as economists, then retail chains would have empty shelves, and gasoline stations would have empty tanks. If the mathematics field were as corrupt as economists, they would redefine the multiplication tables. If the physics field were as corrupt as economists, they would still call the earth flat and the center of the solar system. If the professional athletes were as corrupt as economists, then baseball players would almost all have a hitting percentage under the Mendoza Line. But no! The economists are the squires to the ruling bankers, and serve to propagate the dogma of the high priests who sit in the central bank marble offices. The economists and bankers have destroyed the Western economic and financial system, exploiting it to the hilt, committing deep fraud and demanding redemption from the public till. They are never prosecuted for high financial crimes. They rule the land with privilege and impunity. They are not finished in their deceptions and wrongful forecasts. Almost all their constructs are incorrectly built. Despite a massive skein of horrendous professional performance, they continue to ply their trade and deceive the masses during the great meltdown and fracture.


The IMF plan to create a basket with inherent currency exchange rates is an attempt at price fixing, a blatant ploy to halt the USDollar decline. The once prestigious and respected global reserve currency is caught in a death spiral. The Special Drawing Rights (SDR) includes the USDollar, the Euro, the Japanese Yen, and the British Pound. Talks are brisk and intense to include the Chinese Yuan also. Within the SDR basket, if used as global reserve substitute, the major currencies will have an interwoven nest of fixed relative exchange rates. The idea is to have the major global banks use the SDR as their reserve currency like a block, a basket. But in order to work, any new reserve basket by definition will contain a rigid set of ratios. To begin with, the ratios are very likely not to favor the USDollar (with USTreasury Bonds) as much as the current makeup among the big banks. Therefore, the fixed ratios would be strained immediately at the imposed start of any new system. The initial startup alignment would alter exchange rates and force the IMF plan to change their fixed ratios. Great difficulty will come with the initial price fixing effort, whose challenge will continue with each passing week. Price fixing never works. This time is no different. The entire fiat platform is sinking.

The central banks hope to stop the USDollar decline. However, what they earn is a uniform decline in all currencies in terms of commodity prices. Rather than devise a new fundamentally sound platform, they rig the broken reeds, tie them together, and hope the failed system functions despite using broken components. The central bankers are desperate. While they appear to be organized, they are actually at war, among themselves and versus big creditor nations like China. They react with increasing desperation to the gradually recognized failure of the monetary system, sinking under the weight of the rapid and uncontrollable expansion of debt. What compounds the rising sovereign debt is the banker welfare which has backfired badly on the political stage. The people are given crumbs while the bankers are given $billions.

The Gold price, the Silver price, the Crude Oil price, even the Copper price and Cotton price and Coffee price and Soybean price and Corn price, will all rise in uniform fashion versus the ludicrous basket that might be forced upon the global banking system. They would solve nothing, but instead impose a socialist pain uniformly. Instead of the USDollar falling more versus other major currencies, it would pull down the others like a huge stone. The true money measures in Gold & Silver would rise in a powerful fashion much more, but in an equitable fashion. Consider the basket creation with Chinese Yuan inclusion out of respect. The ugly cost to Europe and China would be to lose their independence and opportunity to fight off the USDollar. The Europeans and Chinese would lose any discount on commodity prices extended from rising individual currencies. Imagine two good swimmers in a big swimming pool, tied to three or four very bad swimmers. The good would be dragged down by the bad since joined by a deadly rope line. The basket would not float, since its reeds are rotten from old and burdensome debt. Look for Europe and China to nix the stupid vapid SDR basket concept.

Conclusion: A paradox with backfire is at work. The IMF concept is badly flawed, operating as a veiled price fixing initiative. Its SDR basket would be equally toxic to the global banking system. Rather than Gold & Silver rising fast versus the USDollar, the precious metals complex would rise uniformly versus all major currencies. The Gold & Silver bull market would be much more plainly visible from all corners of the world. The currencies would fail together, yoked by the toxic USDollar.


The US exporter advantage from a weaker USDollar will not materialize, contrary to the mainstream nonsense songs of deceit spiced with drivel. The economists have lost their credibility after crackpot notions like Green Shoots of economic recovery, like an Exit Strategy from the 0% corner of capital destruction, like the empty label of a Jobless Recovery. Now they have another rotten plank to stand upon with more demagoguery and false preaching. The central banks have resigned themselves to bring the UDollar down in an orderly manner. They mistakenly believe doing so will stimulate the USEconomy and revive the global economy. Instead, a lower USDollar will lift the entire global economy cost structure and serve to dampen all growth while it leads to starvation in poor nations. They expect the US export trade to pick up and lead the economic recovery. They are mistaken. First of all, the US industry lacks critical mass after decades of dispatch of factories to Asia. The start was the electronics departure to the Pacific Rim in the 1980 decade. The climax was the grand industrial buildup in China with Western investment funds, mostly American. The USEconomy lacks sufficient industry to take advantage of export growth. Secondly, many legitimate industrial advantages are in the possession of companies whose products are widely banned for export. See the advanced computer systems, the advanced telecommunications systems, even some advanced bioengineering systems. They have been captured by the USMilitary and its sprawling defense industry pillboxes. Lastly, a much more engrained cancer will affect the few American exporters that can attempt to exploit a lower USDollar exchange rate. It is the cancer of rising costs.

Most global currencies are rising versus the US$, so the USEconomy is actually hit much harder than other economies, and thus the domestic competitor firms. The lower USDollar will be offset by steadily rising costs, eliminating any exporter advantage. The cost squeeze is so profound in fact, that some of the US exporters will simply go out of business from vanished profit margins and a damaged customer base that is squeezed by global food & energy costs. The US export business costs will rise even more than the USDollar will fall, from rising input costs and even rising federal mandates like health care. Most other nations have less of a cost shock than the United States. The domestic US export industry cost shock eliminates the entire USDollar exchange rate advantage, something so basic that it cannot be seen, and surely not admitted for its heavy political effect. The higher cost of food & energy is painful enough. Americans who believe the export advantage will lead to new jobs are deaf dumb and blind, the sad result of years of propaganda and false teachings.

Conclusion: A paradox with backfire is at work. The US export industries will not be able to take advantage of a lower USDollar exchange rate, since their costs will be the fastest rising in the world. The commodity prices are rising faster versus the USDollar than almost all other currencies. No USEconomic recovery will occur, but instead a massive deterioration will unfold as it hits the wall from rising costs.


Inside China, a monetary system shared with the United States for a long time has wrought similar problems. They have had a similar structure that funds the system from bank credit to stock market investment to construction. They have a housing bubble, insolvent banks, but also $3 trillion in savings. The currency peg has created common asset bubbles in a systemic manner, much like a three-legged race inflicts similar wounds from falls to the ground to the two people joined. The entire Chinese Economy has had to adapt to rising commodity input costs. Some expected them to revalue the Yuan upward by 10%, which would give all of China a discount on input costs. They would pass on the nearly 10% export price hike to customers, the trade partners. Something has happened in the last two to three years. The Chinese have expanded to the Persian Gulf after continued European expansion, and thus made bigger footprints in the malls to fill the stores. China is not as US-centric so much anymore. They are more willing to raise US export prices and lose a portion of market share in the US.

On the financial front, those who have not noticed the war waged by Beijing simply are asleep at the wheel, and far too devoted to suckle from the banker teat of illiteracy and deception. The Chinese have been busy building up their Yuan currency to be first a globally used vehicle in trade settlement and second a reserve currency held in the financial institutions. Success on both fronts have been realized with key bilateral swap facilities with Russia, Brazil, and pockets of the Persian Gulf. They have been diversifying out of US$-based assets for two years. Last week came a shocker. The Peoples Bank of China plans to shed $2 trillion of US$ assets, a tough task to implement. Even if it turns out to be a multi-year plan, it is significant. The effect is obvious on the USDollar, a downward force, a strong force. Any manifested action to dump US$ bonds will be followed by Japanese and Arabs and Koreans, who will follow the Chinese lead in shedding assets. Such is a topic of the expanded G-20 Meetings, whose initiatives are no longer led by Anglos. In the process, the USFed will be isolated as the global revolt continues. The fact of life extending from the financial crisis is that foreign creditors have abandoned the USTBonds. 

The Chinese must contend with a vicious cycle. As they shed assets with US$ markings, the USDollar will fall further. It is inevitable that the USDollar will fall another 20% to 30%. Only Americans living under the US Dome of Deception believe otherwise, an echo of either arrogance or ignorance. Import prices will rise for Chinese goods sent to the USEconomy. Their asset dump will push up the Yuan, while official forceful action will attempt to formalize the structure behind the Yuan exchange rates. Watch Wal-Mart for clues, which has already warned of higher store prices. China will finally pass on higher costs, reluctant until in recent months. A small Yuan currency upward revaluation buys a commodity discount. But Chinese export trade is much more global and less US-centric than a few years ago. They will permit a US price rise, both from necessity in profit management and the desire to insult the Americans. They will gleefully flick the noses of the US leadership, and kick their shins, whose shallow leadership and corrupt management deserves response. 

Conclusion: A paradox with backfire is at work. The desired goal is to mitigate higher input costs to the Chinese Economy, whether by edict of a higher Yuan value or by action from massive asset sales. It is coming. The process of disconnect from the US shared monetary policy started with several rate hikes and raised bank ratios. The rest of the process will be more painful in outright asset shedding and currency revaluation in the quest toward becoming a global reserve currency.


The disaster in Japan has many facets and channels of damage. The after effects in Japan will work in numerous hidden ways to lift their Yen currency. Its steady stubborn rise will confuse the constantly wrong-footed economists. Japan must liquidate assets to finance the broad cleanup, the painful displacement, the urgent market support, and the eventual reconstruction. Their entire array of supply industries is very disrupted. The Japanese financial structure has hit the saturation point in national debt at a 140% Debt/GDP ratio, the highest among all industrialized nations. This is the ugly consequence of endless recessions and being trapped in the corner at the 0% rate. The dull blades posing as economists in the United States fail to observe the Japanese lesson that a nation never emerges from the 0% corner. To admit this is to admit a failure of the monetary system and central bank franchise control tower. 

The next phase inside Japan will include an unspoken emphasis of foreign asset sales in order to fund the staggering costs and to avert price inflation. Additional debt with Yen markings risks a surge in domestic price inflation. They are at a tipping point. Their supply industry will suffer from capital destruction as the profit squeeze hits Japan. It will compound the displacement problem encountered by worker homes being destroyed or declared in an uninhabitable area. It will compound the disruption problem seen in interrupted plant operations from power supply cutbacks and input material shipment reductions. The supply industry will shrink somewhat, but it is unclear how much due to government subsidies that could be raised in a big way. The effect on the global economy has only begun to be felt with the supply chain disruptions. Since the Chinese industrial expansion, a victim has been Japan. They lost their trade surplus, recently turned flat. In the next year, the Japanese trade balance will turn into an outright deficit. The effect of the rising Yen will work in a nasty mix with the disruptions from the earthquake and tsunami to bring about a sizeable trade deficit. This is basic, but still missed by the American economists.

Here is the paradox. The trade deficit will not keep down the Yen exchange rate down. The deficit will send into reverse the process of suppressing the Yen currency for 20 to 30 years. 

The key to understanding is to recognize the Bank of Japan (BOJ) for its past role. It has served as a loyal (if not controlled) financial colony outpost for the US, dutifully keeping the Yen down and the USDollar up despite the chronic US deficits, both fiscal (government) and trade (gaps from imports over exports). The final phase of Yen Carry Trade unwind has begun. Their 0% corner is permanent. Japan has been stuck in the corner after 20 years, despite strong trade surplus and significant industry, a point that economists never bothered to explain. No longer will the Japanese financial institutions, led by the BOJ, purchase the USTBonds. Next is the flip into reverse of the Yen Carry Trade. Since 1990 incredibly easy money was made in the biggest financial turnstyle of illicit profit, a veritable factory of turnstyles. They used to borrow 0% Yen, with no risk of a rising currency, and invest in high yielding USTreasury Bonds and briskly rising US stocks even if bound in S&P500 baskets. Next Japan will sell assets and send the process into reverse. The YCTrade is never discussed in the US press. Even the venerable Kurt Richebacher never heard of it. Imagine him being instructed on the carry trade dynamics in 2003, a point of embarrassment for him and awkward role reversal for the younger Jackass. 

The critical point was reached three weeks ago when an emergency G-7 Meeting was convened. Its purpose was coordination to buy USTBonds and keep the Yen down, ergo Global QE. The Yen Sale Pact was never called Global QE but that is the proper interpretation, since all major central banks became USTBond buyers of last resort. The Gold & Silver market properly interpreted the event, and surged to breakout levels. The effect of the G-7 desperate clumsy pact was temporary. The Yen has climbed back, now at the belt-line level of 121 to 123, the level often seen in a long string of weeks in 2011. Turn to the object of the YCTrade. The USTreasury Bonds have reached an elevated nosebleed bubble level of prices, as a result of the asset bubble promoted and fed with full broad support. Recall the primary vulnerability of asset bubbles, that they require an acceleration in funds to maintain a constant price level. The USTBonds have lost their buyers, as foreign creditors abandoned them long ago. They acted upon the disgust by installing broad diversification schemes. The Japanese natural crisis has mushroomed into an economic and financial crisis. They have responded by selling rafts of USTBonds, which is their right. The G-7 Accord is a stopgap, nothing more. They cannot divert their attention, but they already have. The USGovt budget disaster is just that distraction. In rising from 117 to 122, the Yen demonstrates the slipped attention span. The Yen is back above both 50-day and 200-day moving averages, recovering from the natural process that cannot be halted by bumbling central bankers under siege. Their system is failing on the global stage, with the whole world watching, yet comprehending little except the obvious chaos.

The trade deficit will not keep down the Yen exchange rate down. Contrary to standard economic theory, their trade gap will push up the Yen currency. Such a Jackass forecast goes directly contrary to their broken standard theoretical concepts, few if any have shown to contain much validity or sinew to hold together the broken planks of their financial theory. The Japanese Yen currency will continue to rise even though a trade deficit comes. Their trade surplus used to enable vast funds to suppress the Yen, now gone. The Japanese will sell foreign assets to cover the deficits. They will have to avoid price inflation by selling available foreign assets, in particular the plentiful US$-based assets. Banks will lead the final phase of the Yen Carry Trade unwinding process. Insurance companies will unload US$-based assets in order to finance claims. The financial firms will unload US$-based assets so as to protect Japanese stock values. Asset sales will cover deficits, simply stated, a basic fact of finance. The Bank of Japan will not be able to anticipate or keep up with the pace of asset sales. The overall national costs will be a multiple of current estimates. Already this week the estimates were raised on ultimate costs. Ripple effects will be vast in the supply chain for the electronics and car industries. The Yen will be out of the news until it rises past the 123 level, at which time it will be blow away the veil and reveal the crisis.

Conclusion: A paradox with backfire is at work. The Yen currency will continue to rise, despite a growing trade deficit. Standard theory will not explain the phenomenon, which is that the funds usually devoted to suppress the Yen exchange rate and defend the export industries will be sold in order to fund the cleanup, the support, the displacements, and the reconstruction. The primary assets sold will be US$-based assets, since they are held in high volume and whose sale works to prevent the price inflation backfire.


The USDollar DX index is flirting with a breakdown. Many analysts, the Jackass included, believe the DX index will eventually break below support lines and emergency tethers, seek its true value, and plunge the financial arena into a full blown global financial crisis. The crisis has not ended, and soon will intensify. Rather than embark on debt restructure and systemic reform, the national leaders dominated by the banker syndicate chose to dole of multi-$trillion welfare for the big US banks, redemption at nearly full value of their toxic bonds, coverage of the endless bills at the black holes in Fannie Mae and AIG, and blind approval of executive bonuses for those largely responsible for the national collapse. The global reaction is to abandon the USDollar and seek an alternative, a monstrous challenge. If foreign nations cannot control decisions or influence them in the USGovt, they can surely discard the USDollar and work to sink the corrupt raft afloat posing as a helm of control. US stewardship has morphed into crime syndicate operation, following a shrouded coup d'etat.

If the Gold & Silver price correction this week was the beginning of a greater correction, or a signal of end of the great bull run, then the USDollar would not display such extreme and vivid weakness. The rise through December and the January resumed decline cleared out the oversold condition, thus permitting further declines. The global monetary system is crumbling. The sovereign debt foundation for that monetary system is suffering from toxemia, a septic flow in circulation within the blood system. The US$ DX index cannot rise above the critical 75 level. The next test is of the 72 level, the generational low that must be defended. If overrun, then the global financial crisis will be squarely focused on the failing USDollar. That is precisely what to expect, as Gold & Silver resume their upward powerful march undeterred by paper hangers. The best propulsion for the precious metals is USFed Chairman Bernanke speaking. He reveals the desperation, the failure, the futility. Let him speak.


The Jackass will go out on the limb. A public distress signal has come from cost shock. The effect is lower retail spending, lower discretionary spending, lower business spending. The topline growth is in sales, which enables accounting games and claims of expansion. However, higher gasoline sales is not indicative of USEconomic growth, since less volume. It is evidence of price inflation. My forecast is that a nationwide movement by the autumn months will form. The movement will demand mandatory wage increases at a national level. The objective will be to help households squeezed by higher costs, and to avert an explosion of personal bankruptcies and business shutdowns. In time, look for (maybe hope for) two parts of wage and salary increases, merit raise and cost of living raise. The public demand will be for a grand socialist directive to legislate Cost Of Living raises to all Americans. The tremendous squeeze of business profits and household discretionary spending must invite a reaction, a national movement. Either people take to the streets or they win an income hike, even if legislated. Without it the system known as the USEconomy will collapse. Notice the Philly Fed in April plunged down to 18.5 from 43.4 in March, a decline without precedent. It is difficult to hide the breakdown and collapse. If and when a national wage increase to offset the higher cost structure occurs, it will open the floodgate for price inflation. The cost squeeze has ravaged the middle class, and it is severe. The main shelves of food & energy are just the visible tips of the iceberg. 

The leaders must throw the restless natives a bone. But here is the battle. The banking and political leaders have made a national objective to prevent the 'Secondary Inflation Effects' from occurring, namely rising wages. They observe the rising cost structure with all its consequent distress. The clownish USFed Chairman will conduct public meetings and press conferences. His mission is to explain the urgent need not to prevent wage and salary increases. HE WILL MEET A FIRESTORM OF PROTEST, HOSTILITY, AND ANGER. His mission in plain terms is to save the system by letting the public succumb to cost pressures. He will explain the need for the people to die an economic death so that the banker assets do not collapse, so that the hidden banking system laden with corrupt credit derivatives does not collapse, so that the scourge of systemic hyper-inflation does not ravage and destroy the US financial system. The people probably do not care about such arguments. They will instead demand supplemental wage increases. 


It is not complicated. Have they liquidated any big US banks?? Has any reform come for encouraging the return of US industry?? Has any regulatory reform been pursued for expanding business?? Have they stopped printing money to cover debt?? Has any reduction in USGovt deficits been realized?? The answer is a loud NO on all counts, which signals a continued bull market in precious metals. They print money to cover bonds which raises the cost structure and thus works to remove active capital through the natural process of business shutdowns due to vanished profitability. Watch for job cuts from the pervasive cost shock and its powerful squeeze. Watch for even greater propaganda of economic recovery in supposed business growth, which is almost all price inflation relabeled as growth, fully forewarned by the Jackass over the past three or four months. The Gold bull market will continue for at least a couple more years, as nothing is fixed and the major currencies continue their extreme debasement and ruin. Gold & Silver are currencies of last resort hated by central bankers, more widely embraced in the last year or more. The Silver bull market will continue for even longer, as nothing is fixed and the major currencies continue their extreme debasement and ruin, while industry must contend with widespread chronic shortages.

Bear in mind that the USFed is actively buying the TIPS, icing down the thermometer. They are doctoring the Treasury Inflation Protection Securities meter itself, done openly, without apology, without critical response by the bank analysts, asleep at the wheel. The upcoming wild card: foreign trade will no longer want the USDollar for crude oil or Chinese products. These two arenas are snake pits where the King Dollar will be bitten and delivered venom. So much intellectual inbreeding has taken place among bankers and economists. The jig is up and the game is over. Next comes the collapse, in progress but not yet widely recognized. Take your pick on imagery. The USDollar will face a shut door, as the welcome matt is removed, as foreigners pull the rug out. They are disgusted with unspeakable bond fraud. They are disgusted with endless banker welfare at global expense. They are disgusted with unbridled monetary inflation in the form of accelerating debt monetization. They are disgusted with runaway USGovt budget deficits. They are disgusted with fast rising food & energy prices, attributed directly to the USFed. They are disgusted with lost value of their reserve assets, attributed directly to the USFed. The USEconomy is in the process of collapse. CNN has yet to announce the collapse, so it is not widely perceived. They seem incapable even to report on a basic fact, that the USGovt has already exceeded the legal debt limit.

Just a final footnote on the Libya front. A quote from Manlio Dinucci. He wrote (in translation from Italian), "US and European ruling circles focused on these funds, so that before carrying out a military attack on Libya to get their hands on its energy wealth, they took over the Libyan sovereign wealth funds. Facilitating this operation is the representative of the Libyan Investment Authority, Mohamed Layas himself, as revealed in a cable published by WikiLeaks. On January 20th, Layas informed the US ambassador in Tripoli that LIA had deposited $32 billion in US banks. Five weeks later, on February 28th, the USTreasury froze these accounts. According to official statements, this is 'the largest sum ever blocked in the United States,' which Washington held 'in trust for the future of Libya.' It will in fact serve as an injection of capital into the US economy, which is more and more in debt. A few days later, the European Union froze around 45 billion Euros of Libyan funds." So not only debt monetization and hyper inflation keep the US and Western system going, but basic theft of tyrant's funds. One must wonder if destabilization of tyrant rule has a hidden ulterior motive of confiscation. The news media carefully avoids this confiscation topic and the central bank role in the heated war. Somehow, the Egyptian funds pilfered by Hosni Mubarak have escaped confiscation. My howls of laughter were heard 100 yards (meters) away when Bloomberg News reported that Mubarak had accumulated almost $60 billion over 30 years of dictatorial rule from prudent savings. The legal stealing rights among national leaders is epidemic, and includes the United States and England, the center of the Global Axis of Fascism.

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