Thursday, June 9, 2011

Traders 'premature' in bet on corn area downgrade

by Agrimoney.com

Traders hoping that the US will cut its estimate for corn sowings later on Thursday, expectations which fuelled a jump in prices, will be disappointed, given the potential for growers still to change their minds, veteran analysts have said.
Forecasts that the US Department of Agriculture will, in its latest flagship Wasde crop report, reduce its estimate of domestic corn sowings, helped a 4% jump in Chicago corn futures on Wednesday, with prices rising the exchange maximum at one point.
"It would be unusual [for the USDA] to do so in the June report, but this is an unusual year," Mike Mawdsley at broker Market 1 said.
Wet weather meant sowings were, as of early May, running at their slowest pace in 16 years, with some traders believe that plantings may finish up 5m acres short of the 92.2m acres that the USDA initially pencilled in.
'Be careful'
However, Jerry Gidel at North America Risk Management Services (Narms) forecast that officials would, as they have historically, wait for the results of a plantings poll of farmers, results of which will be published on June 30, before changing acreage estimates.
"We expect the USDA to wait another three weeks and then use their survey results, rather than making a change now that might not follow their survey results," Mr Gidel said.
Australia & New Zealand Bank analysts said that while a downgrade was "not out of the question, we view it likely that the USDA will wait" to update its estimates.
At broker PFGBest, Tim Hannagan advised investors to be "careful" over forecasting a downgrade in sowings, given that planting was still going on, and urged caution over speculation that the USDA might cut its estimate for yields too, thanks to the plantings delay.
"Weather could bring a perfect growing season. There's plenty of time [for crops] to improve," he said.
'Risky assumption'
Such assessments prompted PFGBest to forecast that the USDA will leave its forecast for domestic corn inventories at the close of 2011-12 relatively high, at 850m bushels, despite demand proving better than many investors had expected, in the face of high prices.
The average estimate is for a 771m-bushel figure.
"It's risky to assume the government will get ahead of itself on estimates being lower," Mr Hannagan said.
Narms forecast the figure the USDA will come in with a 900m-bushel estimate, unchanged on the existing figure.
Besides the prospect of unchanged seeding and yield estimates, "the USDA doesn't traditionally make many adjustments to its new crop corn demand levels just one month after issuing them each year", Mr Gidel said.
'Sticky ethanol demand'
Expectations for corn demand have been stocked by some surprisingly strong cattle data, with feedlots hiking animal numbers in April, resilient US export sales and a renewed rise in activity at biofuel plants converting the grain into ethanol.
US production of the biofuel looked set for "another record" quarter, "after the past three weekly ethanol reports revealed daily average production rates of over 900,000 barrels per day after a sluggish April when some maintenance downtime occurred", Mr Gidel said.
At Commonwealth Bank of Australia, Luke Mathews said: "The fundamental issue with the corn market is that of sticky ethanol demand for the grain, which has shown little signs of abating, even in the face of record high corn prices."
Data on Wednesday showed US ethanol output at its highest last week since January.

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Is 1987 still impacting prices today?

by Kimble Charting Solutions





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Prices are Rising, the Devil's to Pay


I started out with this week’s theme being rising temperatures, with much above normal temps in the forecast for much of the eastern 2/3 of the country over the next 14 days. I was remembering a song lyric ‘temperature’s rising, the devil’s to pay’. As with a lot of songs, I wasn’t exactly right on the words. The actual phrase was "Prices are rising, the Devil’s to Pay" from the 1970’s group Three Dog Night in Family of Man. Then I realized it didn’t make any difference! Prices and temps are both rising, and somebody is going to pay whether it is the grower, the processor the feedlot or the consumer. Ideal weather was needed to make the grain balance sheets work, and we don’t appear to be getting it.

Above normal temps are seen for most of the next two weeks in the central US as the drought area in Texas refuses to move. The long range weather forecasts suggest drying and likely planting progress in OH and IN but with further delays in the Dakotas as above normal precip continues there. "Planned flooding" by the Army Corp of Engineers will be required from Montana to St. Louis, and low lying corn has already been lost in NE and IA along the Missouri River. Larger water releases are planned for this week to keep the dams from overflowing. Quantifying acreage losses is a real challenge, and USDA is doing the June Planted Acreage surveys right now! For those with the crop planted and regular rains and with no river nearby, life is good...

Corn had a nice up day on Thursday, with December futures posting new life of contract highs. Nearby July was down 4 ½ cents for the week, all of it coming from the 12 ½ cent Friday sell off. Open interest in the July contract is still more than 2.5 billion bushels, requiring a LOT of both long liquidation and short covering over the next 30 days. The big index funds have already begun rolling out of the July, but another one is scheduled to begin on Tuesday. USDA weekly export sales were neutral on Friday morning as USDA put the actual number at 700,900 MT. Crop condition ratings were historically low for late May, but the correlation to final yields is very weak.

Soybeans rallied a sharp 2.5% this past week. Meal was up 3.6% despite the weaker tone in corn, due to low crush rates and thus less meal output. Egg sets and broiler placement data do not show any consistent cutbacks in the broiler industry (which is engaged in a market share battle). Soy oil was up 0.2% for the week. Prices in China were up sharply, as the price controls on veg oils were apparently allowed to expire on May 31. If that situation is allowed to continue, it might take pressure off of the crush plants and allow more of the imported beans piled up at the ports to be used. US weekly export sales are typically light this time of year. USDA put the actual net sales for last week at 155,500 MT.

Wheat futures were higher in MPLS for the week, but settled lower in Chicago and KC. MPLS was up 4 cents per bushel, with the CWB indicating that Canadian acreage would be down. US planting is also still lagging and acreage estimates are slipping with each passing week. Wheat prices were sharply lower on Tuesday after the Russians announced the end of the export embargo on July 1. However, Russian internal prices quickly rose to match global values, and calls for export tariffs began to surface within the Russian political structure. The intent of those would be to slow exports and limit the internal price increases.

Cotton futures showed the largest advance for the week, up 5.87%. This came despite a 9th consecutive week of old crop export sales net cancellations. The bull story for the July came from cert stocks. A merchant de-certified most of the existing warehouse inventory, suggesting that it would be shipped out and thus not available for the July delivery process. That had shorts scrambling to get out. Mills also appear to have a large book of unfixed on call purchases tied to the July contract. That did not go well for them in March, with the bulls pressing them right into deliveries.

Here are the Friday night closes for the past four weeks, along with the net change for this week vs. the previous week:
Commodity
Weekly
Weekly
Month
05/13/11
05/20/11
05/27/11
06/03/11
Change
% Change
July
Corn
6.82
7.595
7.585
7.54
0.0450
0.59%
July
CBOT Wheat
7.2775
8.065
8.1975
7.7375
0.4600
5.61%
July
KCBT Wheat
8.695
9.3325
9.43
9.1425
0.2875
3.05%
July
MGEX Wheat
9.0025
9.9975
10.5625
10.605
0.0425
0.40%
July
Soybeans
13.295
13.8025
13.7975
14.145
0.3475
2.52%
July
Soybean Meal
345.4
360.6
355.6
368.4
12.80
3.60%
July
Soybean Oil
56.14
57.46
58.61
58.73
0.12
0.20%
June
Live Cattle
109
104.975
104.1
104.175
0.08
0.07%
Aug
Feeder Cattle
132.45
125.75
122.72
124.25
1.53
1.25%
June
Lean Hogs
94.55
91.975
88.925
89.225
0.30
0.34%
July
Cotton
145.15
155.61
152.67
161.63
8.96
5.87%
July
Oats
3.445
3.64
3.8275
3.78
0.0475
1.24%
July
Rice
13.98
15.1
15.185
14.475
0.7100
4.68%
Cattle futures were actually up 7 ½ cents for the week, a surprise to some after the pasting they took on Tuesday and Wednesday. However, the sell off appeared to be overdone technically, and cash cattle for the most part traded even with the previous week. Estimated beef production for the week was 2% smaller than last year and down 8.5% from the previous week because of the holiday on Monday. Wholesale prices were mixed for the week, with choice boxed beef up 33 cents for the week, but select down $1.32/cwt on a Friday/Friday basis. One problem has been the slowdown in South Korean purchases. The emergency buying program needed to compensate for the FMD losses boosted overall US exports earlier in the spring, but the Koreans now appear to be back to more typical purchasing levels.

Hog futures also closed 30 cents higher this week. The cash hog market was volatile, in terms of day to day changes. Futures are still discounting another $2+ drop in the CME Lean Hog Index between now and June contract expiration. Pork production for the week was 1.3% smaller than the same week in 2010, with YTD production 1.2% larger than a year ago. The cutout value of the hogs held up fairly well, losing 0.3% or 27 cents on a Friday/Friday basis. Pork loin values had more than a $12 range for the week.

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Make It Six Straight Losing Weeks?

by Bespoke Investment Group

This is turning out to be one for the record books. Barring a significant rally over the next two trading days (it could happen we guess), the S&P 500 is set to close lower for the week once again, which would make it six consecutive losing weeks for the index. This would be just the 17th time in the S&P 500's history dating back to 1928 that the index suffered a six-week losing streak.

Below is a table highlighting the prior 16 six-week losing streaks for the S&P 500. In the table we show how the index has performed in week seven as well as over the next six weeks. As shown, the S&P 500 has tended to finally bounce back in week seven in the past with an average gain of 1.03% with positive returns 13 out of 16 times. The average return for all one-week periods going back to 1928 has been 0.13%, so the 1.03% average seen in the week after six-week losing streaks represents pretty significant outperformance. In the six weeks following prior six-week losing streaks, the S&P has averaged a gain of 1.13% versus an average of 0.81% for all six-week periods, which also represents outperformance. 

The last time the S&P 500 had a six-week losing streak was back in July 2008, and even then, when the financial crisis was really getting started, the index managed to gain over the next week and six weeks.



New Lows Exceed New Highs For Five Straight Days

by Bespoke Investment Group

It's no surprise that the list of new highs on the S&P 500 has pretty much dried up in the last several days. On a net basis, 13 stocks in the S&P 500 (2.6%) traded to new 52-week lows today, marking the fifth day in a row where more stocks hit new lows than new highs.



Deflationary Depression in America: The Double Dip Economic Recession


Wall Street seems to believe the waning recovery in the economy is only temporary and that further recovery is on the way. Such thinking can get you in serious trouble, unless QE3, or its equivalent, is on the way. It is on the way, as we pointed out 13 months ago. The economy cannot live and survive without it otherwise we could be looking at a minus 5% GDP for openers. Incidentally, there are those that believe that unemployment already is as bad as it was during the “Great Depression” years of thep930s. They may be correct, but we believe it was much higher than today’s 22.4% level. If government hadn’t created food stamps, Medicaid, extended unemployment benefits and other benefits, perhaps we could be close to 1930’s levels.

The first quarter of 2011 saw GDP gain 1.8% as a result of at least $1.8 trillion in spending by the Fed and by government. If the economy grows 2% in the second quarter that would be substantial. The big question is what will the last half of the year be like? Government is cutting back, so we cannot expect stimulus 3. That means the Fed has to create $1.6 trillion to purchase Treasury and Agency bonds, notes and bills, because presently only about 20% is being purchased by others. Assumably the Fed will again accomplish that, but what about the remainder of the economy? If the GDP growth rate is to maintain say at plus 1% to 2%, the Fed will have to create money and credit for the economy of an additional $850 billion. Without that the economy would slide to a minus 5% GDP. The flipside is that if the Fed were to perform these feats what would inflation be? John Williams tells us inflation, using previous standards, is 10.2%. Last May 2010 we predicted real inflation by the end of 2011 of 14%. That could turn out to be conservative. That projection was based on the results of QE1 and stimulus 1. Next year we will see inflation caused by QE2 and stimulus 2, which we believe could carry inflation to 25% to 30%, if official interest rates remain the same and we believe they will do just that at the Fed. If we get a version of QE3 for about $2.5 trillion then we believe inflation could rise to 50% creating hyperinflation in 2013. Of course, no one knows for sure what the Fed will do, but this is a likely scenario. If these events do not unfold as presented the economy will spiral into the worst depression in modern history. It is as simple as that. If we get QE3 what can the Fed do for an encore? We won’t attempt an answer for that now, but the prospects are certainly frightening.

All of the insiders who create the inside information, own the Fed, or are connected to those who own the Fed, know exactly what is going on. These are the people who make all the decisions. How do you think the market rallies upward when it should be going down? They know there will be a QE3, because these insiders are making those decisions, and say the market, bonds and the economy are dependent on massive amounts of money and credit is a vast understatement. These elitists tell us the slowdown in economic growth is just temporary. That is true, they know, they planned it that way, although growth will only be 1% to 2%, even with additional spending of $2.5 trillion. If we are correct that means a Fed balance sheet of $5.5 trillion plus.

This time if QE3 did not develop the stock market could fall 20% to 30%. That means from the top of 11,800 we could see 9,400 to 8,300. The market is the last visage of wealth along with bonds. If it falls it could send everything tumbling. It should also be noted that this recent so-called recovery has been weakest since WWII, or for 65 years.

If there is to be QE3 it had best be implemented immediately. Recent data shows a struggling job market with unemployment, again headed higher. As a result of this and climbing inflation, people are buying gold and silver related assets. Sales of American Silver Eagle coins reached almost 19 million ounces in the first five months of the year, the highest since 1986. This is not surprising considering initial unemployment claims just won’t fall below 400,000 and only 38,000 new jobs were created in the private sector in May.

Most all indexes are pointed downward as production and retail slow. In addition the housing index is at its lowest since 2003, as housing prices continue to plunge 3.6% in the 20 largest US cities in March year-on-year. Countrywide prices fell 5.1%. These are 2002 prices. This continual real estate wipeout has people who have been foreclosed on and some who sold to get what equity out of their homes that they had left. That means more renters and higher rents, which means the CPI inflation index should start heading upward. If you throw in higher food and gas prices it gets very expensive. As this transpires the dollar falls versus other currencies and gold and silver. Consumer confidence is dreadful.

The payroll data from last week was nothing short of awful. On the U3 we are back up to 9.1%. The increase in non-farm payrolls was the worst in nine months. Manufacturing lost another 5,000 jobs in May, as free trade, globalization, offshoring and outsourcing did its nasty work. Congress does absolutely nothing to stop the carnage by imposing tariffs on goods and services. In 11 years we have lost 11 million good paying jobs, and 445,000 companies, all of which can keep their profits offshore tax-free. Everyone in Congress is aware of what is going on, but not one member has proposed legislation to put a stop to this tragedy that is destroying America. That is what happens when you have campaign contributions and lobbying. It ends up with 95% of both chamber members being bought and paid for. We are losing more than one million jobs a year and about 240,000 jobs have been created.

The other million went to some foreign country. Over 11 years manufacturing has lost some 7 million jobs. As you can see, service job losses are catching up. Can you imagine what these figures would look like without the $4.2 trillion spent on QE1 & QE2, and stimulus 1 & 2? Unfortunately, all this money has been spent to bailout the financial sector and government, and little has been added to wealth-producing infrastructure. All government and the Fed have done is create an inflationary bubble that in due time will collapse. It can end up no other way.

Optimism is waning and rightly so. Has anyone stopped to think where we would be without all this artificial stimulus and that it can last indefinitely unless, of course, people desire hyperinflation? As the dollar remains weak in the USDX, exports rise, which is a Punic victory. That same weak dollar reflects 10.2% inflation, hardly an equitable trade-off. No matter how much money is thrown at the problem it is protracted and any real possible recovery will be a difficult process. We do not believe there can be any kind of lasting recovery without a purging of the system, which would result in massive bankruptcies and a deflationary depression. We just completed a radio discussion on the air at Northeastern University. All present wanted solutions for jobs and recovery, but none understood that in order for that to happen and be lasting the system has to be purged first. No one simply wants to accept this. This is why we have these stimulus programs – to put off the inevitable. This could have been accomplished in 1990-1992, and again in 2001 to 2003, but adjustment never happened. Wall Street and banking befouled by greed and the quest for world government, bypassed these simple solutions.

Yes, we are already into double dip and if the Fed doesn’t act quickly and continue into QE3 and add $850 billion into the economy we will be looking at big minuses in GDP and fast rising unemployment. In order to explain this result government and Wall Street euphemistically call this a soft patch. Obviously malinvestment and speculation continue unabated and will so as long as the creation of money and credit continues. We guess eventually everyone practically will work for the federal government or subsist on their handouts. How can the Fed and government spend at least $4.2 trillion and get such dreadful results? It is easy; just take care of the financial sector and government, and let the economy and job creation swing in the breeze.

In respect to all this, the Fed and government are silent – no response, as Wall Street, banking and government, in their own particular ways, suck the lifeblood out of the system.

Washington and Wall Street are bastions of systemic excesses. Americans are getting what they asked for. They allowed their Congressmen to become prostitutes for big business and they have allowed the Fed, banking and Wall Street to run amok and in that process to destroy the economy. Profligacy is everywhere, but few seem to care. That has left us in supreme vulnerability and falling confidence as a people and as a nation. Ignoring the problems does not make them go away. There is bias all over the mainline media, which tells us everything is going to be ok, when it isn’t going to be ok. Just ask the long-term unemployed, which stretch back to 1990. We are in trouble and it is time we recognized that.

As we have said repeatedly, quantitative easing, the creation of money and credit, and the stimulus plans, as policies have been a failure, as have zero interest rates. We believe QE3 will be implemented, but as you have seen effectiveness is on the wane and QE3 could be the end of the road.

We wonder if research departments at the big banks and brokerage houses understand that unemployment is 22.4%, that without the birth/death model, about 152,000 jobs were lost in May and that the government is lying, again? These analysts and economists cannot be that dumb. We have been writing about these bogus figures for 15 years. Whatever Washington needs to create, it does so. For those who were unaware, that struggling food purveyor McDonald’s received billions in TARP funds and we have no explanation as to why.

This is one of the most successful corporations in the history of the world. It just so happens that McDonald’s added 62,000 new jobs in May, which made up a good part of newly created jobs. This indicates to us cooking the numbers and leads us to believe there will be more severe unemployment problems in the near future. That means, coupled with the falling GDP growth figures, that QE3 has to become reality, or the economy will fall into deflationary depression and there will be a massive liquidation of bad debt and bankruptcies as far as the eye can see. That will include many major banks and brokerage houses worldwide.

It will be a sight to behold. This is why you have no more than three month’s operating expenses on deposit at the bank, and no CDs. The government doesn’t have money to cover the FDIC insurance and as a result they will have to print it exacerbating inflation. The general stock market will head downward with the exception of gold and silver shares, which will appreciate as they did in the 1930s and late 1970s. If the market falls to Dow 3,000 all the value in pension funds, cash value life insurance policies and annuities will fall as well. Get out of these investment vehicles now while you still can and switch to gold and silver shares, coins and bullion. For those of you who do not understand, this is what happens in a depression. The only place that is safe is in gold and silver related assets.

Government tells us inflation is 2% when it is 10.2%. Food and gas prices have increased over the past almost two years by more than 50%. Inflation as we predicted in May 2010 will be 14% by the end of the year, and the result of QE2 will put inflation close to 30% by the end of 2012. If more than $2 trillion is spent on QE3 inflation will probably be 50% in 2013, or hyperinflation. Prices for almost everything are higher and they’ll get higher yet. Inflation is 15% in China and wages are rising. That means export prices to the US and Europe are going to increase as well.

The Fed has to continue to create money and credit out of thin air to fund the needs of the US Treasury. China and Japan have been sellers and will continue to be. Between the two they have about $2 trillion in US bills, notes and bonds. What part of that the Fed will have to buy remains to be seen, but it has to be recognized as an overhang on the market. Japan’s problems will force it to sell $200 billion to $500 billion worth of US Treasuries to fund their nuclear cleanup. Our guess is that conservatively the Fed will have to buy some $500 billion in Treasuries over the next year from China and Japan alone, plus 80% of what the Treasury has to issue. The supply of money and credit will go through the roof as it has for the past three years.

We see Congress arguing about the cash debt extension. As we expressed earlier the legislation will probably be passed and we see little in the way of meaningful cuts. Any cuts that come will come in the form of cuts in proposed budget increases. Cutting Social Security and Medicare are still out of the question, although Medicaid, food stamps and extended unemployment benefits could be cut. We find it laughable that they continue to increase defense spending at the same time. People paid for Social Security and Medicare, so they should not be cut. All the other programs should be cut.

The actions dealt with above will all contribute to the collapse of the dollar not only versus other currencies, but also more importantly versus gold and silver. If you do not understand the foregoing and do not act now, you won’t financially survive. This is going to be one nasty affair and you have to be prepared.

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QE2 Has Failed, Time To Move On


Was Friday's job's report the final nail in the coffin for QE2?

It should be. After all, how is Fed chairman Ben Bernanke going to convince people that his bond purchasing program is working when payrolls rose by a measly 54,000 and the unemployment rate climbed back to 9.1 percent? It'll take a lot more than fast-talk to sell that load of horse-manure. The truth is, QE2 has been a total bust and the BLS's report is just the icing on the cake. Just look at the data; it's as grim as anything we've seen in the last two years. Here's a clip from an article titled "Disastrous US jobs report points to deepening slump" that will give the reader some idea of how bad things really are:

"The Economic Policy Institute (EPI), a liberal Washington think tank, explained Friday that the official unemployment figure masked an even grimmer reality. It pointed out that the labor force participation rate remained at its lowest point of the recession and that the labor force in May was smaller than it was a year ago, by about 500,000 workers, even though the working-age population grew by 1.9 million in that period.

“Consequently,” it noted, “the proportion of the population that is in the labor force is now 0.7 percentage points below where it was a year ago. If the labor force participation rate had held steady over the last year, there would be roughly 1.8 million more workers in the labor force right now. Instead, they are on the sideline. If these workers were in the labor force and were counted among the unemployed, the unemployment rate would be 10.1 percent right now instead of 9.1 percent. In other words, the improvement in the unemployment rate over the last year (from 9.6 percent to 9.1 percent) is due to would-be workers deciding to sit out the economic storm”. ("Disastrous US jobs report points to deepening slump", World Socialist Website)

So, the only reason the stats look as good as they do (which isn't very good at all) is because people are throwing in the towel and calling it "quits" altogether. So much for the American dream, eh?

And there's an interesting twist to the BLS report that readers may not have noticed. The reason the jobs picture is so bleak, is because the "austerity crazed" government has been laying people off while the economy is still struggling which is making things even worse. This is from the Streetlight blog:

"The government sector of the economy continued to make the jobs picture worse. May was the seventh month in a row during which government layoffs undid some of the work of the private sector in creating jobs. Since January 2009, government employment has shrunk in 21 of 29 months -- and without temporary hiring for the Census, it would probably have shrunk in 25 of the last 29 months.

This steady reduction in government employment is a form of contractionary fiscal policy.....If government employment were simply keeping up with population growth in the US, we would expect to see about 17 to 18 thousand more state and local government jobs each month. Instead employment has shrunk by an average of 15 thousand jobs per month since the start of 2009....

In other words, in the absence of the sharp cutbacks in government spending that have been prevalent in the US over the past year or two, about 1.3 million additional people would be working now compared to 8 months ago, rather than the actual job growth we've experienced over that time of about 1 million - a 30% difference. That's a pretty tough headwind to fight, especially for an economy that's already struggling." ("Contractionary Fiscal Policy and the US Job Market", The Streetlight blog)

So, if the government hadn't been foolishly slashing jobs in the middle of a Depression, 1.3 million more people would still be working today. How's that for shooting yourself in the foot? Remember, the easiest way to prime the pump is to make sure that people aren't fired during a slump. That's Rule #1. But, of course, the deficit hawks have already won that scrimmage, so it's probably pointless to even talk about it.

And this isn't just about employment either; it's about distribution, too. As economist David Rosenberg points out in a recent post at Zero Hedge "the labor share of national income has fallen to its lowest level in modern history - down to 57.5% in the first quarter from 57.6% in the fourth quarter of last year, 57.8% a year ago, and 59.8% when the recovery began."

What does that mean? It means all the gains in productivity are going to the fatcats in the front office while workers are scraping by on fewer and fewer crumbs. It means working people are getting reamed again bigtime.

But, then, Bernanke promises to level the playing field with QE2, right? Everyone who wants a job will be able to find one and it'll be Happytime in America again. At least, that's what he intimated in his op-ed in the Washington Post before the program kicked off in November. Here's an excerpt:

"The Federal Reserve's objectives ---- are to promote a high level of employment and low, stable inflation.....Low and falling inflation indicate that the economy has considerable spare capacity, implying that there is scope for monetary policy to support further gains in employment without risking economic overheating.....the Federal Reserve has a particular obligation to help promote increased employment..... Steps taken this week should help us fulfill that obligation." ("What the Fed did and why: supporting the recovery and sustaining price stability", Ben Bernanke, Washington Post)

So, has QE2 lowered unemployment?

Nope.

Reduced spare capacity?

Not much.

Increased inflation?

Slightly.

So, it was all baloney; QE2 didn't really do anything except send gas and food prices skyrocketing. (which has further crimped consumption)

But that's not how Bernanke sees it. According to him the program has worked spectacularly. Here's the Fed chief crowing about the miraculous effects of QE2:

“Equity prices have risen significantly, volatility in the equity market has fallen, corporate bond spreads have narrowed, and inflation compensation ...has risen to historically more normal levels.” (Bloomberg)

Yipee. Another freebie for the investor class! And we're supposed to be grateful for that? What about the jobs you promised? What about stimulating the economy and putting people back to work? Wasn't that how you sold QE2 to the American people in your op-ed, Mr. Bernanke?

It was all lies. Every word of it. Here's how Cullen Roche sums it up over at Pragmatic Capitalism:

"QE2 didn’t monetize anything. It didn’t cause the money supply to explode. It didn’t really do anything except cause a great deal of confusion and generate an enormous amount of speculation in financial markets that now appears to be contributing to turmoil and strife around the globe......

Where we saw a real impact was in commodity prices, general price speculation and the financing pyramid.....Rates have meandered up and down and up and down without a care in the world for the Fed’s $600B purchase program. In other words, the program had no impact on rates." ("The QE3 conundrum", Pragmatic Capitalism)

QE2 has been a total flop. The rise in stock prices was a reaction to the temporary increase in corporate earnings which fueled investor optimism. That was a one-time deal caused by trimming expenses and laying off workers. Now production costs are rising at the worst possible time, when all the other economic indicators are beginning to sag. Current data shows weakness throughout the economy, which is why stocks are falling. Expect the worst.

Bad ideas have a way of outlasting their shelf-life. (Especially when people in positions of power have ulterior motives.) Quantitative easing should be put to rest once and for all. It hasn't lowered interest rates, increased GDP, boosted employment, or sparked another credit expansion. The plan has failed. Time to move on.
By Mike Whitney

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BANK FAILURES DECLINE IN 2011

by Cullen Roche

There’s not a lot of good news out there these days, but one bit of welcome news is the trend in bank failures. 2011 is showing a distinct improvement in the cumulative number and size of bank failures in the USA. The Economist says the size of the banks failing are half the amount of the average failure just last year at $430MM vs $867MM last year. Most importantly, maybe (just maybe) this is an excuse for Ben Bernanke to stop worrying so much about his slave masters at the big banks. But probably not.


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An Elliott Wave Technical Analysis of Gasoline (Guest Post)


Most traders in the commodity and energy markets watch technical levels very closely. Some say that prices follow technicals because traders watch the technical levels. Others (especially those who practice Elliott Wave Analysis) would say that when the herd mentality rules the market, certain types of movements can be anticipated, not because traders watch those levels, but because the underlying emotions of greed and fear tend to exert their influence on the markets.


Take the case of Gasoline.

A five wave rally has been completed at $348, and hence we should lookout for a good sized correction. But a careful analysis of the internal waves of the rally to 348 shows an extended fifth wave. Time and time again, whenever a rally finishes with an extended fifth wave, we will get a fairly quick sell off. The first target for the sell off is usually the prior fourth wave of one lesser degree. In the case of Gasoline, this level comes at 277.30. We have already come off by over 15% from the top, and it looks like we can get another 7%.


Typically, when prices break below the immediately preceding low, we will hear from some market participants that they are now more bearish. However, using Elliott Wave Analysis, one can say with a reasonable degree of confidence that Gasoline will probably experience one more rally that will take it back to at least the 316 level, more likely to the 323 levels.

Should such a rally materialize as I am anticipating, these same traders who became bearish at the lows will turn bullish. Alas, that will be a trap for many because the completion of five waves in the larger rally that finished at 348 would require a much deeper correction, perhaps down to the 250 levels. So Elliott Wave Analysts would then call Gasoline down from near 323.

What can go wrong with this analysis?

Well, just about everything! But what the wave analyst is offering is an evaluation of probabilities. From past experience, the turns that I am anticipating are highly probable, but not guaranteed. So how can one use this information? The best way to take advantage of Elliott wave analysis is to know where the risk lies, and choosing low-risk levels to position in the direction that wave analysis points you to.


For example, I think we will have some good resistance near the $305 levels. Any recovery that fails there will be a cue to go short . Again, as we approach the immediately preceding low around 284, we should lighten up on shorts and wait to see what happens between there and 277.30. If it gets choppy down there, it is not an indication of continuation of sell off, rather the preparation for a bounce that will cause a lot of blood to flow on the trading floors. We will review the chart of Gasoline again as we approach the key levels.

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The significance of OPEC announcements


The Organization of Petroleum Exporting Countries (OPEC) today announced that its members could not reach an agreement to change OPEC’s production quotas. How significant is that announcement? In my opinion, not very.

Forbes provides these details:
Analysts thought the 12-member group would boost production in an effort to cool off oil prices and take some pressure off the world economy…. Instead of raising production the Organization of Petroleum Exporting Countries ended a contentious meeting in Vienna without changing quotas for its members.
“We are unable to reach consensus to … raise our production,” OPEC Secretary General Abdullah Al-Badri said.
If OPEC were functioning as a traditional cartel, what would emerge from these meetings would be agreements on production quotas to which each country was going to adhere. But this is clearly not the case. Here, for example, is a graph of the OPEC production allocations for Saudi Arabia compared with how much the country actually produced. There was a brief period in 2006 and 2007 when the two series corresponded, though I believe the reason is that the Saudis wanted to use the cuts in announced OPEC quotas as cover for a production cut that they were intending to implement for other reasons. Perhaps they were unable to maintain production at the time, or perhaps they were unwilling. But in no sense was Saudi Arabia induced to cut production by the other oil-producing countries. Before and since that episode, the kingdom has pretty much ignored OPEC’s production allocations.



Production and quota for Saudi Arabia. Production: crude oil including lease condensate excluding natural gas liquids and other liquids, thousand barrels per day, Jan 2004 to Feb 2011, from Monthly Energy Review, Table 11.1a. Quota: Jan 2004 to Oct 2007, from OPEC 2009 Annual Statistical Bulletin, Table 1.1.
saudi quota jun 11 economy


Note that the line in the above graph labeled “quota” ends in October, 2007, because that is the last date for which OPEC publicized individual country production allocations. In fact, what OPEC announced in October and December 2006 were cuts in the allocations relative to an unspecified base; the graph above indicated these as relative to the previous quota. Here’s what the actual data reported by OPEC look like:



Source: OPEC 2009 Annual Statistical Bulletin, Table 1.1.
opec table jun 11 economy


Beginning in November 2007, OPEC did not even publish quotas as target changes for individual countries, but instead simply announced overall targets for the entire group. These combined OPEC targets are graphed below, along with actual production. Again, the quotas have little or no bearing on what actually happened. Note that the group of countries covered in these series was expanded to include Angola and Ecuador in January, 2008. As far as I can determine, the official quota of 24.845 mb/d set in January 2009 is still in effect, though OPEC excluding Iraq is now producing almost 5 million barrels per day more than that.



opec quota jun 11 economy




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