SEGURO DE DESEMPLEO

En USA están empezando a vencer fuertemente los seguros por desempleo otorgados durante la crisis reciente. Si el gobierno no toma ninguna medida, mucha gente quedará realmente en la calle.
Si la toma seguramente impactará en su ya abultado déficit fiscal.


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COMENTARIOS SOBRE EL PBI AMERICANO

El Viernes pasado se dió a conocer la cifra de ctrecimiento preliminar del PBI americano para el 2° trimestre del corriente año. Cayó 1%, mejor que lo esperado, -1.5%.

Sin embargo hay algunos puntos de vista interesantes para tener en cuenta según surge desde extracto del The Daily Reckonig:

"The U.S. economy shrank at a 1% annualized rate in the second quarter, the Commerce Department estimates today," reports Ian Mathias in today's issue of The 5.

"Since that's better than the 1.5% contraction the Street had predicted, we see headlines of 'the pain is easing,' and 'recession easing' left and right. True, the latest GDP number is better than previous quarters, but here are some of the stats that really got our attention:

• The U.S. economy has now contracted four quarters in a row, the worst streak since the Great Depression
• GDP has contracted 3.9% in the last year, the worst fall since at least 1947, when the Commerce Department started keeping track
• First quarter GDP was revised down heavily, from a 5.5% to 6.4% - the biggest quarterly GDP drop in almost 30 years
• The Commerce Department revised 2008 down too, from a 0.4% annual contraction to a 1% decline
• Consumer spending, 70% of U.S. GDP, contracted 1.2%. Their retrenchment was largely replaced by government spending, up 10.9%
• Employment compensation rose by just 1.8% over the last 12 months, the slowest rate on books that go back to 1982.

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LAS 3 HERMANAS: OLAS GIGANTES

Las olas gigantes que adquieren la altura de 30 metros (semejante a un edificio de 10 pisos) pueden hundir buques en el medio del océano.
Si bien se las tomaba como "mito náutico", se se ha descubierto que verdaderamente existen. Los resultados del satélite ERS (European Remote Sensing) de la ESA (Eupoean Space Agency) han ayudado a determinar que estas olas gigantes existen en realidad, y ahora se utilizan para estudiar sus orígenes.

Estas olas, cuya ocurrencia se produce por una combinación ocasional de diferentes ondas, generan paredes de agua, que se elevan como una torre por sobre la superficie oceánica. Un caso especial de las mismas, y muy temido por los navegantes, son las llamadas "Las tres hermanas". A una primera ola gigante, le suceden dos más seguidas, generando un efecto devastador para quien tenga la desgracia de estar frente a ellas.

¿A que viene toda esta introducción oceanográfica?

Pues en el último informe de Carta Confidencial del think-tank europeo LEAP/Europe2020 (Laboratorio Europeo de Anticipación Política), se incluyó un análisis sobre la crisis económica global que se avecina hacia fines del verano 2009 (hemisferio norte), como efecto del impacto de "Las 3 hermanas".


La primera: La ola de desempleo masivo: tres fechas de impacto que variarán según los países de América, Europa, Asia, Oriente Medio y África
El verano 2009 será un punto de inflexión en lo que respecta al impacto del desempleo en el desarrollo de la crisis sistémica global. En efecto, será el momento de las consecuencias, el paro se convertirá en todo el mundo en un factor de agravación de la crisis. Desde luego que este proceso no se desarrollará en todas partes al mismo ritmo, ni con consecuencias idénticas…

La segunda: La ola de quiebras en serie: Comercio, banca, inmuebles, Estados, regiones y ciudades
Más allá de estos acontecimientos muy evidentes, se asiste por todas partes a un aumento rápido y continuo de las quiebras de empresas y establecimientos financieros de gran, media o pequeña importancia que se acelerará después del verano de 2009, mientras que se prepara en Estados Unidos, el Reino Unido y España en particular, una segunda ola de embargos inmobiliarios que en el verano de 2009 va a caracterizarse por el inicio de una ola de cese de pagos de Estados, regiones y ciudades. Los « jóvenes retoños » de los medias financieros no hacen más que ocultar las « hojas muertas » de la economía real…

Y finalmente la tercera: La ola de la crisis terminal de los Bonos del Tesoro estadounidense, el USD, la libra y el retorno de la inflación
Esta primera cumbre del BRIC, que no es difícil imaginar cuan difícil ha debido ser de organizar, constituye una primera señal de desarticulación del sistema internacional actual. No sólo Estados Unidos han debido hacer todo lo posible para impedir la reunión, sino que además se les negó su presencia en calidad de observador, una señal clara que lo que se dijo allí no pretendía ser diplomático. Y el tema central no era ciertamente un problema estratégico-militar, sino una cuestión financiera-monetaria: ¿que hacer con cientos de miles de millones de USD (en forma de Bonos del Tesoro, en particular,) acumulados por estos cuatro países durante los recientes años?...

Cada uno podrá asignarle la probabilidad de ocurrencia a la llegada de "las tres hermanas", pero luego de la recuperación que tuvieron los mercados, no estaría de más tomar una posición más defensiva. Por lo menos ponerse el traje de agua.....

Parte del informe lo pueden leer Acá

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HIPERINFLACION EN USA?

Marc Fabber, prestigicio analista de mercados se despacho con la siguiente opinión:

The U.S. economy will enter “hyperinflation” approaching the levels in Zimbabwe because the Federal Reserve will be reluctant to raise interest rates, investor Marc Faber said.

Prices may increase at rates “close to” Zimbabwe’s gains, Faber said in an interview with Bloomberg Television in Hong Kong. Zimbabwe’s inflation rate reached 231 million percent in July, the last annual rate published by the statistics office.

“I am 100 percent sure that the U.S. will go into hyperinflation,” Faber said. “The problem with government debt growing so much is that when the time will come and the Fed should increase interest rates, they will be very reluctant to do so and so inflation will start to accelerate.”

¿Será así....? SEGUIR LEYENDO...

USA = AAA?????

Standard and Poor's rebajó la nota de la perspectiva de la economía británica de "estable" a "negativa", debido al "deterioro de las finanzas públicas".

"La degradación de la nota está basada en que creemos que el endeudamiento global del Reino Unido puede acercarse a 100% del PIB (Producto Interno Bruto) y permanecer en ese nivel en el mediano plazo", agregó S&P en un comunicado.

¿Ahora le tocará a USA?

Veamos las subdivisiones de Moodys para los triple A:



A su vez en la minutas de la última reunión de la Fed, las proyecciones para la economía americana empeoraron:



Finalmente el dólar cae frente al resto de las monedas (salvo en Argentina), los treasuries caen, y el oro sigue rumbo a los USD 1.000..... SEGUIR LEYENDO...

EL MERCADO DE CAMBIOS MUNDIAL

En las últimas semanas hemos visto recuperar fuerte al dólar. Más allá que las medidas de salvataje tomadas por el Tesoro americano debería jugar en contra de dicha moneda, encontre una explicación razonable de porque no sucedió así, en el newsletter diario The Daily Pfennig, y extraje la parte relevante de la explicación:




"The story is the same as we have seen over the past few months. Institutional investors and hedge funds are having to pay down some of the loans which they have taken out over the past few years. These investors had been rolling over loans in the lower yielding currencies of the yen, franc, and dollar in order to pick up the 'carry' between these low interest loans and their higher yielding investments. Now, due to the credit crunch, the banks are not renewing these loans, and the institutional investors have to sell investments and buy back the yen, franc, and dollar in order to pay off the banks. In addition to the flow of funds to pay off these bank loans, investors are also having to purchase dollars to make up for the losses which they are incurring on US$ based mortgage investments and credit default swaps."

"A question we hear a lot these days is when will this stop? That question is very difficult to answer, as hedge funds are mostly unregulated so there is no good data on just how much leverage there is. Making it even more difficult, the credit default swaps do not trade on an 'exchange' so it is almost impossible to try and gauge just how much of these swaps are outstanding. For those of you who are new to the Pfennig, credit default swaps are agreements which were entered into by institutions which guaranteed holders of certain mortgage backed investments against the risk of default. They are basically insurance policies on mortgage backed investments. These swaps are contracts between two parties, and are not cleared on a common exchange. As mortgage backed securities have plummeted, holders of the credit default swaps have started collecting. The vast majority of these derivative contracts are issued in US$, so when holders collect, the issuers have to pay off in US$, and sometimes have to sell investments in other currencies to raise the US$."

"But I digress, back to just how long this will last. No one knows. As long as the losses keep mounting on Wall Street, and volatility continues, investors will continue to have to buy dollars. I know this isn't helpful to readers who want someone to tell them right when the bottom is, but anyone who tells you they can predict these markets is delusional. I can only tell you that at some point the deleveraging will be complete, and the markets will start trading back on fundamentals. The fundamentals are not good for the US$, as we continue to increase debt and widen our deficits."

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LA CRISIS AMERICANA YA TIENE SU FILM

Ayer se estreno en U.S.A. el film I.O.U.S.A. Un documental sobre la situación fiscal americana, y que les los está llevando derecho a la peor crisis de su historia.


Se estima que tiene una necesidad financiera de USD 53 trillions basicamente por el sistema de salud Medicare, y el sistema de seguridad social. Además la deuda nacional es de USD 9,6 trillions, la cual crece USD 1,86 billions por día.

Las perspectivas son muy negras, y la verdad que con este escenario el dolar parece caro contra el resto de las monedas. Además el sistema financiero no goza de buena salud.

Por todo esto se sigue viendo al oro como una inversión seguro por los próximos años (5?, 10?, quien sabe).

A continuación el trailer de dicho film.





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NAVIGATING TOWARDS A GLOBAL RECESSION?

Recomiendo esta nota de RGE Monitor, a la vez que les recomiendo que vean dicha página.

Nouriel Roubini's Global EconoMonitor
RGE Monitor - Navigating Towards a Global Recession?| Aug 7, 2008

A few weeks back we surveyed a group of countries navigating towards (or through) recession. The list included the U.S., Canada, Spain, Ireland, Italy, the UK, the Baltics and New Zealand.

Now the growth engine of the EMU, Germany, is faltering, together with France. And a recession might be in the works for Japan as well. This essentially leaves us with a fully fledged G7 recession in the making.

After a long period of disinflation in the 1980s and 1990s, the rise of G7 inflation poses a dilemma for central bankers who must also grapple with credit crunch and risks of recession. The balance of risks is likely to keep G7 central banks from tightening aggressively, with some staying on hold for the rest of 2008. Others, like Australia and more so New Zealand, who have the luxury of high interest rates to start cutting from will likely loosen policy to stave off recession.


Last week we asked whether the U.S. economy is in recession or not. An official answer to this question is not likely to come anytime soon, but recent reports GDP and employment in particular are not auspicious.

U.S. inflation in its various manifestations PCE deflator, CPI, PPI, import inflation, inflation expectations - is at decade(s) highs and stands outside the Fed's comfort zone. As much of this inflation is driven by a weak dollar and external demand for commodities, rate hikes in the U.S. alone won't stop global inflation (though it may help). Moreover, the still benign trends in inflation and inflation expectations has left the Fed room to worry more about financial stability and a flagging economy at home. According to the consensus, fading stimulus from tax rebates and ongoing housing and financial crises will push back tightening to yearend or next year, however, a worsening of the growth outlook could even prompt the Fed to cut rates in the second half of the year.

While Canada may avoid a technical recession growth might be barely positive in Q2 after a contraction in Q1- output has been slowing. Buoyant domestic demand, spurred by a sustained terms of trade rise, could also now be fading as Canadian consumers and businesses are feeling the strains. With 75% ofCanada’s exports U.S. bound, it can’t escape aU.S.recession, and its financial links are significant too. Meanwhile housing and labor markets are starting cool. With the disinflationary effect of the Canadian dollar’s strength waning, the Bank of Canada looks to be firmly on hold for now after aggressive easing in H1.

In the UK, despite severe threats of a spike in inflation mostly due to higher food and oil prices, economic activity already shows clear signs of a slowdown. Measures of business and consumer confidence, the deteriorating housing market and the still quite fragile mortgage and credit markets might push the economy into a recession-like environment relatively soon. Surveys on the probability of a recession show an increase in the median forecast from 30% in June to 45% in July?, while many analysts already call for at least one reading of negative growth by the end of the first half of 2009.

UK’s fast-deteriorating inflation outlook has increased speculation of a BoE tightening cycle in the last couple of months. Nonetheless, the BoE will probably hold rates unchanged throughout the year as the economy is set to display much slower growth in the coming quarters. The BoE’s dilemma will most likely persist. So far the spike in CPI (+3.8%) has not affected average earnings, downplaying the case of a wage-price spiral fed by a self-fulfilling cycle of inflationary shocks and worsening expectations.

In the Eurozone economic indicators turned sharply lower after a buoyant Q1 GDP reading that fuelled hopes for a decoupling from the U.S. recession. Whether the ECB 25bp rate hike on July 3rd accelerated the business sentiment downturn or not remains an open question. The fact remains that many analysts now expect a negative Q2 GDP growth reading, and worries about persistently divergent growth paths among EMU members are emerging.

On a country basis, both Germany’s manufacturing and services leading indicators as measured by the PMI Survey point to slow but still expanding activity in July. After a decade of working through its post-reunification housing bust and restoring of corporate balance sheets, Germany finds itself in a relatively balanced macroeconomic position compared to its EMU peers. The combination of falling house prices, high inflation, and higher credit costs is particularly toxic for Spain whose leading indicators are hitting one record low after another. Economic analysts are also starting to sound alarm bells on Spain’s banking sector. Italy is the second laggard in the group of big four EMU countries. The lack of reforms and the continuing loss of competitiveness are clearly taking their toll now. France has seen the sharpest reversal in both consumer and business sentiment in Q2 coinciding with the turning of its housing market.

On the inflation front, headline HICP has been surpassed by its U.S. equivalent ‘s headline CPI. Like in the U.S., core inflation stands outside the ECB's comfort zone. However, unlike the U.S., wage indexation has led to automatic second-round effects, with inflation leading to wage increases in a few Eurozone countries. With a wary eye on a further rise in inflation expectations, the inflation-targeting ECB is the most likely to hike rates among the G7 in the rest of 2008. Some analysts believe one more hike is in store but slowing growth and lower inflation due to base effects in autumn could keep the ECB from that rate hike button.

Is Japan’s longest post-war growth period coming to an end? Most analysts agree Japan is headed for a slowdown, but many expect the world’s second-largest economy to avoid a severe, prolonged slump. There is no doubt that high food and fuel prices are denting domestic consumption, while cooling global demand appears to have stalled Japan’s export growth engine. Nevertheless, Japan’s problems seem relatively minor compared to the U.S. and certain EU countries. It has no house price bubble, its financial sector is basically healthy, and consumer price inflation - while rising - is still under 2.0% yoy.

Japan has only recently exited deflation. So while consumer prices have risen almost 2.0% over the past 12 months and are likely to rise further, core inflation (excluding food and energy) is still barely positive. Consequently, most analysts see little chance of a rate hike for the rest of 2008. As long as wage growth remains sluggish and price gains do not spread to the overall economy, the Bank of Japan is expected to keep the target rate at 0.5%.

What are the implications for the main emerging markets? Between them Brazil, Russia, India and China (the BRICs) contributed about half of global growth in 2007 but they can’t escape a protracted slowing of G7 economies’ nor is their consumption large enough to propel global growth and if they slow, so might global commodity demand growth.

Inflation has been a global threat and it is not different for the BRIC economies. The inflation outlook and the responses to the worsening inflation are nonetheless different among those countries. Russia has the highest inflation figures and the least enforcing response, while Brazil has the lowest inflation figures with the most austere monetary policy response. Even though more than 20 Emerging Market central banks are following an inflation targeting regime as a monetary anchor, nearly every country is facing inflation figures above the center of the established target. The worsening of inflation readings in many cases is encouraging a more hawkish policy especially in cases where central banks are already behind the curve or where credibility needs to be boosted.

Brazil’s economic prospects are still favorable as domestic output growth continues underpinned by high business confidence and high commodity prices. So far Brazilian economic growth is expected to continue unabated in 2008. The pace of the expansion in Brazil is bound to be moderated by persistent inflationary pressures, as disposable incomes start to erode and business confidence is dented by tighter credit conditions. Brazil’s consumer prices increased 0.74% during June, taking the twelve-month inflation rate to 6.1%, with the food and drink category increasing 15%. The Brazilian Central Bank increased interest rates by 75bps to 13% in July and possibly more hikes will come soon to curb inflation.

Inflation is now eating away at Russia’s oil-fuelled consumption growth with the recent data showing flat real wage growth, slowing construction, retail sales and investment suggesting growth will slow in the second half of 2008. Meanwhile Russia’s human and physical capital constraints are real planned infrastructure investment hopes to make up for decades of under investment. Yet, 10 years after its financial crisis, Russia is in a much sounder financial position, having amassed $500 billion in foreign exchange reserves. With growth likely to slow and productivity low, the central bank is reluctant to engage in real monetary tightening, lest it bring a return of the liquidity problems it faced earlier this year or slow growth. Despite raising interest rates four times this year, interest rates remain very negative in real terms, likely contributing to the frothy Moscow office market.

After the stellar 9%-plus growth in 2006-07, India’s 2008 growth forecast has been lowered to 7-8%. In spite of being labeled as a domestic-demand driven economy resilient to global slowdown, the recent investment boom and above-potential growth were buoyed by imports and benign global liquidity conditions. Global financial turmoil and oil price shock have exposed India’s vulnerability to capital outflows and financing of twin deficits, posing the risk of asset market correction and currency depreciation even as domestic demand trends down on high inflation. India’s double-digit inflation running at a 13-year high is led by food shortages, commodity prices and government’s reduction of oil subsidies. But inflation risk is exacerbated by strong domestic demand and liquidity fueled by pre-election fiscal spending, credit growth and incomplete sterilization of capital inflows. Price controls, trade restrictions and ban on futures trading have only angered the private sector. After a series of interest rate hikes, further tightening is constrained by risks to demand slowdown so that only an easing of global commodity prices may be a blessing.

China’s growth has been decelerating for the past four quarters to reach just over 10% in Q2. While private consumption is now contributing a bit more to growth (though investment is still the biggest driver) and incomes are on the rise, inventory pileups could indicate overcapacity in some sectors. Exports to Europe, which marked double digit growth last year are now falling, manufacturing output seems to be contracting and exporters are complaining of higher labor and input costs. With a focus on growth, and headline inflation stabilized, the Chinese government is shifting away from its ‘tight’ monetary policy some lending curbs have been lifted and RMB appreciation has already stalled. See “Chinese Economic Outlook: China's Triple Threat of Slowing Growth, Inflation and Falling Asset Markets” and Rachel Ziemba’s “Is China Suffering an Olympic Shock?”
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HAS OIL FINALLY TOPPED OUT?

Comparto con Uds. esta nota sobre el petróleo que publico el miércoles The Daily Reckoning.

Has oil finally topped out?

Yesterday, the price fell another $4 – to $136. Still, of course, not far from its all-time high. But sliding...

“Oil is a bubble ready to pop,” say some analysts. “No, oil is merely responding to supply and demand,” say others.

What’s the real story?

As usual, you can count on us, here at The Daily Reckoning , to give it to you -- straight, unvarnished and unmitigated.

Trouble is, the real world always has a bend to it. Everything has a lacquer on it. And mitigations are everywhere.

In the oil market, we see both a bubble...and a useful commodity responding to economic forces. If you want to see a “pure bubble,” you have to look at something like the tulip mania in Holland or the Mississippi affair in France or the dot.com debacle in New York. These were “pure” bubbles because neither tulips, nor shares in the Mississippi company, nor dot.coms had any real economic value. Their prices were based 100% on speculation – not supply and demand. And since there was no “there there,” as Virginia Woolf might say, there was nothing left when the speculation disappeared. Their prices could go to zero, in other words.



Will the price of oil go to zero? No...not a chance. If the oil market is in a bubble, at least it is a bubble mitigated by three very important circumstances: 1) oil is perhaps the world’s most useful commodity, 2) more and more people want the stuff, 3) it is priced mostly in dollars whose value, in terms of everything else, is going down.

Normally, we can set aside the first two circumstances. Everyone knows oil is useful. Everyone knows the Chinese, the Indians and all the other foreigners are becoming addicted to it – just as Americans have been addicted for the last 50 years. These circumstances come as no surprise to anyone...and markets can sort them out. They were obvious in the oil market two years ago...they are obvious now.

Of course, even if they are obvious doesn’t mean investors have noticed. And in today’s oil market, it looks as if investors are suddenly waking up to something they should have seen a long time ago. But we suspect that the real surprise to most investors is the third circumstance. During the last 15 years – a period known as the Great Moderation – it was inflation that seemed to be taking a long nap. The band was playing loud music. Free drinks were passed around. Everyone was there – except inflation. Maybe it was out of town, some wondered. Or, maybe it was dead. Whatever happened to it, inflation was not around.

But, then the old party pooper showed up – and people began looking for their hats and saying goodbye to each other.

“US consumer prices up most in 26 years,” was yesterday’s most telling headline. Even the Wall Street Journal announced a price increase – to $2 an issue.

If you’re an oil sheik whose only asset is $100 billion worth of oil under the desert sand, you pay attention. The dollar has lost about 25% of its purchasing power – depending on how you measure it – in the last 5 years. If inflation rates just stay the same, the poor oil sheik stands to lose more than $25 billion by 2013. If he doesn’t think he’s getting a fair deal at today’s oil price, he’s likely to put a little crimp in the oil pipeline – reducing production until the price increases.

On the other hand, if the price of oil goes up enough, he’s likely to think that he should get it while the gettin’s good. Then, he would increase production – driving down the oil price.

Our guess is that the oil market has probably over-reacted to circumstances. When investors realized how much demand was increasing...they bid up prices. And when they realized how much inflation was increasing...they bid up prices further. And when speculators saw prices rising so much, they bid them up even further.

Now, oil is probably ready for a correction. Ten years ago, an ounce of gold would buy about 10 barrels of oil. Today, it buys only about 7. As is the case with oil, gold has responded to the increase in inflation rates. As to everything else, it is probably indifferent. So, if we were just adjusting the oil price to inflation, it should probably sell for about $95 a barrel.

As to the forces of supply and demand – Mr. Market would know better than we do. But Mr. Market, for all his sage experience, has a tendency to over-react. He probably over-reacted to growing, worldwide demand. Now, growth rates are declining throughout the world; he will probably over-react to that too.

So, where will the price of oil go? We wish we could tell you. It might very well sink below $100. But it will never sink as low as a busted dot.com or a crushed tulip bulb.

Even if the price of oil does drop, the U.S. has gotten the message: the time to find what will power the ‘car of the future’ is now.


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USA: PESIMISMO O REALISMO

Pesimista o realista esta nota de The Daily Reckoning? Uds. dirán.


The Limited Shelf Life of Dollar Fruit
London, England
Wednesday, July 2, 2008

Today, we’ll keep it short and sweet.

The Dow managed only a piddling 32-point rise yesterday; still no recovery from last week’s big losses.

Oil rose another $1.30 – to close over $141. Gold jumped $16; it will now cost you $944 to buy an ounce.

“Caught between a fragile economy and banking system and rising inflation,” writes James Saft, “Bernanke and other Fed policy makers seem to have arrived on a strategy of jawboning the dollar higher and inflation lower.

“But talk is only effective if your audience judges that you have the means and willingness to follow through.”

Based on the last few days’ trading results, Team Bernanke might as well have kept their mouths shut. Gold and oil are acting as though they expect higher rates of inflation, not lower rates. And the dollar loses value daily – though it still has not collapsed completely.

The last part of that phrase might be worth a thought or two. The dollar has fallen against other major currencies. Against the euro, for example, it is worth barely half what it was at its high, which was reached shortly after the euro was launched 10 years ago. Against gold, it is worth only about a third of what it was worth 10 years ago. And against oil...the loss has been even greater – it’s down about 80%.

Yet, the dollar still hasn’t “collapsed.”

To give you an idea of what a collapse looks like, we look out the window. The English housing market seemed to defy the California trendsetters. As U.S. houses fell in value, U.K. prices stubbornly held up.

“It’s a small island,” explained the analysts. “We have a lot of immigration from overseas,” they went on. “We like owning our own houses,” was the verdict. Said a woman in the office when we enquired: “Housing always goes up in Britain.”

It goes up until it goes down. Now, it is going down, say the London papers. And the house builders are collapsing. Comes news this morning that the U.K.’s largest house-builder, Taylor Wimpey, was cut in half yesterday after it failed to raise the money it was looking for. This morning, the shares are still falling.

Another English builder has already collapsed. Its shares are selling for less than one times trailing earnings.

You want to see collapse? Just look at what has happened to Wall Street this year. In the last 6 months, Citigroup has lost 43% of its value. Merrill Lynch is down 40%. And Lehman Bros. has fallen 68%. The Wall Street Journal says banking stocks are beginning to look like the dotcoms in 2000. The big question is whether these are just temporary corrections – caused by panic over subprime losses and a credit crunch. Or whether it is a case of another dotcom-style bubble popping; if so, the Wall Street firms have further to fall and will not recover for many, many years.

But, back to the dollar.

In the vaults of various central banks around the world lies $4.8 trillion worth of foreign currency reserves – the fruit of selling oil and widgets, mainly to U.S. consumers. And like oranges or papayas...these dollars have a limited shelf life.

We have not been invited to peek into these vaults, but we have no doubt what we would find: huge stacks of green money, with the faces of dead U.S. presidents on the notes. Americans have been the world’s biggest spenders of the last 20 years. Naturally, it is their money that makes up the bulk of those foreign currency reserves. It is their money, too, that now poses the biggest problem – not only for the people who shipped it overseas, but also for those who have it in their vaults.

By our very rough calculation the total of these reserves will hit $5 trillion before the end of this calendar year. Then, we will be talking about real money. But that is the trouble; we are not really talking about real money at all, are we?

We should have said: $5 trillion is a lot of money; too bad it isn’t real. These are dollars, remember, the faith-based currency. The same dollars that have lost approximately 97% of their value over the last hundred years...and, according to the statisticians on the government payroll...now loses value at about 4% per year.

If we take the government’s number goons at their word, and presume that the entire $5 trillion were invested in 91-day U.S. Treasury bills, currently yielding 1.63%, the holders of all this dough are losing about $120 billion per year. The fruit is starting to smell a little rich, in other words.

But it could be a lot worse. If the euro, gold, oil, or commodities rise sharply, foreign dollar holders will feel like chumps. A few may give up on the dollar and dump it on the world market in large quantities. This could cause a sudden drop in the value of the greenback...leading other holders to rush for the exits. The dollar’s collapse would bring down the whole post-’71 monetary system...and pitch the world into a much more serious problem.

Already, many dollar holders are getting itchy. Many are looking to lighten up their loads. Some are trading dollars for food...

(“Hoarding nations drive food costs ever higher,” says the New York Times .)

A few have helped recapitalize the banks. And Abu Dhabi just traded $900 million for the Empire State Building. Only about $4.7 trillion left to go.

By comparison, the entire world’s stock of gold – above ground – is only worth about $4.2 trillion.

*** What the candidates will never tell you...

As we keep saying, democracy is fine, as long as you don’t take it seriously. The candidates for the White House job are eager to show voters that they are patriotic, religious and right-thinking men. What they don’t want to do is trouble the voters with real problems.

What kind of problems?

In our view, there are three major challenges facing the United States.

1) The country is going broke.
2) The military is out of control.
3) Standards of living are falling.

What? You haven’t heard the Democrats mention these things? How about the Republicans? Nope...?

As to the first, the country is going into a recession with its finances in the worst shape ever. In fact, if you believe Eli Broad, founder of Kaufman & Broad, the big building firm, this is the worst period in U.S. economic life since World War II. In his entire life, he says he’s never seen anything like it. And he’s 75 years old.

But here, we’re not talking about the economy itself. We do that every day. Here we’re referring to public finances.

Typically, in a recession, the government tries to “lean into the wind” to counterbalance the effect of an economic slowdown. Business stops investing so much. Consumers stop spending so much. The government – according to classic Keynesian economics – tries to take up the slack by spending more.

But where does it get the money? The feds already have a deficit of about $500 billion. And a “financing gap” of $57 trillion. In the coming recession, predicts Bill Gross of the PIMCO fund, the federal deficit will go to $1 trillion. Obama will likely be the next president. He’ll be tagged with the first TRILLION DOLLAR DEFICIT. But what can he do?

Obama says he’s going to cut spending. But every economist in the nation is going to tell him not to do it – not during a recession. It will only make the recession worse, they’ll say. Instead, they’ll urge him to spend more money. They’ll remind him that the Japanese used fiscal stimulus on a massive scale – equal to 10% of GDP – and it still wasn’t enough to light a fire under their economy. A similar fiscal stimulant in the United States would mean a deficit of $1.7 trillion!

Our old friend John Mauldin is sure we will “muddle through” somehow. “We always do,” he says. And it’s true; we muddle through most things. But a man does not muddle through a hanging; nor does an economy muddle through when its government goes broke.

More on these major problems tomorrow... SEGUIR LEYENDO...

PETROLEO

Comparto con Uds. este artículo que leí sobre el petróleo del Newsletter Money & Markets.


Oil: It's not too late to profit!

by Larry Edelson

Being bullish (or bearish) on a market should not mean being blind.

For instance, I've been forecasting sharply higher oil prices ever since I turned bullish way back in 2001. And I am still bullish. But I also keep my eyes wide open for anything that might get in the way of oil's bull market.

I often step back in order to make sure I'm not overly influenced by greed and fear, which are the dominant emotions on Wall Street. This is critically important when a market gets as euphoric as oil is today.

As oil busted out to new record highs again, soaring more than $16 in just two days last week, I questioned every indicator at my disposal. I wanted to figure out where oil prices would go next, objectively and without emotion.

And here's my conclusion ...

Oil's Next Major Stop Will Be $150 a Barrel!

That's my near-term target, and has been for quite some time. Here are five reasons why ...

First, oil prices are rising even though the U.S. economy is tanking. That's a very bullish sign.

Second, U.S. refineries are operating at levels considerably less than their capacity.In fact, refineries in the U.S. are running at less than 90% of capacity. The culprits: Poor maintenance, reduced productivity of workers, no new technology, and more.

Third, nearly all of the same, powerful, supply-and-demand forces that have driven oil from $13 to $138 are still firmly in place today:

• Supply: The world is no closer to resolving the disruptions and bottlenecks in the oil market now at $134 oil, than it was at $30, $40 or $50 oil.

The same trouble spots are in the news. The same names keep cropping up on the trading floors: The Gulf of Mexico ... the North Sea ... Venezuela ... Nigeria ... Russia ... Iraq ... Iran.

• Demand: China is still modernizing at a rapid pace. India is still in a massive growth spurt. The rest of Asia's economies are still surging. Nothing has changed.

Never forget that between Russia, India and China; more than three billion new capitalists have appeared on the world markets.

What's that got to do with oil and gas prices? EVERYTHING! Consider this: Although the U.S. is the #1 consumer of oil, the U.S. represents only 4.8% of the world's population.

That means that more than 95% of the world's population can dramatically impact oil inventories!

Moreover, at least 50% of the world's population (in Asia) lives in countries where the economic growth is as much as 14 times greater than it is in the U.S.

So while demand may be or will soon slump in the U.S., demand overseas is more than adequate to offset the decline, and indeed, is probably growing at rates higher than is being reported.

Fourth, although oil has exploded higher, it's not yet "off the charts." Quite to the contrary, the charts show it still has plenty of upside potential left on this move — to my longer-term target of about $200 per barrel.

And even if I'm dead wrong, I would not bet on oil and gas prices coming down much at all. Even in the worst case scenario for oil bulls, the most I could see oil correcting is back to the $100 level. And I don't think that's going to happen. But if it does, welcome it as a buying opportunity!

Fifth, several sources I talk to in Asia tell me China is now buying oil like crazy!

The reasons ...

• The Olympics are just around the corner and Beijing does not want an estimated 10 million tourists and athletes from all over the world to put up with brownouts.

• The recent earthquake. In no way does Beijing want its citizens to suffer from high oil and gas prices or brownouts this summer, especially in the aftermath of the earthquake that sadly took nearly 70,000 lives, and displaced five million people.
  

• The rural countryside is already angry with Beijing on the lax building code enforcement and building cronyism. The last thing Beijing wants is an uprising on energy prices.

• China's strategic oil reserves are now being filled, with an aim toward storing at least 30 days worth of oil imports, or roughly 292 million barrels of oil.

The key question: How does China get the oil to fill up these huge storage tanks?

By going into the open market and bidding for oil aggressively. I suspect that's the hidden force that's been helping to propel oil sharply higher ... and will continue to do so.

End Result: Gasoline Prices Will Continue To Explode!

A gallon of self-serve unleaded gas just hit a national average of $4 a gallon this past Sunday. While oil is grabbing all the headlines, gas prices continue climbing higher, with much more upside still to come.

With crude oil soaring ... the summer driving season about to go into full swing ... and hurricane season having officially begun June 1st in the U.S. — don't be shocked to see gas prices at the pump soon surge to $5 per gallon, and perhaps even higher.

To most of you, that may sound high. But consider yourself lucky because gas prices here are much cheaper than overseas. In London, you'll pay about $8.56 a gallon; in Amsterdam and France almost $10. That's mostly because of high taxes. But it shows you what is possible, and ultimately, what people will tolerate.

Plus, never forget the more subtle, but equally powerful force behind the bull market in oil and gas. There's no avoiding it ...

The U.S. Dollar Is in Trouble Again!

Why is the U.S. dollar starting to fall again, sliding 1.4% last week, even after rare supportive statements from Fed Chairman Ben Bernanke?

Simple: Investors and traders see the slumping U.S. economy ... the negative real interest rates in this country ... and they don't buy Bernanke's BS one bit!

Don't get me wrong. There will be occasional rallies in the value of the U.S. dollar. Some will even seem strong, last longer than expected, and give the appearance that the bear market in the dollar is over.

But don't be fooled by those bounces, or any comments from anyone in Washington.

Fact: The only way this country's economy can survive the mountains of debt and credit going bad is through inflation, and lots of it, via a systematic DEVALUATION OF THE DOLLAR.

No one in Washington will admit this. Most citizens don't want to hear it, either. But that is what's happening. Your money is being devalued by Washington with the hope that it will create enough inflation in asset prices to offset the debt loads that exist on balance sheets from Main Street to Pennsylvania Ave. to Wall Street.

My view: That means higher prices to come for oil ... gas ... gold ... food ... you name it, nearly every natural resource and hard asset under the sun.

My Suggestions for Late-Comers To the Energy Bull Market

If you're not already on board with investments that are soaring in this market right now, it's not too late. So consider following these four steps:

1.) Decide how much you are comfortable allocating to the energy sector as an investment.

2.) Then split that figure in half.

3.) Put one half in natural resource investments such as the ones I've been mentioning here in Money and Markets. Those include Fidelity Select Energy Fund (FSENX), United States Oil Fund ETF (USO), Profunds UltraSector Oil & Gas (ENPIX), and the U.S. Global Resources Fund (PSPFX).

4.) Keep the other half of your allocation in cash, saving it as ammo for the next correction — which may be a very short pullback or even a bit deeper. Either way, it should be a great opportunity to peel off some of this cash and use it to add to your long-term natural resource positions.

___________________________________________________________________

This investment news is brought to you by Money and Markets. Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://www.moneyandmarkets.com.

SEGUIR LEYENDO...

MARC FABER EN BLOOMBERG

Adjunto una entrevista que le realizó Bloomberg a Marc Faber.

Faber Says Oil, Stocks, Real Estate Are Overvalued (Transcript)

June 10 (Bloomberg) -- Marc Faber, managing director of Marc Faber Ltd., talked with Bloomberg's Carol Massar and Erik Schatzker yesterday about the outlook for stocks, oil and commodity prices, and his investment strategy. (Source: Bloomberg)

(This is not a legal transcript. Bloomberg LP cannot guarantee its accuracy.)

CAROL MASSAR, BLOOMBERG NEWS: For a closer look at the market, we have an exclusive interview with Marc Faber, managing director and founder of Marc Faber Ltd., and publisher of the Gloom Boom and Doom Report. He comes to us on the phone from Zurich this morning. Marc, good morning.

MARC FABER, MANAGING DIRECTOR, MARC FABER LTD. Yes, hi, hello.

MASSAR: Hi, Friday's sell-off, you got oil, that unexpected jump in the unemployment rate, the most in more than two decades, big sell-off in stocks. Do you think it was overdone or did investors get it just right in your view?

FABER: Well, I don't think it was overdone at all. I think it's a delayed reaction, as to the view that obviously as the economy is already in recession, corporate profits will disappoint, in particular the consensus earnings for 2009 are still far too high and assets adjusted downwards. Obviously, the valuations become less compelling.

MASSAR: Alright, so, what's your outlook from here, that I mean this morning, of course, Asia sold off, no surprise, but Europe's holding up fairly well.

FABER: Well, I would say what we are in is kind of a water torture bear market. A lot of stocks peaked out already in 2005 like the homebuilders; then in 2006, the subprime lenders; then in 2007, all financial stocks. The stocks that have performed well over the last 18 months are material stocks and energy stocks and cyclicals.

And I think, the cyclicals and the energy and the material stocks, like steel and iron ore companies, they will now all become under pressure. Probably, the big downside in banks is kind of running out.

In other words, we have had a huge decline in financial stocks. I think they will go lower and I think they are unattractive. But I think other sectors of the market that have held up well are now vulnerable.

MASSAR: Alright. So, where would you be buying or suggesting investors buy? As you are saying, don't maybe don't go into energy, don't go into materials, and so on.

FABER: I think the question should be what sectors should be sold. I don't believe that investors should be buying all the time and that each time, the market drops a little bit, that gives a long-term buying opportunity. I don't see any compelling value in equities. I also don't see any compelling value in say, real estate or in the commodity markets, I think asset markets are still inflated.

And we are in an environment contrary to the last 25 years during which leverage increased. We are in a period of deleveraging, just consider that the brokerage industry on $1 of capital has liabilities of $20. In other words, the leverage is 20 to 1, and I think that has to come down and it will affect corporate profits across the board.

MASSAR: All right. So, are you saying that investors should park most of their money in cash at this point or what?

FABER: Well, cash is not desirable in the sense that it loses its purchasing power because we have a money printer at the Fed, Mr. Bernanke. And the problem of Mr. Bernanke's policy is that it hurts the average of the median household in America since he cut the Fed fund rate from 5.25 percent on September 18 to 2 percent, the price of oil has gone from $75 to $140.

I am not saying that he is only responsible but he is partially responsible for the soaring food prices and for soaring energy prices, because his monetary policies inevitably is inflationary and as a result, leads to a lower dollar.

MASSAR: In terms of oil, Marc, the Oil Minister is saying that the surge in prices was unjustified. Do you agree?

FABER: No, not entirely. First of all, obviously, the increased demands from countries like China and India have shifted the demand curve for oil to the right and resulted in a higher equilibrium price. Now, is the price of $140 justified or not? I am not sure.

I think it should correct, partly because international liquidity is now still growing but at a decelerating rate, and that usually leads to poor performance of asset markets including commodities. And so, my view would be that commodities will rather ease, as some have already done. Nickel is down 50 percent, wheat has been down 50 percent as well as lead, and lead and zinc.

So, we are going to have corrections. But in general, I think if you have a money printer at the Fed, it's very clear that you can increase the quantity of money, but you cannot increase the quantity of gold and commodities at the same rate. So, money loses its purchasing power against commodities where the supply cannot be increased indefinitely.

ERIK SCHATZKER: Marc, I just want to confirm. Are you suggesting that investors should get out of oil and should get out of all the other commodities such as agricultural commodities, whether it be rice, wheat, or corn et cetera?

FABER: I think that investors have to be aware that the price of oil has gone from $12 in '98 to now roughly $140. And so, the increase is a 12 times. I don't think that oil will go up another 12 times. Can it go up another $20? Of course, it can. But the big upside is now gone.

And so, I would be a little bit careful about blindly buying commodities, I think they are on the high side, the way the real estate was on the high side, and the way the stocks were on the high side. I am not saying this is?I would certainly be careful about buying them here.

SCHATZKER: So, you don't buy commodities, but at the same time, you don't hold cash. What investment do you go into right now?

FABER: Well, I mean I think in this environment, I was referring to a relative tightening of global liquidity because of the declining U.S. trade and current accounts that at the present time. Because of that, the dollar has essentially some upside potential here, it has, but of course, if Mr. Bernanke continues to play in commodity and push down the Fed fund rate to zero, then the dollar won't go anywhere. But as of today, I think the dollar is relatively undervalued with the euro. I feel like gold could (inaudible) gone up that much.

MASSAR: Alright, so, if you had to pick one investment if you will, so kind of bet the bank, Marc, I don't know, for the next 6 to 12 months, what it would be, the dollar, the gold, what is it?

FABER: Well, I would take a holiday and forget about the speeches of the Fed governors because their economic knowledge is, in my opinion, extremely limited and each time they speak, they actually confuse the issue. And so, there is very little transparency at the present time, although in the financial sector. I have no idea whether Citigroup is a good sign here.

MASSAR: So, what let me break it, I mean Ben Bernanke inherited certain things when he came to the Fed. He did ..

FABER: No, no, no. He was a Fed Governor, he was the Fed governor underneath the Greenspan that has a lot of influence and he actually influenced Mr. Greenspan to cut the Fed fund rates after January 3, 2001 down to 1 percent and keep it at 1 percent until June 2004.

MASSAR: Alright, but who is responsible for the financial fall out of the subprime mess? I mean that certainly wasn't his fault and yet?

FABER: They are collectively responsible. They are collectively, the Fed governors, all of them and especially, Mr. Greenspan and Mr. Bernanke. And Mr. Bernanke has written about essentially printing money and dropping money from helicopters and supporting asset markets with monetary tools. You can't deny that.

MASSAR: Okay. Hey, Marc, we've got to run. Always good to get some time with you. I know you're headed for a plane. Have a safe trip and we will talk to you soon. Thank you.

SCHATZKER: Yes, thank you very much.

FABER: Thank you.

MASSAR: Marc Faber, managing director and founder of Marc Faber Ltd., also, publisher of the Gloom Boom & Doom Report, joining us on the phone.

THIS TRANSCRIPT MAY NOT BE 100% ACCURATE AND MAY CONTAIN MISSPELLINGS AND OTHER INACCURACIES. THIS TRANSCRIPT IS PROVIDED ``AS IS,'' WITHOUT EXPRESS OR IMPLIED WARRANTIES OF ANY KIND. BLOOMBERG RETAINS ALL RIGHTS TO THIS TRANSCRIPT AND PROVIDES IT SOLELY FOR YOUR PERSONAL, NON-COMMERCIAL USE. BLOOMBERG, ITS SUPPLIERS AND THIRD-PARTY AGENTS SHALL HAVE NO LIABILITY FOR ERRORS IN THIS TRANSCRIPT OR FOR LOST PROFITS, LOSSES OR DIRECT, INDIRECT, INCIDENTAL, CONSEQUENTIAL, SPECIAL OR PUNITIVE DAMAGES IN CONNECTION WITH THE FURNISHING, PERFORMANCE, OR USE OF SUCH TRANSCRIPT. NEITHER THE INFORMATION NOR ANY OPINION EXPRESSED IN THIS TRANSCRIPT CONSTITUTES A SOLICITATION OF THE PURCHASE OR SALE OF SECURITIES OR COMMODITIES. ANY OPINION EXPRESSED IN THE TRANSCRIPT DOES NOT NECESSARILY REFLECT THE VIEWS OF BLOOMBERG LP.

Last Updated: June 10, 2008 11:47 EDT SEGUIR LEYENDO...

SHORT INTEREST; SP 500 FINANCIAL & OTHERS

Algunas notas para leer de The Bespoke Investment Group.


NYSE Short Interest Back Near Record Highs

Last night after the close, short interest figures for the New York Stock Exchange (NYSE) were released and showed that short sales as of May 15th rose 2.34% since the end of April. Even though the S&P 500 closed at its highest level since January, short bets remain near all-time highs. This is in contrast to October when short interest was declining leading up to the market's peak, and indicates that many investors are skeptical of the current rally.

The table below lists the twenty non-Nasdaq stocks in the S&P 500 (Nasdaq short interest figures will be released on May 27th.) with the highest short interest as a percentage of float. Like last month, Consumer Discretionary and Financial stocks are well represented on the list of stocks most heavily shorted. The list of stocks on the list of least shorted come from various sectors. In fact, eight of the ten sectors are represented on this list (no Materials or Consumer Discretionary).

Financials Back to Oversold

After briefly moving into overbought territory earlier in the month, the S&P 500 Financial sector has moved to the bottom of its trading range once again. The short-term uptrend that formed off the March lows has also been broken, so the sector is now trending sideways until it takes out its recent highs or lows. Breadth has also gotten weak again. On May 1st, 85% of Financial stocks in the S&P 500 were trading above their 50-day moving averages. Currently, just a third of the stocks are above their 50-days. Hopefully the sector begins to stabilize at current levels and doesn't get back to the extreme oversold levels constantly seen over the past 9 months.

S&P 1500 Earnings Revisions

With the S&P 1500 poised to open lower this morning, the index will be trading down about 3% from its recent highs. When the week started, the market was trading at its highest levels since January, and things seemed good. Four days later, the mood has shifted 180 degrees. Suddenly, oil is going to $200 (Hey, Goldman Sachs said so), Lehman and the rest of the brokers are in trouble again (at least according to an investor who is short the stock), and Ford no longer expects to turn a profit in '09 (With the stock at $7 and change, did anyone really think Ford was close to turning a profit?).

While the news has been bleak, one positive trend that remains in place is analyst forecasts. We track the net number of analyst EPS revisions (positive revisions minus negative revisions) for stocks in the S&P 1500 on a daily basis. While revisions have been negative all year, since bottoming in January they have been consistently improving and currently stand at their highest levels of the year. Even during this week's sell-off, analyst revisions haven't budged. Admittedly, analysts have built a reputation of notoriously being late to the game in terms of lowering forecasts, but for now at least the individuals who supposedly follow these companies the closest are sticking by their forecasts.

Credit Crisis Indicators

In late March, we highlighted charts of a few credit crisis indicators. Below we have updated those charts, and by the looks of them, things remain much better than they did a couple of months ago.

The first chart measures default risk by looking at a credit default swap index of investment grade debt. While the index has ticked slightly higher this week as equity markets have sold off, the rise has been puny compared to the spikes seen earlier this year. The second chart looks at the national average of 30-year fixed mortgage rates. While it would be nice if rates were lower, they have remained stable and are not spiking like they were in January and February when banks demanded huge spreads to take on any risk whatsoever. The last chart tracks the municipal bond market through the MUB ETF of S&P's National Municipal Bond Index. Another problem during the credit crisis was the failure of Auction Rate Securities, which tanked muni bonds and sent their yields sharply higher. As shown by the price chart, muni bonds have come back nicely as investors became attracted to those high yields.

SEGUIR LEYENDO...

PETROLEO: U$135 Y ¿SUBIENDO?

El petróleo sigue siendo noticia. La fuerte suba de los últimos días está replanteando las proyecciones de su precio para el resto del año. Otros esperan una corrección.
Mientras tanto mucho se sigue analizando como seguira el curso de este commodity.

A continuación transcribo el final de un artículo que salió en The Daily Reckoning (Last Dance for Oil by Chris Mayer), para quienes piensen que la suba esta cerca de su final, pero quieren obtener redito de la misma.

So the key takeaways here are these: The price of oil has room to run yet, in part because of the growth in money supply and in part because of pressing international demand. Secondly, even if we already saw oil peak, history says that prices won't retreat by much over the next several years. And finally, the capital spending boom by the big oil companies is just getting started, which is great news for investors in oil field services companies.

The big idea here is well servicing…

It's really a great and kind of sneaky way to play an undeniable trend in oil and gas: the depletion of older wells past their peak production. Well servicing helps you get a little extra out of every well. A well service rig is the workhorse that does the well servicing.

Here's the life cycle of a typical oil well…

Every time somebody drills a well, it creates an annuity for the well service industry. That's because the maintenance work follows the life span of a typical well. If you don't service your well, your production rate declines much more rapidly. So if you want to stay in business, you keep servicing your existing wells. You may not drill new ones, but you keep what you have.

The second key to remember is this: The more mature the oil or gas field, the more well servicing work needed. Well servicing doesn't typically have the same ups and downs as exploration. Well service fleets provide much more durable and predictable cash flows. I expect all that money the big majors spend on exploration will lead to a lot of new drills and a long tail of new business for well servicing companies.

SEGUIR LEYENDO...

TERMINO LA CRISIS FINANCIERA AMERICANA III

Última entrega from Outside the Box

Food Price Inflation, Monetary Policy & Financial Markets

By David Kotok

Suddenly food price inflation has become the premier hot topic. The media is now attuned to food issues including emerging market country riots.

In the US, the politicians are gearing up to castigate the speculators and blame everyone but themselves. They conveniently forget that they are the ones who passed the ethanol subsidy and they are the ones who appropriate taxpayer money to pay farmers not to grow crops. And so the political circus begins.

Notice how the three presidential candidates are silent on how the US ethanol subsidy has caused a food price explosion in grains. They avoid the issue of US policy starving many in the world. 1 billion very poor people sustain themselves on $1 or less a day. We have doubled the cost of their food.

Ethanol directly impacted corn which, in turn, also drove up maize. In addition, the substitution of wheat and rice are not easily occurring because of crop issues and concomitant price inflation in those items.

Well Cumberland is in the financial market and money management business. We eat food. We don't grow it and we don't process it. So let's try to inject some serious monetary policy issues into this media hysteria and political cacophony.

In the mature countries, food is a minor portion of the price index. And some of the food costs originate from eating out and some come from food processing. Processed food cost is heavily dependent on the inputs which are non-food items. Labor, machinery, transportation and distribution all come in to play. So in the mature countries we see that the food price inflation may be topical and attention getting but it is not a crisis.

Also, the major mature countries are mostly in food surplus. In the US we are very efficient in running our agriculture enterprise. We actually pay farmers not to till their soil. This is dumb. It occurs only because of our sorrowful Congress who has learned how to bribe the farm belt for votes at the expense of the rest of us.

In the US food has a 14% weight in the consumer price index. Compare that with Canada at 17%, the Euro zone at 16%, England at 11% and Japan at 25%. Only Japan lacks the fullness of food self sufficiency. Sure, food price inflation is important. But it is not the most important issue in these major economies.

The reverse is true for the emerging markets. In some of them the food price component is as much as half the price index. In a few it is above half. Since many of these economies are open to some degree, the importation of food price inflation is hitting them particularly hard. Some are responding with tariff adjustments. Others have actually embargoed food exports. Of course they ultimately make matters worse when they restrict world trade and in the end all suffer because of this protectionism.

What about monetary policy?

Here is where it gets difficult. We will admittedly simplify now and we acknowledge to our critics that we know there are second order effects and are ignoring them to make our point. In our view, monetary policy cannot easily and directly address food price inflation when the source of the inflation is in the raw food commodity. This is also true for energy costs when the source is in the oil or natural gas. The whole concept of "core" inflation vs. total inflation originates in this notion that monetary policy should be directed at the price level changes it can affect.

Let's get to the inflation problem in an emerging economy. Our example is imaginary for simplicity's sake. But it reflects characteristics that are very similar to many countries and regions in the emerging markets of the world.

We developed this simple and theoretical case study and then sent it to a number of economist friends. We suggested that following facts: the economy in question is a small and open emerging market. The food price component is 50% of the price index and is inflating at 15%. The non-food component is inflating at 5%. Thus the overall index is inflating at 10%. In this small and open economy, the main items in the food component are based on maize; therefore, the US ethanol policy which has raised the corn priced has also pressured an increase in the maize price.

Suppose you are the governor of the central bank. You have to set your policy interest rate. Do you base that decision on overall inflation rate of 10% or on the core inflation rate of 5%? Or are you going to confront the food inflation rate of 15%. Let's further assume that your economy is growing at a trend rate of 5% and all other aspects are in trend or neutral position. You have no negative output gap and no above trend pressures. Your only direct problem is what to do about inflation.

My economist friends who answered offered a suggested policy rate as low as 6% and as high as 13.5%. The answers were about equally divided and the respondents sample size is over 20. The distribution of answers was distinctly bi-modal. About half the answers were bunched in the lower range of 6%-8%; the other half were in the double digit area between 11% and 13.5%.

The divided views centered on whether or not to target food, ignore food, or blend policy. No one wanted to set the interest rate above the 15% food price inflation. Nearly all acknowledged that this central bank would have difficulty in communicating whatever it decided. Most respondents worried about changes in inflation expectations because of the complexity of this issue. Most believed the citizens in the country would not understand the monetary policy dynamics that led to the decision.

Some worried that setting the policy interest rate in double digits would impose a very high financing cost on the non-food portion of the economy and cause it to go into recession. They argued that the real (inflation-adjusted) rate of interest for that non-food half of the economy would be 7% or so. That would set the threshold of finance too high.

Others argued that the monetary policy expectation effect would cause the rate of inflation to accelerate if the policy rate was not set in double digits. They were willing to take the recession in the non-food area in order to keep inflation expectations under control. No one mentioned substitution effects. Perhaps that was overlooked. Or it may be because rice and wheat are not easy cultural substitutes and those grains are each experiencing their own price pressures.

In sum, almost two dozen folks with some monetary economics expertise were equally divided on this technical question. It is a question that impacts billions of citizens in this world and many countries, their governments, their currencies and, possibly, their political stability.

We do not know the correct answer. Our view would support the lower interest rate and we would focus on the non-food portion of the economy but we can argue the other side with equal vigor. For us a lot would depend on how the food price inflation spreads into wages and if it could trigger a broader wage/price spiral.

In many respects this question is now being asked of the major and mature economy central banks as well. It appears that the European Central Bank (ECB) favors the higher mode while the US Federal Reserve is positioned in the lower one. For the emerging markets it appears that there is quite a mix of policy and that it is made more complicated by the management of each currency's foreign exchange rate. In sum, our simple case study is actually quite complex when applied in the real world.

David Kotok, the chief investment officer of Cumberland Asset Managers SEGUIR LEYENDO...

TERMINO LA CRISIS FINANCIERA AMERICANA II

Segunda entrega, from Outside the Box

Why This Crisis is Still Far From Finished

By Mohamed El-Erian

During the past few weeks we have seen a growing number of market participants predict an end to the dislocations that erupted last summer and claimed victims throughout the financial system and beyond. While their predictions are understandable, they are premature. The dynamics driving the disruptions are morphing and may again move ahead of both the market and policy responses.

The optimistic view is based on two distinct elements. First, that the de­leveraging process is reaching its natural end as valuations stabilize and institutions come clean about their losses and raise capital; second, that a series of previously unthinkable policy responses have been effective in restoring liquidity to the financial system.

Both views have merit. Financial institutions, particularly in the US, have recognized the scale of the problem and are taking remedial steps. Just witness the recent round of capital raising by Citigroup, Merrill Lynch, JPMorgan and Wachovia. At the same time central banks in Europe and the US have opened up their financing windows, expanding the size of the financing, the range of institutions that can access it and the list of eligible collateral.

Yet, consistent with what we have seen since last summer, the dislocations are entering a new phase. As such, bold reactions on the part of policymakers may, once again, prove to be too little and too late.

Persistent financial dislocations have now caused the real economy to become, in itself, a source of potential disruption. During the next few months there will be a reversal in the direction of causality: the unusual adverse contamination by the financial sector of the real economy is now morphing into the more common phenomenon of recessionary forces threatening to undermine the financial system.

Economic data in the US have taken a notable turn for the worse. Most im­portantly, the already weakening employment outlook is being further undermined by a widely diffused build-up in inventory and falling profitability. History suggests that the latter two factors lead to significant employment losses.

Pity the US consumers. Their ability to sustain spending is already challenged by the declining availability of credit, a negative wealth effect triggered by declining house values, and a lower standard of living as the result of higher energy and food prices and a depreciating dollar. Job losses will accentuate the pressures on consumers, leading to income declines and a further loss of confidence.

While the financial system has taken steps to enhance balance sheets, they speak essentially to addressing the consequences of excessive leveraging and imprudent financial alchemy. As such, the nasty turn in the real economy may fuel another wave of disruptions that, this time around, would also have an impact on mid-size and smaller banks.

It is thus too early to declare the end of the turmoil that started last summer. Instead, during the next few months we may witness a new phase of dislocations, led this time by the real economy. The blame game will intensify; political pressure will continue to mount; momentum will build for greater and broader regulation of financial activities within the banking system and beyond.

The focus will also be on the reaction of policymakers. Here the outlook is mixed. The good news is that the crisis is now moving to an area where traditional policy tools are more effective. This is in sharp contrast to the situation of the past few months, where central banks were forced to use instruments that were too blunt for the purpose at hand.

But there is also bad news. The sharp slowdown in the US real economy will occur in the context of continued global inflationary pressures. As such, the Federal Reserve's dual objectives - maintaining price stability and solid economic growth - will become increasingly inconsistent and difficult to reconcile. Indeed, if the Fed is again forced to carry the bulk of the burden of the US policy response, it will find itself in the unpleasant and undesirable situation of potentially undermining its inflation-fighting credibility in order to prevent an already bad situation from becoming even worse.

It is still too early for investors and policymakers to unfasten their seatbelts. Instead, they should prepare for renewed volatility.

Mohamed El-Erian, the co-chief executive and co-chief investment officer of Pimco SEGUIR LEYENDO...

TERMINO LA CRISIS FINANCIERA AMERICANA I

Al parecer, y por el comportamiento que está teniendo el sector financiero americano, uno podría llegar a la conclusión que la crisis de dicho sector a llegado a su fin. Como no lo comparto, incluyo una tanda de tres notas relacionadas con el tema.


From The Daily Reckoning

FRIED IN THE FINANCIAL SUN
by The Mogambo Guru

There is a new report from the Comptroller of the Currency titled “OCC’s Quarterly Report on Bank Trading and Derivative Activities, Fourth Quarter 2007”, which shows that total bank holdings of derivatives is estimated to be “only” $164.2 trillion, whereas I seem to remember that the global glut of derivatives is upward of $700 trillion, which are both numbers so big that I cannot even begin to comprehend the enormity of them.

The report shows that the notional value of derivatives held by U.S. commercial banks has suddenly plunged by a whopping $8 trillion, which is (unbelievably) still only 5% of the total, and which merely takes the total down to the aforementioned-yet-still-staggering $164.2 trillion.

When I realized that $8 trillion is more than half of America’s GDP, that is when I realized that “Houston, we seem to have a problem, as we are on fire, and we are tumbling out of control into the sun where we will soon be fried to a cinder.”

And let’s not forget that even this baleful news is the best that the banks can come up with, as the whole report is based on banks volunteering to tell stories about themselves, which is unbelievably the same as with, according to an article in the Financial Times , Libor rates, which are the agreed-upon interest rates that London bankers agree to charge on short term loans to each other.

The upshot of asking lying, greedy bankers (the villains of history) to tell the truth and let everyone know what disreputable, untrustworthy scum they are has now proved to be an unreliable system of self-regulation, and thus the Libor rate may be understated because the rate is based on self-reports of people who are bankers, which means that they are lying scumbags who falsely report that their short-term borrowing costs are lower than they are, because they know it looks bad that they are getting charged a high interest rate, which proves that the people who are loaning the money to them know what kind of lying, scumbag bankers (as redundant as that is) they are.

But it is these self-reports, like the American O.C.C reports, that are the backbone of the Libor rate, which affects lots and lots and lots of other rates.

By how much is the Libor lending rate understated? Maybe as much as 0.3%, which doesn’t sound like that much, but when you are talking about trillions and trillions of pounds and euros of debt, it adds up to a lot of money! Now you see why they are so interested in lying!

And the last thing we need is higher interest rates, as Bloomberg.com reports that “U.S. corporate bankruptcies are accelerating as the economic slowdown compounds the end of easy credit”, which is being made manifest by noting that a Merrill Lynch index showed that “The amount of distressed corporate bonds jumped to $206 billion April 11 from $4.4 billion in March 2007.” Wow! What’s that, an increase of 5,000% or something?

And another scary Bloomberg item was that loans are becoming harder to get, regardless of the interest rates, and “Banks worldwide are demanding 60% more in collateral from investors such as hedge funds to cut the risk of derivative trades going bad, the International Swaps and Derivatives Association said.”

And another horror is that the stock market went up, which is Pretty Freaking Strange (PFS) since Barron’s reports that the earnings of the Dow Jones Industrials went down, dropping to $225.53 from $234.49. This has produced the unbelievable price-to-earnings ratio of 57! Earnings are going down, but the stocks are going up! To a P/E of 57! Un-freaking-believable!

And not only that, but DJ Transportation index saw its earning drop, too, to $218.60 from $230.91, taking this index’s P/E to 23!

And while the venerable S&P500 has not yet shown any more deterioration in its earnings, the fact that the market went up made the P/E of this index go to a lofty 21! All of this in the face of deteriorating conditions and economic collapse! This is beyond incredible!

How can you NOT run to gold in such crazy times? Ponder this question well, as a lot depends on your answering it correctly, much like when the minister asked you, “Do you take this woman to be your lawfully wedded wife?”, and you know how well that turned out. So, like I said, ponder it well!

Until next week,

The Mogambo Guru
for The Daily Reckoning

The Mogambo Sez: The nice thing about owning exclusively gold, silver and oil is that you make a lot of money when inflation is roaring like this, and you are sure to make a lot more in the future, too, which is even nicer!

There is a valuable lesson in there for you if you will look for it and then act on it. If not, then you are not as smart as you look! Hahaha!

Editor’s Note: Richard Daughty is general partner and COO for Smith Consultant Group, serving the financial and medical communities, and the editor of The Mogambo Guru economic newsletter - an avocational exercise to heap disrespect on those who desperately deserve it.

The Mogambo Guru is quoted frequently in Barron’s , The Daily Reckoning and other fine publications.

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ALGUNOS ANALISTAS AMERICANOS RAZONAN COMO LOS ARGENTINOS

Más allá del interesante punto de vista sobre hacia donde puede ir el precio del oro, me intereso esta entrevista en The Daily Reckoning a Doug Casey, ya que presenta un paralelismo de lo que hemos sufrido en la Argentina con la constante pérdida de valor de nuestra moneda. Es más, nos menciona como fuente de inspiración.

The Daily Reckoning PRESENTS: As part of Casey Research’s survey of expectations for gold in 2008, one of their BIG GOLD editors interviewed famous contrarian investor and Casey Research Chairman Doug Casey. Here’s his take on what’s to come...

GOLD IS GOING TO THE MOON
An interview with the editors of BIG GOLD, Casey Research

BIG GOLD: Gold has passed its 1980 nominal high. Why do you think it’s breaking out now?

Doug Casey: The fact that gold has moved above its 1980 high is meaningful only in an academic way; today’s dollar is worth only a fraction of a 1980 dollar. From here on, it’s best to avoid thinking about anything just in terms of dollars. What’s developing now is likely to be the biggest monetary crisis of the past 100 years, potentially the biggest since the U.S. Civil War. This isn’t a prediction, just an appraisal of the tumultuous possibilities that are opening up. Americans are going to have to learn to think more like Argentines: if an Argentine tried to keep track of value in the local peso, he’d be bankrupt in 5 years.

BG: There are those who agree with you about a possible crisis but believe we’ll see deflation instead of inflation, or at least deflation before inflation.

DC: What we’re facing is a monumental monetary crisis that can take one of two forms. It can be deflationary, where billions and billions of dollars are wiped out through bankruptcies and defaults, and the remaining dollars become worth more as a result. Or it can be inflationary, where the world’s central banks keep dollar assets from being wiped out by supporting the issuance of debt – which is what they’re currently doing, by propping up failing banks and homeowners who can’t pay their mortgages. Those are your two alternatives. You can have either one – it’s really a flip of the coin as to which you get.

It’s also possible you can have both at the same time. You could have deflation in some areas of the economy, such as real estate, which is happening now, and inflation in other areas of the economy, where prices are going up, as with food and oil.

I’m of the opinion that government is so big and so powerful now, and the average person – idiotically – relies on it so heavily, that much higher inflation is inevitable. They’re certainly going to do their very best to keep a deflationary collapse from happening, because they all remember what it was like in the U.S. in the 1930s. Yet not too many people think about Germany’s inflationary collapse in the 1920s. It was much more unpleasant.

Inflation is the enemy of the person who works, saves and invests. But it’s the friend of the speculator.

BG: Why do you think gold stocks have lagged while gold has taken off?

DC: Gold stocks are a play on gold. But they’re also stocks. The best environment for them is when both gold and the general market are moving up, and lately the stock market has been problematical. People are going to panic into gold, because it’s cash – money in the most basic form. Gold stocks are not money; they’re speculative vehicles. And despite the strength in gold, the costs and risks of finding and building mines have gone up just as fast in the last couple of years. There’s no necessity for them to move in lockstep with gold itself. That said, I think gold stocks are really going to howl as gold goes into the Mania stage.

BG: The water in the pot is definitely getting hotter. Where do you think gold is going this year?

DC: Gold has been in a bull market since 2001. It’s gone up, on average, about 25% per year compounded, and there’s absolutely no reason the bull market should stop now. On the contrary, there’s every reason to believe that the gold bull market, having gone through its Stealth stage and still being in its Wall of Worry stage, is going to hit the Mania stage. To sell now would be to leave the big money on the table.

My best advice is, be right and sit tight. And that means staying long until you see a golden bull tearing apart the New York Stock Exchange on the front cover of Newsweek magazine, at which point it will be time to sell.

BG: What price do you think gold will hit in 2008?

DC: Strictly gazing through a crystal ball, I think it’s going over $1,200, no problem.

BG: What about the long-term price for gold?

DC: Just to reach its previous high in purchasing power, gold will have to go over $2,500 – probably more like $3,000 after you discount the phoniness in the government’s CPI numbers. But because this crisis is much more serious than the one in the late 1970s and early ‘80s and much more far-ranging, $3,000 is actually a fairly conservative number. I’ll say it again: gold is not just going through the roof, it’s going to the moon.

BG: What advice would you give to readers of Big Gold about how to invest in gold and gold stocks in the coming environment?

DC: The first thing is, you’ve got to have a lot of physical gold in the form of gold coins. Second, make sure a large chunk of those coins is outside the political jurisdiction where you live. If you live in the U.S., they’ve got to be outside the U.S. If you live in Canada, they’ve got to be outside Canada, and so forth. Third, gold stocks are definitely going to howl, so you definitely should have a good position in them.

As important as gold and gold stocks are, though, I suspect we’re going to see foreign exchange controls of some type or description in the years to come. That means if you don’t have assets outside your native country, you’re going to be caught like a lobster in a trap. I think it’s very important to diversify internationally. Buying foreign real estate is one prudent way to do so because, even though there’s been a worldwide property mania, there are still some places where property is very cheap, leaving plenty of upside. In addition, if you pick a locale where you’d like to live, you’ll have a comfortable place to wait things out – which is a serious plus, because I think things in the U.S. are going to get really ugly in the years to come. And most important, the government can’t make you repatriate foreign real estate.

BG: What if I don’t have the ability to buy real estate outside the country I live? I know you can have a foreign bank account and a safe deposit box, but I have to report those, so how does that help me?

DC: You have to report a bank account, but you don’t have to report a safe deposit box.

BG: What if I have over $10,000 of coins in that box?

DC: It doesn’t matter. It’s just like having a million dollars of foreign real estate – not reportable. Of course they can change these arbitrary laws – probably to make them more restrictive and invasive – at any time.

BG: Thanks, Doug, for the practical advice. Anything else you’d like to say to Big Gold readers?

DC: Hold on to your hat; you’re in for the ride of your life.

BIG GOLD is a monthly advisory from Casey Research, one of the nation’s oldest and most respected organizations providing unbiased research on natural resource investments.

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