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1634/1634, 16.06.11, 10:52:14 | The Big Picture
Einfluss von Kapital-, Kreditmärkten, Währungen und der globalen Wirtschaft auf die Rohstoffmärkte
gemäß § 34 WpHG dürfen die Autoren zu jederzeit Short- oder Long-Positionen in der/den behandelte(n) Aktie(n) halten. Bitte beachten Sie immer den Risikohinweis unter folgendem Link: Haftungsausschluß und Disclaimer
1633/1634, 16.06.11, 10:56:21 | credit bubble
golden_times schrieb am 18.07.2009, 13:13 Uhr
Langer, sehr informativer Artikel über die prekäre Lage an den Kredit- und Kapialmärkten..
Es wird zukünftig wohl nicht mehr heißen:
"Nach dem Hausse ist vor der Hausse", sondern eher "Nach der Krise ist vor der Krise"
http://www.prudentbear.com/index.ph....bulletinview?art_id=10250
credit bubble bulletin - Global Reflation Update
by Doug Noland July 17, 2009
For the week, the S&P500 jumped 7.0% (up 4.1% y-t-d), and the Dow rallied 7.3% (down 0.4% y-t-d). The Morgan Stanley Cyclicals surged 12.3% (up 23.8%), and the Transports increased 6.5% (down 6.3%). The Banks surged 8.2% (down 16.3%), and the Broker/Dealers gained 5.9% (up 27.2%). The Morgan Stanley Consumer index rose 5.2% (up 3.0%), and the Utilities increased 3.7% (down 4.6%). The broader market was quite strong. The S&P 400 Mid-Caps jumped 7.3% (up 9.4%), and the small cap Russell 2000 rallied 8.0% (up 4.0%). Technology is putting up some big numbers. The Nasdaq100 gained 7.6% (up 26.0%), and the Morgan Stanley High Tech index surged 8.7% (up 38.8%). The Semiconductors surged 12.1% (up 36.9%), and the InteractiveWeek Internet index rallied 8.3% (up 45.2%). The Biotechs rose 5.3% (up 5.3%). With Bullion rallying $24.25, the HUI gold index jumped 10.9% (up 15.1%).
One-month Treasury bill rates ended the week at 14 bps, and three-month bills closed at 17 bps. Two-year government yields rose 9.5 bps to 0.915%. Five-year T-note yields jumped 28 bps to 2.46%. Ten-year yields surged 35 bps to 3.66%. Long bond yields were 34 bps higher at 4.53%. Benchmark Fannie MBS yields were 28 bps higher to 4.63%. Agency 10-yr debt spreads narrowed 2 to 11 bps. The implied yield on December eurodollar futures were little changed at 0.755%. The 2-year dollar swap spread increased 8.5 to 47.5 bps; the 10-year dollar swap spread increased 6.5 to 24.0 bps; and the 30-year swap spread increased 6.5 to negative 18.75 bps. Corporate bond spreads were mostly narrower. An index of investment grade bond spreads narrowed 10 to 186 bps, and an index of junk spreads narrowed 8 to 859 bps.
Investment grade issuers included Carefusion $1.4bn, Goldman Sachs $1.0bn, Rowan Companies $500 million, and USAA Capital $200 million.
Junk bond funds saw inflows of $162 million (from AMG). The list of junk issuers included Freedom Group $200 million.
I saw no convert issuance this week.
International dollar debt issuers included Ras Laffan LNG $2.23bn, Ecopetrol $1.5bn, Virgin Media $1.35bn, Kazmunaigaz $1.25bn, Lloyds Bank $835 million, BNP Paribas $775 million, Philippines $750 million, Korea Electric Power $500 million, Yonkers Racing $225 million, and Atlas Energy $200 million.
U.K. 10-year gilt yields rose 7 bps to 3.81%, and German bund yields jumped 14 bps to 3.40%. The German DAX equities index surged 8.8% (up 3.5%). Japanese 10-year "JGB" yields added 2 bps to 1.315%. The Nikkei 225 rallied 1.2% (up 6.0%). Emerging debt markets were strong and equities were stronger. Brazil's benchmark dollar bond yields dropped 16 bps to 5.80%. Brazil's Bovespa equities index rallied 5.8% (up 38.7% y-t-d). The Mexican Bolsa surged 8.8% (up 15.0% y-t-d). Mexico's 10-year $ yields declined 6 bps to 5.90%. Russia's RTS equities index recovered 10.7% (up 46.4%). India's Sensex equities index jumped 9.2% (up 52.8%). China's Shanghai Exchange inflated another 2.4%, increasing 2009 gains to 75.2%.
Freddie Mac 30-year fixed mortgage rates declined 6 bps to 5.14% (down 112bps y-o-y). Fifteen-year fixed rates fell 6 bps to 4.63% (down 115bps y-o-y). One-year ARMs declined 6 bps to 4.76% (down 34bps y-o-y). Bankrate's survey of jumbo mortgage borrowing costs had 30-yr fixed jumbo rates increased 9 bps to 6.46% (down 74bps y-o-y).
Federal Reserve Credit jumped $34.2bn last week to $2.012 TN. Fed Credit has declined $235bn y-t-d, although it expanded $1.123 TN over the past 52 weeks (126%). Elsewhere, Fed Foreign Holdings of Treasury, Agency Debt this past week (ended 7/15) declined $4.6bn to $2.782 TN. "Custody holdings" have been expanding at a 19.6% rate y-t-d, and were up $434bn over the past year, or 18.5%.
M2 (narrow) "money" supply was little changed at $8.349 TN (week of 7/6). Narrow "money" has expanded at a 3.6% rate y-t-d and 8.9% over the past year. For the week, Currency declined $1.2bn, while Demand & Checkable Deposits added $2.3bn. Savings Deposits gained $13.4bn, while Small Denominated Deposits declined $7.6bn. Retail Money Funds dropped $6.9bn.
Total Money Market Fund assets (from Invest Co Inst) dropped $21.0bn to $3.647 TN. Money fund assets have declined $183bn y-t-d, or 8.9% annualized. Money funds expanded $149bn, or 4.2%, over the past year.
Total Commercial Paper outstanding sank another $39.7bn to $1.097 TN. CP has declined $585bn y-t-d (65% annualized) and $653bn over the past year (37%). Asset-backed CP fell $15.4bn to $441bn, with a 52-wk drop of $304bn (41%).
International reserve assets (excluding gold) - as accumulated by Bloomberg's Alex Tanzi – were up $8.0bn y-o-y to $6.985 TN, the highest level since last October. Reserves have now increased $168bn year-to-date.
Global Credit Market Watch:
July 16 – Bloomberg (Lester Pimentel): "JPMorgan Chase & Co.'s EMBI+ index rose to a record high as the prospects for a faster recovery in developing economies boost demand for their bonds."
July 14 - Bloomberg (Matthew Leising): "The U.S. Justice Department is investigating the market for credit-default swaps, according to Markit Group Ltd., the data provider majority-owned by Wall Street's largest banks."
Government Finance Bubble Watch:
July 15 - Financial Times (Richard McGregor): "Beijing's foreign reserve holdings have surged through the $2,000 billion mark, as money pours back into China to take advantage of faster economic growth and rapidly inflating asset prices.. The People's Bank of China… announced… that foreign reserves reached $2,132bn… The reserve build up in the second quarter was $177.9bn, including a monthly record in May of $80.6bn. The quarterly figure far outstrips China's trade surplus and inbound foreign direct investment… proof that the accumulation of funds inside the country is being driven by other factors. 'China's foreign exchange reserve headache has returned,' said Stephen Green, of Standard Chartered… The latest figures also represent an abrupt reversal of an emerging trend of the previous two quarters. Foreign reserves increased by just $7.7bn in the first three months of the year, and $40.4bn in the fourth quarter of 2008… Chen Xingdong, of BNP-Paribas… calculated that after taking account of the trade surplus, foreign investment and the impact of changes in global currency valuations, about $70bn in hot money came into China in the second quarter…"
July 13 - Bloomberg (Vincent Del Giudice): "The U.S. budget deficit topped $1 trillion for the first nine months of the fiscal year and broke a monthly record for June… The excess of spending over revenue for June was $94.3 billion, the first deficit for that month since 1991… The June deficit compares with a surplus of $33.5 billion in the same month a year earlier. Spending last month surged 37% to $309.7 billion and revenue fell 17% to $215.4 billion…"
July 14 - Bloomberg (Norihiko Kosaka): "Japanese Prime Minister Taro Aso… is relying on pork-barrel spending to win voters who have turned cold on his ruling Liberal Democratic Party. Included in Aso's record 15.4-trillion yen ($167bn) stimulus package are 12.4 billion yen to get rid of fishing gear dumped by foreign boats and 400 million yen for cutting down trees to keep 'beasts and birds' out of towns… The money flow is unraveling the work of former Prime Minister Junichiro Koizumi, who set goals to contain the world's largest debt burden and cut spending by as much as 3% on public-works projects."
July 15 - Bloomberg (Shinhye Kang): "South Korea's plan to spend $84 billion in the next five years on improving energy efficiency may boost growth in Asia's fourth-largest economy by 4% annually…"
July 13 - Bloomberg (Valerie Rota): "Mexico's fiscal accounts may be heading toward 'unsustainable deficits' as a decline in oil production cuts government revenue, according to Morgan Stanley. Mexico may need to curb spending growth to keep the deficit in check… analysts Luis Arcentales and Daniel Volberg wrote…"
July 16 - Bloomberg (Oliver Suess): "Mohamed El-Erian, chief executive officer of Pimco… said governments in industrialized countries will face a 'massive challenge' due to the increase in spending to fight the financial crisis. 'While in the short term it makes total sense to increase deficits to react to the crisis, governments in industrialized countries are going to face a massive challenge as these are not long-term policies… It's not easy to exit this transition. It takes a long time.'"
Currency Watch:
July 13 - Bloomberg (Keiko Ujikane and Kyoko Shimodoi): "Japan's opposition party, leading in polls ahead of next month's election, said the nation should consider shifting its $1 trillion of foreign reserves away from the dollar and buying International Monetary Fund bonds. 'In the medium to long term, we need to do what we can to avoid the risk of currency losses or economic turbulence that could result if the dollar were to swing,' Masaharu Nakagawa, the shadow finance minister in the Democratic Party of Japan, said… 'Many countries are starting to diversify their reserves.' Japanese investors are the biggest foreign holders of Treasuries after China with $685.9 billion of the securities in April…"
July 14 - Financial Times (Abeer Allam): "Tim Geithner, US treasury secretary, sought to assure Gulf nations on Tuesday about their holdings of treasury bills when he told Saudi business leaders that his country "has a special responsibility to play" in defending the value of the dollar."
The dollar index declined 0.9% this week to 79.52. For the week on the upside, the Canadian dollar increased 4.2%, the Brazilian real 3.5%, the Australian dollar 3.0%, the New Zealand dollar 2.7%, the South African rand 2.7%, the Mexican peso 2.6%, the Norwegian krone 2.1%, the South Korean won 1.8%, the Swedish krona 1.4%, the Euro 1.2%, and the Swiss franc 0.9%. On the downside, the Japanese yen declined 1.8%.
Commodities Watch:
Gold ended the week up 2.7% to $937.40 (up 6.3% y-t-d). Silver rallied 5.7% to $13.37 (up 18.4% y-t-d). August Crude jumped $3.49 to $63.38 (up 42% y-t-d). August Gasoline rose 6.7% (up 66% y-t-d), and August Natural Gas surged 8.1% (down 35% y-t-d). September Copper jumped 9.6% (up 72% y-t-d). September Wheat rose 4.4% (down 11% y-t-d), while August Corn slipped 1.8% (down 21% y-t-d). The CRB index rallied 4.9% (up 6.8% y-t-d). The Goldman Sachs Commodities Index (GSCI) surged 6.3% (up 23.2% y-t-d).
China Reflation Watch:
July 16 – Bloomberg: "China's gross domestic product grew 7.9% in the second quarter as the nation became the first of the major economies to rebound from the global recession."
July 16 - Bloomberg (Tommy Stubbington and Andrew MacAskill): "China's economic growth pace still can't create enough jobs to meet the needs of the migrant workers who leave the country's rural areas every year to seek employment, said the statistics bureau's spokesman Li Xiaochao. 'We're still facing great pressure in generating jobs,' Li said…"
July 13 - Bloomberg: "China's June fiscal revenue rose 19.6% from a year earlier, while spending climbed 21.5%... Fiscal revenue has improved since May along with the economy, the ministry…"
July 16 – China Knowledge: "China's total fixed asset investment surged 33.5% year on year to RMB 9.13 trillion (US$1.34 trillion) in the first half of this year, according to... the National Bureau of Statistics..."
July 17 – Bloomberg: "China's crude steel production, the largest in the world, rose to a record in the first half as the nation's $586 billion stimulus package spurred demand from builders and carmakers. Output gained 1.2% to 266.6 million metric tons…"
July 16 - Financial Times (Lindsay Whipp in Tokyo and Patti Waldmeir): "China has overtaken Japan to become the world's second biggest stock market by capitalisation as investors pile into the fast-growing economy. China's listed companies had a market capitalisation of $3,210bn… compared with Japan's $3,200bn…"
July 13 - Bloomberg (Joshua Goodman and Andre Soliani): "China's central bank pledged to do more to guide loan growth as a record expansion in credit adds to the risks of asset bubbles and bad debts. The People's Bank of China will 'strengthen monetary and credit management,' Li Dongrong, an assistant governor, said… It will 'guide the direction of money and loans' to ensure stability in the financial sector, Li said. New loans rose almost fivefold in June as the credit boom revived growth…"
July 17 – Bloomberg: "China's government failed to sell as much debt as it planned for the third time in two weeks on speculation the central bank will push up money-market rates to prevent bubbles in stock and property prices… The average winning yield was 1.6011%, higher than the 0.85% rate at the last sale… on June 19."
July 14 - Bloomberg: "Land prices in 105 Chinese cities rose in the second quarter from the first three months of the year, China Business News cited the Ministry of Land and Resources… Home prices in 70 major Chinese cities rose 0.2% in June from a year earlier…"
July 13 - China Knowledge: "Daimler AG's Mercedes-Benz unit said its vehicle sales in China jumped 52% year on year to hit 5,100 units in June, surpassing the industry's average growth rate, Dow Jones… reported…"
India Watch:
July 14 - Bloomberg (Cherian Thomas): "India's Finance Minister Pranab Mukherjee said a wider budget deficit 'right now' is critical to accelerate growth, justifying the record 4.51 trillion rupees ($92bn) the government plans to borrow this year. 'It's a tremendous risk we have taken with the hope that the economy will turn around,' Mukherjee told lawmakers…"
July 17 – Bloomberg (Rakteem Katakey): "India needs an investment of $70 billion to build roads over the next three years, road transport minister Kamal Nath said."
July 17 – Bloomberg (Cherian Thomas): "India's record borrowing in the financial year ending March 31 will only have a "marginal impact" on yields and won't drive rates too high, Finance Secretary Ashok Chawla told reporters in New Delhi. The time is not ripe to reverse the expansionary monetary policy and the government's aim is to keep interest rates benign, he said."
Asia Bubble Watch:
July 14 - Bloomberg (Shamim Adam): "Singapore's government raised its economic forecast for 2009… Gross domestic product will shrink 4% to 6% this year, less than an earlier forecast for… 9%, the trade ministry said…. The economy expanded an annualized 20.4% last quarter from the previous three months…"
Latin America Watch:
July 14 - Bloomberg (Joshua Goodman and Andre Soliani): "Brazil's retail sales rose more than analysts expected in May, reinforcing bets that consumer demand is driving the rebound in Latin America's biggest economy. Sales rose 4% in May from the same month a year earlier…"
Unbalanced Global Economy Watch:
July 15 - Bloomberg (Chris Reiter and Laurence Frost): "European car sales rose in June for the first time in 14 months… New-car registrations increased 2.4% to 1.46 million vehicles…"
July 16 - Bloomberg (Tommy Stubbington and Andrew MacAskill): "The pension deficits of Britain's 100 biggest companies more than doubled in the first half to a record 300 billion pounds ($490bn)… Deloitte LLP said. The deficit compares with a 130 billion-pound shortfall at the start of the year…"
July 15 - Bloomberg (Kim McLaughlin): "Swedish house prices rose in the three months through June for the second period in a row… The average house price rose 3% from the previous three months…"
Bursting Bubble Economy Watch:
July 16 - Bloomberg (Dan Levy): "U.S. foreclosure filings hit a record in the first half… according to RealtyTrac Inc. More than 1.5 million properties received a default or auction notice or were seized by banks in the six months… That's a 15% increase from the year earlier. One in 84 U.S. households received a filing."
July 13 - Bloomberg (Sarah Rabil): "U.S. advertising revenue may drop 14.5% this year and continue to decline until an economic recovery sparks growth near the end of 2010, Magna Global said. Revenue may fall to $161.4 billion after declining 7.5% in 2008… Brian Wieser, Magna Global's forecasting director, said…"
July 13 - Bloomberg (Greg Bensinger and Gadi Dechter): "The Chicago Cubs may become the first Major League Baseball team in 39 years to file for bankruptcy as Tribune Co. seeks to sell the franchise after months of negotiations."
Central Banker Watch:
July 17 – Bloomberg (Jens Erik Gould and Hugh Collins): "Mexico's central bank slowed the pace of cuts to its benchmark interest rate and said it will hold off on further reductions amid signs of economic recovery."
Real Estate Bust Watch:
July 14 - Bloomberg (David M. Levitt): "Manhattan office rents fell by a record 7.4% in the second quarter… property broker Cushman & Wakefield Inc. said… The vacancy rate rose to 10.5%, up from 9.6% in the first quarter and 7.1% a year earlier."
MBS/ABS/CDO/CP/Money Funds and Derivatives Watch:
July 13 - Bloomberg (Jody Shenn): "Standard & Poor's boosted its projections for losses from Alt-A U.S. mortgages backing securities. Losses on loans backing 2006 securities will reach an average of about 22.5% of the original balances, while losses for similar 2007 bonds will total about 27%..."
July 13 - Bloomberg (Oshrat Carmiel): "Commercial mortgage delinquencies of securitized loans climbed by a record $2.2 billion in June, including five defaults of $100 million or more, Fitch… said… The largest sour loans included three hotel properties that defaulted during their terms and two regional malls sponsored by bankrupt General Growth Properties…Fitch said."
July 13 - Wall Street Journal (Marshall Eckblad): "For the third straight month, option adjustable-rate mortgages are generating proportionally more delinquencies and foreclosures than subprime mortgages… As of April, 36.9% of Pick-A-Pay loans were at least 60 days past due, while 19% were in foreclosure, according to… First American CoreLogic… Payment-option mortgages are heavily concentrated in the worst-hit regions in the housing market, including California and Florida…"
California Watch:
July 17 – Bloomberg (Michael B. Marois and William Selway): "California Governor Arnold Schwarzenegger and lawmakers failed to resume talks last night over how to solve a $26 billion deficit, even after the state's Treasurer said crippling penalties from Wall Street loom…. That prompted Treasurer Bill Lockyer… to warn that the impasse could leave the state with a junk rating on its debt and unable to borrow money. 'With every passing day, the state's credit rating moves closer and closer to the junk pile,' Lockyer said…"
July 16 – Los Angeles Times (Peter Y. Hong): "Southern California home prices may have finally hit bottom, with median values rising last month for the first significant increase in two years… Along with the 6.4% rise in prices from May, fewer than half of the sales were foreclosures -- the first time that has happened in nine months."
July 16 - Bloomberg (Dan Levy): "San Francisco Bay Area house and condominium sales rose 20% in June from a year earlier to the highest in almost three years… DataQuick said… The median price dropped 27% to $352,000."
New York Watch:
July 16 - Bloomberg (Henry Goldman): "New York City's unemployment rate rose 0.6 percentage points to 9.5% in June from May. The state jobless rate increased to 8.7% from 8.2%, the highest since October 1992…"
July 13 - Bloomberg (Henry Goldman): "New York City's unemployment rate will reach 9.5% by 2010, leaving 400,000 jobless for the first time since 1993, city Comptroller William Thompson said."
July 14 - Bloomberg (Oshrat Carmiel): "Home sales in the Hamptons, the oceanside summer getaway for Wall Street financiers and celebrities, plunged 58% in the second quarter…"
Muni Watch:
July 16 – Wall Street Journal (Amy Merrick): "Two weeks after Illinois' fiscal year began, Gov. Pat Quinn signed a $26 billion general-fund budget… that depends heavily on borrowing and pushes off a reckoning of the state's serious fiscal problems. The new budget requires the state to borrow $3.5 billion from its pension fund to fund some operations, and to postpone $3.2 billion in payments to vendors. It also leaves a spending hole of about $5 billion for the fiscal year that began July 1 that will have to be addressed eventually."
Speculator Watch:
July 14 - Bloomberg (Tom Cahill): "Hedge funds' so-called crowded trades, positions so widely held that they can't be easily exited, are a concern to the Financial Services Authority, according to Britain's Treasury Minister Paul Myners. 'The FSA is focused on gathering data where there is a build up of crowded trades,' Myners told a House of Lords committee…"
Global Reflation Update:
Key global reflationary indicators were released this week. China official reserve holdings jumped to a record $2.132 Trillion. More importantly, second quarter reserve growth surged to a record $178bn. This was up dramatically from Q1 2009's $7.7bn increase and Q4 2008's growth of $40.0bn. It is worth also noting that the most recent quarter exceeded even the $154bn increase near the height of the "hot money" Bubble period back in early 2007. China began 2004 with $400bn of reserves.
China is central to my macro global reflation thesis. And I believe the "Core to Periphery" (i.e. dollar flows to China, Asia and emerging markets) flow of funds dynamic will fundamentally shape unfolding reflationary dynamics. I view the enormous increase in China's reserves as confirmation both that global speculative flows have been largely rejuvenated and that China and the emerging markets retain the most robust inflationary bias. On the margin, speculative flows will prefer Asia to the U.S. – providing reflationary crosscurrents/headwinds here at home. Meanwhile, things that Asia needs and wants will demonstrate upward price pressures over time.
There were also a slew of strong economic reports out of China this week. Second quarter growth was reported at a stronger-than-expected 7.9% rate, boosting China's first-half expansion to an impressive 7.1%. Fixed investment was up 33.6% y-o-y during the quarter, while industrial production rose 10.7%. First half steel production increased to a record. Another report had China's fiscal spending up 21.5% y-o-y in June, with receipts up 19.6%. Accounts have it that real estate prices are bubbling again. June M2 money supply expanded at a 28.5% pace. And after posting a 75% gain so far this year, Chinese stocks have again surpassed Japan's to take second place globally in terms of market capitalization. Economists are quickly raising second-half and 2010 growth estimates.
The emerging markets and commodities rallied strongly this week. The EMBI+ emerging market bond index traded this week to a record high. The Goldman Sachs Commodities Index surged 6.3%, increasing 2009 gains to 23.3%. Brazilian dollar yields dropped to 5.80%. Copper jumped 9.6% this week, silver was up 5.7%, and gold rallied 2.7%. It is also worth nothing that the Indonesian rupiah declined only two-thirds of one percent following today's terrorist attacks.
The massive scope of China's bank lending and "hot money" inflows ensures a historic policy challenge. There are indications that Chinese monetary authorities (People's Bank of China) are now attempting to tap the brake a bit, as somewhat reduced inter-bank liquidity pressures short-term borrowing costs higher. But don't expect central bank tinkering to have much more impact in China than it did here at home during the 2004-2007 Bubble period. I would expect the rejuvenated Chinese boom to be largely impervious to cautious policymaking. Or, stated differently, Bubble Dynamics would seem to dictate that increasingly unwieldy financial and economic Bubbles will keep policymakers on their heels and unwilling to decisively face growing risks. And as ultra-loose financial conditions in the U.S. and elsewhere spur a rebound in Credit growth (and attendant financial flows), the Chinese predicament will turn even more problematic.
Financial reports here at home also confirm a rejuvenation of speculative and global reflation dynamics. Goldman Sachs reported record quarterly net revenues ($13.76bn) and net earnings ($3.44bn). "Net revenues in Trading and Principal Investments were $10.78bn, 93% higher than the second quarter of 2008 and 51% higher than the first quarter of 2009." "Fixed Income, Currency and Commodities (FICC) generated record quarterly revenues… Equity underwriting produced record quarterly net revenues…" Investment Banking revenues were up 75% from the first quarter to $1.44bn. Second quarter debt underwriting revenues of $336 million compare to Q1's $248 million and the year ago $269 million. Second quarter equity underwriting revenues of $736 million compare to Q1's $48 million and the year ago $616 million.
At JPMorgan Chase, "Record firmwide revenue of $27.7 billion…" Net Income of $2.721 billion was up 27% from the first quarter and 36% from the year ago period. "…The investment bank reported record overall revenue for the first half of the year, which included record fees and Fixed Income." "Fixed Income Markets revenue was a record $4.9 billion, up by $2.6 billion from the prior year, driven by strong results across all products…" "Extended approximately $150 billion in new credit to consumers, corporations, small businesses, municipalities, and non-profits." JPMorgan approved 138,000 loan modifications during the second quarter.
While clearly struggling, Bank of America "funded $110.6 billion in first mortgages… Credit extended during the quarter…was more than $211 billion, compared to $183 billion in the first quarter…" BofA "earned" $3.4 billion in the quarter, "results driven by continued strong revenue performance in the wholesale capital markets businesses as well as in home loans…" "Bank of America Merrill Lynch ranked No. 1 in high-yield debt and leveraged loans…" "Sales and trading revenue… rose to a record $6.7 billion." BofA provided rate relief/modification to 150,000 customers.
Of course, Goldman and JPMorgan benefit greatly from their competitors' travails. But their greater advantage is that policymakers desperately need them to expand Credit. With bank lending stagnant, domestic reflation today depends chiefly upon the revival of the capital markets. And there are clearly no two institutions better positioned to profit from ultra-loose financial conditions than Goldman and JPMorgan. One can argue that the concentration of financial power to a few Wall Street firms played a major role in the Credit boom and bust. Ironically, reflationary policymaking is today fostering only greater concentration of power and market influence.
So far, I don't really see many surprising developments pertaining to reflation dynamics. Thing seem largely on track in Asia, while the struggling U.S. Credit system is regaining some fire power. At this point I see little justification for revising my expectation for lagging U.S. asset markets and economic performance.
At the same time, one can see the makings of future bouts of acute fragility. I see great risk in the system's increasing reliance on capital markets as the primary source for Credit expansion and liquidity creation. It is unfortunate – but not unexpected – that reflation requires a further concentration of financial power. Moreover, it is dangerous that Washington policymakers now completely hold sway over the Credit markets. "Federal" Credit – Treasury, agency, and GSE MBS – remains the vast majority of system Credit creation. It is worth noting that May and June GSE MBS issuance totaled almost $450 billion (from Bloomberg). There is an enormous amount of mortgage Credit and interest-rate risk being bundled and transferred to Washington – and our government already has too much of it.
The problem only seems to get clearer. The maladjusted US Bubble economy is sustained by $2.0 to $2.5 Trillion of new Credit – Credit that must largely be issued or guaranteed in Washington. This reflation (a.k.a. Credit inflation/currency devaluation) drives massive flows to China, Asia and the emerging markets that have few takers other than the central banks. And as economies recover and inflationary distortions reemerge, these enormous dollar flows can be expected to foment increasing policymaker angst. Asian reflation is poised to take on a wild life of its own, forcing policymakers at some point to confront today's reality that dollar flows are destabilizing and unmanageable. China, in particular, faces tough choices when it comes both to managing its Bubble and accumulating massive quantities of IOUs of deteriorating quality.
1632/1634, 16.06.11, 10:56:52 | Charts zum Nachdenken
Einige aktuelle Themen:
- Börsen feiern viele, "überraschend starke" Zahlen
- Weltweit kämpfen die Regierungen auf Pump gegen die Krise an – die Folgen könnten verheerend sein
- Analysten und Experten sehen globale, wirtschaftliche Stabilisierungen
- auf welchen Niveaus (vgl. Historie, outlook) diese Stabilisierungen wahrgenommen werden, wird nahezu ignoriert, verschwiegen
- sehr gefährliche Situation in der Finanzbranche: Vor kurzer Zeit im Tal der Tränen, atm die größten Gewinner (Krise? -> abgehakt!)
- nachlaufende Indikatoren werden außen vorgelassen, ignoriert (Arbeitsmarkt!)
- die Stimmung überschattet die Lage
- Schuldscheine, Kredite: die "Mutter aller Blasen" steigt mit Rekordtempo (http://www.heise.de/tp/r4/artikel/30/30704/1.html)
- Globaliserung wächst an ihre Grenzen (http://www.jjahnke.net/rundbr58.html#kre)
- riesige Geldmengen sind global im Umlauf, Märkte werden mit Liquidität geflutet
- das zur Verfügung gestellte Geld für die "Bailouts", Konjunkturspritzen und die gesamte Fianzindustrie hat nur in den seltensten Fällen einen realen & fundamentalen Gegenwert: Hauptsächlich werden weltweit neue Schulden aufgenommen, die immer weiter in exorbitanten Höhen schellen, zudem lief/läuft die Notenbankpresse (an erster Stelle die FED) auf Hochtouren
Bilder (idF. Charts) sagen oft mehr als viele Worte, einige Charts die zum Nachdenken anregen sollen..
1631/1634, 16.06.11, 10:57:11 | Deepcaster
Surmounting Deception, Distortion & Intervention Thus Protecting Profits & Wealth
http://www.24hgold.com/english/news....mp;contributor=Deepcaster
1630/1634, 16.06.11, 11:29:12 | Dark Years
The Dark Years are Here
We will outline what is likely to be the devastating effect of the credit bubbles, government money printing and of the disastrous actions that governments are taking. Starting in the next 6 months and culminating in 2011-12 the world will experience a series of tumultuous events which will be life changing for most people in the world. But 2011-12 will not be the beginning of an upturn in the world economy but instead the start of a long period of economic, political and social upheaval that could last for a couple of decades..
We will discuss the three areas that we for some time have argued will determine the faith of the world for the foreseeable future, namely the coming unemployment explosion, the next and much more serious phase in the credit markets and finally the likely hyperinflationary or just inflationary effect this will have on the world economy and investments.
EMPIRES ARE BUILT ON THEFT PILLAGE, SLAVE LABOUR AND FINALLY MONEY PRINTING
Let us first go back in history and analyse what creates an empire and the prosperity that comes with it.
The British Empire started in the 17th century and reached its peak in the 19th century during Queen Victoria's reign. By the end of the 19th century The British Empire included nearly 20% of the land surface of the world and 25% of the world's population. So Britain which is less than 0.5% of the world's land surface area controlled an empire which was more than 50 times greater. So by using slave labour and by stealing the resources of 20% of the world, it is no wonder that Britain was the wealthiest nation for several centuries. But like all empires, Britain carried the seeds of its own destruction. All empires – e.g. Mongolian, Roman, Ottoman or British etc. – eventually overstretch their resources both militarily and financially. This combined with decadence and illusions of grandeur eventually leads to the collapse of an empire..
http://www.24hgold.com/english/news....tributor=Egon+von+Greyerz
1629/1634, 16.06.11, 11:30:09 | ftd.net
Arbeitslosigkeit in den USA
Kreditkartenausfall klettert auf Höchststand
Seit Monaten warnen Analysten vor riesigen Ausfällen im US-Geschäft mit Kreditkarten. Nun sind sie da: Wegen der wachsenden Arbeitslosigkeit können viele Amerikaner ihre Rechnungen nicht mehr bezahlen. Die Ausfälle steigen auf den höchsten Stand seit 26 Jahren..
http://www.ftd.de/boersen_maerkte/:....H%F6chststand/543748.html
http://www.ftd.de/asset/Image/2009/03/17/credit.jpg
1628/1634, 16.06.11, 11:30:55 | Schuldentabelle
1627/1634, 16.06.11, 11:34:07 | US-Immos
Problematiken um US-Gewerbeimmobilien verschärfen sich weiter..
By Francesco Guerrera and Greg Farrell in New York
Published: July 22 2009 19:21 | Last updated: July 22 2009 19:21
US banks warn on commercial property
Two of America's biggest banks, Morgan Stanley and Wells Fargo, on Wednesday threw into sharp relief the mounting woes of the US commercial property market when they reported large losses and surging bad loans.
The disappointing second-quarter results for two of the largest lenders and investors in office, retail and industrial property across the US confirmed investors' fears that commercial real estate would be the next front in the financial crisis after the collapse of the housing market..
http://www.ft.com/cms/s/3a1e9d86-76....3D1873&nclick_check=1
1626/1634, 16.06.11, 11:34:43 | Au, inflation, hedges
YEAR ON YEAR GOLD INVESTMENT POSITIVE
Author: Lawrence Williams
Posted: Wednesday , 22 Jul 2009
WGC study shows gold outperforms other traditional inflation hedges
The World Gold Council, in its regular quarterly appraisal of the gold market, noted that the yellow metal increased modestly in the second quarter, supported by, among other things, ongoing inflation fears. Traditionally an inflation hedge, gold was sought by investors who had growing concerns about central bank's exit strategies and the implications of a reversal in quantitative easing measu.
On gold's inflation hedge credentials, Natalie Dempster, Head of Investment, North America, World Gold Council commented:
[b"Fears of future inflation drove investor interest as seen by the continued demand for the ETFs during the quarter. Traditionally, gold has been an effective inflation hedge, and as our recent study shows, also performs well during low to medium inflationary environments.."[/b]
http://www.mineweb.com/mineweb/view....1?oid=86595&sn=Detail
1625/1634, 16.06.11, 11:35:11 | Credit Bubble Bulleti
Credit Bubble Bulletin
For the week, the S&P500 jumped 4.1% (up 8.4% y-t-d), and the Dow gained 4.0% (up 3.6% y-t-d). The Morgan Stanley Cyclicals jumped 10.1% (up 36.2%), and the Transports gained 6.7% (unchanged). The Morgan Stanley Consumer index increased 3.3% (up 6.4%), and the Utilities surged 5.5% (up 0.7%). The Banks added 0.6% (down 15.8%), and the Broker/Dealers rose 6.7% (up 35.7%). Market breadth remains strong. The S&P 400 Mid-Caps gained 5.6% (up 15.5%), and the small cap Russell 2000 rose 5.6% (up 9.8%). The Nasdaq100 increased 4.7% (up 32.0%), and the Morgan Stanley High Tech index rose 4.5% (up 45.0%). The Semiconductors gained 3.6% (up 41.8%), and the InteractiveWeek Internet index rose 5.0% (up 52.4%). On the back of takeover news, the Biotech index surged 26.9% (up 33.5%). With Bullion gaining $14.40, the HUI gold index rose 3.8% (up 19.4%)..
1624/1634, 16.06.11, 11:35:33 | GFG
Kritische Unterkapitalisierung
Größte US-Bankenpleite in 2009 droht
Ihren Namen kennt bislang kaum einer - doch die insolvenzgefährdete Guaranty Financial Group hat Vermögenswerte von rund 16 Mrd. Dollar. Die Bank leidet unter Abschreibungen auf hypothekenbesicherte Wertpapiere - und mangelnder Unterstützung der Aktionäre.
In den USA droht die größte Bankenpleite dieses Jahres. Die Guaranty Financial Group teilte am Freitag im texanischen Dallas mit, Abschreibungen auf hypothekenbesicherte Wertpapiere in Milliardenhöhe hätten zu einer kritischen Unterkapitalisierung der Bank geführt.
Eine ausreichende Kapitalspritze hält das Unternehmen wegen mangelnder Unterstützung der eigenen Aktionäre nicht mehr für möglich, das Ende der Bank sei daher wahrscheinlich. Die staatliche Einlagensicherung FDIC sei bereits gebeten worden, die Unternehmensführung zu übernehmen.
Mit Vermögenswerten von etwa 16 Mrd. $ wäre der Untergang der Guaranty Financial Group die größte Pleite einer US-Bank in diesem Jahr. Bisher größter Fall in diesem Jahr war der Zusammenbruch der Bank United FSB in Florida mit einer Bilanzsumme von rund 12,8 Mrd. $. Größte Pleite einer Geschäftsbank in der US-Geschichte war 2008 der Fall der einst führenden US-Sparkasse Washington Mutual. Sie hatte eine Bilanzsumme von mehr als 300 Mrd. $. Seit September 2007 sind in den USA 85 Banken von der FDIC geschlossen worden..
http://www.ftd.de/unternehmen/finan....in-2009-droht/544643.html
1623/1634, 16.06.11, 11:36:31 | Annulisierte Earnings
S&P 500: Annulisierte Earnings
1622/1634, 16.06.11, 11:37:23 | Fallen
"Neue wöchentliche US-Arbeitsmarktdaten"
Die Anzahl der Arbeitslosen in den USA, die dauerhaft Arbeitslosenunterstützung erhalten, fiel nach dem heutigen wöchentlichen Bericht des U.S. Department of Labor in der Woche zum 11.07.2009 um -88'000 auf saisonbereinigte 6,225 Millionen. Dies ist jetzt die zweite Woche in Folge eine deutlichere Korrektur vom Rekordhoch am 27.06.2009 mit 6,904 dauerhaft Arbeitslosen..
http://wirtschaftquerschuss.blogspo....us-arbeitsmarktdaten.html
Das Ende der Kreditexzesse, Gelderschaffung ohne Wertschöpfung, Spekulation statt Produktion, zukünftiger Rohstoff- und Energiemangel (Peak Oil-Gas-Uranium) und ein dramatischer Klimawandel als deutliche Warnungen vor einem "Weiter so"! "Jeder der glaubt, dass exponentielles Wachstum in einer endlichen Welt für immer weitergehen kann, ist entweder verrückt oder ein Wirtschaftswissenschaftler."
Kenneth Boulding
1621/1634, 16.06.11, 11:37:55 | US Banks, Au
Will the Top U.S. Banks Be Forced To Cover Large, Short Gold Positions?
http://www.24hgold.com/english/news....tor=Julian+D.+W.+Phillips
1620/1634, 16.06.11, 11:38:33 | Fort Knox
Folgend einen interessanten Blick in eines der größten "Goldlager" aller Zeiten.
Man vermutet aber, dass die Werte in den Hallen der FED unerreichbar sind..
Der renommierte US-Army Stützpunkt bunkert einer der letzten, wahren Reichtümer der US.
Fort Knox, Fort Hocks or Fort Shocks: Three United States Gold Scenarios
For 72 years, the building at the intersection of Bullion Boulevard and Gold Vault Road in Fort Knox, Kentucky has symbolized the financial strength of the United States of America. The United States Bullion Depository, better known as Fort Knox, is said to contain 147.3 million troy ounces of gold, over half the nation's total reported gold bullion holdings of 261.5 million troy ounces. The remaining 114 million ounces are said to be stored at the Denver and Philadelphia Mints, the West Point Bullion Depository, and the San Francisco Assay Office. Assuming a price of $1,000 / ounce, the nation's gold is worth $261.5 billion. If the metal is actually there, it represents the largest sovereign stockpile of gold bullion in the world..
http://www.24hgold.com/english/news....ributor=Stewart+Dougherty
1619/1634, 16.06.11, 11:39:31 | Welcome to the Eye of the Storm
Filed under: Old Posts — John Galt @ 10:20 pm
Welcome to the Eye of the Storm
Washington, D.C. appears to be returning to the good status of "stalemate" which satifies the world.
The "War against Terror" is now the police action against misguided radicals.
All must be well with the world because bankster profits are off the scale and I swear Maria the Money Honey had an actual Bubblegasm reporting Apple's earnings this afternoon.
Welcome to the eye of the storm. And that storm, as displayed above, is Hurricane Wilma, the most intense storm in recorded history. That storm is getting ready to move again and the most powerful part of the eyewall is about to slam into our economic fantasy land at full force..
http://johngaltfla.com/blog2/2009/0....-to-the-eye-of-the-storm/
1618/1634, 16.06.11, 11:50:24 | Unemployment Rates
US: Unemployment Rates Hit Record Highs In Several States In June
Florida, Rhode Island and Nevada were among six states to post record jobless rates in June.
In all, the government's latest data showed 38 states and the District of Columbia posted an increase in unemployment from the previous month.
Fifteen states and the District of Columbia surpassed the national unemployment rate of 9.5 percent
On the bright side, five states reported a decrease in jobless rates, while seven had no change..
http://www.cnbc.com/id/31964372
1617/1634, 16.06.11, 11:50:55 | Upside Down and Backwards
Upside Down and Backwards
In a rare lucid moment, British Prime Minister Gordon Brown recently quipped,
>> "Technology means that foreign policy will never be the same again" <<
Elaborating before a group of leading thinkers at the TED global conference in Oxford, England, Brown further explained,
>> The power of technology - such as blogs - meant that the world could no longer be run by "elites" <<
While Mr. Brown didn't exactly enunciate it, he might as well have said, "the advances in technology [read: the internet] also mean that our system of fractional irredeemable fiat currency [read: backed by NOTHING] practiced by Central Banks like the Federal Reserve may also soon be passé too." This is largely due to the masses becoming informed about the world's biggest ponzi scheme, namely, irredeemable fiat currency – forget about the warm-up acts like Madeoff and sub-prime..
http://www.24hgold.com/english/news....amp;contributor=Rob+Kirby
1616/1634, 16.06.11, 11:54:52 | Dauer der Verkäufe & Preise von US-Eigenheimen
1615/1634, 16.06.11, 12:09:51 | HB
Keine Entwarnung für US-Immobilienmarkt
BusinessWeek traut den jüngsten, positiven Zahlen auf dem amerikanischen Immobilienmarkt nicht. Die Verkäufe von neuen Einfamilienhäusern hätten im Juni zwar um elf Prozent zugelegt, "doch die Prognose der Analysten für dieses Jahr lag bei 21,3 Prozent." Die Zahlen nährten die Ansicht, dass der Immobilienmarkt im ersten Quartal seine Talsohle durchschritten habe, könnten aber auch ganz banale Ursachen haben: "Viele Verkäufe entfallen auf die Niedrigpreissegmente des Marktes. Außerdem könnten viele Verkaufsverträge, die im Juni unterzeichnet wurden, noch auf den niedrigen Hypothekenraten aus den Monaten April und Mai basieren." [Hinzu kommt der - temporär bewilligte - 8000-Dollar-Zuschuss für Erstkäufer - A.L.] Und nach wie vor stünden eine Menge Häuser zum Verkauf. Der Druck auf die Hauspreise werde sich deshalb nach Einschätzung von Experten fortsetzen: "Der Mittelwert eines neuen Hauses ist 2009 bis Juni um 12 Prozent gefallen." Die Bewegungen auf dem Immobilienmarkt würden sich stabilisieren, wenn auch auf niedrigem Niveau, die Preise aber würden weiter fallen..
http://www.handelsblatt.com/journal....icher-zweikampf;2437606;2
1614/1634, 16.06.11, 12:11:00
dukezero schrieb am 29.07.2009, 18:05 Uhr
The Great Depression Revisited
By: MISES
Although the Great Depression engulfed the world economy many years ago, it lives on as a nightmare for individuals old enough to remember and as a frightening specter in the textbooks of our youth.
Some 13 million Americans were unemployed, "not wanted" in the production process. One worker out of every four was walking the streets in want and despair. Thousands of banks, hundreds of thousands of businesses, and millions of farmers fell into bankruptcy or ceased operations entirely.
Nearly everyone suffered painful losses of wealth and income.
Many Americans are convinced that the Great Depression reflected the breakdown of an old economic order built on unhampered markets, unbridled competition, speculation, property rights, and the profit motive. According to them, the Great Depression proved the inevitability of a new order built on government intervention, political and bureaucratic control, human rights, and government welfare. Such persons, under the influence of Keynes, blame businessmen for precipitating depressions by their selfish refusal to spend enough money to maintain or improve the people's purchasing power. This is why they advocate vast governmental expenditures and deficit spending — resulting in an age of money inflation and credit expansion.
Classical economists learned a different lesson. In their view, the Great Depression consisted of four consecutive depressions rolled into one. The causes of each phase differed, but the consequences were all the same: business stagnation and unemployment.
The first phase was a period of boom and bust, like the business cycles that had plagued the American economy in 1819–1820, 1839–1843, 1857–1860, 1873–1878, 1893–1897, and 1920–1921. In each case, government had generated a boom through easy money and credit, which was soon followed by the inevitable bust.
The spectacular crash of 1929 followed five years of reckless credit expansion by the Federal Reserve System under the Coolidge administration. In 1924, after a sharp decline in business, the Reserve banks suddenly created some $500 million in new credit, which led to a bank credit expansion of over $4 billion in less than one year. While the immediate effects of this new powerful expansion of the nation's money and credit were seemingly beneficial, initiating a new economic boom and effacing the 1924 decline, the ultimate outcome was most disastrous. It was the beginning of a monetary policy that led to the stock-market crash in 1929 and the following depression. In fact, the expansion of Federal Reserve credit in 1924 constituted what Benjamin Anderson in his great treatise on recent economic history (Economics and the Public Welfare, D. Van Nostrand, 1949) called "the beginning of the New Deal."
The Federal Reserve credit expansion in 1924 also was designed to assist the Bank of England in its professed desire to maintain prewar exchange rates. The strong US dollar and the weak British pound were to be readjusted to prewar conditions through a policy of inflation in the United States and deflation in Great Britain.
The Federal Reserve System launched a further burst of inflation in 1927, the result being that total currency outside banks plus demand and time deposits in the United States increased from $44.51 billion at the end of June 1924, to $55.17 billion in 1929. The volume of farm and urban mortgages expanded from $16.8 billion in 1921 to $27.1 billion in 1929. Similar increases occurred in industrial, financial, and state and local government indebtedness. This expansion of money and credit was accompanied by rapidly rising real-estate and stock prices. Prices for industrial securities, according to Standard & Poor's common stock index, rose from 59.4 in June of 1922 to 195.2 in September of 1929. Railroad stock climbed from 189.2 to 446.0, while public utilities rose from 82.0 to 375.1
A Series of False Signals
The vast money and credit expansion by the Coolidge administration made 1929 inevitable. Inflation and credit expansion always precipitate business maladjustments and malinvestments that must later be liquidated. The expansion artificially reduces and thus falsifies interest rates, and thereby misguides businessmen in their investment decisions. In the belief that declining rates indicate growing supplies of capital savings, they embark upon new production projects. The creation of money gives rise to an economic boom. It causes prices to rise, especially prices of capital goods used for business expansion. But these prices constitute business costs. They soar until business is no longer profitable, at which time the decline begins. In order to prolong the boom, the monetary authorities may continue to inject new money until finally frightened by the prospects of a runaway inflation. The boom that was built on the quicksand of inflation then comes to a sudden end.
The ensuing recession is a period of repair and readjustment. Prices and costs adjust anew to consumer choices and preferences.
And above all, interest rates readjust to reflect once more the actual supply of and demand for genuine savings. Poor business investments are abandoned or written down. Business costs, especially labor costs, are reduced through greater labor productivity and managerial efficiency, until business can once more be profitably conducted, capital investments earn interest, and the market economy function smoothly again.
After an abortive attempt at stabilization in the first half of 1928, the Federal Reserve System finally abandoned its easy-money policy at the beginning of 1929. It sold government securities and thereby halted the bank credit expansion. It raised its discount rate to 6 percent in August 1929. Time-money rates rose to 8 percent, commercial paper rates to 6 percent, and call rates to the panic figures of 15 percent and 20 percent. The American economy was beginning to readjust. In June 1929, business activity began to recede. Commodity prices began their retreat in July.
The security market reached its high on September 19 and then, under the pressure of early selling, slowly began to decline. For five more weeks, the public nevertheless bought heavily on the way down. More than 100 million shares were traded at the New York Stock Exchange in September. Finally it dawned upon more and more stockholders that the trend had changed. Beginning with October 24, 1929, thousands stampeded to sell their holdings immediately and at any price. Avalanches of selling by the public swamped the ticker tape. Prices broke spectacularly.
Liquidation and Adjustment
The stock market break signaled the beginning of a readjustment long overdue. It should have been an orderly liquidation and adjustment followed by a normal revival. After all, the financial structure of business was very strong. Fixed costs were low as business had refunded a good many bond issues and had reduced debts to banks with the proceeds of the sale of stock. In the following months, most business earnings made a reasonable showing. Unemployment in 1930 averaged under 4 million, or 7.8 percent of labor force.
In modern terminology, the American economy of 1930 had fallen into a mild recession. In the absence of any new causes for depression, the following year should have brought recovery as in previous depressions. In 1921–1922, the American economy recovered fully in less than a year. What, then, precipitated the abysmal collapse after 1929? What prevented the price and cost adjustments and thus led to the second phase of the Great Depression?
Disintegration of the World Economy
The Hoover administration opposed any readjustment. Under the influence of "the new economics" of government planning, the president urged businessmen not to cut prices and reduce wages, but rather to increase capital outlay, wages, and other spending in order to maintain purchasing power. He embarked upon deficit spending and called upon municipalities to increase their borrowing for more public works. Through the Farm Board, which Hoover had organized in the autumn of 1929, the federal government tried strenuously to uphold the prices of wheat, cotton, and other farm products. The GOP tradition was further invoked to curtail foreign imports.
The Smoot-Hawley Tariff Act of June 1930, raised American tariffs to unprecedented levels, which practically closed our borders to foreign goods. According to most economic historians, this was the crowning folly of the whole period from 1920 to 1933 and the beginning of the real depression. "Once we raised our tariffs," wrote Benjamin Anderson, an irresistible movement all over the world to raise tariffs and to erect other trade barriers, including quotas, began. Protectionism ran wild over the world. Markets were cut off. Trade lines were narrowed. Unemployment in the export industries all over the world grew with great rapidity. Farm prices in the United States dropped sharply through the whole of 1930, but the most rapid rate of decline came following the passage of the tariff bill.
When President Hoover announced he would sign the bill into law, industrial stocks broke 20 points in one day. The stock market correctly anticipated the depression.
The protectionists have never learned that curtailment of imports inevitably hampers exports. Even if foreign countries do not immediately retaliate for trade restrictions injuring them, their foreign purchases are circumscribed by their ability to sell abroad. This is why the Smoot-Hawley Tariff Act which closed our borders to foreign products also closed foreign markets to our products. American exports fell from $5.5 billion in 1929 to $1.7 billion in 1932. American agriculture customarily had exported over 20 percent of its wheat, 55 percent of its cotton, 40 percent of its tobacco and lard, and many other products. When international trade and commerce were disrupted, American farming collapsed. In fact, the rapidly growing trade restrictions, including tariffs, quotas, foreign-exchange controls, and other devices were generating a worldwide depression.
Agricultural commodity prices, which had been well above the 1926 base before the crisis, dropped to a low of 47 in the summer of 1932. Such prices as $2.50 a hundredweight for hogs, $3.28 for beef cattle, and 32¢ a bushel for wheat plunged hundreds of thousands of farmers into bankruptcy. Farm mortgages were foreclosed until various states passed moratoria laws, thus shifting the bankruptcy to countless creditors.
Rural Banks in Trouble
The main creditors of American farmers were, of course, the rural banks. When agriculture collapsed, the banks closed their doors. Some 2,000 banks, with deposit liabilities of over $1.5 billion, suspended between August 1931, and February 1932. Those banks that remained open were forced to curtail their operations sharply. They liquidated customers' loans on securities, contracted real-estate loans, pressed for the payment of old loans, and refused to make new ones. Finally, they dumped their most marketable bond holdings on an already depressed market. The panic that had engulfed American agriculture also gripped the banking system and its millions of customers.
The American banking crisis was aggravated by a series of events involving Europe. When the world economy began to disintegrate and economic nationalism ran rampant, European debtor countries were cast in precarious payment situations. Austria and Germany ceased to make foreign payments and froze large English and American credits; when England finally suspended gold payments in September 1931, the crisis spread to the United States. The fall in foreign bond values set off a collapse of the general bond market, which hit American banks at their weakest point — their investment portfolios.
Depression Compounded
Nineteen Thirty-One was a tragic year. The whole nation, in fact, the whole world, fell into the cataclysm of despair and depression. American unemployment jumped to more than 8 million and continued to rise. The Hoover administration, summarily rejecting the thought that it had caused the disaster, labored diligently to place the blame on American businessmen and speculators. President Hoover called together the nation's industrial leaders and pledged them to adopt his program to maintain wage rates and expand construction. He sent a telegram to all the governors, urging cooperative expansion of all public-works programs. He expanded federal public works and granted subsidies to ship construction. And for the benefit of the suffering farmers, a host of federal agencies embarked upon price-stabilization policies that generated ever larger crops and surpluses, which in turn depressed product prices even further. Economic conditions went from bad to worse, and unemployment in 1932 averaged 12.4 million.
In this dark hour of human want and suffering, the federal government struck a final blow. The Revenue Act of 1932 doubled the income tax, the sharpest increase in the federal tax burden in American history. Exemptions were lowered, "earned income credit" was eliminated. Normal tax rates were raised from a range of 11/2 to 5 percent to a range of 4 to 8 percent, surtax rates from 20 percent to a maximum of 55 percent. Corporation tax rates were boosted from 12 percent to 133/4 and 141/2 percent. Estate taxes were raised. Gift taxes were imposed with rates from 3/4 to 331/2 percent. A 10 percent gasoline tax was imposed, a 3 percent automobile tax, a telegraph and telephone tax, a 2¢ check tax, and many other excise taxes. And finally, postal rates were increased substantially.
When state and local governments faced shrinking revenues, they, too, joined the federal government in imposing new levies. The rate schedules of existing taxes on income and business were increased and new taxes imposed on business income, property, sales, tobacco, liquor, and other products.
Murray Rothbard, in his authoritative work on America's Great Depression (Van Nostrand 1963), estimates that the fiscal burden of federal, state, and local governments nearly doubled during the period, rising from 16 percent of net private product to 29 percent. This blow, alone, would bring any economy to its knees, and shatters the silly contention that the Great Depression was a consequence of economic freedom.
The New Deal of NRA and AAA
One of the great attributes of the private-property market system is its inherent ability to overcome almost any obstacle. Through price and cost readjustment, managerial efficiency and labor productivity, new savings and investments, the market economy tends to regain its equilibrium and resume its service to consumers. It doubtless would have recovered in short order from the Hoover interventions had there been no further tampering.
However, when Franklin Delano Roosevelt assumed the presidency, he, too, fought the economy all the way. In his first 100 days, he swung hard at the profit order. Instead of clearing away the prosperity barriers erected by his predecessor, he built new ones of his own. He struck in every known way at the integrity of the US dollar through quantitative increases and qualitative deterioration. He seized the people's gold holdings and subsequently devalued the dollar by 40 percent.
With some third of industrial workers unemployed, President Roosevelt embarked upon sweeping industrial reorganization. He persuaded Congress to pass the National Industrial Recovery Act (NIRA), which set up the National Recovery Administration (NRA). Its purpose was to get business to regulate itself, ignoring the antitrust laws and developing fair codes of prices, wages, hours, and working conditions. The president's Re-employment Agreement called for a minimum wage of 40¢ an hour ($12 to $15 a week in smaller communities), a 35-hour work week for industrial workers and 40 hours for white-collar workers, and a ban on all youth labor.
This was a naive attempt at "increasing purchasing power" by increasing payrolls. But, the immense increase in business costs through shorter hours and higher wage rates worked naturally as an antirevival measure. After passage of the act, unemployment rose to nearly 13 million. The South, especially, suffered severely from the minimum-wage provisions. The act forced 500,000 Negroes out of work.
Nor did President Roosevelt ignore the disaster that had befallen American agriculture. He attacked the problem by passage of the Farm Relief and Inflation Act, popularly known as the First Agricultural Adjustment Act. The objective was to raise farm income by cutting the acreages planted or destroying the crops in the field, paying the farmers not to plant anything, and organizing marketing agreements to improve distribution. The program soon covered not only cotton, but also all basic cereal and meat production as well as principal cash crops. The expenses of the program were to be covered by a new "processing tax" levied on an already depressed industry.
NRA codes and AAA processing taxes came in July and August of 1933. Again, economic production which had flurried briefly before the deadlines, sharply turned downward. The Federal Reserve index dropped from 100 in July to 72 in November of 1933.
Pump-Priming Measures
When the economic planners saw their plans go wrong, they simply prescribed additional doses of federal pump priming. In his January 1934 budget message, Mr. Roosevelt promised expenditures of $10 billion while revenues were at $3 billion. Yet the economy failed to revive; the business index rose to 86 in May of 1934, and then turned down again to 71 by September. Furthermore, the spending program caused a panic in the bond market, which cast new doubts on American money and banking.
Revenue legislation in 1933 sharply raised income-tax rates in the higher brackets and imposed a 5 percent withholding tax on corporate dividends. Tax rates were raised again in 1934. Federal estate taxes were brought to the highest levels in the world. In 1935, federal estate and income taxes were raised once more, although the additional revenue yield was insignificant. The rates seemed clearly aimed at the redistribution of wealth.
According to Benjamin Anderson, the impact of all these multitudinous measures — industrial, agricultural, financial, monetary and other — upon a bewildered industrial and financial community was extraordinarily heavy. We must add the effect of continuing disquieting utterances by the president. He had castigated the bankers in his inaugural speech. He had made a slurring comparison of British and American bankers in a speech in the summer of 1934…. That private enterprise could survive and rally in the midst of so great a disorder is an amazing demonstration of the vitality of private
Then came relief from unexpected quarters. The "nine old men" of the Supreme Court, by unanimous decision, outlawed NRA in 1935 and AAA in 1936. The Court maintained that the federal legislative power had been unconstitutionally delegated and states' rights violated.
These two decisions removed some fearful handicaps under which the economy was laboring. NRA, in particular, was a nightmare with continuously changing rules and regulations by a host of government bureaus. Above all, voidance of the act immediately reduced labor costs and raised productivity as it permitted labor markets to adjust. The death of AAA reduced the tax burden of agriculture and halted the shocking destruction of crops. Unemployment began to decline. In 1935 it dropped to 9.5 million, or 18.4 percent of the labor force, and in 1936 to only 7.6 million, or 14.5 percent.
The third phase of the Great Depression was thus drawing to a close. But there was little time to rejoice, for the scene was being set for another collapse in 1937 and a lingering depression that lasted until the day of Pearl Harbor. More than 10 million Americans were unemployed in 1938, and more than 9 million in 1939.
The relief granted by the Supreme Court was merely temporary. The Washington planners could not leave the economy alone; they had to earn the support of organized labor, which was vital for reelection.
The Wagner Act of July 5, 1935, earned the lasting gratitude of labor. This law revolutionized American labor relations. It took labor disputes out of the courts of law and brought them under a newly created federal agency, the National Labor Relations Board, which became prosecutor, judge, and jury, all in one. Labor-union sympathizers on the board further perverted the law that already afforded legal immunities and privileges to labor unions. The United States thereby abandoned a great achievement of Western civilization: equality under the law.
"The vast money and credit expansion by the Coolidge administration made 1929 inevitable." The Wagner Act, or National Labor Relations Act, was passed in reaction to the Supreme Court's voidance of NRA and its labor codes. It aimed at crushing all employer resistance to labor unions. Anything an employer might do in self-defense became an "unfair labor practice" punishable by the board. The law not only obliged employers to deal and bargain with the unions designated as the employees' representative; later board decisions also made it unlawful to resist the demands of labor-union leaders.
Following the election of 1936, the labor unions began to make ample use of their new powers. Through threats, boycotts, strikes, seizures of plants, and outright violence committed in legal sanctity, they forced millions of workers into membership. Consequently, labor productivity declined and wages were forced upward. Labor strife and disturbance ran wild. Ugly sit-down strikes idled hundreds of plants. In the ensuing months, economic activity began to decline and unemployment again rose above the ten-million mark.
But the Wagner Act was not the only source of crisis in 1937. President Roosevelt's shocking attempt at packing the Supreme Court, had it been successful, would have subordinated the judiciary to the executive. In the US Congress, the president's power was unchallenged. Heavy Democratic majorities in both houses, perplexed and frightened by the Great Depression, blindly followed their leader. But when the president strove to assume control over the judiciary, the American nation rallied against him, and he lost his first political fight in the halls of Congress.
There was also his attempt at controlling the stock market through an ever-increasing number of regulations and investigations by the Securities and Exchange Commission. "Insider" trading was barred, high and inflexible margin requirements imposed and short selling restricted, mainly to prevent repetition of the 1929 stock-market crash. Nevertheless the market fell nearly 50 percent from August of 1937 to March of 1938. The American economy again underwent dreadful punishment.
Other Taxes and Controls
Yet other factors contributed to this new and fastest slump in US history. The Undistributed Profits Tax of 1936 struck a heavy blow at profits retained for use in business. Not content with destroying the wealth of the rich through confiscatory income and estate taxation, the administration meant to force the distribution of corporate savings as dividends subject to the high income-tax rates. Though the top rate finally imposed on undistributed profits was "only" 27 percent, the new tax succeeded in diverting corporate savings from employment and production to dividend income.
"When Franklin Delano Roosevelt assumed the presidency, he, too, fought the economy all the way…" Amidst the new stagnation and unemployment, the president and Congress adopted yet another dangerous piece of New Deal legislation: the Wages and Hours Act or Fair Labor Standards Act of 1938. The law raised minimum wages and reduced the work week in stages to 44, 42, and 40 hours. It provided for time-and-a-half pay for all work over 40 hours per week and regulated other labor conditions. Again, the federal government thus reduced labor productivity and increased labor costs — ample grounds for further depression and unemployment.
Throughout this period, the federal government, through its monetary arm, the Federal Reserve System, endeavored to reinflate the economy. Monetary expansion from 1934 to 1941 reached astonishing proportions. The monetary gold of Europe sought refuge from the gathering clouds of political upheaval, boosting American bank reserves to unaccustomed levels. Reserve balances rose from $2.9 billion in January 1934, to $14.4 billion in January of 1941. And with this growth of member-bank reserves, interest rates declined to fantastically low levels. Commercial paper often yielded less than 1 percent, bankers' acceptances from 1/8 percent to 1/4 percent. Treasury-bill rates fell to 1/10 of 1 percent and Treasury bonds to some 2 percent. Call loans were pegged at 1 percent and prime customers' loans at 11/2 percent. The money market was flooded and interest rates could hardly go lower.
Deep-Rooted Causes
The American economy simply could not recover from these successive onslaughts by first the Republican and then the Democratic administrations. Individual enterprise, the mainspring of unprecedented income and wealth, didn't have a chance.
The calamity of the Great Depression finally gave way to the holocaust of World War II. When more than 10 million able-bodied men had been drafted into the armed services, unemployment ceased to be an economic problem. And when the purchasing power of the dollar had been cut in half through vast budget deficits and currency inflation, American business managed to adjust to the oppressive costs of the Hoover-Roosevelt "Deals." The radical inflation in fact reduced the real costs of labor and thus generated new employment in the postwar period.
"The professors of earlier years were as guilty as the political leaders of the 1930s."
Nothing would be more foolish than to single out the men who led us in those baleful years and condemn them for all the evil that befell us. The ultimate roots of the Great Depression were growing in the hearts and minds of the American people. It is true, they abhorred the painful symptoms of the great dilemma. But the large majority favored and voted for the very policies that made the disaster inevitable: inflation and credit expansion, protective tariffs, labor laws that raised wages and farm laws that raised prices, ever higher taxes on the rich and distribution of their wealth. The seeds for the Great Depression were sown by scholars and teachers during the 1920s and earlier when social and economic ideologies that were hostile toward our traditional order of private property and individual enterprise conquered our colleges and universities. The professors of earlier years were as guilty as the political leaders of the 1930s.
Social and economic decline is facilitated by moral decay. Surely, the Great Depression would be inconceivable without the growth of covetousness and envy of great personal wealth and income, the mounting desire for public assistance and favors. It would be inconceivable without an ominous decline of individual independence and self-reliance, and above all, the burning desire to be free from man's bondage and to be responsible to God alone.
Can it happen again? Inexorable economic law ascertains that it must happen again whenever we repeat the dreadful errors that generated the Great Depression.
Hans F. Sennholz (1922–2007) was Ludwig von Mises's first PhD student in the United States. He taught economics at Grove City College, 1956&ndash1992, having been hired as department chair upon arrival. After he retired, he became president of the Foundation for Economic Education, 1992–1997. He was an adjunct scholar of the Mises Institute and in October, 2004, was awarded the Gary G. Schlarbaum Prize for lifetime defense of liberty. See Lew Rockwell's tribute. See his article archives. Comment on the blog.
Suddenly the pressure from China to change the world's monetary order is pressing. At the G-8 China asked for the forum to debate proposals for a new global reserve currency! They were largely ignored! China's rising presence in the global economy [$2 trillion reserves now] and the threatening weakness of the $ is prompting China to act in this way and with speed. Not only the Chinese but the French, Finance Minister and Central Bank President called for greater currency stability and a system to avoid piling up currency reserves as we see with the $. It is clear that more and more countries are objecting to the debasement of the U.S. $ through Trade deficits and Quantitative Easing.
In March, the People's Bank of China Governor, Zhou Xiaochuan's proposed that the Special Drawing Right, a synthetic currency, [but one aimed at being a basket of the world's most traded currencies] be used as an international reserve currency that's delinked from sovereign nations. The People's Bank of China reiterated this idea in its 2008 review. It said that, "the IMF should expand the functions of its unit of account, Special Drawing Rights". The new reserve currency should be managed by the I.M.F., as well as for closer international supervision and scrutiny of "overly loose" U.S. financial and monetary policies. Any opposition to these proposals brings much uncertainty to the globe's monetary system, a climate in which gold will rise strongly. Right now central bankers across the world are renewing the gold debate, should they hold more gold in the light of the dangers to the global monetary system?
Previous Chinese proposals on this subject were not welcomed at either the I.M.F. or in member nations of the Organization for Economic Cooperation and Development. Because the G-8 did not entertain the Chinese proposal and it essentially reaffirmed the US $'s status as a reserve currency, China is likely to act unilaterally on the matter, much to the detriment of stability in currency markets and future cooperation in global monetary reform. The boldness of these moves implies a sense of urgency by the Chinese. We believe that action will be seen on this front soon and suddenly.
The possibility of a sudden $ devaluation prior to the end of 2009 will only make the Chinese act more forcefully a large positive for gold!
The Path to a Global Reserve Currency
The Yuan looks as though it will be fast tracked from a protected national currency to an international reserve currency with the first sprint to be completed in 2010. The pace will be dictated by two factors, firstly the pace at which the Chinese dictates and secondly by the I.M.F. schedule for the review of the composition of the S.D.R. in 2010. By that time the Yuan must have a heavy presence in international markets in at least Trade flows.
For the Yuan to move in large amounts, eventually as capital, it must be well used internationally and in such volumes that a large capital amounts can move through the currency markets without disturbing the Yuan exchange rate. This means that the Yuan must be readily available in large amounts in all the international markets that China wants to see the Yuan traded in. What does this imply?
China must release huge amounts of the Yuan into international markets between now and 2010. This would require following a similar route to the one taken by the U.S. $ from 1971 onwards, which led to the $ being the most sought after international currency. With the U.S. in control of the security of the biggest oil producing area in the world the lands surrounding the Persian Gulf they ensured that oil was priced in the U.S. $. This forced it into the coffers of every nation on earth. While China does not have the same leverage, it does sell the cheapest and most sought after manufactured goods everywhere. As Chinese expertise grows, their goods will take a larger and larger path into international markets. Until the rest of the world earns as little as Chinese workers do, the "China advantage" will assist in this growing international presence. The threat to the $ is huge, because eventually in almost every transaction where the Yuan will be used, it will replace the U.S. $.
This will leave a growing amount of the U.S. $ with nowhere to go but home. If this happens, forget rising interest rates, even in the face of inflation?
1612/1634, 16.06.11, 12:12:46 | Blind to the Risks
By Tim Melvin
Blind to the Risks
Street..com Contributor
7/29/2009 4:00 PM EDT
The always excellent quarterly memo from Oaktree Capital Management Chairman Howard Marks is out on the firm's Web site and this quarters' is one of the best yet. Marks is a veteran of the markets, particularly the value and distressed areas that I frequent, and his commentary is a must-read.
This time out he summarizes the history of the investment markets and the continued chasing of returns while ignoring risk that has plagued investors over time. In particular, he thinks the excessive pursuit of ever-higher returns, and the thoughtless use of leverage to achieve them, is the cause of much of the current crisis.
He interestingly remarks that the democratization of investing with brokerage firms pushing the long-term reruns of stocks and the idea that anyone could be the next Warren Buffett was a huge disservice to investors. Rewards were overstated and risks understated.
The mantra of long-term returns from stocks caused investors to totally ignore risks and push prices higher for far longer than valuations justified. Even if stocks do always outperform bonds and bills over the long term, as we have found out in the last 10 years or so, 30 years can be a long time to wait.
The letter also talks about the dangers of ignoring risks. When all the focus is on missing an opportunity with little-to-no thought of the chance of losing money, there is danger in the air.
We are seeing some of that right now. Everyone feels an almost desperate need to get back into the stock market. There is no thought given to the risk inherent in current price levels. As Doug Kass pointed out yesterday, they are only focusing on the good news and dismissing anything that might counter a positive point of view.
I am always puzzled how the desire for larger returns causes people to buy things they do not even begin to understand. Given that there is no way to know the real risks contained in the balance sheet at Citigroup (C) , why would you ever own that stock? What is the loss exposure at Bank of America (BAC) from the Countrywide and Merrill Lynch acquisitions? I do not know and I do not think anyone else does either.
How many years out you we discount the earnings potential for growth stock like Green Mountain Coffee Roasters (GMCR) . What growth rates should I use and at what rate should I discount back the earnings stream?
Any answer to those questions is a guess at best. What is the probability of the holdings in my junk bond fund defaulting? No one takes the time to figure that out before investing and that worries me.
I like to make my decisions on what I know and what I see in the world around me....
1611/1634, 16.06.11, 13:03:04 | Profitably Playing the Next MegaMove
Profitably Playing the Next MegaMove
"Is it not a huge conflict of interest that JP Morgan (JPM), a bank that perpetually ranks among the largest short positions against silver on the COMEX, is the custodian for the iShares Silver Trust (SLV)? According to silver analyst Ted Butler, JP Morgan is consistently among the one or two U.S. banks that hold more than 80% to 90% of the entire commercial net short position in COMEX silver futures. If you have positioned yourself to make huge profits from drops in the price of silver, is it reasonable for you to simultaneously desire investors to buy more physical silver (if indeed the SLV holds the amount of physical silver it claims)?
Is it also not a conflict of interest that HSBC (HBC) bank, a bank that allegedly holds some of the largest short positions against gold on the COMEX, is the custodian for the SPDR Gold Trust (GLD)? If these banks profit when gold and silver drop, and they manage the largest ETFs in the US regarding these respective metals, is it unreasonable to state that these two banks should be barred from acting as custodians of the GLD and SLV? In fact, how is this situation any different than Goldman Sachs's (GS) actions in the past when they originated CDOs and then made a fortune by shorting them…
I have maintained for a long time now, ever since I carefully read the GLD and SLV prospectuses, that any investor that buys the GLD and the SLV and believes that these two investment vehicles are as risk-free and as sound as purchasing physical gold and physical silver is highly delusional. I call the prospectuses of the GLD and the SLV 'Alice in Wonderland prospectuses'…"
1610/1634, 16.06.11, 13:04:37 | What global gold production means to the trader?
What global gold production means to the trader
http://www.24hgold.com/english/news....;contributor=Scott+Wright
There is no denying gold's store-of-value relevance throughout the history of the world. It has been and will always be the ultimate form of currency. Even today gold's alluring and timeless qualities transcend every political, social, and monetary boundary that man puts into place. Gold's core fundamentals will forever be rock solid.
Another key element to gold's fundamentals is simple economics. And it is economics, supply and demand, that will always dictate gold's price over time. On the demand side we have seen a big increase over the years due in large part to population growth and ease of access.
Gold is not just a metal for kings anymore. Over time a large global distribution network has been built that sells gold, in small or large quantities, to anyone who wants to buy it. And with such a rapidly growing world population, especially in the last 100 years, a greater number of people want to own this precious metal.
On the supply side, the onus is on the miners to bring enough gold to market to meet demand. But the miners can't just turn a spigot and spew gold at will. One of the many reasons why gold is precious is its rarity. Simply put, this metal is hard to find. And when it is found, economically extracting it from the earth presents its own challenges.
So far the miners have been able to supply gold to the people. But they've really had to ramp up their efforts in the last century to meet skyrocketing demand. Interestingly over 80% of the gold mined in the history of the world has happened since 1900, with over two-thirds of this volume in just the last 50 years. We've also seen a double in world production just since 1980. This massive production increase is driven by the demand of a growing populace hungry for gold!
But will the mining industry constantly be able to keep up with growing demand? I'll give my opinion on the answer to this question in a bit, but in the mean time I'll say it will continue to be a growing challenge. Mining gold is not as simple as harvesting a crop. This yellow metal is finite, once it is mined there is that much less remaining hidden in the earth.
And these miners have the same geological landscape to work with today as those miners thousands of years ago. The only difference is the low-hanging fruit has already been picked. Gold producers must now search for and mine their gold in locations that may not be very amenable to mining. Many of today's gold mines are located in parts of the world that would not have even been considered in the past based on geography, geology, and/or geopolitics.
And these factors among many are attributable to an alarming trend we are seeing in global mined production volume. According to data provided by the US Geological Survey, global gold production is at a 12-year low. And provocatively this downward trend has accelerated during a period where the price of gold is skyrocketing.
You would think that with the price of gold rising at such a torrid pace gold miners would ramp up production in order to profit from this trend. But as you can see in this chart this has not been the case, at all. Not only has gold production not responded, but it has dropped at an unsightly pace that has sent shockwaves throughout the gold trade.
As the red line illustrates gold's secular bull began in 2001, finally changing direction after a long and brutal bear market drove down prices to ridiculous lows in the $200s. To match this bull the blue-shaded area provides a picture of the corresponding global production trend. And you'll notice that in the first 3 years of gold's bull production was steady. This is not a surprise as you figure it would take the producers a few years to ramp up supply.
But instead of supply increasing in response to growing demand and rising prices, it took a turn to the downside. And what's even more amazing is the persistence of this downtrend. Since 2001 gold production is down a staggering 9.3%! In 2008 there were 7.7m fewer ounces of gold produced than in 2001.
Now from an economic perspective this chart clearly displays the supply side of the imbalance that has shaped this bull. And with gold demand on the rise it is natural for prices to trend higher. But with particular focus on this supply side, let's try to gain an understanding of what this trend may mean for the future of gold.
In my eyes there are two strategic reasons why production is down. First are the growing challenges that gold miners are faced with today. And second is that prices are not high enough for gold companies to make the structural changes necessary to ramp up production.
As for the challenges, these come in all shapes and sizes. And these challenges are quite important to understand. I've dedicated entire essays to gold mining challenges in recent years, so I won't exhaust the subject here. But I will provide a couple of interesting examples.
One of the largest-scale examples is South Africa. SA had long been the world's premier gold producer. As recent as 1970 this country was responsible for over two-thirds of global gold production, producing a whopping 32m ounces that year. Its massive gold deposits that knife through the earth's crust have been the source of a large volume of rich high-grade gold.
But as mentioned above the low-hanging fruit has now been picked. South Africa's easy-to-access near-surface gold zones have been depleted for the most part and the economics are not as robust pulling gold from deeper in the earth. There are other external factors that have contributed to SA's gold mining woes such as currency and power issues. But the fact is less near-surface gold and higher operating costs to mine the deeper gold have led to the fall of South Africa's gold mining dominance.
Interestingly South Africa's rapid production decline was a big impetus for the previous secular gold bull of the 1970s. By 1975 SA only produced about 23m ozs, a nearly 30% decline from 5 years earlier. With such a big drop from the world's largest gold producer there was ample reason for the price of gold to rise.
This trend of declining gold production from South Africa has continued through current. And after such dominance it is amazing that it is no longer the world's largest gold producer. In 2007 China took over the top spot and then in 2008 the United States even passed it by. SA is now number three with Australia right on its heels. In 2008 it produced just over 7m ounces of gold, a staggering 77% drop from 1970 levels and its lowest volume in 86 years.
Well with global gold production obviously growing since 1970, the rest of the world has picked up South Africa's slack. And interestingly it is technology that has enabled this to happen. The mere mention of this technology drives environmentalists crazy, but heap leaching has revolutionized the gold mining industry.
Leaching gold out of ore is not a new or complicated chemical process, but its utilization on a large scale has radically changed the face of mining for gold. Newmont Mining was the first company to roll out this technology on a large-scale basis in the early 1970s, utilizing it at its operations in Nevada's prolific Carlin Trend. And heap leaching is now used at the majority of large-scale gold mines throughout the world.
Having had the chance to tour a massive heap-leach gold mining operation first hand, I must admit this technology is quite impressive. Essentially mined ore is crushed to a certain size and then place on a giant leach pad. The ore is then irrigated with a leach solution (for gold this solution is diluted cyanide) that dissolves the gold out of the ore. After eventually percolating to the bottom of the leach pad this solution is collected for processing.
This leach pad can be thought of like a super-large bath tub. It is lined with a thick layer of plastic, and when the ore is "cleaned" of its gold the bathwater is drained and sent off for processing. The gold is eventually converted back to its physical form via a variety of processes and becomes the shiny yellow metal you see today.
Heap leaching has allowed miners to tap lower-grade gold deposits that would not have been economical prior to this technology. I can't imagine how high the gold price would be today if heap leaching wasn't available. But even with this technology and others, it is still getting harder and harder to find the big gold deposits that will eventually become the next generation of mines.
Finding these deposits requires large-scale exploration efforts. And exploring for and eventually developing gold mines demands massive amounts of capital. This is a major reason why gold bulls are secular in nature. Gold prices need to be high enough, for long enough, to give mining companies the incentive to perform gold exploration and development.
Coming out of a bear the miners were settled into a prolonged period of low prices where there was no incentive to spend money on exploration. And after years of neglect in this area the pipeline of major gold discoveries and mine development projects runs thin. It can take up to 10 years and billions of dollars to build a large-scale gold mine. So perhaps it is no wonder production lags in the first part of a gold bull, such as we are seeing today. It can be looked at as a bear-market-recovery period.
But even though it takes a while to react to higher gold prices, it is still a concern that gold production is continuing to fall 8 years into this bull. And you don't have to look too far at the individual mining companies to see that this problem is industry-wide. We have seen a lot of consolidation in this bull market, with a flurry of M&A activity. But even the miners at the top of the heap, those seemingly at the vanguard of the M&A food chain, have experienced material declines in their production volume.
The world's four largest gold miners combine to produce over one-quarter of the annual mined supply of gold. But amazingly Barrick Gold, Newmont Mining, AngloGold Ashanti, and Gold Fields have 2009 production forecasts that are 20% lower than total volume from just 3 years ago. These four majors will collectively produce 5m ounces less gold than they did in 2006!
There are a myriad of reasons why this is happening across the entire gold mining industry. Whether operational, geological (lower-than-expected grades), geopolitical, environmental, or countless other reasons, presently operating gold mines are producing less and new mines aren't being brought into production fast enough to replace the depleted ones. This is a simple formula for lower overall production.
In terms of the overall economic balance there has long been a large gap between mined supply and total demand. And while this gap has been filled by other major supply sources such as scrap sales and central bank sales, this falling production volume does not bode well for the future balance of the gold trade.
If you are interested in perusing formal supply and demand data on the gold trade, I encourage you to look at that which GFMS puts together for the World Gold Council. Not surprisingly there have been structural supply deficits over the course of gold's secular bull. And while this recent global economic crisis has lowered gold demand on the fabrication front (jewelry and industrial) and increased scrap supply from folks trying to cash in on gold's price strength, it is investment demand that is really going to drive the remaining years of this bull.
And even though investment demand is on the rise, we have only seen the tip of the iceberg considering the rampant inflation fears that will take hold of the markets sooner rather than later. The central banks and scrap sellers will only be able to supplement mined supply so much.
Scrap sales in particular are the second largest supplier of gold, far more than central bank sales. And a good portion of the recent surge is a result of distress selling. This type of selling will quickly be exhausted. The poor souls willing to pawn their jewelry and ornamentals to raise cash will eventually run out of such items to sell. And many of these folks will be buyers again when they realize it is not the end of the world and remember why they owned gold in the first place.
Ultimately it is gold mining, which is responsible for about 60% of total supply, that will carry the burden of meeting what will continue to be growing investment demand. And to answer the question above, yes, the mining industry will be able to keep up with demand over the long run. But the key is, only at the right price.
Even though there has been a lengthy production decline, the world is not running out of gold to mine. And it is not likely that we have seen a peak in mined production. Now the low-hanging-fruit idiom is very important to understand in regards to the future of this industry. It will be more expensive to extract the lower-grade gold that the miners of the past have left us with, but there is still plenty left. Heck, if the price was high enough gold could even be extracted from ocean water. It is all a matter of perspective.
And from what I can see the perspective of today's miner is that the gold price is not high enough and/or has not stayed high enough for long enough yet to warrant any semblance of a growth spurt in this industry. Now this gold bull has ramped capex for exploration up over the 1990s. In the previous decade there was practically no such thing as exploration budgets as those miners that survived had to do just that, survive.
But there have been some impressive gold discoveries in recent years. And there has also been renewed activity at the sites of earlier discoveries that have become economical at this higher gold price. But there has not been a rush to develop operations and bring mines into commercial production. Some of this has to do with the lagging effect that I mentioned above, it just takes time to bring mines online. But miners also want to see consistently higher gold prices before they invest the massive capex that it requires to construct mines.
As an investor there are many ways to take advantage of what will likely be a resurgence of gold production in the latter half of this bull market. First is actually investing in gold. If demand continues to rise, driven by investment, simple economics tell us the price of gold has to rise if supply from the mining side continues to be strained.
Another way to invest is in the stocks of these mining companies. Investing and speculating in gold stocks is riskier than doing so in the physical metal. But because of their profits leverage they offer excellent reward potential. The gold miners that are able to control their operating costs and leverage gold's gains should see their stocks greatly outperform the gains of the underlying metal.
At Zeal we have been trading gold stocks since gold's bull began in 2001. And over this time this sector has been one of the best-performing in the entire markets. We also loaded up on gold stocks in their extreme weakness around the lows of the stock panic. And so far these trades in our weekly and monthly newsletters have excellent unrealized gains.
And there is ample opportunity to buy gold stocks even today as they are still undervalued relative to gold. Gold is pushing forward on its quest to pierce the $1000 barrier and beyond, which should happen this year. And if this happens gold stocks should post awesome gains. If you are looking for a contrarian perspective on these wild and crazy markets and would like a peek at our trades, please subscribe to one of our acclaimed newsletters today.
The bottom line is global mined gold production has fallen at an alarming rate since the beginning of this gold bull. Even though ramping up volume in an infrastructurally-challenged industry is going to lag gold's price rise, this trend must reverse soon if supply is to meet growing demand.
The gold mining industry is indeed faced with a growing number of challenges in producing its product. But these challenges can be overcome if the price is right. And the only way gold miners are going to invest the huge capital it takes to build enough new mines to grow this industry is if the gold price stays high and continues to rise. Ultimately the stocks of the companies tasked with boosting gold production will thrive throughout the course of this secular bull.
Roubini sieht bis Jahresende Rezession u. in 2010 feste Rohstoffpreise
Datum 01.01.1970 - Uhrzeit 01:00 (© BörseGo AG 2000-2009, Autor: Huber Christoph, Redakteur, © GodmodeTrader - http://www.godmode-trader.de/)
New York (BoerseGo.de) - Die Weltwirtschaft steckt noch immer in einer Rezession und wird bis Jahresende darin verbleiben. Dies erklärte der bekannte Ökonomie-Professor Nouriel Roubini von der New York University in einer Konferenz in Australien. Es gebe nun aber Potenzial für ein Licht am Ende eines Tunnels.
Im Vormonat erklärte Roubini, dass die US-Wirtschaft in den nächsten beiden Jahren möglicherweise um rund 1 Prozent wächst und damit deutlich unter dem langjährigen durchschnittlichen Wachstumstrend von 3 Prozent bleiben wird. Die Erholung werde über eine lange Zeit sehr langsam verlaufen. Für die Weltwirtschaft sei im laufenden Jahr mit einer Schrumpfung von 2 Prozent und in 2010 mit einem Wachstum von 2,3 Prozent zu rechnen.
Die Rohstoffpreise dürften im nächsten Jahr wegen dem zu erwarteten Ende der weltweiten Rezession ihren Erholungskurs fortsetzen. Vor allem für 2010 sei mit weiteren Anstiegen zu rechnen. Der Ölpreis könne wegen einem voraussichtlichen Rebound der Nachfrage unter den Rohstoffen am stärksten anziehen und im nächsten Jahr zwischen 70 und 75 Dollar pendeln", führte Roubini in einem separaten Interview gegenüber Bloomberg weiter aus. Nouriel Roubini sagte im Jahr 2006 in richtiger Weise den Beginn der Finanzkrise voraus.
1607/1634, 16.06.11, 13:06:41 | The Great Reflation Experiment
The Great Reflation Experiment
By John Mauldin - August 1st, 2009, 8:30AM
The question we have been focused on for some time now is whether we end up with inflation, or deflation, and what that endgame looks like. It is one of the most important questions an investor must ask today, and getting the answer right is critical. This week, we have a guest writer who takes on the topic of the great experiment the Fed is now waging, which he calls The Great Reflation Experiment..
http://www.ritholtz.com/blog/2009/0....eat-reflation-experiment/
http://de.biz.yahoo.com/05082009/390/china-kauft-kupfer-statt-dollars.html
Thema: Japans Maschinenaufträge steigen erstmals seit 4 Monaten überraschend stark
Emfis News Am: 10.08.2009 07:52:59 Gelesen: 0	# 1	@
Tokio 10.08.2009 Die Aufträge bei japanischen Maschinenbauern ist im Monat Juni erstmals seit vier Monaten wieder angestiegen. Die Aufträge sind gegenüber dem Vormonat Mai um 9,7 Prozent gestiegen und deutet nun auf eine Entspannung der rezessiven Phase in Japan hin.
Insgesamt wurde ein Auftragsvolumen von 1,15 Billionen Yen (11,8 Milliarden US Dollar) gezählt. Dies ist deutlich mehr als von Analysten erwartet. Die Maschinenaufträge sind in Japan ein wichtiger Indikator. Es zeigt die Investitionsbereitschaft der Unternehmen.
Die Entspannung in der japanischen Wirtschaft zeigte sich vergangene Woche bereits bei den besser als erwarteten Unternehmenszahlen. Sony und Honda haben die Analystenschätzungen deutlich übertroffen.
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