Wednesday, January 26, 2011
Egyptian stock market tumbles 4.6 pct on protests
From Bloomberg:
CAIRO (AP) — Egypt's stock market has tumbled over 4 percent a day after massive anti-government protests engulfed the capital and other cities, leaving three people dead.
The benchmark EGX30 index was down 4.63 percent, to 6,411.94 points by 10:45 a.m. local time Tuesday. Its year-to-date losses stand so far at over 10 percent.
The tumble came a day after tens of thousands of Egyptians took to the streets, clashing with police, in a protest modeled after the uprising in Tunisia that led to the toppling of that North African nation's longtime leader.
Egyptians have grown increasingly frustrated with President Hosni Mubarak's 30-year rule, arguing that economic gains have failed to trickle down and that the government has done little to address crippling poverty.
This video of a "Tiananmen Square moment" is being widely circulated on Twitter:Here the protesters vent their anger at a image of President Mubarak:
Egypt president's son & family flee to London
From The Times of India:CAIRO: Egyptian president Hosni Mubarak's son, who is considered as his successor, has fled to Britain along with his family, a US-based Arabic website reported.
The plane with Gamal Mubarak, his wife and daughter on board left for London Tuesday from an airport in western Cairo, the website Akhbar al-Arab said.
The report came as violent unrest broke out in Cairo and other Egyptian cities and hundreds of thousands of people reportedly took to the streets in a Tunisia-inspired day of revolt.
The protesters want Egyptian government to end its 30-year state of emergency and pass a law preventing a president from serving more than two terms, and want the Interior Minister Habib al-Adly to resign.
Protests in Egypt broke out after opposition groups waged an internet campaign inspired by the Tunisian uprising. Weeks of unrest in Tunisia eventually toppled president Zine al-Abidine Ben Ali earlier this month.
A police officer was killed in clashes Tuesday in central Cairo, Egyptian daily al-Wafd reported.
Over 30,000 protesters gathered in Cairo's Maidan al-Tahrir square to take part in the "day of anger", said the spokesman for Egypt's '6 April' opposition movement, Mohammed Adel.
"Police used tear gas and water canon to break up our protest and they arrested 40 of us, but we don't have official figures on the numbers of arrests across Egypt," said Adel.
Supporters of the '6 April' movement, the opposition al-Ghad party, the outlawed Muslim Brotherhood, the al-Wafd party and supporters of former UN nuclear watchdog chief Mohammed El Baradei took part in the protest.
Al-Wafd daily said police arrested 600 people during Tuesday's protests in Cairo, Alexandria, Port Said, Tantan, al-Mahala, Asiut, al-Bahira and al-Quium. More than 200,000 people took part in protests in these cities.
US secretary of state Hillary Clinton said Tuesday Washington believed the Egyptian government was stable and urged restraint on both sides.
Cairo erupts - Susan Mubarak rumoured to have fled to London
As suspected and reported in this blog earlier in the week ---> Egyptian leadership stashing a golden parachute?
This event could have a huge impact on the middle east and Europe. Egypt controls access to the Med from the Middle East, East Africa, Asia and Oceania. A toppling of the Mubarak regime could light a fire under other the anti western movements, such as in Saudi Arabia. Potentially we could see disruptions both to world trade and the supply of oil from the world's largest supplier.
To follow the story from those on ground go to this twitter feed #jan25
The Most Predictable Financial Calamity in History
By Greg Hunter In November 2010, the Federal Reserve announced a second round of economic stimulus commonly referred to as Quantitative Easing (QE2). The reason, according to the Fed, was "progress toward its objectives has been disappointingly slow." So, to try and turn the economy around, the Fed said, ". . . the Committee intends to purchase a further $600 billion of longer-term Treasury securities by the end of the second quarter (June) of 2011, a pace of about $75 billion per month."(Click here to read the complete announcement from the Fed.) QE means the Fed basically creates money out of thin air to buy debt. The current money printing orgy is financing more than half of U.S. government right now. The first round of QE bought toxic mortgage debt and bailed out the bankers.
What was not said in the press release was much more important and may go down as one of the biggest turning points in the history of America. Bringing on QE2 meant QE1 ($1.75 trillion) failed to provide a sustained recovery. It also exposed the $12.3 trillion total spent or loaned by the Fed since the meltdown of 2008 failed to give the economy a lasting boost. The Fed did save some businesses and all the big Wall Street Banks from bankruptcy, but we now know nothing has really been fixed.
This brings me to one really important question. I put this question to a group of well-known market experts, economists, investment bankers and big thinkers. The five guys you are about to hear from have at least one major thing in common. They all predicted tough times for America when most didn't see it coming. So, I asked them all last week to peer into the not-so-distant future for their take on "What happens when QE2 ends?"
World renowned gold expert Jim Sinclair said, "States and Municipalities can and will go broke. The economic impact will act to foil QE. That will result in QE to Infinity regardless of MOPE. (Management of Perception Economics) Therefore, Washington and the Fed will backdoor rescues by buying State & Municipal debt, a form of QE."
Next is prolific writer and author James Howard Kunstler. He specializes in novels about fictional depictions of the post-oil American future. Here's what Kunstler says about the end of QE2, "My guess is the Fed will find some other way to buy distressed securities or "investment-like" things. The models for that are the Maiden Lane portfolios (there's more than one) which are stuffed with crap like bankrupt hotels. Yes, the Fed owns bankrupt hotels! If they don't buy up what are essentially loans gone bad, the system sucks itself into a black hole of compressive deflation. That outcome is likely anyway, because the Fed won't be able to keep up with loans gone bad."
Rick Ackerman, professional trader and founder of the website and newsletter called "Ricks Picks," says, "I don't think there's a snowball's chance in hell that promiscuous easing will end, regardless of what the fraudulent successor to QE2 is called. The commentary running right now at Rick's Picks says that easing in the form of a U.S. bailout of cities and states could become politically necessary as early as this year, although a decision to do so would trigger the worst run on the dollar in history. Look for the bailout to happen anyway, but in a way that tries to obscure the fact that it is being done with funny money. The subterfuge won't work for long, since public workers will figure out quickly that unless their retirement benefits are indexed to inflation, they're going to get paid in confetti."
James Rickards is a heavyweight in the world of finance. He is an expert in Threat Finance & Market Intelligence. "What happens when QE2 ends?" Rickards says, "The Fed never said that QE2 would end; that's a popular misconception but they never said it. What they said was that they would buy $600 billion of intermediate term Treasury securities by June 2011. They never said that was all they would buy. They never said they would stop. The comments were carefully worded so that $600 billion by June was a targeted minimum but they never said anything about a maximum; technically there is no maximum. The first QE program ended in 2010 and the economy immediately began to fall into a double dip. QE2 was hastily put together to truncate the double dip. If they end QE2 the double dip scenario is back on the table. Therefore they will not end it. They will keep monetizing debt, whatever it takes, as long as it takes until there is a self-sustaining recovery. However, none of the predicates of a self-sustaining recovery are in place, therefore they will just keep printing money as far as the eye can see until the process becomes dynamically unstable and the dollar begins to collapse. So, bottom line, it is a mistake to talk about the "end" of QE2 because there is no end in sight.
Finally, economist John Williams of Shadowstats.com predicts a financial meltdown even if QE2 is extended. Williams told me, "I think you will see much greater economic and systemic-solvency troubles ahead than commonly are expected. Accordingly, I would expect a QE3, or an expansion of QE2 before it is scheduled to have been run through."
I can't imagine how the U.S. could stop printing money in June and then turn around and ask the world to start buying our debt again at a rate of $75 billion a month. Of course, we would want to pay discount rates in order to keep mortgages affordable and real estate prices from crashing. There would be no legitimate buyers unless we were paying much higher interest rates. Higher rates are the last thing the Fed wants to see because it would kill what little is left of this so-called "recovery."
In summary, all the experts I polled think QE Will Not End. That will surely mean an imploding U.S. dollar and exploding inflation. This is scheduled to happen by the end of June, making this the most predictable financial calamity in history.
Spain tempts fate with minimalist bank rescue
By Ambrose Evans-Pritchard, UK TelegraphSpain has set in motion a partial nationalisation of its crippled savings banks, or cajas, but stopped short of the giant rescue deemed necessary by some experts to contain the country’s festering crisis.
Finance minister Elena Salgado said capital injections into the cajas would “in no way exceed €20bn [£17bn]”, with a large part coming from the private sector. Spanish banks will have to boost their core Tier 1 capital ratio to 8pc, even stricter than the Basel III rules.
“This is unlikely to be a game-changer, and could potentially unwind the relief rally we have seen in the markets,” said Silvio Peruzzo, RBS’s Europe economist.
“We view €50bn as the minimum recapitalisation for the Spanish banking system that would restore investors’ confidence,” said the bank.
RBS said Spain remains caught in a vice of tightening fiscal policy and a deepening property slump that may culminate in a 40pc fall in house prices, eroding the solvency of the cajas. The Madrid consultants RR de Acuna estimate the overhang of unsold homes at 1.2m......read on
Britain in battle over stagflation
From the UK Telegraph:New figures set to confirm that growth has slowed, while unemployment and oil prices rise – a severe problem that blighted the 1970s.
Fears are growing that the UK is running the risk of a period of painful "stagflation", as official figures should this week show that growth continued to slow down in the final three months of 2010.
Analysts think the economy is already showing symptoms of stagflation – the toxic cocktail of stagnating growth and rising prices that leaves policymakers unable to tackle one problem without making the other worse. Households suffer, as the weak labour market means wages do not keep pace with wider price rises in the economy.
The UK experienced a severe bout of stagflation in the 1970s, when the oil price shock contributed to larger contractions in output and a surge in inflation.
Similar forces are at work in the UK economy now, analysts say, pointing to the persistently above target inflation despite the slowing pace of growth........read on
The Case for Gold - A Minority Report of the US Gold Commission
By Rep. Ron Paul and Lewis Lehrman
published in 2007
More and more people are asking if a gold standard will end the
financial crisis in which we find ourselves. The question is not so much
if it will help or if we will resort to gold, but when. All great inflations
end with the acceptance of real money—gold—and the rejection of
political money—paper. The stage is now set; monetary order is of the
utmost importance. Conditions are deteriorating, and the solutions
proposed to date have only made things worse. Although the solution
is readily available to us, powerful forces whose interests are served
by continuation of the present system cling tenaciously to a monetary
system that no longer has any foundation. The time at which there will
be no other choice but to reject the current system entirely is fast
approaching. Although that moment is unknown to us, the course that
we continue to pursue will undoubtedly hurtle us into a monetary
abyss that will mandate a major reform.
That moment may come very soon—it nearly arrived in the 1979
dollar crisis—but I hope it will not arrive for several years. That way a
greater understanding among more people will prompt a wiser choice
in establishing the new order. The minority views of the Gold Commission
deal precisely with this task. In planning for a constructive
monetary reform the errors of the past and the myths that have evolved
around money must be fully understood and explained. In this report
we have made an effort to analyze the American experience with gold
and to refute the cliches used to condemn the use of gold as money.
No one program is indispensable in outlining the transition from paper
to gold. Every day conditions are different. Today we need a program
different from the one necessary three years ago, and in three years
the conditions again will change. We certainly do not have the same
problem faced by the Germans in 1923, but in 1986 we may. Nevertheless,
outlines of different methods of achieving a convertible currency
can be made; we have done so in these views.
Briefly, we offer two methods, one through the legalization of competing
currencies, the other a government-directed gold standard of
the classical variety. Only future events and attitudes will determine
the best method. We do know that current monetary policy cannot
continue indefinitely, and we are obligated to prepare for better times......read in full (all 243 pages)
Silver IS The New Gold
By Ryan Jordan:Cheap, Industrial Silver is an illusion
From the beginning of the financial crisis in 2008, contrarian investors began murmuring about getting into gold and short term Treasuries. It was almost a mantra: gold and Treasuries… gold and Treasuries. Something missing? There certainly was from the perspective of the silver bugs. But the conventional wisdom, among goldbugs at least, was that silver was a mere "industrial metal" that would easily drop in a weak economy. And those who referred to silver as an "industrial metal" seemed to be backed up by the COMEX exchange in 2008, where the price of silver was basically cut in half, from twenty dollars to below ten. This takedown may have seemed justified at the time because the super rich were not loading up on bulky thousand ounce bars of silver, but smaller, more portable, easily stored amounts of gold. Silver was left out, ignored, shunned, and that seemed to be just the way the market worked.
I remember thinking in the fall of 2008 that part of this push into gold and Treasuries really was motivated by memories of what people did between 1929 and 1932. You see, the last time we had a Depression "gold and Treasuries" was the common sense move to protect assets. Silver in 1930? Silver was practically a base metal, it was in the coinage you used to buy a hot dog. Remember that at the depths of the Depression the mine supply of silver was nearly 5 TIMES the domestic US demand for both industry and coinage!! Things were so bad for silver that western Senators demanded that the U.S. prop up the silver price after having dropped to under 50 cents an ounce! Needless to say, few Americans in the last Depression thought of silver as the go-to monetary metal to protect wealth against a shattered banking system.
Fast forward 45 years and the view of silver as an abundant, cheap industrial metal would be further reinforced in the aftermath of Silver Thursday in 1980. This is because the price spike in the mid to late 1970s was not coming from industrial demand- that peaked about six years earlier, in 1974. Rather the price surge was coming from the Hunt Brothers' Corner on the COMEX: in other words, investment demand. All that was needed was for the COMEX to change the rules on the Hunts- a kind of capital control against the longs- and the price collapsed. As the price collapsed over 60% in the 1980s (with the help of government dishoarding), and as mine supply increased, once again the perception continued that silver was some sort of easily extractable, base metal. Gold was the money of the bankers- "he who has the gold makes the rules" was the tried and true saying. Silver? A distant second as far as those trying to insure their assets were concerned.
Suffice to say, most people in the investment world have been conditioned to believe that a silver shortage is impossible, in addition to being fixated on gold as the only insurance you need for your portfolio. This is the power of recent history, of the language that is used to describe silver (its industrial), and a view that is still encouraged by some gold dealers. While I haven't done a poll, I would bet many in the gold industry assume that a genuine silver shortage for industrial purposes is highly unlikely. This perception is largely reinforced by the major world market maker in the white metal, the COMEX division of the New York Mercantile Exchange.
COMEX and Thin Ice on the Hudson
In my mind, the COMEX is simply a warehouse and storage center for silver. A large warehouse, yes, but a warehouse that is, frankly, living off of its former glory: once the exchange legitimately had access to hundreds of millions silver ounces that could be sold, but now it likely has less than 50 million ounces for sale (this data is almost a year old), or about 1.5 billion dollars. And given the lack of government stockpiles, and how little new mine supply goes into bullion, this 50 million ounces is in many ways irreplaceable. (I will address jewelry and silverware stockpiles below). To further show how small this 50 million silver ounces number is, the COMEX has less silver for sale than is stored by a well-known gold and silver closed-end fund, the Central Fund of Canada (the COMEX also has much less silver than the SLV ETF, but I realize many question what this ETF actually has under its direct control.) So why does the COMEX have such sway in the silver market? Because the COMEX enables big players to buy on paper, with big leverage- I guess what they call "liquidity" in the world of finance. On any given day the COMEX trades millions and millions of these paper "ounces" of silver. The vast majority of these contracts are not settled in physical silver- it is impossible to do so! But the volume of money passing through and over this silver warehouse is what makes the COMEX the alpha dog, the leader of the pack in terms of setting the world price in silver.
But in this era of uncertainty regarding our financial system, the paper leveraged nature of the COMEX leads many to question its viability as the world market maker in silver. Because at the end of the day, the paper game played on the COMEX demonstrates how floating exchange rates allow for the irresponsible mispricing of important strategic and industrial assets like silver (but the list could be included to other commodities.) Worse, there is a motive for banks in league with the Federal Reserve to use as many of their Federal Reserve Notes to play the short side of the paper game, even though these banks know full well they could not deliver on what they are selling short. But banks likely play this game to maintain the image that the fiat dollar is doing just fine: large price moves higher in gold and silver are a warning light regarding the end of the fiat dollar. However, the lower the silver price is kept by large banks and their naked short positions, the more silver is consumed in spite of a tightening physical market. The silver paper market, in other words, is completely and totally disconnected from the realities of supply and demand on the ground.
The casino-like quality of this paper market is related to the fallacy that you can just print more and more money and not have incredible shortages erupt in goods that cannot be printed. We are already seeing shortages for real things in places like Tunisia- we all have to wonder how long before these kinds of shortages come to the western world. But the FED is convinced that it can solve the employment problem with cheap money, and will continue to pretend the looming inflation problem does not exist. And the FED is not only showing disregard for poor people whose budgets are easily consumed by food increases. The callous attitude of the Federal Reserve System also extends toward the holders of capital- epitomized with the zero percent interest rate policy. This attitude is an expression of the fallacy that the holders of capital will always be relied upon to invest capital into risk taking ventures such as mines or other productive enterprises. This is a very dangerous, stupid assumption. What if those holders of capital feel abused by the banking elite and government authorities and refuse to take the risks necessary to provide the resources needed for the American economic model of growth at all costs? And what if those holders of capital decide to put their money into something unprintable- like silver? So, in my mind, the COMEX is one more, very important symbol of an unsustainable economic and monetary model. The implications of the COMEX running out of silver, or trying to institute capital controls when it fears a run on silver, could not be more bullish for the holders of the white metal.
For now, though, the COMEX price is generally honored by dealers. Yes, there are premiums for small amounts of silver, but there are not yet significant premiums for larger bars of silver. There are hundreds of thousands of major bullion dealers who aren't big enough to rock the boat of COMEX pricing- at least not yet. But what happens if the silver inventory at the COMEX keeps dropping- irreplaceable inventory as far as I'm concerned- and all the leveraged paper players try to convert their paper into silver. If there are eighty more paper contracts settled in paper for every one settled in bullion, you get the idea what will happen when the other 79 try to rush into a silver market where the silver does not exist. In other words, the COMEX is susceptible to a bank run.
This is an important point: the silver market does not need any new "investors" for the price to go higher- it simply requires people holding paper silver (which is plentiful) to try to convert it into physical (which is scarce.)
Although the physical scramble could occur by the populace who do not deal with the COMEX, at this point it is much more likely to be initiated at an institution such as the COMEX. When capital controls are put into place at the exchange to end the delivery of silver bullion to investors, there will be hundreds of billions of dollars trying to land on a pile of silver outside the exchange in the single billions of dollars. At some point, some of the estimated 20 billion ounces of jewelry and silverware may come into the market, but likely only at much higher prices. Think about it- how much does women's silver jewelry cost when compared to its scrap value? In other words, silver prices will have to launch significantly higher before this jewelry comes out of hiding. And then, I predict, the Silver Users Association will make sure that it gets first dibs on what is being scrapped, leaving investors in the cold. Quite possibly, silver in coin and bullion will never be as plentiful as gold coin and bullion, even though some people still claim that there is some large overhang of silver which could make the amount of silver bullion equal to that of gold.
The Trend Is Your Friend
As a final point of fact, the above ground stockpile of silver- around 22 to 25 billion ounces and mostly jewelry and silverware at this point- has not changed much over the last half century. (Mind you, at the moment less than 1 billion are silver coins or bullion.) However, the above ground stockpile of gold has grown substantially from under 1 billion to nearly 7 billion ounces over the same time frame. Beside the fact that the above ground ratio of all silver to gold is less than 4 to 1 (and not 45: 1 as currently expressed in the price), the trend in physical gold and silver is clearly toward parity, or at least something close to it. And yet here we are with silver having recently "corrected" in price to a mere $27.50 an ounce, while gold is $1350. Silver- which could one day get awfully close to the price of gold- remains very much a screaming buy.
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University of San Diego Lecturer
University of San Diego, KIPJ 262, 5998 Alcala Park, San Diego, 92110
Primary Tel 619.260.4756
Industry Education/Academia
ryanjordan@sandiego.edu