Friday, March 11, 2011

This can't be a good omen for future inflation

click graph for clearer image

Moody's downgrades Spain credit rating


Moody's sliced Spain's credit rating Thursday and warned it may do so again, pounding financial markets as it raised the alarm over Spanish banking woes and spendthrift regions.

New York-based Moody's cut the long-term debt rating by a notch to "Aa2" with a negative outlook, a serious setback to Spain's efforts to quell fears it may need an international financial rescue.

The downgrade came on the eve of a eurozone summit in Brussels to discuss bolstering the euro's defences amid growing speculation that weak member states such as Portugal may follow Ireland and Greece and need massive bailouts.

Spain's government bristled at the decision.

Moody's could have resolved its doubts over the cost of recapitalising the banks "simply by waiting until this afternoon for the Bank of Spain to confirm the necessary amounts," Finance Minister Elena Salgado said.

The finance minister agreed however that more should be done to control spending by semi-autonomous regional governments.

Markets tumbled after the Moody's announcement, which followed a three-month review of Spain's credit. The agency withdrew its top-notch "Aaa" rating from Spain in September, a few months after its rivals Standard & Poor's and Fitch had done so.

The euro traded at $1.3828 a few hours after the Moody's downgrade from $1.3868 beforehand. The Madrid stock market's IBEX-35 index slipped 1.30 percent to 10,422.0 in early afternoon.

The annual interest rate, or yield, demanded by the market in return for buying Spanish 10-year bonds rose to 5.51 percent from the previous day's close of 5.48 percent, approaching what are seen as punitive levels at six percent.

Moody's Investors Service expressed scepticism about Madrid's assumption it can clean up savings banks' balance sheets at a cost of less than 20 billion euros ($28 billion).

"The eventual cost of bank restructuring will exceed the government's current assumptions, leading to a further increase in the public debt ratio," it said in a on

Asian stocks drop after big quake hits Japan

(Reuters) - Asian shares dropped after a massive earthquake hit Japan, including the capital Tokyo, darkening an already bleak mood caused by weak economic data and unrest in Saudi Arabia.

The quake struck just before the close of Tokyo stock trading. Japan's Nikkei average .N225 closed at an intraday and five-week low, down 1.7 percent on the day.

The Hong Kong's Hang Seng share index .HSI was down 1.8 percent, and Nikkei futures in Singapore tumbled more than 3 percent. At 6:50 a.m. GMT, Nikkei June futures were down 2.8 percent at 10,075.

The magnitude 8.9 quake shook buildings in Tokyo, causing "many injuries" and triggered a four-meter (13-ft) tsunami, NHK television and witnesses reported.

The yen extended losses against the dollar after the quake, falling to 83.29 yen to the dollar compared with 82.80 before it on

Black Swan alert - 8.9 Earthquake hits Northern Japan

From: AlJazeeraEnglish | Mar 10, 2011

An 8.9-magnitude earthquake struck Japan's northeastern coast around 0546 GMT on Friday.

It caused a four-metre tsunami in the port city of Kamishi and its tremors shook buildings in the capital Tokyo, over 300 kilometres away.

Follow the live coverage on AlJazeera here

The Driver For Gold You're Not Watching

Jeff Clark, BIG GOLD
9 March 2011
You already know the basic reasons for owning gold - currency protection, inflation hedge, store of value, calamity insurance - many of which are becoming clichés even in mainstream articles. Throw in the supply and demand imbalance, and you've got the basic arguments for why one should hold gold for the foreseeable future.

All of these factors remain very bullish, in spite of gold's 450% rise over the past 10 years. No, it's not too late to buy, especially if you don't own a meaningful amount; and yes, I'm convinced the price is headed much higher, regardless of the corrections we'll inevitably see. Each of the aforementioned catalysts will force gold's price higher and higher in the years ahead, especially the currency issues.

But there's another driver of the price that escapes many gold watchers and certainly the mainstream media. And I'm convinced that once this sleeping giant wakes, it could ignite the gold market like nothing we've ever seen.

The fund management industry handles the bulk of the world's wealth. These institutions include insurance companies, hedge funds, mutual funds, sovereign wealth funds, etc. But the elephant in the room is pension funds. These are institutions that provide retirement income, both public and private.

Global pension assets are estimated to be - drum roll, please - $31.1 trillion. No, that is not a misprint. It is more than twice the size of last year's GDP in the U.S. ($14.7 trillion).

We know a few hedge fund managers have invested in gold, like John Paulson, David Einhorn, Jean-Marie Eveillard. There are close to twenty mutual funds devoted to gold and precious metals. Lots of gold and silver bugs have been buying.

So, what about pension funds?

According to estimates by Shayne McGuire in his new book, Hard Money; Taking Gold to a Higher Investment Level, the typical pension fund holds about 0.15% of its assets in gold. He estimates another 0.15% is devoted to gold mining stocks, giving us a total of 0.30% - that is, less than one third of one percent of assets committed to the gold sector.

Shayne is head of global research at the Teacher Retirement System of Texas. He bases his estimate on the fact that commodities represent about 3% of the total assets in the average pension fund. And of that 3%, about 5% is devoted to gold. It is, by any account, a negligible portion of a fund's asset allocation.

Now here's the fun part. Let's say fund managers as a group realize that bonds, equities, and real estate have become poor or risky investments and so decide to increase their allocation to the gold market. If they doubled their exposure to gold and gold stocks - which would still represent only 0.6% of their total assets - it would amount to $93.3 billion in new purchases.

How much is that? The assets of GLD total $55.2 billion, so this amount of money is 1.7 times bigger than the largest gold ETF. SLV, the largest silver ETF, has net assets of $9.3 billion, a mere one-tenth of that extra allocation.

The market cap of the entire sector of gold stocks (producers only) is about $234 billion. The gold industry would see a 40% increase in new money to the sector. Its market cap would double if pension institutions allocated just 1.2% of their assets to it.

But what if currency issues spiral out of control? What if bonds wither and die? What if real estate takes ten years to recover? What if inflation becomes a rabid dog like it has every other time in history when governments have diluted their currency to this degree? If these funds allocate just 5% of their assets to gold - which would amount to $1.5 trillion - it would overwhelm the system and rocket prices skyward.

And let's not forget that this is only one class of institution. Insurance companies have about $18.7 trillion in assets. Hedge funds manage approximately $1.7 trillion. Sovereign wealth funds control $3.8 trillion. Then there are mutual funds, ETFs, private equity funds, and private wealth funds. Throw in millions of retail investors like you and me and Joe Six-pack and Jiao Six-pack, and we're looking in the rear view mirror at $100 trillion.

I don't know if pension funds will devote that much money to this sector or not. What I do know is that sovereign debt risks are far from over, the U.S. dollar and other currencies will lose considerably more value against gold, interest rates will most certainly rise in the years ahead, and inflation is just getting started. These forces are in place and building, and if there's a paradigm shift in how these managers view gold, look out!

I thought of titling this piece, "Why $5,000 Gold May Be Too Low." Because once fund managers enter the gold market in mass, this tiny sector will light on fire with blazing speed.

My advice is to not just hope you can jump in once these drivers hit the gas, but to claim your seat during the relative calm of this month's level prices.

Jeff Clark is the editor of BIG GOLD, Casey Research's monthly advisory on gold, silver, and large-cap precious metals stocks.

Argentina bans inflation from official jargon; inflation in synonyms breaks out

What a brilliant idea, that will definitely stop those nasty prices rises.

From Merco Press:

Next October Argentines will be going to the polls to vote for president and renew Congress which anticipates a rough political eight months, but before that the administration of President Cristina Fernandez de Kirchner has to weather a round of labour contracts which will be demanding strong adjustments because of the “prices distortion and dispersion” since the word ‘inflation’ has been erased from the official jargon.

However last year the official and notorious Statistics Office, Indec admitted the retail prices index was above 10%, but most private analysts, economic advisors, think tanks, universities, some provincial governments and even the Judicial in its court rulings work on estimates above 25%, because of the “distortions in some products’ prices which make up the family basket”.

Faced with such a situation an alarmed Argentine government then took the unprecedented initiative of inviting the IMF to help draft a new, reliable, consumer prices index, obviously admitting the difficulties of the current manipulation. Such elaboration is expected to take months.

Hmm looks like it didn't work, pity I was sure they were on a winner.

Down the rabbit hole - The day Rick Santelli sparked the Tea Party movement

John Embry - On Gold, Silver and the US$

John Embry of Sprott Asset Management discusses the Gold & Silver market and the USD with Eric King of King World News. John also mentions how he is blown away by the Chinese import levels of Gold & Silver, the first two months of 2011 being bigger than all of 2010, which was 5 times bigger than 2009.......listen here

Gerald Celente: The Markets are Rigged

Keiser Report: Messy Democracies

on Mar 10, 2011

This week Max Keiser and co-host, Stacy Herbert, report from Cairo about markets loving tyranny, a former prime-minister visiting dictators in the desert for JP Morgan and a Central Banker running over bicyclists. In the second half of the show, Max talks to investigative journalist, Lina Attallah, about the role of social media, women and youth in the Egyptian revolution.