Friday, April 29, 2011

Morning Update/ Market Thread 4/29 - Smokin' Edition...

Good Morning,

Equities are climbing again this morning, the last trading day of the month. The dollar continues its slide into nothingness (even relative to other debt saturated currencies), bonds continue higher not in support of equities, oil is higher, gold is in new record territory, silver is still working on breaching the $50 mark despite another attempt to cut it down via margin increases, and food commodities are bouncing slightly after declining yesterday.

It’s typical that a bullish bias exists on the last and first trading days of the month. There was a small movement in the McClellan Oscillator yesterday, so expect a large price move today. Which direction? Well, let me consult my daily pump you up with fluff POMO schedule…

Yep, another $5 to $10 Billion today and every day. Is it ever going to end? I say that if it does we will see an instant return to another wave of deflation. And if they keep it going commodity prices will continue to the moon. Will they keep it going? They have to, the “Fed” doesn’t work for you, they work for the private central banks.

Personal Income and Outlays in March are showing the money printing in action and if this report is even close to accurate then we may be seeing the beginnings of inflation in incomes. If that continues, it will fuel a spiral in inflation expectations that will require more and more money pumping from the “Fed.” Again inflation is hot in this report and I’m certain that aspect of it is understated – here’s Econopray:
The consumer sector got some lift from income growth in March. Personal income in March grew 0.5 percent, following a 0.4 percent gain in February. The latest was a little higher than the median projection for 0.4 percent. Wages & salaries rose a moderate 0.3 percent, softening from 0.4 percent in February.

Consumer spending slowed somewhat in the latest month but was coming off a robust February. Personal consumption expenditures printed at a 0.6 percent rise in March after jumping 0.9 percent the prior month. Analysts had forecast a 0.5 percent gain. The slowing was largely due to a leveling off in durables after the large advance in this component in February. Durables were a little better than many expected as earlier released unit new motor vehicle sales dipped in March. Of course, higher gasoline prices helped boost the nondurables component. Nonetheless, real PCEs managed to gain 0.2 percent, following a 0.5 percent surge in February.

For PCEs in March, strength was led by nondurables (includes gasoline), up 0.9 percent, after a 1.7 percent surge in February. Durables eased to up 0.1 percent, following a 2.1 percent jump the prior month. Services spending advanced 0.5 percent after a 0.4 percent rise the month before.

On the inflation front, the PCE price index continued to be hot, jumping 0.4 percent and matching the February boost. However, the core rate decelerated a bit to a sluggish 0.1 percent rise in March, following a 0.2 percent gain in February. On a year-ago basis, headline PCE inflation worsened to 1.8 percent from 1.6 percent in February. Core PCE price inflation was steady at 0.9 percent on a year-ago basis. The latest core numbers will let the Fed keep arguing that underlying inflation is still soft.

Year on year, personal income growth for March came in 5.3 percent, compared to 5.2 percent in February. PCEs growth posted at a year-ago 4.6 percent, up from 4.5 percent the prior month.

The consumer sector is holding up a little better than expected despite high gasoline prices. The question is whether the price effects are "transitory" as hoped by the Fed. The income gains are at least helping to offset the impact of higher gasoline prices on consumers' budgets.

So then it must be okay to send oil prices to the moon? Heaven help you if you live on a fixed income.

Wait… are wages really increasing or aren’t they? In a separate report, the Employment Cost Index does not show the gains:
A rise in benefit costs fed an above-trend rise in the employment cost index which however shows no acceleration in wages. The ECI rose a quarterly 0.6 percent in the first quarter vs a run of 0.4 percent gains in prior quarters. Year-on-year, the ECI is up 2.0 percent for no change vs the fourth quarter. Wages rose 0.4 percent, the same pace as the fourth quarter, and are up only 1.6 percent year on year. Benefits jumped 1.1 percent for a 3.0 percent year-on-year increase with health benefits for employers up 3.4 percent. For comparison, the year-on-year rate for the CPI was 2.7 percent in March.

I took the liberty of drawing a big fat trend arrow for your wages (err, I mean employment costs). CPI, of course, is trumped and reality is much higher than advertised. I’m giving this report on wages the benefit of a doubt, but who really knows as the data is so widely warped that trust in the money printing central’s data makes one look like an idiot.

Gee, could that be why confidence is being lost in the dollar? Or could that be why China and Russia are on a gold buying binge? Or why central bankers of the world are exchanging their debt backed money from nothing for gold?
Gold Luring Central-Bank Buyers May Extend Record Rally in Price

April 29 (Bloomberg) -- Central banks that were net sellers of gold a decade ago are buying the precious metal to reduce their reliance on the dollar as a reserve currency, signaling demand that may extend a record rally in prices.

As developing countries accelerate purchases, gold may reach $2,000 an ounce this year, compared with a record of $1,538.80 yesterday in New York, said Robert McEwen, the chief executive officer of producer U.S. Gold Corp. Euro Pacific Capital’s Michael Pento, who correctly predicted gold’s highs for the past two years, forecast a 2011 high of $1,600.

Prices reached a record 14 times this month on demand from investors seeking an alternative to the dollar after the currency slumped to the lowest since 2009, U.S. debt widened, and the Federal Reserve signaled April 27 that borrowing costs will remain near zero percent for an extended period. The economy in China, the biggest foreign holder of U.S. Treasuries, grew 9.7 percent in the first quarter.

“China is out to have more gold than America, and Russia is aspiring to the same,” McEwen said yesterday in an interview in New York. “When you have debt, you don’t have a lot of flexibility. China wants to show its currency has more backing than the U.S.”

In 2010, central banks became net buyers for the first time in two decades, adding 87 metric tons in official-sector purchases by countries including Bolivia, Sri Lanka and Mauritius, according to World Gold Council data. China, with more than $3 trillion in foreign-currency reserves, plans to set up new funds to invest in precious metals, Century Weekly reported this week. Russia purchased 8 tons of gold in the first quarter.

China’s Gold Reserves
China, which has just 1.6 percent of its reserves in gold, may invest more than $1 trillion in bullion, Pento said. “China wants to be an international player, and they need to own more gold than they currently have.”

The U.S. Treasury Department projects the government could reach its debt ceiling of $14.3 trillion as soon as mid-May and run out of options for avoiding default by early July. The Fed has kept its benchmark rate between zero percent and 0.25 percent since December 2008 to help stimulate the economy, driving the dollar down 11 percent against a basket of six major currencies during the past year.

“Until monetary policy changes, you’re going to continue to see gold go up,” said Michael Cuggino, who helps manage $12 billion at Permanent Portfolio Funds in San Francisco.

“Ultimately the best thing we can do to create strong fundamentals for the dollar in the medium term is first, keep inflation low, which maintains the buying power of the dollar, and second, create a stronger economy,” Fed Chairman Ben S. Bernanke said on April 27.

Uh, huh. The handwriting has been on the wall for quite some time. But remember, those who produce the money are the ones WHO are really in control. In this nation that would currently be the private banks. They know that the math of debt doesn’t work, and I still think that switching to a gold backed money works for them as long as they are still the ones who control and produce the money.

While the U.S. is supposedly the world’s largest holder of gold, that gold has not been truly assayed for decades, and in that time the central bankers have been acting as if they own it (you really own it). They have acted freely to swap it all over the globe and even though that gold truly belongs to the people, they won’t even allow an audit of their activities. So who knows how much gold there is in reality?

The lesson here is two-fold. First and foremost, what’s most important is WHO controls the production of money. Secondly never trust private individuals with your physical gold – always take and maintain delivery of the real thing – paper gold is an outright swindle.

Speaking of swindle, evidently the EU is tired of being swindled:
Goldman Sachs, JPMorgan Among 16 Banks Probed by EU Over CDS

April 29 (Bloomberg) -- Goldman Sachs Group Inc., JPMorgan Chase & Co. and 14 other investment banks face a European Union antitrust probe into credit-default swaps for companies and sovereign debt.

The European Commission is investigating whether 16 bank dealers, including Citigroup Inc. and Deutsche Bank AG, colluded by giving market information to Markit, a financial information provider. Regulators will also examine whether nine of the firms struck unfair deals with ICE Clear Europe, a clearinghouse for derivatives, shutting out competitors.

“Lack of transparency in markets can lead to abusive behavior and facilitate violations of competition rules,” Joaquin Almunia, the EU’s competition commissioner, said in an e-mailed statement. “I hope our investigation will contribute to a better functioning of financial markets.”

Global regulators have sought to toughen regulation of credit-default swaps, saying the trades helped fuel the financial crisis. The EU’s probe into the CDS market adds to separate investigations in the U.K. and U.S into whether banks colluded to manipulate the London interbank offered rate.

Possible Collusion
Bank of America Corp., Barclays Plc, BNP Paribas SA, Commerzbank AG, Credit Suisse Group AG, HSBC Holdings Plc, Morgan Stanley, Royal Bank of Scotland Group Plc, UBS AG, Wells Fargo & Co., Credit Agricole SA and Societe Generale SA will also be investigated for possible collusion in giving “most of the pricing, indices and other essential daily data only to Markit.”

The commission said this “may have the effect of foreclosing the access to the valuable raw data by other information service providers.” It said some of the clauses in Markit’s licence and distribution agreements “could be abusive and impede the development of competition in the market for the provision of CDS information.”

The EU will also separately investigate credit default swap clearing agreements struck by ICE Clear Europe with Bank of America, Barclays, Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, JPMorgan, Morgan Stanley and UBS.

‘Behaved Badly’
“What we are looking at is whether the main players in the market have behaved badly, have entered into anti-competitive agreements or abused a possible dominant position,” Amelia Torres, a commission spokeswoman, told reporters in Brussels today.

Oh yeah… Collusion, “Lack of Transparency,” Manipulation, Abusive, and most importantly “Behaved Badly.” Uh huh, and just look at the names associated.

Of course we’ve been preaching about this for years. But nothing will be done that has any meaning because they are the ones WHO have wrongly been allowed to control the production of money, and then they sent the bill to you and me. Ridiculous – these banks and their schemes need to be cut down, a truly healthy economy will prove to be elusive until that occurs.

The Chicago PMI was just released for April. It fell from 70.6 to 67.6 which is also below consensus. “Consumer” Sentiment was also just released for April, and came in very close to March’s level at a still depressed 69.8 on their Index.

'Fukushima - gross miscarriage of radiation science'

Someone's smokin' alright - But I think Bernanke plans to keep on tokin'...