Doctor Copper

Comments:

Doctor Copper has broken through a key level.  It has dropped below the 200 day MA of 300, and has downward momentum that may soon break the 50 MA.  If it breaches 260, the 50 day MA, we may see a much sharper correction than presently expected.

Breakthrough for US Dollar & Vix

Comments:

As we suspected a few days ago, the US dollar index has broken through a key area of resistance against the 6 major currencies.  The 80 level is broken.
Next area of resistance for the rally to be sustained is the 81 to 82 range.  If this area is broken, we could see 86 or higher. 
This would be quite bearish for commodities over the short run including crude oil, gold and copper.

VIX has sent us a clear message. 
Volatility has returned to the stock market with vengeance.
The 200 day moving average is broken on this weekly chart and the 50 day MA is being tested.
If the 50 day MA is broken, we could see a rapid sell off in stocks.
If it holds, perhaps the market will just slowly grind lower.

Look Again At The Baltic Dry Index

Comments:

We have not looked at the Baltic Dry Index for some time.
What does it tell us?
In the past 10 days it has been in steady decline and now sits well below 3000.
We suspect that much of the inventory restocking is over and we can expect to see further declines in the near future.
In our view, this is yet another deflationary signal.

Middle Eastern Developments

From Trend News:
Iranian official asks Pakistan for help in release of kidnapped diplomats 

During the meeting with his Pakistani counterpart Fahmida Mirza, who is on visit to Tehran,  Iranian Parliamentary Speaker Ali Larijani has asked her to increase efforts to find and release the Iranian diplomats kidnapped in this country, Mehr reported.

One of these diplomats trade attaché of the Iranian consulate in Peshawar Hashmatullah Attarzade was kidnapped in November 2008. The driver of the diplomat was killed.
The Iranian parliament supports development of the relations between the two countries, he said. "There is no obstacle to develop political, parliamentary, cross-cultural and economic relations," he added.
Mrs.Mirza launched her six-day visit to Iran upon her Iranian Counterpart Ali Larijani's invitation Feb.3. During her visit, Mrs. Mirza is expected to meet with President Mahmoud Ahmadinejad and other Iranian officials.

Comments:

Are we seeing the genesis of a new relationship between Pakistan & Iran?
One has nuclear weapons, one wants nuclear weapons (but for peaceful purposes!)
One is strategically located to control the straits of Hormuz where much of the Middle East's crude oil passes through.
This new relationship is one to watch.

 

California Is Dreaming

Pimco Says California Yields May Revisit 2009 Peak (Update1)

Feb. 3 (Bloomberg) -- Kenneth Naehu, who invests $2.5 billion for Bel Air Investment Advisors in Los Angeles, sold California bonds late last year as he saw deficits mounting -- and says he’s not ready to buy back in yet.

Naehu, 43, is among investors including Newport Beach, California-based Pacific Investment Management Co. and Thornburg Investment Management in Santa Fe, New Mexico, forecasting that the state’s yields -- which move inversely to prices -- may increase relative to other municipal bonds because of the financial strains. Pimco, the world’s biggest fixed-income manager, predicts the yield on 30-year debt may rise above 6 percent, the highest since last summer’s fiscal crisis.

California, the world’s eighth-largest economy, faces a $20 billion hole in the budget during the next 17 months. With its cash dwindling, the government may need to issue IOUs for the second straight year unless Governor Arnold Schwarzenegger and two-thirds of the Legislature can agree on a fix. Once the budget is balanced, the state is poised to sell billions of dollars of bonds after flooding the market with $36 billion in debt last year.

“This is a political mess,” said Naehu. “The state is not out of the woods. In fact, one could argue they are in even worse shape than they were before.”

From Bloomberg:
Portuguese Bonds Drop as Borrowing Costs Soar at Bill Auction 

By Matthew Brown

Feb. 3 (Bloomberg) -- Portuguese bonds slid, pushing the yield on the 10-year note up by the most in 11 months, as the country’s borrowing costs soared at a sale of bills on concern the government will fail to curb its budget deficit.
The decline sent the yield on the security to the highest since March, increasing the premium investors demand to hold the debt instead of benchmark German bunds to 147 basis points as of 4:17 p.m. in London, a 10-month high. Credit-default swaps on the bonds rose 29 basis points to a record 196 basis points, according to CMA DataVision, meaning it costs $196,000 a year to insure against losses on the debt for five years.
Portugal sold 300 million euros ($417 million) of 12-month bills today after indicating it planned to issue 500 million euros. The securities were sold to yield 1.38 percent, compared with 0.93 percent at a Jan. 20 auction. Portuguese central bank Governor Vitor Constancio said yesterday that cutting the budget deficit will require “difficult” measures and that the economy is unlikely to catch up with its European peers any time soon.
“The news flow for Portuguese government bonds is rather negative,” said David Schnautz, an interest-rate strategist in Frankfurt at Commerzbank AG. “There is a decent upward risk in spread terms for Portuguese bonds. They could go much further.”
The yield on the 10-year note rose 20 basis points to 4.67 percent.

Comments:

If Schwarzenegger thinks he will be able to continue to borrow and spend in California as he has in the past then he is dreaming.
A large adjustment is developing in the bond market regarding yields.
Who wants to lend Greece, Portugal, Spain, Dubai or California enormous amounts of money without being compensated for the risk through much higher yields?

At some point we will start to see bond auction failures.

This is another deflationary indicator that is supportive of a US dollar rebound.

 

Gold vs US Dollar Index

 

 

Comments:

Notice that the US dollar index is back in the 79 to 79.5 range again as it was in August 2009.
Gold has moved from the $940 to $950 per ounce range in August to $1100 and change today.  It also appears that gold will take a run at the 50 day SMA soon, a very bullish move.

This appears to be good evidence of gold decoupling from the US dollar.
 

Somethings Up In Iran

From: The Dallas Morning News

Mysterious Bush-Bush-Obama meeting at the Oval Office this morning
10:08 AM Sat, Jan 30, 2010

President Barack Obama hosted a pair of Bushes this morning in the Oval Office: former President George H.W. Bush and his son, former Florida Gov. Jeb Bush. Two weeks ago, Jeb's brother, former President George W. Bush, was at the White House talking about Haiti relief with Obama and ex-President Bill Clinton.
The White House described it as a social call, but feel free to speculate. Jeb Bush's presence was unexpected -- the White House hadn't said anything about him being invited. It's all very... bipartisan.


From CNS News:

(CNSNews.com) – Iranian President Mahmoud Ahmadinejad said that Feb. 11 would mark the demise of “the liberal capitalist system,” adding that its champion, America, was on the decline and that Iran and its Islamic Revolution were on the rise.

According to a Jan. 28 translation from BBC Monitoring Middle East, Ahmadinejad spoke on official Iranian television, saying that this year’s “Ten Days of Dawn” celebration, marking the anniversary of the country’s Islamic Revolution, would see the “demise” of the American system.

“I believe that 22 Bahman [ February 11 in the Persian calendar] this year marks the demise of the liberal capitalist system.” Ahmadinejad said.

The controversial Iranian president explained that, 30 years ago, Iran was merely trying to consolidate its newly minted revolution. Today, however, the country was quickly moving to overtake what he claimed was a declining United States.

Ahmadinejad further said that the West, particularly the United States, had been the “biggest historical impediment” to the Islamic Revolution.

“The arrogant and hegemonic powers, which mankind experienced in the past 300 years – and past 60 years in particular – have been the biggest historical impediment in the face of fulfillment of this goal,” he said, according to the BBC.

The fiery Iranian leader predicted the “end” of American “civilization.”

“This means the end of a civilization, the end of a thought, and the end of a system,” said Ahmadinejad.

Comments:

What is Ahmadinejad up to this time?
Planning on blocking the straits of Hormuz?
If so, this could send the price of crude oil through the roof.

Stranger still is the timing of these comments. With the planet Mars, symbolizing the Roman & Babylonian god of war brightly crossing the sky toward the constellation Leo.

See Sky map here.

Odd coincidence.

The Recession Progresses

Click on this interactive map

Recession Map

UK Trouble

Sometimes a graph is worth a thousand words.
Courtesy of Clusterstock:

Major Deflationary Signal

China Property Market ‘Bubble’ Set to Burst, Xie Says (Update1)

Feb. 2 (Bloomberg) -- China’s property market “bubble” is set to burst as the government curbs credit growth and clamps down on speculation, according to independent economist Andy Xie.

As bank lending slows, “it’s very difficult to see this demand continuing,” Xie, formerly Morgan Stanley’s chief Asian economist, told Bloomberg Television in Hong Kong today.

Tougher property policies may lower 2010 sales volumes 10 percent, compared with an earlier forecast for growth of as much as 5 percent, BNP Paribas said in a report today. The Shanghai Composite Index has slid 10 percent this year, the worst performer among the 94 global gauges tracked by Bloomberg, on concern that China will add further lending curbs.

Shanghai Mayor Han Zheng said Jan. 31 property prices are “too high,” undermining sustainable development of the nation’s commercial hub. Asset bubbles are the “real worry” as China emerges from the global financial crisis into a “boom time,” central bank advisor Fan Gang said in Beijing yesterday.

Residential and commercial property prices in 70 Chinese cities rose 7.8 percent in December from a year earlier, the fastest pace in 18 months, the National Development and Reform Commission said. China’s economy expanded 10.7 percent in the fourth quarter, as the government’s 4 trillion yuan stimulus package and a record 9.59 trillion yuan of new loans last year fueled the fastest growth in two years.

Speculation

The government last month raised the amount of money banks are required to keep as reserves and re-imposed a sales tax on homes sold within five years of their purchase. Premier Wen Jiabao pledged in December to stabilize property prices, crack down on speculation and keep housing affordable.

The government told banks to raise interest rates on third mortgages and demand bigger down-payments, a person with knowledge of the matter said. The China Banking Regulatory Commission warned lenders of the risks from “hot money” flowing into the property market, the person said, requesting anonymity because the agency hasn’t published the measures. Mortgage defaults are rising, the person said, without giving figures.

“We’re seeing some significant measures that have been introduced in the last couple of weeks,” Xie said. “If these changes are implemented, the demand from third-flat buyers is going to dry up and it’s going to have a major impact.

Comments:

As the total money supply starts to shrink in China once lending volumes drop, we could see the Chinese economy change from suffering inflationary pressures to deflationary ones like Japan did in the early 1990s.

Euro & Dollar In Mortal Combat

Excerpts from Bloomberg:
Euro Proving No Reserve Asset as Central Banks Shift (Update3) 

Feb. 1 (Bloomberg) -- Investors are pulling cash out of Europe at a record pace as central banks slow euro purchases, jeopardizing its status as a substitute to the dollar as the world’s reserve currency.
Last year, policy makers loaded up on euros, while analysts at Barclays Plc in London and Aletti Gestielle SGR SpA in Milan predicted central bankers would make good on threats to reduce the greenback’s dominance. Now the euro is down 8.1 percent since Nov. 25 in its fastest slide in 10 months amid concern that cash-strapped countries like Greece won’t pay their debts. Billionaire investor George Soros said Jan. 28 that there’s “no attractive alternative” to the dollar.
Traders have spurned European stocks in favor of shares elsewhere for a record 19 straight weeks, “clearly hurting” the currency by draining a net $13 billion from the market, said Geoffrey Yu, a UBS AG analyst. Investors are as bearish on the euro as they were when the 2008 financial crisis was pushing them to the dollar’s perceived safety, futures data show. After buying more euros than ever in 2009’s second quarter, central banks pared back, International Monetary Fund data show.
“The euro can fall further,” said Neil Mackinnon, a former U.K. Treasury official who is a London-based economist at VTB Capital Plc, the investment-banking unit of Russia’s second- biggest lender. “Sovereign-debt risk will continue to be a key theme,” he said. “The stresses created by the fiscal situation in Greece won’t go away quickly.”
Worst Since Inception
Without specifying a timeframe, Mackinnon predicted the euro will weaken to $1.20. If it finishes 2010 at that level, the year’s 16.2 percent loss would be the worst since the currency’s 1999 inception. The currency fell to an almost seven- month low of $1.3853 today, before trading at $1.3907 as of 4:44 p.m. in London.
In addition to concerns that the European Union will have to bail out Greece, speculation that growth will lag behind the U.S. and Japan and that the region’s debt load won’t return to pre-crisis levels for at least five years also are weighing down the euro, as well as assets denominated in the currency.

At last week’s annual World Economic Forum in Davos, Switzerland, New York University Professor Nouriel Roubini said Europe’s fiscal woes are creating “a rising risk” that its single-currency alliance will splinter.

Pessimistic Roubini

“Down the line, not this year or two years from now, we could have a breakup of the monetary union,” Roubini, who predicted the financial crisis a year before it began, said in a Bloomberg Radio interview on Jan. 26. Speaking to Bloomberg Television at the same event, Soros said the euro’s “problems” make it an unviable substitute reserve currency.

“Greece will not default; in the euro area, default does not exist,” European Monetary Affairs Commissioner Joaquin Almunia told Bloomberg Television on Jan. 29 at the Davos forum. The day before, Trichet said he’s “confident” that Greece will take the right steps to reduce its deficit.
All euro economies this year will breach the EU’s budget- deficit ceiling of 3 percent of gross domestic product, the commission predicts.
If continental authorities don’t “step up their efforts to restore confidence” soon, investors “could start questioning the long-term strength of the euro,” said Michiel de Bruin, who helps manage about $28 billion as head of European government bonds in Amsterdam for F&C Asset Management.

PW:  I thought the bit about Greece not defaulting and that default does not exist quite amusing in a dark satirical sort of way.

Comments:

The Euro is in trouble. 
Many of its members are running budget deficits on the order of 10% of GDP, much higher than the 3% limit set by the Maastricht treaty.
Will these budget rogues rein in their spending?  At this point it seems unlikely.
The only country that seems to be taking substantial steps toward frugality is Spain.
Greece is a country will a history of defaults over the past 200 years.
We briefly examined the situation there is a recent post.  Its All Greek To Me
We also believe that the English Pound is in great difficulty.
It is our view that a currency crisis in England could be the trigger for the next great global crisis.
We expect this would, at least temporarily, cause a run back to the US dollar.
This is not necessarily what the power elite want to see.  For they wish to see a weak US dollar and the eventual introduction of a new global currency, perhaps based on SDRs (Special Drawing Rights) through the IMF. 
One thing that is very clear, is that the elite do not like gold, after all, they can not easily control or manipulate it, and by extension, us.

 Power Elite Agenda

Trouble In The UK

Excerpts from Bloomberg:
U.K. Risks ‘Greek-Style’ Crisis, Conservatives Say (Update1)
By Craig Stirling

Jan. 31 (Bloomberg) -- George Osborne, finance spokesman for Britain’s opposition Conservatives, said the U.K. risks a “Greek-style budget crisis,” as opinion polls showed his party may struggle to win sufficient electoral support to control the pace of debt-cutting measures.
“Britain, with the largest debts, the largest borrowing of any major economy in the world, has to deal with this problem,” Osborne told the British Broadcasting Corp.’s Sunday AM show today. “If we don’t, we risk a Greek-style budget crisis that will put interest rates up.”
With the election due by June, four polls published this weekend showed the Conservatives with less than a 10 percentage- point lead over Prime Minister Gordon Brown’s ruling Labour Party. Analysts including Anthony Wells, a pollster at YouGov, say that’s the margin needed to be certain of a Parliamentary majority. Osborne’s call to prioritize budget cuts adds to the squabble between the parties in a campaign where the deficit has taken center stage.

The budget deficit, expected by the Treasury to reach a postwar high of 12.6 percent of gross domestic product in the fiscal year through March, may remain the battleground as the election approaches. Osborne, Chancellor of the Exchequer Alistair Darling and Liberal Democrat Treasury spokesman Vince Cable may clash on the economy in a televised debate, the Sunday Times reported today.
‘Albatross of Debt’
Osborne said today that Britain faces an “albatross of debt” and called for “early action.”
“That means a credible plan to deal with Britain’s budget deficit so we can keep interest rates lower for longer,” Osborne said. “That’s the absolute key part of having a stronger recovery.” He said that fiscal tightening must be coordinated with the Bank of England’s monetary policy.

Comments:

Deleveraging has come to the UK. 
The sovereign debt is incredibly high at 73% of GDP (not including unfunded liabilities).
And the UK no longer has the privilege of having the Pound Sterling as reserve currency since WW2.
Britain is the country to watch in my view.  Once the currency crisis starts here we expect the stock market to collapse.
We anticipate the US dollar will be the temporary safe haven when this occurs.
Then, at some future date, the US dollar itself will be under pressure as American deficits and debts continue their record grow rates.
Precious metals remain the safe haven.
With a stronger US dollar temporarily, gold and silver may pull back significantly to present an excellent buying opportunity to convert fiat currency into something that is a long term store of value.