Posted on 04/17/2013 4:54:14 PM PDT by bruinbirdman
Commodity prices have been falling since September, culminating in a rout over the past two weeks. That is a classic warning for the global economy.
It is becoming ever clearer that the roaring boom in global equities since last summer has priced in an economic recovery that does not in fact exist. The International Monetary Fund has had to nurse down its global growth forecasts yet again. We are still stuck in an old-fashioned trade depression, with pervasive over-capacity in manufacturing plant and a record global savings rate of 25pc of GDP.
German car sales fell 17pc in March. That should puncture the last illusions that Germany is about to pull Europe out of a self-inflicted slump.
As you can see from the chart below, the divergence between stock markets and the Deutsche Bank index of raw materials is astonishing to behold, so like the pattern in early 1929.
You have to be careful reading too much into commodities, distorted by China. The time-honoured cycle is a surge of investment that comes on stream at once with a lag. America's shale drive has turned the gas market upside down, diverting liquefied natural gas to Europe and Asia. Copper output in Chile rose 7pc last year. The crash in the Baltic Dry Index for shipping rates is partly a tale of too many ships.
Yet excess supply does not explain the collapse in gold over the past week. Cyprus may have been an incidental trigger. If the EU-IMF Troika is determined to strong-arm the Cypriots into selling most of their pint-sized holding of 14 tonnes
(Excerpt) Read more at telegraph.co.uk ...
Ambrose Evans-Pritchard, a man who never lets gross ignorance stand in the way of an authoritative viewpoint.
It makes sense that the FED and Japan blew it. They were probably manipulating markets to make a killing for one of their handlers and screwed the market up.
I think that the big banks want to keep the money high in the business chain to keep control of the world economy. When the world is run by supply and demand the consumer and capitalists control the economy. The FED can’t easily force business into the direction they want it to go in supply side markets.
He appears to have attended a number of universities, but he doesn't seem to have graduated from any of them nor even attended any classes. So much for his unsubstantiated opinion on the price of gold.
Then there’s India. They’ve continued to dig into their numerous ancient temples looking for more and more and more gold. It was just a matter of time when the gold bugs would finally realize it doesn’t matter if that gold gets slagged out and stashed in a vault or it just sits there in a temple. It’s gold. It’s in India. It has meaning.
Anyone besides me see a family resemblance here? I mean, maybe the problem's genetic...
Buying opportunity. I don’t mind catching falling knives when they’re golden.
That's only fair, they caused the rise, didn't they?
The key target for the Feds is 2%. A rise in interest rates accompanied by inflation will destroy the federal government budget as it will cause an enormous amount of tax revenue to be servicing the national debt, same as Japan finds itself now.
There is inflation in food prices and in municipal utilities such as power, heating and water. The deflation in other commodities is largely found in large ticket items such as cars, airplanes and appliances not because of oversupply but because of underdemand. And the underdemand is due to a lack of dollars in the consumer economy.
The dollars the Fed has printed have been kept out of the consumer economy and kept into the financial markets for the following main purposes:
1. PACIFY RETIREMENT ACCOUNTS: Prop up the stock market. Investment banks use Fed dollars (very little retail investor activity) to buy stocks. This pacifies retirement accounts, props up bank balance sheets and provides an exit for the government to make a profit on stocks it bought in the bailout fever. It doesn’t matter to the feds that equity markets do not reflect fundamentals.
2. PROP UP SELECTED BANKS: Require high bank reserves and pay interest for holding these reserves (in effect a negative interest rate) to keep the banking system from imploding.
3. PROP UP THE FEDERAL GOVERNMENT: Direct purchase or via member banks of government bonds to finance government operations including schools and health.
So the divergence between equities and commodities is easy to see from the perspective that the Fed is propping up banking and government, pacifying retirement accounts and keeping money out of the consumer markets.
More people go onto food EBTS, more leave the labor market and demand for commodities fall as equities rise in response to fed backed buying.
Everyone that has understanding knows the above situation can’t last. The USA is still the world’s largest market but it’s in slow decline mostly by its own design. So the current situation will last a good while longer until there is a real breakaway from the US dollar as the world reserve currency (such as China-Australia). That could be years away but when it hits us we will not be able to recover to where we were.
The way out of the hole we are being driven into is through significant tax reform. The FairTax is the best solution par none.
http://www.fairtax.org/site/PageServer?pagename=FAQs
AEP has a great name, but not a great brain.
That's OK in a steady state world where little changes, but that's not where we are at. We are in HIGHER PRODUCTIVITY WORLD ~ and more and more mechanization, automation, computerization, robotics and improved work methods are cutting costs of operations in every field.
We just don't need as many workers to make anything. We will, within decades, be the world's lowest cost producer ~ and the real question isn't pricing but employment ~ so what do we do?
I"ve proposed a crashprogram to turn this into an OWNERSHIP SOCIETY where the primary source of employment consists of top end management ~ with stockholders, bondholders, and so forth.
The days when we could afford a thin film of 1% owning all the good stuff are over ~ and certainly the time has passed for Gub'mnt ownership ~ that's just one owner stuff suited more for the Dark Ages than modern times. We need to spread the ownership bundle ~ somehow.
I think we are moving towards an economy of independent contractors, where the familiar roles of employer and employee no longer apply to 90% of the workforce (non-government).
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