Chart Of The Day

Click on chart to enlarge

This is a chart of the silver ETF (SLV), it's share price mirrors the price of silver. As you can see, silver prices are up $4.00 an ounce since May 1. This is a 33% rise in less than five weeks. It's up almost 100% since December (sure beats a 2% CD). A weak dollar and fears of inflation has attracted big interest. Looks like silver will take out it's 2008 high of $21. Silver is a great place to be these days.-Lou

China’s Yu Tells U.S. Not to Be Complacent About Debt

The chinese are very smart people and will not fall for Timmy's sales pitch. They have been using their trade surpluses to buy up natural resources around the globe. They have also doubled their gold reserves over the last five years. They know that U.S. actions will weaken the dollar and result in huge losses on China's 1.4 trillion portfolio of U.S. Treasurys and Agency bonds. If nothing else, China's participation in coming U.S. debt auctions will be severely reduced at a time when record amounts of money need to be borrrowed. The result: higher interest rates, higher inflation and a muted economic recovery. Keep an eye on China they are the rising economic power in the world and hold sway over the U.S economy.-Lou

China’s Yu Tells U.S. Not to Be Complacent About Debt

June 2 (Bloomberg) -- China’s former central bank adviser Yu Yongding will meet Treasury Secretary Timothy Geithner today and tell him the U.S. shouldn’t be complacent about China continuing to buy Treasuries.
“I wish to tell the U.S. government: ‘Don’t be complacent and think there isn’t any alternative for China to buy your bills and bonds’,” Yu said in an interview yesterday. “The euro is an alternative. And there are lots of raw materials we can still buy.”

Yu said he is scheduled to meet Geithner today at the Grand Hyatt Hotel in Beijing.

China is the biggest foreign holder of U.S. Treasuries with $768 billion at the end of the first quarter. Premier Wen Jiabao in March called for the U.S. “to guarantee the safety of China’s assets” and central bank Governor Zhou Xiaochuan has proposed a new global currency to reduce reliance on the dollar.

“China will be shooting themselves in the foot if they push this issue too hard,” said Sean Callow, a senior currency strategist at Westpac Banking Corp. in Sydney. “If they are too alarmist and contribute substantially to a dollar and Treasuries sell off, they are going to feel more pain than just about anybody in the world.”

China is concerned that the U.S.’s spending and planned record fiscal deficit will eventually lead to inflation and a loss of confidence in the dollar, undermining the value of China’s Treasury holdings, Yu said.

Read More:

http://bloomberg.com/apps/news?pid=20601068&sid=aoE7033VGQcI&refer=home

Wells Fargo CEO says California in 'financial ruin'

A big story later this year will be the insolvency of some of the country's largest cities and states. Will Obama write bailout checks or guarantee debt issuance? California is the first state, but look for New York and New Jersey to follow. What do these states have in common you may ask? Well for one thing they have vast social entitlement programs and are endeared to public unions that have saddled them with huge legacy costs. Throw in massive amounts of corruption and you wind up in "financial ruin" but don't worry, the rest of the states that have been fiscally responsible will bail them out.-Lou

Wells Fargo CEO says California in 'financial ruin'

Wells Fargo CEO John Stumpf said Thursday that California’s large budget deficit means state services will have to be cut.

“The state of California is in financial ruin,” Stumpf told those attending a statewide microfinance lenders’ conference at Stanford University. “The budget deficit in California is staggering.”

Stumpf said the recession is taking a toll on some of the loans made to creditworthy borrowers who lost their jobs and fell behind on payments.
“Today we’re charging off loans to people we should have made loans to,” said Stumpf, reiterating that the bank avoided many of the exotic mortgages offered by rivals.

Stumpf’s comments were not intended as guidance on how the San Francisco bank is faring in the second quarter, a bank spokesman said.
The state of California is struggling with a growing budget deficit after tax and financial measures failed at the ballot box this month. Earlier this year, the state delayed tax refunds and other payments due to what State Controller John Chiang called a “cash crisis not seen since the Great Depression.”

The state recently asked the federal government for assistance in guaranteeing California’s short-term borrowings, fearing that it could not raise the money standing on its own credit.

On the national economy, Stumpf said this is his “third rodeo” or downturn. He pointed to the deep recession of the early 1980s when the prime rate hit 21 percent and the struggling economy of the late 1980s that counted most the nation’s largest thrifts and major banks in Texas among its casualties. He says the economic fallout from the dot-com bust and Sept. 11 terrorist attacks was significant but not as harsh as the earlier recessions.

“This one feels different,” Stumpf said. “It feels different in the respect that the whole world is in recession.”

Read More:

http://www.bizjournals.com/sacramento/stories/2009/05/25/daily32.html

As The Dollar Tumbles, Gold Glitters

click on image to enlarge

The yellow line in the above chart is the US Dollar Index and the orange line is the gold ETF GLD. As you can plainly see, the U.S. dollar index is in a severe decline and gold is performing in an inverse fashion (as it should, of course) and rising nicely. Silver is doing even better. The continued weakness in the dollar has also had a depressive effect on the long date U.S. notes and bonds. If this chart doesn't make you want to have Gold in your portfolio, then you will never buy gold (and your wealth will be eaten by inflation).-Lou

Dollar Declines as Slump Prompts Nations to Mull Alternative

This talk of replacing the U.S. dollar as the world's reserve currency is serious stuff with huge ramifications for our country. The dollar is down again today and gold is up to $980 knocking on the $1,000/oz door again.-Lou

Dollar Declines as Slump Prompts Nations to Mull Alternative

June 2 (Bloomberg) -- The dollar dropped to its lowest level against the euro this year on speculation record U.S. borrowing will undermine the greenback, prompting nations to consider alternatives to the world’s main reserve currency.

The 16-nation euro gained for a fourth day versus the dollar as the Russian government said emerging-market leaders may discuss the idea of a supranational currency. The pound strengthened to $1.65 for the first time since October.

“There’s been a lot of talk out of Russia about a new global currency, and that’s contributing toward this latest bout of dollar weakness,” said Henrik Gullberg, a currency strategist at Deutsche Bank AG in London. “These latest comments are just adding to the general dollar weakness we’ve seen recently.”

The dollar slid 0.9 percent to $1.4289 per euro at 10:52 a.m. in New York, from $1.4159 yesterday. It touched $1.43, the weakest level since Dec. 29. The dollar fell 0.5 percent to 96.08 yen, from 96.59. The euro rose 0.4 percent to 137.36 yen from 136.78. The pound traded at $1.6557, compared with $1.6443, after touching $1.6564, the highest level since Oct. 30.

Russian President Dmitry Medvedev may discuss his proposal to create a new world currency when he meets counterparts from Brazil, India and China this month, Natalya Timakova, a spokeswoman for the president, told reporters by phone today. Medvedev first proposed seeking alternatives to the U.S. dollar as a reserve currency in March.

The dollar also declined on speculation “smaller” central banks started today’s selling of the greenback, said Sebastien Galy, a currency strategist at BNP Paribas SA in New York.

“If people believe that there is official pressure behind it, then obviously it puts pressure on euro-dollar on the upside,” Galy said. Galy predicted the 16-nation currency may reach $1.4360 today, a peak last reached in December.

Read More:

http://www.bloomberg.com/apps/news?pid=20601087&sid=a3X76sjV801Y&refer=worldwide

Cartoon from 1934 CHICAGO TRIBUNE

click to enlarge

“Those who cannot remember the past are condemned to repeat it.”

George Santayana, The Life of Reason, Volume 1, 1905

American capitalism gone with a whimper

If anybody knows about marxism it is the Russians. It's irratating to read in the Russian papers about the demise of U.S. capitalism. You will not read this stuff in American mainstream newspapers. It's a sad state of affairs indeed.-Lou

American capitalism gone with a whimper

Stanislav Mishin, Pravda

It must be said, that like the breaking of a great dam, the American decent into Marxism is happening with breath taking speed, against the back drop of a passive, hapless sheeple, excuse me dear reader, I meant people.

True, the situation has been well prepared on and off for the past century, especially the past twenty years. The initial testing grounds was conducted upon our Holy Russia and a bloody test it was. But we Russians would not just roll over and give up our freedoms and our souls, no matter how much money Wall Street poured into the fists of the Marxists.

Those lessons were taken and used to properly prepare the American populace for the surrender of their freedoms and souls, to the whims of their elites and betters.

First, the population was dumbed down through a politicized and substandard education system based on pop culture, rather then the classics. Americans know more about their favorite TV dramas then the drama in DC that directly affects their lives. They care more for their "right" to choke down a McDonalds burger or a BurgerKing burger than for their constitutional rights. Then they turn around and lecture us about our rights and about our "democracy". Pride blind the foolish.

Then their faith in God was destroyed, until their churches, all tens of thousands of different "branches and denominations" were for the most part little more then Sunday circuses and their televangelists and top protestant mega preachers were more then happy to sell out their souls and flocks to be on the "winning" side of one pseudo Marxist politician or another. Their flocks may complain, but when explained that they would be on the "winning" side, their flocks were ever so quick to reject Christ in hopes for earthly power. Even our Holy Orthodox churches are scandalously liberalized in America.

Read More:

http://english.pravda.ru/opinion/columnists/107459-0/

Tough audience those Chinese.-Lou

Geithner tells China its dollar assets are safe

BEIJING, June 1 (Reuters) - U.S. Treasury Secretary Timothy Geithner on Monday reassured the Chinese government that its huge holdings of dollar assets are safe and reaffirmed his faith in a strong U.S. currency.

A major goal of Geithner's maiden visit to China as Treasury chief is to allay concerns that Washington's bulging budget deficit and ultra-loose monetary policy will fan inflation, undermining both the dollar and U.S. bonds.

China is the biggest foreign owner of U.S. Treasury bonds. U.S. data shows that it held $768 billion in Treasuries as of March, but some analysts believe China's total U.S. dollar-denominated investments could be twice as high.

"Chinese assets are very safe," Geithner said in response to a question after a speech at Peking University, where he studied Chinese as a student in the 1980s.

His answer drew loud laughter from his student audience, reflecting scepticism in China about the wisdom of a developing country accumulating a vast stockpile of foreign reserves instead of spending the money to raise living standards at home.

Read More:
http://www.reuters.com/article/usDollarRpt/idUSPEK14475620090601?pageNumber=2&virtualBrandChannel=0&sp=true

Is The Stock Market Signalling Inflation?

Louis Scatigna

Wild day in the financial markets as U.S. stocks and bonds moved both dramatically and inversely. Following the GM bankruptcy announcement at 8am this morning, economic reports showing manufacturing shrinking at a slower pace (but still shrinking) and construction spending rising (from a dismal level) sparked a broad stock market rally. At the same time prices for the 10 year U.S. Treasury tanked causing yields to rise an unusual and large 1/4 % to 3.72%. Commodities continued to rise especially the energy complex with Oil up 3.45% at 67.78 bbl up $2.26. Natural gas futures were up a whopping 10.8% for the day. Food commodities also joined the party with many ag products up over 2%.

Stocks are acting like they are commodities and could be taking off in anticiaptaion of inflation. Stock markets tend to perform well in an inflationary environment. Who would have guessed that the day General Motors declared Chapter 11 that the markets would take flight? The S&P 500 was up 2.58% while the Dow closed up 221 points or 2.6%. I still expect another nasty leg down in this market and had a sneeky suspicion that we were on the cusp of it last week but I may have to rethink my analysis. The Dow, S&P 500 and Nasdaq are all above their 200 day moving averages, a very powerful technical signal of higher prices to come. I would need to see it above the 200 day average for the rest of the week to get more bullish on stocks.

I'm sure the Fed and Treasury share my growing concern about the dollar and treasury prices. The dollar and bonds are absolutely tanking and with that comes inflation and higher interest rates, two things that the fragile economy just can not handle. Gold and silver took a breather today but remain at lofty levels as investors worldwide trade in their ever depreciating U.S. dollars for the only currency that can't be printed.

Chart of the Day

At the end of March the FDIC had about 13 billion left it it's insurance fund. Virtually every Friday there is at least one bank that fails. Two weeks ago the FDIC took over $4 billion hit on Florida's BankUnited. The FDIC is now virtually tapped out and will need to go to for a government bailout as many more banks will fail in the months to come.-Lou

Listen To This Week's Radio Show

Listen to this past Sunday's "The Financial Physician" radio show.

Listen Here:

http://wobmam.com/personalities_lou_scatigna.html

Federal Reserve puzzled by yield curve steepening

This article came out over the weekend. The gist is that the Federal Reserve has no idea why rates are rising in the long U.S. bond market (and they are basically scared sh@t.) Couple this with the Fed's leak last Friday to CNBC stating that the Fed is not targeting interest rates in the bond market and you have what appears to be a agitated Federal Reserve. Why would the Fed leak such a statement? My guess is they don't want to look like they have lost control of the U.S. bond market. If the market senses impotence by the Fed the sell off in bonds and the rising yields as a result will intensify.-Lou

Federal Reserve puzzled by yield curve steepening

By Alister Bull

WASHINGTON (Reuters) - The Federal Reserve is studying significant moves in the U.S. government bond market last week that could have big implications for the central bank's strategy to combat the country's recession.

But the Fed is not really sure what is driving the sharp rise in long-dated bond yields, and especially a widening gap between short and long term yields.

Do rising U.S. Treasury yields and a steepening yield curve suggest an economic recovery is more certain, meaning less need for safe haven government bonds and a healthy demand for credit? If so, there might be less need for the Fed to expand the money supply by buying more U.S. Treasuries.

Or does the steepening yield curve mean investors are worried about the deterioration in the U.S. fiscal outlook, or the potential for a collapse in the U.S. dollar as the Fed floods the world with newly minted currency as part of its quantitative easing program. This might be an argument to augment to step up asset purchases.

Another possibility is that China, the largest foreign holder of U.S. Treasury debt, has decided to refocus its portfolio by leaning more heavily on shorter-term maturities.

With officials still grappling to divine the factors steepening the yield curve, a speedy decision on whether to ramp up the Treasury debt purchase program or the related plan to snap up mortgage-related debt seems unlikely.

"I'm in wait-and-see mode," said one Fed official who spoke on the condition of anonymity. "We laid out the asset purchase plan and we're following it. That is going to have some affect on various interest rates, but together with a hundred other things. So I don't think we should be chasing a long-term interest rate," the official said.

Read More:
http://www.reuters.com/article/ousiv/idUSTRE54U1NZ20090531

Geithner Tells China U.S. Will Tackle Budget Deficit

Geithner says U.S. will shrink it's budget deficit and is committed to strong dollar, do you think China believes him?.-Lou

Geithner Tells China U.S. Will Tackle Budget Deficit

June 1 (Bloomberg) -- Treasury Secretary Timothy Geithner told China that the U.S. wants to shrink its budget gap as soon as an economic recovery takes hold, reassuring the nation that is the biggest holder of U.S. government debt.

The U.S. goal is a deficit of “roughly 3 percent” of gross domestic product from a projected 12.9 percent this year, Geithner reaffirmed today in a speech in Beijing.

Geithner’s maiden visit to China as treasury secretary aims to deepen cooperation in dealing with the global financial crisis in meetings with Premier Wen Jiabao, President Hu Jintao and Vice Premier Wang Qishan. U.S. government debt has this year handed investors the worst loss since at least 1977 on forecasts for ballooning deficits and Wen has expressed concern about the “safety” of China’s dollar assets.

“The Chinese public is worried about the safety of its foreign-exchange reserves,” said Yu Yongding, a senior researcher at the government-backed Chinese Academy of Social Sciences and a former central bank adviser. “If America fails to adjust its economy by increasing its saving rate and reducing its current account deficit another financial crisis triggered by a dollar crisis could be inevitable,” Yu said in an e-mail.
China held about $768 billion of Treasuries as of March.

For the fiscal year that ends Sept. 30, the U.S. deficit is projected to reach a record $1.75 trillion from last year’s $455 billion shortfall, according to the Congressional Budget Office.

‘Sustainable’ Deficit

Geithner said that China’s investments in U.S. financial assets are very safe, and that the U.S. is committed to a strong dollar.

Read More:

http://www.bloomberg.com/apps/news?pid=20601087&sid=aFaYiMwPZyq0&refer=home

G.M. to Seek Bankruptcy and a New Start

GM headquarters in detroit

A sad day indeed when America's icon of industry files Chapter 11. There is an old saying "as goes GM so goes the nation", not very comforting. The taxpayer gets the majority ownership of a corporation losing billions in exchange for $50 billion, great deal (not). The dollar is hitting fresh lows at 6:30am and the US bond yields are rising again. Gold, silver and oil all up smartly as the reflation trade is alive and well. The stock market cares not about the dollar or rising commodities prices or bankruptcy of one of the countries largest corporations, Dow looks up over 100 points-go figure.-Lou

G.M. to Seek Bankruptcy and a New Start

WASHINGTON (NYT)— President Obama will push General Motors into bankruptcy protection on Monday, making a risky bet that by temporarily nationalizing the onetime icon of American capitalism, he can save at least a diminished automaker that is competitive.

The bankruptcy, to be filed in New York, is a moment of reckoning for an industry that was once at the heart of the American economy. It culminates a remarkable four months of confrontation between Washington and Detroit that is expected to result in a drastic downsizing of the company.

It also places the government in uncharted territory as a business owner, as it takes a 60 percent ownership stake in the company during its restructuring.

Reflecting the government’s extraordinary intervention in industry, aides say, Mr. Obama plans to tell the nation on Monday that he believes G.M. can be brought back from the brink of insolvency, even if the company looks almost nothing like the titan of old.

Read More:

http://www.nytimes.com/2009/06/01/business/01auto.html?_r=2&hp