Sunday, September 27, 2009

Marc Faber on Bloomberg

Marc Faber of the Gloom, Boom & Doom Report did a fantastic interview on Bloomberg this past week. Some choice quotes...

"He [Bernanke] will print like never before in history."
"He [Bernanke] is a criminal."
"The next crisis will bring down the entire capitalistic system."
"The dollar weakness is a symptom of inflation in the system."

Part One:

Part Two:

Part Three:

Thursday, September 24, 2009

Media Begins to Take Notice of Intensifying Trade Wars

We have been talking about a brewing trade war between the US and China since the first posting in our series On Treasury Bonds and Trade Wars back in April. After the news broke two weeks ago that the US would raise tariffs on Chinese tires, The Economist has finally started to cover this issue in an article titled Economic Vandalism.

China is not sitting idly by, however, as they have taken the US to trade court over the tire tariffs:

Beijing announced last week that it will challenge American tariffs on imported Chinese tires at the World Trade Organization.

And now a new row is potentially developing over paper tariffs:

A U.S. labor union and three paper companies have filed a new trade complaint over imports of Chinese paper, possibly fueling tensions between Washington and Beijing amid disputes over tires and other goods.

Since the financial panic that started last fall mostly ended this past spring, global trade has remained quite weak. Stock markets seem convinced that a recovery is already here but the evidence for that is still quite questionable. If global trade does not pick up steadily from here, or if a second wave of panic ensues, trade tensions will continue to build and we could move from the petty trade skirmishes of today to full blown trade wars. If and when this happens, look for the mainstream media to be two steps behind as usual.

Monday, September 14, 2009

Another Gold Correction Imminent?

I received the following email this morning from one of my brokers, Zecco:

This mailing is interesting for two reasons. First, soliciting regular brokerage account holders for gold and silver futures trading shows how mainstream these investments have come over the last few years. When I first started investing in gold in 2005 I never encountered this sort of pitch. Second, the offer to trade at "up to 100:1 leverage" is simply incredible. At this level, a 1% move against an investor will wipe them out. What lunacy.

Zecco is not a bad service though. For my review of Zecco and other brokers please visit my other site Online Broker Review.

For the record, we think that gold still has a long way to go before its bull market ends. Until we see the kind of spectacular parabolic blow off that fits with a generational top, we see no reason to be bearish on gold.

Saturday, September 12, 2009

On Treasury Bonds and Trade Wars IV

We have been on a bit of a hiatus here but that does not mean there have been a lack of interesting developments in the world of economics, finance and geopolitics. Our first order of business is an update to our semi regular series On Treasury Bonds and Trade Wars (view parts I, II and III).

Since the last update in our series, what has happened? In the markets, stocks have been on a tear all around the world. The S&P500 has continued to go straight up since it bottomed in March:

Gold has again breached $1000 and is threatening to take out its all time high. The one year chart for GLD, the Gold tracking ETF, still looks more impressive than the S&P 500:

The US dollar is crumbling, with the dollar index down below 80 and threatening to take out its all time low:

If one were to guess, based on the above charts, in which direction US treasury bonds have moved over the same time frame, what would it be? Down, right? You would be thinking reasonably and logically. You would also be somewhat wrong. Ten year treasuries have consolidated some, for sure, but to the extent that one would expect given other market developments. The trend going back to late last year is still up:

For now, the connection between treasury bonds and trade wars has weakened. We don't think this will last much longer but no one knows for sure.

On the global trade front, as we have predicted, protectionism has continued to increase. In July the EU implemented tariffs on Chinese made steel pipe. And then today rumors were confirmed when the White House announced that tariffs on Chinese tires would be enacted. This is being labeled as the first major trade enforcement action implemented by the Obama administration. The Chinese are none too thrilled and have already responded:

The U.S. violated rules of the WTO and the tariff imposition is a breach of the commitments made by the U.S. at the Group of 20 summits, the [Chinese] ministry said in a statement posted on its Web site, citing spokesman Yao Jian. The move will harm both countries’ interests and produce a chain reaction of trade protectionism, slowing world economic recovery, it added.

This Chinese official fears the same thing that we do. Tariffs tend to work in a tit-for-tat fashion and China is now prepared to tat. One can debate the reason for it, but the global economy has picked up slightly over the last few months. If the recovery continues, increased pressure for tariffs will probably wane. If the recovery stalls or even fails, however, we will be seeing much more of this type of activity. Struggling industrial concerns will continue to pressure their elected officials to "save jobs" and implement tariffs.

We are of the opinion that the recovery is simply freshly issued government money flowing into all aspects of the global economy. The performance of stocks, for sure, has been impressive but global trade has still not picked up to levels one would associate with a real economic recovery. We will need to see trade growth of over 5% with government deficit spending under 5% of GDP before we can feel confident about things. That is not expected to happen by anybody for quite some time.