Thursday, March 31, 2011

Currency Wars: Brazil May Take New Measures Against Inflow of U.S. Dollars

Alexander Tombini, the new Brazilian Central Bank President, said to members of the Committee on Finance and Taxation (CFT), that the Fed (Brazilian) is focused on fighting inflation and is attentive to the inflow of speculative capital in the country and "willing to take new measures" to contain the volatility of the exchange rate.

 Tombini made a presentation to parliamentarians on the macroeconomic situation, defending the recent actions of the CB to control the inflow of capital as the IOF tax on purchases and loans abroad.

According to the committee chairman, Mr Claudio Puty, the monetary authority cautioned that the Brazilian economy has experienced above average growth than, for example, European countries and to illustrate, he recalled that inflation in France reached 6.5%, with an interest rate fixed at 1% per annum.

Tombini parliamentarians reaffirmed that the Bank will work with the economy expected to grow 4% this year

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Goldman Sachs O'Neill: BRICS are No Longer "Emerging"; Will Surpass U.S. And G7

Jim O'Neill, president of asset management at Goldman Sachs in Britain, says that the four countries known as BRIC - Brazil, Russia, India and China - have already left behind the status of emerging economies and must be viewed as a separate category, pointing out that China is already the second largest economy in the world and Brazil, the 7th.

"It is increasingly clear to me that referring to the four BRIC nations as 'emerging' makes no sense,"

"The BRIC countries, along with some other countries, they deserve a status different from many others that can be properly classified as emerging markets."

Goldman Sachs recently reclassified the four countries as "growth markets".

This category would also South Korea, Indonesia, Mexico and Turkey - however, these are "too far" from the BRIC in terms of economic importance, Jim O'Neill wrote in the Financial Times.

It was O'Neil who coined the term BRICs to highlight the economic strength of the four major emerging at the turn of the century. But since then the pace of growth in these countries has exceeded expectations.

The projection is that the size of the BRIC surpass the G7 - the group of industrialized countries of the world - around 2027, about ten years ahead of schedule, says O'Neill.

In the article, he highlights the case of Brazil, which became the seventh largest economy in the world "about ten years earlier than I thought."

By the end of this decade, the BRIC countries should achieve a combined GDP of U.S. $ 25 trillion, compared with about $ 11 trillion today, and about $ 3 trillion at the beginning of the century, O'Neill said.

"At some point this decade, together they will overcome the United States. My guess is that this could happen around 2017-2018."

The economist says being reclassified as "growth markets" does not imply that Brazil, Russia, India and China "will grow every year."

"They grow in cycles, like everyone else. What we want with this is to indicate that, as the global economy continues crawling in this decade, their proportion in the overall GDP should increase."

(from O Estado de Sao Paulo.)

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Fed Finally Releases Records of Secret Loans During Crisis

Just in from Bloomberg

"The Federal Reserve released thousands of pages of secret loan documents under court order, almost three years after Bloomberg LP first requested details of the central bank’s unprecedented support to banks during the financial crisis.

The records reveal for the first time the names of financial institutions that borrowed directly from the central bank through the so-called discount window. The Fed provided the documents after the U.S. Supreme Court this month rejected a banking industry group’s attempt to shield them from public view."

Stay tuned.

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Wednesday, March 30, 2011

Bill Gross: The U.S. Default, U.S Is "OutGreeking" the Greeks: $75T Unfunded Liabilities

The chart above shows some of the unfunded U.S. liabilities. You have read here before that these will not be paid, not with real dollars that is...

According to a Bloomberg report, Bill Gross says that treasuries have little value within the context of a $75 trillion total debt burden.

“This country appears to have an off- balance-sheet, unrecorded debt burden of close to 500 percent of GDP. We are out-Greeking the Greeks.”
The outcome is inflation, currency devaluation and low-to-negative interest rates relative to consumer-price gains - if the country doesn’t reform its entitlement programs.

Previous Congresses (and Administrations) have relied on the assumption that we can grow our way out of this onerous debt burden.

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China To Really Control Housing Prices This Year, Wants Prices to Drop

China is determined to stabilize or even lower new home prices in 2011. According to a statement posted on its website, the government intends to keep prices of new homes and small apartments steady or declining this year.

It will increase supplies of indemnificatory apartments, including low-rent housing and public rental housing.
"The targets were issued after the State Council, or China's Cabinet, required city governments to establish new home price control targets based on local economic growth and disposable income increase, and make them public in the first quarter of 2011.

Chen Zhi, deputy secretary-general of the Beijing Real Estate Association, said the government would strive to achieve the target by securing land supplies, 70 percent of which would be used to build indemnificatory apartments and small and medium-sized commodity apartments.

The government would also continue to counter speculation and strictly implement the latest house purchase limits it rolled out in February, Chen added". (China Daily)

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Japan Considering Covering Nuclear Reactors, or Transferring Nuclear Water Into Tankers

China daily reports that Japan's government is considering the unprecedented measure of covering three nuclear reactor buildings at the stricken Daiichi facility with special covers. China is concerned as radiation has also been detected in China (some form of Iodine, which is considered less dangerous)

"The (radiation) figures are rising further," "We need to find out as quickly as possible the cause and stop them from rising any higher."

"We are in an unprecedented situation, so we need to think about different strategies, beyond those we normally think about,"

Local media reports that Japan's government is now considering covering three of the facility's outer reactor buildings with special fabric caps and installing air filters to limit radiation leakage.

The government has also thought about bringing an empty tanker near the No. 2 reactor building to pump several Olympic swimming pools worth of radioactive water into its storage facilities, to be disposed of elsewhere.

One wonders where?

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Which is Better Now, Gold or Silver?

Please note that we track all gold and silver ETFs live here.

INO has released its latest analysis of gold and silver. This video shows you two indicators that can help capture either market when and if the upward trend decides to resume.

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Japanese Restaurants Allow Customers To Test Food For Radiation; Japanese Costs To Rise?

Reuters reports that one of the capital Taipei's top Japanese restaurants is offering diners radiation monitors to check the food and themselves.
Also, Nissan Motor Co in Taiwan said that beginning April 1 parts will be checked for radiation in three stages: before shipment to Taiwan, at the port of arrival, and after assembly.
All finished cars will carry stickers on the lower right corner of their windshields stating "radiation check OK".

Only those that pass, we assume.

We wonder what will happen to all the electronics coming from Japan, and how much the cost will rise.

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Tokyo Electric: $24B Bank Loan Not Enough To Keep It Afloat

You would think that the news coming from Japan must be great today, with its stock market rallying over 2.5%.

Tokyo Electric Power warned on Wednesday that a $24 billion bank loan was not enough to keep it afloat and pay for Japan's worst nuclear disaster.
It's stock price has dropped over 80%, and its president was hospitalized, and the company has been publicly scolded by the prime minister for its handling of the disaster.

 TEPCO said they have not had time to estimate the financial impact but expected it to be "very severe."

"The company had secured 2 trillion yen ($24 billion) in loans from lenders led by Sumitomo Mitsui Financial Group, but that was not enough given fuel and other costs".

You have to wonder about Japanese banks too.

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Portugal in Crisis: Brazil May Buy Portuguese Debt

President Dilma Rousseff said yesterday that Brazil is studying ways to help Portugal. Among those considered is the purchases of Portuguese bonds or debt, or foreign debentures.

Also, the country may anticipate the repurchase of Brazilian debentures owned by the Portuguese government.

Brazil is also a major holder of US treasuries, with $197B as of January (behind China, $1.15T, Japan $885B, U.K. $278B, and all the oil exporting countries packed together at $215B).

How the tables turn.

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The Future of The Nuclear Industry

BNN had a two part segment on the future of the nuclear industry - post Japan earthquake.

Tepco's stock falls to lowest cince the 70s!

Watch Part I, Luis Echavarri, Director General, OECD Nuclear Energy Agency.

Watch Part II

We track nuclear companies and ETFs live here.

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Tuesday, March 29, 2011

Japan May Have Lost The Race To Save Nuclear Reactor: Core of Reactor 2 May Have Melted Onto Floor

The Guardian in the U.K reports that Japan's Fukushima rector 23 core appears to have melted through the bottom of its containment vessel and on to a concrete floor.
The warning was issued after an analysis by Richard Lahey, who was head of safety research for boiling-water reactors at General Electric when the company installed the units at Fukushima.

Lahey said that the Japanese have  "lost the race" to save the reactor. He added however, that there was no danger of a Chernobyl-style catastrophe.

"The indications we have, from the reactor to radiation readings and the materials they are seeing, suggest that the core has melted through the bottom of the pressure vessel in unit two, and at least some of it is down on the floor of the drywell," "I hope I am wrong, but that is certainly what the evidence is pointing towards."

"It won't come out as one big glob; it'll come out like lava, and that is good because it's easier to cool."
"The reason we are concerned is that they are detecting water outside the containment area that is highly radioactive and it can only have come from the reactor core," "It's not going to be anything like Chernobyl, where it went up with a big fire and steam explosion, but it's not going to be good news for the environment."

Nuclear companies and ETFs are tracked here.

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Petrobras: U.S. 35B In Cash, And No More U.S. Dollars Investments

Petrobras, PBR on the NYSE, the Brazilian giant, has $35B in the bank. There are two significant facts on this. First is the size of the balance, and, second, it's that it announced today that it will no longer invest in U.S. dollar denominated bonds.

CFO and Investor Relations at Petrobras, Almir Barbassa said today that the company has $35 billion in cash. He said that this is close to the average annual value of $ 31 billion related to cash generation over the past five years. Barbassa also said that out of the $ 55billion projected for investment in 2011, 10 to 15% should not be executed. According to him, this is a normal practice. Last year, Petrobras invested approximately $45 billion.

He stressed that for the production of 5 billion barrels of pre-salt oil (worth roughly $0.5T), there needs to be an investment of about $8 billion by 2014. However, the total may be $10 billion may be feasible too," he said.

The CFO also said the company may return to the international bond market this year. "We can capture in yen or euro or pound sterling. But there is no volume set, date or currency, " he said. "But certainly we will not capture any do U.S. dollars this year because we recently got $6 billion (in January) in bonds," he said.

According to Barbassa, the eventual decision to exclude U.S. dollars is part of a policy of diversification of the company that is not related to the weakening U.S. dollar.

Curiosity: This is post number 2,200!

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There is NO Shortage of Physical Gold in China; Yearly Production is Increasing

Contrary to popular perception or what the gold bugs may say, gold production has been increasing in recent years. CPM Group's released today the 2011 Gold Yearbook. BNN interviewed Jeffrey Christian, managing director, CPM Group.

"Contrary to what many in the world of gold have been saying, gold production is on the rise".Mr. Christian explains where it's coming from and what's driving this growth".

He says he does not believe the stories that physical gold is in short supply in China, and discusses centrals banks and gold ETFs.

Watch video.

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Portugal and Greece Downgraded - Again: Losing Count Of How Many Times

We have lost count how many times they have been downgraded by the ratings agencies.

Standard & Poor’s has done it again today saying that the European Union’s new bailout rules means both nations may eventually renege on their debt obligations.

Of course they will.

S&P cut Portugal for the second time in a week, to BBB-, which is actually three steps below Ireland (!) . Greece was cut to BB-.

New rules on bailout loans mean (1) sovereign-debt restructuring is a “potential pre-condition to borrowing” from the future European Stability Mechanism and (2) senior unsecured government debt will be subordinated to ESM loans. Both factors are “detrimental to commercial creditors,” the rating company said.

S&P added that  although Portugal could obtain emergency loans without restructuring, the priority given to ESM loans “reduces the prospect of timely payment to government bondholders and likely also results in lower recovery values,”.

“Given Portugal’s weakened capital market access and its likely considerable external financing needs in the next few years, it is our view that Portugal will likely access” Europe’s current and future rescue funds".

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Fed's Bullard: U.S. May Need to End Stimulus Soon - Can't Wait For Crisis To Be Resolved

St. Louis Federal Reserve President James Bullard said that the U.S. may not be able (or willing) to wait for "all global uncertainties to be resolved before they begin normalizing loose monetary policy". He was referring to all the mess that is going on lately,  turmoil in Lybia and the Middle East, the Japanese tsunami and nuclear fallout, the European sovereign debt crisis, the U.S. fiscal situation and possibility of a government shutdown.

"Because we are so accommodative right now, the FOMC may not be willing or able to wait until every single global uncertainty is resolved before we can begin normalizing policy," ]

"If we wait too long we will get a lot of inflation in the United States and around the world."

He also said that the process of normalizing policy "would still leave unprecedented policy accommodation on the table".
"As 2011 started we were about 18 months past the end of the recession, and that's about the kind of timing when I would expect the economy to pick up and start growing fairly rapidly,"

He adds that "failure to address the U.S. fiscal situation would pose a risk to U.S. and global recovery".

"Discussion of the normalization of U.S. policy will likely return as the key issue in 2011," Bullard said

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China Warns on Property Bubble; European and U.S. Crisis Ongoing, Loose Credit Causing More Bubbles

China has warned that a property bubble could still be building up in China, and more action is needed to cool speculation.
China Banking Regulatory Commission (CRBC) has asked lenders to strictly implement rules limiting mortgages to help contain in real estate prices.

It should be noted however, than in China people do not use leverage as they did in the US during the subprime fiasco, and they pay most of the house cost upfront. That's a big difference.

CRBC adds: "There are still some irrational factors in the property market,"

"The performance of the property market has a long-term and important impact on the sound and stable development of banking industry,"

"We will implement the system of monitoring the daily average loan-to-deposit ratio on a monthly basis this year,"

It confirmed that it would rigidly control lending to financing vehicles used by local governments "to circumvent restrictions on their incurring debt, which economists warn could fuel a rise in bad loans in coming years". (Reuters)

"The clean up of local financing vehicles debts has shown initial results, but we should not relax our efforts to control later risks,"

The CBRC is also concerned about global economic prospects in 2011, due to uncertainties posed by the European debt crisis and the very loose monetary policies in certain developed countries.

"The quantitative easing policies adopted by the U.S., European countries and Japan have added more pressure to emerging market inflation and asset prices, creating uncertainties for the world economy,"
"Chinese banks have to make full preparations for future difficulties"

"The Chinese banking industry still faces some challenges in 2011, given the changing and complicated situations at home and abroad,"

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Monday, March 28, 2011

Fed's Mishkin: Crisis Worse Than Great Depression

The Fed governors are out in force today with big statements. Former Federal Reserve Governor Frederic S. Mishkin, and professor of economics at Columbia University in New York (Roubini's buddy?)  said today that the U.S. financial crisis was worse and more complicated than the one that caused the Great Depression.

He adds that we will still have some serious problems such as credit availability for small businesses.
Earlier today we had the comments from Bullard, please see our previous post.

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Fed's Bullard: Fed Should Consider Ending Quantitative Easing

According to James Bullard, St. Louis Federal Reserve Bank President, the economy seems to be doing well enough so that the $600 billion purchase in Treasury securities should end. This is interesting gven all the mess in the world right now.
Some if his comments in Marseille, France:

“The economy is looking pretty good,”

“It is still reasonable to review QE2 in the coming meetings, especially this April meeting, and see if we want to decide to finish the program or to stop a little bit short,”
While the economy is stronger than last summer and fall and quantitative easing should be reviewed, uncertainties remain, including Japan, political tensions in the Middle East, the U.S. fiscal position and the European sovereign debt crisis, Bullard said. U.S. first-quarter gross domestic product may not be as strong as anticipated several weeks ago, and some strengthening may get pushed into the second quarter, he said.

The oil price increases so far are “not enough to derail the U.S. recovery at this level,” “If oil prices stabilize where they are, we’ll be fine.” "Prices would have to go substantially higher for there to be a significant and material effect,”

On ending QE2: “We have to weigh those in the decision” “We’re far away from normal policy,” “I think it’s important to take a few steps back to normality. Even if you make a few small moves, monetary policy will still be accommodative for some time to come.”

End but restart...
“balance sheet should be contingent” and the "Fed should be ready if the economy turns down"

“If the economy is as strong as I think it is then I think it may be reasonable to send a signal to markets that we’re going to start withdrawing our stimulus, and I’d start by pulling up a little bit short on the QE2 program,” “We can’t be as accommodative as we are today for too long, we’ll create a lot of inflation if we do that.”

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Friday, March 25, 2011

Canadian Government Falls

The Canadian Conservative government was declared in contempt of Parliament and has been defeated by a non-confidence motion in the House of Commons.

Canadians will go to the polls for a federal election in early May.

All three of the opposition parties voted in favour of a motion focusing on a committee report that the Conservatives have acted in contempt of Parliament.

The vote passed 156 to 145, triggering the fifth election in just over 10 years, and eneding the current term, after 5 years of minority government.

Investors have nothing to fear, nothing will change in Canada.

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Nissan Racy Ad Going After Ford

Nissan made TV ad in Brazil going after Ford, in which they say that Ford overcharges for its car that competes with one of Nissan's models. The ad was pulled today after Ford complained, however, it is available on You Tube. Lawsuits pending apparently.

The people in the ads rap about how much money they are making.

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GE: Tax Avoidance or Tax Evasion?

The hugely troubled GE recovered from ashes after its incursions in financial activities in recent years. Or did it?

The company reported worldwide profits of $14.2B. This sounds awesome, for a company that was nearly bankrupt. However, GE paid 0 taxes. It actually claimed a tax benefit of $3.2B according to the NYT.

"... low taxes are nothing new for G.E. The company has been cutting the percentage of its American profits paid to the Internal Revenue Service for years, resulting in a far lower rate than at most multinational companies.

Its extraordinary success is based on an aggressive strategy that mixes fierce lobbying for tax breaks and innovative accounting that enables it to concentrate its profits offshore. G.E.’s giant tax department, led by a bow-tied former Treasury official named John Samuels, is often referred to as the world’s best tax law firm. Indeed, the company’s slogan “Imagination at Work” fits this department well. The team includes former officials not just from the Treasury, but also from the I.R.S. and virtually all the tax-writing committees in Congress".

It would seem just unbelievable up until a few years ago but it's is just one more in a number of recent aberrations.

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China: Commodities To Rise Further; Gold Run Near End; Dollar Worse Than Euro

Adding to concerns of worldwide food inflation, China says that loose monetary policies in the developed economies will put even more upward pressure on global commodity prices as well as weigh on the dollar this year.
The People's Bank of China also warned of a deepening of the European debt crisis. It pointed to Europe's debt woes as well as inflation and the potential for asset bubbles in developing markets.

However, it says that the dollar would fare worse than the euro.

Chinese Central Bank: "In 2011, the dollar will be on a downward trend overall, because of the slow recovery of its economy, low interest rates and twin deficits," "The possible spreading of European sovereign debt crisis and geopolitical risks may push up the dollar in some periods."

It adds that short-term interest rates in major economies would gradually rise, but not much:  "But as the global recovery momentum is not strong, the increases will not be too large,"

Furthermore, it says that wealthy nations are printing money to kick-start their economies and that this would inevitable push up prices.

"Developed countries will continue with their loose policies and global liquidity will remain ample, which will keep prices of commodities, especially crude oil and grains at high levels,"

Gold concerns: The bank says that concerns about inflation would trigger demand for gold, but the precious metal's bull run may be near its end:. "We need to note that gold prices have reached historical highs, and its downward risks should not be overlooked,".
"All countries should avoid competitive devaluation of their currencies and pay more attention to risks brought by excessively loose policies on the back of a global recovery,"

We track all commodity ETFs live here.

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Thursday, March 24, 2011

Science: Deep Sea Oil Drilling Allows Us to Reach the Center of The Earth

It is known that Brazil has the expertise to drill deeply into the ocean. It has then technology today because it invested in deep drilling science project many years ago.

Brazilian newspaper O Estado de Sao Paulo reports today that we will soon be able to make a journey to the center of the earth, or at least, to where it starts. So say also group of scientists writing in Nature magazine. They argue that existing technologies are sufficient to pierce our planet's crust until the bottom layer, the mantle - which represents 68% of Earth's mass and remains unexplored. The goal is to better understand the structure of the Earth, the occurrence of earthquakes and enhance mineral exploration.

The scientists propose, in practice, the resumption of the first scientific drilling expedition to the ocean, which occurred 50 years ago, in April 1961, Project Moholo. Although not successful in it goal of traversing the rocky layer that forms the crust, this expedition was able, with the drilled two kilometers from the ground at sea, to develop the technology that now helps to exploit the oil fields in deep seam such as Brazil's pre-salt giant Tupi field.

According to Benoit Ildefonse, University of Montpellier II, France, an author of the article with Damon Teagle, University of Southampton, Great Britain, "thanks to oil companies now have the technology to drill the distance required to reach the mantle."

The goal now is to surpass the milestone of 2,111m, the most that has been reached so far, and drill the required six kilometers to go through the whole crust in its thinnest point, opening a hole of 40 cm that can stay open for many years.

The best point of excavation must have the thinnest crust possible. However, in points with a "high rate of spreading", the crust is still hot, as its formation is recent, which makes drilling very difficult. Thus, according to Ildefonse, they have managed to limit the possible locations to three areas - the coast of Hawaii, Baja California, and Costa Rica, all in the Pacific - where the thickness is the thinnest possible plate and the temperature is sufficiently cold.

"With this analysis directly from the results of drilling, we can calibrate our indirect data and know exactly where the line is the crust / mantle, producing a better model of the Earth," says Ricardo Trindade, a professor at the Institute of Astronomy, Geophysics and Atmospheric, University of São Paulo. "It's fair to say that, in many respects, we know more about space than about our own planet."

According to Ildefonse, learning more about the mantle may be valuable for the understanding of earthquakes, the convergence of tectonic plates, plaque formation in the ocean and its participation in the chemical cycle of the planet - including the carbon cycle.

George Sand, of the Seismological Observatory of Brasilia University (UnB), states that "research will have a huge impact on mineral exploration." He said the drilling could find new deposits, and help in exploration technology.

However, even with the advanced oil drilling technology that led to the development of the Chikyu vessel, which will be used for drilling, it still will take at least 10 years of research before work can start. This is because of the technology must be adapted to the enormous pressure and temperature that the equipment will find greater depths.

Furthermore, it is necessary to secure funding. "We depend much on political will as the amount of money needed for this project is very large," said Ildefonse, noting that Brazil was part of the countries that financed the project during the 1980s.

The payback as we kinow now, was huge.
Oil companies can already drill very deep to reach the huge reserves of oil and gas. According to Kazuo Nishimoto, Department of Naval Architecture and Engineering Oceanographic at USP, the deepest drilling of this type was 12km.

However, this type of drilling was different from what the Moholo project intends to do. This is because the companies are drilling only in sediment areas that have a lower resistances, and low temperatures, presenting relatively minor technical challenges for drilling equipment. This increased sediment layer is characteristic of coastal regions and some other parts of the ocean topography.

Moreover, oil companies typically drill at a depths of about 2km. The regions that the project aims to explore with Moholo are 4 km deep, increasing the pressure on the excavation equipment and generating the need for longer and stronger pipes, which are not yet developed, according to Ildefonse.

Therefore, the project seeks specific areas where sediment accumulation is smaller and the crust thinner, punching virtually only the the hard rock that forms the crust. In this layer, the farthest distance we have been able to drill is 2,111m.

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Portugal in Chaos: To Ask For 50 to 100B Euro Bailout. Third European Country

These are the people that repeatedly denied that the country would need or ask for a bailout, just like Greece, Ireland did (and so does Spain).
Portuguese prime minister Socrates resigned last night after his budget was defeated. Portugal will soon become the thrid European country to ask for an emergency loan from the European Union and the International Monetary Fund (IMF), valued at 50 billion euros and 100 billion euros.

A senior official says: "The rescue of Portugal will be among the main topics of the EU summit today and tomorrow. I believe they will soon ask for the loan,".
"There has been an initial conversation about the value, probably somewhere between 50 billion euros and 100 billion euros, but they have not yet made the request, " he added. According to another authority in the euro zone, the loan amount should be 80 billion euros.

"Socrates will remain as caretaker prime minister. We'll see what he tells us. The European Union and the IMF have never lent money to an interim government, so if Lisbon needs the money before the elections there should be a very creative plan,"

The yield on the Portuguese two-year note jumped 18 basis points to 6.79, the highest level since the euro’s inception in 1999.

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Food Prices to Rise Sharply Soon, General Mills and ETFs

It is not news to anyone who shops for groceries that food prices are rising sharply due to the surge in prices of commodities, the low U.S. dollar, the rise in oil, and increased Chinese demand, etc..

General Mills Inc, GIS, said today that it expects commodities inflation to accelerate. Therefore, it has warned that it will keep raising prices.

So stock up on Cheerios cereal, Progresso soups, and Nature Valley bars.

General Mills actually reported a higher quarterly profit due to a surge in international sales. However, it reported a drop in U.S. cereal buying as its margins are being reduced  by higher costs for ingredients, including grains, meat and dairy.

General Mills expects further and even sharper increases on these items in the fiscal year starting in late May and said that it has little choice but to "pass those costs on to stores that sell its products"

Please note also that  a new agriculture ETF was launched yesterday: CROP, in addition to COW and MOO, DBA.

These are the buy and sell alerts on GIS, currently with a negative score of -55 (access tool trial)

In contrast, COW has a positive score of +55.

( INO's tool trial, 2 months free access).

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Wednesday, March 23, 2011

The Fed is Now Blogging

The New York Fed is now blogging. Will they blog about to whom they are lending money?

Will they have Twitter and Facebook too? Who will be their friends?

Their first blog posting:

"Welcome to Liberty Street Economics"

"On behalf of the Research and Statistics Group of the Federal Reserve Bank of New York, we welcome you to our new blog, Liberty Street Economics, named after the street where the New York Fed is located. We have created this blog to augment our existing publications by providing a way for our economists to engage with the public about economic issues quickly and frequently. Further, the less technical style that we are striving for in the blog posts should make the insights from our research informative to a broader audience".

"You should expect to see posts on diverse issues and from a wide variety of perspectives. We will feature the work of the more than sixty economists in the Research and Statistics Group. This staff of active researchers supports Fed policymaking by providing analytical insight into a range of public policy issues and pursuing research on fundamental questions in economics and finance. In the course of their work here, economists develop expertise on a wide range of economic issues: international economics, asset pricing, corporate finance, banking, macroeconomics, monetary economics, fiscal policy, industrial organization, microeconomics, survey techniques, regional economics, and more. We believe that the blog is an effective medium for meeting our responsibility to share our analysis with you in an accessible and timely way".

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G20 Next To Target Large National Banks: National, But Still Too Big To Fail

Large national banks will be the target the G-20 on the second half of 2011, and risk of having to ensure capitalization levels higher than other banks in the world and ensure system stability. The matter is being reported by Brazilian press today as it will affect major Brazilian banks Bradesco and Itau among others.

The President of the Swiss National Bank, Philipp Hildebrand, confirmed yesterday that the group will begin discussing a new regulation for the operation of large national banks that may pose risks to global economy.

Sources in the Brazilian government promised an "intense negotiations" on the possible limits imposed on national banks.

In late 2010 the G-20 discussed the situation of banks and financial institutions decided that banks with global profiles, such as Citibank, UBS, Credit Suisse and another dozen banks would have to follow more stringent regulations to operate.
At the height of the crisis, global central banks said lthat arge banks and their threats to go bust were the main culprits in the 2008 crisis. At the end of last year, the G-20 accepted the plan to reestablish a new regulation for banks considered "too big to fail". The first list included only major world financial institutions that could cause "systemic impact". "I think it was the right decision to start with this group of banks," said Hildebrand.

These banks have to maintain cash liquidity volume superior to all others. Moreover, the degree of leverage will be lower than the rest of the banks. The limits and amount of money still to be defined during the year.
Asked whether the national banks will have to follow the new requirements, Mr. Hildebrand did not rule out the possibility. "That's what we'll start discussing,".

The Brazilian Federation of Banks (Febraban) cautions, however, that levels of capitalization of Brazilian banks are superior to the rest of the world. The index set by the Basel BC in Brazil is 11%, while the Basel Committee provides 8%. However, on average, Brazilian banks practice a capitalization ratio of 17%, says Febraban.

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Tokyo's Tap Water Contaminated with Radiation

The Japan are government confrmed today that Tokyo's tap water is conminated with radation, at levels that are unsafe for children to drink it.

Although the government has also prohibited the commence of vegetables from Fukushima, Bloomberg says Japan’s government sought to assure people that radiation levels detected in the food chain following a nuclear accident don’t pose a health threat.

"Radioactive iodine levels taken yesterday at a treatment facility in Katsushika ward were double the recommended limit for babies, a city official said in a televised briefing today. The water would pose a health risk if drunk over the long-term, such as a year".

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China's Economy Could Surpass U.S. Within 20 Years

China's economy has already surpassed Japan (even before the earthquake), and now appears ready to vastly surpass the U.S. within 20 years, says the World Bank.

World Bank Chief Economist Justin Lin said otday that China can grow 8 percent annually for the next two decades to become twice the size of the U.S. economy.

China coud become twice as large as the U.S. in two decades, based on so-called purchasing- power parity calculations, or using market exchange rates, it may become the same size.

The World Bank said today that China's economy may continue growing at 8%/year, more precisely, “the potential to achieve another 20 years of 8 percent growth,”

As China's (and other emergin countries) population gets richer and eats better, there are global risks involving surging food, commodity and fuel prices that pose a threat to social stability".

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Tuesday, March 22, 2011

Inflation: U.K. Inflation Rises Steeply to 4.4%

U.K. inflation's rose steeply to 4.4% in February, more than economists forecast. The rate is now the highest in more than two years.
Consumer prices rose 4.4%, the most since October 2008. According to Bloomberg, another report showed the budget deficit unexpectedly widened as well, as government revenue fell.

"Strengthening price pressures pushed three of the bank’s nine policy makers to argue this month for higher interest rates to tame inflation, which is now more than double their 2 percent target. The U.K.’s recovery may still be hampered by the government’s budget squeeze, while officials must also weigh the potential impact on the global economy of the earthquake and tsunami in Japan".

"The gain in inflation was led by clothing prices and the costs of housing services such as heating, the statistics office said. Clothes prices jumped an annual 2.8 percent in February, the most since the data began in 1997. Costs for housing, water, electricity, gas and other fuels were up 3.1 percent on the year, the most since August 2009. "

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Monday, March 21, 2011

Appeal Denied: Fed Must Finally Reveal To Which Banks It Lent Trillions of Dollars

Bloomberg reports that the Fed's appeal not to release loan information has been denined. The Federal Reserve now has 5 days to disclose details of emergency loans made to banks in 2008.

The U.S. Supreme Court rejected an appeal to hide the records from the public.

Matt Winkler, Bloomberg editors, said: “The Federal Reserve forgot that it is the central bank for the people of the United States and not a private academy where decisions of great importance may be withheld from public scrutiny,” “The Fed must be accountable to Congress, especially in disclosing what it does with the people’s money.”

"The justices today left intact a court order that gives the Fed five days to release the records, sought by Bloomberg News’s parent company, Bloomberg LP. The Clearing House Association LLC, a group of the nation’s largest commercial banks, had asked the Supreme Court to intervene.

"The order marks the first time a court has forced the Fed to reveal the names of banks that borrowed from its oldest lending program, the 98-year-old discount window. The disclosures, together with details of six bailout programs released by the central bank in December under a congressional mandate, would give taxpayers insight into the Fed’s unprecedented $3.5 trillion effort to stem the 2008 financial panic".
"Under the trial judge’s order, the Fed must reveal 231 pages of documents related to borrowers in April and May 2008, along with loan amounts. News Corp.’s Fox News is pressing a bid for 6,186 pages of similar information on loans made from August 2007 to November 2008".

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Uranium and Nuclear Companies Soar: List of Companies and ETFs

Nuclear and uranium companies are soaring today, again.

  • Cameco, CCJ, is now up 12% since its lows last week
  • Denison, DNN,  is up 29.7%
  • Uranium One, UUU, is up 25.5%

The URA ETF is also up 20.6%.

We track them live here.

Of course this market remains volatile, and will be subject with any news from Japan. It is prime a candidate for straddles. Here are April versions for Cameco:

These were computed with the StraddlesCalc tool.

(Please do your own due diligence)

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Citibank's Kiss of Death: 1 For 10 Reverse Stock Split

In what used to be the "kiss of death" for a stock, Citigroup Inc. has announced a 1-for-10 reverse stock split, affecting its common shares effective after markets close on May 6.

The bank also said it plans to start paying a quarterly dividend of a penny per share in Q2.

Chief Executive Vikram Pandit: "The reverse stock split and intention to reinstate a dividend are important steps as we anticipate returning capital to shareholders starting next year,".

Please note that we track the 3 strategic banks that indicate market direction live here.

Just do a Google search for "reverse split kiss of death". The last one I held was Nortel. AIG did the same not long ago, and so do all leveraged ETFs like the dreadful VXX and UNG.

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Saturday, March 19, 2011

U.S. Approves Floating Vessels For Oil Exploration in Gulf, Petrobras First To Use, in The U.S.!

This is quite interesting, Petrobras, PBR, the Brazilian giant, is drilling in the U.S. gulf, and was just approved for the first time to use floating vessels, as they do in Brazil, as opposed to using pipelines.

The Bureau of Ocean Energy Management, Regulation and Enforcement's move that could help exploitation of deep water far away offshore fields.

The authorization came from  PBR can begin using a floating production, storage and offloading facilities, known as an FPSO, to produce oil and gas at its deepwater Chinook-Cascade project.

The production capacity will be 80,000 barrels of oil per day and 16 million cubic feet of natural gas per day. Production is expected to begin in the near future.

FPSO vessels collect the oil and offload it unto tanker shuttles, there are no pipelines involved. According to the WSJ, this allows oil companies not only to keep pushing farther offshore, but also to move their expensive facilities if a storm approaches.

FPSOs is what PBR uses in Brazil and West Africa.

WSJ: "The Cascade-Chinook project is about 165 miles offshore Louisiana, in 8,200 feet of water. Petrobras, Brazil's national oil company, owns 100% of the Cascade field and 66.67% of the Chinook field. French oil giant Total S.A. (TOT) owns 33.33% of the Chinook field. The FPSO vessel to be used in the project is owned and operated by Oslo-based BW Offshore (BWO.OS)".

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Friday, March 18, 2011

The Yen Soars, Then Crashes, Millions Are Made

This is a 24 hour chart of the yen (access here, 2 months bonus):

FXY, the ETF, was down 4% in pre-market earliet today, after a massive coordinated intervention of central banks (these moves never last by the way). A 4% move is simply massive for currencies.

Investors can greatly profit from these volatile moves with straddles or options. These are our FXY straddles from 2 days ago, returning +326% for March and +144% for April (from our online StraddlesCalc tool):

Note that the moves required, as indicated by the tool, were 1.22% and 2.67%. What happened was about 4%!

Currently I only hold FXY 120 puts. Yesterday, they were trading at $0.78. We shall see today.

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More Uranium Miners Disasters, IPOs and Takeovers Down The Drain, Risks, Opportunities

Uranium miners have fallen drastically in recent days followng the Japansese disaster. However, this may also present opportunities. We are not just talking about liking uranium in general.

Bloomberg reports that miners are have takeover offers are being traded well below their offer values.

"Kalahan traded 28 percent below the offer of 290 pence a share that China Guangdong Nuclear Power Group Co., the nation’s second-largest reactor builder, made last week, implying a 39 percent gain",

Mantra Resources, from Australia, also fell 28 percent yesterday. However, here is the reason why none of these profits are sure deals.  Rosatom Corp. from is seeking to renegotiate its bid.

"Analysts still project uranium stocks will rise more than 80 percent on average in the coming year, the data show".

"“The risks associated with these types of transactions are going to be much higher relative to other deals out there,” said Sachin Shah, a special situations and merger arbitrage strategist at Capstone Global Markets LLC in New York. “Because the circumstances are without resolution in the plant in Japan, the potential buyers are likely not only to take a wait-and-see approach, but they’re trying to understand what ramifications they will have with the current operations in their countries.”

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Thursday, March 17, 2011

Groupon Valuation at $25B? Get Real, New Competitors Showing Up Daily

Bloomberg reports today that Groupon may be going for an IPO valuing the company at $25B. This is quite interesting as this week alone I have signed up for two competing services. Groupon must be in hurry to get this IPO done soon. Once it does, it might be the biggest short opportunity out there.

The Bloomberg report says that groupon has held talks with banks about a $25B IPO. "The two-year-old startup’s IPO may happen this year and is unlikely to assign Groupon a valuation of less than $15 billion, according to the people, Bloomberg Businessweek reports in its March 21 edition. They asked not to be identified because the talks were private".

"Groupon, the top provider of online daily discounts, has pushed into hundreds of new cities and doubled its subscriber base over the past three months. That’s helped its valuation soar since December, when it turned down a bid from Google Inc. for $6 billion. The company now has 70 million users and reaches more than 500 markets, up from 300 when Google made its offer".

The two servioces are (launching next week), and another one in Canada being launched CanadaPost (imagine the distribution channel, at least in Canada). There is another one that I saw yesterday.

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Wednesday, March 16, 2011

The Top 4 Nuclear Stocks and ETFs to Buy

Uranium and nuclear companies companies stocks have been extremely volatile in recent days.

2 days ago the daily performances (middle colored column) were a sea of red:

Yesterday it was quite different, many red and several bright greens::

Buy or Sell?

We computed the RSI values of the nuclear stocks and ETfs we track (see tracking live site here). Relative strength indicators provide a good measure of whether a stock is oversold or overbought. This does not look into company fundamentals. If the situation in Japan deteriorates, obviously there will be consequences on these stocks.

Short term (ordered by RSI daily):

Quite interestingly, in the short term the most oversold stocks and ETFs are NLR and U.TO, followed very closely by (Uranium One), and PKN, all deeply oversold.
  • NLR (click on links to receive buy.sell alerts and TA) is a Market vectors nuclear companies ETF.
  • track the uranium commodity itsef.
  •, Uranium One is a uranium explorer and producer acting in Kazakhstan, the United States, Australia and Canada.
  • PKN is a proShares global nuclear ETF..

Long term (ordered by RSI monthly)

 The situation is quite different on the long term. The msot oversold are:
  • ETR, Entergy Corporation (electric power production and distribution)
  • KEP, Korea Electric Power (utility)
  • USU, USEC, (uranium supplier)
  • EXC, Excelon Corp (utility)

This is not advice. Please do your own due diligence.

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Pressures Mount in Europe Against Bailouts: Finland Says Good European Countries Need To Stop Paying For Bad Countries Sins

Opposition in Europe's few well administered and financially sound countries is rising againts fruther bailouts of the mismanaged ones. Finnish President Tarja Halonen said countries like Germany and Finland need to "stop paying for the fiscal sins of the euro region’s weakest members if the bloc is ever to have a fair system,”.

“The good girls, like Finland and Germany, they are not the payers for the future,” “European citizens expect that there will be also a fair system inside the European Union and in the euro, and that’s why we have to have quite hard discipline.”

“We are ready to protect the euro,”  “everybody has to look after their own economy and follow the rules,”
Bloomberg reports that Portugal’s debt rating was cut two steps by Moody’s Investors Service yesterday to A3 "amid a weaker economic outlook and a possible need to recapitalize its banks",.

In Finland, one of the single currency area’s six AAA rated members, anti-euro sentiment has risen "as polls indicate taxpayers in the Nordic country are tired of supporting governments that have overspent".

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Middle East Troubles: Bahrain Downgraded; Oil Rises

While recent attentio has been focussed on Lybia and Japan, Bahrain's troubles are mounting. Fitch Ratings has juts downgraded Bahrain. As a result, the cost of insuring against default rose to near the highest since July 2009. There are clashes between security forces, aided by Saudi troops, and anti-government protesters..

The yield on Bahrain’s March 2020 5.5 percent bond soared  to a record 6.91 percent yesterday.
Fitch cut its rating to BBB, the second-lowest investment grade, due to "increased political risk" and added that another downgrade is possible.

Oil: Brent crude rose above $110 a barrel in London

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Tuesday, March 15, 2011

Post Japan, Nuclear and Uranium Stocks Crashing: Live Tracking Of Companies And ETFs

Wow. This is serious damage. Take a look at these nuclear companies and ETFs:

As the situation in Japan worsens, nuclear and uranium stocks are crashing hard indeed. Worst performers are ERA, from Australia, and Uranium One, from Canada, followed by the URA ETF..

We track them live here.

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Marc Faber: Heavy Spending Coming in Japan, Inflation Rising, Yen To Weaken

Marc Faber was interviewed by CNBC today. He says there will be many more QEs does the road. He says these events are targic, but it was good that people will stop paying attention only to what Bernanke says.
All stock markets were due for a meaningful correction. Japan was the catalysts for a global correction.

He says it's a turning point for the Yen, the Yen will weaken. Reconstruction will cause inflationary consequences. Huge financial burden on Japan.

Nuclear metdown will only be know in 1 or 2 months.

Marc Faber is know for the Boom, Gloom and Doom report.

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Europe Considers Nuclear Stress Tests (Better Than Bank Stress Tests?)

The European Union said today it is  considering "stress tests for nuclear plants" to "find out whether they can withstand earthquakes or other emergencies".

We can only hope they are better than the "bank stress tests".
"EU spokeswoman Marlene Holzner says the issue will be discussed by a hastily convened meeting of energy ministers, nuclear regulators and industry officials in the wake of Japan's nuclear crisis.

It wasn't immediately clear what the stress tests would consist of.

The officials meeting in Brussels will also debate Germany's decision to take seven of its 17 nuclear reactors offline for three months while the country reconsiders plans to extend the life of its atomic power plants"

(From Yahoo).

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Roubini in Cannes Today: Risks Increasing, Middle East, Emerging Markets Overheating

Nouriel Roubini was interviewed by FT today. He says risks are increasing (!). Eurozone problems not resolved. Emerging markets overheating; too much public and private debt, food and energy prices. Too many issues.

That was in Cannes, France. So this is where they go.

Watch video.

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Monday, March 14, 2011

The Two Uranium Stocks and Two Uranium/Nuclear ETFs Present Great Opportunity Post Japan

Following the devastating earthquake and very unfortunate nuclear reactor accidents in Japan, uranium and nuclear stocks and ETFs have taken a beating.

Here are straddles for Cameco (March) and Denison (April):

The two uranium and nuclear ETFs are NLR and URA, both down sharply today, and remarkably similar:

Babies are being thrown with the bath water.

Please do your own due diligence. Options are dangerous and may cause 100% loss.

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Cheese Prices Go Through The Roof: MiIk Rally Coming to An End; Commodities

Gorgonzola, Camembert, Brie, or even Mozzarela. If you are a cheese lover, you know that prices have gone through the roof lately, even more than other foods, which are also very expensive (and according to the media, about to head even higher).

Milk prices rose 48% this year, more than any agricultural commodity. However, Bloomberg reports that that the rise may be about to stop as as farmers responded with record milk production.
The world’s second-largest producer is the U.S. The Department of Agriculture estimates production could rise 1.7 percent to 196B pounds in 2011.

Like you and me (at least me), others are cutting consumption, including restaurants and supermarkets, who have raised prices.

"Dairies are missing out on profits from milk’s biggest rally since at least 1996 as the surge in grain that drove world food prices to a record, contributing to protests in northern Africa and the Middle East, also boosted the cost of feeding cows. While income for grain and cotton growers will rise more than 20 percent this year, earnings at dairies may drop 13 percent, the government estimates".
"Milk futures on the Chicago Mercantile Exchange closed on March 11 at $19.65, a 32-month high. Prices fell 0.1 percent to $19.63 in electronic trading today. Prices are up 55 percent from a year earlier as importers from Mexico to China increased buying and the rebounding U.S. economy bolstered domestic demand. "

"Milk’s 2011 rally has exceeded those of all agricultural futures traded in New York and Chicago including cotton, which surged 42 percent and reached a record last week. The Standard & Poor’s GSCI Index of 24 commodities advanced 11 percent, and the S&P 500 Index of stocks rose 3.7 percent. As of March 10, Treasuries gained 0.1 percent this year, a Bank of America Merrill Lynch index shows".

We track all commodity ETFs live here.

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Friday, March 11, 2011

Europe's Megatroubles: New Irish PM Says NO to Merkel; Portugal in Big Trouble

"Get lost", in other words of course.

Low corporate taxes are kind of sacred in Ireland. Enda Kenny, Irish Prime Minister, rejected Merkel’s position to harmonize the corporate tax base in the euro region.

Kenny: “I’ve come here in two days in government with a very strong mandate from the Irish people,” “I would not support any adoption of a common corporation tax rate.”

In other Euro news, Greece also dismissed selling state-owned land to cut debt, another prerequisite from Merketl for reducing the cost of rescue loans.

Elsewhere in Europe, things are not much better. Portugal’s 10-year bond yields reached 7.70% this week, the highest since at least 1997. Prime Minister Jose Socrates announced significant new commitments on deficit reduction that will amount to 0.8% of GDP for this year and "should allow Portugal to bring the deficit down to the EU’s 3 percent limit in 2012".

That according to Olli Rehn, the EU Economic and Monetary Affairs Commissioner.

Of course what these officials say publicly and what people believe are two different things.
Maybe everyone should listen to Portuguese Finance Minister Fernando Teixeira Dos Santos: “I hope the European leaders understand the seriousness of the situation we’re facing,”

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Post Japan Quake: The World Markets Now

There are so many events going pulling prices in different directions

  • Global stocks fell to their lowest in nearly six weeks
  • Government bonds rose
  • Portugal expected to seek financial aid soon: Portugal's 10-year bond yield and debt insurance costs rose
  • Japanese stock futures fell nearly 5%
  • The yen fell briefly after the earthquake, but now is up on expectations the country will need Yens to begin recostruction
  • Oil dropped 3% on expectations of lower oil demand from Japan in the very near future
  • The FTSEurofirst 300 index of top European shares .FTEU3 fell 0.8%
  • A protest in the Saudi Arabian city involving 200 protesters has had little impact

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Terrible Japan Earthquake and Tsunami, Video

Terrible, just terrible.

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Thursday, March 10, 2011

Moody's Downgrades Spain And Warns

Moody's downgraded Spain's sovereign debt rating by another notch today, from Aa2 from Aa1.

It also warned of further downgrades. It states that bank restructuring will cost more than twice what the government expects.
"[..] believes there is a meaningful risk that the eventual cost of the recapitalization effort could considerably exceed the government's current projections,"

The government and central bank have forecast no more than 20 billion euros would be needed to recapitalise weak banks. However, Moody's said the overall cost was likely to be closer to 40-50 billion euros, or in a :more stressed scenario" recapitalization needs could even rise to around 110-120 billion euros.

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Signs of The Times: Inflation, Poor U.S. Dollar: 1,210 Billionaires, Growth From Outside The U.S.

There are many signs of the times in the latest list of billionaires: 273 new names are added, mostly non US citizens, a sign of the poor value of the U.S. dollar, and inflation outside the U.S. The list of richest people is growing by leaps and bounds out side the U.S. and Europe.

Brazil has topped Canada for the first time. The top Brazilian is Eike Batista, with $30B, up from $27B last year, number 8 on the list, self-made rich man from the oil and mining industry.
The richest men continue to be Carlos Sim ($74B), Bill Gates ($56B), and Warren Buffett ($50B).

China has 115 names on the list. The list includes Chinese makers of microwave ovens, sports clothing, pharmaceuticals, sanitary napkins, and car distributors, among others

India has 55, headed by Lakshmi Mittal, Chairman, ArcelorMittal, the steel magnate.

Top Canadan is David Thomson, Chairman of Thomson Reuters, number 17 on the list.

Another year goes by, another year that I don't make it to the Forbes list.

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Wednesday, March 9, 2011

CIEN, Ciena Ratings, Amazing

Ciena, CIEN (click to receive technical analysis and alerts), a remarkable performer in 2011,  has dropped signficantly over the last 2 days as it moved forward revenue from Q2 into Q1, thus lowering Q2 estimates. What do analysts do?

Please take a look:
  • Barclays Capital analysts raised their price target on shares of Ciena Corp. from $28.00 to $33.00. They now have an “overweight” rating on the stock.
  • UBS AG analysts cut their EPS estimates on shares of Ciena Corp.. They now have a “sell” rating and a $20.00 price target on the stock.
  • JPMorgan Chase & Co. analysts upgraded shares of Ciena Corp. from an “underweight” rating to a “neutral” rating. They now have a $26.00 price target on the stock.
 Truly amazing, and people believe what they write. This is a circus.

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Soros: Budget Cuts To Put Serious Brake On The U.S. Economy

George Soros, "the man who broke the Bank of England", says that public spending cuts forced by Congress would be a "serious brake on U.S. economic growth"

He says the budget standoff between the current administration and the House of Representatives would force severe cuts in public services (reported by Reuters).

"While currently the U.S. economy is improving, that is going to be a serious brake on that in terms of employment and effective demand".

"So I am a little bit less optimistic for the U.S. economy than most people are currently."

Soros said the Republican strategy "has a good chance of succeeding because the policy is very popular. But it is not really feasible to reduce spending to the extent necessary to balance the budget."

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China to Build 10M Low Cost Homes to Stop Inflation, USD $200B

When China does things, they do it big. To stop housing inflation, China will invest about 1.3 trillion yuan, or  approximately $197.9B, this year on building or renovating 10 million affordable apartments, reported Wednesday. The report cites Qi Ji, vice-minister of Housing and Urban-Rural Development.

The government is expected to directly invest about 500 billion yuan. Social organizations, beneficiaries and enterprises will be asked to contribute the remaining 800 billion yuan.

According to the plan, it will cost about 500 billion yuan to improve living conditions for four million households.

Construction of 5.9 million government-subsidized homes began in 2010, of which 3.7 million have been finished, according to the ministry.

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China Says To Buy More Gold With Its $2.85T In Reserves

Gold investors and believers will love these comments coming from China. Reuters reports this morning that a Chinese government adviser says that China, the second largest consumer of the precious metal, should use some of its $2.85T foreign exchange reserves to buy more gold.

"Another supportive factor for gold demand and therefore gold prices are likely to be repeated calls for the diversification of China's currency reserves," said Commerzbank analysts in a daily note.

"Reflecting investor appetite for gold was another pickup in holdings of the metal in some of the world's largest exchange-traded funds, which have risen by over 340,000 ounces so far this week to over 61 million ounces."

We track all gold ETFs live here.

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Tuesday, March 8, 2011

Amazing: Bank of America 's New 'Bad Bank' to Contain Half of Its Mortgages!

This is amazing, about half of Bank of America's mortgages are being placed into a "bad bank".

BAC is separating almost half its 13.9 million mortgages into a "bad bank". This bad bank will contain the riskiest and worst-performing “legacy” loans, according to Terry Laughlin, who is the new unit's boss.
Laughlin told investors at a meeting in New York  that "we are creating a classic good bank, bad bank structure,” 

“We’re going to get after this, we’re going to do it the right way and we’re going to put it to bed in the next 36 months,”.

Are they trying to make people focus on the "good bank" as if the "bad bank" will go away? How can a bank get away with this?

The bad bank portfolio will include loans that are currently 60 or more days delinquent, as well as riskier types of loans such as subprime, Alt-A, interest- only and option adjustable-rate mortgages. The portfolio will be completely split by March 31 and will be liquidated over time.

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Los 33: Interview With Lawrence Goulborne, Chilean Minister of Mines, at PDAC

The incredible rescue of the Chilean miners is still fresh in memory. Lawrence Golborne is at PDAC in Canada, where he was interviewed by BNN. He is asked whether he will run for president as he is one of the most popular men in Chile now.

Did you know he played the guitar with the miners families while waiting for the rescue? Enjoy.

Watch interview.

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Europe To Raise Interest Rates 3 Times This Year; Inflationary Pressures

The banks' party may be coming to an end. The easy money policy of the last couple of years was doomed to cause inflation. The ECB said today that it may raise interest rate, not once, but perhaps 3 times this year.

Bloomberg reported earlier today that the statements were made by Axel Weber, European Central Bank council member, when he said that "the bank has embarked on a normalization of interest rates and he doesn’t want to correct market expectations for as many as three quarter-point increases this year".

Weber: “I wouldn’t do anything here to try to correct market expectations at this point,” “I see no reason at this stage to signal any dissent with how markets priced future policies,” he said.

Inflation in Europe

Weber was also reported saying that  the ECB’s latest inflation forecasts may underestimate price pressures.

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Monday, March 7, 2011

European Woes Escalate Again: Greece Now Downgraded to "Highly Speculative"

The Moody's rating agency has done it again and cut Greece's credit rating, by a full three notches (!), from  B1 from Ba1,. The agency also said it may cut further (hw many levels lower than that are there?) due to "significant risks to the government's fiscal consolidation program from a revenue shortfall and difficulties in reforming healthcare and state-owned companies".

Sarah Carlson, Moody's lead analyst on Greece, saays:  "The sheer magnitude of the task becomes ever more apparent,"

"There is a risk that conditions attached to any kind of continuing support after 2013 could take solvency criteria into account that the country may not be able to satisfy, and therefore could result in a restructuring of existing debt,"

Moody is just the first agency to do so. The Greek government is very angry.  Finance Ministry said Moody's had ignored "progress in implementing its fiscal consolidation plan", including "an improvement in revenue collection".

"The rating downgrade announced by Moody's today is completely unjustified,"

According to the Greek Finance Ministry that is. Moody's is just telling it as it is.

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Saturday, March 5, 2011

Currency Wars Round IV: Brazil Readies New Powerful Carnaval Salvo

This week the Brazilian real reached its highest level since 2008 at 1.65. Concerned about the new round of appreciation, the government is preparing new powerful measures to come into effect very soon. They will be drastic. Finance minister Guido Mantega and Central Bank president, Alexander Tombini, discussed the issue in recent days and new initiatives are nearly ready.

There are good chances of it happening right after the carnival. "It will be a strong measure," sources said. To deal with the Brazilian currency, the government has already increased twice the Tax on Financial Operations (IOF) for foreign investments in fixed income (to 6%), has changed standards to limit the stake of banks in the real, has instituted reverse swaps (instruments equivalent to buying dollars in the futures market) and also created the term foreign exchange auction, which is an operation done in a day with delivery at a future date.

Among the measures that may be used to tackle the "currency war", to avoid currency appreciation and ensure the competitiveness of the Brazilian export sector, is the purchase of foreign currency through Brazil Sovereign Fund (FSB). The government is authorized to operate with the FSB, but not yet made purchases.

Another possibility is the adoption of exchange control measures, such as a sudden elevation of the IOF in the capital inflows into the country, or measures feared by the foreign market, which is the imposition of a quarantine for capital inflows.
Yesterday, the dollar closed trading below $ 1.65, the latest informal floor that had been successfully defended by the government. For the week, the cumulative decline is 1.14%.
The movement of the dollar is occurring in several places in the world because of the low interest rate and currency issues in the United States. Thus, many domestic companies have sought to raise funds abroad, which helped inflate the numbers of the flow of dollars in the first quarter of 2011 - in total, the exchange flow in January and February, still missing a day to close to the result the month , surpassed the $ 20 billion.

Moreover, Brazil has been a popular destination for foreign capital because its economic growth is one of the world's strongest, and because of perspectives on major events like World Cup and Olympics, and the exploitation of oil in the pre-salt.

We track all foreign currency ETFs live here.

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Friday, March 4, 2011

The Silly Unemployment Numbers: Devil is in Details

While the media headlines are U.S Payrolls Climbed 192.000 in February as Jobless Rate Declined to 8.95, you may wish to consult the actual numbers.

This is from the BLS itself:

Both the civilian labor force participation rate, at 64.2 percent, and the employment-population ratio, at 58.4 percent, were unchanged in February. (See table A-1.)

The number of persons employed part time for economic reasons (sometimes referred to as involuntary part-time workers) was essentially unchanged at 8.3 million in February. These individuals were working part time because their hours had been cut back or because they were unable to find a full-time job. (See table A-8.)

In February, 2.7 million persons were marginally attached to the labor force, up from 2.5 million a year earlier. (These data are not seasonally adjusted.) These individuals were not in the labor force, wanted and were available for work, and had looked for a job sometime in the prior 12 months. They were not counted as unemployed because they had not searched for work in the 4 weeks preceding the survey. (See table A-16.)
Silly numbers.

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High Food Prices Are Here To Stay: Be Ready

Prepare your wallet. The IMF says record high food prices are here to stay as the main reasons for rising demand for food reflect structural changes in the global economy that will not be reversed. Among the reasons is something we have been warning about for a long time: Asian countries are now eating better, and there simply is not enough food.

The report was written by Thomas Helbling, an adviser for the IMF’s research department, and economist Shaun Roache. According to them, farmers will take years to expand production enough to meet demand and drive down costs.

All of a sudden, farming is now in vogue again. Surprise, surprise. Not!
People in developing countries are becoming richer and eating more meat and dairy, meaning more grain for livestock feed and land for grazing animals.

They also cite rising demand for biofuels as well as bad weather also tightened supply.

“Over time, supply growth can be expected to respond to higher prices, as it has in previous decades, easing pressure on food markets, but this will take time counted in years, rather than months,”

Bloomberg: adds that food output will have to climb by 70% by 2050 as the world population grows to 9B people.

Three-quarters of the global growth in demand for major crops in the past decade has been in emerging markets. High food costs still have the biggest impact on developing countries, where consumers spend a greater percentage of their incomes on food.

Incidentally, such is not the case in Canada, in this regard the country is a little more insulated from rising food prices.

We track all commodity ETFs live here.

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Thursday, March 3, 2011

Jobs: Gallup's Unemployment Survey Shows No Improvement; Underemployemnt at 19%

Readers know about how we treat official unemployment numbers, both from the Dept. of labour, and from ADP. Some are just ridiculous.

Gallup publishes related numbers for employment and, more importantly, underemployment:

Is there any visible improvement in "employment" or "underemployment'?

Methodologly: Gallup's U.S. employment measures report the percentage of U.S. adults in the workforce, ages 18 and older, who are underemployed and unemployed, without seasonal adjustment. "Underemployed" respondents are employed part time, but want to work full time, or they are unemployed. "Unemployed" respondents are those within the underemployed group who are not employed, even for one hour a week, but are available and looking for work. Results for each 30-day rolling average are based on telephone interviews with approximately 30,000 adults. Because results are not seasonally adjusted, they are not directly comparable to numbers reported by the U.S. Bureau of Labor Statistics, which are based on workers 16 and older. Margin of error is ± 0.7 percentage points.
Their current number for "underemployed Americans" is 19%, esentially the same as it was in Feb 2010. How is this possible? Which number should you believe?

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Brazil's GDP Grows 7.5%, Highest in 24 Years

Brazil's Gross Domestic Product finished 2010 with growth of 7.5% against 2009, the highest increase since 1986, when the index also rose 7.5%, according to data released by the Brazilian Institute of Geography and Statistics (IBGE) . In 2009, the year that the Brazilian economy suffered negative effects of global crisis, Brazil's GDP had fallen by 0.6% against 2008.

Also according to the institute, the 2010 GDP at current value totaled R$ 3.675T, or about USD $2.3T.

The Brazilian economy grew by 0.7% in the fourth quarter of last year against the third quarter of 2010. Compared to the fourth quarter of 2009, GDP increased by 5% in the fourth quarter of 2010. The results also came within the range of expectations.

Household consumption in high

Household consumption, according to IBGE, registered an increase of 2.5% in the fourth quarter of 2010 compared to the third quarter of that year. In comparison with the fourth quarter of 2009, household consumption rose 7.5% in the last three months of last year, closing 2010 with growth of 7%.

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Does Bernanke Fill Up? "Inflation is Still Very Low Including Food And Energy"

One wonders when was the last time he filled up at a gas station.

Seeing is believing. 3 minutes into the video, Ben Bernanke says that inflation in the U.S. "is still very low, including food and energy". Watch:

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Harvard's Rogoff: Greece, Ireland, Portugal, and Spain to Restructure Debt, Default

Harvard's Kenneth Rogoff is one more on the camp that Greece, Ireland, Portugal - and Spain's -  debt restructuring is unavoidable.

Rogoff is currently the Thomas D. Cabot Professor of Public Policy and Professor of Economics at Harvard University.

“I do think the eventual restructuring of two or three countries -- Greece, Ireland, Portugal -- is inevitable,”
“may be called something else, for face- saving reasons.”
“It’s inescapable to have public and/or private debt restructured in all four countries” “The risk of waiting too long is that it gets bigger and it costs you more.”

“If Spain were to have a restructuring of central government debt, I don’t think it would end there”

“Spain is just too big.”

Portugal in just weeks

He says that Portugal will finally accept a financial bailout within the next few weeks.
As for Greece "... a default will be difficult to avert.”

Kenneth Rogoff  is the author of the paper “This Time Is Different,”, followed by a book of the same title:
  • Greece has defaulted or rescheduled its debt five times since 1829.
  • The leader of the pack however is Spain: 13 times since 1476
  • Germany and France have both done it 8 times
  • The U.K. has never done it since William the Conqueror invaded in 1066
  • Greece, has existed in a “perpetual state of default” since its independence, the economists write, having spent 50.6% of those years in default or rescheduling.
  • Russia is next highest, with 39.1% of years spent as a bad debtor after defaulting or rescheduling five times.
  • Hungary has defaulted or rescheduled seven times since gaining independence in 1918.
Their conclusion is "concluding that that countries like Hungary and Greece will never default again because 'this time is different due to the European Union' may prove a very short-lived truism.”

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Wednesday, March 2, 2011

The Shocking Fed: Oil Price Increases Are Due to Demand, Not U.S. Dollar

Ben Bernanke today said that oil price increases are entirely due to increased demand by emerging markets ("according to the IEA", says Bernanke) (video). Unbelievable. Didn't the low U.S. dollar have anything to do with it?

Shocking, and quite appropriate for the title of this blog..

He also said the inflation in merging markets is "their problem". Please see our post today on Brazil's new interest rates hikes.

In addition, according to the Fed:

  • Businesses are passing on surging costs to consumers.
  • Hiring is modest.
  • Wages are barely rising.
  • Housing market is still struggling.
But the "economy is expanding at a modest to moderate pace", the Federal Reserve said.

CNN reports: "Retailers and manufacturers across all 12 of the Federal Reserve's districts said they're seeing higher input costs.

But while they told the Fed they're already passing on some of those costs to customers, homebuilders -- especially in the Cleveland and Atlanta districts -- are not, most likely due to the troubled housing market.

Both commercial and residential construction continues to be one of the slower segments of the economy, while manufacturers, retailers and financial firms reported slight growth.

Meanwhile, it's still tough to get credit, and in some regions, banks are actually tightening their standards.

 The Fed reported little evidence of wages increasing in most of its districts"

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The iPad 2: Duh; Xoom and Playbook Anyone?

Steven Jobs unveiled the new iPad 2 today. Amongs its greatest new features: 2 cameras, one front-facing, slimmer design and lighter body weight, and little else. This is what most of its better competitors already have, plus the competitors have the ability to run Flash, or to run the the open Android OS, or the better QnX OS in the case of RIM.

Nevertheless, surely, Apple fans will be thrilled and will dittch their old iPads 1 for the new iPad2.

Thise who own Apple shares, however, should take note that there at the end of 2010 there were already 30 different tablets for sale(!).

There are in total 102 known tablets from 64 different makers that are either available now or in development. The space is hugely overcrowded.

Among the best entries are Motorola's Xoom (Android), and RIM's playbook (QnX). ComputerWorld says in the Xoom vs iPad2 war, the Xoom is clearly the winner:

The major new additions to the iPad include a dual-core processor and front and rear cameras, so in those instances, it's caught up to the Xoom. The new svelter and slightly thinner design is good as well. A gyroscope has been added, which the Xoom already has. And software tweaks, via the new iOS 4.3, are welcome as well.

But that still leaves the Xoom a better tablet than the iPad. Start with the operating system. With iOS 4.3, iOS was tweaked but didn't get a dramatic overhaul. Android 3.0, called Honeycomb, is simply better than the iOS for a number of reasons. It handles notifications, multi-tasking and app switching better. The widgets still outpace anything on the iOS. And Honeycomb has more features and is more customizable. The iOS 4.3 tweaks did nothing to change any of that.

The Chrome-like browser built into Xoom trumps the Safari running on the iPad 2. Xoom's browser sports tabs, will sync bookmarks with PC, Mac, and Linux versions of Chrome, and uses a single box for typing URLs and searching.

As for the Rim device, it is targetted to the business user, where it clearly has a differentiating factor.

Nevertheless, Apple fanatics will surely be buying the iPad2 in droves.

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