Oldtent Archives 2007 - 2008

They’ve got tons of oil and gold. Cut their rating. Only fiat counts.

Russian Credit Rating Outlook Cut to Negative by S&P (Update3)
By Maria Levitov

Oct. 23 (Bloomberg) — Russia’s long-term sovereign credit rating outlook was lowered to negative by Standard & Poor’s Ratings Services because the cost of the government’s “bank rescue operation” may increase.

The outlook was cut from stable, reflecting the increased probability for a downgrade, S&P said in an e-mailed statement today. Russia has committed as much as 15 percent of gross domestic product in budgetary and reserve funds to maintain banking liquidity, it said.

“Russia is obviously very exposed,” said Lars Christensen, an emerging markets analyst at Danske Bank A/S, by telephone from Copenhagen. “The speed that Russia is being drained of hard currency is extremely fast. Just as Russia has benefited from the high oil prices, so now it is exposed as they drop.”

The government has pledged more than $200 billion to stem the worst financial crisis since 1998, including a banking liquidity boost worth $86 billion, following capital outflow. Slumping commodities prices, the war with Georgia and the seizing up of global capital markets prompted investors to pull at least $63 billion from Russia since Aug. 8, UniCredit SpA estimates.

“It is difficult at present to determine the ultimate impact on the public sector balance sheet of the banking system bailout, not least due to the uncertain outlook on asset quality,” S&P said.

Russia, the world’s biggest energy exporter, supplies a quarter of Europe’s natural gas needs and the European Union is Russia’s main trade partner.

Growth Forecast

Growth in the 15-nation euro region will probably slow to 0.2 percent in 2009 from an estimated 1.3 percent this year, according to the International Monetary Fund. European gas prices track the price of oil with a time lag of six-to nine months.

The price of Urals blend of crude fell to $61.81 a barrel yesterday, the lowest level this year, after peaking at $142.50 in July. It has averaged $105.88 a barrel since the beginning of the year, according to Bloomberg data.

The central bank estimated net private capital outflow may reach $20 billion this year, compared with the previous forecast of net inflow of $40 billion. The nation received a record net inflow of $82.3 billion last year.

“We are perhaps better prepared for the current situation than many other countries,” President Dmitry Medvedev’s economic aide, Arkady Dvorkovich, said yesterday. Russia can use its reserves to boost the economy and ensure “stability” of the financial industry, he said.

Shrinking Reserves

Russia’s reserves fell $14.9 billion last week to $515.7 billion, a third straight week of decline, after the central bank sold foreign currency to prop up the ruble. The ruble weakened as much as 0.5 percent to 27.0664 to the dollar, the lowest since July 2006. The ruble was 0.1 percent lower at 26.9538 as of 5:12 p.m. in Moscow, from 26.9277 yesterday.

“The speed of the fall in reserves is quite alarming,” said Vladimir Tikhomirov, the chief economist at UralSib Financial Corp. in Moscow. He called the central bank’s forecast of $547 billion in reserves by year-end “overly optimistic” and estimated a total of $500 billion by January 1, 2009.

Russian government bonds fell, with the yield on the 7.5 percent bond due 2030 rising 8 basis points to 10.94 percent, the highest for more than six years. The 12.75 percent bond maturing 2028 yielded 10.56 percent, up 84 basis points to a six-year high. The yield on the 11 percent bond due 2018 jumped 93 points to 8 percent, the most since 2004.

Financial Rescues

The “skyrocketing” cost of financial rescue operations is not “only true for Russia,” said Pavel Pikulev, a fixed-income strategist at Trust Investment Bank in Moscow. “At least Russia still has a budget surplus and the third biggest foreign reserves in the world, while many other nations are already saving their banks using their good name more than real funds.”

S&P affirmed Russia’s BBB+ long-term foreign currency and the A- long-term local currency ratings and the short-term ratings of A-2.

“We expect Russian corporate and financial sector default rates to increase as debtors’ access to official funds will vary,” S&P said in the statement. “Other uncertainties remain regarding what the economic policy response will be to weakening growth, and whether the ongoing concentration of the financial system in state hands is permanent or temporary.”

To contact the reporters on this story: Alex Nicholson in Moscow at anicholson6@bloomberg.net; Maria Levitov in Moscow at mlevitov@bloomberg.net

Bill H:

Mining shares during deflation

To all; I exchanged e-mails yesterday with Bill Murphy regarding Gold’s role during a true deflation. The current wisdom is “oh my God” everything is deflating and Gold and their shares will go down the toilet with everything else. This train of thought is 180 degrees off for several very important reasons.

First, Gold has value because “it is”, it does not have value because governments say it does. 2nd, Gold cannot be created out of thin air similar to the $3 Trillion Dollars that have been created over the last 90 days. 3rd, Gold can never ever default, while banks, brokers, insurance companies, and YES EVEN GOVERNMENTS have and will fail, default, and declare bankruptcy. Deflations bring with it default, these defaults cannot spread and infect Gold. 4, Gold never changes, 1 ounce is always 1 ounce. It is perceptions of currencies’ values that change, not Gold.

Now, what we are seeing today is a mad panic for liquidity because loans are turning sour and margin calls are being issued, debts must be paid down or paid off. This mad scramble has created a “short squeeze” in the Dollar, this demand is real however it will also be fleeting. Once this short covering demand ceases, the real fundamentals of the Dollar will take over. As with all short squeezes, once the shorts have covered there will be no support and the rate of decline will be breathtaking. CNBC reports the very low and 0% short term Treasury rates as a flight to safety, it is not. This has been a flight to “stay alive until tomorrow”. It is a flight to liquidity and nothing more. When tomorrow finally does come, those in Treasuries will figure out that they fled the oncoming “tsunami” [Greenspan’s own words] and piled into cardboard boxes that have been placed on the beach by the government. In fact, the government has even been telling us “don’t worry, we can supply an unlimited amount of shelters”.

OK back to deflation. The mining shares are THE best business to own during a deflation. A deflation means that money supply [real or printed] is contracting, the value of money increases. During a true deflation, production costs of Gold mining companies decline while their production income will hold value or even increase when the value of money increases. This cost to production mix is a very potent recipe to creating wealth. During deflation, mining companies will have a lower cost of diesel, steel, equipment, and labor, while the income side doesn’t change unless ore grade, tonnage, or yield changes. What happens is that the savings on the production side goes directly to corporate bottom lines. This is better than owning a bank during confident “fiat times”! Another very important value that gets more respect is “the money in the bank” proven RESERVES underground.

A couple of little known and forgotten factoids. During the depression, GM’s directors owned a mining company called Argonaut Mining, the cash flow from this mine in California allowed GM to fund the Chevrolet division and create enough cash flow to survive until WWII created wartime demand. Back in the 20’s,

Newmont was a copper company that decided to purchase a small Gold mining operation in Nevada. At the bottom, copper got down to .11 cents per pound and Newmont had only one mine that could produce profitably. This little mining operation that produced Gold also produced enough cash flow to allow Newmont to stay alive. These operations “worked” because the operations had declining costs and stable incomes. They were cash cows that were milked as the sustenance of corporate life.

Deflation has led the world to call for a new financial system. We are experiencing a deflation that is being fought globally with literally unlimited amounts of credit money creation. In the middle of Nov. the Bretton Woods II meeting is scheduled. It is very important to understand why the world [not the U.S.] has called for this pow wow. The world has done the math, this math adds up to “restructuring, reorganizing, chapter 1-20, bankruptcy, default” or whatever you’d like to call it. The U.S. is now in the position where it cannot possibly pay the interest on it’s debt without devaluing and the world knows this. They have called us to the table to restructure based on our ability or [lack of] to pay. As I’ve said before, this will be the most important life change any of us have ever experienced.

I do not know exactly what “the basket” of commodities will be that backs the currencies. I do not know what percentage Gold will take [possibly 100%?] I do know that any BWII meeting will include discussions about Gold. I suspect that an audit of Ft. Knox and the other depositories will be demanded by the world and resisted by the U.S.. I shudder to think what happens when this topic is brought up as the world already has a pretty good suspicion as to what they’ll find [or not]. Very soon the monetary charades will end, the Dollar will be reverse split and foreign currencies will be devalued while Gold and Silver will still be Gold and Silver. Regards, Bill H.

Good news for one of GATA’s most significant supporters over the years, Seabridge Gold…

Seabridge Gold’s KSM Project Continues to Expand

New Drill Results Exceed Program Objectives
www.marketwatch.com/news/story/Seabridge-
Golds-KSM-Project-Continues/story.aspx?guid=%7B2
6F9DB84-40AF-4A5C-B32C-C0A86FCC4651%7D

just got back home. when did it turn cold? nice and warm in san antonio. looks like it may be a real bad year on the farm. cattle and grain both off sharply. one had better rally soon or we may be facing an acute shortage in a couple of years. i can’t believe fertilizer hasn’t gone down yet. if grains don’t rally, it may be real cheap next year. i still think oil will hit $50. bbl soon before it goes up.

rno

My sentiments on pussycats and women exactly…that doggie obviously knows the power of claws.   And this one knows when he is well protected.  <g>

Moggy

Sorry if already posted…thanks Sabre. 

If McCain had a chance, it would be a brilliant move to put Paul in charge of the Treasury and dismantling the FED, but he’s not going to win and even if he did, RP wouldn’t get a trip to the white house for a cup of tea.

TOCOM

Ladies and Gentlemen:
On Wednesday the seven big gold shorts slashed their net short position by 7,520 contracts to 12,359 contracts. This is smallest net short position they have held since I began recording this data in February 2006. Total and net open interest for all TOCOM gold members combined have also hit new lows for the same period.

It is conceivable that some of the trading activity in the TOCOM gold contract may move to the Hong Kong Futures Exchange’s cash settled gold contract which began trading again on Monday after having been suspended for a decade:

news.xinhuanet.com/english/2008-10/20/content_10224697.htm

The contract specifications are below:

www.hkex.com.hk/prod/gld/gldprodes.htm

www.hkex.com.hk/tradinfo/futurescontract/gldfut.htm

There also appear to be no position limits:

www.hkex.com.hk/tradinfo/futurescontract/lop.htm

STDJ slashed their gold net short position by 1,867 contracts to 5,657 contracts.

www.tocom.or.jp/souba/gold/torikumi.html

In silver they reduced their net long position by just 3 contracts to 312.50 contracts (60kg deliverable equivalent).

www.tocom.or.jp/souba/silver/torikumi.html

Best wishes,
Scott

Bill,
In the October 22 session on the TOCOM Goldman Sachs COVERED 23 short contracts and BOUGHT 703 long contracts which brings their long position to 2,971 contracts and makes them now NET LONG 543 contracts. This is the LARGEST long position they have held in 30 months. In 30 months they have been net short every day except for two days. The only other day they were net long was on 9/29/08 and was only 28 contracts net long.

The large players on the TOCOM have been gradually reducing their net short position toward zero for over 2 years. Considering the COMEX has recently hammered the price down from $1000 to $720 it is astonishing that the traditional TOCOM large shorts passed up such a wonderful opportunity and instead diligently continued getting out of their shorts.

Even as the price fell we have seen no change of heart and we have not seen them rapidly increase their short position. Au contraire Goldman Sachs just went net LONG for only the second time in 30 months! The big TOCOM Japanese dealers (can’t really call them big shorts anymore because they are not!) are very experienced and have been in the gold trade for many years. I think the only logical conclusion is that the short term gain of $275 drop on the downside in a large short position does not compensate for the risk of a being trapped by a much bigger upside move.

I think the significance of this can not be underestimated.
Cheers
Adrian…

Bill,

Here is a chart of the large traders’ positions on the TOCOM who have been traditionally short. You can see the trend that they are all trying to be net long!

Cheers,
Adrian

   Sure seems like Willie is putting his reputation at stake when calling for an alternative currency. His last couple of articles have alluded to inside knowledge of some sort. He’s either going to be a hero or a goat. Gawd, I hope he’s a hero.

Nice pronghorn Lurker95.  Looks like wyoming.

ECB’s Nowotny Sees Global “Tri-Polar” Currency System Evolving

Oct. 19 (Bloomberg) — European Central Bank council member Ewald Nowotny said a “tri-polar” global currency system is developing between Asia, Europe and the U.S. and that he’s skeptical the U.S. dollar’’s centrality can be revived.

“What I see is a system where we have more centers of gravity” Nowotny said today in an interview with Austrian state broadcaster ORF-TV. “I see for the future a tri-polar development, and I don’t think that there will be fixed exchange rates between these poles

“To fall in love with a stock, holding it as it plunges like MNEAF has, is one definition of insanity.”

……I have lots of em !…………Multiple Mine Insanity Syndrome !

..whats more insane than holding them……….. is their prices……thats insane !

  I hear ya, and I don’t blame you for wanting to sell. I wish I could’ve done things differently too. It’s tough being me these days. Wake up, look in the mirror and see a moron looking back.

BEIJING, Oct 24 (Reuters) - East Asian nations will move to form an $80 billion currency swap scheme by the first half of 2009 to fight the global financial crisis and to launch a regional surveillance agency, according to a statement on Friday.
The agreement would give to any of the signatory nations access to a foreign exchange reserves pool of at least $80 billion in the event of a financial emergency.
Thirteen Asian economies, comprising a so-called ASEAN3 group, agreed in May to upgrade the swap scheme, taking them a step closer to creating a full-scale Asian monetary fund, which has gained support in the region as the financial sector turmoil dampens Asian growth.
“Leaders at the meeting shared the need of stepping up regional cooperation to cope with the global financial crisis and to coordinate policies,” South Korea’s presidential office said in the statement.
“We agreed to strengthen Asia’s role by aggressively participating in international collaboration through multilateral cooperation systems… and to speed up cooperation to complete formation of the fund by the first half of next year.”
Leaders of the Association of Southeast Asian Nations (ASEAN), grouping 10 Southeast Asian nations, held a breakfast meeting of ASEAN3 with China, Japan and South Korea, just ahead of the Oct 24-25 Asia-Europe summit (ASEM) in Beijing.
The swap fund initiative will replace the existing arrangement of mainly bilateral currency swaps, called the Chiang Mai Initiative (CMI), and create a more powerful self-managed reserve pooling mechanism governed by a legally binding single contract. [ID:nLN454107]
South Korea, China and Japan had agreed to provide 80 percent of the total, with ASEAN taking the remainder. They are discussing each country’s contribution ratio and how to manage it.
ASEAN groups Cambodia, Malaysia, Indonesia, Singapore, Vietnam, Philippines, Laos, Thailand, Myanmar and Brunei.
The ASEAN3 nations also agreed to work together to form a monitoring organisation that would step up surveillance of the region’s economies, the statement added.
Asian countries have been considering measures to insulate themselves from the financial crisis, amid doubt about roles of global monitoring agencies in dealing with Asian crises.
Separately, South Korean President Lee Myung-bak told the ASEAN3 meeting that future discussions to reform international financial systems needed to reflect the interests and positions of emerging economies.
“Lee also called on expansion of a multilateral coordination regime, which has been in discussion, to include emerging economies, taking into consideration their economy size and development experiences,” the statement said.
The world’s eight major countries, including Russia, have been leading the coordination regime

http://finance.yahoo.com/intlindices?e=asia

 Japan looks on the verge of falling below 8,000