Middle East bulking up arms deployment

The US is accelerating arms sales to friendly Middle Eastern Gulf allies in response to Iran's nuclear weapons programs. Hello higher crude oil prices.

http://www.nytimes.com/2010/01/31/world/middleeast/31missile.html?th&emc=th

US just PO'd China--again

China, the US' largest creditor, is livid about US arms sales to Taiwan. Expect more trade sanctions. One of the few lessons learned from the Great Depression was the erection of trade barriers among countries caused commerce and economic output to plummet. Apparently, that lesson is lost among government leaders worldwide.

http://www.presstv.ir/detail.aspx?id=117442§ionid=351020404

Anti-obesity treatments gaining traction

Thanks to my good friend Dick for finding this timely article on weight-management drugs:

http://www.signonsandiego.com/news/2010/jan/31/dash-for-diet-drug/

At least 3 candidates are seeking regulatory approval from the FDA within the next year. The obesity market is huge (no pun intended). Two-thirds of Americans are overweight, and one-third are obese (BMI of 30% or more). Include Europe and emerging countries whose standard of living is rising, and the potential market for weight-management treatments is staggering.

The products hitting the sweet spot of safety first, tolerability, and efficacy will be blockbusters.

Disclosure: long ARNA shares.

Where is the USDollar headed?

If this chart by http://edegrootinsights.blogspot.com/ is to be believed, the USDollar will continue to trend lower, despite occasional countertrends. Click on the chart to enlarge.

John Embry on gold in January 2010

John Embry is one of my favorite analysts on currencies and gold due to his clear insight on fundamental economic laws. His stellar track record against a wave of naysayers certainly helps boost his credibility. This is a must read.

http://www.gata.org/node/8281

New York Federal Reserve Bank

The term secret banking cabal is appropriate in describing the New York Federal Reserve Bank in its role of bailing out insurer AIG.

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aaIuE.W8RAuU

That the New York Fed, a quasi-governmental body, was able to push around the SEC, an executive-branch agency, deserves a congressional hearing all by itself.

Later, when it became clear information would be disclosed, New York Fed legal group staffer James Bergin e-mailed colleagues saying: “I have to think this train is probably going to leave the station soon and we need to focus our efforts on explaining the story as best we can. There were too many people involved in the deals -- too many counterparties, too many lawyers and advisors, too many people from AIG -- to keep a determined Congress from the information.”

Think of the enormity of that statement. A staffer at a body with little public accountability and that exists to serve bankers is lamenting the inability to keep Congress in the dark.

This belies the culture of secrecy obviously pervasive within the New York Fed. Committee Chairman Edolphus Towns noted during the hearing that the bank initially refused to disclose even the names of other banks that benefited from its actions, arguing this information would somehow harm AIG.

Now, I’m not saying Congress should be meddling in interest-rate decisions, or micro-managing bank regulation. Nor do I think we should all don tin-foil hats and start ranting about the Trilateral Commission.

Yet when unelected and unaccountable agencies pick banking winners while trying to end-run Congress, even as taxpayers are forced to lend, spend and guarantee about $8 trillion to prop up the financial system, our collective blood should boil.

Greece continues to make the headlines

Greece's imminent danger of default on its sovereign debt continues to make the headlines every time the German-led European Central Bank denies rumors they will bail out the troubled Mediterranean country.

http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/7095818/Funds-flee-Greece-as-Germany-warns-of-fatal-eurozone-crisis.html

What isn't so well-published is the state of California has similar dire finances as the country of Greece. And as blogged earlier, Greece's GDP output is 3% of the Euro Union's GDP, while California makes up 13% of US GDP. The markets are waking up to the Greek problem--when will the financial press address California's fiscal challenges?

GLD ETF

Many investors bullish on gold have allocated a significant position in the GLD Exchange Traded Fund (ETF). GLD conveniently tracks the spot price of gold well, but it should come with warning labels, in the form of the prospectus itself. I've blogged several precautionary entries on the potential hazards of owning gold paper certificates vs. the safety of possessing physical gold bullion and coins--especially in times of financial crisis. Read on.

http://www.bmgbullion.com/doc_bin/Risk%20of%20investing%20in%20Precious%20Metals%20ETFs.pdf

Nothing contained in any materials should be construed as a recommendation to buy or sell any securities. I have not been compensated by any of the aforementioned companies. Perform your own due diligence. See sidebar for additional disclaimers.

Disclosure: no position in GLD.

Kelo v. City of New London

http://www.oyez.org/cases/2000-2009/2004/2004_04_108

New London, a city in Connecticut, used its eminent domain authority to seize private property to sell to private developers. The city said developing the land would create jobs and increase tax revenues. Kelo Susette and others whose property was seized sued New London in state court. The property owners argued the city violated the Fifth Amendment's takings clause, which guaranteed the government will not take private property for public use without just compensation. Specifically the property owners argued taking private property to sell to private developers was not public use. The Connecticut Supreme Court ruled for New London.

Guess what eventually happened to the private properties seized? The entire project was canceled, because Pfizer pulled out due to budget cuts. Oops.

UK downgrade

The UK is about to join the ranks of downgraded sovereign debt.

http://www.zerohedge.com/article/sp-we-no-longer-classify-uk-among-most-stable-and-low-risk-banking-systems

FDA integrity

http://www.ucsusa.org/assets/documents/scientific_integrity/fda-survey-questions-and-results.pdf

14. FDA routinely provides complete and accurate information to the public.
strongly agree 7% (64)
agree 40% (393)
no opinion 21% (210)
disagree 26% (251)
strongly disagree 6% (60)

15. I have been asked explicitly by FDA decision makers to provide incomplete, inaccurate or misleading information to the public, regulated industry, media, or elected/senior government officials.
frequently 1% (7)
occasionally 6% (60)
seldom 10% (96)
never 67% (660)
not applicable 17% (163)

16. I feel that FDA decision makers implicitly expect me to provide incomplete, inaccurate or misleading information to the public, regulated community, media, or elected/senior government officials.
frequently 3% (26)
occasionally 8% (74)
seldom 11% (104)
never 60% (586)
not applicable 19% (188)

http://www.ucsusa.org/scientific_integrity/abuses_of_science/summary-of-the-fda-scientist.html

In 2006, the Union of Concerned Scientists (UCS) and Public Employees for Environmental Responsibility (PEER) distributed a 38-question survey to 5,918 FDA scientists to examine the state of science at the FDA. The results paint a picture of a troubled agency: hundreds of scientists reported significant interference with the FDA's scientific work, compromising the agency's ability to fulfill its mission of protecting public health and safety.

Money market redemptions

Everybody assumes the funds in their money market accounts are liquid--easily accessible with a click of mouse or keystroke. It's a convenient and safe place to park your cash, earning a small rate of return. In fact, it is treated as cash by most depositors and investors.

In the event of a financial crisis, that assumption is no longer true. Read on and be aware.

http://www.zerohedge.com/article/suspending-money-market-redemptions-now-legel-sec-approves-new-money-market-regulation-4-1-v

Money Market Funds now have the ability to suspend redemptions, courtesy of the SEC's just passed 4-1 vote. This explains the negative rate on bills: at this point, should there be another meltdown, money market investors will not, repeat not, be able to withdraw their money purely on the whim of Mary Schapiro. As the SEC noted: "We understand that suspending redemptions may impose hardships on investors who rely on their ability to redeem shares."

Ted Butler on manipulation in the silver market

Never, in my 35 years of market observation, have I witnessed a more blatant manipulation. Make no mistake, this deliberate sell-off [in silver] is the handiwork of JPMorgan. This sell-off would not be possible were it not for their large concentrated short position. More upsetting is the apparent complicity of the CFTC in allowing the illegal manipulation of the silver market. The CFTC's probable involvement undermines the very concept of market integrity.

- Ted Butler, 26 January 2010

California is sinking

California is sinking...but it's not into the Pacific Ocean. It is collapsing due to the collective weight of unfunded liabilities from public employee pension costs. Even the most liberal California politicians agree on this.

http://online.wsj.com/article/SB10001424052748703699204575017182296077118.html

Former Assembly Speaker Willie Brown, a well-known liberal voice, recently wrote this in the San Francisco Chronicle: "The deal used to be that civil servants were paid less than private sector workers in exchange for an understanding that they had job security for life. But we politicians—pushed by our friends in labor—gradually expanded pay and benefits . . . while keeping the job protections and layering on incredibly generous retirement packages. . . . [A]t some point, someone is going to have to get honest about the fact."

State Treasurer Bill Lockyer, another prominent liberal Democrat, told a legislative hearing in October that public employee pensions would "bankrupt" the state. And the chief actuary for the California Public Employees Retirement System has called the current pension situation "unsustainable."

2010 priorities

How much do you want to bet Obama's State of the Union address will address the top priorities in this poll? Of course, he must walk the talk...

The White House / Wall Street circle jerk

Pardon my Goldman Sachs French, but this would be theatre of the absurd, if it wasn't so tragic to our livelihood.

http://www.bloomberg.com/apps/news?pid=20601039&sid=a5ybwwGkJJXw

Commodities, basic metals, and precious metals

Here is a bullish case for basic metals and the increasing urbanization of the world's population, especially in emerging countries like China, India, and Brazil.

http://www.mineweb.com/mineweb/view/mineweb/en/page36?oid=96498&sn=Detail&pid=1

Here is an article on a shortage of physical silver coins.

http://www.coinnews.net/2010/01/24/us-mint-silver-eagle-sales-top-3-million-best-ever-january/

The shortage of physical silver due to investor demand is openly acknowledged, as coin dealers are buying at prices ABOVE the spot price, and selling at even higher premiums. The spot price and prices on the COMEX futures do not reflect this physical shortage--yet. That's because the bullion banks are artificially suppressing the price of silver by shorting paper certificates via the SLV ETF, and shorting COMEX futures contracts. This fundamental disconnect between the prices of silver in the futures contracts and available physical inventory of silver will eventually be resolved, resulting in a soaring price. Price manipulation can only work so long before basic economic laws of supply and demand eventually materialize.

Disclosure: long silver mining shares.

Financial regulation

According to Jim Rogers, regulators caused the financial crisis, not lack of regulation.

Economics 101 from the 'hood

Keynesian vs. Austrian School of Economics

Deficit Reduction Commission will be a bust

Despite the necessity of reducing or even eliminating our federal budget deficit in order to maintain sound fiscal policy, I will wager the formation of a Deficit Reduction Commission, if enacted, will end up being largely impotent, as earmarking will de-fang any initiatives coming out of the commission.

It's a nice gesture to fiscal conservatives, but it will be just another bureaucratic boondoggle, corrupted by conflicting special interest groups.

http://www.washingtonpost.com/wp-dyn/content/article/2010/01/23/AR2010012302429.html

John Embry on 2010 prospects

John Embry of Sprott Asset Management is bullish on gold and believes the allure of the USDollar as a safe haven is misguided.

http://www.sprott.com/Docs/InvestorsDigest/2010/01_29_2010%20Expect%20gold%20to%20gain%20more%20than%2030%20this%20year.pdf

Austrian School of Economics

“There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.”

- Ludwig von Mises

The true cost of closing failed banks

The FDIC's true cost of closing failed banks into receivership is much higher than initially calculated, thanks to the FASB's "pretend and extend" false accounting methods. This "cooking of the books" throws out GAAP "mark to market" accounting, and overstates the value of toxic assets, in an attempt to feign bank solvency. In the final analysis, this will just be another larger burden on the US taxpayer.

Jim’s Mailbox

Posted using ShareThis

Information released by the FDIC in connection with each new bank closing has been giving us a peek into the real condition of U.S. banks one year after the Financial Accounting Standards Board (“FASB”) suspended fair value accounting requirements. Across the board, we are seeing that banks have radically over-valued their least liquid assets on the basis of a fantasy called “hold to maturity.”

Banks’ fantasy valuations are put to the test when it becomes incumbent upon the FDIC to close the bank and protect depositors’ assets. At that stage, the FDIC has to find a willing buyer for the assets and fair market value is established. As a result, it is now costing the FDIC unprecedented amounts to close banks.

The problem actually goes one step further. As we know, the government’s current economic policy is one of Manipulation of Perspective Economics (“MOPE”) and Pretend and Extend. MOPE does not permit too much bad news to be released at any one time, and Pretend and Extend puts problems off to the future on a presumption that conditions will be quickly improving.

It would be too much bad news all at once to let it be known what banks’ fantasy-valued assets are actually worth. Therefore, instead of selling off banks’ assets “as is” and taking its lumps all at once, the FDIC is now routinely entering into loss-share agreements as to virtually all the assets sold. That allows the FDIC to not have to book the full extent of its losses at the time each bank is closed, but is also leading to the FDIC taking on the risk of huge future losses.

The FDIC is already broke, so any future losses it takes on are liabilities of the U.S. public. The combined policies of MOPE and Pretend and Extend are once again making it inevitable that quantitative easing must continue indefinitely.

New currency

The Chinese and Brazilians decided to trade in their own currencies, in a diversification away from a sinking USDollar. Then the Chinese and the Russians demanded a new world reserve currency, the IMF's Special Drawings Rights (SDR), which is an index of the USDollar, the Japanese yen, the Euro, the British Pound Sterling. With the closure of the gold window in 1971, SDR's are no longer pegged to gold.

The middle eastern petroleum exporting countries, the so-called the Gulf Cooperating Council (GCC), are creating a new currency, the Riyal, in an effort to sell their crude oil in a denomination other than the USDollar.

It seems every country is nervous about USDollar hegemony due to its plummeting value. Now even the banana republics are trashing the dollar, and welcoming the Sucre.

http://www.presstv.ir/detail.aspx?id=116914§ionid=3510213

Folks, this is no longer science fiction. It's the real deal, and an indictment against the prodigious printing press of the US Treasury.

Derivatives

Our government financial experts really are clueless. The over-expansion of leverage and derivatives of collateralized mortgages caused our financial crisis. Now the broke FDIC wants to collateralize bad loans from collapsed banks, package them, and sell the securities to the markets. Talk of financial reform is utterly worthless if the causes of credit bubbles are misunderstood.

http://www.cnbc.com/id/35055601