Archive for the ‘Commentary’ Category


Chinese Inflation Hits 6.4%, Government Tells People Not to Buy Silver.

In Commentary,Inflation on July 11, 2011 by CQCA

China Daily reported that the Chinese CPI has reached 6.4%, the highest in three years.

If you had put money in the bank in June 2010 for one year, your interest rate would have been 2.25%. Since CPI is now at 6.4%, Chinese savers have actually lost wealth. Put in another way, real interest rates in China are about -4.15%.

Not surprisingly, yesterday CCTV had a special report on why silver is a bad investment.

Here is my favorite quote, courtesy of Google Translate: “Chun-Li Wang told reporters, silver in the first half of the test roller coaster price fluctuations, the company has gone through half of the ocean, half of the flame of the abyss. Chun-Li Wang analysis, investment in silver and gold investment are very different, because the value of silver is relatively low, ordinary working-class can afford, so people buy and invest more than an ordinary consumer, and this ability to judge people without investment , the public mental trend is very strong, difficult to resist collapse of the sense of risk. Because silver bullion this one, it touches the surface, this is the most popular working-class, the most common investors, some retired, he’s took a pension, he can, he can buy one, that working in Beijing, he can buy one, so we feel very much a danger that.

The original Chinese text is from iFeng Finance, and the television report can be seen on Diyi Shijian (starts at about 26:00 and ends when they start talking about sofas).


SA Post: Jim Rogers has Lost His Contrarian Edge.

In Commentary on May 21, 2011 by CQCA

“Jim Rogers is a legendary investor best known for establishing the Quantum Fund with George Soros. Since that time, he has authored multiple books on investing and life lessons. I respect his views very much, and enjoy his commentary. He often says “I have found in life it is better to be a contrarian, than not be.”

When it comes to China, though, he seems to have given up contrarianism for blind optimism. I would say the average person is optimistic towards China’s future economic development. Jim Rogers, instead of being a contrarian, has taken the role of captain of the cheer squad.” Read More…

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SA Post: March ’10 to March ’11 Money Supply Growth and Forex Moves.

In Commentary on May 20, 2011 by CQCA

“The U.S. Dollar has been taking a beating recently in forex markets (and by “recently” I mean since 2001). More attention than ever has been focused on the growth of the U.S. money supply, both M2 and the monetary base.

However, this focus has not extended to other currencies, as much. The M2 growth of five currencies, the Euro, the Dollar, the Yen, the Renminbi, and the Swiss Franc, is listed below.” Read More…

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Gordon Brown for IMF Chief.

In Commentary on May 15, 2011 by CQCA

The current IMF chief, Dominique Strauss-Kahn, is sitting in jail now for attempted rape, and the New York Justice Department will not accept bail paid in SDRs.

Now the search is on for who will be the next IMF chief. Gordon Brown, the prime minister whose government was criticized by the IMF, has been actively campaigning for the post in 2012.

He’s the obvious choice to be a devalued managing director of a devalued monetary fund.

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CPI Does Not Agree with the IEPI.

In Commentary on May 13, 2011 by CQCA

The Consumer Price Index for April, 2011 was released. The Bureau of Labor Statistic’s measure for “All Item” inflation was 3.2% annually.

One thing that stood out about this release was that it did not agree with another report released by the Bureau of Labor Statistics. The Import and Export Price Index (EIPI) was released on May 10, 2011.

The price of apparel increased .1%, according to the CPI. This is one of the lower increases for the categories that are tracked. According the the EIPI, however, the price of imported apparel increased 5.6% over the same time. Exported apparel also increased 8.2% over the same time.

How is it that the price of imported and exported apparel is going up, but the price of apparel in the United States is not going up? Once again, the only place prices are not going up is the CPI.

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SLV Trade Volume Indicates Manipulation.

In Commentary on May 4, 2011 by CQCA

The silver ETF, iShares SLV, has been mentioned on this site numerous times (Here, here, and here.) Its easily collected trade volume and price movements make it a useful research tool for the overall silver market.

However, recent activity indicates the fund is being manipulated. Mark McHugh, at Across the Street, wrote an article on April 29th titled “Is the SLV Wired to Blow?” He writes:

    “As of this writing there are 364 million shares of SLV outstanding. In the past five trading days (April 25 – 29) more than 755 million shares have been traded, and get this, more than 10 million ounces of silver were taken from the trust between the 26th and the 28th, taking available shares with them.” (Emphasis his.)

The rest of the article is highly informative (and entertaining).

The Silver Coin Investor has alleged that “there have been regular periods when the trust did not have all the silver it should have.”

The prospectus’ rules for redemption seem very open to interpretation.

    “The trustee may suspend the delivery or registration of transfers of Shares, or may refuse a particular deposit or transfer at any time, if the trustee or the sponsor think it advisable for any reason. Redemptions may be suspended only (i) during any period in which regular trading on NYSE Arca is suspended or restricted, or the exchange is closed, or (ii) during an emergency as a result of which delivery, disposal or evaluation of silver is not reasonably practicable.”

Any references to SLV on this site should be considered only as convenient data for research.  Recent market movements indicate that SLV is being manipulated. Since SLV and physical silver usually move in tandem, physical silver is also down 17% between April 28th and May 4th on the London market. However, SLV seems to have been flooded with shares that do not represent actual silver, so there may be a divergence coming between the price of physical silver (something real) and SLV (a promissory note for something that may not exist).

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When Ben Bernanke Speaks, Silver Goes Up.

In Commentary on April 27, 2011 by CQCA

The chart above shows the top ten trade volumes of SLV by which day they happened on, plus the all time average since the ETF began. Seven of the top ten volume days happened in April, 2011.

The increased trading volume in April, 2011 was based on a gamble that the Federal Reserve would continue to destroy the U.S. Dollar. That paid off. The Federal Reserve Open Market Committee announced it had decided “to continue expanding its holdings of securities as announced in November,” in order to “promote a stronger pace of economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate.” It will also “maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels for the federal funds rate for an extended period.”

November 9th, and November 10th, 2010 also had exceptionally high trade volumes. These followed the Federal Reserve’s announcement on November 3, 2010 that it would “purchase a further $600 billion of longer-term Treasury securities by the end of the second quarter of 2011, a pace of about $75 billion per month.”

December 7, 2010, the tenth highest day for volume trades, was the day the Gold Anti-Trust Action Committee filed suit against JP Morgan & Co. for “conspir[ing] to intentionally, unlawfully and artificially suppress[ing] […] the prices of exchange-traded silver bar financial instruments.” (Kensik v. JP Morgan & Co.)

In terms of largest single day price increases, the largest price increase, 14.42%, was on September 17, 2008. This followed the Federal Reserve’s announcement on the evening of September 16, 2008 that it had “authorized the Federal Reserve Bank of New York to lend up to $85 billion to the American International Group (AIG),” and would allow the U.S. government to “receive a 79.9 percent equity interest in AIG and [have] the right to veto the payment of dividends to common and preferred shareholders.”

The second largest single-day increase in price occurred on November 24, 2008, the day before the Federal Reserve publicly announced it would create the Term Asset-Backed Securities Loan Facility. This program directed the Federal Reserve Bank of New York “to lend up to $200 billion on a non-recourse basis to holders of certain AAA-rated ABS backed by newly and recently originated consumer and small business loans.”

When Ben Bernanke speaks, silver goes up.

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The RMB and Foreign Exchange Reserve Trends.

In Commentary on April 18, 2011 by CQCA

The chart above shows the composition, by percentage, of foreign exchange reserves held in 2000 and 2009. The U.S. Dollar accounted for 71% of world (reported) foreign exchange reserves at the beginning of the decade, but was down to 62% at the end. The Euro increased from 18% to 27%. Other currencies increased from 1.50% to 3.00%.

The Renminbi was most likely a significant contribution to the other category. The People’s Bank of China during this time slowly allowed the Renminbi to leave China, but closely managed the amount. In December, 2010, the People’s Bank of China announced they were increasing the number of companies that can trade in Renminbi from 365 to 67,395. According to the Bank of China, official cross-border transactions increased from zero before July, 2009 to 510 billion RMB at the end of 2010.

Most of these currency flows are going into international banking centers, such as Hong Kong, Singapore, and Switzerland, according to HSBC Global Research. The Chinese government’s policy of pegging the RMB to the U.S. Dollar, regardless of monetary policy, will now most likely be replaced by a banking system that will at some point realize the Renminbi is far more inflated that the other major currencies.

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Bureau of Labor Statistics vs. Energy Information Agency.

In Commentary on April 16, 2011 by CQCA

On April 15th, the Bureau of Labor Statistics released CPI data for March, 2011. In it, they stated “Gasoline and food prices continued to rise and together accounted for almost three quarters of the seasonally adjusted all items increase in March. The gasoline index posted its ninth consecutive increase and has now risen 14.4 percent over the last three months. The household energy index rose as well, with advances in the fuel oil and electricity indexes more than offsetting a decline in the index for natural gas.”

Basic economics tells us that when demand goes up or supply goes down, prices will rise. These prices could be rising because of a shortage of production or an increase in consumption. However, according to the Energy Information Agency’s Petroleum Supply Monthly for January, 2011, the U.S. has a higher ending stock of crude oil and petroleum products now than one year ago. The total ending stock in January, 2010 was 1.78 million barrels, whereas in January, 2011 it was 1.80 million barrels. This would indicate that the rapid increase in the price of fuel products is a monetary issue, not a supply and demand issue.

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The Price of Rice is Not a Supply and Demand Issue.

In Commentary,Money Supply on April 14, 2011 by CQCA

In a speech given to the Economic Club of New York (in New York, New York) on April 11, 2011, Vice Chair Janet Yellen claimed:  “[R]ecent developments in commodity prices can be explained largely by rising global demand and disruptions to global supply rather than by Federal Reserve policy.”

As the chart above shows, the supply of rice, to use one example, remained stable between 2000 and 2010.  In fact, it increased from 229.2 million cwt in 2000 to 270.4 million cwt by 2009, or 18%.  Although there was not an absolute direct link, the increase in the money supply and the increase in the price of rice had a similar trajectory.

The price movements do not really correlate with a demand increase, either.  The U.S.’s end stock, meaning the amount of rice left over after food processing, planting, and exporting, remained above 10% throughout the period.

Of the three indicators—supply, demand, and money supply—the falling value of the currency seems to be the most direct link to the increase in the price of rice.


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