By: Mark Hemingway 01/31/11
Monday, January 31, 2011
By: Mark Hemingway 01/31/11
Canadian television viewers looking for the most thorough and in-depth coverage of the uprising in Egypt have the option of tuning into Al Jazeera English, whose on-the-ground coverage of the turmoil is unmatched by any other outlet. American viewers, meanwhile, have little choice but to wait until one of the U.S. cable-company-approved networks broadcasts footage from AJE, which the company makes publicly available. What they can't do is watch the network directly.
Other than in a handful of pockets across the U.S. – including Ohio, Vermont and Washington, D.C. – cable carriers do not give viewers the choice of watching Al Jazeera. That corporate censorship comes as American diplomats harshly criticize the Egyptian government for blocking Internet communication inside the country and as Egypt attempts to block Al Jazeera from broadcasting.
The result of the Al Jazeera English blackout in the United States has been a surge in traffic to the media outlet's website, where footage can be seen streaming live. The last 24 hours have seen a two-and-a-half thousand percent increase in web traffic, Tony Burman, head of North American strategies for Al Jazeera English, told HuffPost. Sixty percent of that traffic, he said, has come from the United States.
Located between Oman and Iran, the Strait of Hormuz connects the Persian Gulf with the Gulf of Oman and the Arabian Sea. Hormuz is the world's most important oil chokepoint due to its daily oil flow of 15.5 million barrels in 2009, down from a peak of 17 million bbl/d in 2008. Flows through the Strait in 2009 are roughly 33 percent of all seaborne traded oil (40 percent in 2008), or 17 percent of oil traded worldwide.
On average, 13 crude oil tankers per day passed eastbound through the Strait in 2009 (compared with an average of 18 in 2007-2008), with a corresponding amount of empty tankers entering westbound to pick up new cargos. More than 75 percent of these crude oil exports went to Asian markets, with Japan, India, South Korea, and China representing the largest destinations.
At its narrowest point, the Strait is 21 miles wide, but the width of the shipping lane in either direction is only two miles, separated by a two-mile buffer zone. The Strait is deep and wide enough to handle the world's largest crude oil tankers, with about two-thirds of oil shipments carried by tankers in excess of 150,000 deadweight tons.
Closure of the Strait of Hormuz would require the use of longer alternate routes at increased transportation costs. Alternate routes include the 745 mile long Petroline, also known as the East-West Pipeline, across Saudi Arabia from Abqaiq to the Red Sea. The East-West Pipeline has a nameplate capacity of 4.8 million bbl/d. The Abqaiq-Yanbu natural gas liquids pipeline, which runs parallel to the Petroline to the Red Sea, has a 290,000-bbl/d capacity.
A new bypass is currently being constructed across the United Arab Emirates that is expected to be completed in 2011. The 1.5 million bbl/d Habshan-Fujairah pipeline will cross the emirate of Abu Dhabi and end at the port of Fujairah just south of the Strait. Other alternate routes could include the deactivated 1.65-million bbl/d Iraqi Pipeline across Saudi Arabia (IPSA), and the deactivated 0.5 million-bbl/d Tapline to Lebanon. Additional oil could also be pumped north via the Iraq-Turkey pipeline to the port of Ceyhan on the Mediterranean Sea, but volumes have been limited by the closure of the Strategic pipeline linking north and south Iraq.
The Strait of Malacca, located between Indonesia, Malaysia, and Singapore, links the Indian Ocean to the South China Sea and Pacific Ocean. Malacca is the shortest sea route between Persian Gulf suppliers and the Asian markets –notably China, Japan, South Korea, and the Pacific Rim. Oil shipments through the Strait of Malacca supply China and Indonesia, two of the world's fastest growing economies. It is the key chokepoint in Asia with an estimated 13.6 million bbl/d flow in 2009, down slightly from its peak of 14 million bbl/d in 2007.
At its narrowest point in the Phillips Channel of the Singapore Strait, Malacca is only 1.7 miles wide creating a natural bottleneck, as well as potential for collisions, grounding, or oil spills. According to the International Maritime Bureau's Piracy Reporting Centre, piracy, including attempted theft and hijackings, is a constant threat to tankers in the Strait of Malacca, although the number of attacks has dropped due to the increased patrols by the littoral states authorities since July 2005.
Over 60,000 vessels transit the Strait of Malacca per year. If the strait were blocked, nearly half of the world's fleet would be required to reroute around the Indonesian archipelago through Lombok Strait, located between the islands of Bali and Lombok, or the Sunda Strait, located between Java and Sumatra.
There have been several proposals to build bypasses to reduce tanker traffic through the Strait of Malacca. Construction began in 2009 to build a 240,000 bbl/d crude oil pipeline from Burma to China that could eventually be expanded.
#3 The Suez Canal
The Suez Canal is located in Egypt, and connects the Red Sea and Gulf of Suez with the Mediterranean Sea, covering 120 miles. Petroleum (both crude oil and refined products) accounted for 16 percent of Suez cargos, measured by cargo tonnage, in 2009. An estimated 1.0 million bbl/d of crude oil and refined petroleum products flowed northbound through the Suez Canal to the Mediterranean Sea in 2009, while 0.8 million bbl/d travelled southbound into the Red Sea. This represents a decline from 2008, when 1.6 million bbl/d of oil transited northbound to Europe and other developed economies.
Almost 35,000 ships transited the Suez Canal in 2009, of which about 10 percent were petroleum tankers. With only 1,000 feet at its narrowest point, the Canal is unable to handle the VLCC (Very Large Crude Carriers) and ULCC (Ultra Large Crude Carriers) class crude oil tankers. The Suez Canal Authority is continuing enhancement and enlargement projects on the canal, and extended the depth to 66 ft in 2010 to allow over 60 percent of all tankers to use the Canal.
#4 Bab el-Mandab
The Strait of Bab el-Mandab is a chokepoint between the horn of Africa and the Middle East, and a strategic link between the Mediterranean Sea and Indian Ocean. It is located between Yemen, Djibouti, and Eritrea, and connects the Red Sea with the Gulf of Aden and the Arabian Sea. Most exports from the Persian Gulf that transit the Suez Canal and SUMED pipeline also pass through the Bab el-Mandab.
An estimated 3.2 million bbl/d flowed through this waterway in 2009 (vs. 4 million bbl/d in 2008) toward Europe, the United States, and Asia. The majority of traffic, about 1.8 million bbl/d, moved northbound through the Bab el-Mandab en route to the Suez/SUMED complex.
The Bab el-Mandab is 18 miles wide at its narrowest point, making tanker traffic difficult and limited to two 2-mile-wide channels for inbound and outbound shipments. Closure of the Strait could keep tankers from the Persian Gulf from reaching the Suez Canal or Sumed Pipeline, diverting them around the southern tip of Africa. This would effectively engage spare tanker capacity, and add to transit time and cost.
Security became a concern of foreign firms doing business in the region, after a French tanker was attacked off the coast of Yemen by terrorists in October 2002. In recent years, this region has also seen rising piracy, and Somali pirates continue to attack vessels off the northern Somali coast in the Gulf of Aden and southern Red Sea including the Bab el-Mandab.
The Bosporus and Dardanelles comprise the Turkish Straits and divide Asia from Europe. The Bosporus connects the Black Sea with the Sea of Marmara, and the Dardanelles links the Sea of Marmara with the Aegean and Mediterranean Seas. The 17-mile long waterway located in Turkey supplies Western and Southern Europe with oil from the Caspian Sea Region.
An estimated 2.9 million bbl/d flowed through this passageway in 2009, of which over 2.5 million bbl/d was crude oil. The ports of the Black Sea are one of the primary oil export routes for Russia and other former Soviet Union republics. Oil shipments through the Turkish Straits decreased from over 3.4 million bbl/d at its peak in 2004 to 2.6 million bbl/d in 2006 as Russia shifted crude oil exports toward the Baltic ports. Traffic through the Straits has increased again as Azerbaijan and Kazakhstan crude production and exports rose.
Only half a mile wide at its narrowest point, the Turkish Straits are one of the world's most difficult waterways to navigate due to its sinuous geography. With 50,000 vessels, including 5,500 oil tankers, passing through the straits annually it is also one of the world's busiest chokepoints.
Turkey has raised concerns over the navigational safety and environmental threats to the Straits. Commercial shipping has the right of free passage through the Bosporus Straits in peacetime, although Turkey claims the right to impose regulations for safety and environmental purposes. Bottlenecks and heavy traffic also create problems for oil tankers in the Bosporus Straits. While there are no current alternate routes for westward shipments from the Black and Caspian Sea region, there are several pipeline projects in various phases of development underway.
Another look at Bosporus
#6 Panama Canal
The Panama Canal is an important route connecting the Pacific Ocean with the Caribbean Sea and Atlantic Ocean. The Canal is 50 miles long, and only 110 feet wide at its narrowest point called Culebra Cut on the Continental Divide. About 14,000 vessels transit the Canal annually, of which more than 60 percent (by tonnage) are for traffic to and from the United States.
Closure of the Panama Canal would greatly increase transit times and costs adding over 8,000 miles of travel. Vessels would have to reroute around the Straits of Magellan, Cape Horn and Drake Passage over the tip of South America.
However, the Panama Canal is not a significant route for petroleum transit or for U. S. petroleum imports. Roughly one-fifth of the traffic through the canal (measured by both transits and tonnage) was by tankers. According to the Panama Canal Authority, 0.8 million bbl/d of crude and petroleum products were transported through the canal in 2009, of which 620,000 bbl/d was refined products, and the rest crude oil. Most petroleum traffic passed from north (Atlantic) to South (Pacific).
However, the relevance of the Panama Canal to the global oil trade has diminished, as many modern tankers are too large to travel through the canal. Some oil tankers, such as the ULCC (Ultra Large Crude Carriers) class tankers, can be nearly five times larger than the maximum capacity of the canal. The largest vessel that can transit the Panama Canal is known as a PANAMAX-size vessel (ships ranging from 50,000 – 80,000 dead weight tons in size and no wider than 108 ft.)
In order to make the canal more accessible, the Panama Canal Authority began an expansion program to be completed by end-2014. However, while many larger tankers will be able to transit the canal after 2014, some ULCC's will still be unable to make the transit.
#7 The Danish Straits
An estimated 3.3 million bbl/d flowed westward through this waterway in 2009 to European markets, up from 2.4 million bbl/d in 2005. Russia has increasingly been shifting its crude oil exports to its Baltic ports, especially the relatively new port of Primorsk, which accounted for half of the exports through the Straits. An additional 0.3 million bbl/d of crude oil, primarily from Norway, flows eastward to Scandinavian markets.
About one-third of the westward exports through the Straits are for refined products, coming from Baltic Sea ports such as Tallinn (Muuga), Venstpils, and St. Petersburg.
With fears of continued and/or accelerating Middle East instability sent the energy commodity shooting up more than 4% on the day last friday, and back into very technically bullish territory. The issue of the Suez Canal being potentially shut down due to the instability in Egypt is in play.
The threat of continued protests in Jeddah and Libya, as well as the implications of this Muslim revolution for democracy on Iran,which had a semi-revolution attempt just two years ago (and is a huge geopolitical pivot point,with the Strait of Hormuz seeing 20% of the world's oil shipments pass daily), are definitely keeping oil prices afloat.
If US foreign policy continues to back the status quo, potential threats to stable and continued oil exports from the Middle East may shift quickly from extremist Islamists with little political capital in the international political arena to pro-democracy revolutionaries with much more secular leanings.
The surge in oil prices on Friday was the largest one-day gain since 2008, in which oil prices surged more than 50% to $150/bbl. I have been calling for oil to have a breakout year in 2011, and with this strong reversal back above $87.50/bbl on record volume in ETFs and futures contracts, I think oil looks very constructive and will be heading toward triple digits this year. The pattern implies a rally to $105/bbl before the next significant correction.
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Sunday, January 30, 2011
EXOGENOUS MY A _ _ !...................... EVERY INVESTOR HAD BETTER READ AND UNDERSTAND THIS COMPLETELY.
The mere fact that so much of the conventional wisdom doesn't get this, or simply dismisses Egypt as a backwater instead of something critical and part of a pattern. A pattern which is underpinned by U. S. POLICY. The Fed can not continue to print money and not expect to create problems amongst the poorest of the world who can't afford inflation. The Fed did not create the problem but it's policy of money printing is without a doubt acting as the catalyst and making many of the worlds inflation driven problems much worse.
The people of Egypt were already poor and starving prior to QE. QE has made what was already a bad situation worse, more dollars chasing the same amount of goods equals higher prices, especially in energy and food markets. This will continue as long as American leadership is married to the foolish ideas that pass for our current economic policy.
Investors should be prepared for numerous severe crisis events if our government insists on continuing policy that defies the laws of economics.
In case of any doubts or confusion about what transpired, look closely at monthly spending by category in Egypt:
The big shoe to drop will be in China or possibly India. India seems to be suffering from classic hyperinflationary conditions in food. Vegetable prices have been reported as jumping 16% in just a few days. This is a big story in the emerging market story, and to just ignore it is astonishing."
India is not homogeneous like Egypt. In India, food riots could lead to religious fighting, and then just to outright killing of neighbors who are different. India has a long history of this. Since India is a high-profile, darling developing nation, this kind of shock would blow those markets up and be a real lesson to those that have dismissed this as just another inconsequential exogenous-event.
In China this probably plays out as a defacto labor strike. The Chinese New Years starts Feb. 3, and unless big bounties and large pay increases are offered, these workers will just stay in the countryside and avoid the expensive speculative urban areas. This "strike" will rapidly shut down production in China.
If there is a QE3, it would result in a lethal combination of collapsing economies and severe crack up boom inflation. Is Ben, really that stupid? The answer at this point is a definite maybe!
SO AN UNINTENDED CONSEQUENCE OF THE FEDs FOOLISH POLICIES MAY DESTABILIZE THE ENTIRE WORLD ECONOMIC ORDER. THIS IS WHAT HAPPENS WHEN EGO MANIACAL JACKASSES ARE IN CHARGE.
AMERICA NEEDS TO WAKE UP QUICK!
Saturday, January 29, 2011
By Doug Hornig
I live in the Commonwealth of Virginia, which, along with our sister commonwealth to the north, Massachusetts, may rightly be considered the cradle of liberty. Most of the founders of the nation came from one or the other. A commonwealth is a bit different in spirit from a state. As Webster notes, it is a political unit "in which supreme authority is vested in the people."
We're quirky, in that we hold our elections in odd-numbered years, with the governorship up for grabs in the year following a presidential election. Some see that vote as an early referendum on the president. If so, then it's telling that since the late 1970s, Virginians have always voted for a governor of the opposite political party to the successful candidate for the White House. We dislike 'em all. Virginians, who took the lead so much of the time in the early days of the republic, have not been heard from much of late. Despite our status as a swing state, we're relatively unimportant. Political attention tends to focus instead on such voter-rich states as Florida, Texas, and California.
That may be about to change, as Virginia legislators prepare to debate the firing of a shot directly across the federal bow.
Our state legislature formally convenes on January 12, but some resolutions were prefiled. Including, on Jan. 5, House Joint Resolution No. 557, which proposes: "Establishing a joint subcommittee to study whether the Commonwealth should adopt a currency to serve as an alternative to the currency distributed by the Federal Reserve System in the event of a major breakdown of the Federal Reserve System."
The resolution begins with a long bunch of WHEREAS's, all of which pretty much pertain to a distrust of the Fed. These will give you the flavor:
"WHEREAS, the present monetary and banking systems of the United States, centered around the Federal Reserve System, have come under ever-increasing strain during the last several years, and will be exposed to ever-increasing and predictably debilitating strain in the years to come; and
"WHEREAS, many widely recognized experts predict the inevitable destruction of the Federal Reserve System's currency through hyperinflation in the foreseeable future; and
"WHEREAS, in the event of hyperinflation, depression, or other economic calamity related to the breakdown of the Federal Reserve System, for which the Commonwealth is not prepared, the Commonwealth's governmental finances and Virginia's private economy will be thrown into chaos, with gravely detrimental effects upon the lives, health, and property of Virginia's citizens, and with consequences fatal to the preservation of good order throughout the Commonwealth;"
The bill urges adoption of "an alternative currency consisting of gold or silver, or both," and that the Commonwealth "make the alternative currency available, and enable it to be used in competition with and preference to the Federal Reserve System's currency, to the degree that the need for such use became apparent."
Okay, it's not a law. It's not even a proposed law. It's just a call for legislators to look into the matter. And chances of the state legislature giving it a thumbs-up are slim to none, and Slim was last seen heading to Aruba.
Friday, January 28, 2011
Has America become the land of special interest and home of the double standard?
Lets see: if we lie to the Congress, it's a felony and if the Congress lies to us its just politics; if we dislike a black person, we're racist and if a black person dislikes whites, its their 1st Amendment right; the government spends millions to rehabilitate criminals and they do almost nothing for the victims; in public schools you can teach that homosexuality is OK, but you better not use the word God in the process; you can kill an unborn child, but it is wrong to execute a mass murderer; we don't burn books in America, we now rewrite them; we got rid of communist and socialist threats by renaming them progressive; we are unable to close our border with Mexico, but have no problem protecting the 38th parallel in Korea; if you protest against President Obama's policies you're a terrorist, but if you burned an American flag or George Bush in effigy it was your 1st Amendment right.
You can have pornography on TV or the internet, but you better not put a nativity scene in a public park during Christmas; we have eliminated all criminals in America, they are now called sick people; we can use a human fetus for medical research, but it is wrong to use an animal.
We take money from those who work hard for it and give it to those who don't want to work; we all support the Constitution, but only when it supports our political ideology; we still have freedom of speech, but only if we are being politically correct; parenting has been replaced with Ritalin and video games; the land of opportunity is now the land of hand outs; the similarity between Hurricane Katrina and the gulf oil spill is that neither president did anything to help.
And how do we handle a major crisis today? The government appoints a committee to determine who's at fault, then threatens them, passes a law, raises our taxes; tells us the problem is solved so they can get back to their reelection campaign.
What has happened to the land of the free and home of the brave?
Previously, social media sites such as Facebook and Twitter were blocked. "In this case the government seems to be taking a shotgun approach by ordering ISPs to stop routing all networks," said Toonk. The Noor Group appears to be the only ISP with access, with all of its internet routes and inbound traffic from its connection provider Telecom Italia working. Tweets that are getting through to Twitter say that some ISPs are working because they control banks and the stockmarket.
Protests against the government's rule in Egypt have been mounting, with tomorrow expected to see the largest demonstrations so far.
I THINK WE ALL SHOULD SAY A PRAYER FOR THE PEOPLE OF EGYPT.
Inflation, overall, is bad news for equity investors according to SocGen. This is because, as inflation rises, it becomes difficult for an equity portfolio to keep up with inflation, so profits that might otherwise seem large are hit by rising costs.
There are arguments that would suggest a portfolio of high yield or of high quality dividend paying stocks would survive and outperform in this environment. But looking at historical data, Societe Generale could find no evidence of that.
There's simply no proof that the high quality dividend paying stock strategy works, from Societe Generale:
On a relative basis, with its lower beta and more cautious characteristics, equity income should outperform during weaker periods of equity performance. Coupled with a strategy of buying into higher quality, robust and cheaper-than-average dividend streams, this should allow equity investors to keep up with rising inflation without incurring the valuation downside risk associated with some of the racy and expensive areas of the equities market.
Further, there's no historical data to show that high yield stocks have been able to deal with inflation and the knock on effect of higher interest rates.
So we ran some sensitivity analysis of high versus low dividend yield strategies in the US using data from 1950 onwards and 1974 in Europe. Again, the analysis is rather inconclusive. In the US, high yield stocks respond positively when interest rates are cut - we assume because the falling interest rates are a sign that the economy is slowing and high yield stocks in the US are typically less-cyclical. It is also worth noting that high yield investing in the US has also been less successful than in Europe. In Europe, our analysis shows that high versus low yield seems to outperform in all interest rate change conditions bar one, when rates are above average and still rising.
The only good news is for those individuals with fixed debts. A rise in inflation will allow them to pay that off faster, that is, if their real incomes rise simultaneously.
Silver was the first metal to be used as a currency more than 4,000 years ago. For millennia, silver has been viewed by the world as a form of money and as a store of value. For centuries, monetary systems around the globe relied upon the silver standard as an economic unit of account. According to Nobel Laureate and world-renowned economist, Milton Friedman, "the major monetary metal in history is silver, not gold." Because silver is more reasonably priced, and therefore more accessible to the common man, it has been called the "poor man's gold." It has been said that "Gold is the money of kings; silver is the money of gentlemen; barter is the money of peasants; but debt is the money of slaves."
And while gold was certainly used as money for centuries, it was not until around the 19th century that nations began abandoning the silver standard for a new gold standard. This move away from silver to gold was led primarily by Britain and the United States. The silver standard finally came to an end when the last two countries, China and Hong Kong, abandoned silver for gold. Silver has been viewed as money throughout most of recorded history. In fact, in over 50 countries, the word for money is the same as the word for silver.
Over the last few years, the price of silver has been setting up and has become a viable investment opportunity. In this article, I will outline several reasons why I believe the price of silver may be set to explode to record levels over the next several months and years.
The Silver to Gold Ratio
The silver to gold ratio serves as a historical measure of the price difference between silver and gold. The ratio has been measured since the days of Ancient Greece. Interestingly, during the reign of the silver standard, silver and gold maintained a fairly stable and predictable price ratio of 15:1. In fact, this 15 to 1 silver to gold price ratio was legally fixed by the United States with the passage of the Coinage Act of 1792. Under this law, it meant that 15 troy ounces of silver could purchase one troy ounce of gold.
However, despite this stable historical ratio, the last several decades have witnessed a tremendous volatility in the silver to gold ratio. By 1900, the ratio had risen to 32:1. And by 1990, the ratio stood at an amazing 94:1. In late 2008, in the middle of the recent economic crisis, the silver to gold ratio peaked at a very high level of 84:1. And as of this writing, the ratio is around 62:1, which means that you can take delivery of over 60 ounces of silver before owning even one ounce of gold.
The important thing to note here is that silver prices are far from their historical and traditional norm of 15:1. This dramatic shift in the price ratio raises an important question for would-be silver investors: Have modern markets determined that the historical ratio of 15:1 is irrelevant due to fundamental changes in silver and gold? It is important to note that the 15:1 price ratio is a very simple technical indicator that measures shifts in the underlying fundamentals of the two metals. So let us next turn to examine some of the fundamentals of silver to see if the shiny metal is deserving of its uncharacteristically low price.
Increasing Industrial Demand
Today, emerging nations are devouring global commodities at a record pace. Nations like China, Brazil, Russia, India, Vietnam, and others are forecast to continue their rapid economic growth in the coming years and decades. As they grow, their appetite for commodities will grow right along with them. Typically, the commodities that come to mind when thinking about demand from emerging nations are oil, copper, etc. Many do not think of silver in terms of its industrial demand. However, silver is a primary component of photography, water filters, band-aids, batteries, solar energy cells, and jewelry, among many other uses. In addition, silver has been dubbed the "healthy metal" due to its numerous healthcare and medical applications. And because of silver's excellent electrical conductivity, it has numerous applications in electronics. The large list of electronics requiring silver include: computers, circuit boards, cell phones, televisions, RFID tags, and PDA's, just to name a few. To understand why industrial demand for silver will continue growing in the future, simply think of the roughly two billion people around the world who currently do not have cell phones or laptops, but want them.
Due to increasing industrial demand for silver, we agree with most forecasts that silver prices will rise to meet the growing demand.
Increasing Investment Demand
In addition to serving as a chief industrial metal, silver is also a monetary metal. Thus, investment demand for silver as a monetary metal has risen dramatically over the last several years. Much of this investment demand for silver has been from global investors seeking diversification in their portfolios, most of which have been over-weighted with paper assets. This newfound investment demand for hard (tangible or non-paper) assets has been primarily rooted in the continued decline in purchasing power of many global currencies. Authoritative financial experts and commentators, such as Alan Greenspan, George Soros, Jim Rogers, Peter Schiff, and others, have warned that paper currencies will continue to lose value over time. This decline is rooted in the poor monetary policies enacted by central bankers around the world. Of course, precious metals, such as gold and silver are some of the prime beneficiaries of poor monetary policy. This explains, at least in part, the increasing investment demand for silver. As governments and central banks increasingly appear willing to continue printing more money as a solution to the global economic crisis, many investors rightfully fear the end result will be hyperinflation. Again, precious metals, such as silver, would be direct beneficiaries of any such hyperinflation.
The clearest demonstration of this increasing investment demand for silver comes from the government itself. Consider the increase in sales of American Silver Eagle coins issued by the U.S. Mint. Since the American Silver Eagle was introduced in 1986, the U.S. Mint has reported annual sales ranging from 3.5 million to a high of 10 million. However, as the global economic crisis became more and more evident, demand for precious metals exploded. In 2008, annual sales of Silver Eagles reached an all time record high of 19,583,500. This record was smashed in 2009 when total annual sales of Silver Eagles reached a staggering 29 million. And sales just now appear to be heating up. During Q1 2010 (January-March 2010), a total of 9,023,500 American Silver Eagles were purchased from the U.S. Mint. These are the highest quarterly sales numbers of the Silver Eagle since the coin made its debut in 1986. Based upon sales projections, 2010 should set another record for American Silver Eagles.
Additionally, the recent introduction of exchange-traded funds (ETF's) that track the price of silver has lowered the costs of entry into the silver market and has eliminated the need for safety and storage concerns. Two popular ETF's among investors are the ETFS Physical Silver Shares (SIVR) and the iShares Silver Trust (SLV). Since these ETF's actually hold physical silver, their increasing popularity among investors directly, and positively, impacts investment demand for silver.
One final note on the growing investment demand for silver comes from the Far East. After decades of dissuading its citizens to purchase precious metals, China has done a complete about face. For the last three years, China has been using its state-run television to promote precious metals as a wise investment opportunity to its citizens. In particular, China is recommending silver as an "undervalued asset" that could provide individual investors with a "good way to cash in" as they expect prices to go much higher.
While the U.S. government has been urging its citizens to purchase its own worthless paper debt, the Chinese government has been urging its citizens to invest in hard assets. The Chinese government's pronouncement is far from hypocritical, as they have been taking their own medicine. China has shocked the investment world over the last few years by increasing its own gold reserves by 76% since 2002. By urging its own 1.3 billion citizens to purchase silver, China is sure to continue driving demand for precious metals, such as silver, for years to come.
Global Silver Production and Supply
It has been estimated that in 1900 there were 12 billion available ounces of silver in the world. According to the commodities research firm CPM Group, this number dropped dramatically to around 2.2 billion ounces by 1990. Today, the amount of above ground refined silver has fallen to less than 1 billion ounces. Obviously, global demand for silver is outpacing the world's silver production capabilities.
Silver's numerous uses in industry coupled with growing global investment demand, have created a consistent demand that has been outstripping supplies for more than five decades. As the old saying goes, "Gold is hoarded but silver is consumed." Almost all of the gold that has ever been mined since the beginning of time is still available in bullion form today. In contrast, almost all of the silver (90%) that has been mined has been consumed in its various industrial applications. This is true due to the price differentiation between the two metals. Because of gold's much higher value, it is recycled and restored to bullion form. However, because of silver's relatively inexpensive price, it is often cost-prohibitive to recover and recycle silver in many of its forms. This is not to say that silver is not recovered and recycled, however. Of the total global silver produced annually, 20% is the result of recycled silver.
What makes silver somewhat unique and unusual is that its price is highly inelastic. Historically speaking, this means that silver production is not directly affected by increasing silver prices. For example, in the last great silver bull market when silver prices were up by 2400%, the production of silver was minimally affected. This is not to say that this trend will continue. However, it is a historical fact that should be considered by new investors.
Like other non-renewable resources, silver is in finite supply and production has not been able to keep up with global demand.
The global economic crisis has shaken the faith of many investors in paper based assets. Many governments, led by the United States, have turned in unison to relieve the negative economic pressure by inflating their monetary base and cutting interest rates. For example, in 2008 the Federal Reserve increased the U.S. monetary base from just over $800 billion to $1.7 trillion in a matter of months. Additionally, the Fed has been holding interest rate targets at artificially low levels in an effort to spur a consumption-led recovery. History is replete with lessons on where this type of monetary policy leads. All of this money printing and low interest rates are a recipe for monetary disaster through massive inflation.
Many investors realize that precious metals, such as gold and silver, are the chief beneficiaries of poor monetary policies. In times of economic crisis, investors flock to gold and silver as an inflation hedge. But investors have typically bought gold for wealth preservation, and silver for wealth "accumulation."
Today's silver price is significantly below the historical 1980 high in silver prices - and well behind the historical silver to gold ratio. The current silver price can still increase by 200% before it reaches a new high, while gold has already reached its non-inflation adjusted high.
Silver is rare, inexpensive, a protection against inflation, and possibly poised for one of the best bull runs in history. The following variables are making silver a potentially excellent investment: An out-of-whack silver to gold ratio, increasing industrial and investment demand, declining production and mining output, and future economic uncertainty. We forecast that over the next few years, silver will continue to provide investors with the best of both worlds: an inflation hedge with large investment returns.
Here's something to think about . . . .
I remember asking dad about Castro when I was about 9 years old. I asked, "Is Castro a good guy or bad?" Dad said he couldn't tell!! This was about 1955. We were living in Louisiana at the time. Dad was in the army there. Cuba was fairly close and in the news a lot. The Cubans were asking the same question! Ike was president.
This past July, we had the pleasure of sharing a summer barbecue with a refugee from Cuba . Our dinner conversation was starkly different than most. This refugee came to the United States as a young boy in the early 1960s. His family was more fortunate than most as they were able to bring a suitcase and $100 when they fled Castro's newly formed revolutionary paradise.
Our dinner consisted of all-American fare: hamburgers, potato salad, watermelon and fresh ears of sweet corn. This is a menu shared with family and friends nationwide, while celebrating the birth of our beloved America on the Fourth of July. We began with a simple discussion about our country and the direction it has taken since Barack Obama came to power. We shared
the usual complaints about the sour economy and liberal social engineering emanating from the rulers in Washington .
But then he said it. The sentence came naturally. I assume it was unplanned. But it carried the weight of a freight train. "You know when Castro took power, none of us knew he was a Communist." We sat stunned. He continued, "Yes, we all thought he was a patriot, a nationalist. Before the revolution he didn't sound like a radical."
The comparison at this point was easy, and I interjected, "You mean just like Barack Obama?" He responded;"Yes, just like Barack Obama." He continued, "We were all shocked as the government just continued to grab more power. First they said the revolution is over, so please turn in your guns. We all complied."
The lesson learned from this discussion is a lesson most Americans refuse to hear. Political leaders can lie about their agenda and once in office they can take totally unexpected turns. If you had asked us three years ago if we thought General Motors would be nationalized, we would have never believed it. We could never contemplate a country where the rule of law, the most fundamental building block of a justice society would be evaporating just like it did in Castro's Cuba in the early 1960s.
But the news of injustice keeps increasing. The bondholders of GM are stripped of their assets without due process by the government. Governmental leaders are bribed in full daylight only to have all investigation of the crimes stifled by the Attorney General. The U.S. borders are overrun with crime and illegal activity and the leaders in D.C. act as if it is important to protect the lawbreakers while the innocent are killed and overrun. When local communities attempt to enforce the law, they are ridiculed and threatened as racists and bigots. They are sued by the very administration entrusted with enforcing the law.
Without the rule of law the U.S. Constitution is a sham. Without the rule of law our beloved America is swiftly becoming a country where only the well connected and politically powerful will be safe. A culture of corruption has replaced honest government.
The only way this problem will be fixed is by massive citizen action. All honest citizens that want to be treated equally must
come together and demand that the favoritism, the bribes, the uneven enforcement of law end now. And yes, it can and is happening right here in America.
May God preserve and protect the United States of America !
The bulk of those expenditures — $132 million — went to defend Fannie Mae and its officials in various securities suits and government investigations into accounting irregularities that occurred years before the subprime lending crisis erupted. The legal payments show no sign of abating . . .
Although the figures are not broken down by case, the largest costs are being generated by a lawsuit centering on accounting improprieties that erupted at Fannie Mae in 2004. This suit, a shareholder class action brought by the Ohio Public Employees Retirement System and the State Teachers Retirement System of Ohio, is being heard in federal court in Washington. Although it has been going on for six years, the judge has not yet set a trial date. Depositions are still being taken in the case, suggesting that it has much further to go with many more fees to be paid."
A corrupt, mismanaged firm with an implied government guarantee — how could that ever go wrong?
PUTTING LAWYER AND GOVERNMENT IN THE SAME SENTENCE IS A GUARANTEED WAY TO LOSE MONEY FAST!
Thursday, January 27, 2011
Employed: 139.206 million people (58.3% of labor force)
Unemployed: 14.485 million people (6.1% of labor force)
Obviously, that can't be the total picture, we're only at 64.4%. This is why:
Part time employed for economic reasons: 8.931 million people. This concerns people who want a full-time job but can't get one.
Part time employed for non-economic reasons: 18.184 million people. Non-economic reasons include school or training, retirement or Social Security limits on earnings, but also childcare problems and family or personal obligations.
But by far largest category "missing" from both the Employed and Unemployed statistics is the "Not In Labor Force": 85.2 Million people.
The BLS definition states: "Not in the labor force (NILF). A person who did not work last week, was not temporarily absent from a job, did not actively look for work in the previous 4 weeks, or looked but was unavailable for work during the reference week; in other words, a person who was neither employed nor unemployed." (Clearly, this does include a lot of unemployed people).
To summarize: 108.616 million people in America are either unemployed, underemployed or "Not in the labor force". This represents 45.5% of working age Americans.
If you count the "Part time employed for non-economic reasons", you get 126.8 million Americans who are unemployed, underemployed, working part time or "Not in the labor force". That represents 53% of working age Americans.
So only 47% of working age Americans have full time jobs. While the official unemployment rate is 9.4%. Something's missing somewhere.
A few more factoids on the topic:
Today, the long term unemployed make up 42% of total unemployed. That is to say, of course, those who are actually counted as unemployed instead of "Not in the labor force".
43.2 million Americans receive foodstamps. That's 18.1% of all working age Americans. If they all have on average 1.5 dependents, which is probably a reasonable estimate, a full one third of the US population receives at least part of their food through this system.
Of course, these are not really stamps anymore, or any sort of paper, they're now "food stamp debit cards". Michael Snyder at Economic Collapse dug up an ABC News article from April 2009, which deals with the fact that JPMorgan Chase is one of the main servicers of the "food stamp debit cards" (in 26 states). JPMorgan also services child support debit cards (in 15 states) and unemployment insurance cards (7 states).
Granted, some things may have changed somewhat since the article was written, but even just the very ideas that are the foundation of schemes like these are worth looking at. Because, naturally, JPMorgan does this to make a profit. Says ABC:
Take Indiana. JP Morgan gets 62 to 64 cents for each food stamp case handled monthly there. With 296,245 cases right now, that means the state is paying JP Morgan $183,672 a month on top of any other fees it collects. Indiana eliminated 100 full-time employees when it hired JP Morgan to make the program cost-neutral [..].
But the greatest statement the article makes, and the reason ABC looked into this in the first place, is that JPMorgan outsourced its call and service centers for the "food stamp debit cards" to India. If that isn't indicative of the level to which ethics and morals have sunk, I don't know what is. You could conceivably create a lot of jobs for Americans in these service centers, which would get them off food stamps! For starters.
Each of the plans has the same basic structure. However, there are significant differences between the three, especially as it relates to the benefits available to the members. For these purposes I have aggregated the data, for while the differences between the plans may mean a great deal to the members, they are less significant to the taxpayers.
In 2000, the city contributed approximately $100 million to its three pension plans. By last year, the contributions had more than doubled to $229 million. To put this amount in some perspective, it is more than the budgets of the Parks, Library, Solid Waste and Health departments combined. And believe it or not, it gets worse. Each of the plans' actuarial reports projects the amounts of future contributions that will be required to fund the plans. According to these projections, the city's contributions in 2020 will have to be increased to more than $500 million. That will be about half of all of the property taxes collected by the city by that time.
But wait, it gets worse. Over many years, the city has made contributions to the three plans. These contributions were adjusted periodically to assure that the plans were adequately funded to eventually pay the promised benefits. This worked reasonably well through about 2000. At that time, the plans had no unfunded liability. However, beginning in 2001, City Council and the state Legislature granted a number of increases in the benefits for which there had been no prior funding. As a result the assets that had been set aside were no longer adequate to cover the estimated liability for future payments, thus creating, for the first time, an unfunded liability.
So how much is this unfunded liability? Well, it depends on how you count it. According to the most recent actuarial reports available, the so-called "official" unfunded liability is $2.1 billion. However, as with many things in this area, there are special rules that serve mostly to obfuscate the real situation. Principal among these is a rule that provides that pension plans do not have to recognize all of their investment gains and losses as they are incurred. Instead, the gains and losses are smoothed over typically five years. As a result, there is always a difference between actual market value of the assets held by the plans and value used in the actuarial calculations. Because the plans suffered substantial losses in 2008-09 (like the rest of us), currently the market value of their assets is $1.5 billion less than the value used in the actuarial calculation — meaning that if the city were forced to settle up on its likely future pension obligations today, it would be $3.6 billion short.
Now you are probably thinking that with the mammoth contributions that are projected over the next 10 years, surely we will be paying down this unfunded liability. Wrong. After we have escalated the contributions to more than a half a billion dollars in 2020, the unfunded liability, according to the actuarial studies, will have increased to $5.3 billion.
On top of that, we owe about $600 million on pension bonds issued from 2004-09. So let's just call it an even $6 billion we will owe on pension obligations in 2020.
To put that in some perspective, the total bond debt the city has accumulated in the course of its entire history for everything we have built, such as streets, water plants, airports, libraries, police and fire stations and parks, is only about $12 billion. In less than a generation, we will have run up half the debt on pension obligations it took our forefathers to incur in 175 years of building this city.
And, by the way, if you are not yet sufficiently depressed, this does not count the city's liability for the retirees' health care, for which no money has been set aside. The most recent estimate of that liability was $3 billion.
HOUSTON WE HAVE A 9 BILLION DOLLAR PROBLEM! 9 BILLION DOLLARS!
HOUSTON MAY NOT GO BUST THIS YEAR OR NEXT, BUT IT IS DEFINITELY GOING BUST................. PROBABLY SOME SOCIAL UNREST AS WELL AND HOUSTON WON'T BE ALONE. THERE IS NO WAY TO FIX THIS. ARE THEY GOING TO PRIVATIZE, SELL THEIR INCOME STREAMS? I DOUBT IT. WHAT IS GOING TO HAPPEN IS THE PEOPLE WHO WHERE TO BENEFIT FROM THESE PENSIONS ARE GOING TO GET SHAFTED, BIG TIME AND THEY ARE NOT GOING TO BE HAPPY. THEY WON'T BE ALONE BECAUSE IT IS GOING TO HAPPEN ALL OVER THE COUNTRY, PERHAPS THE DEVELOPED WORLD OVER THE NEXT DECADE OR SO.
CONSUMERS WILL REALIZE THEY DON'T HAVE AS MUCH MONEY AS THEY THOUGHT AND STOP SPENDING SO MUCH.
CORPORATE PROFITS WILL FALL.
REAL ESTATE WILL CONTINUE TO SLIDE.
UNEMPLOYMENT LEVELS WILL RISE.
COMMODITY PRICE INPUTS ARE RISING.
PEOPLE WILL REALIZE THE STOCK MARKET SUGARPLUMS WHERE ONCE AGAIN A HOPEFUL ILLUSION.
AND BANKS WILL FINALLY HAVE TO CONFESS TO THE REAL VALUATIONS ON THEIR BALANCE SHEETS OR NOT ON THEIR BALANCE SHEETS, AS THE CASE MAY BE. THE BANKS WILL BE FOUND TO BE AS NAKED AS THE EMPEROR OF BED TIME STORY FAME AND THIS WILL BE A REAL PROBLEM FOR OUR ECONOMY AND THE DELUSION THAT IS CURRENTLY AFOOT WITHIN OUR ECONOMY.
IF YOU COMBINE THE ABOVE WITH A DOLLAR THAT IS UNDER PRESSURE AND A RESERVE CURRENCY STATUS THAT IS BEING QUESTIONED. RISING INFLATION PRESSURES, RISING INTEREST RATES AND EMPLOYMENT THAT IS LESS THAN STELLAR. WHAT YOU HAVE IS A SITUATION THAT IS SELF REINFORCING AND BECOMES AN EXPANDING NEGATIVE FEEDBACK LOOP. ONCE A SYSTEM ENTERS THIS TYPE OF A PROCESS, GETTING OUT BECOMES PROBLEMATIC INDEED.
THERE IS LITTLE DOUBT THAT OUR ECONOMY HAS ENTERED INTO A NEGATIVE FEEDBACK SITUATION, THE ONLY THING THAT HAS KEPT THIS FROM BEING COMMONLY OBSERVED IS THE FACT THAT THE FED IS SO WILLING TO ENTER INTO VERY RISKY PROGRAMS SUCH AS QE IN ORDER TO BUY TIME AND BUOY SHORT TERM OUTCOMES.