Changing Meaning of Money

The Big Picture had guest authors recently, who stated the obvious thing, which is currently lost as is always, in excess verbage of the media.  Credit deflation in combination with monetary inflation changes the the make up of things, yet investors still only hold on to paper currency-denominated cash and the majority of financial assets will produce negative real rates of return over time.

Opportunities will present itself for solid returns as long as investors don't fall back to safe haven instruments only or buying index.  Especially as the crisis in Greece deepened, the Euro does a hot potato. No one wants to hold it for long. This makes the dollar strong in the short term (also consider the Euro in general - all those disparate economies).

Most market participants, however, still seem to be ignoring the 1971 change in the Bretton Woods monetary regime, wherein central banks gained unilateral primacy in setting monetary conditions at the expense of more organic economic incentives. As a result, economies that now want to shrink to become sustainable again will not be allowed to do so by political establishments.

The vast majority of economists seem to be using econometric models that fail to capture the impact of vast money printing, and markets remain priced as though most investors are extrapolating past cycles forward. Market observers and participants do not seem to understand there is no such thing as goods, service and asset deflation in a world where central banks can, are, and will continue to, double, triple, quadruple their money supplies. Global investors, especially those in the developed world, seem to have split into two camps: the smaller camp (in numbers) is comprised of professional investors that are currently staying close to home (hugging indexes) or, in the case of “more aggressive” managers, trading quickly in and out of “risk assets” and cash.

Gold is still a safe-ish place, but for how long remains the question considering it's had a nine year run up. It's a secular bull market for precious metals and that will eventually burst, but not too soon.

Bill Gross on the Fed Exit Strategy and Returns on Sovereign Debt

Unemployment stayed steady - announce, inflation

Recommended Market Neutral ETFs

Though the Dollar will continue to weaken, Euro concerns have buoyed the Dollar for the time being. Go to ETF Trends to see which ETFs are recommended.

Google Buzz Launches Increased Google Reader Sharing by 35% in Under 30 Days

TC

The Bloom Box - The Killer Fuel Cell Technology

This is already being used at big companies like Google and Walmart.  Fuel cells convert fuel into electricity through an electro-chemical process rather than combustion. Less energy is wasted in conversion and there are no polluting byproduct in making the electricity.  Bloom Energy's Bloom Boxes produce electricity at about half the cost of an electric grid.

It takes almost any fuel from ethanol to biomass and turns it into electricity. Fuel cells are nothing new, but Bloom has figured out a way to make them cheaply and efficiently. A Sridhar claims that a Bloom box, which he calls an energy server, is twice as efficient as the electricity grid. “For the same amount of electricity, you need half the fuel,” he says. “If you use a renewable fuel you are carbon neutral. Use all the electricity you want and don’t feel guilty about polluting the environment.” TC

According to Bloom Technology's website, their type of fuel cell technology is different than legacy "hydrogen" fuel cells in four main ways:

1. Low cost materials – our cells use a common sand-like powder instead of precious
   metals like platinum or corrosive materials like acids.
2. High electrical efficiency – we can convert fuel into electricity at nearly twice the
   rate of some legacy technologies
3. Fuel flexibility – our systems are capable of using either renewable or fossil fuels
4. Reversible – our technology is capable of both energy generation and storage

 Each Bloom Energy Server provides 100kW of power, enough to meet the baseload needs of 100 average homes or a small office building... day and night, in roughly the footprint of a standard parking space. For more power simply add more energy servers.  Bloom Technology

Drs Foster and Smith Drops Internet Affiliate Marketing Due to States Targeting Nexus Legislation Relative to Online Sales Tax

Will other big companies follow suit and drop affiliate programs? How can companies quantify losing such a large sales channel especially in this economic environment?

It is with great regret that we have to inform you that we are shutting down affiliate marketing at Drs. Foster and Smith effective immediately today, February 22, 2010. This closure is across the board in all states with all affiliates and is not related to you only as one of our affiliates.

We regret having to do this for a variety of reasons, not the least of which is that so many of you have done a great job for Drs. Foster and Smith and will be adversely affected by the loss of revenue from Drs. Foster and Smith sales. Thank you for all you have done to promote our company on your web sites. We apologize for the hardship and inconvenience that this creates for you.

The single reason for the decision at this time is the moving target of the ever-growing patchwork quilt of state legislatures that are considering nexus legislation relative to affiliate marketing and sales tax. It has become increasingly difficult to determine who is considering such laws, where they are in the process and what the ramifications are in each state. What affiliates may not be aware of is that such nexus situations do not only relate to sales tax collection, but potentially state income tax for a corporation as well.

We wish there was clarity on this issue from state to state and nationally, but there isn't. So until this matter is cleared up nationally, we are shutting down all affiliate marketing. We apologize for any hardships this brings to you and your team. We have greatly appreciated the work that you have done on our behalf. The sudden nature of the move by California to reintroduce legislation late last week and to push for a quick vote, emphasized the ever-changing nature of this issue and our need to be ahead of such votes and decisions.

With our appreciation for your contribution to our company,

Sincerely,

The Drs. Foster and Smith Affiliate Management Team

China is Motivated to Increase Gold Purchases

China announced in April 2009 it had increased its gold reserves by a whopping 76 percent to 1054 tons since 2003, moving from 10^th place to 7th in terms of global central bank rankings. The Chinese government now owns 30 times the gold it held in 1990. And China is believed to be a leading candidate to buy some or all of the gold the International Monetary Fund still has to sell, after India bought the other 200 a few months ago.


Keep in mind that as China's reserves continue to grow, it will have to purchase gold just to maintain the small gold-to-reserves ratio of 2 % that it currently has, let alone increase it. Therefore, the country must continue buying gold.
Even with the increase in its gold holdings, as a percent of China’s total reserves, (about 2%), gold is still a pittance, mere pocket change. Compare that with the international average of 10.2 percent held by central banks worldwide and you can understand why China is so eager to catch up. Last year China overtook South Africa as the world’s leading producer of gold and apparently a good portion of this gold is finding its way into its central bank vault.


If the newspaper reports in the China Youth Daily are accurate then China plans to increase its gold holdings by another 5,000 tons of gold over the next three to five years. That’s more than double the total annual global production. Keep in mind that the total annual global gold production is only about 2,500 tons per year, and obviously China cannot buy the whole lot. With current prices, buying 5,000 tons over the next three to five years would cost about $180 billion - still a small portion of China’s dollar reserves.

This is just speculation, but let’s consider what would happen to the gold price if China increased its gold reserves from 2% to just 5%.

At a bargain price of say, $1,000 gold, it would cost $55.3 billion to push China's gold holdings to 5% of reserves.
Chinese reserves are about $2.3 trillion, and of that, $1.6 trillion, or 70% are denominated in U.S. dollars. The cost to pushing its gold reserves to just 5%, which is still 5% lower than the global average, would be a pittance compared to the amount of money losing its value every day that China holds in its hands.

China’s problem is that it can’t buy all that gold without moving the market. I would expect China to buy on dips in gold prices, creating a solid floor for the yellow metal and eventually pushing the price of gold higher - much higher. Seeking Alpha

Buy and Hold Gold

The strategy to buy and hold gold now is predicated on the following rational:

1. Gold should be held for at least three to five years.
2. We are at the beginning of a new cycle for gold accumulation.
3. Economic indicators still favors commodities and hard assets.
4. The long-term trend is still up for the price of gold.

The secular bull market in equities that began in 1982 exhausted itself in 2007. The current bull market in gold started in 2002. The economic data pouring out in November and December has a tremendous amount of “white noise” in it. The fourth quarter of 2008 had such a dramatic collapse that year-over-year comparisons and seasonal adjustments distorts the true economic picture. This will continue another two or three months.


April 15th, the deadline to pay taxes, is 120 days away. This will be the day of reckoning for municipal budgets when shortfalls in tax receipts around the country become apparent. The federal government will be shocked in the drop in taxes collected, also.

People invest for one of two reasons: greed or fear. Over the next two years, investors will buy gold primarily out of fear. There are insufficient funds to service the obscene amounts of outstanding debt that was issued this decade. As more and more defaults occur from real estate, corporations, and governments, trust in domestic and international financial systems alike will diminish. The price of gold will rise.  Seeking Alpha

The New Normal and Shift East for Economic Growth

PIMCO believes the crisis of 2008–2009 will have a widespread and long-lasting impact on global economic growth, government policy and the interplay between developed and developing economies.javascript:void(0)

This New Normal implies lower growth, greater regulation and higher savings rates in the developed world, as well as relatively higher growth and a more prominent role in influencing global economic policy for the developing world. Along the way, lower global investment returns are likely to track slower aggregate global GDP growth. Yet investors seem to be shrugging off the systemic implications of the financial crisis and pricing many markets for an “old normal” recovery.


Positioning portfolios for secular changes can be disconcerting when short-term market moves contrast so sharply with long-term expectations. Nevertheless, given the magnitude of the shifts implied by the New Normal, investors who fail to account for them may be worse off when the cyclical and secular forces intersect. Witness the example last week in Dubai – the emirate’s investment holding company Dubai World revealed that it was seeking to extend maturities of its debt – a good reminder that high levels of country and credit differentiation will be critical in managing emerging markets (EM) assets successfully ahead.

Fed Possibly Bluffing on Raising Interest Rates

According to Bill Gross, raising interest rates at this point - something that Bernanke has made mention to - would be a mistake for various domestic and international economic reasons. 

Raise interest rates with 15 million jobless and 25 million part-time working Americans? All because gold is above $1,100? You must be joking or smoking – something. We will need another 12 months of 4-5% nominal GDP growth before Bernanke and company dare lift their heads out of the 0% foxhole – mini-bubbles or not. Instead, the heavy lifting or the charging of enemy lines in the case of this metaphor will likely be done by other central banks – already in Australia and Norway. In addition, and importantly, China may abandon its dollar peg within six months’ time and with it, its own easy monetary policy that has fostered more significant mini-bubbles of lending and asset appreciation on the Chinese mainland.  Pimco

 Maybe we're just cynical, but it could just be a ploy to push precious metals, specifically gold, lower for the central banks around the world to buy in at a cheaper price.

Gold Run Up in the Past 10 Years

Since the beginning of gold's ascent in 2000, odd years have tended to be run up years with odd years being years for consolidation. 2009 is working out to fit into that pattern with 2010 the year that will work out for consolidation.

China Diversifying Reserves by Snapping Up Gold

Gold's successive run-ups to record highs are underpinned by hopes for central banks to further diversify reserves, particularly China's, a topic set to dominate a two-day industry gathering in Shanghai from Thursday.

* Safe-haven appeal overrides investor caution on gold rise
* Expectations for more central bank buying keep support firm
* Weak dollar puts China in quandary over beefing up gold buy
* China's physical demand and consumption seen rising
Reuters

Hedge Fund Paulson & Co. Amassed More Gold than a Few Countries

John Paulson of Paulson & Co, the legendary hedge fund manager who made tens of billions betting on the mortgage crisis between 2007 to 2009, likes gold.  He really likes it.  He likes gold more than a friend.
To most market participants, this is not news, but here’s something you probably didn’t know:  Paulson owns more gold than several major countries!  Combined!

India's IMF Gold Buy Rumors Send Gold Higher

The figures mentioned in yesterday's comment as possible betting markers in the on-going global gold roulette turned such bets into rich chips overnight, as the 75 level on the dollar index was once again breached, the euro pushed back to just above 1.50 against the greenback, and the $1175 level on gold was not only touched, but surpassed by a further $8 per ounce.

Last night's risk appetite grew on the heels of reports that India may decide to raise its gold allocation to 8% by possibly purchasing the remainder of the gold that the IMF has made available in its quest for cash. Kitco

Fed Comments on Extending Mortgage Back Securities Send Futures Roaring with Gold Setting New Highs Last Week

St. Louis Fed member Bullard said over the weekend that he favors extending the Fed’s program of purchasing mortgage-backed securities beyond the 1st Q next year.

This adds many more months to the low rates for an ‘extended period of time.’ His comments have pummeled the US Greenback, and as the dollar fell, stock futures soared. Gold hit fresh record highs. WSJ

Gold ETF

As some are beginning to express skepticism that the rally in gold prices and exchange traded funds (ETFs) couldn’t possibly last, gold goes ahead and touches on another new record today.
Gold futures hit new record highs in trading today, soaring above $1,150 an ounce on weakness in the dollar and gold’s appeal as an “alternative currency.” Matt Whittaker for The Wall Street Journal says that in additional to seasonal jewelry buying, gold’s demand is feeding on itself. As the price goes higher, it entices more investors to buy bars and coins for themselves. (Read about the new gold miners ETF).

Marc Faber: “I don’t think that you’ll see gold below $1,000 per ounce probably ever"

Marc Faber is in a bullish mindset, particularly on gold. In a wide-ranging interview with CNBC TV-18 in India, Faber talked about where he sees markets headed and why he thinks gold will never drop below $1,000 an ounce. Naked Capitalism

Gold is Almost 20% above its 200 Day Moving Average

Gold is a little parabolic, short term overbought. It looks as if it might go higher before correcting to near the 50 Day Moving Average.