Leading Indicators Now Up for 5 Straight Months


The Conference Board’s index of U.S. leading economic indicators rose for the fifth straight month in August. The streak represents the longest string of LEI gains in five years. The data further bolsters our view that growth likely began in June and will continue to strengthen through the end of the year. The index was up 0.6 percent in August after a jump of 0.9 percent in July.

Stock price gains, consumer confidence, and homebuilding increases helped push the leading index higher as more and more economists are beginning to finally share our view of much better than lackluster results in the second half.

“This is another signal that economic growth is turning sharply positive this quarter,” said Dean Maki, chief U.S. economist at Barclays Capital. “All of the elements for a robust recovery are falling into place. As we look ahead, job losses will end and the unemployment rate will stop rising…”

Speaking Silver’s Language

Everybody knows that I can always be counted on to go ballistic about silver being such a Screaming Freaking Bargain (SFB) because of (according to the most recent Official Mogambo Count (OMC)) more than a dozen very good reasons, which is a lot of reasons, and that at $17-and-change per ounce, silver is loudly saying, “Buy me! Buy me!” although obviously not in the literal sense, nor (perhaps less obviously) in the “voices in my head” sense, which shows I am responding to therapy and why everybody is so pleased with me.

One of the reasons for my bullishness and bullheadedness about silver is the large short position, which is the number of ounces already sold (opening the short position) but which have not been bought yet (closing out the position), which means these shorts are going to get clobbered if they have to cover their short position by buying silver at a higher price than they sold it.

So I was very interested when Ed Steer’s Gold and Silver Daily reports says that the commodity futures market report shows that bullion banks’ “silver net short position now stands at 213.6 million ounces…about a third of world silver mining production…all held by ‘four or less’ bullion banks.”

He characterizes this as “grotesque beyond description”, which I guess it is, since it is hard to even imagine such a thing, which implies that these “four or less” banks are so stupid that they would be short silver when the fundamentals are so compelling that my throat is bloody and raw from screaming, “The fundamentals of silver are compelling!”

And this is even ignoring the headline “Gold & Silver Market Alert – Buy before the Breakout!” from Julian Phillips at Goldforescaster.com, which reflects my sentiments exactly.

In gold, the situation is similar, in that Mr. Steer says, “The bullion banks’ net short position now stands at 211,342 contracts… 21.1 million ounces. This is well over 25% of world gold production. This is also grotesque beyond description”.

Suddenly I see an opportunity to hide my rising excitement and get a quick laugh! So I said, “This means it is NOT ‘beyond description’ when it is perfectly described by silver, which is also ‘grotesque beyond description’ and which can be described as ‘like gold’! Hahahaha!”

Well, I am laughing at my own joke and having a wonderful time when I looked around and noticed that nobody else appreciated my little joke about circular reasoning, which, upon reflection, I admit is pretty bad, and I am pretty embarrassed about it.

I don’t know why I thought it was funny, except for maybe it’s these new pills that are supposed to keep me from screaming my guts out in fear about the coming collapse of the dollar and the attendant horrific rise in consumer prices that destroys America and plunges us into a post-Apocalyptic nightmare. And, parenthetically, they work pretty well, too, except for the catatonia and the, you know, drooling.

Mr. Steer sees my embarrassment and starts talking about how many of the owners of futures contracts in gold and silver said, “We want our metals!”

People with inquiring minds want to know, “How much gold and silver was delivered so that we can maybe see if the Mogambo Who Thinks He’s So Hot (MWTHSH) is actually turning out to be right about gold and silver going so much higher in price because the despicable Federal Reserve is creating so much money and credit that inflation in consumer prices is guaranteed, which would be indicated by a rising price for silver!”

Well, it turn out that “The final totals for August are as follows… gold 5,728 contracts [572,800 ounces] and silver 91 contracts [455,000 ounces]”, which doesn’t seem like a lot, but what in the hell do I know?

So, I report these things without knowing what they mean because I am pretty stupid and I am just in it for the money, so all I can ever see is the obvious, especially when it is pointed out to me, which he apparently does when he says it means, “August was a big month for gold deliveries…but not for silver. September is a big month for silver deliveries…but not for gold.”

I still don’t know what it means, but a big buying of gold and silver every other month is plenty enough to keep their prices rising and demand growing, which is Another Good Reason (AGR) to buy gold and silver beyond the obvious good reason that they always soar in value and price when the government is acting so irresponsibly, or when the Federal Reserve is acting so irresponsibly, but especially when both of them are acting irresponsibly, like now!

It’s enough to make you squeal with delight, “Whee! This investing stuff is easy!”

United States Sacrifices Poland And The Czech Republic

One technique for valuing fiat currencies is treating them as the common stock of issuing nation.  Almost all empires end for financial and economic reasons.  Gold’s two week moving average is over FRN$1,000.  The United States is proving to be no exception.

On 17 September 2009 the United States formally announced the intent to abandon the plan for placing ballistic missile defense (BMD) armaments in the Czech Republic and Poland.  While the stated purpose of these missiles is protection from Iranian intercontinental ballistic missiles (ICBM) the geo-political implications are mainly with Russia.  As the United States has overextended itself as the policeman of the world the national debt has skyrocketed and the FRN$ is under intense pressure because it is destined like all other illusions before it for the fiat currency graveyard.  Therefore, it is not surprising to see Poland and the Czech Republic feeling betrayed by being sacrificed on the altar of fiat currency.

REGIONAL POWER

Russia is the dominant regional power and is extremely pleased by this move.  The BMD is likely not the key issue but instead the US presence on Poland’s land as the BMD will instead by operated from navy ships in the Mediterranean.  Indeed, Poland has a deep history of tense relations with Russia and understandably their feeling of betrayal must lead to despair.  If the US had BMD on Polish land then the US would feel more inclined to protect those assets and this would likely enhance Polish national security.  Indeed, this implied security guarantee likely carries more weight than the explicit NATO one.

But now the Russians must be ecstatic at the US choosing to cut and run from the region on this issue.  Russia wants, even needs, to be recognized as the ascendant power in the former Soviet Union.  This will spill over into bilateral relations between both the United States and Europe with other former Soviet Union states, like Georgia, Abkhazia and South Ossetia, as well as Central Europe’s role as a base for US power declining.  Additionally, Vladimir Putin is very upset at the Western media’s silence and the American Empire fanning the flames of ethnic strife:

I was in Beijing at the time.  I looked through the world electronic media.  Complete silence.  As if absolutely nothing is going on.  It was as if somebody ordered everyone to keep their mouth shut.  To those who organized all this; I can only say congratulations.  Congratulations.  You did an excellent job.  The only problem:  your results were poor and this will always be the case because the work you do is unfair and immoral.  In the long run immoral policies always lose.

IRAN AND ISRAEL

The US seems hell-bent on striking Iranian nuclear facilities.  Any strike on Iran would likely require significant steps such as destroying the air support, navy, anti-aircraft weapons, the nuclear facilities, assess the damage and finish what was started along with any Iranian retaliation.  The likely move would be blocking the Strait of Hormuz where significant amounts of worldwide oil production passes.

With each super oil tanker worth about $175M at current prices the owners and their insurance companies would likely not want their boats in the area should a conflict erupt.  Without the black oxygen the worldwide economy would likely asphyxiate.

Understandably Israel is most concerned with Iran’s nuclear ambitions and could unilaterally entangle the US with its own airstrike on Iran.  To prevent this the US has tried to impose sanctions on Iran, particularly with gasoline as despite having oil production Iran does not have much oil refinery capacity.  On 24 September 2009 the G-8 will meet and all will need to be in agreement in order to disrupt the flow of gasoline.  But Russia alone can both produce and transport not just Iran’s import deficiencies but its entire demand.  And just a few weeks ago Russia opposed new Iranian sanctions.

GEORGIA, ABKHAZIA AND SOUTH OSSETIA

In August 2008 when the Kazakhstan currency, the tenge, went poof I also wrote about the implications of the Tbilisi pipeline in relation to the Georgian and Russian conflict.  The 1,099 mile Baku-Tbilisi-Ceyhan crude oil pipeline from the Azeri-Chirag-Guneshli oil field in the Caspian Sea to the Mediterranean should begin transporting in 2009 with an initial transportation of 1 million barrels a day, about 1% of worldwide production, with a capacity of 10 million barrels a day.  This is an incredibly important geo-strategic asset.

The tensions around Georgia, particularly in the capital Tbilisi, have gotten increasingly tense lately.  For example, 20 August 2009 Georgia said it seized two cargo ships visiting Abkhazia.  Georgia is attempting to forbid economic activities with Abkhazia from foreign ships in international waters without permission from Tbilisi.

Abkhazia and South Ossetia broke away from Georgia in the 1990’s.  Georgia has significant US backing and about 90% of South Ossetia are Russian citizens.  Russia has recognized both Abkhazia and South Ossetia as independent countries and has stationed thousands of troops in both regions.

As Reuters reported:

Georgian Interior Ministry spokesman Shota Utiashvili said Tbilisi would hold Russia, which controls Abkhazia’s borders and its coastline under a deal with the region, responsible for any attacks on its ships.  Abkhazia’s navy does not exist,” he said. “There are no Abkhaz territorial waters, as these waters belong to Georgia. If there is an attack on Georgian ships, Russia would be responsible, not the separatist government.”

Clearly Georgia is willing to seize foreign ships in international waters only because they feel the safety provided by their alliance with the American Empire.  But as Poland and the Czech Republic have found out when the interests of the Empire are no longer served the countries will be discharged.

GOLD TO OIL RATIO

The gold to oil ratio has been consolidating around 14.

This suggests that oil, priced in gold, is still fairly expensive and outside historical norms.  The reason may be due to Peak Oil or the exacerbation of geopolitical tensions.  This is a prime reason that physical gold is on the move and China is teaching its citizens how to buy silver.

CONCLUSION

The United States, a once great land of plenty, is now failing nation with empire abroad and tyranny at home.  With millions marching on Washington DC the Bonus Army march in 1932 which included 43,000 and about 17,000 World War I veterans should be remembered where President Hoover ordered General McArthur to fire on former veterans.  The worldwide Empire is beginning to retreat so the geo-politics and geo-strategy are changing.  For the nearly a decade the FRN$ has been weakening at an extremely quick pace.  The United States has quickly and willingly sacrificed this aspect of the Polish and Czech Republic relationships.  Other nation states which think they have a deal with the United States should be wary as they will likely receive the same treatment.

Disclosures:  Long physical gold and silver with no position in the problematic GLD and SLV ETFs.

Interesting Readings for September 22, 2009

  • Writings about Lehman, in the broad Indian discourse, are a reminder of the low quality of the Indian economics discourse. Meghnad Desai looks back at a year after Lehman, in Financial Express. For a person who was in my father’s class at M.A., he is remarkably free of socialist cobwebs of the mind. And, for other interesting treatments, see : see: Jayanth Varma in Financial Express, Dhiraj Nayyar in Indian Express, Andy Kessler in Forbes, Avinash Persaud on bankers pay in Financial Express.
  • P. Vaidyanathan Iyer in Indian Express on some thinking about the role and function of government agencies in finance that is afoot at MOF. Hmm, I could get used to a Financial Stability and Development Authority.
  • Subhomoy Bhattacharjee on India’s capital controls and the proposed Bharti/MTN transaction.
  • Bibek Deboy on the role and function of the Chief Economic Advisor to MOF.
  • Sangeeta Singh and Rahul Chandran have an article in Mint on one of the most important infrastructure projects in India: the Bombay-Delhi freight corridor. It is going to work wonders in establishing the straight line connecting Bombay to Delhi as an axis of prosperity. See the CMIE Capex database on this.
  • The `trilemma of the international financial system’ in India by Koji Kobayashi of the Mizuho Research Institute.
  • The Afghanistan impasse by Ahmed Rashid in The New York Review of Books.
  • In the New York Times, Steve Dougherty has a great idea: to walk through today’s Warsaw trying to reach the locations of Alan Furst’s great book The spies of Warsaw.
  • Does anybody here remember Vera Lynn?

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