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As the 10-year gold bull continues its stunning run, rumors of fakery seem to be cropping up as fast as new Eagles can be minted. Should you be worried? Do you need to run to the coin shop for a home test kit?

Well, the counterfeiters are out there, and have been for millennia, but how to counter them?

You probably remember movies about the Old West, wherein a shady-looking character would offer to exchange a gold coin for a horse, and the nag’s owner would bite down on the coin. That was about all you could do, if you lacked proper assaying equipment and had to make a snap judgment on the fly: depend on your teeth to tell you whether the metal in your hand was sufficiently soft to be genuine gold.

The bite test is actually a pretty good one since gold, despite being among the heaviest metals, is also very soft. If you chomp down and shatter a tooth, it ain’t gold. But does that mean you need to munch your way through your coin collection? In a word, no.

Not that faking coins would be that hard to do. This is the 21st century after all, and if there’s one thing we do well, it’s making copies of things. Given contemporary 3-D laser imaging, a die could be created that mimicked the real deal in perfect detail. It’s not as if you could hold your coin up to the light and see the kinds of safeguards built into paper currency these days.

Predictably enough, counterfeiting concerns eventually hit the Internet. About a year ago, the blogosphere bloomed with doomsday warnings after the publication of a series of articles in Coin World, dealing with the subject of coin counterfeiting in China, where it’s quasi-legal. The Web was abuzz with the worries of coin holders and eBay shoppers, as well as the pontifications of pundits about the coming flood of knockoffs from the far East.

Now that didn’t seem right to us. We’ve been at this a goodly while, and we’ve never heard of anyone being slipped a fake Eagle or Maple Leaf. Just to be on the safe side, though, we checked with a dealer of 30 years’ experience and got the same answer. Nope. Only seen a couple over the past three decades.

The thing is, it’s really impractical. Any counterfeit bullion coin would have to be gold in order to pass. If it were pure, then what would be the point? And if the counterfeiter skimped on the gold content, the coin’s weight would be a dead giveaway. The only alternative would be to gold-plate a coin made out of some other metal. But again, getting the weight right while preserving the correct size would be a challenge. In the end, there’s just not enough of a profit margin to make it worthwhile.

The exception is rare coins. These can be made with the proper gold content, then artificially aged so that only an experienced numismatist could pick them out. Because of the premium they command, faux rare coins made with real gold could be highly profitable where a bullion coin would not.

This is one of the reasons (impartial grading is the other) why many collectors will only trade coins graded and slabbed by third-party specialists like Professional Coin Grading Service (PCGS) or Numismatic Guaranty Corp. (NGC).

Ominously, though, some counterfeit coins are turning up inside phony slabs, and the graders are taking the threat seriously. Both the major services have warned about this, with NGC providing guidelines about how to spot fakes of their slabs here http://www.ngccoin.com/news/viewarticle.aspx?IDArticle=954. The counterfeits all seem to be originating in China, so one prudent response would be not to trust rare coins offered for sale from that country, especially on eBay.

Gold bars are a separate category. Fakes do show up in the market from time to time, and they’re hard to identify. Generally speaking, counterfeiters don’t bother with the smaller ones, which are stamped, numbered, and sealed. They concentrate on 1-kilogram or larger sizes. These are poured, rather than stamped, and can be easily adulterated or even hollowed out and filled with some other, cheaper metal.

And that’s exactly what has happened, on a massive scale … at least if you believe the rumor that exploded across the Net late last year, stating that “someone” in Hong Kong had blown the whistle on thousands of tungsten-filled 400-oz. “gold” bars that are now circulating throughout the world. Others picked up the story and ran with it, some going so far as to allege that Fort Knox is filled with 640,000 fakes. Either because we were duped many years ago, or because the government deliberately put them there to hide the fact that most of our gold is gone. Take your pick.

That tungsten was cited as the culprit is no surprise, because it’s the metal of choice if you want to imitate a big chunk of gold. Put some gold plating on tungsten and it will fool all the cheap, non-invasive tests, such as specific gravity, surface conductivity, scratch, and touch stone. For a conclusive result, you have to drill into the bar, take a core sample, and submit it to more sophisticated verification techniques – fire assay, optical emissions spectroscopy, or X-ray fluorescence – and that involves a lot of time, trouble, and expense.

The market, of course, long ago realized it would be a hassle to fully assay every large gold bar every time it changed hands. That would create bottlenecks all over the place. Thus, to facilitate liquidity and protect large traders, the London Bullion Market Association (LBMA) came up with the good-delivery bar system, otherwise known as the “good delivery circuit.”

The system begins with a group of accredited refiners, all of whom have been certified by equally accredited assayers. The refiners manufacture the 400-oz. bars, applying their stamps and serial number before sending them out. Requirements for making and remaining on the LBMA’s good-delivery list are stringent, and those on it zealously guard their status. It’s of great importance to them because most of the vaults to which they ship product – the next step in the circuit – won’t accept anything but good-delivery bars.

This thing isn’t foolproof, nothing is, but it ensures a pretty decent paper trail, a formal, recorded history of who held the bars, when, and in which approved facility – all the way from refiner to end user, whether that be an individual, a central bank, or an ETF. No buyer wants something from a non-accredited seller, and no one else in the chain wants to get fingered for supplying phony gold. That would get them kicked out of a very lucrative loop, and sued into the bargain.

What about gold bars that come from a non-accredited source or are otherwise circulating outside the good-delivery circuit? That could mean you. You’re not part of the circuit to begin with. And yes, if you bought something that wasn’t good-delivery certified, the possibility that you have acquired some fake gold exists.

If you’re concerned about the source, you might want to have your gold assayed in order to alleviate your worries. This will become an issue when you choose to sell. In that instance, a dealer will almost certainly require an assay as part of the bargain, even if you have the chain of custody paperwork and it all checks out. And you can’t blame him. There’s no way he can be certain of what you did to it while it was in your possession. The only exception might be if you have a long-standing, mutually trusting relationship with him, originally bought it from him, and are selling it back to him. But even that’s no guarantee. What you most emphatically want to avoid is the worst-case scenario: arranging a sale, then having your gold flunk an assay, laying you open to charges of fraud.

If you sell to another private owner, rather than a dealer, he will surely ask for an assay, and you shouldn’t be offended if he does. Nor should you hesitate for an instant to demand one if you buy from a private party. Although this is not a recommended way to acquire gold bars, it may be possible that something comes along that you can’t refuse. Just be very careful. If someone has a gold bar for sale but is in too much of a hurry to wait for an assay, walk away.

Your takeaway from all the hoo-hah about tungsten bars should be that whenever a sensational rumor like this hits the Internet, and it doesn’t immediately graduate to Bloomberg, you always have to ask why. Financial reporters read blogs, too. You can be sure they’ve seen the rumor and asked the obvious questions: What’s the source? Who are the people who reported the appearance of the tungsten bars named? For that matter, why aren’t they raising holy hell if they’ve been ripped off? Where are the lawsuits? No serious journalist who can’t turn up the answers is going to give the story credence.

If it were true, the appearance of several thousand tungsten bars, for each of which someone has been suckered into paying a hundred grand or more, this would be big, big news. It wouldn’t stay confined to a few websites for long.

This isn’t to say that someone good isn’t digging deeply into this story right now. Nor that they won’t be able to prove it out. It is to say that, more than likely, the rumor is false.

In summary, there’s no reason to believe that there is a real issue with counterfeit bullion coins at the moment. That doesn’t mean they don’t exist, nor does it mean that evolving technology might not make them more profitable in the future than they are now. If you’re at all worried, simply deal with someone you trust. Establish a relationship with a gold dealer who has built a strong reputation, preferably over a matter of decades. Buy from them even if you stumble across some mail order supplier who is charging less of a premium.

Some basic guidelines:

For coins, avoid “commemoratives.” Stick with universally recognized government bullion coins (American Eagle, Canadian Maple Leaf, Austrian Philharmonic, Australian Kangaroo, South African Krugerrand).

For small bars, purchase only those that carry the stamp of one of the known, trustworthy refiners, such as PAMP, Credit Suisse, or Johnson Matthey.

For bigger orders, 1 kilo and up, ask your dealer if he has an assay or is willing to have one done. If you want 100 ounces, insist on an assay or consider buying directly from the Comex, which means you’ll be assured of getting a good-delivery bar that has never left the circuit. And the Comex will also vault it for you if you like. Do not, under any circumstances, buy a larger gold bar on the Internet; we’d even balk at buying coins there unless it was from someone we already knew.

We don’t believe there is reason to be concerned about bullion coins, but if you are the supremely cautious type or perhaps already own some commemoratives, there are tests you can perform at home to check them out.

• First off, you can simply apply a magnet. Gold is non-magnetic, but if you’re unlucky enough to have gold-plated steel, it’ll stick.


• Size and weight are good measures. Get a scale calibrated to hundredths of a gram. If a bullion coin weighs light (or possibly heavy), it’s bogus. Here’s a handy list of the major gold coins with their weights, diameters and thicknesses: http://www.onlygold.com/TutorialPages/Coin_specsFulScreenVersion.htm


• Since real gold has a higher specific gravity than other metals, you can test for that. Many Internet reference sites will tell you how.


• You could buy a commercial counterfeit detector. They aren’t cheap, but will quickly and easily perform the basic tests.


• If you have any suspect, non-governmental coins and happen to have some nitric acid handy, you can immerse your coin in the acid. Base metals will react, gold won’t. However, this is not something to try unless you are highly competent at handling dangerous chemicals; you do not want to test your skin along with the coin. In addition, of course, if you do have an alloy coin, the acid will ruin it.


• Rare coins are more of a challenge. If that’s where your interest lies, look for specimens that have been graded and slabbed. Buy from someone you trust. Never fall for a salesman’s pitch that a particular numismatic coin is a premier investment, sure to double your money. Don’t merely dabble in this area. What’s best is if you’re in it because coin collecting becomes a hobby you’re passionate about; worst is if you know and care nothing about what you’re buying. Read up on the subject, examine coins, get to know what the real thing looks and feels like, learn to spot the kinds of imperfections that characterize phonies. Become your own expert, or else risk being the dupe of the day. And if you do decide to pick up something on your own, send it to NCG or PCGS for grading. You’ll quickly learn whether you’ve been had.

Japanese stocks will be the best investment among the world's biggest markets during 2010, says Byron Wien, vice chairman of Blackstone Advisory Services and former chief market strategist for the Pequot Capital Management hedge fund.

Stock prices are low and the economy is improving in Japan, which is good news for companies there, Wien tells Bloomberg.

“I would definitely start buying now,” Wien says.

“Everybody who could sell Japan has sold Japan. Everybody is on one side of the boat. My view is that we have a pretty good chance of having this one be the best of the major industrialized markets. It’s not a boom, but things are getting better.”

The yen, meanwhile, has weakened from record highs, which makes Japanese exports more competitive.

The Japanese government recently issued a report saying that it had not changed its assessment of the economy although Tokyo did remove foreign exchange and stock-price volatility from a list of risks it is watching.

“Recent yen and stock price movements have been fairly calm, so we concluded that they are not likely to pose a significant downside risk to the economy for the time being,” says Cabinet Office Parliamentary Secretary Keisuke Tsumura, according to Dow Jones newswires.

The yen strengthened to 84.82 against the dollar in November but is now trading at around 91.00.

Stock prices have been rising, and morality appears to be doing likewise.

“The rises in share prices that started at the end of last year improved worker sentiment,” says Finance Minister Naoto Kan, according to Dow Jones newswires.

source HERE

Malaysia’s gross domestic product may rebound this year from a contraction in 2009 amid signs the global economy is recovering from the worst recession since the 1930s, the Malaysian Institute of Economic Research said.

Southeast Asia’s third-largest economy will probably expand 3.7 per cent this year and 5 per cent in 2011 after shrinking a projected 3.3 per cent in 2009, the partially government-funded research institute said in a statement in Kuala Lumpur today.

“The services sector will be the pillar of strength amidst a glum manufacturing sector,” the research group said. “However, Malaysia may not regain more strength until the global economy is back on track, which is going to be at a disappointingly slow pace.”

Asia is leading the world’s economic recovery after the region’s policy makers slashed interest rates to unprecedented lows and governments announced more than US$950 billion of stimulus measures. Malaysia’s consumer prices rose in December for the first time in seven months as food and housing costs climbed, and the government has raised its economic growth forecasts on signs of sustainable demand.
Prime Minister Datuk Seri Najib Razak said on January 20 the economy may expand 3.5 per cent or more this year, predicting faster growth than the government forecast in October.

Developing East Asia, which excludes Japan, Hong Kong, Taiwan, South Korea and Singapore, will expand 8.1 per cent this year, faster than a November estimate of 7.8 per cent, the World Bank said on January 21. South Asia will grow 7 per cent in 2010, it said.

Export Growth

Exports of goods and services may grow 9.3 per cent this year after declining 17.5 per cent in 2009, the institute predicts. “Demand recovery as well as improving commodity prices are expected to lift exports growth,” it said.

Bank Negara Malaysia has refrained from following Australia and Vietnam in raising borrowing costs even as commodity prices rise amid a global economic rebound.

Inflation may average 2.3 per cent in 2010 from an expected 0.8 per cent in 2009, the institute predicts. The jobless rate may improve to 4.2 per cent this year from an estimated 4.5 per cent in 2009, it said. -- Bloomberg

source HERE

First iceberg: Global assets bubble warning

From The Economist: "Bubble Warning: Why Assets are Overvalued ... Markets are too dependent on unsustainable government stimulus. Something's got to give ... The effect of free money is remarkable. A year ago investors were panicking and there was talk of another Depression. Now the MSCI world index of global share prices is more than 70% higher than its low in March 2009. That's largely thanks to interest rates of 1% or less in America, Japan, Britain and the euro zone, which have persuaded investors to take their money out of cash and to buy risky assets ... cheap money is driving up asset prices."

Sounds as ominous as The Economist's warning back in June 2005, two years before the last meltdown: "The worldwide rise in house prices is the biggest bubble in history. ... Rising property prices helped to prop up the world economy after the stock market bubble burst in 2000." Values increased 75% worldwide in five short years. "Never before have real house prices risen so fast, for so long, in so many countries ... This is the biggest bubble in history." And Capt. Ben is just using Greenspan's discredited strategy.

Worse yet, at a recent conference in Shanghai, St. Louis Fed President James Bullard said America's interest rates will likely remain low for "quite some time." Yes, he loves blowing and busting bubbles. Unfortunately, with that outdated ideological mindset protecting the Fed's fat-cat members, we'll see a rapid buildup of asset bubbles across the globe, just as The Economist is warning. We can even predict that Capt. Ben will again ignore warning signs and push us blindly ahead into his fog.

Second iceberg: Gulf oil real estate bubble collapse

In "Burj Dubai: A Temple to Hubris," a Los Angeles Times critic wrote a brilliant critique of the total bankruptcy of the newest tallest building in the world, sitting in a desert metropolis: "Burj Dubai's real symbolic importance: It is mostly empty, and is likely to stay that way for the foreseeable future. Though most of its 900 apartments have been sold, nearly all were bought three years ago -- near the top of the market -- and primarily as investments, not as places to live. ... And there's virtually no demand in Dubai at the moment for office space, of which the Burj Dubai has 37 floors."

The Dubai tower "is a powerful, iconic presence in ways ... the latest, and biggest, in this string of monuments to ... easy credit, during the boom years and the sudden paralysis of the financial markets in the fall of 2008 have created an unprecedented supply of unwanted or underoccupied real estate around the world," dead monuments to "the broader notion ... that growth can operate as its own economic engine, feeding endlessly and ravenously on itself ... the tombstone -- for some ruined ideas."

Third iceberg: China's overheated real estate bubble

Worse, read "Mania on the Mainland: Think the U.S. real estate bubble was bad? China's could be worse" in Bloomberg/BusinessWeek. China's "real estate rush is fueling fears of a bubble that could burst later in 2010, devastating homeowners, banks, developers, stock markets and local governments." Then China's "economic growth will stop, warns Yi Xianrong, a researcher at the Chinese Academy of Social Sciences' Finance Research Center." Premier Jiabao even told the Xinhua news agency that "property prices have risen too quickly," pledging "a crackdown on speculators."

Fourth iceberg: Commercial real estate, a ticking time bomb

But worst of all, here at home we read in yet another Bloomberg/BusinessWeek article, "Why This Real Estate Bust Is Different," that "unrealistic assumptions, layers of investors, sky-high prices and possible fraud will make it hard to clean up the mess in commercial real estate." Yes, there's another homegrown mess far bigger than America's residential real estate. Imagine, a $1.7 trillion ticking time bomb sitting on our bankers' books, equal to "roughly 25% of the assets of the average institution." A very big iceberg.

What happened? "Overbuilding isn't the culprit in this bust. An oversupply of money is what pushed commercial real estate over the edge. It turns out the same excesses that drove the housing market's crazy rise and fall were present in commercial real estate, too -- but they have largely gone unnoticed until now.

Bankers, in their haste to make more and bigger loans, blindly accepted borrowers' wildest growth assumptions and readily overlooked other shortcomings on loan applications" to "easily sell their dubious loans to investors in the form of commercial mortgage-backed securities"

Bottom line: Avoid sinking the U.S.S. Titanic ... a Capt. Ben mutiny!

Capt. Ben can't be trusted. What'll Capt. Ben do if he's still around piloting the good ship U.S.S. Titanic? He'll hit more icebergs, or battleships, or black swans. Can't help himself, it's in his ideological DNA. Then he'll blame others, while secretly bailing out his Wall Street banker buddies, piling on trillions more debt, doing it with his usual arrogance, no transparency and no accountability.

DJI - Is it just a correction or the starting of bear rally?



Gold : What happened to gold? Will it follow the DJI to the south or else?

Question -- Russell, you've been bending our ears about buying gold ever since the year 2000. Out with it, at what point or at what level do I sell my gold or silver?

Answer -- An excellent and important question. The answer (and this may not surprise you) is that you NEVER sell your gold or silver. These precious metals are an integral part of your estate and net wealth. I don't care what the current price of gold is, gold represents unencumbered wealth.

Let me give you an example from the rich man's standpoint. The rich man accumulates and holds ten thousand ounces of gold. At one point (such as today) his gold holdings are worth $12 million dollars. He's still rich.

Then gold declines to a price of $700 an ounce during a crushing world deflation. Bankruptcies rule, and the price of anything and everything with debt against it has collapsed. At this point the rich man is holding $7 million worth of gold. The fellow is still very rich. Next comes a run-away inflation and gold climbs to $2500 an ounce. Here the fellow owns $25 million dollars worth of gold. Now he's almost embarrassingly rich, at least in relation to his neighbors.

You see the point. In holding ten thousand ounces of gold, this fellow is always rich, but let's call it shades of rich depending on the economy. So the rich man isn't trying to 'beat" or "out-trade" the gold market. He holds his gold as an eternal store of wealth though good times and bad.

source HERE

Real-time Monetary Inflation (last 12 months): 2.9%

Mornings around here are fragrant: We all wake up to smell the coffee brewing. There's something brewing in the gold market, though, that might not be so pleasant.

Lease rates in the London bullion market have risen precipitously. Well, it's not so much that lease rates are rising - they're pretty cheap compared with their year-ago levels - it's more that forward rates are at historic lows.

Forward rates determine the pricing of bullion transactions in the over-the-counter market. A decline in forward rates implies one of two things: There's either a scarcity of metal available for swap or lease transactions, or there's heavy forward selling.

So, which is it? Well, we can gather some clues from the COMEX market. The latest Commodity Futures Trading Commission data show commercial accounts engaging in heavy selling and long liquidation. To boot, money managers have built their largest short position since August 2009 (and, if you're a contrarian, small speculators have taken up their strongest long position in a year and a half).

Given all that, the aroma wafting from the gold market seems to be a harbinger of a sell-off. Technically, gold's stalled now. Key support for the February COMEX contract sits at $1,120 after bulls backed off from a test of the halfway point for the contract's December swoon. A close below that level makes the sell-off case.

If February's price closes below the $1,111 level, the December low at $1,075 then becomes the bears' target.

No guarantees, of course, but at that point, bulls will have to consider how much they're in love with a four-figure gold price. How's that smell?

source HERE

Jan. 21 (Bloomberg) -- President Barack Obama called for limiting the size and trading activities of financial institutions as a way to reduce risk-taking and prevent another financial crisis.

The proposals will be part of an overhaul of regulations and would specifically prohibit banks from running proprietary trading operations or investing in hedge funds and private equity funds.

“While the financial system is far stronger today than it was one year ago, it’s still operating under the same rules that led to its near collapse,” Obama said at the White House after meeting with former Federal Reserve Chairman Paul Volcker, who has been an advocate of taking such steps. “Never again will the American taxpayer be held hostage by a bank that is too big to fail.”

The proposals could affect trading at some of the nation’s largest banks, including New York-based Goldman Sachs Group Inc., Morgan Stanley and JPMorgan Chase & Co., said Frederic Dickson, chief market strategist at D.A. Davidson & Co. in Lake Oswego, Oregon. Banks conduct proprietary trading for their own benefit, not for that of their clients.

Congressional Approval

The plan is subject to approval by Congress, where the president’s earlier regulatory proposal has hit resistance from some lawmakers and opposition from financial firms.

“If these folks want a fight, it’s a fight I’m ready to have,” Obama said.

The president is renewing his focus on economic issues, tapping into voter anger about the struggling economy, taxpayer bailouts and growing bank profits at a time of 10 percent unemployment, as well as a federal deficit that rose to $1.4 trillion last year. Those economic concerns will figure in the campaigns for November elections that will determine whether Obama’s Democratic Party can sustain majorities in the House and Senate.

Obama said he wants to “strengthen capability and liquidity requirements to make the system more stable.”

Obama in June proposed an overhaul of U.S. financial regulations to fix lapses in oversight and excessive risk-taking that helped push the economy into a prolonged recession.

Last week the president announced a plan to impose a fee on as many as 50 financial companies to recover losses from the federal government’s Troubled Asset Relief Program. It would be imposed starting June 30 on companies such as New York-based Citigroup Inc. and American International Group Inc. and Bank of America Corp. based in Charlotte, North Carolina.

This week’s Guru Outlook brings us the brilliance of Felix Zulauf. Zulauf is the founder of Zulauf Asset Management based in Switzerland and is well known for his appearances in Barron’s annual roundtable. Zulauf has nailed the secular bear market downturn and 2009 upturn about as well as anyone. More importantly, he has been nearly flawless in connecting the dots in the macro picture. From the de-leveraging cycle that led to the downturn to the government stimulus that led to the upturn – Zulauf has been remarkably prescient.

At the 2008 roundtable Zulauf recommended investors purchase gold and short stocks due to concerns with the consumer. He remained bearish throughout the year. At the 2009 roundtable Zulauf said stocks would bottom at some point in the second quarter after making a new 2009 low. He got aggressive and said stocks would rally after that. His recommendations to purchase oil, gold and emerging markets were home runs.

Zulauf’s macro outlook hasn’t changed all that much. He still believes the de-leveraging bear market cycle is with us and that we’re in the early stages. Zulauf sees a number of similarities with Japan and says the consumer is in the process of long-term balance sheet repair:

“we are in the early stages of a deleveraging process, which is marked by a shift from maximizing profits to minimizing debt. It is a multiyear process. The U.S. consumer is in bad shape, and the U.K. consumer is even worse.”

But Zulauf hasn’t turned bearish in the short-term yet. He says the markets have another 10% of upside before concerns over the end of the stimulus begin to weigh on the markets:

“Central bankers themselves are somewhat afraid of what they have been doing. Politicians are worried about public-sector debt. Therefore, the authorities will try to step away slowly from their stimulation efforts, because this policy isn’t sustainable. That’s the risk for the markets. The U.S. stock market has enough momentum to rise another 10% or so. But the authorities will start leaning the other way as they see signs of economic growth in the first two quarters, and possibly a jump in inflation. That could push the market down.”

Although he is still bullish on emerging markets in the short-term, Zulauf sees growing risks in China. He says the potential for a bubble is growing and that government stimulus has the potential to initiate a second downturn:

“China is in a dangerous situation. Credit growth is the one factor that all the
bubbles that burst had in common. Because China isn’t an open economy, the bubble there can probably keep inflating longer than it otherwise would have. But the Chinese can’t escape the laws of economics. If China’s bubble bursts, it would cause a second hit to the world economy, and that would be terrible.”

Another major risk to the sustainability of the rally is the small investor. Zulauf thinks the small investors is tapped out and lacks the trust in the equity markets to come back to the rodeo for a third ride after being bucked twice in the last ten years.

“In the past five years, the individual investor has been hit by two bear markets in stocks and a severe bear market in housing. He is just done. You see it in fund-flow statistics. Money is flowing into fixed-income investments that are perceived to be safe.”

So, with 10% upside left and a potential new low in the coming years how does Zulauf recommend playing the markets currently? Zulauf believes gold is the only currency that isn’t currently flawed. He says the likelihood of a correction this year is very high, but that the secular bull in gold will continue. He says gold will outperform stocks in the coming 5 years. Specifically, he likes physical gold and the GLD etf. Although gold stocks could perform well, he says there are too many outside influences in gold stocks.

Zulauf says investors would be wise to wait for markets to correct before diving back into stocks. After breaching 1,200 Zulauf says the S&P 500 should correct into the fall. At that time he says he would be a buyer of the following ETFs:

• Oil Services Holdrs Trust OIH

• SPDR Metals and Mining XME

• iShares MSCI Emerging Markets EEM

• iShares MSCI Hong Kong Index EWH

• iShares MSCI Singapore Index EWS

• iShares MSCI Taiwan Index EWT

• iShares MSCI Brazil Index EWZ

• iShares MSCI Canada Index EWC

In terms of currencies Zulauf sees an opportunity to short the Euro and Yen against the dollar.

“The euro is about 20% overvalued relative to the U.S. dollar. It could trade down to $1.25, from $1.45. You can see how the weaker members of the European Union are getting squeezed.”

As the de-leveraging cycle continues and governments continue to pour money into the global economy Zulauf says government bonds should continue to be underperformers.

“Governments and central banks will continue to support the economy. Short-term interest rates will stay low. Bonds aren’t attractive.”

Unlike several other hedge fund titans, Zulauf says the rally in the banks is essentially done:

“Previously I advised buying financials and metals. Now the financials are done, perhaps for a couple of years. Bank balance sheets aren’t repaired. It’s just camouflage. Today I like emerging markets and natural resources.”

Although we’ve avoided a total economic Zulauf says the difficulties are far from over. Like TPC, Zulauf says the biggest risks lie in the latter half of 2010 and into 2011 when governments pass the baton onto the private sector:

“The real danger comes from mid-2010 through 2011. This won’t be a conventional business-cycle expansion, but a bumpy road. The economy will look like a square-root sign followed by corrugated sheet iron. The good news is the potential collapse of the system has been avoided. It was an open question for a while.”

All of this will ultimately result in a new bear market and another punishing period for global investors:

“We’ll enter another bear-market cycle. I don’t know how low it will go. In March the market made a cyclical low in valuation, but it wasn’t a secular low. When the market makes a secular low, lack of interest in equities will be high.”

Malaysia may approve the introduction of a goods and services tax (GST) in March to increase revenue as the government seeks to narrow a budget shortfall, Second Finance Minister Datuk Seri Ahmad Husni Hanadzlah said.

Full implementation of the levy may take about 1 1/2 years after approval as the system’s infrastructure is put together, Ahmad Husni told reporters in Hong Kong, clarifying earlier comments at a conference when he said that Malaysia would “introduce” the tax in March.

“We know very well that the sources of revenue for the government have been dependent heavily on petroleum,” he told the conference. By introducing the consumption tax, “we can have alternative sources of revenue.”

The goods and services tax of 4 per cent is expected to generate an additional RM1 billion annually in revenue, Ahmad Husni said last year.
Essential items such as agricultural products, poultry and livestock products, sugar, rice, flour, cooking oil and eggs will be exempted from the tax, the government has said.

The government is on track to implement a new fuel-subsidy program in May that will be targeted to those in need, compared with an existing plan that subsidizes everyone, Ahmad Husni said today. Malaysia will also unveil a new economic model for the country next month, he said.

The nation aims to privatize as many as 17 state-owned companies this year through initial public offerings or sales to the private sector, Ahmad Husni said. He declined to name the companies or the industries. - Bloomberg

source HERE

Bank Negara Malaysia is likely to raise interest rates by 50 basis points in the second half of this year and another 100 basis points in 2011, according to Deutsche Bank Group.

"It is simply because inflation is returning to normal. It is coming back at two per cent in Malaysia," said the group's managing director and head of global markets research, Asia Pacific, Dr Michael Spencer.

"Given the concerns that in some parts that Asia's asset bubbles are potentially building up, I think it is reasonable for central banks to raise rates," he said at a media briefing on Malaysia's economic outlook in Kuala Lumpur today.

However, Spencer said that real interest rates are likely be lower at the end of 2010 than what they are currently.
"We also expect the US Federal Reserve to raise interest rates by 100 basis points in the third quarter," he said.

Spencer said that most Asian central banks are expected to start raising interest rates well before the US Federal Reserve and European Central Bank, which is also likely to start raising rates in third quarter.

"Our forecast of about 90 basis points of rate hike on average this year contrast with expectation of a 1.6 per cent increase in inflation between December 2009 and December 2010," he said.

According to Spencer, India, China and the Philippines will the first in the region to raise interest rates.

He said a spike in oil price inflation is likely to be over by mid-year and a return to more normal food price increases should bring the Asian inflation rate up to 3.6 per cent this year from 1.2 per cent in 2009.

Spencer said with the average inflation rate since 2004 at 3.7 per cent, the return of inflation should not be a major concern.

He expects the ringgit to strengthen against the US dollar on support from the inflow of capital into the country, saying that it is set to rise to 3.2 against the greenback in the next 12 months.

At midday today, the ringgit was traded at 3.351 against the US dollar.

On economic growth, Spencer said Malaysia is expected to register a 5.5 per cent growth this year, driven by domestic consumption.

"The biggest swing will be the contribution of domestic consumption," he said.

Private consumption is likely to be at 3.3 per cent this year and 4.0 per cent in 2011, Spencer said, adding that it was at 1.0 per cent last year. -- Bernama

source HERE

Kuala Lumpur: Malaysia plans to conduct 19 bond sales next year to help raise funds for development projects and fin-ance its budget deficit.

The government will sell notes maturing in 2013, 2015, 2017, 2019, 2020 and 2030, comprising both conventional and Islamic securities, according to a sale calendar published by Bank Negara Malaysia on its website. The central bank, which conducts debt auctions on behalf of the treasury, didn't provide details on the amount to be raised at each debt sale.

Malaysia raised a record 88.5 billion ringgit (Dh95.42 billion) this year, a 48 per cent increase from 2008 and the most since records began in 1991.

It will step up "fiscal discipline" next year to help narrow the deficit to 40.5 billion ringgit, or 5.6 per cent of gross domestic product, the finance ministry said in October.

Prime Minister Najib Razak has unveiled 67-billion ringgit of stimulus measures in the past year and the central bank has maintained its overnight policy rate at 2 per cent since February to help the nation climb out of its recession. The government also raised 5 billion ringgit from the sale of 2012 bonds to retail investors in May.

The finance ministry estimated the budget shortfall for 2009 at 51.1 billion ringgit, or 7.4 per cent of GDP, the highest proportion since 1987. Islamic debt, or sukuk, pays a profit rate to investors from an underlying asset instead of interest, which is prohibited by Sharia.

source HERE

In Wednesday's Digest, I showed you why most investors should focus on bonds... not stocks. Yes, that's a curious thing for a newsletter publisher like me to write about. After all, most of our products focus on stocks.

But I know it's true. Bonds are far safer than stocks and, if you'll use just a bit of common sense, you can easily make more money in bonds than you will in most stocks. Unfortunately, outside of our own True Income letter, there's very little written about how to invest in bonds. How can you get started without buying an expensive newsletter?

Now... Check out this website. It's the website for the Financial Industry Regulatory Authority (FINRA) - the brokerage industry's self-police. Among its other functions, FINRA keeps tabs on the bond market by collecting trading information.

Using the FINRA website, you can access market information on bonds by simply typing in the symbol of the company whose debt securities you're interested in. For example, you can choose to search for bonds by "symbol." So to look up Ford's bonds, I just punch in "F" - and, presto, all of Ford's bonds that have traded recently will appear.

What's my best advice on bonds? First, never buy a bond unless you're certain the collateral value of the bond will cover 100% of the debt. Just like you wouldn't make a loan to a stranger without collateral, likewise you shouldn't lend to corporations without coverage.

Second, make sure you're going to earn an interest rate that's commensurate with the risk of default. Even if you're protected by collateral, you don't want your money stuck in a bankrupt bond for 24 months without getting any interest. So if you think a company might be in trouble, make sure you're getting paid a high rate of interest.

Finally, I'd never buy a corporate bond at anything near par (usually $100). Why? That's one of the big secrets of the bond market...

At least once every 10 years, investors dump corporate bonds en masse. When they do, you will have the opportunity to buy safe corporate bonds for around 50 cents on the dollar. That means you'll get a big capital gain when the company redeems the bond at par ($100), and it means the yield you'll earn for the duration of the bond will be 100% bigger than normal.

Think about it. If you buy a 10-year bond at par ($100) that's paying a $10 coupon, you'll earn 10% a year for the duration of the bond. At the end of 10 years, you'll have earned $100 in interest. And you'll get $100 in capital returned as well. Your $100 has turned into $200 - that's a 100% gain.

But... imagine if you bought the same bond for $50. You'd still get $10 a year for 10 years. And you'd get $100 when the bond was due. Your $50 would turn into $200. That's a 300% gain. Buying corporate bonds at a big discount is both vastly more profitable and much safer. (You obviously don't need as much collateral to protect you if you're buying a bond at 50 cents on the dollar.)

Just to reiterate what I told you on Wednesday, bonds are vastly safer than stocks. They can make you a tremendous amount of money - if you have the discipline to wait and only buy when bonds offer safety, high yields, and significant capital gains.

source HERE

In late 2009, former Merrill Lynch economist, now with the Canadian firm, Gluskin Sheff, said the following:

"The credit collapse and the accompanying deflation and overcapacity are going to drive the economy and financial markets in 2010. We have said this repeatedly that this recession is really a depression because the (post-WW II) recessions were merely small backward steps in an inventory cycle but in the context of expanding credit. Whereas now, we are in a prolonged period of credit contraction, especially as it relates to households and small businesses."

Summarizing his 2010 outlook, Rosenberg highlighted asset deflation and credit contraction imploding "the largest balance sheet in the world - the US household sector" in the amount of "an epic $12 trillion of lost net worth, a degree of trauma we have never seen before," even after the equity bear market rally and "tenuous" housing recovery likely to be short-lived and illusory with a true bottom many months away.

As a result, consumer spending will be severely impacted. "Frugality is the new fashion and likely to stay that way for years," highlighting a secular shift toward prudence and conservatism because households are traumatized, tapped out, and mindful of a bleak outlook. It shows in new consumer credit data, contracting $17.5 billion in November, the largest monthly amount since 1943 record keeping began.

Surprisingly, only people over age 55 have experienced job growth. All others have lost jobs, can't get them, and for youths the "unemployment crisis (is) of epic proportions." In addition, there's a record number of Americans out of work for longer than six months, in part because the "aging but not aged" aren't retiring, and those who did are coming back, of necessity, to make up for wealth lost.

Rosenberg stresses that for a sustainable recovery to begin, the ratio of household credit to personal disposable income must revert to the mean and reach an excess in the opposite direction. In the 1950s, it was 30%. Today its 125%, down from the late 2007 139% peak, with a long way to go taking years, and when it's over, another $7 trillion in household credit will have to be extinguished.

more HERE

From Conversations with Casey:

Louis James, Casey Research Editor: So, what's on your mind this week, Doug? I understand you've had a "guru moment"…

Doug: Well, it's nothing but a gut feeling, but I think the stock market is riding for a big fall this year.

Everyone was afraid the world was going to come to an end a year ago, and it almost did. But governments all around the world stepped in and printed up trillions of their various currency units - it's not just the United States. And still, retail price inflation hasn't blossomed. It seems that governments are bent on keeping asset prices up to avert panic. They focus on controlling perception instead of fixing the problem. It stems from an economic version of the theory that all we need to fear is fear itself. As long as we have the right psychology, everything is going to be okay - total nonsense.

... It's the Wile E. Coyote theory of economics. As long as you never look down after running off a cliff chasing the roadrunner, you can keep treading air. Unfortunately, although the power of positive thinking may help in many ways, it's of zero use if you continue living above your means and making stupid decisions.

... My thinking about the stock market is this: corporations have done as "well" as they have mainly by cutting expenses. Laying people off, that sort of thing. So the bottom lines have not fallen as far as we might expect - but the top line has been hit. Revenues are falling for corporations across the board.

... The world's financial system has to adjust to a new reality, one with lower levels of consumption and differing types of production. The legions of unemployed are not going to go back to work anytime soon, at least not doing anything like what they were doing before the bubble burst. The economy is going to continue deleveraging. There's going to be less debt to allow the purchase of all this stuff people have been buying, resulting in lower corporate earnings. So it's hard to see revenues doing anything but continue to spiral downwards for years to come.

... I've been bearish on general equities for years, based on fundamentals. Whether they go up is no longer a reflection of prosperity - it's a reflection of how much money the government creates and where it goes. But I am feeling particularly strongly bearish on Wall Street right now. That's my gut. The social mood of the country is going to turn ugly and gloomy; people won't want to call their brokers and "get into the market."

The Greater Depression is going to be really serious. I can't see buying stocks until dividend yields are in the 6-12% range. And people have forgotten the market even exists. Anyway, Baby Boomers, who own most stocks directly and indirectly, are going to be selling them to support themselves in retirement.

L: This doesn't sound like a guru moment - a flash of the famous Casey inspiration. This sounds more like a well-reasoned argument to me.

Doug: Well, when you get a really strong gut feeling, it's usually because you intuit many things that are out there, subconsciously if not analytically. Look, dividends are dropping across the board. Top line earnings are dropping. Where net earnings have been maintained, it's been by expense cutting.

... As the government takes over more and more of the economy, they'll mismanage that activity, as they always - necessarily - do. Why do I say necessarily? Because they do things that are politically productive for them, not economically productive for society. That's going to hurt productivity and profitability, misallocating and even destroying capital wherever they stick their noses. And, today, that's absolutely everywhere.

Taxes, of course, will go way up. That's going to give individuals less money to buy stocks. Corporations will have less money left over to reinvest or pay dividends with. All the draconian new rules they're enacting in response to the crisis will only serve to inhibit entrepreneurial activity and investment. It will encourage speculation (see our conversation on speculation).

The real estate market has not, by any means, bottomed yet. What's going to happen in the commercial and office real estate markets is just starting, and the housing market is still going to get worse.

All of this is very bearish for the stock market.

source HERE

Another final push in the Dow should mark the top of this bear-market rally's strength. Once the next major leg down in the market resumes, expect it to be strong and swift as all of the positive sentiment built since March 2009 quickly unwinds and becomes negative.

As per gold, the downtrend correction could take it as high as $1180 before a resumption of the major downtrend should eventually carry gold to around the $650/oz mark. Silver should also continue its downtrend within the next several trading days. The rapid near-$.40 spike intraday today could have marked the top for this correction. The major trend is down and we suggest trading with the trend - treat corrections as opportunities for entry points. We are not short any silver but are excited for the market low to accumulate the metal on the cheap and pick up some top producers at depressed price levels. We will keep you posted on our top pics as their price becomes attractive.

more HERE

An investment strategist at China's $300-billion (U.S.) wealth fund said the world's third-largest economy now had a say in the exchange rate of the U.S. dollar, which it expects to rise while the yen should fall further.

The comments by Peng Junming, who works in the asset allocation and strategic research department at China Investment Corp, triggered a rally in the U.S. dollar.

“I think the dollar is at its bottom now. There will be very limited space for the dollar to drop further,” he told an academic forum. “The yen is what, I think, has the worst outlook. The yen will continue to drop, unlike the dollar, which will not serve for long as a source of funding carry trades.”

The U.S. dollar rose more than half a yen close to 92.40 yen on the news, then pared gains after Mr. Peng said his speech at the Chinese Academy of Social Sciences reflected personal views. The euro slid against the dollar and gold dropped before rebounding slightly.

The market reaction to Mr. Peng's comments shows the sensitivity to clues on how China and its state fund view the markets.

“A U.S. government official recently said that the dollar is ours but the problem is China's. But China now has a voice in influencing the dollar's exchange rate and the interest rate on U.S. government debt,” Mr. Peng said.

“Although the dollar belongs to the U.S., China has a role to play in determining the dollar's exchange rate.”

No Need for Gold

Mr. Peng noted that China's stash of dollars enabled it to influence commodities markets. Commodities like oil are priced in dollars and the prices tend to move inversely to the dollar.

“We can weigh down or push up the dollar exchange rate, which will have an impact on the global commodity futures market.”

Mr. Peng was explicit in his view on gold: “China should have the right attitude about investing in gold. There is no urgent need for China to increase gold buying for now, because prices are high.”

He defended U.S. Treasury investments, arguing they had offset losses in stocks and helped swell currency reserves in 2007 and 2008.

About two-thirds of China's reserves, the largest stockpile in the world at $2.27-trillion, are estimated to be invested in dollar assets.

Lou Jiwei, CIC's chairman, has been careful not to say much about how the fund invests its money. In October 2009, he said the fund was putting more money into commodities, real estate and infrastructure to hedge against medium- and long-term inflation and a fall in big currencies.

Mansoor Mohi-uddin, currency strategist at UBS in Singapore, said sovereign wealth funds are returning to prominence after losing influence during the financial crisis.

However, private sector U.S. portfolio managers have the ultimate say on the dollar, he noted.

“The portfolios of both sovereign wealth funds and central banks globally remain dwarfed by U.S. asset managers. It is the latter, as the largest holders of dollars in the world, who will continue to determine the ultimate direction of the greenback,” he said note to clients.

Turning to interest rates, Mr. Peng, who previously worked in the New York office of the Chinese central bank, said he expected that both the United States and China would raise rates in the second half of the year.

Many in the market have assumed that China will wait for the United States to raise rates before doing so out of fear that a bigger rate differential will attract speculative capital, adding more money to the Chinese economy already awash with cash.

But Mr. Peng said that the People's Bank of China may have to move first to raise rates in order to combat asset bubbles at home. Officials have repeatedly warned that property prices are rising too rapidly, but so far have relied largely on land and tax policies to calm the market.

China Investment Corp. was set up in late 2007 with $200-billion hived off from the foreign exchange stockpile, with a mandate of seeking higher returns than the more cautious reserve management agency.

Thanks largely to investments in domestic banks, its assets under management reached $300-billion at the end of 2008.

Chinese media have reported that CIC might be in line to receive as much as $200-billion extra from the foreign currency pot.

Mr. Peng said he had heard that the government will probably give CIC more money to manage, but that the size of the capital injection was unclear.

source HERE

SINGAPORE: Several Asian central banks intervened yesterday in an effort to temper the rally in their currencies as the dollar weakened broadly, highlighting fears that rapid currency rises may hurt economic recovery.

Central banks in South Korea, Indonesia, India and Singapore were spotted buying US dollars to contain their currencies, driven up by the dollar's weakness and expectations that China's strong exports data may prod Beijing to allow the yuan to rise.

"I think Asian central banks are watching the pace of currency appreciation," said Thio Chin Loo, currency strategist at BNP Paribas in Singapore. "They are cautiously optimistic about the economy and don't want to prick the nascent recovery."

In a sign that concerns over strengthening currencies were not unique for emerging markets, the head of Swiss National Bank said yesterday that the central bank will fight any excessive rise of the Swiss franc against the euro, hinting at a possible intervention.
In Seoul, a senior finance ministry official, speaking after the authorities were seen buying dollars, warned that the authorities would act further to temper the won's rise if necessary.

"We are worried that the foreign exchange market is leaning excessively one way," Kim Ik-joo, head of the ministry's international finance bureau, said.

"We are closely watching foreign exchange rates and we will take proper measures if necessary," Kim said.

Dealers said the authorities tried to prevent the won from rising past the 1,200-per-dollar level, though the currency briefly hit 1,114.9 per dollar, its strongest in more than 15 months, and closed on the stronger side of the 1,200 mark.

The won has gained 4 per cent against the dollar so far this month, making it the top performer among nine emerging Asian currencies tracked by Reuters.

The rising won also intensified purchases of Korean bonds by foreigners, along with the view that rate rises will be slower coming in the year ahead, with the buying, in turn, pushing the won further up.

Confronted with a steady stream of investment funds betting that Asia will continue to lead the global economic upturn, the region's authorities have been using both verbal and market intervention to cool of the pressure on their currencies.

Taiwan went a step further last week, unveiling new controls to curb speculative inflows, giving foreign short-term investors betting on currency gains a week to invest their funds in stocks or pull out.

In Indonesia, the authorities were also spotted trying to stem the rise of the high-yielding rupiah, which jumped as much as 1 per cent yesterday, and the central bank said it would keep on buying dollars to rein in its currency.

In Singapore, the central bank was also seen buying dollars as the Singapore dollar hit a one-month high and in India, state-run banks were spotted buying the US currency after the rupee rose 1 per cent to its highest in more than 15 months.

The rupiah has gained 3 per cent against the dollar so far this month, making it the second best performer in Asia. - Reuters

source HERE

Jan. 10 (Bloomberg) -- Japan Airlines Corp.’s largest banks are set to agree to a bankruptcy of Asia’s largest carrier, said four people familiar with the matter.

Mitsubishi UFJ Financial Group Inc., Sumitomo Mitsui Financial Group Inc. and Mizuho Financial Group Inc. are prepared to go along with a proposed court-led reconstruction, said three people who declined to be identified because the matter is private. The state-owned Development Bank of Japan already agreed to the bankruptcy, according to the other person.

Japan Air is seeking new investors and loan write-offs as it restructures after posting three losses in four years. The government will hold talks on JAL’s future as soon as Jan. 12, Transport Minister Seiji Maehara told reporters two days ago in Tokyo after meeting with Prime Minister Yukio Hatoyama.

“JAL can be reborn as an attractive company should it undergo decisive restructuring,” said Ryota Himeno, an analyst at Mitsubishi UFJ Securities Co. “It’s a positive for JAL if the reports on bankruptcy are true.”

Mizuho spokeswoman Masako Shiono, Mitsubishi UFJ spokesman Takashi Takeuchi and JAL spokeswoman Sze Hunn Yap declined to comment. Sumitomo Mitsui spokeswoman Chika Togawa wasn’t immediately available for comment and calls to the media relations office of the Ministry of Finance, which oversees Development Bank, went unanswered outside regular office hours.

JAL’s Debt

JAL owed 429 billion yen ($4.6 billion) to its four largest creditors at the end of March, according to the company.

The Tokyo-based carrier will file for bankruptcy in the week starting Jan. 18, and the Enterprise Turnaround Initiative Corp. will agree to provide financial aid to Japan Air the same day, said a person familiar with the negotiations, who declined to be named.

The state-run fund may have JAL partner a U.S. airline on flights without any capital ties, the Nikkei newspaper reported today. Candidates for such an alliance include Delta Air Lines Inc. and AMR Corp.’s American Airlines, the report said.

Nikkei yesterday reported the banks would accept the government’s plan for a court-led bankruptcy.

JAL’s market capitalization tumbled below $2 billion last week, compared with more than $6 billion a year earlier. Its shares ended at 67 yen, matching the lowest close since the company listed in 2002.

The airline is suffering from tumbling international traffic and is trying to slash pension costs. JAL has asked its 9,000 retirees to accept cuts in their payouts of about 30 percent and set Jan. 12 as a deadline for responses.

source HERE

SHANGHAI — James S. Chanos built one of the largest fortunes on Wall Street by foreseeing the collapse of Enron and other highflying companies whose stories were too good to be true.

Now Mr. Chanos, a wealthy hedge fund investor, is working to bust the myth of the biggest conglomerate of all: China Inc.

As most of the world bets on China to help lift the global economy out of recession, Mr. Chanos is warning that China’s hyperstimulated economy is headed for a crash, rather than the sustained boom that most economists predict. Its surging real estate sector, buoyed by a flood of speculative capital, looks like “Dubai times 1,000 — or worse,” he frets. He even suspects that Beijing is cooking its books, faking, among other things, its eye-popping growth rates of more than 8 percent.

“Bubbles are best identified by credit excesses, not valuation excesses,” he said in a recent appearance on CNBC. “And there’s no bigger credit excess than in China.” He is planning a speech later this month at the University of Oxford to drive home his point.

As America’s pre-eminent short-seller — he bets big money that companies’ strategies will fail — Mr. Chanos’s narrative runs counter to the prevailing wisdom on China. Most economists and governments expect Chinese growth momentum to continue this year, buoyed by what remains of a $586 billion government stimulus program that began last year, meant to lift exports and consumption among Chinese consumers.

Still, betting against China will not be easy. Because foreigners are restricted from investing in stocks listed inside China, Mr. Chanos has said he is searching for other ways to make his bets, including focusing on construction- and infrastructure-related companies that sell cement, coal, steel and iron ore.

Mr. Chanos, 51, whose hedge fund, Kynikos Associates, based in New York, has $6 billion under management, is hardly the only skeptic on China. But he is certainly the most prominent and vocal.

For all his record of prescience — in addition to predicting Enron’s demise, he also spotted the looming problems of Tyco International, the Boston Market restaurant chain and, more recently, home builders and some of the world’s biggest banks — his detractors say that he knows little or nothing about China or its economy and that his bearish calls should be ignored.

“I find it interesting that people who couldn’t spell China 10 years ago are now experts on China,” said Jim Rogers, who co-founded the Quantum Fund with George Soros and now lives in Singapore. “China is not in a bubble.”

Colleagues acknowledge that Mr. Chanos began studying China’s economy in earnest only last summer and sent out e-mail messages seeking expert opinion.

But he is tagging along with the bears, who see mounting evidence that China’s stimulus package and aggressive bank lending are creating artificial demand, raising the risk of a wave of nonperforming loans.

“In China, he seems to see the excesses, to the third and fourth power, that he’s been tilting against all these decades,” said Jim Grant, a longtime friend and the editor of Grant’s Interest Rate Observer, who is also bearish on China. “He homes in on the excesses of the markets and profits from them. That’s been his stock and trade.”

Mr. Chanos declined to be interviewed, citing his continuing research on China. But he has already been spreading the view that the China miracle is blinding investors to the risk that the country is producing far too much.

“The Chinese,” he warned in an interview in November with Politico.com, “are in danger of producing huge quantities of goods and products that they will be unable to sell.”

In December, he appeared on CNBC to discuss how he had already begun taking short positions, hoping to profit from a China collapse.

In recent months, a growing number of analysts, and some Chinese officials, have also warned that asset bubbles might emerge in China.

The nation’s huge stimulus program and record bank lending, estimated to have doubled last year from 2008, pumped billions of dollars into the economy, reigniting growth.

But many analysts now say that money, along with huge foreign inflows of “speculative capital,” has been funneled into the stock and real estate markets.

A result, they say, has been soaring prices and a resumption of the building boom that was under way in early 2008 — one that Mr. Chanos and others have called wasteful and overdone.

“It’s going to be a bust,” said Gordon G. Chang, whose book, “The Coming Collapse of China” (Random House), warned in 2001 of such a crash.

Friends and colleagues say Mr. Chanos is comfortable betting against the crowd — even if that crowd includes the likes of Warren E. Buffett and Wilbur L. Ross Jr., two other towering figures of the investment world.

A contrarian by nature, Mr. Chanos researches companies, pores over public filings to sift out clues to fraud and deceptive accounting, and then decides whether a stock is overvalued and ready for a fall. He has a staff of 26 in the firm’s offices in New York and London, searching for other China-related information.

“His record is impressive,” said Byron R. Wien, vice chairman of Blackstone Advisory Services. “He’s no fly-by-night charlatan. And I’m bullish on China.”

Mr. Chanos grew up in Milwaukee, one of three sons born to the owners of a chain of dry cleaners. At Yale, he was a pre-med student before switching to economics because of what he described as a passionate interest in the way markets operate.

His guiding philosophy was discovered in a book called “The Contrarian Investor,” according to an account of his life in “The Smartest Guys in the Room,” a book that chronicled Enron’s rise and downfall.

After college, he went to Wall Street, where he worked at a series of brokerage houses before starting his own firm in 1985, out of what he later said was frustration with the way Wall Street brokers promoted stocks.

At Kynikos Associates, he created a firm focused on betting on falling stock prices. His theories are summed up in testimony he gave to the House Committee on Energy and Commerce in 2002, after the Enron debacle. His firm, he said, looks for companies that appear to have overstated earnings, like Enron; were victims of a flawed business plan, like many Internet firms; or have been engaged in “outright fraud.”

That short-sellers are held in low regard by some on Wall Street, as well as Main Street, has long troubled him.

Short-sellers were blamed for intensifying market sell-offs in the fall 2008, before the practice was temporarily banned. Regulators are now trying to decide whether to restrict the practice.

Mr. Chanos often responds to critics of short-selling by pointing to the critical role they played in identifying problems at Enron, Boston Market and other “financial disasters” over the years.

“They are often the ones wearing the white hats when it comes to looking for and identifying the bad guys,” he has said.

source HERE

WASHINGTON: U.S. financial regulators told banks Thursday to have procedures in place to minimize their risks from loans when rock-bottom interest rates start to rise.

The advisory came from the Federal Financial Institutions Examination Council, which includes the Federal Reserve, the Federal Deposit Insurance Corp., the Office of the Comptroller of the Currency and the Office of Thrift Supervision.

The advisory wasn't meant to signal any upcoming change in interest-rate policy by the Fed.

To nurture the budding recovery, the Fed has slashed a key bank lending rate to a record low near zero, where it has been for a year.

When the economy is on firm ground, the Fed at some point will start boosting rates.

Some economists think the Fed might begin to raise rates later this year to safeguard against any inflation problems.

It's unusual for the council to issue such an advisory.

The last time it did so was in 1996, a Fed spokeswoman said.

"In the current environment of historically low short-term interest rates, it is important for institutions to have robust processes for measuring and, where necessary, mitigating their exposure to potential increases in interest rates," the council said in the advisory issued Thursday.

Higher interest rates make it more expensive for banks to borrow and increase their costs of doing business.

The council suggested that banks make sure they have sufficient capital cushions to protect against any possible losses.

"In this challenging environment, funding longer-term assets with shorter-term liabilities can generate earnings, but also poses risks to an institution's capital and earnings," the council said.

The council said banks should be testing their risk-management systems for scenarios including instantaneous and significant changes in interest rates.

Deficiencies in banks' risk-management systems - along with lax regulation - have been blamed for contributing to the financial crisis.

The crisis, the worst since the 1930s, was triggered in 2007 when home mortgages soured as the housing market collapsed. - AP

source HERE

Of the many forward looking market indicators we at EWI employ, one of the most interesting tools (and least discussed in the financial media) is the DJIA priced in gold -- "the real money," as EWI's president Robert Prechter calls it.

We've been tracking the Dow/Gold ratio for many years and it has serves our subscribers well. It's not a short-term timing tool, yet in the longer term, as our January 6 Short Term Update put it, "the nominal Dow eventually plays catch up to what is transpiring in the Dow/Gold ratio."

Here's a good example. Remember when the nominal DJIA hit its all-time high? October 2007, just above 14,000. At that time, most investors expected new highs still to come. But our Elliott Wave Financial Forecast warned five months prior, in May 2007:

One key reason [for a coming top in the DJIA] is the undeniable bear market status of the Dow Jones Industrial Average in terms of gold, the Real Dow...

Notice, by contrast, the relative strength of the Real Dow versus the nominal Dow, the index in terms of dollars, from 1980 to 1982. By August 1982 when the Dow denominated in dollars bottomed, the Real Dow was rising strongly from its 1980 low... The nominal Dow soon played catch-up, and they both rallied more or less in sync until 1999.

Now, instead of soaring the Real Dow is crashing relative to the nominal Dow. In fact, it’s barely off its low of May 2006. This dichotomy reveals the weakness that underlies the financial markets’ push higher. When mood turns and credit inflation reverses, the ensuing drop in the nominal value of the market should be dramatic.

"Dramatic drop" did indeed follow: Between October 2007 and March 2009, the DJIA lost 53%, high to low.

source HERE

PETALING JAYA: Banks which had made loans to LCL Corp Bhd may have to face a “haircut” when they try to recoup their money.

LCL Corp’s default in loan repayments to at least three banks could affect the financial institutions negatively, according to a local analyst.

“How adversely these banks are affected will depend on the amount borrowed and LCL Corp’s repayment scheme over time,” he told StarBiz.

LCL Corp, which last month slipped into the financially troubled Practice Note 17 (PN17) status, currently owes a total of RM112.26mil to the three banks.

The banks involved are Affin Bank Bhd (RM69.42mil), Bank Islam Malaysia Bhd (RM2.63mil) and The Royal Bank of Scotland Bhd (RM40.21mil).

“LCL Corp has 11 months to resolve its outstanding loans to these banks,” the analyst said, noting that the company had issued a statement to Bursa Malaysia on Jan 4 that it was presently considering and formulating a regularisation plan to resolve its financial obligations to the banks.

He added that the banks might well have to settle for less than what was owed.

“Ideally they would like to receive full payment but chances are slim and winding up the company’s operations is an unfavourable option,” he said.

The analyst said LCL Corp’s debt servicing capability going forward would depend on how Dubai recovered from its credit crunch, as well as collections from LCL Corp’s debtors and the sale of the company’s non-core assets.

A financial analyst from Singapore told StarBiz that LCL Corp’s debt position could signal “more companies following the course of LCL Corp in the later part of the year, especially if the credit crunch in Dubai remains unresolved.”

He noted that some banks had tightened their credit facilities to companies with exposure to Dubai in view of the higher risk of doing business there, adding that there was a lesson to be learned from the LCL Corp episode.

“They (banks) should review their lending practice to ensure that companies they back with sizable loans should not invest, do business or rely purely on one market for their growth and expansion,” the analyst said, noting that LCL Corp had relied too heavily on Dubai, with over 70% of its business, revenue and growth derived from there.

“There was a clear signal of over exposure to one region, and too much focus on the construction industry,” he noted. LCL Corp’s core business is in providing interior fit-out services.

source HERE

By: Dan Weil

Hedge fund manager Eric Sprott predicts stock prices will plummet 40 percent, as the economy remains in recession.

The Standard & Poor’s 500 Index will drop below its March 12 closing low of 676.53, he told Bloomberg. That was the lowest close in 12 years.

“We’re in a bear market that will last 15 or 20 years,” said Sprott, CEO of Sprott Asset Management.

He notes that despite investor optimism, payrolls continue to shrink, with unemployment at 10 percent.

The low level of interest rates is artificial, engineered by the Federal Reserve’s bond purchases, he says. Those purchases are scheduled to end by March 31.

Once that happens, demand for bonds will drop, pushing interest rates higher, Sprott says.

And rising rates will stifle the economy.

If the Fed decides to resume the bond buying, then the dollar will be in trouble, as investors lose confidence in Fed policy, he says.

“If they announce another quantitative easing, trust me, the gold price will go up another 50 bucks that day,” Sprott said.

He has been bullish on the precious metal for at least eight years.

Nobel laureate economist Paul Krugman shares some of Sprott’s concern about the economy.

“What we’ve got right now is a recovery that first of all isn’t showing up very much in jobs yet. It’s being driven by fiscal stimulus, which is going to fade out in the second half of next year,” Krugman told ABC.

Adding to the dire forecasts is Mohamed El-Erian, chief executive of giant bond manager Pimco.

He says the recovery may be gaining steam but is no different than a kid who eats too much candy.

“We're on a sugar high,” El-Erian says. “It feels good for a while but is unsustainable.”

He says the recent burst of economic activity fed by government spending and near-zero interest rates will soon peter out.

El-Erian says stocks will drop 10 percent in the space of three or four weeks, bringing the S&P 500 Index to below 1,000 — though he's not predicting when.

source HERE

I always try to look at the long term picture.

That is the reason I missed being long this rally in 2009, but did not miss
the selloff in 2008. When I see a change in trend from a technical point of view
I first wonder what is going on and then look for a reason that might be causing
this change.

Economists look at numbers that have been generated and make their
conclusion from HISTORICAL information. I go the other way. The market is
whispering to me that something is happening. I am listening to the motor in
the car and it is making a different sound; economists are looking in the
rearview mirror; that is why I say don't listen to anything they say.

There are some who have the ability to look at certain statistics and
make good forecasts. Harry Dent, Mohamed A El-Erian, John Mauldin and a
few others. Almost none pay attention to market psychology that reflects the
mass psychology of world investors. Almost none factor in the individual
narcissistic personal psychologies of major players such as Ronald Reagan,
Alan Greenspan and Barack Obama. Individuals play important roles in
market direction. They can move markets for a while, but the overall trend is
too big for any one person or even groups of persons.

Point in fact is the so-called stimulus bills being used by the current
administration to try to stop the long term bear market. The current rally from
March '09 is running out of steam. The key players are running out of ammo.
The world bear is about to reemerge from his cave; my guess is within the
next 90 days. There is almost no protection against it for the developed and
even the developing countries. Deleveraging is taking place. It is unstoppable.

The laws being enacted in all the countries that have been affected
might protect what happened previously, but will not protect against the next
catastrophe - whatever form that might take. There will be another. That is
the basic mental cycle of humans - to forget and repeat past mistakes as they
are doing now.

There was a major economic recession in 1921 that the president then
decided to let play out naturally with no government intercession. Eighteen
months later it was over.

Politicians look only as far ahead as the next election. They think that
by doing something, anything, it will help them become reelected. They do
not look out for the best interest of their country. Greed gives way to common
sense and usually makes things worse.

The investor for the next few years should have only one goal –
protection of capital and assets. Gold coins, easily hidden and transportable,
are one such asset. Owning a farm, even a small one that can generate
income is another. I believe even healthcare will be so regulated as not to
be profitable. Maybe a small home business such as a bakery might work.
This sounds very dour, but I see not light on the horizon at this time, only
storm clouds of taxation and regulation.

It is time to tighten your belt and take a long hard look into the future.
Take off those rose colored glasses and become a realist.

source newsletter

To extort the maximum value from a population, when one has control of monetary system, leverage the laws of supply and demand. Use deflation, inflation, and hyperinflation all as tools to transfer wealth. All have a place and a purpose.

The banker's guide to owning it all

Become majority lender in an economy of people with assets you want.

Encourage indebtedness by loaning generously while securing on assets of interest.

Loosen lending standards until the assets you seek to capture are attached. (this makes the economy debt dependent)

Once debts are significant for the bulk of the population, sharply tighten lending standards. <-- Economic shock - Onset of deflation

Backstop losses with public guarantees if possible. This is gravy if one can get it. (Fannie and Freddie guarantees, for example)

Permit default 'without risk' on the assets you wish to sieze to maximize wealth transfer. (stall foreclosure, stay repossession orders etc)

Stall the economy to maximize default positions and deplete private liquidity. <-- We are here

Successively ratchet the economy downhill, while bettering secured positions.

In a series of large actions, sieze all security for default. Target the assets of greatest interest first. (This deals a heavy economic blow and can help cause the ratcheting required for step 8.)

Transfer asset ownership, but retain prior owners as renters where possible. (This reduces public lashback and helps maintain the asset for resale)

Once the bulk of assets of transferred, write them down to leverage the public financial backstop.

Buy up as many remaining assets on the cheap as possible. Hide this action.

Hyperinflate to destroy the external claims on wealth. <-- Onset of hyperinflation (This destroys treasuries, gov't bonds, currency. Ensures free title on new assets. May cause war.)

Stabilize the currency or devise a new one, resume lending at a reasonable pace. Sell the assets back, secured of course, at your chosen price in new currency.

Hyperinflation is only a risk to the wealthy if the population has the assets. Make note of that statement. It is key to timing the shift from deflation to hyperinflation.

I combined known events of the 1930s with those of other collapses and this is the model that results. Instead of positioning myself as a victim of the collapse, I positioned as the one that would profit.

The approach is reverse engineered, so it may not be entirely accurate. I expect it is close.

Ethics aside for the moment, one might consider the following in order of execution:

Eliminate secured debt.

Store preps to carry you through steps 8-13.

Secure precious metals for when the currency is collapsing. At that time, assets will become very cheap in terms of both gold and silver.

Exchange for assets while public stampedes into PMs in a panic.

If the gold price rises too high for your tastes, loan sums of cash against assets of much greater worth. Ensure you have a first on the security.

For those of limited means, directing capital can be very important. This model is deflationary while assets are transferred. It relies on limiting the panic in this period as well. From this, we can gather that accomodation is likely to remain available. Food will become a larger percentage of household spending (due to income reduction), and guns won't help against this enemy (protection will still matter though, as always). This can help prioritize where limited prep funds are spent.

For those with excess, items three and four may feel ethically questionable. Remember that private ownership of most of these assets will not survive this process with or without your involvement. Following in the footsteps of the banks directs some of their windfall to you... instead of them. I am personally comfortable with only the first three of the steps listed above. The fourth is a difficult one. I could only do that if I knew a bank was going to loan the money and complete the fleecing in my absence. But even then, I don't think I would take on the roll of aggressor.

I am bullish on both gold and silver from the point destruction of the dollar picks up momentum. For the immediate future, TPTB will jack the price all over the place to shake out the speculators. The choice to hold gold or silver must be based on market fundamentals, not the gamed valuation systems.

I am bullish on both gold and silver, but most bullish on silver. To an untrained eye, $1000 in silver looks like a LOT more than $1000 in gold. The market will soon become saturated with untrained buyers. They will be panicked and buying in haste. They won't know what to buy based on research or sound fundamentals, rather they will respond based on visual cues and heuristics. A suitcase of silver may buy a house because it looks like a lot, while the equal value in gold will not. As well, those little plastic sleeves will be big money makers. They will ensure a case filled with any PM looks more tangible. Less will become more when well packaged.

Emulating the actions of a banker would enable you to share in their spoils. It's hard to ensure you will have the dry powder to spend in step 12, and there's risk that a twist on this strategy could still come forth. But if it holds true, your suggestion would be effective.

source HERE

it may crush the existing structure of Fannie and Freddy and drag the economy further down, no matter how many dollars the fed throws at it

here are the events:

each individual event will have no visible effect, but combined will crash the economy:

these are all pending events, many listed on MW as individual events, but no one looks at them all together - but that is how we will feel them in our wallets

financial:
- the next wave of ARMs will start to reset,
- mortgage rates will go up,
- the next wave of foreclosures will hit,
- the default on holiday expenditures will cause more chapter 7 and 13 filings,
- retailers will know how little they made, and many will go chapter 11, or just close

taxes:
- the fed will start seeing how little revenue they got from business because of COBRA extensions and funding, and push for new taxes
- states will start locking in on the lower incomes from wage taxes, and looking to raise taxes,

employment
- employer hiring will slow even more, as the employer tax mandates for health care kick in
- employers will see the new unemployment tax rates which will come due, and lay off or not hire to be able to meet those expenses
- seasonal job losses will be posted as the holiday labor surge ends
- this also be when the numbers are issued for the “new” unemployment extension enrollment and it will “true” the unemployed picture,

health reform effect:
- consumers will see the effect of the new FICA rates and cut spending even more
- the 40% luxury tax on those fine health plans will kick in, and families will see a 20 - 30 % drop in disposable income
- the insurance companies will pass on the taxes they have under the new health bill, and that will cut another 5 - 10% off of each person’s disposable income
- the manufacturers of medical products (tampons, bandages, medical wipes, chairs etc) will pass on the tax they were given, further affecting disposable income
- the Fed will have published the health bill details - and states will see how much they will have to pay, forcing tax increases
- insurance company rates will climb as a result of the new health plan taxes, effective immediately

banking:
- FDIC will collect next 3 years worth of fees to cover the depleted funds from the bank failures
- banks will tighten lending even more, as they scramble to meet the FDIC “tax”,
- 10% of banks will become financially unstable because of the depleted reserves and will be taken over by the newly funded FDIC

and so the next economic collapse happens -just in time for the elections

those that remember history will see that this perfect storm will make the impact of the “luxury” tax and it’s effect on RV’s, Boats and similar look like nothing

source HERE