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By Millie Munshi
March 5 (Bloomberg) -- U.S. government plans to spend more than $11.6 trillion to revive the economy are going to accelerate the pace of inflation and send raw-material prices surging, said Michael Pento, the chief economist at Delta Global Advisors who correctly predicted last year’s commodity collapse.
The CHART OF THE DAY shows expectations for U.S. inflation during the past two years have anticipated changes in commodity prices measured by the Reuters/Jefferies CRB Index. In May, the Reuters/University of Michigan survey of consumers’ expectations for five-year inflation climbed to the highest since 1995, and by July, the CRB index had surged to a record.
Inflation expectations tumbled in the second half of last year, and by December had reached the lowest since September 2002. During that period, the CRB had its biggest six-month decline since the index was created in the 1950s. Expectations for inflation have since rebounded, signaling commodities will climb, Pento said.
“The government has created a massive increase in the monetary base, and it means we are entering a massive inflation cycle,” Pento said in a telephone interview from Holmdel, New Jersey. “Inflation will be intractable. All of these commodities will start to act as an alternative to currency and start to pick up. Gold should be the primary investment, and energy and base metals should be secondary.”
Gold may jump as much as 54 percent to between $1,250 and $1,400 an ounce by late 2009 or early 2010, Pento said. Copper will surge 77 percent to $3 a pound, he said.
. and if the prices of goods begins to increase dramatically.. it could actually spark a more severe deflationary spiral, as average consumers end up underwater from the rising cost of living.
Originally posted by Hx3_1963
NZSE 50 2,455.60 7:09PM ET -35.80 (-1.44%)
Nikkei 225 7,247.75 7:09PM ET -185.74 (-2.50%)
Seoul Composite 1,040.77 7:10PM ET -17.41 (-1.65%)
...and the beatdown goes on...da da da da da...and the beatdown goes on...
[edit on 3/5/2009 by Hx3_1963]
Mar 5, 7:56 PM EST
Treasury secretary's choice for deputy withdraws
By DANIEL WAGNER
AP Business Writer
WASHINGTON (AP) -- The person Treasury Secretary Timothy Geithner wanted as his chief deputy withdrew from consideration Thursday, dealing a setback to the agency as it struggles to address the worst financial crisis in decades.
Annette Nazareth, a former senior staffer and commissioner with the Securities and Exchange Commission, made "a personal decision" to withdraw from the process, according to a person familiar with her decision.
The decision followed more than a month of intense scrutiny of her taxes and multiple interviews. No tax problems or other issues arose during Nazareth's vetting, said the person, who requested anonymity because Geithner's choice of Nazareth was never announced officially.
"She did put a great deal of consideration into the potential of taking the position, and she concluded that she really enjoys what she's doing now," this person said.
Though popular in policy circles, Nazareth has drawn criticism for her role in creating what some considered to be lax oversight of the banking industry.
The U.S. dollar may face increased selling pressures over the next 24 hours of trading as economists forecast non-farm payrolls to drop 650K in February, which would be the biggest contraction in employment since 1949, while the jobless rate is expected to reach a 25-year high of 7.9% during the same period as firms continue to slash their labor force in an effort to reduce costs.
Payrolls in the U.S. fell 598K in January, which was the biggest monthly decline since 1974, and raised the annual rate of unemployment to a 16-year high of 7.6% from 7.2% in the previous month. As fears of a deepening recession intensify, firms are likely to cutback on production and employment in an effort to reduce costs, and the labor market is expected to weaken further throughout 2009 as the world’s largest economy faces its worst financial crisis since the Great Depression.
March 5 (Bloomberg) -- Amusement-park operator Six Flags Inc. and automaker Ford Motor Co. may be pushed toward bankruptcy by bondholders trying to profit from credit-default swaps that protect against losses on their high-yield debt.
By employing a so-called negative-basis trade, investors could buy Six Flags bonds at 20.5 cents on the dollar and credit- default swaps at 71 cents. If the New York-based chain defaults, the creditors would receive the face value of the debt, minus costs. In a Feb. 27 note, Citigroup Inc.’s high-yield strategists put that profit at 6 percentage points, or $600,000 on a $10 million purchase.
Investors who bet on the collapse of a company are pitting themselves against traditional debt holders at a time when Moody’s Investors Service projects defaults will more than triple this year to the worst level since the Great Depression. The clash may stall restructuring efforts to prevent bankruptcies, as basis traders may be less inclined to participate in distressed debt exchanges, said Matthew Eagan, an investment manager at Boston-based Loomis Sayles & Co., with $7 billion in high-yield assets.
“Before, you really had to worry mostly about where you were in the” company’s capital structure, he said. “Now, you have to consider the possibility that you might have this large holder of CDS incentivized to see it go into bankruptcy. It’s something that’s going to come up more and more.”
Off the wires, no link.
"DJ reports GE Capital credit default swaps worsen even as GE released a statement emphasizing its strong cash position.
The CDS are most recently quoted at 17.5 points up front, from 16.5 points up front earlier today, according to Phoenix Partners Group.
That means investors must pay $1.75 mln up front, plus a $500,000 annual fee, to protect $10 mln of GECC senior bonds against default for five years." That means the first year cost is $1.75 + $500k, or $2.25 million.
That's 22.5% first year cost to insure $10 million against default!
This means that the market is saying that the odds of GE going bankrupt within the next twelve months is greater than one in five, and that assumes zero recovery.
If the bonds would recover more than 80% in the event of a default then it is implying more than a 100% risk of default, which is obviously impossible. This is occurring despite GE's CFO appearing this morning on CNBC making the case quite clearly that there is no risk of default under any materially possible scenario.
In other words, his assertion is that the odds of default are zero. One of two things must be true:
1. GE's CFO is lying and must be indicted for doing so.
2. This so-called "market segment" (CDS) has become so ridiculously overlevered, unsupervised and able to cause failures that it is now within days or even hours of CAUSING GE to fail - not due to GE's own internal problems, but due to positive feedback that the CDS market is capable of and is generating on the initiative and as a consequence of the action of participants in that market.
Either way a major change needs to occur right here and now, lest we find ourselves with no pensions, no Social Security, no Medicare, no annuities and no government.
THIS CAN NO LONGER BE DELAYED OR TOYED AROUND WITH; WHEN "THE BEZZLE" REACHES THE POINT THAT IT STARTS DESTROYING THE NATIONAL CORPORATE INDUSTRIAL GIANTS THAT MAKE UP OUR ESSENTIAL INFRASTRUCTURE, MILITARY AND COMMERCIAL ENTERPRISES THROUGH NO FAULT OF THEIR OWN IT IS A NATIONAL SECURITY EMERGENCY AND MUST BE DEALT WITH IMMEDIATELY.