"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat

Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput


Tuesday, February 15, 2011

World Food Bank warns of Rising Food Prices

Along the line of my theme of the day, which is an inflation outbreak around the globe, comes this story originating with comments by World Bank President Robert Zoellick about the dangerous political and social effects arising from the increase in the basics of life.

I do find it rather remarkable that among the reasons he cited for the hefty increase, he conveniently omitted the effect of Federal Reserve monetary policy and its link to speculative demand for some of these very same commodities. While it certainly is not the sole cause, it is certainly among the causes and no objective view of this phenomenon should be excluding it.

Food Prices at Dangerous Levels: World Bank Chief

World Bank chief Robert Zoellick Tuesday said global food prices have reached dangerous levels that could complicate fragile political and social conditions in the Middle East, and warned that their impact also bears watching across Central Asia.

World Bank data released Tuesday showed higher food prices has pushed 44 million more people into extreme poverty since June 2010 in developing countries.
Zoellick said although higher food prices were not the main reason that led to violent protests in Egypt and Tunisia, it was an aggravating factor and could become worse.

You can read the main story here:

Here is an interesting story that came down the Dow Jones feed this afternoon:

=WSJ BLOG/Market Beat: Big Funds Sticking With Gold

  (This story has been posted on The Wall Street Journal Online's Market Beat
blog at blogs.wsj.com/marketbeat.)

   Posted by Dave Kansas

  They still love Old Yeller, the barbarous relic.

  Continued unrest in the Middle East and a weakening dollar are combining to
push gold prices higher, rising to $1,372 an ounce on the Nymex. Also boosting
gold: the persisting big bets by big institutions and hedge funds.

  Looking at recent 13F filings that update holdings as of Dec. 31, most of the
big gold bettors are holding firm. The biggest positions in the SPDR Gold Trust
ETF, according to LionShares:

  -Paulson & Co. - 31.5 million shares (unchanged from Sept. 30, 2010)

  -Northern Trust Investments (NTRS) - 14.7 million shares (up 1.7 million)

  -BlackRock Advisors (BLK) - 8.2 million (up 665,000)

  -Morgan Stanley Smith Barney (MS) - 5.9 million (up 86,000)

  -J.P. Morgan Securities (JPM) - 4.9 million (down 1.8 million)

  -Soros Fund Management - 4.7 million (up 25,000)

  Along with J.P. Morgan Securities, some other big players are leaving GLD

  -UBS Securities (UBS) - 391,000 (down 2.5 million)

  -Franklin Templeton (BEN) - zero (down from 2.3 million)

  -Shumway Capital - 330,000 (down 1.8 million)

  -Harbinger Capital - 2.3 million (down 750,000)

  LionShares reports that net positions in GLD are up 3.2 million shares,
according to its most-recent data, with 197.7 million shares held.

  -For continuously updated news from The Wall Street Journal, see WSJ.com at

  (END) Dow Jones Newswires

  02-15-11 1328ET

  Copyright (c) 2011 Dow Jones & Company, Inc.

Daily Gold Chart and Market Comments

Both gold and silver got a kick start and jumped higher on news coming out of China last evening and then out of the UK early this morning. Inflation has been and continues to be a serious problem for the Chinese authorities but it now appears that the plague is spreading to the West (at least it is finally showing up in their “official” statistics). When you get a similar report showing a mounting concern over the same contagion in Japan, you get a trifecta which shored up both of the metals.

The news was enough to push gold above the capping point near $1365 allowing it to run up towards the next resistance level near $1380 before the sellers showed up again.

Silver broke through its overhead resistance centered near $30.50 and made a run towards $31 before it too ran into selling pressure.

It looks like we are getting a good build in the open interest for silver which shot up nearly 5,000 contracts on yesterday’s strong showing and push above $30. That is exactly what we need to get this market powering higher. Judging from what we say in today’s session, it looks like there was more in the way of fresh buying. If managed money wants back into this market in a big way, there is not much that is going to stop them considering the fact that they had been leaving it until about 2 weeks ago and had greatly reduced their long side exposure.

Gold too saw an increase in its open interest but that looks to have come mainly from spreaders coming in. Today’s move higher however is indicative of an influx of fresh buying from the managed money camp which is constructive.

On the charts, the yellow metal now has overhead resistance near $1380 which it must take out before an assault on  $1400 can be mounted. Downside support exists first near $1360 and then again closer to $1350 - $1348. Upside momentum is good.

The price has pushed into the zone between the 40 day and 50 day moving averages and looks in good position to take them both out as it has now punched back above the 100 day moving average. That will get some the technicians interested in the long side.

Helping to confirm the strength in both metals is the fact that the HUI is putting in a good showing today. It was showing some signs of stalling out yesterday so today’s gap to the upside is a welcome development. I will still feel better about this sector if this index can clear 540 and hold its gains. It is early in the week but a weekly close above 540 would really help this sector. Downside support in the index comes in near the 520 level which it will continue to have to hold to keep the technical indicators friendly.

On the food front, the USDA magically increased the size of the nation’s corn crop and made all the shortage disappear by merely issuing a projection for increased corn acres for the next crop year plantings to 92Million acres yesterday. That made bushels and bushels of corn instantly appear out of nowhere solving the problem with the severe low levels of corn stocks. I never grow tired of watching the reaction of markets to official statistics. The crop is not even in the ground yet, nor have the fields even been plowed but suddenly the market is concerned that there is going to be too much corn. I am sure that the Mexican authorities are relieved to hear that the recent freeze which hit so much of their crop is nothing to be concerned about.

So let’s see now – we have the bullion banks selling what seems at times to be unlimited amounts of paper gold and paper silver. We have the Fed printing unlimited amounts of paper Dollars and we now have the USDA instantly creating millions more bushels of corn on paper. And to think, there is no need for fertilizer or seed! American ingenuity at its finest. And who the hell said we couldn’t compete with the world anymore? Personally I am waiting for the day when we can conjure up holographic images of corn filling our silos. I am sure my holographic digestive system will thrive on that. At least the environmentalists will be happy because there will be no stinky diesel tractors needed any more which might happen to put a little stink into that pristine farm air.

What makes this comical is that it should come as no surprise to anyone that we are going to see increased acreage for corn this crop year due to the lofty price levels on the board but the point in all this is that not one bushel of that corn is going to hit the market until very late this summer or very early in the fall which obviously does not do a single thing for dealing with the current problems of a shortage of supplies. Ah the hedge funds and their algorithms….

I bring this up because the sell off in the grains knocked the CCI down from near recent highs today. That combined with continued weakness in WTI crude and the liquid energies seemed to generate some selling pressure across the commodity complex as a whole. It seems to be that was partly responsible for silver fading from its best levels as copper was knocked down rather rudely today dragging on silver a bit. Were it not for the weakness in copper, I am fairly sure that silver would have closed up near $30.85 or so.

Considering the weakness in the Dollar, it was a bit odd to see such heavy selling pressure surface in so many of the commodity contracts.

Bonds are showing some signs of weakness after rallying back to nearly the precise point at which they suffered that massive technical chart breakdown 2 weeks ago. How they act here and what they do next will tell us a great deal about the future of interest rates in this nation.

Japan having its share of Inflation problems as well

I have been with keen interest developments coming out of both China and Great Britain overnight and early this AM in regards to their problems with inflation pressures that are becoming of great concern. There was also news concerning Japan along these lines as well.

The Asian edition of the Wall Street Journal carried the following story detailing the problems in the Land of the Rising Sun.

I do not think that it is any coincidence that the inflation issues surfacing combined with the S&P downgrade of its debt to 'AA-' are contributing to downward pressure on the Yen.

At the same time, interest rates in Japan remain woefully low and look to be going nowhere any time soon. The result is the same as it is across many nations in the world right now - savers are getting NEGATIVE rate of returns on their money.

At the risk of beating a dead horse  - this is the environment in which gold thrives. It is also the reason that gold priced in terms of the Yen is rising and is not far from its record high.

Here is the story from the Journal as reported by Dow Jones:

WSJA(2/15) Heard On The Street: Japan Faces The Risk Of (Bad) Inflation

   By James Simms

  Even as Tokyo has failed to whip chronic deflation, Japan's economy could be
faced with an unexpected hazard: inflation.

  Rising prices for commodities and energy could hurt private consumption if
Japanese shoppers see their yen aren't going as far at the cash register.
Already-sluggish wage growth would compound that.

  Gross domestic product fell an annualized 1.1% in the fourth quarter compared
with the previous period. Household consumption, as expected, dropped 0.8%. The
pace of outlays for consumer durable goods decreased to a 3.1% rise, from the
previous quarter's 12% increase, after the government scaled back breaks for
fuel-efficient car purchases.

  Along with the main drivers of exports and capital expenditures, consumption
is expected to improve this year and help growth. But worries are increasing
that rising food and fuel prices could crimp household spending.

  Credit Suisse economist Takashi Shiono estimates that if crude-oil and food
prices remain at January's levels through June, real household consumption
would be cut by 0.5%.

  Underscoring the fragility of that spending and excluding sectors with
government support, outlays have dropped or remained flat on goods, such as
clothing, for the past three quarters, while spending for services has dropped
for four.

  Now price pressures are rising. The Bank of Japan said last week that the
Corporate Goods Price Index for January had its largest jump since November
2008 and its third consecutive month of increases. That 1.6% year-to-year rise
was led by increases in petroleum, iron-ore and corn prices. Inflation
triggered by firm demand, not rising input prices, is the kind of inflation
that Tokyo needs.

  (END) Dow Jones Newswires

  02-15-11 0030ET

  Copyright (c) 2011 Dow Jones & Company, Inc.

Silver Chart - 4 hour

Silver finally pushed past the resistance line erected by the bears near the $30.50 level as news surfaced early this morning out of the UK about its inflation rate. It is currently running into some resistance just shy of $31.

It should see some additional buying come in down near $30.50, the breakout point, if it dips lower. That is the first level of chart support. If it does, it will be signalling a move past $31 and on towards the recent peak near $31.25.

If it cannot hold $30.50 on any downside move, the next level of chart support is just above the $30 level.

Volume on the upside thrusts continues to be strong which is friendly. We will want to continue watching this however for any signs that the bulls are wavering. I would like to see the early hours into the pit session to move above 25,000 to really goose it higher.

UK Inflation Rate Surging

In a replication of what is occuring in China, statistics released early this morning show the inflation rate in Great Britain surging at a rate that is twice that which the BOE had targeted.

Gold immediately responded for as with China, REAL rates of return for savers is running at  negative clip.

The exact same problem exists here in the US only the US is cooking its inflation statistics without the least bit of shame.

Here is the headline from Dow Jones:

DJ 2nd UPDATE: UK Inflation Rises To Double BOE Target In January

  - Inflation running at double the BOE target of 2.0%

  - Sterling slips as markets had expected a higher rate

  - Data triggers explanatory letter from BOE's King

  - Core inflation falls in January from December

  - All eyes on BOE Inflation Report Wednesday

  (Adds comment, background.)

   By Alex Brittain and Ainsley Thomson

  LONDON (Dow Jones)--U.K. consumer prices rose at double the Bank of England's
target rate in January, heightening the pressure on the bank to raise interest

  The Office for National Statistics said Tuesday that annual inflation was
4.0% in January, up from 3.7% in December and the fastest rate since November
  The figures will "intensify pressure for an interest rate rise," said ING
Groep NV economist James Knightley.

  All focus will now be on the BOE's quarterly inflation report Wednesday,
which should give investors a clearer picture of where rates are heading.

  "The general tone of the report and the accompanying press briefing will give
us a much better idea as to whether the market fully pricing in a rate hike by
May is realistic," Knightley said.

  Sterling fell in response to the data, which were slightly lower than
expected. Economists in a Dow Jones Newswires poll last week had forecast a
4.2% rate.

  The pound dropped to $1.6055 from around $1.6080 before the data were
released, and the euro rose to the day's high of GBP0.8430.

  The ONS said the main factors pushing prices higher were crude oil costs and
the rise in the sales tax in January.

  BOE Governor Mervyn King will send an open letter to George Osborne, the
Chancellor of the Exchequer, at 1030 GMT to explain how the central bank will
react to inflation being so far above the bank's 2.0% medium-term target.

  Members of the bank's Monetary Policy Committee may take some comfort from a
monthly fall in core inflation. This measure, which strips out volatile items
like energy and food, fell 0.4% on the month. It rose 3.0% on the year, edging
up from December's 2.9% rate.

  MPC members in recent months have shown concern that above-target inflation
could become embedded if wages begin to rise in step. But the fragile state of
the economy has prevented the majority of MPC members from voting to raise
borrowing costs.

  The consumer price index rose 0.1% in January in monthly terms, the first
time prices have risen from December to January since records began in January

  Economists had expected prices to rise 0.3% on the month.

  The nine members of the MPC voted in February to keep rates on hold for the
23rd straight month, at an all-time-low of 0.5%, despite inflation having been
more than a percentage point above target for more than a year.

  The MPC was given early access to the headline CPI figures before its vote
last week.

  Prime Minister David Cameron's government in January increased the value
added tax to 20% from 17.5%. This is expected to push inflation higher in the
coming year, although the exact impact isn't yet clear.

  In January 2010, an equivalent rise in VAT added 0.4 percentage point to
annual inflation, the ONS said.

  Tuesday's data also showed retail prices--often used as a basis for pay
negotiations--rose 5.1% on the year and 0.3% on the month in January. That was
slightly higher than expected.

  -By Alex Brittain and Ainsley Thomson, Dow Jones Newswires; +44 20 7842 9452;

  (END) Dow Jones Newswires

  02-15-11 0532ET

  Copyright (c) 2011 Dow Jones & Company, Inc.