Friday, October 2, 2009

Farm Survey Suggests Lower Incomes


Fewer than 5% of farms saw an improvement in income this year, a drastic downturn compared to the same time last year when one in four farms saw better year over year income, according to Rabobank’s Farm & Ranch Survey.
U.S. farmers and ranchers continue to take a consistently conservative position when anticipating future performance, irrespective of the recent market volatility,” said John Ryan, president and CEO for Rabo AgriFinance. “They understand the cyclical nature of the industry and can adjust their risk management strategy, purchasing decisions, and output to help weather this economic downturn.”
Concern about the U.S. agricultural economy remains with 95% of those surveyed falling within the range of somewhat concerned (34%), very concerned (30%) to extremely concerned (31%).  Moving forward, more farmers expect the economy to continue to worsen (54%).
Of those surveyed, 75% believe their answers regarding their outlook would be different if the general economy was better. 
Regardless of acreage, U.S. producers are more distressed regarding their income. Approximately 40% believe their income will be worse next year, when compared with previous surveys. However, 27% of respondents have some optimism that their income will improve.
Additionally, higher input costs continue to be the most frequently mentioned economic challenge facing U.S. farmers. Three in five farmers rank it the primary factor that has contributed most to the economic challenge they are confronted with.  Additionally there is an increasing concern regarding reduced demand (55%) and weather conditions (57%).
Nearly all surveyed (94%) are concerned about price fluctuations. What seems somewhat positive is that the degree of concern has lessened – those extremely concerned dropped from 62% to 48%. To manage that concern, 45% have implemented or plan on investing in risk management or marketing strategies.
Hiring plans are relatively unchanged, with three-quarters of farms still expecting hiring levels to be the same as last year.  However, farmers who are concerned with the economy will reduce their employee base.
Additionally, 66% of those surveyed have no plans to purchase farm equipment.  However, farms in operation 40 years or more are planning to buy equipment compared to newer farms.
In terms of land purchases, nine in 10 plan to keep farms the same size. The only change in land seems to be a slight increase in those who plan to sell land – 5% vs. 2% in the survey earlier this year.

It's a Bean Beating!

Other grains are following suit. Increased crop projections by the USDA are being cited.

Research Proves Stimulus Plans Don't Work

from WSJ:

The existing empirical evidence on the response of real gross domestic product to added government spending and tax changes is thin. In ongoing research, we use long-term U.S. macroeconomic data to contribute to the evidence. The results mostly favor tax rate reductions over increases in government spending as a means to increase GDP.... The bottom line is this: The available empirical evidence does not support the idea that spending multipliers typically exceed one, and thus spending stimulus programs will likely raise GDP by less than the increase in government spending. Defense-spending multipliers exceeding one likely apply only at very high unemployment rates, and nondefense multipliers are probably smaller. However, there is empirical support for the proposition that tax rate reductions will increase real GDP.

Unemployment Rises to 9.8%, 263,000 More Jobs Lost

Stock futures have slid since the data release. It's interesting to me that the big drop occurred BEFORE the appointed hour! The U-6 figure, which is the unadjusted data, will be much higher!

Thursday, October 1, 2009

Grains Fight Headwinds Today

Grains are down today despite freezing temps and almost certain crop destruction. However, the grains are only off slightly, despite that the broader markets are in steep decline today. After the drop at the open, grains have churned sideways throughout the day. Tomorrow will be interesting, because there is a tendency for grain traders to liquidate their positions before the weekend. Weekend weather can change the dynamics very quickly.

Treasuries Revive Upon Renewed Fear of Risk

Stock Market Dismal Day

This seems to have been triggered this morning by a surprising spike in new filings for unemployment benefits. We shouldn't forget, however, that the monthly jobs report comes out tomorrow. Anything could happen when that number is released.

Farm Futures' "The Buzz" for 9-30-09

The Buzz, Sept. 30, 2009 from Farm Futures on Vimeo.

Corn Higher Seven Of Past Eight Days On Frost Damage/Risk

This has been a slowly rising trend, but is significant nevertheless! Frost damage is growing, and so is the risk of more frost damage throughout the Midwestern growing regions. Manitoba had freezing temperatures last night sufficient to end the crop growing season entirely. Nearly all crops were lost. This is going to raise crop prices because this is still very early to see this amount of crop destruction!

Even here in Bountiful, we had a frost warning last night, with more expected tonight and tomorrow. Our tomatoes may be doomed!

Stocks Dip Overnight, Dollar Rebounds and Stabilizes



Stocks Down Five of Past Six Days

Treasuries Rise Eight Straight Days

This would normally be an ominous and dark sign, but the Fed is monetizing the debt, so the market is unable to read, since it is so manipulated. This is definitely an ominous sign longer-term! If the Fed is propping up both the stock and treasury markets, then what will happen when that support is removed? And when investors pile onto that new trend, driving rates perhaps much higher than the money masters intended? Can you say, "double dip"?

Wednesday, September 30, 2009

The Fed Isn't Supporting the Housing Market! It IS the Housing Market!

from Christ Martenson:
This is important information.  What I've found and present below is that the Federal Reserve is not just supporting the housing market, it is the housing market.
Just as important as a person's desire to buy a home is their ability to gain access to mortgage funding.
The mortgage market is a gigantic beast with many moving parts, but it is pretty easy to understand from a high level.
The process works like this:  A homeowner secures a mortgage from a bank or mortgage company.  Then the mortgage is sold off to another company, with the cash generated by that sale now available to lend to other potential homeowners.  Ultimately the mortgage may pass through several sets of hands but ultimately it lands with a terminal holder.
In that chain, the mortgage might get sold off several times, or perhaps sliced and diced by Wall Street wizards, but all that matters is that some company (with cash) is there at the end to buy the mortgage to keep the whole chain moving along.
Lately, the "terminal buyers" in that chain have increasingly ended up being the federal government (through the GSEs) and the Federal Reserve.
And not just by a little bit, but by a lot.
Here are the numbers:
So far in 2009 (through August), a total of 3.2 million existing homes were sold for an average price of $217,000, while 263,000 new homes were sold for an average price of $264,000.
Taken together, and assuming that we live in a world where 10% is the average down payment, we get this table:

That is, a total of ~$686 billion in new mortgages were issued in 2009 (through August).
Now let's look at how many Mortgage Backed Securities (MBS) and agency debt obligations were accumulated by the Federal Reserve on its balance sheet over the same period of 2009:

It turns out that in 2009 (again, through August), the Federal Reserve has bought $624 billion of MBS and a further $98 billion of Agency debt, for a total of $722 billion in money injection into the housing market through Fannie Mae, Freddie Mac, and the FHLB.

In other words, the Federal Reserve alone bought $722 billion of mortgages and agency debt when only $686 billion in new mortgages were issued.  So, through August, the Fed bought more than 100% of the entire supply of new (purchase) mortgages in 2009.
That's not a free housing market; that's a market bought, owned, and sustained by the Federal Reserve's willingness to print up three quarters of a trillion dollars out of thin air.
While the individual mortgages issued in 2009 may or may not be the exact same ones purchased by the Federal Reserve, that's immaterial.  All the mortgage issuers care about is that when they issue a mortgage, a purchaser with money exists somewhere down the line.  The chain needs a terminal buyer, and that buyer has become the Federal Reserve.
The impact of these purchases by the Federal Reserve is to both provide liquidity and to drive down the rate of interest for new mortgages.  By lowering both the long end of the Treasury curve (which the Fed does by actively buying Treasuries) and providing more than sufficient demand for MBS and agency paper, long-term interest rates come down.
Without the Fed's activities, it is a rock-solid certainty that mortgage interest rates would be higher than they are, and possibly a LOT higher.
What all this means is that when (not if) the Federal Reserve begins to try and unwind itself from all of the magnificent interventions of the past year, it must contend with the fact that it is the housing market.
Where the Fed is hoping that it can gently release the soft chubby fingers of the housing market, which will then toddle off under its own power, it will discover that it is actually carrying a helpless newborn.

Founding Fathers of Our New Country

by James Quinn. God bless the man!

 “Government is not reason; it is not eloquent; it is force. Like fire, it is a dangerous servant and a fearful master.”George Washington
“I hope I shall possess firmness and virtue enough to maintain what I consider the most enviable of all titles, the character of an honest man.” – George Washington
“Truth will ultimately prevail where there is pains to bring it to light.” – George Washington
The Great American Republic was shaped by individual events which are now part of American legend. The Battle of Bunker Hill, The Winter at Valley Forge, Washington Crossing the Delaware, the Constitutional Convention, and George Washington stepping aside after his 2nd term as President, evoke pride and honor in the hearts of many Americans, if their public schools still teach about these historic events. The politically correct “history” books today are more likely to concentrate on the impact of Marilyn Monroe on the culture of America. The Founding Fathers, including James Madison, Samuel Adams, Thomas Jefferson, Patrick Henry, Alexander Hamilton, John Adams, John Jay, Benjamin Franklin, and George Washington, risked their lives to create a republic. These revolutionaries declared their independence from an overbearing oppressive regime. The British Empire had been taxing the colonies to pay for their foreign adventures. The Founding Fathers were willing to risk being hung rather than live under tyranny, when they made the following declaration:
We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights that among these are Life, Liberty and the pursuit of Happiness.
After risking their lives and fighting an eight year War for Independence against the most powerful military on earth, they came together and drafted the greatest governing document ever conceived. The U.S. Constitution and its Amendments struck the perfect balance, as it constrained the Federal government and allowed its citizens maximum freedom. It was designed to prevent the concentration of power by the Executive branch. Power was balanced between the three branches of government and jurisdiction was delegated to the States. Governance was placed in the hands of the people. This sublime document has served as our guide for over two centuries. Since the early 20th Century, America has gradually allowed this document to become tarnished and trivialized.
James Madison was the architect of this brilliant inspirational document in 1787. It is a remarkably concise document. The Constitution consisted of a preamble, seven original articles and the Bill of Rights. The beauty of this document is its clarity and brevity. An 81 year old Benjamin Franklin, whose health was rapidly failing but whose mind was as luminous as ever, on the last day of the Constitutional Convention urged passage of the Constitution with the following words of wisdom:
“ In these sentiments, Sir, I agree to this Constitution with all its faults, if they are such; because I think a general Government necessary for us, and there is no form of Government but what may be a blessing to the people if well administered, and believe farther that this is likely to be well administered for a course of years, and can only end in Despotism, as other forms have done before it, when the people shall become so corrupted as to need despotic Government, being incapable of any other. I doubt too whether any other Convention we can obtain, may be able to make a better Constitution.  
Much of the strength & efficiency of any Government in procuring and securing happiness to the people depends, on opinion, on the general opinion of the goodness of the Government, as well as of the wisdom and integrity of its Governors. I hope therefore that for our own sakes as a part of the people, and for the sake of posterity, we shall act heartily and unanimously in recommending this Constitution (if approved by Congress & confirmed by the Conventions) wherever our influence may extend, and turn our future thoughts & endeavors to the means of having it well administered.
On the whole, Sir, I cannot help expressing a wish that every member of the Convention who may still have objections to it, would with me, on this occasion doubt a little of his own infallibility, and to make manifest our unanimity, put his name to this instrument.”
 Mr. Franklin in his plea to those attending the Convention also issued a warning which we have not heeded. A Constitution is only as good as the people who administer it. If the people become corrupted, the government will become corrupted, and the Constitution will become a worthless piece of paper. The wisdom and integrity of the governors of the Constitution are the strength that makes the document so powerful. The American people have failed to take note of Benjamin Franklin’s warning. We have allowed our desire for material goods, acceptance of easy wrong solutions to complicated problems, putting our selfish short term desires ahead of the long-term needs of the country, and meddling in foreign lands, to corrupt our government and its leaders. Wisdom and integrity are rare traits in government officials today. They were plentiful during the American Revolution. These traits defined George Washington, the father of our country. These traits also define the U.S. Representative from Texas, Ron Paul.
A Noble Experiment - A Noble Leader
The ruling elite, backed by the powerful banking cartel, who control the political reins, the mainstream media, the military industrial complex, and the foreign policy of the United States, have trampled on the U.S. Constitution. They take every opportunity to denigrate its principles, call it an antiquated document meant for a simpler time, and scorn and ridicule those who risked their lives to write this noble governing document. The mainstream media attempts to protect its liberal agenda by disparaging the Boston Tea Party, Patriots, and the Founding Fathers. Millions of dazed and confused Americans know nothing about George Washington other than his face is on the dollars they use to buy Snuggies or fried Twinkies. They think his chief claim to fame is cutting down a cherry tree. The maligning of the Constitution and belittling of the men who created it, is part of the plan to retain and increase their power and control over the American people. If the broad swath of Americans decided to reinstitute the founding principles of the Constitution, the existing power structure would come crashing down in a heap of smoldering ashes. A Second American Revolution is brewing. The anger and rage of thinking Americans is palpable. The only question is whether this Second American Revolution will be peaceful or bloody. The Founding Fathers proved that an irate tireless minority can win.
George Washington is not a hollow, vacuous, meaningless symbol of a far simpler time. George Washington was a man of unquestioned integrity, tremendous leadership skills, true humbleness, and love of his country. He was truly the Father of our Nation. Henry Lee, in his eulogy of George Washington, captured the true spirit of the man:
First in war, first in peace, and first in the hearts of his countrymen, he was second to none in humble and enduring scenes of private life. Pious, just, humane, temperate, and sincere; uniform, dignified, and commanding; his example was as edifying to all around him as were the effects of that example lasting...Correct throughout, vice shuddered in his presence and virtue always felt his fostering hand. The purity of his private character gave effulgence to his public virtues...Such was the man for whom our nation mourns.”
George Washington was born in 1732 in the British colony of Virginia to aristocratic parents. He could have lived a life of leisure on his plantation. Instead he chose a life of service to his country. He never involved himself in politics. He was a self taught surveyor and soldier. He did his duty on behalf of the British monarchy during the French and Indian War. He was living an aristocratic lifestyle in Virginia during the 1760’s when the British Parliament began passing its series of unfair tax acts (Stamp Act, Townshend Acts, Intolerable Acts). This imperious stomping on the rights and liberties of American colonists, led Washington to attend the 1st Continental Congress in 1774. After the opening shot was fired at Lexington & Concord, Washington arrived at the 2nd Continental Congress in military uniform. He was ready to risk his life and serve his country. The Continental Congress appointed him commander in chief of the Continental Army. He held this position for the next eight years of trial and tribulation.
 A lesser man would have balked at such an overwhelming life threatening task. Instead, he rode to Boston and assumed command of an undisciplined army of citizen farmers. He led this army through dark days and against insurmountable odds, outmaneuvering, outthinking, and ultimately defeating the vaunted British Regulars and the most powerful Navy on the face of the earth. Despite the lack of troops, lack of training, lack of ammunition, lack of food, lack of supplies and lack of support from the states, George Washington never lost his faith in his troops, his righteous cause of liberty or himself. The two events that embody all of the noble characteristics of Washington and the fledgling Republic were Washington crossing the Delaware to attack Trenton on Christmas night in 1776 and the winter at Valley Forge.
After losing a number of skirmishes with the British in New York and retreating into New Jersey, the morale of Washington’s army was at a low point. Soldiers were deserting and re-enlistments were declining. The weather was dreadful and even Washington feared the end of the revolution was at hand. The future of the fledgling country hung in the balance. On the night of December 25, 1776 General Washington and 2,400 troops set out on their rendezvous with destiny. General Washington’s password for the surprise attack on Trenton was Victory or Death. No words could have been truer. If Washington’s surprise attack failed, the war was lost. The boldness, audacity and brilliance of Washington’s plan was representative of the spirit and daring of the Patriots in there desperate struggle for independence. Crossing the ice clogged Delaware River in small wooden row boats in the middle of the night during an ice storm while two supporting groups failed to get across the river was a feat in itself. He then led his troops on a 9 mile march to Trenton. They attacked the Hessians and captured 1,000 out of the 1,500 man garrison. This victory over Regulars in the British Army rejuvenated the revolution. Washington followed this victory with another at Princeton. The Revolution had been in doubt only a week earlier, and the army was on the verge of collapse. With this bold victory, soldiers agreed to stay and new recruits came and joined the ranks.
One year later after losing battles at Brandywine and Germantown, Washington abandoned Philadelphia and retreated to Valley Forge in December 1777 with his weary, ill-fed, ill-clothed, ill-equipped and ill-trained army of 12,000 citizen soldiers.  Undernourished and lacking boots and uniforms, living in cramped, damp quarters, the army was devastated by illness and disease. Typhoid, jaundice, dysentery, and pneumonia were among the assassins that felled 2,000 men that winter. Washington voiced his despair in letter that winter:
"that unless some great and capital change suddenly takes place ... this Army must inevitably ... Starve, dissolve, or disperse, in order to obtain subsistence in the best manner they can."
Adequate clothing was scarce. Long marches had destroyed boots. Blankets were in short supply. Tattered uniforms were rarely replaced. At one point these deficiencies led 4,000 men to be listed as unfit for duty. A lesser man and citizen soldiers who cared more for their own farmsteads than their country, would have abandoned this seemingly forlorn cause. Instead, Washington and his dedicated patriot soldiers used the next six months to become a true army. Baron von Steuben, a onetime member of the staff of Frederick the Great in the Prussian Army, volunteered to help General Washington turn his men into an army. And this he did. From dawn to dusk his familiar voice was heard in camp above the sounds of marching men and shouted commands. Soon companies, regiments then brigades moved smartly from line to column, column to line and loaded muskets with precision. In June 1778 Washington’s Army departed Valley Forge as a cohesive unit ready for five more years of war. These men had forged a fresh spirit towards the birth of a new Republic. They had conquered the weather, doubt, and lack of training through sheer force of will, hard work, dedication and willingness to sacrifice, all for the good of a nation.
After the final victory in 1783, Washington could have become the King of America. Instead he resigned his commission as commander-in-chief and retired to Mount Vernon, reflecting his view that the new government should be a citizen government. He was persuaded to come out of retirement and preside over the Constitutional Convention as its president. His congenial personality and stature as a hero kept the delegates focused on the task. The delegates created the Presidency with him in mind and would allow him to define the office. His support of the Constitution convinced the Virginia legislature and many others to support ratification. Washington was unanimously elected President in 1789 and 1792 by the Electoral College, despite not seeking the position. President Washington proved a highly proficient administrator. A first rate delegator and evaluator of aptitude and moral fiber, he held regular cabinet meetings to deliberate issues before making a final decision. In handling everyday tasks, he was "systematic, orderly, energetic, solicitous of the opinion of others but decisive, intent upon general goals and the consistency of particular actions with them", according to historian Leonard White. He planned to retire after his 1st term but the growing divisions between the newly formed Federalist and Democratic-Republican parties, along with the current state of foreign affairs, would tear the country apart in the absence of his leadership and convinced him to serve a 2nd term. He refused to serve a 3rd term, retiring again to Mount Vernon, dying two years later at the age of 67.
This wise, larger than life man was more than a myth. He was genuine human being whose tremendous attributes founded our great Republic. He deserves the utmost praise and respect for his continuous 45 years of dedicated service in creating a nation of and for the people. His writings, speeches and Farewell Address clearly reflect his belief in the Constitution and the American people.
The Constitution is the guide which I never will abandon. - George Washington
The basis of our political system is the right of the people to make and to alter their constitutions of government. – George Washington
Foreign Policy
The Constitution of the United States of America clearly delineated the powers between the Executive, Legislative, and Judicial branches. Regarding foreign intervention, Article 1, Section 8 of the U.S. Constitution is clear regarding Congress’ responsibility:
  • To declare War, grant Letters of Marque and Reprisal, and make Rules concerning Captures on Land and Water;
  • To raise and support Armies, but no Appropriation of Money to that Use shall be for a longer Term than two Years;
  • To provide and maintain a Navy;
  • To make Rules for the Government and Regulation of the land and naval Forces;
  • To provide for calling forth the Militia to execute the Laws of the Union, suppress Insurrections and repel Invasions;
  • To provide for organizing, arming, and disciplining the Militia, and for governing such Part of them as may be employed in the Service of the United States, reserving to the States respectively, the Appointment of the Officers, and the Authority of training the Militia according to the discipline prescribed by Congress;
George Washington was a military hero who, as President, preached non-interventionism, free trade, and the danger of a too powerful military. He did so because he rightly knew that foreign entanglements would be detrimental to the people. His Farewell Address to the American people couldn’t have been clearer.
“Observe good faith and justice towards all Nations; cultivate peace and harmony with all. In the execution of such a plan, nothing is more essential than that permanent, inveterate antipathies against particular Nations, and passionate attachments for others, should be excluded; and that, in place of them, just and amicable feelings towards all should be cultivated.
Sympathy for the favorite Nation, facilitating the illusion of an imaginary common interest, in cases where no real common interest exists, and infusing into one the enmities of the other, betrays the former into a participation in the quarrels and wars of the latter, without adequate inducement or justification.
As avenues to foreign influence in innumerable ways, such attachments are particularly alarming to the truly enlightened and independent Patriot. How many opportunities do they afford to tamper with domestic factions, to practice the arts of seduction, to mislead public opinion, to influence or awe the Public Councils! Such an attachment of a small or weak, towards a great and powerful nation, dooms the former to be the satellite of the latter.
The great rule of conduct for us, in regard to foreign nations, is, in extending our commercial relations, to have with them as little political connection as possible. So far as we have already formed engagements, let them be fulfilled with perfect good faith. Here let us stop. Harmony, liberal intercourse with all nations, are recommended by policy, humanity, and interest. But even our commercial policy should hold an equal and impartial hand; neither seeking nor granting exclusive favors or preferences; consulting the natural course of things; diffusing and diversifying by gentle means the streams of commerce, but forcing nothing.”
The Constitution is crystal clear. President Washington was crystal clear. Our country has not heeded the requirements of the Constitution or the wisdom of our greatest President. The United States has troops stationed in 130 countries throughout the world. The United States’ direct military spending in excess of $700 billion per year constitutes 48% of all the military spending in the world. Essentially, the United States spends as much as the rest of the world combined. The U.S. spends another $300 billion per year on costs related to prior wars and the interest on the debt incurred to conduct those wars.
The U.S. military has 1.5 million active personnel and another 1.5 million reserve personnel. The U.S. Navy has 280 ships and 3,700 aircraft. The U.S. Air Force has 5,573 aircraft, 446 ICBMs, and 32 satellites. The U.S. Army has 7,851 M1 Abrams tanks, 6,724 Bradley fighting vehicles, 15,000 armored personnel carriers, 80,000 HUMVEEs, 1,300 attack helicopters, 3,000 other helicopters, and a few other miscellaneous odds and ends. The U.S. Marine Corp has thousands of vehicles and aircraft to fulfill their mission. Does this force seem adequate to protect the United States from attack by Iran, Afghanistan or North Korea? The U.S. military is clearly a BIG hammer. When you are a BIG hammer, everything looks like a nail. Former supreme commander of the military and President of the U.S. George Washington, had this to say about overgrown military establishments:  
“Overgrown military establishments are under any form of government inauspicious to liberty, and are to be regarded as particularly hostile to republican liberty.”
Another former general, Dwight D. Eisenhower, in his own Presidential Farewell Address warned of the implications of the military industrial complex:
This conjunction of an immense military establishment and a large arms industry is new in the American experience. The total influence -- economic, political, even spiritual -- is felt in every city, every State house, every office of the Federal government. We recognize the imperative need for this development. Yet we must not fail to comprehend its grave implications. Our toil, resources and livelihood are all involved; so is the very structure of our society.
In the councils of government, we must guard against the acquisition of unwarranted influence, whether sought or unsought, by the military industrial complex. The potential for the disastrous rise of misplaced power exists and will persist.”
The military industrial complex is stronger, more insidious, more powerful, and more dangerous than any time in our 220 year history. The defense industry lobbyists bribe Congress with contributions to their political campaigns and reward them with lucrative jobs when they leave government “service”, in return for billions in weapons contracts. Our best and brightest technical minds are focused on producing technology to kill people more efficiently. In the meantime, our bridges collapse into rivers, our water pipes burst, and our energy infrastructure rusts away. Only Congressman Ron Paul, who has not been bought by the defense industry, has been brave enough to speak the truth:
“War is never economically beneficial except for those in position to profit from war expenditures.”
Only the defense industry and their bought politicians profit from the $1 trillion that the U.S. borrows from the Chinese to fund our foreign intervention policies. Is it possible that those within the defense industry promote instability and war throughout the world? That couldn’t be possible, because they have noble intentions, just like the citizen soldiers at Valley Forge. The fact is that the United States is the most powerful country in the history of the world. If Defense spending was cut by $500 billion, we would still be the most powerful country in the history of the world. Ron Paul put it quite succinctly in 2007:
"There's nobody in this world that could possibly attack us today... I mean, we could defend this country with a few good submarines. If anybody dared touch us we could wipe any country off of the face of the earth within hours. And here we are, so intimidated and so insecure and we're acting like such bullies that we have to attack third-world nations that have no military and have no weapon."
Of course, the politicians occupying the halls of Congress for the last 50 years have completely ignored their Constitutional obligation to declare war before sending American troops into harm’s way. George Washington knew the danger of committing American troops without proper authorization:
“The constitution vests the power of declaring war in Congress; therefore no offensive expedition of importance can be undertaken until after they shall have deliberated upon the subject and authorized such a measure.”
The last time that the U.S. Congress carried out its Constitutional obligation and declared war was World War II. There have been 50 major combat operations since World War II where Americans have been sent into battle with no declaration of war. This is a compete flaunting of the U.S. Constitution.
“The moral and constitutional obligations of our representatives in Washington are to protect our liberty, not coddle the world, precipitating no-win wars, while bringing bankruptcy and economic turmoil to our people.” – Ron Paul
As I watched the disgraceful Republican Presidential primaries during 2008, I wondered what had happened to the conservative Republican Party. It had been hijacked by the neoconservatives. These people are as far from conservative as you can get. Their agenda is to aggressively use American economic and military power to bring liberalism and democracy to foreign countries, whether they like it or not. Ron Paul was the only candidate to stand for the true principles of the Republican Party. He pointed out that the Republican Party had been non-interventionist throughout the 20th Century and as recently as the year 2000, it was still the hallmark of the party:
“Throughout the 20th century, the Republican Party benefited from a non-interventionist foreign policy. Think of how Eisenhower came in to stop the Korean War. Think of how Nixon was elected to stop the mess in Vietnam. How did we win the election in the year 2000? We talked about a humble foreign policy: No nation-building; don't police the world. That's conservative, it's Republican, it's pro-American - it follows the founding fathers. And, besides, it follows the Constitution.”
 As I watched the kindergarten military experts Guliani, Romney, and Huckabee scornfully lecture Ron Paul on American foreign policy, I was taken aback by their utter hypocrisy and lack of Constitutional knowledge. Three men who never spent one second in the U.S. military, even though two were in their twenties during the Vietnam War, lecturing a man who served in the U.S. Air Force from 1962 through 1968 as a flight surgeon. These men join the other neo-cons that avoided service in Vietnam, George Bush and Dick Cheney (applied for 5 draft deferments) in the neo-con hall of shame. The military “hero”, John McCain, was disdainful towards Mr. Paul’s contention that the invasion of Iraq was unconstitutional. McCain’s impeccable military record of graduating 894th out of 899 at the Naval Academy, crashing 3 planes, being shot down over Hanoi, and cracking under torture by the North Vietnamese, certainly qualified him as an expert in casting aside the Constitution forged by George Washington and true patriots. Ron Paul was the only true conservative Republican, in the spirit of Ronald Reagan, on that stage.
Legitimate use of violence can only be that which is required in self-defense.” – Ron Paul
“History teaches that war begins when governments believe the price of aggression is cheap.” – Ronald Reagan
Civil Liberties
George Washington warned against the usurpation of civil liberties by those seeking power in his Farewell Address:
“However combinations or associations of the above description may now and then answer popular ends, they are likely, in the course of time and things, to become potent engines, by which cunning, ambitious, and unprincipled men will be enabled to subvert the power of the people, and to usurp for themselves the reins of government; destroying afterwards the very engines, which have lifted them to unjust dominion.
It is important, likewise, that the habits of thinking in a free country should inspire caution, in those entrusted with its administration, to confine themselves within their respective constitutional spheres, avoiding in the exercise of the powers of one department to encroach upon another. The spirit of encroachment tends to consolidate the powers of all the departments in one, and thus to create, whatever the form of government, a real despotism. A just estimate of that love of power, and proneness to abuse it, which predominates in the human heart, is sufficient to satisfy us of the truth of this position. The necessity of reciprocal checks in the exercise of political power, by dividing and distributing it into different depositories, and constituting each the Guardian of the Public Weal against invasions by the others, has been evinced by experiments ancient and modern; some of them in our country and under our own eyes. To preserve them must be as necessary as to institute them.”
The Constitution addressed the civil liberties of citizens in the Bill of Rights:
First Amendment - Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press; or the right of the people peaceably to assemble, and to petition the Government for a redress of grievances.
Second Amendment - A well regulated Militia, being necessary to the security of a free State, the right of the people to keep and bear Arms, shall not be infringed.
Fourth Amendment - The right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures, shall not be violated, and no Warrants shall issue, but upon probable cause, supported by Oath or affirmation, and particularly describing the place to be searched, and the persons or things to be seized.
Tenth Amendment - The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.
Americans have chosen to trade their civil liberties for the safety and security of a military welfare state. We have allowed the Federal government to overtake a vast slice of our lives. Between financial bailouts and the economic stimulus program, Federal government spending accounts for 26% of the nation’s economy. The government is financing 9 out of 10 new mortgages in the United States. If you buy a car from General Motors, you are buying from a company that is 60% owned by the government. Politicians are now trying to swell their power over all citizens by taking over the healthcare system after seizing control of the banking system in the last year. The liberal media ridicules and scorns the Americans who have been exercising their First Amendment right to peaceably assemble and protest this overreach of government. Liberal biased commentators condemn the citizens speaking out at town hall meetings. Left wing politicians spew lies about potential violence and racism against Obama coming from these angry American citizens. Right wing neo-con commentators like Sean Hannity try to latch onto the protests, even though most of the protestors would spit in his face if they could. The agendas of the extreme left and extreme right both infringe upon the civil liberties of American citizens. If our freedom of speech and freedom of expression in print and on the internet are taken away, a totalitarian state is not far behind.
“If the freedom of speech is taken away then dumb and silent we may be led, like sheep to the slaughter.” – George Washington
“All initiation of force is a violation of someone else's rights, whether initiated by an individual or the state, for the benefit of an individual or group of individuals, even if it's supposed to be for the benefit of another individual or group of individuals.”Ron Paul
Those who control the reins of power do not trust the citizens. They want to easily manipulate the sedated masses with their message using their controlled corporate mass media. Having taken over the public school system decades ago, government has worked its magic and graduates millions of functionally illiterate drones into society every year. More than 50% of these morons don’t know that George Washington was the 1st President of the United States and is the guy on the quarters jingling in their pocket. The ignorance of a huge portion of the American population has resulted in a decline of freedom and liberty over time.
 "If a nation expects to be ignorant and free in a state of civilization, it expects what never was and never will be." – Thomas Jefferson
When the government starts to infringe upon the citizen’s Second Amendment rights, the time will be nearing for a Second American Revolution. There are now shortages of guns and ammunition in the U.S. Two thirds of the public believe that Obama will restrict gun ownership. He has stated that intention. The Second Amendment is very clear, but Obama will interpret it any way he chooses because he is in power. The Nazis imposed strict gun control measures shortly after Hitler came to power. The lambs complied. We all know what happened next. In the first chapter of his book, Freedom Under Siege, Ron Paul argued that the purpose of the Second Amendment is to place a check on government tyranny, not to merely grant hunting rights or allow self defense. When forced to choose between the wisdom of George Washington and Barack Hussein Obama, I think it is an easy choice. Who uses the weasel words?
“Firearms are second only to the Constitution in importance; they are the peoples' liberty's teeth.” – George Washington
“As a general principle, I believe that the Constitution confers an individual right to bear arms. But just because you have an individual right does not mean that the state or local government can’t constrain the exercise of that right, in the same way that we have a right to private property but local governments can establish zoning ordinances that determine how you can use it.” – Barack Obama
The neo-cons who dominated the administration of George W. Bush seized the 9/11 terrorist attack as a once in a lifetime opportunity to change the world. In doing so, they have used fear, visions of mushroom clouds, and promises of protection and safety to convince the American people to give up their few remaining civil liberties. The Patriot Act was rammed down our throats in the months following 9/11. Anyone who would vote against such a bill was branded un-patriotic. It passed the Senate by a vote of 98 to 1. It passed the House by 357 to 66. Only 3 Republicans voted against The Patriot Act. Three Republicans had the courage to stand up for the Constitution. Ron Paul, from Texas, was one of them. His belief cannot be any clearer:
"Everything we have done in response to the 9-11 attacks, from the Patriot Act to the war in Iraq, has reduced freedom in America."
The role of government is to protect American citizens’ privacy, not violate it. Since 9/11 all American citizens are considered suspect until proven otherwise by some bureaucratic thug in the Department of Homeland Security. The Eye (think Mordor) of the U.S. government is focused inwards towards its own citizens under the guise of protecting us from unknown bogeymen terrorists. We are no safer, with less freedom, and buried under more debt. Mr. Paul’s reasoning and adherence to the Constitution of the United States is so sane that it seems insane to the criminals running our asylum (aka government) today. We live in a bizzaro world where doing the opposite of what we should be doing is considered the right thing to do. Liberty is not some antiquated concept in the ether of history. Liberty is freedom from arbitrary or despotic control, allowing for the enjoyment of social, economic, and political rights and privileges. President Washington and Representative Paul seem to be reading from the same Constitution.
“Arbitrary power is most easily established on the ruins of liberty abused to licentiousness. It will be found an unjust and unwise jealousy to deprive a man of his natural liberty upon the supposition he may abuse it.” – George Washington
“Our country's founders cherished liberty, not democracy.” – Ron Paul
Amazingly, after reading George Washington’s (home schooled and suffering from really bad teeth) advice regarding the use of public debt, I think he would have made a better Federal Reserve Chairman than Helicopter Ben Bernanke, with his BA from Harvard and PhD from MIT, and perfect teeth. This military man, in his Farwell Address to the American people, advised the country to cultivate peace with all countries, therefore not incurring debt to fight wars. Surpluses should be built up in times of peace in order to pay the costs of unavoidable wars (not pre-emptive wars of aggression). Our representatives are responsible for the proper fiscal management of the country, but the public must be vigilant in policing the representatives. Washington saw taxes as an unpleasant but necessary evil. The way to keep taxes low was to keep spending under control. With our $11.9 TRILLION National Debt and 67,000 page IRS tax code, I think we have gone slightly off track.
“As a very important source of strength and security, cherish public credit. One method of preserving it is, to use it as sparingly as possible; avoiding occasions of expense by cultivating peace, but remembering also that timely disbursements to prepare for danger frequently prevent much greater disbursements to repel it; avoiding likewise the accumulation of debt, not only by shunning occasions of expense, but by vigorous exertions in time of peace to discharge the debts, which unavoidable wars may have occasioned, not ungenerously throwing upon posterity the burthen, which we ourselves ought to bear. The execution of these maxims belongs to your representatives, but it is necessary that public opinion should cooperate.
To facilitate to them the performance of their duty, it is essential that you should practically bear in mind, that towards the payment of debts there must be Revenue; that to have Revenue there must be taxes; that no taxes can be devised, which are not more or less inconvenient and unpleasant; that the intrinsic embarrassment, inseparable from the selection of the proper objects (which is always a choice of difficulties), ought to be a decisive motive for a candid construction of the conduct of the government in making it, and for a spirit of acquiescence in the measures for obtaining revenue, which the public exigencies may at any time dictate.”
  • The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defense and general Welfare of the United States; but all Duties, Imposts and Excises shall be uniform throughout the United States;
  • To borrow money on the credit of the United States;
  • To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures;
Congress has done a phenomenal job in taxing, spending and borrowing. Nobody does it better. They should get a Congressional gold medal for taxing, spending and borrowing. Up until 1913, the government was limited in their ability to spend because there was no personal income tax and the currency of the United States was backed by hard assets. Woodrow Wilson and Congressmen, under the control of the banking cartel, created the Federal Reserve and the personal income tax in 1913. The unleashing of politicians from any constraints on their spending has led to a predictable result. The US dollar has lost 97% of its value versus gold since 1913. The U.S. National Debt was $2.9 billion in 1913. Today, it is $11.9 TRILLION, a mere 400,000% increase in 96 years. That is the good news. President Obama plans to add at least another $9 TRILLION to our debt in the next 10 years. That is the actual plan. Can you picture George Washington spinning in his grave?
“When the federal government spends more each year than it collects in tax revenues, it has three choices: It can raise taxes, print money, or borrow money. While these actions may benefit politicians, all three options are bad for average Americans.” – Ron Paul
“Deficits mean future tax increases, pure and simple. Deficit spending should be viewed as a tax on future generations, and politicians who create deficits should be exposed as tax hikers.” – Ron Paul
There goes that crazy Ron Paul again stirring up trouble. Doesn’t this guy realize that if we adhered to sound money policies, had a hard asset backed currency, and spent only as much as we brought in, the existing political structure and its corporate, banker, and military backers would collapse? This would cause turmoil and heartache for the ruling power elite. They might have to sell one of their 6 estates. Ron Paul would abolish the Federal Reserve and the IRS. The Federal Reserve is a secret organization controlled by bankers to enrich bankers and allow politicians to get re-elected by bribing their constituents with goodies. Our system is no more capitalist than that of the Soviet Union.
“A system of capitalism presumes sound money, not fiat money manipulated by a central bank. Capitalism cherishes voluntary contracts and interest rates that are determined by savings, not credit creation by a central bank.” – Ron Paul
True capitalism is the antithesis of what the power elite want. This kind of talk puts bankers and politicians into convulsions as their levers of power would be stripped away. Paul has stated: "I agree on getting rid of the IRS, but I want to replace it with nothing, not another tax.” The financially retarded pundits who question Paul’s stance can’t comprehend dismantling of the vast all encompassing Federal Government bureaucracy. They argue that the country would be plunged into Depression. What do they call what we are in today? Rather than conclude that the gig is up and that running up huge deficits in order to police the world and provide welfare benefits to the 50% of the population that does not pay income taxes, Obama and Bernanke have decided to double down. Their solution is to double the National Debt, greatly expand the welfare state, and continue to police the world. Does anyone really think it is going to work? Bankruptcy is a certainty.
“My observation is that whenever one person is found adequate to the discharge of a duty... it is worse executed by two persons, and scarcely done at all if three or more are employed therein.” – George Washington
That George Washington was quite a card. He truly understood how efficient our government would become in the next two centuries. When he occupied the position of President, the entire government consisted of a couple thousand workers. Today, the Federal government spends in excess of $3 TRILLION per year and employs in excess of 4 million drones. There are 140 million Americans employed today and 22 million of them work in government jobs. Nearly one in six working Americans is on the government payroll. Millions more are dependent upon the government to provide them welfare benefits, food stamps, insurance benefits, and pension benefits. Over 50% of Americans don’t pay income taxes. What is the likelihood that these leeches will be voting for candidates that propose sound money, low taxes, dramatically reduced domestic spending, and termination of our global empire?
There is the smell of revolution in the air. The mainstream media doesn’t get it. The 15 term Congressmen don’t get it. The doddering old fool Robert Byrd doesn’t get it. We’ve entered a twenty year crisis period that cycles through history every 80 years or so. The short-sighted non-thinking pundits actually think we are coming out of the crisis, when it has barely begun. The crisis period is always a time of pain, suffering and usually armed conflict. The details are unknown, but the broad outline is known. Existing institutions will be torn down. Many will die. Heroes will be required. The generations are moving into new life phases and their attitudes and beliefs will heavily influence the path of this crisis. Will we experience World War III? Will civil unrest and insurrection breakout in the U.S.? Will U.S. Troops be commanded to fire on U.S. citizens? Might they turn their guns on those giving the commands? This sounds extremely far-fetched. Yes it does. It sounds as far-fetched as someone telling Abraham Lincoln on April 12, 1861, as Fort Sumpter was being shelled, that 620,000 Americans would die in the next four years of Civil War. It sounds as farfetched as telling Herbert Hoover on October 24, 1929 that the stock market would crash 89% in the next 3 years, a Depression with unemployment reaching 25% would last 12 years, and a World War would ensue causing the deaths of 73 million people and ending with the detonation of two atomic bombs.
I’ve slowly come to the conclusion that the country cannot be put back on track using the ballot box. The entrenched special interests control all the levers of power. The Republican and Democratic parties are essentially interchangeable. They are controlled by the extreme right and left wings of their parties. The neo-cons on the right have no interest in balancing budgets or restraining government. They want to use the power of our immense military to remake the world in the image of the United States. They utilize the term “strategic interest” to rationalize any foreign military venture that suits them. A bunch of flea bitten rag heads in the most godforsaken country on earth are a threat in these people’s eyes. The left wing liberal welfare statists have never come across a program to redistribute wealth from the hard working middle class to the non-working shiftless, lazy uneducated masses, that they didn’t favor. The printing of money by the Federal Reserve, massive deficit spending and higher taxes support their agendas.
Ron Paul will never get elected President of the United States. His message is not sellable to the American public. It would require sacrifice, self discipline, living within your means, exhibiting humbleness in foreign policy, and following the Constitution of the United States. He will not be elected, but he can become the intellectual founding father of the new country that comes out on the other side of this crisis. His noble stand for the principles of the U.S. Constitution will lead us through the Second American Revolution. The Ron Paul inspired Campaign for Liberty is using grassroots efforts to get like minded citizens elected to local offices. This is a worthwhile effort, but I fear we don’t have enough time to acquire enough political power before the existing debt induced, corrupt system collapses under the weight of its lies and mismanagement. It will surprise many, just as the collapse of the Soviet Union came as a complete bombshell.
When the system collapses, no one knows what will happen. Do the frightened masses turn to a strong dictator, choosing safety and slavery over liberty and freedom? It is entirely possible. This is where those who believe in the Constitution can make our stand. We already have the document and the principles of government. We just need to adhere to and reinstitute them. Now is the time to join up with groups of like minded citizens. Meet regularly and discuss the real issues. Develop relationships with these people. When the shit hits the fan, they will be there to support you. Having like minded groups communicating in person and through the internet today could set the groundwork for the new country. Ideas are what drive revolutions. The collapse of the U.S. dollar is likely to be the trigger for the systematic collapse. It makes tremendous sense to be trading your future worthless pieces of paper for real money today. As the government sees the imminent collapse, they will become more desperate. Acquiring guns legally today is a good insurance policy for what might happen in the future.
The mainstream media will continue to ridicule those who fight for the Constitution. Ron Paul is just a man. He is no savior. It’s his ideas that matter. George Washington was just a man. He was a man who gave everything for his country. Are you ready to get out of your SUV and fight for the Constitution? The time is near at hand.
The time is near at hand which must determine whether Americans are to be free men or slaves. – George Washington

The Pisani Paradox

What struck me in my conversation with Bob /Pisani/ was a paradox that has been bothering me.  He indicated that while many of the traders he talked to were bearish, most of them had long positions because that’s the direction the market was going.
Peter Navarro, Ph.D.

Isn't this the very definition of a bubble -- when everyone knows the market is grossly overbought, should be going the opposite direction, but keep buying anyway?

Grains Set Back By Disappointing Data

Stocks In a Stupor

Stocks declined nearly 100 points on the Dow this morning almost out of the starting gate.

from Marketwatch:

U.S. stocks took a sharp turn lower Wednesday following a starkly disappointing reading of midwestern manufacturing activity.
The market had been shaky thanks to surprisingly weak jobs data released prior to the opening bell. Then the losses in major indexes piled up after the Chicago Purchasing Manager's Index showed a surprising decline. The measure fell to 46.1 for September, down from August's reading of 50.0, which is the level at which the index signals an overall expansion in activity.
Economists were expecting the index to show continued improvement, to 52.0, but instead got a fresh reminder that the U.S. recession isn't quite over.
The Dow Jones Industrial Average was recently down 126 points, or 1.3%, at 9615.99. The Nasdaq Composite Index was off 1.3%. The S&P 500 was down 1.2%, hurt by declines in every sector.

Dollar Destruction Overnight

Crude oil has broken higher, but most other commodities, including the grains, are relatively stable.

Tuesday, September 29, 2009

Treasuries Rally on Dropping Consumer Confidence

Consumer confidence has surprised to the downside the past 4 consecutive months. Even when it rose, it was a disappointment, since it was expected to rise more. Two of those months, it reached levels not seen since the stock market bottom in March.

Housing Data Positive, But Consumer Sentiment Sours Stocks

Then large downward spike occurred when the consumer sentiment data was released.

Monday, September 28, 2009

Grain Crop Conditions

Arlan Suderman tweets on crop conditions:

Both corn & soybean condition index scores dropped 1 pt this week, but still at historically high levels for late Sept.

25% of ND corn still not in dent stage as of 9-27; Potential freeze yield loss in early dent stage is up to 40%.

63% of soybeans mature & dropping leaves vs. normal pace of 77%; IL is 41% vs. 77% norm; ND 73% vs. 85%; MN is 81% vs. 84%

USDA - 5% of nation's soybean crop has been harvested; down from 18% avg; Greatest progress in LA & MS

6% of US corn harvested, dn from 18% 5-yr avg. pace & slowest of past 25 years. 37% mature vs. 72% normal; ND 6%, SD 34%, MN 17%, MI 19%

94% of US spring wheat is harvested, including 91% of North Dakota. USDA will tell us how big it was Wed. AM.

It appears clear to me that a freeze could still create tremendous damage to the corn and soybean crops!

Social Security Now Running Deficit

WASHINGTON (AP) - Big job losses and a spike in early retirement claims from laid-off seniors will force Social Security to pay out more in benefits than it collects in taxes the next two years, the first time that's happened since the 1980s.
The deficits - $10 billion in 2010 and $9 billion in 2011 - won't affect payments to retirees because Social Security has accumulated surpluses from previous years totaling $2.5 trillion. But they will add to the overall federal deficit.
Applications for retirement benefits are 23 percent higher than last year, while disability claims have risen by about 20 percent. Social Security officials had expected applications to increase from the growing number of baby boomers reaching retirement, but they didn't expect the increase to be so large.
What happened? The recession hit and many older workers suddenly found themselves laid off with no place to turn but Social Security.
"A lot of people who in better times would have continued working are opting to retire," said Alan J. Auerbach, an economics and law professor at the University of California, Berkeley. "If they were younger, we would call them unemployed."
Job losses are forcing more retirements even though an increasing number of older people want to keep working. Many can't afford to retire, especially after the financial collapse demolished their nest eggs.

Stocks Off Like a Rocket

Natural Gas Setting Up For Another Tumble

Sept. 28 (Bloomberg) -- The steepest rally in natural gas prices since 2006 is coming to an end as the 400 salt caverns, depleted oil fields and aquifers used to store the fuel in the U.S. reach capacity for the first time.
Stockpiles may surpass the record of 3.545 trillion cubic feet by as much as 350 billion cubic feet this fall, Energy Department estimates show. Gulf South Pipeline Co. says its fields in Louisiana and Mississippi are so full that customers will have to pay penalties for exceeding their limits. With no place to go, producers will be forced to dump excess fuel on the market.
The worst economic slump since the 1930s will cut demand from chemical plants to carmakers to households by 2.4 percent this year, according to government estimates. The November futures contract will drop about 19 percent to near $4 per million British thermal units, said Stephen Schork, president of consultant Schork Group Inc. in Villanova, Pennsylvania.
“I don’t know where all of this gas is going to go,” said Schork, a former natural gas trader on the New York Mercantile Exchange, who in June forecast inventories would reach near 3.8 trillion cubic feet. “We’re a month away from significant heating demand. Something’s got to give.”
The November contract has climbed 35 percent from its low of $3.662 per million Btu on Sept. 3 to $4.948 on Sept. 25 after economic reports signaled that the recession is ending and fuel demand will rebound in 2010. October futures, which expire today, have risen 59 percent from a seven-year low of $2.508 in the same period.
Awaiting Rebound
Employers cut fewer jobs than expected in August, a report from the Labor Department on Sept. 4 showed. Output at factories, mines and utilities climbed 0.8 percent, in August, according to the Federal Reserve. The economy will probably expand 2.9 percent this quarter and 2.2 percent in the fourth, the median estimates of 61 economists surveyed by Bloomberg.
The signs of improvement haven’t translated into a turnaround in gas demand.
Consumption by factories and manufacturers will decline 9.8 percent this year, according to the Energy Department. Fuel production will increase 0.9%.
Even with this month’s rally, futures have dropped 71 percent from a 30-month high of $13.694 on July 2, 2008. The 29 percent decline this year makes gas the worst performer on the Reuters/Jefferies CRB Index of 19 commodities. The index has risen 9 percent, led by gains in copper, sugar and gasoline.
Natural gas will average $3.90 per million Btu in the third quarter, according a Bloomberg survey of 20 analysts, compared with $3.39 since July 1. Forecasts have retreated through the year. In March, the prediction for the third quarter was $6.
Outlook Revisions
The outlook for the fourth quarter, when demand for heating fuel typically increases, has also declined. Gas will average $5 in the next three months, according to the survey. The price expectation was $7.38 on Jan. 2 and $5.36 on Aug. 3.
With the U.S. economy recovering from the first global recession since World War II, some investors say gains will occur sooner. November futures will probably trade between $4.50 and $5.50 as demand strengthens, said Peter Linder, president of the DeltaOne Energy Fund in Calgary.
“We’re not going to see a collapse in gas prices over the next two months,” Linder said in a telephone interview. “We’re going to see significantly less production,” which will boost the fuel into 2010, he said.
Rising Prices
The December contract is likely to climb to around $6 from $5.66 now, Linder said.
“The entire move to the upside is predicated on recovery and stimulus, and if those two things hesitate or fail to materialize, so will higher prices for natural gas,” said Michael Rose, a director of trading at Angus Jackson Inc. in Fort Lauderdale, Florida.
Inventories rose to 3.525 trillion cubic feet in the week ended Sept. 18, 16 percent above the five-year average, and 91 percent of estimated peak capacity, according to Energy Department data. The previous record was reached in November 2007.
Supplies may hit maximum capacity of 3.899 trillion cubic feet before November, when utilities and power generators begin to withdraw the fuel for the heating season. The Energy Department will come out with the latest totals on Oct. 1.
The excess would be enough to meet almost a month’s worth of average daily consumption by households, factories and power plants across the nation during the cold-weather months, when demand peaks at an average of about 12 billion cubic feet a day, according to government data.
Storage Operators
Storage site operators take gas from producing wells through pipelines, usually from April through October. Using compressors, they force it down wells drilled into permeable stone, which are covered by a cap-rock to contain the fuel. A year ago, the caverns were 80 percent full.
The stockpiles have grown even after companies cut back on exploration. The number of rigs drilling dropped 56 percent to 710 as of Sept. 25 from a peak of 1,606 a year ago, according to Houston-based Baker Hughes Inc., the world’s third-largest oilfield-services provider.
Lower prices will keep a lid on rigs, said Cameron Horwitz, an analyst at SunTrust Robinson Humphrey Inc. in Houston.
The total fell to 665 on July 17, a seven-year low, after stockpiles rose to the highest for any week in July since 1994. The surplus helped send gas to the lowest level since March 2002 earlier this month.
Near Capacity
“Gulf South is reaching full capacity,” said Allison McLean, a spokeswoman for the company’s parent, Boardwalk Pipeline Partners LP, in a Sept. 22 interview. “We don’t have flexibility to go above and beyond what customers have contracted for.”
The company, with about 83 billion cubic feet of storage, said Sept. 4 that it may “subject offending customers to penalties.”
Southern Natural Gas, a unit of Houston-based El Paso Corp., owner of the largest U.S. network of natural gas pipelines, said on Sept. 21 that 96 percent of its available 60 billion cubic feet of space was in use as of Sept. 17. A year earlier, it was at 78 percent.
“The storage situation is a pretty serious one,” said Tom Orr, director of research at Weeden & Co., a brokerage in Greenwich, Connecticut. “There’s no real remedy in sight.”
Futures advanced this month after Fed Chairman Ben S. Bernanke said on Sept. 15 the recession may have ended already. A report on Sept. 1 from the Institute of Supply Management showed manufacturing expanded for the first time in 19 months.
Slowing Losses
Price gains accelerated as traders who had sold expecting declines bought the contracts back. The rally was helped by speculators who were betting against U.S. Natural Gas Fund LP, the world’s largest exchange-traded fund in the fuel, according to Adam Felesky, chief executive officer of BetaPro Management Inc. in Toronto.
When those bets failed, speculators canceled positions by buying October futures, sending the contract higher, said Felesky, whose company manages exchange-traded funds.
The gain in the October contract was the biggest over a three-week span since September of 2006, after hedge fund Amaranth Advisors LLC lost more than $6 billion in bad bets in the gas market.
Futures in 2006 initially dropped, reaching a four-year low on Sept. 27, partly because the fund was forced to unload its holdings. Prices then surged 62 percent by Oct. 18.
Production Cost
Gas may have to climb above $6 or even $7 to ensure producers pump enough to meet demand, Aubrey McClendon, chief executive officer of Chesapeake Energy Corp., said in a presentation to investors on Sept. 10.
Chesapeake, the fourth-largest producer in the U.S., has been selling assets to conserve cash and reduce debt during the drop in prices. Anadarko Petroleum Corp., the second-biggest, reported a second-quarter loss of $226 million
Weeden cut its 2010 forecast to $4.25 per million Btu from $5 in a report on Sept. 14, saying that stockpiles at the end of the heating season in March will be at a record high for that time of year.

“You have to start thinking what next April will look like,” said Orr of Weeden. “Coming out of winter and going into spring, you’ll still have a situation where the market will be oversupplied.”

Treasuries Post Negative Yields

Sept. 28 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke has some good news for investors: Treasury bondholders will lose money for the first time in 10 years amid an unprecedented decline in the gap between the interest rate on 30-year mortgages and government notes, signaling an end to the worst financial crisis since the Great Depression.

Yields on benchmark 10-year notes will end the year little changed at 3.36 percent before rising to 3.65 percent by mid- 2010 as bond prices fall, according to the average estimate in a Bloomberg News survey of JPMorgan Chase & Co., Goldman Sachs Group Inc. and the rest of the 18 primary dealers that trade Treasuries directly with the central bank.

Sunday, September 27, 2009

Don't Take Dollar Supremacy for Granted

Sept. 27 (Bloomberg) -- World Bank President Robert Zoellick said the U.S. shouldn’t take for granted the dollar’s status as the world’s main reserve currency.
In remarks set for delivery tomorrow, Zoellick said the “next upheaval” in the international economic order is under way as emerging nations gain greater influence.
“The United States would be mistaken to take for granted the dollar’s place as the world’s predominant reserve currency,” according to excerpts released by the World Bank.
Policy makers from China to Russia repeatedly have called for an alternative to the world’s main currency in foreign- exchange reserves.
Zoellick’s speech to the Paul H. Nitze School of Advanced International Studies at Johns Hopkins University in Washington echoes his previous comments about the dollar’s standing.
The trade-weighted Dollar Index has fallen 11 percent since President Barack Obama’s inauguration in January, in part because of a budget deficit projected to rise to $1.6 trillion this year as the government increases spending to boost the economy. The index measures the currency’s performance against the euro, yen, pound, Canadian dollar, Swiss franc and Swedish krona.
Defense of Dollar
U.S. Treasury Secretary Timothy Geithner last week defended the dollar’s role as the world’s reserve currency. The U.S. has a “special responsibility” to preserve confidence in its financial system, and “sustain the dollar’s role as the principal reserve currency in the international financial system,” he said at a press conference Sept. 24 in Pittsburgh, where leaders of the Group of 20 nations met.
Zoellick also will urge intensified coordination among all countries to be sure that economic growth continues while they recognize that there are still 1.6 billion people in the world without electricity.
The G-20 should become “the premier forum for economic cooperation,” Zoellick will say.
At last week’s summit, officials agreed to establish a “framework for strong sustainable and balanced growth.” Countries with significant deficits in their trade accounts promised to save more, while those with surpluses pledged to strengthen domestic demand.
Peer Review
The G-20 also established a peer-review process to monitor efforts to rebalance economies and to hand emerging nations a greater say in managing world growth.
“The G-20 summit is a good start, but it will require a new level of international cooperation and coordination,” Zoellick will say. “Peer review will need to be peer pressure.”
In the U.S., he called for a bigger role for the Treasury Department in pulling together the authority of federal agencies to regulate financial markets. Leading up to the financial crisis, “regulators and supervisors of financial institutions were no longer grounded in reality,” he said.
He also criticized central banks, saying they failed to address growing risks in the economy in the last several years.
Central banks “argued that damage to the real economy of jobs production, savings and consumption could be contained, once bubbles burst, through aggressive raising of interest rates,” Zoellick said. “They turned out to be wrong.”