Natural Gas Futures Remain Under Pressure

Natural gas prices continue to drop, even during the winter heating season when demand typically increases sharply. As the economy weakens, many industrial companies that run their factories on natural gas are scaling back operations, decreasing demand for the commodity. Natural gas prices today are 30% lower than they were at the nadir of natural gas prices before the commodity boom began last year. Natural gas prices have dropped nearly 70% from the apogee reached in July, just 5 months ago. Shouldn't we ask the gas company to start giving rebates to rate-payers, or at least roll back their latest rate increases that they imposed when natural gas prices exploded last winter?

Free Money for the U.S. Treasury

The talk of a potential bubble in U.S. Government debt continues to grow, and the chorus grows louder every day. Other bubbles, including both real estate and commodities, have demonstrated similar phenomena, frequently not long before those bubbles have popped and the manias collapsed.

From Bloomberg today:

"The rally in Treasuries that pushed yields on bills below zero percent this week is adding to concerns that the $5.3 trillion market for government debt is a bubble waiting to burst."

Click here for the full story.

The Treasury Bubble

"It's going to be a disaster for America."

"It is a bubble... It's the last bubble left... It is insane, but that's what bubbles are!" Jim Rogers

Jim also predicted that eventually, interest rates and inflation must go much higher.

More Corn! Great Grains!

Corn Sure Tastes Good Today

Months have passed since trading grains has been this profitable. Liquidity is excellent today. I had begun to wonder if the past few months were going to become typical. Good trading conditions dominate for the grains today. I wouldn't even be surprised if corn reaches limit up.

Golden Grains Become Unhinged

All the grains have now begun to become unhinged, with soybeans, wheat, soybean oil, and even rice joining the fun! Despite soft crude oil and stock prices, the grains are showing signs of their historical independence from equities and other asset classes. A day like this has been a long time in coming! Time to make some gold from those grains!

Corn Surges on Reports of Less Acreage for Spring 2009

Farm Futures Magazine released a report his morning that indicated farmers are reducing acreage to be planted next spring in corn in favor of soybeans instead. Corn prices opened under pressure due to the state of the stock markets, but immediately surged much higher, and continues to escalate higher at this writing. Corn is 30 cents higher from the lows near the open of trading this morning.

Automakers + Government Create Pileup on the Market Freeway

All the turmoil over the automaker bailout is creating pure mayhem in the financial markets today. I'm going to take a break and go to the grocery store! This isn't worth throwing good money into the market!

I've have noticed over the past 18 months that every time government interferes and intervenes into the financial markets, uncertainty and turmoil are the result. Government interventions don't bring stability to the markets. They bring chaos!

What would have happened if, in August of 2007, when the crisis began, the government had stayed out of the financial markets? Instead of a slow and tumultuous death, perhaps the financial markets would have reached a natural bottom several months ago and begun to form a solid foundation for recovery.

Instead, we are faced with constant meddling and interventions, crushing debt, and collapsing financial markets. No investor can rely on any conditions, legal, fiscal, monetary, or otherwise. It is a nearly impossible circumstance to trade or invest with a sense of reliability or stability! Time to take a break, boys and girls, and wait for order to return to the markets!

Government isn't the solution! It is the problem!

This is market mayhem!

Treasury Promises TARP Funds to Underpin Automakers

This morning, the United States Treasury has now assured the automakers that they will provide support for the companies. Stock futures have risen and eliminated most of the overnight losses. It will be an interesting trading day as this story develops throughout the day and the weekend.

Stocks Roar Back At Open

Once again showing its resilience, stock indexes have begun to roar back upon the opening bell. The stock indexes have erased approximately half their overnight losses! Maybe Senator Reid's assessment will prove wrong!

Jim Rogers Claims Most U.S. Banks "Totally Bankrupt"

From Reuters today:

"Jim Rogers, one of the world's most prominent international investors, on Thursday called most of the largest U.S. banks "totally bankrupt," and said government efforts to fix the sector are wrongheaded."

Click here for the entire Reuters story.

Rogers has repeatedly said that by infusing capital into failing banks, the Fed reward the bad behavior of bad banks while penalizing the banks that have performed responsibly.

Commodities Back Off Recent Highs

As a rippling consequence of the overnight plunge in stock index futures, commodity prices have also shown weakness by backing off recent highs during overnight trading. This chart for soybeans is symbolic of several commodities.

I see this as an opportunity to buy, but much will depend upon what happens in the equities markets and related to the auto company bailout status, which is changing minute by minute. Right now, I like to buy on dips, once I see the commodities bottom out and start to move higher, doing this almost every day.

$50 Billion Ponzi Scheme Exposed

From FT.com

"Bernard Madoff, the founder of Bernard Madoff Investment Securities and a former chairman of the Nasdaq stock market, was on Thursday charged by federal prosecutors with a multibillion-dollar securities fraud.
"Mr. Madoff, 70, told employees that he estimated the losses from this fraud to be “at least approximately $50bn”, according to federal prosecutors."

Click here for the entire story.

The potential counter-party risk on this could have wide-spread implications, so it has import far wider than just to those clientele that will be affected.

Corporate America Not Benefiting From Record Low Rates

From Bloomberg:

"The lowest yields on Treasuries are providing no solace to U.S. companies paying the highest borrowing costs on record. While rates on everything from four-week Treasury bills to 30-year bonds fall to all-time lows, companies are paying an average 10.8 percent on their debt..."

Here is the full story.

$2 Trillion Fed Rat Hole

Bloomberg sued under the Freedom of Information Act to uncover to whom the Fed has extended $2 trillion in loans. The Fed has refused to disclose both the recipients of the emergency loans and the nature of the collateral for those loans, despite requirements by Congressional legislation to do so.

“If they told us what they held, we would know the potential losses that the government may take and that’s what they don’t want us to know,” said Carlos Mendez, who oversees about $14 billion at New York-based ICP Capital LLC."

Here is the Bloomberg story.

Bank of America Axes 35,000 Jobs!

From Yahoo and Reuters:

"Bank of America Corp said on Thursday it plans to eliminate 30,000 to 35,000 jobs over three years, reflecting its pending purchase of Merrill Lynch & Co and weaker business activity stemming from the economic recession."

Click here for the full story.

Stock Index Futures Plunge As Auto Bailout Fails

Wow! Look at those stock futures! Wall Street is having a temper tantrum tonight! The Dow fell as much as 350 points, but has since recovered slightly!

The Euro Takes Off!

Is the safe haven play of the Dollar over? Sure looks that way based upon the Euro!

No Coincidence That Crude Oil Rises

As the Dollar drops precipitouly, the price of crude oil has risen nearly $9/barrel this week, including more than $5 today alone.

Dollar Gets Drilled!

Dollar Dropping, Crude Oil Rising

Following the pattern during the European trading session, the Dollar continues to drop and crude oil is showing strength. Other commodities are also showing signs of bottoming. There appears to be a shift in the marketplace over the past few days.

58,000 New Jobless Last Week!

Despite the recent uptick in stock index futures over the past several days, it's getting worse, folks! Today's announcement of new jobless benefit claims, covering a period of just a single week, added more than 58,000 new unemployed to the rolls last week, reaching a 26-year high of 573,000 on benefits. This is another sign that the economic prospects are worsening, and at a faster pace. The rolls of continuing unemployed (includes those not receiving unemployment benefits) reached a new high of 4.13 million Americans, also. Surprisingly, stock index futures moved modestly higher over the past hour following the report.

Gold Rising as Skittish Investors Seek Safety

Now that treasuries are looking like a bubble, gold is rising again. Commodities are also showing signs of renewed vigor! Gold is higher for the past four consecutive days. With short-term treasury bills in negative yield territory, investors are startng to flee for the safety of the precious metal, considered by many to be the ultimate safe haven for worried investors. What will happen when investors begin to run for the exits with treasuries? This could become very frightening!

Euro Rises, US Dollar Slumps

US Dollar Index futures: Euro futures:

The Dollar rise of the past few months appears to be coming to an end, with the Euro at its highest level since summer, and the Dollar slumping. It is also leading to renewed signs of price floors for many commodities also. Gold rose more than $35 yesterday, after having increased for the fourth day in a row!

CA Governor Schwarzenegger: California Nearing "Financial Armaggedon"

From San Jose Mercury News:

"A frustrated Gov. Arnold Schwarzenegger warned Wednesday that California is headed toward "financial Armageddon" if legislators continue their standoff over how to solve the state's ballooning budget deficit.

With the recession sending state tax receipts plummeting, Schwarzenegger announced that the state faces a budget shortfall of $14.8 billion in the current fiscal year, up from an earlier estimate of $11.2 billion. Looking ahead to mid-2010, the gap could grow to as much as $40 billion if nothing is done to cut spending or generate new revenue, administration officials said Wednesday."

Here is the full story.

Talk Grows of a U.S. Treasury Bubble

More and more voices are expressing concern at the growing debt bubble of the U.S. Government. Now, Bill Gross of Pimco and others are joining the chorus:

"Treasuries have some bubble characteristics, certainly the Treasury bill does" Bill Gross, Pimco CEO
“The flight out of Treasuries is something that will be breathtaking.” Mitchell Stapley, Fifth Third Asset Management

The problem is growing so serious that short-term treasury yields this week dropped below zero percent yield, even lower than last week's. An investor who purchases $1 million of three-month treasuries would lose $25.56 by the time the bills mature just three months later!

The U.S. Treasury officials indicated yesterday in New York that it will need to finance $1.5 to $2.0 trillion in 2009, a staggering amount of new debt.

"The U.S. pledged $8.5 trillion, more than half of the country’s gross domestic product, to spur lending and limit the damage of the recession."--Bloomberg

Here is a Bloomberg story.

German Finance Minister: UK Plan Is "Crass Keynesianism"

From Financial Times:

"Germany’s finance minister has launched a stinging attack on the “crass Keynesianism” pursued by Gordon Brown, the British prime minister, fuelling tensions on the eve of European economic crisis talks in Brussels."

He's right! It is crass!
Here is the full story.

Russian Ruble Devaluation Gathers Steam

From Bloomberg:

"The devaluation of Russia’s ruble gathered pace as the central bank loosened its control of the currency for the fifth time in a month... Russia has drained 27 percent of its reserves since the start of August as the central bank sold foreign currency to stymie a 16 percent decline in the ruble versus the dollar. The currency has weakened along with the Micex stock index as investors took almost $200 billion out of the country amid the worst financial crisis since Russia’s 1998 debt default as oil slumped."

Here is the rest of the story on Bloomberg.

Stocks Go Negative

I'm surprised. After being up throughout the trading session, stocks have now gone negative as we head toward the last two hours or trading.

Where's the Beef?

Some readers may recall that last spring, I warned that later this year, livestock prices would rise because ranchers had reduced their herds. This phenomenon appears to be occurring now. This wasn't really a prediction, but rather, a natural consequence of smaller herds and higher feed prices. 1+1 =2! Smaller supplies were likely to lead to higher prices eventually. Now, although feed prices have dropped by 50-60%, the smaller herds are likely to lead to higher meat prices.

"Cattle prices rose for the second time in two days on signs that the shrinking U.S. herd may limit beef supplies next year. Hog futures declined."

Here is the Bloomberg article.

Republican Opposition Brings Stock Moderation

Following a press conference a few minutes ago by Senate Republicans voicing their opposition to a bailout for automakers, stock futures have sold back to price levels below those prior to the announcement of the agreement earlier today. This is not a done deal. What a roller-coaster day!

Crude Oil Rebounds and Moves Higher

The price of crude oil has rebounded today following a temporary sell-off at the time that EIA inventory data was released earlier this morning by the US Government. Prices are now even higher than before the report was released. It appears that OPEC's assurances of stiff production cuts are beginning to have some bite, and prices may now be forming a firm bottom. Just as with stock index futures, bearish crude oil news today is being met with higher prices. This is very bullish!

Leaping LIBOR!

LIBOR and Eurodollar deposits have leaped higher today as interest rates continue to drop even lower! The two futures are closely linked, since Eurodollar deposits are settled at the LIBOR rate. Both represent short-term interest rates on foreign deposits of US Dollars. The Eurodollar is much easier to trade, since it is far more liquid and maintains a very tight, 1-tick bid/ask spread almost around the clock!

Here is a story explaining the lower LIBOR rates.

From Bloomberg:

"Libor, the benchmark for $360 trillion of financial products worldwide, is set by a panel of banks in a survey by the BBA before noon each day in London. The euro interbank offered rate, or Euribor, is published by the European Banking Federation earlier in the day."

Here is another one from Bloomberg that offers a very good explanation of various Interbank rates.

There appears to be a fundamental global conflict between bonds and equities right now. Bond prices seem to be predicting near-depression-era economic results, while equities are signaling a bottom for the stock markets. TED spreads typically have been one of the most reliable indicators of recessions throughout several decades, and they remain quite bearish despite improvements in recent days and weeks.

Bailout Du Jour: White House and Congress Reach Agreement on Auto Company Loan

Stocks are moving modestly higher now that an agreement has been announced to provide funds to the automakers. This is apparently a strong dose of tough love. I don't think the auto companies are going to be able to do it, frankly. They are in a very tough position. We'll see!

But for the moment, stock futures are rising! Stock traders are convinced that this is a good deal for the economy. (Until tomorrow!)

Are Treasuries Showing Signs of a Top?

Given both the collapsing volume (see lower panel) and the sagging prices, treasuries are showing signs of a top. If the stock market collapses again, traders will quickly regain their love for treasuries, but if the stock index futures continue to show signs of modest strength, treasuries may continue to move lower despite the Fed's determination to lower the Fed Funds rate and to buy treasuries to artificially suppress interest rates.

This has been a great run! Often, following a brief pull-back like that shown in recent days, the original trend will reestablish itself and the trend will return.

It amazes me, however, as Jim Rogers said on one of my blog posts yesterday, that anyone is willing to lend money to the U.S. government at interest rates that are below inflation. It is a sign of how desperate the times are! The amount of U.S. government debt is now so staggeringly large that I don't believe investors will ever be repaid. Don't be standing in the way when global investors run for the exits! The interest alone on the debt will probably reach $500 billion this year alone! Imagine how much could be done with that money if it didn't have to be paid in interest!

China's Exports Down for First Month in Seven Years

From Marketwatch.com:

"China's exports declined in November, the first such contraction in more than seven years, underscoring the severity of the global slowdown, and painting a bleak outlook for the sustainability of mainland exports in the months ahead."

Here is the full story.

Rio Tinto Lays Off 14,000 Employees Worldwide

Rio Tinto, one of the world's largest mining conglomerates, and a leading producer of iron ore and copper, has announced 14,000 lay-offs today. Even commodity producers are now being affected by slowing economic times.

Grains Regain Footing in Anticipation of Lower USDA Forecasts

Grain futures have begun to show signs of price recovery recently, after moving higher two of the past three days and crossing above the Exponential Moving Average today. If prices hold above this level, it will be a bullish sign. The Klinger Volume indicator, as shown in the lower panel of this chart, still appears bearish, however. Note that at the far right side, today's Klinger remains red despite grains having moved higher overnight. I will be watching closely to see what happens during the main trading session today.

Volume remains light for all futures during the Christmas Holiday period. This is typical for December. I don't expect volume levels to recover until January. I am always cautious during December's weak volume period because there is more market noise and greater erratic volatility than usual.

Here is a good Bloomberg article explaining the more bullish sentiment.

GMAC Too Poorly Capitalized to Become Bank Holding Company

It has been announced this morning that GMAC needs $30 billion of capital in order to qualify to become a bank holding company. They don't have the funds. This further underscores how desperate the auto companies are. This has the potential to impact the capability of auto dealers to fund their purchases of the cars in their show rooms, and of consumers to borrow enough to pay for new cars.

Meredith Whitney: No Amount of Government "Mitigation" Will FIx Housing

Meredith Whitney, the analyst from Oppenheimer whose predictions have been amazingly prescient during this crisis, said this morning that all the government bailouts for the housing and mortgage industry have proven instead to be "throwing good money after bad". She said she knows of nothing the Fed or Treasury can do that will fix the problem, and that the real estate market correction will continue regardless of what the government does. Default rates continue to rise, even following renegotiated mortgage contracts. She also predicted that consumer credit is being cut back sharply by banks, and that credit card debt will be the next shoe to fall. She said the government should pour its resources into trying to shore up this next crisis instead of continuing to pour money into mortgages and real estate.

And Now, the Dow, Turns Black

News of the automaker bailout deal nearing completion appears to have energized stocks today.

Deal... or No Deal... for Automakers?

"Democratic leaders sent the White House a $15 billion bill to rescue the domestic auto industry on Monday, a proposal that requires long-term restructuring plans and other concessions from the Big Three in exchange for a federal lifeline... The Bush administration, however, is already concerned by some aspects of the auto bill, the Journal reported."

Here is Martketwatch story.

Regulators to Blame For Mortgage Meltdown, Economic Crisis

“It is remarkable that during the period that Fannie Mae substantially increased its exposure to credit risk its regulator made no visible effort to enforce any limits,” Frankline Raines, former Fannie Mae CEO.

But the S&P 500 Turns Positive

The Dow is still down, but the S&P 500 has now moved into positive territory for the day, yielding a mixed picture for stocks after the first hours of trading.

Headlines That Hurt

Sony Axes 16,000 Jobs

"The cuts include 8,000 full-time employees, or 5 percent of the company’s electronics workforce, and another 8,000 part-time and seasonal workers, Sony said. The reductions highlight the severity of the slump in consumer spending at a time when companies typically focus on the peak Christmas shopping season."

Fedex Cuts 2009 Earnings Forecast

"FedEx fell 12 percent to $65.86 after saying annual profit may be as much as one-third lower than analysts expected."

Existing Homes Sales Declines Further

"Fewer Americans signed contracts to buy previously owned homes in October as credit markets seized, signaling the housing slump will extend into a fourth year."

Grains Give Up Gains

From Vic Lespinasse:

"A lower start is likely this am in what could prove to be a "turn-a-round Tuesday" session with the market giving back some of yesterday's big gains. The $ index is up while crude oil and the equities markets are lower, a bearish combination for the grains."

Here is Vic's website for more detail.

Dollar Drag

One consequence of today's commodity surge is that the US Dollar has drifted lower and is now at the lowest levels of its recent range!

Mortgage Modifications Aren't Working!

From Marketwatch.com:

"Office of the Comptroller of the Currency director John Dugan on Monday released statistics showing a high re-default rate on mortgages that have been modified in the first two quarters of 2008. "The results were surprising, and not in a good way," Dugan told a gathering in Washington at the Office of Thrift Supervision's annual conference."

Click here for the whole story.

58% of mortgages that have been modified by the government had defaulted again within months of the modifications. Unfortunately, the American People are going to be left holding the bag for this!

OPEC Promises "Severe" Crude Production Cuts Coming

From Bloomberg:

"Crude oil rose for the first time in seven days in New York after the Organization of Petroleum Exporting Countries’ president said there was consensus for a “significant” production cut when the group meets next week."

Click here for the complete Bloomberg story.

Crude oil is up nearly $2 tonight from last Friday's lows. Corn and soybeans, the two grains associated with biofuels, and therefore linked with the price of crude oil, are also somewhat higher.

The Bond Bubble

“Why anyone would give money to the United States government for 30 years at three or four percent is beyond comprehension. Everyone is pumping bonds like crazy. It’s clearly a bubble.” Jim Rogers