The bond bubble has long since burst: investors, ignore this at you peril

The Fed's December minutes reek of fear. The Bernanke team is no longer sure that stimulus will gain traction in time.

The Fed's "Monetary Multiplier" has collapsed, falling below 1. This is unthinkable. We are in a liquidity trap.

So yes, printing money is not as easy as it looks, but to conclude that the Fed cannot bring about inflation is a leap too far.

The hundred years' war
How growing rejectionism, the rise of religion, a new military doctrine and a new cold war keep peace at bay

Merrill Lynch says rich turning to gold bars for safety
"They are so worried they want a portable asset in their house. I never thought I would be getting calls from clients saying they want a box of krugerrands," he said.

Europe's economy contracts at rates not seen since 1930s
Jacques Cailloux, from the Royal Bank of Scotland, said the pace of contraction in Europe is now disturbingly close to levels seen in the Great Depression. The eurozone bloc shrank by 3pc in 1930, 5pc in 1931, and 4pc in 1932.

Quick Overview

• The U.S. Labor Department said that jobless claims were down 24,000 last week to 467,000.
  

• The Bank of England cut rates from 2% to 1.5%, the lowest since 1694.
  

• Chancellor Alistair Darling denies he is planning to "print money" in order to boost the UK economy.
  

• Mexico’s President Felipe Calderon promised nearly $150m to struggling industries in a bid to save hundreds of thousands of jobs.
  
  

• Euro zone business sentiment fell to 67.1 from Novembers 74.9 - the lowest level since records started in 1990.
  
  
• Euro zone GDP fell 0.2% QoQ,
  

• Euro zone unemployment rate rose from 7.7% to 7.8%.
  

• Australia's building approvals fell 12.8% in November.
  

• The Japanese central bank is providing banks with emergency loans ($13bn) in a new bid to stimulate its worsening economy.
  
  

• Brazil cut its corn production estimate by 85 million bushels. Soybean production forecast was lowered by 36.8 million bushels.
  
  

• (WSJ) The No. 1 problem facing US taxpayers? A tax code so complex that Americans spend $193 billion per year just trying to figure out how much they owe.
  
  

• In a report just published, "The Digital Road to Recovery: A Stimulus Plan to Create Jobs, Boost Productivity and Revitalize America," the Information Technology and Innovation Foundation (ITIF) finds that a $30 billion investment in America's digital infrastructure -- broadband networks, health IT, and a smart power grid -- will spur significant job creation in the short run, creating approximately 949,000 U.S. jobs while leading to higher productivity, increased competitiveness, and improved quality of life

'Buy USA' push may see America slip from free trade church
Pascal Lamy, the WTO chief, is so worried he has taken to displaying portraits of Willis C. Hawley and Reed Smoot at his Green Room in Geneva, evoking the arch-villains of the Smoot-Hawley Tariff Act that set off the trade wars of the Great Depression. The Act was forced upon a disgusted President Herbert Hoover in June 1930. This is the pattern in democracies. Lawmakers – with a constituency base – are the first to push for protection.

Quick Overview

• The U.S. budget deficit in 2009 is projected to spike to a record $1.2 trillion, or 8.3% of GDP.
  

• Employer Services’ report that payrolls shrank by 693,000 jobs last month, the most since records began in 2001.
  

• Australia's retail sales rose 0.1% in November
  

• Euro area’s producer prices fell 1.9% MoM, but rose 3.3% YoY.
  

• Russia shut down all gas flows to Europe through Ukraine on Wednesday.
  

• Germany saw its unemployment levels rise to 7.6%.
  

• Intel expects fourth-quarter revenue to fall 23% YoY because of weak demand and inventory reductions by its customers.
  

• The U.S. Department of Energy said:
  Supplies of crude oil rose 6.7 million barrels to 325.4 million barrels
  Supplies of gasoline rose 3.3 million barrels
  Supplies of heating oil fell 900,000 barrels
  Refinery use increased from 82.5% to 84.6%.
  Gasoline demand fell 2.2% YoY
  Distillate demand rose 0.3% YoY.

• According to a report on FarmFutures.com, the continued dry weather in top-producing areas of southern Brazil could mean a drop in corn and soybean production
  

• Madoff and his wife sent at least 16 watches, a jade necklace and a diamond bracelet to family and relatives.
  

From Wall Street to Washington
It's All One Big Lie The first panel to testify included H. David Kotz, the Inspector General of the SEC. Mr. Kotz has the youngish, fresh-scrubbed, optimistic face of someone who hasn’t been exposed to Wall Street for very long. He’s been at the SEC for 13 months. Before that he served as Inspector General at the Peace Corps. (Yes, Peace Corps.) Before that he worked at the U.S. Agency for International Development (USAID). He is a lawyer but apparently has no securities background to untangle the web at the SEC that permitted the largest and most complex securities fraud in the history of the world.

One clear sign of the End Time is when the media starts publishing my opinions on the economy.
wonder what people mean when they say the economy will recover in 2010. The only way that can happen is if another irrational bubble forms thus creating an illusion of wealth similar to our previous illusions. If you take illusions out of the equation, there isn't anything to get "back" to. The wealth was never there in the first place.

US stockmarket returns
Booms and busts Comparisons to the Depression are clear: only in 1931 and 1937 were there similarly abysmal losses

Quick Overview

• (Bloomberg) -- President-elect Barack Obama said he expects to inherit a $1 trillion budget deficit and that similar shortfalls are in store “for years to come”

• U.S. factory orders fell 4.6% in November, twice as much as forecast.

• U.S. pending U.S. home sales fell 4.0% in November, weaker than expected. The National Association of Realtors says this is the lowest level on record.

• The Institute of Supply Managements' index of services rose from 37.3 to 40.6

• An index of services in the U.K. rose from 40.1 to 40.2

• U.K. House prices fell by 15.9% last year.
  

• Inflation in the eurozone fell more than expected to 1.6% in December.

• (FT) The German government’s second fiscal stimulus could reach €50bn ($68bn, £47bn) over 2 years.

• Pakistani troops moving against Taliban guerrillas have intermittently blocked the one supply route through the Kyber Pass from Pakistan into Afghanistan.

• (WSJ) Russian gas supplies to a swathe of Europe were all but cut off as temperatures plummeted across the region, raising the stakes in a pricing dispute between Moscow and Ukraine.

• GM, Toyota and Ford all reported U.S. sales decline of more than 30% for December.

• Oil prices hit $50 a barrel amid escalating violence in the Middle East.

Quick Overview

• U.S. construction spending fell 0.6% MoM and 3.3% YoY.

• The N.Y. Fed said that it has begun buying fixed rate mortgage backed securities, as it previously announced it would do.

• (WSJ) Madoff's firm was examined at least eight times in 16 years by various agencies, which never came close to uncovering his alleged scheme.

• The Purchasing Managers' Index (PMI) of China's manufacturing sector climbed 2.4% MoM to 41.2% in December. A reading above 50% indicates expansion, while one below 50% indicates contraction.

• Construction activity index in the U.K. fell from 31.8 to 29.3 in December.

A special report on the sea
Troubled waters The evidence abounds. The fish that once seemed an inexhaustible source of food are now almost everywhere in decline: 90% of large predatory fish (the big ones such as tuna, swordfish and sharks) have gone, according to some scientists. In estuaries and coastal waters, 85% of the large whales have disappeared, and nearly 60% of the small ones. Many of the smaller fish are also in decline. Indeed, most familiar sea creatures, from albatrosses to walruses, from seals to oysters, have suffered huge losses.

Asia needs to fully wake up to the scale of the West's economic crisis
The defenders of this dead-end strategy are now coming up with astonishing proposals to put off the day of reckoning. Akio Mikuni, head of Japan's credit agency Mikuni, has called for a "Marshall Plan" to bail out America by cancelling $980bn of US Treasury bonds held by the Japanese state.

Quick Overview

• The Feds Yellen on Sunday urged "pulling out all the stops" by implementing a big fiscal stimulus program to turn around a possible long period of economic stagnation in the United States.
  

• The purchasing managers index published by China’s Federation of Logistics and Purchasing rose to 41.2 in December from the record low of 38.8 in November.
  

• The U.S. ISM index of manufacturing fell from 36.2 to 32.4 in December, the lowest level since 1980.
  
  

• Russia has shut off natural gas to Ukraine, saying that the country owes it $600 million for previous sales.
  

• Manufacturing activity in the Euro area fell from 35.6 to 33.9 in December,
  

• GDP in Singapore fell 2.6% YoY.
  

• Bloomberg reported that world’s largest iron ore consumer China may ask global iron ore majors to accept an 82% price cut for iron.
  

• According to SSY’s Australian Coal Port Congestion Index, average delays are now 9.93 days, the highest since June 2008. Congestion at Australia’s coal ports has contributed to the recent upward movement in freight rates.
  

• Japan’s factory output fell 8.1% in November -- the fastest pace in 55 years.

Happy Holidays!

(Updates resume Jan. 5)

Quick Overview

• Bush threw auto makers a $13.4 billion lifeline from the U.S. bank-bailout program.
  

• YoY Canada’s consumer prices rose 2.0% in November.
  

London Banker: “The market has failed, and officialdom is perpetuating that failure
The problem isn’t just money either, but how quickly the money is turned over.

Consumers Get Important New Credit Card Protections While praising the new protections, Consumers Union criticized the 18 month delay before consumers finally get relief.

Quick Overview

• U.S. jobless claims were down 21,000 to 554,000 last week
  

• The Philadelphia Federal Reserve's index of manufacturing improved from -39.3 to -32.9
  
  

• U.S. leading indicators fell 0.4% in November
  

• U.K. retail sales rose 0.3% MoM and 1.5% YoY
  

• (Bloomberg) -- The Bank of Japan cut its benchmark interest rate to 0.1 percent and introduced new ways of pumping money into the banking system to bolster the ailing economy.

• German business confidence (IFO) fell to its lowest level ever in December amid concerns of a prolonged recession.
  

• Canada’s retail sales fell 0.9% in October.
  Canada’s leading indicators fell 0.7% in November.
  

• (Bloomberg) -- General Electric Co.’s debt ratings outlook and those of its GE Capital finance arm were changed to negative from stable by Standard & Poor’s, reflecting concern earnings could deteriorate further than previously thought.
  

• Bush is looking at "orderly" bankruptcy as a way to deal with the U.S. auto industry.

South African central bank gold sales dry up .. Demby also pointed out that demand for gold coins and bullion now exceeded supply by a huge margin as investors were seeking a safe haven from the prospective fallout in the wake of mammoth money supply creation by the United States government.

Quick Overview

• U.K. unemployment rate was 6.0, up from 5.8% MoM.
  

• Construction output in the Euro area rose 0.1% in October, but down 4.0 YoY
• YoY Consumer prices in the Euro area rose 2.1%
  

• Canada wholesale sales fell 1.8% in October
  

• Norway cut its interest rate from 4.75% to 3.00%
  

• OPEC will be cutting oil production by 2.2 million barrels a day as of January 1.
  

• The U.S. Department of Energy said:
  Supplies of crude oil rose 500,000 barrels to 321.3 million barrels.
  Supplies of gasoline rose 1.3 million barrels
  Supplies of heating oil supplies rose 600,000 barrels.
  Refinery use dropped from 87.4% to 84.1% of capacity
  Gasoline demand fell 2.7%
  Distillate demand fell 4.5%.
  

• Russia's central bank allowed the ruble to slide for the second time this week, speeding up the gradual depreciation policy
  
  

• French antitrust authorities ruled that Apple must allow other operators other than France Telecom to sell its iPhone, saying the exclusive deal was unfair for competition.
  

• Morgan Stanley reported a wider-than-expected $2.2 billion quarterly loss.
  

Quick Overview

• The Fed cut the fed funds rate from 1.00% to .125%, and signaled they will keep rates "exceptionally low" for some time amid rapidly waning price pressures.
  


• U.S. housing starts were at a record (since 1959) low annual rate of 625,000 in November, down 18.9% MoM.
  Building permits fell 15.6% MoM.
  


• The U.S. consumer price index fell 1.7% in November rose 1.1% YoY
  


• YoY U.K. consumer prices rose 4.1% in November
  


• Manufacturing and services index in the Euro area fell from 38.9 to 38.3
  


• China’s November steel output fell by 12.4% YoY

Bush Shoe Tosser Signed By The Seattle Mariners SEATTLE, Washington - The Seattle Mariners who in 2008, had the worst record in the American League (61-101) have just signed Muntazer al-Zaidi to a three year, $3 million pitching contract.

Our Updated Take on Gold Prices
The last era of any significant period of deflation was in the 1930s. Although gold was fixed for a long time at $20.67 per ounce, in 1934 a massive devaluation of the U.S. dollar saw its fixed price jump to $35 per ounce. During this period of entrenched deflation, and in spite of the fixed price of the metal, gold proxies saw a dramatic rise in price. The NYSE-listed shares of Homestake Mining Company rose from about $4 to $500 from 1929 to 1935; the company operated for some 120 years until its flagship Homestake mine in Lead, S.D., ran out of economic reserves a few years ago and the company ceased to exist.

Quick Overview

• U.S. industrial production fell 0.6% in November and 5.5% YoY
  

• Japan's Tankan fell from -3 to -24
  

• China's industrial output rose 5.4% YoY
  China’s November iron ore imports rose 6% MoM
  

• The Supreme Court ruled that cigarette companies can be sued by smokers who claim they were deceived by advertisements promoting “light” cigarettes.
  

Madoff and the Global Economy
The big unanswered question, for years, was why this money flow persisted. Why the heck were foreign investors willing to lend the U.S. such large amounts of money on such good terms? Economists and journalists spun out hypothesis after hypothesis (we'll see more below), but there was no agreement on why.

At Last, A Date
Around 2020. That casts the issue in quite a different light. Mr Birol’s date, if correct, gives us about 11 years to prepare. If the Hirsch report is right, we have already missed the boat. Birol says we need a “global energy revolution” to avoid an oil crunch, including (disastrously for the environment) a massive global drive to exploit unconventional oils, such as the Canadian tar sands. But nothing on this scale has yet happened, and Hirsch suggests that even if it began today, the necessary investments and infrastructure changes could not be made in time. Fatih Birol told me “I think time is not on our side here.”

Shipping charter rates soar One of the world’s key shipping markets has begun to recover from a slump, with a revival in Chinese demand for iron ore and coal pushing some average charter prices up almost threefold in the past week.

Fear triggers gold shortage, drives US treasury yields below zero
The investor search for a safe places to store wealth as the financial crisis shakes faith in the system has caused extraordinary moves in global markets over recent days, driving the yield on 3-month US Treasuries below zero and causing a rush for physical holdings of gold

Capitalist Fools by Prof. Joseph E. Stiglitz
Behind the debate over remaking U.S. financial policy will be a debate over who’s to blame. It’s crucial to get the history right, writes a Nobel-laureate economist, identifying five key mistakes—under Reagan, Clinton, and Bush II—and one national delusion.

Quick Overview

• U.S. retail sales fell 1.8% in November
  

• U.S. producer price index fell 2.2% in November and up 0.4% YoY
  

• The University of Michigan's index of consumer sentiment rose from 55.3 to 59.1
  

• Industrial output in the Euro area fell 1.2% in October and 5.3% YoY
  

• The EU will spend 200 billion Euros, 1.5% of GDP, to help the economy.
  

• Japan will spend 23 trillion yen ($255 billion) to help the economy.
  

• Bush dropped his opposition to using the $700 billion bank bailout to provide help for U.S. automakers.

Quick Overview

• (Bloomberg) -- Senate negotiations for a U.S. automaker bailout plan collapsed, in a blow to General Motors Corp. and Chrysler LLC, which may run out of cash early next year.
  “It’s over with,” Majority Leader Harry Reid said.

• U.S. jobless claims rose 58,000 last week to 573,000, the most in 26 years.
  

• The U.S. trade deficit widened in October 1.1 % to $57.2 billion from a revised $56.6 billion in September
  

• Switzerland lowered its interest rate target from 1.00% to .50%.
  

• Korea reduced its interest rate from 4.0% to a record low 3.0%
  

• Australia's unemployment rate increased from 4.3% to 4.4%
  
  

• The USDA's 2008-2009 U.S. ending stocks estimate for:
  Corn was raised from 1.124 to 1.474 million bushels, more than expected.
  Soybeans unchanged at 205 million bushels.
  Wheat was raised from 603 to 623 million bushels.
  Sugar was raised from 907,000 to 961,000 tons.
  Cotton was raised from 6.2 to 7.1 million bales.
  

• The USDA's 2008-2009 world ending stocks estimate for:
  Corn was raised from 110 to 124 million tons.
  Soybeans unchanged at 54 million tons.
  Wheat was raised from 145 to 147 million tons.
  Cotton was raised from 57 to 59 million tons.
  

• USDA lowered its estimate of the 2008-2009 Florida orange juice crop from 166 to 165 million boxes. The projected juice yield was also reduced, from 1.59 to 1.58 gallons per box.
  

• India said war is no solution to stop Pakistan based militants from launching anti-India attacks.
  

Foreclosure Storm Will Hit U.S. in 2009 as Loan Changes Fail
Rising unemployment, expiring foreclosure moratoriums and state efforts that “run out of steam” will push monthly filings toward the record of more than 303,000 set in August, Sharga said. The number of homes that revert to lenders, the last stage of foreclosure and known as “real estate owned” or REO properties, will increase to 1 million from as many as 880,000 this year, he said.

Commodity crash tests faith in supercycle
There is no such thing as consensus in the commodity world, but most experts still think that the economic arrival of two billion people in Asia is a "game-changer" that will underpin prices for years to come..

Quick Overview

• U.S. wholesale sales totaled $377.4 billion in October, down 4.1% MoM, but up 2.7% YoY. Inventories fell 1.1%.

• U.S. foreclosure activity dipped 7% MoM, but jumped 28% YoY RealtyTrac said.
  

• YoY Chinese exports fell 2.2% in November
  

• The U.S. Department of Energy said:
  Supplies of crude oil rose 400,000 barrels to 320.8 million barrels.
  Supplies of gasoline rose 3.8 million barrels to 202.7 million barrels
  Supplies of heating oil rose 1.7 million barrels.
  Refinery use increased from 84.3% to 87.4% of capacity.
  Gasoline demand fell 3.2% YoY
  Distillate demand fell 4.0% YoY.
  

• Bloomberg reported that world’s largest iron ore consumer China may ask global iron ore majors to accept an 82% price cut for iron.
  

• Bloomberg reported that BHP Billiton Ltd shipped the least amount of iron ore from Australia in 9 months amid plunging demand from China.
  

• Rio Tinto is cutting 14,000 jobs.

• Chinas President Hu reiterated the government’s commitment to use all tools at its disposal to maintain economic growth at 8% in 2009.
  

• (Reuters) - A prominent team of U.S.-based researchers predicted 14 tropical storms in the 2009 Atlantic hurricane season on Wednesday and said seven would develop into hurricanes.
  

• The dividend yield on the S&P 500 is 3.48%. The yield on a 30-year U.S. bond is 3.16% -- 1958 was the last time that happened.

• China’s November iron ore imports rose by 6% MoM.
  China's producer price decelerated to an annual rise of 2%.
  

• American Iron & Steel Industries said US weekly raw steel production fell by 44% YoY
  

Q Ratio Signals ‘Horrific’ Market Bottom, CLSA Says (Update1)
At the end of the four largest U.S. bear markets in 1921, 1932, 1949 and 1982, the Q ratio fell to 0.3 or lower, and history is likely to repeat, said Napier. From the 1982 trough, the S&P 500 grew more than 14-fold to the middle of 2000, when Napier says the last bull market ended.

Asian trade in 'Free-Fall' The Baltic Dry Index measuring freight rates for bulk goods began to collapse in June, dropping 96pc over the five months in the most dramatic fall in shipping fees ever recorded. It was a leading indicator of what we are now seeing in Asian trade

Global demand for oil to plummet
“The increasing likelihood of a prolonged global economic downturn continues to dominate market perceptions, putting downward pressure on oil prices,” it said, forecasting that demand would drop 50,000 barrels a day this year and a hefty 450,000 b/d in 2009. US oil demand will drop next year to the lowest level in 11 years.

Quick Overview

• U.S. pending home sales fell 0.7% in October.
  

• Economic sentiment in Germany rose from -53.5 to -45.2
  
  

• White House, Congress reach 15 billion auto bailout deal.
  

• Japan machinery orders fall 4.4% in October

• U.K.'s manufacturing output fell 1.4%.
  

• Canada reduce its interest rate from 2.25% to 1.50
  

• Japan's GDP fell 0.5% QoQ and 0.4% YoY.
  

• YoY South Africa's gold production fell 14.4% in October

• Merrill Lynch and Morgan Stanley, responding to evaporating profits and public ire, won't pay bonuses this year to their chief executives.
  

• (Reuters) - The United States and other rich nations must pledge by the end of next year specific targets for cutting greenhouse gas emissions by 2020 to win agreement on a U.N. climate pact, the U.N.'s top climate official said.
  

• (Bloomberg) -- Cisco Systems Inc., General Electric Co. and Emcor Group Inc. may be winners as President-elect Barack Obama seeks to revive the U.S. economy by rewiring classrooms and libraries for high-speed Internet service and repairing bridges and highways.

Quick Overview

• Stocks are up on signs that the automakers will be able to avoid bankruptcy and Obama’s proposed stimulus plan.
  

• Housing starts in Canada’s fell 19% MoM.
  

• The USDA estimates 2008-2009 world ending stocks of coffee at 39.6 million bags -- 29% of use.
• (Bloomberg) -- World coffee consumption may outstrip production by as much as 8 million bags in 2009-10 because of the smaller crop in Brazil,
  

• More than half of all homeowners who had their loans modified to make the payments more affordable in the first half of the year are already in default again, banking regulators said.
  

Bulk shipping cos may benefit from early ore price resolution "Should China Iron and Steel Association successfully achieve an early reduction in contracted iron ore prices, the dry bulk market could experience a revival as iron ore shipments to more profitable steel mills resume", Nokta said in a report published on Friday

Deflation virus is moving the policy test beyond the 1930s extremes
His point was that central banks never run out of ammunition. They have an inexhaustible arsenal. The world’s fate now hangs on whether he was right (which is probable), or wrong (which is possible).

Oil Contango Pays Most in Decade as Shell Holds Crude in Ships
Stockpiling crude may provide higher returns than commodities, stocks and Treasuries as the U.S., Japan and Europe endure simultaneous recessions for the first time since World War II.

Quick Overview

• U.S. unemployment rate rose from 6.5% to 6.7%
  

• The percentage of U.S. mortgage holders who were behind in their payments rose to 6.99%.
  

• Canada’s unemployment rate rose from 6.2% to 6.3%
  

• Germany's manufacturing orders fell 6.1% in October.
  

Quick Overview

• U.S. jobless claims fell 21,000 last week to 509,000,
  
• U.S. factory orders dropped 5.1% in October.
  

• The European Central Bank reduced its interest rate from 3.25% to 2.50%,
  

• Australia reduced its interest rate from 6.5% to 5.0
  

• Britain reduced its interest rate from 3.00% to 2.00%,
  

• Sweden reduced its interest from 3.75% to 2.00%.
  

• GDP in the Euro area fell 0.2% QoQ, but up rose 0.6% YoY.
  

• (WSJ) Harvard University's endowment has investment losses of 22%, or about $8 billion, since the end of the school's fiscal year.
  

• Bernanke called on government to ramp up efforts to stem home foreclosures.
  

Recession: When the money goes, so does the toxic wife
The Toxic Wife, first identified in these pages almost two years ago, is a particular and terrifying species.

Defaults May Beat Great Depression, Junk Bonds Say
Defaults and bankruptcies are accelerating as financing options for high-yield companies dwindle amid the longest U.S. economic recession in at least 26 years. The U.S. default rate rose to 3.3 percent in October, according to Moody’s, which forecasts the rate to increase to 4.9 percent in December and 11.2 percent by November 2009.

World stability hangs by a thread as economies continue to unravel
The working assumption of the "Great Boom" is – or was – that we live in a benign era where most societies are converging towards some form of market liberalism; where trade and capital flows are unrestricted; where governments have enough legitimacy to keep order by light touch; where a major war is unthinkable.

Quick Overview

• Australia reduced its interest rate from 5.25% to 4.25%,
  

• Producer prices in the Euro area fell 0.8% in October, but rose 6.3% YoY.

• Thailand reduced its interest rate by 1% to 2.75%
  

• November U.S. vehicle sales for:
  Ford fell 31% YoY
  GM fell 41% YoY
  Chrysler fell 47% YoY
  Toyota were down 34% YoY
  Honda were down 32% YoY.

• (Bloomberg) -- Stocks in the U.S. and Europe will withstand a “full-blown” global recession to surge in 2009, UBS AG said.