The Daily Reckoning

Well Friday was a snoozer in New York. Markets didn’t make new highs. But they didn’t crash either. The S&P 500 remains near a 17-month high. And by most accounts, everything is fine in Greece, everything is fine in China, and the whole world is convalescing nicely from the last two years of crisis.

Or not.

Last week, we took up the case for why a second wave of falling asset prices would happen sooner and not later. You’d get the one-two combination of more deleveraging and falling stocks and bonds, followed by a massive government-induced inflationary campaign. Today, you’ll see why we think it is a matter of months before this happens.

First though, whose gold is China buying? It’s own!

Gold prices were down on Friday again and gold is 3.6% off its recent high. Old yellow metal is trading at around $1,101.70, according to the April futures contract. The sense of urgency over the Greek crisis has eased. And no one thinks China is going to buy IMF gold. Why?

Speaking last week at the National People’s Congress, China’s foreign exchange regulator Yi Gant told a press conference that, “currently a few factors limit our ability to increase foreign-exchange investment in gold.”

As we wrote in a note this weekend, most analysts immediately took that to mean China would not be a buyer of the 191.3 metric tons of gold the International Monetary Fund announced it would sell on February 17th. And if China were out as a major buyer of gold on international markets, speculators reckon that the gold price is in for a fall.

Yet China bought almost 50% of the gold purchased by central banks in 2009. So where did that gold come from?

China purchased 454.1 tons of gold on its domestic market last year. It didn’t have to go shopping overseas. China can buy its own home-grown gold because for the last three years in a row, it’s been the world’s largest producer. China produced over 300 tonnes of gold for the first time ever in 2009, according to the China Gold Association.

That means that last year’s domestic gold consumption exceeded mine supply. Were Chinese authorities buying above ground gold too? The number of producing gold mines in China has fallen from 1,200 in 2002 to 700 in 2009. You can see China is scrambling to produce as much gold as fast as it can.

This could be a case of a “Do as I do, not as I say.” Why bid up the price of gold on international markets when you can buy your own domestically produced gold? As a senior People’s Bank of China figure reportedly said that, “China should formulate a long-term plan and constantly and secretly increase its gold holdings… PBoC should try to buy as much gold as possible from China’s annual gold output of almost 300 tons, while the gold needed by industries and residents could be imported.”

But the case for gold is pretty simple. To paraphrase fund manager David Einhorn, if you believe monetary and fiscal policy across the world are sensible, sell gold and buy Treasuries. If you believe monetary and fiscal policy around the world are bad, sell Treasuries and buy gold. You don’t have to a cult follower or a true believer to profit from that kind of trade.

Gold made its big move in 1980. It peaked at $850 in early January. What’s interesting is that ten-year U.S. Treasury yields didn’t peak (at around 16%) until over a year later, in June of 1981. The speculators blew the top off the gold market well before they were sure Paul Volcker had a lid on inflation. Once it became clear punitive U.S. rates would kill inflation, the gold bull died.

But wait! U.S. rates went up because the Fed was fighting inflation. And it was fighting inflation because…there was inflation! How can we expect gold to rise on higher rates if there’s no inflation to fight?

The answer is that the Fed’s quantitative easing program is set to end this month. Over the last year, the U.S. central bank has spent over $1.25 trillion buying mortgage-backed securities. This has kept ten-year U.S. interest rates low and mortgage credit flowing to the American housing market. The Fed has said that program will end by the end of this month.

What will happen next? Already we’ve seen investors crowding into the short-end of the U.S. Treasury market. Treasury notes with maturities of three-years less are a nice, near-cash, highly-liquid alternative to taking any risks anywhere else. Hence lower short-term U.S. interest rates, driven partly by the Fed and partly by the market.

With the Fed set to end its QE program, we’d expect market forces to assert themselves in the bond market. You’ll get a steeper yield curve. Without the government gaming the trade, investors are going to price U.S. bonds based on the soundness of U.S. fiscal and monetary policy. In this scenario, we think gold will attract more speculators (although the big ones like George Soros have already positioned themselves for this move.)

The news that European finance ministers have agreed, in principle, to a bailout of Greece, might take even more urgency out of the sovereign debt crisis theme. And that, in turn, might even drive the gold price lower. But all these things are prelude to a bigger crisis. Papering over the insolvency of the Welfare State can only last so long – and we think the dominos will begin to fall in months, not years.

In the meantime, though, the continued de-leveraging of the private sector means even larger public sector deficits. According to flow of funds data released the by the Federal Reserve last week, both U.S. household and businesses reduced debt in 2009. The government added debt.

In fact the Fed data show that U.S. households reduced debt on an annual basis for the first time ever in the history of the data series, going back to 1946. Household debt levels shrunk by 1.7%, with mortgage debt declining by 1.6% and credit card debt declining 4.6%.

It’s obvious at the household level, where the employment picture is awful, that Americans are preparing for less spending and less income growth. They are not borrowing from future earnings to sustain current living standards. The worm has turned.

And you can’t blame businesses for reducing debt by 1.8% either. Why borrow if you’re not going to increase capital spending or employment growth? There’s a political issue here too. You could argue that business investment is cyclical and will go up eventually. But with the U.S. Congress deadlocked over health care legislation (that if passed might be repealed by the next Congress elected in November), there is a lot of uncertainty. You could also call that political risk.

Into the household caution and business uncertainty, the Federal government increased debt by 22.7% in 2009. It was below the 2008 record of 24.2%. But it’s clear that as the private sector deleverages, the government – under the misguided Keynesian assumption that it must support demand – is trying to fill the breech with borrowed money.

This sets the stage for the next episode of the U.S. dollar crisis. Right now, that may look remote, given the easing of tensions in Europe. But don’t get too complacent. The underlying fundamentals of the dollar suck. With the Fed’s QE program set to end this month, a veritable monetary Pandora ’s Box will be opened.

Of course the Fed could just announce it’s extending its QE program. But what effect would that have on the dollar? On gold? On oil? And how does Australia fit in all of this? More on that tomorrow…

Dan Denning
for The Daily Reckoning Australia

Similar Posts:

• The Story Behind China Dumping its US Treasury Debt
• China is a Key Driving Force in the Gold Market
• We Can Expect More and More People to Want to Own Gold
• Is China Trying to Back its Currency With Metal?
• Fall in Commodity Prices Will Reduce Inflationary Forces

More articles from The Daily Reckoning….

By Charles Hugh Smith, OFTWOMINDS
The widespread view of cities as parasitic consumers of rural food production overlooks the tremendous quantity of food which could be grown (or was once grown) in cities.

A common “Survivalist” scenario foresees cities imploding into heavily armed and utterly ruthless warring gangs within a few days of the supermarket shelves being emptied by hoarders. This view overlooks the long history of food production within cities, stretching back thousands of years, and the fact that pre-petroleum “modern” cities such as Paris supported populations in the millions with a mix of urban-grown food and horse-drawn (or human-powered) carts and river barges of food from nearby sources.

I cannot recall the source (my excuse is information overload from the huge array of sources I read) but it seems that about 1/3 of “modern” cities’ food supplies were until rather recently provided by urban gardeners, small-scale egg/fowl production, etc.

For an overview of precisely how large, complex cities functioned in the pre-petroleum age (circa the foundation of modern capitalism, not be confused with the crony-cartel simulacrum we suffer from today), I recommend the three-volume masterwork by Fernand Braudel, Civilization & Capitalism, 15th to 18th Centuries:
The Structures of Everyday Life (Volume 1)
The Wheels of Commerce (Volume 2)
The Perspective of the World (Volume 3)

It is not inevitable that cities are hopelessly unsustainable, it is poor planning, ignorance and incompetence on the part of city agencies and the lackey politicos who are owned by real estate developers and other Protected Fiefdoms.

For a taste (pun intended) of just how productive a network of small urban gardens can be, please consider The Urban Homestead: Your Guide to Self-sufficient Living in the Heart of the City.

There are ample opportunities for creative approaches to growing more food in cities. Here is but one exploration in the pages of Scientific American (check out the November 2009 issue at your local library).

Growing Skyscrapers: The Rise of Vertical Farms Growing crops in city skyscrapers would use less water and fossil fuel than outdoor farming, eliminate agricultural runoff, and provide fresh food.

Granted this is a “high-tech” scenario, but the principles laid out–using gray water, solar arrays on buildings, greenhouses for year-round growing, etc.–are common-sense and potentially applicable to the abundant “crop” of abandoned buildings dotting the American urban landscape.

I can attest to the insane quantity of food that can be grown on a postage-stamp urban garden (our own, a 15′ by 18′ dirt patch around our peach tree) and the stupendous yields which can be gathered from urban orchards (we have two fruit trees, and they supply multiple households).

This is important: now is the time to order your seeds for the coming growing season, and please check out the catelog of this site’s longtime supporter,Everlasting Seeds. Everlasting Seeds has supported oftwominds.com for well over a year, and it has a special offer for veterans of the Armed Forces–an acknowledgement which means a lot to the proprietor of Everlasting Seeds and to me.

I just ordered my seeds from Everlasting Seeds, and I think you’ll enjoy looking at their offerings. If you’re a small urban gardener like myself, then you might consider giving away some seeds to friends, as a way of encouraging them or aiding their own gardening efforts. Every order will be helping a small business doing good work for the betterment of the nation and its residents.

I have been growing vegetables since 1969 (in the red earth of Lanai, Hawaii, in my junior year of high school) and the satisfaction is not describable in the language of a consumerist/media-distorted culture such as the U.S.

Tommie over at one of my favorite blogs, Freedom Guerrilla “gets it”: growing even one tomato plant in a pot is a revelation. Is there any wonder that hardened prison/jail cons find previously unknown satisfaction, purpose and healing in gardening and caring for pets? Animal husbandry and agriculture’s roots run deep in all of us, as do hunting, fishing and collecting food (gathering).

In aggregate, there are significant swatches of open land in cities which are completely underutilized. There are rooftops which are unused which could support growing boxes. So-called “Third World” cities–so often looked down upon by spoiled first-world residents– often have robust and sophisticated urban and/or suburban suppliers of food, especially fowl and fish which can be grown in small-scale environments.

When fish and animals are grown in large-scale industrial operations, it is an environmental catastrophe: the staggering quantities of animal waste are a pollutant, the antibiotics used to suppress the spread of disease in an unhealthy monoculture setting are detrimental to the animals and those who eat them, and so on. Small urban plots supporting a few chickens (or a small suburban pond for fish) are healthier all the way around.

Cities need not be entirely dependent on some distant oil-dependent industrial production of grain and factory-meat. That choice is one based on ignorance of what is possible, ignorance of how cities fed themselves a mere 120 years ago (never mind 500 years ago), and a gross misunderstanding/ incompetence on the part of Fiefdom-Elite dominated city officials and urban residents.

We in the so-called “First World” could learn quite a lot from our own past and from successful, innovative “Third World” cities.

Urban Planning books of interest:

The Geography of Nowhere: The Rise and Decline of America’s Man-Made Landscape(James Howard Kunstler)

Home from Nowhere: Remaking Our Everyday World for the 21st Century (James Howard Kunstler)

The City in Mind: Notes on the Urban Condition (James Howard Kunstler)

A Pattern Language: Towns, Buildings, Construction

Streets for People: A Primer for Americans

The Death and Life of Great American Cities

Global City Blues

The New Transit Town: Best Practices In Transit-Oriented Development

Planet of Slums

The Works: Anatomy of a City

Books on the industrialization of food production in the U.S. and the consequences:

The End of Overeating: Taking Control of the Insatiable American Appetite

The Omnivore’s Dilemma: A Natural History of Four Meals

Food, Inc. (film)

King Corn (film)

Super Size Me (film)

Fast Food Nation (film)

Fast Food Nation (book)

Rats in the Grain: The Dirty Tricks and Trials of Archer Daniels Midland, the Supermarket to the World

The Informant: A True Story

Self-Sufficiency/Gardening, much of which can be applied to urban/suburban zones:

When Technology Fails: A Manual for Self-Reliance, Sustainability, and Surviving the Long Emergency by Matthew Stein

Gardening When It Counts: Growing Food in Hard Times

Storey’s Basic Country Skills: A Practical Guide to Self-Reliance

Just in Case Kathy Harrison

The Urban Homestead: Your Guide to Self-sufficient Living in the Heart of the City

Depletion and Abundance: Life on the New Home Front Sharon Astyk

It’s a Long Road to a Tomato: Tales of an Organic Farmer Who Quit the Big City for the (Not So) Simple Life

Five Acres and Independence: A Handbook for Small Farm Management

Food Security for the Faint of Heart

How to Build Animal Housing: 60 Plans for Coops, Hutches, Barns, Sheds, Pens, Nestboxes, Feeders, Stanchions, and Much More

A Nation of Farmers: Defeating the Food Crisis on American Soil

The Humanure Handbook: A Guide to Composting Human Manure

Rainwater Collection for the Mechanically Challenged

Radical Homemakers: Reclaiming Domesticity from a Consumer Culture

Cook Food: A Manualfesto for Easy, Healthy, Local Eating

If you haven’t visited the forum, here’s a place to start. Click on the link below and then select “new posts.” You’ll get to see what other oftwominds.com readers and contributors are discussing/sharing.

DailyJava.net is now open for aggregating our collective intelligence.

Order Survival+: Structuring Prosperity for Yourself and the Nation and/or Survival+ The Primer from your local bookseller or from amazon.com or in ebook and Kindle formats.A 20% discount is available from the publisher.

Of Two Minds is now available via Kindle: Of Two Minds blog-Kindle

Go to my main site at www.oftwominds.com/blog.html
for the full posts and archives.

More articles from Charles Hugh Smith….

By Karl Denninger, The Market Ticker

The Jenner and Block report on Lehman has of course brought out many comments about Lehman and its management, along with what appears to be clear culpability of both management and government actors.  I wrote about these factors and raised serious questions as well.

Today, however, I want to focus in a different direction.

It is rare that we learn the precise reasons behind a collapse in the markets.  What set people off in 1987, for instance?  We’ll probably never know.  Nor do we know what the precise cause was of the 1929 crash.

The Jenner and Block report, however, lays out something very disturbing: As early as July 31st it appears Citibank knew that Lehman in fact had no cash – nor any liquid collateral to post for repo transactions.

Repo transactions are what makes the world go ’round.  They’re the “oil” in the engine, so to speak.  When two financial parties have various trades they’re settling for one another (as Citi was for Lehman in the FX markets) the posting collateral to obtain short-term cash is how one secures the clearing of these trades.  There’s nothing magical about them, but without them the common, every day occurrence of transactions in the marketplace simply stops.

Specifically:

Contributing to the difficulty of finding collateral that was agreeable to bothparties was the fact that Fleming told Citi that Lehman repoed out for cash all of the marketable securities in its liquidity pool.

That one sentence right there says it all.

Now let’s overlay a few things.  First, the S&P 500 chart from the time in question:

It went on for a while, didn’t it?

Now Lehman:

That went on for a little while too.  About a month, to be exact.

Here’s the problem – Lehman was functionally bankrupt at that particular instant in time.  It was trying to post less than $4 billion in collateral and couldn’t come up with anything acceptable.

Would you press a short bet knowing this?  You damn sure would.  Indeed, you’d be insane not to.

Let’s consider the unfortunate reality of how this sort of circumstance develops:

This sort of circumstance happens when firms have huge amounts of securities that are marked at values that have no reasonable relationship to reality within the marketplace.  The issue is not “liquidity”, as anything that has an agreeable value in the market can be repo’d out for cash on a short-term basis.

Now consider this: What are the banks holding right now, and have the actions of government made another run at this problem more or less likely?

They have hundreds of billions of dollars of “illiquid” HELOC and other Second Line exposures on their balance sheets.  Like Lehman, they’re valuing most if not all of this in the 90s.  But the market for them is literal pennies – any of these loans behind an underwater first is worth zero if the first stops paying and forecloses.  Thus, the letter from Barney Frank.

The actions of early last year when FASB changed the rules are exactly backward.  By allowing this trash to remain on balance sheets with fantasy marks FASB and our government has set up a potential Lehman in every one of our large financial institutions.

These fantasy marks effectively remove this collateral from that which can be used for routine daily operational purposes.  That in turn makes the available liquidity a smaller percentage of the firm’s balance sheet, and drives it closer to insolvency.

Remember what Lehman did at earnings time: They made it appear that they had a smaller balance sheet than was real, and that they had more cash than really existed.  Why?  Because their liquidity looked larger as a percentage of the balance sheet than it really was, which was intended to lead the market to believe that they were “healthy.”

Well, what are we doing here?  By intentionally expanding asset valuations beyond true value we’re doing the precise same thing!

Does this mean that we’re going to get a blow-up tomorrow?  Of course not.  But it points to a severe danger – when one’s assets are impaired – whether due to being “infrequently traded” or because you’re carrying them well above a market price – you’re asking for it.  All it takes is for the securities you can pledge to be drained and you’re doomed.

Now take a look back through the last few Tickers.  I keep seeing evidence that the banks are not only holding things above reasonable recovery value in the HELOC space they’re doing it everywhere else too, whether it be not foreclosing on homes, making bogus reports to credit bureaus about payments that are not being made or accepting ridiculously small payments that are a tiny fraction of even “interest only.”  Why?  There’s only one reason that makes sense – to claim (falsely) that their assets are worth more than they are – that they’re “performing”, “have collateral value of X” or ”paying” when in fact they’re not.

How long will it be before the next large financial institution goes to post a repo and has no good collateral?

I have no idea.

But this I do know: If it happens again “they” won’t be able to stop the crash with promises and BS.  In fact, they won’t be able to stop it at all.

Washington should step in here right now and demand honest marks.  If this means taking the big banks into receivership then it does. 

I know nobody wants to talk about it any more, but we have to.  If it’s done now, in a controlled fashion, it will be expensive. 

If we have another Lehman, we won’t be able to cover it.  The cost of a disorderly event will easily exceed $1.5 trillion for depositor claims alone, and we simply don’t have the money and won’t be able to raise it.

This can’t be left alone folks.  Valuations are not coming back any time soon on these loans.  Not for years – maybe a decade or more.

We simply don’t have that long before someone else has “an accident.“

More articles from the Market Ticker….

University of Leeds Professor Joyce Dargay and New York University Professor Dermot Gately have a new research paper suggesting that projections from the DOE, IEA, and OPEC are underestimating the challenges ahead for meeting world oil demand.

Research by Baumeister and Peersman and Hughes, Knittel, and Sperling, among others, has documented that oil demand appears to have been much less responsive to price over the last decade than it had been in the 1970s. My recent study in the Brookings Papers on Economic Activity (published version here, working paper version here) concluded that this decrease in the elasticity is one of the key factors behind the oil-price run-up of 2007-2008. The surprise to markets in 2008 was that even $100 oil wouldn’t be enough to prevent world demand from growing above 85 million barrels a day, and much more than 85 million barrels a day simply wasn’t going to be produced at that time.

Dargay and Gately’s new paper notes how different the recent experience was from the past:

compare two decades in
which the price of crude oil has quintupled: 1973-84 and 1998-2008. After the price increases of the
1970’s, per-capita demand fell by 19% for the OECD and by 13% for the world as a whole. In the past
decade, with oil price increases similar to those of the 1970’s, per-capita demand fell only 3% in the
OECD; worldwide it actually increased, by 4%.

The authors note that the overall responsiveness of oil demand to the price increases of the 1970s masks some very different developments. While there were substantial reductions in OECD use of oil for non-transportation purposes, changes in transportation demand and demand outside the OECD were much more modest.

Source: Dargay and Gately (2010)

Those trends are even more dramatic when you look at the numbers in per capita terms.

Source: Dargay and Gately (2010)

Dargay and Gately conclude:

The factors most responsible for reducing demand
since 1971 cannot be repeated. Almost all the low-hanging
fruit has now been picked; it cannot be picked
again. The OECD has already done the easy fuel-switching,
away from oil used in electricity generation
and space heating.

The authors’ inference is not an optimistic one:

If annual per-capita oil demand growth rates to 2030 were assumed to be held zero in the OECD, 1% in
the [former Soviet Union], and at its 1971-2008 historical rate (2.54% annually) in the rest of the world, total oil demand
will be 138 mbd in 2030– about 30 mbd greater than what is projected by DOE, IEA, and OPEC.

If you have a plan for how the world might produce 138 mbd, I’d like to hear it. If not, the challenges of 2007-2008 will return with a vengeance.

Transportation adjustments will be the key. Trying to make more use of natural gas as a transportation fuel should be a high priority for the United States.

Read more….

India’s food inflation based on wholesale prices has steadied at 18% with government officials confident that it will come down in the coming months on good rabi crop. OPEC has forecasted increased energy demand in the coming months indicative of crude oil support near to $80 levels.

Read more….

India’s food inflation based on wholesale prices has steadied at 18% with government officials confident that it will come down in the coming months on good rabi crop. OPEC has forecasted increased energy demand in the coming months indicative of crude oil support near to $80 levels.

Read more….

Hearty Doomish greetings go out to Ian M, his friends in and around UBC's comp sci department and nerds everywhere (hi Admin!)  This is your day

Alas at some point along the way Ian's old man severely lost his way and became … an Arts nerd?

There was the time back on June 16, 2004 when the Chronicle-Herald picked up a stale wire story and I awoke to find …

.

"Orlando Bloom Named World's Sexiest Actor"

emblazoned all the way across page E1 of my breakfast newspaper.  I couldn't stop laughing for a week.

That was followed by a year and a half painstakingly constructing a Spenserian sestina to demonstrate the application to D-chiro-inositol of a radical new strategy for cyclitol specification, but for today perhaps it will be just as well if I limit the fun and games to a pair of ghazals inspired by one of the Gray Code examples in Knuth.  They're actually two of the draft sections for a long sequence of celebrations of our neighbourhood catch basins I've been working on titled Empire of Drains.

            Pawns

Be my sword you fat French spade, mucking to the prize.
Glow harder, swifter, smaller, oh spark struck in my father's eyes.

I found the willow wands unasked but they'll look nice
on the mantle, fire crackling, skirts rustling; tinkling of father's ice.

Outside, together, raise the picnic table, praise the cross.
How warm it is to shelter and forgather at my father's house.

Who wants to carry a caldron, mince mushrooms, memorize a curse?
Not I, a diamond scepter let me bear on father's horse.

But maybe it's for me when others judge the case.
If I could spell, would it disturb my father's ease?

Let me bear tankards while the children all carouse.
I see his club, there's no one in this awful house.

Locked fast inside the cockpit; see, this finger knows
I need to scream and dive upon my father's house.

Awake pentacle and float above my cloud. You'll rise
to when you rain like shekels, dancing in my father's eyes.

.

            More Pawns

Despite the love no resting in my mother's arms.
I drained that cup for nation (Mother's) harm.

Burn this stick, I'll show you what I am.
Dentistry accorded with my mother's aims.

Sing out, out! It won't contain, this room.
Dance seven-times-seventy-times around my mother's home.

Ring-scores on glass sparkle in the gloom.
Last night I dreamed of mother, home.

Let them perceive a black sizzling when we come.
And what's for this night's supper mother, ham?

They came for singing, but I'll entertain the dome.
Tap wands, pull bunnies till my mother come.

Break in, the gate, I need to dig that loam.
The brush awaits let burn my mother's umb.

Smart toilet – what coin would operate, what alms?
Brush off this straw, then set me in my mother's arms.

.
John Wise McLeod

Read more….

The Daily Reckoning

Yesterday was another dull day on Wall Street. The Dow rose 2 points. Oil held at $81. Gold didn’t move enough for us to remember, one way or another.

The recovery continues…or so says the mainstream financial press. But the economy is still losing jobs…and people are still getting poorer.

NEW YORK (CNNMoney.com) – The percentage of American workers with virtually no retirement savings grew for the third straight year, according to a survey released Tuesday.

The percentage of workers who said they have less than $10,000 in savings grew to 43% in 2010, from 39% in 2009, according to the Employee Benefit Research Institute’s annual Retirement Confidence Survey. That excludes the value of primary homes and defined-benefit pension plans.

The American economy has apparently peaked out. Its labor is too expensive. Its consumers are tapped out. Its government is going deeper and deeper into debt, with no way out. In other words, the US economy is yesterday’s news. We’re here in Mumbai learning more about tomorrow’s news. We sat down with a group of 12 analysts trying to understand what is going on in India, generally. Of particular interest was Tata Motors… Our investment team at the family office recommended it last year. It went up 468% over the last 12 months…

“Sell it now,” said an analyst here who follows the automobile sector.

You see the Tata name everywhere here in India. Autos (the family owns Jaguar), coffee shops, hotels, insurance, airlines, chemicals – you name it. Tata seems to own the whole country. Just about everything seems to have a Tata company behind it.

But who is behind Tata? The company is run by Ratan Tata, graduate of Cornell and Harvard, who is unmarried. With no children.

“The family is part of a tiny minority in India,” a colleague explained. “They are Zoroastrians…which we call Parsees. They are a disappearing group because they don’t believe in getting married and having children. And if a Parsee marries a non-Parsee neither of them can continue to be a Parsee.”

They sound like the Japanese. On the road to extermination. But this dead-end is peculiar to the Indian Zoroastrians. Other groups of Zoroastrians accept converts…some even recruit them.

The word ‘parsee’ or ‘parsis’ was the term applied in the state of Gurajat, in Western India, to anyone coming from Persia. The Zoroastrians were originally from Persia, where they were pushed out by the Muslims. Now, they are a small religious minority, with a few recruiting centers…including one in Los Angeles.

“Parsees believe in playing an active role in the world. They fight for good against evil and try to establish order against chaos,” says our informant.

We don’t like to criticize anyone else’s religion, but it sounds a little flat to us. Where are the body thetans? Where’s the crucifixion? Where’s the bread transformed into the body of the savior? That’s probably why the Zoroastrians have lost market share. Not enough magic and mystery.

But we’re not here to improve the world’s religions. In fact, we’re not here to improve anything. We’re just watching…wondering…and waiting for the next absurd thing to happen.

Hey…here’s something. Page one of the Times of India. It says that the president of France and his new wife, Carla Bruni, are both having affairs. The president is said to be doing a little hootchi kootchi with his minister of ecology. And if you believe the report, the first lady of France is now living with another guy.

Oh well…those French!

Back to our beat…money. Money doesn’t cheat. It doesn’t lie. It doesn’t run around. It is interdenominational and ecumenical.

Well…real money doesn’t cheat. You can trust gold. On the other hand, those paper dollars, euros and rupees are completely faithless. They say they’re worth a certain amount one day. The next, it’s a whole ‘nuther story.

Lately, the dollar has been doing well. The bond market has held up…despite the extraordinary demands placed on it by the world’s governments.

In February alone, the US government ran a record deficit of $221 billion. And February is a short month. Annualize that and you’ve got about $2.5 trillion in excess spending.

That money has to come from somewhere. And even if you took 100% of America’s savings…it still wouldn’t be enough.

If you’re married to the dollar…it’s time to see a divorce lawyer.

Regards,

Bill Bonner
for The Daily Reckoning Australia

Similar Posts:

• In India With a Strategic Partner
• Homebuilding Goes Down While Economy Gathers Strength
• Australian Credit Card Debt Grew by 9% in February
• Unlike China, India is Not Willing to Learn from its Mistakes
• BRIC – Brazil, Russia, India and China Suffer High Rates of Inflation

More articles from The Daily Reckoning….

The Daily Reckoning

The private sector ruined itself in the bubble of ‘03-’07. Now, it’s the public sector’s turn. All over the developed world – with a few exceptions – the feds are adding debt at an alarming rate.

The US has already passed “the point of no return,” says a report from Casey Research. Ken Rogoff and Carmen Reinhart put that point where external debt passes 73% of GDP or 239% of exports. IMF data, says the Casey team, shows the US has already gone too far on both scores, with external debt at 96% of GDP and 748% of exports.

We’re in Mumbai, India, checking in with one of our ’strategic partners.’

In our family office, where we keep the family money, we take big bets over long periods of time…working with strategic partners who are knowledgeable about key sectors. Last year, we missed the rally in US stocks. But we’re lucky in our choice of friends and business partners. Two of our strategic partners – one in the resource area…the other in India – more than doubled our money.

Over the last 12 months, Mumbai’s Sensex index has gone up more than 108%.

But our bet on India is for the very long term. In the recent financial crisis, that bet seemed to go bad. Foreign investors pulled their money out of India along with other emerging markets – even though India had very little exposure to the banking crisis itself.

What’s ahead? Seven percent GDP growth this year…nine percent next year. The first figure is news. The second is a forecast. But there are good reasons to be bullish on India for the long pull. Stay tuned…

Bill Bonner
for The Daily Reckoning Australia

Similar Posts:

• A Look at Strategic Oil Reserves – Who’s Buying Oil?
• Tata is Everywhere in India
• India Beats China to Walk Away With 200 Tonnes of IMF Gold
• Bureaucracy and Corruption Holds India Back
• Unlike China, India is Not Willing to Learn from its Mistakes

More articles from The Daily Reckoning….

Much press has been dedicated these past few days to Gary Gensler, Chairman of the Commodity Futures Trading Commission (CFTC) and ex-Goldman Sachs partner. A New York Times article regales us over his apparent transformation from a hard-line acolyte of then Treasury Secretary and former Goldman Chairman Robert Rubin, long an advocate for a ‘hands off government’ over derivatives trading that was to grow to a $300 trillion (I repeat, trillion) runaway market and become an unsupervised, unregulated financial WMD.

That, supposedly, was then and this is Gensler now: “Wall Streets interest is not always the same as the public’s interest.” Or, “Wall Street thrives and makes money in inefficient markets, and I am creating efficiencies in the market.” Really?

Back in May 2009 Gensler took over the CFTC, an agency that in July 2008 organized an “Interagency Task Force on Commodity Markets” report and, with oil prices scaling $147/bbl, concluded that it “does not support the proposition that speculative activity has systematically driven changes in oil prices.” A conclusion I leave to the reader to determine whose interests were being taken into account.

Apost concurrent to Gensler’s confirmation raised the issue that oil prices had increased dramatically from February 2009 lows of $32.70/bbl to $60/bbl in May 2009, causing the likes of the Financial Times to comment that the fundamentals are “weaker, much weaker than current prices imply.” The implications of speculation and/or manipulation were clear, and Gensler at the CFTC would now be in the hot seat.

What has happened since? The price of oil has extended its rise from $60/bbl to over $80/bbl, and that with imports of oil down significantly, given that oil storage terminals are full, and having a surprisingly positive impact on our foreign trade balance. Yet irrespective of more than ample supply in the upside down world of oil prices: the more oil there is on the market, the more we pay per barrel.

But then Gensler’s CFTC gave us a bright shining moment of an oil industry influenced government’s reversal in form and candor on issues oil. On July 27, 2009 the Wall Street Journal blazoned their headline, “Traders Blamed For Oil Spike,” advising that the CFTC was to issue a report ‘next’ month “suggesting that speculators played a significant role in driving wild price swings in oil prices — a reversal of an earlier CFTC position.” As well that month, the CFTC had announced that it was considering volume limits on energy futures by financial/proprietary traders and tougher information requirements. Almost immediately the good folks on Wall Street energized their K Street lobbying clan to stop the CFTC and their old work mate Gensler in their tracks. We are still waiting for that report!

The outrageous dysfunction of the commodity markets and the tepid CFTC oversight continued blithely along. Late in the week of November 9th, 2009 the Energy Information Service announced that oil stocks had surged by 1.762 million barrels, much more than expected, and that the U.S. refineries processing rate sank to 79.7%, the lowest in more than two decades. Against all reason, instead of collapsing prices, the price of oil jumped by $2.50 on the very day of the announcement, eliciting a post, “The CFTC and Department of Energy Snore Away While the Oil Patch Makes Hay” 11.18.09.

And so it continues. While Mr. Gensler and his CFTC Vaudeville act continue to fiddle away, the distortion in oil prices is burning a billion dollar hole a day in American consumers pockets (please see “The Billion Dollar Day Extortion: A Somnolent Administration and Dysfunctional Congress’ Gift to the American People” 02.22.10).

As for Mr. Gensler, he is now, after all these months calling for some form of federally mandated limits on speculative trading on oil, gas and other energy futures. But don’t hold your breath. It will all be subject to a 90 day comment period. When all is said and done it will be a year or more since Mr. Gensler’s ascension that anything will have been accomplished, if at all, to rein in the distortions being promulgated on the commodity exchanges. In the meantime, billions are being transferred to oil interests from the pockets of American consumers and putting at risk the feeble economic recovery now underway!

An apocryphal comment in the NYTimes article refers to Gensler’s time at the Treasury when asked to investigate derivatives held by South Korean Banks and being “amazed at how little information the banks could provide”

“Knowing what we know now, we should have banged the table more forcefully” he now says.

Well Mr. Gensler, as oil trading has become the litmus test of all commodity exchange based pricing, we are waiting to hear the loud bangs, especially when it comes to oil!

Read more….