by Addison Wiggin & Ian Mathias
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OPEC contemplates abandoning our “worthless paper” greenback
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18 nations ditch the dollar… Japan and China slowly exercise their “nuclear option”
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Goldman downgrades Citigroup, predicts up to $15 billion in losses
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Wall Street I-banks to issue $38 billion in bonuses despite dismal 2007
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Gold prices got you down? James Turk on the next stage of the gold bull market
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Plus… Chris Hancock on how Beijing could be literally buried in sand
“They get our oil and give us a worthless piece of paper,” Iranian President Mahmoud Ahmadinejad told his OPEC cronies on Sunday. OPEC’s 13-member cartel met over the weekend, and the decline of the dollar was clearly on the minds of its ministers.
“All participating leaders showed an interest in changing their hard currency reserves to a credible hard currency,” Ahmadinejad said. “Some said producing countries should designate a single hard currency aside from the U.S. dollar… to form the basis of our oil trade.”
“That’s right heathens… 2… $200 a barrel”
“Don’t you see how the dollar has been in free-fall without a parachute?” chimed in fellow nutjob and OPEC minister Hugo Chavez. “The empire of the dollar has to end,” said he, urging his OPEC brethren to shift to the euro.
Curiously, neither mentioned their own worthless paper currencies during the press conference.
In the official OPEC postmeeting statement, Secretary General Abdalla Salem of Saudi Arabia said that OPEC will “study ways and means of enhancing financial cooperation among OPEC… including proposals by some of the heads of state and governments in their statements to the summit.”
Iranian and Iraqi ministers will both be spearheading studies on the dollar and its affect on OPEC’s oil revenues and currency reserves.
As of this writing, OPEC controls 40% of the world’s oil production and 75% of its reserves.
Friday’s Treasury Dept. TIC data revealed that Japan, China, Caribbean banking centers, Luxembourg, Hong Kong, Korea, Germany, Singapore, Mexico, Switzerland, Turkey, Canada, the Netherlands, Sweden, France, Russia, Ireland and Israel were all net sellers of U.S. Treasuries in September.
For three months in a row, Japan and China — the world’s largest holders of U.S. government debt — were sellers of such Treasuries. They now hold less than $1 trillion in dollar reserves.
From a trading perspective, the dollar held on to its recent rally over the weekend. The euro, pound and yen all stood mostly still… at $1.46, $2.04 and 110, respectively. The dollar index remained around 75.7, less than a point above its all-time low.
“So long as the dollar weakness does not create inflation, which is a major concern around the globe for everyone who watches the exchange rate, then I think it’s a market phenomenon, which, aside from those who travel the world, has no real fundamental economic consequences,” uttered Alan Greenspan yesterday morning, echoing the same sentiment Ben Bernanke told Ron Paul last week.
Whether Greenspan is expressing his true opinion or simply aiding in post-OPEC meeting damage control, we don’t know. He’s made a fabulous career out of saying one thing and meaning another.
“If we can get beyond this housing problem, I think we’ll do pretty well,” said Greenspan.
The U.S. economy doesn’t look like it will be getting through “this housing problem” anytime soon. This morning, the National Association for Business Economics forecast 1.5% growth in the fourth quarter, down drastically from the rate of 3.9% in the third quarter. NABE previously forecast fourth-quarter growth at 2.5%, but decided to revise this forecast based on current housing and credit conditions.
The NABE revised its yearly growth forecast, as well, from 2.8% down to 2.5%.
“Alan Greenspan really made a mess of all this,” retorted Joseph Stiglitz, former World Bank chief, last week. In an interview on Friday, Stiglitz reiterated an argument you’ve heard from us before… that the U.S. economy sits on the brink of recession because of the “mess” left by Greenspan. “He pushed out too much liquidity at the wrong time. He supported the tax cut in 2001, which is the beginning of these problems. He encouraged people to take out variable-rate mortgages. That helped create the subprime crisis.”
As a result, Stiglitz told reporters he was “very pessimistic” about the state of the economy. “Americans have been taking money out of their houses to finance a consumption binge,” Stiglitz said. “Last year alone, mortgage equity withdrawal was between $850-950 billion. That game is over.”
Stiglitz said that the U.S. faces “a very major slowdown, maybe recession.”
Goldman Sachs downgraded Citigroup to a “sell” rating this morning. GS analyst William Tanona estimated that Citigroup will incur an additional $15 billion in write-downs by the end of the first quarter of 2008.
“Given the dislocations in the credit markets, we have become more pessimistic,” said Tanona. “Citigroup will likely face an increasingly challenging operating environment, which is likely to pressure results in many of their businesses.”
While he was at it, Tanona also cut price estimates for Merrill Lynch, Morgan Stanley, Lehman Bros., Bear Stearns, J.P. Morgan and E*Trade. While we expected dull holiday trading this week, news like this doesn’t bode well for benchmark indexes.
Yet Goldman Sachs, Morgan Stanley, Merrill Lynch, Lehman Bros. and Bear Stearns will hand out $38 billion in bonuses this year, up a billion bucks from 2006. Split among about 186,000 employees, the five investment banks will pay an average bonus of $201,500. Not bad considering their market caps are down a collective $74 billion this year.
Such a bonus is four times the $48,201 median household income last year.
Gold looks like it they may have ended its free-fall this weekend. The spot price for immediate delivery traded as low as $785 and up to $796 in weekend trading. As we write, an ounce sets you back about $786.
“Last week, gold dropped $46.80, which is a decline of 5.6%,” summarizes James Turk. “That drop seems fairly large, but let’s step back to get some perspective.
“It is interesting to note that in the 79 weeks since reaching its high in May 2006, there have now been five weeks in which gold has lost 5% or more. So a 5% decline in one week is not new.
“It is reassuring to note that gold eventually overcame the four previous declines of 5% or more. In other words, last week’s decline came after gold had already made a new 27-year high. Recovering from sharp short-term corrections is a clear sign that gold is still in a bull market.
“Once this current correction ends, I expect gold will climb higher.”
Mubadala Development, an Abu Dubai sovereign wealth fund (SWF), will buy a 9% stake in microchip maker AMD. Mubadala’s $700 million investment will surely attract interest from protectionists in Washington, as AMD’s technology is very much a part of current defense and national security systems.
“Each year, the Gobi Desert devours 2,460 square miles of Chinese soil, an area roughly the size of Delaware,” writes Free Market Investor Chris Hancock. “Violent sandstorms threaten to conquer Beijing. Dunes now tower just 43 miles from the ancient capital…firmly marching south, like Sherman through the soft Georgia pines, at a brisk 12-15 mile per year clip:
“Why is Asia’s largest desert growing so quickly? It is because of a process scientists call desertification. Basically, China’s rapid economic growth comes at a great price, as the fast-approaching desert threatens to blanket Beijing before the Summer Olympics in 2008.
“The solution? The ‘Green Wall.’ Beijing officials set aside $8 billion to construct a natural wall of trees spanning more than 2,000 miles.
“But they’re no match. Trees need water. And air pollution inhibits precipitation. Researchers from Israel’s Hebrew University of Jerusalem and the Chinese Academy of Meteorological Sciences found that on hazy days, precipitation from the top of Mount Hua in China’s northwestern Shaanxi province is cut by up to 50%.
“Consequently, one-quarter of China currently finds itself buried beneath sand… two out of every three major Chinese cities have less water than they need. Cities in northeast China have roughly five-seven years left before they completely run dry. China’s immediate need for water remains paramount.”
Cambodia aims to open a stock market by 2009, reported government officials recently. Last month, Cambodian senators passed a law that legalizes the issuance and trading of stocks and bonds… all that remains is the infrastructure required to maintain a stock market. Driven largely by a booming textiles market, Cambodia’s economy has grown about 11% per annum in the last three years.
But buyer beware… this one won’t be for the faint of heart: Moody’s currently rates Cambodian bonds a “B” grade investment, five steps below “investment grade” and somewhere within the realm of subprime-backed CDOs.
“Thank you for reporting the fed raid at Liberty Dollar/NORFED,” writes a reader. “It is a given that times change, and that understanding of the times also change. Established institutions, as Professor Carroll Quigley of Georgetown University School of Foreign Service pointed out, either restructure and adapt in order to maintain the purposes for which they were formed, or those institutions will be outflanked, crawled over or run through by the tides of history.
“The current enforcement activities of the DOJ/IRS/Federal Reserve monetary complex are not at all encouraging as indicators of graceful adaptation.”
The 5 responds:
Amen. We suspect there’s a lot more strife coming down the pike. It took two world wars before the British pound, and the institutions developed to support the Victorian era gold standard, gave way to the establishment of the Bretton Woods exchange rate system… and its concomitant governing structure.
If you want to follow the strife first-hand, Bernard’s been hammering out daily updates on the raid and his strategy for dealing with the feds. You can read all the details here.
Regards,
Addison Wiggin
The 5 Min. Forecast
P.S. Don’t forget, you’ve got about 24 hours left to take advantage of our Energy & Scarcity Investor offer. To honor its introduction, we’ve slashed the price by over 30%. Click here to learn more about ESI… in this era of rapidly expanding energy opportunities, we can’t think of a more appropriate investment advisory.
ADDITIONAL RESOURCES
Even in brutal year on Wall Street, $38 billion in bonuses to be paid
OPEC members clash over weak dollar
Desert Army Invades Chinese Capital