Financial Sense Blog

Never in history has there been an economy this large with such serious economic structural problems: Unemployment 23%, unmanageable debt north of 128 trillion, the largest & ever-growing money supply that is sparking hyperinflation and causing global unrest in emerging nations whose workers spend up to 50% of their wages on food, massive & unstoppable monetization of governmental debt, an unbalanceable & uncuttable budget. We have an ace up our sleeves, there is an easy way out, but for whatever reason our economic engineers of disaster, many who helped create this unmitigated disaster, are hell bent on proving the Mayan's correct by "fixing" serious structural economic problems with lies.

For the past century or so, the biological origin of oil seemed to be the accepted norm. However, there remained a small group of critics who pushed the idea that, instead, oil is generated from inorganic matter within the earth's mantle. The question might have remained within the limits of a specialized debate among geologists, as it has been until not long ago. However, the recent supply problems have pushed crude oil to the center stage of international news.

With silver hitting new highs, it may be hard to characterize the white metal as undervalued. Yet it bears repeating that silver can move higher for other reasons besides investment demand. This article reviews the industrial side of the equation for silver, and explains the possible future role of industrial users in driving the price to new heights.

S&P 500 new highs show a negative divergence.

Chairman Bernanke's speech was drawn from his paper examining the nature of international capital flows prior to the global financial meltdown. The analysis is long on detail and useful for policymakers and research. More importantly, Bernanke indicated that the two speed global economy calls for different policies.

In early year discussions I commented on thoughts regarding consensus thinking for US GDP growth this year. Call it a 3.5-4% range of possibility. The about face in most Street economist prognostications relative to last summer has been very much dramatic, but easily understandable in light of 1) the magnitude of Fed sponsored POMO activity that began in late August of last year and the ultimate follow on QE2 announcement and implementation, and 2) the tax cut extension legislation that adds an incremental approximate $350 billion of new US government spending/stimulus in the current year.

To the right is a picture of a dog. In order to simplify this discussion in such a way those even Silver momentum traders might understand it, we have placed a circle around the approximate location of the dog’s brain and a rectangle around the tail. At this point, we should all be together.

As most readers have probably heard by now, January inflation increased by more than expected at 0.4% from the previous month. Rather than focus on the big number, I investigated a few of the smaller categories in the BLS data, particularly in foods affected by commodity prices. One item immediately jumped out – the fats and oils category. Since last month, seasonally adjusted prices in this category increased by 2.1% – that’s enormous. Since soybeans are a crucial ingredient to vegetable oil, this spike is fairly easy to explain.

The Greek debt and banking wipeout may be coming to a head. Ten-year government bond yields have spiked to over 12% versus 11.2% when I last wrote a post. Greek CDS are up to 907 from 833 last week.

The yield curve (or spread) is the difference between the short rates (set by the Fed) and the yield on the longer-dated bond. The yield spread is now about its widest in 40 years. This is a boon to the banks, which can borrow for almost nothing and then buy the long-maturity bonds and rake in the money. This is what the Fed wants; when the banks become bloated with money, they have four choices -- they can make crazy investments (like they did with home mortgages), they can increase their dividends, they can pay the money out in bonuses, or they can lend the money to businesses who really need credit.