The price of selenium showed a minor loss in the last week, having moved down by two bits to $63.50 per pound. This is down by one dollar from the all time record set early in the month of May. By contrast Moly oxide has been strongly higher lately, and has not had a down week since the middle of April - now $39 per pound.  It remains near all time highs.

Further scanning the metals markets, one sees that Tungsten has moved from $5.375 a pound a year ago to an average price of $17.50 last week with no down periods.  Mercury has moved from $350 to $975 per flask (mean price) over the last year with no down reporting periods. A couple of other metals have seen no movement in average prices, or a minor increase with no down periods. These are all, I believe, the kinds of commodities not subject to futures trading, and are therefore less likely to suffer the swings and manipulations so often seen in those other items. The point here is, the "real" markets are telling us that we are solidly into a roaring bull market for raw materials, and it is showing no signs of slowing.

Long term investors in metals and mining should not take cues from swings in prices shown for those items that trade in the artificial, futures markets. The background evidence shown above suggests pressures are building for a blow off to the upside, allowing the suppressed and manipulated metals prices to catch up to the demand pressures shown by the "real" markets. But, that's just opinion. We shall have to wait and see how these things unfold over the coming months.

In other news, General Motors and Ford have just seen their credit ratings down graded to junk status. What does this say for the future of the United States, when our icons of industry have credit scores akin to users of pay day-type loan services. On top of this, United Airlines, another icon, "wins" in being allowed to pass it's pension program to the Pension Benefits Guarantee Corporation (PBGC). That will not only undercut retiree benefits, it will add a huge burden to a questionable enterprise (PBGC) with an implied federal backing.

We wrote at length last year about certain systemic risks to out financial system and the furtherance of already too large government debt.  High on the list of looming problems is the PBGC, a government sponsored enterprise (GSE) that takes over pension obligations of bankrupted corporations. PBGC, however, does not guarantee a continuing, stable level of benefits to pensioners. Indeed, it usually slashed pay outs.  But, the real horror about this group is that is does not have enough funding to cover itself, given the shaky state of some very large corporations. Now, United Airlines, in a bid to further it's existence, is about to declare bankruptcy, and hopes to reorganized without the yoke of it's current pensions obligations. As the story suggests, this may set off a wave of other reorganizations that could sink the PBGC. And, while this may be good for United Airlines, it is bad news for it's pensioners, and could be the start of even worse news for taxpayers.

You see, as a GSE, the PBGC is obligated to keep the system running, and it does so with the implied backing of the United State government. The current news, therefore, suggests we may be nearing a financial debacle on the order of magnitude of the Savings and Loan Crisis. This time, however, there will be no assets to seize and dump back on the market for a partial recovery of costs.

IN OTHER NEWS:

04/05/2005 - Could this be a means to help drive up long rates? Link

05/05/2005 - ...and is there a relationship between this and Greenspan warnings on Fannie and Freddie? Link

But of course. The Fed is frustrated about their inability to effect long term rates. They resent the power and influence of the likes of Fannie Mae and Freddie Mac, and want them brought down in any way that it can be done without the Fed being obviously the cause. In the end, they (the Fed) will stand in the position of having warned Congress and the public about the dangers inherent in the seemingly unrestrained growth of these institutions. Hey, the Fed got the big S&Ls out of the way - made them into banks - so what's left?

03/05/2005 - Oops!  Now even FDIC sees possible danger signs in a real estate bubble. Link

THE CHINA FACTOR:
(News related to Asian influences on commodity and other international markets)
02/05/2005 - THIS IS WHAT I'VE BEEN TALKING ABOUT.  It's no longer U.S. demand that drives commodity prices, it's demand from Asia.  Meanwhile deluded investors and mistaken analyst still play by the old rules. Link

13/05/2005 - Producer prices in China are still heading higher. Link

While this should be monitored domestically, it is really less an internal concern than it is for trading partners who have slower growth profiles.  That's because inflation does not have to be damaging as long as an economy can sustain increased wages sufficient for workers to offset price changes. The question for China now becomes, will growth unrelated to exports offset adverse changes in foreign trade as related to the higher costs of raw materials? Being that it is still a communist state with many industries remaining in it's portfolio, I think they may have to partner with private industry to liberalize controls on wages and salaries. We will, therefore, have to keep watching for news in this regard.

13/05/2005 - "Copper prices in New York fell ... on speculation that rising stockpiles (in China) signal slowing demand..." Link

Where do these speculations come from? Have these people forgotten that the government of China has entered long term contracts with foreign warehouses to ensure copper supplies? Is this not enough to explain rising inventories in Shanghai as supplies fall to all time lows in London and New York? Is this just more futures market manipulation (that also effects spot prices and mining stocks)? Interestingly this morning, as this news pushed copper prices in New York lower by around half a percent, nickel at this writing is up nearly two percent, and zinc a percent-and-a-half. Therefore, I would think, if copper as a raw material is showing slower growth in demand as reflected by falling prices, would not this also be reflected in the markets for other, similar raw materials?

Geesh! Markets are hard enough to understand without the complications of suppliers who behave like banks, selling contracts for the future delivery of assets they don't own and/or short selling their own stock in trade. Then, add fiat money and foreign exchange controls to the mix and it's no wonder investors and the press get so mixed up.

16/05/2005 - O.k., o.k., so China is releasing copper from state owned stockpiles. I've said they do what they can to alter prices. It doesn't change the trend. Overall and over time, they are consuming more copper than they are producing. While prices continue lower in the short term, so do inventories in London and New York, but we also know that price don't rise forever straight up. There must be technical "adjustments" along the way, just like the one we are now experiencing. Fundamentals, however, for copper and other raw materials tell us prices have to rise again.  Link

16/05/2005 - In the meantime, China's use of steel is expected to DOUBLE IN FIVE YEARS. Link 

17/05/2005 - China offers "staggering" potential in coal. Link

18/05/2005 - Industrial production still surging beyond expectations. Link

18/05/2005 - The following writer's "conundrum" is a lack of understand about how China is using government stockpiles (see above) Link

19/05/2005 - Chinese construction spending still rising. Link

20/05/2005 - Bank of America to take equity interest in Chinese Bank. Link

30/05/2005 - China inks big copper contract with Chile. Link

01/06/2005 - China to invest overseas for raw materials "with iron ore and copper the top priority". Link

QUOTES FROM SELECTED READINGS:
"With record levels of household sector indebtedness now pushing toward 90% of GDP, debt-service ratios already near historical highs, and ever-frothy housing markets drawing extraordinary support from rock-bottom interest rates, the perils of aggressive Fed tightening are plainly evident: Rate hikes could well mean game over for the income-constrained, saving-short, asset-dependent, overly indebted American consumer.  If that's correct, the Fed and the BOJ may both be in the same predicament -- unable to extricate themselves from bubble-induced low real interest rate quagmires."  ...  "...with America's cyclical impetus fading, post-bubble fault lines could deepen -- making it all but impossible for the Fed to normalize real interest rates.  Under those circumstances, this week could mark the Fed's last rate hike of this cycle." Link

"Absent a political miracle in the Senate, within two years every American will need a conforming national ID card to participate in ordinary activities. This REAL ID Act establishes a massive, centrally-coordinated database of highly personal information about American citizens: at a minimum their name, date of birth, place of residence, Social Security number, and physical characteristics. The legislation also grants open-ended authority to the Secretary of Homeland Security to require biometric information on IDs in the future. This means your harmless looking driver?s license could contain a retina scan, fingerprints, DNA information, or radio frequency technology."  ...  "Think this sounds farfetched? Read the REAL ID Act, HR 418, for yourself. Its text is available on the Library of Congress website. A careful reading also reveals that states will be required to participate in the 'Drivers License Agreement,' which was crafted by DMV lobbyists years ago. This agreement creates a massive database of sensitive information on American citizens that can be shared with Canada and Mexico!"  Congressman Ron Paul - Link

Some thoughts:
In the long run, escalating trade deficits always result in severe economic adjustments.
In the long run, unrestrained fractional reserve banking always results in a full fiat money system and later disaster.
In the long run, legal tender laws always end in economic crisis.
"In the long run, we are all dead."  John Maynard Keynes, the 20th Century's most influential economist/monetarist (and leading socialist).

End legal tender laws. End government debt as an "asset"  for reserve banking.  End the Federal Reserve System. 
The cost of such adjustments will be quite painful, but no where nearly as disabling as the eventual cost of doing nothing.

"The study of money, above all other fields in economics, is one in which
complexity is used to disguise the truth or to evade truth, not to reveal it."
John Kenneth Galbraith

© 2005 Larry S. Levy
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