THE BOXER
A Man Hears What He Wants to Hear, and Disregards the Rest
by Rob Kirby
March 18, 2006

Base metals are rising – of course - due to Chinese demand.

By PATRICK BARTA
March 16, 2006; WSJ, Page C1

With demand for copper sending prices higher, there is a worry for everyone from mining companies to microwave-oven makers: the lack of new mother lodes to tap.

In the 1990s, Chile emerged as the Saudi Arabia of copper. An era of political stability there enabled foreign and domestic companies to extract epic deposits of minerals, flooding the globe with supply. Soon Chile was producing more than one-third of the world's copper, helping push prices down to less than 70 cents a pound.

Today, however, demand from China and elsewhere has kept copper-futures prices above $2 a pound, even after a recent pullback. Chile's production slipped about 2% last year, and meantime, new mines aren't being discovered or exploited quickly enough to make up the shortfall….

But There’s No Inflation

Copper not your bag? Ok, try zinc,

Dwindling stocks push zinc to new record
By Darryl Thomson
Published: March 17 2006 11:27 | Last updated: March 17 2006 11:27

Zinc prices on the London Metal Exchange hit an all-time high of $2,450 a tonne, up $80, driven by falling warehouse stocks and market tightness. The price has jumped 25 per cent this year…

We have a “bull market” in housing – which is an eloquent way to say ‘prices are rising’ - because it’s allegedly in short supply. Folks in hurricane ravaged Louisiana, no doubt, would agree.

In the wake of Katrina: Empty FEMA Trailers in Arkansas

The price of sugar is on the move – because it is seen as an alternative to fossil fuels – sweet, eh?

The unwieldy twin deficits of both the U.S. current and fiscal accounts are widely reported as unproblematic and most certainly not inflationary. Does anyone really believe the notion that the roughly 1.5 Trillion [combining the current account with the fiscal deficit] worth of debt obligations being printed each year by the U.S. Fed/Treasury is NOT inflationary? Incredulously, this abhorrent orgy of money creation is positioned/reported in the mainstream media as “doing the world a favor” by sopping up a glut of excess world savings. Makes me wonder if the U.S. Government wasn’t here performing this noble service – consuming - for the rest of the world, interest rates might be at zero. Oops, sorry – they already are in Japan.

New Dogs….Old Tricks

Speaking of Japan, the N.Y. Post’s John Crudele had this to say last week:

THINK PRICES ARE RISING? THE GOVERNMENT DISAGREES

March 16, 2006 -- WHO says we can't teach Tokyo a thing or two?

Japanese politicians apparently don't want that country to be known as the Land of the Rising Prices, so they are digging into the U.S. playbook to pull a fast one.

Market watchers already know that today's the day Washington will put out its latest consumer prices, which are likely to fall right in line with the 0.1 percent that Wall Street is expecting.

It would a little worse if you included food and energy - but, hey, who eats or drives these days?

The Japanese reported earlier this month that their consumer prices rose 0.5 percent in January from a year earlier, a number that roiled the world markets, which are worried that Japan will start raising interest rates.

Japan imports all its oil. So it would be logical that the country would suffer from some inflation.

Logic, however, doesn't really play a part in the game of economic statistics. And there are academic theories aplenty that'll make bad numbers disappear and good ones suddenly show up on the ledger.

And that's exactly what the Japanese are apparently planning to do in a scandalous move that should - but never does - have the juices flowing in investigative reporters everywhere.

Apparently not realizing the significance, here's what Bloomberg News recently had to say about the Japanese finagle: "The government plans to adjust the basket of goods used to compile consumer prices in August, probably to include more consumer electronics items. Previous revisions lowered prices because of declines in the costs of some of the items added."

I'm a fan of sleight of hand as much as the next guy but unless I've suddenly come down with a case of the deaf, dumb and blinds it isn't right to fix a problem simply by changing the perception.

Watch Me Pull A Rabbit Out My Hat

While CPI and PPI are doctored beyond belief and thus widely reported as being benign, an alternative [much less but still meddled with] measure of inflation – the CRB index – is hovering near all time highs:

So, while countless asset prices are setting all time high price records in nominal terms with empirical evidence of inflation rife throughout the economy – precious metals, the historic inflation hedges - remain stuck in the weeds, struggling to attain levels barely half of what they were in the early 1980’s in nominal terms. All of this despite severe and growing supply demand imbalances in both silver and gold.

Quacks Like A Duck

Recently, a man widely viewed as the bridesmaid to Ben Bernanke as a likely choice to head the Federal Reserve wrote an Op Ed piece in the Financial Times. To anyone with more smarts than a grapefruit – he was “dropping hints” that statistical accounts being served up by officialdom are at least misleading – or perhaps patently false. I would like you all to read my savvy friend Jesse's take on what Martin Feldstein said,

[He] basically said that the whole yield curve distortion was being caused by official intervention by the central banks? And that much of the 'private' buying was really being done by the banks through intermediaries?

Feldstein was right, and everything I thought, everything I feared about what the Fed is doing, is true. They are experimenting, making it up as they go along. They don't have the theory to explain what happens if the world powers do not agree finally to a centralized global monetary policy group.

This makes what they are doing to drive people away from the safety of gold criminal, beyond policy implementation and beyond mere negligence. It is like blocking the fire escapes and exits because they observed that in fires people stream from the exits, so they think that they can prevent a fire by preventing people from escaping. If no one is running from the building, it must not be a fire.

They might get lucky. But if they are wrong again, as they were in the 1930's, there will be hell to pay.

It says here that too many folks have been brainwashed by a mainstream media that is all too quick to “label” anyone critical of the status quo. Last week, Canada’s Globe and Mail ran a piece titled, Launch of Iranian oil trading hits wall. Not surprisingly, the article characterized those who view the proposed Iranian Oil Bourse “destabilizing” as conspiracy theorists – and by extension, the postulated ill effects of such as a chimera,

…There has been far less talk about the planned bourse in the mainstream media than on the Internet, particularly on websites aimed at gold bugs and other economic conspiracy theorist[s] sic.

The theory is that all trades through the new bourse would be made in euros, not the U.S. dollar, which for decades has been the world's primary reserve currency, as well as the one in which oil and most other commodities have been priced. As a result, European nations and other countries, especially Middle East oil producers, tired of having to buy billions of now weakening greenbacks to pay for their energy purchases, would no longer have to do so.

This, the conspiracy theorists contend, would knock the stuffing out of the U.S. currency and hasten the decline and fall of the American Empire, all the while allowing Iran to stick it to the Great Satan….

This type of reporting has an eerie similarity to main stream media accounts of the ongoing conflict in Afghanistan and Iraq – why we’re there and that all is well and good – because we-the-good-guys - occupy the moral high ground. We know because CNN tells us so; questioning this dogma inevitably ends with the offender’s patriotism being questioned.

To this I say, is it also a “conspiracy” or unpatriotic to state that fish are disappearing from the oceans, the supply of oil is forecasted to be unable to keep up with demand, the globe is being deforested, animal and plant species are going extinct and to discuss why water wars are possibly in the offing?

Speaking of Good Guys…..These Guys Sure Are Good

Last week's write up dealt with Goldman Sachs’ “short gold position” and proposed changes to the Tokyo Commodities Exchange [TOCOM]. Subsequently, Goldman released their Q1 ’06 earnings and I’ll be you’d never guess – they beat the street. It’s not so much that Goldman ‘beat the street’ that makes me raise an eyebrow – it’s how. Here’s a third party commentary from what is widely viewed as a reputable voice on Wall Street doings. This is an excerpt from the Bill King Report March 15, 2006 – that comes to us via Bill Murphy’s daily Midas commentary at Lemetropolecafe:

According to a Sanford Bernstein report on Goldman Sachs earnings, Goldie’s institutional equity commissions increased 5% sequentially from Q4 ’05 but proprietary trading revenues increased 167% sequentially. Equity proprietary trading revenue increased 33 times more than commissions. It must be the aggregate acumen of all those ex-Treasury and Fed officials that now reside at Goldie that is giving their traders such an edge in minting profits.

Sanford Bernstein’s Brad Hintz writes, "In Goldman’s new model, proprietary trading revenues and equity derivatives profitability are helping offset the decline of commission rates in its low touch, low cost execution business. And after much complaining, Goldman’s equity clients appear to be accepting the fact of their changed relationship with the trading desks of GS."

Funny thing that perhaps reporters in the mainstream forgot – Goldman’s “call” for the price of gold in 2006 is/was 515.00. With gold currently trading north of 550.00, this should really surprise nobody, since Goldman’s highly publicized “calls” on gold have consistently and perennially been ‘wrong’ since the bull market began back in the fall of 1999. Apparently, their proprietary traders are singing from a different hymn book, or, do they simply “will the ball into the end zone” while running the wrong plays?

You see folks, Jane and Joe Sixpack are waking up to the notion that things are not as they should be. An alert reader sent me this link – informing me that this excerpt from the recent “Stick It” episode of Boston Legal – which he informed me has created quite a stir in the herd – around the water coolers of offices - in what’s left of the yet-to-be-outsourced in America [text appended below]:

Hollywood Endings?

Alan Shore's closing argument – Boston Legal:


Alan Shore: When the weapons of mass destruction thing turned out to be not true, I expected the American people to rise up. Ha! They didn't.

Then, when the Abu Ghraib torture thing surfaced and it was revealed that our government participated in rendition, a practice where we kidnap people and turn them over to regimes who specialize in torture, I was sure then the American people would be heard from. We stood mute.

Then came the news that we jailed thousands of so-called terrorists suspects, locked them up without the right to a trial or even the right to confront their accusers. Certainly, we would never stand for that. We did.

And now, it's been discovered the executive branch has been conducting massive, illegal, domestic surveillance on its own citizens. You and me. And I at least consoled myself that finally, finally the American people will have had enough. Evidentially, we haven't.

In fact, if the people of this country have spoken, the message is we're okay with it all. Torture, warrantless search and seizure, illegal wiretappings, prison without a fair trial - or any trial, war on false pretenses. We, as a citizenry, are apparently not offended.

There are no demonstrations on college campuses. In fact, there's no clear indication that young people seem to notice.

Well, Melissa Hughes noticed. Now, you might think, instead of withholding her taxes, she could have protested the old fashioned way. Made a placard and demonstrated at a Presidential or Vice-Presidential appearance, but we've lost the right to that as well. The Secret Service can now declare free speech zones to contain, control and, in effect, criminalize protest.

Stop for a second and try to fathom that.

At a presidential rally, parade or appearance, if you have on a supportive t-shirt, you can be there. If you are wearing or carrying something in protest, you can be removed.

This, in the United States of America. This in the United States of America. Is Melissa Hughes the only one embarrassed?

*Alan sits down abruptly in the witness chair next to the judge*

Judge Robert Sanders: Mr. Shore. That's a chair for witnesses only.

Really long speeches make me so tired sometimes.

Judge Sanders: Please get out of the chair.

Alan: Actually, I'm sick and tired.

Judge Sanders: Get out of the chair!

Alan: And what I'm most sick and tired of is how every time somebody disagrees with how the government is running things, he or she is labeled unAmerican.

U.S. Attorney Jonathan Shapiro: Evidentally, it's speech time.

Alan: And speech in this country is free, you hack! Free for me, free for you. Free for Melissa Hughes to stand up to her government and say "Stick it"!

U.S. Attorney Jonathan Shapiro: Objection!

Alan: I object to government abusing its power to squash the constitutional freedoms of its citizenry. And, God forbid, anybody challenge it. They're smeared as being a heretic. Melissa Hughes is an American. Melissa Hughes is an American. Melissa Hughes is an American!

Judge Sanders: Mr. Shore. Unless you have anything new and fresh to say, please sit down. You've breached the decorum of my courtroom with all this hooting.

Alan: Last night, I went to bed with a book. Not as much fun as a 29 year old, but the book contained a speech by Adlai Stevenson. The year was 1952. He said, "The tragedy of our day is the climate of fear in which we live and fear breeds repression. Too often, sinister threats to the Bill of Rights, to freedom of the mind are concealed under the patriotic cloak of anti-Communism."

Today, it's the cloak of anti-terrorism. Stevenson also remarked, "It's far easier to fight for principles than to live up to them."

I know we are all afraid, but the Bill of Rights - we have to live up to that. We simply must. That's all Melissa Hughes was trying to say. She was speaking for you. I would ask you now to go back to that room and speak for her.

“It’s far easier to fight for principles than to live up to them”.

NewBank…Same Old Story

For those of you who may be unaware, another small item sailed in under the radar in late February that – for some reason – failed to garner any attention in the main stream financial press.

New York, NY – The Bond Market Association announced today that it has accepted an invitation by a private-sector working group established by the U.S. Federal Reserve Board to develop and lead the creation of a so-called ‘NewBank’, a standby bank that would only be activated if one of two existing clearing banks in the U.S. government securities markets was suddenly forced to leave the business….

Without sounding too conspiratorial – why would you suppose either J.P. Morgan or Bank of New York would be “forced to leave” the market anyway? I mean, it says right in the article,

 “…that the standby bank is not designed to address resiliency problems such as those encountered after 9/11; regulators previously established resiliency standards necessary for participation by a clearing bank…. “ 

So, if we were to compose a list of the potential things that could cause such an event – do you think we would be “labeled” conspiracy theorists? Furthermore, does anyone wonder why this development has not been covered in the mainstream financial press? Perhaps they are waiting for Hollywood or even Boston Legal to do the subject justice?

What bothers me so much about what is occurring in our financial markets is that like our much valued democracy, free speech with all the trimmings – it’s being supplanted and replaced by an all knowing unyielding corporate-ocracy who act as if they are above the established and accepted code of conduct. Perhaps even more frightening than that – we’ve come to the point that we must now rely on Hollywood to inform us. Sadly, our mainstream media has abdicated that responsibility – all lies and jest.

“A Republic if you can keep it”. – Another Ben – not Bernanke, but Franklin - at the close of the Constitutional Convention in Philadelphia on September 18, 1787.

© 2006 Rob Kirby
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Rob Kirby
Kirby Analytics
Toronto, Ontario, Canada
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