Friday, May 02, 2008

Canadian Silver Bug- Friday files

Bloomberg reports that other Gulf States may soon follow Kuwait’s lead and drop their dollar peg (another one of my predictions for the year)


In the words of Kuwaiti Finance Minister Mustafa al-Shimali

``Yes, there are some'' Gulf Cooperation Council states considering dropping their pegs to the dollar, which has fallen 13 percent against the euro in the last 12 months. Some countries will do what we are doing”


The problem for the Gulf States is that their peg to the U.S. dollar has them importing double digit inflation resulting from the prolonged devaluation of the U.S. dollar. The Kuwaiti's acted on this danger almost a year ago when they moved their peg to a mixed basket of currency. As a result the Dinar has appreciated nearly 8% in the last year and though I could not find the numbers must certainly have decreased their non food inflation rate since.

This is definitely bad news for the U.S. dollar and it’s probably a good bet that rampant inflation will encourage the Gulf States to move more actively towards a proposed regional currency which I doubt would be pegged to the dollar. Even before the 2010 deadline for the new currency I believe some if not all Gulf States will move to a variation of Kuwait’s currency basket peg.

Liquidity

Despite the claims bottom and a quick end to banking problems the E.U and the Fed have increased their injections into the market with announcements the Fed will increase the Term Auction Facility to $150 billion this month from the previous $100B and the EU will increase their equivalent program from the $15 Billion range to $25 billion. Yep every looks fine here.

Bottom? What bottom!

For anybody keeping track apparently Las Vegas is winning the, who can lose the most in home value contest with a whopping 22.8% loss in one year, close runner ups are Miami and Phoenix.



2.9% of non rental homes in the U.S. are now vacant and up for sale, that’s some 2.28 million houses.

We have finally reached the half way point for ARM resets and while resets will start dropping off in the future, there are still a substantial number of ARMs yet to reset. Also don't forget it takes 3 months or so for arrears to turn into defaults, and even longer for defaults to turn into foreclosures. The peak in resets equals neither the peak in defaults nor foreclosures; that may have to wait until the end of the year or the beginning of 2009.

We've not even seen any major job loss related foreclosures yet, I have no doubt that numbers will reach at LEAST 4 million vacant homes before this is over.

Food prices.

I’m all for farmers making a decent living and I know they’ve been had it hard over the last decades but the rampant speculation that is going to cost millions of lives concerns me greatly. The west systematically destroyed domestic agriculture in the third world through the use of mechanized agriculture, subsidizing cheap grain production and globalisation; in the end foreign farmers could not compete with government supported imports and went out of business, but at least they could eat cheap.

This decade after they’ve lost the skills, the access to locally adapted seed, and often even the land to farm, bio-fuels and speculations rips their means of sustenance from their mouths. While there is certainly money to be made here I’m not comfortable doing it.

Metals

We’ve taken a beating this week and my only solace is its Friday (the usual suppression day for metals) and we are holding with a little strength.

What is really annoying me is some of my stocks are at prices not seen since gold was $600 and silver $10. I honestly think the big players are shorting the juniors to cripple them in a bid to snatch up cheap resources. The juniors have operating costs, drilling to do, but they can’t borrow right now and if you depress their price enough that share offer would cause too much dilution you just might squeeze them into a corner where a cheap take over is possible. It stinks, half the shorting is probably naked and we small investors are being brutalized.

Have a good weekend,
Do yourself and the world a favour, dig up part of your lawn and plant some veggies.

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