CARTEL CAPITULATION WATCH
Loony Tunes reigns!
WASHINGTON, Aug 10 (Reuters) - The U.S. Federal Reserve on Tuesday raised interest rates another quarter of a percentage point to head off potential inflation, saying the economy was poised to pick up after a recent slowdown.
The unanimous decision by the U.S. central bank's policy-setting Federal Open Market Committee moves the benchmark federal funds rate -- which influences credit costs throughout the economy -- to 1.5 percent. It was the second quarter-point increase this year, following one announced on June 30 after the last FOMC meeting.
The Fed action came despite anemic job growth in July as well as soaring oil prices that hit records above $45 a barrel on Tuesday. –END-
What can you say? Once I heard JP Morgan Chase and Goldman Sachs were the big early buyers of the S&P contracts, I knew the rig was in for the day. They had their marching orders from The Working Group on Financial Markets to get the job done to reverse the recent stock market swoon. PRICE ACTION MAKES MARKET COMMENTARY. The price managers wanted Greenspan and the Fed to receive a vote of confidence from the markets and that’s what they got.
The DOW soared 130 points to 9944, while the beleaguered DOG leaped 34 to 1808. The effort to bully the markets in their desired direction grows by the month. GATA make you sick.
Other economic news:
08:30 Q2 Non-farm productivity reported 2.9% vs. consensus 2%
Unit Labor Costs reported 1.9% vs. consensus 2%. Prior readings were revised to 3.7% and 0.3%, from 3.8% and 0.8%, respectively.
* * * * *
WASHINGTON (Reuters) - The productivity of U.S. businesses rose at a swifter-than-expected pace in the second quarter but labor costs still gained at their fastest rate in two years, the government said on Tuesday.
Nonfarm business productivity rose at a 2.9 percent annual rate in the second quarter, the Labor Department said, well ahead of the 2 percent gain expected by Wall Street.
Despite the solid efficiency gains, the cost of labor per unit of production increased at a 1.9 percent clip as hourly compensation, which includes both wages and benefit costs, climbed at a sharp 4.9 percent rate. The rise in unit labor costs was just below the 2 percent increase forecast by private economists….
Houston’s Dan Norcini on the Fed:
Hi Bill:
I am enclosing the full statement issued by the Federal Open Market Committee and some commentary as well.
Best,
Dan
Release Date: August 10, 2004
The Federal Open Market Committee decided today to raise its target for the federal funds rate by 25 basis points to 1-1/2 percent.
The Committee believes that, even after this action, the stance of monetary policy remains accommodative and, coupled with robust underlying growth in productivity, is providing ongoing support to economic activity. In recent months, output growth has moderated and the pace of improvement in labor market conditions has slowed. This softness likely owes importantly to the substantial rise in energy prices. The economy nevertheless appears poised to resume a stronger pace of expansion going forward. Inflation has been somewhat elevated this year, though a portion of the rise in prices seems to reflect transitory factors.
The Committee perceives the upside and downside risks to the attainment of both sustainable growth and price stability for the next few quarters are roughly equal. With underlying inflation still expected to be relatively low, the Committee believes that policy accommodation can be removed at a pace that is likely to be measured. Nonetheless, the Committee will respond to changes in economic prospects as needed to fulfill its obligation to maintain price stability.
Voting for the FOMC monetary policy action were: Alan Greenspan, Chairman; Timothy F. Geithner, Vice Chairman; Ben S. Bernanke; Susan S. Bies; Roger W. Ferguson, Jr.; Edward M. Gramlich; Thomas M. Hoenig; Donald L. Kohn; Cathy E. Minehan; Mark W. Olson; Sandra Pianalto; and William Poole.
In a related action, the Board of Governors unanimously approved a 25 basis point increase in the discount rate to 2-1/2 percent. In taking this action, the Board approved the requests submitted by the Boards of Directors of the Federal Reserve Banks of Boston, New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City, Dallas, and San Francisco.
Dan’s comments:
So, the divine ones have spoken at long last. We mere mortals are truly blessed as we have now all heard from on high. Let us rejoice in the wisdom that has been imparted to us.
Such is the incredible gullibility of the general public these days that there still remains investors who actually give credibility to these regular annunciations from the FOMC.
Let me provide a similar announcement to illustrate the absurdity of what we were treated to this afternoon at 1:15 PM CST:
From the Federal Reserve Bureau of Meteorology:
The weather pattern thus far this year has been for the most part fairly pleasant. Sunny days with blue skies have predominated and for that we take most, if not all of the credit due to our wise and skillful ability to manipulate the jet stream. Recently however, there seems to be a return to an unfortunate pattern of grey skies and clouds that has resulted in diminished fun and games for all. Not to worry however, we believe that these gray skies and clouds will disappear fairly soon. As a matter of fact, we can say two things with exact certitude – the sun will definitely shine again at some point and that if the sky is not gray, it will indeed be blue. We think we know when this will happen but cannot say so with absolute confidence since the forecast could go either way right now. However we are relying on our superior knowledge and abilities to manipulate the jet stream as we stand ready to move it whatever way is necessary to produce the weather pattern that will please the most people.
In the meantime, the transitory influences that have produced the grey skies, most notably the category 5 hurricane that is just offshore the southern coast, is really more of an inconvenience and we expect it to go away without much fuss. Since we are not concerned with it, neither should you be.
Until the next time we gather to produce another erudite announcement, we bid you peasants a fond farewell and trust that you will rest a bit more securely in the knowledge that we are looking out for you and have your best interests at heart. Chumps!
Signed:
Your beneficent masters.
The Fed.,
Alan, Tim, Ben, Susan, Roger, Ed, Tom, Don, Cathy, Mark, Sandy, Bill
The simple truth is the Fed was forced into hiking the 25 basis points to save face since Greenspan cannot well afford to look incompetent after boxing himself into a corner with his irrational prognostications a mere few weeks ago. Three questions I have for Mr. Greenspan since he stated that a "portion of the rise in prices reflects transitory factors".
One – define the word "transitory". Is it six months, one year, two years, etc.? How long will high crude prices be here to stay and what conditions can he see that the rest of us cannot see that will bring crude prices back down to within former price levels? Is it increased production? Is it reduced demand? Which is it? Please clarify and enlighten us O wise one. Last I heard the some of the oil majors did not want any more Saudi HEAVY crude.
Oh, by the way Alan, about that hurricane -
Crude oil prices hit a peak above $45 – the highest price in 21 years while levels of indebtedness have gone parabolic.
Two – if "a portion" of the rise in prices reflects transitory factors, what portion is it? 20%, 30%, 50%, 75%? Clarification would be most beneficial to us dolts.
Three - what are the other factors outside of the "portion" that are responsible for this rise in prices? Could it be the Fed’s systematic debasement of the U.S. Dollar through it reckless monetary policy and its Bernanke Money Machine?
You know full well Mr. Greenspan that the dollar is a disaster waiting to happen. How long do you intend to continue to run this con game? I suspect that you are a secret admirer of the late George C. Scott in his role as the famous Flim Flam man and really have had a life long fantasy to act out the role. I nominate you for an Academy Award sir, you are marvelous.
Dan Norcini
dnorcini@earthlink.net
GATA’s Mike Bolser:
Hi Bill:
The Fed added $4.75 Billion in temporary repurchase agreements today August 10th 2004, an action that left the pool unchanged at $44.269B.
The DOW's 30-day ma sits on its lowest point for the move and bears watching as the Fed won't want it to dip farther...but do they still have it under control? Time will tell as they continue to apply their gradual upward futures-buying pressure. There's no Fed panic being shown in the repo pool even though it may be there elsewhere. Take M1 for an example.
M1 and inflation
Dan Norcini's recent comparison here at the café between the CPI and M1 reveals that M1 seasonally adjusted data closely tracks the CPI, thus we may use it as a proxy for the now adulterated CPI values. As Dan suggests, inflation IS the growth of money so we are fairly safe in this move.
Take a close look at the recent M1 percent changes. Firstly, we see that inflation as measured by the growth of M1 runs at 9% per year and has just recently shot up even higher. Your portfolio not returning 9%? You're losing "money". Indeed, the big up move in May 2004 matches the hammer on gold that began in early-April.
DIVG's 200-day ma, M1 and oil
What caught my attention on the May 24th M1 up shoot date was the correlation between the beginning of the Fed's force application on the DIVG's all-important 200-day ma yellow line (which necessarily had to begin BEFORE May 24th, in early April) and the loss of control in M1 (inflation) which appears, in turn correlated to the loss of the oil monster. One can see this force application just as the 200-ma yellow line changes from linear to a rounding off pattern (completed yesterday).
That monster's fire breath is hinting that the SPR may be all but depleted, disastrously exposing the US trade deficit to the full force of a supply and demand market condition. When Wall Street pundits act befuddled as to why the price of oil is so high, they NEVER say its because the SPR is drained (all remaining stocks sold forward as derivatives). The normal supply of that reserve is 57 days at the full daily use rate and we have been in the red zone of high selling usage for many more than 57 days.
Another way to look at things is to ask whether the president would tolerate high oil prices at this juncture of a crucial political campaign if there were ANY way to avoid it...of course he wouldn't. Therefore he's being FORCED to accept the reality of a drained SPR and with it...high oil prices.
Recall that the PM Fix was hammered right at the beginning of April which then took until late May to show up in the DIVG's 200-day ma. The Fed must have known back then that they were in deep trouble with oil and inflation and started moving against gold in order to remove it from the table of investment choices. Early April was the Fed's beginning move to hurt gold because they couldn't get oil down with their ME Army OR their SPR fuelled derivatives and high oil quickly forced a big rise in M1 and inflation.
Floodgates
The loss of M1 to the up side appears as the release of the feared hyper-inflationary floodgates. This helps to explain why, in addition to gold, the Fed has focused so hard on the bond rigs and let the DOW slip a bit.
Without a replenished supply of gold to sell, this "policy" which amounts to frank inflationary denial, is as desperate as it seems.
It is why the prudent investor should get metal as quickly as possible.
Mike
From Bill Fleckenstein’s commentary:
A bear cupboard, bared
My "defensive" position for this scenario: I am short tech stocks, and long foreign currencies, gold, Newmont Mining (NEM, news, msgs) and Pan American Silver (PAAS, news, msgs), of which I am a director. I recently sold all my silver bullion, just because I have so much exposure to these other areas (not to mention plenty of Pan American exposure), and it's the most volatile of all the things that I am long. If I didn't have such large positions in everything else, I would probably stay with my silver position. But you can't always kiss all the pretty girls. On the other hand, I am looking to re-establish my silver bullion position at some point, either on silver price weakness or dollar weakness.
-END-
A wonderful contrarian indicator? We shall see. All I know is the guy seemed to be long silver forever. Now, he gets out when silver pops a blip and gold is below $400???????
Couldn't pass this one up. Needed a laugh after today's market shenanigans.
Disappointing earnings continue to plague one gold producer after another. Durban Deep is the latest casualty:
JOHANNESBURG, Aug 10 (Reuters) - The world's ninth biggest gold producer Durban Roodepoort Deep (DRD) (DURJ.J) posted a halving in fourth-quarter cash operating profit on Tuesday, worse than expected, due to a robust rand and weaker output.
The South African firm, kept afloat by its low-cost mines in Papua New Guinea, warned that rand strength would force more restructuring and job losses while it sought to keep diversifying with more overseas assets.
"Faced with this pressure, we will continue to reposition our assets for the future and unfortunately this will lead to more job losses," Chief Executive Ian Murray said in a statement.
The firm said cash operating profit for the three months to end-June was 61.7 million rand ($10.1 million), down from 130.4 million in the third quarter.
It was expected to report a 37 percent fall in cash operating profit to 82.8 million rand, according to the average forecast of four analysts surveyed by Reuters.
"It was really the costs in South Africa which were higher than expectations," said analyst Simon Kendall at UBS Securities….
The firm also posted a headline loss per share of 265.1 cents compared with a headline profit of 17 cents in the third quarter. Headline earnings strip out capital, non-trading and extraordinary items.
The firm sank to a loss due to higher depreciation and deferred tax adjustments, and after it made adjustments to the values of its South African operations based on the stronger rand, it said.
The rand, trading at around 6.11 to the dollar on Tuesday, has appreciated close to 10 percent so far this year, making it one of the best performing currencies in the world.
EXPANDS IN AUSTRALASIA
Durban Deep, South Africa's fourth-largest gold producer, has been harder hit by the rand than some rivals due to its lower-grade mines, and has been expanding in Australasia to lessen its exposure to its home base and the volatile rand.
The Australasian mines, which accounted for 31 percent of production, kept the firm in the black at an operating level by contributing 102.6 million rand in cash operating profit compared to a loss of 40.9 million from the South African mines.
The company said gold output fell 5.1 percent quarter-on-quarter to 228,465 ounces while cash operating costs rose 9.7 percent to 76,031 rand per kg.
The biggest loss-maker was the Blyvoor mine, which where costs at the underground operation were 104,664 rand per kg, compared to a current domestic gold price of around 78,000 rand per kg.
DRD has given legal notice to trade unions that it plans to restructure Blyvoor after it underwent a similar operation last year at other local mines in the North West province.
That restructuring resulted in the loss of 3,000 jobs and lower production from those two mines.
DRD's latest move to expand overseas has been buying up more shares in Emperor Mines Ltd (Australia:EMP.AX - News), which mines in Fiji, boosting its stake to 45.33 percent from 19.6 percent.
That move will increase DRD's attributable gold production in the Australasian region to around 350,000 ounces against a target of 400,000 ounces. In the 12 months to end-June, DRD produced a total of 905,023 ounces of gold.
-END-
Costs up, production down. Seems to be the trend all around. The fading "Roodeport Rocket" was pummeled, down 61 cents to $1.78. Good grief!
The sad thing is these poor performances and job losses are totally unnecessary. For all that to go away, all that need be done is to have The Gold Cartel go away. If that were to happen, the price of gold would be sharply higher and it would be boom town time in South Africa instead of this continued misery. This is what GATA conveyed at our GATA African Gold Summit in Durban, SA on May 10, 2001. What a shame the SA Government, gold producers, etc., won’t run with the ball on this one and help themselves by exposing the gold scam.
The CEO and Chairman of Goldcorp, Robert McEwen, was interviewed just now by Kramer and Kudlow on CNBC. It seemed clear to me and a few other Café members that Kudlow read the barrage some of us sent him about gold versus oil and his comments of three years ago. He remarked to McEwen that the price of gold was really lagging oil (guess he figured it better that he bring it up versus possibly being surprised). Kudlow served McEwen a softball and what does the CEO do but whiff, saying how the price of gold follows oil. Then Kudlow said, "no, gold historically leads oil." All McEwen had to say was the price of gold was being artificially suppressed by the major banks, which is the reason the gold/oil price relationship is not working these days. Instead, he gave it a pass, like all the other senior gold producer CEO’s do. McEwen may be a wonderful CEO, but he and his ilk are a major part of the gold problem and gold shareholders are paying the price for their diffidence.
The XAU and HUI ran up early and then gave back almost all of those gains. The XAU closed at 86.46, up .14 and the HUI gained .28 to 183.55.
You have to wonder when all this nonsense is finally going to end. Hard to say. It just goes on and on. The only thing I know for sure is it will end BADLY. Those staying the precious metals course will come out big winners.
GATA BE IN IT TO WIN IT!
MIDAS