time to panic? gas $4 a gallon by spring.

[RiversideGator]

Perhaps it is not so much the price of commodities rising as the value of the dollar falling, thus each devalued dollar is buying less of that particular commodity, whose value is remaining more constant from the standpoint of other currencies (i.e. the Euro, which is also "rising in cost" relative to the dollar?

Exactly.  There is an inverse relationship.  This, together with the speculators, is driving commodity prices higher.

[RiversideGator]

River, I wish anyone else shared your optimism.

No one whose finances depend on things working out for the next five years seems to have any.

Try, for one, Jack Welch, the legendary former CEO of GE.  Here is a link to an interview (scroll down a little to find it):  http://www.kudlowsmoneypolitics.blogspot.com/

[RiversideGator]

Actually, I will post the transcript of Welch's appearance on CNBC's Kudlow and Co from Kudlow's website:

Kudlow: Jack Welch, welcome back to the show, sir. We love seeing you as always. Did Senator Obama listen [to the advice you gave him on CNBC back in January] from what you now know?

Welch: He’s the smoothest guy in town, I’ll tell you. He put me under the table, and didn’t listen to a word I said.

Kudlow: That’s right. Didn’t listen to a word you said. And that’s where I want to pick up on this. Now let me ask you, first up, Warren Buffett was on the network yesterday or the day before. He thinks we’re in recession. Do you?

Welch: Well he said we’re in a practical recession. We’re certainly in a slowdown. But if I had to bet a dollar or two, I’d bet we’ll have a positive GDP in the first quarter, and the second quarter. But it’s certainly is a slowdown of enormous proportions from what we were experiencing.

Kudlow: Alright, I like your optimism very much, as always. So let me ask you, you’ve seen a lot more of Hill-Bama, as I’ve taken to calling them. Senator Clinton, Senator Obama on the campaign trail, particularly in Ohio, bashing trade, bashing businesses, bashing wealthy people, talking about income inequality. As you look at this, you’ve seen a lot of elections, you’ve been through a lot of election cycles. What’s your read here? What should people be thinking about?

Welch: Larry, you know everyone’s talking about why the market’s tanking, the slowdown, and everything else. I think the market’s also tanking on the fact that there’s an enormous Democratic surge in voting. They’re outvoting the Republicans in every primary that’s out there. And there’s a great enthusiasm for change away from the Bush administration. And I think people, the market, is usually ahead of things, are seeing some of these crazy proposals that are out there from these people. We’d be the only country in the developed world that’s raising taxes, not lowering taxes. And there’s a whole series of programs here. And Larry, we haven’t even talked about yet, the first thing they’ll do is pass that damn [Employee] Free Choice Act. And if you want to see jobs escape, in a country where [American workers] don’t have a secret ballot for voting, you’ll see it happen here.

Kudlow: Well that’s not the only one. Look, that’s an interesting theme [about] the union influence. This is the first time in quite some while. When Bill Clinton ran he kind of dissed the unions. He was never beholden to them. But Senator Obama and Senator Clinton, we’re seeing in Ohio, but we’ve seen it before, they’re very much in tune with the unions. Now, one of the union proposals is to set wages not on supply and demand, but on some social theories. And this kind of equal pay, comparable wages, I mean what would this do to large corporations? What would this do to companies in America?

Welch: It’ll kill small business. It’ll kill everybody. I mean, it’s just bad for us Larry. Now hopefully, in the Democratic primary, as they’re pushed to the left, the rhetoric will in fact overwhelm what they will do. And they’ll get back more towards a more centrist policy later on. You know, when you talk about the great Clinton years, we always hear [that], one of the reasons the Clinton years were so good is -â€" look at ’92-’94, they weren’t so good â€" [but] they became better when we had a strong Democratic president, with a charismatic personality, who dealt well with a Republican congress that Newt Gingrich led, that Dick Armey who’ll be on [Kudlow & Company] tonight, led. That was a team that worked together to get more moderate policies all through the ‘90s.

Kudlow: So basically, you’re suggesting the stock market is beginning to discount a Democratic victory. And you believe that the Democratic Party has shifted to the left. It’s essentially a union agenda on taxes, on the card check on unionization, on equal pay, on other things. On trade for example, stopping trade. That’s part of the union issue. You’re saying the stock market is already discounting some bad times, presumably in 2009. Is that basically where you’re coming from on this?

Welch: I’m not an expert on this, but I’d certainly be suspicious of that theory. I think it is in fact a real possibility.

Kudlow: And you think that’s more important than the organic issues we’re seeing â€" the credit problems, the recent rise of inflation, the slowdown, the slump in the dollar, and things of that sort. Corporate profits are soft. You think those organic issues are just part of the story, that the political issue is really becoming a big overhang?

Welch: Larry, corporate profits outside of the financial sector aren’t that bad. And of course credit is a real problem. Let’s not kid ourselves. I mean, credit has really dried up. So we’ve got to go through this process. But one of the things we have going for us now is information is so prevalent. Every cable channel, the Internet. So the responses to this slowdown have been immeasurably faster. And in fact, I think if we have a “small r’ â€" but I don’t think we will â€" if we have this slowdown we’ll be out of it faster than we ever would have been with all the stimulus and other things that are going on.

Kudlow: Just one last one Jack, before we bring in Mr. Shrum and Mr. Armey. And I hope you’ll stay with us for awhile. In a recent speech Hillary Clinton says, we’ll take on the oil companies and harness their record profits. We’ll take on the credit card companies. We’ll take on the insurance companies. We’ll go after the drug companies. We’ll take on Wall Street. Mr. Obama has said a number of times he wants to regulate corporate profit margins. What do you make of that? I haven’t heard anything like that Jack, in I don’t know, I don’t think I’ve ever heard anything like that in my professional lifetime.

Welch: You know I haven’t, and I’m older than you are. I have not heard it either. I think it [goes] back to the early days of Franklin Roosevelt, I think. That’s the last time we heard some of that stuff. Prewar. That’s why I think Larry, a real component of this Wall Street slowdown, aside from credit and the slowdown in the market, is this concern about this next election and going to these policies. These polices are really anti-business.

http://www.kudlowsmoneypolitics.blogspot.com/

[Midway ®]

RG:

What does Jack Welch have to worry about? He still has a GE jet at his Beck and call for the remainder of his life, healthcare for life, use of GE facilities for life, all taxes paid for on those perks by GE etc, etc, etc, which, taken from actuarial tables, is not a very broad time horizon.

So, if the Earth were going to be decimated by an asteroid in 20 years, he probably would not care at all, unless it interfered with his GE deal or caused problems at his Turks and Cacos Islands vacation home.

He can afford to be bullish, and if he can sell that bullish(it)ness to everyone else, that will work greatly to his advantage, because it will prop up the value of his assets. He is pumping up his own stock, in essence. If he were a broker that would be illegal.

As for speculators driving up the prices of commodities, It is generally accepted that the stronger effect is coming from dollar devaluation, and that is of much greater concern than speculation, which is pure capitalism, which if I am not mistaken, you are the #1 cheerleader of on this forum.

So, for you to paint speculators with a pejorative brush is kind of strange, given the parameters of your views on free markets and capitalism. .

[Midway ®]

Banks face "systemic margin call," $325 billion hit: JPM

By Walden Siew

NEW YORK (Reuters) - Wall Street banks are facing a "systemic margin call" that may deplete banks of $325 billion of capital due to deteriorating subprime U.S. mortgages, JPMorgan Chase & Co (JPM.N: Quote, Profile, Research), said in a report late on Friday.

JPMorgan, which sent a default notice to Thornburg Mortgage Inc. (TMA.N: Quote, Profile, Research) after the lender missed a $28 million margin call, said more default notices and margin calls were likely. The Carlyle Group's mortgage fund also failed to meet $37 million in margin calls this week.

"A systemic credit crunch is underway, driven primarily by bank writedowns for subprime mortgages," according to the report co-authored by analyst Christopher Flanagan. "We would characterize this situation as a systemic margin call."

The credit crisis that began about a year ago will likely intensify after Friday's weak February U.S. employment report "that most definitely signals recession," JPMorgan said.

Indeed, corporate bond spreads widened to a new record on Friday, surpassing levels seen in October 2002 during a boom in bankruptcies following the dot-com crash. U.S. employers cut payrolls in February for a second consecutive month, slashing 63,000 jobs, the biggest monthly job decline in nearly five years, the U.S. Labor Department reported on Friday.

"The weak February employment report points to an economy in recession," JPMorgan said.

The JPMorgan report included a revised bleaker forecast for subprime-related home prices. The bank now sees prices falling 30 percent, from its prior 25 percent forecast. Those prices have declined 14 percent since mid-2006, JPMorgan said.

The U.S. jobs results also came after the Federal Reserve expanded the amount of its short-term auctions to $100 billion in total in the central bank's latest effort to ease credit concerns. Ongoing concerns about bond insurers, known as monolines, and their effort to save their top ratings also are weighing on market sentiment.

(Editing by Eric Beech)

[Driven1]

so the dollar cannot stay down for long.  And, there is no shortage of the commodities in question so the run up in prices is simply not sustainable.  So, the dollar will be back and the commodity prices will also come crashing down to earth before too long too. 

2 men disagree with you...one is the most famous investor in the world (and now the #1 richest man in the world) and the other is the most famous commodities-investor in the world and has invested in commodities for over the last 20 years and knows that commodities run in decade-long cycles.  the two men are Warren Buffet and Jim Rogers.

Buffet said last week that he has bet against the dollar over the last 5 years (which btw, have been fairly corporate & economically sound for the U.S. - albeit, on the back of a real estate bubble) and it has been good to him and plans to do the same for the next 5 years.  His words:

"And we--as long as we force-feed a couple of billion dollars a day to the rest of the world--they take it whether they like it or not, because we buy goods--buy two billion a day more than we well goods to the rest of the world, the dollar's going to get weaker over time. And the government can talk about how it's in our interest to have a strong dollar, but we're not following policies that lead to that, and it's just a consequence and it'll just continue to be. If you do the same thing over and over again, you're going to get the same result... and we are doing the same thing now that we were doing two, three, five years ago, and the dollar will weaken in an irregular basis, in my view, for some time to come. "

Rogers says we are currently in the 4th or 5th year of the commodity boom.  Short-term, yes, the commodity technicals have disconnected from the fundamentals and that is why we are seeing a temporary (last 4 days) correction.  But long-term, thanks to India & China, commodities should be a good spot for the next 3-4 years (exempting no global depression and institutional money doesn't just completely flood that market making it irrational).

[gatorback]

Buffet also said his rug company and brick company are not doing so good with the housing market tanking.  The Oracle of Omaha hedged his bets turning his back on the greenback.  Continued good call Warren.  Who didn’t see that one; however, this next one is far more interesting.

Dubai International Capital decided not to invest more money in Citi.  What does this mean?  Well, in 2002 Dubai invested billions in Citi allowing Citi-Mortgage to lend billions in the subprime lending market.
Wallstreet is now saying Citi might not make it.   Citi needs $40B they were hoping to get from Dubai.

[gatorback]

Would bricks and carpet be commodities?  Bet $50 Warren holds onto those business while the dollar falls to the floor making his bricks and carpet less expensive on the world market.  He's a smart guy.

[5400again]

What's the JTA saying?  Are they seeing an increase in ridership?

[RiversideGator]

so the dollar cannot stay down for long.  And, there is no shortage of the commodities in question so the run up in prices is simply not sustainable.  So, the dollar will be back and the commodity prices will also come crashing down to earth before too long too. 

2 men disagree with you...one is the most famous investor in the world (and now the #1 richest man in the world) and the other is the most famous commodities-investor in the world and has invested in commodities for over the last 20 years and knows that commodities run in decade-long cycles.  the two men are Warren Buffet and Jim Rogers.

Buffet said last week that he has bet against the dollar over the last 5 years (which btw, have been fairly corporate & economically sound for the U.S. - albeit, on the back of a real estate bubble) and it has been good to him and plans to do the same for the next 5 years.  His words:

"And we--as long as we force-feed a couple of billion dollars a day to the rest of the world--they take it whether they like it or not, because we buy goods--buy two billion a day more than we well goods to the rest of the world, the dollar's going to get weaker over time. And the government can talk about how it's in our interest to have a strong dollar, but we're not following policies that lead to that, and it's just a consequence and it'll just continue to be. If you do the same thing over and over again, you're going to get the same result... and we are doing the same thing now that we were doing two, three, five years ago, and the dollar will weaken in an irregular basis, in my view, for some time to come. "

Rogers says we are currently in the 4th or 5th year of the commodity boom.  Short-term, yes, the commodity technicals have disconnected from the fundamentals and that is why we are seeing a temporary (last 4 days) correction.  But long-term, thanks to India & China, commodities should be a good spot for the next 3-4 years (exempting no global depression and institutional money doesn't just completely flood that market making it irrational).

1)  Buffet:  Obviously he is a business genius but he may be wrong about the future.  His dollar position has been correct but this can be quickly turned around by action in Washington.  Basically, I think the feds need to intervene to prop up the dollar which will have the effect of hammering the speculators who are long on commodities and short on the dollar and will also encourage a shift of money into more productive investments like business.  I suspect a President McCain will act to strengthen the dollar if he follows the advice of many of his supporters like Steve Forbes.
2)  Rogers:  He loves China so much he moved there.  Obviously, if you start from an absurdly low level like China (to get off on a tangent), you will have stellar growth for a good while once you get your act together.  The question is how much China has its act together.  Their economy was revised downward lately having been previously exaggerated in size and they have some serious problems internally.  Basically they are the current sweatshop for the world.  We will see how they will play out but I bet Rogers will be back in the States before they surpass the US.  Dont bet against the United States long term.  As for commodities, part of their rise is global demand has increased which is fed by the rise of the Chinese and Indian economies.

[second_pancake]

Banks face "systemic margin call," $325 billion hit: JPM

Midway, another local company (headquartered out of Austrailia) announced on Monday that it will be shutting it's doors here and are expecting a "large margin call" to take place here soon...one they will not be able to fulfill.

I've been running through scenarios in my head and I got stumped when I got to this piece.  What happens when the borrowers (companies in this case) can not meet their margin calls?  If they can't pay back the difference and the market value of their collateral doesn't increase, then what?  I mean, in the case of a gambler and a bookie, the bookie just starts sawing off some limbs until you can beg or steal enough cash to satisfy him, but what happens here??

[Midway ®]

Simple. They default on their obligations, file for bankruptcy and liquidate their existing assets, if any.

[Midway ®]

This is being partially driven by market speculation in commodities much like the net stock bubble and the real estate bubble.  All of these clowns buying gold, for example, as if it were a real investment, like stock in an actual company, drive up the price.  If you look at other commodities which are less commonly traded, there prices are not up nearly as much in percentage terms.  The dollar being weak right now is a problem but I believe that the feds should and might intervene to put an end to the currency speculation.  The same sort of speculative fever has driven the dollar down.  The fundamentals for the US economy long term are very strong so the dollar cannot stay down for long.  And, there is no shortage of the commodities in question so the run up in prices is simply not sustainable.  So, the dollar will be back and the commodity prices will also come crashing down to earth before too long too. 

Boy, I sure hope you are right. I am basing my entire investment strategy on your financial advice.

[Midway ®]

CENTRAL BANKERS PULL OUT ALL THE STOPS

This morning the Fed announced yet another new program to provide liquidity to failing markets. The program is called the Term Securities Lending Facility (TSLF).

    The Federal Reserve announced today an expansion of its securities lending program. Under this new Term Securities Lending Facility (TSLF), the Federal Reserve will lend up to $200 billion of Treasury securities to primary dealers secured for a term of 28 days (rather than overnight, as in the existing program) by a pledge of other securities, including federal agency debt, federal agency residential-mortgage-backed securities (MBS), and non-agency AAA/Aaa-rated private-label residential MBS. The TSLF is intended to promote liquidity in the financing markets for Treasury and other collateral and thus to foster the functioning of financial markets more generally. As is the case with the current securities lending program, securities will be made available through an auction process. Auctions will be held on a weekly basis, beginning on March 27, 2008. The Federal Reserve will consult with primary dealers on technical design features of the TSLF.

    In addition, the Federal Open Market Committee has authorized increases in its existing temporary reciprocal currency arrangements (swap lines) with the European Central Bank (ECB) and the Swiss National Bank (SNB). These arrangements will now provide dollars in amounts of up to $30 billion and $6 billion to the ECB and the SNB, respectively, representing increases of $10 billion and $2 billion. The FOMC extended the term of these swap lines through September 30, 2008.

Information on the actions that will be taken by other central banks is available at the following websites:

    * Bank of Canada
    * Bank of England
    * European Central Bank

Pulling Out All The Stops

Minyan Peter offered this opinion today on Minyanville.

    Two quick observations this morning regarding the Fed announcement: First, as I write the headline on Marketwatch reads "The Fed Pulling Out All The Stops." While the short covering rally will suggest euphoria, I can not emphasize enough how much the regulators have raised the stakes this morning. As any church organist will tell you, you can't make the sound any louder once you "pull out all the stops."

    Second, and just as important, the line-up of regulatory participants in this morning's actions spanned the globe - from the ECB to the Bank of England to the Bank of Canada to the Bank of Japan: an unprecedented step. By my count these central banks, along with the Fed, manage the monetary policy for economies representing almost 90% of global GDP. Anyone still harboring the notion of "decoupling" may want to reflect on the implications of today's actions.

Running Out Of Bullets

Minyanville's Mr. Practical chimed in with these comments.

    The Fed is taking this step to avoid complete financial collapse. That much is becoming evident very quickly. They are using up their bullets much more quickly than they want to, thus confirming the severity of the state of the financial system, something Minyanville has been pointing out for some time.

    Their last bullet comes when they directly lend to some major institution in a big way to avoid its collapse.

    As far as this move, it does nothing to solve the solvency issue. The Fed is just saying we will take that risk for the market. That is very similar to nationalization. The irony is that the Fed continues to address the situation as if it is a dislocation from fundamentals (or they continue to hope that people view it that way. In actuality this is exactly what should be happening to these credits: the market should destroy them.

    The government will never give up trying to forestall the inevitable, but that does not mean they have the power to do so. Stay the course: It is still early in this unwind with more flawed logic from the government to come.

    Mr. P.

My only comment is to say this new program will have as much success as the others, which is to say little to none. This is not a liquidity problem but a solvency problem. For all practical purposes the game is up but the Fed does not know it yet.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

[Driven1]

yeah, the latest $200b gift is just a brilliant idea...further deflate the dollar, pushing the price of everything up and use public dollars to purchase practically worthless mortgages...and be sure to give that $200 billion to the banks who screwed up in the first place.  excellent plan.

oh, btw...your house is still worth 60% what you paid for it 2 years ago - but don't worry, the bank that you borrowed the money from will be OK thanks to the benevolence of our gov't.