Scared To Death: Investment Manager Sentiment Plummets to March 2009 Levels

Considering that the market has done nothing for the last few weeks, except bounce up and down in a very tight range, one would think that sentiment has cooled off from August's market crash. You would be wrong. The NAAIM sentiment survey released today shows that investment managers are practically on the ledge and ready to jump to their own deaths to escape this vicious market turmoil. Apparently, they just realized that their end of year bonus is not going to be filled with gold or jewels, but instead with a lump of coal thanks to their poor performance. NAAIM sentiment came in at 4.18, a level not seen since the March 2009 lows. This also means that investment managers are so depressed that they are almost completely net short (with leverage). It should be remembered that this is a contrary indicator. You generally make money by doing the exact opposite of these pigeons. Right now it is saying that we may be nearing an important low in the market. This is quite interesting because other sentiment indicators like the AAIII poll are not confirming excessive bearishness.

One thing to keep in mind when trying to use this indicator for market timing. Back in March 2009 when the market was bottoming, the NAAIM survey held below 10 for three weeks. So it is not a perfect timing indicator, but certainly one worth following.

3/4/2009      2.15
3/11/2009    4.23
3/18/2009    9.97

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Quick Update: Closing Sugar Short

All good trades must come to and end as they say. The time has come for my Sugar short. I caught a nice 14% downside move that was pretty much straight down. It would be piggish of me to press the short any further. When you trade on leverage, you cannot risk a large oversold bounce (you never know if it is the beginning of a large move higher or just a technical bounce).

So why did this trade work so well? Luck. When I shorted sugar the fundamentals were beginning to sour along with a negative technical backdrop. Furthermore, all soft commodities were weak during this period, which pressured sugar lower. In short, the general conditions favored lower sugar prices.

I might consider shorting sugar again on a possible bounce higher.

Related Articles

Shorting Sugar
Update on the Sugar Short

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Will the EU Bailout Save the Market? Be Careful What You Wish For

The endless and increasingly desperate rumors of an EU bailout was enough to juice the stock market higher today. The Dow closed up over 270 points. To me, this has ominous parallels to the October 2008 Tarp bailout of the banks. If you remember the market initially dropped when the US House of Criminals Representatives failed to surrender complete sovereignty to the major banks. A few days later, the big banks made the right payments to the right people to get the TARP bailout approved despite public opposition to the plan. Anyway, the key takeaway was that the stock market immediately began to crash after the passing of the TARP bill. Instead of restoring confidence, the bailout bill spooked the market. People started to freak out that the US financial system must be in deep trouble if it needed $700 billion in additional capital. After all, every Government official and Fed member had assured the market that "the fundamentals remain sound" and other lies.

Below is a chart of the S&P 500 between October 3, 2008 (when the TARP bill was approved) and October 17,2008. The market crashed 22% despite the bailout. The lesson from 2008 was that bailouts don't prevent markets from crashing. Are we repeating history?

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Update on the Sugar Short

A few days ago I mentioned that Sugar was a good short from both a fundamental and technical view. So far the trade has done well. The longs are currently in liquidation mode as market sentiment has changed dramatically. A few weeks ago the bulls were focusing on Brazil's weak crop estimates. Now, everyone is worried about the expected global sugar surplus of between 4-7 million tons for the 2011/2012 season. Furthermore, the risk on market sentiment has been turned off courtesy of Europe's financial implosion.

This situation represents trouble for the sugar bulls as the market is heavily long sugar. The sugar market is also at a key technical level. See chart below

March Sugar is currently trading at 25.84, which is just above the early August low of 25.38. If sugar fails to hold this level than it exposes 24 as the next downside target. If 24 is breached then we could see sugar fall to 22.

Volume, as you can see from the chart is starting to pick up as spec longs sell their losing positions. Adding to the bulls' woes, the CME's margin hike made it a little more expensive to hold sugar.

I remain short Sugar.

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Shorting Sugar

With the market gyrating back and forth with no real conviction either way, I have been looking for uncorrelated trades, which can protect me from the non-stop risk on/risk off algo controlled market. Well I think I have found an interesting short opportunity: Sugar. 

Below is a chart of SGG, the ETF which tracks Sugar. 

You can see from the technical setup that Sugar is looking very heavy, with a possible double top pattern. Along with a weak technical picture, Sugar also faces poor fundamentals. The market is expected to be in surplus of at least 5 million tons for the 2011/2012 season. The only news that supports the market is a lower than expected harvest out of #1 exporter Brazil. However, this decline in output will be easily offset by record crops in Thailand, Europe, and India, along with strong harvests out of Russia and Ukraine. So we have a situation where the price of sugar has been bid higher on Brazilian crop concerns, but this should be short lived as market participants realize that the market will be well supplied. 

Another reason I like this trade is because sugar has a very low correlation with the stock market (around 0.1), which provides at least some diversification.

Finally, the sugar market is dominated by long speculators right now. Non-commercial traders are currently long 155,000 contracts, meaning that they will be quick to sell on any decline. Another bearish indicator is the fall in open interest, signaling a lack of conviction in this latest up move.

The trade is pretty simply. Short SGG with a stop at 105. 

UPDATE 9/16/2011---Well obviously I got really lucky on my timing on this trade. At the time of this writing 11:18 am pst, Sugar is down over 5% on a Canplan report, which suggests the Brazilian sugar crop will be stronger than expected. I am still short. There will much more long liquidation in the days to come.

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Disclosure: I am short SGG at 100.40


Merger Arbitrage Opportunities---Free Money....But

With the recent chaos in global markets, merger arbitrage spreads have widened considerably. This has made the risk/reward more favorable, allowing enterprising investors to take advantage. Below are some of the best opportunities in the merger arbitrage area:

From Dow Jones

Varian Semiconductor Equipment Associates Inc. (VSEA), Applied Materials Inc.(AMAT) 
Premium offered: $1.03 or 1.66% 
Acquirer: AMAT 
Target: VSEA 
Offer per share: $63.00 cash 
Value of outstanding common equity: $4,752,090,000 
Target share price: $61.97 
Acquirer share price: $11.05 
Expected closing: End Of 2011 9/25/2011 (might be October at the latest) 
Annualized gain: 37.92% 

Motorola Mobility Holdings, Inc. (MMI), Google Inc. (GOOG) 
Premium offered: $2.40 or 6.37% 
Acquirer: GOOG 
Target: MMI 
Offer per share: $40.00 cash 
Value of outstanding common equity: $11,772,000,000 
Target share price: $37.61 
Acquirer share price: $533.51 
Expected closing: End 2011-Early 2012 1/1/2012 
Annualized gain: 20.39% 

I don't normally like merger arbitrage because the risk is generally too high and the reward is too low. However, with these kind of annualized returns and ZIRP by Banana Ben and his merry traitors at the Fed, these look like good opportunities, without having to bet on the direction of the stock market. After all, anything is better than 0% at your bank. 

Warning: Merger Arbitrage often seems likes a sure thing...and it is until one of the deals falls through and you watch the stock drop 20-30%. The deals listed above are both all cash deals and have a very high likelihood of going through. But no guarantees. 
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Marc Faber's September Outlook: The Calm Before the Storm

Marc Faber is out with the latest issue of his famous Gloom, Boom, and Doom Report which is always a must read for serious investors. Unlike most of the other talking heads, Faber has an excellent track record. He correctly predicted the top in the equity markets in Nov 2007 and caught the bottom in March 2009, making his subscribers a lot of money. Here is a summary of his September 2011 report:

1. Stocks---Faber says stocks face two potential outcomes: a brief rally to between 1250-1300 on the SP 500 before another leg down (and breaching the 1101 low) or a prolonged trading range with 1100 being the low and 1300 as resistance. Faber thinks the first outcome is more likely, but this could change depending on Fed policy (aka: money printing). Another reason for Faber's bearish posture is the unfavorable seasonality of September (worst month for stocks historically). Investors who have exposure to stocks should use any bounce to sell. If you feel compelled to own stocks, Faber recommends blue-chip stocks like Pepsi and Johnson and Johnson.

2. Gold--Extremely overbought at this level. Could fall to $1500-1600 range during the correction. Faber noted the bizarre relationship between US treasuries and gold. Concludes that the people buying gold were not worried about inflation but a collapse of the entire financial system. Gold should be viewed as more of an insurance policy rather than an inflation hedge. Long-term gold is going significantly higher. Gold stocks may be the better bet than the physical metal in the short-term as they play catch up.

3. US Treasuries--After a huge, fear-inspired rally, US treasuries are extremely vulnerable to a correction. Faber notes that the Daily Sentiment Index is around 98%, indicating a possible top. Furthermore, the "dumb money," a.k.a. the retail crowd, is very bullish judging by their positioning in the Rydex inverse government bond fund. If you own Treasuries, now is time to take profits.  

4. Indian Equities (Sensex)--While generally bearish on equities, Faber would advise the gradual accumulation of Indian shares, noting that they are relatively cheap and represent good value. Over a longer time frame (10 years), Faber thinks Indian stocks could appreciate 7%, which is pretty good compared to other investment options.

5. Macro--"This system has become completely corrupted and is being run for the benefit of the billionaires and banking CEO's who have control of the politicians." Faber has harsh words for Warren Buffett, noting that the investment guru profits not because of his genius, but at the expense of the American taxpayer. Buffett represents the very worst when it comes to crony capitalism. His BAC investment will likely prove very profitable, courtesy of the taxpaying middle-class and Buffett's straw man President whom he controls.

Happy trading!

Black Swan Insights



Nasdaq Sentiment Index Hits All-Time Low---A Contrary Buy Signal?

The last time this indicator fell by so much was back on June 13 2011 when the NASDAQ sentiment index hit -194. We mentioned (see Negative Sentiment Suggests A Near-Term Bottom) that from a contrary perspective, this was a short term buy signal with the markets likely to rally. SPY was at 127 on June 13th. By July 7, SPY had risen all the way to 135.

Well it is that time again. The NSI has hit a new all time low of -342, showing just how much fear is currently priced into the market. This is a bullish signal for contrary investors who buy fear and sell euphoria as Jim Rogers would say.

I expect the market to trade sideways for a while before the new leg higher. Similar to what happened in late June of 2011. It would be hard to imagine a significant fall from these levels barring some kind of European Lehman event.

click chart for larger image.


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Investment Ideas from the Barron's Roundtable

Find out what the word's top investors are doing with their money during these tumultuous times.

Bill Gross of PIMCO-- "Our best idea therefore is a 10-year Australian or Canadian bond. A 10-year Canadian government bond yields 2.5%. A10-year Aussie bond yields 4.5%. "

Marc Faber--In the near term the stock market is oversold, and a bounce to between 1240 and 1280 on the S&P 500 is possible. New highs above the May 2 high at 1370 are most unlikely for next six to 12 months.

I'm not buying anything right now. But if stocks dropped another 10% to 20%, I might add to the positions I mentioned in the Midyear Roundtable. I also maintain my recommendation to short [CRM]

Gold is likely to correct, possibly by $100 or $150, but I continue to recommend gradual accumulation.

Archie MacAllaster-- I like some of the insurance companies more than the banks. Hartford Financial Services [HIG] has a book value of $43 a share, and the stock trades around 19. It yields more than 2%. Hartford raised its dividend this year to 40 cents a share from 20 cents, although it was a lot higher before the financial crisis in 2008. Hartford could earn $3 a share this year, so on a price/earnings basis it is very cheap.

Fred Hickey---  I stay with my secular bull-market play in gold. I own bullion and gold exchange-traded funds. The better opportunity right now is in gold-mining stocks. They have underperformed for a while. They are going to get a huge boost on price alone. I like Agnico-Eagle Mines [AEM], Newmont Mining [NEM] and Yamana Gold [AUY] for the second half of the year.

We were short since May a dozen semiconductor stocks, but I have covered them. I wouldn't be short anything now, because I don't know when the Fed is going to pull the trigger on QE.

Felix Zulauf ---I predicted in the Midyear Roundtable ("Buy Low, Stay Nimble," June 13) that
the stock market would go to a low in the fall. The next few weeks will be extremely volatile. I expect the market to go below the latest lows in September.

The central bank will come in to provide liquidity, but timidly at first because the Fed was bashed for QE2. After the fall low, equities will recover part of what they lost into the turn of the year and then fall again. Economies around the world most likely will be in recession next year.
Confidence in our currencies, policy makers and central banks is going down the drain. That will be reflected in a rising gold price. I have long said this isn't an environment for investing in stocks. Hold cash in the form of short- to medium-term Treasuries. Own a lot of gold, and don't have debt.

Mario Gabelli --The volatility we saw in the markets in May 2010 --  hedge funds trying to protect themselves using ETFs [exchange-traded funds] --  has returned, with the result that good and bad stocks are getting crushed. It is hard to figure out where to allocate and reallocate capital. On the other hand, we are getting pretty decent cash flows in certain products such as utilities, where we have taken advantage of the decline in stocks like NextEra Energy [NEE]. One position to which we have added is National Fuel Gas [NFG]. Shares of the company, which is partly a utility and partly a shale-gas play, fell to 55 from

I have failed to include Abbey Joesph Cohen's view because she is a certifiable lunatic who only gets paid to pump stocks to retail investors. As such, her opinion is worth less than rat excrement and would only serve to harm readers. 

Black Swan Insights


Did We See the Plunge Protection Team Last Night?

Last night was a strange trading session. The Asian markets followed the US down. The Nikkei was off 4.5%, Kospi down 8%, and the ASX 200 was down 5%. As a result SP 500 futures plummeted another 28.50 points to around 1080. Then the unexpected happened--within a 20 minute period some massive buyer came in and starting lifting all bids in the market. The SP 500 futures almost immediately gained 14 points and went on to recoup all overnight losses. Then futures turned 1% higher. This is a stunning move considering the market was in free fall at the time.

I don't have any proof, but we may have just seen the plunge protection team in action. Just when everything in the world is going to hell, there always seems to be a mystery buyer come in to save the market. The huge move in the SP futures was not in response to any news, which makes the situation very suspicious. I doubt the SEC will ever investigate this considering how busy they are watching tranny porn (see ABC news article).

Oh well, back to your regularly scheduled market manipulation courtesy of the Fed.

Black Swan Insights  


Charting the Stock Market Crash of 2011

Amazing charts show the massive carnage.

Here is a chart of the % of S&P 500 stocks above their 50 day moving average. We are at the same crash levels back in October of 2008.

S&P 500 stocks above 200 day average--its low, but has been lower.

The CBOE Equity put/call ratio--generally a contrarian indicator. We are near the highs reached back in 2008. Everybody wants to buy puts near the bottom.

The VIX--otherwise known as the fear index shows the real fear in this market. We either get a Lehman event or we are near capitulation.

SP 500 Bullish sentiment--not near the lows seen during October 2008 or March 2009, but getting very close.

Baltic Dry Index--used to be a good leading indicator. It is hovering just above 2008 lows.

Based purely on technicals, the market has only been this oversold twice:  5/21/40 & 10/19/87.  The SPX was +9.4% and +8.1% a month later according to

While the AAII investor sentiment will be released on Thursday--we can imagine that it is somewhere around 5% bullish and 95% bearish.

Comment: Don't listen to the fools on CNBC saying it is time to be defensive--the time for that was 2 weeks ago before the crash. Now is the time to buy safe stocks for a tradable bounce in the markets. I like tobacco stocks and MLPs (with no commodity risk). 

Black Swan Insights


Economy on the Brink--The Fed's Next Move

With the Fed meeting tomorrow, everyone wants to know what the Fed's next move after this dramatic crash. This is a re post of a previous article which explains the Fed's options during a liquidity trap.

1. Dramatically Change Price Expectations---Recent Fed announcements indicate that they want a 2-3% inflation rate compared to the current 1% rate. One idea is for the Fed to increase its inflation target upward to between 4-6%. To support this new policy the Fed could openly announce that they are monetizing debt rather than calling their money printing--credit easing. The Fed could also buy new kinds of assets such as stocks, corporate bonds, land, etc. This could have the effect of stimulating spending as consumers and businesses fear the loss of purchasing power. It would make it clear that the Fed is serious and will do everything in its power to create inflation.

2. Cap Treasury Rates (Aka. Operation Twist)--Under this policy option the Fed would agree to cap treasury rates at unreasonably low rates (e.g 10 year at 2.0% and 30 year at 3.5%). They would openly announce the target to the market and state that they will print as much money as necessary to achieve the goal. This would have the effect of lowering the real inflation adjusted yield of the 10 year to below zero. It would reduce the incentive for financial institutions to hold Treasuries and force them to do something with their money.

3. Taxing Currency---- Under this option the government would tax the currency, meaning that the dollar would automatically lose value over a period of time (say 3% every 6 months). This would create a cost to holding currency, giving people and institutions an incentive to spend it quickly, which would increase the velocity of money throughout the financial system. An extreme example of this policy would be the introduction of a new currency, which would lose a certain amount of value over a fixed period of time. The Japanese government considered this option in 1999, but never implemented it.

4. Negative Interest Rates--Like taxing currency, this option imposes a cost to hold money and theoretically forces people and corporations to spend money, which would increase aggregate demand. However, this is a hard policy to implement from a political perspective. It could lead to a flight of capital from the US as savers abandon the dollar for foreign assets. Under this policy option you may have to implement capital controls. What could work is for the Fed to impose negative interest rates on bank deposits held at the Federal Reserve. They could also prevent banks from passing along negative interest rates to consumers. Banks would be forced to do something with all of the money they are hoarding. This policy option would give banks an incentive to lend to the economy.

5. Reduce the Interest Paid on Excess Reserves---One reason QE failed was because banks simply held onto all of the excess reserves created by the Fed. All of this money is simply sitting around doing nothing for the economy. The Fed could reduce the rate it pays on these excess reserves, thereby creating an incentive for the banks to lend the money. While this appears to be a logical policy option, it is not practical because the major banks are largely insolvent. They need the capital to cushion themselves from future credit losses. Even if the Fed was to reduce the rate paid on reserves to 0%, it would not be enough to encourage the banks to lend out the money.

6.Extend Duration of Balance Sheet--Under this option, the Fed would start to move its bond holdings into longer dated Treasuries. The idea would be that the Fed would indicate to the market that it is going to maintain easy monetary policy forever. However, this action would be a de facto admission that QE 1, QE 2  was debt monetization. The last bit of confidence left in the dollar would collapse . The whole goal of QE was to con Americans and foreigners into believing QE was temporary and would be reversed at a later time (readers know better than that). If the Fed starts buying 30 year treasuries, it collapses the illusion forever.  

7. Helicopter Drop Money--The easiest way to stimulate aggregate demand is to print money and hand it out to the general population. Imagine everyone in the US getting a check for $25,000. This would automatically create inflation and increase spending. It would also increase inflation expectations, which the Fed considers important. The major drawback is that nobody knows how much inflation this would cause and it might lead to hyperinflation.

As you can see the Fed is not out of bullets. Zimbabwe Ben and his fellow counterfeiters will stop at nothing to create inflation and destroy the value of the dollar, all in the name of saving the economy.

Black Swan Insights


Buying Into a Stock Market Crash

No, I am not insane. The markets are in free-fall, crash mode, whatever term you want to use. Fear reigns supreme as everyone is talking about another recession, depression, etc. Hedge funds are collapsing as we speak. So what is the trade? It is quite simple: buy. That's right you want to be a buyer of top quality tobacco stocks and MLPs which do not have any commodity price risk. I have also decided to sell volatility (through a call spread) at around 40. Placing a trade like this makes me want to vomit, but historically this is a high probability trade.

During a market crash--which we are experiencing, everything falls regardless of fundamentals. This represents an opportunity for the few smart investors.

Stocks I am buying:

Nustar Energy--stable toll like revenue with a 7% plus yield. So if this is such a great stock, why is it falling so much? Because this is a favorite of hedge funds who like the postive carry. They borrow from their prime broker at 50 bps (if that) and buy Nustar and other MLPS which yield 6-8%. When there is a market crash, these hedge funds are forced to liquidate to meet margin calls.

Altria(MO)--this company sells an addictive product. People have to have their nicotine fix, regardless of economics. Even if you think we are entering a depression, this is still a good stock. They have complete pricing power and control 50% of the market. Current yield 6%.

Gold (GLD)--Over 50% of my portfolio remains in gold (see here). I will not be selling despite the huge move in gold.

Good luck.

Black Swan Insights


S&P 500 Priced in Gold---The Economic Recovery Illusion

Back in Jan of 2011 Black Swan Insights predicted that the S&P 500 when priced in gold would decline. So far in 2011 this has been the case. The following chart shows just how poorly the S&P 500 has performed this year when priced in real money. The result is shocking. We are now back to the March 2009 lows--and no fiat money printing from Zimbabwe Ben will change this situation.

click chart for larger image

With the ECB officially entering the monetization phase, you can expect gold to continue its upward trajectory.

This issue of money printing and the performance of equity markets is very important. The SP 500 may only be down 4.4% year to date in nominal terms, but in real (gold) terms it has fallen almost 20%. And when you consider the performance of the S&P 500 since March 2009 you can see that it does not exist in real terms. This whole fiat money rally from 2009-2011 has been an illusion to fool the masses into thinking they were wealthier, when in reality they are no better off then at the bottom of the Great Depression Recession.

Below is an embedded YouTube video about visual illusions. As humans we are sometimes not capable of seeing reality when it right in front of us. In my opinion the greatest illusion is between nominal values and real values. Enjoy.

It is a long video (17 mins). If you want to jump to the visual illusions go the 2 minute mark.

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Obama's Failure: S&P Downgrades US Debt Rating

Well it happened--after markets closed, S&P officially downgraded the credit rating of the US. This is a truly historic occurrence which will have far reaching impact on the economy and financial markets. The real question is: What will the stock market do? Will we swoon limit down or shrug off the news and dismiss S&P as a totally irrelevant entity?

A few facts to consider:

The US should have been downgraded years ago. Specifically, when the Federal Reserve decided to monetize US debt in late 2008-early 2009. This action should have been considered an unofficial default by all three major ratings agencies. Countries that print  money to pay their debts do not deserve an AAA rating.

The US has defaulted on its debt before. In 1933, war criminal and traitor Franklin Roosevelt took the US off the gold standard and devalued the dollar by over 60%. Why on earth the US was not downgraded for this goes to show just how worthless the ratings agencies are.

A debt downgrade is not the end of the world. Japan lost its coveted AAA rating in 2001. At first, pundits declared that bond yields would surge as investors flee. What happened? Take a look at the "fear and panic" in the JGB market. Oh--that's right nothing happened. People continued to buy JGBs and today Japan enjoys the lowest bond yields on the planet.

The real question is: What happens to the market? I believe this to be a very negative psychological event which comes at the worst possible time for an already fragile stock market. Numerous hedge funds have blown up this week leading to margin calls and liquidations. Investors are scared about the EU debt crisis, and we need a US debt downgrade like we need a bullet in the head. This downgrade could be the tipping point which leads to more selling.

Gold--If you are like me and own gold, you are in nirvana. The gold bugs have been proved correct. The dollar and US debt are no longer safe havens anymore. It is hard to say gold does not continue to surge as investors rush to the ultimate safe haven of gold.

The dollar and Treasuries may rally. I know it sounds absurd, even illogical to suggest the dollar and Treasuries could increase on news of the downgrade, but consider the following: The US is the world's reserve currency with the largest, most liquid debt market. There is simply no alternative for global investors to flee to. What, are they going to buy the euro when it is on the verge of collapse? I think not. As much as I like gold, there is not enough gold to handle trillions of dollar denominated assets. Furthermore, most Asian central banks (including China) will continue to buy US dollars and US debt to keep their currencies from appreciating against the dollar.

By the way, if you look at the chart below, you will see that quite a few bond investors knew in advance of the S&P downgrade (e.g. Bill Gross, etc). Someone wanted out of US bonds before the end of the day.

Obama will go down in history as an unmitigated failure, just like George W Bush. Obama will be the first President to preside over a US downgrade. I don't blame him for his incompetence and lack of leadership. I blame the dumbed down piece of filth Americans who voted this supercilious jackass into the White House. Everyone one of you who voted for him should be stripped of your constitutional rights immediately. You voted for a low-life community organizer from Chicago with no experience into the highest and most powerful job in the world. I remember watching the cheering fools, celebrating Obama's victory. People were running around claiming that the US would be saved and that they would not have to worry about their mortgage or gas bill anymore thanks to Obama. LMAO! Well, now you are stuck with a mental midget in the White House whose only concern is playing basketball with the secret service and vacationing at Martha's Vineyard. He does not give a damn that Rome is burning; he is too busy holding fundraisers and selling out the country.

America you got what you deserved! I hope you can live with the fall-out. I bet you will re-elect Obama in 2012 just to prove how stupid you really are.

Don't blame me, I voted for Ron Paul in 2008 (and will again in 2012).

Black Swan Insights


Market Massacre--- What Happens Next?

That little EU debt crisis we have been warning about for over a year is finally hitting the fan. The market has fallen over 10% percent in the last 9 trading days, which is similar to a mini-crash. Today the Dow was down 512 points with European bourses performing much worse. Why the dramatic decline?

The realization that the EU is on the verge of collapse is finally starting to dawn on investors. About fucking time in my opinion. More importantly the EURO finally got smacked hard after ECB president Trichet finally acknowledged that future rate increases will not happen. Furthermore, the ECB started to buy Italian and Spanish bonds in a desperate action to restore confidence (did not work). This action caused massive panic in Europe and dumping of the EURO in favor of gold--which was bid all the way up to $1680. The Europeans see the writing on the wall. Either the ECB monetizes all PIIG debt (inflationary) or the EU collapses into oblivion. Natural response is to buy gold.

But, a funny thing happened in the middle of New York trading--gold was deliberately taken down from $1680 to $1650. The rumor on the trading desks was that COMEX was going to increase margin requirements (didn't happen). It is days like today where you really know gold is manipulated by the US government and central banks. Why would gold suddenly go into a flash crash in the middle of trading on no news? I could see if gold fell in Europe along with the market. This would make some sense, but today's move was unjustifiable and clear evidence of market manipulation. The gold cartel did not want to see gold surge to new all-time highs during a market meltdown. Good news is that gold held its own.

Why was gold relatively strong today? Because QE 3 is guaranteed! It may not be called QE 3, but Bernanke and Co. will almost certainly start to print more money or begin Operation Twist 2.0 (manipulating Treasury yields). The market will continue to fall until the Fed injects more liquidity.

That being said the market is getting pretty oversold and could get a token bounce tomorrow with the NFP. The number may not be as bad as expected and that will give a reason for a short-term move higher.

As for how to protect yourself from further market losses? There is little you can do at this point when the vix is over 31 up 50% over the last three days. The time to protect your portfolio is when the vix is below 18 not at panic highs above 30.

From a trading perspective the easiest trade is to short volatility if it jumps to around 35-36. This would likely constitute a short term market bottom. The way to play is through VXX which is mathematically guaranteed to decline over time because of the term structure of volatility. About they only way this instrument could rise longer-term is if volatility became an appreciable asset (impossible). In the intermediate time frame it should be noted that super-investor Marc Faber thinks the SP 500 could fall to around 1100 before a QE 3 bounce.

Today I picked up NS--Nustar Energy MLP an oil storage company with steady earnings and a stable 7% yield. A lot of hedge funds have been flushed out of the name and it looks like a good opportunity.

Have a good day.

Black Swan Insights  


Profit From the EU Debt Crisis--Short EUR/CAD

With Spain having crossed the thin red line into bankruptcy, with its 5 YR CDS surging above 400 bps and Italian 10 year yields rising over 6%, the next chapter in the EU debt crisis is rapidly playing out. I have been thinking of ways investors can profit from this almost certain EU calamity. While on the face of it, shorting EUR/USD looks like a no-brainer, but anyone who has put on this trade has been royally screwed over the last few months. The problem is that the US government along with the Fed is feverishly devaluing the dollar, which has led to a flat EUR/USD trading range between 1.40-1.45. Competitive devaluation at its finest.

I think the better trade is to short EUR/CAD at around 1.3630. The Canadian government is not actively devaluing its currency by printing money, which makes the Canadian loonie stand tall in a world of debased fiat currencies.

If you look at the chart below of EUR/CAD you can see the trend is definitely down (e.g Canadian strength). In addition to strong technicals, you have a favorable macro back drop as more and more market participants realize that the EU is doomed to collapse. I am looking for a EUR/CAD downside target of around 1.32-1.3250.

click chart for larger image

Black Swan Insights 


How I Cut $672 Billion From the Federal Budget

It always sickens me when corrupt politicians say we can't cut the federal budget. They say we have to keep spending our way into bankruptcy to save the economy. Here are 8 simple way to cut $672 billion from the federal budget:

1. End the Wars in Afghanistan and Iraq--Cost savings $160 billion

2. Reduce Defense Department budget by $100 billion. In 2010 we spent $530 billion on Defense. And before people say I am weak on defense let me remind you that the majority of the US defense spending goes to private contractors, bureaucratic expenses, and soldier salaries (+medical, educational programs, day care,etc). I am all for purchasing next generation weapons and keeping the military strong. I just don't like squandering money on a giant bureaucracy, corrupt military contractors (Halliburton, etc), and maintaining a global military empire.

3. Close the Department of Housing and Urban Development--savings $48 billion. It is a complete waste of taxpayer money and completely unconstitutional. More importantly, it has failed in its mission of restoring urban cities. In fact it has made urban cities worse. You can thank the communist liberals for this department.

4. Close Department of Education--savings $47 billion. Federal government has no right to meddle in education or provide student loans. Since the Federalization of education the quality of education has consistently fallen. Our children have been reduced to the level of brain dead zombies who simply repeat government propaganda.

5. Close Department of Commerce--savings $14 billion. Talk about a complete waste of money. The only good this department does is assemble some useful statistics about the economy. I would transfer the statistics people to the Treasury department.

6. Close Department of Labor--savings of $13.3 billion. Another useless government agency.

7. Eliminate Corporate Welfare-- According to the CATO Institute, the US government hands out over $90 billion dollars a year to corporations through direct subsides, tax credits, and other schemes. This is egregious considering corporations never had it so good. They are making record profits while the American economy is trapped in a depression. These companies do not need any more taxpayer funded giveaways.

8. Reduce Government Fraud and Redundancy--The Government Accountability Office has identified approx $200 billion in government waste, fraud, and incorrect payments. If we simply implemented the GAO's recommendations we could save at least $200 billion. This should be easily accepted by both sides of the political spectrum because the GAO is independent and non-partisan. See here for more info. And here

Total Savings: $672 Billion

While $672 billion is a significant amount of money, it is only a portion of what we need to cut in order to balance the budget and restore America's dire financial outlook. 

Black Swan Insights


Why You Should Want A US Debt Default

With all the talk about what a disaster it would be if the US defaults, lets take a look at the benefits. I for one pray that the US defaults because it would force a government shutdown. Here's why:

No More IRS--The most nefarious and feared government agency would no longer be able to harass, extort, and steal your money. No more audits. The income tax is oppressive to the middle class, preventing them from accumulating wealth, while at the same time multinational corporations like GE and Google don't even pay taxes. Would ordinary citizen really miss the IRS and its threats?

No More Foreign Wars--Without money the troops would have to come home. This would save the US trillions of dollars over the next few years. Our troops would no longer have to fight and die for pointless wars in far away lands. The only losers would be the military industrial complex, which would lose hundreds of billions in military contracts---poor them.

No More Government Waste and Fraud---We hear the outrageous stories--how the government spent hundreds of thousands of dollars of taxpayer money researching shrimp on treadmills, jello wrestling in Antarctica, and other egregious frauds. If the US government was forced to shutdown, funding for such fraud and waste would end, saving taxpayers billions. Furthermore, the government would be unable to squander another $100-200 billion identified by the Government Accountability Office as wasteful and redundant (e.g. 15 federal agencies regulate food safety when only 1 is necessary). See here for full article

No More Illegal Government Gun Smuggling Operations--The ATF, through its Fast and Furious Operation has been caught selling guns to Mexican drug cartels and other members of organized crime units. Lets be very clear here--your government has sold weapons to criminals who killed US border patrol agent Brian Terry and thousands others along the US/Mexico border. Do we really want to give the ATF the funds necessary to continue these illegal operations? A government shutdown would stop it. This is just one example of what illegal acts your government is conducting. Does anyone remember Iran Contra? It never ends. I am not even going to mention ATF operations such as WACO and Ruby Ridge (e.g. you government executing American citizens with impunity).

No More Cruel Government Funded Health Experiments--From 1946-1948 the US government funded a health experiment which purposely infected 700 Guatemalans with the venereal disease syphilis. During the 1950s and into the 1960s the CIA through an operation codenamed MK Ultra went around forcibly drugging Americans with LSD and other narcotics in a failed effort to produce a mind control substance. At least one person died as a result of this operation. These are just a few examples of what your government is up to.

No More Government Luxuries For Obama--With the American economy in a perpetual depression, sky-high unemployment, and rising inflation it is unbelievable that Barry Obama gets to jet around like an imperial dictator. The President gets to fly around in Air Force One (which costs billions per year in maintenance and repairs) , dine in luxury (with the very best china), and travel around the world with an entourage ranging from 200-400 bodyguards--all at taxpayer expense. Even his dopey wife Michele gets to bleed the taxpayer to fund her vacations to Spain and the African continent when she has not even been elected to an official office. And to top it all off-Obama gets paid a salary to live like a King. Such actions when millions of Americans go hungry is evil plain and simple. Perhaps if the government shutdown, Barry Sotero Obama would be forced to cut back on his extravagant lifestyle and lower himself to live like the average American for a while.

I don't know about you, but I welcome a US default and a complete government shutdown. And guess what--life would still go on. True the dollar would fall, but most readers of this blog already own gold so who cares. The main point being that there would be no Armageddon scenario, just a little more economic and political freedom for the average American. Does this sound all that bad?  

Black Swan Insights


$1700 Gold By Year End Says MF Global

With the Euro in full-blown collapse, money market funds in trouble and a feeble dollar--the only asset people can trust is gold. MF Global in a research note predicts $1700 dollar gold by December 2011  Dow Jones reports:

Gold is likely to reach a new record high and trade up to $1,700 a troy ounce in 2H, MF Global says in a report. The house expects the yellow metal to trade between $1,650/oz and $1,700/oz in the remainder of the year, and forecasts a 2011 average of $1,551/oz. Gold's current high is $1,576.52/oz, reached on May 2; spot gold is at $1,552.90/oz, down $1.50 from its close in New York. Gold will likely push higher later this year on stronger physical demand from China and India, the house says, while concerns over inflation will boost its safe-haven appeal. "Expectations of more People's Bank Of China purchases to increase China's gold holdings as a means to diversify reserves is another bullish argument supportive of fundamentals," it says, noting that a 1.0%-2.0% increase in mine supply will be offset by better physical demand.

Notice how gold was up during today's sell-off--along with the dollar. As the meltdown in Europe continues, gold will be the primary beneficiary.


And if you think MF Global is too bullish on gold try this on for size. Standard Chartered in a research report said gold could reach $4,869 by 2020 during a super-bull market scenario. This will likely prove a conservative target if the Bernank has it his way.
Black Swan Insights 


Chinese Gobble Up Cheap Uranium Shares--Buyout Offer For Bannerman Resources

Big news in the uranium market. The Chinese company Hanlong Mining Investment Pty Ltd, a subsidiary of Chinese conglomerate Sichuan Hanlong Group, made an unsolicited offer to buy 100% Bannerman Resources for A$0.612. For new readers, Black Swan Insights bought a basket of uranium shares 4 days after the Fukushima incident in Japan. We bought Bannerman at $0.38. The thesis was that the market was mispricing uranium shares based on the fundamental outlook for uranium. It is good to finally see our thesis be proven correct. The Chinese see the value and are trying to buy as much cheap uranium as the market will allow.

The company's board has not agreed to the terms of the acquisition because of the conditions required by Hanlong offer. The main problem was Hanlong's insistence on a 3-month exclusivity period. Management rightly rejected this. The major point is that the Chinese have put Bannerman in play. Management said in the PR that they plan to explore other options (e.g sell to someone else at a higher price). However, the significance of this announcement is that it proves that uranium deposits have significant strategic value to smart investors. This should be supportive of other uranium stocks.

The only major concern we have at this point is incompetent management. Will management do the right thing and sell the company, or will they follow the disastrous Yahoo policy of rejecting an offer and watching the stock decline dramatically? In the case of Bannerman, it is difficult to say. Management has not shown itself to be very shareholder friendly at all. The egregious amount of dilution has destroyed value for shareholders. The market has acted accordingly by sending the shares to new lows (before the Chinese offer). Furthermore, the company has failed to find a strategic partner (e.g. off-take/financing agreement) to help finance its Etango project. If they had been able to accomplish this, they would not be in the position of having to defend themselves from this low-ball acquisition from the Chinese.

One positive indication is that management did not flatly reject the idea of selling the company. Let's be very clear--the company should be sold at this point, but at a higher price in our opinion. Bannerman owns 80% of its Etango project and has 118 million pounds of uranium in the measured and indicated category (80% of the 148 million pounds for the total project). The Chinese offer is for A$0.612 a share. Bannerman has 275 million shares fully diluted (according to the May 2011 presentation), meaning the total value is only A$168 million or around $179 million. This equates to a value of only $1.51 per pound of M & I; I uranium in the ground. Totally unacceptable and significantly below fair value. The company should be able to get at least $2-3 dollar per pound, which implies a higher price of around A$0.81-A$1.22.

At this point, we are still holding our position in Bannerman, expecting more interest from other parties.

Black Swan Insights


The Future Doesn't Need You

In April 2000, Bill Joy, co-founder of Sun Microsystems, wrote a fascinating yet disturbing article in about the future of technological advancement and the dangers posed by robotics, AI, and genetic engineering. The general thesis of his article was that technology is advancing at such a rapid rate that it would (or could) eventually render humans obsolete. He predicted that by 2030 robot mental power will surpass the human brain. At this point, robots would likely be trusted with making many of the critical decisions  in society. In essence, the world would be planned and controlled by machines without human involvement. Bill Joy warned:

 If the machines are permitted to make all their own decisions, we can't make any conjectures as to the results, because it is impossible to guess how such machines might behave. We only point out that the fate of the human race would be at the mercy of the machines. It might be argued that the human race would never be foolish enough to hand over all the power to the machines. But we are suggesting neither that the human race would voluntarily turn power over to the machines nor that the machines would willfully seize power. What we do suggest is that the human race might easily permit itself to drift into a position of such dependence on the machines that it would have no practical choice but to accept all of the machines' decisions. As society and the problems that face it become more and more complex and machines become more and more intelligent, people will let machines make more of their decisions for them, simply because machine-made decisions will bring better results than man-made ones. Eventually, a stage may be reached at which the decisions necessary to keep the system running will be so complex that human beings will be incapable of making them intelligently. At that stage the machines will be in effective control. People won't be able to just turn the machines off, because they will be so dependent on them that turning them off would amount to suicide.
My question is: Have we already reached the point where machines can do the majority of tasks which used to be done by humans? I think the answer is increasingly yes. This would explain why the unemployment rate has remained egregiously high, despite a recovery in corporate earnings. The general consensus from economists is that corporations were forced to cut labor during the recession, which means that when the economy recovers and demand rebounds, corporations would be forced to rehire many of these unemployed workers. However, this thesis has not panned out. Despite being 3 years into an "economic recovery," the unemployment rate has remained stubbornly high with the official unemployment rate at 8.3%. The real number, referred to as U6, even when adjusted for seasonality is at a shocking 15.2%. Obviously, corporations have not had to hire new workers despite record S&P 500 earnings. Why?

Simply stated, during the Great Recession corporations realized that they could replace many workers with advanced technology which can automate complex human functions. The examples are all around us. Airlines used to have people check in passengers and issue boarding passes. Now, airlines have been able to completely replace people with electronic kiosks. If you walk into a Fresh and Easy market you notice that there are no more checkers; it has all been automated. I remember seeing a TV program about Campbell Soup that profiled the company's adaption of technology to increased productivity. The company bragged how they were able to run a soup manufacturing plant with 8 employees. In the past , this factory would have required 40-50 employees, but now they are no longer necessary. And the only reason there are still 8 employees is because the machines still require human support and maintenance. You can easily see a future where these machines make their own decisions and humans are reduced to only a minor support role.  These are just a few examples, but they illustrate the point that as machines advance, humans are becoming more and more redundant. The most troubling aspect of this technological shift is that these jobs will never come back despite improving economic conditions.

What all of this means is that as technology progresses, more and more people will become redundant and permanently unemployed. This is not only an issue for blue-collar workers who are  involved in manufacturing. As machines become more intelligent, they will likely replace many white-collar positions as well. We can clearly see this happening in the investment industry. It used to be a market made up of people--yes they were often irrational, greedy, and fearful--but they were human. Today, 70% of all trading is done by autonomous robots who make their own trading decisions with little or no human supervision. In essence, we have turned over the fate of the capital markets to high-frequency trading bots. Proponents will, of course, manufacture reasons why this is good for society. They claim that HFT reduces costs and increases liquidity since machines are faster and more efficient than people. All great arguments, but what are the consequences of having robots control financial markets?

We saw a terrifying example on May 6, 2010, when US markets suffered a flash crash. For no reason, the stock market fell 600 points in 5 minutes, only to partially recover minutes later. HFT bots were largely responsible for this bizarre market crash. While markets did rebound, what if they had not done so and instead had dropped another 30-40% in a matter of minutes? A fall of this magnitude could have easily cause a massive disruptions in the credit markets and precipitated a severe economic recession. All this because a few HFT bots went beserk?. With regards to the financial markets, we have now given machines complete control and voluntarily reduced humans to a subservient role..

I fear that we have reached the point where the US unemployment rate will never go down, despite a growing economy. The 2008 recession required companies to increase productivity and slash costs dramatically. They did. Now corporations can achieve higher profits with fewer people than they needed 5 years ago. This dynamic, along with outsourcing, means the US unemployment has moved into a new paradigm, which is unlikely to change anytime soon. Millions of Americans had better get used to the troubling reality: The future doesn't need you.
Black Swan Insights


It Begins: Italian, Spanish CDS Surge--Get Ready for More European Turmoil

The EU's ponzi scheme is running on tough times. Every time they bailout one country, another country seems to default, requiring more cash to kick the insolvent can down the road. With a second bailout for Portugal already guaranteed, the last thing the socialists in Brussels need is a collapse in Spain and more importantly Italy. It seems the market was not to happy about what Trichet said at today's news conference. Even though the ECB pretty much waived the white flag of surrender and dropped all measures of credibility regarding collateral requirements, the market was disappointed. And you would be too if you owned PIIG debt. What these unfortunate EU banks want is nothing short of a complete guarantee by the ECB that it will print money to support Portuguese, Spanish, and Italian bond markets. After all, this is PONZI 101.

Below is a chart of Spanish 5yr CDS, which is currently in the lift-off phase of 294bps. One important note: we generally consider anything above 400 bps as an early sign of an imminent EU bailout and gutting of the debtor country's sovereignty. So the Spanish people better get ready to bend over and take some hardcore austerity from the EU elite.

Below is Italian 5yr CDS, where concerns seem to be increasing with rumours circling of trouble with Italian banks. 5 Yr CDS for the basket case also known as Italy has surged from 171 bps on 6/30 to 218 bps today. Still low by most PIIG standards, but the trajectory is going in the wrong direction. When it comes to the EU debt crisis, an Italian default would an armageddon moment for the entire EU project. The only solution would be outright ECB monetization of all PIIGS debt forever. No wonder gold is making new highs in Euros.

Black Swan Insights


Mourning the 4th of July

From the US Code of Laws: (a) The flag should never be displayed with the union down, except as a signal of dire distress in instances of extreme danger to life or property.

Considering the dire state of our country, I find it particularly appropriate to display the flag upside down on this 4th of July.

Americans have lost their country. We have a tyrannical elite who run this country for their own benefit. We have a Imperial President who starts wars without Congressional support, claiming that it is okay because dropping bombs and killing people constitutes a "kinetic military action," not war. Doublespeak at its very best. Does Congress care? No, they have been bought and paid for by so many special interests that their only concern is how they are going to spend their bribes.

The US economy has been outsourced by design. We are left with a service based economy where minimum wage is the norm. Unemployment is above 9% with the real number closer to 15%. Not that the government cares, but how are you supposed to have jobs when everything has been outsourced to China?But as long as the corporations are making record profits, who cares about average Americans who are struggling to survive?

The Federal Reserve is printing money and debasing the dollar, in order to bailout the banks and finance government spending. Inflation is rising, yet the government confidently claims inflation does not exist. The media of course, parrots the party line. Just remember, when you are out celebrating the 4th of July that your cookout will cost 12% more than last year. Your government is stealing your money day by day through inflation, and yet no one, except a very small minority protest.

Meanwhile, the government has completely ignored the Constitution, gradually eating away at our remaining freedoms. Do the American people care? Not really, after all most of them can't list the Bill of Rights anyway, thanks to our government-run educational/brainwashing system. Going to airports now mean being sexually groped by thuggish TSA agents. Naturally, the American people show little reaction. Their pathetic lives are consumed by video games, TV and other forms of distracting entertainment. As long as the cable still work,s the American sheep remain in their slumber. They are even willing to allow their children to be groped by the government. After all, those 1-year old kids in diapers could be potential terrorists, so the TSA claims.

Despite tough times and a declining standard of living, many Americans are more than willing to go out and celebrate the 4th of July by drinking themselves silly with cheap beer and chanting USA, USA. They proudly display their American flags on their lawns and flag poles without realizing that their precious flag was probably made in China by a 12-year old slave. The myth of America, promoted by the media, still lulls many Americans into a false reality where they still believe they live in a free country. I suppose, that believing a false myth is better than facing the harsh realities of our current state.

Since I became aware of the truth, I rarely celebrate the 4th of July. It would seem like an insult to the founding fathers of this country who risked their lives to ensure American independence. We have strayed so far from the Constitution and Bill of Rights that America--as the founding fathers would knew it--no longer exists. Instead, during this 4th of July I find myself reading biographies of the founding fathers, trying to understand what happened to the American dream they envisioned.

I further realize that at this moment I am likely committing a thought crime because I am speaking against the government and in support of the Constitution. According to our government this means that I could be a domestic terrorist. Imagine that!

I now consider leaving the US to escape burdensome taxation and the oppressive shackles of a technologically advanced police state. Who would of thought 200 years ago that people would be leaving the US to pursue freedom and opportunity? People ask me what I am "doing" for the 4th. I am mourning the loss of the USA.



Marc Faber's July 2011 Outlook

Marc Faber is out with the latest issue of his famous Gloom, Boom, and Doom Report which is always a must read for serious investors. Unlike most of the other talking heads, Faber has an excellent track record. He correctly predicted the top in the equity markets in Nov 2007 and caught the bottom in March 2009, making his subscribers a lot of money. Here is a summary of his July 2011 report:

1. Stocks--The stock market is going to rally in the short-term (July-August), but equities will not surpass their previous highs reached back on May 2. After this bounce, Faber believes the market will decline sharply to around 1100 on the SP 500 (during the September-October period). This is when the Fed will likely consider implementing QE 3 to stimulate asset prices.

2. Bonds---The rally in US Treasuries is over and investors should take profits.

3. Commodities--- Even though Dr. Copper bounced off its 200 day moving average, Faber would stay away from any commodity which is dependent on Chinese growth. The probabilities of a significant slowdown or crash in China have increased recently.

(Article continues below)

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4. Dollar--Everyone and his brother loves to hate the US dollar and expects it to decline further. While Faber despises the dollar long-term, he thinks it is attractive compared to the Euro. In fact, Faber recommends investors short EUR/USD as the situation in Europe is likely to deteriorate. The recent bounce in EUR/USD provides a good entry to initiate a short position.

5. Gold---As Faber mentioned last month, gold is undergoing a short-term correction, which is natural during a bull market. The correction could take gold to as low as $1400. This would represent an excellent buying opportunity for investors. To counter the anti-gold crowd, Faber emphatically states that gold has not reached a major top and is likely to trend higher later this year.

6. Money Market Funds----Faber is increasingly concerned about holding money market funds because of their exposure to European banks (estimated at around $800 billion). This is why the 1 month T-Bill recently went negative. Faber says that he plans to reduce his exposure to money market funds.

7. Australian Real Estate--If you have been lucky enough to have owned Australian real estate over the last few years, you may want to take profits. The Australian housing market is in a bubble and is very susceptible to a housing crash. The likely catalyst for the sharp decline would be a major slowdown in China, which would depress demand for commodities.

Black Swan Insights


Guest Post: Weekly Monetary Wrap June 25th

From our new partners at Central Bank News------

The past week in monetary policy saw interest rate decisions from 9 central banks around the world. Of those reviewing policy settings, only Uruguay adjusted its interest rate, +50bps to 8.00%. The other 8 banks held their interest rates unchanged, those were: Hungary 6.00%, the US 0.25%, Namibia 6.00%, Norway 2.25%, Hong Kong 0.50%, Turkey 6.25%, Czech Republic 0.75%, and Sierra Leone 23.00%. Also of note was the US FOMC statement which referred to the completion of QEII (the second round of quantitative easing), and an intention to keep reinvesting principal payments. Meanwhile the Bank of Uganda said it would start inflation targeting, and would shift focus to using interest rates rather than money supply to influence inflation.

So it was very much a week of policy inaction, as central banks continued to monitor their respective unfolding growth and inflation mixes. Most of the banks that released statements on monetary policy pointed to future action, and noted upside risks to inflation and downside risks to growth e.g. in the form of external shocks such as sovereign debt crises.

Following is some of the key soundbites from central banks that reviewed monetary policy settings over the past week:

  • Hungary central bank (held interest rate at 6.00%): "Inflation is likely to be above target in the short term, due to cost-push pressures stemming from the rise in commodity prices. However, owing to the disciplining effect on price and wage-setting of the persistent weakness in domestic demand and high unemployment, the 3% inflation target can be achieved at the end of 2012 by maintaining interest rates at their current level over a sustained period."

  • The US FOMC (held interest rate at 0-0.25%): "The Committee continues to anticipate that economic conditions--including low rates of resource utilization and a subdued outlook for inflation over the medium run--are likely to warrant exceptionally low levels for the federal funds rate for an extended period."

  • Bank of Namibia (held interest rate at 6.00%): "It is the view of the EC [Executive Committee] that the observed growth momentum at the beginning of the year that created an impression that [the] recovery was consolidating, was not firmly entrenched,"... "The EC also observed that inflation has increased, but still remains in tolerable levels, especially the underlying inflation,"

  • Norway (held interest rate at 2.25%): "Overall, the Executive Board is of the view that the key policy rate should gradually be raised through the latter half of 2011, against the background of the current outlook and balance of risks."

  • Czech National Bank (held interest rate at 0.75%): "Headline and monetary-policy relevant inflation will be close to the inflation target over the monetary policy horizon. Consistent with the forecast is broad stability of market interest rates in the near future and a gradual rise in rates starting in 2011 Q4. Risks to the forecast are balanced for monetary-policy relevant inflation."

  • Sierra Leone (held interest rate at 23.00%): "The underlying challenges remain containing the increase in consumer price inflation recently driven by food and fuel price increases,"... "recent improvements in the fiscal position underscore the need to maintain a neutral monetary policy stance."

Next week is set to be a relatively quiet week on the monetary policy front. The Bank of Israel meets on the 27th of June (expected to increase 25bps to 3.25%), The National Bank of Romania meets on the 29th of June (expected to hold at 6.25%), and the Central Bank of the Republic of China (Taiwan) meets on the 30th of June (expected to increase 12.5bps to 1.875%).

Article source: Central Bank News