Stocks fall as bond yields climb

Stocks Fall As Yields Climb - washingtonpost.com

By MADLEN READ
The Associated Press
Thursday, June 7, 2007; 11:17 AM

NEW YORK -- Stocks fell for a third straight session Thursday after rising bond yields stoked concerns that an interest rate cut later in the year is less likely.

The 10-year Treasury note's yield surpassed 5 percent in overnight trading.

With rates rising in the market, the Federal Reserve is expected to be less inclined to cut short-term interest rates. And a dip in applications for unemployment benefits last week, which indicates a healthy labor market, also made a rate cut seem less likely.

Additionally, mixed May sales reports from major retailers indicated that consumer spending remains uncertain, particularly as gas prices rise and perhaps cut into consumers' spending money. While the array of fresh economic data didn't appear overly downbeat, stock market investors continued to pull back.

10-Year Treasury Yield Passes 5 Percent - washingtonpost.com

By MADLEN READ
The Associated Press
Thursday, June 7, 2007; 10:45 AM

NEW YORK -- The yield on the Treasury's 10-year note passed 5 percent Thursday, hitting a 10-month high as investors see their hopes for an interest rate cut evaporating.

The 10-year yield broke through 5 percent mark overnight and rose as high as 5.07 percent in mid-morning trading in New York, reaching its highest point since late July. U.S. bond markets were following a trend toward lower prices and higher yields in trading abroad.

Some market experts say the 10-year yield is likely to climb higher as bond prices weaken _ making it even harder for consumers to finance home puchases, and also for companies to borrow money.

Fixed mortgage rates, closely linked to the 10-year yield, have been advancing recently, adding to worries about sluggish home sales and faltering home prices. The average U.S. 30-year fixed mortgage rate was at 6.12 percent Thursday, up from 5.98 percent a week ago, according to Bankrate.com.

Ron Paul is Bill Maher's New Hero

Okay, one more on Ron Paul. I'm not giving my endorsement. But, this is an interesting development. Democrats: take notes.

Ron Paul is Bill Maher's New Hero

Ron Paul on easy money and the true cost of petrodollars

I'm not a republican, nor am I a libertarian. But, there's something about the willingness of Ron Paul to say clearly what he believes to be true, in conflict with republican party doctrine, that has caused me to look a little closer. His analysis of the 35 year bi-partisan attack on the integrity of the dollar is worth a read. After reading this I went back and read Williams Jennings Bryan's Cross of Gold speech just to remind myself of the justifications for inflationary monetary policy. Yet current monetary policy is creating easy money for the heavily leveraged investment gambles that have been driving the stock market through the roof -- not necessarily protecting the American citizen whose paycheck's global purchasing power is taking the hit.

Check out this graph of the growth in US money supply (M3)since the '70's. Then read Ron Paul.

The End of Dollar Hegemony (excerpt)
Ron Paul: Republican presidential hopeful...
February 15, 2006

The agreement with OPEC in the 1970s to price oil in dollars has provided tremendous artificial strength to the dollar as the preeminent reserve currency. This has created a universal demand for the dollar, and soaks up the huge number of new dollars generated each year. Last year alone M3 increased over $700 billion.

The artificial demand for our dollar, along with our military might, places us in the unique position to “rule” the world without productive work or savings, and without limits on consumer spending or deficits. The problem is, it can’t last.

Price inflation is raising its ugly head, and the NASDAQ bubble-- generated by easy money-- has burst. The housing bubble likewise created is deflating. Gold prices have doubled, and federal spending is out of sight with zero political will to rein it in. The trade deficit last year was over $728 billion. A $2 trillion war is raging, and plans are being laid to expand the war into Iran and possibly Syria. The only restraining force will be the world’s rejection of the dollar. It’s bound to come and create conditions worse than 1979-1980, which required 21% interest rates to correct. But everything possible will be done to protect the dollar in the meantime. We have a shared interest with those who hold our dollars to keep the whole charade going.

Greenspan, in his first speech after leaving the Fed, said that gold prices were up because of concern about terrorism, and not because of monetary concerns or because he created too many dollars during his tenure. Gold has to be discredited and the dollar propped up. Even when the dollar comes under serious attack by market forces, the central banks and the IMF surely will do everything conceivable to soak up the dollars in hope of restoring stability. Eventually they will fail.

Most importantly, the dollar/oil relationship has to be maintained to keep the dollar as a preeminent currency. Any attack on this relationship will be forcefully challenged—as it already has been.

In November 2000 Saddam Hussein demanded Euros for his oil. His arrogance was a threat to the dollar; his lack of any military might was never a threat. At the first cabinet meeting with the new administration in 2001, as reported by Treasury Secretary Paul O’Neill, the major topic was how we would get rid of Saddam Hussein-- though there was no evidence whatsoever he posed a threat to us. This deep concern for Saddam Hussein surprised and shocked O’Neill.

It now is common knowledge that the immediate reaction of the administration after 9/11 revolved around how they could connect Saddam Hussein to the attacks, to justify an invasion and overthrow of his government. Even with no evidence of any connection to 9/11, or evidence of weapons of mass destruction, public and congressional support was generated through distortions and flat out misrepresentation of the facts to justify overthrowing Saddam Hussein.

There was no public talk of removing Saddam Hussein because of his attack on the integrity of the dollar as a reserve currency by selling oil in Euros. Many believe this was the real reason for our obsession with Iraq. I doubt it was the only reason, but it may well have played a significant role in our motivation to wage war. Within a very short period after the military victory, all Iraqi oil sales were carried out in dollars. The Euro was abandoned.

In 2001, Venezuela’s ambassador to Russia spoke of Venezuela switching to the Euro for all their oil sales. Within a year there was a coup attempt against Chavez, reportedly with assistance from our CIA.

After these attempts to nudge the Euro toward replacing the dollar as the world’s reserve currency were met with resistance, the sharp fall of the dollar against the Euro was reversed. These events may well have played a significant role in maintaining dollar dominance.

It’s become clear the U.S. administration was sympathetic to those who plotted the overthrow of Chavez, and was embarrassed by its failure. The fact that Chavez was democratically elected had little influence on which side we supported.

Now, a new attempt is being made against the petrodollar system. Iran, another member of the “axis of evil,” has announced her plans to initiate an oil bourse in March of this year. Guess what, the oil sales will be priced Euros, not dollars.

Most Americans forget how our policies have systematically and needlessly antagonized the Iranians over the years. In 1953 the CIA helped overthrow a democratically elected president, Mohammed Mossadeqh, and install the authoritarian Shah, who was friendly to the U.S. The Iranians were still fuming over this when the hostages were seized in 1979. Our alliance with Saddam Hussein in his invasion of Iran in the early 1980s did not help matters, and obviously did not do much for our relationship with Saddam Hussein. The administration announcement in 2001 that Iran was part of the axis of evil didn’t do much to improve the diplomatic relationship between our two countries. Recent threats over nuclear power, while ignoring the fact that they are surrounded by countries with nuclear weapons, doesn’t seem to register with those who continue to provoke Iran. With what most Muslims perceive as our war against Islam, and this recent history, there’s little wonder why Iran might choose to harm America by undermining the dollar. Iran, like Iraq, has zero capability to attack us. But that didn’t stop us from turning Saddam Hussein into a modern day Hitler ready to take over the world. Now Iran, especially since she’s made plans for pricing oil in Euros, has been on the receiving end of a propaganda war not unlike that waged against Iraq before our invasion.

It’s not likely that maintaining dollar supremacy was the only motivating factor for the war against Iraq, nor for agitating against Iran. Though the real reasons for going to war are complex, we now know the reasons given before the war started, like the presence of weapons of mass destruction and Saddam Hussein’s connection to 9/11, were false. The dollar’s importance is obvious, but this does not diminish the influence of the distinct plans laid out years ago by the neo-conservatives to remake the Middle East. Israel’s influence, as well as that of the Christian Zionists, likewise played a role in prosecuting this war. Protecting “our” oil supplies has influenced our Middle East policy for decades.

But the truth is that paying the bills for this aggressive intervention is impossible the old fashioned way, with more taxes, more savings, and more production by the American people. Much of the expense of the Persian Gulf War in 1991 was shouldered by many of our willing allies. That’s not so today. Now, more than ever, the dollar hegemony-- it’s dominance as the world reserve currency-- is required to finance our huge war expenditures. This $2 trillion never-ending war must be paid for, one way or another. Dollar hegemony provides the vehicle to do just that.

For the most part the true victims aren’t aware of how they pay the bills. The license to create money out of thin air allows the bills to be paid through price inflation. American citizens, as well as average citizens of Japan, China, and other countries suffer from price inflation, which represents the “tax” that pays the bills for our military adventures. That is until the fraud is discovered, and the foreign producers decide not to take dollars nor hold them very long in payment for their goods. Everything possible is done to prevent the fraud of the monetary system from being exposed to the masses who suffer from it. If oil markets replace dollars with Euros, it would in time curtail our ability to continue to print, without restraint, the world’s reserve currency.

Brazil and India 'to boost trade'

BBC NEWS | Business
Brazil and India 'to boost trade'
Brazil and India plan to strengthen their trade ties significantly, after meetings between political leaders.

The two developing nations aim to increase bilateral trade three-fold, to reach $10bn (£5bn) by 2010, from $2.4bn in 2006, reports the Associated Press.

Brazilian President Luiz Inacio Lula da Silva also called for co-operation on defence, nuclear energy and oil.

Both nations have been strong voices in trying to boost the role of developing nations in international trade.

Syria to end dollar peg

I don't know if they read Peter Schiff in Syria, but they do think a declining currency leads to internal inflation. Therefore they want to uncouple the Syrian pound from the US dollar and peg it to a stronger currency. If it's true that following the dollar down leads to internal inflation, then as various central banks begin to move to the euro rising import costs (raw materials and finished product) will have an effect in the US as well. This inflation won't be a sign of an overheating economy, rising wages, etc. that needs to be slowed by increasing interest rates. It will instead contribute to the burden on US consumer spending which, at 70+% of GDP, is the mainstay of the US economy. Yet increasing rates will be necessary to stabilize the dollar's fall and refinance the US national debt.

Could Peter be right? Do they dare to cut us off?


Syria to End Dollar Peg, 2nd Arab Country in 2 Weeks (Update3)
By Zainab Fattah and Matthew Brown
Bloomberg.com: Worldwide

June 4 (Bloomberg) -- Syria became the second Middle Eastern nation in two weeks to say it will dump its currency's peg to the dollar to curb rising import costs and inflation.

The country will link the Syrian pound to a broader range of currencies starting in the middle of July, central bank Governor Adib Mayaleh said.

``The decision is final,'' he said in a phone interview from Abu Dhabi. ``This will help stabilize the Syrian pound and bring down inflation.''

The shift away from the dollar among Middle East countries is a sign of the waning attraction of the currency for central banks around the world. The dollar made up 64.7 percent of global foreign-exchange reserves in the fourth quarter, down from 65.8 percent in the prior three months, International Monetary Fund data show. The euro's share was 25.8 percent, the highest since its 1999 debut.

Syria is broadening its peg after the country's currency was dragged lower against the euro by a 10 percent slide in the dollar last year, pushing up the cost of imports from Europe. Kuwait switched to a basket of currencies on May 20 because of gains in consumer prices, which are also accelerating in the United Arab Emirates and Qatar.

``The weaker dollar is fueling inflation,'' said Dorothee Gasser, an analyst at ING Bank in London. ``We see the U.A.E. as the next possible shifter.''

Bear baiting: Peter Schiff on CNBC

As CNBC's pet bear Peter Schiff is convinced the end is near. It's true he's trying to sell his book, (Crash Proof: How to Profit from the Coming Economic Collapse) but some of his arguments are pretty compelling. Peter thinks American consumers have been "borrowing money like drunken sailors and blowing it." But he's really talking about all the dollar reserves piling up in foreign central banks. He expects the rest of the world to cut us off with significant impacts on the value of the dollar and interest rates leading to a serious recession.

The discussion, ok staged argument with CNBC bulls, in the video interview below is pretty interesting. Here's an excerpt from his latest commentary followed by the CNBC video:


When will all this bad news sink in?
Peter Schiff -- June 1st 2007

Yesterday we learned that 1st quarter GDP “grew” at an annualized rate of only .6% (of course if the government used honest inflation numbers, real GDP is already contracting). Slower growth means fewer jobs and declining incomes, which will further pressure the housing market as homeowners have less income to confront rising adjustable rate mortgages. For potential home buyers the situation is even worse. Not only do they face higher mortgage payments but they must now come up with actual down-payments (which they do not have) and meet far stricter lending standards, including documenting their inadequate incomes.

Today we received further evidence that our imbalanced economy is moving further off kilter as another 19,000 manufacturing jobs were lost and the personal savings rate fell to minus 1.3%. Fewer goods being produced means even larger future trade deficits, which will be made more difficult to finance as a result of rising interest rates. Tighter credit and inadequate income growth will also make record personal indebtedness that much more costly to service.

My guess is that Wall Street's blissful slumber may be ended by the shrilling wake-up call of the collapsing dollar. In the last ten weeks the Canadian dollar has risen by over 10% against the greenback. That’s about one percent per week - incredible! With the weakness in the U.S. economy becoming increasingly apparent overseas, and global interest rates continuing their ascent, it will not be much longer before foreigners pull the plug on the dollar. When they do, it’s the American economy, and Wall Street's phony rally, that will go down the drain.

If you'd like to hear Peter argue with the CNBC bulls check the video out.

Euro Pacific Capital | Video Interviews
CNBC Kudlow & Company 6/1/07

bioenergy may save BC forest industry

The Canadian forest products industry provides 30+% of the US lumber supply. Admittedly much of this additional supply is not needed in the near term given current closures and curtailments in the industry due to the housing market freefall.

It will be interesting to see how industry on both sides of the border responds to rising energy costs. Four or five years from now when housing recovers we may be looking at a significantly restructured industry.

Will the declining US dollar and increasing transportation costs create de facto protections for US industry? Or will the AF&PA call for a tarrif on imported megawatt hours...

Forest industry faces major changes:
Much of B.C.'s wood supply will be used for bioenergy instead of pulp and lumber, expert says
Gordon Hamilton, Vancouver Sun
Published: Friday, May 11, 2007

Natural Resources: The B.C. forest industry turned in one of the world's worst performances in 2006, but a transformation of historic proportions is just over the horizon, one of the province's leading industry consultants said Thursday.

PricewaterhouseCoopers partner Craig Campbell said traditional pulp and lumber production, particularly in the pine beetle-ravaged Interior, is going to give way to bioenergy, smoothing over the boom-and-bust cycles that characterize the industry today.

Campbell's forecast of a prosperous future comes at a time when the industry is the world's basket case. He said mountains of logs are piling up alongside forest roads today because companies cannot economically convert them to lumber.

The industry tumbled from the world's top performing region two years ago, when it had $1.5 billion in profits, to the bottom of the heap in 2006, losing $500 million, according to findings released Thursday by PricewaterhouseCoopers.

Life among the Econ tribe

Perhaps this helps to explain why local sustainable development strategies are continually sideswiped by economic reality....

Economist's View: Axel Leijonhufvud: Life Among the Econ

The Econ tribe occupies a vast territory in the far North. Their land appears bleak and dismal to the outsider, and travelling through it makes for rough sledding; but the Econ, through a long period of adaptation, have learned to wrest a living of sorts from it. They are not without some genuine and sometimes even fierce attachment to their ancestral grounds, and their young are brought up to feel contempt for the softer living in the warmer lands of their neighbours such as the Polscis and the Sociogs. [Not to mention the Ecologs...] Despite a common genetical heritage, relations with these tribes are strained-the distrust and contempt that the average Econ feels for these neighbours being heartily reciprocated by the latter-and social intercourse with them is inhibited by numerous taboos. The extreme clannishness, not to say xenophobia, of the Econ makes life among them difficult and perhaps even somewhat dangerous for the outsider. This probably accounts for the fact that the Econ have so far-not been systematically studied. Information about their social structure and ways of life is fragmentary and not well validated. More research on this interesting tribe is badly needed.

Chinese eco-protest takes high-tech path

Chinese eco-protest takes high-tech path

Mitchell Landsberg, Los Angeles Times
Saturday, June 2, 2007

(06-02) 04:00 PDT Beijing -- In the cat-and-mouse game that characterizes political protest in China, the mice won a round this week. They did it by finding a new way to use a familiar form of technology.

Opponents of a chemical plant being built in the coastal city of Xiamen used cell phone text messaging to broadcast their warning of dire consequences if the factory opened.

"Once this extremely poisonous chemical is produced, it means an atomic bomb will have been placed in Xiamen," the text message said in Chinese characters. "The people of Xiamen will have to live with leukemia and deformed babies. We want our lives and health!"

Spreading like a virus, the message was repeated more than a million times, environmentalists said, until it had reached practically everyone in Xiamen, a southeastern city of 1.5 million known for its clean air and scenic views. It also spread beyond cell phones, splashed on walls in the form of graffiti and posted in blogs and other Web sites throughout China.

On Wednesday, in a move that caught almost everyone by surprise, municipal authorities announced that they were suspending construction of the plant.