“A New Reserve Currency?”

Baltic Dry Index. 3809 -284

One of the evils of paper money is that it turns the whole country into stock jobbers. The precariousness of its value and the uncertainty of its fate continually operate, night and day, to produce this destructive effect. Having no real value in itself it depends for support upon accident, caprice, and party; and as it is the interest of some to depreciate and of others to raise its value, there is a continual invention going on that destroys the morals of the country.

Thomas Paine.

Did the recent Bilderberger meeting just decide to replace the dollar reserve standard?  I’m beginning to suspect that they did. With multi-trillion dollar US deficits stretching as far as the eye can see, and China and Russia deeply unhappy with a now failing international fiat currency system and building up gold reserves and diversifying into strategic reserves of important commodities, I suspect that the go ahead was given on starting a controlled  program of transition. Transition to what is the big question? I can’t see the rising BRIC countries allowing a phony transition to another western rigged system.  In addition to a great inflation lying somewhere ahead, a great currency turmoil seems to be in our future too.  Fiat currency = political money that varies with the honesty and desperation of the current government issuing it. In the current central bank generated economic collapse now in its second year of roiling the world, no G-7 government has shown the slightest degree of honesty.

Below, this weekend’s developments.

IMF Says New Reserve Currency to Replace Dollar Is Possible
By Alexander Nicholson
June 6 (Bloomberg) — The International Monetary Fund said it’s possible to take the “revolutionary” step of creating a new global reserve currency to replace the dollar over time.

The IMF’s so-called special drawing rights could be used as the basis for a new currency, First Deputy Managing Director John Lipsky told a panel discussing reserve currencies at the St. Petersburg International Economic Forum today.

“There are many, many attractions in the long run to such an outcome,” Lipsky told a panel discussing reserve currencies at the St. Petersburg International Economic Forum today. “But this is not a quick, short or easy decision,” he said, adding that it would be “quite revolutionary.”

The SDRs would have to be delinked from other currencies and issued by an international organization with equivalent authority to a central bank in order to become liquid enough to be used as a reserve, he said.

As much as 70 percent of the world’s currency reserves are held in dollars, according to the IMF, leading to calls for nations to diversify their cashpiles to avoid excessive exposure to the U.S. economy as it quadruples its budget deficit in a bid to counter the worst recession since the Great Depression.
http://www.bloomberg.com/apps/news?pid=20601087&sid=aUYeJEwZaQrw

Medvedev Questions Dollar as World Currency, Open to Yuan Swaps

By Lyubov Pronina

June 5 (Bloomberg) — Russian President Dmitry Medvedev questioned the U.S. dollar’s future as a global reserve currency and said using a mix of regional currencies would make the world economy more stable. Russia may consider ruble-yuan swaps.

The dollar “is not in a spectacular position, let’s be frank, and its prospects cause various questions as do the prospects for the global currency system,” Medvedev, who today hosts an international economic forum in St. Petersburg, said in an interview published by the Moscow-based Kommersant newspaper.

Regarding the global financial system, “therefore our task is to make it more mobile and at the same time more balanced.”

—–A new world currency may be on the agenda when Medvedev meets counterparts from Brazil, India and China on June 16 at a summit in the Ural Mountains city of Yekaterinburg, the Kremlin said this month.

“This idea has potential, even though some of my G-20 colleagues aren’t actively discussing it at the moment,” Medvedev told Kommersant. “However, for example, in the opinion of our Chinese colleagues it is quite a possible step. The most important thing is not to walk away from discussions on this topic.”

Turning the ruble into a reserve currency is still a possibility, especially if some of Russia’s partners start making payments for their oil and gas in rubles, Medvedev said. Russia might consider setting up ruble-yuan swap positions similar to the recent accord suggested between China and Brazil, he said.
http://www.bloomberg.com/apps/news?pid=20601087&sid=anvHhN4CqQOE

China explores buying $50bn in IMF bonds
By Jamil Anderlini in Beijing and Charles Clover in St Petersburg Published: June 5 2009 17:39

China is “actively considering” buying up to $50bn of International Monetary Fund bonds, the country’s State Administration of Foreign Exchange has said.
John Lipsky, IMF first deputy managing director, confirmed the Chinese proposal, which follows one by Russia to buy $10bn (€7.1bn, £6.2bn) in IMF bonds.

Friday’s statement by China said any investment would be made according to its usual criteria of “safety and reasonable returns”, but made no mention of Beijing’s wish for more power in IMF decision-making, in return for financial support.
Safe, which controls almost $2,000bn of China’s foreign exchange reserves, added it was ready to help the IMF explore more ways to raise finance.

Mr Lipsky said the Chinese and Russian proposals were part of a commitment made during the London G20 summit in April to augment IMF resources by $500bn, and that the IMF “absolutely welcomes” the commitments.

The IMF expects to submit a proposal in the next few weeks that would allow it to raise money through issuing notes or bonds.

The pledges by both countries seem to have some political motivations – both China and Russia make no secret of their desire to have a greater say in how the IMF commits money.

Vladimir Putin, Russia’s prime minister, proposed the money from Russia, for example, should be earmarked to help Ukraine pay for Russian gas, avoiding a stand-off with Kiev over the issue of gas payments which crippled supplies to Europe in January.

Mr Lipsky said it would be against IMF guidelines to get involved. “The ongoing disputes between Ukraine and Russia are commercial issues,” he said.

“We wouldn’t enter directly into a commercial arrangement but of course our programme contemplates the external funding needs of Ukraine. Our programme is always predicated on helping our member countries meet balance of payments needs. But we would not be involved directly in a commercial transaction.”
http://www.ft.com/cms/s/0/6fee1d66-51ec-11de-b986-00144feabdc0.html

In other under reported news, economic woes have Russia becoming unstable. Will the rising oil price again be enough to head off rising social unrest?

Protests against Putin sweep Russia as factories go broke

From Vladivostok to St Petersburg, Russians are taking to the streets in anger over job losses, unpaid wages and controls on imported cars

Russia’s prime minister, Vladimir Putin, is facing the most sustained and serious grassroots protests against his leadership for almost a decade, with demonstrations that began in the far east now spreading rapidly across provincial Russia.

Over the past five months car drivers in the towns of Vladivostok and Khabarovsk, on Russia’s Pacific coast, have staged a series of largely unreported rallies, following a Kremlin decision in December to raise import duties on secondhand Japanese cars. The sale and servicing of Japanese vehicles is a major business, and Putin’s diktat has unleashed a wave of protests. Instead of persuading locals to buy box-like Ladas, it has stoked resentment against
Moscow, some nine time zones and 3,800 miles (6,100km) away.

—–Until recently, the Kremlin had been relatively successful at concealing the scale of the protests, imposing a virtual media blackout. But the demonstrations have become more difficult to ignore. In April Kommersant newspaper reported that angry motorists had called for Medvedev and Putin to be blasted into space, while others waved a banner with the playful slogan: “Putler kaputt!”, apparently comparing Putin, Russia’s prime minister since last year, to Hitler. The authorities were not amused and launched an investigation.

“Russians are a very forbearing people,” Yuri Efimenko, a historian and social activist in Khabarovsk said, sitting in a cafe close to the town’s Amur river, which forms part of the border between Russia and China. “There isn’t love towards the Kremlin, but there used to be respect. Now that’s gone,” he said. He added:
“People have become more sceptical towards central power.”
http://www.guardian.co.uk/world/2009/jun/07/russia-putin-policies-protests

Below, under reported news from America. “Pre-recovery,” whatever that media term is supposed to mean, is unsettling the US Treasury market, and with a trillion dollars of new supply still to come, interest rates are rising despite the Fed’s attempts in the markets at forcing them down.  The great bond bubble of 2008 looks like it’s already deflating.  Events have gotten away from the central bank manipulators. Trouble in spades is arriving fast.

Bernanke Conundrum Threatens Housing on Mortgage Rate

By Liz Capo McCormick and Dakin Campbell

June 8 (Bloomberg) — The biggest price swings in Treasury bonds this year are undermining Federal Reserve Chairman Ben S. Bernanke’s efforts to cap consumer borrowing rates and pull the economy out of the worst recession in five decades.
The yield on the benchmark 10-year Treasury note rose to 3.90 percent last week as volatility in government bonds hit a six-month high, according to Merrill Lynch & Co.’s MOVE Index of options prices. Thirty-year fixed-rate mortgages jumped to 5.45 percent from as low as 4.85 percent in April, according to Bankrate.com in North Palm Beach, Florida. Costs for homebuyers are now higher than in December.

Government bond yields, consumer rates and price swings are increasing as the Fed fails to say if it will extend the $1.75 trillion policy of buying Treasuries and mortgage bonds through so-called quantitative easing, traders say.

—–”The Fed is stuck in a very difficult place,” said Mark MacQueen, a partner at Austin, Texas-based Sage Advisory Services Ltd., which oversees $7.5 billion.

“You can’t have it both ways. You can’t say I’m going to stimulate my way out of this problem with trillions of dollars in borrowing and keep rates low by buying through the other. I don’t think that is perceived by anyone as sound policy.”
http://www.bloomberg.com/apps/news?pid=20601087&sid=ajgF6O.jq4E0&refer=worldwide

Treasuries Tumble as Jobs Report Renews Fed Rate Speculation
By Susanne Walker

June 6 (Bloomberg) — Treasuries tumbled, driving two-year yields to an eight-month high, as traders speculated the Federal Reserve may boost interest rates later this year after a report showed the U.S. lost fewer jobs than expected in May.

Treasury two-year note yields surged the most in almost a year as the smallest decline in U.S. payrolls since September bolstered expectations the worst of the recession may be over. U.S. debt fell for a third consecutive week as oil touched a seven-month high, heightening speculation inflation will accelerate as the labor market bottoms out.

—-Payrolls fell by 345,000, the smallest decrease in eight months, after a revised 504,000 loss in April, the Labor Department said yesterday in Washington. The unemployment rate increased to 9.4 percent, the highest since 1983.

Payrolls were forecast to drop 520,000, according to the median forecast of 76 economists surveyed by Bloomberg.

“It’s going to be perceived as the worst is behind us,” Richard Schlanger, who helps invest $13 billion in fixed-income securities as vice president at Pioneer Investments in Boston, said yesterday. “Treasury yields just have to move higher in order to compete and attract investment.”
http://www.bloomberg.com/apps/news?pid=20601009&sid=a0_Adl2NKAso&refer=bond

We end for the day with Europe swinging right and Club Med’s socialists reeling.  Ironically, as America under President Obama and the Democrats  in Congress swing socialist left, the EU is going centrist right. In Germany, the realistic prospect now exists for a centre right coalition government to replace the current left-right grand coalition at the September election.  Suddenly the Euro looks like it might become a real competitor of the international stage. But will Club Med’s socialists now try to seize total control of the ECB across the summer.  If they do, fiat currency everywhere will become highly volatile and come close to meltdown.  Precious metal holdings have never looked more relevant.

Centre right tightens grip on Europe
By Tony Barber in Brussels  Published: June 7 2009 14:55 | Last updated: June 7 2009 23:05

Ruling centre-right parties in France, Germany, Italy and Poland on Sunday night rode to a decisive victory in European parliament elections, but a clutch of other governments including Labour in the UK suffered a mauling at the hands of recession-hit voters.

Germany’s Christian Democrats and France’s UMP party were the chief winners as official predictions showed that Europe’s centre-right parties would remain the legislature’s largest group, taking 263 to 273 seats in the 736-seat assembly.
Socialist parties were projected to win 155 to 165 seats, centrist liberals 78 to 84 seats, and Greens 52 to 56 seats.

—–Governments in Bulgaria, Greece, Hungary, Ireland, Latvia, Malta, Slovenia and Spain either crashed to defeat or lost much ground to their rivals.

Turnout across Europe averaged 43 per cent, the lowest since direct elections to the parliament started in 1979. It was something of an embarrassment for the European Union, which has steadily transferred powers to the legislature without generating more public interest in its work.

Angela Merkel, Germany’s chancellor, had cause for celebration as her CDU-CSU alliance took 38 per cent of the vote, far above 20.8 per cent for the Social Democrats, her coalition partners, according to partial returns.

The liberal Free Democrats – Ms Merkel’s preferred government partners – took 10.9 per cent, high enough to boost the chances of a CDU-FDP coalition after next September’s German federal election.

The UMP party of Nicolas Sarkozy, France’s president, was on course to win 28 per cent, against 16.8 per cent for the opposition socialists.

—-In what was the largest multi-national ballot in history, voters in the EU’s 27 countries took part in a four-day election to choose a parliament which enjoys equal influence with national governments in setting 75 per cent of EU legislation.

Far right, nationalist and anti-EU parties looked set to win up to 50 seats. But the election’s basic message was that voters in the EU’s biggest countries preferred the centre-right to the centre-left at a time of severe recession
http://www.ft.com/cms/s/0/3beed410-5368-11de-be08-00144feabdc0.html

If anything had or could have a value equal to gold and silver, it would require no tender law; and if it had not that value it ought not to have such a law; and, therefore, all tender laws are tyrannical and unjust and calculated to support fraud and oppression.

Thomas Paine.

At the Comex silver depositories Friday final figures were:  Registered 64.14 Moz, Eligible 54.35 Moz, Total 118.49 Moz.
Crook’s & Scoundrels’ Corner.

The bent, the seriously bent, and the totally doubled over.

Madoff again. Guess what, more missing money, this time in London.

Missing $165m: Madoff cleaned London out just before his arrest
By Margareta Pagano, Business Editor  Sunday, 7 June 2009

Bernie Madoff, the $60bn fraudster, ordered his London office to sell its $165m portfolio of UK gilts only a month before he confessed to the FBI that his business was a “big lie”.

The London directors followed his instructions, transferring the sale proceeds to Madoff’s New York office. However, it is still not clear where this money went to.
The Independent on Sunday has established that in the middle of November last year Madoff phoned Chris Dale, the finance director of Madoff Securities International (MSI), the London affiliate, and told him to sell the entire gilts portfolio. Madoff then instructed Mr Dale to transfer the money to his New York business, whereupon he would buy US treasuries on London’s behalf.

In the telephone call, Mr Dale was told by Madoff that he wanted to make the switch due to worries about the return on gilts because of sterling’s fall against the dollar. “He was worried about the British economy and said he preferred his investments in US treasuries,” said a source. “This seemed perfectly realistic at the time because of the banking crisis and the pound’s weakness.”

Madoff’s London office, headed by City veteran Stephen Raven, was a proprietary trading business capitalised by the Madoff family money to the tune of $200m (£125m). After the $165 million was transferred, London was left with assets of around $40m. These assets are still frozen by the UK courts, and may become subject to legal claims by investors in the US who have lost millions in the scam.

—–A few days later, the London Madoff executives received the contract notes and settlement statement confirming the purchase of $165m of US treasuries from its counterpart, Madoff’s New York office, BLMIS.

However, a few days after the firm’s collapse, Lee Richards, the senior partner of Richards, Kibbe & Orbe, the US liquidator appointed to investigate Madoff, informed the London office that the contract notes and settlement statement for the US treasuries were bogus. It appeared that no US treasuries had been bought.
http://www.independent.co.uk/news/business/news/missing-165m-madoff-cleaned-london-out-just-before-his-arrest-1698504.html

Paper money is like dram-drinking, it relieves for a moment by deceitful sensation, but gradually diminishes the natural heat, and leaves the body worse than it found it. Were not this the case, and could money be made of paper at pleasure, every sovereign in Europe would be as rich as he pleased. But the truth is, that it is a bubble and the attempt vanity. Nature has provided the proper materials for money: gold and silver, and any attempt of ours to rival her is ridiculous.

Thomas Paine.

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The monthly Coppock Indicators finished May:
DJIA: -380 UP. NASDAQ: -387 UP. SP500: -409 UP.  All 3 indicators reversed in November 07, ending long term buy signals starting the bear market. All three have now reversed signalling the end of that bear market and start of a new bull market.  While the bull may not last as long as the bear market, the reversal should spark more short covering and an increased stock weighting probably at the expense of bond weighting.

Below, The FT catches up on the Coppock news.

Traders keep anxious eye as key indicator offers ‘buy’ signal
By Jennifer Hughes, Anuj Gangahar and Michael Mackenzie
Published: June 5 2009 19:51 | Last updated: June 5 2009 22:25

It was not even another green shoot; just a slight wiggle in a long downward line.

But news that the revered Coppock indicator has finally hinted at a “buy” signal in a number of the biggest stock markets was a talking point in equity markets this week.

The global stock rally is edging into its third month, but its future is little clearer, leaving watchers to cast around for clues as to what might happen next. Enter the Coppock indicator, a measure of long-term market sentiment and applicable to any stock index. It signals a buy signal when it turns upwards from a value of less than zero. Traditionally calculated every month, it began hinting at an upturn in May. Followers have now seen buy signals in markets ranging from New York to London to Tokyo. More.
http://www.ft.com/cms/s/0/edbb1356-51fc-11de-b986-00144feabdc0.html

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Sunspot cycle 24:   Together with sunspot cycle 25, the next two global cooling cycles. The new “Dalton Minimum?”  Well over a year now with low sunspots numbers, and counting. March was the 17th month of yet another low number of 0. 7.

http://en.wikipedia.org/wiki/Dalton_Minimum

Smoothed sunspot numbers (SSN). 2007, Oct. 0.9. The end of cycle 23.

Sunspot cycle 24: Nov 1.7.  Dec 10.1.  Jan 3.4.  Feb 2.2. Mar 9.3 April 2.9.  May: 2.9. June 3.1.  July 0.5.  August 0.5.  Sep 1.1  Oct. 2.9. Nov. 4.1 Dec 0.8. Jan 1.5. Feb 1.4. Mar 0.7. Apr 1.2. May.2.9.
Sunspots.     http://solarscience.msfc.nasa.gov/SunspotCycle.shtml

The count.    http://sidc.oma.be/products/ri_hemispheric/

Why a New Minimum.  http://sesfoundation.org/dalton_minimum.pdf

The Carrington “Event,” September 1, 1859.
http://science.nasa.gov/headlines/y2008/06may_carringtonflare.htm

Spotless Days June 6.
Current Stretch: 2 days
2009 total: 125 days (79%)
Since 2004: 636 days
Typical Solar Min: 485 days
http://www.spaceweather.com/

New Solar Cycle Prediction  05.29.2009

May 29, 2009: An international panel of experts led by NOAA and sponsored by NASA has released a new prediction for the next solar cycle. Solar Cycle 24 will peak, they say, in May 2013 with a below-average number of sunspots.
If our prediction is correct, Solar Cycle 24 will have a peak sunspot number of 90, the lowest of any cycle since 1928 when Solar Cycle 16 peaked at 78,” says panel chairman Doug Biesecker of the NOAA Space Weather Prediction Center.

—-”Even a below-average cycle is capable of producing severe space weather,” points out Biesecker. “The great geomagnetic storm of 1859, for instance, occurred during a solar cycle of about the same size we’re predicting for 2013.”

The 1859 storm–known as the “Carrington Event” after astronomer Richard Carrington who witnessed the instigating solar flare–electrified transmission cables, set fires in telegraph offices, and produced Northern Lights so bright that people could read newspapers by their red and green glow. A recent report by the National Academy of Sciences found that if a similar storm occurred today, it could cause $1 to 2 trillion in damages to society’s high-tech infrastructure and require four to ten years for complete recovery. For comparison, Hurricane Katrina caused “only” $80 to 125 billion in damage.

—–The latest forecast revises an earlier prediction issued in 2007. At that time, a sharply divided panel believed solar minimum would come in March 2008 followed by either a strong solar maximum in 2011 or a weak solar maximum in 2012. Competing models gave different answers, and researchers were eager for the sun to reveal which was correct.

“It turns out that none of our models were totally correct,” says Dean Pesnell of the Goddard Space Flight Center, NASA’s lead representative on the panel. “The sun is behaving in an unexpected and very interesting way.”

—-Right now, the solar cycle is in a valley–the deepest of the past century. In 2008 and 2009, the sun set Space Age records for low sunspot counts, weak solar wind, and low solar irradiance. The sun has gone more than two years without a significant solar flare.

“In our professional careers, we’ve never seen anything quite like it,” says Pesnell. “Solar minimum has lasted far beyond the date we predicted in 2007.”

—–According to the forecast, the sun should remain generally calm for at least another year. From a research point of view, that’s good news because solar minimum has proven to be more interesting than anyone imagined. Low solar activity has a profound effect on Earth’s atmosphere, allowing it to cool and contract
http://science.nasa.gov/headlines/y2009/29may_noaaprediction.htm

This week’s featured links:  Silver & Gold Miners + Rare Metals.
With US trillion dollar deficits stretching as far as the eye can see, and voodoo economics the order of the day at  the central banks, I think it is now time to begin selectively scaling into precious metals companies that mostly meet the following criteria:

Adequate cash reserves. Good management. Strong in-ground reserves.  NAFTA based, or else located in countries with strong rule of law.  Are selling nearer their lows than their highs.

Endeavour Silver Corp. TSX: EDR. http://www.edrsilver.com/s/Home.asp

Semafo  TSX: SMF.TO http://www.semafo.com/home_company_intro.php

ATW Gold Corp. TSX.V: ATW. http://www.atwgold.com/

US Silver Corp. TSX.V: USA. http://www.us-silver.com/s/Home.asp

Excellon Resources Inc. TSX: EXN. http://www.excellonresources.com/

First Majestic Silver Corp. TSX: FR http://www.firstmajestic.com/s/Home.asp

New Jersey Mining Company. OTCBB: NJMC
http://www.newjerseymining.com/index.html

Atna Resources Ltd. TSX: ATN.  http://www.atna.com/s/Home.asp

International Wayside Gold Mines Ltd. TSX.V: WYG.
http://www.wayside-gold.com/s/Home.asp

Shoreham Resources Ltd. TSX-V: SMH

http://www.shoreham.ca/

The story of rare earths and metals is mostly one of China producing and exporting, Japan, America and everyone else importing.  Vital to our new technologies, and lifestyle, and critical to hybrid and electric cars, Rare Earth Elements and Heavy Rare Earths, are a strategic choke point held in China’s hands. Lately China has been squeezing that choke point. AVL at Thor Lake Canada, I think, has a property of global importance. A property with the ability to offer NAFTA access to REEs and HREs for the decades ahead.  As America and the west move to reduce  over dependence on oil from unstable regions, we will see demand for rare metals take off.

Avalon Rare Metals Inc. TSX: AVL. http://www.avalonraremetals.com

Warning.

Sadly we are all in unexplored territory. The world has never before entered a severe recession/depression while operating on fiat currency. As is widely apparent, the central banks haven’t a clue and are making up the rules as the flounder along. They never saw it coming they claim, although it was obvious to many fine writers though not unfortunately in the mainstream media, that a giant financialised derivatives gambling economy would always end badly. There are no experts now, for the simple reason that we have never before faced such a sudden synchronised and deep collapse in the global economies.

The unfortunate fact that we are operating on fraudulent currencies is highly likely to mean it all ends many months from now, in a fiat currency revulsion, but only after the monetary authorities have first tried pouring in endless amounts of newly created money. A derivatives gambling world with an estimated quadrillion dollars of face value has to be unwound and the losses absorbed. A quarter trillion dollars alone for just failed scamster AIG. No one has any idea any more of whose balance sheet is real, and who’s fraudulent in America, possibly with the connivance of the Homeland Security Czar, under cover of “national security.”  Is JP Morgan Chase’s massive derivatives book correctly accounted for? It’s anyone’s guess but I doubt it. The present policy of the day is to run up gargantuan national debt, and to issue unenforceable bank guarantees far beyond most nations’ ability to stand behind them, largely in the hope that something will turn up along the way.  In this sort of investing environment, cash, gold and silver and tangible assets are favoured over stocks and intangible assets.

As always, it’s important to do one’s own due diligence if thinking about making an investment. No one has more at risk in an investment than you do yourself.  In these difficult economic times, there will likely be several false bottoms before the real one arrives and hindsight allows us to confirm that the bottom is in.  Even then, a “V” shaped rebound is highly improbable. For the next several months patience and caution should rule investment decisions. When the urge comes to rush out and buy stocks for the recovery that’s always just around the corner, the best advice is to lie down until the feeling passes.

Graeme Irvine

The London Irvine Report: http://www.londonirvinereport.com

graeme@londonirvinereport.com

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