Euro speculators turn bearish, but still too bullish?

Euro speculators are more bullish now than they were at any point in the first half of the year, during which time the euro tumbled from more than $1.50 to less than $1.20. In the very near term, the euro is starting to look oversold, but it looks to me as though there's a lot of selling power out there. Notable this week is that the speculators turned bearish overall.

As for silver, the speculators became slightly more bullish after several weeks of reduced positions.


What are human rights?

During rising and peak social mood, the definition of human rights was stretched as broadly as possible. Even minor attempts to curtail these rights were seen as racist or xenophobic. Now, the previously racist and xenophobic ideas are winning victory after victory. The latest comes from Switzerland:

Swiss voters approve harsher deportation plan
Swiss voters have approved a far-right initiative to automatically expel foreign residents convicted of serious crimes, according to poll results.

Swiss national broadcaster SF1 said 52.9 percent of voters backed the initiative in Sunday's referendum, a plan proposed by the nationalist Swiss People's Party (SVP).

A counter-proposal put forth by the Swiss government, which would make expulsion dependent on the length of a prison term rather on an arbitrary list of offenses, appears to have been rejected by most voters, according to preliminary results. Currently, decisions to expel foreigners convicted of serious crimes are made on a case-by-case basis.

The initiative, which would apply to foreigners convicted of crimes like murder, rape or trafficking in drugs or people, has been criticized by human rights groups and legal experts, who said it could disregard international anti-discrimination treaties and the free movement of peoples under European Union law.
Rapists, murders, drug and sex traffickers can now be deported from Switzerland following their conviction. However, note that the news says this was a victory for the far-right. Objectively, this seems like a moderate, albeit strict, law. What this shows is not the radicalism of the far-right, but how far left society shifted during the long period of positive social mood. The mainstream of political leadership went so far in the other direction, that the far-right is now the sensible center. Should social mood remain negative or decline, the far-right will win increasing large vote shares (eventually winning pluralities or outright majorities), in Switzerland and around the globe.


Authoritarianism on the march

Immigration and Customs Enforcement agents cannot catch the illegal aliens who work at the McDonald's where they eat lunch in Washington, DC, but they can shut down websites.

U.S. Government Seizes BitTorrent Search Engine Domain and More

This is just a taste of what's to come if the Combating Online Infringements and Counterfeits Act passes Congress.

The COICA Internet Censorship and Copyright Bill
The main mechanism of the bill is to interfere with the Internet's domain name system (DNS), which translates names like "www.eff.org" or "www.nytimes.com" into the IP addresses that computers use to communicate. The bill creates a blacklist of censored domains; the Attorney General can ask a court to place any website on the blacklist if infringement is "central" to the purpose of the site.

If this bill passes, the list of targets could conceivably include hosting websites such as Dropbox, MediaFire and Rapidshare; MP3 blogs and mashup/remix music sites like SoundCloud, MashupTown and Hype Machine ; and sites that discuss and make the controversial political and intellectual case for piracy, like pirate-party.us, p2pnet, InfoAnarchy, Slyck and ZeroPaid . Indeed, had this bill been passed five or ten years ago, YouTube might not exist today. In other words, the collateral damage from this legislation would be enormous.
Authoritarianism is predicted to rise during declining social mood. However, since the Internet is global, the U.S. actions have global repercussions. For instance, whereas China blocks Chinese users from a site such as Facebook, the U.S. action would take down the site everywhere because the U.S. controls DNS. There are lots of problems with COICA, but the main one is that it would destroy the Internet itself as a free flowing exchange of information. Since the U.S. is a leader in technology and this is one of the few areas of exports, it seems crazy, but there it is.
"Bear markets of sufficient size appear to bring about a desire to slaughter groups of successful people. In 1793-1794, radical Frenchmen guillotined countless members of high society. In the 1930s, Stalin slaughtered Ukrainians. In the 1940s, Nazis slaughtered Jews. In the 1970s, Communists in Cambodia and China slaughtered the affluent. In 1998, after their country's financial collapse, Indonesians went on a rampage and slaughtered Chinese merchants."
-- Bob Prechter, Wave Principle of Human Social Behavior, p. 270


Why so serious?

EU rescue costs start to threaten Germany itself
Credit default swaps (CDS) measuring risk on German, French and Dutch bonds have surged over recent days, rising significantly above the levels of non-EMU states in Scandinavia.

"Germany cannot keep paying for bail-outs without going bankrupt itself," said Professor Wilhelm Hankel, of Frankfurt University. "This is frightening people. You cannot find a bank safe deposit box in Germany because every single one has already been taken and stuffed with gold and silver. It is like an underground Switzerland within our borders. People have terrible memories of 1948 and 1923 when they lost their savings."

The refrain was picked up this week by German finance minister Wolfgang Schäuble. "We're not swimming in money, we're drowning in debts," he told the Bundestag.
The article is by uber-bear Ambrose Evans-Pritchard so it comes with a grain of salt, but the mood is certainly turning grim on Europe. When this appears in a non-business section of a news outlet or in a publication not known for its coverage of the debt crisis, then it may mark the bottom of this euro move.

Euro-Zone Debt Crisis Escalates
The euro zone's sovereign debt crisis escalated Friday as the market homed in on Spain as another potential weak spot, leaving officials scrambling to quell investors' fears.

Spanish Prime Minister Jose Luis Rodriguez Zapatero moved to dispel the growing anxiety surrounding the country's fiscal position Friday, saying there was "absolutely" no chance the euro zone's fourth-largest economy would seek a bailout from the European Union. But his attempt to calm the markets had little effect, with the euro tumbling and the selloff in Spanish and Portuguese sovereign bonds continuing.
The euro is down almost $0.10 since the post-QE2 high on November 4.


THE Daily Express today becomes the first national newspaper to call for Britain to leave the European Union.
From this day forth our energies will be directed to furthering the cause of those who believe Britain is Better Off Out.

The famous and symbolic Crusader who adorns our masthead will become the figurehead of the struggle to repatriate British sovereignty from a political project that has comprehensively failed.

After far too many years as the victims of Brussels larceny, bullying, over-regulation and all-round interference, the time has come for the British people to win back their country and restore legitimacy and accountability to their political process.
The whole article is here: GET BRITAIN OUT OF EUROPE

The euro was formally launched at the peak of social mood in 2000 and the foundation of political union began in the ensuing year, but social mood has been in decline since then. As it turns even more negative, the impulse for international unity is changing into preservation of the nation state. Individuals have been turning towards "nesting" instincts for years and now this impulse will express itself on the national level.


Chinese high school students trash cafeteria

Inflation in food prices is hitting China hard because the social mood is not as positive as in the middle part of the decade. Inflation isn't as high as it was just a few years ago, but the public is reacting much more negatively to the news. In this case, high school students rioted over higher prices.


Social changes in America

Post-Recession America: Falling Incomes, Rising Cohabitation, Fewer Babies
According to Preston, increasing household size is expected when poverty increases. He points out that 100 years ago, when more than half the country was considered impoverished, people had much larger households because extended families lived together, people took in borders, and multiple families lived under one roof. "It's been shown over and over again that when income grows, people express their preference for small living units," he says.

But will such demographic shifts reverberate to the economy? Wolfers says the current cohabitation trend has particular implications for the housing market. "It's definitely the most striking number from the survey," he says. "One simple way of characterizing the current housing slump is that prices are likely to remain low because we have too many houses relative to the number of households. Rising cohabitation and increasing 'doubling up' will likely exacerbate this problem, as the existing population is organizing itself into even fewer households," he adds. "This could be a factor [hindering] the recovery of the housing sector."
The article also mentioned birth rates:
If incomes continue to decline, will a couple's decision to have a child be affected? The latest Census Bureau poll found that 4.3 million women gave birth in the 12 months before the 2009 survey, down from 2008's 4.4 million women, but up from the 4.2 million during each of the previous two years.

Those results, of course, don't tell the whole story about how external factors influence couples, not least because of the nine-month lag between conception and childbirth. Yet a nationwide study published in April by the Pew Research Center, a public opinion research organization in Washington, D.C., showed a correlation between declining birth rates and increasing economic hardship in the U.S. "Strong associations were found between the magnitude of state-level birth rate change from 2007 to 2008 and the magnitude of the previous year of per capita income change and housing price change," the study's report stated.
For an in-depth explanation of the socionomic approach to birth rates, see A Socionomic View of Demographic Trends or Stocks & Sex
Why would births and the stock market trend together, if they do at all? Sometimes answers can be found in subtleties. Notice that the deepest low in births this century came in 1933, the year after the deepest low in the stock market this century. Notice that the second most important low in births occurred again in 1975, one year after the second most important stock market low of this century. Why would there be a one-year lag? Well, can you think of any activity that always precedes a birth by about a year? If so, could this activity be correlated directly with people’s moods and therefore the trend and level of the stock market? Chapter 14 of The Wave Principle of Human Social Behavior characterizes a rising social mood trend as correlating, among other things, with “friskiness, daring and confidence,” a falling trend with “somberness, defensiveness and fear.” We now have a tenuous basis for a socionomic hypothesis regarding demographic trends.

Social mood turns on the greens

Last year there was the Climategate scandal, and this year cap & trade died in the U.S. midterm election. There have been questions about how wind power affects local weather patterns and now the media is paying attention.

Are wind farms changing the weather?
"The ground heats up quickly, like a pan on a stove, the wind blows like a headless fly and not a single drop of rain falls," he said in August, during the rainy season. He pointed at the spinning blades of the wind turbines over the horizon. "This started happening after they came."

It is not just a herdsman's superstition or his distaste for modern technology. Siqinbateer's claim is backed up by government statistics.

Li Qinghai, an engineer with the Water Statistics Bureau in Xilingol League, said the precipitation data collected by the bureau showed that adjacent to big wind farms there was an obvious decline in annual rainfall since 2005 - in some areas by as much as 80 per cent. "The issue is often overlooked as much of Inner Mongolia is suffering an unprecedented drought," he said. "But after spending more than two decades studying the rise and fall of water levels in the region, I have a strong feeling that the wind turbines are playing a disruptive, if not destructive, role in this, because the droughts in these areas developed much faster than in the turbine-free regions."

Li said he wanted to study the issue more deeply, but nobody would fund the research. Given the nationwide hype of wind-power development, the topic is considered politically incorrect.
I don't expect the debate between oil, natural gas and coal, versus solar, wind and biofuels, to end. Instead, the terms of the debate will shift as people focus on costs over benefits.

The coming trade conflict with China

A good article in the South China Morning Post lays out the case. Social mood definitely favors increasing conflict.

China steals jobs from West, says economist
With unemployment in the United States running at 9.6 per cent, populist anger would soon "boil over", he said, adding: "America will threaten tariffs against China as a way of trying to get China to change its policies."
The he is Roger Bootle, "a special adviser to the House of Commons Treasury Select Committee and former chief economist at HSBC." He's exactly right about the coming conflict and he's right when he goes on to explain that China relies on exports because Chinese policy has favored exports. A reform of the system would mitigate the problem...but the government may not like the solution...
Brian Jackson, a Hong Kong-based economic strategist for RBC Capital Markets, said Beijing was not highly motivated to give mainland consumers more spending power. He said policymakers would prefer to control the economy by retaining most of the country's cash in state coffers, to be spent at planners' will on economic stimulus projects such as infrastructure upgrades.

Putting more money in consumers' pockets "would require a real shift in mentality", Jackson said. "It is harder to achieve the [growth] targets if you are relying on consumers to make up their own minds about whether to spend their money and what they spend it on."


Why a Korean flare up now?

Just over a week ago, I noted that social mood appeared to be turning negative in Down goes the euro.

We've had Ireland's debt crisis and a war of words in Europe, a growing revolt against the TSA in the U.S. right ahead of one of the (if not the) busiest travel day of the year, diplomatic shots about currency wars yet a rise in the U.S. dollar, even following QE2...and now another flare up on the Korean peninsula.

Here is the KOSPI in terms of gold.

Socionomics versus common wisdom

These examples are easy to find, but here's another case of the media flipping headlines in a short period of time.
On Sunday November 21, 2010, 11:07 pm EST
Asian stocks mostly higher on Ireland bailout news
On Tuesday November 23, 2010, 2:36 am
Asia stocks fall amid widening Europe debt woes


Social mood and film: Hong Kong edition

A violent slasher flick, with the crazy real estate market as background, that left moviegoers vomiting and fainting. The goriest HK movie since 1991, at least according to the producer and lead actress, Josie Ho. It was developed prior to the peak in the stock market in 2007, but filming didn't start until early 2009 and the entire period was one of negative social mood. The release was delayed until May 2010, at which time it was overshadowed by an action-hero martial arts film. It also has a Category III rating, which means no one under the age of 18 can see it in theaters (similar to NC-17 in the United States), and that likely hurt its earnings. However, has the film been produced and released during the decline in social mood, would it have done better at the box office?

Wikipedia entry for Dream Home.

Why is the TSA getting trashed now?

TSA has met the enemy — and they are us
How did an agency created to protect the public become the target of so much public scorn?

After nine years of funneling travelers into ever longer lines with orders to have shoes off, sippy cups empty and laptops out for inspection, the most surprising thing about increasingly heated frustration with the federal Transportation Security Administration may be that it took so long to boil over.

The agency, a marvel of nearly instant government when it was launched in the fearful months following the 9/11 terror attacks, started out with a strong measure of public goodwill. Americans wanted the assurance of safety when they boarded planes and entrusted the government with the responsibility.

But in episode after episode since then, the TSA has demonstrated a knack for ignoring the basics of customer relations, while struggling with what experts say is an all but impossible task. It must stand as the last line against unknown terror, yet somehow do so without treating everyone from frequent business travelers to the family heading home to visit grandma as a potential terrorist.
It's a long article, but is there something else at work?
The outcry, though, "is symptomatic of a bigger issue," said Geoff Freeman, executive vice president of the U.S. Travel Association, an industry group that says it has received nearly 1,000 calls and e-mails from consumers about the new policy in the last week.
The larger issue is the social mood.
"I think at some point Americans said to themselves, maybe in their collective subconscious...there's a line here where it's not just worth it anymore," he said. "There's a growing sense that that line has been crossed."
No kidding.


Social mood, finance and criminal charges

U.S. in Vast Insider Trading Probe
Federal authorities, capping a three-year investigation, are preparing insider-trading charges that could ensnare consultants, investment bankers, hedge-fund and mutual-fund traders and analysts across the nation, according to people familiar with the matter.

The criminal and civil probes, which authorities say could eclipse the impact on the financial industry of any previous such investigation, are examining whether multiple insider-trading rings reaped illegal profits totaling tens of millions of dollars, the people say. Some charges could be brought before year-end, they say.

The investigations, if they bear fruit, have the potential to expose a culture of pervasive insider trading in U.S. financial markets, including new ways non-public information is passed to traders through experts tied to specific industries or companies, federal authorities say.
When would a three-year investigation have started? Right around the market peak in autumn 2007. Now the results will come public after a market low has been made.

Speculators continue bearish turn on euro and silver


Here come the epidemics?

Diseases pick up as social mood declines.

Cholera and Dengue Fever: State health officials issue warnings of two diseases
State health workers say it's official: Florida is now witnessing incidents of two diseases we haven't experienced in years, if not decades.

"It's of course important for Floridians in all parts of the state, but especially South Florida," says Dr. Carina Blackmore with the state's health department.

The diseases being discussed are cholera and dengue fever. Cholera is spread by unsanitary conditions. Dengue fever, by mosquitoes.

So far, the Tampa Bay area has not seen an outbreak of either disease, but health officials are watching closely for people who exhibit symptoms.
Hong Kong Confirms Human Bird Flu Case
Hong Kong has confirmed its first case of human bird flu in seven years.

Health Secretary York Chow said late Wednesday that a 59-year-old woman had tested positive for H5N1 bird flu after returning to Hong Kong from the Chinese mainland, and is in serious condition in a local hospital.

With the announcement, the government raised the bird flu alert to "serious," meaning there is a risk of contracting the disease within the territory.

Chow said Hong Kong officials were meeting Thursday and would determine whether additional measures are needed to safeguard local residents.

The bird flu virus first struck Hong Kong in 1997. Six people died in that outbreak and all chickens in the territory were culled.
Here's a look at previous outbreaks compared with the Hong Kong ETF, EWH. Red lines indicate the bird flu outbreaks hitting the press. The low in 2003 also saw the SARS epidemic along with bird flu cases. The Asian Crisis followed the 1997 outbreak, the 2003 cases came near or at the market lows, while the current outbreak comes at a possible turn in the markets. Also, were the chart compared to gold, the recent advance would look more like a flat line.
The Socionomics Institute takes a longer view in Bedbugs Invade, A Sign of Infestations to Come?, while Elliot Wave International has a recent look at SARS and swine flu in Social Mood, Stocks and Epidemics.

Social mood in France

Here's a video of the police trying to investigate a rape in one of the Muslim suburbs.

Here's is the CAC 40 versus gold, as represented by the gold ETF, GLD.

Monetary policy debate heats up with unintentional comedy

Ron Paul was considered a crank for talking about monetary policy, even in 2008 and into 2009. What a difference a year makes. Now, monetary policy has become a major subject of debate and the leading Republicans have issued rebukes to the Federal Reserve. Of course, one of The Prechter Predictions is that the Federal Reserve will be discredited and abolished. Although too early to call it a correct prediction, note that Prechter issued that prediction in 2003. If this was a momentum trade, Prechter's prediction is definitely looking like a good bet.

While the GOP was opening attacks on the Fed, it's taken a little longer for the left to return fire. The left is naturally inclined to be against Wall Street, but whenever the left is in office, all but the dedicated grassroots abandon principle for power. (Republicans are not much better, but they don't have the same naked pursuit and use of power, see The Lightworker wants to touch your junk) Therefore, I'd say we are now within sight of the discrediting and possibly abolition of the Federal Reserve, because I can use basic political analysis to predict a bad outcome. The natural allies of the financial system are turning against it, while it's natural enemies are defending it. When you've lost your "base" and rely on fair weather friends, the end is in sight.

We can also see that the left is not mounting much of a defense at all. In GOP to jobless: Drop dead
The first efforts to turn Ben Bernanke into a modern day William Jennings Bryan came from those giants of economic thinking, Rush Limbaugh and Sarah Palin. A few days later the mantle was taken up by a group of Republican economists and policy wonks who gathered at the University of Pennsylvania Club in Manhattan to craft a public letter criticizing the Fed.

Then last weekend at the Group of 20 meeting in Seoul, the Republican campaign for "hard money" received aid and comfort from foreign leaders concerned that quantitative easing might substitute American jobs for Chinese and German ones. Also jumping on the bandwagon was Robert Zoellick, the American president of the World Bank, who no doubt hoped to boost his prospects as the next Republican Treasury Secretary by floating the idea of a partial return to the gold standard.

Finally Tuesday, Rep. Mike Pence, the third-ranking Republican in the House, and Sen. Bob Corker, an influential Republican on the Senate Banking Committee, announced a proposal to strip the Fed of its "dual mandate" that would have the central bank focus solely on ensuring price stability without the distraction of also worrying that 15 million Americans are unemployed and underemployed. "The Fed's dual mandate policy has failed," Pence declared, citing the stubbornly high unemployment rate. It's not exactly clear how unemployed workers would benefit from the Fed's benign neglect.

If you want a serious discussion about changing the structure or mandate of the fire department, the time to have it is not when the entire squad is out fighting a three-alarm blaze. That's exactly the situation with the Federal Reserve and the debate over the dual mandate. Only two weeks after the midterm election, it seems clear that the 2012 campaign has begun. For too many Republicans, the aim is to politicize policy, trash the institutions of government and intimidate anyone who might disagree with their radical ideology.
Invoking WJB "cross of gold" speech to defend the Fed...is ironic. Should the Fed reach the economic credibility of WJB, its fate is sealed.

Elsewhere, the New Republic takes a better stab at the issue, but still manages a howler in Fighting the Fed: Sarah Palin is leading conservatives' most sinister campaign to date. The author talks about the divide between the Palin and Paul camps (he dislikes them both) and says, apparently seriously:
The Pauls’ views may be a bit medieval and needlessly cruel—a growing economy requires a growing money supply; relying on gold or silver, as the Pauls propose, would condemn us to periodic deflations and depressions.
A little economic history is in order. While on the gold standard, the money supply was relatively stable (except during periods of increased supply, such as the gold rushes). During a recession, prices would decline. These periodic downturns in the business cycle were termed depressions. After the Great Depression, the term depression fell out of favor and was replaced with the more soothing "recession."

Has the Federal Reserve managed to solve the problem of periodic recessions? And how about the massive deflation started in 2008 and continuing to this day? Is it due to the gold standard? How badly did the Fed screw up if the current economy and deflation is what critics claim as the very worst problem with a gold standard? But he does nail the political situation exactly, in the broad sense that the enemies of the Fed are growing in number and represent a clear and present danger to business as usual:
Don’t get me wrong: I think criticizing the Fed is an entirely healthy thing. I, for one, am sympathetic to the Pauls’ concern that periods of excessively low interest rates can lead to bubbles, and I do worry that quantitative easing may create similar problems. (Though I don’t see many great alternatives.) Likewise, the Fed didn’t exactly cover itself in glory in the run-up to the crisis, and its bailout of AIG was unsavory even to those involved. But what Palin and likeminded politicians are doing now isn’t good-faith criticism. That requires a baseline understanding of what the Fed does, and grappling with it honestly. What’s going on now is a political campaign intended to de-legitimize technocracy. (As exhibit A, I’d direct you to the presence of the esteemed monetary economist William Kristol at the center of the anti-Fed movement.) And it’s reaching further into the government than ever before.
Take one part socionomics and mix in political analysis. Politicians are, for the most part, dedicated to one thing: reelection. They are very rarely leaders and then are even more rarely dedicated to principle. Ron Paul failed to spark a movement until the movement came to him, his dedication to principle outweighed his lack of leadership skills, but paid off in the end.

Suddenly, everyone wants to be like Ron Paul, including neo-conservative weather vanes such as Bill Kristol, who once called Paul a crackpot for favoring a gold standard and holding other views well outside the mainstream of political debate...at the time.

The New Republic author is more right than he knows. The decline in social mood could morph into an attack on all technocracy, in which case the Federal Reserve is just the tip of the iceberg. And if that's the case, the already established and organized movement to abolish the Fed means that a string of anti-technocrat victories will not end with the Federal Reserve, but begin with it.

TSA protest movement is growing rapidly

We Won't Fly

And now they're terming it "Gate Rape."
Turns out the scanners can detect tan lines and more.


Liu Jun Luo: Gold crash coming, part of U.S. grand strategy

Liu Jun Luo is looking for a gold crash in the next ten days to signal the onset of deflation. Unlike the domestic commentators who believe the U.S. leadership desperately wants to inflate the currency, Liu and a number of other prominent Chinese bloggers and commentators believe the U.S. goal is exactly the opposite.

Deflation of the U.S. dollar results in inflation of foreign currencies and leads to the financial crises abroad, such as the Asian Crisis in the 1990s and the Argentine default. Economics is not zero sum, but politics is zero sum. There's a fixed amount of power and its shared by the countries of the world. More dollar strength will crush Europe and emerging market economies far worse than the U.S. because these are the exporters, and they need capital. During the crunch, the U.S. does relatively better because the price of commodities drops, while capital pours into the U.S. for safety.

Liu Jun Luo is looking for the U.S. Dollar Index to cross 90 and for the Shanghai Composite to sink to 2000, a drop of 30%, between now and the end of 2010.

Whether you agree that the U.S. is actually running a competent shadow strategy or is completely failing at inflating the economy and weakening the dollar, if you expect deflation, the market result is mostly the same.

Note that Liu was correctly predicting a euro disaster last spring and he has told people in China to wait for a collapse in home prices.

if you want to read his latest post, follow the link and use Google Translate to get the gist of it.


QE2 Epic Fail

If galloping commodity prices aren't enough to kick off another deflationary wave, how about interest rates moving higher in the week after the Federal Reserve announces a major effort to make interest rates move lower? And how about the rebounding U.S. dollar? It's fail all around for the Fed.

Rare earth stocks sink

Rare earth stocks enjoyed a fantastic run during September and October, but they've been hit hard in the past week. Here's an update of the chart comparing Molycorp, China Rare Earth, and Baotou. The chart starts from the IPO date of Molycorp.

U.S. dollar drops by 5% in SDR basket

IMF Determines New Currency Weights for SDR Valuation Basket
With effect from January 1, 2011, the IMF has determined that the four currencies that meet the selection criterion for inclusion in the SDR valuation basket will be assigned the following weights based on their roles in international trade and finance:

U.S. dollar 41.9 percent (compared with 44 percent at the 2005 review)
Euro 37.4 percent (compared with 34 percent at the 2005 review)
Pound sterling 11.3 percent (compared with 11 percent at the 2005 review)
Japanese yen 9.4 percent (compared with 11 percent at the 2005 review)
5% drop in USD, 10% increase for euro, 3% change in sterling and 15% drop in yen.


Euro turns, silver market melted up

Look at the massive divergence in silver and speculative silver positions. This chart, which goes through November 9, captures silver right near its top, while the speculators are becoming much less bullish. It was late Tuesday that the CME changed the margin rules on silver and sparked a sell-off. SLV actually went well over $28 a share, but came down after the news.
As for the euro, I posted earlier on what appears to be a turn in social mood, matched by the turn in speculative positions, a turn on the charts and a rebound in the U.S. Dollar Index. I am looking for new multi-year lows in the euro versus the U.S. dollar. If you're interested in Elliot Wave International's take, it is Free Week there. You can access the Forex newsletters for free through November 18. If you have a free account there you can sign in to access the newsletter, if not, they don't ask a lot of information to sign up. Forex FreeWeek is now on!

Down goes the euro

Nothing ever changed in Europe regarding sovereign debt problems. What changed was social mood, as it became slightly more positive. As was evident starting last week, things have changed and negativity is back. The turn in short term social mood is past and the euro is tumbling. Recent headlines out today:

Contagion hits Portugal as Ireland dithers on Rescue

Euro under siege as now Portugal hits panic button

Ireland told: Take EU bailout or trigger crisis

Greek deficit much bigger than estimate

The COTS data for last week finally was released today. Given the large move down in the euro, speculators are probably back in command.

Negative social mood turning on TSA

The Transportation Safety Administration is turning into a target of negative social mood, for obvious reasons. Security checks once reserved for dangerous criminals is now standard procedure at America's airports, which makes many people feel as though the U.S. government considers its own citizens to be a high level threat. While the arguments against the Federal Reserve are slightly esoteric, anyone can see what is wrong with the TSA. The very widely read Drudge Report (9 billion hits this year through November) has turned up the volume.
The folks at Elliot Wave International have made a strong the case, as has Robert Prechter, that authoritarianism rises with negative social mood. In much of the world, this expresses itself as government control and strong leaders. Americans have a history of turning against their own government though. The American Revolution was quite authoritarian at the local level, but it's ultimate target was for liberty and against the British monarchy, and a large minority of Americans react very negatively to authoritarianism. As I argued about the Tea Parties, the organized will capture negative social mood. The Federal Reserve is already taking heat; look for the TSA to face a similar attack.

Empty city index

Many people are familiar with the skyscraper index. A society at peak social mood wishes to express its optimism and pride by building the world's tallest building. This usually signals a peak in social mood, which could turn even before the building finishes construction.

Another indicator worth watching may be empty cities in China. The NYTimes checks on the empty city of Ordos in:

Chinese City Has Many Buildings, but Few People

This isn't a new story, I linked to a video back in November of 2009: Real estate bubble in China?


Austerity wins in Greece

Greek Socialists lead in poll as debt fears rise
Greece's governing Socialists won several key local election runoffs Sunday, including a mayoral race in Athens for the first time in 24 years, despite renewed pressure on the crisis-hit nation to further cut spending.

With 75 percent of the national vote counted, the governing party led in eight of 13 races for regional governors, clinching the contest in greater Athens and three other regions.

The result provided a badly needed boost for Prime Minister George Papandreou, who is facing growing discontent over austerity and rising unemployment -- as well as pressure from European partners to make deeper cuts.

Will the young pay?

A nice socionomic indicator from the Guardian. I want to look at the politics and economics first though.

Even before the financial crisis, the amount of government spending required to fulfill promises to retirees was expected to trigger political conflict. In the case of a small county such as Ireland, where there's a strong history of emigration, the question has become whether the young will even be there.

Ireland's young flee abroad as economic meltdown looms
Kelly, of University College Dublin, was laughed at, scorned and even threatened when he correctly predicted, as long ago as 2007, that Ireland's property bubble was heading for a spectacular explosion.

Now he is forecasting mass mortgage defaults and an ugly popular uprising. The first stirrings are already visible, he says, with "anxiety giving way to the first upwellings of an inchoate rage and despair that will transform Irish politics along the lines of the Tea Party in America", giving rise to a new "hard-right, anti-Europe, anti-traveller party".
To the Guardian, where the story comes from, this is tantamount to Armageddon. However, anti-Europe probably would mean anti-bailout, which means Ireland could follow the path to rapid recovery enjoyed by South Korea and Russia in the late 1990s.

Mark Ward, president of Tallaght's student union, says that 1,250 students are leaving Ireland every month. One in five graduates is seeking work outside the country. The Union of Students in Ireland believes that 150,000 students will emigrate in the next five years.

Ward, a 26-year-old marketing graduate, said: "The government's to blame for bankrolling the banks who were lending to their property developer friends. They all thought the party would never end.

"Students shouldn't have to pay for the mistakes of the government and their developer pals. It's going to take years to sort this mess out and it won't be just my generation which will be blighted big time."

Is the social fabric of Ireland beginning to unravel? The Kingdom, one of the country's much-loved local papers, recently reported that nearly 200 Gaelic footballers and hurlers have left Kerry to play in Britain, Australia and the US in the first seven months of this year. The true figure is probably double that.

The charity Barnardo's said that children were asking it for food because there was not enough for them to eat at home. "Some of our services are being asked by children if they can take food home for later because there just isn't enough," said Carmel O'Donovan, a project co-ordinator with Barnardo's.
Folks who say the U.S. will be a Third World country if the currency rapidly devalues are definitely speaking in hyperbole, but with a grain of truth.
"I hope I don't get sick in the coming months because there'll be nobody to tend to you in the hospitals. Of course, a lot of people would be heading across the Irish Sea or the Atlantic if only they could sell their houses, but we can't do that either. So basically we're stuck on the Titanic as it goes down."

Next month the government will deliver its latest austerity budget with the aim of slashing a further €15bn from public spending on top of the €14.5bn it has already been forced to cut. But Kelly has argued that the public sector cuts are "an exercise in futility" when compared with the €70bn bill for Ireland's bad banks. "What is the point of rearranging the spending deckchairs, when the iceberg of bank losses is going to sink us anyway?" he asked in the Irish Times last week.

Put at its starkest, for the next six to seven years, every cent of income tax paid by Irish citizens will go to cover the banks' losses.
The article is a nice indicator of social mood as well. Nothing has changed for Ireland. The same crowd of economic forecasters who called the housing bubble and continue to warn about banks and government spending have never changed their tune. It was the rest of the world that followed the social mood towards greater optimism in the wake of bailouts from the European Central Bank.

Social mood is clearly on the decline and this article is one sign. Whereas Ambrose Evans-Pritchard and others will sound the same, having been bearish for some time, expect these stories to bleed from the business section into the culture and main sections of newspapers. Also, look for harsh and apocalyptic language as the media's favorite oxes are being gored.


As goes China...

so goes the world? A 5% drop in Shanghai today. China has led the markets at major turns, topping first in 2007, bottoming first in 2008 (U.S. markets didn't bottom until 2009), short-term topping again in August 2009 (U.S. markets in January 2010). The May 2010 sell-off which included the flash crash was already underway in China for about two weeks.

On the trade front, the U.S.-South Korea trade negotiations is a good indicator of the mood. Korea is a U.S. ally and its economy is large, but with 50 million people, its not the jobs threat that people imagine when thinking of the 2.5 billion people in China and India.

SKorea, US fail to finalize stalled trade deal

Here are the two relevant points: it's the largest trade deal since NAFTA and it was negotiated right as global markets peaked.
The two sides have been holding negotiations this week to jump-start the deal to slash tariffs and other barriers to trade that was signed in 2007 when previous administrations were in power. It remains unratified by lawmakers in both countries.

...The White House says the deal could add at least $10 billion to U.S. gross domestic product and boost exports to South Korea by $10 billion to $11 billion a year. It would be the largest U.S. trade deal since a 1994 agreement with Canada and Mexico.


Andy Xie delivers common sense on QE2

A lot of has been said about QE2, but Andy Xie sums up the policy failure quite well in Paradigm Lost. Here are some gems:
The view that the U.S.'s problem is insufficient demand is deeply flawed. The U.S. is running a massive trade deficit. This is usually a sign of excessive demand. If one looks at the world with this perspective, the U.S. should experience a weak economy for an extended period of time to decrease its trade deficit. Geithner and Bernanke believe the deficit can be addressed through dollar devaluation. If the monetary stimulus works, it will lead to a bigger trade deficit. As I will discuss below, the weak dollar will serve to boost the trade deficit through a rise in commodity prices, which will increase the U.S. trade deficit.
Two ideas being refuted here. One is the insufficient demand canard, mostly proposed by Keynesians. The other is the idea that a weaker U.S. dollar can boost exports, but as the Japanese example shows, there's a lot more to exports than currency value. The U.S. is not competing to make low cost products such as sneakers and t-shirts, it is competing in areas such as aerospace and software.
In rich countries like the U.S., a large proportion of its population lives under third world living standards. In China or India, a significant proportion of their populations live with first world living standards. A convergence is occurring with similar ratios of living standards across the world. Moreover, one can tell where pressure is more acute.

In developed countries, the pressure is worsened by high living costs due to regulatory constraints. To lessen the social pressure, they need to lower the living cost for low income workers. Wal-Mart, for example, is one manifestation of that force. It employs people at third world wages and offers goods at third world prices. This market solution to the rising inequality is often thwarted by regulations. A society that chooses this option must have sufficient income redistribution for those who earn third world wages to be able to pay for first world prices.

Europe is in that camp. Its policies are consistent. Through corporate welfare Japan is in that camp too. The U.S. wants its low income people, i.e., most of its population, to enjoy first world living standards but doesn't have to the means or policies to make it happen. Instead, it tries to juice up growth to achieve this goal. But, its success depends on the businesses' willingness to pay its workers first world wages. The evidence says businesses are unwilling. The U.S. policymakers keep thinking that it's a demand issue and embark on policies that seem irrational to others and scare the whole world to death.
We are starting to see the early signs of strong anti-globalization backlash in the U.S.; a recent poll showed the Tea Party voters opposed to free trade. Andy goes on to predict QE3, read more Paradigm Lost if you are interested.

Speaking of QE3, CLSA's Chris Wood Continues To Look Toward QE3:
GREED & fear’s fundamental view remains that there will continue to be no Fed rate hike and that, sooner or later, Billyboy will be implementing a third wave of quanto providing American politicians allow him to do so.

If Billyboy succeeds in precipitating releveraging of the US economy he will for a time at least be treated as a hero until the subsequent collateral damage of his policies becomes obvious. Still GREED & fear has yet to come up with any hard evidence that releveraging is about to happen.

Now fireballs in Manhattan

Did You See The Fire In The NYC Sky?

Just jet contrails...why is everyone suddenly exited about them?


Social mood accelerating?

Mysterious missiles, a turn in precious metals markets, a possible bottom in the U.S. dollar, and now China fear back on top. Here's the very latest front page on Drudge. Here's a link to the story itself.
China may be bigger economy than US within two years

They are measuring by purchasing power parity. As an example, it costs less than $2 for a short cab ride in Beijing, but it costs much more in New York. Thus U.S. GDP is higher, but a cab ride is a cab ride. Not sure if they're adjusting for quality though...

U.S. dollar ready for calendar turn?

In Silver diverges from speculators, I posted a chart showing that silver was due for drop. It came yesterday and is continuing today, with banking problems in Ireland, Brazil, plus protests in the UK all supporting the U.S. dollar.

Is that mysterious missile a chart of the U.S. dollar index? Certainly looks like a launch from sea level.


Social mood and mysterious missiles

While speculation will always run high on an event such as the mystery missile off of California, during peak social mood the public is more likely to think of positive explanations, such as entrepreneurs working on space tourism and commercial space applications. During this period of negative social mood, the public is focusing on the incompetence of the U.S. Defense department and/or the possibility of foreign governments sending a message to the United States.

Below is the media take.

And there's some folks saying it was a jet:
Jet contrails from some angles look like missile trails
Top Aviation Journalist Is 100% Convinced That The "Missile" Was A Jet
If this was just the normal contrails of a jet, something seen everyday across the world, you couldn't ask for a clearer indication of the current negative social mood.

Army war game: U.S. dollar collapse

Jim Rickards discusses the U.S. Army war gaming the collapse of the dollar, a new gold standard, and other topics with Eric King.

Silver diverges from speculators

Silver has diverged from the speculators, but the metal has typically moved in sync with these traders. This is going to get corrected, one way or the other.

The move has been impressive though. I picked up two silver mining stocks less than a month ago, and they've already seen nearly 50% increases. I plan on holding through a correction in the metal price.


Social mood and junk food

During the 2000s, fast food was the Devil, with documentaries that tried hard to portray fast food as pure evil, beyond just the culinary reality of low quality.

Now, in a move that parallels the growing acceptance of recreational drug use, comes the idea that what we put in our bodies isn't as much of a problem as people believed.

Twinkie diet helps nutrition professor lose 27 pounds
For 10 weeks, Mark Haub, a professor of human nutrition at Kansas State University, ate one of these sugary cakelets every three hours, instead of meals. To add variety in his steady stream of Hostess and Little Debbie snacks, Haub munched on Doritos chips, sugary cereals and Oreos, too.

His premise: That in weight loss, pure calorie counting is what matters most -- not the nutritional value of the food.
The premise held up: On his "convenience store diet," he shed 27 pounds in two months.

For a class project, Haub limited himself to less than 1,800 calories a day. A man of Haub's pre-dieting size usually consumes about 2,600 calories daily. So he followed a basic principle of weight loss: He consumed significantly fewer calories than he burned.

His body mass index went from 28.8, considered overweight, to 24.9, which is normal. He now weighs 174 pounds.
But you might expect other indicators of health would have suffered. Not so.

Haub's "bad" cholesterol, or LDL, dropped 20 percent and his "good" cholesterol, or HDL, increased by 20 percent. He reduced the level of triglycerides, which are a form of fat, by 39 percent.
The whole story is worth reading.


Economic diplomacy out the window

The U.S. is boxing China and other trade surplus countries into a corner, one that is not wholly undeserved, but using dubious methods with regards to their impact on the U.S. economy and the wealth of its citizens.

In a nutshell, the world needs to rebalance. Emerging market economies (and Germany) make their living off exporting to the U.S. and Europe, but the huge deficits in the U.S., U.K. and Spain led directly to the financial crisis in 2008. The deficits were unsustainable and . Now, in the wake of the crisis, the deficits are headed back up and central banks are pumping money again, a replay of the past decade. The U.S. needs job growth, however, and one way to get it is for imports to decline, so that more production takes place in the U.S.

If other nations will not cooperate, the U.S. always has the option of debasing its currency. Since the dollar is the reserve currency, however, and many exporting nations (mostly emerging markets) peg their currency to the U.S. dollar (most importantly China), U.S. money printing turns into money printing in emerging markets. While money printing only stems deflation in the slow to no growth U.S. of A, faster growing emerging markets are faced with asset bubbles and rising inflation. To use a bad analogy, the U.S. is going to kill parasites on its body by eating poison, hoping that they leave the body before the host dies.

The rest of the world is not happy with the poison pill strategy.

China tees up G20 showdown with US

Cui Tiankai, a deputy foreign minister and one of China’s lead negotiators at the G20, said on Friday that the US plan for limiting current account surpluses and deficits to 4 per cent of gross domestic product harked back “to the days of planned economies”.

“We believe a discussion about a current account target misses the whole point,” he added, in the first official comment by a senior Chinese official on the subject. “If you look at the global economy, there are many issues that merit more attention – for example, the question of quantitative easing.”
Sometimes quoted Chinese officials are not the ones in charge of making decisions. The media often quote them in the way that say, a U.S. Senator might be quoted on a topic, but the Senator may be in the minority party and have very little sway over the Senate, and even less with the President. With that caveat, the quote is a total rejection of diplomacy. The U.S. said it wants to discuss rebalancing, which will necessarily mean China is a topic of discussion, and China says let's talk about U.S. quantitative easing.

The Germans are also upset with U.S. policy:

“With all due respect, US policy is clueless,” Wolfgang Schäuble, German finance minister, told reporters. “It’s not that the Americans haven’t pumped enough liquidity into the market,” he said. “Now to say let’s pump more into the market is not going to solve their problems.”
And emerging market economies are obviously angry as well. Brazil's finance minister said the U.S. policy will not create jobs and only lead to problems for emerging markets, such as Brazil, who have to deal with hot money inflows creating bubbles in their economies. Brazil also plans to bring the issue up at the G20.

Given the prevailing social mood, odds to not favor a good outcome at the G20.


One the eve of QE2, euro speculators held steady

The euro went on to spike higher and then dropped on Friday, but not enough to send a clear signal as to which way the speculators may be shifting. Below is a look at the U.S. Dollar Index, which for the moment is holding above trend-line support.


Fake divorces fuel housing market in China

Buyers of second homes cash in on fake divorces
"A fake divorce certificate will cost you 150 yuan [HK$174], or you can buy two for 300 yuan so that both of you have one," said an employee of a fake divorce certificate company in Beijing.

Welcome to the latest mainland trend: getting divorced, or appearing to, in order to save money on buying a second or third home.

With real estate prices still soaring and regulations enacted in April to increase the down payment needed on second and third homes while raising mortgage rates, couples have been taking advantage of one of the loopholes in the system.

It says that two unmarried people are able to buy two properties for more favourable prices, but a married couple would incur much higher costs.
Chinese excel at finding loopholes.


Iowa fires judges, first time in almost 50 years

Iowans dismiss three justices
Three Iowa Supreme Court justices lost their seats Tuesday in a historic upset fueled by their 2009 decision that allowed same-sex couples to marry.

Vote totals from 96 percent of Iowa's 1,774 precincts showed Chief Justice Marsha Ternus and Justices David Baker and Michael Streit with less than the simple majority needed to stay on the bench.

Their removal marked the first time an Iowa Supreme Court justice has not been retained since 1962, when the merit selection and retention system for judges was adopted.
Social mood tells us the when, the facts on the ground tells us who and where.

Judges are increasingly targets of political ire due to what critics term lawmaking from the bench. The gay marriage decision is exhibit A for most people making this argument. However, it's not as if this is the first unpopular decision, abortion alone has generated scores of court cases. What's different this time is that the social mood is very negative, thereby resulting in the successful removal of three Iowa Supreme Court justices.

Skyscraper indicator

Looking for a sign that the current liquidity fueled emerging market gains may be getting long in the tooth?

Sky high risks in Malaysia
Malaysian Prime Minister Najib Razak's recent announcement that a 100-storey tower will be built in the capital by a government investment fund comes as global liquidity is flooding the region and raises concerns the project could represent the front end of a coming new crisis.
The article also notes the usefulness of watching for the building of vanity projects:
Just as the Petronas Towers were completed, the 1997-98 Asian financial crisis struck. With additional space from the towers and other skyscrapers coming online, Kuala Lumpur’s office occupancy rate slumped to just over 80% and dropped even further into the 70% range in subsequent years. In the event, state-owned oil and gas giant Petronas moved its offices into one of the twin towers, while the other tower was gradually occupied by Petronas subsidiaries and other firms involved in the oil and gas sector.

The Petronas Towers' experience was echoed earlier this year with the opening of the world's tallest skyscraper, the Burj Khalifa, in the middle of a financial meltdown in the United Arab Emirates. A couple of years ago, when the Burj was being constructed in the midst of a property boom there, the business press in Malaysia had hailed UAE as a model for Malaysia to emulate.

No longer. Today, Malaysia bears some similarities with the 1990s when the Petronas Towers were mooted. Once again, Malaysia is emerging from a recession. Hot money is flowing back into the region with economic stagnation and more quantitative easing in store for capital-rich developed nations.
The iShares MSCI Malaysia ETF (EWM) has been a strong performer this year.

Chinese gold and silver advertisements

I was searching for the advertisement that was running on a large flat screen television in the Bank of China today. I believe the first ad below is the same as the one running in the bank, only this one is newer, for the year of the rabbit (2011) instead of the tiger (2010). Below are other ads, for a gold shop, silver bullion based on the Chinese zodiac, and a 12-minute clip from a Chinese home shopping channel, selling year of the tiger silver bullion.

Youku and Tudou don't work in blogspot for whatever reason, but I've placed all these ads on the Chinese blog.

Hong Kong gold fund

Thirteen months ago this was the story: Hong Kong Demands Delivery of Gold

Gold was pulled from London depositories and placed in a new depository at the airport. Now, the depository is generating business.

Hong Kong launches first local gold fund
The Value Gold ETF (HK:3081) , which debuted Wednesday in Hong Kong, is the first in Asia in which underlying holdings will be held locally instead of outside jurisdictions such as London.

Units of the fund will represent physical gold held at a high-security depository at the Hong Kong’s Chek Lap Kok Airport, according to managers of the fund, Sensible Asset Management HK, a joint venture between Ping An Insurance Group Co. (HK:2318) and regional funds-provider Value Partners.

“The whole reason to invest in a product backed by physical gold is that it doesn’t have counterparty risk,” Standard Bank’s John Wixley told MarketWatch in Hong Kong.

Wixley, the South African bank’s head of Asia markets, added: “Having that gold located locally makes it very secure, as opposed to having it in a vault in London with third parties that the investor might not be as familiar with.”

Standard Bank — which is 20% owned by Chinese lender Industrial & Commercial Bank of China (HK:1398) — is the main bullion provider to the fund and will also act as dealer and broker.
Notice that big mainland Chinese financial institutions are involved in the deal.

Why Republicans fell short of taking the Senate

In Pat Buchanan on the social mood, I predicted that the Republicans will see their approval ratings drop sharply after a brief holiday—assuming they even get a holiday. I had expected Sharron Angle to pull out an upset victory in Nevada, but the reality is that the public is not pro-Republican, it is just more anti-Democrat than anti-Republican. The big election cycle is yet to come, when one of the two parties decides to offer a plan that voters want to support (or voters decide that accepting pain now is the right choice.)

The GOP is not in an easy position. I would say roughly half of the Tea party crowd would like to see the wars ended, while the other half wants to attack Iran. The GOP is also going to be timid on spending, as they are now immediately concerned with their reelection...which sets up the possible government shutdown mentioned at the end of the Ann Coulter interview below.

The next two years will be the battle of who can screw up the least. who can take the least amount of public ire. In this, Obama has the advantage of the bully pulpit.