The Wave of Protectionism is rising

MacroMan points to several interesting articles showing that Brazil, Taiwan, South Korea and Indonesia are following the path of the US and the UK (and probably many others I haven't spotted yet) into protectionism. This is a trend I have been forcasting for quite some time, and which is going to make things worst for the economy and the people in general:

(FT - 2009-10-20) Brazil’s currency and stocks fell sharply on Tuesday after the government imposed a 2 per cent tax on foreign portfolio investments to stem the rapid rise of its exchange rate.

(Reuters 2009-11-19) - Indonesia's central bank is "studying" possible limits on foreign ownership of short-term debt, but has no plans for controls on capital or the currency.

(Asian Business - 2009-11-19) South Korea announced measures on Thursday aimed at tightening control over foreign exchange liquidity to make the banking system less vulnerable to the capital flight seen during the financial crisis.

(WSJ 2009-11-10)--Taiwan's financial regulator said Tuesday it is banning foreign investors from putting money in time deposits. The ban is effective immediately, and foreign investors can't extend their existing time deposits, the Financial Supervisory Commission said in a statement.

Other related posts here.

1 in 6 Americans has trouble putting food on the table

This is a sad but very real problem in the US now: 15% of Americans have trouble the most basic need of feeding. This unfortunately not surprising though, as we are in the middle of the Greater Depression.

And of course, Obama, following exactly the path of Franklin D Roosevelt, is calling for action. He has already pushed the country that was on the edge of the precipice. Now, as did FDR 80 years ago, he will make sure that the Depression last many many years.

NEW YORK (CNNMoney.com) -- The number of Americans that have trouble putting food on the table shot up last year in an unprecedented spike to a record 17 million households, the government reported on Monday.

The Department of Agriculture report, which has been released annually since 1995, said the number of Americans that were hungry rose to 14.6%. In 2007, 13 million households or 11.1% of Americans had trouble getting enough food.

The one-year jump is all the more significant, given the number of hungry Americans had never been higher than 11.9% since these surveys began.

Of the near-15% of the nation that couldn't secure enough food last year, the USDA said one-third of them had "very low food security," meaning they reduced the amount that they ate or disrupted their eating patterns during the year. That group made up 5.7% of all U.S. households, which was also a record high.

More than 500,000 households that scaled back the amount that they ate were households with children, making up 1.3% of all U.S. homes with children.

The USDA said the main cause of hunger and food insecurity in the country is poverty.

Obama's call to action. President Obama called the report "unsettling," and said more needs to be done.

John Paulson to invest $250 million in his new gold fund

Well, nothing more to add to this Bloomberg report:

Nov. 18 (Bloomberg) -- Paulson & Co., the hedge-fund firm run by billionaire John Paulson, is starting a gold fund that will invest in mining companies and bullion-related derivatives, a person familiar with the plan said.

Paulson will invest as much as $250 million of his own money in the fund, scheduled to begin Jan. 1, according to the person, who declined to be identified because the information isn’t public. John Reade, the former metals strategist at UBS AG in London, will join Paulson & Co. in mid-January, the person said. He was originally going to join Credit Suisse, the bank said Oct. 29. A spokesman for Paulson declined to comment.

Official US outstanding debt above $12 trillion

Just seven months ago, I reported that the total debt of the US had reached $11 trillion. That was in April 2009.

Well, this official figure just passed the $12 trillion milestone on Monday: $12,031,299,186,290.07 and counting... Seems to be about $300,000 per US citizen...

Mauritius Buys 2 metric tons of IMF Gold

Even tiny little countries and paradise-islands like Mauritius are dumping their dollars for gold.

Interestingly, the central banks trend seems to have completely reversed : for the past 20 years they were the major source of gold supply on the markets while they were net sellers (selling at rock bottom prices!) and now, they are becoming net buyers of gold (when the prices are at historical levels!). This is obviously very bullish for gold, even though it would expect a decline when the stock market starts to implode.

Nov. 17 (Bloomberg) -- Mauritius bought 2 metric tons of gold from the International Monetary Fund, underscoring a drive by central banks to boost holdings as the precious metal trades near a record and the dollar slumps.

The $71.7 million sale to the Bank of Mauritius was based on market prices on Nov. 11, the IMF said in an e-mailed statement yesterday. The Reserve Bank of India paid $6.7 billion for 200 tons from the IMF, according to a Nov. 2 statement.

Gold has surged this year as the U.S. currency declines and investors seek to protect their wealth. Emerging-market nations, which have amassed stockpiles of foreign-currency reserves since the 1998 financial crisis, have shown increased interest in diversifying out of U.S. assets.

“Investors at different levels feel more comfortable” with some gold in their portfolio, said Albert Cheng, Far East managing director at the World Gold Council.

The purchase more than doubles the amount of gold held by the Mauritian central bank to 5.69 percent of its total foreign exchange reserves, from 2.34 percent at the end of October, the bank said in an e-mailed statement today. The acquisition partially reverses a decline from the 13 percent of reserves that gold accounted for on Dec. 31, 1979.

[...]

The Mauritian purchase is “another signal that emerging- market central banks are looking to increase their foreign- exchange allocation in gold,” Shane Oliver, head of investment strategy at AMP Capital Investors Ltd., said from Sydney.

Next step, China buying the remaining 200 tons of gold on sale at the IMF?

Keynesian Clown Krugman says socialism in needed in the US

“When I picked up my newspaper yesterday, I thought I woke up in France. But no, it turns out socialism is alive and well in America.”, Senator Jim Bunning, Republican of Kentucky. This was in July 2008, when Hank Paulson wanted to take $700 billion worth of wealth from the US Citizens to give it to Wall-Street.

Today, Krugman, is suggesting that the US Government introduces time-sharing at jobs along with subsidies for companies hiring. Oh and of course, he think the previous many stimuluses and bailouts (worth many trillions of dollars, equivalent of handing $100,000 to each person living on the US soil) was not enough :

Just to be clear, I believe that a large enough conventional stimulus would do the trick. But since that doesn’t seem to be in the cards, we need to talk about cheaper alternatives that address the job problem directly. Should we introduce an employment tax credit, like the one proposed by the Economic Policy Institute? Should we introduce the German-style job-sharing subsidy proposed by the Center for Economic Policy Research? Both are worthy of consideration.

The point is that we need to start doing something more than, and different from, what we’re already doing. And the experience of other countries suggests that it’s time for a policy that explicitly and directly targets job creation.

This reminds me of the massive failure of the 35-hour-work week in France, along with the all the subsidies the French socialist goverments are giving to companies, while structural unemployment has never really declined and has been at about 15% for decades. But then, maybe calling it German will make it work?

Bears are giving up

The fact that markets have been rising for no reason but irrational exuberance and the belief that the V-shaped recovery is going to bring back jobs and profits to record levels (despite hard data suggesting exactly the opposite) shouldn't surprise anyone who has studied behavioral finance or Elliott Wave theory.

Despite calling a false top a couple of months ago, and getting hurt on my shorts, I still believe Mr. Market is just giving us a formidable opportunity to sell it at highly overvalued price all the securities we want. The pain is less that many bears because I have some longs and hold a lot of precious metals.

This doesn't prevent me from getting annoyed by this straight move up but recently, a couple of the most confident shorters that I've been following seem to be losing patience (who wouldn't!) and getting more annoyed than ever:

Mike, the Sovereign Speculator has not been posting much for the past couple of months...

And Tim Knight, from Slope of Hope is expressing his feelings:

Yesterday

I'm in low spirits right now. I work very hard on my analysis. There are times that this analysis leads to a bonanza, and there are times - like now - where I feel like throwing darts would be more effective. It is profoundly unrewarding to spend countless hours analyzing, preparing, and trading with nothing to show for it.

Today, many assets tagged new highs (either lifetime or for the past year+) - - such as the Dow 30, the S&P, and gold.

Recently, it seems like any time a flicker of hope appears, the bulls just ramp things right back up again. The only silver lining in this entire scene is that the Russell, which is really my mainstay right now, isn't making new highs. And that's cold comfort indeed

Today:

I really twisted myself into an emotional knot yesterday. I kept asking myself: "What's wrong with you? Why are you being so feeble?"

The stone-cold fact of the matter is this: I look at a lot of charts, and maybe I'm just too blinkered to see them, but I have found virtually no compelling bullish setups, whereas the bearish setups seem like manna from heaven. In my experience, the kinds of items I am short are just the kind that tumble swiftly with any market weakness.

The problem is that for the past eight days, there hasn't been any lasting weakness.

But I am not "running scared." At the moment, I have 43.79% of my cash buying power deployed into positions, 100% of them short, with one position - XLU - being, the largest non-leveraged position I've ever had in my life.

Obviously I would hope to look back on this era at market history and pat myself on the back for being stalwart. Of course, I could also look back at this time as simply being right in the middle of an inexorable grind to 50,000 on the Dow. (Kidding, kidding........)

As I'm typing this, two hours before the opening bell, it at least seems that the /ES and EUR are pointing in a good direction. But what I certainly know from recent experience is that these - - errr - - "red shoots" can vanish swiftly.

My comment is: don't give up guys. The simple fact that you are so frustrated is quite telling on how the market is overstretched and how things can roll over sharply. I won't make any forecast though, as any forecast made by anyone has been proven wrong since June...