FX Update: Risk teetering into the abyss?

John J. Hardy, FX Consultant, Saxo Bank

FX Update: Risk teetering into the abyss?

British Data good and bad
The bad news in today's European session was that British business investment fell a very ugly -5.8% for Q4 and a shocking -24% for the year-on-year comparison, suggesting that businesses are doing little to expand their activities. The supposedly good news was the Feb. Retail Sales report from the CBI, which showed robust activity for the month. The structural situation in the UK does not look healthy, strong housing market and reasonable retail sales activity notwithstanding. Considering the weak growth levels in the economy, the rise in house prices over the last year could actually be a bad thing for the economy. In any case, despite continued Euro-woes, sterling finds itself slipping against the single currency and faces a key test of the 200-day moving average in EURGBP again after recently rejecting the attempt to trade above that level recently. See chart below.

Chart: EURGBP
The pair is trying through the pivotal 200-day moving average once again after a previous rally attempt was rejected. Recent history shows how important this level is and a close above the average today could put the brakes on the bullish GBP argument (based on technicals and anti-Euro sentiment more than any perceivable logic…) and suggests that Euro sentiment may be improving a few notches despite the multitude of negative stories. (Our favorite way to play for a turn in Euro sentiment remains a long EURAUD position).

Euro woes continue
Greek debt spreads are only slightly wider today, but CDS' (credit default swaps) on countries of the EuroZone periphery have been rising rather sharply over the last few days, suggesting increasing market nervousness about the credibility of the Greek austerity plans and the fiscal state of affairs elsewhere in the EuroZone. The EU Commissioner for Economic and Monetary Affairs Rehn says that an EU mission is returning from Athens and will report on their findings "by tomorrow". Rehn himself is going to Greece next week for talks. For its part, Greece announced that it will be issuing 10-year bonds next week (moved back from this week) while also announcing a new austerity package. Of course, the ongoing story is not so much Greece itself, where the magnitude of the problems are petty compared to the financial wherewithal of the rest of the EU, but rather the danger of contagion, particularly to Spain. So far, Spanish debt spreads are reasonably orderly, as are CDS prices, though the trend in the latter is worth following. See the two charts below and note that the CDS price chart is only through yesterday's closing prices.

US Data
Absolutely terrible US data today, with jobless claims suddenly pushing close to the 500k level after recent hopes of a declining trend. The latest data suggests the US unemployment rate is in grave danger of heading back above 10.0% in coming months after the sharp drop to 9.7% in Jan. The Durable Goods Orders number was also weak, though this is a volatility data series.

Looking ahead
Lots of Japanese data out in the Asian session tonight, though the bigger risk to Yen volatility is any sign of verbal or other intervention from the new Finance Minister, who was trumpeted as a more traditional weak yen proponent, but who has been strangely silent since taking office. EURJPY is trading at new 12-month lows. Barring Japanese intervention, the strong Yen move could remain brutal, especially versus the commodity currencies if risk remains on the defensive here.

Tomorrow, we have the UK and US Q4 growth data revisions as well as the US Chicago PMI, University of Michigan confidence data, and Existing Home Sales.

Be careful out there...

Economic Data Highlights

• Australia Q4 Private Capital Expenditure rose 5.5% QoQ vs. 2.0% expected and -5.2% in Q3
• New Zealand Feb. NBNZ Business Confidence rose to 50.1 vs. 38.5 in Jan.
• Sweden Feb. Consumer Confidence rose to 13.0 vs. 9.0 expected and 8.5 in Jan.
• Sweden Feb. Manufacturing Confidence rose to 3 vs. -2 expected and -8 in Jan.
• Switzerland Q4 Employment Level fell -0.1% YoY
• Sweden Jan. PPI rose 2.0% MoM and +0.3% YoY vs. +0.6/-1.1% expected, and vs. -0.8% YoY in Dec.
• Sweden Jan. Household Lending was +9.2% YoY vs. +9.3% YoY in Dec.
• Germany Feb. Unemployment Change out at +7k vs. +16k expected and +5k in Jan.
• Germany Feb. Unemployment Rate out at 8.2% as expected and vs. 8.1% in Jan.
• Norway Feb. Unemployment Rate out at 3.2% as expected and vs. 3.3% in Jan.
• UK Q4 Total Business Investment fell -5.8% QoQ and -24.1% YoY vs. +0.1/-18.5% expected, respectively and vs. -20.8% YoY in Q3
• EuroZone Feb. Industrial Confidence out at -13 as expected and vs. -14 in Jan.
• EuroZone Feb. Services Confidence out at 1 vs. -1 expected and -1 in Jan.
• UK Feb. CBI Retail Sales rose to 23 vs. -1 expected and vs. -8 in Jan.
• US Jan. Durable Goods Orders out at +3.0% MoM and -0.6% MoM ex Transportation vs. +1.5/+1.0% expected, respectively.
• US Weekly Initial Jobless Claims out at 496k vs. 460k expected and 474k last week
• US Weekly Continuing Claims rose to 4617k vs. 4570k expected and 4611k last week

Upcoming Economic Calendar Highlights

• US Fed Chairman Bernanke to Testify (1400)
• US Dec. House Price Index (1500)
• UK BoE's Miles to Speak (1800)
• US Fed's Bullard to Speak (1815)
• US Fed's Alvarez to Testify (1900)
• New Zealand Jan. Trade Balance (2145)
• New Zealand Jan. Building Permits (2145)
• Japan Feb. Nomura/JMMA Manufacturing PMI (2315)
• Japan Jan. CPI (2330)
• Japan Jan. Industrial Production (2350)
• Japan Jan. Retail Trade (2350)
• UK Feb. GfK Consumer Confidence Survey (0001)
• Australia Jan. Private Sector Credit (0030)
• Japan Jan. Housing Starts (0500)

FX Closing Note: Will there be any storm after this calm?

FX Closing Note: A boring day draws to a close

Not much moving and shaking in today's market as markets were back in forth in a narrow range ahead of tomorrow's German IFO and the Bernanke testimony on Wednesday. Other important event risks this week are the US treasury auctions on Tuesday through Thursday, in which 2-, 5- and 7-year notes will be auctioned, respectively, to the tune of $118 billion total. The auctions will be interesting to watch in light of the Fed's most recent move on the discount rate and in the wake of Bernanke's testimony.

Today  actually saw an $8 billion auction of 30-year TIPS, the results of which were fairly weak, but this auction was rather modest in size and failed to move the bond market  on the day.

CFCT: COT (Commitment of Trader) reports

We take advantage of a slow day to have a look at the COT reports for the latest week, which show the currency futures market's position as of last Tuesday. We have noted the large short Euro position in the market - a phenomenon that is revealed in the chart below, which shows a record low percentage of long noncommercial, or "spec" positions in the market as of last Tuesday. The green lines show how in the past, the specs have been quicker to "turn" than the market, though the huge episode back in 2007-08, when specs increasingly stepped away from EURUSD while it kept rising doesn't follow this pattern (could this have been due to reserve diversification by China...after all, they repegged in July of 2008, just before the EURUSD began to plummet...?)

 AUDUSD
The positioning in AUDUSD is far less extreme and has traditionally been a "perma-long" position until the 2008-09 debacle swept through markets. Note how the specs were less committed to short positions before AUDUSD turned to the upside in 2009 and how the recent smaller consolidation was also tipped off by a slightly less bullish spec long position.

EURAUD
Interestingly, if we compare the ratio of Euro longs to AUD longs, we see how the spec market follows the dominant trends. The ratio is at a record low, helping to show that much of the currency market's current positioning is more Euro negative than USD positive. From a contrarian perspective, one wonders how long this move can continue. An AUD contrarian would find more powerful arguments in the below chart than in the AUDUSD positioning chart.

China Govt's Secret  New Gold investment could pay  500% over next 2 Years  

The Most Important Chart in the World Right Now

By Porter Stansberry

To most people, any talk of the U.S. government debt simply doesn't mean anything.

For instance, I could tell you the annual funding costs of our national debt are approaching $4 trillion per year – that's $1.5 trillion in new annual deficits, plus $2 trillion-$3 trillion a year in short-term obligations coming due that need to be refinanced. Foreigners hold roughly half of this debt. Thus, we have about $2 trillion in foreign debt that must be repaid or refinanced each year.

But this obligation is so large that it's meaningless to most people. I could also tell you $2 trillion is 20% of our GDP, but even then, most people won't understand just how much money this is. So think of it this way... 

If you spent $1 million per day from the time of the founding of Rome – roughly 2,700 years ago – until today, you would have accumulated about $1 trillion in debt. Now, double that amount. And that's the size of our annual foreign borrowing obligation.

(Thanks to Eric Margolis for the trillion-dollar metaphor. See his essay "Spending America Into Ruin" here.)

But more important than understanding the size of this debt, it's vital that you understand its effects. In this essay, I'll show you the easiest way to track those effects... and the actions you must take to protect yourself from them.

The Barclays iShares 20+ Year Treasury ETF (TLT) tracks the value of the U.S. government long-bond market. This is the primary market the Fed was trying to support over the last year. Gold, on the other hand, is the best market-based judge of the soundness of the U.S. dollar and our creditors. The SPDR Gold Shares ETF (GLD) is an accurate proxy for the price of gold.

Look what happened to U.S. bonds (TLT) and gold (GLD) over the past year. This occurred even as the Fed was massively intervening in the credit markets. 

Note the value of the U.S. long-bond market fell by more than 10% despite the government support. And the value of gold increased by more than 10% as investors fled the dollar.

It's interesting the relative moves were nearly identical. There's no free lunch. For every penny the government prints or borrows and uses to manipulate long-term interest rates, that same penny is being taken out of the value of the U.S. dollar, as is revealed in the price of gold.

You will see lots of debates about what the coming currency crisis means. But if you can simply understand this chart, you will grasp what's happening and how to protect yourself. It's simple: The value of the dollar is collapsing as the un-creditworthiness of the United States becomes evident. That means the price of hard assets – like gold – will keep rising and the value our government's long-term obligations will fall.

The safest thing to do right now is split your savings between short-term Treasuries and gold. That's the equivalent of a "cash" position, as the gold will hedge your dollar exposure and the short-term Treasuries will mitigate the volatility of gold. You can do this through ETFs. The Barclay's iShares 1-3 Year Treasury ETF is an easy way to own short-term Treasuries. The symbol is SHY. And GLD is the most liquid gold ETF. 

I personally hold my gold in bullion coins and recommend you do the same. It's better and safer than the ETF. But for lots of people, the ETF is simply more convenient.

However you decide to take a position in gold, do it soon. I expect the divergence you see above – of U.S. debt decreasing in value, while gold increases in value – to get much bigger in the coming years.

Good investing, 

Porter Stansberry.

FX Update: US Core CPI Lowest in a Generation.

Economic Data Highlights

• New Zealand Jan. Credit Card Spending rose 2.6% YoY vs. 1.0% in Dec.
• Germany Jan. Producer Prices rose +0.8% MoM and fell-3.4% YoY vs. +0.3/-4.0% expected, respectively
• Germany Feb. preliminary Manufacturing PMI out at 57.1 vs. 53.8 expected and 53.7 in Jan.
• Germany Feb. preliminary Services PMI out at 51.7 vs. 52.4 expected and 52.2 in Jan.
• EuroZone Dec. Current Account out at 1.9B vs. -0.5B in Nov.
• EuroZone Feb. preliminary Manufacturing PMI out at 54.1 vs. 52.7 expected and 52.4 in Jan.
• EuroZone Feb. preliminary Services PMI out at 52.0 vs. 52.5 expected and 52.5 in Jan.
• UK  Jan. Retail Sales out at -1.2% MoM and +2.6% YoY vs. -0.5/+1.1% expected, respectively
• Canada Jan. Leading Indicators out at +0.9% vs. 1.1% expected and 1.5% in Dec.
• Canada Dec. Retail Sales out at +0.4% MoM vs. +0.5% expected
• Canada Dec. Retail Sales less Autos out at +0.4% vs. +0.3% expected
• US Jan. CPI out at +0.2% MoM and +2.6% YoY, vs. +0.3/+2.8% expected, respectively, and vs. +2.7% YoY in Dec.
• US Jan. CPI ex Food and Energy  out at -0.1% MoM and +1.6% YoY vs. +0.1/+1.8% expected, respectively and vs. +1.8% YoY in Dec.

Upcoming Economic Calendar Highlights

• US Fed's Pianalto to Speak (Sat 1700)
• Australia Jan. New Motor Vehicle Sales (Mon 0030)
• Japan Jan. Supermarket Sales (Mon 0500)

Today's market is all about the aftermath of the Fed's decision to hike the discount rate and "what it all means". Risk has recovered fairly well overnight after equity futures were off heavily after the market close yesterday, but interest rates have maintained a higher level. The USD performance is somewhere between these extremes, still stronger than it was at this time yesterday, but well of its highs overnight.  If bonds continue to sell off and risk appetite breaks through the lines in the sand, then the JPY is likely to be the chief sufferer.

EUR and GBP
One of the more interesting developments in the wake of the Fed decision was a rather sharp sell-of in GBP, a result, perhaps of the market's recent unwinding of BoE policy expectations relative to the sudden perception that the Fed is moving forward more quickly than anticipated. GBPUSD is trading at new lows since last May. Then today, better than expected PMI data from the EuroZone and an ugly UK Retail Sales number (big grain of salt required with the official UK Retail Sales survey, it has shown poor correlation with other surveys) saw the single currency finally putting up a fight against the pound. We wonder if the broad Euro weakness is in need of some consolidation (would look for this in EURAUD and EURNZD if risk continues to look nervous after the Fed's decision to move on rates.)

Chart: EURGBP
Interesting move here in EURGBP higher after the Fed's move on the discount rate late yesterday. The obvious technical key here is the 200-day moving average, which has been absolutely critical in this pair's history.

Chart: EUR and Greek spreads
If we are to believe that the weak Euro is only about Greek woes, then there is reason to suspect that the Euro is getting a bit overdone on the down side on a broader basis if Greek debt spreads are a measure of the situation.

US Core CPI - lowest reading in a generation...
The US CPI release today is almost comical as the core reading came in below expectations and actually in negative territory (one wonders if the Fed knew the number before hand?) on a month on month basis for the first time since 1982.There was a brief attempt by the market to consolidate the sell-off in fixed income and rally in the USD, but this had faded somewhat by the time of this writing. Last night, the Fed's Bullard tried to downplay the significance of the move in the discount rate and said that expectations for rate hikes ahead of the end of this year are "overblown", but the market decided to makes its move despite this rhetoric and interest rates remain elevated. Can we make this situation any more confusing, Fed governors? It's like the Fed is at a bodybuilding competition - wanting to show off its muscles, but not actually threatening to employ them for anything...

Looking ahead
No more data to end the week here after the US inflation data earlier. Again, the main interest here is if the Fed's move on the discount rate triggers a further consolidation in risk (that cross market barometer we have been following, the 55-day moving average in the US S&P500 around 1008 was in play yesterday and remains so today). Ahead of the US equity open, the market seems to want to brush the news aside, but lets see how things settle by the end of the day.

Next Week's Economic Data Highlights
Next week, we have a fairly quiet week on the data front - but what could be an interesting week for Fed and BoE .Below are just a few selected highlights. See the Economic Calendar, as always, for a more complete list

Tuesday

• Germany Feb IFO - can the Germans make it 11 rises in a row?
• Bank of England testimony - from King and his posse. Another chance to explain their stance
• US Consumer Confidence - has been flat-lining at low levels for months - any reason to expect a change? The Present Situation component recently notched a record low....

Wednesday

• Bernanke testimony - this testimony was published some time back, but he could not deliver it due to poor weather at the capital. So it will be all about the question and answer session with lawmakers

Friday

• US Feb. Chicago PMI - looking for a hat-trick of positive regional manufacturing surveys after strong Empire and Philly numbers
• US University of Michigan Confidence - has shown a more positive trend than the Conference Board monthly reading or the ABC weekly readings

Have a great weekend!

Huge New Discovery under China's Great Wall

Dear Reader,

Here’s an interesting story that comes to us from our colleague and investment expert Bob Irish.

As Bob reports:

“Hundreds of miles south of Beijing, an American junior mining company has made an amazing discovery. The value of this single discovery could be enough to push the company's market cap 4,662% higher, one month from now…”

For the full details on what Bob’s team has discovered, see below.

Regards,

Brian Hunt
Editor in Chief,

---

Special Report:

American Company Discovers Massive
‘Silver Vein’… Below China’s Great Wall

Govt. surveys confirm 186 mile-long strike containing up to 30 billion ounces… worth as much as $514 billion…

Estimates indicate 4,662% potential gains for investors who get in before next month…
Here’s how you join them…

Dear Reader,

Hundreds of miles south of Beijing...

Deep in the remote foothills beneath the Great Wall of China...

An American junior mining company has made an amazing discovery.

This silver strike stretches 186 miles.  It could contain, by our estimates, 30.2 billion ounces of silver.

That's enough to feed world demand for the next 32 years, according to the World Silver Survey...

Enough to double current global stockpiles... 214 times.

And enough to make one tiny mining company $514 billion richer...

For now, the company trades around $7.  But that could change, very quickly.

The value of this single, massive discovery could be enough to push the company's market cap 4,662% higher. (You'll see how in a moment.)

The time to act is right now.  But you'll want to have all the information.

For example: How did a junior miner from America discover the world's biggest silver deposit halfway around the world?  How does it plan to extract this massive silver vein from beneath the Great Wall of China?

And how exactly could some investors turn this opportunity into huge gains, just days from now?

Here's the whole story...

The Perfect Discovery at Just the Right Time

Not long ago, a small mining company realized a hard truth.  The world was running out of silver. 

What's more, the traditional sources - like Nevada, Canada, Mexico and Peru - were drying up.

Indeed, Western miners had failed to meet surging world demand for 11 straight years.

The silver stockpile had fallen from 10 billion ounces in 1950 to just 140.4 million today.  That represented a 98.5% nosedive.  (No wonder silver prices have doubled.)  

The company's answer was simple.  It would exchange the familiar fields of the West for the chance to explore China's vast, untapped reserves.

The Chinese Resources Ministry was desperate for silver to feed China’s booming demand. So it agreed to let this Western miner "into the tent."

Within weeks, the company was on the ground.  Geologists immediately began surveying the county's central mountain range.

And that's where they're they’ve discovered into a massive silver strike... running right beneath the Great Wall of China...

The Forgotten Treasure Below the Great Wall

About 440 miles south of Beijing, the flatlands turn mountainous.  Here, crisscrossing the hilltops, you'll find the ancient ruins of the Great Chu Wall. 

Warlords built the wall around 2,500 BCE.  They wanted to defend their kingdom against invading tribes from the north.

Today, only the ruins remain.  Tourists still flock to the ancient landmark because of its beauty and historical importance.

But the company (we'll call it the "Silver Striker") came here for another reason.

This is where scientists first noticed a strange "anomaly" on the aerial magnetic images of the area.  According to the surveys, these foothills had to contain a truly massive silver strike. One that ran for miles...

Geologists drilled core samples.  They tested thousands of "ore chips" for silver content. 

They ran chemical tests on the streambeds meandering through the foothills.

And according to the initial data, the strike was indeed huge. In fact, it qualified for "mother lode" status.

The discovery, they inferred, held at least 265 million ounces - worth $4.5 billion dollars.

That's when the Striker filed  its first mining claim with the Chinese Ministry of Land and Resources. 

But they weren't done exploring.  Not by a long shot.

The company's miners still had not defined the extent of the massive strike...

Going "All In" and Hitting the Jackpot

So not long ago, the Striker decided to pour the bulk of its exploration budget into the Great Wall strike - (It's plans to spend $8 million in the first half of 2010, and another $8 million in the second half.)

Geologists continued to swarm the strike zone's 50 square kilometers of foothills.

And they spared no expense.

They created seismic geo-maps. 

They used computers to analyze chemicals in streambeds.

They used special cameras to gather data - at the atomic level.

Miners blasted 78,581 meters of trenches.  They drilled 280 test holes. 

Meanwhile, outside firms were called in to verify all the findings.

They included private companies like SRK Consultants China and BK Exploration Associates.  But China's bureau scientists reviewed the data, too.

And they all agreed.  The Striker was underestimating the discovery... by a long shot!

Super Vein Stretches at Least 186 Miles

Instead of stretching 3 miles, the "super vein" stretched 30 miles.

But it didn't stop there.  Further surveys showed rich veins of silver running for 87 miles... 124 miles... 131 miles and beyond.

Resource estimates grew from 52 million ounces... to 70 million... 100 million 200 million... 265 million and more. (The Striker has already secured the rights to the inferred 265 million ounces of "in ground silver!)

Finally, the company has reached the end of the strike.  It stretches for 186 miles - almost the length of the Great Chu Wall.

More important, the strike contains an estimated 30.2 billion ounces of silver... worth $514 billion.

Investors who get in during the early stages of this discovery could see good gains...

We're talking about enough silver to increase the Striker's market cap 4,662%.

Fact is, big discoveries almost always equal big gains... especially in these markets... 

Easy Gains of 950%... 2,433%... 4,633% and More

Metals prices are soaring across the board.  And bull markets like this can turn even smaller discoveries into windfalls.  Just this year...

Unique Mining shot up 196%. 

Erdene Resources popped 233%.

Hunan Mining jumped 341%. 

That's saying nothing of the 380% investors saw from Semafo... Or the 416% they booked on Rambler Metals... Or the 950% on Polaris Metals... 

But these are chicken-scratch compared to the bigger gains.

Just as zinc prices took off, Canada's Teck Resources discovered a huge zinc deposit in Alaska.  The stock rocketed 1,160% in 12 months...
Blue Sky Uranium found a huge uranium strike in Argentina two years ago... Last year, the company finally brought the discovery to market.  The stock shot up 2,433%...
Norseman Gold was mining in Western Australia.  The company found over 5 million ounces of gold.  And the stock soared 4,633% in one year.

Of course, the Silver Striker could outdo them all.

How Shares Could Soar Even Higher

Consider this.  Teck Resources is a big company.  Its market cap stands at $22 billion.  The Silver Striker is a tiny company. – less than 1/20th the size.

Teck discovered $618 million worth of zinc, and the stock jumped 11-fold.

The Silver Striker has estimated this stretch of land to contain $514 billion worth of silver (831 times the value of Teck's find), and the stock hasn't even exploded yet.

Based on the size of the company, and the discovery's value, the company could climb 46,627% over the long term.

But even if the Striker recovers just 10% of the silver, it could still be enough to push the stock up 4,662%.  (Meanwhile, the company recovers 84.82% of the silver from its ore, on average.)

And it only gets better. 

You see, the company will also mine this entire mother lode essentially for free.

That's right.  Thanks to the location of the strike, the company will be reimbursed for every dime it spends producing the silver.

In the end, it won't pay for labor.  It won't pay for processing.  It won't pay electric bills.  Or transportation and storage costs.  Nothing.

And that means the company stands to pocket the entire $514 billion... free and clear!

Let me show you how it's about to pull off this amazing feat...

Producing Millions of Ounces at Zero Cost

As the Striker explored the foothills discovery, it kept churning up tons of lead and zinc.

Without these important "base" metals, China's industrial boom would come to a halt.  And that's why demand for both is soaring.

In just 12 months, zinc has climbed 110%.  Lead has soared 170%.  (Compare that to gold's "modest" 59% rally.)
The Silver Striker, meanwhile, has already begun producing both metals from its mines.

But it has tons more in the ground. Literally. The company's reserves contain 85,509 tons of lead... and 37,639 tons of zinc.  And it will produce both as "byproducts" of the silver mining. 

Selling off these byproducts along the way has reduced the Silver Striker's per-ounce production costs to NEGATIVE $6 per ounce!

If that continues, the company stands to pocket 100% from the silver proceeds.  Plus it'll earn an additional $6 for every ounce it brings to market!

No other silver miner can compete on a cost basis.  And that alone might make this the best silver stock in the world today.

And it all comes back to the company's decision to move to China.

Chinese Silver - Most Potentially
Profitable in the World

China's simply gobbling up metals faster each year.  And silver just moved to the top of the list.  Not only is it used as a precious metal.  Silver is critical to China's industry.

Without silver, for example, China couldn't produce a single a single light switch 

Same goes for the country’s other high-tech consumer goods.  Cell phones... Refrigerators... Computers... Windmills... Flat-screen TVs... CDs... DVDs... Microwave ovens... Batteries... Bearings... Soldering wire... Electric wire... Touch sensors…

None would be possible without silver. (It's the best conductor of both heat and electricity among all metals.)

China has seen its silver demand triple in recent years, according to China Daily.  And that has helped to drive world demand to record levels. 

Last year, silver consumption hit 888 million ounces. And it's headed higher.

Meanwhile, the global stockpile has dropped 57%, to just 140 million ounces.  The world now faces a supply crunch of historic proportions.  If all mining stopped today, global supplies would run out in four months!

But it could happen regardless.  Even with mines at full production, silver demand has outpaced supply every year since 1990 (by an average of 156% per year). 

Prices have doubled in the past 12 months.  And experts including Jim Rogers see them heading much higher.  Last time supply crunches hit silver, the white metal soared 5,556%.  (That was between 1960 and 1980, when silver climbed from 90 cents to $50.) 

This time around, mines are running low... and China's creating a whole new demand source. 

All of this is terrific news for the Silver Striker.  Consider.  When silver rises $1... the company's discovery rises in value by $30.2 billion!

With silver ready to run,  you couldn’t find a better time to take a small position in a tiny miner like this.

Especially considering that Wall Street remains largely in the dark... for now...

Why You Haven't Heard of this... Until Now

When the Silver Striker left America, it disappeared from Wall Street's radar. Today it doesn't show up on a single U.S. resource report.

Let's say you analyze silver mining.  Your natural focus will be on the big producers: Mexico, Australia and Canada.

It makes sense.  The vast majority of silver miners operate in those countries.  And they have for generations.

But the Silver Striker doesn't own a single mine in the West.  So it would never show up on your mainstream mining reports.

On the other hand, if you were tracking Chinese mining stocks you wouldn't follow the company either.

And here's the kicker.  Until November 2009, the stock wasn't even listed on a major U.S. exchange!

No wonder this amazing little company still manages to trade around $6.

And no wonder shares could rise 4,662% when it brings the silver to market in Shanghai.

But there's no reason to wait around.  Because the company has already begun spinning off big gains... and fat dividends, too...

A Junior Mining Stock So Safe It Pays Dividends

During its exploration of the Great Wall discovery, the company has mined tons of lead and zinc.  (You may recall that prices for both have jumped by triple digits this year.)

And that's been boosting the Striker's fundamentals.  Big time.

Last quarter, the Striker saw net earnings leap 83%. 

Earnings per share doubled. 

Right now the company holds $77 million cash... with zero long-term debt.  That's remarkable for a mining company of this size.

And it's the reason the Striker can afford to pay investors healthy dividends.

So while you prepare for the potential windfall, you could collect nice, steady income.  The best of both worlds!

Getting in beforehand will ensure maximum potential gains.

And you're about to receive a complete research report on this opportunity.

It's called: The Great Wall of Silver: Earn 4,662% on China's Secret Strike.

You'll pay nothing for this research.  We're rushing it to you for free.

Here's why we're making this possible.

How to Take Advantage of this Opportunity Now

My name is Robert Irish.  I guess you could say I am a veteran of the Wall Street trenches. 

For the past 20 years, I've headed major research departments, and helped to steer billions of dollars with some of the most powerful private firms in America.

But I grew tired of the Wall Street game.  So I decided to make a change.

Today I'm heading research for what I believe is the world's #1 independent investment advisory letter.

It's called Sound Profits.  And the idea is simple.  We've assembled some of the smartest, toughest researchers on earth. 

And we've asked them to unearth fantastic investment opportunities before they break into the mainstream.  The Silver Striker is just the latest example.

Fact is, our "early in" approach helps ensure the largest possible gains every time.  And that has proven especially true with our mining plays.

Just a few examples from one of our researcher's personal track records:

9,321% in Altius Minerals Ltd. (rose from $0.32... to $30.43)...

2,914% in Excellon Resources (rose from $.07... to $2.11)... 
2,912% in Virginia Gold Mines (rose from $0.40... to $12.05)...
2,462% in AfriOre Limited (rose from $0.29... to $7.43)... 

The formula is simple.  Get in early.  Get out on time.

And its works...  Mag Silver climbed 386%.  Sunridge Gold climbed 1,671%.  Esperanza Silver jumped 778%.

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FX Closing Note: Risk balloons further - but who is Kocherlakota?

Today's US session saw a strong further surge in . We smelled the potential for a EURUSD reversal higher recently as described in yesterday's technical look  at EURUSD. The longer term pressure on the EURUSD is not necessarily over with, but it is clear after a day like today that the market may have gotten ahead of itself in pricing in the Euro's woes and that some kind of consolidation is in order, whether it is a modest affair back toward the 1.3850 area or a more extensive new bout of USD weakness that takes us back above 1.4000 briefly, or even all the way back for a test of the 200-day moving average that comes in above 1.4350. We suspect that last figure is excessive, but clearly the market was recently over-positioned of late on this story.

Who is Kocherlakota and why should we care?
The Fed's new man on the block - Narayana Kocherlakota, the newly minted president of the Minneapolis Fed's (took the post in October of last year and delivered his first speech today), today gave a speech that contained a bit more pointed comments on the economy and monetary policy than one might expect from you run of the mill Fed president, and certainly from such a green face on the Fed scene. (Click here for full text of his speech:)

Mr. Kocherlakota pronounced rather bleakly that US employment conditions are still very worrying, especially the hiring rate, even if the firing rate has diminished. He has "yet to see evidence" that the hiring rate will move higher in the immediate future. He also discussed the means by which the huge amounts of government debt will be paid back ("This debt can only be paid by tax collections or by the Federal Reserve's debt monetization - that is, by printing dollars..." Mr. Kocherlakota still expects the recovery to move forward, but expects 3.0% growth next year, slower than private sector estimates. Overall, his words were rather dovish.

Around the time of Mr. Kocherlakota's speech, bonds launched a rather steep and persistent rally for the rest of the US session, a rally that is a in jarring contrast to the huge move higher in risk instruments like equities and (usually positively correlated with risk as of late) especially commodities. In FX, traders were so fixated on the normal negative risk correlations with the USD and especially the JPY that both currencies weakened. But a weaker JPY in the face of a significant bond rally is an unusual thing, so this divergence bears close watching and is a warning sign for JPY bears if it bonds are able to maintain support and yields fall further.

Mr. Kocherlakota's voice is a suddenly interesting new one on the Fed scene and bears watching in the future after today's performance. He is scheduled to become a voting member of the FOMC next year.

Chart: USDJPY
The USDJPY chart continues to skate along within the Ichimoku cloud on the daily chart and just under the 55-day moving average (strong red line in chart below). Today's rally attempt was beaten back by a strong rally in US treasuries.

Looking ahead
As pointed out this morning, AUDUSD was nearing key resistance at the 55-day moving average after having blasted through lower Fibo retracement levels earlier in the day and is essentially closing on that MA today. Risk remains the name of the game, as does keeping an eye on which market gains the upper hand in influencing the Yen's direction, risk or interest rates. On the economic data front, we can look forward to the weekly US ABC Consumer Confidence data today. On tap tomorrow we have the BoE minutes, US Jan. Housing Starts and Building Permits, US Jan. Industrial Production and Capacity Utilization, and the FOMC meeting minutes.

FX Update: EURSEK tries sub-10 levels on Riksbank

John J. Hardy, FX Consultant, Saxo Bank

FX Update: EURSEK tries sub-10 levels on Riksbank

Riksbank
The Riksbank left rates unchanged at 0.25% as universally expected, but raised expectations for the trajectory of its tightening regime by indicating average expected overnight rates for the next few years higher than the market was already anticipating. The Riksbank suggested that tightening could begin already this summer, rather than a the later timetable expected. It said that average repot rate would be 0.4% for this year, 1.8% for next year, and 2.8% on average in 2012. The Rikbank's Svensson wanted to cut rates to 0% at this meeting.

Today's decision and rhetoric from the bank sent interest rates at the front end of the Swedish yield curve and the Swedish krona sharply higher. The move today may have been especially sharply as this news came at the key actual and psychological support area around 10.00. This (around 9.95 as of this writing) is the lowest level for EURSEK since the weeks after the credit crisis went into full gear in late 2008.

EU Summit in Greece
Around noon GMT today, Mr. Barroso announced that "an accord on Greece has been reached", but that the announcement on what was agreed would come later. This got the market's hope up slightly that something Euro-positive would emerge, but the later announcements that the EU was working on a lending facility for Greece, but with few specifics, this was considered Euro-negative and EURUSD and EURGB sold off sharply. As well, an official was quoted as saying that it was not yet time to begin issuing EuroBonds, increasing the idea that EuroZone states are not willing to go the route of full fiscal integration and being responsible for other nations' debt. A confirmation of the Euro-negative tilt to developments was a rewidening of Greek debt spreads after the announcement.

US Jobless Claims
Finally, an encouraging job claims number out of the States today, which puts the trend back on track for improvement. Remember that claims need to drop about another 100k on average in coming months for the US job market to show stabilization.

Looking ahead
After the strong Australian employment data overnight and a rally in the risk appetite in general, the market has taken the action up to some key resistance areas in the higher beta FX pairs correlated with risk appetite, like AUDUSD and NZDUSD, not to mention the JPY crosses, where especially 90.00 in USDJPY is in focus. Other areas to watch on the close for the day/week are the 0.7000 area in NZDUSD and the 0.8865 area in AUDUSD (0.382 Fibo retracement of the most recent wave.)  If these levels don't hold, then we could be pushing into a bout of higher risk appetite for a while. Stay tuned.

Tonight we have New Zealand Retail Sales and House Prices and House Sales. Tomorrow we have the estimate for Q4 European GDP and the US Advance Retail Sales for January, as well as the initial reading for the February University of Michigan Confidence.

Be careful out there. Conditions in the market have been heating up lately, so continued volatility is a significant risk.

Economic Data Highlights

• New Zealand Jan. Business PMI out at 52.0 vs. 53.0 in Dec.
• Australia Jan. Employment Change rose 52.7k vs. 15k expected and 37.5k in Dec.
• Australia Jan. Unemployment Rate fell to 5.3% vs. 5.6% expected and 5.5% in Dec.
• China Jan. Producer Price Index rose 4.3% YoY vs. 3.5% expected and 1.7% in Dec.
• China Jan. Purchasing Price Index rose 8.0% YoY vs. 3.0% in Dec.
• China Jan. CPI rose 1.5% YoY vs. 2.1% expected and 1.9% in Dec.
• China Jan. New Yuan Loans rose to 1390B Yuan vs. 1375B expected and 380B in Dec.
• Germany Jan. Wholesale Price Index rose 1.3% MoM and 1.9% YoY vs. +0.2/+0.2% expected, respectively
• Switzerland Jan. CPI fell -0.1% MoM and rose +1.0% YoY vs. -0.4/+0.8% expected, respectively, and vs. +0.3% YoY in Dec.
• Sweden's Riksbank kept interest rates unchanged at 0.25% as expected
• Canada Dec. New Housing Price Index rose +0.4% MoM vs. +0.3% expected
• US Weekly Initial Jobless Claims out at 440k vs. 465k expected and 483k last week
• US Weekly Continuing Jobless Claims out at 4538k vs. 4600k expected and 4617k last week

Upcoming Economic Calendar Highlights

• New Zealand Jan. REINZ Housing Price Index (2100)
• New Zealand Dec. Retail Sales (2145)
• Japan Jan. Consumer Confidence (0500)

Trading commentary

10 February 2010

FX Closing Note: Bernanke talks interest rate hikes "at some point"

John J. Hardy, FX Consultant, Saxo Bank

FX Closing Note: Bernanke talks interest rate hikes "at some point"

Bernanke
Plenty of ups and downs today, first with all of the noise on Greece and now with the Fed's Bernanke out with written testimony (see here for the full text in all of its boring glory) that he was unable to present to Congress today because Washington is buried in snow. The testimony consisted mostly of a recap of the Fed's actions throughout the crisis and a justification thereof, a description of how the Fed's various special facilities have been, are beeing, and will be unwound, and finally, an explanation of the mechanisms the Fed can employ in the future to withdraw liquidity from the system when it proves necessary, such as the use of already tested reverse repos, tri-party reverse repos, special term deposits, outright sales of securities on the Fed's balance sheet, and the manipulation of the interest rate on bank's reserves held at the Fed. Most importantly, however, the market focused on Bernanke's mention of the need "at some point" to "tighten financial conditions by raising short-term interest rates and reducing the quantity of bank reserves outstanding." This sent the USD sharply higher and also saw a sharp correction in interest rates higher across the curve. Later in the day, the USD lost much of its gains as the market pondered whether the USD is still correlated with risk appetite and how strong the statement actually was and whether other central banks might actually raise rates even faster than the Fed in the event that we resume policy tightening the world over.

Regardless of what the market thought of the dollar, the clear effect of today's interest rate response to Bernanke's rhetoric was JPY negative, and USDJPY jumped to 90.00 again, without effectively penetrating it. This is an interesting pivot point for the JPY here. Our old, old rule of thumb is that if you see four days of pausing in the market action after a significant impulse (today being the fourth day of indetermination after the recent swoon in USDJPY), there are much higher odds of a reversal. And certainly, USDJPY already looks a little mispriced to the low side already and will look even more so if this reversal in rates is decisive and continues from here.

Chart: USDJPY and US short and long interest rates
The following chart shows USDJPY (white line) and US short (yellow) and long (red) interest rates. Any further rise in interest rates would seem to be USDJPY supportive.

 Chart: USDJPY

The Ichimoku cloud clearly in focus here, as is the 55-day moving average likely, as well as the psychological 90.00 level.

Looking ahead
So watch interest rates and of course, risk appetite tomorrow. Both higher rates and higher risk appetite are especially JPY negative, probably most so for the likes of AUDJPY and NZDJPY and may not necessarily be especially positive for the USD, which would look better on a combination of risk aversion and higher interest rates. The other thing to watch for is a further shrinking of Greek interest rate spreads on any potential news about the rest of the EuroZone’s plans to do something about Greece (any solution is likely to be a "tough love" solution that attempts to minimize the moral hazard an all-out bailout would have triggered.) The key short term resistance area for EURUSD remains 1.3840. Euro optimists might say the we have already reached a major target recently, so we might ought to look for a further consolidation of the downtrend with a move to higher resistance before the downtrend resumes further out.

Data on tap
Remember that tonight features the Australian employment data and New Zealand retail sales data, as well as Chinese inflation data. Tomorrow we have the Riksbank (EURSEK at key levels) and then the US initial jobless claims in the North American session, which have been getting even more focus than normal due to a string of rather iffy readings after many had though a firm downtrend in claims had been established.

FX Update: US Employment Data - does the market really care?

John J. Hardy, FX Consultant, Saxo Bank

FX Update: US Employment Data - does the market really care?

Today's US employment report provides plenty of ammunition for both the optimists (unemployment rate falls 0.3% o 9.7% and under the key psychological 10.0% level, average weekly hours registered a new increase, suggesting increasing utilization of existing work force and perhaps anticipation of new hiring) and for the pessimists (payrolls shrink yet again and the December data was revised down -65k jobs...).  There is  certainly nothing in today's actual data that is cause for outright panic, which must come from another source (the complex of a Chinese crackdown, Euro fears and public interventionism in the financial sector are the background issues causing risk aversion here and economic data has received less focus) if it is to continue a la yesterday.

It certainly appears the SNB was out late yesterday trying to push the CHF down after all of this Euro panic has seen a rather quick decline in EURCHF, even as USDCHF has rallied fairly well. Trading CHF is a difficult proposition in this market. Unofficial sources are said to have confirmed the intervention.

EUR: Insult to injury
Yesterday, PIGS (Portugal, Italy, Greece, Spain) spreads did not blow out any further on average, but the sovereign CDS prices (insurance against default) certainly did, and this helped fuel the continued punishment of the EUR single currency, which has now lost a remarkable 1500 pips or more since its top just a little over two months ago, reversing gains that took six months to build. To add insult to injury to the Euro in today's session, German Industrial Production in December came in at a terrible level, helping to push EURUSD to a its 1.3650 low, well through the 1.3750 "support" area we expected might contain the sell-off at least briefly on the way down... 1.3510 appears to be the next major target to the downside.

Canada employment
The loonie put up a fight after a very strong Canadian employment report today. The Unemployment report there dropped another couple of notches and the employment  change was extremely positive. The Canadian government statisticians seem to engage in far less manipulation than their US counterparts, as the employment change number tends to jump back and forth rather sharply (the December reading was slightly negative. Still, if we take an average of the readings, the employment change has been positive for the last several months. While we have pointed out on number occasions recently the important flatline area around 1.0700, but the pair is having some tough going after trying to take out the 1.0750 high since November of last year. Today's data combination is not the way higher for USDCAD, which now may need another scary sell-off in risk and energy prices to make any further upward progress.

US employment report
With all of the focus on the Euro and generalized risk aversion (note that the EUR is actually not the weakest currency across the board, the likes of EURAUD and EURNZD are looking at their highest weekly closes in five weeks as long as they don't sell off sharply into the close today. This shows that risk aversion is the strongest theme in the market coming into today.), the question is whether the market decides to focus on the USD today.

With a mixed to positive (we would stress positive despite payrolls headline, though something is fish about the unemployment rate as it should have climbed even further when we are not posting positive payrolls numbers...) US employment report, the market would theoretically be tempted to consolidate the risk trades, in which case we will see whether the USD can gain on its own merits rather than as a safe haven (or perhaps "safety valve" is more appropriate) on risk aversion.

But we may not get the answer to the above question if markets simply continue melt down today again, as this will likely simply support the USD and the JPY in line with yesterday's action. US treasury futures were hammered back lower after the data release, but are mounting a rally attempt again as of this writing...

Chart: USDJPY
A big sell-off yesterday puts the pair back at a new low for the year and all the way to the bottom of the daily Ichimoku cloud. Will the pair try to rally again despite yesterday's steep sell-off on the more or less positive US employment report? US treasuries hold the key to that answer.

Looking ahead
Interesting to see today's US consumer credit data, which has recently been registering historic lows. Next week we have the US Dec. Trade Balance and Jan. Retail Sales, as well as the initial University of Michigan confidence data.

Be careful out there

Economic Data Highlights

• US Jan. ICSC Chain Store Sales rose 3.0% YoY vs. 3.6% in Dec.
• Australia Jan. AiG Performance of Construction Index out at 57.7 vs. 49.3 expected
• Japan Dec. Leading Index out at 94.0 vs. 93.5 expected and 91 in Nov.
• Norway Dec. Industrial Product Manufacturing out at -0.5% MoM and -2.6% YoY vs. +0.4/-1.5% expected, respectively, and vs. -3.3% YoY in Nov.
• UK Jan. PPI Input out at +2.0% MoM and +8.4% YoY vs. +0.8/6.5% YoY expected, respectively, and vs. 7.4% YoY in Dec.
• UK Jan. PPI Output out at +0.4% MoM and +3.8% YoY vs. +0.3/+3.7% expected, respectively, and vs. 3.5% YoY in Dec.
• UK Jan. PPI Core out at +2.5% YoY vs. 2.6% expected and 2.6% in Dec.
• Germany Dec. Industrial Production out at -7.1% yoY vs. -3.7% expected
• Canada Jan. Net Change in Employment rose 43k vs. 15k expected and -2.6k in Dec.
• Canada Jan. Unemployment Rate fell to 8.3% vs. 8.5% expected and 8.5% in Dec.
• US Jan. Unemployment Rate fell to 9.7% vs. 10.0% expected and 10.0% in Dec.
• US Jan. Nonfarm Payrolls fell -20k vs. +15k expected and vs. -150k in Dec.
• US Jan. Average Hourly Earnings rose 0.3% MoM and 2.5% YoY vs. 0.2/2.2% expected, respectively and vs. 2.4% in Dec.
• US Jan. Average Weekly Hours rose to 33.3 vs. 33.2 expected and 33.2 in Dec.

Upcoming Economic Calendar Highlights

• US Dec. Consumer Credit (2000)
• US Fed's Bullard to Speak (2215)
• New Zealand Jan. QV House Prices (Sun 1100)
• Japan Dec. Current Account (Sun 2350)

FX Closing note: EUR falters into the Close ahead of ECB Tomorrow

Market action
Today saw the USD making a bit of a comeback after the bout of weakness in the European session. The headline excuse was a marginally better than expected ADP employment change number for January. But this was hardly credible, as the more important number the ISM non-manufacturing reading for January, showed a barely expansionary reading of  50.5 vs. 51.0 expected and 50.1 in December. The New Orders component was encouraging as it was th highest in some time at 54.7, but a reading like New Export Orders at 46.0 was more than a bit depressing, as was the stubbornly low employment component at a mere 44.6. Although that is the highest number since August of 2008, due to the comparative nature of this survey, this means that all numbers below 50 mean that the situation is worsening from already very bad levels. Let's hope the recovery will push the employment level over 50 in the months to come. Until then, the unemployment rate in the US is likely to remain very high. Consider that in 2004, this employment part of the survey was registering above 55 regularly and that during the darkest days of the 2001 -03 dip in employment, the reading only fell below 45 for a handful of months, vs. the current streak of 18 months at or below that level.

Norges Bank keeps rates steady
Norges Bank earlier today kept rates unchanged as expected, and Gjedrem and company said that the bank has been slower to hike rates than it had previously expected due to the NOK's strength since then. Gjedrem mentioned that house price inflation is high, but future interest rate hikes were not discussed. All in all this is a relatively dovish performance and some might argue that EURNOK is in danger of  forming a double bottom as NOK bulls have to consider the Norges bank's response if the NOK stays strong. Any rally risks being self-defeating. USDNOK had an interesting bullish reversal today after failing to maintain altitude above the 5.90 resistance area this week. USD bulls might consider this cross for another go at the 6.00 level where the 200-day moving average resides.

Technical Developments
EURUSD - very ugly bearish reversal today confirms the downtrend, but we have awfully big event risks in the pipeline. While a lid may be kept on the Greek situation from here on out, there are still plenty of worries in the pipeline with other fiscal and economic weaklings on the Euro periphery, with Spain especially in the spotlight at the moment. Next support of interest below recent lows is 1.3750 and then 1.3500, the former a flatline area of interest, and the latter a Fibo retracement level of interest.

JPY - no emphatic takeout today of the 90.95 resistance in USDJPY, which leaves the pair in a bit of a limbo at the moment. Likewise, EURJPY ran out of fuel ahead of 127.00. Could we be headed for a retest of the recent lows below 125?  If bond bulls remain out in force the answer will be yes. Scenario is highly dependent on tomorrow's ECB and Friday's big US numbers.

GBPUSD - very bearish reversal and outside day today. A 1.5835 support break in the coming days could open up for 1000 pips more of downside, though we don't want to get ahead of ourselves here...

USDCAD - very interesting as the recent rally challenges a key resistance area and the subsequent retracement sets up somewhat of an upside down head and shoulders pattern (yes it's a messy one at best - but this 1.07-08 zone seems critical). Are we gearing up for a go at the 200-day moving average? Oil supply fundamentals are bearish, but oil prices have rallied of late...

AUDUSD - looking much shakier. Event risks just ahead tonight

Looking ahead
Australia data on tap tonight (Retail sales and Building Approvals) and both the ECB and BoE up tomorrow. The ECB will be of the most interest as the market looks at how it tackles the pressures stemming from the Greek situation and the possibility of contagion and any plans it would contemplate putting in place to prevent further trouble.