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Searching for a Bottom in Industrial CommoditiesGary Dorsch What was viewed as inconceivable a year ago is now a reality - roughly $30-trillion of wealth was erased from global stock markets, during a brutal 15-month bear market that began in October 2007. Speculators scrambled for the exits as a crisis originally thought to be limited to the US-mortgage sector morphed into a full-blown "credit crunch," unlike anything experienced since the Great Depression of the 1930's. The bursting of the US house price bubble has so far, resulted in $1.1-trillion of losses for banks and brokers worldwide. Another half-trillion of losses are expected in the year ahead.The source of these huge losses was reckless speculation in the form of sub-prime lending and securitization of toxic mortgages by Wall Street dealers, - whose reckless pursuit of bloated profits, precipitated a breakdown of the global financial system, that is now threatening to plunge the world into a new Depression. However, when it comes to Wall Street's financial elite, there are no limits on the amount of money handed-out with no-strings attached. The US government has pledged $8-trilion trillion to Wall Street banks and finance houses with loans, cash infusions, and federal guarantees of assets, while haggling for months over a paltry $17-billion for the big-3 Detroit automakers to rescue them from bankruptcy. In a deal reached shortly before midnight, Nov 24th, US Treasury chief Henry Paulson devised a scheme to enable Citigroup to offload a $306-billion pool of worthless residential and commercial loans, and mortgage-backed assets, onto the balance sheet of the US-government. It marked the single biggest bailout to date, outstripping the $200 billion for the takeover of Fannie Mae and Freddie Mac, and the $150-billion handed to insurance conglomerate American International Group. Timothy Geithner, tapped as the next US Treasury chief, was a principal player in the Citigroup rescue, which allowed executives Vikram Pandit and Robert Rubin to keep their jobs, even after they led the bank to ruin, as a result of aggressive involvement in the highly lucrative sub-prime mortgage market. Moreover, Citigroup received $27 billion capital infusion, in return for preferred stock, in addition to the $25 billion handed to Citi by the Treasury the previous month.
However, the bailout agreement made no requirement that Citigroup use the federal money to lend to businesses or consumers.And herein is the "crux of the problem," leading the US-economy towards depression. Instead of lending the funds that the Federal Reserve has aggressively pumped into the banks, through the purchases of various securities, Wall Street's banking cartel is hoarding the cash, to cover write-off's, or simply parking the excess funds into Treasury-bills. Less than one week into the New Year, the latest data suggests the US-economy has a hangover from the Crash-of-2008. "Households and businesses face an ongoing credit crunch, housing and financial wealth has plunged," said San Francisco chief Janet Yellen on Jan 4th. "This is the central problem of the crisis. The impact on consumer spending from the decline in wealth is quite substantial. And house prices continue to slide. Many forecasters expect this to be one of the longest and deepest recessions since the "Great Depression," Yellen warned. The power of Fed rate cuts to as low as zero-percent to revive the economy is failing. Instead, there is a need for aggressive government intervention to boost the flow of credit to businesses and households. But what will emerge after the financial crisis are three banking giants, Bank of America, JP Morgan Chase, and Wells Fargo, who have gobbled-up their failed competitors, and now control fully one-third of all US-bank deposits. The big-3's ability to set lending rates and access to credit gives them greater control over the US-economy, and by extension, the global economy.
Commodity markets plunged in the second half of 2008, suffering the biggest rout in five-decades, tumbling in tandem with global stock market meltdowns for the first time since 2001. After the US Treasury allowed Lehman Brothers to default on its debts, the banking cartel responded by tightening credit further, forcing highly leveraged hedge-fund traders into panicked liquidations of base metals, crude oil, and grains, at bargain-basement prices. Goldman Sachs and Morgan Stanley sought shelter from the financial meltdown, by converting into commercial banks, and paring-down risky positions in commodities, in order to meet more stringent regulations. Until the US-government finally cracks-down on the powerful banking cartels, and brings an end to the "credit crunch," the global economies would remain in recession, keeping commodities weak. Reflecting the scope of the "credit crunch" last year, US-banks slashed loans to investment-grade companies by 52% to $319 billion,and bridge or temporary loans were the only funding source for cash-starved companies. Loans backing leveraged buyouts plunged 80% to $41.3 billion. With American bankers cutting-off credit to the private sector, US retail sales fell for five straight months, the longest string of declines in 16-years, US-auto sales plunged 35% in December, and US employers slashed nearly 1.2-million jobs in the final two months of 2008, to preserve cash.
Tight-fisted bankers choked the global shipping industry to death, by suspending "letters of credit" that importers and exporters rely upon to finance overseas trade. Of the $13.6 trillion of goods and materials that are shipped across the high-seas each year, roughly 90% of the cargo is financed with "letters of credit," issued by bankers, guaranteeing payment to the shipper, once shipments are delivered to the buyer. With banks cutting-off "letters of credit," the wheels of global shipping has ground to a halt, and idling some 200-vessels worldwide. The Baltic Cape-Size Index, which measures the cost of shipping coal, iron ore, and steel, plunged 95% in just five-months. At the market's peak in June, daily charter rates for 170,000-ton Cape-Size bulk carriers cost $234,000. In November, it was available for $3,000 /ton, - and below break-even. Clarkson's of London, the world's largest shipbroker, indicated that new-orders for ships had plunged from 378-vessels in October 2007, to just 37-ships in October 2008. Many bulk-shippers bought vessels last year at high prices, financed with bank loans, and are now filing for bankruptcy. But Cape-Size ships that sold for $150 million in the summer of 2008, now sell for $50 million, leaving many shippers under water. Danish dry-bulk operator Atlas Shipping, with a fleet of 41-ships, filed for bankruptcy, - current freight rates result in a loss of $3 million a week. To read the rest of this article, please click on the link below: http://www.sirchartsalot.com/article.php?id=101 Jan 8, 2009 321gold Ltd |
