THE DOT - if this turns orange or red be alert

Monday, April 27, 2009

The next biggest risk for global markets is inflation not deflation

China has expressed big interest in this SDR (special drawing rights) as they want to swap out of US bonds and have 2 strategies in place of which one I consider as smart, that is to add to their Gold reserves. To buy an artificial currency bond of an entity (IMF) which has no fundamental backing like tax income. Bonds of the IMF ( which is set up to become the global central bank over time - New World Order) will also be competitive by the interest it may have to pay over US bonds. As soon as the IMF brings volume to global bond markets the Chinese will try to swap into them which is a dangerous idea because the IMF depends totally on the economic outcome of its sponsor countries hence if they suffer IMF does. The real problem remains though that all this quantitative easing by the central banks and even more so the stimulus packages of the nations will dilute soon the global inflation. For now most of that money just disappears into the black hole balance 'cheats' of banks as they have to cover up the immense looses as they carry forward worthless assets on their books marking them with values far above reality. They biggest chunk of those trillions does not circulate in the real economy but as long as credit is shrinking the economy will shrink and hence the losses widen. The ultimate target can only be in this strategy to flood the banks with so much free money that they start lending to get the economies kick start ( the real thing would be to ride out the storm and let the contraction run its course to heal the system). This process has to turn to inflation at some point inevitably rather in a year from here as now people are let into the deception that things are turning to the positive side again. As of Friday earnings decreased by 35% in America and that is overstated on the plus side due to some phony reporting by financial institutions overstating their earnings ( e.g. Goldman just left out one month with the highest losses - that would have halved their quarter). Never the less due to that earnings picture

( Goldman puts it at 45-50$) the SPX should trade at 400 and is by far overvalued at more than double that level. I know by cycle factors and astro patterns that we will stay in this illusion til end of Aug. Unfortunately reality will kick back in with a rude attitude and the worst is still to come thereafter. We will see asset implosion (which some call deflation) and inflation happening at the same time in 2010. As Britain is about to loose its AAA (triple A rating) others will follow over time actually even America does not deserve a AAA anymore but for political reason's rating agencies will not be honest about this kind of issues so do not wait for them to make good calls - they will and can not. The EU tries to stay within some of its lending rules but that will not work out as they already entered the path of printing money for banks hence they will have to expand it for Mainstreet at some point and Germany with big elections ahead they might not admit that fact until after those elections. Money will be unloaded from Helicopters as Bernanke has so famously claimed once. Mainstreet will loose again as they earn today negative interest rates after earning too low interest for 2 decades - they will be srewed by hyperinflation with no money left to save as they will need it all to survive with melting 401 accounts.

Excerpt

Brazil, China and Russia Consider IMF's First Bond Offering

WASHINGTON -- The International Monetary Fund is finalizing plans for its first bond offering and lining up Russia, China and Brazil as potential purchasers, said officials gathered for an IMF meeting.

Brazil, China, Russia and India -- the so-called BRIC countries -- met Friday, in part, to hash out a common position on terms they want to see in such a bond, said Brazilian Finance Minister Guido Mantega. Brazil plans to buy the bonds, he said, to contribute to the quadrupling of IMF resources to $1 trillion.

A new bond "is an important instrument" to help the IMF "meet the capital needs of emerging countries," said Mr. Mantega, who would not estimate how much Brazil planned to buy. .

Russian Finance Minister Alexei Kudrin said Moscow would be a purchaser as well, although he also didn't name an amount. "We'd like to buy IMF bonds," he said after a speech at the Peterson Institute for International Economics. "We're interested." China is expected to buy $40 billion of the bonds, British Prime Minister Gordon Brown said at the Group of 20 summit of industrialized and developing countries early this month. It isn't clear whether India would buy, too.

The IMF has been working on a bond offering since at least January as a way to increase the amount of money it has to lend struggling nations. Japan has made the IMF a $100 billion loan. Brazil and others prefer a bond because they consider it more flexible than making a loan and easier to reverse. "We want ways to get the money back if conditions change," Mr. Mantega said.

The bond would be sold to central banks, not to individual investors. Even so, some IMF critics at development institutions worry that IMF bonds could become competition for developing-nation sovereign debt and increase the interest rates those nations would need to pay. BRIC countries want to make sure the bonds are tradable on the secondary market.

Mr. Mantega said the IMF and the BRIC countries are discussing terms for the bonds, whether they could be counted as part of a nation's reserves, and the interest rate the IMF would pay, among other issues. The yield "can't be very much different from U.S. Treasury bonds," he said. "Maybe just a little more." Negotiations could wrap up by next week, he said.

The IMF didn't comment on its plans to issue a bond. At the London G-20 summit, IMF Managing Director Dominique Strauss-Kahn said the IMF has the authority to issue bonds. "China has said that it could be interesting to use ... this vehicle [rather] than another one," he said at the time.

The bond would probably be denominated in an IMF quasi-currency called special drawing rights. Russian and Chinese officials have suggested that SDRs could eventually replace the dollar as a global reserve currency; having an SDR bond could bring them a step closer to that goal.

Separately, Mr. Mantega said he believed Brazil will avoid a recession this year, with gross domestic product growing 2%, followed by 4.5% growth next year. His estimates are far more optimistic than the IMF's, which this week forecast that Brazil's economy would contract by 1.3% this year and grow 2.2% in 2010.

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