Random Notes…

Random Notes…
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By Montyhigh | 11 June 2009

Unadjusted Year Over Year: USA Retail Sales Down 11%

Here's The Year Over Year Summary Of The Commerce Department's Retail Sales Figures For May 2009:
Associated Press Spin: "Retail sales climb 0.5 percent in May… Retail sales rose by the largest amount in four months in May, as a rebound in demand at auto dealerships and gas stations helped to offset continued weakness at department stores".

[ Normxxx Here:  FWIW, the "rebound in demand at auto dealerships" was a one off phenomenon due to the absolute collapse of the US dealerships and consequent fire sales and the "rebound in demand at …gas stations" was due almost entirely to the increase in gas prices, NOT any large increase in gallons sold…  ]

Commerce Department News Release: click here.
Key Numbers: Commerce Department Retail And Food Services Sales Unadjusted May 2009: $355,414,000,000 vs May 2008: $399,979,000,000.
My Spreadsheet (click here)

Here's my uneducated interpretation— Retail sales are dismal and are falling faster than last month. The economy is still shrinking. This is a very important LEADING indicator. Don't fall for the spin.

Unadjusted Year Over Year: Labor Department Initial Jobless Claims Up 55%

Here's the scoop on the Labor Department's weekly initial jobs claims report:
Associated Press Headline And Lead: "New jobless claims drop more than expected to 601K… The number of newly laid-off Americans filing for jobless benefits fell for the third time in the past four weeks, fresh evidence that companies are cutting fewer jobs".
Labor Department News Release: click here.
Key Numbers: The advance number of actual initial claims under state programs, unadjusted, totaled 576,695 in the week ending June 6, an increase of 76,312 from the previous week. There were 373,046 initial claims in the comparable week in 2008.
My Spreadsheet (click here)

Quick Comment: Unadjusted jobless claims jumped 76,312 last week. After adjustment they "drop more than expected". Hmmm, when was the last time we saw adjusted numbers worse than the unadjusted numbers?

Here's my uneducated interpretation— Initial jobless claims is a leading indicator and clearly job losses are way worse than they were a year ago. The Associated Press, as usual, puts a "positive" spin on the numbers.

Year Over Year: USA Homeforeclosures Up 18%
Of course, the AP headline makes it sound like things are getting better. I think this quote puts it in perspective: "Despite the drop from April, it was the third-highest monthly rate since Irvine, Calif.-based RealtyTrac began its report in January 2005, and the third straight month with more than 300,000 households receiving a foreclosure filing".

Year Over Year: China's May Exports Down 26.4%

How can an export-driven economy grow at 6% a year (as China is forecasting) when its exports are down 26.4%? Click here for the story. The export collapse is accelerating from down 22.6% in April and down 17.6% in March. Imports are also down 25.2% for May indicating that 'internal' stimulus of the economy is not making up for the downturn in the export part of the economy.

It seems pretty clear that the Chinese economy is shrinking— not growing. The "expert opinion" has been that the China would lead the world out of the global downturn. That doesn't seem to be happening.

I can't explain why the prices of copper and other commodities are rising. I'm looking to go short when the LME inventories start rising again.

[ Normxxx Here:  It turns out that the canny Chinese could not resist the "give away prices" of commodities in the present market and have been busily buying and squirrelling away commodites. However, they seem to have run out of storage space. Just look what's happened to the Baltic Dry Index lately!  ]

Mike Kachanovsky's On Gold Vs Silver And His Number On Junior Mining Stock: Impact Silver (IPT.V)

Mike Kachanovsky's favorite junior mining stock is my favorite silver Jr mining stock (actually only primarily a silver Jr mining stock): "…the number-one junior mining stock in the world, in my opinion, would be IMPACT Silver (TSX.V:IPT)".

In the same article, Kachanovsky makes the case for silver better than most. He claims the the ratio of silver to gold in the earth's crust is 15 to 1. I'd like to find his back up for that [NOTE: Wikipedia provides three values that are approximately 70, 25 and 18 to 1]. With the current price ratio (gold to silver) over 50 to 1, Kachanovsky expects the ratio of prices, over time, to revert to his 15 to 1 ratio. He argues that the rapidly falling above ground silver inventories (that are approaching zero compared to historical stockpile levels) implies that this narrowing will occur relative soon.

This seems to be a pretty good argument to me, although that 70 to 1 Wikipedia value leaves me with less than full certainty.

The way I think it is best to look at it is on the basis of the relative costs of production which, with gross simplification, becomes a grams / tonne comparison for a common mining method. Nearly all silver mining is underground mining, so I compare two underground miners, Impact Silver (the best silver Jr miner according to Kachanovsky) and Dynasty Metals And Mining's Zaruma project (a high-grade underground gold project). I compare the most recent headline drill hole announcement from Impact Silver with the Zaruma project's Measured and Indicated Resource as follows:

Impact Silver: "204g/t silver across 8.5 meters and 280g/t silver across 4.5m".
Dynasty Metals And Mining's Zaruma Project: "Measured and Indicated Gold resource of 1,110,200 oz at an average grade of 13.93 g/t*".

The resulting Gold / Silver ratio is thus 20 to 1 [280 / 13.93]. Of course, different projects will have different ratios, but I think this is reasonably representative. So, I conclude that there is a reasonably good argument for the Gold / Silver price ratio falling and for silver to rise in price relative to gold. I'm much more heavily weighted into gold Jr miners right now because of the clear expectation of high profits at current prices. I may shift more money into silver as a result of this analysis.


John Hussman On "When Does Price Inflation Kick In?"

From John Hussman's weekly discussing what the Federal Reserve has been doing:

"As it happened, rather than following policies that would have allowed for a sustainable recovery, our policy makers opted for a stunningly unethical strategy of making bank bondholders whole with well over a trillion dollars in public funds, watering down accounting rules to allow banks to go quietly insolvent. [[Caveat: BB supposed it was necessary in order to prevent a run on the dollar, as most of those bonds were held by foreign private and central banks.: normxxx]] [Then using these doctored results] while reporting 'encouraging' "operating profits," 'looking beyond' the continued shortfall of loan loss reserves in relation to loan defaults, and doing nothing meaningful with regard to foreclosures, whose rates continue to soar and which face a fresh wave later this year and well into 2010 and 2011. These policy responses have more than doubled the U.S. monetary base within a period of months, added a trillion more in outstanding Treasury debt, and virtually assured that the value of those government liabilities will be 'repriced' in relation to goods and services over the coming decade. A range of different methodologies suggest a doubling in U.S. consumer prices over the coming decade, though with the majority of this pressure occurring 3-4 years out and beyond."

My interpretation: Hussman says big inflation is coming, but not real soon.

Pretty Entertaining / Insightful Anecdote: The Moment Hussman Decided To Go Into Finance

Just a couple of paragraphs.

Global Economy Turned Around Yet? Korean Exports For May Down 28% Year Over Year

Here's the quote of honor: "Y/y, exports were down around 28%."

Here's the chart of honor

The article goes on to say that Taiwan's May exports are down 31% year over year, but this is an improvement over April. In fairness, the overall tone of the article is less bearish than my pointing out what seems like terribly bearish data.

  M O R E. . .