Saturday, March 21, 2009

Weekly Market Update (3/20/09)‏


The Federal Reserve said this week that it “will employ all available tools to promote economic recovery.” more...

This week was historic for the Treasury market as yields had their biggest one-day rally in decades following the news that the Federal Reserve is committed to purchasing Treasuries. more...

Large-Cap Equities
The stock market continued to rally this week as the Fed announced that it will purchase Treasuries and mortgage bonds to help lower borrowing costs. more...

Corporate Bonds
Investment grade primary activity continued its torrid pace as issuers took advantage of the improving sentiment in the equity market. more...

Mortgage-Backed Securities
In a continuing effort to support the housing and mortgage markets, the Federal Reserve surprised investors with their announcement to commit another $750 billion of their balance sheet to purchasing agency mortgage backed securities. more...

Municipal Bonds
After the Treasury market’s massive Wednesday rally in the wake of the Fed’s announcement that it would literally create more money to buy assets like Treasury bonds and mortgages, the municipal market registered a dramatic, lagged response on Thursday. more...

This week’s decision by the Federal Reserve to fully engage in quantitative easing by directly buying US Treasuries and the following positive impact on the equity markets, have translated into an upward momentum for the high yield market. more...

Western European Equities
Stocks in Western Europe gained ground over the past week. The stocks with the best performance were insurance (+19.7%) and banks (+15.4%). more...

Eastern European Equities
The CECE index of equities traded in Central Europe (Czech Republic, Hungary, and Poland) gained +8.3% this week, while the Russian stock index RTS went up by +6.8%. more...

Global Bonds and Currencies
The announcement of the US Fed’s latest, surprisingly aggressive, easing measures elicited a relatively subdued response from major non-US sovereign bond markets although yields were generally lower this the week. more...

Emerging-Market Bonds
Emerging market dollar-pay debt spreads tightened this week, as the increased level of risk appetite seen over the previous week continued to drive credit spreads lower. more...

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Have a great weekend!

Market Reflections 3/20/2009

Friday was a quiet day of profit taking in the stock market especially in bank stocks which have soared the past two weeks. The S&P 500 lost 2% to 768.54. After suffering its worst losses in a generation following the Fed's big liquidity move on Wednesday, the dollar finally firmed, ending slightly higher at $1.3568 against the euro. Oil firmed slightly to end at $51.55 with gold little changed at $952.70.

Friday, March 20, 2009

What's winning in this bull rally...

From Bespoke Investment Group:

Below we highlight sector performance during the current rally that started last Tuesday. As shown, the Financial sector is up a whopping 50% since the close on March 9th! The S&P 500 as a whole is up 17.4%, and Telecom, Materials, Industrials, and Consumer Discretionary are all outperforming. Consumer Staples, Health Care, Energy, Utilities, and Technology are underperforming the S&P 500.

Bond King Bill Gross says Bernanke's funny money isn't enough...

The latest from master bond investor Bill Gross: Total Fed money printing so far isn't enough to restart the American economy.

As Bloomberg reports: "We need more than that," Gross said today in a Bloomberg Television interview from Pimco's headquarters in Newport Beach, California. The Fed's balance sheet "will probably have to grow to about $5 trillion or $6 trillion," he said.

Gross is almost always right on these sorts of things... so expect more money printing... and expect it to lead to inflation in a few years. And expect commodity bets to keep working.

Bernanke wants mortgage rates at 3-4%; "massive assault"

From Dow Theory Letters:

Russell Comment -- They're calling it "The Rambo Fed." Bernanke is not fooling around any longer. He's playing all his cards. He's going to put a floor under housing and boost asset prices in an all-out attack on the bear market. Bernanke wants to drive mortgage rates down and refinance housing at 3-4%. On the news, the dollar swooned, the Euro surged, the long T-bond exploded higher by six points, and the yield on the ten-year Treasury bond sank to 1.51%. Whew, what a day and what an announcement.

The Bernanke plan -- smother deflation with money and put a floor under housing. Bernanke will in no way accept deflation. The Fed will go all-out in printing Federal Reserve Notes in its massive assault on deflation. Bernanke will accept a collapsing dollar rather than a repeat of the Great Depression. Actually, the Fed would like a lower (not a crashing) dollar. A lower dollar would be inflationary, which is what the Fed wants.


From the March 19, 2009 issue of The Gartman Letter

Speaking at the People’s Congress in Beijing recently, Premier Wen Jiabo made it quite clear that China intends fully to achieve 8% growth in GDP this year. Not next year; not two years hence, but this year...’09; the year of the Ox... this year.

Interestingly, Mr. Wen made it clear that not only was the government intent upon force feeding liquidity into the nation’s banks, but was also prepared to make material cuts in income taxes, across the board to sponsor such growth.

Wen made it clear that the only way he can see Chinese economic growth returning to the not-so-long-ago-lost halcyon days of 9% growth almost relentlessly shall require more than simple reserve injections.

Mr. Wen said that it is his intention to turn China from an export driven society to a consumer driven one instead. He know that liquidity alone will not suffice to do what Beijing needs the economy to do; hence Mr. Wen will begin this new era of growing consumer demand by cutting corporate and personal income taxes. According to The China Daily, Mr. Wen said, in the simplest of terms, that it is Beijing’s intention to spur the economy forward by “boosting domestic demand through residential tax cuts, in addition to the levy reduction for companies.”

The latter has already been put into effect; the former is coming. Mr. Wen’s proposed “residential” tax cuts include tax cuts on securities transactions; tax cuts on property sales; smaller taxes on exports and an end to a number of “administrative charges” on various goods and services. At a time when American law makers on the Left are debating the possibilities of taxing stock transactions, the Chinese are moving to end them!

Further, China is moving swiftly ahead with very real “infrastructure” spending. The new term here in the US is “shovel ready.” Our stimulus program is manifestly un-shovel ready; in China, the shovels are already at hand and the programs are being put into effect, with workers being hired and ground being broken.

Mr. Wen has the calendar working for him too, for this year marks the 60th anniversary of the founding of the People’s Republic. As is always the case, China will have myriad numbers of building programs in place to commemorate that event. Too... and this is hard for us to believe, for time passes so quickly... this is the 20th anniversary of the Tiananmen Square Uprising. Mr. Wen and Mr. Hu will want to make certain that things are on the economic mend in order to keep dissidents wrong-footed throughout the years.

This is a strange era in which we live then. We live at a time when ex-Communists are taking the more free market route toward a consumer led society. We are living in an era when Beijing reads Atlas Shrugged and Washington reads The Manchester Guardian. We are living in an era when tax cuts of all sorts are effected by Beijing, while Washington talks about and effects tax increases of all sorts. We live in an era when Beijing gets out of the way of entrepreneurs, and Washington throws rocks and rubble in their way instead.

As was said in Ecclesiastes, “To everything, turn, turn, turn...”

Good Luck and Good Trading,

Dennis Gartman


The Gartman Letter is a daily commentary on the global capital markets subscribed to by leading banks, broking firms, hedge funds, mutual funds, energy and grain trading companies around the world.

The Letter each day deals with political, economic and technical circumstances from both a long and short term perspective, and is available to clients and prospects at approximately 10:30 - 10:45 GMT each business day of the year. Mr. Gartman has been producing his commentary on a continuous basis since 1987, and has taught courses on capital markets creation and derivatives for banks, broking firms, governments and central banks all the while.

When a Hybrid Can Pull a Boat, Then We'll Talk - wsj‏

This must be one of the best letters to the editor I have seen. I can hear the theme song from Team America playing in the background..............

In response to Ford CEO Alan Mulally's call for higher gas taxes (which you report in "Tax My Products, Please," Review & Outlook, March 17), I would like to say that Americans don't want smaller vehicles. We have great distances to travel, mountains and plains to cross in all seasons of the year. We tow our boats and other contrivances. We haul our children around and travel with them over the continent.

Our businessmen drive long distances since they can no longer own corporate jets.

What we want is a more efficient internal combustion engine, not a smaller car. And do not tell us it cannot be done. It can be done, because efficient engines can be created today with off-the-shelf parts bought from General Motors, Ford or Chrysler.

A friend of mine has converted a GMC Vortec V8 gasoline engine for his 2.5 ton pickup truck and the engine delivers more than 30 mpg. Why can't we buy this type of vehicle at the dealer? Why does individual ingenuity have to point the way to corporations that have the money, skill and engineering brainpower to deliver a more efficient engine?

Why do we have to pay more at the pump?

The suggestion that consumers should pay more in gasoline taxes is a cop-out on the part of the auto makers, politicians and everyone else who supports it.

This is not Europe. This is the United States of America, a vast country with amazing distances and varieties of geography and climate. We do not want higher gas prices. We want more efficient engines to power our vehicles. We want the Big Three to use their brains to create something new, not deliver a rehash of junk from a bunch of whiners.

Market Reflections 3/19/2009

Momentum from yesterday's move by the Fed to buyback more than $1 trillion in agencies and Treasuries cooled in Thursday's session which saw stocks give back gains and the dollar tumble further. The use of monetary inflation as a policy tool raises the risk that price inflation may take off before policy makers can reverse the process. The deep drop in the dollar, losing another 2 cents to end at $1.3672 against the euro, is dramatic evidence of this concern. Further evidence is the big gain underway in gold, up another $20 to $959.40. Inflation risk is sweeping commodities in general higher including oil where WTI, despite yesterday's gain in inventories at Cushing, ended at $51.37 for a more than $2 gain. The stock market ended lower with the S&P 500 down 1.3% at 784.04.

Thursday, March 19, 2009

The Next Big Disaster Will Be Insurance Stocks

By Dan Ferris

A major North American life insurance company will fail this year...

I'm talking about AFLAC, Ameriprise, Hartford, MetLife, Prudential, or another familiar insurance provider, possibly the one that holds your life insurance policy. At least one of these companies is going under very soon. Let me explain...

Insurance companies have been the largest purchasers of corporate debt every year since the 1930s. If Berkshire Hathaway and its financial fortress balance sheet can be downgraded from triple-A status (by Fitch Ratings last week), you should assume a great swath of investment-grade corporate debt is in imminent danger of being downgraded to junk.

Here's the thing: Insurance companies are state regulated. Every state determines how much capital insurance companies have to keep on hand using a "risk-based" model provided by the National Association of Insurance Commissioners. Risk-based just means it's based on financial strength and credit ratings published by A.M. Best, Standard & Poor's, Moody's, and Fitch.

As the corporate debt market collapses, life insurance companies will fall well below the capital requirements of the risk-based models used by the states. When news leaks out, it'll trigger a panic.

The same way banks can experience deposit runs, life insurance companies can experience runs from policyholders. And the same way the FDIC backs up bank deposits, state insurance guarantee funds back up life insurance policies.

Those state funds are in even worse shape than the FDIC. Nationwide, they hold a total of just $8 billion. According to a report by investment firm Bridgewater Associates, only $21 billion of claims have been processed through these funds in the last 25 years. They are not at all prepared for the insolvency of a major life insurer. But life insurance policyholders are hurting along with everyone else. They'll start cashing policies at an even faster rate once they see headlines about insurance companies going broke.

They haven't seen those headlines yet because many life insurance company assets are reported at historical cost, not current market value. Life insurance companies do report losses based on current market values... but view those losses as temporary. That has delayed the realization there's a problem, potentially making it much worse.

Some of these stocks have fallen so far already that raising cash by selling more shares is no longer an option. Genworth, Phoenix Companies, Conseco, and AIG are all penny stocks.

Aside from being the world's biggest corporate bondholders, life insurance companies are also major commercial real estate lenders. A lot of commercial real estate projects are going bust. All kinds of real estate lenders are seeing huge losses.

Another potential source of trouble is simply the dramatic drop in the big stock market indexes. Life insurance companies hedge market performance so they can fulfill guaranteed investment contracts (like annuities), which promise a minimum rate of return or the return on the S&P 500 index.

The S&P 500 got killed last year and made new lows recently. Losses on hedges for these contracts are already enormous. The reinsurance for these products is probably more expensive now, too.

Nobody thought AIG could ever become a penny stock, but here it is, trading below $1. Several other major insurance companies are headed in the same direction.

You could short a basket of life insurance companies and probably do pretty well over the next year. I'd stick with the largest, most liquid names as a proxy for the entire industry.

Nobody (With Any Sense) Wants to Play This Game Anymore

The Fed plan is to continue sopping up all those toxic mortgage bonds that are slopping around the system. They also plan on buying some $300 billion in U.S. Treasury notes over the next six months.

Funny that, because they are the only ones who want Treasuries and such right now. Certainly almost no one besides the Japanese and Chinese is interested. And yet outsiders are supposed to be funding most all of Washington’s various recovery plans.

As per the accountants at the Treasury Department, net foreign purchases of long-term U.S. Treasury notes, Fannie Mae and Freddie Mac bonds, corporate debt and stocks dropped from a positive $34.7 billion in December ’08 to a negative $43 billion in January ’09, a 224% net decline in one short month!

Now consider that both Japan and China actually increased their holdings over this period (although even they came in under their 12-month purchase average). Seems to me that right about the same moment that we are trying to flog $2 trillion in shiny new “Obama-Bonds” on the open market, most everyone else is trying to unload nasty old used U.S. notes onto that same market.

The upshot? That light at the end of the tunnel that the cheerleaders were touting? That’s the 4:19 express out of Galveston,and the Obama recovery program is sitting square in the middle of the track.

Obama climate plan could cost $2 trillion


President Obama's climate plan could cost industry close to $2 trillion, nearly three times the White House's initial estimate of the so-called "cap-and-trade" legislation, according to Senate staffers who were briefed by the White House.

A top economic aide to Mr. Obama told a group of Senate staffers last month that the president's climate-change plan would surely raise more than the $646 billion over eight years the White House had estimated publicly, according to multiple a number of staffers who attended the briefing Feb. 26.

"We all looked at each other like, 'Wow, that's a big number,'" said a top Republican staffer who attended the meeting along with between 50 and 60 other Democratic and Republican congressional aides.

The plan seeks to reduce pollution by setting a limit on carbon emissions and allowing businesses and groups to buy allowances, although exact details have not been released.

At the meeting, Jason Furman, a top Obama staffer, estimated that the president's cap-and-trade program could cost up to three times as much as the administration's early estimate of $646 billion over eight years. A study of an earlier cap-and-trade bill co-sponsored by Mr. Obama when he was a senator estimated the cost could top $366 billion a year by 2015.

A White House official did not confirm the large estimate, saying only that Obama aides previously had noted that the $646 billion estimate was "conservative."

"Any revenues in excess of the estimate would be rebated to vulnerable consumers, communities and businesses," the official said.

The Obama administration has proposed using the majority of the money generated from a cap-and-trade plan to pay for its middle-class tax cuts, while using about $120 billion to invest in renewable-energy projects.

Mr. Obama and congressional Democratic leaders have made passing a climate-change bill a top priority. But Republican leaders and moderate to conservative Democrats have cautioned against levying increased fees on businesses while the economy is still faltering.

House Republican leaders blasted the costs in the new estimate.

"The last thing we need is a massive tax increase in a recession, but reportedly that's what the White House is offering: up to $1.9 trillion in tax hikes on every single American who drives a car, turns on a light switch or buys a product made in the United States," said Michael Steel, a spokesman for House Minority Leader John A. Boehner. "And since this energy tax won't affect manufacturers in Mexico, India and China, it will do nothing but drive American jobs overseas."

ZIRP in the U.S.: Fed Launches Quantitative Easing in the Form of Treasury Purchases

March 18:
The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and anticipates that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period

To provide greater support to mortgage lending and housing markets, the Committee decided to increase the size of the Federal Reserve's balance sheet further by purchasing up to an additional $750 billion of agency mortgage-backed securities, bringing its total purchases of these securities to up to $1.25 trillion in 2009, and to increase its purchases of agency debt in 2009 by up to $100 billion to a total of up to $200 billion. Moreover, to help improve conditions in private credit markets, the Committee decided to purchase up to $300 billion of longer-term Treasury securities over the next six months

Market Reflections

The government is printing money like crazy, raising questions over inflation but also improving the outlook for borrowing and with it the outlook for the economy. The Fed, in an effort to free up cash in the banking system, greatly intensified its quantitative easing program, saying it will purchase up to $300 billion in long-term Treasuries and an additional $750 billion in agency securities. The Fed is also expanding collateral for business lending.

The surprise news pulled money deep into Treasuries, which now have a guaranteed buyer, and pushed money out of the dollar where lower Treasury yields spell a cross-border disadvantage for U.S. investments. Details are still being released but the Treasury buying will be concentrated in the 2- to 10-year sector. The yield on the 2-year note fell nearly 25 basis points to 0.79 percent with the yield on the 10-year, ending at 2.52 percent, down nearly 50 basis points on the day!

But it was the decline of the dollar that was the most dramatic event of the day, falling 4-1/2 cents to $1.3450 against the euro. The decline tripped a major run into commodities where gold, which had appeared weak earlier in the day, jolted $50 from lows to $940.90 in late electronic trading. Traders said concern over inflation is major a positive for gold though guaranteed demand in the Treasury market may, at the expense of gold, increase the attractiveness of Treasuries as a safe haven.

Stocks bolted higher on the announcement but gains eased with the S&P 500 ending 2.1 percent higher at 794.35. Oil also jolted higher, ending at $49.19 after trading below $47 following new builds in weekly inventory data.

Wednesday, March 18, 2009

Jim Rogers' prediction is coming true...

Master investment gurus Warren Buffett, Jim Rogers, and Marc Faber all went on record recently to say the U.S. government would start buying its own debt... which would stoke inflation down the road. And now it's happening...

The Federal Reserve just announced it would buy $300 billion of long-term Treasuries to keep interest rates low and help along the economic recovery. Of course, no real work or toil will create the money it takes to buy the debt. The money will be created at the stroke of a computer key. Short-term, it will boost a lot of assets. Long-term, it's going to be a disaster... so own gold, real assets, and bet on higher rates.

Fed Action

News Alertfrom The Wall Street Journal

The Federal Reserve said Wednesday it will buy up to $300 billion in longer-term Treasurys and raise the size of lending programs already aimed at reducing mortgage rates by another $750 billion, a forceful reminder that officials still have powerful tools to combat the recession.
The commitment to buy Treasury securities and additional mortgage-related debt should mean lower rates for a variety of business and consumer loans. Meanwhile, the Federal Open Market Committee voted 10-0 to hold the target federal funds rate for interbank lending in a range between zero and 0.25% and to continue using credit programs financed by an expansion of the Fed's balance sheet to stabilize markets.

For more information, see:

Market Reflections 3/17/2009

The stock market extended its rally Tuesday, closing at its highs for a very strong 3.1 percent jump on the S&P 500 to 778.12. Economic data in the session was headed by a very strong housing starts report for February, a report however that follows a very weak January and was skewed higher by a jump in multi-family units.

But gains in the session weren't tied to news but to a surge in bargain hunting that is definitely helping to build the market's momentum. Money continues to move out of the safety of the dollar which fell another 1/2 cent to end at just over $1.3000 against the euro. Yields moved higher in the Treasury market where the 10-year is at 3.00 percent, up 4 basis points on the day.

Oil moved higher on the day in part on technical factors related to monthly futures expiration and on news of output problems in Nigeria. WTI ended at $48.64, up nearly $2 on the day and setting the stage for tomorrow's petroleum data, which if showing draws, could trigger a move past $50. Gold slipped about $10 to $915.

Tuesday, March 17, 2009

Market Reflections 3/16/2009

Ben Bernanke's reassuring interview on Sunday TV, where he said the recession may come to an end this year, did not make for a full day of gains on Monday. The S&P 500, up most of the day, ended at its lows, down 0.4 percent at 753.89. Economic data in the session included a major drop in foreign buying of U.S. securities, news that hurt the dollar which slipped 1/2 cent against the euro to end at $1.2966. Other data included another steep decline in industrial production and an Empire State report that points to further declines for the manufacturing sector in the months ahead. The housing market index was also decidedly negative, holding at a record low as customer traffic evaporates further.

But there was good news and it came from the U.K. where Barclays joined Citigroup and Bank of America saying that business so far this year has been good. Money moved out of the safety of Treasury. Yields rose on the front-end of the Treasury curve with the 3-month bill up 4 basis points to end at 0.22 percent.

Oil actually rose in the session despite OPEC's surprise decision over the weekend to hold output steady. But prices moved higher in any case, up about $1 to end just over $47 for April WTI. Gold ended little changed at $924.50.

Monday, March 16, 2009

The changing American Dream?

Last week the Met Life Study of the American dream was making its rounds to trading desks and I found some
interesting items in there. First off the study found a shift in priorities from “investments” to “protection” . Unlike 12+
months ago when Americans craved a moderate dose of risk in their portfolios, today’s consumers are eyeing more
conservative investment and/or protection products for their personal safety nets. Among the top ten items that
consumers would most like to have in their safety net, most are insurance products — long-term care insurance,
health insurance, life insurance, annuities — or conservative investments such as cash or bonds. Only the fourthranked
(real estate) and tenth-ranked (mutual funds) carry a moderate level of risk. Last year, by contrast, the
number one priority was health insurance that continues through retirement (60%), followed by retirement savings
(52%). Stability and security are the new growth frontiers. One figure that might shock some readers - only 35% of
respondents had cash on hand for 3-6 months. A startling 59% of Americans say they would be somewhat or very
concerned about having to file for bankruptcy if they were to lose their job. This cuts across all generations and
income levels. Even mass affluent Americans are deeply concerned about bankruptcy, with 53% identifying
themselves as being at risk without a job. An equally high percentage of Americans is worried about home
foreclosure; two in three homeowners (64%) are concerned they would lose their home if they were to lose their
job. Generation X feels the most vulnerable, with 73% of Americans in this demographic group expressing concern.
Baby Boomers are the next most vulnerable group, with 63% reporting worry. Fears of bankruptcy and foreclosure
are also unusually high among Middle Market consumers — i.e., those between the ages of 35 and 44 with income
of $35,000–$100,000 per year. Two-thirds (66%) of these Americans risk bankruptcy if faced with a job loss. An
even higher percentage of Middle Market consumers are worried about home foreclosure, with 75% expressing
concern that unemployment would lead to the loss of their home.

Without a steady paycheck, 50% of Americans say they could not meet their financial obligations for more
than a month — and, of that, a disturbing 28% couldn’t support themselves for more than two weeks of
unemployment. This is pretty important stuff and hammers a theme we have stated for some time – consumer
deleveraging is just getting started and savings need to continue to rise. The attitude toward risk, if it endures also
has many big implications.
Source: 2009 Met Life Study of the American Dream

Penn West Energy: Too Good to Be True?

Penn West Energy Trust (PWE) is a Canadian-based company engaged in acquiring, developing, exploiting, and holding interests in petroleum and natural gas properties and assets. 43% of revenue is from natural gas and 57% is from crude oil.

According to a Scotia Bank report released on 3/13/09, though Penn West’s forecasted P/E for 2009 is 35, its Price/Cash Flow is only 3.2, much lower than the previous four years' average of 4.5.

This financial crisis is all about Balance Sheet. There doesn’t seem to be fundamental demand-supply imbalance problem. That’s why this week the market was up around 10% when government looked at relaxing “Mark to Market” rules. Though it might take much longer to recover, as long as a company has a strong balance sheet, it should be able to weather the storm.

From PWE's latest quarterly report, which outlines estimated future contractual obligations:Penn West’s financial liabilities as at December 31, 2008, the earliest debt due is $2.56 billion in year 2011.
Source: Yahoo Finance

Penn West recently announced a reduction in monthly distribution to unit holders from $0.34 per unit per month, a sustained level for 35 months, to $0.23 per unit per month. With 385 million unit holders, that is over $1 billion cash-outflow for 2009.

Compared to 2008, Penn West’s 2009 capital program was reduced significantly to between $600 million and $825 million. Assuming 2009 average prices of $45.00 per barrel for oil, $5.50 per GJ natural gas, the company believes that it can fund capital programs and distributions with internally generated funds flow.

With 28% yield, is it too good to be true? January 2009 car sales in China were more than in the U.S., the first time in history. In February China’s car sales were up by 25%. If you believe oil and gas prices will stay at this low level for a long time, then probably it is.

Disclose: Long PWE.

China and the USA credit quality

China threw a cat among the pigeons as they voiced concerns about their holdings of US Treasuries and wanted assurances their investments are safe. Premier Jiaboa said "We have lent a huge amount of money to the US and I request the US to maintain its good credit, to honor its promises, and to guarantee the safety of China's assets."

A Chinese analyst commented that they are worried the US may solve its problems by printing money which would stoke inflation and if the US can make sure this won't happen, then China should continue to invest.

President Obama quickly responded to ease those concerns by saying in a press conference "Not just the Chinese government, but every investor can have absolute confidence in the soundness of investments in the US." Continued Chinese investment in Treasuries are crucial in financing the stimulus packages. I wouldn't think any type of a major sell off is likely but I could see them backing off a bit if they don't feel comfortable. It will be interesting to see if anything changes going forward, but I don't blame them for wanting some type of re-assurance.

Of course, even Obama is likely to be unable, read not really willing, to stop the coming inflationary rise in rates. The Chinese will have to adjust to the new reality but will do so I suspect with a lot more wailing.

Severe drilling decline could cause huge natural gas rally

To combat lower energy prices, oil and gas drillers are idling rigs at the fastest pace since 2002… which may cause prices to double. The number of rigs in the U.S. has fallen to 884 from a record 1,606 in September.

According to Bloomberg:

About 45 percent of U.S. rigs have been shut since September, which means fourth-quarter gas production will tumble 5.2 percent, faster than the 1.9 percent decline in use, the Energy Department forecast. Prices will rise to $7 per million British thermal units by January from $3.897 today on the New York Mercantile Exchange, according to a Bloomberg News survey of 20 analysts. The gain would be the largest since the first half of 2008.

When energy demand rebounds, the infrastructure won't be there to supply it, and prices will soar.