Watch for a US Market Move LIkely Before the Close

It is said that the US Senate will be voting on the confirmation of Zimbabwe Ben, the Oligarch's Friend, around 3:20 PM EST today. Or at least they will be voting for 'cloture' which is the end of debate. This requires a 60 vote majority, the same rule invoked to end the infamous filibusters.

The confirmation would then be voted on itself, requiring only a simple majority.

The equity market is on support, and a move in sympathy with Ben's confirmation or denial is probable, up or down.

After the bell Microsoft reports earnings, and is carrying a whisper number of .66 versus the consensus .59.

This may be overshadowed by the review of the banks' privateering license should it indeed occur today, and not be postponed until tomorrow. Interesting that the banks are rallying while techs are widely lower after QCOM.

If the cloture vote is indeed postponed, then it is likely that some Senators are holding out for better reasons to confirm, in the form of mo' money. As we understand the rules, a single Senator can postpone the vote for 30 hours.

The US Senate is a bit like the House of Lords, with a certain haughty lack of substance and misplaced self-absorption and celebrity, but with more ability to accomplish mischief and interfere with the practical workings of the nation.

Bernanke's current term as Fed Chairman expires on Sunday, 31 January.

A denial to confirm would almost certainly call for an object lesson to the government in the form of a sell off. Threats do not stick if you do not occasionally make good on them.

And the global financiers are still smarting over what one sneering English correspondent for the Financial Times on Bloomberg Television called Obama's senseless "outburst" regarding support for the Volcker rule. Obviously this President has forgotten his place and may need a reminder.

Obama and his team are unabashed in support for the Chairman, and are opposed by an unlikely coalition of progressive Democrats and conservative Republicans who are unhappy with the secrecy of the Fed and the aggressive and expansive nature of the bailouts.

There is also a strong correlation between the Senator's speaking volume on the subject and the proximity of their next election. We are sure many are looking for ways to 'cover themselves' without interfering with what the lobbyists and corporate campaign contributors desire.

Memories of Beijing Ten Years Past

Below is a brief note from a friend abroad about his trip to Beijing and his experiences there with the retail gold trade which I found to be interesting. It is a sharp contrast to my last trip there over ten years ago.

The last time I was in Beijing was in 1998, and it must seem to be a different world there now. Back then there were few cars and a sea of bicycles. As a friend and I took a pedicab back from the Forbidden City to our hotel, it did seem as though we were in an ocean of moving people, bicyclists weaving about in ever shifting traffic patterns, with order maintained by some unspoken set of rules and deferences. There was no air pollution to speak of, and the sky was a deep blue, and the breeze crisp even on a sunny day.

Beijing was a sharp contrast to the great cities of the south. Vibrant Hong Kong nestled on the coast, and Shanghai, an expanding mass of grey on gray, concrete bristling with construction cranes. The sprawling capital seemed almost pristine, delicate. Especially if you did not see the huddle of one story concrete block villages on the outskirts of the main thoroughfares. But even they were more rural and underdeveloped than squalid like similar dwellings of the lower caste workers in the West. There was no litter or disorder, anywhere.

A major access highway was being constructed for the Olympics which the city hoped to host, which they did roughly ten years later. We marveled at the complete lack of heavy machinery, the mass of hand tools, and spiderworks of tied bamboo scaffolding.

The hotel was marvelous, with the kind of extravagant niceties that only a developing country can effortlessly provide to the prospective export trade. A twenty piece orchestra of excellent musicians in the spacious hotel lobby while you drink your coffee and tea in the afternoon is something that one rarely sees in a European hotel. And in the States, it is always impersonal, mass produced, and perfunctory. Welcome to the cult of death. Have a nice day.

Lovely people really, but the hardships of the countryside marked the faces of the peasants as we traveled outside the city to the Great Wall with our guide, Big Mah, so noted by his stature, which was average by European standards. The Wall itself runs the hilltops, clinging to mountainsides with remarkable tenacity. One does not walk the wall except for brief spans, and then you climb. The inclination is astonishing and the steps really large blocks, so it is an effort to lift your legs high enough from one to the next.

We labor to the top, to obtain a souvenir 'chop' on our paperwork at the summit, a symbol of our resolve. We are oddities again, some of the few Westerners. Crowds though of Chinese tourists exploring their heritage.

I am tired and sweating, regretting the lunch I ate earlier that day before the climb, and shamed by a young Buddhist monk who bounds up the incline like a gazelle, enigmatic smile spreading across his face, large straw hat in a fluid motion with his robes. I wonder why he is there. Do monks go on vacation? All he carries is a small leather purse and a stick.

Beyond that top point is the Wall unrestored, a shambles really, a recognizable collection of stone but not much more. Hardly a wall, more like a resilient pile of manmade things with a sort of quiet endurance, waiting for its renewal and the restoration provided by a Ten Year Plan, or not.

The visit to the cloisonné factory revealed a large showroom with small shops in the back staffed by women, intent as they worked in appalling, dirty conditions on ancient looking machinery. No health and safety inspections here. This is the ideal capitalism as Bill Gates described it after his own visit to the People's Republic. Keep your head down and your mouth shut.

At the tombs of the emperors we saw great stone rooms, empty of any furnishings or artifacts, stripped of all decadence during the Cultural Revolution. At least they have not despoiled the tomb of the great Qin Shi Huangdi, which sits in brooding solitude under its man made mountain on the plain. Is it truly superstition that prevents its excavation, or a fearful respect for what is recorded to have been the labor of tens of thousands of men in burying their first great Emperor in what is said to have been astonishing opulence, rivaling and perhaps surpassing that of the Pharaohs.

At the nearly deserted Friendship Store we watched a man slowly and painstakingly painting the insides of small medicine bottles with intricate strokes from a brush that seemed to consist of a few hairs. I have several of them still, on a shelf in my study. I sometimes wonder what became of him, and his quiet obeisance to art and the dignity of craftsmanship. It is good to surround yourself with little reminders of people whom you have known, for their spirits are all that will remain when the last stars flicker out.

There were few tourists, and my Italian chief engineer and I would draw more than a few stares from the passersby as we walked down the broad avenue towards Tiananmen Square. There was a McDonalds but it was closed for lack of interest. Groups of people crowded around what looked like newspapers posted on public boards, a primitive version of the Internet cafe.

We watched a football match one evening in the hotel bar via satellite, Italy versus the Czech Republic. I pretended to sympathize with my friend in the Italian loss, which for him was disgrazia e disonore, for the Italians to lose to such a team as mine, but I secretly reveled in the win. There was nothing else to do, as they had no grappa on hand to ease his suffering. It was the only thing that would absolve such an indignity, except time.

As a guest of the government we dined one evening in an official restaurant, with doors guarded by soldiers. Dinner was a treat, but the attempts to playfully intimidate me with a still lively lobster 'sushi' were misspent, as I had done my time in Tokyo and the small places off the Ginza playing that same game with my Japanese friend Shino san. I am a citizen of the world, and nothing is alien to me except sin.

Afterwards they had group karaoke and dancing marked by a charming innocence. The old gold toothed host challenged me to a drinking contest, with something that tasted like distilled kerosene served in a heavy white ceramic teapot that in Chinese was called the alcoholic's friend. I refused to be shamed into it and deferred, as I had to get up at 5 AM the next day for a flight that could not be missed, as it only ran twice a week as a nonstop to Scandinavia. If missed, it meant a lengthy flight with a connection through Bombay. No time for hangovers.

One of the young ladies remarked about a recent film she had seen, The Bridges of Madison County. I had never seen it, and still haven't. She was impressed that American men could be so sensitive, as she had been led to believe that we were barbarians. I did not have the heart to tell her that despite some finer moments, we really are. And so are hers.

Everywhere the clerks were polite but restrained, obviously pained to please, but especially when changing money. Slogans in Chinese were everywhere, urging the populace to work hard to achieve the award of hosting the Olympic games, to the point of civic obsession.

The airport was a nightmare of people and traffic. The line to enter the departure area was a clotted mass of people surging towards a tiny female guard. After facing down her fierce glare and outstretched hand, I learned what was required from a young German tourist with backpack and halting English, directing me to first purchase a departure tax coupon at the other end of the terminal. Don't panic, just get it done.

Once past that narrows of official release, there were piles of luggage and a small stand, barely a cardboard table and marked by a tiny sign, where one checked in for the non-stop flight to Copenhagen. I was so worried about missing the flight that I took my carry-on to the gate and sat on it, forgetting to exchange my Chinese money on departure, in violation of their currency controls. The money was a key plank in their ten year plan, like the exhortations on the walls.

It's all different now. China seems to be making the great leap forward. I have heard that the sea of bicycles is gone, replaced by impersonal masses of metal moving in linear formations. They even have smog in the city, an innocence lost.

And where is the West going? Is there some force that is causing the wealth of the people to seek a level, flowing from West to East, to bring all to the lowest common denominator? Or are the elite powers merely leveling the common people under their governance and the will to power? Are the great world civilizations converging around the individual, to crush his spirit?

And what price freedom.

Just returned last night from Beijing. While on standby at airport from 11:30 AM until 6:30 PM (all classes of all half-hourly flights of all airlines were overbooked and loaded full, and so asia mile / marco polo gold membership were ineffective in attempts to cut in the queue). Beijing-HK air travel business must be good.

To kill time, I extracted paper cash from atm network and exchanged same for little one troy ounce monetary gold wafer at airport sub-branch of bank of china. The staff were courteous, and the sub-branch manager spent 5 minutes with me to explain the way to buy and sell back gold.

Each wafer is individually numbered, and registered.

China is progressing fast in its re-engagement with gold. Wonderful. It is interesting that gold seems to be everywhere now at the China retail level, legally bought, kept, sold back, and all tax free, at transparent pricing, in alignment with gold reform that was two decades in planning, implementation, and rollout.

Now that is market capitalism, which the US banking system is now sadly lacking. A free market is not dominated by opaque complexity, endless frauds and limited choices, with high rents extracted by government license, feeding on productive effort, placing toll booths across fundamentally simple transactions with a nightmarish private bureaucracy and regressive taxation. That is feudalism, or more recently, crony capitalism.

Capitalism is about the creation and the adding of value, satisfying customer demands, thereby making them -- happy. It is not the taking of inordinate fees through legalistic snares and artificial complexity, obstacles and contrivances, government sanctioned monopolies and corporate racketeering.

The Banks and politicians no longer respond to the people, their customers, because they have merged their interests to the exclusion of all others, serving themselves, undermining the fundamental basis of social relationships and trust. The starting point of regulatory reform is no longer what the people need, but rather, what Wall Street requires. This is the same model as the US health care system. The corruption starts its financiers, but has its roots in Washington.

And so perhaps we may have a global recovery, even prosperity, and a return to the discipline of the market, if we bury our would-be emperors, the Banks, with their terra cotta army of regulators and politicians.

Interesting Volatility in the Silver Market - Silver Wheaton

Interesting action in Silver Wheaton, SLW, today, one of the stronger and more prominent silver plays in stocks. As spot silver remained weak, down most of day, SLW started climbing off its lows reached around noon ahead of the FOMC announcement.

At one point late in the day around 3 PM SLW was UP almost the same percentage as ZSL, the 2x ultra short silver ETF, which was 1.86% higher! Now that offered some interesting speculation and food for thought. Is there anyone in this market except for daytraders and wiseguys? lol.

At some point I expect the silver market to absolutely explode to the upside because of the severe imbalances in supply and demand being created by the paper manipulation in the futures markets. But perhaps not yet. JPM is holding a heavy short position, and they will play games with it until prohibited from doing so. They certainly will not be forced to take a loss by either the exchange or the regulators.

Still, the divergence was worth noting today, perhaps if only to sell some puts to provide a foothold in this crazy market and hedge some risk to further price fluctuations.

The big swing today looked like either short covering or arbitrage, absent any specific news.

"Silver Wheaton has quickly positioned itself as the largest silver streaming company in the world. The company has entered into seventeen agreements where, in exchange for an upfront payment, it has the right to purchase all or a portion of the silver production, at a low fixed cost, from high-quality mines located in politically stable regions."

I obviously hold a position in this stock on the long side. Hedged, I should add, along with any mining and precious metals positions I now hold. I take the hedges off when I think the correction is over, and buy longs very slowly and on daily weakness, as we saw on SLW ahead of the Fed announcement today. I also like to try and 'strip beta' out of stocks like this on an intra-day basis.

I think this is the first time I have ever commented on a specific stock. I ordinarily do not do that, and do not intend to change that habit, but this seemed exceptionally odd price action and I wanted to throw it out there so readers might note it, and even forward any rumours or news or legitimate reason for this kind of countertrend action.

US Cattle Herd Drops to 1958 Levels

Ranchers are culling the herds as corn prices soar and wholesale prices for beef and milk drop.

My personal view is that this is a manifestation of economic distortions and malinvestment due to government interferience in a variety of feed markets over a number of years, as well as paper speculation driving prices in a way that is not connected with physical supply and demand.

Is there a significant change in American dietary habits and an oversupply of beef and milk? It does not seem as though the retail prices of milk and beef are dropping in concert with this, which may be dampening demand.

Let them eat iPads and CDO's.

BusinessWeek
U.S. Cattle Herd Falls to 1958 Low as Losses Climb, Survey Says
By Whitney McFerron

Jan. 27 (Bloomberg) -- The U.S. cattle herd may have shrunk to the smallest size since 1958, as mounting losses during the recession spurred beef and dairy producers to cull animals, analysts said.

Wholesale choice-beef prices averaged $1.4071 a pound last year, the lowest level since at least 2004, as U.S. job losses climbed and meat demand waned. Corn, the main ingredient in livestock feed, jumped to a record $7.9925 a bushel in 2008 on the Chicago Board of Trade, and prices averaged about $3.79 last year, the third-highest annual average since at least 1959.

“There’s not much incentive to be building herds,” said John Nalivka, the president of Sterling Marketing Inc., a livestock-industry consulting company in Vale, Oregon. “Costs of production across the cow-calf sector and in dairy have gone up in the past two years, and prices have come down” for beef and milk, he said.

Futures prices for feeder cattle, the young animals that ranchers sell to feedlots to be fattened for slaughter, averaged 96.821 cents a pound last year on the Chicago Mercantile Exchange, the lowest level since 2003. Feeder-cattle futures for March settlement rose 0.2 percent yesterday to 98.975 cents a pound on the CME.

Slaughter-ready cattle futures for April delivery dropped 0.9 percent yesterday to 89.325 cents a pound.

Rancher Losses

Cattle ranchers in the southern Great Plains lost about $34 on every breeding cow they owned last year, following losses of about $18 a head in 2008, according to Jim Robb, the director of the Denver-based Livestock Marketing Information Center, an industry- and government-funded researcher.

U.S. beef production may total 25.45 billion pounds (11.54 million metric tons) in 2010, which would be the smallest amount since 2005, Robb said. The USDA forecasts output at 25.58 billion pounds.

“We’re forecasting that beef production in 2010 won’t be the smallest since 1958, because the average animal processed now weighs twice as much,” Robb said.

The number of young female beef cattle held back for breeding in the U.S. may have fallen to 5.45 million animals, down 1.4 percent from 5.526 million a year earlier, according to the average analyst estimate.

Dairy Cuts

Dairy farmers may be holding back 4.313 million young replacement cows for breeding, down 2.2 percent from 4.41 million at the same time last year, according to the average analyst estimate. The dairy herd is shrinking partly because of industry-funded cow culls last year aimed at supporting prices.

The so-called Cooperatives Working Together program removed about 252,000 dairy cows from production since December 2008, according to a statement on the group’s Web site.

“Last year was a terrible year for milk prices,” said Ron Plain, a livestock economist at the University of Missouri in Columbia. He said the industry-funded culling program is “one of the reasons why we’re down so much on milk-cow numbers from a year ago.”

The price of class III milk, used to make cheese, tumbled to a six-year low last year of $9.24 per 100 pounds, after global demand slowed. The price has rebounded 57 percent since then to $14.54 yesterday on the CME.