Is the United States Headed Down Europe’s Financial Road?
Europe’s economy is contracting
The recent Greek debt deal produced a big collective sigh of relief, plus some cheers for that massive liquidity injection into Europe’s banking system.
It was time to grab a glass and offer a toast to the coming economic recovery of the European Union, right?
Alas, it turns out that Europe’s private sector economic activity is contracting faster than expected.
The latest Markit composite purchasing managers’ index fell to a three-month low. And the survey for that index was conducted in Germany and France, two of the eurozone’s bigger economies.
Markit’s chief economist told Marketwatch (3/22) “The euro-zone economy contracted at a faster rate in March, suggesting that the region has fallen back into recession…”
Citigroup’s chief economist told CNBC (3/22) that Europe’s financial problems have merely been delayed for another day. “We have really just paused for breath,” he said. “It [the long-term refinancing operation] really hasn’t solved the problem, and for Europe the worst is still to come.” Continue reading
Rare Earth Investment Update
By Jeff Clark, Casey Research
We’ve received a number of inquiries from Casey Research subscribers about our opinion on the current rare earth metals market. We have covered this topic previously, but this article, we’ll take a fresh look.
As a matter of a recap, rare earth elements (or REEs) is a generic name for 17 metals widely used mostly in high-technology devices, such as mobile phones, laptops, flat screen televisions, hybrid car batteries, lasers, optics, and military equipment. New uses for these metals are being constantly found, but more on that later.
Despite the name, these metals are not actually rare in nature. The name refers to the fact that they are rarely found in a pure form and are usually mixed with other minerals, which makes extraction complicated and costly. Further, mining and refining of rare earth metals is environmentally challenging, due to acidic and radioactive byproducts. This is why most countries don’t produce REEs. This has led to a reduction in reserves of these metals and left the bulk of production to less environmentally conscious companies and jurisdictions. China has expanded its production and, at least on the surface, looks to have a near monopoly on the industry. According to the US Geological Survey, China possesses one-third of the world’s reserves and produces 97% of global supply.
None of this was a problem until China started introducing trade limits. Dramatic changes took place in 2010, when Beijing officially decided to cut export quotas on rare earths by 72%, to 35,000 tonnes, far below the levels of world consumption. Quotas were further reduced by 35% in the first half of 2011. Steep export taxes were applied, too. As a result, REE prices skyrocketed. Continue reading
Foreigners Losing Confidence in Holding US Treasury and Agency Debt
By Bud Conrad, Casey Research
Foreign central banks buy US Treasury and Agency debt through accounts at the Federal Reserve, where it is held in custody. Without these central banks buying our debt, the US federal government would have to find a new source of funds or the result could be higher interest rates. Looking at the data on a monthly basis (and then multiplied by 12 to give the annual rate), here is the dramatic picture of how foreign central-bank purchases of our debt have shifted, from buying $500 billion to selling off $1 trillion. At this rate of selling over several months, interest rates would go higher – if other things were equal. Of course, things are not equal because the Fed has been forcing rates lower with its massive QE2 and other programs. QE2 was $600 billion over nine months, or an annualized rate of $800 billion per year. Since foreigners are selling off our government debt, Fed purchases of government debt are even more necessary. Continue reading
China: Continued Boom or Bursting Bubble?
By James Quinn, Casey Research
In a recent article, How China Ate America’s Lunch, Clif Carothers described what China has accomplished in the last thirty years:
In thirty short years, China was able to accelerate her GDP from $216 billion to $6 trillion. She amassed reserve capital of $3 trillion. She reversed America’s fortunes from the greatest creditor nation to the greatest debtor nation. She gutted America’s factories while creating the world’s largest manufacturing base in her own country. A measure of output that highly correlates to GDP is energy consumption. In June of this year, 2011, China surpassed the United States as the largest consumer of energy on the planet. While the US consumes 19% of the world’s energy, China consumes 20.3%.
While China was growing their economy by a phenomenal 2,800%, the US GDP grew from $2.3 trillion to $15 trillion – a mere 650% increase, of which 420% was due to inflation. There is no question that China’s progress has been remarkable. The question is whether that growth is sustainable and built upon a solid foundation. Continue reading
Time to Go Global
By Chris Wood, Editor, Casey Research
Here at Casey Research, we really don’t enjoy being a buzz-kill. It’s just that we think it’s more important for investors to be well informed about the reality in which we find ourselves today than it is to be happy-go-lucky all the time.
The good news is that when the stuff hits the fan, as it has for going on two years now, it opens up a number of unexpected opportunities for profit. Even in the hairiest situations, there are ways to protect yourself.
Having said that, let’s start with the bad news… Continue reading
The Advantages of Global Diversification
Almost every day we hear of more ways the government is trying to control our lives and get into our wallet in order to pay for it. Like sand through an hourglass our freedom is slowly slipping away. Everything requires more reporting, more government oversight and more of our money to do it. Only you can protect yourself but it takes knowledge, and effort in order to do it. In this article Terry Coxon reviews the plusses and minuses of your overseas options. ~editor
Expatriate Your Wallet
By Terry Coxon, contributing author of Casey Research’s ‘Going Global’ Special Report
If everything you own is held in your own name in your own country, then you are not merely exposed, you are vulnerable absolutely, to whatever decisions the government might make about how you should behave and who gets the wealth you’ve earned. Tomorrow’s new government measure, which might land out of the blue, could be a law that affects everyone, or it could be a rule devised to deal with people like you. Or, it could be an administrative action aimed at you alone. In any case, with all your assets at home, you’d find out how the lobster feels when his trap is being hauled out of the water. Nothing he can do about it.
The only way to protect yourself against the risk of being boiled in a government pot is to keep some of your assets in another country. Continue reading
