News that Moves: Peter Munk of ABX - China & U.S. Debt - China, Japan & Australia add to Fiat Currency Expansion - Losses on Hybrids

RCM Comment: The Chairman of Barrick Gold (ABX), Peter Munk, a well respected elder statesman of the precious metals arena, was interviewed during the Davos 2009 world economic conference. You can click on the link to read all his comments, but a key takeaway was his belief that China and other nations may begin converting reserve currency into gold. What could be a cynical view of his comments might falter when taken in context with the story below.


Chinese cautious on Treasury notes - NY Times
NY Times reports China's willingness to continue buying United States Treasury securities in large numbers will depend on its need to protect the value of its foreign investments, the Chinese premier, Wen Jiabao, said. He also said that a stable yuan is in everyone's interests. "Whether we will buy more U.S. Treasury bonds, and if so by how much — we should take that decision in accordance with China's own need and also our aim to keep the security of our foreign reserves and the value of them," Mr. Wen said. His enigmatic remarks, made near the end of a visit to Europe, could raise new concerns about China's commitment to continue purchasing United States government debt. (See 7:24 story for additional detail)

RCM Comment: Currently more than 500 trillion of fiat currencies circulate around the world. The following three stories will illustrate that this number is ever increasing. The entire market capitalization of the precious metals sector that trades on the major exchanges in the U.S. is roughly $180 billion. $180 billion includes mining companies, ETFs and closed-end funds. Q: What happens when simply 1% ($5 trillion) of the fiat currencies tries to move into the gold space? How about 10%? In March of 2006 new Fed chairman, Ben Bernanke, stopped the Fed from supplying the world with U.S. M3 numbers (the best gauge of money supply growth). In August of 2006 Rosenthal Capital Management started the Fortune's Favor Precious Metals fund. We are ahead of the curve. Why don't you come and join us?

China's Premier Minister Wen looks at fresh Chinese stimulus - FT FT reports China has pledged to take all necessary measures to stimulate its economy and fuel consumer spending, but has rejected as "ridiculous" suggestions that its huge pool of domestic savings has been partly to blame for the global financial crisis. In a rare interview, Wen Jiabao, China's premier, said in London on Sunday that Beijing was considering fresh measures to boost its economy beyond its Rmb4,000 bln ($585 bln) fiscal package launched late last year. He told FT: "We may take further new, timely and decisive measures. All these measures have to be taken pre-emptively before an economic retreat." Mr Wen is on the fifth leg of a European tour aimed at reassuring trade partners that China will join the west in a coordinated effort to tackle the global economic crisis. Although Mr Wen declined to rule out explicitly a devaluation of the renminbi, he stressed that Beijing intended to keep its currency stable at a "balanced and reasonable level". He added: "Many people have not come to see this point... If we have a drastic fluctuation in the exchange rate of the renminbi, it would be a big disaster." Mr Wen said China's economy had slowed sharply in the fourth quarter of 2008, with growth dipping to 6.8%. He reeled off a list of measures -- including massive infrastructure spending and handouts to consumers -- which Beijing was taking to ensure economic growth reached "around 8%" this year.

Bank of Japan unveils $11 bln stock buying scheme - Financial TimesFinancial Times reports the Bank of Japan on Tuesday pledged to spend $11 bln to buy shares held by Japanese banks to ease the pain from the global financial crisis, reviving a scheme launched earlier this decade to head off a domestic banking crisis. The move came as a Japanese newspaper report said Mitsubishi UFJ Financial Group (MTU), Japan's biggest bank, would post a loss for April to December and slash its annual forecasts, reflecting both stock losses and a rise in bad debts. The Nikkei stock average rose after the BOJ decision, while the yen fell broadly on hopes the central bank buying would ease risk aversion. Under the scheme, the BOJ will buy up to 1,000 bln yen ($11 bln) worth of listed shares held by Japanese banks up until April 2010 to reduce their exposure to the stock market. To protect its own balance sheet, the central bank will buy shares in companies that have credit ratings of at least BBB-minus.

Billions in stimulus are proposed for Australia - NY TimesNY Times reports Australia's government would spend $42 bln Australian dollars, or $26.5 bln, on infrastructure, schools, housing and payments for low-income earners. Last year, Australia announced several measures as the economic slowdown in the United States and Europe began to spread around the world and engulf the economies of the Asia-Pacific region. "The weight of the global recession is now bearing down on the Australian economy," Wayne Swan, Australia's treasurer, said in a statement. "In the midst of this global recession it would be irresponsible not to act swiftly and decisively to support jobs." Under the plan, the budget deficit is expected to swell to 22.5 bln Australian dollars ($14.2 bln), or 1.9% of the country's GDP. "Decisive action is now required to strengthen the Australian economy and in these circumstances, a temporary deficit is the only responsible course of action to support jobs and economic growth," Mr. Swan said.

RCM Comment: The cockroach theory is in full force. When you see one cockroach you know there are more and it is no different with this financial crisis. Stories like the 'losses on hybrids' continue to scurry across the news wires. And now that the financial house is burning these stories will continue to pour out of the woodwork.
Investors brace for losses on hybrids - WSJ
WSJ reports global investors, already stung by a litany of financial innovations gone wrong, are facing a fresh round of losses on yet another product of the credit boom: so-called hybrid securities. Hybrids grew into a $700 billion market by offering investors higher yields for what was often believed to be the same level of risk as other securities. Now, those risks are coming back to haunt investors. As the U.S. and European banks that issued most hybrids run into increasing financial troubles and in some cases teeter on the brink of nationalization, the likelihood of delayed payments and flat-out losses is rising. As a result, the prices of some hybrid securities, such as those issued by part-nationalized U.K. banks Lloyds Banking Group (LYG) and Royal Bank of Scotland Group (RBS), have fallen by 25% to as much as 75% over the past two months. The potential losses have ricocheted to the big holders of these securities, the most prominent of which are major insurance companies such as Aflac (AFL), Prudential (PUK) and Switzerland's Swiss Reinsurance, which have seen their shares slammed on worries about losses. "Investors are getting beaten up," says Scott MacDonald, director of research at hedge fund Aladdin Capital.