Facebook filed a highly anticipated five billion dollar IPO last night, which has made the entire social media sector boom today. LinkedIn (NYSE: LNKD) is up nearly 6% and Groupon (NASDAQ: GRPN) is trading up almost 7%. As a result, the Global X Social Media Index Fund ETF (NASDAQ: SOCL), in which aforementioned stocks have a significant weight is up 2.5%.

The biggest mover, however, is a social game developer Zynga (NASDAQ: ZNGA). The company’s biggest titles, such as FarmVille and Mafia Wars, gather millions of players every week on Facebook’s platform. The stock is up 18% today, as Facebook’s IPO filing mentioned that 12% of Facebook’s revenue comes from Zynga’s games.

So, should you buy into this rally?

Sterne Agee analyst, Arvind Bhatia, who has an Underperform rating on Zynga, told Benzinga that Facebook’s IPO filing did not change his opinion and that it did not offer any new information that would be positive for Zynga. Bhatia said that today’s rally in Zynga is caused by the false impression that Zynga’s valuation should be 12% of Facebook’s valuation because it accounts 12% of Facebook’s revenues.

Bhatia points out, for instance, that Zynga’s growth rate is currently half of Facebook’s and that the company is highly dependent on Facebook, as a staggering 94% of company’s revenues come from Facebook’s platform. Thus, there is the looming threat that Facebook could demand a bigger share of Zynga’s revenues and significantly hurt the game developer’s earnings.

When asked about Zynga’s ability to diversify by releasing games on different platforms, Bhatia was not optimistic. He said that in the foreseeable future at least 90% of Zynga’s revenue would come from its Facebook games. Thus, continued success on Facebook is vital for Zynga, a social games company that went public less than two months ago.

Overall, the high level of dependence on Facebook is clearly a risk factor for Zynga and the company also brought up this fact in its IPO filing. Additionally, investors should be concerned about Zynga’s negative growth rate, which indicates that the Facebook users might be becoming less interested in improving their farms and spending money to equip their mafia soldiers.

–

Tuomo Kallio Benzinga

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The major US indexes are all up today after a stronger-than-predicted jobs report from the Labor Department.  As all the headlines have been reporting, the Labor Department announced today that the United States economy added 243,000 jobs in January. Unemployment declined to 8.3% during this time, the lowest level since February of 2009.

Analysts had projected the economy to add only 150,000 jobs last month.  January is traditionally a rough time for employment numbers, as temporary jobs added by retailers during the holiday rush are often jettisoned to start the year.  December’s numbers were also upwardly revised by the Labor Department release; they increased the amount of private sector jobs added in that month to 203,000, up an additional 3,000.

The other big headline today is the settlement deal that is nearing in Europe.  Grce is expected to finish their talks with their European creditors involving their bailout debt.  The Greeks are expected to announced a deal with private creditors that will see approximately 70% of their debt forgiven.

In company news, Ford Motors (NYSE: F) has seen their stock price jump today after their CEO, Mr. Alan Mulaliy, told financial blog Seeking Alpha that the company may be increasing their dividends in the near future.  As a result of the news, as well as a generally strengthening economy, has seen the share price increase by 3.04% at the time of this writing.

Over in commodities, silver has not faired as well. iShares Silver Trust (NYSE: SLV) has seen their share price decrease 1.89% so far today.  Investors in silver might be interested in Oakshire’s latest piece on the precious metal, in which Matt McAbby says it’s time to sell the precious metal.

Finally for the day, Japanese-owned Panasonic (NYSE: PC) has seen their ADR’s share price jump so far today, despite a disappointing annual profit total.  The company is expected to announce a record $10.24 billion net loss for 2011.  Their competitors Sony (NYSE: SNE) and Sharp are also expected to announce substantial losses for last year.

That’s all for this week in Market Updates. Have a great weekend, loyal readers. I hope you enjoy whatever Super Bowl party you’re planning to attend (or a quiet night in for those of you whom aren’t sport fans). We’ll see you back here on Monday with a fresh Market Midday, and a new Wall Street Elite newsletter. Until then!

All the best,

Jack Aubrey

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Uncertainty sends euro down on risk aversion

There is just enough uncertainty in the FX market to send the euro lower today in forex trading against the US dollar. The 17-nation currency is heading lower as concerns about Greek debt remain, and as forex traders consider the United States.

Indeed, Ben Bernanke just told Congress that the United States remains vulnerable to financial problems as long as the issue of the deficit is avoided. The result is that there is uncertainty, even with recent good news out of the eurozone and even out of the United States.

For now, euro is pulling back, moving lower against the dollar and unable to regain the momentum from its recent rally. 

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G10 Advancers and Decliners vs USD JPY 0.16 EUR 0.03 GBP -0.01 CHF -0.10

Risk appetite has consolidated overnight, with Asian equity markets following European and US markets higher. The Nikkei is up +0.8%, Hang Seng +1.6% and Shanghai Composite + 2.0 %, while EURUSD has managed to remain above 1.3150 for most of the session. Contributing to this uptick in sentiment is undoubtedly the easing of stress in European bond markets, as well as the largely encouraging…

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The risk rally has juddered to a halt overnight, in spite of China’s manufacturing PMI coming out at a better than expected 50.5 (consensus 49.6, prior 50.3). The main beneficiary of the news in the currency space was AUD which enjoyed a temporary uptick, but overall the trend has been a renewed demand for dollars and loss of appetite for risk currencies. EURUSD started to lose upside momentum…

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In an election year, anything goes.

We’ve already commented on this site how closely aligned President Obama’s confidence ratings are with the movement of the major stock indexes (see here).  And it’s reasonable to assume that the President’s advisors are also aware of that correlation.

Ergo…

We should expect to see the President to do whatever he can to get re-elected.  If that means another round of Quantitative Easing, that’s what we’ll get.  If it means a war with Iran, let the missiles fly.  If it means offering Wall Street and the big banks subsidies that fall on the backs of NRA, bring ‘em on.

Whatever gets the market moving will be considered and will be done.

That’s power politics.  And if that upsets some tender little tummies, then don’t shoot the messenger.  That’s just reality.

We note also that the political game is a two way street.  That is, from the President’s closest supporters we should also expect a rise in both the grandiosity and the number of their demands as election day approaches.

Take, for example, big labor’s latest call to up the ante in the trade war with China.  At a time when tariffs and other sanctions are precisely not what the world economy needs, rust belt lawmakers and labor leaders are now making a concerted push to get the administration to restrict imports of auto parts from China.

Why not, after all?  Lots of swing states in the Midwest would benefit from ‘correcting’ the $10 billion auto parts trade deficit we currently run with China.  But is it good politics?  Sure.  Could it provide a short term boost to the economy?  Very short, yes, it could.  Will it get done?  If the market needs a goose… count on it.

President Obama will pull out all the stops to see that Americans feel like they’re recovering.  And a rising stock market is the quickest short-cut to that destination.

Speaking of Wars…

Amongst silver aficionados, Eric Sprott is considered one of the leading prophet/warriors of the precious metals cause.  So last week, when this Toronto-based profiteer was rumoured to be buying physical silver for his closed-end PSLV Fund, the silver market took off.

Whether it’s true, we can’t say.  But a look at the longer term charts tells us there’s likely something else afoot.  Call us cynics, but we can’t believe Mr. Sprott’s timing is that bad.

On the contrary.  When the happy, puck-toothed Canadian stepped into the market with a follow-on offering of $300 million for his fund (which nets him huge personal profits in a host of ways – but mostly due to the fund trading at a 30% premium to spot – [no exaggeration!]), we believe that he was signalling an intermediate top for silver.

What makes us even more suspicious is the timing of a letter sent to clients roughly a week before, in which Mr. Sprott went off on the entire financial system, calling it ‘a farce’ and clearly playing to the choir with all sorts of references to MF Global and the National Defense Authorization Act (two items that we have no sympathy for) – all with an eye to striking the right chord with the goldphile crowd before, apparently, reaching into their pockets for another wad of gob.

Yes, Virginia, even the big players (nay, even those pure souls in the precious metals industry) will take advantage of Mr. Sorry-ass Joe Public when they get the chance.

That’s power finance, friends, like it or not.  And Mr. Sprott is no different from Mr. Obama in that regard.  Both will do whatever is in their power to achieve the desired goal.  Mr. Sprott’s of course, is lining his pockets with gold (or silver, if you prefer).

The truth behind the silver rally, however, lies in the charts.

Have a look for yourself.

The daily chart shows the iShares Silver Trust ETF (NYSE:SLV) almost reaching moving average resistance at $33.50/$34.00 (black box).  That level may be hard to break.

We also seen no sign of a final investor capitulation bottom, something we’d expect after a nearly 50% plummet from former highs (blue box).

And finally, RSI indications, while not yet clearly overbought, are looking a little stretched.

Here’s the weekly:

We’ve met and failed to pierce overhead resistance at the short term weekly moving average, too.  A turn lower from here looks very much in the cards.

Weekly RSI and MACD readings are also struggling to get above their waterlines.

Silver may be the best performing asset class so far in 2012, but for our money it looks like a sell.

Again.

Many happy returns,

Matt McAbby

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In employment news, weekly first-time jobless claims fell more than expected last week, down 12,000 to 367,000.  This news comes just one day ahead of the Labor Department’s January employment data release.  Analysts had anticipated the initial jobless claims number to come down a more modest 2,000.  Earlier this week, ADP released their estimates for January’s job growth; the company’s data was similar to analyst projections for the month, which has the unemployment situation virtually unchanged for the month.  A strong showing from January’s labor numbers could boost investor confidence greatly, as January is normally a laggard time for employment following the termination of many seasonal, holiday jobs in the retail sector.

In other good news, Fed Chairmen Ben Bernake said earlier today that the American economy is continuing to show signs of improved and healthy growth.  Mr. Bernake also urged the US House Budget Committee to reduce the US budget deficit to help the economy in his speech.

Over in Europe, investor eyes are starting to focus on Portugal’s debt situation.  Greece, the mediterrian country that was the focus for a number of months, is closing in on a debt forgiveness package with their creditors.  Yields of 10-Year Portugese bonds reached as high as 7.18% recently.

In company news, Pfizer (NYSE: PFE) has announced a recall of approximately 1 million packages of some of its birth control medicine products.  A mistake during the package process led to a mix-up of the effective birth control drug with placebo pills that are commonly packaged with the product (for use during a woman’s period), which would lead to unwanted pregnancies in some of their customers.

Bank of America (NYSE: BAC) continues from its strong January today, up 1.38% at the time of writing.  Many investors in financials like B of A have February the 6th circled on their calendars.  That Monday will feature two events that could make, or shatter, the recent rally’s of 2012.  The deadline for an agreement between the nation’s biggest mortgage services and the 50 US States is set to expire.  The dispute, which revolves around the alleged practices of “robo-signing�, have taken a year so far. It will be interesting to see if an agreement can be reached in the next week.

Macys (NYSE: M) reported stronger-than-expected sales for January.  The company reported that their same-store sales increased 2.4% for the month. Sales also increase, totaling $1.336 billion for the month.  The company’s CEO described their last quarter as the “strongest in …years�.

That’s all for the day! Stay tuned for our weekly Bourbon & Bayonets article from writer Matt McAbby later today

All the best,

Jack Aubrey

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Few sectors are as intimately tied to the health of the global economy as steel. This high-beta group was taken to the woodshed last year as global investors fretted about a confluence of negative factors, namely Europe’s sovereign debt crisis, emerging markets demand and slack growth in the U.S.

It’s a pretty simple equation really. Skittish market environment + negative macroeconomic factors = Bad news for steel demand and the performance of steel stocks. Name a steel stock and chances are it embodied that negative scenario in 2011.

Just look at Hyman Roth’s favorite stock, U.S. Steel (NYSE: X). If flirted with $55 in May before dropping below $19 in October. Fast forward to January 2012, and it looks like the darkest clouds have passed for steel stocks and catalysts exist for further gains. The real estate market is one of those catalysts. Some help from Detroit’s big industry won’t hurt either.

Demand for steel pipes and related fare by energy producers is expected to remain robust and any improvement in Europe’s sovereign debt situation will help.

“We are still fairly optimistic about global growth in 2012 based on continued sluggish exit from recession in the West along with slower, but still high, growth in the emerging markets. Mid-2012 is seen as the most likely timing for any real improvement at global level,” according to GFMS.

Consider these names for a steel resurgence in 2012:

Nucor (NYSE: NUE) – Nucor is the largest U.S. steelmaker and recycler and it has an added bonus that rivals like U.S. Steel do not have. A decent yield. Yes, Nucor’s dividend is a shell of what it was before the financial crisis, but the company is at least making efforts to increase the payout and the yield currently rests at 3.3%.

When it comes to cyclical companies, management matters and that’s another reason to like Nucor. CEO Dan DiMicco might be the best in the business. The shares could be considered overbought here, so either start with a small position or wait for a pullback.

AK Steel Holding (NYSE: AKS) – With a market cap just over $1 billion, AK Steel is treading in small-cap territory. Then again, if the risk on trade is really back on, then small-cap cyclicals are a good place to be. AK trades at just 6.7 times forward earnings (cheaper than Nucor on that basis). AK can be bought in the $9.50-$9.75 area with an eye on a move to $11.

Schnitzer Steel Industries (Nasdaq: SCHN) - While AK Steel and Nucor have turned in impressive double-digit year-to-date performances, Schnitzer has been a laggard with a gain of just 3.2%. Don’t let that deter you from Schnitzer, which engages in recycling ferrous and nonferrous scrap metals. As Bret Jensen notes “The company is selling near the bottom of its five-year valuation range based on P/B, P/S and P/CF and insiders have been net buyers of the stock over the last six months.” Remember, there’s only one reason insider buy their company’s stock: Because they think it’s going up.

Market Vectors Steel ETF (NYSE: SLX) – Maybe it’s good to be indecisive about steel stocks because the indecisive among us may have opted for the Market Vectors Steel ETF over an individual steel stock. Good call because year-to-date, SLX has outperformed AK Steel, Nucor and U.S. Steel.  SLX, the first U.S.-listed ETF devoted exclusively to steel stocks, isn’t just about U.S. companies. In fact, almost 56% of SLX’s country weight is allocated outside the U.S. That includes a 20% allocation to Brazil and another 11% combined to South Korea and Russia. Mining giants Rio Tinto (NYSE: RIO), Vale (NYSE: VALE) and ArcelorMittal (NYSE: MT) represent over 28% of the ETF’s weight. SLX is pushing $57, but an extended risk on environment gets it back to $70s.

– Gordon Wilcox Benzinga

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US dollar lower today in forex trading

Home prices declined, yet again, in November of 2011. The Case-Shiller report shows that November was a disappointing month for home prices, with a decline to lows very close to the low seen in March 2011.

The news isn’t doing too much to hamper risk appetite right now. Investors and forex traders are instead focusing on a new fiscal treaty for the European Union, as well as improved earnings for a number of US companies. The result is that the US dollar is lower in forex trading as risk appetite makes its appearance.

For now, the home prices data has been shoved to the back burner. However, things could easily change going forward. The total economic picture is fairly shaky right now in the United States, and that could mean some changes in the way forex traders perceive things. 

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The conclusion of the Eurozone summit yesterday brought no new progress on the Greek debt crisis, leading to a growing sense of realisation that European policy makers are running out of ideas. This in itself is unlikely to be a shock to the market, as investors and speculators have been pricing in scenarios of Greece default and Eurozone dispersion for some time now – even though politicians…

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EURUSD has started the week at new highs, reaching a peak of 1.3234 at the Asian open before paring back below 1.3150. This buoyancy comes in spite of fresh sovereign credit downgrades on Friday evening where Fitch lowered the rating on five European countries by at least one notch. The most notable targets on this occasion were Italy and Spain which were reclassified two notches lower, and…

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Apple (NASDAQ:AAPL) has subtly branded itself as an alternative games company. But has that mission failed?

According to a new report by Chomp (via TechCrunch), Apple’s efforts continue to pay off. Using data compiled from its own site (Chomp.com is a search engine for finding apps), the company found that Angry birds still leads the pack of iOS software. Three versions of the game made it into the top 10 list for the year.

Android, on the other hand, has seen a significant decline in game downloads. In 2011, none of its top 10 apps were games. But snooze-fest software like The Weather Channel ranked high.

What does this trend tell us? First, it reveals that Android users would rather get weather updates than play an game, which doesn’t say much for the quality of Android gaming. Second, it indicates that the average Android user might be a bit more casual than the average iOS user. But be careful when making that argument. Unlike Android, iOS has an enormous market of phone-less kids and teens who buy apps for the iPad and iPod Touch. The data on actual iPhone downloads could be significantly different from that of other iOS devices. But until someone collects and calculates the data separately, iOS reports will continue to lump all of the Apple platforms together.

Third, Chomp’s data could be a sign that the future of gaming is not as mobile as people expect. While this is something I have argued about for months, the media has led the public to believe that game-specific companies like Nintendo might as well retire, while Sony (NYSE:SNE) and Microsoft (NASDAQ:MSFT) should move on to other things because, you know, mobile is here! And mobile is the best thing since toasted bread and sliced cheese!

Zzzz… Oh, sorry. I just nodded off for a second there. Now where were we? That’s right – the reasons why Chomp’s data is significant.

Fourth, Android isn’t the only company to see a drop in game downloads. While games maintained their overall popularity on iOS, three of the 10 games (according to Chomp searches, not Apple’s own listings) were a part of the Angry Birds series. In other words, one series fueled iOS gaming in 2011.

While it is possible that another franchise could take Angry Birds’ place in the near future, on a month-to-month basis, iOS games suffered a big loss in December. During the month, the nine most popular apps (again, according to Chomp searches) were utilities and social networking tools. One game, a freebie called Temple Run, came in at number 10. But Zombie Highway and Doodle Jump, which both cracked the top five in October and November, were nowhere to be found in the top 50 for December.

All games run their course. No one title – or any group of titles – will be successful forever. But while popular games tended to drop off gradually in the console (ex: PlayStation) and handheld (ex: Nintendo DS) markets, iOS games don’t normally have any staying power. They shoot to the top and die off suddenly, as witnessed here. In fact, if it weren’t for Angry Birds, iOS gaming still wouldn’t have birthed a single franchise. But let’s be realistic: if that “franchiseâ€� is still thriving in 10 years, it will be a miracle.

As an early supporter of iOS games, I want the platform to be successful. The game industry needs iOS games. Because of iOS, millions of casual gamers are playing games more often. Without iOS, thousands of people who had never played a video game before still wouldn’t have played a single video game. The revenue stream might be a little different (instead of traditional game publishers like Activision (NASDAQ:ATVI), smaller and lower-budget companies are reveling in iOS success). But in the end, the game industry still wins.

That said, it is important to realize that apps and games are two completely different things. They may fall within the category of software, but there is a big difference between Angry Birds and the Hulu app, or Infinity Blade and a cookbook app from Jamie Oliver. You wouldn’t lump World of Warcraft and Call of Duty into a category with Microsoft Word and Google (NASDAQ:GOOG) Chrome. So why should we treat apps any differently?

Finally, the future of video games has never been and never will be set in stone. We saw what happened with Zynga (NASDAQ:ZNGA), the social games company that was caught plagiarizing other hit games. As recent as 2011, Zynga was hailed as the future of gaming. Then we learned that the company was losing $150 on every new paying customer. A third-party developer who has nothing to do with Zynga came to the company’s defense and threw out a few numbers, claiming that Zynga was profitable. But that view was quickly dismissed.

Social gaming, like so many other trends within the industry, is proving to be a fad. Without a few major changes to social gaming, that whole industry is bound to collapse.

iOS games are not likely to suffer the same fate. Unlike Facebook, there have always been worthwhile games on the iPhone – consumers just have to know where to look for them. But if these declines are not exclusive to Chomp users, they could be a sign of a broad change in iPhone usage. If that’s the case, it would be really nice if someone would be there to rise up and take charge of the market.

But someone isn’t paying attention.

–

Louis Bedigian Benzinga

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The Lithium market is currently dominated by a handful of major producers, but investors naturally look to smaller junior exploration and production (E&P) companies for the real growth. Economist Daniela Desormeaux of Santiago, Chile-based signumBOX takes a global macroeconomic view of the lithium industry and concludes that supply will meet demand, but if the adoption of vehicular lithium ion batteries occurs sooner than the market expects, demand could overtake supply. In this exclusive interview with The Energy Report, Desormeaux discusses some of the juniors that could ultimately add some energy to portfolios.

The Energy Report: Daniela, over the past three months the small-cap lithium developers have on the whole been in positive territory. Are we at the beginning of a long-overdue bull market in lithium equities?

Daniela Desormeaux: Most of the smaller-scale suppliers trading in the open market are young, junior mining companies. The stock price fluctuations observed during recent months reflect the market’s sensitivity to the companies’ announcements and news.

TER: What is currently driving lithium demand? What will drive it in the future?

DD: Lithium demand has a promising future. Rechargeable batteries are the largest application, accounting for about 30% of the lithium demand. This is also the segment with the highest growth rate for the next 10–15 years, by which point we believe batteries will represent more than 50% of demand. The main driver is the automotive industry. Electrification of transportation is now driving the use of lithium in energy storage devices for hybrid and electric cars. The amounts of lithium required in these batteries are significant, from between 5–60kg lithium carbonate equivalent (LCE) depending on the battery type and specification. When compared with the lithium required for mobile phone batteries, for example, the difference is huge. A mobile phone battery device requires less than 5g LCE. Other battery applications will also show very interesting growth rates in the coming years. These include smartphones, tablets, power tools and batteries for grid storage, among others. Other current lithium applications include glass and ceramics as well as lubricating greases. Considering all of its applications, we estimate lithium’s average demand will grow around 10%/year, which is greater than the growth of the economy.

TER: How are lithium prices holding up currently?

DD: In the last few months we have seen lithium prices going up in response to announcements made by FMC Lithium Corporation (FMC:NYSE) and Chemetall (a unit of Rockwood Holdings Inc. (ROC:NYSE)). Both companies announced price increases of around 20% on all of their lithium products last year. According to the companies, the main reason behind the rise in prices was higher raw material costs. So, we might be seeing an inflation phenomenon in this industry. In real terms, prices have remained stable, and probably will go down since new capacity is being added. Talison Lithium Ltd. (TLH:TSX) is expanding capacity in Western Australia, and Chemetall is also expanding in the U.S. Other new projects are in the pipeline coming from Galaxy Resources Ltd. (GXY:ASX) in Australia and from other projects in Argentina and Canada.

TER: So, for the moment there is currently some pricing power in the market?

DD: In general terms, prices are driven by the balance between production capacity and demand. If the market is tight, prices go up. Nevertheless, this industry has been, and still is, very concentrated and the largest, lowest-cost lithium chemicals producers drive prices. However, we have seen more competition in the market. Chinese lithium hydroxide producers have entered with an aggressive price strategy in order to gain market share from the other producers.

TER: But not all the large producers are raising prices, right?

DD: So far, Sociedad Química y Minera de Chile S.A. (SQM:NYSE; SQM-B:SSX; SQM-A) has kept prices stable. It hasn’t announced any price increase the way FMC or Chemetall have. The company probably wants to give a signal to the new competitors that they can “afford” higher costs. Most of the Chinese lithium hydroxide is produced from lithium concentrate, which is obtained mainly from spodumene. Producing lithium hydroxide from hard rock pegmatites has competitive advantages compared with producing from the lithium carbonate like Sociedad Química y Minera de Chile does, and so the Chinese can compete better in this field.

TER: Here in the U.S. we are seeing proliferation of TV ads for hybrid and electric cars (EVs). Manufactures are beginning to advertise these cars with some zing. Will this jump start hybrid and EV sales?

DD: It is difficult to know because these are still considered “luxury” cars because of their high price. We have tested a statistical model on how hybrid car sales in the U.S. responded to changes in the economic cycle and changes in gasoline prices. Conclusions are very interesting. We found some price elasticity with gasoline prices, as higher gasoline prices incentivize decisions to buy more efficient cars. But income elasticity is huge, which means these cars are very sensitive to the economic cycle. Of course these conclusions will change in the future when these cars become more affordable.

TER: Investors need to see double-digit sales and real increases in cash flow, and small companies have the tremendous advantage of not having the law of large numbers work against them. Can any of the companies you follow begin to double production and revenue and create exciting bottom lines?

DD: In the short term I don’t think so, but it’s likely in a future. Main sources of uncertainty are how fast/slow hybrid and electric cars will enter into the market in a massive way (at lower prices), and how fast/slow producers will respond to the demand. In the last years we have seen that in more than 90 projects under evaluation. We believe that 4–5 projects have chances to become part of the lithium supply very soon. That means that more competition will be added in the market.

TER: I’m recalling the way the mobile phone industry took off in less-developed countries in Asia and elsewhere because there was no pre-existing buildout of copper wire infrastructure. Mobile phones were an instant success in those areas. Why then are we not seeing large lithium ion storage batteries powering neighborhoods in the developing world where power grids have not been developed?

DD: Well, the thing is that batteries are expensive. The technology has only been in development since the early 90s. It took 30 years to make progress in developing batteries for mobile phones and electronic devices, and these are small batteries and less costly than larger batteries. This is where the industry has been focused, and now we are seeing a shift from batteries for cell phones and electronic devices to electric cars.

The requirement in terms of energy storage capacity is huge, and so the cost so far is also huge. That’s why we haven’t seen implementation of these batteries in neighborhoods and in small towns. There are also some projects that try to store energy for the grid, but in order to make these projects profitable, you have to store an important amount of energy. For a power grid, the main issue is cost.

TER: With a lot of new lithium supply coming onto the market over the next few years, will supply overpower demand, or will it be the other way around?

DD: Again, while demand is growing, so is supply. Talison Lithium Ltd. in Australia, for example, is performing a very aggressive expansion plan. We see expansions in Argentina and in the U.S., and the Chinese are also expanding capacity. The main question mark is how fast or slow electric cars will come into the market. But without subsidies and without incentives from the government, it’s very difficult to enter the market because the electric and hybrid vehicles are expensive right now. If demand for lithium grows sooner than expected, we might see a delay if supply is unable to meet demand, but I don’t think this is going to happen. In short, I think supply will meet demand.

TER: Which types of projects do you favor?

DD: There are projects based on pegmatites and projects based on brines. These are two completely different worlds. I think projects based on lower-cost brine have better chances to compete with current low-cost producers.

TER: What companies are interesting to you?

DD: Australian company Galaxy Resources Ltd. extracts lithium from pegmatite and has already started producing. Apparently, the company is competitive, and it has started to ship concentrated spodumene to its lithium carbonate plant in China.

Other pegmatite projects include Canada Lithium Corp. (CLQ:TSX; CLQMF:OTCQX) and Nemaska Lithium Inc. (NMX:TSX.V; NMKEF:OTCQX). All of these projects have a chance to become part of the lithium supply. In Argentina there’s Lithium Americas Corp. (LAC:TSX; LHMAF:OTCQX), Lithium One Inc. (LI:TSX.V) and Orocobre Ltd. (ORL:TSX; ORE:ASX). These and the previous ones I mentioned have the highest project ranking by our methodology and have more chances to become part of the lithium supply.

TER: What about Li3 Energy Inc. (LIEG:OTCBB)? Back in December, it executed a letter of intent to acquire a 100% mining interest in one of the biggest assets to be had near the Maricunga Salar in Northern Chile. That makes Li3 Energy a potential major player in Chile and one of the few developers inside of Maricunga. What does this mean to the company, particularly with regard to the ban?

DD: Li3 is developing a project in the Salar de Maricunga, the second-best salar after Atacama in Chile. The company has a project and has a strategic partner (POSCAN), but current Chilean regulation does not allow newcomers to exploit lithium. We have a ban that only allows lithium extraction from those mining concessions that were assessed before 1984, which is the case of most of the mining concessions at Atacama. I think that the ban will be removed this year, but we really can’t yet know the formula that the government will use.

TER: Lithium One is close to production, and it has established a good relationship and a joint venture with Korea Resources Corp. I believe the stock has been supported by this relationship. What are the prospects here?

DD: Lithium One is in a very advanced stage of development, and it is very well ranked in our signumBOX ranking. One of its upsides is that it is located in Salar del Hombre Muerto. It’s the only startup that actually is operating in Argentina. So it has really good prospects for the future.

TER: Back in November, Rodinia Lithium Inc. (RM:TSX.V; RDNAF:OTCQX) delivered results of a preliminary economic assessment (PEA) for the Salar de Diablillos lithium brine deposit. There are estimates of 15 kilotons (kt)/year production of lithium carbonate and 51 kt/year of potash. This implies a 34% internal rate of return (IRR), which is excellent. Is this a viable project?

DD: I think it can work, but Rodinia faces huge competition. The company estimates costs will be in the range of $1,500/t lithium carbonate. But I think that it is very different to have an estimated cost before starting production than when you’ve already started producing. I think that Rodinia can be a player in the lithium industry, but like other players in Argentina it will face huge competition. It will have to be competitive because new production is coming from China and Australia. And if Chile removes the ban, they will have to deal also with that.

TER: Talison Lithium is the leading global producer of lithium, and it’s a pure play. It’s a mature company. How much can it grow?

DD: Yes, Talison is the largest lithium concentrate producer, but it’s not the lowest-cost producer. It produces lithium concentrate in Australia and most of its product is shipped to China, where it’s converted into chemicals. I think Talison will face more competition, and that’s why it has expanded production capacity. It has performed a very aggressive expansion plan at its Greenbushes project in Australia. Nevertheless, its deposit has a short mining life; that’s why it is looking for other sources of lithium and performing an evaluation project in Chile.

TER: Daniela, thank you very much for your time.

DD: Thanks to you.

Daniela Desormeaux is an economist and an expert in industrial chemicals and natural resources. She runs signumBOX, a Chilean-based company with extensive experience in the lithium industry. signumBOX has issued several reports regarding the use of lithium in batteries and vehicles and its prospects and trends.

– George Mack The Energy Report

Related Articles

Before we get to this week’s piece, a little review is in order.  We have several open trades that require action.

Let’s start with one we opened way back on August 8th of last year, in our letter entitled, Good Company is Preferred.  That week we recommended you purchase a preferred share ETF that was coming off a very steep – and we felt, exaggerated – decline.  The iShares S&P Preferred Stock ETF (NYSE:PFF) had just been paddy whacked and spat upon, falling from $40 to $33, before recovering to our entry point at $37.  We suggested you go in big at that point, writing as follows:

As a result of the last two trading sessions, shares in the iShares US Preferred Stock ETF (NYSE:PFF) are trading at $37.00 with a yield of 6.9%.  We don’t feel there’s anywhere left for these critters to fall… Wall Street Elite recommends immediate purchase … of PFF, up to 8% of your portfolio.  Buy it and hold.

Those who’ve held have been rewarded with nearly 18.5% since then, 3% of which came via capital gains and the remainder through dividends.

But because the stock has now ascended to the long term moving average and because we believe that line represents significant resistance, we’re recommending you take profits on this baby and go home with a smile.  When six months bags you an annualized 37%, it’s time to stop deliberating and pull the plug.

Here’s PFF’s chart for the last year:

We may well reinstate the trade on signs of a pullback, but as of now we’ve hit two long term descending moving averages (in yellow and orange, above).  And to us, that looks like upside has now been limited.  Look also at the RSI reading (black box), now just a hair below the overbought 80 line.

Not a time to wait for further marginal gains.

That said, if we’re wrong and the market does head higher from here, we feel there’s still limited upside to be had from the preferreds as an asset class altogether.  Bread and butter, garden variety common equities will be the place to be in the event of a continued bull move in equities.

Spend, Spend Spend!

We put on a straight purchase of the retailers as the New Year dawned back on the 2nd of January in Retail Remains a Buy.  The SPDR S&P Retail ETF (NYSE:XRT) was purchased at $52.55 and now sits at $55.81, 6.2% higher.  But more meaningful still is the breakout that has occurred, above the former retracement high at roughly $54 (in red on chart, below).  We now look beyond this level to a new resistance line (in black) at $56.50.

Here’s the chart.

Former support is now being tested, and if this level holds, we’ll probably see a continued climb toward former XRT all-time highs set last summer.

And they’re not far off. With a second breakout – now just 70 cents away – we’d likely see a very significant pop from the retailers.

Will it happen?

Hard to say, but we’re encouraged by the moving averages, all of which are unwound and moving higher – a technical that helped us make the purchase in the first place.

We’re gonna wait with this one.  Hold your positions for now.

Luxuriate With the Wealthy

Finally, we recommended just a week ago that you all rush out to purchase Italian, high-end eyeglass marketer, Luxottica Group (NYSE:LUX), and we couldn’t be happier we did.  The stock has run higher from our buy price at $30.83 by 6.2% (to $32.75) and we’ve decided to bail.

Why?  Maybe there’s more to come.

Have a look at the chart.

Luxottica went on a tear these last six weeks, rising a wild 24.5% since mid-December.  That’s a hefty enough move in a short period to make us believe there’s just not much left to squeeze out of this one.  Lots of volume of late also has us wondering if we’re witnessing some kind of blow-off buying spree (in blue, above).

We say sell your LUX shares, take your six percent (in one week!) and call it done.  Like the preferreds above, we may revisit Luxottica after a pullback.

Where to Now?

We note that Oakshire’s investment madman, Senior Analyst Matt McAbby, last week penned a piece in which he warned of a coming equity pullback.  Mad Matt and I spoke briefly over the weekend about the issue, and despite some very relevant points that I was forced to concede to the junior whiz kid, I still have doubts that we’re in for anything precipitous at this stage.  A pullback of a few percent?  Maybe.  A lot more?  Don’t think so.

Why?

Consider the news.

Yet the markets refuse to fall.  As of this writing, the Dow is off a mere 47 points and appears to be rebounding from its lows.

Moreover, the S&P 500 is now on the verge of a ‘Golden Cross’, a technical phenomenon that occurs when the 50 day moving average crosses above the 200 dma.  It’s generally considered a buy signal, particularly when both MAs are trending higher (today’s 200 dma is not).

Have a look:

Not all the technicals are aligned bullishly.  RSI is falling and MACD has crossed over, though both still stand bullishly above their waterlines.  Time will tell if this Golden Cross was a worthy buy indicator.

New Directions – A Big Week

That said there’s still plenty of earnings and economic news due this week that could shake the market, including payrolls this Friday, but it looks to us like equities are in thrive mode and investors have little to fear.

Unless of course, they’re holding silver.

The silver rally, in our eyes, has maybe another half dollar to go before it meets a selling onslaught, but we’re too chicken to issue a trade call at this juncture.

Suffice to say we’re watching the metal very closely here and see great potential to profit from a second unsightly drop in the coming weeks.

The run up was too big, too fast – almost 27% in a month.

But as for now, like we said, we’re keeping our trap closed and making no trade call this week.

Wall Street Elite recommends following the trade advice offered at the opening of the letter, but offers no new trade for January 30th.

With kind regards,

Hugh L. O’Haynew Senior Analyst, Oakshire Financial

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Greenback lower in currency trading

Jobless claims are higher in the US, rising sharply as concerns about the economy come to the fore. Jobless claims rose to 377,000 in the week ending January 21, 2012, and that is causing some concern.

Worries about the US economy, which include a slightly disappointing GDP figure from the fourth quarter of 2011, are once again sending the greenback lower in currency trading.

Indeed, US dollar is lower against the euro in forex trading, as well as against other currencies, including the pound and commodity currencies. The dollar index is lower, but things may change as the day progresses. Dollar has been hit, but this news also usually means a reduction in risk appetite. As a result, the greenback could soon turn around as Forex traders look for safe haven. 

See Also

Read More …

Random Posts

To mark the second Citizens United anniversary, we lit up the Supreme Court with giant dollar signs to send a message: rights are for PEOPLE, not corporate “persons.”

February, 2012

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Dear Mark Zuckerberg,

Congratulations on your IPO filing. We understand that you are faced with a difficult decision soon on where to list your stock. You have probably heard from your bankers that the NASDAQ exchange is for tech savvy companies like Google and Apple and the NYSE is where the blue chip companies like GE and Caterpillar choose to list. You may think that the NASDAQ market is more of an electronic exchange where dealers place competing bids and offers to help facilitate institutional client trades. You may look at financial television and see scenes from the NYSE and think that the NYSE market is more of a floor based auction model where your stock would trade at a “post� on the exchange. You may be thinking that regardless of which exchange you pick, your stock will help investors create wealth for themselves by investing in your company for the long-term.

We hate to break the bad news to you but the fact is, in today’s market, it doesn’t matter where you list. Your stock is about to become one of the biggest casino chips on Wall Street. Ever hear the terms rebate arbitrage or latency arbitrage? Ever hear of colocation? Do you know what an exchange private data feed is? How about an actionable IOI or a dark pool? We bet you have probably never heard of these terms (maybe you have been too busy coding lately or ducking those Winklevoss twins). These terms are really what stock trading is all about nowadays.

Your stock will now be traded by high frequency traders who have an average holding period of 22 seconds. The majority of them won’t care about your earnings, or your new “likey like� button that you just launched. They won’t care about how many gazillion users you just signed up or how many eyeballs are on your site. They will only care about flipping your stock for a very small profit – millions of times per day. They will only care about getting paid a rebate 1/3 penny per share to “add liquidity� in your stock. They are not looking to invest in Facebook, they are looking at it as a tool to help them make money in their high speed arbitrage world.

Before you make your decision on where to list, also keep in mind that one third of your stock will be traded in dark pools that are off-exchange and away from the public’s eye . Know that even though the spread in your stock will be one penny (most of the time), your stock will not necessarily be liquid. Sure your stock will trade a lot of volume, but this is not the same as liquidity. Know that when your stock starts to move around intraday by 3-5%, there will be no one to call to ask what is going on.

You may be thinking now, how did this happen? How did the stock market get so screwed up? What ever happened to the goals of capital raising and investor protection? Well, it’s a long story. One that is much too long for this letter. Maybe if you have some time, give us a call and we’ll explain what happened.

Best of luck on the IPO. If you pick the NYSE, know that the podium looks much bigger on television.

Sincerely, Themis Trading

~~~

Joseph Saluzzi (jsaluzzi-at-ThemisTrading.com) and Sal L. Arnuk (sarnuk-at-ThemisTrading.com) are co-heads of the equity trading desk at Themis Trading LLC (www.themistrading.com), an independent, no conflict agency brokerage firm specializing in trading listed and OTC equities for institutions. Prior to founding Themis, Sal and Joe worked for more than 10 years at Instinet Corporation, pioneers in the field of electronic trading, and at Morgan Stanley.

SilverOz is an MPA specializing in local economic development and have worked in local economic development for a mid-sized midwestern county for over 10 years.  He has personally worked on/managed projects that have totaled over $500 million in direct investment into the county.

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So today following an otherwise pretty darn good jobs report, we get the usual perma-pessimists at Zero Hedge and Rick Santelli over at CNBC proclaiming that the report showed a drop of over 1 million people from the labor force in one month. Of course, as ususal, both Santelli and Zero Hedge have a real reading comprehension problem and completely missed that this million+ people isn’t some new January phenomenon, but a result of the BLS using the 2010 census data to have more accurate data. In other words, the changes in the Household Survey to the various measures had taken place over the years prior to 2010, but for simplicity’s sake, the BLS incorporates these changes into one month (which they clearly point out). The relevant text from the report is below (bold is mine):

“Effective with data for January 2012, updated population estimates which reflect the results of Census2010 have been used in the household survey. Population estimates for the household survey are developed by the U.S. Census Bureau. Each year, the Census Bureau updates the estimates to reflect new information and assumptions about the growth of the population during the decade. The change in population reflected in the new estimates results from the introduction of the Census 2010 count as the new population base, adjustments for net international migration, updated vital statistics and other information, and some methodological changes in the estimation process. The vast majority of the population change, however, is due to the change in base population from Census 2000 to Census 2010.

In accordance with usual practice, BLS will not revise the official household survey estimates for December 2011 and earlier months. To show the impact of the population adjustment, however, differences in selected December 2011 labor force series based on the old and new population estimates are shown in table B.

The adjustment increased the estimated size of the civilian noninstitutional population in December by 1,510,000, the civilian labor force by 258,000, employment by 216,000, unemployment by 42,000, and persons not in the labor force by 1,252,000. Although the total unemployment rate was unaffected, the labor force participation rate and the employment-population ratio were each reduced by 0.3 percentage point. This was because the population increase was primarily among persons 55 and older and, to a lesser degree, persons 16 to 24 years of age. Both these age groups have lower levels of labor force participation than the general population.”

So Rick/Zero Hedge, unless you would like to argue that the population of the United States also grew by 1.5 million in one month (since that is from the exact same report/revision you quoted), I think both of you should retract your extremely misleading statements about those not in the labor force increasing by over a million in January and simply admit that you are either too stupid or too focused on selling a particular world view to read the data correctly.

At the very least, a reputable financial news organization like CNBC needs to set the record straight on data like this as while Mr. Santelli is entitled to his own opinion, he is not entitled to his own facts, and the fact is 1 million people did not drop out of the labor force in January 2012.

Succinct summation of week’s events:

Positives:

1) Jan Payroll gains show big upside surprise of 243k, about 100k more than expected, unemployment rate falls to 8.3%

2) ISM services index rises to best since Feb ’11

3) ISM mfr’g up 1 pt but touch less than expected

4) Jan vehicle sales at 14.1mm is best since clunker month in Aug ’09 and the most since May ’08 before that

5) US savings rate rises to 4% from 3.5%

6) Initial Jobless Claims fall 12k

7) Amount of Germans unemployed fall again, rate at 6.7%

8) UK mfr’g and services PMI figures both rise

9) Final euro zone mfr’g and services PMI in line with initial

10) Portuguese bond yields fall from highs, Italian yields lower too with Spain flat

11)China mfr’g PMI stays above 50, Taiwan and South Korea rise but remain below 50

12) India’s mfr’g and services PMI’s both jump

Negatives:

1) US Jan Consumer Confidence falls almost 4 pts to 61.1, well below expectations of 68 as labor market answers soften and those that plan to buy a home falls to lowest since Aug and those that plan to buy a car down at lowest since Oct ’10

2) CS home price index falls to lowest since Feb ’03

3) MBA said refi’s fell 3.6% and purchase apps were down 1.7%

4) Canada’s Jan jobs report disappoints

5) China PMI services index falls to 52.9 from 56, the 2nd lowest since Feb ’11

6) Taiwan’s economy in a recession after Q4 contraction q/o/q

7) Greek debt discussions for another week are hours away from wrapping up

8) Amount of LTRO funds from ECB continue to be redeposited with the ECB

9) Giants/Pats Super Bowl again? How many more tortuous years will I have as a Jets fan?

NEW YORK – Attorney General Eric T. Schneiderman today filed a lawsuit against several of the nation’s largest banks charging that the creation and use of a private national mortgage electronic registry system known as MERS has resulted in a wide range of deceptive and fraudulent foreclosure filings in New York state and federal courts, harming homeowners and undermining the integrity of the judicial foreclosure process. The lawsuit asserts that employees and agents of Bank of America, J.P. Morgan Chase, and Wells Fargo, acting as “MERS certifying officers,” have repeatedly submitted court documents containing false and misleading information that made it appear that the foreclosing party had the authority to bring a case when in fact it may not have. The lawsuit names JPMorgan Chase Bank, N.A., Bank of America, N.A., Wells Fargo Bank, N.A., as well as Virginia-based MERSCORP, Inc. and its subsidiary, Mortgage Electronic Registration Systems, Inc.

The lawsuit further asserts that the MERS System has effectively eliminated homeowners’ and the public’s ability to track property transfers through the traditional public records system. Instead, this information is now stored only in a private database – which is plagued with inaccuracies and errors – over which MERS and its financial institution members exercise sole control. Additional defendants include BAC Home Loans Servicing, LP, Chase Home Finance LLC, EMC Mortgage Corporation, and Wells Fargo Home Mortgage, Inc.

“The banks created the MERS system as an end-run around the property recording system, to facilitate the rapid securitization and sale of mortgages. Once the mortgages went sour, these same banks brought foreclosure proceedings en masse based on deceptive and fraudulent court submissions, seeking to take homes away from people with little regard for basic legal requirements or the rule of law,� said Attorney General Schneiderman. “Our action demonstrates that there is one set of rules for all – no matter how big or powerful the institution may be – and that those rules will be enforced vigorously. Only through real accountability for the illegal and deceptive conduct in the foreclosure crisis will there be justice for New York’s homeowners.�

The financial industry created MERS in 1995 to allow financial institutions to evade local county recording fees, avoid the hassle and paperwork of publicly recording mortgage transfers, and facilitate the rapid sale and securitization of mortgages. MERS operates as a membership organization, and most large companies that participate in the mortgage industry – by originating loans, buying or investing in loans, or servicing loans – are members, including JPMorgan Chase, Bank of America, Wells Fargo, Fannie Mae, and Freddie Mac. Over 70 million loans nationally have been registered in MERS System, including about 30 million currently active loans.

Through their membership in MERS, these companies avoided publicly recording the purchase and sale of mortgages by designating MERS Inc. – a shell company with no economic interest in any mortgage loan – as the “nominal” mortgagee of the loan in the public records. Instead, MERS members were supposed to log mortgage transfers in the MERS private electronic registry. The basic theory behind MERS is that, because MERS Inc. serves as a “nominee” (or agent) for most major lenders, it remains the “mortgagee” in the public records regardless of how often the loan is sold or transferred among MERS members. Thus, although MERSCORP has only about 70 employees, MERS Inc. serves as the mortgagee of record for tens of millions of loans registered in the MERS System.

MERS has granted over 20,000 “certifying officers� the authority to act on its behalf, including the authority to assign mortgages, to execute paperwork necessary to foreclose, and to submit filings on behalf of MERS in bankruptcy proceedings. These certifying officers are not MERS employees, but instead are employed by MERS members, including JPMorgan Chase, Bank of America, and Wells Fargo.

MERS’ conduct, as well as the servicers’ use of the MERS System, has resulted in the filing of improper New York foreclosure proceedings, undermined the integrity of the judicial process, created confusion and uncertainty concerning property ownership interests, and potentially clouded titles on properties throughout the State of New York. In fact, several New York judges have questioned the standing of the foreclosing party in cases involving MERS loans and the validity of mortgage assignments executed by MERS certifying officers.

The lawsuit specifically charges that the defendants have engaged in the following fraudulent and deceptive practices: • MERS has filed over 13,000 foreclosure actions against New York homeowners listing itself as the plaintiff, but in many instances, MERS lacked the legal authority to foreclose and did not own or hold the promissory note, despite saying otherwise in court submissions. • MERS certifying officers, including employees and agents of JPMorgan Chase, Bank of America, and Wells Fargo, have repeatedly executed and submitted in court legal documents purporting to assign the mortgage and/or note to the foreclosing party. These documents contain numerous defects, including affirmative misrepresentations of fact, which render them false, deceptive, and/or invalid. These assignments were often automatically generated and “robosigned” by individuals who did not review the underlying property ownership records, confirm the documents’ accuracy, or even read the documents. These false and defective assignments often masked gaps in the chain of title and the foreclosing party’s inability to establish its authority to foreclose, and as a result have misled homeowners and the courts. • MERS’ indiscriminate use of non-employee “certifying officers” to execute vital legal documents has confused, misled, and deceived homeowners and the courts and made it difficult to ascertain whether a party actually has the right to foreclose. MERS certifying officers have regularly executed and submitted in court mortgage assignments and other legal documents on behalf of MERS without disclosing that they are not MERS employees, but instead are employed by other entities, such as the mortgage servicer filing the case or its counsel. The signature line just indicates that the individual is an “Assistant Secretary,” “Vice President,” or other officer of MERS. Indeed, these documents often purport to assign the mortgage to the certifying officer’s own employer. Moreover, as a result of the defendants’ failure to track the designation of certifying officers and the scope of their authority to act, individuals have executed legal documents on behalf of MERS, such as mortgage assignments and loan modifications, when they were either not designated as a MERS certifying officer at the time or were not authorized to execute documents on behalf of MERS with respect to the subject loan.

• MERS and its members have deceived and misled borrowers about the importance and ramifications of MERS’ role with respect to their loan by providing inadequate disclosures.

• The MERS System is riddled with inaccuracies which make it difficult to verify the chain of title for a loan or the current note-holder, and creates confusion among stakeholders who rely on the information. In addition, as a result of these inaccuracies, MERS has filed mortgage satisfactions against the wrong property.

The lawsuit seeks a declaration that the alleged practices violate the law, as well as injunctive relief, damages for harmed homeowners, and civil penalties. The lawsuit also seeks a court order requiring defendants to take all actions necessary to cure any title defects and clear any improper liens resulting from their fraudulent and deceptive acts and practices.

The matter is being handled by Deputy Bureau Chief of the Bureau of Consumer Frauds & Protection Jeffrey K. Powell, Assistant Attorney General Clare Norins, and Assistant Solicitor General Steven C. Wu, under the supervision of First Deputy Attorney General Harlan Levy.

In case you were unaware, IPOs are terrible investments — at least most of the time. The lottery ticket dreams keeps hope alive that this next one is going to be a giant winner.

Hopes are pinned on the giant Facebook IPO, coming out at an expected 100 X earnings and 30 X revenue. Its going to take extrordinary growth to justify those prices, especially for people who buy stock in the open market at higher than IPO prices.

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Click to enlarge: Source: NYT

Mr. Norris:

It so happens our friend, Thane Rosenbaum, interviewed Larry Summers last night at the 92nd Street Y in New York. When asked about a gold standard, Summers recoiled and shrieked “a gold standard is the creationism of economics!” The crowd got a big chuckle out of that. So you seem to be in popular company with your February 3rd piece, “In a Focus on Gold, History Repeats Itself” (http://www.nytimes.com/2012/02/03/business/in-rise-of-gold-bugs-history-repeats-itself.html?_r=1&ref=business). But please consider the following:

The stock of money does not need to be managed higher by policy makers to accommodate a growing economy, as Keynesian and Monetarist economists argue and as you seem to agree. Were the money stock (global money stock, not just US dollars) to grow at 1.5% per year (annual growth of the gold stock), all that would mean is that the price level of all aggregate global goods and services could rise only 1.5% per year (more or less). Of course, price levels within the bucket containing all-things-not-money would still shift based on preference. The point is economies could and would grow as much as they should, not as much as they were willing to leverage themselves.

All things equal, the price of gold in paper currency terms rises with paper money growth and falls with unreserved credit growth. Its “exchange rate” to US dollars is simply a function of its relative scarcity, like any other currency exchange rate. It’s not as complicated or as emotional as you and most economists suggest.

All the unreserved credit in the world today (unreserved because there is not enough base money with which to repay it, by a factor of about 7 times for US bank assets only), suggests strongly that global central banks will have to manufacture more of their currencies. Thus, the strong bid for gold today.

In fact, some would argue the current price of gold in USD terms is way too low in the current environment given the enormous leverage already in the system and the amount of money that has to be manufactured in the future to de-lever it. Based on this metric we believe gold is undervalued by as much as five times presently, even without any further Fed printing. It might interest you to know that, using this metric, gold in 1980 became extremely overvalued and so it should have fallen, and obviously it did. Sadly for your readers you did not consider relative value vis-à-vis gold’s proper benchmark – the gap between unreserved credit and base money.

So, there are some secular reasons to like gold at current prices and even to believe in a disciplined monetary system. If the fervency of gold bugs annoys you so much, why not just suggest that your fellow world improvers abolish capital gains taxes on physical bullion and let us crazy gold bugs save in a currency we think will maintain its purchasing power better? We will go away quietly and let you and Mr. Summers amass debt-based “savings”. Maybe a little balance is in order?

Kind regards,

Paul Brodsky & Lee Quaintance QB Asset Management Company, LLC

Paul Brodsky QB Asset Management Company, LLC

~~~

This material is not an offer to sell or a solicitation of an offer to purchase securities of any kind. This report may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties, and we might not be able to achieve the predictions, forecasts, projections and other outcomes we may describe or imply. A number of important factors could cause results to differ materially from the plans, objectives, expectations, estimates and intentions we express in these forward-looking statements. We do not intend to update these forward-looking statements except as may be required by applicable laws. Return figures herein are estimated net of all fees and charges. Any comparisons have been obtained from recognized services or other sources believed to be reliable. No part of this document may be reproduced in any way without the prior written consent of QB Partners. Past performance may not be indicative of future results.

Despite the cries of the permabears and Rick Santelli, this was unequivocally a strong NFP report. The headline numbers were 243,000 net jobs, as unemployment dipped to 8.3%. The Labor Pool increased — suggesting that the improvement was not the usual employee retirement and discouraged worked giving up looking for work.

When we go beneath the headlines, we usually see the data’s warts — not this time. Across the board this was a surprisingly strong report. BLS called described job growth as “widespread in the private sector, with large employment gains in professional and business services, leisure and hospitality, and manufacturing.”

As noted earlier, no single month matters as much as the overall trend — and the trend is unequivocally upwards for the better part of 3 quarters now.

Lets go to the details:

• Total nonfarm payroll employment rose by 243,000 in January. Private-sector employment grew by 257,000; • Unemployment rate declined by 0.2 percentage points in to 8.3%; Its down by 0.8 point since August. • The Household survey, used to measure Unemployment rate, added a whopping 491,000 jobs. • The number of unemployed persons declined to 12.8 million, from over 16 million at the recession peak. • Employment-population ratio rose to 58.5% in January (Seasonally adjusted) • The average workweek for production and nonsupervisory employees on private nonfarm payrolls edged up by 0.1 hour to 33.8 hours. • Average workweek for all employees was unchanged in January, but the manufacturing workweek increased by 0.3 hour to 40.9 hours (likely multi shift auto mfr); Factory overtime increased by 0.1 hour to 3.4 hours. • Average hourly earnings for all private employees rose by 4 cents (0.2%) to $23.29. Over the past 12 months, average hourly earnings have increased by 1.9% • November NFP was revised from +100,000 to +157,000; December NFP was revised from +200,000 to +203,000. • Benchmarks were also revised upwards — as of December 2011, total employment was raised by 266,000 (231,000 NSA)

The Negatives?

• Unemployment rates for teenagers 23.2%; for blacks is 13.6%; Hispanics 10.5% • Long-term unemployed (jobless for 27 weeks +) was little changed at 5.5 million — thats 42.9% • Persons employed part time for economic reasons, at 8.2 million, changed little in January; 2.8 million persons were marginally attached to the labor force, and 1.1 million discouraged workers, essentially unchanged from a year earlier. • Employment in information declined by 13,000, including a loss of 8,000 jobs in the motion picture and sound recording industry • Employment in construction increased by 21,000 in January, likely a temporary blip caused by unusually warm weather — 206,000 people were unable to work due to weather, well below normal for this time of year.

The one dark spot is the nagging, persistently long-term unemployment data. I suspect that is as much due to secular trends than cyclical recovery and is unlikely to improve anytime soon.

All told, its tough not to like this NFP report. Markets surely do, with the Dow up 140.

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Sources: Employment Situation Summary BLS, Friday, February 3, 2012

Did Economy Really Create 500,000 Jobs? Real Time Economics February 3, 2012 http://blogs.wsj.com/economics/2012/02/03/did-economy-really-create-500000-jobs/

Here’s a look at what I was reading before I started taking apart the BLS NFP data (more on that later):

• Senate Votes To Ban Its Members From Insider Trading… Kind Of (TPM) • The Hidden Burden of Ultra-Low Interest Rates (Businessweek) • S.E.C. Is Avoiding Tough Sanctions for Large Banks (NYT) • Will the great interest rate gamble pay off? (Telegraph) see also Negative Interest Rates—a Minus for Growth? (Barron’s) • In a Focus on Gold, History Repeats Itself (NYT) • Lax Oversight Blamed in Demise of MF Global (DealBook) see also Too little too late? CME Creates $100 Million Fund for Farmers and Ranchers (DealBook) • With Tax Break, Corporate Rate Is Lowest in Decades (WSJ) • Baltic Dry Index two-fer: …..-Commodity Shipping Costs Slump to Lowest in Quarter Century on Vessel Glut (Bloomberg) …..-The Death of a Leading Indicator? Baltic Dry Loses Luster (Fox Business) • Anatomy Of A Come Back? Charting Obama’s Approval (TPM) • Citizens United: Colbert v. the Court (Slate)

What are you reading?

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Banks Depleting Earnings Backstop Source: WSJ

The US economy added a net 243k jobs in Jan, 257k of which was in the private sector and both are well above expectations of 140k and 160k respectively. Revisions to the two prior months were up by 60k and the unemployment rate fell to 8.3% from 8.5% as while 508k people joined the labor force, a whopping 847k jobs were added in the household employment survey. The U6 unemployment rate fell to 15.1% from 15.2%. Manufacturing added 50k jobs, 38k more than expected and construction saw gains of 21k. Job gains were also seen in retail, business services, education/health, and leisure/hospitality. Total government employment fell by a net 14k. The avg workweek was 34.5 vs est of 34.4 and the avg duration of unemployment did tick down to 40.1 from 40.8. Remaining a negative, the participation rate fell to a new low of 63.7% from 64.0% and avg hourly earnings rose just 1.9% vs CPI at 3.0% and the PCE at 2.4%. Bottom line, this is the best payroll gain since May ’10 with an amazing gain in the household survey and the internals of the report also look mostly positive. If only Bernanke gave his testimony after today’s report, we’d see whether he would have stuck to the 2014 time frame for zero rates and the possibility of more QE. In terms of market reaction, while today is just one number subject to multiple revisions, we’ll see whether the initial enthusiasm will last if there is less of a possibility of more QE, arguably the main factor keeping this market so levitated over the past few months.