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Today, the world’s largest copper producer, Phoenix based Phelps Dodge [PD: NYSE], announced its intention to acquire Toronto based Inco and Falconbridge in a $56 billion transaction to create the world’s largest nickel producer. While the details of this deal are beyond the scope of discussion here, rest assured it has all the makings of a “soap opera.” With the global race to secure strategic natural resources heating up, one can only wonder if the initial warm reception this deal is receiving in the mainstream financial press would be nearly so cozy if the acquiring [or harvesting, perhaps?] interest happened to be Chinese? Role Play Receiving little fanfare today was an announcement from the good folks at the Central Bank of Central Banks [The BIS] of three new additions to the corporate family, BASEL (AFX) - The Bank for International Settlements said European Central Bank president Jean-Claude Trichet, People's Bank of China governor Zhou Xiaochuan and Bank of Mexico governor Guillermo Ortiz are to join its board. The three appointments are being made in order to enlarge the BIS board and bring its membership more into line with the bank's global role. Of particular note, an eyebrow goes up over the addition of the Chinese – largely seen as being “uncooperative” with the “well wishes” of the U.S. where the value of their currency is concerned, the Mexicans – with patriots like Hugo Salinas Price leading the charge in that country to re-monetize silver with the Libertad and let’s not forget good ole Jean-Claude over at the ECB [European Central Bank] – whose membership includes France and Germany, sporting a couple of the largest [known] remaining hordes of gold bullion on the planet. As to the BIS’s global role, now that’s an enigma shrouded in a mystery – if there ever was one! One For the Ditch or Who’s Afraid of the Big Bad Wolf? Moving on; a Reuters article published today sounded an alarm bell, WASHINGTON, June 26 (Reuters) - U.S. mortgage finance giants Fannie Mae (FNM.N: Quote, Profile, Research) and Freddie Mac (FRE.N: Quote, Profile, Research) pose risks to financial systems that could hit primary dealers, tighten credit and reduce liquidity in markets, a Treasury Department official said on Monday. What struck me as being “odd” about this latest warning, it would seem that the ‘rascals’ over at the Treasury are REALLY SERIOUS this time, "We at the Treasury are confident we are not simply 'crying wolf,'" Emil Henry, assistant treasury secretary for financial institutions, said in remarks prepared for delivery to a financial services industry group. Henry said the potential for spillover into financial markets from any crisis at one of the government-sponsored mortgage finance enterprises (GSEs) is "nothing short of breathtaking." What ever could Mr. Henry be so worried about? Could it possibly be Fannie Mae’s 5 Trillion [notional] dollar derivatives book? I mean, it is a well known fact that most of Fannie’s accounting problems stem from improper treatment [accounting] of their hedge book, “Most of Fannie Mae's anticipated restatement of at least an $11 billion reduction of previously reported net income is a result of its improper hedge accounting.” No, it couldn’t be that now, could it? After all, if Fannie Mae is having such a hard time with accounting for hedges in their 5 Trillion dollar derivatives book, one could ONLY GUESS what kind of problems there MIGHT BE over at J.P. Morgan Chase – since they have a 48.5 Trillion Dollar Derivatives Book. No, that would make no sense at all – would it? Since we know that Sir Alan of Greenspan has repeatedly told us all that UNREGULATED derivatives give the U.S. financial system the required and NECESSARY FLEXIBILITY to withstand systemic shocks: “These increasingly complex financial instruments have contributed to the development of a far more flexible, efficient, and hence resilient financial system than the one that existed just a quarter-century ago. After the bursting of the stock market bubble in 2000, unlike previous periods following large financial shocks, no major financial institution defaulted, and the economy held up far better than many had anticipated.” Don’t Worry……Be Happy! Then again, why should any of us worry about the goings on at J.P. Morgan or Fannie or Freddie either, for that matter? We can all sleep soundly knowing that, “The President just delegated authority to John Negroponte that allows him to exempt any publicly traded corporation that is working on national defense issues or national security issues from the reporting and accounting requirements under the 1934 Securities and Exchange Act. It's basically the rules and regulations that require companies to keep accurate records, accurate books, accurate accounting . . . and then disclose those projects and that information to investors……” [RK emphasis] Who hasn’t heard the saying 'show me where it hurts'? Today’s Market Overseas equity markets began the week on a positive note with Japan’s Nikkei Index gaining 28 points to close at 15,152. Meanwhile, North American markets also did better with the DOW up 56.19 to 11,045.28, the NASDAQ up 12.20 to 2,133.70 and the S & P ahead by 6.05 – ending the day at 1,250.55. NYMEX crude oil futures ended the day at 71.80 – up .93 per barrel. In foreign exchange markets, the U.S. Dollar Index lost .35 to end the day at 86.10. Interest rates were 1 – 2 basis points higher across the board with the 2-year bond ending the day at 5.26%, the 5-year at 5.22% and the 10-year at 5.25%. Precious metals markets ended the day mostly lower with COMEX gold futures losing .20 to 585.50 per ounce while COMEX silver futures lost .05 to end the day at 10.32 per ounce. The XAU added 1.51 to 134.94 while the HUI gained 3.79 to close at 315.47. On tap for tomorrow, at 10:00 a.m. June Consumer Confidence data is due to be released – expected 103 vs. prior 103.2. Also at 10:00 a.m. May Existing Home Sales data is due, expected 6.60M vs. prior 6.76M. Wishing everyone a pleasant summer evening and a happy as well as prosperous tomorrow! Rob Kirby |
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