Juggling Dynamite

Mark Twain famously quipped that a miner was a liar standing beside a hole in the ground.

In practice this has not been so far from truth. A good many producers were over-promising margins the past few years by under-reporting break even costs–not using full cost accounting. As the price of metals continue to plunge, projects and producers have been burning cash at a voracious rate. Equipment, inventory and companies will need to be liquidated to pay creditors. Ironically, the metal proponents who assured the world that cash was trash, are now increasingly desperate to raise it.

Bloomberg reports on dropping gold prices and what that means for production. Here is a direct video link.

As the price of oil declines, its probably safe to say that many oil producers have also been under-reporting their costs and are burning through cash faster than currently believed…

Today the Canadian dollar index (CDW) has broken to a low last seen in November of 2008 when the great financial crisis was humbling bankers and halving global asset prices. This time around, stock markets have barely begun to decline and the Canadian housing market remains outrageously over-valued with household debt (and Canadian bank shares) at all time highs.  With all that yet to unwind, rational minds should ponder,  how low could the loonie go this time?

The below portrait since 1975 reminds that cyclical declines in the C$ have averaged 27% and lasted about a decade.  In this case, the decline that began from 107 on a weekly close in November 2007, was temporarily interrupted by QE-mania from March 2009 to May 2011, and then resumed its descent with global demand.  Not sure then, if we should count this as year 7 of the declining loonie trend, or year 4. But in either case, it seems we have considerably further to go both in likely duration and depth for this cyclical decline.

So taxpayers bail them out so that they can continue illicit schemes to defraud those same taxpayers. Then the banks negotiate fines when caught and continue their highly profitable racket. Is it any wonder that finance has the biggest buildings, the highest paid executives and the most expensive lawyers and lobbyists on their payroll? See: Wells Fargo in settlement talks in US mortgage insurance case.

“Wells Fargo & Co said on Wednesday it is in discussions with the U.S. government to resolve a lawsuit accusing the nation’s largest mortgage lender of cheating taxpayers by submitting ineligible home loans to a federal insurance program.

Wells Fargo, the fourth-largest U.S. bank by assets, disclosed the talks in a quarterly filing with the U.S. Securities and Exchange Commission.

In October 2012, the U.S. Department of Justice sued the San Francisco-based bank, saying it failed to report more than 6,000 loans that did not meet requirements for insurance under the Federal Housing Administration (FHA), and failed to properly review early payment defaults.

The government said this caused the FHA to pay out hundreds of millions of dollars in claims on loans that did not qualify for insurance.”