A recent Bloomberg article was titled”Pandit “near death” hoard signals lower bank profits“, and stated that Citigroup Inc. and JPMorgan Chase & Co. were hoarding cash as if another crisis were on the way. Also, a Wall Street Journal article entitled “Jittery Companies Stash Cash“ showed cash on the balance sheets of S&P 500 companies was the highest in 40 years.

The chart below, courtesy of economist David Rosenberg of Gluskin Sheff & Associates, shows that credit is still contracting as banks go through the painful process of repairing their balance sheets. As indicated, bank lending has now declined for 21 weeks in a row and over this entire period a total of $216 billion (15% at an annual rate) of loans and leases has vanished.

“The contraction

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This post provides links to a number of interesting articles I have read over the past few days that you may also enjoy.

• Doug Kass (TheStreet.com): Bearish arguments are roaring, September 14, 2009. In summary, the market has discounted favorable expectations (certainly against forecasts four months ago!) and seems more “certain” of a self-sustaining recovery cycle outcome. Reflecting the gravity and weight of so many inhibiting factors, I see a much broader range of possible outcomes and less certainty than some of the newly printed bullish market participants. The credit expansion of the last several decades has reversed, it will take time to reverse the damage to net worth and confidence, the consumer remains in a fragile state, corporations will make do with more productive but fewer personnel (job growth could continue to disappoint), there are no apparent drivers to replace the role of

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This post is a guest contribution by Paul Kasriel* of The Northern Trust Company.

We hear a lot of concern that the Fed’s mushroomed balance sheet over the past two years is setting the stage for a 1970s style inflation here. So long as we have a fiat (a.k.a. Chrysler?) monetary standard, the threat of hyperinflation always lurks. But is the stage currently being set for such an eventuality? I do not think so.

Chart 1 shows the behavior of changes in the M2 money supply over the past 50 years on a year-over-year basis. After the Lehman crisis in the summer of 2008, M2 growth accelerated sharply. By January 2009, the year-over-year growth in M2 reached 10.1%. Although not quite matching the 13-1/2% M2 growth often reached in the 1970s, if sustained, 10% M2 growth certainly would have the potential to push inflation significantly higher.

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Botswana Stock Exchange (BSE)-listed junior copper miner, African Copper, announced that it would restart its operations at the Mowana Mine near Dukwi–which it shelved back in January–upon receiving $41 million in funding from mining investment firm Zambia Copper Investments Ltd (ZCI). The firm also reported a pretax profit of 27.7 million pounds ($45.91 million), compared with a loss of 2.6 million pounds last year, for the six months ending June 30.

Copper prices dropped from US$7,000 per ton at the beginning of the third quarter of last year to US$3,000/ton by the end of that quarter. But copper prices have double this year, and according to Zijin Mining Group, China’s largest gold producer, “a recovering world economy and loosening bank credit will bolster copper prices in the second half of the year.” The estimation echoes that of GFMS, a

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This post is a guest contribution by Paul Kasriel* of The Northern Trust Company.

In recent weeks two prominent economic commentators - Arthur Laffer and Alan Greenspan - have warned about the inflationary potential emanating from the unprecedented increase in the Fed’s balance sheet. Yes, as shown in Chart 1, reserves created by the Fed have increased by a staggering $858 billion in the 12 months ended May. But excess reserves on the books of depository institutions have increased by almost as much, $842 billion (see Chart 2). So, in the 12 months ended May, 98% of the increase in reserves created by the Fed has simply ended up as idle reserves on the books of depository institutions.

Yes, the bulk of the reserves the Fed has created

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By Cees Bruggemans

The green shoots are apparently reaching higher.

A cyclical gear change is underway, in which 2Q2009 will show much less of a GDP decline than 1Q2009. Either 3Q2009 or 4Q2009 will probably show the first cyclical uptick in our output, heralding renewed expansion.

In the US, the May non-farm payrolls gave their first positive surprise, declining by ‘only’ 345 000 jobs. The market had expected a decline of 550 000, which would have been a more modest improvement from the 660 000 average declines these past six months.

The April payroll decline was simultaneously revised down by 25 000, reinforcing the perception of reducing job losses. As job losses are a lagging indicator, these changes reinforce the view of the US economy stabilizing and shortly (3Q2009) coming out of recession.

US unemployment in

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I thought that as part of the new Mogambo Program To Stop Freaking Out (MPTSFO) and maybe get some sleep that is not disturbed by screaming at nightmares of the horrors of inflation and economic ruin that are the just desserts of an America that has now embraced ignorance, stupidity and sloth as virtues, I had turned off the alarms in the Mogambo Bunker (the MoBu) that were connected to the circuits monitoring the creation of bank credit by the Federal Reserve.

This new bank credit is the stuff from which “money” is instantly made when someone borrows from a bank, which increases the money supply, which creates inflation in something when that new money is used to bid up the price (or prices) of part (or parts) of the existing stock of goods and/or services, the recipient of which goes out and bids up the prices of stuff that HE

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by Edward Hugh: Barcelonabr /br /br /blockquote"For what it’s worth, a key conclusion from the IMF’s new World Economic Outlook is that recessions caused by financial crisis typically end with export booms, with the trade balance improving,on average, by more than 3 percent of GDP. I find this a disturbing result: we’re now suffering from a global financial crisis, which means that the usual driver of recovery will only be available if we can find another planet to export to."br /a href="http://krugman.blogs.nytimes.com/2009/04/27/japans-recovery-again/"Paul Krugman /abr /br //blockquoteblockquoteWith results still coming in, projections show the United Progressive Alliance is likely to win about 250 seats, making it a shoo-in to form the next government and provide continuity, a stable administration and progress on key economic and corporate reforms.br /a href="http://online.wsj.com/article/SB124247401653426893.html"Wall Street Journal/a, May 16 2009/blockquotebr /blockquotePrime Minister Manmohan Singh’s electoral victory, the biggest any Indian politician has scored in two decades, may ...

Notes from the Investment Underground Monday, April 27, 2009 Palermo Viejo, Buenos Aires, Argentina

Welcome to Sopranos USA… Can the “junk-stock” rally last? Credit to get worse before it gets better… Feds’ “hair of the dog” recovery plan… Shockwave coming… Jim Rogers on why he’s not buying stocks… Introducing your new Notes tax expert, Raife Neuman… And more!

*** What kind of men have we entrusted to manage our economy? And whose interests do they serve? Get the answer to either of these questions wrong and you’re in for a rough ride as an investor.

*** Consider the facts surrounding the Bank of America’s takeover of Merrill Lynch.

Thanks to New York Attorney General Andrew Cuomo, we know that former Treasury secretary Hank “The Hammer” Paulson and Fed chief Benny “Two Fingers” Bernanke violated U.S. securities law by keeping the huge losses sustained by

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Over the next decade, the critical element in any investment portfolio will be the correct call regarding inflation or its antipode, deflation. Despite near term deflation risks, the overwhelming consensus view is that “sooner or later” inflation will inevitably return, probably with great momentum. This inflationist view of the world seems to rely on two general propositions. First, the unprecedented increases in the Fed’s balance sheet are, by definition, inflationary. The Fed has to print money to restore health to the economy, but ultimately this process will result in a substantially higher general price level. Second, an unparalleled surge in federal government spending and massive deficits will stimulate economic activity. This will serve to reinforce the reflationary efforts of the Fed and lead to inflation.

These propositions are intuitively attractive. However, they are beguiling and do not stand the test of history or economic theory. As a consequence, betting on

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