http://caps.fool.com/Blogs/alexandria-minerals-live/715293

March 01, 2012 – Comments (2)

It is my great pleasure to invite Eric Owens Ph.D., CEO of Alexandria Minerals, to join us once again for a live discussion with members of this community at 3pm EST today (Thursday, March 1).

For a primer on Alexandria's story and why I personally find the company's property portfolio in Val D'Or's Cadillac Break so compelling, please review my write-up here:

http://caps.fool.com/Blogs/compelling-pm-microcaps/569492?

To review discussions from the two prior occasions on which Eric has joined us here, please see:

July 2011: http://caps.fool.com/Blogs/caps-exclusive-online-forum/61......

April 2011: http://caps.fool.com/Blogs/live-chat-with-alexandria/571634

Fellow Alexandria shareholders no doubt share my keen anticipation of the company's initial resources estimate on the Akasaba property due out shortly. It is my hope that this resource will generate a catalyst for the deeply discounted stock, as the company will hold a global gold resource that surges beyond the million-ounce mark with substantial exploration upside remaining.

Please be sure to join us right here at 3pm EST today to chat with Eric directly, or if you can not be here live simply post your questions, observations, etc. in advance.

Thank you in advance for your active participation, and for joining me in expressing gratitude to Eric for taking time out to join us right here in our own corner of the online investment universe.

Important Note: Because of Alexandria's very small market capitalization, I feel it my duty to always emphasize the investment risk that is inherent in any pre-revenue-generating company of minute capitalization. Please do your own due diligence, of which an opportunity like this one to interact directly with a company's CEO can play an important part. Most of my readers will already be aware that Alexandria Minerals is my own top equity holding by value, but that in no way constitutes a recommendation to anyone else. I offer information and insights based upon my knowledge of the company's I cover, but as always your own investment decisions are entirely your own.

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THE GOLDEN PARABOLA

We can see on the chart of Median Line Log Gold below, Gold started a sharp rise right about the time that the debt ceiling was raised.  That announcement provided the need for further debt monetization via further aggressive dollar inflation.  The timing of the start of the higher angled rise came right on time per the 70’s chart for Gold.  Many have been looking for Gold to re-trace heavily from this run, but we believe that we are seeing the early start of a more parabolic move for Gold that will take Gold much higher by year-end, or into early 2012. 

The next upside target for Gold will likely be up to around the $2250 target we have already laid out, then up much higher after a short correction, before Gold takes a bit of a breather for a few months.

So far, Gold has shot up to $1915, then re-traced to our first support line on the arithmetic Elliott Wave Channel chart that we have shown in the past.  We expect that line of support to hold since Gold has barely scratched the surface of the similar rise that Silver recently made as it busted upward from $17.50 to rocket up to $49.50. 

The next Gold chart is a log chart showing that the top dotted angled line that lies in the area of $2250 is analogous to how far Gold fell out of the main channel during the deflation scare back in late 2008.  We expect that top dotted line to serve as the next upside resistance level where we will see a bit of a correction before Gold continues to explode higher into year-end, or into early next year.  All of the metrics of Gold’s rise up to this point are mute once Gold busts out in a parabolic form on the log chart as seen in the late 70’s.

THE SILVER ROCKET

Back when Silver was trading around $30 we laid out targets for Silver in a multiple topping process as seen in the late 70’s and in 2006.  At the time we laid out a range of $48 to $49 for the first resistance line for Silver into May/June with the potential for Silver to spike up to as high as $56. [See here for our original article on the subject.]

Silver hit that first line of resistance with traders coming in overnight on a Sunday in April to hammer Silver down to a very similar percentage reaction as we saw in 2006.  At this time Silver is rising back up as it did in 2006 to reach for the next high in the expected multiple top formation.

In the 2006 chart of Silver, below, we can see the sharp correction that is very similar to the recent price reaction.  In fact, the RSI and price pattern for Silver are almost identical twins in the two periods as Silver moves back up to expected new highs toward the $52 to $56 area. 

Some were calling the similar Silver reaction to that in 2006 as a crash and the end of the Silver Bull.  The arithmetic ratio target for Silver off of the 70’s chart is up to around $150 for the PM Bull, yet, since the current PM Bull is at a higher Elliott Wave Degree than the 1970’s, we perceive the potential for Silver’s high to come in at multiples of the arithmetic target.  If true, then we should see similar multiples for Gold and for the PM Stock Indices, also.

2006 SILVER

THE CURRENT SILVER ROCKET CHART

SUMMARY/ REVIEW

The nature of the price rise for Gold, and for Silver, are somewhat different as seen in the current and 1970’s charts for each.  The chart of Silver tends to rip higher in sudden emotional price drives whereas the rise of Gold tends to be a much smoother parabolic form.  The price of Gold is the true reflection of the amount of dollar devaluation in progress as we have often noted in the past so the US Dollar Index becomes a fairly impotent guide to dollar inflation in this part of the cycle where global competitive currency devaluations are in full swing.

At this point, we believe that the parabolic rise in Gold and in Silver still have a very long way to go as measured directly off of the late 1970’s Charts.  In fact, we expect the arithmetic ratio targets for Gold and for Silver, based on the late 1970’s rise for each, to get blown away since we are seeing a logarithmic rise in dollar inflation compared to the late 1970’s. (To keep abreast of daily developments in what is happening with physical gold and silver, various PM indices and specific gold and silver mining and royalty stocks please subscribe to our service here. To read more of public access articles please go here.)

We have just hit the point where the more parabolic rise in Gold set off the leverage for the Gold Stocks in the late 1970’s. Therefore, we expect the real parabolic PM Stock Index Bull is just now commencing.  We expect that the break-out last Friday will eventually be seen as the first of three PM Stock momentum runs yet to come.  Fasten your seatbelts!

Related Article

Back on February 18th I wrote an editorial showing that Silver could rocket up to $52 to $56 by mid-year. At the time of the writing Silver was sitting a little above $32 on the price chart. The original chart work was based off of the fractal chart work I do with Silver from previous fractal time periods. So far the rise in Silver appears to be right on track for our expected targets to be approached into mid-year. [Let me review the details with you.] Words: 1069

3.  Goldrunner: Fractal Analysis Suggests Silver to Reach $52 – $56 by May – June 2011

Dollar Inflation remains the driver of the pricing environment for almost everything denominated in U.S. Dollars as long as the Fed continues to monetize debt. The debt monetization creates Dollar Inflation that results in Dollar Devaluation. By the time the Fed has ramped up the QE II that they have announced will end in June, I expect Gold, Silver, and the HUI will have risen to $1860 – $1975, $52 – $56 and 940 – 970 respectively. Let me show you why. Words: 1301

4.  GOLDRUNNER: THE GOLDEN PARABOLA

5.  Goldrunner: Martin Armstrong vs. His Own Model

Martin Armstrong has stated his expectations for Gold and the PM Sector to fall into the June period and to continue to correct into October based on his Economic Confidence Model. The fractal work that I do off of the 70’s Precious Metals Bull market and other areas of the charts does not agree with his expectations. Thus, in this writing I take a look at how the Precious Metals Sector has performed in reference to Mr. Armstrong’s Model “bottoms” themselves. Words: 1482

6.  Goldrunner: Has Gold Topped Out? Nope, You Ain’t Seen Nothing, Yet!

A Gold Bull Market is much like a bucking bronco in the Old West – constantly trying to buck investors out of the saddle – as many in the Precious Metals universe are calling an intermediate-term top for Gold. Some are even suggesting that we have seen the final top in the Historic Gold Bull. We have a completely different view maintaining that we are very close to the juncture where Gold starts another rip higher into May or June. Let me explain. Words: 908

Comment (1)

Gold is in the second phase of  a Bump-and-Run Reversal Top pattern, which typically occurs when excessive speculation drives prices up steeply, and is now at a critical juncture where substantially lower prices could be realized. Let me explain. Words: 339

According to Thomas Bulkowski, the Bump-and-Run Reversal Top pattern (read here for details) consists of three main phases:  

1. A lead-in phase in which a lead-in trend line connecting the lows has a slope angle of about 30 degrees.  Prices move in an orderly manner and the range of price oscillation defines the lead-in height between the lead-in trend line and the warning line which is parallel to the lead-in trend line. 
2. A bump phase where, after prices cross above the warning line, excessive speculation kicks in and the bump phase starts with fast rising prices following a sharp trend line slope with 45 degrees or more until prices reach a bump height with at least twice the lead-in height.  Once the second parallel line gets crossed over, it serves as a sell line.
3. A run phase in which prices break support from the lead-in trend line in a downhill run.

1. $1,750 for support from the dotted pink line.
2. $1,650 for support from the warning line.
3. $1,500 for support from the lead-in trend line.

*http://fx5186.wordpress.com/speical-mid-week-update-8242011/

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5 ozt. America the Beautiful Bullion Quarter Dollar Coin Series

The America’s Beautiful National Parks Quarter Dollar Coin Act of 2008 — Public Law 110-456 — authorizes the production of 5 five-ounce, investment grade silver bullion coins every year through 2021  (56 in total) replicating  each of the designs featured on the US Mint’s America the Beautiful Quarters (see designs below). These designs, as such, will feature reverse designs depicting national parks and other national sites in each state plus other national sites and territories in the District of Columbia and the five U.S. territories of Puerto Rico, Guam, American Samoa, U.S. Virgin Islands and Northern Mariana Islands and the edge of the coin will be incused with lettering stating the bullion coins’ Fineness “.999 FINE SILVER” and Weight “5.0 OUNCE.”

The first 10 of the 56 designs are as follows:

Schedule of Issuance

The America the Beautiful Silver bullion coins will be issued in the order in which the honored site was first established as a national site as follows:

2012

1. PR El Yunque National Forest Site
2. NM Chaco Culture National Historical Park
3. ME Acadia National Park
4. HI Hawai’i Volcanoes National Park
5. AK Denali National Park

2013

1. NH White Mountain National Forest
2. OH Perry’s Victory and International Peace Memorial Site
3. NV Great Basin National Park
4. MD Fort McHenry National Monument and Historic Shrine
5. SD Mount Rushmore National Memorial

2014

1. TN Great Smoky Mountains National Park
2. VA Shenandoah National Park
3. UT Arches National Park
4. CO Great Sand Dunes National Park
5. FL Everglades National Park

2015

1. NE Homestead National Monument of America
2. LA Kisatchie National Forest Site
3. NC Blue Ridge Parkway Site
4. DE Bombay Hook National Wildlife Refuge Site
5. NY Saratoga National Historical Park

2016

1. IL Shawnee National Forest
2. KY Cumberland Gap National Historical Park
3. WV Harpers Ferry National Historical Park
4. ND Theodore Roosevelt National Park
5. SC Fort Moultrie (Fort Sumter National Monument)

2017

1. IA Effigy Mounds National Monument
2. DC Frederick Douglass National Historic Site
3. MO Ozark National Scenic Riverways
4. NJ Ellis Island National Monument (Statue of Liberty)
5. IN George Rogers Clark National Historical Park

2018

1. MI Pictured Rocks National Lakeshore
2. WI Apostle Islands National Lakeshore
3. MN Voyageurs National Park
4. GA Cumberland Island National Seashore
5. RI Block Island National Wildlife Refuge

2019

1. MA Lowell National Historical Park
2. MP American Memorial Park
3. GU War in the Pacific National Historical Park
4. TX San Antonio Missions National Historical Park
5. ID Frank Church River of No Return Wilderness

2020

1. AS National Park of American Samoa
2. CT Weir Farm National Historic Site
3. VI Salt River Bay National Historical Park and Ecological Preserve
4. VT Marsh-Billings-Rockefeller National Historical Park
5. KS Tallgrass Prairie National Preserve

2021

1. AL Tuskegee Airmen National Historic Site



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Canada

1 ozt. Silver Maple Leaf Bullion $5 Coin

The Canadian Silver Maple Leaf bullion coin has been minted by the Royal Canadian Mint annually since 1988. The coin has the highest face value $5 and purity .9999 of all official government silver bullion coins. There are three different versions of Queen Elizabeth on the observe of the Silver Maple Leaf. The design on the left, below, was from 1988-1989, the design in the middle was from 1990-2 and the 2004-present design is to the right.

1/2 oz. Silver Timber Wolf Bullion $1 Coin

In 2006 the mint issued a half ounce Silver Timber Wolf  which was an outstanding success.

Canadian Wildlife Bullion Coin Series Program

Given the outstanding popularity of the Silver Timber Wolf coin the Royal Canadian Mint has introduced a 6-coin series known as the Canadian Wildlife Silver Bullion Coin Series Program in which a  new coin will be released every 6 months.

1 ozt. Silver Timber Wolf Bullion $5 Coin

The first coin released in the series (September 2010) was the 2011 Canadian Silver Timber Wolf  Bullion coin created with the same .9999 fine silver as the Canadian Silver Maple Leaf bullion coin and the same  image as that used on the half ounce Silver Timber Wolf coin.

1 ozt. Silver Grizzly Bullion $5 Coin

The 2011 Canadian Silver Grizzly Bullion coin was the second coin released (January 2011) in the Canadian Wildlife Silver Bullion Coin Series.

Source: For access to the source of the above graphics and other free gold and silver coin information visit  http://www.free-bullion-investment-guide.com/

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What Are Warrants?

Warrants are securities which gives the holder the right, but not the obligation, to acquire the underlying securities at predetermined (i.e. exercise) prices and within a specified period of time (i.e. term or duration).

The Gold and Silver Warrants Index (GSWI)

The 20 companies in the equal dollar-weighted GSWI are primarily involved in gold and silver mining, exploration and royalty stream endeavours and consist of the following particulars:

1. Number of Warrants by Months of Duration

Since all warrants have life durations and begin to lose value as they approach their respective expiry dates only the 24 warrants of the 20 companies (4 companies have 2 warrants each) which have at least 24 months term before expiry are included in this analysis. The breakdown by duration of the 24 warrants is as follows:

• 3 (12%) 60+ months (Franco-Nevada wt.A, New Gold wt. A, Crocodile Gold wt.) ;
• 5 (21%) 48 – 59 months (Dundee Precious Metals wt. A, Gran Columbia wt., Primero Mining wt., Rio Novo Gold wt., Sandstorm Gold wt.A);
• 10 (42%) 36 – 47 months;
• 6 (25%) 24 – 35 months

2. Number of Companies With Warrants by Market Capitalization

Most financial writers and advisors are of the mistaken impression that warrants are just associated with penny stocks – the ‘juniors’ – but that is not entirely the case as outlined below:

• 5 (25%) large-cap (Kinross Gold; Agnico-Eagle; Franco-Nevada; Silver Wheaton; New Gold)
• 4 (20%) mid/small-cap
• 11 (55%) micro/nano-cap in size

3. Type of Activity by Company with Warrants

Type of activity each company is involved in is as follows:

• 17 (85%) are miners
• 3 (15%) are royalty stream companies of which
• a) 1 deals exclusively in gold (Sandstorm Gold);
• b) 1 deals exclusively in silver (Silver Wheaton) and
• c) 1 deals in gold and silver plus other commodities (Franco-Nevada).

Comparing the Performance of the GSWI with Other Gold & Silver Alternatives

The GSWI was up +92% in 2010 (and +140% in 2009!) in U.S. dollar terms which is greater than the:

• 55% increase in a basket of mid- and small-cap miners as represented by the GDXJ;
• 33% increase in the HUI and GDX (large/mid cap gold and silver mining company stocks);
• 30% increase in gold bullion and even the
• 83% in physical silver.

The GSWI Constituent Company Specifics

The constituents of the GSWI are listed below with the following information presented as follows: Company Name; market capitalization; TSX/TSXV warrant symbol; (U.S. Pink Sheets** symbol); warrant expiry date; warrant CUSIP* Number; web site URL:

* CUSIP stands for the Committee on Uniform Security Information Procedures of the American Bankers Association which established a format of unique codes for all North American stocks, bonds, puts, calls, warrants, etc. as assigned by Standard and Poor’s. The CUSIP number consists of a combination of 9 characters, both letters and numbers, which act as a sort of DNA for the security uniquely identifying the company or issuer and the type of security. The first 6 characters identify the issuer and are assigned in alphabetical order; the 7th and 8th characters, which can be alphabetical or numerical, identify the type of issue; the last digit is used as a check digit. (The use of such numbers is imperative for non-Canadians when placing orders with a broker to avoid any confusion related to specifically which warrant is being requested to be bought or sold.

** Pink Sheets is the registered name for a privately owned company that operates a centralized quotation service that collects and distributes market maker quotations for securities traded in the over-the-counter market. The service is named for the color of the sheets on which the National Quotation Bureau originally distributed bid and ask quotations for OTC securities. In 1999 Pink Sheets introduced its Electronic Quotation Service, which provides real-time quotes for OTC equities and bonds. The .pk behind a stock simply means the stock in question is traded on the pink sheets. It is a 5-alpha symbol ending in ‘F’ for Foreign.

1. Agnico-Eagle; $11B; T.AEM.wt.U; December 2013; 008474140; www.agnico-eagle.com
2. Augen Gold; $54M; V.GLD.wt; October 2014; 05104R120;www.augengold.ca
3. Astral Mining; $3.5M; V.AA.wt; October 2014; 046349130; www.astralmining.com
4. Bridgeport Ventures; $32M; T.BPV.wt; October 2014; 108404112; www.bridgeportventures.net
5. Brigus Gold; $189M; a) T.BRD.wt; November 2014; 109490110; b) T.BRD.wt.A; November 2014; 109490136; www.brigusgold.com
6. Crocodile Gold; 24M; T.CRK.wt; March 2016; N/A; www.crocgold.com
7. Dundee Precious Metals; $623M; T.DPM.wt.A; (DNPMF.pk); November 2015; 265269134; www.dundeeprecious.com
8. ECU Silver; $203M; T.ECU.wt; February 2014; 26830P121; www.ecu.ca
9. Endeavour Mining; $309M; T.EDV.wt.A; February 2014; G3040R133; www.endeavourminingcapital.com
10. Franco-Nevada; $3.6B; a) T.FNV.wt.A; June 2017; 351858139; b) T.FNV.wt.B; July 2013; 35185814; www.franco-nevada.com
11. Gran Colombia; $283M; T.GCM.wt; August 2015; 38501D113; No Web site
12. Kinross Gold; $12.3B; a) T.K.wt.C; (KNRSF.pk); September 2013; 496902172; b) T.K.wt.D; September 2014; 496902180; www.kinross.com
13. New Gold; $2.5B; T.NGD.wt.A; (NGDAF.pk); June 2017; 644535122; www.newgoldinc.com
14. Northquest; $8M; V.NQ.wt; December 2014; 666676119; www.northquest.biz
15. Papuan Precious Metals; $24M; V.PAU.wt; July 2013; 69887W110; www.papuanpreciousmetals.com
16. Primero Mining; $456M; T.P.wt; July 2015; 74164W114; www.primeromining.com
17. Rio Novo Gold; $156M; T.RN.wt; March 2015; G75700123; www.rnovogold.com
18. Sandstorm Gold; $187M; a) V.SSL.wt; April 2014; 800132128; b) V.SSL.wt.A; October 2015; 800132136; www.sandstormresources.com
19. Silver Wheaton; $8.5B; T.SLW.wt.U; (SLVWF.pk); September 2013; 828336149; www.silverwheaton.com
20. U.S. Silver; $68M; V.USA.wt; July 2014; 90343P119; www.us-silver.com

Which Warrants Should You Invest In?

Now that you know which companies constitute the LT warrant asset class, when their warrants expire and what their respective symbols and CUSIP numbers are, all you need to start investing in them is to decide on your approach. Warrants perform more or less (more in an up-leg, less in a down-leg) in relationship to that of their associated stock so their purchase should not be done without considerable research.

a) Given the fact that no warrant ETFs are available to buy you could buy a basket of warrants consisting of an equal number of warrants from every company mentioned above. If, for example, you were to restrict your warrants portfolio to just those of gold and silver companies, and just 100 warrants of each LT offering, it would amount to approximately $8,000 at today’s prices plus commission expenses.

b) You could do your own due diligence of each of the 20 companies and decide which company or companies are to your liking and purchase their associated warrants accordingly.

c) You could restrict your selection of companies early on by:

• management experience/reputation;
• specific products (gold or silver);
• business emphasis  (producers, developers, explorers or royalty streamers);
• market capitalization (large, mid/small, micro/nano);
• countries of operation (world-wide, excl. Africa, excl. Venezuela, etc.);
• stock /company fundamentals;
• technical analysis of stock;
• length of duration left on warrant;
• price volatility of stock/warrant;
• degree of liquidity of stock/warrant;
• trading depth of stock/warrant;
• currency in which stock/warrant trades.

d) You could do b) or c) above and then, and only then if your primary intent is to hopefully be in a position to exercise your warrants and acquire their associated stock at some future date, finally restrict your purchases to those warrants that provide the best value related to their future leverage potential based on specific appreciation of their associated stock and the number of months duration remaining for the warrants under consideration which I refer to as the “leverage-time factor”.

To learn exactly how to go about the above please visit my site and read the article aptly titled: “Buying Gold and Silver Company Warrants is Easy & Profitable: Here’s How (and Why!)”

Conclusion

Now that the ‘secret’ is out I’m sure you can’t help but agree that warrants warrant your serious consideration. Now that you know which ones to give consideration to and what factors should be taken into consideration before placing an order, what are you waiting for?

This article was first posted on Wilson’s site here. Wilson is editor of www.munKNEE.com (It’s all about Money!) and www.FinancialArticleSummariesToday.com (A site for sore eyes and inquisitive minds). He can be reached at “editor at munKNEE dot com”.

Comment (1)

Published: 17 May, 2011, 23:41
Edited: 18 May, 2011, 11:19

Osama Bin Laden cheated the gallows and died five years before US security forces officially announced he was killed, says a former CIA agent, currently living in Turkey.

“I knew Bin Laden’s Chechen guards very well,” Berkan Yashar, himself an ethnic Chechen, told the Russian TV station, Channel One. “Samy, Ayub and Mahmud were with him right to the end. I remember well this date as there were three sixes in it – June 26, 2006. Those three men, as well as two Muslims from London and two from the US saw Bin Laden dead.He was seriously ill before his death. He faded away to skin and bone. The three Chechens washed his body before burying it.”

Yashar also said that on the eve of May 2, when President Obama announced that Bin Laden had been killed, the Americans found only Bin Laden’s grave near the Afghan-Pakistani border and staged an operation.

According to Yashar, US special forces started hunting Bin Laden’s Chechen guards after Bin Laden’s death was first announced at a conference in Washington in November 2008. The last of them, Samy, was taken by the American special forces a few days before Bin Laden was officially pronounced dead. Berkan Yashar believes Samy could have told them the exact place of burial.

Answering why he had decided to speak to the Russian channel, Berkan Yashar said that after all the recent developments he feared for his life.

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http://www.bullionbullscanada.com/index.php?option=com_kunena&Itemid=122&func=view&catid=11&id=3316

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Leaders of the world economy failed to narrow differences over currencies as they turned to the International Monetary Fund to calm frictions that are already sparking protectionism.

Exchange rates dominated the IMF’s annual meeting in Washington on concern that officials are relying on cheaper currencies to aid growth, risking retaliatory devaluations and trade barriers. China was accused of undervaluing the yuan, while low interest rates in the U.S. and other rich nations were blamed for flooding emerging markets with capital.

Finance ministers and central bankers pledged to improve cooperation, yet did little to show how they would alter their ways beyond agreeing to let the IMF to study the matter. With the dollar down 11 percent against the yen since mid-June, compared with less than 3 percent versus the Chinese yuan, the focus turns to Group of 20 talks in South Korea in coming weeks to prove international policymaking isn’t in tatters.

“Policy makers seemed to be trying to diminish concerns about currency wars,” said Steven Englander, head of Group of 10 currency strategy at Citigroup Inc. in New York. “There did not seem any commitment to change behavior, however. There is little to suggest that the dollar’s direction is anything but down.”

Mantega’s ‘War’

Days after Brazilian Finance Minister Guido Mantega set the tone for the gathering by declaring a “currency war” was underway, officials held their traditional battle lines. U.S. Treasury Secretary Timothy F. Geithner and European Central Bank President Jean-Claude Trichet were among those to signal irritation that China is restraining the yuan to aid exports even as its economy outpaces those of other G-20 members.

“Global rebalancing is not progressing as well as needed to avoid threats to the global economic recovery,” Geithner said. “Our initial achievements are at risk of being undermined by the limited extent of progress toward more domestic demand- led growth in countries running external surpluses and by the extent of foreign-exchange intervention as countries with undervalued currencies lean against appreciation.”

At the same time, officials from emerging economies including China complained that low interest rates in the U.S. and its developed-world counterparts mean investors are pouring capital into their markets, threatening growth by forcing up currencies and inflating asset bubbles. The MSCI Emerging Markets Index of stocks has soared 13 percent since the start of September.

Monetary Expansion

“Near-zero interest rates and rapid monetary expansion are geared at stimulating domestic demand but also tend to produce a weakening of their currencies,” Mantega said Oct. 9. As a result, developing countries will continue to build up reserves in foreign currency to avoid “volatility and appreciation.”

Chinese officials repeated they will allow a gradual advance in the yuan and warned that a hasty revaluation would do the world economy more harm than good.

“We are committed to a more flexible” exchange-rate regime, People’s Bank of China Deputy Governor Yi Gang said. “A more flexible, market-based, managed floating regime is better for China and is better for the rest of the world. But the approach is probably a gradual one.”

While the yuan last week rose to its highest level since 1993, its gain against the dollar since China pledged in June to make it more flexible is little more than 2 percent. The dollar has dropped for the past four weeks against the euro, passing $1.40 last week for the first time since February. It also slid through 82 yen in a move unprecedented since 1995.

Taking Steps

More and more economies are taking steps to spur growth that end up weakening their currencies. Japan last month sold yen for the first time in six years, and the Federal Reserve is signaling it may revive large-scale asset purchases next month. Switzerland, South Korea and Brazil have also intervened this year. While a lower exchange rate can help bolster exports, it also hurts trading partners, who may look to regain advantage through their own devaluations or by erecting trade barriers.

Leaders are seeking to avoid a repeat of the 1930s, when a trade war begun by the U.S. passage of the Smoot-Hawley Tariff Act deepened the worldwide economic slump.

“We’re in a world in which everyone wants a weaker currency but you cannot have an equilibrium of all currencies being weaker,” Nouriel Roubini, the New York University professor who predicted the credit crisis, told Bloomberg Television. “Currency-intervention wars eventually can lead to trade wars.”

Capital Controls

Some forms of protectionism may already be on the rise. Ukraine’s Deputy Premier Serhiy Tigipko said in an interview in Washington that his country may follow South Korea, Poland, Brazil and other emerging markets in introducing capital controls to prevent short-term investments from fueling currency volatility. India may also intervene to “prevent the disruption of the macroeconomic situation,” Reserve Bank of India Governor Duvvuri Subbarao told reporters.

In the U.S., Democratic Senator Jack Reed of Rhode Island told Bloomberg Television’s “Political Capital with Al Hunt” that the U.S. Senate may consider a lame-duck session to deal with legislation aimed at prodding China on the yuan.

Japan also remains ready to act on the yen when needed, Finance Minister Yoshihiko Noda said, although he signaled last week that his nation doesn’t intend to return to the long-term, large yen selling of the past.

IMF Reports

Unable to find common ground themselves, governments agreed the IMF should serve as currency cop by preparing reports which show how the policies of one economy affect others. The studies will focus on the U.S., China, the U.K. and the euro area.

“The need to have this kind of spillover report has been discussed for months and now it’s part of our toolbox,” IMF Managing Director Dominique Strauss-Kahn said.

The IMF nevertheless has little record of success on pushing global authorities to change their ways. A 2006 effort to oversee the rebalancing of the world economy petered out, and China has repeatedly rejected the fund’s analysis.

“The major economies are each encouraging the IMF to push harder on other countries, but showing no willingness to yield to the IMF any such leverage over their own policies,” said Eswar Prasad, a senior fellow at the Brookings Institution and a former IMF official.

Voting Power

The IMF’s membership also split over how to increase the power of emerging markets in its decision-making. The U.S. rejected as insufficient a proposal by European governments to reduce the number of seats they hold on the 24-strong board, according to two European officials.

Attention now turns to the G-20 meetings, starting next week with finance-minister talks and concluding Nov. 11-12 in Seoul with a leaders’ summit. Suggestions for how to resolve currency differences were vague in Washington, with French Finance Minister Christine Lagarde proposing better coordination and more diversification, while Canada’s Jim Flaherty suggested that new “rules of the road” be outlined. European Central Bank Executive Board member Lorenzo-Bini Smaghi suggested the G- 20 may be too big to find a compromise.

Unless checked in South Korea, the discord may snap the G- 20’s united front formed to fight the financial crisis and recession.

“A once-promising global response has now been replaced by inadequately coordinated national economic policies and growing frictions among countries,” Mohamed El-Erian, chief executive officer at Pacific Investment Management Co., said in a Washington speech.

To contact the reporter on this story: Simon Kennedy in Washington at Skennedy4@bloomberg.net

SOURCE: http://www.bloomberg.com/news/2010-10-10/global-finance-chiefs-fail-to-resolve-exchange-rate-spat-as-g-20-splinters.html

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While the US economy is growing again, the recovery has failed to "catch fire" in the words of one Federal Reserve official.

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Former Federal Reserve Chairman Alan Greenspan said the U.S. fiscal deficit is “scary” and the federal government needs to cut spending on entitlements.

“We’re involved in a dangerous game,” Greenspan said yesterday at a foreign-exchange conference in New York sponsored by Bloomberg LP, the parent of Bloomberg News. “We’re increasing the debt held by the public at a pace that is closing” the gap between our debt and “any measure of borrowing capacity,” Greenspan said. “That cushion is growing very narrow.”

U.S. companies may be holding back on investment because of the rising federal deficit, which causes uncertainty about future tax policies, Greenspan said in an opinion article for the Financial Times this week. Weak investment by businesses in capital equipment and fixed assets has helped to crimp the U.S. economic recovery, he said.

“You need” austerity, said Greenspan, a paid speaker at the event. “We’re going to have to start to cut” from government entitlement programs, he said, adding that reducing the budget is better than raising taxes in closing the U.S. budget deficit. Still, Greenspan reiterated that he supports allowing tax cuts enacted under President George W. Bush to lapse at the end of 2010.

The White House Office of Management and Budget in July projected the deficit for fiscal 2010, which ended Sept. 30, at $1.47 trillion and the gap for fiscal 2011 at $1.42 trillion. President Barack Obama formed a commission in February charged with presenting a plan by Dec. 1 on how to reduce deficits over the next decade.

Succeeded by Bernanke

Greenspan, 84, was chairman of the Fed from 1987 until 2006, when he was succeeded by Ben S. Bernanke.

“It is crucially important that we put U.S. fiscal policy on a sustainable path,” Bernanke said in an Oct. 4 speech.

“The only real question” is whether adjustments to taxes and spending will come from a “careful and deliberative process” or from a “rapid and painful response to a looming or actual fiscal crisis,” Bernanke said in Providence, Rhode Island. U.S. lawmakers should consider adopting rules that limit federal spending or debt, he said.

Greenspan said that if the Fed decides to expand its balance sheet through purchases of bonds, a process known as quantitative easing, it may not be enough to get “money moving” and spur growth in the U.S. economy.

Should the Fed increase “excess reserves and they just sit there on the asset side of commercial banks’ balance sheets not being relent, you’ve merely gone through an interesting bookkeeping exercise,” Greenspan said. “You’ve got to break that psychology that prevents that current trillion” in reserves from being relent, he said.

Record Low

Two-year Treasury yields fell to the lowest ever yesterday, setting or matching a record for a fifth consecutive day. Investors have stepped up bets that the Fed will resume buying bonds to keep borrowing costs low.

“It is very difficult to think through the scenario by which you induce” commercial banks to lend, Greenspan said. “If you don’t do this, quantitative easing can’t do anything to speak of.”

U.S. central bankers have kept their benchmark lending rate near zero for almost two years. In March, they finished $1.7 trillion in purchases of Treasuries, mortgage-backed securities and housing agency bonds.

A slowdown in growth in the middle two quarters of this year prompted the Federal Open Market Committee last month to warn that inflation rates were “somewhat below” its mandate to achieve stable prices and full employment.

New York Fed President William Dudley, who is also vice chairman of the FOMC, went further in an Oct. 1 speech when he called current levels of unemployment and inflation “unacceptable.”

“Further action is likely to be warranted,” Dudley said.

To contact the reporters on this story: Caroline Salas in New York at csalas1@bloomberg.net; Thomas R. Keene in New York at tkeene@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

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