Citigroup

That sums it up nicely.

Nuff said.

NATO Finds Balls, Declares War on Pirates

Looks like NATO found it's balls and declares war on the pirates.

I mean seriously. Why this was tolerated at all is beyond me.

This illustrates just how decadent, complacent and soft the West has become. They’re pirates. Off with their heads. End of story. Anybody that harbors pirates gets pwn’d. Done and done.

This little financial collapse we’re facing should sort out some of our priorities and toughen us back up again.

Saudi Arabia to Join NATO Naval Mission; Pirates Boost Defenses: “Saudi Arabia said it will join a fleet of NATO warships on an anti-piracy mission, as hijackers bolstered defenses around an oil-laden Saudi tanker captured off the East African coast.

The kingdom will contribute “naval assets to help in pursuing piracy in the region, and this is the only way this can be dealt with,” Saudi Foreign Minister Prince Saud al-Faisal told reporters in Oslo today after meeting with his Norwegian counterpart, Jonas Gahr Stoere. “Negotiations and ransoms only encourage piracy and are not a solution.”

Al-Faisal didn't provide details of the Saudi contribution to the forces in the Gulf of Aden, flanked by Somalia and Yemen and leading to the Suez Canal, where at least 91 merchant vessels have been attacked since January. The Saudi ship is being held for a ransom of $25 million.

In Harardhare, a town in Somalia's semi-autonomous Puntland region close to where the ship is anchored, pirates are bringing in extra fighters to strengthen security, Bile Mohamoud Qabowsade, senior adviser to Puntland President Adde Muse, said in an interview yesterday.

The Sirius Star, which belongs to Saudi Arabia's state-owned shipping line, Vela International Marine Ltd., along with its crew of 25 was seized on Nov. 15 about 420 nautical miles (833 kilometers) off Somalia. It is carrying more than 2 million barrels of crude valued at about $110 million. The ship itself is worth about $148 million new.

The Saudi foreign minister confirmed two days ago that Vela was in talks with the pirates; Vela has declined to comment. A man who identified himself as Abdi Salan, a member of the hijacking gang, said in a telephone interview yesterday that the ship's owners must pay up “soon.” He didn't say what would happen if they didn't.

Military Role

Predicting the outcome of the negotiations, or how much the pirates may receive in the end, is difficult, said Andreas Sohmen-Pao, chief executive officer of BW Shipping Managers Pte, one of the world's largest shipping operators.

“These negotiations tend to take place in private,” he said today in an interview with Bloomberg Television. “This is an opening negotiation and no one knows where it will end up.”

The only long-term solution is for navies to step up their efforts to protect merchant ships, Sohmen-Pao said.

“Merchant ships are not designed or equipped to fend off pirates,” he said. And the alternative of taking the longer route around South Africa's Cape of Good Hope “is complicated.”

The ransom may be the highest sum demanded by pirates from war-torn Somalia, which hasn't had an effective government since the 1991 fall of the Siad Barre regime. They have asked for an average of $1 million per ship this year, according to the London-based research organization Chatham House.

NATO Warships

The North Atlantic Treaty Organization has four warships off Somalia. India, Malaysia and Russia have sent warships, and a European Union fleet is expected to reach the zone next month. The U.S. coalition in Afghanistan has a task force there, bringing the total of warships in the area to 15, according to French military spokesman Christophe Prazuck. The area is almost twice the size of Alaska.

The seizure of the oil tanker may push Western navies to step up their actions against hijackers, who find potential targets with Global Positioning System navigational aids and satellite phones and use captured fishing trawlers to launch attacks out at sea, according to an October report by Chatham House.

NATO is considering changes to its operations in the area, even if it isn't immediately planning to send more ships, Admiral Giampaolo Di Paola, chairman of the alliance's military committee, said at a news conference in Brussels this week.

German Parliamentary Vote

Germany's parliament will vote this month or next on whether to join the EU fleet and Russia is likely to add to its one ship in the area, the Neustrashimy, or Intrepid, a navy spokesman said.

The navies of India, Russia, France, Britain and Germany have all battled pirate vessels in the past 12 days alone.

Military action is “the only solution,” Jens Martin Jensen, interim chief executive officer of Frontline Ltd.'s management unit, the world's biggest owner of supertankers, said in a telephone interview. He called for navies to be given a clearer mandate “of what they can do and what they can't.”

Jean Ping, chairman of the African Union Commission, said yesterday that piracy off the coast of Somalia indicated a further deterioration in the country's political situation.

UN Force

He called in an e-mailed statement for “more sustained and coordinated efforts by the international community to support the peace efforts in Somalia, including the early deployment of United Nations peacekeeping forces.”

The Sirius Star's crew includes citizens of Croatia, the U.K., the Philippines, Poland and Saudi Arabia. Its hijacking, from boarding to the pirates' taking control, took just 16 minutes, Agence France-Presse said yesterday, citing U.K. reports.

The military reports said the tanker was too large and too laden to outmaneuver pirate speedboats, and was poorly defended, according to AFP.

It was the most brazen assault yet in the region, as it was the largest vessel seized worldwide and was the farthest from the coast when attacked.”

Russian envoy urges EU, NATO, to attack pirate bases: “NATO, the European Union and others should launch land operations against bases of Somali pirates in coordination with Russia, the Russian ambassador to NATO said on Wednesday.

Dmitry Rogozin said the view of Russian experts was that naval action alone, even involving a large fleet of a powerful nation, would not be enough to defeat the pirates, given Somalia's geo-strategic position.

“So it is up to NATO, the EU and other major stakeholders to conduct not a sea operation, but in fact a land coastal operation to eradicate the bases of pirates on the ground,” he said.

“Because we all know ... they have their bases on the ground and of course those actions should be coordinated with Russia,” Rogozin said, without making clear whether he foresaw Russia being involved in any such operation.”

Federal Receipts and Outlays: The New Scary Chart?

I will begin tracking Federal Receipts and Outlays as displayed in the above chart. My theory is that receipts are going to absolutely crater going forward as corporate, personal and property taxes implode despite possible tax increases by Obama. Federal Outlays are going to go parabolic from here as the government begins to spend money faster than a ninja gone apeshit.

The most dangerous developments will become visible through the behavior of Interest outlays on the federal debt (red line). I fully expect that somewhere a tipping point will be tripped and real interest rates will blow out, despite deflationary pressures, as foreign appetite for US debt disappears. The worst will come when that appetite not only wanes, but turns to revulsion and that debt is puked back up as confidence in the ability to pay is finally lost.

This will then become the new Scary Chart.

My scary charts series here.

Fannie, Freddie Get into the Holiday Spirit

Aaaaaaaaw, how nice. Just in time for the holidays… Completely useless, but nice.

For Christmas this year, Santa is gonna let you stay in your home.

Fannie, Freddie Suspend Foreclosures Through Jan. 9 (Update2): “Fannie Mae and Freddie Mac, the mortgage-finance companies seized by the U.S. government, will suspend foreclosures and evictions over the holidays.

The six-week halt will begin Nov. 26, a day before the U.S. Thanksgiving holiday, and last through Jan. 9, the companies said in separate statements today. The hiatus is designed to give servicers more time to implement a streamlined loan modification program for struggling borrowers.”

How to NOT Beg for Billions from Taxpayers

Stock Market Crashes, This One Will Be Worse

[ Chart via Calculated Risk ]

This is where the comparisons will end. This one will be worse. Far worse.

How much worse? Nobody honestly knows. The Japanese had the most similar experience when their credit and asset price bubbles burst sending their equity prices down 80% from peak to trough. Their financial firms imploded and became 'zombie' banks kept alive by the Bank of Japan. The economy stagnated for over ten years in what became known as the 'Lost Decade'. No amount of stimulus helped.

These charts should make it absolutely crystal clear that things will be absolutely horrible and that this crash will eclipse all prior crashes.

GM, Ford and Chrysler: Market Expects Bankruptcy

“Is $25 billion enough? Is this the end or just the beginning? A lot of people think you already failed, that your model has failed.” –Richard Shelby

The market doesn’t believe GM, Ford and Chrysler will get a bailing out without being forced into bankruptcy first.

Both Republicans and Democrats were balking at bailout out these money hemorrhaging behemoths.

Bluntly put, there is no saving a company that has lost money for 10 years straight… thru good economic times and bad. This monster NEEDS to die.

Company Bond Risk Rises Near Record on GM, Ford Default Concern: “The cost of protecting corporate bonds from default rose to near a record on concern U.S. automakers won't get a bailout in time to prevent them failing.

Credit-default swaps on the Markit iTraxx Europe index of 125 companies with investment-grade ratings climbed 9 basis points to 173, according to JPMorgan Chase & Co. prices at 11:41 a.m. in London. That matches the previous record closing price on Oct. 24. Contracts linked to auto suppliers Valeo SA, GKN Plc and Continental AG rose to all-time highs.

General Motors Corp.,Ford Motor Co. and Chrysler LLC will later plead for government aid for a second day before a House Financial Services Committee. They are seeking $25 billion in unconditional loans to prevent what GM's Chief Executive Rick Wagoner said yesterday would be a “catastrophic collapse” for the economy.

“These guys are begging for money,” said Andrea Cicione, a credit analyst at BNP Paribas SA in London. “Given the amount of debt outstanding and the amount of credit-default swaps, it could be a problem.”

The bankruptcy threat is driving up the cost of default protection around the world, with credit-default swaps on Valeo, France's second-largest auto-parts maker, climbing 43 basis points to 523, according to CMA Datavision prices. Redditch, England-based GKN, which generates about two-thirds of its revenue from automakers including GM and Ford, jumped 39 basis points to 635. Continental, Europe's second-largest car-parts maker based in Hannover, Germany, increased 60 to 765.”

Carmaker Failure Would Be Catastrophe, Wagoner Says (Update4): “The U.S. economy would suffer a “catastrophic collapse” if domestic carmakers fail, General Motors Corp. Chief Executive Rick Wagoner said, as the nation's auto industry renewed appeals to Congress for federal aid.

Three million jobs would be lost within the first year, personal income would drop by $150 billion and government tax losses would total $156 billion over three years, Wagoner told a Senate panel.

“Such a level of economic devastation would far exceed the government support that our industry needs,” he said. “This is about much more than just Detroit. It's about saving the U.S. economy from a catastrophic collapse.”

The Big Three chief executives, Wagoner, Alan Mulally of Ford Motor Co. and Robert Nardelli of Chrysler LLC, testified today at a hearing called by Senate Banking Committee Chairman Christopher Dodd, a Connecticut Democrat. The companies are seeking $25 billion in loans to keep them operating.

Congressional Democrats propose tapping the recently enacted $700 billion financial-rescue package for the aid. President George W. Bush and Senate Republicans said they oppose that approach and instead prefer using $25 billion that was earlier approved by Congress to retool auto plants.”

Not Just Oil Tankers, Tanks and Anti-Aircraft Guns Too

Seriously. Enough already. Another three ships? Come on! I mean really.

There has to be some navy taskforce out there just itching to go on a very realistic ‘training’ exercise with live ammunition…

Pirates Ransom Saudi Vessel; Three Ships Seized (Update1): “Pirates demanded a ransom for an oil- laden Saudi supertanker amid reports three other merchant vessels have been hijacked in one of the worst spates of attacks in the Gulf of Aden and off the East African coast.

“Negotiators are onboard the ship and on land,” a man identifying himself as Farah Abd Jameh, a member of the group that hijacked the Saudi tanker, said in an audio tape aired by Dubai-based Al Jazeera television. “Once they agree on the ransom, it will be taken in cash to the oil tanker.”

Saudi Arabia's state-owned shipping line, Vela International Marine Ltd., yesterday said it had set up negotiation teams to free the tanker, Sirius Star, and its crew of 25, seized on Nov. 15 about 420 nautical miles (833 kilometers) off Somalia. The vessel is carrying more than 2 million barrels of crude valued at $110 million.

Since January, at least 88 vessels have been attacked in the Gulf of Aden, an area of 1 million square miles (2.6 million square kilometers) flanked by Yemen and Somalia and leading to the Suez Canal. Ransom payments have spurred raiders to step up their activities, the International Maritime Bureau says, even as NATO, European Union, Indian, Malaysian and Russian naval fleets patrol the area in an anti-piracy mission.

The pirates' representative didn't say how much money his group wants for the Sirius Star, which is anchored near Harardhare, a town in Somalia's semi-autonomous northern Puntland region. “We assure the safety of the ship carrying the ransom,” the man said in the Al Jazeera broadcast, warning against any attempts to use counterfeit cash.”

UPDATE: See! Now that’s what I’m talking about. I navy in peace time should be out there chasing pirates and drug runners so the crews gain experience and stay busy.

India: Pirate 'mother ship' left in flames: “An Indian warship has exchanged fire with a pirate “mother vessel” off the hijacking-plagued Horn of Africa, leaving the ship ablaze in the Gulf of Aden, an official said Wednesday.

(Russian T-72 tanks)

The skirmish took place Tuesday evening about 525 kilometers southwest of Oman's Salalah port when the frigate INS Tabar spotted a suspected pirate ship with two speedboats in tow, India's Defense Ministry reported.

“Thais vessel was similar in description to the 'Mother Vessel' mentioned in various piracy bulletins,” the ministry said in a written statement.

The battle follows a recent surge in piracy off the Horn of Africa, including the weekend hijacking of a Saudi-owned supertanker by pirates based in largely lawless Somalia.”

How dangerous is piracy? Well, you be the judge. The Ukranian ship that is still outstanding, operating under a Belize flag, was carrying 33 T-72 tanks and other weaponry.

Somali pirates land Russian tanks in surprise haul: “The pirates would hardly have been able to believe their eyes as they inspected the hold of their latest conquest, the Faina.

The Ukrainian vessel was heading for the Kenyan port of Mombasa loaded down with rocket-propelled grenades, anti-aircraft guns and 30 Russian T-72 tanks.

“They really hit the jackpot this time,” said a regional arms expert. “There is not much they can do with the tanks, but the RPGs and the Zu-23 anti-aircraft guns will soon find their way into Somalia’s arms markets.

“These are the sort of weapons that fighters in Somalia really like.”

(Zu-23 anti-aircraft gun)

Pirates: Brains, Muscles and Geeks

“They wed the most beautiful girls; they are building big houses; they have new cars; new guns,” –Pirate

[ HT Mongoose ]

Somali pirates living the high life: ““No information today. No comment,” a Somali pirate shouts over the sound of breaking waves, before abruptly ending the satellite telephone call.

Garowe resident Abdi Farah Juha. He sounds uptight - anxious to see if a multi-million dollar ransom demand will be met.

He is on board the hijacked Ukrainian vessel, MV Faina - the ship laden with 33 Russian battle tanks that has highlighted the problem of piracy off the Somali coast since it was captured almost a month ago.

But who are these modern-day pirates?

According to residents in the Somali region of Puntland where most of the pirates come from, they live a lavish life.

“They have money; they have power and they are getting stronger by the day,” says Abdi Farah Juha who lives in the regional capital, Garowe.

The crew on MV Faina are reportedly being well-looked after

“They wed the most beautiful girls; they are building big houses; they have new cars; new guns,” he says.

“Piracy in many ways is socially acceptable. They have become fashionable.”

Most of them are aged between 20 and 35 years - in it for the money.

And the rewards they receive are rich in a country where almost half the population need food aid after 17 years of non-stop conflict.

Most vessels captured in the busy shipping lanes of the Gulf of Aden fetch on average a ransom of $2m.

This is why their hostages are well looked after.

The BBC's reporter in Puntland, Ahmed Mohamed Ali, says it also explains the tight operation the pirates run.

They are never seen fighting because the promise of money keeps them together.

Wounded pirates are seldom seen and our reporter says he has never heard of residents along Puntland's coast finding a body washed ashore.

Given Somalia's history of clan warfare, this is quite a feat.

It probably explains why a report of a deadly shoot-out amongst the pirates onboard the MV Faina was denied by the vessel's hijackers.

Pirate spokesman Sugule Ali told the BBC Somali Service at the time: “Everybody is happy. We were firing guns to celebrate Eid.”

The MV Faina was initially attacked by a gang of 62 men.

BBC Somalia analyst Mohamed Mohamed says such pirate gangs are usually made up of three different types:

Ex-fishermen, who are considered the brains of the operation because they know the sea. Ex-militiamen, who are considered the muscle - having fought for various Somali clan warlords The technical experts, who are the computer geeks and know how to operate the hi-tech equipment needed to operate as a pirate - satellite phones, GPS and military hardware. The three groups share the ever-increasing illicit profits - ransoms paid in cash by the shipping companies.

A report by UK think-tank Chatham House says piracy off the coast of Somalia has cost up to $30m (£17m) in ransoms so far this year.

The study also notes that the pirates are becoming more aggressive and assertive - something the initial $22m ransom demanded for MV Faina proves. The asking price has apparently since fallen to $8m.

Yemen, across the Gulf of Aden, is reportedly where the pirates get most of their weapons from.

A significant number are also bought directly from the Somali capital, Mogadishu.
Observers say Mogadishu weapon dealers receive deposits for orders via a “hawala” company - an informal money transfer system based on honour.

Militiamen then drive the arms north to the pirates in Puntland, where they are paid the balance on delivery.

It has been reported in the past that wealthy businessmen in Dubai were financing the pirates.

But the BBC's Somali Service says these days it is the businessmen asking the pirates for loans.

Such success is a great attraction for Puntland's youngsters, who have little hope of alternative careers in the war-torn country.

Once a pirate makes his fortune, he tends to take on a second and third wife - often very young women from poor nomadic clans, who are renowned for their beauty.

But not everyone is smitten by Somalia's new elite.

“This piracy has a negative impact on several aspects of our life in Garowe,” resident Mohamed Hassan laments.

He cites an escalating lack of security because “hundreds of armed men” are coming to join the pirates.

They don't call themselves pirates. They call themselves coastguards

They have made life more expensive for ordinary people because they “pump huge amounts of US dollars” into the local economy which results in fluctuations in the exchange rate, he says.

Their lifestyle also makes some unhappy.

“They promote the use of drugs - chewing khat [a stimulant which keeps one alert] and smoking hashish - and alcohol,” Mr Hassan says.

The trappings of success may be new, but piracy has been a problem in Somali waters for at least 10 years - when Somali fishermen began losing their livelihoods.

Their traditional fishing methods were no match for the illegal trawlers that were raiding their waters.

Piracy initially started along Somalia's southern coast but began shifting north in 2007 - and as a result, the pirate gangs in the Gulf of Aden are now multi-clan operations.

But Garowe resident Abdulkadil Mohamed says, they do not see themselves as pirates.

“Illegal fishing is the root cause of the piracy problem,” he says.

“They call themselves coastguards.””

Modern Pirates, Somali Port of Eyl

MISC tanker on way to pirates' port of Eyl: "Last week, Somali gunmen seized a record four ships in 48 hours, and are now holding about 130 crew hostage on at least nine vessels from Malaysia, Thailand, Japan, Germany, Nigeria and Iran.”

That’s from an older article. But I wanted to know more about modern pirates and did some digging.

Turns out the Somali port of Eyl is the pirate home base and it is serious business. It’s amazing really. They’ve built their own economy.

The French sent in their commandos once to free sailors from the pirates.

Life in Somalia's pirate town: “Whenever word comes out that pirates have taken yet another ship in the Somali region of Puntland, extraordinary things start to happen.

Pirate attacks off the coast of Somalia have been surging

There is a great rush to the port of Eyl, where most of the hijacked vessels are kept by the well-armed pirate gangs.

People put on ties and smart clothes. They arrive in land cruisers with their laptops, one saying he is the pirates' accountant, another that he is their chief negotiator.

With yet more foreign vessels seized off the coast of Somalia this week, it could be said that hijackings in the region have become epidemic.

Insurance premiums for ships sailing through the busy Gulf of Aden have increased tenfold over the past year because of the pirates, most of whom come from the semi-autonomous region of Puntland.

In Eyl, there is a lot of money to be made, and everybody is anxious for a cut.

Entire industry

The going rate for ransom payments is between $300,000 and $1.5m (£168,000-£838,000).

A recent visitor to the town explained how, even though the number of pirates who actually take part in a hijacking is relatively small, the whole modern industry of piracy involves many more people.

"The number of people who make the first attack is small, normally from seven to 10," he said.

"They go out in powerful speedboats armed with heavy weapons. But once they seize the ship, about 50 pirates stay on board the vessel. And about 50 more wait on shore in case anything goes wrong."

Given all the other people involved in the piracy industry, including those who feed the hostages, it has become a mainstay of the Puntland economy.

Eyl has become a town tailor-made for pirates - and their hostages.

Special restaurants have even been set up to prepare food for the crews of the hijacked ships.

As the pirates want ransom payments, they try to look after their hostages.

When commandos from France freed two French sailors seized by pirates off the Somali coast in September, President Nicolas Sarkozy said he had given the go-ahead for the operation when it was clear the pirates were headed for Eyl - it would have been too dangerous to try to free them from there.

The town is a safe-haven where very little is done to stop the pirates - leading to the suggestion that some, at least, in the Puntland administration and beyond have links with them.

Many of them come from the same clan - the Majarteen clan of the president of Somalia's transitional federal government, Abdullahi Yusuf.

Money to spend

The coastal region of Puntland is booming.

Fancy houses are being built, expensive cars are being bought - all of this in a country that has not had a functioning central government for nearly 20 years.

Observers say pirates made about $30m from ransom payments last year - far more than the annual budget of Puntland, which is about $20m.


A Canadian navy ship escorted a recent delivery of food aid to Somalia

When the president of Puntland, Adde Musa, was asked about the reported wealth of pirates and their associates, he said: "It's more than true".

Now that they are making so much money, these 21st Century pirates can afford increasingly sophisticated weapons and speedboats.

This means that unless more is done to stop them, they will continue to plunder the busy shipping lanes through the Gulf of Aden.

They even target ships carrying aid to feed their compatriots - up to a third of the population.

Warships from France, Canada and Malaysia, among others, now patrol the Somali coast to try and fend off pirate attacks.

An official at the International Maritime Organisation explained how the well-armed pirates are becoming increasingly bold.

More than 30% of the world's oil is transported through the Gulf of Aden.

"It is only a matter of time before something horrible happens," said the official.

"If the pirates strike a hole in the tanker, and there's an oil spill, there could be a huge environmental disaster".

It is likely that piracy will continue to be a problem off the coast of Somalia as long as the violence and chaos continues on land.

Conflict can be very good for certain types of business, and piracy is certainly one of them.

Weapons are easy to obtain and there is no functioning authority to stop them, either on land or at sea.”

From INFLATION to Instant DEFLATION

I stirred up quite the controversy in Money Supply, Hoarding, Gold, Deflation: Tin Foil Hats. Well, the data is starting to come in now, and it flipped from INFLATION to DEFLATION almost instantly.

PPI in the US plunged the most on record. That is the most since 1947.
CPI in the UK plunged the most in 11 years. That is the most since 1997.

These numbers are down hard because the commodity bubble burst. But that is just the beginning. The debt bubble and by extension the asset price bubble has burst as well.

DEFLATION is Here. Ben ‘Helicopter’ Bernanke can print all he wants. The sheer magnitude of debt and wealth destruction will overcome his puny efforts.

In Inflation, Deflation, Money Velocity and Gold David Rosenberg at Merril Lynch (now Bank of America) argues: “Money supply will increase but money velocity will not.”

I concur and remain in the deflationist camp.

U.S. Producer Prices Plunged 2.8% in October, Most on Record: “Prices paid to U.S. producers plunged in October by the most on record as weakening global growth caused demand for commodities to dry up.

The larger-than-forecast 2.8 percent drop was the biggest since records began in 1947 and followed a 0.4 percent decline in September, the Labor Department said today in Washington. So- called core producer prices that exclude fuel and food rose a greater-than-anticipated 0.4 percent for a second month, indicating declines have yet to make it down assembly lines.

Recessions in Europe, Japan and the U.S., combined with slower growth in China and India, may keep subduing raw-material costs as companies cut back. Deflation, or a prolonged decrease in prices, is displacing inflation as a threat for the Federal Reserve and other policy makers throughout the world.

“The broad-based softening of prices shows inflation is contained, and disinflation is taking hold,” John Herrmann, president of Herrmann Forecasting LLC in Summit, New Jersey, said before the report. “It gives the Fed the ammunition to cut rates further.”

Wholesale prices were projected to decline 1.9 percent, according to the median of 76 forecasts in a Bloomberg News survey. Estimates ranged from declines of 0.3 percent to 2.8 percent.

Core prices were projected to rise 0.1 percent, according to the survey median.

The U.K. inflation rate fell more than economists forecast in October, recording the steepest drop in at least 11 years, the Office for National Statistics said today in London. Consumer prices rose 4.5 percent from a year earlier, compared with 5.2 percent the previous month.

Year Ago

Prices paid to U.S. producers rose 5.2 percent from October 2007, after an 8.7 percent gain in the 12 months ended in September.

Excluding food and energy, the increase was 4.4 percent from a year earlier, the most since 1989.

The drop in wholesale prices was led by a 13 percent decline in fuel costs, the biggest since 1986, and a 0.2 decrease in the cost of food.

Producer prices are one of three monthly inflation gauges reported by Labor. Prices of goods imported into the U.S. fell last month by the most on record, a report last week showed.

Figures due tomorrow may show consumer prices dropped 0.8 percent in October, the most since 1949, according to the Bloomberg survey.

November Declines

Figures this month indicate prices will keep dropping. The government asks producer-price survey participants to report costs for the Tuesday of the week that includes the 13th. On that basis, crude oil fell 24 percent in October from the prior month on the New York Mercantile Exchange. Oil slid another 25 percent a barrel this month.

The costs of intermediate and crude goods, used in the earlier stages of production, also dropped by records, indicating price pressure may keep subsiding.

After contracting at a 0.3 percent annual pace in the third quarter, the U.S. economy may shrink again this quarter and the first three months of 2009, according to a Bloomberg survey conducted from Nov. 3 to Nov. 11. The slump would be the longest since 1974-75.

Europe and Japan slipped into a recession last quarter, and China's economy, the biggest contributor to global growth in 2007, is slowing.

Dow Chemical Co., the largest U.S. chemical maker, is among producers hurt by a drop in demand. The prices Dow charges for two of the most-used plastics, polyethylene and polypropylene, fell as much as 40 percent since September, giving up gains achieved since June, the company said. Midland, Michigan-based Dow is closing more factories as sales decline.

“This is as bad as we have ever seen it in our lifetimes,” Chief Executive Officer Andrew Liveris said in a Nov. 13 interview. An increase in prices “is probably going to be near impossible in the next three to six months.””

U.K. Inflation Rate Falls Most Since at Least 1997 (Update4): “The U.K. inflation rate fell more than economists forecast in October, recording the steepest drop in at least 11 years and giving the Bank of England scope to cut interest rates further as the economy slides into a recession.

Consumer prices rose 4.5 percent from a year earlier, compared with 5.2 percent the previous month, the Office for National Statistics said today in London. The median forecast in a survey of 27 economists was 4.8 percent. The rate has now exceeded the bank's 2 percent target for a 13th month.

Central bank Governor Mervyn King said last week that the economy is probably in a recession, and policy makers will cut borrowing costs as low as needed to stave off deflation. The bank forecasts inflation will slow below the government's 1 percent lower limit unless it reduces the benchmark interest rate from the current 3 percent.

“Inflation is now yesterday's story,” said Matthew Sharratt, an economist at Bank of America Corp. in London. “It's going to fall well below the target next year. This leaves the door wide open for a deep cut in interest rates in December.”

Slowing inflation will allow policy makers around the world to reduce interest rates, International Monetary Fund First Deputy Managing Director John Lipsky said yesterday. He cited the U.S. Federal Reserve and the Bank of England as having already taken “decisive” action. The IMF predicts advanced economies will together contract next year for the first time since World War II.

Gilt Reaction

U.K. two-year government notes rose after the inflation data, pushing the yield to the lowest level since at least 1992, when Bloomberg started collecting the data. The yield on the two-year gilt dropped 10 basis points to 2 percent as of 12:43 p.m. today in London.

Consumer prices fell 0.2 percent on the month, the first decline for October since 2001, the statistics office said. Lower oil, transport, and food costs pushed the inflation rate down by 0.7 percent, the biggest drop since records began in 1997.

Oil prices have fallen by about two-thirds after climbing above $147 a barrel for the first time in July, while corn and wheat prices are also down by more than half from records reached earlier this year.

J Sainsbury Plc, the third-largest U.K. supermarket chain, posted earnings that beat analysts' estimates on Nov. 12 and said its price cuts lured affluent customers away from rivals.

Deflation Concern

Slower growth is sparking concerns of deflation. U.K. manufacturers' raw material costs and output prices fell at the fastest pace in 22 years in October, and the central bank's forecasts show the economy contracting through most of next year.

King said on Nov. 12 the bank is “prepared to cut bank rate to whatever level is necessary,” to keep inflation at the target, and didn't rule out putting the benchmark at zero. The bank's 1.5 percentage point reduction this month was the biggest since 1992.

King also said he wouldn't be surprised if the retail price index fell below zero to reflect cuts in the interest rate. The retail price inflation rate, used in wage negotiations, dropped to 4.2 percent in October from 5 percent the previous month. The decrease was the biggest since January 1993, the statistics office said.

So-called core inflation, which strips out costs of food, energy, tobacco and alcoholic beverages, slowed to 1.9 percent from 2.2 percent in September.”

Going to Test the Lows

S&P 500 Index's `Retest' of Low Fails to Spur Rally (Update1): “The Standard & Poor's 500 Index is poised to extend this year's 42 percent drop after a rally from last week's five-year low lasted just one day, say analysts who study charts of trading patterns and prices to forecast changes in stocks.

After rebounding 11 percent Nov. 13, the benchmark index for American equities slipped 6.6 percent during the last two days and will probably keep falling past 818.69, its lowest level since 2003, according to three top-ranked technical analysts. The S&P 500 declined below its Oct. 10 low of 839.8 before rallying last week, making it a “retest” to chart readers.

“Historically you would've had a better charge from the bulls at this point, and it hasn't developed,” said Jeffrey de Graaf, a senior managing director at ISI Group Inc. in New York, in a telephone interview. “The buyers haven't presented themselves in a meaningful way to show that there's a sustained move to the upside, so the concern is that you just drift here.”

The 11 percent trough-to-peak gain in the S&P 500 on Nov. 13 was one of six “key reversals” in the past 40 years, according to de Graaf, who defines the term using intraday levels and moving averages. Its 4.2 percent retreat a day later was the worst showing after such a turnaround by a factor of seven, he said.

Technical Analyst

De Graaf, the highest-rated technical analyst in Institutional Investor magazine's survey the past four years, said other indicators suggest stocks will keep falling. They include declining stocks outnumbering rising ones; higher trading volume when the market is falling than when it's rising; and two-year Treasury note yields near record lows at 1.17 percent, an indication investors are seeking to avoid risk.

The S&P 500 tumbled 44 percent this year to a five-year low on Nov. 13, and dropped 48 percent from its October 2007 peak, according to data compiled by Bloomberg. Stocks were dragged down by almost $1 trillion of writedowns and credit losses at financial companies globally stemming from the collapse of the U.S. subprime mortgage market.

The index is headed for its biggest annual decline since the Great Depression, when it fell 47 percent in 1931. Of the 30 stocks in the S&P 500 that traded at $100 or higher at the peak, 24 now trade under that threshold, and eight fetch less than $50, according to data compiled by Bloomberg.

`Final Low'

The Nov. 13 slide pushed the S&P 500 below its previous intraday low for the year on Oct. 10. The gauge fell 2.6 percent yesterday, while futures on the index today lost 1.8 percent as of 11:21 a.m. in London.

“The final low will be much lower than this,” and may not occur before the fourth quarter of next year, de Graaf said.

At a minimum, stocks are likely to revisit their lowest levels of 2002 and 2003, when a 51 percent slide from the March 2000 peak sent the S&P 500 as low as 768.63, said Mary Ann Bartels, chief market analyst at Merrill Lynch & Co. in New York.

“You need patience and a lot of time to build a base” from which the market can rally, said Bartels, who ranked second in the Institutional Investor poll this year. “This is still a very young base. If you want to use a football analogy, we're in the early part of the first quarter.”

The process can take from five months to a year, and is likely to take a year this time, Bartels said. One indication is a proprietary measure showing sellers driving volume rather than buyers, she said.

“What we need is buyers to come back into the market and we don't have that,” she said.

The S&P 500 is likely to fall to around 680, 20 percent lower than yesterday's close, probably by the end of the year, said John Roque, senior technical analyst for New York-based brokerage Natixis Bleichroeder Inc.

“Every low hasn't held yet, so why should I assume this one's going to?” Roque said.”

Pirates Seize Massive Oil Tanker, Again

“The total number of naval attacks off Somalia now stands at 84 for this year, with 33 ships hijacked and 12 still in pirates' hands, most notably a Ukrainian freighter.” -Reuters

This is just too funny.

I have a few questions: How the hell do you sell the oil you’ve pirated? I mean, can you just sail into some port and start pumping your stolen oil into the terminals there? Can you really just show up in a giant ‘stolen’ oil tanker? How do you escape? WTF is the plan here?

Where are these ships hiding? Doesn’t the US have a couple of those really cool super spy satellites looking for these things? Wouldn’t a single commando unit and a night time para-drop do the trick?

Unbelievable.

So pirates are long oil here, around $58 a barrel. The Pirate Reversal signal is a reliable Bullish formation... hahaha...

I’ll admit it. Pirates are pretty cool. But ninja’s could totally get wenches too you know.

Pirates Seize Massive Oil Tanker: “The U.S. Navy said Monday that pirates had seized control of a Saudi-owned oil tanker off the coast of Kenya.

A spokesman for the Navy's 5th Fleet confirmed to CBS News that the crude oil tanker Sirius Star, owned by Saudi-based Aramco corporation and operated by Vella International, was seized 450 miles off the coast of Kenya on Nov. 15.

According to Lt. Nathan Christensen, the tanker is three times the size of most U.S. aircraft carriers, making it the largest vessel to be attacked by pirates off Africa's coast, according to the U.S.

Christensen said the attack was significant as it represented an expansion of the pirates' operational zone, which had been confined to about 200 miles of the coast.

Russian and British forces repelled a pirate attack off Somalia in the first action by a Russian warship sent to bolster international forces fighting a plague of hijackings in coastal waters vital to global commerce, the two nations' militaries said last week.

Attacks have continued virtually unabated off Somalia, which has had no functioning government since 1991. Kenya is immediately to the south of Somalia on the east Africa coast.

The total number of naval attacks off Somalia now stands at 84 for this year, with 33 ships hijacked and 12 still in pirates' hands, most notably a Ukrainian freighter.

The U.N. Security Council unanimously adopted a resolution in June allowing ships of foreign nations that cooperate with the Somali government to enter their territorial waters "for the purpose of repressing acts of piracy and armed robbery at sea."

About 20,000 ships sail through the Gulf of Aden each year, compared to 13,000 that pass through the Panama Canal and 50,000 that traverse the Straits of Malacca - formerly the most pirate-infested waterway in the world.”

Short Interest Continues to Drop, Good or Bad?

Short interest continues to fall on all major exchanges, not just in the US. It would appear that the insane intraday rallies off the lows are nothing more than frantic short covering. This is not how bottoms are made. Real money buyers scaling in for the medium to long term create bottoms.

Despite massive short covering, the markets haven’t been able to move significantly up off the lows and stay there. What happens when the buying from the shorts dries up and the longs aren’t ready to step in yet? Or are unable?

Is declining short interest this close to major lows good or bad? The market seems precariously balanced here...

UPDATE 1-NYSE, Nasdaq short interest continue to drop: “NEW YORK, Nov 11 (Reuters) - Short interest fell on the Nasdaq and on the New York Stock Exchange in late October, reflecting a continued desire by sellers to buy back stock and lock in profits.

Short interest fell 3.1 percent on the Nasdaq from mid- October to late October and on the New York Stock Exchange, it dropped 0.9 percent during the same period. In the previous two-week period, short interest fell even more sharply on both exchanges.

“It was a short covering rally,” said Bill Rhodes, founder and chief investment strategist of Boston-based Rhodes Analytics. “People who have shorted have been taking profits. My sense is that they've said: 'OK I've hit a plateau here.'”

But while short interest continued to decline, the pace of the drop has slowed.

“The shorts have slowed their buying and the market is feeling the effect,” said Dylan Wetherhill, president and founder of short interest tracking website ShortSqueeze.com. “If the market can gain some traction it will cause more buying to set in.”

Investors who sell securities “short” profit from betting that stocks will fall. Short-sellers borrow shares and then sell them, waiting for the price to fall so they can buy them back for less, return them to the lender and pocket the difference.

On the NYSE, short interest fell to 13.46 billion shares as of Oct. 31, down from 13.58 billion as of Oct. 15. During the same period on the Nasdaq, short interest fell to about 7.86 billion from 8.11 billion shares.

The data on Tuesday showed the short ratio on the Nasdaq, or the average number of days it would take to cover outstanding short position, fell to 2.73 days as of Oct. 31, down from 3.43 in late September. At the NYSE, short interest was equal to 3.52 percent of the total shares outstanding.”