U.S. Fed Discount Rate, Goldman/LME, Deficits/GDP

February 19, 2010

Good Afternoon:

U.S. Fed Discount Rate, Goldman/LME, Deficits/GDP

U.S. Fed Discount Rate

The U.S. Federal Reserve announced yesterday after the market close it was raising its discount rate by 25 basis points from 0.50% to 0.75%, citing improvements in the financial markets as the primary reason. The discount rate is the rate the Fed charges on banks for emergency loans. Concurrently, the Fed retreated further from 'special measures'. It was also reported that in a number of speeches 'Fed officials downplayed the move and said that it won't affect the Federal Funds Rate' - the Fed interest rate that theoretically has the greatest impact as a 'controller of inflation'. My reaction, which from what I have read today is - different from that of many commentators who seem to think this is 'a nothing event':

·   this is an interesting move on the part of the Fed, particularly given the weekly U.S. bank failures being reported each Friday - and the forecasts for a large number of U.S. bank failures in 2010;

·   is the so-called 'mini-rate increase' - which is hardly 'mini' in the context that is 50% of the previous rate - a signal of U.S. Fed concern over the reported recent sales by China of U.S. treasuries;

·   a signal that that the Fed is increasingly worried about the appetite of foreign buyers for sales of U.S. treasuries required to fund its massive stimulus programs and budget deficits; and,

·   a first tentative step and signal that the Fed plans to raise the Federal Funds Rate in the near term.

If one or more of my 'speculations' have any substance I see this move by Bernanke to be a precursor of 'less than attractive' economic issues to come. I recommend equity investors study this move, think hard about it, reflect on other things it may signal, and forward their thoughts to me at info@stockresearchportal.com.

Goldman/LME

An article this morning titled 'Goldman to buy LME warehouse firm Metro' says Goldman Sachs plans to buy U.S.-based Metro International Trade Services - an operator of a global network of London Metal Exchange approved warehouses for primary aluminum, aluminum alloy, copper, lead, nickel, plastic, steel, tin, zinc and plastics. Whatever price Goldman is paying in this transaction you can be certain of two things. Goldman is buying Metro because (1) it believes it will make an acceptable return on its investment, both in the contexts of both an annual return and subsequent capital appreciation, and (2) it believes in the future of world resources is economically important going forward. I find this transaction very interesting, and find it supportive of my view with respect to the prospective importance of resources from an equity investment perspective. I also find it interesting there seems to been very little comment on this transaction.

Deficits/GDP

An article this morning title 'Britain's deficit third worst in the world' includes a table setting out once again (this time according to an OECD November, 2009 forecast) the relationship of Deficits/GDP for selected countries he world. Here they are in declining order (worst ratio first): Iceland - 15.7%, Greece - 12.7%, Britain - 12.6%, Ireland - 12.2%, United States - 11.2%, Spain - 9.6%, France - 8.2%, Japan - 7.4%, Portugal - 6.7%, Canada - 4.8%, Australia - 4.0%, and Germany 3.2%. Frankly, I don't see much meaningful difference between Britain at 12.6% and the U.S. at 11.2%. I also wonder, if these statistics are accurate why, given that Spain and Portugal continually are being discussed in the PIGS (Portugal, Ireland, Greece and Spain) Sovereign Debt acronym, the U.S., France, and Japan are not also included in such discussions. What about a different acronym/phrase 'GIPUS - FJS' (Greece, Ireland, Portugal, United States, France, Japan, Spain.

Note that these numbers are based on OECD November, 2009 forecasts. Query what would they be now - almost certainly not better.

* * * * *

Consider joining the Mining Stocks and Oil & Gas Stocks Groups on Linkedin.

As always, please forward ideas to me as to how we can improve StockResearchPortal.com at info@stockresearchportal.com.

Best Regards,

Ian R. Campbell
President
StockResearchPortal.com

Notes to Readers

This email and its content is in no way to be interpreted as an endorsement of one or more of the companies mentioned herein, a suggestion as to the future direction of the stock price of one or more of them, or a suggestion or recommendation to buy or sell the shares of one or more of them. Rather this email is simply a short overview commentary and tutorial demonstrating the type of information available on StockResearchPortal.com and how to access it.

The owners of Stock Research DD Inc. (the owner of StockResearchPortal.com and StockResearchPortalBlog.com) or their families, entities in which they have ownership interests, and officers, directors, employees, agents, partners, affiliates and partners of Stock Research DD Inc. may beneficially own securities and participate in Private Placements of companies referenced in this E-mail. The fact that one or more companies are referenced or discussed in this E-mail should not be construed as an endorsement or investment recommendation with respect to those companies or their securities.