Online Trading is as easy as 123 if you know how.

Bear Stearns Effect

2008-03-25T15:31:00.000-07:00

What’s Coming

In my reading for the above, I came across the September 2007 edition of the International Speculator and its lead article, Preparing for Crisis .

I thought the following excerpt was worth sharing, not just because it shows how spot-on Bud Conrad, the chief economist of this operation, has been in forecasting the specifics of the unfolding crisis, but because it is still as useful today as then in understanding how things are likely to keep rolling out (the full article has much more detail, well worth reviewing). Here’s the excerpt.

The credit crisis will not end soon. Here’s what we think is coming.

More Defaults.

The bulk of the subprime loans are adjustable rate mortgages. The continuing reset of up to $50 billion per month of subprime ARMs will keep mortgage defaults growing, which will keep home prices falling, which means that more of the defaults will turn into unrecoverable losses for the investors holding the paper. The hedge funds that haven’t thrown in the towel on subprime mortgages will collapse one by one.

The economy will slow down. Lending to risky customers has dried up. Earnings of most corporations will slide because consumers, who can no longer turn to home equity loans and whose credit cards are already maxed out, will cut spending. The mounting losses in CDOs and the continuing defaults in the housing industry will precipitate a severe credit crunch. The capital of many banks is about to shrink, which will hamper their ability to lend.

Stocks will fall. The next phase down in the stock market will come from reduced earnings estimates for 2008. We could see an auto company or a big bank announce insolvency. Fear, and then the fear of fear itself, and the fear of being the last one out the door will take over. Big, 300 or 400 point moves – mostly down – will become regular events. People have forgotten, but they are going to be reminded, that stocks have, until fairly recently in history, normally yielded about twice as much as bonds, simply because they’re riskier.

Dollar down. While U.S. citizens are looking to build cash – another source of pressure on spending and investment – few foreigners now want U.S. dollars or dollar-denominated debt. After the failure of large U.S. institutions begins and the Fed turns the printing presses on full blast in an attempt to keep liquidity in the system, flight to safety will mean a flight from the dollar. How fast they will print is hard to guess. They’ve already started, but will probably panic as the economy slows, and then turn the presses to high. The dollar will fall in purchasing power. Interest rates will rise across the board, with low-quality paper hurt the worst.

If you are not yet receiving the International Speculator, now is a great time to sign up. With the 3-month risk-free guarantee, you can take a leisurely look at the publication to see if it’s right for you. Check it out.

How to 'Invest' with $5,000 to $10,000

2008-03-13T12:20:00.000-07:00

By Dudley P. Baker, Jr.
Mar 13 2008 11:46AM

www.preciousmetalswarrants.com

There are many ways to invest in the precious metals and natural resource sector. Many analysts would first suggest investors purchase gold and silver bullion or coins, then focus on some of the larger capitalized mining companies (most of which are selling for over $35 per share). You might consider the GLD or the SLV, the Exchange Traded Funds for gold and silver currently selling for $96 and $197, respectively. Not all investors have the financial resources necessary to purchase these alternatives.

So we ask, what about the individual with only $5,000 to $10,000 available to invest? Are they to be left out of this bull market? With limited investment funds, the above ideas are of little value due to the cost of each and the difficulty of diversifying your choices.

For individuals with limited resources, not only can we suggest some different vehicles for you to purchase, but how you can diversify with positions in several different companies.

Let’s explore the use of options, leaps and warrants allowing you to limit your investment exposure but still having the incredible power of leverage working for you. By selecting the right companies, options, leaps and warrants will provide you with the potential of increasing your $5,000 to $10,000 many times over.

Many call options, leaps and warrants are selling for pennies allowing your $5,000 to $10,000 to be spread/diversified over several different companies. Frankly, I would suggest purchasing call options, leaps or warrants on 4 or 5 different companies. You could pick a junior gold company, a silver company, a uranium company or an oil & gas company, thus diversifying your holdings and giving yourself more chances of being correct.

If you are unfamiliar with options, leaps and warrants, here is a brief overview:

Options and leaps trade on the Chicago Board Option Exchange (http://www.cboe.com/"). They are a contract giving you, the investor, the right, but not the obligation, to purchase the underlying security at a specific price and expiring on a specific date in the future. Call options may have a life of 30 days to 1 year, while leaps may have a life of up to 2 years. Your loss is limited to your investment for these contracts and no margin is used. The potential gains are great, if you are correct in your timing and company selection.

Warrants are slightly different in that warrants trade like a stock and are issued by a company usually in an initial public offering or in a financing arrangement. Many sophisticated investors are not aware that there are many warrants trading. While it is very common for warrants to be issued in private placements, particularly in the mining sector, these warrants do not trade and thus cannot be purchased. What is of particular interest, is there are numerous warrants trading which have a remaining life of 3 years or more.

Think about the possibility of a long-term warrant on one of your favorite resource companies with several years of time remaining.

Warrants will provide you with the opportunity to participate in this bull market with time on your side, a much lower cost than purchasing the common shares and the power of leverage working for you. As with options and leaps, your potential loss with warrants is limited to your cost and there is no margin.

In summary, investors with limited resources to invest can have a stake in this bull market and the opportunity for incredible gains by considering the use of options, leaps and warrants. Actually, I have recently purchased some call options on a large silver company which did not have warrants trading. I am investor first and seek out the best opportunities whether that is acquiring the common shares, options, leaps or warrants.

For subscribers to our service, we provide a table of all resource companies with options, leaps and warrants which are currently available to assist you with making your investment decisions.

We invite you to visit our website, view and listen to our new video tutorials, spend some time in learning center and sign up for our free Saturday email, The Warrant Report.

Dudley Pierce Baker
Guadalajara/Ajijic, Mexico
March 13, 2008

Gold & Whirlwind of Crisis

2008-02-20T14:56:00.000-08:00

By Jim Willie CB
Feb 20 2008 3:49PM

www.GoldenJackass.com

Like a whirlwind, the crisis triggered by the housing crisis and mortgage debacle has extended to almost every phase of the landscape in US economic and financial life. And the rookies running the US Federal Reserve initially said the problem would be contained. My claim made in late June 2007 (see article, click here) was that it involved absolute contagion to the system, which is what we see vividly now. Let’s review some high level stresses in several arenas, examine the response potentials, and check on the gold and USDollar impact.

One should note, the gold & silver prices will soon demonstrate strong independence from the USDollar. Just like in 2005, gold can rise even with some bounce in the buck. Unlike 2005 though, the buck is likely not to make much in the way of advances.

The profound change this early part of 2008 will be the weakness in foreign currencies, thought to be impervious and invincible. The problems with banking, bonds, and now economies have gone global. In reaction to policy changes, primarily monetary and now fiscal, gold will react to an acceleration in monetary inflation after a long period of heavy money growth over 10% annually in many leading industrial nations.

USFed HIGH JINKS GAME

The USFed has been playing a dangerous secretive game. They denied the depth and power of the bond debacle in order to wait for Europe to feel the same problems. The USFed wanted to wait until Europe saw banking problems, economic slowdown, and bond losses. Some degree of arrogance might have crept into their thinking, that the US system was more resilient, more robust, and had stronger markets with greater safeguards installed. All were untrue.

The USFed figured they could cut interest rates faster later, only after Europe started to show signs of similar problems, joining them in the easing cycle. Well, Europe took a few months more time to detect damaging signals, and their problems on the continent are much less imposing in their degree of destruction than what is seen in the Untied States.

The European Central Bank (ECB) only lifted their official interest rate to 4.0% besides. So at a US peak of 5.25%, the USFed had to cut first alone. Now the USFed has come down to 3.0%, providing the euro currency with a full 1.0% vig to keep their currency rising versus the US$ from any carry trade. They do not want a higher euro! The USFed wants the ECB to begin to cut rates, which would and will take much of the pressure off the USDollar. Since much of the rise above 135 and 140 and 145 for the euro was predicated upon the ECB continuing to hike interest rates, a reversal of monetary policy by the ECB will bring the euro down and give decent temporary support for the USDollar.

The bigger reasons for the USFed to fiddle and diddle, delaying and postponing, are more profound to the problems faced.

They are two-fold. 1) The USFed is a private firm, not owned by Americans, with no desire to eat a trillion$ or more in losses. They do not wish to do the right thing for America when their primary loyalty is not to America.

They are a private firm whose owners reside in London and Old Europe. So their initial repurchase loans to member banks and other banks have been for high quality USTreasurys, not mortgage bonds, and certainly not Collateralized Debt Obligations (those nightmares that leverage mortgage bond losses).

Up to the time when the Term Auction Facility opened shop last month, the USFed only took USTBonds of various maturities. Since the TAF began to lend against broader assets, they began to accept Fannie Mae & Freddie Mac bonds.

Think their corporate bonds and mortgage backed (in)securities. Why would the USFed take F&F bonds? Because they eventually will be bailed out by the USGovt. They might not really be fully guaranteed, but they will be at crunch time.

2) The other reason the USFed delayed in prescribing and delivering the needed monetary medicine again points to their private firm status. They wanted to have the USGovt take the $1 trillion tab for bailouts, to put the kibosh on the USDollar, not the private USFed owners.

They are no more a public benefactor than Wall Street. Both the USFed and Wall Street firms are the quintessential parasites in the modern financial era. Finally, the USGovt has proposed a measly $150 billion bailout proposal, the first of several.

My forecast has been firm, that the rescue packages will be numerous, greater in scope in succession, and each inadequate until a master Resolution Trust Platform is instituted. The price tag on the full blown rescue will be at least $2 trillion and possibly as much as $4 trillion.

The USGovt fiscal packages will include tax cuts for households, permanent installation of lower taxes for the wealthy and corporations, greater tax incentives for business investments and job hiring, items directed to the poor, and more.

When the monetary stimulus takes root from lower interest rates and easier repurchases to assist the mortgage process, while at the same time the government fiscal stimulus packages spread out more broadly, we will see money overflowing everywhere.

We will see more money directed towards speculation again. We will see more price inflation. The only big question in my mind is whether higher wages will be tolerated. They call them ‘Secondary Inflation Effects’ which are halted, thus enforcing the destruction of the Middle Class. Lower wages permit the long-term interest rate to stay suppressed. Lower wages ensure the recession necessary to keep USGovt bonds more attractive than stocks, the ugliest of ugly conflicts of interest by the USFed.

The USDollar takes heavy blows when the USGovt stimulus package takes form as less an unknown. The gold price has risen since January, in part because of the foreseen combination of heavy USFed monetary medicine and heavy USGovt fiscal medicine working. It smells more inflation in all forms. When prescription moves to application, gold will vault past $1000 per ounce easily. Also, silver will vault past $20 easily.

THE MAJOR RUB WILL BE THE EFFECT ON LONG-TERM USTREASURY BOND YIELDS. The solution requires more price inflation, asset inflation, wage inflation, and spillover, all of which contribute to rising long-term interest rates. Already, we see the rub in higher mortgage fixed rates, higher jumbo mortgage rates, higher corporate bond yield spreads, higher junk bond yield spreads, higher fixed rate swaps. My gut feeling is that Rookie Chairman Bernanke harbors quietly his biggest fear, that enacting a full blown rescue of the banking & bond & economic system will trigger a bear market in USTreasury Bonds. That would ensure a credit derivative meltdown an order of magnitude worse than just from Credit Default Swaps off mortgage bonds, and an order of magnitude more swift.

The biggest losers in this game among leaders are Bernanke as USFed Chairman and Paulson at Secy Treasury. They fiddled and diddled for months, issued denials, made lousy forecasts, and sounded like utter idiots. Their emergency 125 basis points in January rate cuts, from interim cuts followed by FOMC ordinary cuts, emphasized their failure, and badly eroded confidence in the US bankers globally. Being the curve, and inept! The impact will be seen in the USDollar, since these are primary stewards of the US banking and currency system. The USDollar takes the brunt, with gold enjoying the lift.

My position is firm, that the US banking system has been irrevocably destroyed, unfixable. That will stop these hacks from trying a remedy, and in doing so, gold will rise tremendously. When it is clear that the fixes, the solutions, and vast platforms of rescues are not accomplishing much, the inflation spigot will be turned on with much more volume. That is how the gold price approaches $2000 per ounce, like within 3 years. Inflation will become an urgent national priority, not to stop it, to promote it. INFLATE OF DIE will be the motto in reality.

BAILOUT BENEFICIARY FELONS

The biggest obstacle to the initiation of the full bailout and rescue application has been and will continue to be the felons who command first positions in the rescue line. Since they are basically running the USGovt (thanks to Fascist Business Model), they dictate being first in line.

Not only are they the initial beneficiaries, but Wall Street firms are actively involved in designing the actual rescue stimulus packages themselves. Only in America can the thieves and criminals knee deep in colossal fraud be active in administration of remedy when they should be in defense against felony charges, face heavy billion$ fines, restitution orders, and prison sentences. Start with Goldman Sachs and JPMorgan, then move on to Citigroup, Bear Stearns, Morgan Stanley, and maybe UBS. At least most of these firms are big losers. Then again, nowhere but the Untied States has the state merged with large business so thoroughly. The Teaser Freezer stands as the most blatant interference by the state as an effort to block, prevent, forestall, and eliminate the potential for bond investor lawsuits against Wall Street.

Watch the class action suits though, since they are conducted and litigated in federal court, not in any rigged compulsory arbitration charade run by the same Wall Street conmen. The crisis had to grow too big, run unaddressed for too long, so that the USGovt felt as though the public wanted a bailout rescue stimulus, EVEN THOUGH the primary beneficiary might be the Wall Street felons occupying their executive suites and running board rooms. As the USFed delayed though, the big US banks suffered massive losses. That could be another motive to wait.

EURO & POUND STERLING

The Hat Trick Letter February Gold & Energy report is out. It focuses attention on both the euro and pound sterling currencies. The euro has begun to stall. This is not a popular concept for gold advocates. A USDollar bounce, especially one of intermediate variety (not short-term), is not embraced with warm & fuzzy feelings.

Usually such an event is accompanied by a decline in the gold price. NOT HERE!!! The euro selloff will trigger another phase of the gold bull market, one already well along in Europe.

The gold bull market requires all three major continents (North America, Europe, Asia) to participate. With its US$ woes firm, diverse crises, and declining interest rates, the North Americans are feeding the gold bull. With its industrial renaissance, strong regional growth, and near 0% Japanese fountain for funds, and Chinese treasure trove of savings, Asia is feeding the gold bull. The missing piece is the Europeans, who have been stubborn in maintaining the same 4.0% official interest rates, enforced by the Euro Central Bank since summer 2007.

THE GOLD BULL REQUIRES A DOWNTREND IN INTEREST RATES WORLDWIDE, AND FULL MONETARY ACCOMMODATION. That is coming, once the Europeans begin to cut rates. The topping pattern in the euro currency foretells of the ECB cutting rates soon, despite the German wishes. They are the ultimate inflation hawks. Not only will Europe be fighting financial problems across the Atlantic with cheap money and ample money, but the English will be also. London has already changed policies toward accommodation. Europe will soon feed the gold bull.

The British are also feeding the gold bull. The Bank of England has ordered two official rate cuts, not back to back though. My forecast is for the complete decline of the UK housing market, the complete decline of the UK economy built atop it, and the complete drubbing of the British pound sterling currency. When the pound sterling 20-week moving average crosses below the 50-wk MA (circled in green), technical traders will take the sterling currency down toward 187. My eventual forecast target is in the 175 neighborhood. A disaster comes to the UK, just like the Untied States. Think AngloSphere. The tough call is whether money exiting England will pursue the euro or USDollar. As problems crop up further in Europe, my bet is the money will chase the USTreasurys, crude oil, and gold.

HEDGE FUNDS ARE BACK

The hedge funds are actually being blamed for the crude oil price breaching the $100 mark. They are regarded as shunning the mortgage paper and bond arenas, in favor of hard assets like copper, gold, silver, crude oil, natural gas, grains, and more. Isn’t it interesting how the hedge funds have not been in the news much in the last year or so?

Their legion used to be mentioned as being 9000 in number, commanding $1.6 trillion in funds. No more! They are probably 7000 in number now (pure guess) and command only $1.2 trillion now (pure guess). These falsely labeled geniuses in propeller hats lost a huge sum of money in mortgage spreads, CDO bonds, credit default swaps, and other devices floating within the overall bond market. After licking their wounds, they have wised up to find commodities. Actually, they always were involved in commodities, from the start. They are reviving their interest, focus, curiosity, and attention for them. Commodities are the big winner asset group. They are untethered to debt generally, but vulnerable to a global slowdown in demand.

COMMODITY BULL STILL BREATHES

Given the frenetic Asian growth, and increase in intra-Asian trade, China and India along with Russia and Brazil will continue to grow, although slowly, even if the US and European Union and United Kingdom enter into a recession. Of course, the Untied States has been in a recession for at least two years, if you measure growth without nonsensical gimmicks in accounting, thus ignoring all USGovt official statistics. A great quote came this morning from one of the few consistently bright and accurate pundits on CNBC.

From the Chicago pits, Rick Santelli said, “Only a small amount of actual price inflation shows up in the government numbers.” That is a rare comment. He might be fined or relegated to Friday afternoon exposure if he is not more careful. By the way, word has it that the hedge funds place gold in a different elevated status among commodities. Even if Western nation economic recession takes root, and demand slows, hedge fund mentality is that the gold price will continue to rise. My belief is consistent with theirs, but also that the same is true of the crude oil price. China will stockpile it. Speculators will rely upon it against the weak USDollar.

The commodity boom continues. My favorite indicators are the Three Amigos: the copper price, and crude oil price, and the Baltic Dry Index shipping rates. These are monitored regularly in the Hat Trick Letter. They are each in decent shape.

After 25 years of under-investment, commodities are showing inadequate supply chain structures. They are also displaying grotesque vulnerability to tyrants being in charge, whether in Caracas Venezuela or Moscow Russia or Kazahkstan or WashingtonDC. The ugly impact of the relentless commodity bull market, is that it results in nasty cost inflation.

This leads to economic recession, as wages cannot keep pace, as corporate product prices cannot keep pace. Cost inflation without rising wages and product prices is a Western nation nightmare. All price inflations are not the same.

HOUSING HARD ASSET IMPOSTOR

Two years ago, when the housing market was experiencing what was called a boom, my position was clear. The boom would turn to bust in a couple years, the damage to the banking system would be profound (probably total), the losses would be two-fold from home equity and mortgage bonds, and a deep ongoing relentless (possibly endless) recession would unfold. So far that over-arching forecast seems right on track.

At the same time, my position was that the housing asset was a HARD ASSET IMPOSTOR. Many considered it incorrectly as another commodity, a hard asset, rising in price like copper, cement, lumber, gold, and energy. Not so! By now, my claim that it was an impostor seems evident.

My claim was that the home asset was dominated by the mortgage financial security, whether a loan in the bank portfolio or an asset inside the mortgage bond. My claim was that the home price would be determined by the financial assets behind it. All booms have a financial credit feeding component.

As the housing asset base continues to drain home equity, it kills the banking & bond system entirely. Housing stands as the two-ton weight lodged in the car, the millstone around the household neck. The stimulus being ordered by the USFed and USGovt must reverse the slow motion downward spiral for housing.

So far, housing has lost around 10% of value nationally in the last year plus. That amounts to over $2 trillion in home equity loss, rendered unavailable for home loans and consumer spending, if not education and training. Forget the boats! The entire focus of attention on stimulus and rescue packages must be on stopping the housing price decline. No exceptions.

The prime adjustable mortgages are next in line within the killing field of grand destruction. This is the USFed’s focus. They see it coming. The commodity boom continues, but the housing market is in its second straight year of painful decline. Do not expect the housing bear market to hit bottom until late 2009 at the earliest.

The USFed, the Dept of Treasury, the USGovt, the US Congress, they have all fiddled like Nero as Rome burns. The current president resembles Nero, with brandished military weapons substituted for a violin. Rome is the US financial system, with the USEconomy adjacent to the bonfire. Many references have been made recently by writers and analysts, citing that Rome is burning. When the officials at the USFed and leaders in the USGovt decided to unleash the heavy artillery so as to stop the housing hemorrhage, the impact on the USDollar and gold price will be profound. That is precisely my forecast, that when it comes, the gold price vaults past $1000 and does not look back. A rising gold price past $1200 and past $1500 will go hand in hand with a stabilizing housing market. Since they delayed so long, that bottom event will not come for at least another year. Goals finally have aligned.

MONOLINE BOND INSURERS – NEXUS OF COLLAPSE

The nexus of the current bank & bond debacle has been clearly concentrated lately in the Monoline Bond Insurers. Space does not permit full discussion, even a solid summary.

The last couple Hat Trick Letter reports have dealt with this unfixable topic. An argument has been put forth that the cost of the cure to address inadequate bond insurer corporate capital needs is much less than the impact on the system from the insurer firm failures.

What nonsense! Just like Wall Street firms wanted direct bailouts of their balance sheets, so do the Monoline insurers. The Wall Street impact from big debt downgrades is huge, since so many rafts of bonds would either be forced in sale or forced onto balance sheet for writedowns.

The current impact is seen with municipal bonds. The estimates for total bond losses are steadily rising. Big banks are raising their estimates. Financial firms are raising their estimates. Soon the estimates will be more realistic, like above $1 trillion.

Desperation has set in, as New York Insurance officials are attempting to hatch a rescue plan. It is doomed from the start. All they can hope for is to buy a few months.

If the housing market continues down, their work is futile. If the adjustable mortgage resets continue, their work is futile. If the foreclosures continue, their work is futile. If the debt downgrades by the rating agencies continue, their work is futile. If the corporate balance sheet adjustments continue, their work is futile. If faith erosion in the central banks (most notably the USFed) continues, their work is futile. If lenders hold ground and refuse to relax on lending flexibility, their work is futile. If foreigners continue to shun US$-based bond investments, their work is futile. If foreigners refuse to provide emergency cash infusions for capital positions, their work is futile. Gold smells a bond debacle worsening. When news progressively worsens, gold responds. Gold senses grandiose rescues.

However, the Monoline Bond Insurers must be prevented from declaring bankruptcy. The tragic sideshow has begun, of attempting to separate their healthy municipal bond business segment from their disastrous mortgage bond coverage business. A split cannot happen.

Corporate obligations dictate that insurer success is balanced against their failure, so profits from their gainful segment must subsidize its losing segment. The developments will make great theater for many more months. Games are being played. Eventually the USGovt must bail out the bond insurers, or else the US banking system collapses. That is a strong statement. The USFed will not take such a big step. The credit derivatives are a mountainous pyramid. The credit default swaps have counter-party risk entangled within.

If the insurers are not prevented from bankruptcy, then a gigantic beehive will be opened and infected bees allowed to spread to all corners. My intuition tells me that the clowns at the USFed and Dept Treasury misjudge the impact of the Monoline Bond Insurers and their collapse. So far, they have misjudged just about everything. When the bond insurer rescue comes, gold will respond, on the back of the renewed decline in the USDollar.

POLICY RESPONSE TO ADDRESS BUBBLE

Let’s walk down memory lane in conclusion.

In 1980, a nasty recession lingered longer in time than most so-called experts contemplated. The causes were many, but in my analysis it extended from the OPEC quadruple of oil prices, the failed Nixon Wage Price Freeze, the Volcker (USFed Chairman) harsh monetary medicine, the heavy hidden cost of the Cold War, and the Watergate Scandal.

So the ‘Policy Bubble’ was a defense buildup, complete with Star Wars technology, vast defense contracts, huge spending, and an economic recovery. The cost was about $2 trillion in added federal debt, the Reagan legacy few prefer to talk about publicly. The next bubble was well defined, but the costly impact was not. At the same time, the US manufacturing base was being dismantled and sent to the Pacific Rim of East Asia.

In 1992, a nasty recession lingered longer in time than most so-called experts contemplated. The causes were many, but in my analysis it extended from the end of the Reagan phony economic recovery, the dissipation end of the last coincident housing bubble, together with a painful shock of the Iraq-Kuwait Gulf War, when Saddam Hussein became more a household name. So the ‘Policy Bubble’ was a military buildup, huge wasteful weapons R&D and system deployment, and a housing bubble.

The actual war did receive some international funding. The icing on the policy bubble was the grand tech-telecom stock bubble. The next bubble was well defined, actually more broadly embodied in more diverse arenas, but the costly impact was not. At the same time, the US manufacturing base was still being dismantled and sent to the Pacific Rim of East Asia.

In 2001, a nasty recession happened suddenly but with swifter impact than most so-called experts contemplated. The causes were many, but in my analysis it extended from a busted stock market, together with a new factor. The new element was a newly engrained dependence upon financial bubbles serving as a foundation for the USEconomy itself.

The nation had lost most of its legitimate foundation. With the economy in decline, two avenues had to be pursued. First, a new enemy needed to be designed. A war was hatched on phony grounds by leaders of very duplicitous nature. Even the event triggering the war, the World Trade Center and Pentagon attacks, are heavily debated for suspicious origins. Second, a new financial bubble desperately needed to be spawned and puffed up. The ‘Policy Bubble’ was the War on Terrorism and the housing boom on the back on the mortgage frenzy. With war and security dominating USGovt spending, with the private sector pre-occupied not with valued added enterprise, the USEconomy rebounded in a phony recovery.

The next bubbles were well defined, in the two primary American icons of military and housing. However, the costly impact has only now been estimated. The cost is the destruction of the US bank and bond system, and an endless USEconomic recession. At the same time, the US service base was being dismantled and sent to the China and India, while the remainder of the US manufacturing was sent to China, as a vast industrial buildup has taken place there. The cost is the grotesque increase in US debt coupled with the grandiose growth in Chinese savings. The new age of the Sovereign Wealth Funds has begun. They now stand either as US corporate aid agents or enemies of the US financial state, many no longer friendly.

The next ‘Policy Bubble’ will be some form of grand US infrastructure buildup of a healthy nature, late to be sure.

It should have its foundation extending into alternative energy research and development, as in actual deployment and installation of systems. With no new ‘Policy Bubble’ to promote and feed, the USEconomy and financial sector will implode. At the same time, the housing sector must be revitalized. The two objectives must work in concert. If a national program to rebuild bridges, internet lines, communications systems, electrical lines, water mains, natural gas pipelines, and recycle centers, jobs will be produced, enough perhaps to help the public in its ability to service a heavy debt burden. Be sure that the same level of inefficiency and corruption will be rampant in them. See the Hurricane Katrina Relief program for instance, and on a much greater scale see the Iraq & Afghan Wars. Contractors are part of the merger of mafias that has captured the essence of the Fascist Business Model since year 2000.

GOLD & USDOLLAR CONCLUSION

As the many rescues planned and put in place, monetary inflation will be mammoth. The US$ will inevitably be sacrificed in the housing crisis and mortgage debacle, in addition to reviving the banks. The US$ will be weighed down further, in order to lead the USEconomy out of recession.

Cheap money is coming again, and globally. The USFed will not be able to escape the clutches of 1.0% interest rates again, coupled with the extreme shame. The USDollar will not be able to escape the plumbing of lower exchange rates, like down to the DX=70 level. The gold price will feed off lower interest rates, as speculative gains will be back in vogue, even called a good thing. There is nothing like a bout with deflation to change the mindset of speculation and its vagaries, turning it positive.

The gold & silver prices will rise from the cheap money, low interest rates, stimulus packages to ward off recession, rescues to banking, and lower USDollar.

But the USEconomy desperately needs the next ‘Policy Bubble’ in order to come back to life, to produce jobs, to change national psychology, to revive hope. Without a plan to puff a new bubble, which will buy some years of time, the nation will morph into chaos. A military dictatorship would be the only alternative. The urgent next step is leaders with some vision, rather than a plan for private profiteering, founded upon fear. Hope pays off more than fear, unless fascism is the end game.

Jim Willie CB
Editor of the “HAT TRICK LETTER”
Hat Trick Letter

****

Jim Willie CB is a statistical analyst in marketing research and retail forecasting. He holds a PhD in Statistics. His career has stretched over 24 years. He aspires to thrive in the financial editor world, unencumbered by the limitations of economic credentials. Visit his free website to find articles from topflight authors at www.GoldenJackass.com . For personal questions about subscriptions, contact him at JimWillieCB@aol.com

Central Bankers fueling Global Commodity Inflation

2008-02-15T15:17:00.001-08:00

By Gary Dorsch
Feb 15 2008 11:54AM

www.sirchartsalot.com

Central bankers and finance ministers from the world’s top-10 economic powers, huddled behind closed doors in Tokyo last weekend, trying to work out a joint strategy to rescue the global stock markets from another possible meltdown. Roughly $6-trillion was lost on global stock markets in the month of January, triggered by the biggest financial crisis since the Great Depression, and a US housing slide, that could topple the giant US economy into recession.

Central bankers from the United States, Japan, Germany, France, Canada, Britain, Italy, China, South Korea, and Russia, collectively control the money spigots in three-quarters of the world’s $65 trillion economy. “We are not yet at the end of the market crisis,” warned Euro-group finance chief Jean-Claude Juncker. “The corrections will drag on for a few weeks, or months. We have agreed in Tokyo that if there are irrational price movements in the markets, we will collectively take suitable measures to calm the financial markets,” he said.

Asked what type of collective action the G-7 might take during another stock market meltdown, Juncker said, “Whoever has a strategy should not lay it out. Otherwise it will lose its effect, if it is explained.” Russian Finance Minister Alexei Kudrin hinted at a coordinated round of G-7 rate cuts. “Coordination of efforts between central banks on their refinancing rates may soften the consequences of the global credit crisis, because this is the key factor supporting financial systems,” he explained.

Other weapons in the G-7’s arsenal to counter a bear market for equities include brainwashing investors thru the media, fudging economic and inflation data, inflating the money supply, managing the “yen carry” trade, and outright intervention in stock index futures, championed by the US “Plunge Protection Team.”

After surveying the global landscape, the G-7 warned, “Downside risks still persist, including further deterioration of the US residential housing markets and tighter credit conditions.” Bank of Italy chief Mario Draghi added, “Risks are further shocks may lead to a prolonged recurrence of the acute liquidity pressures experienced last year. We face a prolonged adjustment, which could be difficult,” he warned.

Banks and brokerage firms around the world face $400 billion in write-offs of toxic sub-prime US mortgages, said German Finance Minister Peer Steinbrueck on Feb 11th. “The crisis that spread from the US property market to global financial markets may continue well into 2008,” he warned. The US credit crisis is no longer just a sub-prime mortgage problem. Many prime loans made in recent years also allowed borrowers to pay less initially, but with higher adjustable payments in later years.

With US home prices falling and lenders clamping down, homeowners with solid credit are also under the same financial stress as those with sub-prime credit. Over 40% of all mortgages issued from late 2005 to early 2007 are based on adjustable rates, so about $45 billion would reset each month this year. The expected tax rebates from Washington will cover less than two months of home payments.

Wall Street fueled the growth of sub-prime lending by packaging $1.8 trillion of risky home loans into bundled securities, and then marketing them as high-grade investments. But with US mortgage foreclosures set to top 1 million this year and home prices falling at the fastest pace since the Great Depression, the same Wall Street investment banks who profited by putting buyers into properties they couldn’t afford, are begging central banks and governments to manage the bust.

In Chicago, futures contracts for the Case-Shiller Home Price Index in the 20-biggest US cities are 9.4% lower from a year ago, and the slide might get worse as $550 billion of sub-prime adjustable rate mortgages adjust upwards this year. The Fed’s rate cutting spree since September, slashing the fed funds rate by 2.25%, might help by reducing the reset rate for many adjustable-rate loans.

But US consumers are hobbled by falling stock prices, tighter credit conditions, high gasoline prices, and a soft labor market. Sliding home values are also eroding the equity US households can tap for cash at the same time banks are tightening credit, threatening the consumer spending that the economy needs to dodge recession. “Going forward, we will continue to watch developments closely and take appropriate actions, individually and collectively, in order to secure stability and growth in our economies,” the G-7 said after their secret meeting.

The big threat to US household spending is primarily focused on the slumping housing market, but a double-barreled assault can be disastrous, so if the US stock markets keeps sliding, it would probably tip the economy into recession. And a US recession could undermine the global economy, like tumbling dominoes, since the US consumer buys about 20% of the world’s $14.5 trillion of exports.

The Federal Reserve has been the most hyper-active G-10 central bank in pumping liquidity into the global markets, slashing the fed funds rate to a negative 1%, in inflation adjusted terms. The Fed “will be carefully evaluating incoming information bearing on the economic outlook and will act in a timely manner as needed to support growth and to provide adequate insurance against downside risks,” Fed chief Ben “B-52” Bernanke told the Senate Banking Committee on Feb 14th.

Since the Fed began lowering rates in August, the Dow Jones AIG Commodity Index has jumped +22% to a record high of 200-points, while the MSCI All World Index, measuring the top-43 stock markets, has tumbled 7-percent. Commodities have historically been regarded as wildly volatile and risky, but since 2006, crude oil, gold, copper, silver, platinum, cocoa, and grains have soared, hitting record highs, and have trounced returns in the mis-managed G-7 stock markets.

G-10 central bankers are ignoring the deleterious side-effects of their super-easy money policies. The Fed and G-7 central bankers have injected hundreds of billions of dollars into the global money markets, fueling the “Commodity Super Cycle,” and intensifying global inflation. Central bankers in Canada and the UK have joined the Fed’s rate cutting spree. But the big surprise for G-7 central bankers might be how high commodities can fly, even in the face of a global economic slowdown.

The G-10 central banks are tolerating an upward creep in global inflation, because the pain required to kick the money printing habit is deemed too high. “Downside risks to the US economy are the most important factor for Federal Reserve interest rate policy for the time being,” said Chicago Fed chief Charles Evans on Feb 14th. “The Fed’s focus needs to be on those risks, even though inflation has been running a bit higher than we would like,” he admitted.

A remarkable run-up in prices of wheat, corn, oilseeds, rice, and dairy products, along with sharply higher energy prices, have been blamed on supply shortfalls, strong demand for bio-fuels, and an inflow of $150 billion from investment funds. From a year ago, Chicago wheat futures have soared +120%, corn +20%, and soybeans are +80% higher. Rough rice is up 55%, and platinum touched $2,000 /oz, up 80% from a year ago, while US cocoa futures hit a 24-year high.

In agricultural commodities, there are supply constraints in terms of the amount of arable land available. There are huge shifts in demand from the emerging economies, where populations are moving to cities, and incomes are rising, and changing dietary patterns. Entering energy into the food equation, the surging ethanol industry has put a squeeze on the corn market, causing prices to be demand driven. Bio-diesel traders are looking at soybean and vegetable oils.

Fund managers are pouring money into commodities across the board as a hedge against the explosive growth of the world’s money supply, and competitive currency devaluations engineered by central banks. Wheat had climbed nearly 10% since the beginning of the year, hitting an all-time high of $11.50 /bushel, as investment funds kept buying futures with US wheat supplies at the lowest level in 60-years.

Because most global commodities are traded in US dollars, the Federal Reserve has a special role to play in defending the value of the US dollar in the foreign exchange markets. On Dec 27th, Hu Xiaolian, director of China’s Foreign Exchange wrote, “If the US federal funds rate continues to fall, this will certainly have a harmful effect on the US dollar exchange rate and the international currency system,” Hu wrote.

Central banks are flooding the markets with paper, and nobody takes the dollar, the Euro, the yen, or the pound seriously. Investors are turning to gold because it is the only true store of value. The Arab oil kingdoms and Asian exporting nations are importing inflation through their currency pegs and dirty floats, but their patience with the US dollar is near the snapping point.

OPEC may abandon the US dollar for pricing oil and adopt the Euro, said OPEC Secretary-General Abdullah al-Badri on Feb 8th. “Maybe we can price the oil in the Euro. It can be done, but it will take time. It took two world wars and more than 50 years for the dollar to become the dominant currency. Now we are seeing another strong currency coming into the frame, which is the Euro,” said Badri.

The US Treasury and the Fed are risking a disastrous replay of the 1970’s, when high oil prices fueled double-digit inflation. Every time the Fed lowered rates to boost job growth, inflation took off, causing a vicious price spiral. The Fed let inflation rage for so long that it took a strict monetarist approach, adopted by Paul Volcker in 1979 to finally defeat inflation. However, the cost of subduing the inflation monster was a deep recession, with unemployment hitting 11% in 1982.

Excessive monetary accommodation just takes the economy from bubble to bubble to bubble. This time around, the Fed’s devaluation of the dollar, based upon Mr Greenspan’s 2001-02 blueprints, has unleashed the biggest wave of commodity inflation seen since the 1970’s.

Bank of England follows in Fed’s Footsteps

With 1.5 million adjustable rate mortgages due to reset in the UK this year, the Bank of England has joined the Fed’s money printing orgy. On Feb 7th, the BoE lowered its key lending rate by a quarter-point to 5.25%, following a similar cut in December. Pressure has increased on the BoE’s Monetary Policy Committee to slash borrowing costs, even as soaring energy and food bills are driving inflation higher.

Britain’s factories are facing the strongest input price pressures on record and are ramping up prices to compensate, but that didn’t stop the Bank of England from lowering its base rate to 5.25% last week, to shore up the Footsie-100 stock index. And there is little sign that UK price pressures are set to ease with the cost of raw materials surging 18.9% from a year earlier, the fastest rate in 22-years.

UK producer prices are surging at an annualized 5.7% rate in January, a 16-year high, not surprising, given the bullish trends in the global commodity markets. The price of imported food into the United Kingdom rose by nearly 15% in the past 12-months. But the bigger fear haunting the BoE is that weaker growth will undermine housing and stock prices, putting further pressure on bank balance sheets, and prompting a further tightening in credit conditions.

On Feb 13th, the BoE projected an economic slowdown to zero percent in the first two quarters of 2008, with a high probability that the UK economy will contract in at least one quarter. BoE chief Mervyn King’s message was blunt. “Tighter credit conditions will bear down on demand, while rising energy, food and import prices will push up on inflation. Both developments are now more acute than in November,” he warned.

Mr King says the BoE is powerless to counter surging commodity prices, which he believes “will result in a genuine reduction in our standard of living. However, there is no point in us going mad and pretending it is sensible to double interest rates in order to bring inflation back to target in the next six months,” he argued. Instead, King thinks that slower growth over the coming year will “reduce pressures on capacity” and bring inflation down to target towards the beginning of 2009.

“The Bank of England needs to stop worrying about inflation and cut interest rates to prevent a sharp slowdown in growth,” said BoE policymaker David Blanchflower on January 27th. “It’s essential that the BoE get ahead of the curve, as the current level of UK interest rates are restrictive. Evidence from the housing and the commercial property market is worrying. It is time for the MPC to lead not follow. Worrying about inflation at this time seems like fiddling when Rome burns,” he declared

Herein is the crux of the “Stagflation” trap. Lowering interest rates to bolster the local economy can backfire by igniting faster inflation, and erode the purchasing power of local citizens. But the BoE has been destroying the purchasing power of UK citizens for years, by inflating the British M4 money supply, up 12.4% from a year ago. Gold has risen by 110% against the British pound from four years ago, and is a proven vehicle for protecting asset wealth from abusive central bankers.

To ease the plight of its exporters, the BoE engineered a 10% devaluation of the British pound, from a 26-year high against the dollar in November. Britain’s goods trade deficit with the rest of the world ballooned to a record at 87.4 billion pounds ($170.4 billion) last year, up 10% from 2006. The UK’s current-account deficit widened to 5.7% of gross domestic product, the highest of G-7 nations. But a weaker pound also exacerbates Britain’s inflation problem, by lifting import prices.

“The BoE needs to balance the risk that a sharp slowing in activity pulls inflation below target against the risk expectations keep inflation above target,” the BoE said. Given the choice of defending the purchasing power of the British pound or rescuing the housing and stock market, the BoE will eventually show its weak hand, and lower its interest rates further, spinning its citizens on the treadmill of inflation.

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Gold Stocks -which direction it will go

2008-01-25T16:11:00.000-08:00

Gold Stocks

The bull market in gold stocks can also be broken down into three phases. The first phase began in 2001 when gold stocks made a very large advance in a short period of time. These gains were made during a severe bear market in US equities. Gold stocks acted in a truly counter-cyclical manner.

The second phase was difficult for gold shares. It coincided with a cyclical bull market on US equities. Production costs rose steadily, driven by fast growing demand for energy and base metals caused by exceptional world economic growth. Gold stock performance was choppy, with indices being pulled up by a few diversified producers with significant exposure to base metals.

The third phase started in late 2007, concurrently with the beginning of a strong advance in gold as was the case during phase one. To date, all conditions are shaping up in a similar manner as in 2001-2003. Consequently, we expect phase three to be similar to phase one in both strength and length of the advance.

It is especially important that the gold / crude oil ratio ($GOLD / $WTIC) appears to have bottomed last summer. Oil is unlikely to move much higher and the ratio will continue to trend up, taking the pressure off of the gold exploration, development and production stocks. As a result, the $HUI / GOLD ratio will begin trending up in 2008 and gold stocks will regain their leverage to the yellow metal.

This is an excerpt from an RSG Newsletter posted on January 20, 2008.

Boris Sobolev
Resource Stock Guide
www.resourcestockguide.com

Federal Reserve Plays Russian Roulette with US$

2008-01-16T13:45:00.000-08:00

By Gary Dorsch
Jan 16 2008 3:47PM

http://www.sirchartsalot.com

In an age where governments of every political stripe distort data to promote their own self interests, it’s hardly surprising that they present inflation data in a manner that is best suited to their particular needs.

By the same token, it’s entirely natural for official inflation data to be wildly at odds with the reality that is faced by consumers and businesses, and to be regarded with utter disbelief.

So it wasn’t shocking to hear Federal Reserve officials insist last week, that inflation in the United States is under control, before telegraphing another tidal wave of liquidity injections into the US economy in the months ahead. “Stable inflation expectations give the Fed a lot of room for maneuver. If the evidence suggests that substantial policy easing is appropriate, I don’t think we’re going to face a risk of adverse inflation consequences,” said St Louis Fed chief William Poole on Jan 9th.

In an election year for the highest office in the land, American politicians from both sides of the isle, are quick to propose all kinds of fiscal stimulus and pork barrel projects to jump start the sputtering US economy.

But adding more monetary stimulus to the mix has the potential to ignite hyper-inflation in the US economy, and a speculative attack on the US dollar in the $3.2 trillion a day currency market.

“It’s difficult enough to make good policy in a complex economy and complex financial system,” said Fed chief Ben “B-52” Bernanke on January 11th. “Political considerations will play no role, and I assure you as strongly as I can, that we will be objective and analytical, and we’ll do what’s right for the economy,” he said.

It’s now becoming increasing clear, that the only prices the Fed is focusing on these days are home prices and those for toxic sub-prime mortgage debt. The Fed is pegging the federal funds rate in the direction of US home prices, mimicking the Bank of England as an asset targeter.

Last week, nearby futures contracts on the Standard & Poor’s/Case-Shiller, an index of home prices in the top-10 US cities, fell below the 206-level, or roughly 7% lower from a year ago.

Robert Shiller, a Yale University economist, and co-founder of the widely watched house-price index, predicted on Dec 31st, a possibility that the US economy would stumble into a Japanese-style recession, with house prices declining for years. “American real estate values have already lost around $1 trillion. That could easily increase threefold over the next few years. This is a much bigger issue than sub-prime. We are talking trillions of dollars’ worth of losses.”

He noted that Chicago futures markets are pricing in further declines in US home prices, with farther dated contracts on the S&P Shiller Index pointing to losses of up to 14 percent. In the third quarter of 2007, US homeowners withdrew $20 billion less in equity from their homes than in the prior quarter, and since housing prices have continued to tumble, the outlook for cash-outs has continued to dim.

Lenders have also grown more cautious in handing out cash through home equity lines of credit since those loans were failing at their highest rate in ten years during the third quarter. If the housing market continues to sink this year, consumers will have less home equity to convert into cash, which could lead to a big pullback in spending. With consumers struggling with high energy costs and a softening jobs market, the drying up of home equity could usher in an economic recession.

Slumping home prices and a softer jobs market, could increase foreclosures on many sub-prime home borrowers, and blow huge craters in the balance sheets of banks and brokers worldwide. Credit Suisse projects 775,000 homes with $143 billion of mortgage debt will go into foreclosure in the next two years. Goldman Sachs estimated that losses in mortgage markets worldwide may reach $726 billion.

Some BBB rated sub-prime mortgage bonds have already tumbled to 16-cents on the dollar from 50-cents last July. AA rated paper isn’t faring much better, fetching only 40-cents in the $1.8 trillion sub-prime mortgage market. On January 15th, Citigroup C.n, the nation’s largest bank, took a fourth-quarter loss of nearly $10 billion, stemming largely from $18 billion of write-downs of sub-prime mortgages.

The deepening gloom in the US financial sector came as Bank of America BAC.n agreed to acquire battered mortgage lender Countrywide Financial CFC.n for $4 billion, to avert one of the biggest collapses due to the toxic sub-prime debt bomb. Merrill Lynch is expected to suffer $15 billion in losses stemming from soured mortgage investments, as the sub-prime debt bomb goes nuclear.

Bernanke Signals more Rate cuts in Q’1

With the US economy sinking deeper into the “Stagflation” trap, and credit worries clogging the arteries of the Libor market, Mr Bernanke shouted loud and clear for the whole world to hear on Jan 10th, that the Fed and the US Treasury (the “Plunge Protection Team” - PPT) have decided to exercise the “Greenspan Put” option, and will simply disregard elevated inflationary pressures in the rest of the economy.

“In light of recent changes in the outlook for and the risks to growth, additional policy easing may be necessary,” Bernanke said on January 11th. “We stand ready to take substantive additional action as needed to support growth and to provide adequate insurance against downside risks. Inflation expectations are reasonably well anchored,” and he pledged to monitor inflation expectations closely.

For the PPT, the devil of hyper-inflation is preferable to the specter of a bear market for the Dow Jones Industrials and weaker home prices. Exercising the “Greenspan Put,” means the Fed will slash the federal funds rate far below the US inflation rate in the months ahead. But that’s a frightening prospect for foreign holders of $2.3 trillion of US Treasury debt, who must contend with negative interest rates, which in turn, could severely weaken their US dollar denominated investments.

The Fed is signaling aggressive rate cuts at a dangerous time. Inflationary pressures in the US economy are elevated at multi-decade highs. US producer prices were up +6.3% last year, and US consumer prices up +4.1%, the highest in 17-years, compared with +2.5% for 2006. Gasoline costs were up 37%, and food prices were up 9.3% last year, embedding inflation fears into the American psyche.

Thanks to the Fed’s cheap dollar policy, US import prices rose +10.9% in 2007, the largest calendar-year increase since 1987. The Dow Jones AIG Commodity Index soared to an all-time high of 193.25, exerting upward pressure on raw material costs. Only one lone voice of reason from Foggy Bottom is advising caution. “I would be very careful, not to let inflation accelerate too long,” warned Kansas City Fed chief Thomas Hoenig on January 10th.

But Hoenig was rotated off the Fed’s interest rate setting committee, after he dissented against a rate cut in October, in favor of keeping Fed policy on hold. Instead, the politically correct thing to do in Washington these days is to cut rates and drop dollar bills across America from helicopters and B-52 bombers.

The Fed’s big Gamble

The Fed is betting that a sharp slowdown in the global economy will weaken commodity prices, and that Saudi Arabia will pump more oil, to keep inflationary pressures at bay. Until now, the Fed’s rate cutting campaign, its special $80 billion liquidity injection scheme and promises of another big tidal wave of liquidity, have severely weakened the value of the US dollar, which in turn, fueled parabolic rallies in crude oil and precious metals to all-time highs.

Fed rate cuts also fueled Agri-flation worldwide.

In Chicago, March wheat jumped the to $9.40 /bushel, after the USDA reported smaller than expected US plantings for hard red winter wheat. Corn surged to an 11-year high of $5.15 /bushel, on a big drawdown in US corn stocks. July soybeans soared to $13.76 a bushel, buoyed by fears that corn’s surge could cut into soybean plantings for 2008.

Rough rice futures in Chicago hit an all-time high of more than $15 per hundredweight, 37% higher from a year ago. Egypt is a major exporter of rice, but has suspended exports indefinitely, due to hoarding and speculation in its local economy. In Pakistan, armed guards escort trucks carrying high-prized wheat. India will become a net importer of rice this year, for the first time.

Jordan intends to double the stocks of wheat inside its country to 390,000 tons, equivalent to six months of supply, plus a further 130,000 tons purchased and being shipped, representing two months of supply. Doubling wheat stocks is an indication that some major importers see no end to the bull market in Chicago and want to protect themselves. Ocean shipping costs for dry goods have fallen 35% in recent weeks, which may encourage more purchasing of grains.

Bush Seeks Quick Fix to Tame Oil prices

On his arrival in Riyadh on January 15th, President Bush urged Saudi king Abdullah to put more crude oil on the world market, warning that soaring prices could cause an economic slowdown in the United States, and weaken the housing market. “High energy prices can damage consuming economies. When consumers have less purchasing power, it could cause the economy to slow down. I hope OPEC nations put more supply on the market. It would be helpful,” he said.

Saudi Arabia is the only member of OPEC with spare capacity - roughly 2.8 million barrels per day. Saudi Oil chief Ali al-Naimi said on Jan 15th, that Riyadh is ready to boost oil output if the market needed more oil to tame high prices.

“Nobody would look with pleasure on a recession in the United States. Concerns about US economic growth are valid. But the price of oil is more than just the US economy. Global economies are growing despite oil prices ranging between $90 and $100 a barrel,” Naimi said.

For instance, China’s oil imports rose 12% last year to a record 3.26 mil bpd.

But al-Naimi also blamed speculators in London and New York for inflating the price of crude oil by $20 to $30 per barrel. “Twenty to thirty dollars is the outside influence on the price of oil. If you look at who’s in the market, you’ll find a lot financial institutions are speculating, using the market as a hedge.” Still, Naimi wouldn’t say if Riyadh would agree to boost oil output at OPEC’s Feb 1 meeting.

King Abdullah must walk a along a tightrope, balancing his military patron’s request for more oil, against Iran’s opposition to further increases in output, which could hurt Tehran’s oil revenue. On Dec 5th, Iran’s President Mahmoud Ahmadinejad scored a big victory, when he convinced king Abdullah to join the hawks of OPEC – Iran, Libya, and Venezuela, and hold the cartel’s oil output steady at 27.25 million bpd.

“Our position is that demand and supply are balanced and there is no need to increase oil to the market,” said Iranian Oil Minister Gholamhossein Nozari. Still, the key question is which way will Saudi oil policy lean at the upcoming Feb 1st meeting in Vienna, in favor of US Prez Bush or Iran’s Ahmadinejad?

However, Riyadh is keen to keep oil prices elevated within a higher target zone, to sustain the enormous flow of petro-dollars to the Gulf, which has revived the speculative appetite for the local stock market. The Saudi All Share Index hit the psychological 12,000 barrier last week, enriching the brokerage accounts of 7,000 Saudi princes, who control 70% of the market.

Beijing warns US Treasury against further Fed rate cuts

Beijing also finds itself in a tough predicament, with $1.53 trillion of foreign exchange reserves over the past five years, mostly stockpiled in depreciating US dollars. However, Chinese leaders finally woke up to the folly of such a foolish investment policy. “The world’s currency structure has changed,” declared Xu Jian, vice director of the People’s Bank of China (PBoC) on Nov 7th.

“The US dollar is losing its status as the world reserve currency,” he warned. “We will favor stronger currencies over weaker ones, and will readjust accordingly,” added Cheng Siwei, vice chairman of China’s National People’s Congress. On Dec 27th, Hu Xiaolian, director of China’s Foreign Exchange department, wrote, “If the US federal funds rate continues to fall, this will certainly have a harmful effect on the US dollar exchange rate and the international currency system,” he said.

Traders closely watch any change in China’s strategy which could affect exchange rates. China’s central bank is tightening its monetary policy to combat inflation, which is raging ahead at a 6.5% annualized rate. At the same time, the Bernanke Fed is preparing to flood global money markets with another tidal wave of cheaper US$’s. China raised benchmark interest rate six times in 2007, but the benchmark one-year deposit rate of 4.14% is still far lower than the inflation rate.

“We must be sure about one thing, the central bank is moving towards the objective of positive real interest rate instead of moving away from it, “said Yu Yongding, a key advisor to the PBoC, on Janaury 3rd. The next day, the PBoC vowed to further tighten monetary policy in 2008, aiming in particular to prevent inflation from moving from certain sectors to the broader economy.

A year ago, the US Treasury’s 5-year T-note was yielding +2% more than China’s 5-year note. But today, the US T-note yields -1.2% less, putting enormous downward pressure on the US$ /Chinese yuan, and cementing big foreign currency losses in Beijing’s portfolio of US bonds. According to forward traders in Hong Kong, the dollar is expected to fall another 9% to 6.6-yuan over the next 12-months.

Since March 2006, China has been a net seller of US Treasury debt, reducing its exposure from $421 billion to $386.7 billion in November, and seeking to avoid further losses on the dollar’s exchange rate with the yuan. “The weakening dollar and rising global commodity prices is also creating inflationary pressures for China, but a quicker appreciation of the yuan would probably help offset some of those price increases,” said Yao Jingyuan, chief economist of the state statistics agency.

On Jan 16th, the PBOC hiked bank reserve requirements by 0.50% to a record 15%, a move that will drain 200 billion yuan ($28 billion) from the Shanghai money markets. The dollar fell to 7.23 yuan, or -3.2% lower since late October, a faster decline than the -1.2% slide in the US Dollar Index over same period, meaning the yuan is rising at an even faster pace against a basket of six major global currencies, including the Euro, British pound, and Canadian dollar.

Arab Oil kingdoms are Saviors of US$,

Japan is the largest holder of US Treasury debt, but has been a net seller of $46 billion, and South Korea has sold $19 billion over the past 12-months. To pick-up the slack, the Bush administration has relied heavily on the Arab Oil kingdoms, to recycle their bulging petro-dollar surpluses back into US Treasury debt. Since 9/11, America has assumed the financial costs of occupying Iraq, while the Arab oil kingdoms have experienced a staggering infusion of new wealth.

Saudi Arabia has taken in nearly $900 billion in oil revenues over the last six-years, and the emirate of Abu Dhabi has a sovereign wealth fund approximating $1 trillion. There had been a time, in the lean 1990’s, when Saudi Arabia’s debt had reached 120% of Saudi GDP, but today it has fallen to 5 percent. And from a year ago, it is estimated that the Arab oil kingdoms have recycled as much as $227 billion into US Treasuries, mostly through their brokers in London.

In order to keep the archaic dollar /riyal peg intact, the Saudi central bank has more doubled the growth rate of its M3 money supply to 21.6%, to stay ahead the of Bernanke Fed’s 16% expansion of the US M3 money supply. The Saudi central bank has cut its key repurchase rate, the benchmark for deposits, to 4% in tandem with the Fed. But the rapid growth of the money supply pushed Saudi inflation to 6% in October, it’s highest since 1995. Food price inflation hit 7.5 percent.

Inflation in four of the six Gulf Arab oil kingdoms has overtaken official lending rates, encouraging speculation in real estate, which is the main cost of living across the region. Saudis blame King Abdullah’s insistence on pegging the riyal to the US dollar for higher inflation at home. The central bank is handcuffed in the fight against inflation by the riyal’s peg to the dollar, which forces it to track US monetary policy at a time when the Federal Reserve is cutting interest rates.

Those who can afford to buy gold have protected their wealth from the Saudi central’s banks’ money spigots. But most of the Saudi population hasn’t been so fortunate. “We remind you of Prophet Mohammad’s words that you are shepherds who are responsible for your flock,” said 19 well-known clerics, including Nasser Al Omar, on Dec 16th. “The rulers should seek to try to remedy this crisis in a way that would ease people’s suffering. This crisis will have a negative impact on all levels, causing theft, cheating, armed robbery and resentment between rich and poor.”

Bush offers $20 billion arms deal for Saudi Oil

In a keynote speech in Abu Dhabi on January 13th, US President George Bush reminded the leaders of the oil kingdoms of what he called the threat to the world posed by Tehran. “Iran seeks to intimidate its neighbors with missiles and bellicose rhetoric, and its actions threaten the security of nations everywhere. So the United States is strengthening our longstanding security commitments with our friends in the Gulf to confront this danger before it is too late,” he warned.

The underlying message is simple, in return for American military protection against Iran, the Bush clan expects the Arab oil kingdoms to stick with their archaic dollar pegs, and recycle much of their oil surplus into US Treasuries. To keep the Saudi petro-dollars flowing into US Treasury debt, Bush offered Riyadh a $20 billion package of advanced weaponry, to shore up their defenses against Iran.

Still, Saudi Arabia and other Gulf Arab states are looking beyond the last 12-months of the Bush presidency, and are determined to maintain good relations with Iran, which might only be a few years away from acquiring nuclear weapons.

“We’ll listen to everything the president says. He can raise any issue he likes. We’re a neighbor to Iran in the Gulf, which is a small area, so we’re keen for harmony and peace among countries in the area,” said Foreign Minister Saud al-Faisal.

Saudi Arabia invited Iran’s Ahmadinejad to the Haj in Mecca in December and Qatar invited Ahmadinejad to a summit of the Gulf Cooperation Council (GCC) last month.

Bush spoke with the Saudi king in his opulent palace. Its marble floors and walls contain sheets of gold, colored with precious stones and embedded jewels. The king also invited Bush to his lavish horse farm where 150 Arabian stallions are stabled, as a payback to his visit to the Bush ranch in Crawford, Texas.

European Central Bank Rules out Rate cuts

The Bernanke Fed is playing Russian roulette with the US dollar, reckoning that other central banks will eventually join its money printing orgy, to prevent their currencies from rising sharply higher against the greenback. But while the Fed is trying to brainwash the media into believing that inflation is under control, ECB chief Jean “Tricky” Trichet has flatly ruled out any Euro rate cuts in the months ahead, arguing that inflation is a major threat faced by the Euro zone.

On Jan 10th, Trichet was asked whether it was correct to say the ECB had a bias to tighten rates, “We are certainly not neutral,” warning the ECB is not prepared to tolerate a wage-price spiral triggered by higher food and oil prices. Speaking on French television on January 14th, Trichet rebuffed suggestions by French government officials, that the ECB should pay more attention to stimulating growth, like the Federal Reserve, rather than focusing on keeping inflation under control.

“There is not one European to say that now is the moment to be particularly lax in the matter of fighting inflation,” Trichet declared. ECB member Michael Bonello backed his new boss, “The bank remains prepared to act to insure that the upside risks to price stability, which are clearly mounting at the moment, do not materialize,” he said. Austrian central bank chief Klaus Liebscher added, “We have clear upward risks from inflation, $95 per barrel of oil and dramatic food price increases. On top of this, we could see second round effects,” he said.

Compared to the reckless amateurs at the Federal Reserve, ECB officials are sounding more responsible and like stalwart guardians of the Euro’s purchasing power. But one must also keep in mind, that the ECB is inflating its M3 money supply at a record 12.3% annual rate. In doing so, the ECB has been a major accomplice to the historic rally in food and energy prices over the past few years.

The ECB is now warning Euro zone workers to avoid asking for higher wages, which they seek to compensate for the inflation that was created by the central bank itself. “Wages must not seek to catch up with prices to compensate for a weakening in purchasing power following this price rise,” warned Italy’s central bank chief Bini Smaghi on Jan 14th. “Otherwise inflation might not go down and at that point there won’t be any other solution than a monetary tightening,” he said.

On January 15th, Bundesbank chief Axel Weber said there were signs that wage pressure and inflation expectations were starting to drift up. “The currently noticeable higher rates of inflation in Germany and the Euro area overall should not be the yardstick for upcoming wage negotiations. We are observing current developments very carefully and, if needed, action will follow our words."

Around 2 million German public sector workers are seeking an 8% increase in wage talks which began last week, while German train drivers have already secured an 11% raise. German union bosses are calling the ECB’s bluff, figuring the central bank does not have the green light from government finance officials for a rate hike, given the severity of the credit crunch in the Euro Libor markets.

Bank of Japan is Silent on dollar’s Slide to 106-yen

Japan’s ministry of finance is the most notorious manipulator of inflation data, and for good reason. Japan’s outstanding public debt is 776 trillion yen ($7.25 trillion), or roughly 147% of gross domestic product, the highest among leading industrialized countries. In order to keep its interest rates and debt service costs low, Tokyo’s uses fuzzy math to calculate it inflation rate, to provide the Bank of Japan with the political cover to peg its overnight loan rate at an abnormally low 0.50 percent.

Japan imports almost all of its oil, or 4.2 mil bpd, and is the world’s third-largest oil consumer after the US and China. Japan runs an industrial economy and is only 40% self sufficient in agricultural commodities, so 60% of its domestic demands for food and agricultural products are imported. Yet Tokyo claims that Japan’s consumer price index is only +0.4% higher from a year ago, by far the lowest on the planet, despite a near doubling of food and energy prices from a year ago.

Japan has an enormous stash of cash, and can easily afford to pay for sharply higher prices for food and energy imports. Japan’s current-account surplus, the widest measure of a country’s financial performance on an international basis, expanded 46% to 2.2 trillion yen ($20.1 billion) in October from a year earlier. Japan’s foreign exchange reserves rose 9% to a record $973 billion last year, and are the world’s second largest behind China’s $1.53 trillion.

Currency traders are attracted to the yen because of Japan’s large external surpluses, but are also discouraged from buying the currency, because of abnormally low interest rates for Japanese bonds. On the flip side, global traders have borrowed $1.2 trillion in Japanese yen at 1% or less, to purchase stocks and commodities on worldwide exchanges, popularly known as the ”yen carry” trade.

Recently, the US$ has been tumbling against the yen, because the US Treasury’s 2-year note yield has plunged from +394 basis points above the Japanese 2-year yield to as low as +250 bp over the past two months. And in a chain reaction, Japan’s Nikkei-225 plunged to a 26-month low, as key exporters sank on fears of a possible recession in the US market and the surging yen. A weaker dollar will hurt exporter profits earned in the US, when converted back into yen.

Thus, unilateral Fed rate cuts have become a big headache for Tokyo’s financial warlords. Yet Japanese finance officials were surprisingly silent this week, as the dollar fell below 109-yen, previously regarded as the MoF’s red line in the sand, where intervention was expected to defend the dollar. The lack of intervention raises the possibility that Tokyo may have acquiesced to a stronger yen, in order to help dampen the high cost of imported food and energy.

Traders might probe the dollar’s downside, until subtle threats of intervention are sounded out by the MoF. There is also simmering speculation that the BoJ might lower its overnight loan rate to zero percent, after BoJ chief Toshihiko retires in March. The yield of two-year Japanese government bonds fell to 0.60%, just 10 basis points above the overnight call rate target.

A rate cut to zero percent could raise speculation of the BOJ returning to “quantitative easing”, a policy of force-feeding banks with excess cash to kick-start the economy. Annual growth in Japanese bank lending has slowed to +0.1% from a year ago, indicative of an anemic economy. Odds are rising that the world’s second largest economy is slipping into recession, led by weaker exports to the US.

Breakdown of Fiat (paper) Currency System

In a world of fiat (paper) currency, the full faith and trust in a nation’s currency often lies in the policy actions and honesty of its central bankers. Under the Bernanke Fed, global confidence in the US dollar has been badly shaken, and the Fed rookies hand picked by Mr Bush, are just learning about gold’s special role in the international monetary markets.

Trading in the foreign exchange market is akin to a reverse beauty contest, judging the least ugly (least inflated) currency as the winner. So far, only two central banks in Canada and England have shown a interest in joining the Fed’s money printing orgy.

Gold cannot be printed and mining output is 9% lower than a year ago. The Bernanke Fed is playing Russian roulette with the greenback, and a serious breakdown of the fiat (paper) currency system might only be a Fed rate cut or two away.

To stay on top of volatile markets, subscribe to the Global Money Trends newsletter today, for insightful analysis and predictions for the

(1) top stock markets around the world,
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and oil company indexes
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(5) Central banker "Jawboning" and Intervention techniques that move markets.

Subscribers can also listen to bi-weekly Audio Broadcasts, with the latest news on global markets, and view our updated model portfolio for Q’1, 2008. To order a subscription to Global Money Trends, click on the hyperlink below, http://www.sirchartsalot.com/newsletters.php or call toll free to order, Sunday thru Thursday, 8 am to 9 pm EST, and on Friday 8 am to 5 pm, at 866-553-1007. Outside the US call 561-367-1007. This article may be re-printed on other internet sites for public viewing, with links required to, http://www.sirchartsalot.com/newsletters.php

Gary Dorsch

****

Mr Dorsch worked on the trading floor of the Chicago Mercantile Exchange for nine years as the chief Financial Futures Analyst for three clearing firms, Oppenheimer Rouse Futures Inc, GH Miller and Company, and a commodity fund at the LNS Financial Group.

As a transactional broker for Charles Schwab's Global Investment Services department, Mr Dorsch handled thousands of customer trades in 45 stock exchanges around the world, including Australia, Canada, Japan, Hong Kong, the Euro zone, London, Toronto, South Africa, Mexico, and New Zealand, and Canadian oil trusts, ADR's and Exchange Traded Funds.

He wrote a weekly newsletter from 2000 thru September 2005 called, "Foreign Currency Trends" for Charles Schwab's Global Investment department, featuring inter-market technical analysis, to understand the dynamic inter-relationships between the foreign exchange, global bond and stock markets, and key industrial commodities.

Copyright © 2005-2007 SirChartsAlot, Inc. All rights reserved.

Disclaimer: SirChartsAlot.com’s analysis and insights are based upon data gathered by it from various sources believed to be reliable, complete and accurate. However, no guarantee is made by SirChartsAlot.com as to the reliability, completeness and accuracy of the data so analyzed. SirChartsAlot.com is in the business of gathering information, analyzing it and disseminating the analysis for informational and educational purposes only. SirChartsAlot.com attempts to analyze trends, not make recommendations. All statements and expressions are the opinion of SirChartsAlot.com and are not meant to be investment advice or solicitation or recommendation to establish market positions. Our opinions are subject to change without notice. SirChartsAlot.com strongly advises readers to conduct thorough research relevant to decisions and verify facts from various independent sources.

The Road to $200-a-Barrel Oil!

2008-01-16T12:36:00.000-08:00

by Sean Brodrick
Dear Jack,

They say the highway to hell is paved with good intentions. I think the same can be said for the road to $200-a-barrel oil. And the car on that road will be the Nano, the new ultra-cheap vehicle from India's Tata Motors.

See, the Nano will be sold for less than $2,500, which suddenly puts car ownership within reach for a huge slice of India's population.

On the surface, that sounds like a good thing, right? But consider this ...

In the U.S. we have 1,000 cars for every 1,000 adults.

In Germany, it's 550 cars for every 1,000 adults.

While in India, there are just four cars for every 1,000 adults, and a population of 1.1 billion people!
In other words ...

Growing Car Ownership in India Means
Millions and Millions of New Gas Guzzlers!

The Indian government is actively promoting car ownership. It hopes to QUADRUPLE automotive sales by 2016.

Tata's Nano is going to make driving very affordable in India ...
But in light of the new, super-cheap Nano, India will likely hit and exceed those sales targets a lot faster!

Look, India's economy is growing at a staggering 9% for the third year in a row. At this rate, a lot more people will be catapulted into the middle class a lot sooner than planned.

Plus, India is one of the few countries in the world where a population boom means the population is getting younger. Young people tend to spend more and save less. Result — if current trends hold, consumer spending could quadruple by 2025 to $1.5 trillion.

India's middle class — those with annual disposable incomes between $4,380 and $21,890 in current dollars — will increase more than tenfold to 583 million by 2025, according to experts. Quite a lot of those people are going to have no problem affording cars like the new Nano!

In the process, India's demand for fuel should surge. The country already imports more than 70% of its oil, and its gasoline demand is already growing at 7% year over year.

Do you think gasoline prices are expensive now? Just wait until 583 million Indians start filling their roads with cheap cars! Of course ...

Chinese Drivers Aren't Exactly
Sitting on their Hands, Either!

India is the second-fastest growing auto market ... and China is the fastest! The country is already putting 14,000 new cars on the road EVERY DAY.

No wonder China's demand for oil rose from 5.6 million barrels per day in 2003 to a whopping 7.6 million in 2007! What's more, China's oil demand will increase another 5.7% this year, according to the International Energy Agency.

And just wait until they start flooding their own market with cheap cars!

China and India will cause a huge spike in oil consumption!
The cheapest car in China sells for twice the Nano's sticker price. But you can bet Beijing will either come up with its own ultra-cheap "people's car" or import them from India.

Bottom line: The Indians and Chinese are going to create huge demand for oil as they take up driving.

And their car-razy obsession is being repeated across all the emerging markets, turning pain at the pump into panic. Just last year, we saw fuel riots in Pakistan, China, and across parts of Africa ... while last week, Iran erupted in riots over fuel. Mobs attacked government buildings and called their leaders "thieves and murderers."

Clearly, the world is getting thirstier and thirstier for fuel, but ...

Where Is All the Oil
Going to Come from?

Unfortunately, the supply side of the oil chain is suffering a crisis of its own.

I've been pounding the table about the looming disaster in Mexico's Cantarell oil field, one of the biggest oil fields in the world. But the news there just gets worse and worse!

If current trends continue, Mexico, one of America's biggest suppliers of imported oil, will become an oil importer in just eight years.

Mexico's oil production fell 8.2% in November from the same period a year earlier. At the root of this is a three-year, 40% decline at Cantarell.

Mexico's state-owned oil company, Pemex, is trying to reverse the ugly trend by investing $2.4 billion into Cantarell this year alone. Pemex says this should slow the decline to half of last year's pace.

That's still bad news!

Instead of a decrease of 400,000 barrels a day, Pemex hopes Cantarell will lose just 200,000 barrels of daily output by year's end. Beyond that, Cantarell's production should continue to decline 10% a year.

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Pemex hoped to compensate for the decline by boosting production at its other oil fields. But the company admits that production at its next biggest field, Ku-Maloob-Zaap, also ranked in the world's top 20 fields, will start its own decline in 2011.

Another massive field, Chicontepec, will need more than 15,000 wells to develop properly. In its entire existence since 1938, Pemex has drilled only 23,000 wells.

WARNING: I can't over-emphasize the seriousness of this. There are only four oil fields in the world that produce more than one million barrels per day — Cantarell is one of them. It currently produces 1 of every 50 barrels of oil on the world market.

And it could suffer a "catastrophic" collapse — if sea water encroaches too far on the pillar of oil and gas in Cantarell, production could fall off a cliff.

That would have devastating repercussions at America's gas pumps and beyond. Worse yet ...

The Problems Don't Stop in Mexico ...
Or Anywhere Else, for that Matter!

On Monday, Qatar's Energy Minister Abdullah al-Attiyah said OPEC had no control over prices. "OPEC (members) are only oil producers, they are not fixing prices. They can't control the market forces," al-Attiyah told reporters.

He is only the latest OPEC oil minister to say that. If you had a product that sold for over $100 a barrel, wouldn't you pump as much of it as you could?

In fact, OPEC members cheat on their quotas when they can. I think they're going flat-out. I believe we have hit Peak Oil. In other words, I think the world is close to producing as much oil as it can. From here, production should go downhill, and prices should go way, way up.

U.S. crude oil stockpiles have been declining steadily since June and are at a three-year-low. At the same time, the price of oil is near an all-time high. It's the simple law of supply and demand — and that squeeze is getting worse ...

According to the EIA, global oil demand will average 87.8 million barrels per day (bpd) in 2008, which equals 1,016 barrels per second — a sonic boom of energy use!

I think oil prices could go higher — a lot higher — without seriously derailing our economy. Heck, we were told that $50 oil would cause the economy to collapse ... then $60 oil ... then $70 oil. Now we're near $100 for a barrel of oil, and the economy, while wobbling, keeps sputtering along.

Meanwhile, about 3.5% of U.S. household budgets now goes to gasoline and fuel costs, according to the U.S. Bureau of Economic Analysis. While that's up from 3% in the fourth quarter of 2006, it's down from 5.2% in 1981, when oil prices, adjusted for inflation, were about where they are today.

Translation: Americans can afford higher prices.

That's not to say prices can't zig and zag — but the general trend should be up. Way, way up.

In the Process, Smart Energy
Investors Stand to Make a Fortune!

While a lot of consumers are going to lose from higher energy prices, the oil companies are going to rake in money hand over fist. And so will their investors.

Look, the situation isn't pretty. But you can either sit around and let higher energy prices affect you, or you can protect yourself — and profit — before it's too late.

You can find plenty of these power-packed stocks in the Energy Select SPDR (XLE), or one of the other energy sector ETFs that are stuffed with larger-cap oil & gas companies.

Of course, I'd rather you target the very best individual companies, such as ...

Pick #1. An up-and-coming integrated oil company that is finding more oil than it pumps — growing reserves and pumping up profits!

Pick #2. A treasure-chest of a Canadian oil sands company — it has found a way to control costs and is bringing new projects online this year. The market hasn't uncovered this northern gem yet, but it will!

Pick #3. Sometimes the best money is made by selling equipment to the prospectors. That's why I like this oil fields equipment provider that's ringing up revenues as the global quest for oil kicks into high gear!

In all, I've hand-picked five stocks and two red-hot funds that are ready to zoom higher along with oil prices. And I've put them in a special report that I'm going to send out in less than 24 hours.

I'm selling this report — including three follow-ups — for $199. I think it would be cheap at triple the price, but if you contact us at 1-800-291-8545 by midnight tonight, and mention my name, you can reserve a copy for the low pre-publication price of just $99. You can also secure your copy online by clicking here.

Then, on January 17, we'll email you a PDF copy so you can jump on my red-hot recommendations as soon as they come off the press.

The best part is that we're seeing a short-term pullback in oil prices right now, which will give you an excellent buying opportunity.

Wall Street didn't see $100-a-barrel oil coming, and it's not prepared for $150 or $200 oil, either. But you can be prepared — to protect your portfolio and potentially reap a whirlwind of gains.

Good luck and good trades,

Sean

Silver market-2008

2008-01-06T14:37:00.000-08:00

U.S. Silver is doubling its Galena Mine production from 2 million ounces to 4 million in '08;

Sterling's return of the Sunshine Mine to production will serve up another 2.8 million ounces;

Hecla's Lucky Friday will remain in steady-state production next year, but a new winze extending from the 4,050-foot level to 8,000 is in the works, as is a new surface-breaching shaft, and there are whispers throughout the company of a brand new mine, either between the Lucky Friday and the Star, or between the Star and the Dayrock or Tamarack.

We haven't sunk serious shaft in the Coeur d'Alene District since the Silver Shaft and the Caladay in the early 1980s. Now, we are talking about two, three, or even four new ones, as exploration progresses at the Hecla, Bunker Hill and the Silver Royal Apex properties.

The $20 million that Hecla spent on the Silver Shaft at Lucky Friday and that Callahan Mining (now part of Coeur d'Alene Mines, and gone away) in 1980 translates in this day's Fednotes to about $60 million. Multiply that by four or five new shafts in the Coeur d'Alene Mining District and you have, in flat U$D, about what the net worth of this camp was back then.

We are, in this time of increased production, also poised on the verge of a silver price explosion that will make 1980 look like mere foreplay. We polled pundits from Spokane to Toronto and nobody is seeing single-digit silver ever again. James Turk thinks $27 is reasonable. Sprott's John Embry sees a sea change: “The key is, and this cannot be over-emphasized, is that all this money we've created, all this shit has blown up and people are going to turn to precious metals.” Thirty bucks to Embry is a no-brainer.

All the silver mines in the Silver Valley's Coeur d'Alene Mining District will be producing silver for substantially less than $10. Hecla has screwed costs down to $4-something at the Lucky Friday thanks to lead and zinc credits; Sterling will weigh in below $8 at Sunshine; U.S. Silver, which inherited a hideous cost structure from Coeur d'Alene Mines at Galena, will be in the same ballpark. Silver could crash to $12.50, or even $10, and we would wail and gnash our teeth accordingly, but the profits here are going to be tremendous, legendary, anyway.

So comes the inevitable phone call. “David, are there any good plays left in the Silver Valley?” To which we can only answer: “Put on a blind fold and throw

More about sub prime Woes

2008-01-04T13:28:00.000-08:00

U.S. Financial Crisis Worsening!
by Mike Larson
Dear Jack,

Several weeks ago, I told you we were staring "S&L Crisis II" in the face. I said estimates of losses stemming from the mortgage crisis kept spiraling higher — from $100 billion ... to $250 billion ... to $400 billion and higher.

I wish I could say things are getting better. But they're not. In fact, the tally of charges, losses and write-downs across the financial industry continues to rise higher and higher.

Just look what's happened in the past several days ...

National City (NCC), the super-regional bank, said it will slash another 900 jobs, bringing the total number of cuts to 3,400 in the past year. It also cut its dividend in half— the first payout reduction since 1935. And it said residential mortgage volume would come in between $15 billion and $20 billion for 2008. The previous projection was $36 billion!

KeyCorp (KEY) said it would cease lending to many home builders and get out of the national home improvement lending business. The bank also announced charge-offs of about $110 million related to bum real estate development loans in markets like Florida and California ... and another $55 million to $65 million in losses stemming from commercial mortgage loan holdings.

State Street (STT), an institutional money management firm, announced $279 million in charges for legal expenses and other mortgage-related costs. It's being sued by clients who claim the firm's asset managers racked up substantial losses on mortgage investments in supposedly low-risk funds. The head of State Street's investment unit also resigned.

Merrill Lynch (MER), Citigroup (C), and many other top financial firms have already announced billions of dollars of write-downs stemming from the collapse in the subprime mortgage market, as well as the sharp downturn in leveraged buyout activity and commercial real estate lending. Bloomberg pegged the total losses at a whopping $97 billion as of late 2007!

Now, with fourth-quarter earnings reports right around the corner, investors are bracing for even more. Goldman Sachs analysts expect another $34 billion in write-downs from top financial firms. Sanford C. Bernstein predicts that Citigroup will slash the value of its holdings by $12 billion, while Bank of America will fess up to a $5.5 billion charge.

But perhaps the most troubling news of all:

Consumer Loans Are Also Going Sour Left and Right!

Clearly, losses related to a bunch of "garbage" debt securities are piling up on Wall Street. But so are losses related to regular bread-and-butter loans.

Mortgage foreclosure rates are at the highest level ever. And this week, we got word that delinquencies are rising in almost every other consumer loan category, too.

According to the American Bankers Association:

The delinquency rate on home equity loans rose to 2.28% in the third quarter from 1.79% a year earlier. That's the highest since the third quarter of 2005!

The delinquency rate on home equity lines of credit (HELOCs) rose to 0.84% from 0.57%. That's the highest since the fourth quarter of 1997!

The delinquency rate on indirect auto loans (loans made through dealers) rose to 2.86% from 2.35%. That's the worst reading since the third quarter of 1991!

What's driving these increases?

First, the economy is weakening and job growth is slowing. The number of Americans continuing to collect jobless benefits is running around 2.76 million, the highest since October 2005. Another report from ADP Employer Services said U.S. companies added just 40,000 jobs in December.

Second, home values are declining. That's making it harder for consumers to refinance higher-cost car and credit card debt into lower-cost home equity loans. And it's giving more consumers an incentive to walk away from their homes — including their home equity debt — in the event of financial stress.

Third, rising short-term interest rates have driven the cost of servicing HELOC debt higher, just like they've driven the cost of servicing ARMs higher. Many HELOCs are tied to the prime rate, which closely follows the federal funds rate. As the Fed increased the funds rate, prime rose from 4% in 2004 to 8.25% in 2007. It has since fallen to 7.25%.

As a result of all these problems, leading U.S. banks have essentially been forced to beg for change from wealthy foreign countries. They're also considering asset sales to raise money!

Merrill Lynch went hat in hand to Asia, ultimately selling 9.4% of the firm to Singapore's government-backed investment fund Temasek Holdings for $4.4 billion. It's reportedly seeking even more money in the face of ever-larger write-downs.

Citigroup scored a $7.5-billion infusion from the sovereign wealth fund in Abu Dhabi. It's now reportedly mulling over the sale of its stake in Brazilian credit card issuer Redecard, its North American auto lending unit, or its Japanese consumer finance division.

Morgan Stanley sought out a $5-billion infusion from China Investment Corp.

And Bear Stearns sold a stake of 6% to China Securities.

There is nothing wrong with foreign investment in my book. But these events show you just how bad things have gotten in the U.S. financial industry right now.

The industry should have seen this coming, but they didn't. Fortunately, you were warned about these problems a long time ago.

I first alerted you about the ridiculously stupid lending going on in the residential mortgage market right here in Money and Markets way back in July 2006.

I told you to expect borrowers owing more than their homes were worth ... a dramatic surge in foreclosures and other loan losses ... and outright bank failures. I also said:

"At best, you're going to see many sub-prime lenders, some banks, and investors in high-risk mortgage debt get their heads handed to them.

"At worst, we could have another crisis akin to the savings & loan crunch and commercial real estate busts of the late 1980s and early 1990s. Back then, reckless lending and wild interest rate moves caused huge bank failures — and ultimately led to a massive federal bailout costing more than $150 billion."

I followed up with a cautionary note on the private equity bubble in April 2007. And I talked about the nuttiness in the commercial real estate lending world in May. I told you that lenders, property owners, and landlords were being overly optimistic, and that they were going to get creamed. Today, that's exactly what's happening.

So, what comes next?

Get Ready for Even MORE
Financial Sector Weakness!

I think we're going to see more multi-billion dollar profit warnings ... more capital infusions and bailouts from foreign firms ... and most likely, an early-2008 recession.

So invest accordingly — by avoiding most financial stocks and keeping a hefty chunk of cash in risk-free short-term Treasuries and other safe havens like gold.

It may also be time to check on the safety of your bank if you have substantial deposits that exceed FDIC insurance limits (generally $100,000 per depositor per insured bank). You can get more complete details on how FDIC coverage works here. Two firms that provide bank safety ratings are TheStreet.com and Bankrate.com.

We haven't had to worry about widespread bank failures for some time. And banks were fairly well-capitalized heading into this mess.

But the longer the mortgage and housing crisis drags on, and the higher delinquency rates and losses rise, the more risk there is to the health of the nation's banks.

So be proactive, assess your risk now, and move some money around if necessary.

Until next time,

Mike

--------------------------------------------------------------------------------

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The "Commodity Super Cycle" - Ready to Rumble in 2008

2008-01-03T17:18:00.000-08:00

By Gary Dorsch
Jan 2 2008 3:44PM

http://www.sirchartsalot.com

“A trend in motion, will stay in motion, until some major outside force, knocks it off its course.” After gyrating within a sideways trading range over the past 18-months, the “Commodity Super Cycle,” measured by the Dow Jones-AIG Commodity Index, (DJCI), resumed its upward course in the second half or 2007. Led by the agricultural, energy, and precious metal sectors, the DJCI closed at an all-time high.

According to famed hedge-fund trader Jimmy Rogers, the 20th century has seen three secular bull-markets in commodities from 1906-1923, and from 1933-1955, and 1968-1982, spanning an average of 15-years. The current bull market for the DJCI is now six-years old, and Mr Rodgers thinks the “Commodity Super Cycle” has many more years to run, albeit with some nasty corrections along the way.

The latest commodities boom began at the end of 2001, when China’s industrial revolution was just starting. China’s voracious appetite for raw materials for its industrialization has made it the #1 consumer of copper, steel, and iron ore in the world, consuming more of theses metals than the United States and Japan combined, and ranking #2 in consumption of oil and energy products. And China’s population of 1.3 billion has become the world’s #1 consumer of soybeans.

Evidence of an impressive bull-run is stacking up, with crude oil surging 60% to $96 per barrel in 2007, and tripling since late 2003. Platinum climbed 34% to an all-time record high of $1,550 /oz, and if the world’s 500 million cars were fitted with fuel cells, the world’s platinum supply would be exhausted in 15-years. Copper was a laggard, with a 10% gain, but is still five times higher since 2003, hitting a record $8,800 /ton in 2006, while lead and tin are now at historic highs.

Agricultural commodities joined the party in 2007, with wheat futures in Chicago climbing +77%, as global demand outpaced supply, soybeans up +79%, corn up +16%, and rice futures were up +35 percent. A weaker US dollar makes American grain prices less expensive to buyers abroad, and US wheat exporters already have sold more than 90% of the 1.18 billion bushels the US Department of Agriculture expects will be exported during the whole marketing year, which ends in June 2008.

Rough rice futures in Chicago soared to all-time highs, led by strong export demand and weather-related Asian crop shortages in India, the world’s second-largest rice exporter, and in Vietnam, the third-largest shipper. Global rice supplies fell 6.5% in the fourth quarter alone to 72.1 million tons, and according to latest estimates, supplies are headed down to 50 million tons, the lowest level since 1983-84.

Food prices are 18% higher in China from a year ago, and the Communist kingpins in Beijing, fear that runaway inflation could ignite social unrest. The price of pork, which forms the core of most Chinese diets, was up a staggering 56%. “We’re facing a grave situation,” said Ma Kai, the country’s top planner. China has a fifth of the world’s population, with 1.3 billion people using 7% of the world’s farmland.

Zheng Guogan, head of the State Meteorological Administration forecasts global warming will cut China’s annual grain harvest by up to 10 percent. That would mean about 50 million tons less grain in the current tight supply situation and a potential for further food inflation in world markets. “Given the tightened food supply in the international market, a decline in domestic grain production could lead to more price hikes,” said Song Tingmin, VP of the China National Association of Grain.

The US Department of Agriculture has also cut its estimate of world wheat stocks for 2007-08 to 112.4 million tons, a 30-year low. If sustained, sharply higher wheat prices will eventually work their way into the grocery aisle for bread, cereal, cookies and other products. Fearing a further rise in prices, India, Pakistan, Egypt, Morocco, Algeria, Indonesia and Iraq have all booked large cargoes of wheat.

And it’s not just the Fed’s weak US dollar policy that is driving up agricultural prices to record highs these days. Growing Bio-fuel demand has pushed up corn and soybean prices, and creating a linkage with crude oil. Furthermore, the cost of transporting dry goods such as coal, iron ore, and grains overseas, as measured by the Baltic Dry Index, have doubled from a year ago. Higher transportations costs, by land or by sea, are expected to be eventually passed along to the final consumer.

Riding on the wings of the “Commodity Super Cycle” and global inflation was the glittering Gold market, up 32% in 2007. Gold was energized by reckless central bankers and the explosive growth of the world’s money supply. In Australia, the M3 money supply rose 20.7% from a year ago, Brazil’s M3 +17%, Canada’s M3 +12.9%, China’s M2 +18.5%, the Euro zone’s M3 +12.3%, Hong Kong’s M3 +31.5%, India’s M3 +21.5%, and the USA’s M3 +15.8%, a 47-year high.

Chinese and Indian Imports fuel “Commodity Super Cycle”

Maybe, the longevity of the “Commodity Super Cycle,” boils down to one simple equation. According to the latest population count by the United Nations, the world had 6.5 billion inhabitants in 2005, 380 million more than in 2000, or an annual gain of 76 million persons. By 2050, the world is expected to house 9.1 billion persons, assuming declining fertility rates. So a world of finite raw materials, along with an increasing population base, translates into higher commodity prices. China and India house one-third of the world’s population with 2.3 billion inhabitants.

In an ironic twist, China has become a victim of its own phenomenal success. China’s economy expanded at a blistering 11.5% last year, but was plagued with a 7% inflation rate, largely linked to the country’s voracious appetite for global commodities. China’s imports climbed 20.5% to $865.5 billion in the first 11-months of 2007, from the year earlier period, and Chinese demand effectively put a floor under the DJCI, whenever panicky commodity traders in London, New York, Tokyo, or Shanghai got the urge to turn paper profits into cash.

To combat consumer inflation, the People’s Bank of China (PBoC) has tightened its monetary policy, ordering banks to set aside 14.5% of their deposits as reserves, an all-time high. The PBoC also raised bank lending rates five times to 7.47%, and announced a special bond sale of 750 billion yuan to drain cash from the financial system. The latest tightening moves took some steam out of the Shanghai stock index, which still ended 97% higher last year, the world’s gold medal winner.

Then on Dec 27th, China’s central bank signaled it would allow the yuan to appreciate faster in 2008, in a move designed to lower the cost of dollar denominated commodities imported from overseas. Yao Jingyuan, chief economist of the state statistics agency, explained, “The weakening dollar and rising global commodity prices would create inflationary pressures for China next year, but a quicker appreciation of the yuan would probably help offset some of those price increases.”

But a stronger yuan vs the US$ will also boost China’s purchasing power abroad, and could exert more upward pressure on commodity prices worldwide. And China must compete with India, the world’s second fastest growing economy, with one billion consumers for global commodities. India’s imports rose to $20.8 billion in October, up from $4.6 billion in February 2004, also supporting the commodity markets.

Interestingly enough, India could face a supply shortfall of about 4-million tons of rice in 2008, threatening to turn the world’s largest exporter of rice into a net importer. With tight supplies of wheat this year, Indian demand for rice could grow to 96 million tons or higher, and above the rice crop of 92 million tons last year. India is also Asia’s third-largest oil consumer, and imported 9.25 million tons of crude oil in November, or 2.8 mil barrels per day, up 6.5% from a year ago.

Bernanke Fed Re-Ignites “Commodity Super Cycle” in 2007

For 24-months until June 2006, the Federal Reserve embarked on a long, but predictable road of lifting short-term US interest rates, to reach an unknown “neutral rate,” that would neither stimulate nor weaken the US economy. The Fed was also tracking the “Commodity Super Cycle” and appeared to have finally gotten ahead of the inflation curve with its last rate hike to 5.25% in June 2006.

“The Fed will be vigilant to ensure that the recent pattern of elevated monthly core inflation readings is not sustained,” declared Fed chief Ben “B-52” Bernanke at the International Monetary Conference on June 6, 2006. “The Fed must continue to resist any tendency for increases in energy and commodity prices to become permanently embedded in core inflation,” he said, telegraphing the last rate hike to 5.25%.

The 2-year cycle of Fed rate hikes was the longest in a quarter of a century, and finally put a dent in the “Commodity Super Cycle.” Crude oil tumbled $30 per barrel, and gold fell $160 /oz in the second half of 2006. The Fed had finally corralled the “Commodity Super Cycle”, and put the fed funds rate on ice for 15-months. The Fed relied on other G-20 central banks to tighten their monetary policies to keep the “Commodity Super Cycle,” in check, while it sat on the sidelines.

However, other G-20 central banks were reluctant to tighten their money spigots, and only lifted their lending rates in tiny baby-steps, that failed to rein-in double digit credit and money supply growth. Central bankers were clandestinely inflating their economies to prosperity, by pumping up stock markets with monetary steroids, and in turn, hoping to bolster consumer confidence and spending.

However, the bursting the $1.8 trillion sub-prime credit bubble in the summer of 2007, rattled the Bernanke Fed into a series of rate cuts totaling 1% to 4.25%. The Fed’s aggressive rate cutting campaign knocked the US dollar index to 20-year lows, and ignited the fastest money supply growth in 47-years, with US M3 hitting an annualized 16% in November, while the narrower MZM money supply soared to +12.8% higher from a year earlier.

Because most international commodities are traded in US dollars, the Fed must defend the value of the US dollar in the foreign exchange market, with higher interest rates if necessary, to keep the “Commodity Super Cycle” in check. But with the Fed moving in the opposite direction, and slashing the fed funds rate to 4.25%, the US central bank let the inflation genie out of its bottle, awakening the “Commodity Super Cycle” from its 18-month siesta.

Thus, the finger of blame for global inflation points to the Bernanke Fed and the US Treasury, for engineering the devaluation of the US dollar in the second half of 2007. Traders should only trust the money that flows thru the commodity markets for real time indications of future inflation, and not government statistics, which are manipulated by apparatchniks and adopted as gospel by the mainstream media.

Money supply growth is explosive, at a time when inflation is rearing its ugly head across the globe, led by sharply higher food and energy prices.

European and US central bankers are intellectually dishonest about food and energy prices, routinely subtracting the “essentials of life” from their inflation equations, reckoning that commodity price spikes are self-correcting, due to the laws of gravity, and shouldn’t be countered with higher interest rates.

In the US, producer prices were 7.7% higher in November from a year ago, the highest in 34-years. Consumer prices rose at an annual rate of 4.2% through the first 11-months of 2007, the most in 17-years, thanks to soaring food and energy prices. Yet remarkably, federal funds futures traders in Chicago are betting on a quarter-point Fed rate cut to 4.00% on January 30th, to bail out Wall Street bankers from massive losses in sub-prime mortgages, despite dangerously elevated inflation.

There’s a big difference between the way US households and the Fed view inflation. To the average household, food and energy prices are the most closely watched costs. To the Fed, food and energy are subject to cyclical swings and ignored. “If inflation expectations are well anchored, changes in energy and food prices should have relatively little influence on core inflation,” Fed chief Ben “B-52” Bernanke told the National Bureau of Economic Research on July 10th, 2007.

So far, investment banks and brokers have recognized $97 billion of losses, related to the collapse of the $1.8 trillion sub-prime mortgage market. That could just be the tip of the iceberg of bank write downs for 2008. But additional Fed rate cuts could weaken the US dollar, and unleash the fastest rate of inflation and money supply growth that the world has seen in decades, - leading to the “Stagflation” trap.

European Central Bank fuels Global Inflation

Under the leadership of Jean “Tricky” Trichet, the European Central Bank has veered far away from its monetarist roots and its original 4.5% growth target for Euro M3. Since Trichet got his hands on the printing presses in November 2003, the Euro M3 money supply has exploded from a 5% growth rate to an annualized 12.3% in October, its fastest in history, lifting the Euro zone’s inflation rate to a six-year high of 3.1%, and far above the ECB’s target of 2%.

Trichet has immunized the Euro zone stock markets from record high oil prices with carefully calibrated dosages of monetary morphine. The ECB engineered an 11% Euro rally against the US dollar in 2007, by running the printing presses at a slightly slower pace than the Bernanke Fed. Still, North Sea Brent crude oil rose to a record 65 euros per barrel, and European wheat futures closed at 248 euros, posting a 68% gain on the Paris-based Euronext exchange.

ECB chief Trichet and his sidekick Bundesbank chief Axel Weber have forgotten the sound advice of the late ECB chief Wim Duisenberg, “Trying to use monetary policy to fine-tune economic activity or asset markets, or to gear it above a sustainable level will, in the long run, simply lead to rising inflation - not to faster economic growth,” Duisenberg warned on Sept 5, 2003, just before he retired from the ECB.

With Euro zone inflation getting out of control, Trichet and Weber are conducting “open-mouth” operations thru the media, talking tough and making bold threats, but taking no action to tighten monetary policy. European gold traders have seen through the ECB’s propaganda and empty rhetoric, and are bidding 570 euros for an ounce of gold, up 75% from just three years ago.

Writing in Germany’s Bild am Sonntag newspaper on Dec 31st, Bundesbank chief Axel Weber said that high energy and food prices would keep inflation elevated through the first half of 2008, but warned European workers not to ask for higher wages to compensate for the higher cost of living. “The current, unusually high inflation rates in Germany and the Euro zone must not be the yardstick for the next wage round. A spike in prices as a result of excess wage rises can endanger medium-term price stability. We would act decisively against this,” he warned.

“Our primary goal is to preserve price stability. We are alert and everybody must know that we will do whatever is needed to deliver price stability in the medium term and be credible in that delivery. The single needle in our compass is price stability,” warned ECB chief Trichet on Dec 14th. But alas, the ECB’s compass has been broken for three years, with Euro money and credit expanding at double digit rates.

How are we to interpret the ECB’s latest riddles, designed to keep commodity and gold speculators off balance. Would the ECB actually hike its repo rate to 4.25% to rein-in its money supply, when other G-7 central bankers in Canada, England, and the US are lowering their lending rates? That’s doubtful. Yet the ECB would look like a hawk, by simply resisting the temptation to follow the rate-cutting Bernanke Fed and the Bank of England, by leaving its repo rate unchanged at 4.00 percent.

Still, “the persistence of the current inflation shock entails the serious risk that inflation expectations could become unhinged and our credibility as central bankers could be significantly damaged,” Bank of Spain chief Miguel Angel Fernandez Ordonez warned. Spain’s consumer price index soared to +4.1% in November. “We are monitoring the situation very closely, and are permanently alert. Central bankers, even the best ones, cannot prevent an increase of oil prices or other international commodities,” said Belgian central banker Guy Quaden on Dec 13th.

That’s music to the ears of global commodity traders, and why the world economy could be headed for hyper-inflation. “Central bankers always try to avoid their last big mistake. So every time there’s the threat of a contraction in the economy, they’ll over stimulate the economy, by printing too much money. The result will be a rising roller coaster of inflation, with each high and low being higher than the preceding one,” said Milton Friedman, the late Nobel monetarist.

“Inflation is always and everywhere a monetary phenomenon. As the government increases the rate at which it prints money, the result is too much money chasing too few goods and services. Higher wages don’t cause inflation, and the whopping oil price increases between 1973 and 1980 didn’t cause the stagflation, - a stagnant economy with rising inflation. Rather, the oil price hikes were the form inflation took” from rapid money supply growth, Friedman and Anna Schwartz argued.

Gold is a Safe Haven during US Banking Crisis

Nowadays, bankers are so afraid to lend money to each other, that they prefer to park their excess cash in “safe haven” Treasury bills and notes, even at negative rates of return, after adjusting for inflation. Big banks are reluctant to lend money in the LIBOR market, because of suspicions that borrowers might be holding big undisclosed losses in toxic sub-prime mortgages.

Global banks are also hoarding cash to plug future losses that must be written off their balance sheets in the year ahead. The fear factor in the banking system is measured by the TED spread, which is the difference for yields on US$ Libor rates (ie Eurodollar rates) and for US Treasury bills. Since August, there have been two eruptions in the TED spread that lifted US$ Libor rates to +210 basis points above 3-month Treasury bills rates, the highest since the 1987 stock market crash.

Gold has done a reasonable job of tracking widening credit spreads between Libor rates and Treasury bills, and acting as a safe haven in a time of risk-aversion in the stock markets. Yet the same sophisticated bankers that bought $1.8 trillion of toxic sub-prime mortgages over the past few years are now locking in 10-year bond yields below the inflation rate, even though hyper-inflation might lie on the horizon.

When measured in “hard money” terms, the US Treasury’s 10-year Note lost 20% of its value compared to an ounce of gold since August 2007. Wouldn’t it make better sense to park excess cash in gold, rather than US Treasury IOU’s, during periods of double-digit money supply growth, and soaring commodities?

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Gary Dorsch

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Mr Dorsch worked on the trading floor of the Chicago Mercantile Exchange for nine years as the chief Financial Futures Analyst for three clearing firms, Oppenheimer Rouse Futures Inc, GH Miller and Company, and a commodity fund at the LNS Financial Group.

As a transactional broker for Charles Schwab's Global Investment Services department, Mr Dorsch handled thousands of customer trades in 45 stock exchanges around the world, including Australia, Canada, Japan, Hong Kong, the Euro zone, London, Toronto, South Africa, Mexico, and New Zealand, and Canadian oil trusts, ADR's and Exchange Traded Funds.

He wrote a weekly newsletter from 2000 thru September 2005 called, "Foreign Currency Trends" for Charles Schwab's Global Investment department, featuring inter-market technical analysis, to understand the dynamic inter-relationships between the foreign exchange, global bond and stock markets, and key industrial commodities.

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HUI - Correction over!

2007-12-18T17:15:00.000-08:00

By Eric Hommelberg
Dec 18 2007 10:19AM

www.golddrivers.com

Gold/HUI ratio chart flashes 'BUY' for HUI. HUI approaching very strong support
Excerpt The Gold Drivers Report

The HUI faced a severe sell-off last week and is trading now as if gold were trading at $650 levels. Such huge anomalies never persist for a long period of time so what gives, or we should see a sharp decline in the gold price or the HUI will catch up sharply from here. We've been through all this before in August of this year. The HUI was trading at levels as if gold were trading at $550.

The HUI was a screaming 'BUY' at that time and rocketed all the way up from 300+ pts towards it recent high of 460. (see a also my piece 'HUI - bottomed out, poised for take off!' of September 03).

As said above such anomalies never persist for a long period of time. The Gold/HUI ratio chart is an excelent indicator for such anomalies and flashes a 'BUY' again these days. Let's take a peek at the Gold/HUI ratio chart first:

The Gold/HUI ratio chart flashes a 'BUY' again indeed. Again, the Gold/HUI ratio chart points to severe anomalies between gold and the HUI. This becomes clearly visible when we plot the charts of gold and HUI on top of each other.

Again we see the severe anomaly between gold and the HUI. The HUI sell-off therefore seems to be way overdone and generates a unique 'BUY' opportunity here. Now let's take a peek at the HUI technicals and see what they say:

We see here that the 395 - 400 support area didn't hold and that the HUI has approached a very strong support area in the 360 -370 range. The 360 - 370 range has served as a long-term resistance for more than 16 months and serves now as strong support indeed! Furthermore it should be noted that the HUI is pretty much over-sold so further down-side risk seems almost non-existant.

Sure enough the nearby future of the HUI depends on the nearby future for gold so let's take a peek at the gold chart below:

In fact nothing has really changed, no uptrend has been broken and the current AB Flag formation simply has to resolve itself one of these days. If it can resolve itself to the upside then the HUI is in for a spectacular move to the upside.

Now where to go from here?

If you are a believer in gold's future then these are the time to increase your gold share positions since the gold shares are still selling at fire sale prices. In other words, downside risk is low. Higher gold prices the years ahead will lift the entire gold share sector but the most exciting rewards will come from junior mining companies making new discoveries.

Here at golddrivers.com we track promising junior companies which we believe could be huge winners before this decade is out. If you would like to participate you could opt for a free trial subscription

The Free trial includes all GOLDDRIVERS modules like Discovery News, Charts, TOP-20 Favourites, Break-out ALERTS and GOLD/HUI analysis.

Best regards,

Eric Hommelberg

The Gold Discovery Letter/
The Gold Drivers Report

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If you want to receive these kind of Gold/HUI analysis on a regular base then you can join us here for as little as 430 per month.

Do you think this will happen?

2007-11-29T12:41:00.000-08:00

SOCIAL CHAOS COMING

In the next several months, expect rising chaos to gradually strike the American fabric. The list of triggering factors grows almost with each new season. Look for problems and intense social reactions to extend from:

Rising food prices, such as bread, milk, cheese, eggs

Rising gasoline prices with scattered shortages

Lost jobs from corporate outsourcing trend resumes

Lost homes from bank foreclosure

Later on, bank run on deposits at failed banks

Later on still, freeze on stock accounts, as corporate parents go bankrupt

The ‘crack spread’ describes the difference between the crude oil price and the gasoline price. It has widened to do harm to gasoline refiners. Unless a 50-cent move comes to the gasoline price, expect wide gasoline shortages. It is simply unprofitable to produce it. The food price issue is an offshoot from the mandated movement toward ethanol. In this crazy world, almost everything is connected.

THE HAT TRICK LETTER PROFITS IN THE CURRENT CRISIS.

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Jim Willie CB is a statistical analyst in marketing research and retail forecasting. He holds a PhD in Statistics. His career has stretched over 24 years. He aspires to thrive in the financial editor world, unencumbered by the limitations of economic credentials. Visit his free website to find articles from topflight authors at www.GoldenJackass.com . For personal questions about subscriptions, contact him at JimWillieCB@aol.com

Watch out for the mess from credit crunch

2007-11-28T15:27:00.000-08:00

We also suggest investors and traders eliminate certain stocks or trades if you are working with more than 20-25 stocks and five active open futures positions.

From our point of view, tightening up your holdings will cause you to focus more and sell the less attractive potentials. Some of the best traders in the world work only one market or trade. They simply focus 100% on that trade and earn more by adding more positions.

Some years ago we wrote markets could get so crazy at least one of the major exchanges would close-up for good and potentially others could see trading stopped for a few hours or even days.

The 9/11 event comes to mind but it could easily be something related to the impending credit crisis causing banks to close briefly. If you think I’m kidding remember Countrywide Bank, not Countrywide Financial (mortgage company) already had bank runs a few weeks ago in California. Northern Rock in England had bank runs for weeks and its not over yet.

Commodities have an impending six week annual correction next month, which can sell most of our favorite stuff.

We could short it but our policy is to never short a longer term bull market even though some pros can do it as they are glued to screens. Readers of Trader Tracks will receive market signals and guidance when pivot points approach. Nobody can call tops and bottoms precisely and neither can we despite having done it once or twice (pure luck). Rather, we like to find a trend and technically plan to take out slice out of the middle.

The forthcoming energy and precious metals corrections will drive out some cry babies. We have plans to deal with these normal adjustments and so should you.
Be careful out there as the markets are very demanding and at times can be ruthless.

– Traderrog

Gold and the U.S.$ Today

2007-11-23T12:22:00.000-08:00

By Julian D.W. Phillips
Nov 23 2007 11:23AM

www.goldforecaster.com

This week saw the $ cross the $1.48 line to the € heading for $1.50 after the U.S. markets closed for Thanksgiving. It then bounced after the London market had opened on Friday. We do expect a bounce, but not for long as a secondary phase of the crisis comes into play. What crisis, you may well ask? It is the sub-prime crisis/credit crunch/$ crisis as it spreads into the global economy [as well as inside the U.S. of A.]

The first phase is the onset of the crisis, together with smoothing words to calm markets, but to no avail. The second phase is when there is public recognition that there is a crisis, followed by all involved coming together to give the impression that the crisis is being resolved. This phase precedes watching the system begin to actually break down despite the superficial efforts of global monetary authorities to the contrary.

Are we there yet? The global credit crisis hit Asia like a tsunami hits the shore there for the first time this week, triggering a massive run for cover as investors fled their holdings of dubious fixed interest investments.

Another big Capital Tsunami hits

Yields on three-month deposits in China and Korea plummeted almost 1% over this week, driven by hasty withdrawals from money market funds and credit derivatives. The crisis has flowed from the States and is beginning to paralyze the whole global economy.

Korean and Chinese three-month yields have fallen from 4% to 1% in a matter of days. Asian investors appear to be opting for deposit accounts with government guarantees. Are investors now under the belief that Asian banks have yet to announce horrendous losses from the U.S. mortgage disaster?

The Hang Seng index in Hong Kong fell 4.15%, while Tokyo's Nikkei tumbled to the lowest level in a year and a half.

This sudden “flight from risk” has led to a sudden unwinding of the $1,200 billion Yen "carry trade" as hedge funds and Japanese investors close risky positions.

The Yen has roared back from Yen122 to Yen107.90 against the $ since early October, crushing the gains of those slowest to move out of these positions.

Then the capital Tsunami flowed back to Europe where:

The iTraxx index measuring default insurance on bank and insurance bonds hit an all-time high of 63.5. Bund-Swap-Spreads were going through the roof there. Spreads on low-grade European bonds had been jumping 10 basis points a day, for the last week.

Suddenly, in a startling move, the European Covered Bond Council said it was suspending trading of mortgage-linked bonds in the inter-bank-market owing to the "undue over-acceleration in the widening of spreads."

Abbey National today cancelled its sale of covered bonds, the third company to withdraw an issue this week.

Then there was an alarming spike in the "Ted spread" between commercial Libor and U.S. Treasury bills, now near 150 basis points. The London Interbank Offered Rate [Libor]] is now at a premium to T-bills not seen since the dark days of 1987.

And we are told to expect problems from this crisis could last for two more years as the real tragedy for the sub-prime mortgage holders. But now it is a $ / banking credibility problem threatening to engulf the entire global economy.

Authorities overseeing the crisis are blithely raising their hands saying markets must find their own level. This is complete inaction, but is it a result of their powerlessness in the face of these massive waves of capital?

The finger pointing at the suppressed Yuan is ducking the issue. The statement that the $ is not a problem of the U.S. is confirmation that the U.S. will not do anything about its weakness and why should the Fed? It is to their advantage to see a weaker $. We don’t expect the States to do anything about the weak $ now or in the future. From the perspective of the States, the $ is bedrock, so the problem lies with those dealing with the States. Not only is it in the interests of the U.S. to see a weak $, there is little that they can could do to rectify the $’s performance, until foreigners take action against it. But they are in a strong position to do so.

So the ball is in a foreign court. Until China and Asia are far less dependent on the U.S. it is not in their interest to see a $ collapse or even the buying power of the $ diminish. It is however in their interests to use the $ to buy up all the assets they can across the globe until they are spent. That would see a major rise in the power of China in the global economy. That is already well on the way and continuing at a frantic pace.

There is little incentive to sell the dollars to lower their presence in national reserves, because this would lower the value of the remaining dollars in the reserves. Consequently we all have to live with a falling $, consequential rising global inflation, picking up speed as the velocity of the fall of the $ is diminished through market intervention, breeding more inflation still. The result has to be paper currencies across the world having to accept that to keep their economies healthy they must accept inflation, or see their international competitiveness reduce their own national growth.

Gold - as a result

In such a climate there is absolutely nothing to stop the price of gold in all currencies from trending higher and higher and higher still.

The trigger to this rise is the awful loss of confidence in the banking system and the investments they have engineered. It is called “risk aversion”, but it is more serious than that. Harsh lessons are being learned from bitter experiences that have shocked even the most experienced of investors. Will the crisis go away we are told, not for some time to come? In fact, it could worsen as the structures on which confidence stands stumble under the doubts and fears.

Then it becomes simply a matter of prudence and wisdom for investors of all types in all parts of the globe to protect themselves against this turmoil in something that is not an obligation, a promise, something not dependent on the performance of people or any other hope. Where can they go? They need something they can know will not evaporate as quickly as a changing exchange rate, something they can grip in their hands, something solid that has proved itself in just these sort of times - gold.

With the global market so integrated, so informed, so fast and now so volatile, expect this relatively small market to get a great deal of attention to make it evolve into something totally different to what we see at the moment!

Please subscribe to: www.GoldForecaster.com for the entire report or to the www.silverforecaster.com

Long Yuan = Long Gold?

2007-11-20T16:16:00.000-08:00

http://www.kitco.com/ind/Coffin/nov142007.html

By David Coffin Printer Friendly VersionNov 14 2007 9:33AM

www.hardrockanalyst.com

It may sometimes seem that China is somehow both unaffected by andindifferent to the spiraling shifts of the world's currency andbanking sectors we are in. Neither is true. In spite of strong growthrates, China's economic re-emergence continues to be pinned to aseries of measured shifts by resilient party insiders to continuouslyrefine the "market communism" concept.

They appear almost ready toreap the rewards of a trade strengthened currency, and we believe thatwill signal further strength for gold. Without question the huge gains for gold and silver prices over thepast several months can be related to thrashing of the greenback. Thebreakdown of the US$ accelerated by bad housing debt is what we and,in increasing numbers, others have expected for several years.

The inverse relationship that helped push gold higher has been part of abroader relationship - Short Dollar = Long Commodities – in which goldhas actually been a laggard. Concern is growing that recent paraboliclooking moves for paper currencies and oil could mark the beginning ofa global downturn.

The concern is understandable, but we view it asunavoidable turbulence in the shift of economic weight across thePacific. Oil price gains chart both geopolitical concerns and the fallingDollar, but are well past any supply fundamentals. There is currentlyenough oil in the system to match demand, but since its suppliers areunhappy with their US$ contracts they have done little to sway thespeculators who have pushed prices higher. We have mused in the pastthat if the world needs a neutral commodity-based currency, it shouldbe the calorie. Traders are effectively making this happen by parking Dollars in long oil contracts.

This is hurting US consumption as muchas declining house values do. Further US dollar decline can beexpected, but oil can't continue to rise inversely to that declinewithout killing other US consumption and greatly denting Asian growth.Despite western consternation about Asian indifference to this, Chinaactually appears ready to deal with the issue.

Several influential Chinese have indicated they favour a rebalancingof its foreign exchange holdings to emphasize "balancing stronger andweaker" currencies. This may in part be aimed at trade sanctionproposals in Washington, but also we think at soaring oil prices.Markets have read this to mean Dollar dumping that will exacerbate theweakening of $/€ rates.

We actually think the impact on the Yen willbe as large (say sayonara, carry traders) as the push on the Euro,thought that is an aside for now. These musing bespeak the "controlledflexibility" that is becoming a hallmark of China's economicmanagement. China changed its foreign exchange policy several years ago from ahard Dollar peg to a basket of currencies in which the Yuan shifts value in a "managed float" band ("floating peg") that is 0.3% per daywide. The basket is "trade weighted".

An exchange of weaker forstronger currencies within its basket should mean that the Yuanappreciates more quickly. That would make it a more effective part ofthe floating exchange system, without China's governors having to giveup the "managed" part of the deal. A rising Yuan will also takepressure off the Dollar in due course, by making Dollar priced oil,and given the recent BHP-Rio Tinto merger "letter", also things likeiron ore cheaper per unit in the economy that is their one majorgrowth area. So, does that mean the gold run is over?

In the past decade China has made a strong move up the gold producerslist and is now generating more of the yellow metal than Canada orAustralia and getting set to take over number two spot from the USA.It does hold some gold in its Yuan basket. Adding to this by soakingup its domestic gold supply would allow China's central bankers to exchange Yuan for an anti-Dollar that has a liquid market, withoutraining on anyone else's parade. At $100 billion a year, gold'smarket may not easily become a significant part of the currencysystem, per se.

But China's current US$6+ billion a year of gold production would still help to offset the worrying decline in theDollar. Even if China's currency system is not about to become a significantgold buyer itself, a strengthening of the Yuan would add cost pressureto the yellow metal's output in the same way that rampaging Rand,Canadian$ and Australian$ rates have. In all cycles metal supplyshortages proceed rising metal prices, and these have always been feltlast in the gold sector.

The only difference in this prolonged secularbull cycle is that significant cost gains have been recognized by the market and become support for higher base metals prices. Goldproducers have not really gotten on top of cost gains yet, andfundamentals like this do, eventually, have their day.

A rising Yuan and China's increasing importance to the gold supply should combine underscore the lack of new gold supply, at current prices. Long Yuan will equal Long Gold.

David Coffin

Point of Recognition

2007-10-29T13:33:00.000-07:00

By Alf Field
Oct 29 2007 3:15PM

http://www.kitco.com

There is often a moment in a major market move where public perceptions of the item suddenly change and the feeling is something like: “Yup, this REALLY is a bull market!” or “Yup, this REALLY is a bear market!” This is sometime called the “Point of Recognition”.

Gold and the US Dollar seem to be experiencing something of this nature right now, except that gold is being recognised as being in a bull market and the US Dollar as being in a bear market. The Point of Recognition generally occurs about midway through a major move and is a useful guide as to the remaining length of the move underway.

Very often the Point of Recognition is seen as a large gap on the chart of the item.

Data updated to 26 Oct 2007.

In this chart of the Comex Gold price, a gap occurred Friday 26 October 2007 and with gold trading in Asia at around $790 in morning trade on Monday 29 Oct 2007, another gap may be formed in USA trading today (29 Oct 2007).

There is little doubt that the perception of gold has changed in the past week and one can sense the new sentiment of “Yup, this is REALLY a bull market” has emerged in the market place.

If we saw the midway gap on Friday 26 Oct 2007 at $777 on the Gold Comex Futures, we can estimate that the current up move should take the gold price to around $900 without any significant corrections on the way. This is calculated by deducting the starting point of the move at $647 from $777, giving a figure of $130. When $130 is added to the midway point of $777, we get a target of $907.

There are still sceptics around, people pointing to sentiment indicators that suggest that gold is over-bought. Numbers such as 92% bulls are suggested as a reason why the gold market should turn around and correct.

The fact is that in a real bull market, sentiment numbers can (and often do) remain extremely extended for considerable periods of time. People who rely on these over-bought/over-sold indicators may find that they miss a major opportunity or, worse still, suffer burnt fingers.

Perhaps a more reliable indicator of the level of interest and bullishness in the gold market can be gleaned from the following record of web site traffic for www.Kitco.com, which has been defined by alexa.com as the No. 1 site for visitors interested in the gold price.

The chart above covers the past 5 years. The peaks in activity in late 2003 and in May 2006 coincided precisely with major frothy interim peaks in the precious metal markets from which lengthy corrections followed.

What is obvious from this chart is that activity on the Kitco.com site is very near to a 5 year low! This certainly does not suggest that the gold market is anywhere near over heating.

Other gold web sites are also reporting 5 year low points in web traffic.

Some of this decline may be related to overall web traffic increasing while gold related traffic has remained static. This has the same implication – there is no sign of speculative excesses in the precious metal markets.

The Point of Recognition appears to have come about due to an increasing awareness of the economic crisis that has developed and the safe haven properties of precious metals. The world is facing a truly unprecedented series of global events, the consequences of which will represent the single most important factor impacting investment decisions from now onwards.

We cannot understand the present or make practical, useful, forecasts without knowing where we have come from. Some historical detail is imperative. The following few paragraphs are extracted from an article by Richard Duncan in the September issue of FinanceAsia and they explain the historical perspective succinctly and extremely well:

Flaws in The Dollar Standard

The Dollar Standard is the most appropriate name for the international monetary system that evolved following the collapse of the Bretton Woods System in the early 1970s. The principal flaw in The Dollar Standard is that it has no mechanism to prevent large and persistent trade imbalances between countries. Consequently, the deterioration in the United States’ current account deficit has gone unchecked, recently reaching nearly 7% of US GDP.

The countries with a trade surplus with the United States have been blown into economic bubbles. Japan in the 1980s, the Asia Crisis countries in the 1990s, and China today are examples. Moreover, as the central banks of the United States’ trading partners have reinvested their dollar surpluses back into US dollar assets, the United States itself has also been blown into a bubble. In short, the US current account deficit has destabilized the global economy. That was the theme of my book, The Dollar Crisis: Causes, Consequences, Cures (John Wiley & Sons, 2003, updated 2005).

Before the breakdown of the Bretton Woods International Monetary System, international trade balanced. Subsequently, however, the gap between what the United States bought from the rest of the world and what the rest of the world bought from the United States began to steadily expand.

Under a Gold Standard, or the quasi gold standard Bretton Woods system, such large trade deficits would not have been sustainable since the US would have had to pay for its deficits out of its limited supply of gold reserves. However, the willingness of the United States’ trading partners to accept payment in dollars instead of gold meant there were effectively no limits as to how large the US trade deficits could become. This vendor financing arrangement allowed much more rapid economic growth around the world than would have been possible otherwise. The larger the US current account deficit became, the more the United States’ trading partners benefited.

When the foreign companies selling product in the United States took their dollar earnings home and converted them into their own currencies, it put upward pressure on those currencies. The central banks of those countries intervened to prevent their currencies from appreciating so as to preserve their trade advantage. They intervened by creating money and buying the dollars entering their countries. In this way, the exporters were able to keep their export earnings in their domestic currency and the central banks accumulated large foreign exchange reserves.

As the US current account deficit grew larger, central banks created more and more money and intervened on a greater and greater scale each year. In fact, total foreign exchange reserves have doubled over the past four years.

In other words, during the course of the last four years, foreign exchange reserves have increased by as much (US$ 2.8 trillion) as in all prior centuries combined. The reinvestment of those dollar reserves into US dollar assets fuelled the credit excesses in the United States that culminated in an unsustainable property bubble there.

It is this sequence of events that has created the vast distortions in the world economy, the vast growth in Debt, Deficits, Derivatives and other acronym challenged pieces of paper. The real estate crisis in the USA, combined with illegal and fraudulent practises in the sub-prime market, has resulted in a situation where global credit markets are caught up in a systemic crisis, possibly the worst ever.

The US is caught between a rock and a hrd place. If the Fed does not reduce interest rates, the economy will unravel and massive de-leveraging will occur with devastating consequences. If the Fed does reduce interest rates, the US Dollar will continue to tank, probably at an increasing rate. We already know that the Fed has made its choice. It will abandon the US Dollar and try and save the economy.

Let’s be blunt about it: THE US DOLLAR IS IN A DEATH SPIRAL.

This is already (and will become increasingly more so) the single most important factor to consider in investment decisions.

Those countries that continue to intervene in currency markets to prevent their currencies from appreciating against the US Dollar will cause their currencies to follow the US Dollar into the Death Spiral.

We are facing the end of the US Dollar Standard in world trade.

It is the end of an era that has spanned 36 years and there is no ready-made replacement for the US Dollar as a unit of measurement. The world is facing a period of monetary chaos.

How this will all work out is extremely uncertain.

It is possible that the world is facing a debt implosion and a deflationary crash.

The background factors for that to happen are all in place. Governments, such as the USA and Britain, have indicated that they are not prepared to accept the pain of a deflationary depression and will do whatever they have to do in order to prevent this from happening. They are prepared to sacrifice their currencies and endure a wild ride on inflation - if that is what is required. There appears to be no middle or “muddle-through” path. An ugly, damaging landing of some description seems to be inevitable.

These opposing forces, Deflationary vs Government Intervention, in an era where the US Dollar Standard is rapidly coming unhinged, leads to an expectation of Hyper-Stagflation as the possible economic outcome.

How does one handle the situation from an investment standpoint?

If the deflationary forces do produce a massive collapse despite the Government’s and Fed’s best efforts, the safest and possibly best place to be is in Government Bonds. If it is the Hyper-Stagflation scenario, one would want to be in tangible assets, “store of value” items, of which precious metals will no doubt prove to be the best and safest haven.

As nobody can be absolutely certain as to the how this major crisis will play out, the prudent and conservative policy is to have something in both camps, adjusting the percentages as time goes by when it becomes clearer which of the two outcomes will prevail.

Money is flooding into US Treasury bonds and into gold, silver and oil. It seems that money managers have passed the “Point of Recognition” and are adopting the prudent and conservative policy suggested above.

Alf Field
29 October 2007
Comments to: ajfield@attglobal.net

****

Disclosure and Disclaimer Statement: In the interest of full disclosure, the author advises that he is not a disinterested party in that he has personal investments in gold and silver bullion, as well as gold, silver, uranium and base metal mining shares. The author’s objective in writing this article is to interest potential investors in this subject to the point where they are encouraged to conduct their own further diligent research. Neither the information nor the opinions expressed should be construed as a solicitation to buy or sell any stock, currency or commodity. Investors are recommended to obtain the advice of a qualified investment advisor before entering into any transactions. The author has neither been paid nor received any other inducement to write this article.

Gold Stocks -which direction it will go

2007-10-28T14:43:00.000-07:00

Gold Stocks - Crucial Information for the Investor - Not All Rosy

By Kenneth J.Gerbino
Oct 26 2007 9:19AM

www.kengerbino.com

The big news globally is that the U.S. Federal Reserve and the Bank of England both threw in the towel on monetary policy to deal with market panics in the last two months. We believe these problems are only the tip of the iceberg of a massive credit and investment bubble that is threatening to unwind. Their only answer is more money and soon more inflation.

In the U.S., the Fed lowered important benchmark interest rates well beyond what was expected and instigated very lenient bank repayment policies for borrowed capital from the Fed. This was not to help the man in the street or to “avoid a recession”. Since unemployment is so low the Fed rate move was obviously made to bail out Wall Street and the major banking institutions. This resulted in the dollar hitting new lows and gold moving higher. These trends are likely to continue. History tells us the truth about the Fed.

In the twenty years before the Fed was created, there were 1,724 bank suspensions, in the twenty years afterwards there were 15,502. By subsidizing and protecting the banks they encourage speculation, overleveraging and excessive credit creation which leads to major banking problems that are then solved at the expense of the general population.

In England the central bank announced that all depositors of Northern Rock, Britain’s 5th largest mortgage bank would have their deposits guaranteed by the government. This was in response to a bank run which had ensued with world press coverage showing thousands of people lining up to withdraw their savings at various branches.In the future this will become a disastrous precedent encouraging more speculation by institutions and investors.

Northern Rock had a $6 billion equity base and had leveraged its balance sheet to $226 billion. I suspect they are not alone and this may not be the last of the bail outs.

These actions are only the beginning of a new round of paper money injections that will surely bring on above average inflation. An excellent study by economist John Williams shows the real inflation rate in the U.S. since 1991 was annually 4% higher than government figures. Financial writer Howie Katz reports adjusting the CPI from 1983 to reflect housing costs as opposed to rents shows U.S. consumer prices have tripled not doubled as reported by the Bureau of Labor statistics.

Gold averaged around $400 in 1983, it is reasonable to triple this price for a future target just based on a simple real CPI formula.

The Dollar

With the dollar at new 40 year lows, it will force Europe and other countries to devalue their currencies. If you are an international business working on 2-3% margins or less and you can now buy your U.S. goods 8% cheaper because of a weak dollar, it is an incentive to do so. This means other countries that depend on exports will not get that business and their governments will respond with competitive devaluations.

Devaluations in the current floating currency environment (where exchange rates change daily in response to supply and demand as well as government intervention can be accomplished by

1) manipulating interest rates lower (which then leads to more money creation by the banking institutions)
or 2) just printing money.

The central banks and the banking establishment in these countries along with the politicians also have a beautiful excuse to print their way out of the fiscal mess they are in because they cannot meet the obligations to their citizens.

This is and always will be bullish for precious metals. This is one reason why precious metal ownership by way of reserves in the ground of mining companies is prudent. Precious metals could be one of the only monetary assets still standing when this excessive global credit and monetary cycle is over.

China and Japan – The Big Currency Misconception

Because of competitive devaluations, already mentioned above, the death of the dollar may not be as fast as some people think. Also one of the big misconceptions that I keep reading about is that China and Japan will soon dump their holdings of dollar denominated Treasuries because they are losing value with the dollar going down.

Not true.

Follow this very carefully.

A million dollars of clothing is exported from China to the U.S.

A million dollars is sent to China.

The Chinese factory owners send the million dollars to the central bank and ask for the equivalent in renminbi so they can pay their workers and suppliers.

No problem so far.

But what does the Chinese central bank do?

They actually create (print) $1 million worth of renminbi and send this off to the factories and keep the original $1 million and buy U.S.Treasuries with it.

The central bank does not have to exchange the dollars for renminbi’s, they can create an additional $1 million worth of renminbi’s.

Since China now has $1 million in local currency they earned for the clothing does the central bank even care if the value of extra $1 million in Treasuries they own goes down by 20% or more.

The answer is no.

China sent $1 million of clothing to the U.S. and now they have $1 million of local currency and $1 million of U.S Treasuries. Easy money.

China now has more money in circulation (M1) than the United States. $1.9 trillion vs. $1.4 trillion. The reason is that they have been double dipping.

In the above example the $1 million they have in Treasuries is all gravy and this is what the Chinese have done the last 10 years and that is why their money supply has mushroomed.

When the time comes they will most likely take the trillions they have in U.S. Treasuries and come back to the U.S. and buy buildings and factories (like the Japanese did in the late 80’s) Spending dollars for dollar denominated assets in the U.S. will have zero effect on the exchange rate. So the argument that these Treasuries are a huge overhang on the U.S. dollar because the Chinese don’t want to lose value is not true. They are so far ahead already it doesn’t matter.

Of course the local citizens will now have to put up with plenty of inflation that is coming to China from all the new money floating around the country.

Gold Demand

High oil prices are flowing huge amounts of money to countries in the mid east that have been historically pro gold and the higher oil goes the more gold will be absorbed by these governments, their financial institutions and investors.

It has been estimated that all the gold in the world ever mined equals 5.3 billion ounces. This has a value of $3.7 trillion. Much of this gold is in woman’s jewelry cases and on men’s wrists or resides in peoples teeth.

Global liquid financial assets are in the hundreds of trillions of dollars and global derivatives are over $450 trillion. Therefore the ratio of gold available for investment is a tiny fraction of the other investment alternatives. When further financial problems arise gold will have to rise when too much money chases too few ounces.

The U.S. Economy – Where’s the Beef?

The U.S economy has been skating on thin ice. Subtracting out the money that people have spent from refinancing their homes, the U.S. economy (GDP) has averaged only one half per cent growth annually for the last six years.

This means we are living in an economy that has been fueled by consumers borrowing home equity money and this has now come to an abrupt end. This, coupled with the underlying problems in our banking system, means the only way out is a loose monetary policy. The overleveraged banking system cannot handle a recession. This unfortunate scenario coupled with more trade and budget deficits will have a positive effect on the gold price and will also contribute to future inflation.

Since 2002 crude materials in the U.S. are up exactly 100%. This is more anecdotal evidence, that the inflation rates in the U.S. will rise substantially in the coming years.

Money Creation Versus Gold

Our survey of the seven largest countries in the world and Europe show that they created $775 billion in new money in the last year. The supply of gold available for investment, outside of jewelry and industrial demand which would include bars, coins and bullion funds was approximately $13 billion. This is a ratio of 60 to 1 and does not include the money creation by the other 175 countries in the world.

The point is that there really is not much annual gold supply around for investment purposes or financial insurance or a money substitute. Sooner or later the price will dramatically reflect this imbalance.

India has increased it’s money supply 15.3% in the last year. This is probably why in the first eight months of 2006, gold imports increased by 86%. India could be on track to consume over 35% of 2007 global mine supply all by itself.

Because mining companies have gold in the ground, their valuations over the next decade are logically bound to increase substantially. These companies provide an outstanding opportunity to own gold in the ground via stock ownership.

Volatility and The Gold Stocks

The recent volatility of the precious metals and the mining shares unfortunately is part of the equation of this investment sector. We attempt to balance these fluctuations in our hedge fund but it is a difficult task and requires focus and discipline.

You should expect volatility with your personal portfolios in the future and realize that volatility in this sector is normal. But, in my opinion, this type of volatility is a small price to pay for the long term trend that is clearly in your favor and the excellent growth and value attributes of a well diversified and hedged portfolio.

The mining sector should continue to be one of the top performing investment sectors in the coming 3-5 year period.

The past actions of the Fed and other central banks mean they will surely do everything they can to avoid a credit and debt implosion that according to many experts could be in the trillions of dollars of potential defaults and bankruptcies.

If this estimate is true then bailing out the institutions that are in danger will require the greatest expansion of paper money in history. The winner will be gold and other natural resources because the more money that is created the higher the prices of basic commodities and monetary substitutes (gold and silver) will go.

Gold mining shares are the beneficiaries of the economic excesses of others.

It is important to be careful of exploration stocks and allocate only a small amount to this sector. The large mining stocks are now being bought by huge non gold savvy hedge funds and will create lots of volatility as we go forward. A stampede by these players either way can be profound. The developmental mining companies with solid resources in the ground and a 1-2 year horizon to production will be targets for buy outs by mid-tier and major mining companies.

Good luck - you are going to need it especially if gold goes to $1,200 and then back down to $700 and then to $2,000, which is very possible in the coming decade.

So always keep a core portfolio as insurance (and long term appreciation) and a trading portfolio that rolls with the punches. Do not go on margin and do not spend much time or money on the exploration stocks as more than likely every share you buy is usually from an insider who is selling.

Also if there ever is a major economic upheaval gold and silver mining companies with known and verified resources in the ground will go up dramatically but exploration companies with nothing but a geologist and promoter’s dreams will go no where because they have nothing in the ground.

Remember that - they have nothing - so be careful.

For more information on the economy, stock market and gold please visit our website at:

http://www.kengerbino.com

Ken Gerbino
26 October 2007

Commodity Bull Revived

2007-10-12T04:05:00.000-07:00

By Jim Willie CB
Oct 11 2007 9:56AM

www.GoldenJackass.com

Numerous favorable signals point to a resumption of the commodity bull. It had been stalled for almost a year.

The US Federal Reserve interest rate cut on September 18 clearly marked a turning point, a watershed event, a sea change. The USEconomy is the weakest on the planet, not surprising since it grew on the back of a housing bubble, which has since entered a slow motion crater. T

he US financial sector, the engine behind the so-called FIRE economy, has sputtered from bubbles mixed with kooky engineering mixed with leverage steroids laced with mispricing misrating fraud. So the next phase will be powered by the USFed doing regular and frequent back-peddling on monetary ease, which is a euphemism for making money cheaper as officials flood the system so as to avert a breakdown, and secretly bail out the big bankers that wish not to hide losses or have them subsidized by public money. Included this week is a potpourri of charts and summaries. Many more details appear in the October issue of the Hat Trick Letter, due out in mid-month.

THE PURE COMMODITY INDEX

Let’s use the index without the rigged nonsense ordered by Goldman Sachs, used to paint a false picture of moderating commodity costs. These guys ply their craft well, the quintessential rig being their cut of the gasoline weight in their GSCI index in August 2006, which engineered a significant drop from $2.30 to $1.45 in just a couple months time. Congressional elections were their motive last time. Hiding the cost explosion is their motive this time on the CRB index. So turn to the Continuous Commodity Index instead. Reminds me of Classic Coke and their ploy to replace Coke. The CCI index has revived strongly, a clear direct response to the expectation of a new monetary easing cycle. If not an entire cycle to kick in quickly, probably a new cycle which will come with the USFed kicking and screaming as their incorrect forecasts, false perceptions, and inept policies must be constantly and predictably reworked.

THE AUSSIE DOLLAR AS RESOURCE CURRENCY

A telling chart ratio is seen with the Aussie Dollar as a ratio of the Continuous Commodity Index. Its message is loud, that the commodity trade is back, and certain currencies like the Aussie$ and Canadian Dollar are leaders. The loonie ratio chart is similar, but with a little more slump upon an early 2007 exchange rate correction. Reversal upward is next, with some amplified but favorable volatility. First the flow of funds goes into the proper currencies, then into the individual investments like corporations and stocks.

MINING STOCKS OVER GOLD METAL

Since the USFed rate cut, a sure turning point, the precious metal mining stocks have responded with more vibrancy than the gold metal price. This is urgently needed by investors in stocks leveraged to the price of metal in the ground. The ratio of HUI to gold actually began to rise before the Sept 18 rate cut. It has continued upward. Note how the current week is displaying a BULL HAMMER pattern. The open and current prices are at highs, while intra-week prices have fluctuated lower. This is a bullish signal, indicating higher ratios ahead.

ENERGY STOCKS OVER OIL PRICE

Pressure on the energy stocks has come from two opposite forces. The prospect of slowdown in the USEconomy points to reduced energy demand. The weaker USDollar pushes higher the crude oil price. Add to the mix the lack of damaging hurricanes, warmer winters, and more volatility is seen in this ratio than in the metal ratio above. The strong main current is growth in the developing nations, led by China. The message here is that a reversal off a double bottom is rather clear. The stochastix cyclical is flashing positive. Keep an eye on the moving average crossover. We need to see the faster 20-wk MA cross back above the slower 50-wk MA. My guess is it will very soon. Hey, Chevron is buying back $15 billion of its own stock, a signal that energy stocks are under-valued.

MINING STOCKS POISED IN BREAKOUT

The major precious metal stock indexes are all showing the same positive picture. The HUI, XAU, GDX are showing breakout and current consolidation. Notice how the HUI refuses to stay down on an intra-week basis. Attempts at selloff failed in the last two weeks. The old technical adage applies here. The longer a price remains in a bound range, the bigger and more powerful is the breakout when the resistance is overwhelmed. Very positive technical indicators are the rising cyclical powered by the rising moving averages. Notice how both the uptrend channel has been overwhelmed, AND the current consolidation is occurring above the old 730 high mark from April-May 2006. Targets are outlined in the September and October Hat Trick Letter reports.

DANGEROUS DEPENDENCE FOR US$

Emerging markets are the driving force for global FOREX reserve growth. Clearly, the trend is led by China, but other nations such as South Korea, Russia, and Brazil are accumulating money quickly. The growth is powered by emerging economies. In the past four quarters, emerging economies have financed almost the entire US Current Account deficit. These are not all friendly nations to the increasingly pushy hostile feisty desperate Untied States. See the trade protection legislation directed against China.

Its duplicity screams loud, since trade partner Japan is a chronic violator of currency manipulation, an order of magnitude worse than China for at least two decades. The difference is that Japanese bankers are US lackeys, fully subservient. The other difference is that the US has heavy influence on Bank of Japan so as to ensure the financing of the Yen Carry Trade. The US financial syndicate wants to control China. Aint gonna happen.

The ugly response to any trade sanctions against China could reliably be a shun or boycott of USTreasury Bond purchases from trade surplus recycle. China is going to take its place as the primary major global banker in the next couple years. With that change comes a tectonic shift to global power, and a certain topsy turvy to the global monetary order. They might choose to stand by and watch the colossal waste of money on US military pursuits. The must see the futility of US Military emphasis. The real game is industry and accumulation of wealth.

TAKE YOUR BEST SHOT AT GOLD & OIL & EURO

We all know the powers that be, closely aligned to governments and their central banks, will take a shot at the gold price and crude oil price, as they try to push back down the euro currency exchange rate. Well, they have not succeeded in doing much. They whacked gold almost $20 on a single day last week, yet the gold futures price remains near 745. Artificial sell pressure from paper futures is enormous, all uneconomically inspired, yet permitted by lapdog regulators.

They tried to take down the crude oil price, a couple days knocking it down by almost $2 on single days, yet it remains above the 80 level. The rigged goofy September Jobs Report, a jobbed tally, triggered a profit taking session for the euro. It fell from 142.7 to about 140.5, but has regained its balance in the mid-141 range, well above the breakout at the 138.5 level. The USDollar, gold, and crude oil make for a key currency triangle, all inter-connected. If this is the best the corrupted desperate megalomaniac power centers can muster, we are going to have a powerful follow through when the USEconomy shows its next bout of weakness.

NEXT USFED RATE CUT

The great unwind of the nightmarish bond bubble will continue to put downward pressure on not only the housing market but the USEconomy generally. We are in a very early phase of the great unwind where structured finance has proved to be of substandard construction, certainly not to meet the building code. The USFed will be cornered repeatedly.

The USDollar is secondary as a priority to the USEconomy.

Foreigners have noticed! The retired serial bubble engineer Sir Alan Greenspan has spoken on the housing decline certainty, on the economic recession likelihood, and more. The most recent important forecast call comes from Standard & Poor economist David Wyss. “The panic has subsided but the housing market has not hit bottom yet. It will not hit bottom until winter. Housing prices will not hit bottom until next summer and the losses will not peak for another two years, until 2009. We are not halfway through this crisis yet.” Since the rate reset procedure in adjustable rate mortgages (ARM) continues into the first quarter of 2008, we should regard the Wyss assessment as very optimistic.

Officially, the S&P sees the USFed cutting interest rates another 50 basis points before year end. The Fed Funds futures contract has lost some of its enthusiasm. The prospect of a second big rate cut has faded somewhat. They must be paying too much attention to the nonsensical Jobs Report. Perhaps the decisions by the Euro Central Bank and the Bank of England not to hike rates influenced them. These converted monetary doves have taken pressure off the USFed, so they think. In reality, easier US$ money offered means more funds, investment, and emphasis will be directed toward Europe, making their need to hike rates even more motivated.

USECONOMY WEAKENING SLOWLY BUT SURELY

The USEconomy is destined to suffer a recession. How can one be avoided when housing is in decline? If the USEconomy rode the back of the housing bubble boom on the way up, it will ride it on the way down also, since the manufacturing sector is still absent, missing in action, or better described as dismissed and abandoned.

There are limits to US exports, with aircraft, military hardware, and telecom computer networking equipment as the three-horse team pulling that load. The home equity raid trend is long gone. What was once $700 billion per year in power assist to spending by households, has been reduced to $140 billion per year nowadays. That amount is less than the $180 billion spent on alcohol annually, to put it into perspective.

Job losses from large companies dominate the scene.

Small businesses are struggling to remain alive with rising costs across the spectrum. Try to tell that to clueless corrupted conmen at the Bureau of Labor Statistics, who issue the Jobs Report. Their Birth-Death Model showed +120 thousand job additions in August, even construction job adds, indefensible to be sure. The Challenger Gray & Christmas tally of job cuts at large financial firms has jumped markedly. The finance sector is shedding jobs, and every such job lost probably results in two lost jobs downstream in the tangible economy.

The ADP Jobs Report is far more accurate, but less optimistic typically.

So it is not placed in prominence by the press & media. It has been proved as far more accurate over time, but is not under the control of the USGovt agencies, who prefer to doctor and distort all statistics, thus painting a rosy bright picture. The ADP non-farm payroll statistics are in steep downtrend. Perhaps, the BLS jobs data reported last week is correct and the USA economy truly grew by 110 thousand jobs. Put big doubt on that number!

It is not rational to expect positive job growth in the midst of a credit crisis where both liquidity and insolvency problems threaten the system. Banks distrust the borrowers even less than other banks.

CONCLUSION

Many more rate cuts are to come by the US Federal Reserve. They will be caught flat footed consistently. They have never gotten it right, not once. Greenspan has tried to explain that the USFed shoots in the dark, employs faulty models, fails to understand the link between economy and credit extension, and probably cannot avert a recession led by a certain housing bear market. Horrendous home inventories and accelerating foreclosures guarantee much lower home prices ahead. More rate cuts are to come. Imports to the US are in decline, year over year, with evidence being reduced Los Angeles port traffic. Not a single economic myth mantra has been correct so far. Their claim of avoided spillover into the tangible economy is just an admission that it has yet to occur. The latest myths promoted are that the USDollar decline is orderly, and the price inflation is contained. Neither is true. The Euro Central Bank probably has another one or two rate hikes ahead. Europe is powered by exports, has a trade surplus, and can point to a viable broad industrial core, unlike the Untied States. European corporations also benefit from ongoing expansion in Eastern Europe, although some relaxation in their frenetic growth is to be expected soon, if not already.

The gold price from here onward will react to global monetary inflation, led by the US, Europe, and Japan, MORE SO than to USDollar weakness. The gold price will rise from an under-current of global banking distress. Capital inflows into the United States are inadequate to meet current account deficit needs. The gold price will rise from monetary inflation in unison, almost coordinated, as global central banks have been converted to monetary doves at the point of a gun. Soon the English housing bubble will unravel, leading to a benefit to the USDollar bilaterally. By this time next year, the EuroZone economy might flatten on growth. It is only a matter of time before the higher euro currency exchange rate slows down their economy naturally, from higher export prices. However, Europeans receive a discount on oil costs, material costs, and possibly food costs from the higher euro, which is the opposite effect on Americans. So the EuroZone should hum along longer than some expect.

A declining USDollar currency is a curse, despite the propaganda doled out by Wall Street spinmeisters. If in doubt, they are lying to you. It is that simple. Lastly, the trade war heating up with China points to less imports, less USTreasury Bond subsidies, and the potential for severe capital flow disruption. That translates to higher US domestic prices for finished product, higher borrowing costs, and shock waves to financial markets. Not much positive there, unless you are a precious metal or energy investor. The US is no longer the sole global engine of growth. China, Russia, India, and Brazil will continue to exhibit strong growth. In order to keep the USEconomy and US banking system and US financial markets from faltering, constant measures will be ordered, all good for gold and energy, whether or not the USDollar declines another 10%. When the dust clears in a few years, the total bailout ordered by the USFed and various other USGovt agencies will reach $2 trillion. It is still early.

THE HAT TRICK LETTER PROFITS IN THE CURRENT CRISIS.

Jim Willie CB
Editor of the “HAT TRICK LETTER”
Hat Trick Letter

****

Jim Willie CB is a statistical analyst in marketing research and retail forecasting. He holds a PhD in Statistics. His career has stretched over 24 years. He aspires to thrive in the financial editor world, unencumbered by the limitations of economic credentials. Visit his free website to find articles from topflight authors at www.GoldenJackass.com . For personal questions about subscriptions, contact him at JimWillieCB@aol.com

Gold Rockets on USD Troubles

2007-09-30T12:00:00.000-07:00

By Chris Laird
Sep 28 2007 12:15PM

www.prudentsquirrel.com

Gold rose Friday well over $740 setting a new high (not inflation adjusted) since 1980. The USD dropped below a key 78 level on the USDX (currency index heavy Euro weighted). Oil is also rising based on USD weakness. This is not just a speculator driven rally in either gold or oil, as has been the case before the USD started to drop and stay below 80 on the USDX – a big change from the last several years.

This is a new ball game for gold and the USD. Now, we are getting into the gold bullish India wedding and holiday pre buying for jewelry. But compared to that several hundred ton gold take off, anything affecting the USD is a thousand times as important for gold.

Gold’s rally is now based on it core attribute – namely as a reserve currency. The USD weakness recently is due to ongoing bad US economic statistics, which are building a negative view on the USD and is going to continue to be adding weight on top of the USD. A bad US economy makes more interest rate cuts likely, and this lowers the interest rate premium of up to 4% the USD has enjoyed for the last few years.
That has held up the USD in spite of the horrible US trade and fiscal deficits.

It appears that a weakening US economy, and consumer, now takes away the attractiveness of the USD, especially as US interest rates fall.

Formerly, our trade partners would defend the USD at 80 on the USDX, as long as our economy could forge on, and people continue to buy on credit. But, as the credit crisis continues to worsen, the prospects of significant credit tightening for the US consumer now takes away that trade plum.

Now, there is less incentive for our trade partners to sometimes unilaterally support the USD when it dropped (like Japan in 2004/5 to the tune of $240 billion worth of intervention).

Some caution

The USD is now just about 1.42 to the Euro, a level that could cause the EU/ECB to intervene. They have stated recently they don’t want the USD to fall below 1.40 and may very well intervene if that happens.

The USD must stay below 78 on the USDX for this $740 gold price to stay with us. It is very possible there will be a significant effort to defend 78 on the USDX. That would cap this present rally for a time if that happens.

Also, Japan has intervened in the past when the Yen/USD dropped to 110, and we are nearing that range as well.

But, we are definitely in a new gold bullish phase based on its reserve currency aspect to a falling USD. This is a big change since the USD used to stay at or above 80 on the USDX, and that pattern has now been definitively broken.

A major question now is will this new gold price level hold, or will it sell off on profit taking. One significant concern here is that the ongoing credit crisis, and problems in the corporate paper markets not rolling over, could lead to another equity sell off. That could leave gold vulnerable to liquidity selling, particularly since funds are now carrying gold profits at these new high prices. Again, the USD must stay below 78 on the USDX for this gold rally to stay with us.

The Prudent Squirrel newsletter is my financial and gold newsletter. Subscribers get 44 weekly newsletters published Sundays, as well as mid week email alerts as needed. Subscribers have really liked the alerts, and said they would subscribe for those alone. Subscribers have had up to 2 days notice on the 3 biggest world stock sell offs in 07.

Stop by and have a look.

Christopher Laird
Editor-in-Chief
www.PrudentSquirrel.com

****

Chris Laird is not an investment advisor/professional. This article, and the PrudentSquirrel newsletter, is general market commentary only. It is not intended as specific advice. You should talk to your own investment professionals for specific advice.

Copyright © 2007

Time to swing trade your stocks

2007-09-28T18:08:00.000-07:00

While prices are rising I concentrate on capital growth and lean towards investment rather than trading.

This can take between three and eighteen months or even longer. I select price levels and use certain buy signals I have developed to time entry points.

When prices are marking time, this is called ranging; I concentrate on trading in and out using standard deviation (Bollinger bands), moving averages and other signals.

This involves shorter term techniques and fast decisions over hours or even a few days. Conditions are changing towards an investment climate for gold stocks in Australia at present so it is time to switch on the radar. I use a broad knowledge of many companies and work with a series of watch lists – looking for promising behavior.

I use fundamental and technical analysis and it is always good to have expert second opinion as you are always learning in this game – or at least you should be.

We have some excellent research tools that can save you precious time to discover what is available in the resource sector on the Australian Stock Exchange – and we have a very accurate Weekly Newsletter that can assist you greatly as a valuable second opinion.

It is written by a senior trader that has been successful at the elite level on an international basis for over two decades – and you have to be better than good to achieve this feat.

Good trading / investing.

Regards,

Neil Charnock

Want to know the future of gold after it broke 700

2007-09-14T12:50:00.000-07:00

With $700 gold again, excitement is building for this long-neglected metal even outside of the usual contrarian circles. Gold fundamentals remain overwhelmingly bullish, with world demand growth far outstripping supply growth. On top of this, we are entering the most bullish time of the year for gold. In autumn and winter huge seasonal gold buying out of Asia tends to drive powerful gold rallies.

This is great news that should drive the HUI considerably higher, but there is an even bigger development that has the potential to ignite this new gold upleg like rocket fuel. The US Dollar Index has now fallen under critical support at 80 and is approaching new all-time lows! Lower interest rates in the US will drive even more dollar selling, but the Fed has no choice since the stock markets, bond markets, and politicians are all pressuring it to cut rates.

So as the US dollar enters uncharted territory, dollar selling by foreign investors ranging from individuals to central banks should accelerate considerably. Some of this flight capital will naturally migrate into the ironclad safety of gold, the only currency that has survived all of human history. The current dollar slide is so technically ominous and important that it could very well drive the biggest gold upleg of this entire bull.

And while mainstream commentators will claim $700+ gold is really expensive, this isn’t really true in light of history. If you adjust the gold price for inflation by using the watered-down CPI, gold’s real 1980 highs in today’s 2007 dollars are now near $2300 per ounce. So going north of $700 or even $850 today isn’t a big deal and is highly likely given gold’s fundamentals and the dollar’s troubles.

At Zeal we have long been preparing for this next massive upleg in the HUI. As technical opportunities warrant, we have been aggressively adding elite gold and silver stocks carefully handpicked via extensive fundamental research. We rode massive uplegs 2, 4, and 6 to large realized profits for our subscribers, and we plan to do the same for the likely coming massive upleg 8. Subscribe today to our acclaimed monthly newsletter to mirror our trades and ride the next mighty surge higher in PM stocks!

The bottom line is the HUI is now technically in position to launch its next massive upleg, its fourth surge to new high levels scarcely yet imagined in this bull. If you run the HUI upleg cycle average gains off of the recent August interim lows, it yields incredible HUI targets ranging from 580 to 700! And such uplegs have only taken about 6 to 12 months to unfold in this bull, so if historic precedent proves prophetic we won’t have to wait long for legendary gains.

While the technicals alone are compelling, the unique position of gold today really ramps up the probabilities that the next major HUI upleg is imminent or already unfolding. Miners can’t keep pace with gold demand growth and the big autumn buying season is approaching. And all-time US dollar lows could drive gold investment demand the likes of which we haven’t seen in decades.

Adam Hamilton, CPA
September 14, 2007

****

So how can you profit from this information? We publish an acclaimed monthly newsletter, Zeal Intelligence, that details exactly what we are doing in terms of actual stock and options trading based on all the lessons we have learned in our market research. Please consider joining us each month for tactical trading details and more in our premium Zeal Intelligence service at … www.zealllc.com/subscribe.htm

Questions for Adam? I would be more than happy to address them through my private consulting business. Please visit www.zealllc.com/adam.htm for more information.

Thoughts, comments, or flames? Fire away at zelotes@zealllc.com. Due to my staggering and perpetually increasing e-mail load, I regret that I am not able to respond to comments personally. I will read all messages though and really appreciate your feedback!

Copyright 2000 - 2007 Zeal Research (www.ZealLLC.com)

Want to know how bad the mortgage meltdown in the State

2007-09-11T16:08:00.000-07:00

California cities fill top 10 foreclosure list
Stockton, Calif. records highest foreclosure rate among nation's metro areas according to a new survey.
By Les Christie, CNNMoney.com staff writer
August 14 2007: 11:44 AM EDT

NEW YORK (CNNMoney.com) -- The binge that many housing markets went on in the early- to mid-2000s is over, and some of the hottest markets like California are now experiencing the worst hangovers.

But other areas, especially many that recorded slower home price growth earlier this decade, have seen little increase in foreclosure rates, according to the latest data released Tuesday from RealtyTrac, the online marketer of foreclosure properties.

Current Mortgage Rates

Type Overall avgs

30 yr fixed mtg 5.93%
15 yr fixed mtg 5.60%
30 yr fixed jumbo mtg 6.92%
5/1 ARM 5.95%
5/1 jumbo ARM 6.44%

Find personalized rates:

"While foreclosure activity has skyrocketed over the past year in many cities, particularly in California, Ohio and the Northeast," James Saccaccio, RealtyTrac's chief executive, said in a statement, "foreclosure activity seems to be subsiding in parts of Texas, South Carolina and other states."

"Still," he said, "the overall trend is toward escalating foreclosure rates, with 82 of the top 100 metro areas reporting year-over-year increases in the number of homes affected by foreclosure."

Stockton, California now leads the nation in foreclosures. Of RealtyTrac's top 10 metro areas for foreclosures, four are in Central California.

Coastal California cities are doing relatively well, although foreclosures are up there too. San Francisco had one foreclosure for every 263 households, a fairly low rate, but up 83 percent from the first six months of 2006.

Stockton city drew thousands of home buyers to the Central Valley area from the prohibitively expensive Bay-area markets during the housing boom and saw home prices nearly double in the four years ended December 31, 2005, according to the Office of Federal Housing Enterprise Oversight.

The most ruthless foreclosure states

Because of California's outsized home prices, option and hybrid adjustable-rate mortgages (ARMs) interest-only loans became widespread. They enabled home buyers to get into properties they could not otherwise afford.

But often these loans were time bombs; hybrid ARMs, for example, reset to much higher rates - and payments - after the first two or three years of low fixed rates.

Many buyers were also approved for expensive mortgages based on applications in which income or assets went unproven, the so-called no- or low-doc loans, AKA "liar loans."

Lenders underwrote mortgages for these borrowers based on their income or asset claims without proof and many times the claims were exaggerated. When hard times hit, these borrowers had fewer resources to fall back on than the lenders anticipated and foreclosures followed.

Mortgage meltdown contagion

Seven of the nation's top 10 metro areas are in the Sun Belt. Only three are in economically hard-hit areas, historically the kinds of places that once produced the highest rates of foreclosure filings.

Stockton recorded one foreclosure filing for every 27 households during the six months ended June 30, a 256 percent increase compared with the first six months of 2006.

Number two in the nation was Detroit, where job losses in the auto industry drove foreclosures higher. One of every 29 households recorded a foreclosure filing there, almost double the rate of a year ago. Las Vegas (one of 31, up 142 percent) was third.

The other California cities in the top 10 were Riverside/San Bernardino (one in 33, up 198 percent), Sacramento (one in 36, up 231 percent) and Bakersfield (one in 47, up 222 percent).

The lowest foreclosure rate recorded by RealtyTrac among the 100 metro areas surveyed was in Richmond, Virginia. It had just one for every 2,319 households, about the same as a year ago and a rate barely more than 1 percent of Stockton's.

Other low foreclosure metro areas included Greenville, South Carolina (one in 1,721, down 66 percent), McAllen, Texas (one in 1,494, down 35 percent) and Honolulu (one in 1,151, up 68 percent).

Foreclosure rates for top 100 metro areas.
Rate Rank MSA Foreclosure Filings 1 filing for every #HH %Δ from First Half 2006
1 STOCKTON, CA 8,169 27 256
2 DETROIT/LIVONIA/DEARBORN, MI 28,705 29 99
3 LAS VEGAS/PARADISE, NV 22,928 31 142
4 RIVERSIDE/SAN BERNARDINO, CA 41,351 33 198
5 SACRAMENTO, CA 20,516 36 241
6 DENVER/AURORA, CO 23,842 42 11
7 MIAMI, FL 20,275 46 74
8 BAKERSFIELD, CA 5,365 47 222
9 MEMPHIS, TN 10,800 49 17
10 CLEVELAND/LORAIN/ELYRIA/MENTOR, OH 18,844 50 106
11 FORT LAUDERDALE, FL 15,720 50 72
12 ATLANTA/SANDY SPRINGS/MARIETTA, GA 36,502 54 17
13 FORT WORTH/ARLINGTON, TX 13,221 57 -10
14 FRESNO, CA 4,867 60 183
15 INDIANAPOLIS, IN 11,677 62 -6
16 DAYTON, OH 5,966 63 96
17 DALLAS, TX 23,284 65 -15
18 AKRON, OH 4,378 70 85
19 OAKLAND, CA 13,482 70 152
20 COLUMBUS, OH 10,706 70 85
21 JACKSONVILLE, FL 7,513 73 20
22 PHOENIX/MESA, AZ 21,378 74 139
23 SAN DIEGO, CA 14,859 75 164
24 TAMPA/ST PETERSBURGH/CLEARWATER, FL 15,905 79 68
25 WARREN/FARMINGTON HILLS/TROY, MI 13,093 80 92
26 TOLEDO, OH 3,530 84 47
27 VENTURA, CA 3,100 86 183
28 NEWHAVEN/MILFORD, CT 4,017 86 547
29 LOS ANGELES/LONG BEACH, CA 38,199 87 125
30 CHICAGO, IL 34,818 88 45
31 SARASOTA/BRADENTON/VENICE, FL 3,919 94 166
32 EDISON, NJ 9,462 98 58
33 ORLANDO, FL 8,325 98 49
34 CINCINNATI, OH 8,949 100 166
35 WORCESTER, MA 3,097 101 374
36 LAKE/KENOSHA, IL-WI 2,454 101 27
37 CAMDEN, NJ 2,761 101 56
38 CHARLOTTE/GASTONIA, NC 6,498 101 116
39 PALM BEACH, FL 6,063 102 32
40 GARY, IN 2,614 108 49
41 LITTLE ROCK/NORTH LITTLE ROCK, AR 2,617 108 -39
42 KANSAS CITY, MO-KS 7,703 111 117
43 SAN ANTONIO, TX 6,409 112 -1
44 HARTFORD, CT 4,326 112 446
45 ORANGE, CA 9,012 113 153
46 AUSTIN/ROUND ROCK, TX 5,155 115 -21
47 SPRINGFIELD, MA 2,424 116 234
48 BRIDGEPORT/STAMFORD/NORWALK, CT 2,847 122 552
49 TUCSON, AZ 3,323 122 55
50 NEWARK, NJ 6,745 124 20
51 TACOMA, WA 2,427 125 23
52 HOUSTON/BAYTOWN/SUGARLAND, TX 16,057 127 1
53 ESSEX, MA 2,179 135 409
54 OKLAHOMA CITY, OK 3,660 138 -22
55 TULSA, OK 2,712 143 -12
56 SAN JOSE/SUNNYVALE/SANTA CLARA, CA 4,197 148 105
57 SUFFOLK/NASSAU, NY 6,624 150 17
58 ST LOUIS, MO-IL 8,023 151 55
59 BOSTON/QUINCY, MA 4,862 153 342
60 RALEIGH/CARY, NC 2,505 158 105
61 NASHVILLE/DAVIDSON, TN 3,788 161 31
62 LOUISVILLE, KY 3,150 169 7
63 SALT LAKE CITY, UT 2,185 172 -39
64 EL PASO, TX 1,306 187 -2
65 CAMBRIDGE/NEWTON/FRAMINGHAM, MA 3,045 193 313
66 WASHINGTON/ARLINGTON/ALEXANDRIA, DC-VA-MD 8,483 195 430
67 PHILADALPHIA, PA 8,086 198 2
68 ALBUQUERQUE, NM 1,635 208 -38
69 ROCHESTER, NY 2,041 215 208
70 GREENSBORO/HIGHPOINT, NC 1,336 225 75
71 BIRMINGHAM/HOOVER, AL 1,986 227 157
72 OMAHA/COUNCIL BLUFFS, NE-IA 1,480 229 158
73 MILWAUKEE/WAUKESHA/WST ALLIS, WI 2,782 231 22
74 SCRANTON/WILKES/BARRE/HAZLETON, PA 1,076 239 110
75 MINNEAPOLIS/ST PAUL/BLOOMINGTON, MN 5,270 245 201
76 SEATTLE/BELLEVUE/EVERETT, WA 4,302 246 7
77 KNOXVILLE, TN 1,211 246 9
78 SAN FRANCISCO, CA 2,765 263 83
79 NEW ORLEANS, LA 2,178 267 610
80 PITTSBURGH, PA 3,917 281 -22
81 PROVIDENCE/NEW BEDFORD, RI 1,489 301 473
82 NEW YORK/WAYNE/WHITE PLAINS, NY 14,300 305 47
83 BUFFALO/CHEEKTOWAGA/TONAWANDA, NY 1,565 332 76
84 PORTLAND/VANCOUVER/BEAVERTON, OR 2,426 353 7
85 BETHESDA/FREDERICK/GAITHERSBURG, MD 1,196 368 581
86 BALTIMORE/TOWSON, MD 2,816 387 275
87 WICHITA, KS 633 399 0
88 POUGHKEEPSIE/NEWBURGH/MIDDLETOWN, NY 566 428 2
89 ALBANY/SCHENECTADY/TROY, NY 690 544 82
90 CHARLESTON, SC 483 547 -23
91 WILMINGTON, DE 469 588 108
92 SYRACUSE, NY 441 643 3
93 BATON ROUGE, LA 456 668 265
94 ALLENTOWN/BETHLEHEM/EASTON, PA 403 756 34
95 COLUMBIA, SC 392 757 -49
96 NORFOLK/VIRGINIA BEACH/NEWPORT NEWS, VA 747 787 191
97 HONOLULU, HI 286 1,151 68
98 MCALLEN/EDINBURG/PHARR, TX 155 1,494 -35
99 GREENVILLE, SC 151 1,721 -66
100 RICHMOND, VA 213 2,319 -1

Source: Realtytrac.com
Dems take on mortgage meltdown.

Big ticket mortgage rates rise.
Find mortgage rates in your area.

This is a neat way to leverage your investment

2007-09-11T15:33:00.000-07:00

Let’s briefly explore a few different approaches which will provide some leverage as well as the opportunity for some serious capital gains. The list gets longer as more and more products have come to market.

ETF’s on gold and silver, mutual funds on the natural resource sector, common shares of the companies in the commodity and natural resource sector and call options, leaps and long term warrants on those companies.

We would always encourage investors regardless of the size of your wallet, to diversify your portfolio. While many of us may be heavily weighed to the commodity and natural resource sector, it is necessary to spread this investment over numerous different shares, leaps or long term warrants.

We feel the potential gains with the ETF’s and the mutual funds will be somewhat limited as compared to the gains from the individual company shares and the other alternatives.

So, we suggest a portfolio of comprised of mining shares (we prefer the smaller companies with great management, sound financials, good properties and a safe /political/geographical location.

While these small companies may possess greater risk they afford us the opportunity to create great wealth. After you have prepared a list of your favorite companies, we then suggest you to consider which of these companies have long term warrants or leaps trading thereon. If a company on your list has a leap trading it may give you up to 2 years of time. If some of the companies have warrants trading some of these may give you 3, 4 or 5 years.

By focusing on the mining shares, leaps and long term warrants investors are wisely using leverage without the fear and risk of short term volatility in the markets.

As you may recall from our previous articles, our investments are basically within the commodity and natural resource sectors and the common shares or long term warrants trading on those shares. We are confident we are positioned correctly to not only generate capital gains, but have given ourselves the opportunity to create great wealth.

For subscribers, we provide a table listing all companies with call options and leaps trading on the natural resource shares.

For those readers desiring more information on warrants you may wish to visit www.PreciousMetalsWarrants.com where you will find much more information and education on warrants in our new Learning Center. You may also signup for our free weekly email, The Warrant Report.

Dudley Pierce Baker
Guadalajara/Ajijic, Mexico
Email: info@preciousmetalswarrants.com
Website: PreciousMetalsWarrants

September 11, 2007

Too Big to be Bailed Out

2007-09-10T18:31:00.000-07:00

By Peter Schiff
Sep 7 2007 12:13PM

www.themarkettraders.com

Now that home mortgage defaults are spreading like wildfire from coast to coast, there is a growing sense of certainty that the government will attempt to bail out homeowners and lenders. The ideas put forward last week by President Bush may be the camel’s nose pushing under the bottom of the tent. However, just as some things are too big to fail, this problem is far too big to fix.

First of all, one has to consider the moral hazards inherent in any bailout. Immediate relief in the form of debt reductions and more favorable loan terms will create a powerful incentive to default. Why would anyone stretch to make a burdensome mortgage payment while others are being rewarded for failing to make theirs?

Even without the incentives of a government bailout luring more people into default, policy makers simply have no idea as to the scope of the problem. Before this home mortgage correction runs its course, nearly every homeowner in the country who had availed themselves of an adjustable rate mortgage or a home equity loan will be in need of a bailout. Even a sizable percentage of those with traditional fixed rate mortgages will find themselves in danger. With millions, or perhaps tens of millions, of home owners on the rocks, there is simply no way the government can structure a bailout without bankrupting the country or destroying the currency.

Bailout or not, the economy will still be in a prolonged and severe recession. Even if Federal aid prevents millions of foreclosures from happening, all of the home equity accumulated during the bubble years will be gone. Debt reduction and restructuring will not stop home prices from falling, and will not make homes easier to sell. After all, those looking to buy homes will no longer have access to the easy credit that made bubble prices possible in the first place. Home prices are a function of what future buyers can afford - not what past buyers paid. If new buyers are required to make 20% down payments, fully document their income, and fully amortize a fixed rate mortgage, they will not be able to pay nearly as much as what current owners paid during the bubble.

On the low end, any comprehensive government bailout would easily surpass the $1 trillion mark. Where will the Federal government get the money, particularly during a severe recession? My guess is raising taxes will be out of the question. If people are having trouble making their mortgage payments now, significant tax increases will only make it that much more difficult. Borrowing the money also seems like a difficult task, as our minimal domestic savings means we will have to do so from abroad. Given that the budget deficit will likely be exploding as a result of the recession, foreigners are not likely to foot the bill. If they do, it will require significantly higher interest rates, which will only compound the mortgage rate problems for current and potential homebuyers.

Unfortunately, the only realistic way to “pay” for such a massive bailout would be for the Fed to monetize it. If that were to happen, the value of the dollar would plunge, and consumer prices would go through the roof. Now that the dollar Index has finally broken below the key 80 support level, an event that I have been forecasting would eventually occur for years, a run on the greenback may already be in motion. Ultimately, long-term interest rates will soar as a result, and we will experience unprecedented stagflation and a substantial decline in our collective standard of living. This week’s surge in the price of gold, which traded above $700 per ounce for the first time since May of 2006, reveals that some investors are finally beginning to figure this out.

Ironically, in a recession induced by the burst housing bubble, housing itself will not be among our most pressing problems. One of the few “benefits” of the housing bubble is that we now have a lot of houses, many of them vacant. Therefore, few former American mortgage holders will go homeless. However, the real problems for Americans, whether they own or rent their homes, will be maintenance costs (heating oil, electricity, etc.) and keeping their kitchens stocked with food. One thing is for sure: homeowners will certainly not be buying new furniture for their living rooms, big screen TV’s for their media rooms, granite counter tops for their kitchens, or new cars for their garages.

The costs associated with the housing bubble will be huge. However, the price tag for a government bailout designed to prevent it from deflating will be much higher. Even those who get “bailed out” will ultimately be in worse shape as a result. Let’s hope that cooler heads prevail and that the rest of the camel never makes it into the tent. However, just in case they don’t, make sure to get rid of any remaining dollar denominated assets before it’s too late.

For a more in depth analysis of the tenuous position of the American economy, the housing and mortgage markets, and U.S. dollar denominated investments, read my new book “Crash Proof: How to Profit from the Coming Economic Collapse.” Click here to order a copy today.

More importantly take action to protect your wealth and preserve your purchasing power before it’s too late. Download my free research report on the powerful case for investing in foreign equities available at www.researchreportone.com , and subscribe to my free, on-line investment newsletter at http://www.europac.net/newsletter/newsletter.asp

Peter D. Schiff

****

President
Euro Pacific Capital, Inc.
10 Corbin Drive, Suite B
Darien, Ct. 06820
phone 203-662-9700
toll free 888-377-3722
email schiff@europac.net
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Want to know the opportunity when Fed cut their rate

2007-09-09T23:22:00.000-07:00

CONTAGION WILL SPREAD

The contagion is absolute. The only varying parameter is the level of ingestion and acceptance of acidic mortgage bonds into foreign bank systems. The Arab nations were the smart guys, since they bought none. The Chinese were the dupes, since they bought a mountain of them, inexperienced in managing huge trade surpluses. They will learn fast. The Europeans, being of similar ethnic and genetic strain, having decades of trusted successful encounters with their colonialist cousins, also bought a raft of them. In the eyes of foreigners, the con game has roots extended way back in time. The Americans conned foreigners into buying USTreasurys back in the 1970 decade, as interest rates soared past 10%. There has always been a general motive to participate in the American Engine of global economic growth. However, in the latest two rounds of pure premeditated calculated (unprosecuted) criminal bond peddling, the degree of the fraud is orders of magnitude greater. No justice will be meted out. The criminals are the henchmen to the USGovt itself, which might include the Dept of Treasury (aka Goldman Sachs), the US Federal Reserve (aka JPMorgan), who together control the levers like the Securities & Exchange Commission, the Commodity Futures Trading Commission, and the Debt Rating Agencies. The level of incest and collusion is suffocating. Foreigners cannot expect to have any restoration of losses due to misrepresentation and concealed mislabeling of products. They will resort to what they can do, stop buying bonds.

Foreigners will next reconsider the purchase and investment of other US$-based bond securities. That is their only recourse in pursuit of justice from a nation which has declared before the world that treaties do not apply to them, laws even from a Constitution are to be scoffed at, and world institutions are designed to exploit for US gain. My perspective of the USGovt and USMilitary working in coordinated fashion toward a protection racket has been described. Shadowy US agencies play a key role. The current Administration goes so far as to boast they are capable of producing their own reality. Well, the rest of the world can oblige with an exercise of the Third Law of Thermodynamics, that every action is met by an equal and opposite reaction. Hegemony laced with fraud might be met by an international boycott of US$-based bonds, hidden at first, revealed as a broad strategy later, and finally boasted as a badge of honor farther down the road. Like the Roman Empire, the implosion is home grown. Its similar empire collapse has causes too numerous to cite, many beyond the scope of finance. The core source of the problem is false money, reckless management of money growth, dishonest sale of debt, compromised regulatory agencies, a central bank whose function has become to create inflation which produce bubbles. Our central bank has corrupted the monitor of monetary effects as in statistics, and fostered economic dependence upon monetary and debt inflation. The long-term victims of the colossal mismanagement have been both American workers and US industry. The standard of living has been led downhill by business capital investment overseas. Declining wages follow naturally. The factories have been dispatched to the Pacific Rim in the 1980 decade, the Mexican corridor in the 1990 decade, and the Chinese mainland in the 2000 decade.

Something big this way comes, and to American financial and economic managers, it aint gonna taste good. It is a reaction from Economic Mother Nature. Abuse of the custodial role for the world reserve currency invites retribution. The Wall Street hucksters were well aware of the foreign pipelines to recycle trade surpluses into US$-based securities. They exploited the situation for private gain, tapping into vast pools of legitimate savings, intentionally misleading the risk associated. Those who believe the entire broad multi-year promotion, sale, and purchase exercise was not loaded with fraudulent intent probably believe USGovt economic statistics, believe Wall Street analyst reports, believe USFed position statements, maybe even believe the JFKennedy lone gunman theory, and believe the 911 Commission report. The response from foreign financial organizations of diverse type will likely be a shun, a revulsion, even a boycott of many kinds of US$-based bonds.

The first obvious US bond to be avoided has been mortgage bonds. No longer can they be trusted, when subprime garbage was mixed in to produce banking system hairballs large enough to cause seizures. If Wall Street insists on packaging various types of asset-backed bonds into aggregated securities, foreign investors will just say NO. Mortgage funding will be curtailed for US home buyers. To some extent corporate bonds will suffer from funding inadequacies, for two reasons. They too are mixed into CDO securities. They suffer when the USEconomy falters. The USEconomy will falter like night follows day, with the only variable of uncertainty being the length of day. Commercial mortgage bonds soon will be dragged down by the inevitable slowdown in the USEconomy. Car loans and credit card finance also depend upon the same source of funding. Notice the severe drop in foreign purchase of US corporate bonds, to nearly nil.

USTREASURYS AT RISK

Lastly, the USTreasury Bonds are at risk. The entire story of a ‘Flight to Quality’ has been yet another desperate distortion. To be sure, some migration has been seen from stocks to bonds, from the large cap S&P stocks to the USGovt bond securities. The sudden move in 3-month TBill yield well below 4.0% a couple weeks ago, only to recover above 4.0%, testifies to big flight into some desired haven. My personal conjecture is that the Plunge Protection Team gave a big assist to the migration into 3-month TBills, but misjudged the stock market’s own desire. The result was an over-reaction. Confirmation of the false billboard message of a supposed flight to quality can be seen in the truly pathetic lousy ‘Bid to Cover’ for public auctions of new and recycled USTreasury debt. Such low bid levels have not been seen in over a decade. The public bond dealers were not in any way involved in any massive initiative to purchase USTreasury Bonds which offered supposedly safe haven!!!

In the last two years, the Asians have virtually halted USTBond purchase with recycled trade surpluses. Broad deep and pervasive regional capital investment within Asia has paid off handsomely. The United States could learn much from Asians about investment in businesses to serve consumer needs and to generate jobs. In time, like the US did at the turn of the 1900 century, the Asians will learn to instill product controls through proper regulation. Instead, the primary fostered industries in the USEconomy have been in support of the war machine. It is ironic that the US sold China toxic bonds while China sold the US poisoned animal food and toys! Arguments of systemic benefit from wartime dominance, emphasis, and stimulus simply deny the realities of the last few wars, all of which have helped to wreck official US financial balance sheets. Wartime stimulus might lift the USEconomy out of recession, but they guarantee the next recession from an even weaker position with more dismantling of the manufacturing base. A bad lesson was learned after World War II.

The exception of China, regular investors of USTBonds and more, is likely not to continue much longer. They prefer to keep loading their sovereign investment fund in lieu of continued nobrainer USTBond and Agency bond purchases. By this time next year, their sovereign fund should reach the $2000 billion mark. They are vocal about USDollar risk as a major concern. They are acutely angry at the brewing trade disputes, easily worsening to become a trade war. China will be using the USTBond sale as a weapon to an increasing degree. The have reduced USTBond investment holdings steadily since early summer. This trend will continue. The Persian Gulf nations have stuck with the USGovt, more out of obligation than any great fraternal love or deep cultural meld or broad economic partnership. For commerce, Arabs and Iranians prefer to do business with Europe. The purchase and dependence of OPEC crude oil does not constitute a vastly integrated marriage of economies. Even that is in the process of changing. Persian Gulf nations must react to the tight US$ peg which has opened the door to price inflation.

The foreign appetite for USTreasury Bonds is next in line to suffer an important historical backlash. When Asians no longer roll trade surpluses into USTBonds, one major pillar is removed upon which the USTBond structure rests. When Persian Gulf nations respond to their own inflation infection directly related to the US$ peg, with diversification being the remedy, a second major pillar is at risk of removal for the same USTBond structure. The last pillar is but a central artery of USDollar supply flowing from a printing press pockmarked by metastasized cancer bodies. Such a central pillar is more like a spongy channel laden with bubbles which can support no more weight than shifting sand does a house foundation.

To compound matters, when the USEconomy slows and hits the brick wall in a matter of a few weeks or few months, the USDollar will lose its attractiveness, with or without official USFed rate cuts. Domestic US investors will flock from stocks to bonds in the usual parade. However, foreign investors take an entirely different view. They will expect to be required to finance ever-growing burgeoning USGovt debt. They will regard the USEconomy as constricted from credit supply problems, stalled out home equity extractions, heavily reliant upon credit card extensions in last resort, adrift amidst a housing market in decline, and absent key factory industries. Having more balanced economic structures with actual diverse industries, foreigners will quickly conclude the USEconomy is crippled and beyond remedy. THEY WILL DEEM THE USDOLLAR AS A SUBPRIME CURRENCY, AND ITS OBVERSE THE USTREASURY AS A SUBPRIME BOND. The process of downgrading US$-based bonds has started with mortgage bonds, and will continue down the risk ladder to other bonds.

The gradual penalty for exporting debt inflation over the course of a few decades is compromised sovereignty and vulnerability to credit supply interruptions. Far from the harmless effect of selling debt to ourselves, the accumulative effect has been to erode the US sovereignty itself, while relegating the USDollar to Third World currency status. The most ridiculous of self-inflicted wounds have come from the current trade sanctions directed by the US Congress against the Chinese. Imagine slapping the face of a key credit master! The Administration, whose finance function is led by Goldman Sachs and its icon Henry Paulson, sees greater wisdom in working with the Chinese, especially when vast Wall Street IPO fees lie on the table from giant stock issuances. So one branch of the USGovt has corrupted its decisions. Another branch has rendered its decisions as destructive. So two political parties offer corruption and destruction, not much choice!

USFED CORNERED LIKE A RAT

The test for USFed Chairman Ben Bernanke has come. The Treasury Bond market is ordering him to cut official interest rates. The stock market eagerly awaits a return to easy money, lower bond yields, and favorable earnings yields comparisons to bonds. He seems acutely unaware of the depth of the commercial debt interruption and its guaranteed detrimental effect on US corporate production of goods and services. The corporate finance pipeline has hit a wall. Corporate paper, as it is called, is not well understood. Good companies are having trouble finding adequate funds. It reminds me of a teenager who has a large object like a toy or bone or sock lodged in his throat. Dr Bernanke insists that the boy has not turned blue in the face yet, so no action is necessary. This crew of USFed minions has lost its way, unable to use any compass. With only one year under his belt, Little Ben has only a little less experience than most other Fed Governors. This absence of basic tools renders them as more incapable than colonial explorers, blind without scouts, lost without direction, in hostile lands with natives brandishing hatchets and knifes.

Then again, recall that the USFed acts as agent for the USGovt to sell bonds. So they harbor a little publicized vested interest in favor of recession since economic downturns favors the sale of bonds over stocks. No longer in recent weeks has the USFed focused its commentary on price inflation. Their endlessly analyzed verbage is more tilted toward economic risk. Their bias has changed away from price inflation. Committee white papers seem in crystal clear fashion to pave the way for an official rate cut. The discount rate cut usually is prelude to an official cut. Recall, when the USFed begins to cut rates, it does not cut only once. A new cycle begins. Gold will rejoice, but so will crude oil. The same are true for silver and natural gas.

This USFed needs some cover, some excuses, to justify their next inevitable rate cut. Gold and crude oil smell it, each priced in opposite correlation to the USDollar. The USFed might want to permit a stock decline in the Dow and S&P500 indexes, so as to lay the responsibility on the markets. Worse, lacking forecasting skill beyond high school mediocrity, the USFed might wait until they see the ‘whites of the eyes’ for economic recession. They lack any forecasting prowess, having turned away from legitimate tools, fully reliant upon doctored distorted destroyed economic statistics. The best economic forecasters in the USGovt domain lie hidden in ignored offices and agencies, as they serve no purpose. By the time the USEconomy shows the serious stumble the Fed & minion Governors require, the medicine they administer with lower rates will be too little, too late. The rescue that comes from an official rate cut will offer a lift to the stock market in an immediate sense, NOT THE ECONOMY. Much dispute has been heard over whether a lower interest rate will do much to help housing and what ails mortgage bonds. My view is lower rates will do nothing to stop the housing bear market for another two years. The associated mortgage bond debacle will be dictated by this decline. Little can or will be done to help ruined home owners. They are setting foreclosure records. They have no vote on Wall Street. The surprise in the next couple months, after an official interest rate cut by the cornered USFed, might be the rise in the long-term USTreasury Bond yields. The door will be opened to systemic price inflation in a big way. Good riddance to the inverted Treasury Yield Curve. It served the financial markets well, in offering nothing but confusion. Let the next chapter on gold be written.

THE HAT TRICK LETTER PROFITS IN THE CURRENT CRISIS.

Jim Willie CB
Editor of the “HAT TRICK LETTER”
Hat Trick Letter

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Jim Willie CB is a statistical analyst in marketing research and retail forecasting. He holds a PhD in Statistics. His career has stretched over 24 years. He aspires to thrive in the financial editor world, unencumbered by the limitations of economic credentials. Visit his free website to find articles from topflight authors at www.GoldenJackass.com . For personal questions about subscriptions, contact him at JimWillieCB@aol.com

Want to know how goverment create another ....

2007-09-06T16:53:00.000-07:00

By Chuck Butler
September 6, 2007

http://www.dailypfennig.com Email Article Printer Friendly

The euro and other currencies rallied vs. the dollar all day yesterday after the latest Pending Home Sales data printed... The report was awful, just awful! Pending Home Sales in July collapsed... There's just no better way to describe a 12.2% fall, when they were only forecast to fall 2.2%!

It's not a laughing matter... But I did chuckle at the thought that the Fed Heads thought the housing meltdown had bottomed out a couple of months ago! Geez Louise, what planet are those guys from anyway?

Oh... And here's a memo to the Fed Heads... Since the trend in Pending Home Sales tends to lead existing home sales by 2 months, and the renewed collapse suggests another leg down in the pace of sales.

The Bank of Canada (BOC) left rates unchanged yesterday as I suspected they would. What I was most interested in was the BOC statement following the rate announcement.

The BOC acknowledged that economic growth was stronger than expected in the first half of 2007 and inflation rates remain elevated. Yes, inflation is above to the BOC's 2% medium-term target, which means their rate hikes are not over... It's just a matter of timing, and with the volatility in the financial markets and continuing tight credit conditions, the rate hike now just wasn't going to happen... Or as my grandfather used to say... "that dog's not going to hunt."

So... That's two down... Two to go this week... The European Central Bank (ECB) and Bank of England (BOE) meet this morning, and neither one will do anything with rates given the same reasons I gave above as to why the Bank of Canada held steady Eddie with rates this month.

On Tuesday, I thought we would see some weakness in the euro because of this non-move by the ECB, but after yesterday's Pending Home Sales collapse, it just proves once more that the fundamentals on this side of the fence are worse than on the euro's side... So... Maybe we'll have to wait for that Blue Light Special on the euro!

Yesterday, I wrote about how quiet the lawmakers had become since the Chinese mentioned their "nuclear option"... A reader sent me a note that I thought was interesting... "Your observation of the silence of the senators since the Chinese threatened the nuclear option reminds me of the early Bill Clinton days . . . probably about 1994.

Bill was haranguing the Japanese about not buying our goods. I seem to recall that he took a trip to Japan to scold them in person. Then, the Japanese skipped two treasury auctions and Bill never uttered a bad word toward them for the remainder of his presidency."

Yes... I've talked about this a couple of times in the past... Of how the Chinese get bashed, but Japan gets to skate through without a crack in the ice! Just why is that? On the surface you would say that it's because the yen floats... But come on... Yes, the yen floats, but is the most manipulated currency on the face of the planet! So... In essence, Japan is doing exactly what China's doing... So why the difference? Do the Japanese have pictures of Paulson? HAHAHAHA

The Fed's Beige Book printed yesterday... And while this was put together on August 27th, I found it to be an interesting read, as nothing in the headlines of the report provide additional fuel for the Fed to cut rates on September 18...

But I'm not going to let a little thing like the Beige Book get in the way of my call that I made yesterday that a rate cut on September 18 was a done deal!

And does this newspaper sound like the writer is a Pfennig reader or what? Here is a snippet from a report in the Asian Sentinel that Ty sent me yesterday... Judge for yourself...

"The US economy has avoided a much-needed recession through a level of self-indulgence and hubris that makes 1990's East Asia look positively puritanical.

Cheap money drove up house prices and enabled existing homeowners to borrow against the value of their properties, thus sustaining consumer demand. But the suckers who paid for this indulgence were the foreign lenders underwriting the US current account deficit, now running at a stunning US$700 billion a year.

"Every effort to sustain house prices through cheap money may in turn sustain consumer demand for a while – but it will also sustain or even add to the current account deficit.

The last serious Fed governor, Paul Volcker, has warned often enough that a current account deficit of 6 percent cannot be sustained for long, even by a country that thinks the international system allows it free rein to print money and assumes that Asia must save 'excessively' to enable an aging America to save very little."

Here's an undelightful tid-bit for your morning coffee that my friend Ed sent my way since I first reported about Sentinel Mgmt. Group, the money manager that had a run on their balances, about 10 days ago... Now, it seems they are "missing" $505 million dollars! What? How can one misplace $505 million dollars? An investigation by the National Futures Association, the self-regulatory group for the futures industry, uncovered the shortfall... I'd say that's SOME SHORTFALL! Like in Charlotte's Web... That's SOME PIG!

And Ace Hardware Corp. must be using the same "new math" Sentinel used, for Ace discovered a $154 million accounting shortfall while preparing to convert from retailer-owned to for-profit corporation... Pretty sad to start out your life as a for-profit corporation with a $154 million hickey! Lucy... You got some 'xplainin' to do!

Does this all sound eerily familiar? Like the corporate scandals of just a few years ago? Don't tell me we're in for another round of that stuff!

I don't think the dollar would stand a chance in the face of falling interest rates, and falling confidence in corporate U.S. I mean, who's going to invest here to finance our deficit, should we go through another bout of shaken confidence in corporate U.S.?

Over in Germany this morning, Factory Orders in July dropped the most in 16 years... Yikes! That's not good... But then you have to think that with the strong euro some of this would obviously be in order. The news doesn't seem to have affected the euro much, as market participants are too wound up over the ECB meeting that's going on as I write...

We'll get the Bank of England announcement first, followed by the ECB announcement 45 minutes later... Usually these are done after I've hit the "send" button on the Pfennig. And since it's pretty cut and dried that neither one will change rates at this meeting, I won't worry about keeping the Pfennig at the starting gate too long.

In the U.S. today, we'll see the latest Productivity data, the ISM Non-Manufacturing Survey (Service Sector), and the Weekly Initial Jobless Claims... Since we have the Jobs Jamboree tomorrow, I would expect most to focus on that, and not these pieces of data today...

Why gold may be bottomed and take off !!

2007-09-04T18:11:00.000-07:00

HUI - Bottomed Out! Gold Poised for Take Off!

By Eric Hommelberg
Sep 4 2007 11:25AM

www.golddrivers.com

Gold: $673 / HUI: 324

Believe it or not but gold and its shares could be poised for a powerful year end rally. Last week we notified our members that the gold-shares sell-off was way overdone which translated itself in a HUI reading as if gold were trading at $550! So yes, we argued that the time was right to start accumulating the gold shares as the saying goes “BUY Low, SELL High!”

Gold shares selling as if gold were trading at $550 is a huge anomoly indeed and as we stated in our Gold/HUI update "Bloodbath - part III" such extremes never persist for a long period of time so something has to give..Well, it seems the HUI has rocked bottom indeed and is on its way back to levels one could expect with gold prices of $660+..

In this piece we will examine the current drivers for gold and its shares which could surprise us to the upside by year end.

Dollar heading to new record lows within 6 months from now
Gold demand exploding in Asia and Middle East
COMEX Gold option open interest shows potential major upleg in gold
HUI extremely undervalued against gold
Dollar heading towards new record lows within 6 months from now

After the FED cut its discount rate to 5.75% from 6.25% on Friday August 17 the stock market, gold and its shares took off. However despite the initial relief rally the markets remained extremely volatile due to massive fears for a financial meltdown. Many will argue that the FED has to cut its FED Funds rate target as well in order to make some real impact but the FED has promised to act whenever circumstances dictate them to do so. It seems only a matter of time before the FED start cutting rates in order to prevent a recession or even worse a derivatives meltdown which could steer the US economy into a depression. The calls for lower rates are getting louder and louder:

Feldstein Warns of Recession, Makes Case for Rate Cut

Sept. 1 (Bloomberg) -- Harvard University economist Martin Feldstein said the U.S. housing-market recession threatens to sink the broader economy, and the Federal Reserve can cut interest rates without abandoning its goal of price stability.

"The economy could suffer a very serious downturn,'' Feldstein, president of the group that dates U.S. recessions, told a Fed conference in Jackson Hole, Wyoming. "A sharp reduction in the interest rate, in addition to a vigorous lender-of-last-resort policy, would attenuate that very bad outcome.''

END.

Now what could happen if the FED decides to slash interest rates in crisis times like these? On October 21, 1987 the DOW crashed by 22% and Greenspan's response was to slash the Fed Funds rate by an unprecedented 60 bp in order to prevent a 1929 style crash.

The result?

Sure enough the dollar tanked, gold and its shares took off. The gold shares appreciated by 50+% in just three weeks time while gold rose 10%.... The dollar declined by about 9% during the remainder of the year.

As said above many experts believe that Bernanke will have to cut the FED Funds rate anytime soon. In case that will happen the dollar will resume its downtrend at an accelerated pace and gold and its shares will take off!

Now let's take a peek at the dollar chart and see if the recent rally has run out of steam indeed:

What do we see here?

Well, the overall trend remains down and it seems that the latest counter-trend rally has run out of steam indeed. A resume of the dollar's decline is well underway targeting new record lows within three to six months according to a research note issued by Goldman Sachs:

Dollar May Fall to Record Low Within Six Months, Goldman Sachs Says

Aug. 24 (Bloomberg) -- The dollar may decline to a record low against the euro in the next six months because U.S. economic growth will slow, forcing the Federal Reserve to cut interest rates, according to Goldman Sachs Group Inc.

From the current level of $1.3568 per euro, the U.S. currency will weaken to $1.43 per euro in the next three to six months, Goldman Sachs said in a research note yesterday.

END.

So the dollar resuming it's down-trend translates itself into gold resuming its up-trend. This up-trend is further fueled by an astronomical increase in demand for gold emerging out of Asia and the Middle East.

Gold demand exploding in Asia and Middle East

Gold emand is exploding in Asia and the Middel East and the end is nowhere in sight. Gold demand from India could surpass the 1000t mark for the first time ever!

Saudi gold demand up 30%

AME Info August 20 - 2007. Demand for gold in Saudi Arabia rose 30% in Q2 with Umrah pilgrims and tourists helping to drive up sales, according to Arab News citing a World Gold Council report

END.

India's 07 gold demand seen jumping by 50 pct -WGC

MUMBAI (Reuters) Thu Aug 30, 2007 11:15PM IST - India's demand for gold in 2007 is likely to jump by 50 percent, from 2006, to record levels as lower prices lift buying interest, a senior official of the World Gold Council said on Thursday.

If realised, Indian gold demand would exceed 1,000 tonnes for the first time

END.

World gold demand on recovery path, to rise further

Reuters, 31 August 2007

LONDON - Global gold demand is set to pick up with the end of summer doldrums and the last quarter may see more buying than last year as prices have been less volatile, analysts and traders say.

"I suspect as we move towards the latter part of the year, the buying pressure will increase in line with the fact that we are heading towards the Christmas period, the Chinese New Year etc.," said Darren Heathcote of Investec Australia in Sydney.

Indian festivals boost demand

India, the world’s top gold buyer consuming a third of world gold output, is expected to see strong buying in the festival season that picks up in September and peaks in November with Diwali -- the festival of lights.

"Demand for gold will be significant in markets like India, the Middle East and other Asian countries. In these countries, economic and capital markets growth have been very good and investors allocate a surplus of that to gold," said Gnanasekar Thiagarajan, director at India’s Commtrendz Research Management.

END.

Now that the dollar is likely to come down coming months combined with an increased demand for physical gold, how do you think the 'smart' money is positioning itself? Well, it seems they are betting on a massive increase in the price of gold towards year end.

COMEX Gold option open interest indicates potential major upleg in gold

Adrian Douglas (www.marketforceanalysis.com) who predicted the mega up-move in gold to $720 in 2005 by noticing a very large build-up of call options in the HUI component shares published a stunning report last week in which he sees a similar build up in call options in the October and December COMEX gold contracts. Adrian says:

The bets by bulls outnumber those by the bears by a 2 to 1 ratio
The bears are not enthusiastic about betting gold will fall below $600
Speculators are not backing away from betting on a rising gold price even above $1100 by December!
Adrian further comments:

"This is phenomenal. The open interest in play on the Call side is a staggering 12 million ozs. That is almost 25% of the worldwide annual mine output!"

"Just as in my prediction in 2005 I consider option players highly sophisticated speculators. Such large and widely spread positions are not contrarian indicators."

"I conclude that smart money is being placed for a massive rise in the gold price."

The entire report can be read at LeMetropoleCafe

END.

No matter how you slice it, the outlook for the yellow metal towards year end is bright! Now what about the gold shares? Will they catch up on gold? Or could they sink in sympathy with the stockmarket?

Sure enough the gold shares have been hit really hard lately and as pointed out in 'Bloodbath- part II' this was driven by fear and forced massive margin selling. One of our members wrote me the day after the HUI's bloodshed:

Eric,

What happened yesterday was way beyond fear. It was forced, no-choice-but-to-sell-because-of-margin selling. It happened to me in one of my accounts. I simply had to off-load about half my positions at the bids, which were lower and lower. I'm sure that is what happened to many yesterday

END.

We informed our readers (Gold/HUI Update Bloodbath - part III) that blatant sell-offs like these don't happen that often and do present an excellent opportuntity to buy some of your beloved gold shares. The thing is that ther gold shares are dirt cheap these days and as the saying goes': 'BUY low and SELL high'.

Now many people do fear that gold stocks will be burned to ashes in case of a severe stock market meltdown. I don't subscribe to that theory since gold shares are tied to the price of gold and not to the stock market. The gold stocks did well in the stock market sell-off from 2000 to 2003, the Nasdaq dropped from 5000 to 1000 pts at one time while the gold shares rose by more than 500%. Even during the great depression of the thirties gold stocks performed well. A classic example remains Homestake Mining which rose by more than 500% during that time...

This time is different?

Well, not according to John Hathaway of Tocqueville Asset Management. In his latest essay "A New Chapter For Gold" he writes:

John Hathaway, Tocqueville Asset management

August 29, 2007

The general meltdown in credit is the ideal macroeconomic scenario to launch gold into all time high territory. While those same conditions have been disruptive for gold and gold shares in the short term as investors sell whatever they can to meet margin calls, it is important to understand that this is a necessary passage to higher ground. Gold must shed the perception of recent years that it is just another "run of the mill" tangible asset and emerge as the premier way to escape financial havoc.

Shrinking credit is a bad omen for future economic activity. A soft economy or, more likely, a recession in an election year, is a recipe for gold well above $1000.

Should gold begin to trade in earnest above $700, gold mining shares should also revive and head towards new highs.

END.

The message to panicked gold share holders the is simple: Yes, volatility is at extremes these days, but that's all in the game, it's a typical characteristic of the gold market and yes there aren't that much investors out there who have the stomach to ride this game till the end. As the saying goes, if you can't stand the heat then stay out of the kitchen, but if you are a true believer in gold's historical role of a safe haven then these times do provide great opportunties. The forced margin selling has pushed the gold shares to extreme oversold levels indeed, levels only seen a few times during this entire gold bull market which started in 2001.

HUI extreme undervalued against gold

The fact that the HUI was trading recently at the same levels as when gold hit $550 should ring a bell, see chart below:

This chart show the extreme divergence between gold and its shares, the HUI was trading recently at same levels as whith gold $100 cheaper than today! Such extremes never persist for a long period of time so something has to give, or the gold price will come down or the gold shares will be catching up soon. Well, it seems the latter is already well underway since the HUI is trading 40 pts higher from its (intraday) low on August 16.

The next chart I want to show you is the is the relative HUI chart. The relative HUI chart has proven itslef as the the most reliable chart when it comes to spot MAJOR bottoms. What I mean is this, when the relative HUI chart flashes a 'BUY' signal it is a real BIG one! Over the past 5 years the relative HUI chart only flashed a major 'BUY' for 4 times, see chart below:

relative HUI chart:

The r-HUI chart is gold divided by its own 200 dma.It has proven to be a reliable indicator in spotting major bottoms for the gold shares in the past 5 years.

In our dispatch of August 19 "Bloodbath - part III" I wrote:

The relative HUI never dropped below the 0.8 ever since the bull market in gold started in 2001. Now last week the relative HUI dropped briefly below 0.9 and clocked a low og 0.89. Now if the HUI would go down to such depressed levels as the previous 4 times the relative HUI dropped to 0.80 then we could see the HUI clocking levels around the 270 mark. Well, I don't think we will reach those levels since the HUI already came close in doing so during the August 16 session intraday. The HUI dropped all the way to 284 during that day before recovering and closed out that day at 300.

END.

Again it seems that the HUI did bottom indeed on August 16 and is recovering nicely from deeply oversold levels! Sure enough the HUI has to overcome its heavy resistance at 360 but once gold is headed towards the $700 mark the gold shares will be catching fire as well.

Highlights:

Dollar may fall to record low within six months
Shrinking credit is a bad omen for future economic activity. A soft economy or, more likely, a recession in an election year, is a recipe for gold well above $1000
Gold demand exploding in Asia and Middle East
COMEX Gold option open interest shows potential major upleg in gold
HUI extremely undervalued against gold
Should gold begin to trade in earnest above $700, gold mining shares should also revive and head towards new highs.
Now where to go from here?

Well, if you are a believer in gold's future then these are the time to increase your gold share positions since the gold shares are selling at fire sale prices due to the extreme bearish sentiment. In other words, downside risk is low. Higher gold prices the years ahead will lift the entire gold share sector but the most exciting rewards will come from junior mining companies making new discoveries.

Here at golddrivers.com we track promising junior companies which we believe could be huge winners before this decade is out. We just added two new promising companies to our golddrivers TOP-20 list. If you would like to participate you could opt for a free trial subscription

The Free trial includes all GOLDDRIVERS modules like Discovery News, Charts, TOP-20 Favourites, Break-out ALERTS and GOLD/HUI analysis.

In case you don’t want to opt for a Free trial mentioned above you can drop a mail here as well in order to join our Free mailing list. By doing so you will receive every now and then a Free version of the Gold Drivers Report. helpdesk@golddrivers.com

Please don’t hesitate to fire your questions/remarks to:

ehommelberg@golddrivers.com

Eric Hommelberg

The Gold Discovery Letter/
The Gold Drivers Report
www.golddrivers.com

Serious Credit Collapse Could Strengthen Dollar and Hit Gold

2007-08-30T15:01:00.000-07:00

By Chris Laird
Aug 28 2007 10:39AM

www.prudentsquirrel.com

In the emerging credit crisis, the corporate paper market is in chaos. This IS a crisis.

What started as flight from sub prime mortgage derivatives, now has spread to flight from many of the largest credit markets in general.

The CP market (corporate paper that rolls over every 90 days) is $2.2 trillion in the US alone. Banks, financial institutions, and companies use it to finance daily operations. That market is funded heavily by Money Market funds, who invest in the CP market to get better yields for their depositors than, say, an FDIC insured CD.

The trouble with the CP market developed when, first, investors fled the mortgage derivative market, but then, as revelations of widespread of losses started appearing, lenders started to pull back from rolling over CP to everyone.

That is because no one knew who held secret losses in mortgage derivatives, so banks and institutions and investors decided not to roll over their CP when the time came. The entire CP market world wide froze in about a week. This situation continues in the EU and the US and Canada.

This is forcing banks, institutions, and companies to hoard cash. The initial rise in the USD, in the week after BNP Paribas revealed they were freezing redemptions from two funds they had which had large mortgage derivatives, was due to people madly dashing into cash and getting as much cash as possible so they could operate, because short term money was not available.

The USD strengthened significantly the first week. The short term money markets are in a real crisis.

Alternately, there was flight into gold as well, (second week) after the initial dash into dollars. The USD also benefited from flight into dollars and US Treasures for safety.

Last week’s panic buying of US Treasures, where short term 3 month yields dropped up to 2%, but recovered later in the week.

But the credit crisis dynamic has been illustrated. First, when a new scare appears, there is flight into the USD. Then, in real fear, there is flight into gold.

Short term credit markets totally freeze, and then we see the central banks madly flooding money into financial markets. Central banks hoped this would stabilize the CP markets, but found that quite hard to do, as lenders did not want to be stuck holding the bag, if they rolled over their new CP to borrowers.

Now, what concerns me is that we have not seen a total credit meltdown yet. Even though the CP markets are reeling still, the central banks managed to stop a stampede (so far) out of equities, after their initial falls. I suspect that the central banks, and the financial industry are colluding to hold equity markets together, to prevent the Real Crash that is possible.

The other reason equity markets have held up so far, is because I think all the funds sent frantic emails to each other saying ‘for goodness sake, don’t sell right now!’

How long they can delay is not known. We know funds of all types, including money market funds, are begging for new deposits, and have had large redemptions.

There is a lot of pressure on markets to fall right now, as eventually, the funds will have to give in and sell.

The central banks are doing their part, buying everything in sight at book value from troubled institutions, letting Citi, BoA, and Morgan move up to $25 billion of their capital to their brokerage units, in a relaxation of banking restrictions, and flooding well over $500 billion into direct infusions to troubled financial markets. (These are just a few examples of what CBs are doing. Not the least of which is to support panicky markets with their ‘Working Group on Markets – the so called plunge protection teams in the US and Japan).

The present credit meltdown is severe, but, if we see a real equity collapse due to forced selling, as funds see redemptions, then we will also see:

Derivative losses for institutions on a scale far greater than seen so far

Massive forced selling for fund redemptions

A total credit freeze where banks, institutions, and companies cannot get any short term money, and have no alternative but to hoard cash (dollars) to operate.

A possible huge spike up in the USD and the Yen, and drops in some of the stronger currencies of recent times.

Forced Yen carry unwinding, as several weeks ago, the Yen strengthened significantly in the onset of the equity sell offs after the Paribas incident and the EU banking crisis. The EU banking crisis, and the US’s is still in progress, but can get much worse.

Eventual flight into gold as the best cash available.

A world stock crash like we have never seen in our lifetimes, if central banks cannot stay ahead of things.

I expect them not to- they barely staved off the latest problems that are still with us, and presently equity markets look weak, rising last week on low volume.

We at Prudent Squirrel have been talking about getting liquid for months. We anticipated the 3 big stop drops this year by up to two days for our subscribers in email alerts.

You can view those alerts at the main page. Subscribers have said the alerts alone are worth subscribing for. Our newsletter is about ten pages a week, with 44 issues a year published Sundays.

The newsletter is financial and gold commentary.

Stop by and have a look.

Christopher Laird
Editor-in-Chief
www.PrudentSquirrel.com

****

Chris Laird is not an investment advisor/professional. This article, and the PrudentSquirrel newsletter, is general market commentary only. It is not intended as specific advice. You should talk to your own investment professionals for specific advice.

This is how the carry trade can affect your trading account

2007-08-24T12:26:00.000-07:00

The Biggest One-Way Bet of All Time
by Jack Crooks
Dear Jack Ng,

Jack Crooks
Since Mike Larson is off today, he's asked me to fill in for him.

And his request couldn't have come at a better time: My specialty is foreign currencies. Foreign currencies have been surging against the dollar. And we're on the verge of a very specific currency explosion that could generate one of the greatest profit opportunities in a quarter century.

Here's the scoop:

The world's largest hedge funds and the world's richest institutions have been borrowing massive amounts of cheap Japanese money to fund some of the riskiest bets of all time. And now, that whole mountain of debt and risk is starting to crumble.

Mind you, this is no overnight phenomenon. It's been building up virtually nonstop for over 14 years!

Because of a 14-year recession in Japan, their interest rates have hovered close to zero — the longest period of the lowest interest rates of any major industrial nation in memory.

As an investor, imagine what you could do with that much "free" money offered continually for so many years …

Even if you just bought U.S. Treasury bonds, you could sit back and earn a couple of extra percentage points a year …

Or, you could plow the money into stocks and play for double-digit returns every year …

Or why stop there? You could go whole hog and leverage your bets with all kinds of fancy derivatives to aim for returns that would put the stock market gains to shame.

This is precisely what has helped hedge funds get so rich so quickly. This is the "Big Game" U.S. major banks and Wall Street brokerage firms ran to for what they thought were "easy" profits. With this "yen carry trade," as it's called, they essentially borrowed money in yen, converted it back to their own currency (e.g. the U.S. dollar), and then used the proceeds to place their big bets.

Just how much money is tied to the yen carry trade? Some estimates put the total value of yen-denominated borrowing at more than one trillion U.S. dollars! And those estimates don't account for the hundreds of billions in loans that are linked to these investments via margin credit and derivatives.

Indeed, I think it's fair to say that this is the biggest one-way bet in the history of the financial markets. And yet, too many investors have assumed for too long that it's a "risk-free ride."

How quickly they forget!

Back in 1998, in a Very Similar Credit Crunch
Like Today's, the Yen Carry-Trade Came Unglued!
Result: A Sudden Explosion in the Value of the Yen

In 1998, the yen staged a massive rally as hedge funds were forced to unwind big carry trades. The trigger was different — the Asian financial crisis. But the consequence — a sudden credit crunch — was very similar to what you see happening today.

The yen skyrocketed, jumping in value against the dollar by about 20% in a little over a month. Then, as you can see in the chart, even after the initial surge, it continued rising for almost an entire year.

Now it's about to happen again, and this time around, the trigger will be the credit crunch that is unfolding right before our very eyes, but with two critical differences:

First, the size of the one-way bet against the yen today dwarfs the amount of money that was involved back in 1998.

In 1998, it was estimated there was about $137 billion in Japanese yen carry trade borrowing. Today, as I just told you a moment ago, that number is estimated at $1 trillion!

Second, the level of investor complacency is far greater than it was in 1998!

Global financial markets have been so calm for so long, and global growth has been so strong, investors are really not that worried about any of this right now … even after the market's recent choppiness.

See, the hedge fund "pros" seem to have convinced themselves that the yen won't rally until Japanese interest rates go up.

Baloney! In my opinion, the rally in the yen will be first and foremost tied to risk coming to the fore of global financial markets. That's SURPRISE #1.

SURPRISE #2 will come as the Bank of Japan actually goes ahead and hikes interest rates more aggressively, catching most investors off guard.

I'm not talking about a huge increase, mind you. But it doesn't have to be huge. All you need is a minor hike to change the profit picture for many of the borrowers.

These borrowers will be squeezed from both sides. They'll be forced to close out their bets because of the sudden increase in risk. And they'll come under even greater pressure to close them out because of the higher financing costs.

But remember: BEFORE they can pay back all those loans to Japanese lenders, they first have to convert their dollars (and other home currencies) back into yen.

You can probably see where this is going: The unraveling of all these bets against the yen would trigger a massive yen rally.

Together These Two Surprises
Mean the Yen Could Rocket Faster
And Farther Than It Did in 1998!

Back then, Japan was locked in the grips of deflation … interest rates were kept low … and despite all that, the currency still rallied for more than a year.

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This time, Japan's economy has solid growth momentum … the deflation is gone … and it's almost inconceivable that the Bank of Japan could hold interest rates down.

The undeniable reality:

Japan's Economy Is Steadily
Emerging from a Prolonged Hibernation

Until recently, Japan was still recovering from a period of deflation, which began in 1989. So Japan's central bank was reluctant to hike interest rates very much, fearing that the deflation bear would grab hold again.

That's why, so far, all they've done is to enact two quarter-point rate hikes, bringing the current rate to a paltry 0.5%. That's more than zero. But it's still far lower than the equivalent rates in all other major countries.

And now, all that's changing. As the country kicks into overdrive, the Bank of Japan will have no choice: It will have to raise rates to keep inflation at bay.

Look: Even after its extended slumber, the country still boasts the world's second-largest economy. Only one economy in the world is larger — the U.S.

And among the world's largest economic powerhouses, there's none other that's better positioned to take advantage of the Asian boom. That's why …

Japanese exports were up 11.7% for the year ended July 2007, which tells us that business is cranking.

Japanese exports to China jumped a whopping 21%, and they're poised to rise further.

Japanese imports were up 16.9% over the same period, indicating that consumers are back in the game and spending money.

Profits at Japanese corporations have grown to the highest level in four years.

Even better, Japanese companies have reinvested those profits back into their business, opening up the door to even stronger growth down the road.

All these signs point to blue skies ahead for Japan, and most importantly, for the Japanese yen. Bottom line …

Even WITHOUT the Explosive Buying
From the Huge Payback of Borrowed Yen,
It's the Most Undervalued Major Currency
In the World

Measured in terms of purchasing power parity (PPP*), the yen is more than 30% undervalued against the dollar, and even more undervalued compared to the world's other major currencies.

I've been following this indicator ever since I started specializing in currencies decades ago, and I can tell you flatly: When a currency becomes undervalued by 20%, it's a telltale sign of an imminent surge.

So with the yen now lurching into the 30% undervalued range, that tells me it's got built-in spring-action of massive force.

My conclusion: If you're searching for long-term value in the currency market, your search should end with the yen. I repeat: It's by far the most undervalued major currency in the world.

And that's without considering any other factor! Plus …

Rate hikes from Japan's central bank will only make it more attractive to investors …

And the possibility of massive yen carry trades unwinding could spark a rally of epic proportions.

The best part of all this is that there are terrific ways for you to capitalize on any move in the yen. In fact, profiting from currency shifts is much easier than ever before.

You no longer need a massive bankroll to get started. You no longer have to expose yourself to unlimited risk. You no longer even need a special brokerage account. You can profit from currency surges with tiny investments, strictly limited risk and peace of mind.

My recommendation: Learn as much as you can about this as soon as you can. Then move swiftly.

Regards,

Jack Crooks

--------------------------------------------------------------------------------

About Money and Markets

For more information and archived issues, visit http://www.moneyandmarkets.com

Central Banks are not Stopping Credit Crisis

2007-08-18T14:35:00.000-07:00

By Chris Laird
Aug 16 2007 10:15AM

www.prudentsquirrel.com

Now that we are exactly one week into the liquidity crisis world financial sell off, the question arises, when will it stop?

If this was merely a stock decline due to some normal economic retraction, or news, one might expect at least a pause in the carnage is all world stock markets. However, that is most definitely not the case – as of Thursday 2:00 AM.

Asian markets are way down 2 to 3%. European markets are way down too 2% or so. This is a growing world liquidity crisis. The central banks have not been able to stop it.

What is a happening is more and more revelations of credit losses – due at first to home mortgage derivatives (2 to 5 $trillion worth), then, revelations now that the corporate paper (bond) market is freezing, (KKR seeks to delay short term commercial paper) then, LBO’s are now frozen, now the largest US mortgage lender, Countrywide, may become insolvent – as they cannot sell mortgages and are being forced to hold them.

Bloomberg puts out an article that ‘credit markets are frozen.’ What was first a mortgage related credit crisis is now spreading across many other major credit markets. The central banks will not have the horsepower to shore up all of these at once. The continuing stock sell off world wide is showing that.

This is a crisis of greater magnitude than LTCM and 1998 – Roubini.

Then we find that new losses are emerging in Europe, related to the US mortgage derivative market that is now totally illiquid. The ECB asks for calm, and infuses tens of billions - Monday. Then we find that Asians are not marking down US mortgage derivatives, perhaps denying the problem, but in the US regulators are looking at the books of banks and brokerages to see if there are hidden losses.

But the other major credit markets are also freezing.

The US Fed, ECB, BOJ and other have been still infusing temporary liquidity. The Fed another $7 billion yesterday, and $36 billion Friday buying illiquid MBS (mortgage backed securities).

In total we are well over $500 billion in central bank emergency infusions to markets and banks in the last week alone.

But, with all this money, the financial markets are still tanking. The credit problems are not being managed, and I put out an alert two days ago that I did not believe the present central bank efforts at merely adding liquidity will work, because the unfolding credit crisis is very widespread, and world wide.

So far, $500 billion of central bank infusions have not stopped either markets from selling off, nor stopped potential financial collapses, by for example Countrywide, which will be in serious trouble very soon if they cannot get some liquidity from the mortgage bond market. That news led to Wednesday’s Dow sell off, followed by more Asian and European selling.

Gold is selling off again for liquidity reasons to cover margins and redemptions, and also because the general commodity complex will suffer if there is a serious economic slowdown.

There is competition between flight to safety into gold and liquidity driven selling out of gold.

I put out an alert to subscribers Aug 7 that anticipated these problems and the world stock sell offs that emerged big time two days later. I also have put out alerts July 24 before the stock sell just after, and February 27, which anticipated the two week world stock sell off then.

We have several sample email alerts from then, up at PrudentSquirrel.com. For example, the Aug 7 alert reads like a headline today – regarding the USD, Yen, world markets and gold.

The Prudent Squirrel Newsletter is a macro economic and gold newsletter. It is published 44 times a year and subscribers get mid week email alerts as needed.

Stop by and have a look.

Christopher Laird
Editor-in-Chief
www.PrudentSquirrel.com

****

Chris Laird is not an investment advisor/professional.
Online Trading is as easy as 123 if you know how. For details, http://www.online-trading-123.com

Want to know how goverment create inflation

2007-08-16T12:14:00.000-07:00
Inflation via the printing press allows government to tap the property of private citizens without having to obtain their consent.

Two modern methods by which governments can grow, are by raising taxes (which has its limits), or by supplying government bonds to the central bank. The bank then deposits these bonds with the state banks or chartered banks, and there they are treated as an asset. Under fractional reserve banking laws, the bank can then loan out 8 times or 10 times the face value of the bond.

Who benefits from currency dilution? The people closest to the monetary spigot. Those who distribute and regulate the currency, as well as the initial recipients.

Another group that benefits, are those who understand the process, and gear their investments into ‘stuff’, such as real estate, works of art, rare collectables, gold and silver.

Who suffers most from currency dilution? People on a fixed income, without investments such as those mentioned above.

Current money supply growth is running at double digit rates in the following countries: Australia, Great Britain, China (+19%), Canada, Denmark, most of Euro-land, Sweden, Switzerland and USA.

The following example clearly illustrates the effect of ‘monetary dilution’. Imagine yourself in an auction hall. The auction is about to start. You have decided which items you are interested in, and the price you are willing to pay. Suddenly a man comes in carrying a briefcase. The briefcase is filled with hundred dollar bills. He gives several to everybody in the room. Question: “What is going to happen to the prices realized in that auction room?”

In the history of civilization, there is not one country that escaped the destruction of its fiat currency once inflation became part of the process…not one, …NOT ONE!

We arrive at the conclusion based on 5,000 years of history, that MONEY IS A COMMODITY! If it is not a commodity, then it cannot be money, it is simply a substitute for money.

About consistency: I am happy to be able to tell you that during the past
50 years I have steadfastly recommended gold as a necessary part of one’s investment portfolio. Ever since it was 35.00 an ounce.

I close with a quote from Ayn Rand: “Paper (money) is a mortgage on wealth that does not exist, backed by a gun aimed at those who are expected to produce wealth, paper is a check drawn by legal looters upon an account that is not theirs, upon the virtue of the victims. Watch for the day when it bounces, marked ‘account overdrawn’”.

Recommended reading: “Inflation - Fiat Money in France”, by Andrew Dickson White. (Available free at www.gutenberg.org/etext/6949)

“The German Inflation of 1923” by Fritz K. Ringer.

“What has government done to our Money?” by Murray N. Rothbard.

“The Law” by Frederic Bastiat.

“The Penniless Billionaires” by Max Shapiro.

Peter Degraaf
Online Trading is as easy as 123 if you know how. For details, http://www.online-trading-123.com

Market Turmoil

2007-08-15T05:56:00.000-07:00
By Doug Casey
August 10, 2007

www.KitcoCasey.com Email Article

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Doug Casey, chairman of Casey Research is a renowned investor, best-selling author and editor of the monthly newsletter International Speculator, now in its 27th year of providing independent-minded investors with unbiased recommendations on investments with the potential to double or better within a 12-month horizon. He has made it his life’s work to study financial crisis and how investors can protect themselves and profit, sharing his results in New York Times best-sellers such as Crisis Investing and Strategic Investing.

With global markets in turmoil, we turned to Doug to give us his interpretation of the big picture.

Q. The dollar is under increasing pressure. Do you think it’s realistic that the U.S. dollar could lose its status as the world’s reserve currency anytime soon? What are the implications and how soon do you think it could happen?

A. The U.S. dollar will eventually reach its intrinsic value; it’s simply a question of time. The Forever War in the Middle East is greatly accelerating the process. The whole idea of a reserve currency is meaningless if the currency is backed by nothing but the good will of the issuing government. That’s why gold has always been used as money; you don’t have to rely on anyone’s full faith and credit, good will, competence, trade surpluses, self-restraint or anything else. And it’s why gold will again be used, in everyday transactions, as money.

The dollar is a hot potato. There are trillions—nobody knows exactly how many—floating outside the U.S. But only Americans have to accept them, and only the U.S. Government can create them (although the North Koreans do their best). The Chinese have good reason to worry about all those dollars. When they tried to buy the Unocal oil company, they were turned away by the U.S. Government. So, obviously, their dollars weren’t good for that. When Dubai wanted to buy companies that manage six U.S. seaports, they found their dollars had no value.

At some point there’s going to be a panic out of the dollar. When it happens, it’s likely to be the biggest financial upset since the 1930s. Part of the question is what they’ll panic into. The euro? As I have said many times, if the dollar is an “I owe you nothing,” the euro is a “Who owes you nothing?” I think the big beneficiary will be gold. The problem for the world’s economy is that just a trillion dollars—which is only about 1/6 of the dollars outside the U.S. alone—can buy a billion ounces of gold, even at $1,000 an ounce. But only about four billion ounces have ever been mined.

It’s an explosive situation. The one thing you can count on when there’s a crisis is that the government will “do something,” which means controlling its subjects—not, God forbid, itself. And that something is likely to be foreign exchange controls. A small straw in the wind is the new regulation making it illegal to export more than $5 worth of pennies and nickels, because their metal is worth more than their face value—even though there’s no longer much copper in the pennies or nickel in the nickels.

If an American doesn’t get significant assets outside the U.S. now, it may be impossible in the future. The best thing to do is buy real estate abroad, since it’s currently not reportable, like bank and brokerage accounts, and they can’t very well make you repatriate it. I expect, however, very few people will take my advice, even though they may agree with it. But everybody gets what he deserves, so it’s not a problem..

Q. Looking at the broad picture, it seems like the U.S. government is facing nearly insurmountable odds. The cost of government has soared to something over 50% of GDP, weighing heavily on the private sector, yet there is no end in sight to the wide river of can’t-stop spending… on the military, on Social Security and Medicare—especially in the face of the baby boomers beginning to retire. How does the country manage to maintain that?

A. Nothing lasts forever. I’ll be surprised if the U.S. is able to maintain its present geographic boundaries for this century. The Mexicans talk of the Reconquista; the gringos stole the Southwest from them in the 1800s, and they’re likely to take it back. What do you think the odds are that a young Latino male in California, 20 years from now, is going to pay 20% of his wages in Social Security and Medicare to support some old white broad in Massachusetts? Especially since he knows he’s never going to get an aluminum nickel back? Even today, polls show that more kids believe in aliens than believe they’ll see any Social Security money.

We’ve had really good times for a whole generation. People become fat and sassy, or in the case of Americans, obese and arrogant, during good times. They don’t think of hanging their leaders from lamp posts until things get seriously bad.

I don’t know how bad things will get. But when I’m asked, I’m prone to quip “Worse than even I think they’ll get.”

Q. You and the team at Casey Research have been vocal about expecting a major inflation. Yet, other than occasional surprises, inflation doesn’t seem to be much of a problem. What gives?

A. Things that you expect to happen usually take longer than you’d think. But once the process gets underway, they usually happen much more quickly. It’s like a boulder balanced on the edge of a cliff; nothing seems to happen until it happens all at once. Just adjust that analogy to the scale of a human lifespan.

The word "inflation" covers two different concepts, and it's important to keep them separate. One concept is monetary inflation, which is an increase in the supply of money that outruns growth in the supply of goods and services. Papering over problems with yet more money is now the default solution for governments around the world. Case in point, when faced with the growing problems associated with the subprime mortgage sector, the European Central Bank announced that it would make “unlimited” funds available to the banking sector. The Fed will, predictably, react in the same way, running the printing presses overtime.

The other concept is price inflation, which is an increase in the overall level of prices for goods and services.

The relationship between the two is the relationship of cause and effect. Monetary inflation causes price inflation. But while almost everyone sees price inflation when it happens, few people notice the monetary inflation that is causing it. And so they tend to blame the producers of goods and services for higher prices—rather than the money-creating government that is the true culprit.

We’re now experiencing a lot of monetary inflation, which eventually will be reflected in price inflation. What’s really going to tip this over the edge, however, is the rest of the world deciding to get out of dollars. A lot of those $6 trillion abroad are going to come back to the U.S., and real goods are going to be packed up and shipped abroad. Inflation will explode.

It’s just a matter of time. But I think it’s going to happen this cycle.

Q. How do you think the Chinese currently view the U.S.? Recently they threatened to use the “nuclear option”, dumping their U.S. dollar reserves in response to anti-Chinese legislation making its way through the U.S. Congress. Do you think there is any scenario under which they would let the dollar collapse, given that they own about one trillion of the things?

A. It’s said the Chinese need us to provide a market for their goods. Which is absurd. Markets are about trade. You send me a load of VCRs; I send you a new Cadillac. Right now the Chinese are getting nothing in return for their VCRs but IOUs. If those IOUs aren’t redeemed—and at this point there are so many I’m not sure how they could be—they might as well send their goods to the North Koreans in return for IOUs. Or dump them into the ocean, if the only idea is to keep the factories humming and people employed. At some point the Chinese will want payment in something other than dollars.

In the meantime the yuan will go higher. It’s a good thing for them. It will lower the cost of importing capital goods, technology and raw materials. It will force their manufacturers to be even more efficient. It will make buying foreign companies cheaper. It will raise the standard of living of the average Chinese, defusing some political problems. A strong currency is a good thing. Too bad the U.S. will be on the opposite side of that trade. It was a pathetic embarrassment to see Bernanke and that other buffoon from Treasury lecturing the Chinese on how to manage their currency.

Q. You are on record as leaning toward an inflationary meltdown versus a recessionary one. But what about all the debt? Won’t people paying down their loans and refusing to go further into debt—because for one thing, pretty much everyone who ever wanted a house now has one—result in less spending? And less money chasing more goods would seem to suggest a recession.

A. The first point is not to confuse terms. In today’s vernacular, a recession can be defined as a very mild or short depression. A depression can be given any of three definitions. One, most broadly, is a period when most people’s standard of living drops significantly. Two, it’s a period when the business cycle climaxes. And, three, it’s a period when distortions and misallocations of capital are liquidated. There’s much more to be said on all of these, but now’s not the time.

Inflation, on the other hand, is a monetary phenomenon. You can have either an inflationary depression, like Germany in the ‘20s, or a deflationary one, like the U.S. in the ‘30s. The opposite of depression isn’t inflation; it’s prosperity. And you certainly don’t need inflation to create prosperity. Inflation is a drag on prosperity; it’s a tax on cash, because the government gets to spend the new money it creates while your old money depreciates.

What do I think is likely? Certainly a depression, probably of the inflationary type. But if there are widespread defaults in the mortgage market because of a housing bust, hundreds of billions of dollars worth of buying would disappear, which is deflationary. You could have both things happening at once, in different parts of the economy.

Q. Last year you went on record early calling for gold to top $700, which it did. But you expected it to end the year at about $750. Currently, it trades at around $665. Why do you think it didn’t hold up? And, just for entertainment purposes, how high do you think it will trade in 2007?

A. I’m sure the government, directly and indirectly, did everything it could to keep the price down. The last thing they want to see is a gold panic. So the short run is hard to predict. But we’re still relatively early, certainly in terms of price, in what will be a bull market for the record books. It’s as if you can see the perfect storm brewing. Since I’ve been involved in the markets, there have been a number of times when things could have come unglued—‘70-‘71, with the stock market crash and the devaluation of the dollar, ‘73-‘74, with another market meltdown and financial crisis, ‘80-‘82, when commodities and interest rates both went through the roof, ‘87, ‘92, ‘98, the tech meltdown… Throughout that time, I’ve always tended to be a bear. In other words, I’ve tended to make my money during the crises; it’s relatively easy to make money during good times. As the tech boom proved, any idiot who knows nothing about the markets or the economy, can do it.

My guess is that the next crisis is going to be breathtaking. And it’s not going to be just financial, but economic, social, military and political. Of course, I hope I’m wrong. If I’m wrong, I’m not likely to get hurt, for a number of reasons. But I don’t want to be inconvenienced if I’m right.

So where is gold going? I notice that it is starting to move counter to the equity markets in this current crisis, as it should given the inflationary implications of the massive government bail outs and the increased likelihood that the Fed will be forced to rates, making the dollar a less attractive holding for foreigners. I hate making predictions, but if things continue down this path, I think we could see gold going over $1,000 within the next 12 months, and maybe even before year-end. And then the mania starts for the mining stocks.

Follow Doug’s mining stock recommendations and gold’s climb in his monthly newsletter, the International Speculator.

Most investors risk 100% of their money in the hope for a 10% return. The International Speculator reverses that formula, helping you reduce overall portfolio risk while boosting performance. To find out how you can give it a try, risk-free, click here.

******

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Online Trading is as easy as 123 if you know how. For details, http://www.online-trading-123.com

More about sub prime Woes

2007-08-11T18:10:00.000-07:00
Emergency funding aims to keep subprime woes from spreading.

By Ron Scherer | Staff writer of The Christian Science Monitor
from the August 10, 2007 edition

Page 1 of 2

New York - For the first time since 9/11, the Federal Reserve has had to step into the financial system with emergency funds to calm roiled credit markets.

The move Thursday followed an injection of capital into Europe's banking system. On both sides of the Atlantic, the central bankers began to recognize a crisis in confidence in the market known as asset-backed securitization, which funds everything from housing to student loans and has outstanding debt of more than $4.2 trillion. The banks' moves are seen as a signal that they're willing to provide liquidity to any bank that needs it.

By acting as lenders of last resort, the world's two largest central banks are trying to keep a liquidity crunch in this sector from spreading to the rest of their economies. If the crunch were to become more widespread, interest rates would rise and banks would have to pay more to fund loans, slowing the economy. In Europe already, interest rates skyrocketed to the highest level in six years after a major French bank froze three funds that had invested in asset-backed securities.

"It's a very significant event to have the Fed inject liquidity into the system," says Mark Zandi, chief economist at Moody's Economy.com. "It indicates a very high level of stress in the financial system."

The Fed acted because investors had stopped buying asset-backed securities following the difficulties in the US mortgage market.

The securitization industry, which involves financial institutions around the globe, provides liquidity that helps fund loans for housing, automobiles, credit cards, and student loans – and anything else where an asset can be bundled into a package and resold to other investors.

The crisis in the industry began to mount after the collapse of many mortgage lenders in the subprime market. That market makes loans to low-income people or those with less than stellar credit ratings. The crisis escalated after the collapse of American Home Mortgage, which was not in the subprime market. By early this week, buyers of overnight debt, which banks use to fund lending activity in the securitization market, had backed away. This caused BNP Paribas, a major French bank, to freeze withdrawals from three of its funds Thursday because it could not value the fund's assets.

The problems at BNP Paribas, a major European bank, caused the European Central Bank to inject $130.2 billion into the financial markets, according to Bloomberg News.

As the BNP problems suggest, sizable chunks of the risky mortgage securities are outside the US. "A lot of them were packaged and sold overseas," says Lacy Hunt, chief economist at Hoisington Investment Management Company, in Austin, Texas. "They were seeking higher yields."

Page 1 | 2 | Next Page
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The World's Biggest Market - Volatility Ahead

2007-08-11T16:46:00.000-07:00
By Barry Downs
Aug 10 2007 2:42PM

www.kitco.com

Stock market investors, until just recently, thought they were well on the road to an uninterrupted banner year for 2007. In nominal terms, the biggest followed index, the Dow Jones Industrials Average, closed at 14,000.41 on July 19th. But in a world where central banks have a policy of perpetual monetary inflation, nominal values don’t count and its real values which constitute the bottom line. In real terms, the Dow would need to rise to above 14,200 just to break even and to offset the cumulative inflation, which has occurred since the previous DOW high which occurred in 2000.

The mantra of stock market bulls has been expanding global corporate earnings. Bond market investors, in the past period of cheap money, developed an insatiable appetite for the world’s riskiest and illiquid debt instruments. US bond investor’s mantra has been the relatively low historic inflation levels reported by the government. But, while everyone knows government inflation numbers are skewed, the rush into high risk debt instruments has been unprecidented.

Total US dollar daily turnover of all US stocks and the US government bond market is running just under $400 billion, but as we pointed out earlier in the year in our report entitled, “The World’s Biggest Market,” (Kitco 2/2/07) the foreign currency exchange market (FX), is indeed the worlds biggest market and is the fastest growing of all markets in global US dollar terms. The FX market has an average daily turnover, in US dollar terms, of over $3 trillion, which is more than 20 times that of global equity markets.

US money managers, who control about $20 trillion in assets, continue to be the biggest US dollar diversifiers. Over the past four years those money managers have cumulatively diversified over $1.2 trillion into foreign currencies. Foreign currency traders make money when there is volatility in foreign exchange markets. They make a lot of money when volatility levels rise and it now appears that a major sea change is about to occur in an area known as the yen carry trade, and that change will usher in considerably higher levels of volatility in FX markets.

The re-pricing of credit risk, which got underway in late July, will likely be the event to curtail the phenomenon of the yen carry trade estimated at upwards of $1 trillion. The yen consequently will lose its appeal as a vehicle in which to borrow cheaply. Higher yielding currencies like the Aussi and New Zealand dollar, which have been the recipients of carry trade hot money, will then begin adjusting downward.

The carry trade phenomenon has involved borrowing yen at 0.50% and investing in places like Australia which pays 6.25%, New Zealand which pay 8.25%, or Iceland with rates of 13.5%. Popular with hedge funds, which operate on a highly leveraged basis, the carry trade not only invests in high yielding currencies, but gambles in a wide array of markets where they think money can be made.

As long as the yen doesn’t appreciate, the carry trade is all right, but the yen in times of re-pricing credit risk now appears prone to appreciation and that places increasing pressure on any investors holding leveraged yen short positions.

So far the yen’s appreciation has impacted on the New Zealand dollar, which is down about 5% since late July. The yen’s tendency to strengthen is becoming correlated with bouts of stock market weakness, and when the currency’s rise becomes steady, major adjustment will show up in the Aussi dollar, New Zealand dollar, and Icelantic krona. If the time has come in the highly leveraged world economy (the US being the Summa Cum Laude of leverage) and economies succumb to the approaching credit crunch, deflationary forces could overwhelm central bank intervention. In that scenario, commodity prices will fall and the commodity currencies like the Canadian and Austrian dollar will weaken and only add to high volatility levels in FX markets.

The unwinding of the yen carry trade is out there looming and may begin sooner rather than later. The bank of Japan is expected to raise interest rates to 0.75% in late August, which will eat into the differential in interest rates, the carry trade exploits, but the yen’s appreciation is the real key to the unwinding process.

The relatively low levels of currency volatility in the past period will end as the enormous debt pyramid amassed over many years begins to unravel in one shock after another. Rising volatility levels in FX markets are certain to occur as currency readjustments kick in and speculators flee those currencies representing countries with the biggest debt problems. Perhaps kicking off the volatility will be the unraveling of the carry trade hedge funds. Pension and profit sharing funds and investors seeking to protect capital will continue to seek the diversity and liquidity of the world’s biggest market, the FX market..

Massive excesses in the world’s credit market, inclusive of mortgage debt, weren’t created over night and the fallout is likely to continue for years, producing a period of rolling volatility in all markets. Rising fear levels will reduce the desirability of risk and a full blown credit crunch is the likely outcome.

Fund managers with a proven track record in the FX market will be highly sought after and are sure to capitalize on volatile market conditions the world will experience in the period ahead. There is a standout Nevada based currency fund which comes to mind, with a 27 year track record and which boasts a 40% annual compounded return. Fund managers of that stature will be hard to find.

Barry Downs
(775) 852-3875
e-mail: downsb@prodigy.net

Ronald Gilchrist
(406) 493-0612
e-mail: rgilchris6135@bresnan.net
Online Trading is as easy as 123 if you know how. For details, http://www.online-trading-123.com

2007-08-11T16:35:00.000-07:00
The Aborted Italian Gold Sales Plan

By Julian D.W. Phillips
Aug 10 2007 3:14PM

www.goldforecaster.com

Sales of gold by European Central Banks are primarily for the adjustment of national reserves in terms of structure or size. They are not intended under the rules of the European Union, intended to pay the bills of the governments of Europe, so when the subject came up, after a consistent record of the Bank of Italy’s refusal to even contemplate the sale of the country’s gold reserves, everyone was surprised. The reality was suddenly the government of Italy wanted to put their hand into the country’s coffers in an exercise that would never have solved the country’s debt problems.

The Italian parliament approved a reserve plan allowing the government to look into using the Bank of Italy's substantial gold reserves to cut the country's huge debt. Italy has some 62% of its foreign exchange reserves value in gold at about 2,452 tonnes. The resolution inserted into Italy’s next budget committed the government to:

"Undertake, also in its relations with the European Union, a survey of all instruments useful to producing a significant reduction of the national debt, through agreed ways of using the reserves of the central banks, in gold and currency, in excess of that required by the agreement with the E.C.B. for the defense of the Euro." The wording suggested that Italy’s government would try to re-think at EU level the existing limitations on the use of the gold and currency reserves of Europe’s central banks. This was bound to ruffle the feathers of the European Central Bank!

The government plan aimed to cut Italy's debt to 103.2% of gross domestic product (GDP) in 2008 from 105.1% of G.D.P. this year, about €27 billion ($36.9 billion), using the central bank's gold and foreign exchange reserves. If Italy were to sell 1740 tonnes of its gold it would have achieved this target. However it would have taken four years to do this under the ‘ceiling’ limitation of 500 tonnes [if the C.B.G.A. is extended again under the same terms] provided Italy was the only seller, during which time we have no doubt the Italian’s debt would have risen past the present level]. This achievement undoubtedly would have been swamped by the underlying problems in the Italian economy within a smaller period of time. Italy's debt is the world's third highest in absolute terms. This plan was unlikely to change that.

Was this plan reasonable? Not at all. Italy has had a very long record of poor management of its currency management in common with other European countries. One of the saving graces of the country with such a record is that it had the wisdom to hold large gold reserves in case the record continued, with gold always there to bail them out of the mess. The Italians could have undertaken sales of gold after Budget day 2008, once the Italian government had approved their next year’s budget. There was room though for gold sales, under the present agreement, for around 370 tonnes in the last two years of the agreement, which runs through until September 26th 2009, but no more. This would have made the exercise pointless.

It appears old fashioned now to think that national spending behavior should be limited to stop the bleeding, then repayment of debt undertaken, from new income. In high debt situations the sight of gold reserves to politicians in Europe [except in Germany] seems impossible to resist. Add to that a complete lack of understanding of gold as savings for a rainy day and you get another repeat of governments grabbing the piggy bank.

Wisely, the Bank of Italy kept silent. Because the plan crossed the lines of the Maastricht Treaty and impinged on European Central Bank territory, it was up to the European Central Bank to put the Italian government in its place. Italy’s approach was not solely an attack on gold reserves, but an attempt to adjust the policies of the Eurozone and interference in the activities of the European Central Bank.

The European Commission, was sharp in its response on the use of the Bank of Italy’s gold reserves to lower the country’s debt, saying, "It is up to the E.C.B. to decide about the foreign reserves [including gold reserves] of the € area member states, in full independence." Did we detect more than just a re-establishment of the order of financial seniority here? We would hope so in the days when the composition of reserves is becoming a sensitive issue, with the importance of gold in extreme times rising through the levels of priorities in the face of a weakening $ and shaky credit?

The matter is now put to rest, leaving a substantial shortfall in the ‘ceiling’ of gold sales for the entire Central Bank Gold Agreement [2,500 tonnes] and the balance of announced gold sales to date short of that by around 400 to 500 tonnes.

Please subscribe to: www.GoldForecaster.com for the entire report.

****

Legal Notice / Disclaimer

This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment. Gold Forecaster - Global Watch / Silver Forecaster / Julian D. W. Phillips / Peter Spina, have based this document on information obtained from sources it believes to be reliable but which it has not independently verified; Gold Forecaster - Global Watch / Silver Forecaster / Julian D. W. Phillips / Peter Spina make no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of Gold Forecaster - Global Watch / Silver Forecaster / Julian D. W. Phillips / Peter Spina only and are subject to change without notice. Gold Forecaster - Global Watch / Silver Forecaster / Julian D. W. Phillips / Peter Spina assume no warranty, liability or guarantee for the current relevance, correctness or completeness of any information provided within this Report and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission. Furthermore, we assume no liability for any direct or indirect loss or damage or, in particular, for lost profit, which you may incur as a result of the use and existence of the information, provided within this Report.
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Full Blown Liquidity Crisis Hits Gold and Stocks

2007-08-11T16:19:00.000-07:00
By Chris Laird
Aug 10 2007 9:26AM

www.prudentsquirrel.com

As news of new subprime losses emerges around the world, stock markets are selling off. What began as the first string of losses at Bear Stearns has now become wider. In fact, it is beginning to look like a developing world liquidity emergency.

This week, the large French bank Paribas froze 3 funds worth about $2 billion after it became clear they cannot value the mortgage derivatives held by the funds. Soon after this news, EU banks and institutions started to flee to cash.

The ECB had to lend an unprecedented $130 billion to stave off a banking/liquidity crisis. European investors said the ECB was acting on an emergency basis.

EU Bankers said it was not just concerns about Paribas, but like the Bear Stearns situation, investors were very worried about how many more losses are developing.

The mortgage derivatives market is literally frozen, and no one will buy either the derivatives, nor buy mortgage originations, which is now paralyzing the US mortgage market.

US lender Country Wide is having trouble selling its new mortgage originations – and having to carry them. Country Wide accounts for a huge 25% of the US mortgage market.

Mortgage lenders are stating that the mortgage market is in worse shape than they have ever seen. Investors are not buying mortgages, causing lenders to have to carry their own loan originations – which is going to totally kill the US mortgage market if things are not fixed soon.

Alt A and sub prime mortgages (30% of US mortgages) are not selling – investors want nothing to do with them.

As these mortgage markets become illiquid, the trillions of dollars of mortgage derivatives – which EU banks have bought heavily – cannot be valued – which caused Paribas to have to freeze redemptions in their 3 funds which held those derivatives.

The implications of that situation is having broad and very bad ramifications to the world banking/financial industry which is wondering how bad things will get. Things are quite bad now, to say the least.

You cannot have multi $trillion markets just stopping – with out major building losses.

Of course, this spills over to stock markets as well as gold. The Yen is rising, and adding to the huge selling in general, as carry trade is being unwound in everything.

The USD, which had been moderately rising again, rose over .40 on the USDX (US dollar index) Thursday as investors fled to US Bonds. Libor rates in Europe rose an amazing half point. (Libor is private short term money banks and institutions use). It is said that will harm brokerages and other institutions who need short term money.

Gold and precious metals are selling off again because funds and institutions are fleeing into cash, and gold is a liquid asset that they can sell. There was so much demand for cash in the EU that the ECB had to lend $130 billion, and said they will supply unlimited money if necessary.

The ramifications of the US mortgage derivatives losses are snowballing, and it is being said that this is unprecedented. The present situation has already been compared to the 1987 financial crash in severity.

We at Prudent Squirrel have been talking about getting more liquid for over a month. In our last news letters and alerts, we discussed the impending market liquidations due to the huge losses in the mortgage derivatives market. In the last several weeks we have been sending alerts to subscribers that more serious stock and gold selling is in the cards. Our alerts sent early this week anticipated both the US stock selling as well as gold’s sell off. We anticipated this latest 2 week bout of world market selling two days before it began in a Tuesday July 24 alert, calling for a severe sell off similar to the February 27 market crashes.

The PrudentSquirrel newsletter is Chris Laird’s macro economic and gold commentary. Subscribers get 44 newsletters a year published Sunday, as well as mid week email market alerts as needed. Email alerts are not guaranteed delivery.

Stop by and have a look.

Christopher Laird
Editor-in-Chief
www.PrudentSquirrel.com
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The Shoddiest Export-from USA

2007-08-11T15:41:00.000-07:00
By Peter Schiff
Aug 10 2007 3:45PM

www.themarkettraders.com

For years, Americans have been able to pay for enormous trade deficits by exchanging IOU's for imported consumer goods.

Unfortunately for foreign creditors, a substantial percentage of those IOU’s have recently taken the form of mortgaged backed securities.

Sporting higher yields than Treasury bonds, investment grade ratings from reputable agencies, and juicy commissions for the investment banks that packaged them, these structured mortgage bonds have quickly become America’s greatest export. Ironically, amid all the recent hoopla about defective Chinese exports, America has proved that when it comes to flooding the world with shoddy merchandise, nobody beats the good old USA.

This week, several of Wall Street’s best foreign customers announced staggering losses on the American mortgaged backed securities they had been sold.

The fundamental issue underlying these losses is that Americans borrowed more money than they can afford to repay. As initially low teaser rates expire and mortgage defaults increase, foreign lenders are discovering that the residential properties that collateralize the mortgage bonds are not worth anywhere near the loan amounts.

It will not be long before American borrowers come to a similar realization. When they do they will be faced with the shocking reality that all of their home equity is gone -- having disappeared just as quickly as did the paper profits of the Internet stock mania. However, this time around the situation is more dire. Although paper profits have vanished much as they did in 2001, all the mortgage debt, much of it about to get much more expensive to service, still remains.

When American homeowners come to grips with their diminished net worth, the excess consumption that has been the rule over much of the past decade will grind to a halt. If any money is left after making higher ARM payments, homeowners may actually decide to save some to repair their personal balance sheets.

As consumer spending collapses, the U.S. economy will plunge into a severe recession, compounding the problems in the housing market and exacerbating the recession.

The last straw will be the value of the U.S. dollar. Already teetering on a precipice, a recession will push it over the edge.

As the dollar falls, interest rates and consumer prices will rise even more sharply, compounding the problems for both housing and the economy. In fact, the fear of further dollar declines has been the most important factor in restraining the Fed's ability to cut interest rates. Rather than admit its concern over the dollar, the Fed justifies current policy with assurances that the economy is strong and is not in need of stimulative rate cuts. In Jack Nicholson fashion, since Bernanke feels investors can not handle the truth he feeds them a lie instead.

As more of our nation’s creditors finally realize that they have been duped, the credit well fueling American consumption will run dry. Foreign lenders will simply refuse to accept our IOU’s as payment for their merchandise.

Lacking in savings and productive capacity, we will be forced to accept dramatic reductions in our standard of living as a result.

Though our creditors will finally be forced to realize some losses on their prior investments, they will no longer bear the burden of subsidizing the U.S. economy. With diminished competition from Americans, foreign consumers will finally gain the upper hand. Goods previously too expensive for citizens of non-dollar economies will suddenly become affordable. Savings currently squandered on American consumption will be freed up to finance productive investment at home.

Though these positive aspects may be lost in the recent synchronized sell off in global stocks, foreign markets will soon diverge from ours. As the American caboose is decoupled from the global economic gravy train, the rest of the cars will move that much faster without all that dead weight slowing them down.

For a more in depth analysis of the tenuous position of the Americana economy and U.S. dollar denominated investments, read my new book “Crash Proof: How to Profit from the Coming Economic Collapse.” Click here to order a copy today.

More importantly, don’t wait for reality to set in. Protect your wealth and preserve your purchasing power before it’s too late. Download my free research report on the powerful case for investing in foreign equities available at www.researchreportone.com , and subscribe to my free, on-line investment newsletter at http://www.europac.net/newsletter/newsletter.asp

****

President
Euro Pacific Capital, Inc.
10 Corbin Drive, Suite B
Darien, Ct. 06820
phone 203-662-9700
toll free 888-377-3722
email schiff@europac.net
web www.europac.net
Online Trading is as easy as 123 if you know how. For details, http://www.online-trading-123.com

It's the Fundamentals Stupid

2007-08-03T15:18:00.000-07:00
By Peter Schiff
Aug 3 2007 3:04PM

www.themarkettraders.com

Amid the recent stock market weakness, the pundits are virtually unanimous in their claims that good underlying economic fundamentals are being trumped by irrational fear. However, if investors understood just how bad the fundamentals for the U.S. economy really are, they would dump stocks even faster. So, contrary to the rhetoric, it is not that investors are being too fearful, but that they are being too complacent.

During the recent stock market rally investors ignored some very disturbing underlying economic fundamentals. Therefore, the current weakness in the market is not in conflict with the fundamentals, but completely consistent with them. Unfortunately for the overall economy, the re-assertion of fundamentals is not exclusive to the stock market. Here is a look at what will likely happen to other asset classes and our economy should investors refuse to blindly follow the Pied Pipers of Wall Street:

Gold and gold stocks

Rather than trading in tandem with other assets (as they recently have), gold and gold stocks will diverge, registering their largest gains on days when general stock prices fall. Currently, liquidity is driving all markets simultaneously. However, when those seeking liquidity realize that gold is its ultimate form, they will embrace it and shun paper alternatives. When that happens, gold stocks should shine even brighter than the metal itself.

The dollar

Once foreign and domestic holders of greenbacks understand the severity of the risks facing the U.S. economy, they will dump dollars hand-over-fist. As the value of the dollar falls, interest rates and consumer prices will rise. This will compound the problems in the housing and mortgage markets, as well as for the overall U.S. economy, engendering even more dollar selling.

Bonds

For now, U.S. Treasury bonds have benefited from the so-called "flight to quality". Once investors realize that Treasuries can not protect them against the falling dollar, safe haven money will flee Treasuries as well. As interest rates rise, the problems for our economy will only intensify. If the Fed reduces short-term rates to cushion the blow, Treasuries will come under even greater selling pressure. So in effect, any attempt by the Fed to reduce interest rates to bolster housing will backfire, as rising long-term yields will only put additional nails in the housing coffin.

Real Estate

When reality sets in, housing prices will collapse. Today’s announcement that Wells Fargo is raising rates on prime jumbo mortgages (a significant percentage of California homes fall into that category) to 8% from 6 7/8%, will help accelerate this process. As potential home buyers will once again be required to fully document their incomes, provide 20% down payments, and pay 8% annually on fully amortized mortgages, home affordability will be out of the question unless prices fall sharply.

The U.S. economy

When real estate prices collapse, trillions of dollars of home equity will be wiped out, with disastrous repercussions for an American economy addicted to consumer spending. Though many consumers will see their home equity vanish, their mortgage debt, much of which will become more burdensome once adjustable rates reset much higher, will remain. Flat broke and facing rising mortgage payments, as well as higher gas and food prices, consumers will severely pull back on discretionary spending. As millions lose their jobs as a result of this retrenchment, the recession will kick into high gear, causing even greater damage to the real estate market, the dollar, bonds, and the economy, resulting in even more safe haven flows moving into gold.

For a more in depth analysis of the tenuous position of the Americana economy and U.S. dollar denominated investments, read my new book “Crash Proof: How to Profit from the Coming Economic Collapse.” Click here to order a copy today.

More importantly, don’t wait for reality to set in. Protect your wealth and preserve your purchasing power before it’s too late. Download my free research report on the powerful case for investing in foreign equities available at www.researchreportone.com , and subscribe to my free, on-line investment newsletter at http://www.europac.net/newsletter/newsletter.asp

****

President
Euro Pacific Capital, Inc.
10 Corbin Drive, Suite B
Darien, Ct. 06820
phone 203-662-9700
toll free 888-377-3722
email schiff@europac.net
web www.europac.net
Online Trading is as easy as 123 if you know how. For details, http://www.online-trading-123.com

It's Different This Time Isn't It? Read this

2007-08-02T12:20:00.000-07:00
By Roger Wiegand
Aug 2 2007 10:48AM

www.tradertracks.com

“We have noticed during our current updating markets review some newer pressures not on the trading table in previous precious metals rallies. Tremendous computing power and imposition of the Plunge Protection Team’s smothering trading blanket is screwing up cycles and time. Also, gold and silver stocks must now share investment cash with ETF funds.

Actual mining production shortages will not go away. Inflation for the producing miners is becoming a heavy load. The end game is inevitable but the getting there can be confusing.” -Traderrog

In recent trading days, gold and silver shares have been trending quite a bit with the big index stock markets.

While cold logic tells us our PM positions ought to trade opposite weakening mainstream stock sectors it’s not happening yet.

Precious metals seem to trade inversely with the U.S. Dollar but not always. As liquidity and credit dries-up in the aftermath of subprime, derivatives and other junky bonds, major market shifts have begun.

At this time of year, the general stock market has normally been through a spring correction and follows with two months of choppy nothingness as dealers and brokers are mostly absent for beach time and fun in the sun. Crazy bond markets, we suspect have spoiled more than a few vacations this year.

It’s just plain slow out there now but smarter traders not on holiday are busy with homework separating the wheat and chaff on their junior shares.

With so many from which to choose, how do we find the good stuff and run from the others? In our weekly newsletter we offer trading ideas with stocks of all price and trading sizes, along with futures, commodities and spreads.

While there are a variety of available trading tools they do not work well all the time. Traditional annual and semi-annual cycles are still built into the game but now we have more powerful variables.

An abundance of trading and investment cash created more juniors than we would normally see when money is dear.

World-wide cash printing causing inflation is beginning to bite mining operators affecting everything from fuel, to parts, and labor. In some cases the cost per ounce for production has risen 50% or more over the past 18 months.

Trading junior shares has become increasingly volatile. We think volumes are more erratic with folks moving in and out of positions faster and more often.

Even the best technical analysis will not always be accurate as the market manipulators arrive to shake the trees when their key trading components get sick and need propping attention. This then affects most every sector including gold and silver.

Credit derivatives have been abused to the extent nobody knows or really understands the final outcome. However, understanding trillions have been originated with no one on the other side of the trade this scares the you-know-what out of those with enough sense to understand what can transpire.

We are convinced the peaking of major stock markets has arrived. The larger trends are broken and for now it’s only a matter of time for the main selling event.

Big global banks and broker-dealers over extended into the stratosphere. The shorter term-intermediate cycles of 90-120 days seem to replicate 1987. Watching these global and investment banks closely we see they reflect trouble ahead.

Japan has been busy doing the same wild stuff as we see in America. Throwing cheap piles of money at the world for next to nothing (1/2%) and printing Yen at the speed of light.

Worse still, they, along with China have been buyers of last resort for USA bonds and notes hardly worth more than the paper they are printed on. We are not certain at this point which is weaker; the Yen or the U.S. Dollar.

Violence and unrest along with terrible weapons availability for naughty people keeps politicians and armies awake at night. China, Russia and the USA are selling billions in war machine tools. Eventually, somebody will use this stuff.

Oil markets are at higher risk as a result of geography, politics and now religion. Oil traded yesterday with a new record high for that date on the New York Mercantile Exchange. Product scarcity is part of it but so is growing inflation.

Hedge and LBO funds temporarily own way too much cash used for over and under investing (shorting) a host of market sectors. We are seeing some markets careen from highs to lows so fast new trading records appear. These fund guys have been buying ETF gold and when they get cornered on other non-performing assets, they sell the good stuff (gold) to pay for their messes in other markets.

The PPT Plunge Protection Team ordinarily uses these tools to redirect markets:
They sell gold futures, buy dollars, sell Euros, and buy S&P and Dow futures. This removes gold as a flight to safety threat and props the sick junk that needs to either shrink or die financially speaking.

Where Does This Leave Us PM Traders?

We cannot change the trading world but must just learn to deal with it. Junior PM shares offer a great deal of upside but they are going to get beaten around a bit before we find the finish line and cash in our chips.

Senior PM shares have more staying power and market exposure but less upside potential. Shear size requires a lot of buying to make them move significantly.

The few good ones however, are a good choice for part of your portfolio especially very large accounts. We had a good long run with senior stock options but general market volatility and PPT interference caused option seller’s to overprice their products taking away our odds.

Futures’ trading in gold and silver is risky without proper trade management. With expert controls, many times it can be safer then stocks due to high liquidity permitting easy entrance and exits. Spreads and fairly priced options are also good tools. We’ve helped silver traders with outstanding results in this fast market.

Technical analysis works when applied with experience and a handful of proven indicators. Fundamental trading including buy and hold is still beneficial but the time requirement is longer and the outcome is usually better with a larger trade list.

We expect some selling, some accidents and some surprises over the next 90 days.

Weak traders will falter and sell, lying back in the weeds to lick their wounds. Normally, when this happens, your favorite markets take-off in a huge rally and you are out of the game.

Trader Tracks has been preparing and finalizing an updated trading plan to deal with these variables. These new market changes and affectations will not change the outcome. We know the final answer. It’s just the getting there that is more worrisome this time around. It is different this time but not in the way most think. -Traderrog

Roger Wiegand
Online Trading is as easy as 123 if you know how. For details, http://www.online-trading-123.com

Looking back to the 'crash of 1987'

2007-08-01T14:17:00.000-07:00
By Peter Degraaf
Jul 27 2007 4:55PM

www.stockcharts.com

“History does not always repeat, but sometimes it rhymes.” Mark Twain.

A lot of traders and investors are asking the question: “Is it too early to buy, or should I expect more volatility like we saw during the past few days?”

Sometimes, by looking at the past, we can find some clues as to what might happen during similar situations in the present.

The first chart is that of the S&P index performance during the past 12 months.
Charts compliments of www.stockcharts.com

Featured is the S&P daily bar chart. Last week I warned my subscribers (see red arrow), that the S&P and DOW were due for a nasty setback, as the three supporting indicators were flashing warning signs (red dashed lines). The green arrows point to the spots where I now expect this correction to find near-term support.

Let’s take a look next to see what we can learn from a similar situation 20 years ago.

Featured is a chart that compares the 1987 S&P to the 1987 - 30 year bond price ($SPX:$USB), while the 1987 S&P index itself is in the lower box.

A good time to buy the DOW is when this ‘combination index’ is near the 200DMA. A good time to sell is when this chart shows a wide divergence from the 200DMA. The red arrow was a warning sign to the stock market “look out below”. The next chart takes a closer look.

Featured is a close-up of the previous chart. In 1987 those who watched this ‘index combination’ ($SPX:$USB) on a daily basis would have seen on Oct 15 and Oct 16 that it was time to bail out (red arrows), thereby avoiding most of the carnage.

Let’s apply this lesson to today’s chart formation.

Featured is the 2007 - 3 months chart of the ‘comparison index’ that compares the S&P index to the 30 year bond price (SPX:USB) Although I had been warning my subscribers for weeks that the S&P was overbought, on the 23rd and 24th I was able to issue my sternest warnings yet, (red arrows).

Conclusion: You don’t need me, all you need to do is start using this chart pattern as part of your system. BUY GENERIC STOCKS (DOW, S&P etc.) WHEN THIS COMBINATION INDEX IS NEAR THE 200 DMA, AND SELL WHEN IT GETS TOO FAR ABOVE IT!

Let’s take a look at how gold fared in 1987.

Featured is the chart that compares the 1987 S&P index (bottom) to the 1987 gold price at top). Gold initially rose in price, then dropped. Six weeks later gold was higher (blue dashed line, while the S&P (bottom chart), was still on the floor (red dashed line).

Featured is the current gold price chart. While we don’t know what the future holds, we can determine where the support for gold is at present. Support is indicated at $650., (green arrow), the 50DMA and 200DMA are in positive alignment, and both are rising. That is bullish.

The RSI and MACD indicators both have room to move up, along with the gold price.

Some of the damage to the bullish case for gold has been caused by central bank selling during the past few weeks. The positive aspect is that they can only sell it once. In the 1960’s these same central banks (the London Gold Pool), sold tonnes of gold, trying to stop gold from rising above $100./oz. They finally gave up.

Some traders are being spooked by the ’bounce up’ in the US dollar index. The dollar was overdue, especially so close to it’s multi-year support level at 80.00

We should consider ourselves blessed to still be able to buy gold at $650+/oz. Think of those investors in Zimbabwe who have to shell out 3 million Zimbabwean dollars just to buy a gram of gold! Better buy your gold now, for the higher the price goes, the more difficult it will be to obtain the increasing amount of cash that will be required, and the more restrictions the buyer will face. Every year the US Federal government publishes 76,000 pages of new regulations. Some of these regulations will no doubt relate to gold.

We finish this essay with the current XAU, two year, mining stocks chart.

> Most breakouts are tested right after the breakout. This one rose from 130 to 160, and has since given back 50%. It is currently just above the support of the 50DMA and 200DMA. These two moving averages are in positive alignment, and both are rising.

We should soon be able to spot signs that the bottom is in, and the next rise can then take place.

Peter Degraaf

****
Online Trading is as easy as 123 if you know how. For details, http://www.online-trading-123.com

Gold positive: Iran Wants Yen From Japan Not the U.S.$ for Oil - Who and What Next?

2007-07-30T18:05:00.000-07:00
By Julian D.W. Phillips
Jul 27 2007 3:48PM

www.goldforecaster.com

At the heart of the global monetary system lies the use of the U.S.$ as the currency used to pay for the globe’s oil. Any change in that role has a disproportionate impact on the importance of the $ as well as its value relative to the globe’s other currencies. If the oil producing nations of the world decided to use other currencies for oil payments then the global monetary system itself is undermined, making gold more attractive and long-term a safer place to hold one’s savings.

So when we heard that Iran asked the Japanese refiners to switch to the Yen to pay for all crude oil purchases, after Iran's central bank said it is reducing its holdings of the U.S.$, we realized that this is an undermining blow to the $ and will also contribute to the current fall of the $ in exchange rate values, despite any short-term rally.

Iran wants Yen-based transactions "for any/all of your forthcoming Iranian crude oil liftings," according to a letter sent to Japanese refiners that was signed by Ali A. Arshi, general manager of crude oil marketing and exports in Tehran at the National Iranian Oil Co. The request is for all shipments "effective immediately," according to the letter, dated July 10.

Japan's annual oil imports from Iran costs 1.24 trillion yen ($10.1 billion) against the entire world’s demand for oil of around $2.354 trillion a year. This is not a huge amount of Yen let alone U.S.’, but it is significant in that it is a breakaway from the $ and it is possible to break away.

Now add this to the new policy of the Central bankers of Venezuela, Indonesia, and the United Arab Emirates, which have said they will invest less of their reserves in $ assets because of its weakening prospects.

At what point will they permit the switch to other currencies in payment of oil?

Iran isn't alone in wanting to drop the $ as the oil currency. Russia has been favoring the Ruble payment for the Urals oil export blend in rubles to curb currency risks. The nation plans to open the Energy Stock Exchange in St. Petersburg in the first half of next year to trade oil in rubles, U.B.S.

AG reported June 14. Russia’s ambitions as the major supplier of Europe will have considerably more impact on the $ as well as bring the Ruble into the mainstream of global currencies.

Iran asked the refiners to use the Yen exchange rate quoted at the Bank of Tokyo Mitsubishi on the date oil cargoes are loaded. The use of yen-based letters of credit for oil "has finally been approved" by the Iranian central bank and the NIOC, according to the letter, titled "New payment mechanism for Iranian Crude Oil Cargoes."

Japan imported 1.59 million kiloliters of Iranian crude oil in May, the least since June 2006, according to government data. Only Saudi Arabia and the United Arab Emirates are larger oil suppliers to Japan than Iran.

In addition, but not of nearly so much significance, is the policy of Iran in cutting its U.S.$ reserves to less than 20% of total foreign currency holdings.

Consequently it will buy more Euros and Yen as tensions with the U.S. increase, Central Bank Governor Ebrahim Sheibany said on March 27 2007.

It is important to realize that the content of reserves is not nearly as significant as the daily use of the $ in paying for oil, unless it is in the hands of a nation like China with its [so far] $1.3 trillion, sitting statically in U.S. Treasuries and other $ denominated assets.

If one, for example cut the use of the $ in global transactions in oil by half $1.177 trillion, where will these dollars go? They will be surplus to global requirements. As we all know this amount of unutilized $s is sufficient to swamp the foreign exchanges looking for a place to go. Their eventual path will be to absorb it back into Treasuries, a burden that will hit both the Treasury yields as well as the $ exchange rate, heavily.

This is why the paths we have described that lie ahead will be so pernicious to the U.S.$. We have ignored the effect on all other $ users, which if brought in more than justify short, medium and long-term investments in gold.

We have just been informed that China is now quoting in the € on export contracts. Has the change begun to spread significantly? If this is common practice in China the $ will come under heavy long-term pressure. We will continue to keep you informed of such $-impacting events.

Please subscribe to: www.GoldForecaster.com for the entire report.
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Kitco - Commentaries - Peter Grandich

2007-07-23T21:56:00.000-07:00
Kitco - Commentaries - Peter Grandich
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Dollar Broke Down, Gold's Breakout to $700+/oz Imminent

2007-07-20T14:35:00.000-07:00
By John Lee
Jul 20 2007 3:16PM

http://www.goldmau.com

In June I wrote:

The dollar is likely to meander between 81 and 200 DMA of 84 for another month. Hiking of euro rates failed to propel Euro past 1.35.

I still think USDX will break out to the upside. I have been bearish of the Euro at 1.35, I still don’t think Euro can take out 1.35. Euro at 163 to the yen is just not natural in my view.

I was wrong, plain and simple. The dollar is showing exceptional weakness and another 5-10% breakdown can not be ruled out.

The Euro has now broken through key resistance of 1.37, if 1.37 holds, this week, we can see the dollar index below 80. I believe people are betting against the dollar due to the inability for the Fed to raise rates (subprime problem) to calm inflation and make the dollar more attractive.

The (relatively) free-trading Asian currencies such as Philippine Peso and Thai Baht also have gone up 10%+ over the dollar this year.

I see another 10-20% upside in those currencies in the next 12-24 months, and as much as 40% upside for RMB (i.e. 5 RMB to 1 USD) in the next 5 years.

You think I am crazy?

5 years ago Canadian dollar was C$1.45 to US $1. Now it’s C$1.04 to US $1. The Canadian dollar rallied over 13% since March. This is nothing short of a crash by the dollar over the loonie.

I don’t see any impending crisis by the dollar’s breakdown, it will just bolster the case for gold, the sore lager in catching up to dollar’s fall.

Gold and Silver:

In the June update I wrote:

Gold is clinging on to $650, which acts as solid support. Gold has never dipped below 200 DMA ($635) for more than a month at a time and I don’t think it will go that low with May already behind us.

While I was wrong on the Euro, I was right on gold. With most major and Asian currencies having broken out against the dollar, I place very high probability of gold breaking out of $675 and then $700 by September.

In June I wrote:

XAU is still in consolidation mode.

However the XAU:Gold ratio is ticking up and challenging 200 DMA. Gold equity continues to go up against gold this could signal the final bottom for both gold and gold equity.

If XAU survives and stays above 150 this week, we should see it challenge its 2006 high of 170 before September. XAU:Gold ratio also broke out. This indicates a bottom for both gold and XAU. If the ratio restores to its old high of 0.28, a $700 gold would mean a XAU of 200. A $850 gold price coupled with XAU:Gold ratio of 0.28 would mean a XAU of 240. XAU would be my first profit taking level and my target for 2007.

CRB and Oil:

Oil looks to test $80. I am very surprised at its strength, which is a partial reflection of the dollar’s weakness. I wouldn’t rule out a break out over $80 if the dollar breaks beneath 80.

Conclusion:

The dollar is now showing exceptional weakness and now sits on critical support of 80. The breakout of Euro caught us somewhat by surprise.

Lingering subprime issue prevents the Fed from raising interest rates, and persistent trade deficit and deteriorating global image of the dollar means dollar could have further downside to go.

This is bullish for gold. There was no crash by the XAU so far this summer as we rightly predicted. The XAU:Gold ratio clearly broke out to the upside, which means gold and XAU have both likely bottomed. XAU is now favored over gold from risk / reward perspective. We see July and August as last chance to buy XAU before its spectacular break out above 200 this year.

John Lee,
CFA john@maucapital.com

****

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Why you should like Inflation

2007-07-13T14:07:00.000-07:00
If you know how to make your wealth with inflation, you are belonged to the top 5% of investors.

Kitco - Commentaries - Sol Palha
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Gold market update

2007-07-12T14:05:00.000-07:00
After gold has been depressed for more than 1 year,think about this. Goverments around the world have been printed money over 10% for more than 5 years.

Is this a chance to make money if you know how?

Kitco - Commentaries - Clive Maund
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Do you think bond is a safe investment?

2007-07-06T11:36:00.000-07:00
Read this article before you say "yes".

Kitco - Commentaries - Jim Willie CB
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Gold & Inflation

2007-07-02T16:17:00.000-07:00
GOLDDRIVERS 2007

By Eric Hommelberg
Jun 27 2007 10:26AM

www.golddrivers.com

In cased you missed it gold is coming down lately. Today (June 26) it fell by another $10 and touched its 200 dma for the first time since early 2007.

Sure enough bearish sentiment has been propelled to new extremes as a result of this sudden drop and spooked out many investors out of their gold positions. Time to worry? No! Why not? Well, gold touching its 200 dma is a phenomena we’ve been witnessing once or twice a year since the start of this gold bull market in 2001 and sure enough we’ll be witnessing it many more times in the years ahead. It’s just part of the game.

When examining previous bottoms we’ll see that whenever gold touched its 200 dma it entered a ‘BUY’ zone in which it can stay for up to two months before taking off towards higher levels.

Does it mean that gold can’t drop any further from here on?

No, that’s not what I mean, what I want to say is that we find ourselves near bottom levels. Even if gold would drop further from here there is no reason for worry since the worst corrections in gold (since 2001) have been characterized by relative gold values (gold vs its own 200 dma) of 0.95 and needless to say we are nowhere near such depressed levels yet. In order to do so gold would have to drop all the way down to $605.

Now I’m not predicting a further drop towards $605, all I want to say is that corrections towards gold’s own 200 dma and slightly below are a normal phenomena in any on going bull market .

So what to do now then?

Well, the only appropriate thing to do right now is to do nothing at all. This bottom process will most probably end in this price area and as I pointed out in my piece ‘GoldDrivers 2007 – Gold’s Fundamentals still pointing towards $2000+’ there is still plenty of reason to be bullish on the outlook for gold coming years. Always consider yourself what fundamentals launched the gold price from its 22 year low of $250 in 2001 to current price levels around $650 today.

What fundamentals changed in order to justify the end of this bull run? The answer is simple. None! In part I we shone a light on gold’s historical average and the US$ and needless to say we couldn’t find any bear argument over there, in contrary, in order to reach new historical ‘REAL’ highs gold should be trading above $2000 levels these days.

In this piece we will shine a light on gold related to inflation:

IMPORTANT NOTE: It’s not my aim to build a case for higher gold prices just on higher rates/inflation alone. Inflation is just ONE of several critical drivers for gold. In part I we discussed gold related to the dollar and its historical norm, today we will shine light on gold related to inflation and next essays will shine a light on other critical drivers like supply/demand/oil and manipulation.

Gold & Inflation

In part I (gold &US$) I quoted a popular bear tune which wants you to believe that rising rates are being the death knell for gold. The fact however is that rising rates as a result of a dropping dollar is a strong critical driver for gold which was the case during the seventies indeed when the 10 year yield rose from a mere 5% in the early seventies towards 15% in the early eighties. Gold performed extremely well in that environment since it rose from $35 towards $850.

That’s the big picture, please commit this to memory since daily market commentary on gold will get you nowhere. Reading daily market commentary is like staring at noise which troubles the big picture behind it. What I mean is this, gold can move in opposite direction on certain news as one would normally expect. It’s no secret that the big financial power houses (read commercial bullion banks) aren’t very pleased with rising gold prices so they knock gold down on gold bullish news. They do it it such a blatant way that it has become a joke.

Gold experts who endorse GATA’s claims like eg John Embry, Frank Veneroso, James Turk, Peter Grandich, Doug Casey and Peter George are reporing the counter intuitive moves for years but unfortunately most of the main stream gold analysts still don’t get it..(We will discuss Gold & GATA more in detail in a separate essay). But if you have a good sence of humor you can enjoy yourself by reading daily comments like:

Gold going down on lower oil prices since lower oil prices are a boost for the economy therefore reducing gold’s appeal as an alternative for the DOW.

Gold going down on higher oil prices since higher oil prices are bad for the economy thereby reducing demand for gold jewelry. This will lead to lower gold prices.

Gold going down on a higher dollar since a higher dollar reduces the need to for investors to protect themselves (by means of gold) against a loss of purchasing power.

Gold going down on a lower dollar since a lower dollar leads to rising rates which in turn could have a devastating effect for home owners thereby impacting the economy on a negative note thereby reducing demand for gold à lower gold prices.

Gold going down on inflation fears since a rising inflation would force the FED to raise rates which would strenghten the dollar thereby encouraging investors to sell their gold in favor of the dollar.

Gold going down on a rising DOW since rising stocks provide a better alternative for the investor than gold.

Gold down on a crasing DOW since investors need to cash in their gold position in order to provide the investor with enough liquidity fast (eg in order to meet margin calls etc....)

Now please don’t think these remarks are exaggerated, just check it out yourself posted on thestreet.com. Gold bearish themes as a result of higher rates to come followed by gold bearish tunes as a result of lower inflation rates to come all within 6 minutes, in summary this is being said:

First part of interview: Higher rates à weighing on the economy à weighing on the stock market à downdraft on the commodity markets à 20% downturn in gold

Second part of interview: Experts see a very healthy US economy with low inflation (low inflation is lower rates) 6 months down the road à healthy for the dollar à pressure on the gold price.

END.

There it is, no matter what the US stock market does, gold should go down, no matter which way rates are heading, gold should go down, at least that’s what many gold analysts want you to believe.

You get it?

My point is that daily market analysis is almost completely useless and confusing since it troubles the big picture behind it. Daily market analysis is like discussing weekly weather temperature swings and extrapolating the weekly temperature trend 6 months ahead. But as one can imagine staring at weekly temperature trends is staring at noise which will get you nowhere.

In order to get an impression of what weather temperatures could be 6 months ahead it might be a better idea to analyse last years temperature cycle and try to determine where you find yourself this year into that cycle.

The same analogy applies for the gold market as well. Staring at weekly/daily movements doesn’t make sence at all since it doesn’t tell you anything. In order to get a grasp of what could lie ahead it’s better to understand the implications of a massive scale of monetary inflation, one almost never witnessed before.

Sure enough enough one could argue about the true rate of inflation but I would say if you still believe your government inflation statistics then please forget about gold. The simple fact is that central banks around the world are printing their currencies into oblivion which simply leads to a lower confidence in their corresponding currencies which in turn undermines investor’s willingness purchasing bonds at an ever increasing pace neccesary to keep the system going.

So printing money at an ever increasing pace inevitably leads to the only single conclusion possible:

Inflation will roar it ugly head in the years to come.

Please make no misstake about it, the central banks are printing money like if there’s no tomorrow. The Russian central bank is inflating its money supply at an astounding 57% annualized, the US by 14%, Australia by almost 14% …In fact you won’t find any big powerhouse around the world which is inflating its money supply at less than 10%!!

You really think this is all deflationary? You really think that all this fresh printed money represents real value? You really think the government is telling the truth when they say there is no inflation?

Well, the simple fact is that US inflation rates are running at approximately 10% these days. The official hedonic adjusted inflation rates which the government wants you to eat are a blatant joke. PIMCO’s Bill Gross once called the government CPI numbers a ‘haute con job’ and so does 90% of the american public.

But how on earth do they (government) manage to report low inflation figures while inflation is on the rise? Well, reporting low inflation numbers is easy. All one has to do is to remove all items contributing to higher CPI figures. If someone starts questioning for reasons doing so then tell them these items are too volatile to be included. Sure, as long as you don’t have to eat and drive all is well...As said above there aren’t that many people around trusting the government official inflation numbers.

When using methodology as during the pre-Clinton era in order to calculate CPI figures then CPI numbers today would be clocking figures exceeding 6%, not the bogus 2%+ reported today. John Williams, a specialist in government economic reporting says on his Shadow Government Statistics website that current inflation levels do exceed the 10% mark already.

Well, whether you believe the governments stats or not the bottom line is:

A country that prints its currency into oblivion will see its value declining towards its intrinsic value which is zero! As mentioned above with countries like Russia accelerating their printing presses by an astonishing 57% annualized, the US by 14% etc …it ain’t hard to understand which way the value of paper money is heading.

The answer is lower! Paper money losing its value simply translates itself into higher inflation numbers.

Now let’s turn to the charts and see what history says about gold vs in flation:

The chart above clearly demonstrates the strong correlation between rising inflation figures and gold. Sure, the official CPI number shows us a comfortable 2%+ inflation rate and the FED has assured us that inflation is well contained. Well, never mind sky-rocketing food prices, never mind sky-rocketing energy prices, all is well as long as you believe the official government stats.

Sure enough you can eliminate oil prices from the CPI calculations but in the end rising oil prices will find its way into higher CPI figures anyhow. Since the era of cheap oil can only be found in financial history books as of today higher energy prices will worm itself into the entire system which will eventually be reflected in higher PPI/CPI stats.

Now let’s take a peek at the oil vs inflation chart:

This chart shows us a very strong correlation between oil and inflation indeed except for the last few years. The reason is quite obvious since the government is understating real inflation numbers tremendously. As said earlier, the true rate of inflation is about 10%.

Now we do have a very dangerous mix here which concerns an explosion in US money supply and ever increasing energy prices which in turn could lead to an inflation tsunami sending gold prices to levels unimaginable today. Please be aware that the US money supply increased by more than 100% over the last 10 years.

When the US money supply doubled from 1965 to 1974 it led to an average inflation rate of 9.2% per year from 1973 to 1981. When it comes to ever rising energy prices please take into account that the world’s biggest oil fields producing 80% of world demand find themselves in an unstoppable decline therefore energy prices aren’t likely to come down. (We will deal on this subject in detail in a separate essay ‘Gold & Oil’).

The bottom line is:

Inflation and higher rates are here to come which will benefit gold prices since gold remains the ultimate hedge against inflation.

OK you’ll say, gold as a hedge against inflation but what about the argument of a collapsing commodity market sucking money out of the gold market?

Well, let me ask you this:

the commodity market bottomed out in 2001 and is in a bull trend ever since then, just like gold. Please be aware that commodities today are still dirt cheap compared to their ‘REAL’ highs clocked in the early seventies. In order to reach new ‘REAL’ highs the CRB index should be clocking 1000+, not the 400+ showing off today.

You get it? Commodity prices were coming down for more than 30 years and now most analysts are freaking out of so called extreme high valuations after a tiny little 5 year bull move.

The chart below shows the CRB index adjusted for inflation and it’s quite obvious that commodities still have a long way to go in order to catch up with previous record highs clocked in the early seventies.

This chart clearly says that both gold and commodities still have a long way to go before they reach new ‘REAL’ highs. A CRB index clocking 1000+ and gold prices clocking $2000+ would be required in order to do so!

Now please forget about the argument that a reduced economic growth in China would hurt the commodity sector since a reduced demand for commodities could only be achieved by a negative economic growth. The point is I don’t care even if the Chinese economy would slow down to a moderate growth of 8% since it WON’T reduce demand for commodities. It’s the pace of growth in demand that would decline, but still demand would grow! The bottom line is:

Economic growth = increase demand for commodities no matter whether economic growth is 1, 2, 3 or 17%. Same applies of course for India et all….

Highlights:

Inflation took off after the US money supply had doubled from 1965 to 1974 leading to an averaged inflation rate of 9.2% per year from 1973 to 1981.

US money supply increased by more than 100% again over the last ten years. Signs of accelerated inflation in sky-rocketing food and energy prices are clearly visible.

Higher energy prices will worm itself into the entire system which will eventually be reflected in higher PPI/CPI statistics.

Higher energy prices are not the result of an oil crisis but of a demand driven bull market in oil.

The end of cheap energy has arrived.

Higher energy prices à higher inflation numbers à higher gold prices.

Ever increasing energy prices on top of an explosion in the US money supply (increase by more than 100% in last 10 years) is a dangerous mix. An Inflation tsunami could be the result which could send gold prices to levels unimaginable today.

Despite the fact that the long term outlook for gold remains as bullish as it can get it should be noted that gold’s bearish sentiment these days won’t disappear over night and yes, many analysts are still calling for a further drop as from here.

But if you are a believer in gold’s future then these are the time to increase your gold share positions since the gold shares are selling at fire sale prices due to this extreme bearish sentiment. In other words, downside risk is low. Higher gold prices the years ahead will lift the entire gold share sector but the most exciting rewards will come from junior mining companies making new discoveries.

Here at the Gold Discovery Letter we track promising junior companies which we believe could be huge winners before this decade is out. If you would like to participate you could opt for a free trial subscription (one month).

For the more advanced/experienced investor we just introduced a new discovery mail service which delivers all discovery news within 15 minutes of initial press release to the end user’s mailbox.

Investors who are more interested in general market behavior can opt for our new TGDL chart service by mail which delivers all charts being used here at golddrivers.com by e-mail to the end user on a weekly base accompanied with links to related articles.

Please feel free to send comments to:

ehommelberg@golddrivers.com

Best Regards,

Eric Hommelberg

The Gold Discovery Letter/
The Gold Drivers Report
www.golddrivers.com
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Gold and Silver...What is up?

2007-06-28T16:08:00.000-07:00
What's Going On In PM's?!

By Michael Kilbach
Jun 28 2007 3:31PM

www.investmentscore.com

The past few days of trading in gold and silver are a great example of why we continually stress the importance of keeping the big picture in perspective. It is difficult not to become emotional when dramatic one day drops catch even the most seasoned investors off guard.

In the short term, strong dramatic price drops strike fear and doubt into our trading decisions. In these situations we are likely to sell out of our well considered investments and bury our heads in the sand as we can not bear to watch. Remember, if trading the financial markets was easy, everyone would be home building wealth and nobody would be working.

In this article we will show a series of charts that may help put some perspective on the recent price action in silver and gold.

The following is the three year weekly chart of silver ending June 26, 2007:

(Chart courtesy of StockCharts.com)

Does this next chart look familiar? (Please carefully compare the two charts)

Below is a three year chart of the weekly price of silver ending August 26, 2005.

(Chart courtesy of StockCharts.com)

You will notice the following similarities in both charts above:

A major price advance, correction and consolidation climbing on a strong trend line (blue line).

After many months of consolidation, an aggressive price drop (blue oval) below the blue uptrend line.

The RSI (top blue circle) breaking below 50.
Please note what happened to the price of silver by April 20, 2006 in the following chart:

(Chart courtesy of StockCharts.com)

Above is a three year chart of the weekly price of silver ending April 20, 2006.

In the above chart you will notice:

The dramatic short term correction in August 2005 outlined by the blue oval.

After a few more weeks of sideways trading action a major price advance followed (outlined in blue box).

The above similarities between August 2005 and June 2007 are remarkable but it does not necessarily mean the same result will transpire. However, this observation does help put into perspective the potential deception of short term market movements. The shocking one day drop in the price of silver and gold on June 26, 2007 may not be as abnormal as it first appears. Following short term trends sometimes results in investors forgetting the bigger, more important picture.

In the big picture, does gold still appear to be in a long term trend? Does Silver still appear to be in a long term trend? Are precious metals over valued relative to other investments? Do we see a massive surplus of silver, base metals, and other commodities inventories? In the big picture could this possibly be a relatively low risk buy point?

We certainly do not mean to imply that we know for certain exactly what will transpire in precious metals in the coming days or weeks. Short term movements are very difficult to predict.

We are in a seasonally weak time for precious metals and the price of bullion as well as mining shares could easily head lower. Caution is warranted but when we keep these short term movements in perspective it is easier to keep our emotions and trading decisions under control.

We do not plan to sell what we believe are our undervalued positions but instead we will be looking for buying opportunities in precious metals investments. If we are lucky we may even be able to buy at lower prices.

If you found this article useful please watch for our soon to be released “When Is It Time To Worry?” article on this website.

You may also subscribe to our free newsletter at www.investmentscore.com. Finally, stop by and check out our unique custom timing charts and investing system when visiting www.invesmentscore.com.

Michael Kilbach
Email: info@investmentscore.com

June 28, 2007

****

Legal Disclaimer: No content provided as part of the Investment Score Inc. information constitutes a recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. None of the information providers, including the staff of Investment Score Inc. or their affiliates will advise you personally concerning the nature, potential, value or suitability or any particular security, portfolio of securities, transaction, investment strategy or other matter. Investment Score Inc. its officers, directors, employees, affiliates, suppliers, advertisers and agents may or may not own precious metals investments at any given time. To the extent any of the content published as part of the Investment Score Inc. information may be deemed to be investment advice, such information is impersonal and not tailored to the investment needs of any specific person. Investment Score Inc. does not claim any of the information provided is complete, absolute and/or exact. Investment Score Inc. its officers, directors, employees, affiliates, suppliers, advertisers and agents are not qualified investment advisers. It is recommended investors conduct their own due diligence on any investment including seeking professional advice from a certified investment adviser before entering into any transaction. The performance data is supplied by sources believed to be reliable, that the calculations herein are made using such data, and that such calculations are not guaranteed by these sources, the information providers, or any other person or entity, and may not be complete. From time to time, reference may be made in our information materials to prior articles and opinions we have provided. These references may be selective, may reference only a portion of an article or recommendation, and are likely not to be current. As markets change continuously, previously provided information and data may no be current and should not be relied upon.
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Gold Mining Stocks - What's Happening

2007-06-22T14:07:00.000-07:00
By Kenneth J.Gerbino
Jun 21 2007 2:45PM

www.kengerbino.com

Precious metal stocks are undervalued based on current metal prices. This is not rocket science.

One takes the 2008 or 2009 production estimates which are usually reasonably accurate and then calculate costs and taxes and one comes up with a cash flow per share number.

If the price of a gold mining stock is selling at 10-12x expected cash flow then historically that mining company is probably undervalued (unless there are other unusual factors), as 20-30 times cash flow would be more in tune with a good metals market. This is where we are today. The shares may be saying that gold in the short term is going lower and cash flows will also be heading lower, hence the lower expected value.

If this is true, it will only be temporary.

My gut feeling, after 34 years in the gold share markets, is that the vast majority of investors and institutions who believe in inflation and all those who believe in an economic and monetary collapse have already invested in gold and silver. That’s it. All the believers are already “in the pool”. Until new investors show up, expect a sideways market possibly between $575 and $700 gold. Trading ranges are very common on Wall Street in any sector until events occur that change more investor’s minds. As readers of this piece most likely realize, there are plenty of reasons coming in the future that will bring on a huge new wave of investors and hoarders of gold and silver. Later I discuss a few new trends.

Let’s look at the precious metal prices.

Gold, silver, and base metals, are benefiting from world economic demand factors. This demand is buoyed by relatively low interest rates in the industrialized nations and progress in the developing nations. This may continue for another year but eventually an economic slowdown will likely be in the cards as inflation pushes interest rates higher. When inflation returns from the excess money created by most nations over the last 15 years, interest rates will have to rise.

Inflation will then drive the precious metals higher on a global scale regardless of higher interest rates.

Inflation and Interest Rates

In the U.S., the Fed will resist this interest rate rise to assist the real estate market and the banking establishment from suffering from the excess of debt that has been issued on home equity loans and sub par mortgages. At some point the market will take over and interest rates will follow inflation and they will naturally rise together. A recession should ensue. This follows past cycles. With inflation, the precious metals will become an inflation hedge and should outperform most other asset classes. Currently the metals have appreciated because of economic growth and jewelry demand. As inflation returns, investment demand will take over and move gold even higher. This will be a global phenomenon. Month after month, year after year of inflation will surely move the metals to much higher levels.

A slowdown in the U.S. economy will have less of a global impact than in the past since the U.S. is now only 22% of the global economy.

In the event of a worldwide economic contraction, nations can collectively bail themselves out with money and debt creation regardless of U.S. monetary policy. This would mean continuing strong precious metal demand and be bullish for gold as many world governments will lean toward printing money to solve economic problems.

Gold and Silver Prices

India (the largest precious metal consuming country) is now experiencing strong food price increases. The powerful Congress Party just lost heavily in two state elections because of inflation. This is an indicator to us that gold and silver buying in this country will continue for quite some time because inflation is not a short term economic phenomenon. Once it starts it lasts for years.

The U.S. Department of Agriculture is projecting the lowest inventory carryover of corn and soybeans in history, despite extremely good planting weather for the last 10 years.

Grain prices are going to rise because of these low inventories and the diversion of corn to energy use in ethanol. Cereal and meat and poultry prices are going up because grains are the main cost to fatten them up. Later in this report I discuss another agricultural factor that is also inflationary.

The gold price in the past was always influenced by the number of commodity contracts traded on the various commodity exchanges in the U.S. Large liquidations in these commodity contract positions by commercial players and commodity trading funds in the past always saw gold decline.

For the past year, there has been a counter force to this activity. Recently gold has gone up in the face of very large liquidations. This is telling us that there is massive physical buying of the metal beyond the usual players. Current gold demand is firm while global economic activity continues at a healthy pace. We believe this strong demand will likely increase as the debt and monetary excesses from the past decade start to manifest themselves.

Commodity Prices

The graph is telling an important story. This Commodity Research Bureau (CRB) graph shows what took place in the U.S. economy that at the time was almost 40% of the world’s GDP from 1962 to 1972. Commodity prices were in a historically low sideways range. Subsequently, the huge paper money increases from the 60’s and early 70’s finally took hold and prices of hundreds of basic goods exploded from 1972 -1982. This was also a good time to be in the precious metal stocks as gold increased from $100 to over $800 (in 1980).

The CRB today is now threatening to repeat a similar upward phenomenon in the next 5 -10 years for basic commodity goods.

The paper money increases of the 80’s and 90’s will most likely begin to effect the general price level just as past paper money increases in the 60’s affected prices in the 70’s. The new 800 pound gorilla in this economic equation is China and India.

The demand for resources from these two developing giants is going to be the major mega trend of the next 25 years that will affect all commodity resources.

Precious and base metal mining companies will certainly benefit from this trend.

The graph below shows that adjusted for inflation, the strong commodity bull market that started in 2001 has barely begun to catch up in real terms to the general price level of everyday goods and services in the 1960’s.

This graph implies that a doubling of commodity prices from 2006 levels would only take the index in real terms to the price levels of the 1960’s. Therefore commodity prices should continue to trend much higher over the next decade. This graph makes a strong case for investing in companies that own or produce natural resources especially precious and base metals.

With global liquidity increases at excessive levels the last ten years and below average capital investment by commodity producers from 1983 to 2003, all markets (Bonds, Stocks, and Commodities) in most countries will be affected by this coming mega-trend.

Bonds and most stocks will react negatively and commodities will stay in above average price ranges and trend higher.

New Inflation Trends

I’ve listed the “usual suspects” investors fear many times as critical reasons to invest in the precious metals; printing excess money, debt burdens at high levels, budget deficits, trade deficits and geo political unrest. The “usual suspects” are generally caused by politicians.

On the horizon are various new mega trends that are caused by Mother Nature and normal people. These new trends will also affect the price of gold and silver in the future. Since jewelry demand alone takes more gold off the market each year than mines produce, the “usual suspects” combined with the new reasons below should benefit the precious metals and our portfolio companies in the coming years.

The first new trend is the inexplicable near decimation of the world’s bee population over the last 24 months.

Don Coxe from the Bank of Montreal reports that 33% of the US diet comes from products that depend on bees for the crucial pollination of the producing plants. In the U.S. between 30-90% of the bee populations in various states have disappeared. This means food costs could go up dramatically in the U.S. as many crops (including fruits and alfalfa) that depend on bee pollination could face significant shortfalls.

Alfalfa is a crucial feed for cattle and dairy cows and hence the price of meat, poultry and dairy products should be affected.

The second new trend is Peak Oil,

defined as the peak in global oil output combined with increasing demand and therefore a supply shortage. It looks like this Peak is here right now or very close. Most oil fields hit peak production for only the first 3-5 years and then decline by 5-20% annually until the field becomes uneconomic. Over 75% of the oil fields that supply 80% of the world’s oil are all in unstoppable production declines. For every four barrels of oil we consume we only find one barrel to replace it. Consequently, energy prices are going to stay high or go even higher in years to come.

Food and energy are a big part of the inflation picture, therefore accelerating inflation is coming to the U.S. as the trends mentioned above are now joining the “usual suspects”.

Economist John Williams reports that of the top 20 largest central banks in the world, 18 of them are printing money at double digit rates. This alone is a good reason to expect more global inflation in the future.

Foreign central banks own trillions of dollars of U.S. Bonds.

In the coming years when they decide to sell just a portion of what they own, it will force the Fed to purchase this debt. The Fed can only accomplish this by creating new money and it will coincide, most likely, when the forces of inflation are already on the move.

The combination of these two events will propel gold, silver and other metal prices much higher. Even though we expect a much higher gold price, a gold price of just $500 (substantially below current levels) will still have positive implications for many of our portfolio companies.

Paper Money and the Developing Nations

Paper money increases always lead to inflation, inflation always leads to rising interest rates, rising interest rates always leads to a weak bond market and weak bond markets always lead to weak stock markets.

This is a simple road map based on the realty of the last 120 years. It means 20% in precious metal stocks as then other defensive investments (short term bonds, Swiss francs, 1-2 year duration US Treasuries) is a conservative posture recommended at this time.

Hangzhou, Changchun, and Chengdu are not well known cities, yet each have over 5.5 million people and are among the 50 largest cities in the world, 12 of which are located in China. These cities are facing an urban population expansion as China industrializes which has created huge demands for raw materials, especially metals.

The Chinese, Indian, and Russian populations will require more raw materials than the world has ever experienced. These governments are also mismanaging their economies with inflationary policies well beyond the danger point which should cause precious and base metal prices to persist at much higher price ranges than past economic cycles.

Our portfolio is strategically positioned to take advantage of new mines coming on stream in the next 1-2 years to supply these needed minerals as well as take advantage of an expected robust gold and silver market that will move the mid tier and larger mining companies to higher levels.

Summary

All global markets including the metals/mining stocks are experiencing unusual volatility.

This may continue for awhile longer. The mining stocks are currently oversold and undervalued versus the current price of gold and should have a strong 3rd and 4th quarter.

There are just too many factors that are on the horizon for precious metals not to respond to higher levels.

The mining sector lead by the gold and silver mining companies should be the premier investment sector for the next decade. Patient investors should be rewarded with above average returns while enjoying above average portfolio and monetary insurance as politicians globally ignore centuries old basic economic laws that clearly prove that printing money and creating high debt levels to solve short term political problems always ends up creating more economic problems.

Gold is the people’s choice for safety and lasting value.

I will speaking at what I think will be one of the great investment –political -economic conferences you could ever hope for.

My long time friend and world renowned economist Dr. Mark Skousen has assembled a great mix of notables to speak: Congressman Ron Paul, Doug Casey, Arthur Laffer, George Gilder, Frank Holmes and dozens of others. It will be July 5-7th at Bally’s Paris Resort in Las Vegas. You can register by toll free number: 866 266 5101 or go to the website www.freedomfest.com

For other articles on gold, precious metals and the stock market please visit our website commentary section. www.kengerbino.com

Ken Gerbino
21 June 2007

****

Kenneth J. Gerbino & Company 9595 Wilshire Boulevard, Suite 303 Beverly Hills, CA 90212 Telephone: (310) 550-6304 Facsimile: (310) 550-0814 E-mail: kjgco@att.
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Your Cash is Trash, and So Are Most of Your Investments

2007-06-22T13:59:00.000-07:00
June 14, 2007

www.KitcoCasey.com Email Article
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Your Cash is Trash, and So Are Most of Your InvestmentsBy Doug Casey, Editor, International Speculator

Almost everyone, probably including yourself, gets held back by inertia at one time or another. It can happen with anything, including investments.

Inertia weighs on an investor, trapping him in a state of paralysis and freezing his portfolio, almost forcing him to hold on to whatever he already owns – for no better reason than that he already owns it. He hopes that every one of his old shoes will go up, even if the reason for the purchase is long forgotten or the environment in which the investment might have prospered has vanished. People who substitute hope for cold-blooded analysis almost inevitably wind up losing money.

So, for the sake of argument, let’s look at where you might best put your money for the rest of the year 2007. To keep things simple, let’s assume you start by liquidating all the cats and dogs populating your portfolio, so that you have just a pile of cash. No, let’s not phrase it that way… because then you’re going to start wondering which of the securities you own really are cats and dogs. You might get bogged down. And then inertia will creep back in, and you’ll throw your hands up and do nothing. So let’s assume you sell everything, in true going-out-of-business style.

Now, what’s the smartest place to put that money?

Let’s look at the alternatives.

Bonds?

A disastrous sucker bet. Bonds, at the moment, are a triple threat to your capital. First, you have a huge risk with interest rates, which are still near historic lows; as they go up, the market value of your bonds drops proportionately. Second, no matter which of the fiat currencies you choose, you have a big currency risk; while the US dollar is on the fast train to zero, virtually every other currency in the world is being inflated along with it and is heading toward eventual oblivion. Third, you have credit risk; General Motors isn’t the only large company whose bonds may go into default.

Stocks?

The general market is yielding less than 2% in dividends, less than 1/3 of what you typically see at major market bottoms. And selling for more than 18 times earnings—more than 25% higher than its norm. Worse, for those who might be buyers, the bull market of the century started in 1982 and, in inflation-adjusted terms, ended in 2000. You might not want to hear it, but stocks are almost certainly early into a bear market that could last another 5 or 10 years. By all traditional measures, chances are much better that stocks will drop 50% from here than gain 50%.

Cash?

You could always just stay in T-bills. But they currently yield only 5%, before taxes. And inflation (notwithstanding the highly imaginary official figures) is probably running around 6% and likely to head higher.

Real Estate?

At the present, at least in the U.S., this is probably the worst choice of all. The speculative boom crested last year, and the market, burdened by an immense amount of debt and overleveraged speculation, is likely to head down for years to come. Of course, there are places in the world, two of our favorites being Argentina and Uruguay, where there isn’t much of a mortgage market, so the properties aren’t overleveraged and values are still available. But unless you are looking to pick up cheap land in undeveloped, exotic countries that have avoided the credit-driven bubble, real estate should be last on your list of investments.

Mutual funds?

Any mutual fund you’re likely to pick is just a way of buying one of the investments we’ve already dismissed. And paying all those fees and expenses that come with a mutual fund just makes the bet that much worse.

So What Should You Do?

Since 2001, we’ve been in a natural resources bull market. If you were one of the few who positioned yourself in gold, silver or pretty much any of the metals or energy commodities – either directly or through the shares in smaller resource companies, which is the preferred vehicle we have been recommending to subscribers of our International Speculator -- you’ve already made the easy money.

At least to us, before the bull market kicked off, the opportunity in the sector seemed obvious, with many resource companies selling for less than the cash they had in the bank. Few people even knew the sector existed, and most of them thought it was a dead duck after the 20-year-long bear market it had suffered since 1980.

The easy-money stage of the resource bull ended in 2003, at which time we entered the second stage, where the market climbs a “wall of worry.”

In even the most formidable of bull markets, this phase comes with inevitable corrections and scary downdrafts. Per its moniker, with each short-term setback in price, investors who were shrewd enough to get positioned early on into the long bull market fret that they might be wrong. Some are shaken out, but the smart ones buy even more on the dips.

But now, in my opinion, we are about to enter the third, and most important, stage of the classic bull market: the mania stage. This will resemble the tail-end of the Internet stock bull market. It’s hard to predict exactly what catalyst will set it off, but it will very likely be rising expectations for inflation. Fear will drive the foreigners who hold about $6 trillion to sell the greenback, and they’ll be joined by savvy Americans.

Some will buy other paper currencies, like the euro or the yen. But those units are just backed by U.S. dollars themselves, so they really aren’t much in the way of an escape pod. Inevitably, much of the money now sloshing through the world will try to get into gold. While no one can say with certainty, I expect the metal to hit $1,000 within the next 12 months and go much, much higher by the end of the decade.

Is this an unreasonable prediction? No.

Most casual investors mistakenly look at gold and think it’s been a leader in this bull market when, in actual fact, it’s a laggard compared to the industrial metals that have been bidden up to extraordinary highs by soaring demand from China, India and other emerging markets.

To give you just a few examples, in the last five years, copper has been up 330%, nickel 560%, uranium 1,150%, zinc up 460%, molybdenum up 450%, and even lowly lead, the most basic of base metals, is up 425%. By comparison, gold is up only 100%.

That will change, however, because although gold has many and growing industrial uses, it’s main use is as money. It will dawn on the herd that the world is drowning in a flood of increasingly worthless paper currency, and they’re going to stampede toward the high ground of gold.

The metal isn’t just going through the roof. It’s going to the moon.

Gold Good, Gold Shares Better

When gold really starts to move, the mining exploration stocks are going to howl. That’s because gold exploration stocks are not just highly leveraged plays on the price of gold. They are capable of providing you with triple-digit gains based on exploration success alone.

Case in point, the last mining share boom from 1993-96, which occurred at the tail-end of gold’s 20-year bear market and carried hundreds of stocks with it, was driven entirely by a handful of discoveries.

Since gold prices turned up, starting in 2001, a lot of money has been spent on exploration, and that work will inevitably lead to major discoveries and market excitement.

Several of the companies we follow in our International Speculator are already drilling into what look to be monster deposits. Confirmation of a major discovery could well ignite a mania in the market.

While most other investments, such as bonds, industrial stocks, real estate and broad mutual funds are likely to be serious losers over the coming years, the bull market in gold and gold exploration stocks has still barely entered the public’s consciousness.

Although the easy money has been made, the big money is waiting to be picked up.

Nothing in the investing world is ever a sure thing, but today the exploration stocks look to be as close as it gets. As for the inevitable corrections during this “wall of worry” phase, remember that the time to be timid is when everyone else is bold, and the time to be bold is when everyone else is timid. Sell-offs in the gold and gold mining sector are, to our way of thinking, gift-wrapped opportunities to buy.

Doug Casey is chairman of Casey Research, LLC., one of the nation’s oldest and most respected organizations dedicated to providing independent investors with unbiased research on opportunities to earn extraordinary profits by being just ahead of the crowd. BIG GOLD, new from Casey Research, provides subscribers with actionable research on the unfolding gold bull market and on profiting from the world’s best gold producers, near-producers, gold mutual funds, ETFs and more. You can try it without risk. To find out how, click here.
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Kitco - Commentaries - Kenneth J.Gerbino

2007-06-22T07:43:00.000-07:00
Kitco - Commentaries - Kenneth J.Gerbino
Online Trading is as easy as 123 if you know how. For details, http://www.online-trading-123.com

Kitco - Commentaries - Roger Wiegand

2007-06-22T07:33:00.000-07:00
Kitco - Commentaries - Roger Wiegand
Online Trading is as easy as 123 if you know how. For details, http://www.online-trading-123.com