Bob Hoye: the voice of reason

I always enjoy Bod Hoye's work, his lucid and clear analysis of the gold market is a standout among the backslapping tendencies of many gold-bug newsletter writers. You can find Mr. Hoye's writtings at www.institutionaladvisors.com, this article was posted on 321gold.com.



GOLD’S BEHAVIOUR DURING A BUBBLE

BOB HOYE
NOVEMBER 25, 2008


• Gold shares were expected to decline with the financial markets into dislocating
conditions expected to culminate in November.

• Gold's nominal price in dollars was likely to decline as most of the panics would occur
with the dollar rising against most other currencies and most commodities.

• This was based upon the course of significant events though previous great bubbles
and their consequent contractions. The following page of charts shows the pattern for
gold's real price through the biggest manias, including the first one in 1720. Within
this, the gold premium which was at 118 in August 1873 fell to 106 as the crash ended
in that November.

• Typically, gold's real price declines through a financial mania, and just as typically
gold shares underperform the stock market.

GOLD’S BEHAVIOUR DURING A POST-BUBBLE CONTRACTION

• Typically, gold's real price increases during the economic and financial contraction
that is consequent to a bubble.

• More specifically, we used the behavior of the yield curve and credit spreads through
the 1929 and 1873 manias as a model for the path that would define the eventual
collapse of our bubble. This expected that the key reversal to adversity would occur
close to June 2007. The reversal in the yield curve was accomplished in that May and
spreads reversed in that fateful June.

• Of interest is that the real price of gold, as represented by our Gold/Commodities
Index, reached a high of 255 in June 2003. Then as that boom launched, the index
began a cyclical decline, which reflected diminishing profitability for gold producers.
Rising commodities relative to gold reflects basic mining costs rising relative to
bullion sales.

• The most reliable indicator of the end of a mania has been the change in the yield
curve. It was significant that this was also the cyclical low for our index at 143 in May
2007. With November's panic, it increased to a high of 339. We thought that this
measure of gold would double on its cyclical bull market, which has further to run.

• This has been indicating that operating costs have been falling relative to the price of
gold and it should soon begin to drive earnings up, as earnings for most sectors remain
under the pressure of falling prices.

• The rise in the real price also increases the valuation of gold deposits.
SUPPLY, DEMAND AND OTHER SUPERSTITIONS

• Although gold is an essential part of the yield curve, no traditional supply/demand
research on gold has ever anticipated the beginning of a classic financial contraction.

• Mainly, conventional analysis seems to be tedious gossip about what central banks are
doing with their reserves, what's happening with the Souks, Indian wedding seasons
and the monsoons. Marketing and treasury departments at big mining companies turn
gossip into reports so that the CEO can appear to be well-informed to the board of
directors and the media.

• Equally tedious has been all the finger-pointing about "conspiracies" as an explanation
about why gold and silver are not conforming to the dictates of traditional fundamental
analysis.

• For two decades the World Gold Council has focused upon jewellery consumption as
the key to gold's price trends. Indeed, such demand grew strongly during this, as well
as the new financial era that blew out in 1929. Interestingly, this consumption was
essentially overwhelmed by the decline in investment demand that is one of the
features of a financial mania. Producers suffered poor operating margins. The real
price typically declines and then with some irony the wonderful demand for jewellery
slumps as the real price goes up in a crash. The point being is that in the real world
analysis of jewellery consumption can be misleading – especially during a financial
mania and its consequence.

• Then there is macroeconomic research. This uses hundreds of Fourier equations to
project gold prices, which seems to go over well with the treasury departments of the
big mining companies. The more popular services will provide three price forecasts.
One is a moderately rising trend line, another rises less steeply, and the third declines.
This saves both modeler and subscriber from making a judgment call. Moreover, the
accounting departments don't so much care whether the method is reliable. Any price
will do, so long as it is for the year-end.

OUTLOOK FOR GOLD STOCKS

• Gold shares had been likely to decline as part of the typical fall crash, which would
likely clear around mid November, and our advice since late October has been to
cover shorts in silver stocks and to get long the gold sector.

• A new bull market for gold shares has been expected to start in November and run for
a few years.

• This has been expected to encompass the whole gold sector, including exploration
stocks.

• Based upon previous post-bubble contractions, this could run for around 20 years. Of
course, the usual business cycle would prevail, with the gold sector doing well on the
recessions.

GOLD/SILVER RATIO

• Beyond being something to trade, the gold/silver ratio has been a reliable indicator of
credit conditions. It declines during a boom and does its greatest service when it
typically signals the contraction by increasing. The key move in 2008 occurred with
the turn up in May from 46. This was with the reversal in the credit markets and the
technical break out at 54 in August anticipated the fall disaster. Often during the more
acute phase of a panic, silver can dramatically plunge relative to gold.

• With the break above 54 our target on the full contraction became around 100. That
level for the ratio was reached with the banking crisis that ended in late 1990, when
the last of the 1980 adventures in crude, gold, silver and real estate were finally
written off.

• From a high close of 84 on October 28 with that panic the ratio declined to 71 with the
stock market rebound to November 5. The next rise with the next panic was to 83.5
on Friday, November 21, and the ratio can decline for a few months as the financial
markets recover in the first quarter.

MECHANISM

One of the most fascinating aspects of great credit manias is that all six since 1720 have
occurred with a senior central bank with the dangerous prerogative of issue. Each bubble was
identified by the street as such until our era of asset inflations. Perhaps our financial
establishment has been so ignorant of the dynamics of a mania they were unable to make the
call in real time.

On the latest example, as late as December 2007 the advice was that nothing could go wrong:

"The truth is that Fed governors, together with their crack staff of Ph.D
economists and market analysts, are as close to an economic dream team as we are
ever likely to see." Gregory Mankiw, New York Times, December 23, 2007

So despite the inability of our policymakers to forecast another financial disaster such as
initially discovered last January, confidence remained that a full-out panic could be prevented.
The fall crash was remarkably similar to it counterparts in 1929 and 1873.

Historically, at the peak of each mania the establishment took credit for the prosperity, and
then found scapegoats in the bust. The mechanism seems to be at the boom the central banks
seem to be in control, but the truth is that once prices of the speculative games turn down,
power is immediately shifted to Mister Margin. In past examples, this overwhelmed
policymakers and continued until the contraction ran its course.

The notion that "liquidity" was driving prices up was dead wrong, as soaring prices fostered
the most aggressive employment in leverage in history. And as much of this involved being
long the hot items against cheap money in dollar and yen terms is was natural that as forced
liquidation started it would be accompanied by a rising dollar and yen.

Typically, one of the features of a post-bubble contraction has been the senior currency
becoming strong relative to most commodities, and currencies for most of the time. This
seems due to the flight to the unique liquidity found in treasury bills in the senior currency as
well as in gold. This has been working out.

In so many words, the investment demand for gold has been soaring as the wildest creation of
credit in history has been contacting. Once a mania is over traditional liquidity always
disappears and the role of a rising real price of gold seems designed to increase production,
which eventually increases real liquidity in the global financial system.

Our review covers three hundred years of history and while there is no guarantee that the
pattern will continue to work out, there is no guarantee that it won't. It is appropriate to be fully positioned for a great bull market in the gold sector.

Jim Willie makes a case- a failing case

Ive always enjoyed the writing of Jim Willie, I used to follow his work quite closely. At some point his writings became increasingly conspiratorial, fractured and just plain wrong. While I agree wholeheartedly with his contention that gold is in a long term bull market, his rationale is not only faulty, its been consistently wrong for over a year now. Ill make my case, and you can decide. J Failed CB Franchise & Gold Explosion

By Jim Willie CB Nov 26 2008 12:12PM www.GoldenJackass.co

Use the above link to subscribe to the paid research reports, which include coverage of several small cap companies positioned to rise during the ongoing panicky attempt to sustain an unsustainable system burdened by numerous imbalances aggravated by global village forces.

which small caps could possibly rise during a market panic?
lets ask the folks at the TSX Venture Exchange, down about %70 year to date, comprised largely of small cap commodity and precious metal plays. there is no supporting rationale to suggest these small caps will only now rise during any market panic, if there is, its at best an academic argument totally refuted by the behaviour of precious metal small cap stocks the past year. J

An historically unprecedented mess has been created by compromised central bankers and inept economic advisers, whose interference has irreversibly altered and damaged the world financial system, urgently pushed after the removed anchor of money to gold. Analysis features Gold, Crude Oil, USDollar, Treasury bonds, and inter-market dynamics with the US Economy and US Federal Reserve monetary policy.

The OMEN for a powerful shift in the gold market in my playful mind was the very real earthquake on November 18 here in Costa Rica, a clear signal from the financial gods, no minor tremor, measured at 6.0 on the Richter scale. The tremor confirmed the tectonic shifts to come to the gold market without question. This was the biggest earthquake in my life, no damage at all though, roof and toys intact. Numerous stories testify in aggregate to a severe tightening of the physical market, certain to put pressure on the corrupt paper market managed by the COMEX and its parent NYMEX.

an earthquake struck the tropical paradise of Costa Rica and they somehow confirm shifts taking place in the COMEX market... lets see how this plays out because I love a good metaphor. too bad we never hear where exactly these "numerous stories" he cites actually originate from- other gold bugs attempting to sell newsletters notwithstanding. J

THE GLOBAL SHAME OF CENTRAL BANKS

With global monetary inflation raging, and official interest rates converging to zero, the global central bankers must hang their heads in shame. THIS IS THE MOST VISIBLE, OBVIOUS, PREVALENT SIGNAL OF THEIR FAILURE.

The contained messages are four-fold:

1. ABSOLUTE CONTAGION: the global economy is suffering from broadly felt toxic shock due to US bonds, a process that has a few more quarters of severe crisis pathogenesis
   
   
2. POLICY EXTORTION: the major and secondary CB heads want to cut so that the US$ does not fall, coerced with a monetary gun at their heads
   
   
3. INFLATION EXPLOSION: global monetary growth has gone ballistic, no longer a priority to control, with all talk about limiting price inflation relegated to mumbling in the corner
   
   
4. ENDLESS RESCUES & BAILOUTS: the government sponsored bailouts are nowhere near finished, sure to be an endless parade of patchwork and stimulus with eventual climax of mortgage aid.

Just think of it. The USGovt, after a coup d’etat pulled off by Wall Street and fraudulent climax diversion of TARP funds, has yet to address the mortgage problem at all. Mortgage aid in meaningful and necessary terms is actively avoided, since it must come with a price tag up to $2000 billion in the United States alone. The nationalization of the US banking, if not financial system, is highly likely to be followed by an eventual virtual nationalization of the entire mortgage system. Such a decision and desperate socialist action will be the death knell for the USDollar, if it survives to the point when such a program is enacted.

The unbridled monetary inflation is a powerful bull market signal for gold, once asset prices stabilize.

the four points are sound, but this last bolded line does not. yes monetary inflation is bullish for gold, but why must asset prices stabilize? no rationale, just a tiny caveat that has massive implications for potential gold investors looking to enter the market but wondering how markets could possibly stabilize if the dire predictions of global financial collapse made in the rest of the article come to fruition? unless of course you purchase his newsletter which will tell you which stocks will somehow manage to rise during a global financial catastrophe despite virtually all stocks and commodities including gold sold off in October's market panic. J

Later, foreign governments will order their reserves and sovereign wealth funds to dump UST Bonds in order to bolster their domestic currencies, the great counter-attack.

perhaps they will, but what central banks move any faster than a snails pace on such paradigm shifts in monetary and fiscal policy? Iran still holds billions in US-denominated assets and dollars and tensions are very high between these 2 states, some consider them to be on the brink of war with each other. what would it take then for nations allied with the United States to begin aggressively dumping their US bond holdings? J

THE FRANCHISE OF CENTRAL BANKING HAS FAILED, AND GRAND RATE CUTS CONFIRM THIS NOTION EMPHATICALLY!!! THE COLLECTION OF CONCLUSIONS ADDS UP TO ONE POWERFUL FORECAST: GOLD & SILVER PRICES WILL RISE 10-FOLD IN THE NEXT FEW YEARS. SOON THE CLUTCH WILL BE RELEASED AND THE 10000 RPMS ENGAGE THE ECONOMIC TRANSMISSION TO PRODUCE PRICE SKIDMARKS. Ignore for now the paper price heavy-handed influence, which in my view will suddenly disappear in a volcano of controversy and tumult! The US paper system has falsified the entire global pricing structure. Instead of price discovery, we have been subjected to price controls and tyranny. Next comes the counter-attack.

ok, we will ignore the paper price in gold for now, and wait patiently for the sudden and explosive rise in the gold price.....the same rise you have been speaking of for over 2 years, the closest being a few days above $990 in early 2008. not exactly the stuff of failed exchanges and paper gold arbitrage. J

The US banks are trying to liquefy from this perverse mechanism, using incredibly large volumes of money. In the process, the USFed balance sheet is testing whether it can grow a tree to the sky. The USGovt has contributed to the ugly mountain of rancid paper with bad precedent after bad precedent, from poorly written deals. No private investor in right mind would step forward to help an ailing industrial or financial firm on the absurd block headed terms established by the USGovt. A record setting 25% of high-powered money, as in bank assets, that the USFed has provided, actually sit idle as excess reserves. Hence, money velocity has sharply dropped, typical of a recession. Failure has many symptoms. The US Economy aggregates are falling off a cliff in unison.

Europe has entered a recession, but the US has entered disintegration, while England is close behind with a galloping leap off the Dover Cliffs. Kenneth Clark is a highly respected former conservative Chancellor of the Exchequer (finance minister) from 1993 to 1997 in England. He delivered an urgent warning for a “catastrophic crisis [that will be] far worse than anything that has occurred in my lifetime” for Great Britain. Clarke even slammed Gordon Brown as having received undue credit for his role in attempting to shore up the global economy. He warned policymakers should beware of a “full-blown depression will have on public finances” for its effect. A major error has been committed by both the US & UK. Neither nation has succeeded in passing on lower interest rates to home loans, and repayment plans are not happening in volume.

The elite in both the US & UK are protecting their bankers, but killing the system in the process. Housing prices are careening downward, while job losses mount in large numbers, in both nations. The death of the AngloSphere is nigh, as status of debtor nations comes soon with all its penalties.

like repeated calls for the explosive rise in gold prices to happen any day now for the past year, historians, political scientists, pundits and the like have been calling for the demise of western civilization for over 200 years. it may not be as dominant as it once was, but for now holding money in a US or British bank account is a far safer bet than a Russian, Mexican, or Indian account. why else has the US dollar run up while most other nations currencies and exchanges have crashed as hard as their American counterparts? Who exactly will suddenly take their place when the current deflation is gripping the entire world? J

A simple move to cut rates does nothing to address insolvency of both banks and households. This basic truism is totally lost on clownish inept US & UK economists and bankers. They both built an economy atop a housing bubble, blessed it, and encouraged the debt orgy process, only to see the entire system melt down. This was fully fore casted during the last two years by the Hat Trick Letter.

yes it was. too bad no one made any money following this advice by buying PM's and virtually any precious metal stock. J

A VERY QUEER ANOMALY

We are working toward a nasty climax of historic proportions. Notice that the USTreasury Bill has an artificially high price, with staggering huge volume, which is backwards. This condition defies Mother Economic Nature. Notice that gold has an artificially low price on the paper contracts, with staggering huge demand for physical metal, which is also backwards. This condition defies Mother Economic Nature.

why is this backwards? whom is Mother Economic Nature? and why is the price of either "artificially low"? again, rationale would certainly help to make a case... lets see how this plays out... J

The USTreasurys, given the staggering high volume, should be valued lower. The gold bullion, with its staggering high demand, should be valued higher. Something must break, and break soon. Regard these two anomalies as temporary distress symptoms of ass-backward price mechanisms. The natural tendencies of man, full of human emotions like vengeance and retribution, will soon be unleashed to correct the PHONY HIGH USTBILL PRICE AND PHONY LOW GOLD PRICE.

repeating the prior paragraph but in more epic terms... but still no rationale... there must be some steak to accompany this sizzle... J

All kinds of key evidence points to a COMEX default in December, discussed in the November Gold & Currency Report.

dang!!! I need to purchase his November report to find out just why prices are artificially set and against Economic Mother Nature... and here I thought the grand proclamations would actually have some substance... J

The keys are in the Open Interest, which for gold is collapsing. But the December OI is holding up at relatively high levels. The interpretation from Mr Market, who is a distant cousin of Mother Economic Nature, is “The paper gold market is flawed, and people want no part of it. What physical gold becomes available is being grabbed immediately.”

is this it? "Mr. Market", the distant cousin of Mother Economic Nature? OI is falling in one month but "holding up" in December... what does this imply? well he goes on to suggest "the paper gold market is flawed"... but how? because of a variance in month to month OI? J

Further hints are offered by the Chinese, who announced a stimulus plan worth over $500 billion. They will use their USTBonds before they are trashed.

what hints from the Chinese? yes they announce a stimulus plan, but how exactly will they deploy their US bonds "before they are trashed"? again; baseless speculation... J

ATTACK OF COMEX GOLD & SILVER

Powerful foreign entities are preparing a massive major assault on the US financial corruption, at key spots. All signs seem to point to the gold futures contracts traded at the COMEX and NYMEX, whose prices are routinely suppressed by a high volume of uneconomic short contracts by two to four banks.

The COMEX is a division of the New York Mercantile Exchange. A highly leveraged sequence is soon to be unleashed, one that should bring back thoughts of asymmetric attack. Think small cost of a weapon, heavy damage to costly equipment. Something big comes to the gold market, with big angry players! If successful, severe damage will be done to the USDollar. Their goal is to kill the COMEX gold market, the key location for gold price suppression. Major Russian, Chinese, Arab, and European bankers and billionaires are angry beyond words.

which major global players are mad more than anyone else who's portfolio and net -worth are hemoraging at the moment? on what basis does Jim claim prices are suppressed on the COMEX, and that some sort of event is soon to be revealed on the basis of this foreign anger towards the paper gold market? J

The giant portion of gold vaulted resides in Central Europe. A plan is in place. The key here and now is COMEX gold futures contracts, where many big players are demanding delivery for their December contracts. North American investment houses have also targeting them for delivery demands. With newly energized Russia & China building their gold treasures, with Arabs turning from distrusted Western paper and more toward gold & silver, look for the new players to offer support to the primary thrust attacks. If successful, it will be a defining moment in US financial history. The first delivery notice for the December gold contract is given on November 28.

saying "Arabs" are doing anything is the cultural equivilant of saying "white people" are doing something with their portfolio dollars. no rationale is given to support that any Arab nation is turing away from "western" paper and more towards gold and silver. no Jim seems to prefer culturally grouping together a diverse global ethinicity and claiming they are buying gold and silver... J

Recall that Russians and Arabs each have severe damage done to the crude oil price and petro- revenues. The futures contract games conducted by US price systems and Wall Street tactics used against hedge funds are largely responsible. Russians and Arabs are angry. Their financial markets are in turmoil, their economies are disrupted, their property markets are in disarray. Furthermore, Russians and Arabs own a large amount of acquired gold, whose value is also pushed down by corrupt US paper mechanisms.

again more cultural generalizations, Canadians, Venezuelians, Nigerians, Indonesians and a host of other petro-nations are suffering from soft oil and gas prices along with a sinking realestate market, are they angy too? if so, is there any point is picking on Russians and Arabs as if their collective anger is more vile because its American hedge funds to blame? J

Keep the focus on the JPMorgan garbage can, where the illegal futures contracts are stored, the very same contracts that are never marked to market on their balance sheet. A COMEX blowup reveals their grotesque distortion of market forces, underpinned by gold and USTreasurys. More details are provided in the November Hat Trick Letter report, like the movement by the Chinese and Iranians to vastly increase their gold reserves.

too bad there is no actual proof the Chineese or the Iranians are increasing their gold reserves beyond previously stated annual targets. J

Veteran warhorse Max Keiser, has a video worth watching. See his video (CLICK HERE). He discusses the upcoming COMEX default for the December gold futures contract. He believes that in its wake, the gold price will rise suddenly to $2000 per ounce, perhaps in a single day. The main impetus in his view for the breakdown is pressure exerted by Russia, in his view. He describes their motive. Russia is very angry over the oil price, down 60% from its peak, driven largely by liquidations from Wall Street targeting of hedge funds. Russia regards the paper game to be out of control.

ill have to watch that video to see why the author believes Russians are once again the bad guys despite the rest of the planet also suffering from a dramatic market and commodity collapse, yet magically posses the capacity to send the COMEX into default. J

AWAKENED GOLD PRICE

The USDollar DX index has topped. Conversely, the gold price has bottomed. Each has experienced a clear vivid pronounced reversal off the extreme. Signs point to December as being a battleground month. The moving averages have begun to reverse, a more stable signal. A MACD crossover is near, which would give a billboard notice to technical traders.

i actually agree with Jim on this one. J

Beware that this is the phony paper gold price. Actual large physical gold transactions are conducted at prices in excess of $1000 per ounce. The undue influence of paper price discovery is soon to end. Expect severe discontinuity in the gold price in the next few months, maybe sooner. If Keiser and others are correct, and the assault on the COMEX gold succeeds to liberate its price, a gap up is assured, a big gap up, like a few hundred dollars per ounce. Now is the time to hold firm your gold and silver metal. Sell the children, but do not sell the precious metal.

THE HAT TRICK LETTER PROFITS IN THE CURRENT CRISIS.

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Like too many gold bug newsletter writers, their consistant calls for extreme and explosive moves in gold for the past year have only weakened any future case for the possibility of such a move. There may just be a $100 single day move, as we have witnessed this year, but even a broken clock is right twice a day.

Without sound support for a COMEX default I suspect we will see the delivery dates come and go with little fan fare of the kind Jim Willie envisions. Yes gold should rise in the current condition, but its rise will be falsely credited to these peverse notions that have yet to bear fruit.

Good luck gold investors, bad advice abounds.

J

The Perils of gold stocks

Investing is a difficult business.

Investing in gold is evern harder.

Investing in gold stocks is foolhardy.

The bodies of gold stock investors litter the grounds at the gold-bug message boards.

The technical picture is looking better day by day for gold stocks but can one really be certain?

Gold newsletter writers will not help you. They were wrong. Horribly wrong. And they will never admit it.

Use your mind, watch the moving averages, volume and price action. Remember that bear markets take everything down, and that even gold suffers when people panic and move to dollars.

Jim Sincliar sounds off on the current crisis

Jim Sinclair's website is the first place to look for prophetic gold analysis, I thought this evening's post was worth repeating:

Things are out of control.

The draconian action taken by the Federal Reserve today was their entry into locked credit markets that are defined by the Libor Rate and Rate on Commercial Paper. This action prevented the triggering of a total implosion of all markets, with the exception of gold, the currency of ultimate final refuge.

"Out of Control" can be defined as a day the Dow crashes 500 points when the Chairman of the Federal Reserve and the President of the United States spoke on national TV, right on the heels of the much touted Bailout Bill, combined with the entrance of the Fed into the OTC derivative business with no binding limits set on the high side of this initiative.

This is a downward spiral in which now four major interventions have failed.

The only case study in History is the Weimar experience. You cannot compare this to the credit lockup of Livermore and JP Morgan times. Arguments against that point are hollow.

What I find inexplicable is that the "Uptick Rule for Short Selling" has not been reinstated. That rule is more powerful than even banning short selling. These people are not STUPID so one can only assume this "Out of Control" situation is not a surprise.

Do not be surprised by additional intervention failures, gold taking out $1000 on the 3rd try, three consecutive TIC reports failing to support the Trade Deficit, a Federal budget deficit of unprecedented proportions, a dollar trading at .72, .62 and .52 and gold trading at and above $1650.

I told you in the middle of the recent dismal state of mind many gold investors were in that I never felt better about gold. That may have sounded nuts to some of you.

I now say that I have never felt more confident about gold and silver juniors with good property, good management and money in the bank.

TED Spreads Remain at Record Highs

A great read from Jesse's Cafe Americain: TED Spread Soars to a New Record:


Symptom of the Euro Dollar Squeeze?


There is a real possibility that the TED Spread blowout is not an artifact of risk per se, but a symptom of the US dollar squeeze in Europe.

US Dollar Rally and Deflationary Imbalances Overseas

TED is an acronym for Treasury and EuroDollar. A Spread is just the difference or 'distance' between one thing and another.

Eurodollars are bank deposits denominated in U.S. dollars but held at locations outside of the U.S.

Initially, the term only referred to dollar deposits in London but has been expanded to include dollar deposits at any offshore location.

T bills are US Treasury debt of short duration are considered to be risk free.

TED Spread = Yield on Eurodollar deposits - Yield on T Bills

The TED Spread is the difference between U.S. Treasury bill yields and yields for Euro deposit contracts of the same maturity, generally three months.

Demystifying the TED Spread

Basic Points September 2008 Edition

Don Coxe's September 2008 Edition of Basic Points can be found at the
Commodity News and Mining Stocks Blog

This monthly report along with Mr. Coxe's weekly webcast is a must for gold and commodity investors.

J

weekly charts USD vs Gold

Quick weekly charts of Gold and the US Dollar Index showing RSI, MACD and W%R.

Notice gold's strong technical picture on the weekly chart closing just above the 50 MA.


US Dollar index looking like it is rolling over on all indicators. A full blown roll-over may be confirmed with the RSI-7 falling below 50. The MACD is resembling a tsunami about to break.
Monday's action will be critical in light of the bailout news.



good luck on monday.

J

Technical Analysis for the GLD

Its been a while but I wanted to post a quick TA on the Streetracks Gold ETF (GLD)

I did some experimentation with Exponential Moving Averages and Fibonacci sequences and noticed some interesting events unfolding. With the US government bailout looming though, it seems impossible to predict which way gold will turn.



enjoy,

J

Tools of the Gold Bug's Trade

how newsletter writer's stand forever at the precipie of an explosion in the gold price:

recognize these lines????


GOLD:


gold will zoom if the ECB's mexican standoff against the dollar and Eurozone inflation results in an ECB rate increase.


gold got crushed by the ECB's attempt to cool markets with a rate increase, once the hollow nature of this inflation fighting stance is revealed for what it is, i expect gold to take off.


gold took it on the chin as lower oil prices dragged down the commodity sector


the focus on oil and its downward price spiral seems to be affecting gold which seasonally should be a strong period


jewlery demand will increase as indians and chineese realize that they will be unable to purchase gold below $900 for the remainder of the year if not for the rest of this commodity bull cycle.


asians are pouring money into gold...


asian central banks are secretly buying up gold as they attempt to lighten up on US treasuries...


mid-east soverign wealth funds are buying gold in exchange for oil...


iran is on the verge of creating a Euro-denominated oil bourse...


George Sorros says this is "insert cataclysmic reference here" the world has ever faced.


gold could go to $2000 on any collapse in the banking system by 2014...


gold prices to rise through 2009...



GOLD STOCKS:


how can you profit from these troublesome times? subscribe to the "insert generic gold-centric name" newsletter for our analysis of select gold stocks that stand to gain exponentially during the coming commodity bull market...


gold stocks should outperform gold over the long run as investors awaken to the reality that their currency is being destroyed and the only true value lies with reserves in the ground


gold stocks are at historic lows relative to the price of gold, (while we continually mock analysts who mistakenly call a bottom in financials) we are calling for a bottom in gold stocks here... again...



JR. GOLD STOCKS:


jr gold stocks are suffering from maniuplation and short seller's fraudulant schemes to scare investors out of their shares. (its too bad manipulation in every other market resulted in skyrocketing share prices intended to goad greater fools to invest, somehow constant underperformace seemed like a better way to bilk new investors out of their money...)

jr. gold stocks are suffering because of current credit conditions...


jr. gold stocks are suffering because of the high cost of crude oil..


jr. gold stocks are suffering because crude oil is falling taking the commodity space with it


jr. gold stocks are suffering because of gold-backed ETF's


jr. gold stock "A" is suffering because such and such newsletter writter issued a "sell" rating


paul vaneeden is an a$#hole for recommending Miranda gold so much on BNN...


Sprott really likes this stock, they know a thing or two about resources (Sprott precious metals fund down over %15 year to date, at 4 year lows, John Embry has stopped making specific stock recommendations in his monthy Investor's newsletter)


PDAC will highlight some up and coming gold producers on the brink of huge discoveries, write their information down using this Val Gold Sponsored pen, Baja Mining sponsored note pad and try some pound cake baked by one of the chesty E-Trade girls at our booth....

Pakistan's Stock woes continue

Pakistani Investors Stone Exchange as Stocks Plunge

By Farhan Sharif


July 17 (Bloomberg) -- Pakistan investors stormed out of the Karachi Stock Exchange, smashed windows and cursed regulators after the benchmark index fell for a 15th day, the worst losing streak in at least 18 years.

``I have lost my life savings in the last 15 days and no one in the government or regulators came to help us,'' said Imran Inayat, 45, a protester and a former banker who retired early and said he lost 300,000 rupees ($4,175) on the market.

Police surrounded the exchange after hundreds of investors stoned the building and shouted anti-government slogans. Securities and Exchange Commission of Pakistan, which imposed and then removed a 1 percent daily limit on price declines this week, had attempted to halt a slide that wiped out $30 billion of market value in three months, threatening to undo a 14-fold rally since 2001.

``There has been some level of mismanagement by the authorities,'' said Habib-ur-Rehman, who manages the equivalent of 6.5 billion rupees in Pakistani stocks and bonds at Atlas Asset Management Ltd. in Karachi. ``This may be due to their misperception that they can prevent the market from falling. Investors have to learn to bear losses as they do gains.''

The benchmark Karachi Stock Exchange 100 Index dropped 278.96, or 2.7 percent, to 10,212.92. The index plunged 35 percent from the record of 15,676.34 on April 18. Losses have been even steeper in China and Vietnam, where stock indexes fell more than 48 percent in 2008, yet no violence ensued there. Pakistan stocks reached an all-time high two months after parties opposed to President Pervez Musharraf prevailed in a parliamentary vote and said they would try to form a coalition government. The election heightened the risks for investors, Templeton Asset Management Ltd.'s Mark Mobius said in February.

Regulators this week eased the curbs on trading after volumes fell to the lowest in a decade. The restrictions, including a ban on short selling, were lifted with effect from July 14 by the securities commission after the exchange announced a 50 billion rupee fund to buy stocks. ``We will try to activate the fund as soon as possible to give investors an exit opportunity,'' stockbroker Aqeel Karim Dhedhi told reporters after an emergency meeting at the exchange. ``We will meet again at 8:30 a.m. tomorrow.''

The Karachi Index plunged this year on concern the ruling government coalition would collapse because of disputes between Asif Ali Zardari, co-chairman of the Pakistan Peoples Party, the biggest group in the ruling coalition, and former Prime Minister Nawaz Sharif. The leaders have failed to resolve differences over how to reinstate judges dismissed by Musharraf and whether the former army chief should be removed and stand trial.

Foreign investors slashed spending on Pakistani stocks to $62.2 million in the 11 months ended May 31, from $1.76 billion a year earlier, according to data compiled by the central bank. Investors broke windows today in Karachi, threw plant holders in the parking lot of the building, burned shareholder statements and at least one protester was injured, prompting intervention by police and the paramilitary. Investors also protested outside the Lahore and Islamabad stock exchanges, Geo Television reported.

``We demand that all stock prices be frozen at current levels,'' said Kauser Javed, who heads the Small Investors Association. ``People have sold their assets in the last 15 days to meet payments and if things continue this way, you will start hearing of suicides. The regulators always favor big brokers and investors.''


To contact the reporter on this story: Farhan Sharif in Karachi, Pakistan, at
fsharif2@bloomberg.net.

Last Updated: July 17, 2008 12:33 EDT

Dow Theory Update

This newsletter update from Richard Russell of Dow Theory Letters is a staunch reminder of the difficulties facing the US economy and the reserve banking system. Thanks to www.beearly.com for the update.

J


Best of Richard Russell, July 1st, 2008

If the American people ever realized or understood how the Fed operates and how money is created in the US, there would probably be a ten million man and woman march on Washington and more specifically a march on the Federal Reserve Building. The Fed is a private banking monopoly that has "grabbed hold" of the money-creation of the United States. Who controls a nation's money, controls that nation.

The US needs money to pay for building roads, for buying war planes, for fighting wars, for paying Congressmen, for paying IRS and Post Office employees, for a thousand different items. For this the government turns to the tax payers or it turns to the Federal Reserve. The Fed is nothing more than a group of private banks that charge interest on money that never existed before.

How does the system of money creation work? A simplified but true explanation. The government needs ten billion dollars (aside from what it takes in income taxes or from what it borrows). So the government then prints ten billion dollars worth of interest-bearing US government bonds. Next, it takes the bonds to the Fed. The Fed accepts the bonds, and then places ten billion dollars in a checking account. The US government then writes checks to the tune of ten billion dollars against their checking account. But where was that ten billion dollars before the Fed issued the money? The money didn't exist. Can you believe it, the money was created by the Fed "out of thin air."

In other words, the Fed lends the US government the money -- and the crowning irony is that the Fed then charges the government interest forever on the bonds that the US government sold to the Fed in the first place. And the debts build and build and the national debt grows ever- larger.

How about the interest that is owed on the national debt, which has now grown to a choking $500 billion a year? That's part of where our income taxes go. The government taxes our sorry asses partly to pay for expenses incurred by our very own government. And a further crowning irony -- the government taxes us to pay for the interest on the ever-expanding national debt.

www.dowtheoryletters.com

How Are We Doing?

By W. Michael Cox and Richard Alm From the July/August 2008 Issue

Filed under: Big Ideas

The American economy is in a rough patch. But the long-term trends are good—and there is a price to economic pessimism. When a presidential election year collides with iffy economic times, the public’s view of the U.S. economy turns gloomy. Perspective shrinks in favor of short-term assessments that focus on such unpleasant realities as falling job counts, sluggish GDP growth, uncertain incomes, rising oil and food prices, subprime mortgage woes, and wobbly financial markets. Taken together, it’s enough to shake our faith in American progress. The best path to reviving that faith lies in gaining some perspective— getting out of the short-term rut, casting off the blinders that focus us on what will turn out to be mere footnotes in a longer-term march of progress. Once we do that, we see the U.S. economy, a $14 trillion behemoth, is doing quite well, thank you very much. For starters, it has been remarkably stable and productive. Since 1982, the United States has been in recession for a mere 16 months, the present slowdown notwithstanding. Over that period, the country more than doubled its inflation-adjusted output of goods and services and created jobs for an additional 50 million workers. Income and wages are often used as gauges of progress, but consumption is the best measure of rising living standards. Products that began as luxuries only the rich could afford in time came within the means of just about all U.S. households (Fig. 1). In previous generations, telephones, cars, electricity, household appliances, and televisions made life better for the average American. In our times it has been computers, cell phones, Internet access, VCR/ DVD players, digital cameras, and more. All segments of society have shared in the material progress. Over the past two decades, ownership of cars, color televisions, and household appliances has risen among poor households (Fig. 2). A quarter of poor households have computers. Two in five own their homes. For many goods, ownership rates are higher for today’s poor households than for the general population of the early 1970s. As Americans know, today’s rising food and energy prices are crimping household budgets. But there are other ways to understand the relative size of the rise of food and energy costs. For example, in terms of time worked at the average pay rate, the real cost of a 12-item basket of basic foods has hardly budged. And while the work-time price of gasoline doubled in recent years, a gallon of gasoline still goes for less than 11 minutes of work (Fig. 3). At 20 miles per gallon, an hour of work will get you 110 miles down the road; at 30 mpg, you can go 165 miles. When it comes to how hard we have to work for food and fuel, we still face far lower burdens than our grandparents did. Living standards rise on the ability to use productive resources to churn out more goods and services—that is, to advance productivity. As the economy has become more productive decade by decade, Americans have reaped the gains, first and foremost by consuming more. There’s more to the good life than goods and services, however, and we’ve taken some of our added productivity in other ways. We’ve gained more leisure time, improved our working conditions, enhanced safety and security, and added variety to our choice set. All of these benefits become increasingly important as we climb up the income ladder. The lament-filled anecdotes about long hours and low pay just don’t stand up to the test of hard data. Real total compensation—wages plus fringe benefits, both adjusted for inflation—has been rising steadily for several generations (Fig. 4). Over time, the fringes have become a larger share of the rewards for work, dampening the statistics on wage increases. At the same time, we’re spending less time at work. An average workweek has fallen from 39.8 hours in 1950 to 36.9 hours in 1973 to 33.8 hours today. Not all those hours are spent on actual work. Human resources experts estimate that 1.6 hours a day go to non-work activities; employees themselves say it’s more than two hours. What are workers doing? Most of them are using the Internet for personal business or socializing with coworkers (Fig. 5). It’s no coincidence that the busiest times for online auctions come during the hours when most Americans are supposed to be hard at work (Fig. 6). We’re not only working less on the job. We’re also taking less time for household chores. Since 1950, the annual hours devoted to work at home has fallen from 1,544 to 1,278. Working less means we have more time for ourselves. The hustle and bustle of everyday life conceals the fact that a typical American has more free time than ever. We start work later in life and live longer and healthier lives, enjoying added years of retirement. All told, only about a quarter of our waking hours are consumed with work, down from 45 percent in 1950 and 35 percent in 1973 (Fig. 7). Workplaces are getting safer, too. Accident and death rates have been on long declines, partly because the economy has evolved toward services jobs, which are inherently less risky than mining, construction, and manufacturing (Fig. 8). However, factory safety has improved, too. In fact, we’re safer at work than at home. In the early 1990s, the on-the-job death rate fell below home mortality for the first time. Since then, the home has become riskier, while safety gains have continued at work. Our lives have become safer and more secure in other ways. We’re moving from place to place more than ever—in itself a sign of rising living standards—but deaths per billion miles driven and flown are both at all-time lows (Fig. 9). Medical advances have brought down death rates for many diseases (Fig. 10). Gains have been made against heart disease and cancer in recent decades. Death rates from disease aren’t the only sign that Americans have benefited from rising healthcare spending. Since 1960, life expectancy has risen by seven years for men and six years for women. At a time when so many Americans are vexed by the high cost of healthcare, these gains suggest the country may be getting something for its money (Fig. 11). Increasing globalization and trade has many citizens wondering: Can America still compete? Record merchandise trade deficits create some anxiety, but they’re a product of our imports of cheap manufacturing goods and energy. The world economy is moving toward producing and consuming more services—and that’s where the United States shines. Our foreign sales of services totaled $488.5 billion in 2007, topping the combined total of Britain and Germany, the second and third most successful services exporters. U.S. exports exceed imports in 15 of the Commerce Department’s 20 broad categories of services trade, often by large margins (Fig. 12). This trade supports well-paying jobs in industrial engineering, medicine, construction, information technology, and law. Film and television distribution demonstrate how the world market can boost services. Half of the top 15 biggest budget movies weren’t profitable until they went into the international market (Fig. 13). So many data points add up to steady, continuing progress for average Americans—and there’s no reason not to expect the future will bring further progress. Bad news will pop up from time to time, just as it has in every decade of American history. Some people will take the negatives—the hiccups on the long road to progress—for harbingers of worse times to come. But there’s a price for pessimism. In the early 1980s, the U.S. economy had big problems, including slow growth and high inflation. A rational response for pessimists might have been to put their money into the safe havens of gold or Treasury bills. A $10,000 initial investment in gold would now be worth $22,525; the same amount in T-Bills would be worth $37,778 (Fig. 14). Early 1980s optimists might have bet on U.S. economic progress by investing in the Dow stocks. Their initial $10,000 would now be worth $288,163—even after the financial market troubles of recent months. W. Michael Cox is the senior vice president and chief economist at the Federal Reserve Bank of Dallas, and Richard Alm is the bank’s senior economics writer. Illustrations by Brucie Rosch. Figure Sources: Fig.1: authors’ calculations; Fig.2: Census Bureau, Energy Information Administration; Figs. 3 and 4: Bureau of Labor Statistics; Fig.5: America Online and Salary.com; Fig.6: Yahoo; Fig.7: authors; Fig.8: National Safety Council, BLS; Fig.9: Federal Highway Administration, National Transportation Safety Board, Air Transport Association; Fig.10: Centers for Disease Control and Prevention; Fig.12: Bureau of Economic Analysis; Fig.13: Nash Information Services; Fig. 14: authors.

Gold Stocks vs. Bullion Ratio

GDX/GLD ratio highlights a possible bottom developing with a recent break above a broader downtrend and positive divergence on the RSI and MACD.

J

Eric Sprott on the Markets

MARKETS AT A GLANCE

Eric Sprott
Sasha Solunac

Sprott Asset Management
www.sprott.com


Ratchet (financial definition): An anti-dilutive provision where an investor is granted
additional shares of stock without charge if the company later sells the shares at a
lower price.

Screw (Sprott definition): A highly dilutive provision where an existing investor is
granted, without his approval or knowledge, an increasingly smaller share of the
company at an increasingly lower exit price (usually the result of a ratchet bestowed
on other investors).

Is it a ratchet or a screw? We’ll let our readers be the judge. But whatever you call it, and
punning aside, the evidence grows daily of a disturbing trend in place that is leaving existing
shareholders nailed. As the troubled financial sector continues to post massive loss after
massive loss, and inundate the markets with equity offering after equity offering after equity
offering, it would appear that transparency has taken a back seat to the banking industry’s
desperate need to raise capital from whomever would buy it and at whatever terms would
cinch the deal – even if it involves selling their souls to the devil. Unbeknownst to the
shareholders of these financial institutions, they are having the wool pulled over their eyes
by being subjected to the possibility of bottomless dilution with less than forthright
disclosure. As we’ve long written, we believe the banking system is effectively bankrupt.
They are dead men walking. The fact that they are unable to raise capital the oldfashioned
way (selling common shares at market prices) is proof positive of our thesis.

Instead, they have to compel investors to buy their sorry shares through either way-belowmarket rights issues (an abhorrent abuse of capitalism that invariably results in a freefall) or by baiting new investors with no-brainer can’t-lose ratchet provisions. Either way, existing shareholders are taking it on the chin. But the banks don’t care. Neither do the regulatorsnor the Treasury nor the Fed. Capital must be raised come what may! It’s gotten so bad that the very viability of the financial system seems to hinge on whether or not the next equity offering can be pulled off without a hitch. It’s a misallocation of capital of tremendous proportions, for the sector that is currently in the greatest need of capital is also the sector least worthy to receive it.

The horrendous performance of financial stocks of late speaks for itself – perhaps the
markets aren’t so easily fooled. But those investors tempted to bargain hunt best beware.
Due to lack of transparency running amok, investing in the financial sector is chalk full of
minefields. One example that immediately comes to mind is an article in the Wall Street
Journal last week titled “Banks Find New Ways to Ease Pain of Bad Loans” . Have the
banks done something value-added here? Have they actually found ways to mitigate their
losses by improving their recoveries of bad loans? 1 Not at all. The article is about how
some banks, even big ones like Wells Fargo, are using accounting gimmicks to make it
seem like things are getting better. For example, “improving” the write-off rate of
nonperforming home equity loans by changing the past-due time period (after which they are
deemed to be in default) from 120 days to 180 days. Or offloading troubled loans onto
subsidiaries, thereby erasing them from their own books and improving their regulatory
capital level, even though the bank is still fully accountable and liable for the losses that are eventually incurred from these bad loans. It’s a wonderful magic trick – now you see them…
now you don’t! Would that all bad loans can be made to disappear so easily. Unfortunately
for the banking industry, accounting trickery does not reality make.

They are merely gaming the system to make things look better than they really are, in the hopes that unwary investors will be lulled into believing that things are improving when they are not. Another recent example that got our goat is courtesy of Lehman Brothers. On the day of closing their $6 billion equity offering, they announce a management shake-up whereby the CFO and the President and COO are replaced.

We would question why such a material decision, which seems unlikely to have happened overnight, wasn’t mentioned before the offering. Could it be that the spirit of full disclosure, lest it hinder the equity offering, must fall by the wayside? But the most egregious example of lack of transparency (a.k.a. turning the screws on existing shareholders) is the “full ratchet” provision that has recently come to our attention and, doubtless, is currently making the rounds of many of the recent equity offerings in order to sweeten the deal for reticent investors who have sizeable cash to invest.

It would appear that in order for the equity raise to succeed, lead investors are being given preferential treatment at the expense of existing shareholders who are being subjected to the potential for limitless dilution should financial stocks continue to go down in value. Such provisions are appalling, but what is even more appalling is that the existence of these not inconsequential provisions is only coming out of the woodwork in the footnotes of subsequent 10-Q’s. It’s an abomination of supposedly free and transparent Western financial markets.

We always wondered who in their right mind would invest in a financial institution that is
scrambling for capital just when the news is clearly going from bad to worse. As we already
mentioned, we believe the banking system is bankrupt. Thanks to overleverage, if all their
assets were to be marked down to what the market would be willing to pay for them, we
believe they would have no capital. Save for government Treasuries, there isn’t an asset
class on bank balance sheets that hasn’t fallen precipitously in value. What capital the
2 “Lehman Brothers Removes Finance, Operating Chiefs”, Associated Press, June 12, 2008.

Banking system does have is from recent raises, but this will likely disappear when future
massive writedowns are announced. Who would be fool enough to invest in banking shares?

The list is growing shorter. But there were at least some smart investors who noted the
downward trend and successfully negotiated for downside protection. We know of at least
two cases (though there are doubtless others); namely, Merrill Lynch’s $12.8 billion investment from Temasek (the Singapore sovereign wealth fund) and Washington Mutual’s $7 billion raise from TPG (a private equity firm). Quite unbeknownst to the general public at the time, downside protection was built into these equity raises to protect these investors. They are called “look back” provisions or “full ratchet” compensation. We believe it is more accurate to call them “death spiral” securities. They work as follows. The investors in the equity raise would have their investment “protected” by a provision which states that should the bank afterwards raise money at a lower price than what they paid, these investors would be compensated retroactively by having their initial investment priced at this lower price, thereby being issued new shares for free.

It doesn’t take a mathematician to see how these provisions can result in massive dilution should the bank subsequently raise even a paltry amount of capital. A new offering will trigger a lower price because of the dilution it would cause, which would trigger even more dilution because of the lower price, which would then trigger an even lower price because of the even higher dilution, etc. This is why we call such securities a death spiral. They hurt the price of any and all future equity offerings and open the door for potentially limitless dilution of existing shareholders if and when the bank goes to the markets for more capital at ever-lower prices.

However, unless the bank goes bankrupt, these investors can’t lose. And we already know
to what lengths the Fed will go to prevent a banking bankruptcy. It’s heads I win, tails I win.
They can even short the stock in the expectation that it will go down and still not lose.

At the next financing, which is sure to come, they will be made whole... even making money on the short! It’s a perverse situation. Even if they don’t short (or aren’t allowed to short) they still
can’t lose. It’s like being given a free put option written by existing shareholders. They get
all the upside and existing shareholders (insult to injury) pay them on the downside! It’s the
worst way to raise equity. We wouldn’t even call it equity. It comes at a tremendous cost to
the already beaten up shareholders of these financial institutions. How did this happen?
Because these are “private” transactions, and thus no prospectus was required at the time of
the offering. The banks disclosed only what they wanted to disclose. It is only after the fact,
in the footnotes of subsequent 10-Q’s, that shareholders (if they dig deep enough) will
realize that they got nailed/ratcheted/screwed. How many other financings were done on
this basis? Only time will tell.

In the meantime, it is little wonder that banking indices are in freefall and the demand for
new bank equity is becoming increasingly muted. Investors are finally beginning to say: no
mas! When regulators have to get involved in order to push financings through (for instance,
Bradford and Bingley in the UK), it is a signal for ordinary investors to steer clear of the
financial sector. It’s a misallocation of capital… good money chasing bad… that can
ultimately only be resolved by a massive central bank bailout. You don’t want to be a
shareholder when this happens… and in the interim be subjected to an unacceptable lack of
transparency. Financial shares, if they weren’t already, are now toxic. They will become
only more so with each equity offering.

Jim Willie and Gold's breakout

Jim Willie is a long time gold bug and global economic commentator. This article from his "Hat Trick" letter is a great example of his rationale for the coming rise in gold prices alongside US economic weakness.

J

USDollar on Edge, Gold on Verge

by Jim Willie
Jul 3, 2008



The USDollar is on the edge of the chasm again. The nonsense has been cast aside about a bank recovery, a housing stabilization, and an economy that can withstand a spillover. How incredible it is to see grown adults accept such marketing and promotional drivel. Wake up and smell the blood! The US financial and economic system has never been so vulnerable in almost a century. What we see now is far more dangerous than the 1970 decade, characterized by vast cost shocks. Back then, China was not a player. Its current presence puts a price ceiling on finished product pricing power, and even more importantly, on wages broadly in the labor market. Households cannot afford higher prices, as bankruptcy pain escalates. Other key differences are discussed in the upcoming July Hat Trick Letter. The US financial networks and media seem to describe the entire set of symptoms that constitute near systemic collapse, without ever mentioning the potential for collapse. My view is that the banks will lead the process. They, for the most part, will be making giant strides into mine fields, after having held themselves back on accounting shenanigans. Their structured vehicles laden with acidic cargo have been circling the cities for some time now, but must soon return to the company back lots where their destruction might spread to the vital corporate centers.

Most banks will dilute themselves into oblivion, as they stave off bankruptcy, improve their liquidity, and deal with the steady stress of insolvency. Some banks have begun to call in healthy loans in order to maintain cash positions. Some are kiting on deposits, borrowing them illicitly during an unsanctioned three-day period of sinister shifts. Some like Wachovia and Key are dead but have not admitted it. Most are demanding that good borrowing customers jump through hoops endlessly.

A couple big Wall Street investment banks are probably walking dead also, such as Lehman Brothers and Merrill Lynch. On the next round, they will tend to take each other down together. General Motors is being prepared by financial funeral directors as we speak. See the Merrill Lynch downgrade. The dead are downgrading the dead! Preparations are being made to relax official rules in order to facilitate bank failures, reported in the news without bother of implications cited.

Treasury Secy Paulson wants 'additional emergency authority' to limit financial market disruptions. Translated, that means he wants relaxation of bailout mechanisms, loan extension facilities, and other bank sector subsidies, even as handouts and corrupted doles are to be widened. He cites powerful negative forces from energy prices, bank & bond crises, and the housing decline. He uses the word 'liquidation' rather openly, much like 'fire' in a theater. He talks openly about orderly liquidation of large financial institutions. Implied is more JPMorgan assumption of monumental books of business, otherwise known as casino games. Many such security assets have no market anymore. Try selling a subprime mortgage bond these days, or a leverage bond composed of the same decomposing debris! He is trying for a second time to propose a blueprint for regulatory overhaul to benefit the Wall Street elite banks that caused most of the Western world financial destruction. When the USGovt seeks to enact reform, Paulson wants them to reach for his blueprint.

Imagine hurricane preparations devised by town officials, with nobody changing daily activity and habits. For two decades, the public has subsidized corrupt, crooked, conniving Wall Street elitists without a peep of objection. The problem is that the public citizenry in the Untied States is profoundly ignorant, based upon lack of reliable information and lack of ability to discern much beyond video games and reality television shows and new hamburger options and Hollywood star drug habits. The majority is clueless, while the enlightened few feel helpless to contend with a corrupted system that controls the media networks, regulatory bodies, and law enforcement. Lawsuits against JPMorgan have all failed. Challenges against the USTreasury on gold management have all failed, yet are ongoing. Challenges against the commodity exchanges on oversized short position concentration have all failed. Meanwhile, most Wall Street information shared publicly is patently untrue, self-serving, and acts as part of their corporate brokerage trading strategies. In order to act defensively in defiance, one must invest in gold and silver, or else buy into an energy firm.

Last week the US Federal Reserve blinked. This week they are hiding. They have no policy options left. They are backed into a corner. They can defend the USDollar and further kill both housing and credit starved commerce, or they can bow to the stock market with further stimulus to the USEconomy and invite additional grand increases to cost structures again. The USFed has suffered some rather substantial damage to its private portfolios. This is unprecedented. They are not an altruistic organization, but rather the most parasitic exploitative financial organization ever to operate on US soil, outside organized crime. Heck, they are Ruling Elite organized crime in league with the USGovt! That is just another description of my oft-quoted theme of the Fascist Business Model in full force since year 2000. That is the legacy of the current administration.

Now the Intl Monetary Fund has decided to conduct an investigation into the financial management of the US banking system! This is totally unprecedented. The German journal Der Spiegel wrote that the IMF had informed US Federal Reserve chairman Ben Bernanke of its plans for a general examination of the US financial system. The IMF board of directors has ruled that a so-called Financial Sector Assessment Program is to be carried out in the United States. This, according to the German journal, "is nothing less than an X-ray of the entire US financial system No Fed chief in US history has been forced to submit to the kind of humiliation that Ben Bernanke is facing." For some reason, the entire story escaped the intrepid lapdog US press network system. We would live in a different world if all financial network news was from public funded commentators. My view is that some sort of powerful steps are being taken to perhaps wrest control of the US banks away from Americans, after declaring them to be a high risk to the global financial system. In 2001, reports came out that the Bank For Intl Settlements in Basel Switzerland had declared the Soviet Union a geopolitical security risk. After large loans were called for repayment, the Soviet Union collapsed. Back then, the BIS also announced that the US banking system represented a similar financial risk to the global economy. One must wonder if some profound changes are soon to come.

USDOLLAR ON EDGE OF BREAKDOWN

The USDollar is showing early signs of breakdown. Look closely not at the critical support levels from March and April, but rather the intermediate pattern. If the intermediate pattern on display over the last four months is ignored, and a simplistic view is taken of critical April support levels continuing to hold, then one might conclude 'No Big Deal' on the recent USDollar move down in the last couple weeks. However, if that intermediate pattern is viewed in technical terms, one must conclude that the US$ DX index has begun a breakdown. At 72.10 late in the day Wednesday, the breakdown continues almost silently. Gold and silver prices have responded. Notice the 200-day moving average held firm since the bounce began in March and April. One can easily now call that bounce as utterly feeble. It enabled a vividly clear pause pattern. Those who call the bounce as the beginning of a US$ recovery are exaggerating, undoubtedly motivated by the vested interests of Wall Street to support trade of their own private book of investments.

The US$ DX index has broken below the clearly defined bearish pause flag pattern, one found in classical technical chart textbooks. The MACD cyclical index shows a definite downward direction in the upper chart portion. The crossover in this moving average convergence divergence index is early but profoundly clear.

The biggest confirmation one can point to on the USDollar weakness, extended from the USEconomic weakness, is the big decline in the 2-year USTreasury Bill yield. It has continued to fall from the time of last week's article about the market response to the USFed that blinked. With a 2-year USTBill yield now at 2.60%, some conclusions can be drawn. An economic recession is confirmed. The USFed has had a rate cut taken off the table. More price inflation is coming, permitted as a harsh secondary expense for treating the worst recession the nation will see in 70 years. A credit derivative accident spawned from higher long-term rates cannot be permitted, but might occur anyway despite all the wizards best efforts. One should regard all talk of crude oil speculation to account for its price rise as pure distraction from the clear and powerful USDollar risk of further breakdown.

The euro currency has been the principal beneficiary of the USDollar weakness in the last couple weeks. It is back over 158, after having flirted with the 154 handle for a spell, just enough to fool the silly casino players on Wall Street. In fact, today it is near the 159 level. The euro now threatens all-time 160 high established in April, having surpassed both the May and June highs. Europe has problems, but they also have a trade surplus and an official interest rate not so absurdly low as the American rate. The EU economy is totally bifurcated, with southern nations under extreme duress while Germany is now running essentially flat. Maybe the Germans running the Euro Central Bank are attempting to fracture their monetary union? Any official interest rate hike ordered by the Euro Central Bank, which meets on Thursday, would be ill-advised. They might do so anyway, but watch for them to take it back later this autumn if they are so unwise as to do so.

The subtle punishment will be a euro well past 160 toward 170 in the exchange rate, which will interrupt European exporters severely. The British pound sterling has actually risen also, despite its utterly pathetic set of fundamentals. Without its lofty official interest rate, the sterling would be panhandling with licensed hired vagrants outside the FOREX trading halls. The currencies are analyzed in more depth in the Hat Trick Letter reports.

The one loud fundamental behind the USDollar weakness is the endless war. Its costs are one billion straws on the camel's back. Its sacred status should be more debated, especially since it has contributed in an important way to the destruction of the national finances. The debate on private profiteering and military contract corruption, not to mention its high priority for contraband trafficking, should begin, except for loud cries against the patriotism of such critics. The conclusion is that patriots should be silent to profiteering, corruption, and trafficking. Go figure! A side comment on yet another doctored statistic. The number of soldier deaths in Iraq & Afghanistan is officially tied to those who die with boots on Iraqi and Afghan soil, excluding all soldiers who die following serious wounds in Qatar, Kuwait, Persian Gulf naval vessels, German hospitals, Walter Reed Hospital, and so on. My sources report that the war death count is 3x to 5x higher than the official count, thus another falsified statistic. This writer wants America safe, but the real threats reside in Wall Street, the USGovt, and the ancillary agencies.

GOLD ON VERGE OF BREAKOUT

The gold price leads the precious metals. Simultaneous with the US$ weakness, the gold price has lifted above the May high. No resistance exists between the 950-960 ribbon and the all-time 1030 high registered in March. The retest of the May low has been successful. Its price now stands just shy of 950 late on Wednesday. Notice the 200-day moving average held in support, guiding FOREX traders. A powerful reversal seems evident as a bowl-shaped pattern. A sharp uptrend in the MACD is also clear in the cyclical index. In my view, the fundamentals are present for a triumphant challenge of the 1000 mark. When 1000 is indeed broken, look for a powerful breakout to at least reach 1100, and probably shoot up to 1200 quickly. Recall that we are still in the slow gold season, so prepare for something very big during the typically strong season.

The USFed has no market friendly options left. Such is the plague of stagflation, as all options are seen as deeply harmful to one or another large segment of the USEconomic total system. With no hint anymore of deceptive USFed rate hikes, with continuing bank crisis mired in insolvency and soon bankruptcies, with continuing housing glut weighing down the entire economy, with enormous costs strains led by energy and food, the USEconomy is absolutely certain to serve as a big drag on the global economy with its recession. Its denied recession has given ground to a new debate on how deep the recession will be. Of course, unelected minions in the USGovt and entrenched conmen on Wall Street will continue to harp on how we have avoided a recession, all stupid talk of self-serving nature. As the USGovt reacts to recession and the end effect for handouts of beans & rice to the bedeviled citizenry, gold will react to the inflation behind the solutions. As the USFed and Dept of Treasury react to the banking debacle extended from mortgage bonds, gold will react to the inflation behind the solutions.

FINALLY SOME MOVEMENT IN MINERS

Finally the precious metal mining stocks have picked themselves off the ground. A nice reversal pattern is evident on the weekly chart. True to form, Wednesday saw a down move, which will build the right side shoulder. The next move over 460 on the HUI index will trigger a big upleg. A challenge toward the 520 high will come in a matter of weeks, not months. The reversal move will offer strong momentum for that challenge. Expect new breakout highs before September is over, probably far earlier, like later in July or in August. Last year in surprising fashion, powerful moves were seen in gold and the USDollar during the usually quiet early August timeframe. Expect the same this summer.

Notice the 20-week moving average has provided support in December 2007, in February, in March, and might again now. The 'Head' of the reversal pattern found support from the 50-week moving average this spring. Given that support from the 50wMA, one should expect strong support from the 20wMA this summer. An important final point must be made. During the springtime correction, the 20wMA never went below to cross the 50wMA. This implies the bull market in mining stocks remains intact. Try telling that to the Canadian Junior mining stocks though. Their day is coming. The low sentiment could mark its bottom. The July Hat Trick Letter will display the HUI versus S&P500 stock index ratio. It shows a tremendous reversal recently. In other words, as the mainstream 'Paper-based' stocks in the S&P stock index have suffered, the HUI mining stocks have advanced forward. The negative correlation is very favorable for precious metal investors involved with mining stocks.

In the last two months, some important points should be kept in mind. The bigger mining companies must replace depleted reserves. They are turning to the successful explorers, case in point being both Goldcorp and Barrick. They are not interested in acquisitions of mid-sized junior miners, but rather the explorers that possess expertise in exploration and discovery of valuable ore deposits. A bidding round of junior miners is not only likely, it is also guaranteed. My eye is set upon the hedge funds who are in many cases employing spread trades, going long the large mining stocks and going short the explorer speculative mining stocks. Expect hedge funds to take heavy losses. Some actually believe that Barrick is a ringleader behind providing capital not to fund their own mining operations, but to New York and London hedge funds to suppress the small gold mining firms. Others believe that Goldman Sachs has abused its managed GDX exchange traded fund, as they short the entire sector by shorting the entire index. One should consider the possibility that either or both the GLD or SLV exchange traded funds, managed by the cartel members JPMorgan and Barclays respectively, might be assisting in suppression of mining stocks in order to acquire them later for a price as cheap as a song. This pair of titans surely is shorting gold and silver with paper futures contracts. We live in a corrupt financial world. Its mafia dons reside in New York and London.


Jul 2, 2008
Jim Willie CB