Saturday, May 31, 2008
Since then the GDX fell with the POG registering multiple positive divergences, and some interesting Fibonacci retracements make a case for an intermediate term low having already passed.
Thursday, May 29, 2008
My May 24th, 2008 chart of the GLD noted a potential fall back down to support levels below $90, thats happening now due to the recent weakness in crude oil and bounce in the US Dollar. The longer term picture remains unchanged on a technical basis for the US Dollar's down trend.
Commentators have been saying for some time that the Canadian Banks are less exposed to the sub-prime fiasco and more conservatively managed. If the downtrend line holds, things may get ugly. Technical indicators appear mixed: Slow STO has bottomed which may mean a bounce or short term spike above the green downtrend while the RSI remains in a downtrend.
Personally, I'd buy gold here before I sold it. I think we saw the low for gold on May 1 when June gold hit a low of 849. The 40-week moving average for June gold stands at 843. So 843-849 -- that should be about the low area for gold.
Tuesday, May 27, 2008
When I first became interested in gold in 2005, I was investing what little funds I had in shares like Silver Wheaton and Bema Gold. I did very well catching the late 2005 run, but eventually made a series of emotionally inspiredtrades and lost far too much. Looking at gold almost double from when I began investing in precious metals, I cant help but wonder how much harder I made trading for myself by not heeding Jim Sinclair's daily advice which time and time again has proven correct, if one can only exercise patience and handle the volatility.
I am grateful for the time Jim takes to keep JSMinset.com up and running, and today's post is pure gold.
Write down these numbers:
- 1-860-671-0999 my business cell phone.
- 1-860-364-0645 my home phone.
- 1-860-364-1830 my business phone.
- 1-860-364-1019 my home fax.
- 1-860-364-0673 my work fax.
Every communication must have a callback number and best time to call. If the call goes to voicemail I am either exhausted or on the phone already. I will return each call based on first in first out method.
When leaving a number for callback please mention you are a JSMineset reader.
All I ask in return is that you treat these numbers with respect and me with kindness and understanding.
Call this the "Weary At Heart CIGA Hotline" All calls not answered will be returned within 24 hours.
As far as I am concerned:
- I do not anticipate a one month or more drop in gold. Neither does Monty Guild, so be careful not to read his general commodity comment ass-backwards.
- The worst case scenario is a chop after the low of April 28th set in, and the rally high in the low $950s. Following this the chop gives way to a break above $1034 on its way to $1200 in 2008. Write that down for the dark night of your gold soul.
- Gold is a currency, not a commodity.
- Gold while remaining as a currency is now more tied to the euro than the USDX.
- Weakness in crude, if you can call any price above $100 a barrel weak, helped gold be prone to lower prices.
- Gold’s real help moving lower was a push by COT that triggered the mindless black boxes which are as nuts on the upside as they are on the downside.
- If tonight you curse gold, keep this in mind when it crosses$1034, and please leave never to return.
- Hold my hand when you feel low as gold takes a beating, and when you feel high as a kite when higher highs happen. I will moderate both for you.
- The greatest technical analysis trick is simple to learn. Whatever your emotions say to you is totally wrong. Whenever you want to margin to the rafters it is time to eliminate debt.
Monday, May 26, 2008
After several diplomatic fumbles Bernier was exposed by his former girlfriend Julie Couillard for having left sensitive government documents in an unsecured area in her home. Couillard raised concerns by opposition parties as of late when news began to leak of the seriousness of a security breach. To make matters worse, Couillard was linked romantically to high-profile members of Canadian organized crime.
Bernier quits cabinet post over security breach
Monday, May 26, 2008 | 11:04 PM ET
Embattled Foreign Affairs Minister Maxime Bernier has resigned from cabinet over a security breach involving classified documents, Prime Minister Stephen Harper told reporters on Monday.
The resignation came ahead of Monday night's airing of a French-language television interview of Bernier's former girlfriend, Julie Couillard, in which she revealed the minister had left a secret document in her apartment sometime in April that she later returned to Foreign Affairs. "Maxime came to my house, and the document stayed there," Couillard said during her interview with private television network TVA, without disclosing the contents of the document. Harper said he accepted Bernier's resignation after learning late Sunday that Bernier had inadvertently left the documents in an unsecured location. "It's only this error. It's a very serious error for any minister," Harper said. "The minister immediately recognized the gravity of that error."
(J's comment: The critical question will now be at what point the PMO was aware of a security breach and if Prime Minister Harper deliberately lied to oppositions direct questions in Parliament)
The prime minister staunchly defended Bernier in recent weeks after he came under fire for his involvement with Couillard, who has been linked to the criminal biker underworld. "Let me be clear: This is not to do with the minister's private life," Harper said Monday. "What matters here is that rules respecting government classified documents were broken. Obviously it was not done on purpose … but it was clearly done and it has to be treated appropriately."
Bernier has also been in a weakened position in recent weeks since a gaffe in April during a visit to Afghanistan, where he publicly suggested the removal of the governor of Kandahar.
(J's comment: Canada's Foreign Affairs minister enters a war zone and makes public remarks about removal of a local Afghan official, leaving Canadian troops to suffer from any potential blow back)
Earlier this month, the federal government was forced to rent a Russian cargo jet to ship helicopters to Burma to deliver aid after Bernier publicly promised the Canadian military's new C-17 transports, none of which were immediately available, would handle the job.
Montreal newspaper Le Devoir reported Monday that Couillard, who was once married to a biker, is the head of a high-tech firm that has been involved in airport security. Bloc Québécois Leader Gilles Duceppe rejected Harper's contention that Bernier's resignation had nothing to do with Couillard's highly anticipated interview . Duceppe said many questions remain unanswered, including how "people with very strange pasts" can bid on government contracts for airport security.
Published reports have referred to court documents that say Couillard once married a member of the Rockers biker gang, and was a potential target of Hells Angels kingpin Maurice (Mom) Boucher while she dated another biker. Couillard has said she cut off ties with the underworld in 1999, and her romantic involvement with bikers is part of a distant past. She started dating Bernier before he was sworn in as foreign affairs minister in 2007.
J's comment: This story is interesting as it is disturbing on multiple fronts:
- A top government official has been essentially fired for a disgraceful neglect of his most basic duty to maintain national security, and failed in his secondary duties as a sober diplomat.
- A former spouse having a less than polished past and currently runs a "security" company bidding on projects at a major airport
- During the interview linked in the earlier part of this story, she alleges her house was "swept" with special security devices and was found to be bugged.
- The Prime Minister denied any knowledge of wrongdoing when asked during question period several weeks prior, yet announced Bernier's resignation the morning before his girlfriend's exclusive interview detailing the security breach.
- Did the Canadian Security Intelligence Service (CSIS) conduct background security checks on Ms. Couillard at any point and if so to what capacity? As the girlfriend of the Foreign Affairs Minister or as the owner of an airport security company?
More on this story to come as the details unfold.
Saturday, May 24, 2008
I was exploring the use of Stockcharts pitchfork tool and noticed some interesting pivot points on a 1 year chart. This was more of an experimental chart but interesting to TA folk either way no?
Thursday, May 22, 2008
Wednesday, May 21, 2008
he argues that the United State's has failed to secure its foreign-policy goals in Lebanon by treating groups such as Hizbullah as military problems and not political ones.
Zakaria argues with clarity that when the United States has elected to work with marginalized-armed groups it considers terrorist organizations, it has achieved success and broader policy initiatives of stability in geo-political hotspots.
Who's the Real Appeaser?
This administration's few successes have come when it's agreed to engage with adversaries.
By Fareed Zakaria
President Bush chose an odd place and time to claim that talking to "terrorists and radicals" in the Middle East is like appeasing Hitler in the 1930s. As Bush was speaking in Israel, his preferred strategy against such adversaries was collapsing next door in Lebanon.
Over the past two weeks the Lebanese government, which is strongly backed by Washington, decided to confront the Shiite group Hizbullah by firing a loyalist who was head of security at Beirut airport and suspending the group's dedicated phone network. The Iranian-backed Hizbullah retaliated, taking over large parts of Beirut and paralyzing the country. Last week the Lebanese cabinet humiliatingly reversed itself on both fronts. Iran 1, USA 0.
The Bush administration's strategy against Hizbullah has consisted of a mix of isolation, belligerence and military pressure. It refuses to talk to the group or its supporters in Tehran and Damascus. Two years ago, Washington unquestioningly supported Israeli Prime Minister's Ehud Olmert's decision to attack southern Lebanon, Hizbullah's stronghold. The United States provides the Lebanese government and Army with aid and has responded to the current crisis by promising to speed up delivery of weapons.
Yet today Hizbullah is stronger in Lebanon, Iran is more influential in the region, and the United States and its ally, Prime Minister Fuad Siniora, have been marginalized.
Why is this? Hizbullah is not like Al Qaeda, a rootless organization that engages solely in existential terrorism. It's a homegrown group with deep roots in Lebanon's Shia community. The organization was formed to oppose Israel's 1982 invasion of Lebanon and still derives some of its appeal from that history of resistance. It's since become the voice of the Shia community, which is institutionally discriminated against in the country's power structures. (Shiites make up between 30 and 40 percent of the Lebanese population, yet are accorded only 18 percent of parliamentary seats.)
Finally, Hizbullah runs an impressive network of social services, which provide health care, small loans and family support. "There is no light between the Shia community of Lebanon and Hizbullah," says Vali Nasr, author of "The Shia Revival."
The foundation of Hizbullah's strength is not just its rockets but the support it can command from 1 million Lebanese Shiites. That's why dealing with the group as a military problem is counterproductive. Augustus Richard Norton, author of the best recent study of Hizbullah, argues that the 2006 war strengthened the group. "I was in Lebanon in late 2007," he told me. "And Shia families that had been neutral for 20 years now accepted Hizbullah's argument that the Shia needed the protection it provided."
The Bush administration's response to the current setback has again been a military one—promising more arms for the Lebanese Army. But the reason Hizbullah was able to wrest control of so much of Beirut was that the Army sat back and refused to intervene. The Army—which mirrors the diversity of the society—was wary of getting involved in a struggle in which it would likely lose militarily and politically.
It's not just Hizbullah. In dealing with many such groups—Hamas, the Taliban—the Bush administration has adopted a macho, exclusively military approach. All three of these groups have a political base in their societies that is deep and enduring. Denouncing them as evil and promising to destroy them will not change that; in fact, doing so only adds to their mystique of resistance and struggle.
What we need is a political strategy to combat, contest and weaken the appeal of these groups or to marginalize their violent factions. Such a policy would naturally involve some contact with their leaders, but as part of a much broader effort to engage all groups in these societies politically.
We are trying to handle Lebanon with one hand tied behind our back. We will not make contact with the Syrians or the Iranians to find out if their interests are identical, or to discern the contours of a deal. We have little political leverage and we refuse to engage in a process that might give us some. "It's a much broader regional problem," says Norton. "When I was advising the Iraq Study Group I noticed that though the members disagreed on many things, the one on which there was unanimous support was the need to make contact with Iran." One of the group's members, Bush's own Secretary of Defense Robert Gates, made precisely this argument last week.
Perhaps Gates noticed that violence has declined in Iraq largely because the United States decided to engage with Sunni militants whom it had regarded for years as sworn enemies, giving cash to those whom we called terrorists only a few months earlier.
In fact, this administration's few successes have come when it's agreed to talk with its adversaries. Bush authorized negotiations with Libya and North Korea—both of which he regarded as terrorist states and one of which he placed in the Axis of Evil. As for Iran, we've talked with Iranian officials on several occasions over issues relating to Afghanistan and Iraq. James Dobbins, the administration's representative in the 2002 talks to form the government in Afghanistan, described the Iranians as "straightforward, reliable and helpful. They were critical to our success."
President Bush's remarks on the solemn occasion of Israel's 60th anniversary may have been political. But much worse, they were dishonest.
Tuesday, May 20, 2008
|Dennis Gartman re-enters gold market, turns bullish|
|By Jon Nones|
16 May 2008 at 12:49 PM
SEATTLE (ResourceInvestor.com) -- Dennis Gartman, editor of The Gartman Letter, popular among hedge funds and securities companies, shocked subscribers this morning saying he was re-entering the gold market and “once again to turn bullish of the yellow metal.”
On April 21, Gartman abandoned his long held bullish outlook on gold, noting that the yellow metal “has broken this well defined bullish trend line and it failed ... miserably. It has bounced today, and we shall sell that bounce and exit ... entirely!”
In today’s Letter, however, Gartman said he will buy one unit of gold this morning, and “on a close above $890 ... or if spot gold should trade above $890 for an hour or two to prove the merit of its move... we'll add a second unit.”
“We had hoped to see gold trade down to $820 or so as the late long who've been holding to their position, hoping to be bailed out, are not and are left to liquidate into panic. However, it now appears that the drive downward through $850 earlier this month was sufficient and that order has been restored.
“The recent gold sales from the signatories to the Washington Agreement have been uncommonly small and that has tended to raise our bullish antennae accordingly. Toss into that the fact that the dollar is beginning to weaken once again, and toss in that the future notion that the general commodities market indices are still trending higher and we have the ammunition needed to rejoin the bullish hunt.”
In years to come, market students reviewing gold's price action moving from $600 to $1200 will appear as much of a straight line as any market can produce.
Don't miss the historical move you are in. Look at the big picture.
Don't allow the daily arranged noise to dull your market senses. Nothing gold will fail to perform.
The larger the legal and illegal short, the more dynamic the upcoming move of the juniors will be.
Cancel all open sell orders in gold anything.The sun is setting on the gold and gold share bearish bullies who wished only to destroy, contributing nothing to anyone but themselves. The world is made up of builders and destroyers, givers and takers. When the book is written, the hedge funds will be seen as destroyers of the financial world and having taken all the wealth of their investors in the process
Thursday, May 15, 2008
By Ambrose Evans-Pritchard
May 15th, 2008
When President George Bush went to see Saudi Arabia's King Abdullah in January to plead for higher oil output, he was politely rebuffed. The rematch is likely to be a great deal more strained.
If the Saudis deny help once again, they risk incalculable damage to their strategic alliance with Washington. The price of crude has rocketed by over $30 a barrel since that last fruitless meeting, briefly touching the once unthinkable level of $127.
Goldman Sachs fears a "super-spike" to $200 a barrel this year. Asked what he would tell King Abdullah this time, Mr Bush said caustically: "the price is even higher." Indeed, it is, especially the political price.
The US-Saudi tango has been on thin ice ever since the terrorist attacks of 9/11. Sixteen of the hijackers were Saudi nationals. The Bush family has cleaved closely to the Saudi monarchy, but strong factions in Washington see Riyadh's Wahabi monarchy as part of the Mid-East problem-- not the solution.
Saudi Arabia's one saving grace -- in the eyes of US critics -- is that it has over the years been willing to cap extreme surges in the price of oil, deploying its power as the world's swing producer. This time Riyadh is giving no ground.
Oil minister Ali al-Naimi insists that there is plenty of oil about, blaming the latest spike on "the internal logic of the financial markets”, meaning hedge funds and speculators. The US Congress gave its riposte this week.
New York Senator Charles Schumer is pushing for sanctions against Saudi Arabia, targeting $1.4bn in sales of bomb kits, light armoured vehicles, as well as gear for AWACS aircraft and F-15 fighters. "You need our arms, but we need you to cooperate and not strangle American consumers. "Saudi Arabia could do a lot more than they have done," he said.
The Democrats are also pushing legislation that would penalize the OPEC producers cartel for "anti-competitiveness practices". The Bush White House has rolled its eyes in exasperation at such blunt methods, but hot feelings are aroused in American public discourse.
There have been calls for a food blockade of the Arabian peninsular on the US talk radio circuit. "Let them eat sand", has been the rallying cry of the shock-jocks. OPEC has -- in effect -- cut production repeatedly.
The Saudis have let their output fall from 9.5m to 8.5m bpd over the last two years, camouflaging the move behind the accession of Ecuador and Angola to the group (which boosted nominal supply). OPEC failed to compensate for a 330,000 bpd drop in Nigerian production in April, allowing the market to tighten further.
Dr Fadhil Chalabi, a former OPEC secretary-general and now director of the Centre for Global Energy Studies, said the Saudis have roughly 2m barrels per day of scare capacity. Three quarters is heavy sulfurous crude that requires special refineries, which are already working flat out.
"They have about half a million barrels a day of good crude that they could put on the market. The puzzle is why they are not doing it. The soaring price is obviously telling us that the world needs more oil,"he said. "I can't understand why the Saudis would risk their strategic relationship with the US over this.
"They need the US more than ever given the growing influence of Iran in the region," he said. One clue comes from the March bulletin of OAPEC, the Arab sub-group of the OPEC producers' cartel. It notes sourly that President Bush is aiming to reduce US dependency on oil imports "particularly from the Middle East”, by 75pc by the year 2025.
"This has created some ambiguity in the US position on the future of oil consumption," it said. Touchee. King Abdullah's retort to the Bush speech was to announce that Saudi Arabia would stop developing big projects after the Khurais field comes on stream in next year with 1.2m bpd, leaving the country's oil in the ground for future generations.
Chris Skrebowski, Editor of Petroleum Review, said the awful truth is that Saudi Arabia cannot raise oil output much even if it tries. "The myth of Saudi spare capacity is convenient for everybody: it gives OPEC leverage, and it gives the West hope. "But Saudi reserves are secret. They have never been verified," he said.
Mr Skrebowski said oil is soaring because output is falling in Mexico, the US, and the North Sea. Russia stunned the markets with a 1pc fall in first quarter in Russia. "We are running the system flat out,"he said. The jury is out on the durability of this oil rally.
Bulls bet that roaring Chinese demand growth of 400,000 bpd each year will keep going, while fuel subsidies in much of Asia and the Mid-East insulate users from the real cost of crude.
But if the downturn spreads from North America to Europe, Japan, and even China, it could upset with the delicately balance forces of supply and demand. The International Energy Agency (IEA) says demand will cool to 86.8m bpd this year, falling below supply for several quarters.
"Even if they increased supply today, it would not hit the market until June or July, just as demand slows. They are bad memories from past cycles. Some of these countries are spending so much that they can barely get by with prices at $125, so they are very worried about losing revenues. Iran and Venezuela are textbook cases," he said.
Wednesday, May 14, 2008
This 2 year chart shows the possible breakout from a year long nose-dive that has seen Jr. precious metal stocks badly underperform compared to the price of gold. The first signs of this breakout were charted in greater detail here last week.
This is more of a process than a specific target, and it may be months before an upward trend is set in place, but after many months of watching Jr. shares underperform, the tide may be turning.
Tuesday, May 13, 2008
Escape and Evasion: How the Media pretends a recession doesn't exist
Escape and evasion is not a race but a process; one that requires skill, patience and cunning to achieve your objective.
Openly question if we are in recession by hosting scores of experts to discuss the issue.
On-air dialogue should continually frame the possibility of recession as an open ended future event, posing questions such as:
"could we be headed towards a recession?"
"do you foresee a recession?"
"is a recession on the horizon?"
"some are saying we may already be in a recession, do you believe there's any merit to these assessments?"
Allow experts answer these questions, and if they are known bears, have a counter-point man on hand on to induce a World Wrestling Federation style tit-for-tat debate such as CNBC's treatment of Peter Schiff.
Apply the mass-media theory of relativity: bad news is good news from a different angle.
Provide doom and gloom estimates for jobs and earnings prior to their announcements.
When the losses aren't as bad as predicted, watch for market rallies say:
"stocks rallied today with job losses coming in better than analyst expectations"
Cite strong employment data to support that the economy hasn't fallen into recession.
People relate to unemployment figures more closely than any other measure of economic indicator. Low unemployment makes people feel optimistic and despite years of adjustment and delayed upward revisions, unemployment stats feature prominently in the financial media.
When employment data turns negative claim that the new paradigm of the economy shouldn't rely on outmoded stats that don't reflect reality.
When job losses begin to rise, focus on the details of employment data, how losses were concentrated in areas like manufacturing that have been on the decline for decades, and trumpet job gains in the "service" sector that America is increasingly turning to for job -growth.
Use any sudden weekly drop in commodity stocks, (especially gold) to suggest the commodity run is over.
When financial stocks fall by as much, claim its time to buy when there's blood in the streets.
A 2 day rally in the US dollar is enough to make broad-based macro economic statements:
"investor confidence rose this week on the back of recent US dollar strength as investors believe the worst of the crisis is over"
Build false hype around important "low" points in the market.
Should indices break below those lows, cite the stocks that are still strong and claim:
"it’s a stock picker's market"
After the first bounce off a major low, claim the bottom is in.
Host multiple experts to add to the speculation. Ensure their comments are tempered and non-committal by use of platitudes:
"we believe the market may have made a short term bottom here, but we will need to evaluate the situation going forward."
Disseminate rumors that Warren Buffett is interested in a particular sector
the formula is tried and true: rumored sector+ old stock footage of Buffett leaving a press conference at an unspecified date, surrounded by reporters. It gives the impression Buffet has just recently met with officials of said sector to hammer out billion dollar deals.
Begin your news missive with coy rhetorical questions:
"is the oracle of Omaha in bargain hunting in the transportation sector?"
Lend false credibility to the spectacle by having commentators evaluate these proposed purchases by Buffett:
"we've heard that Warren Buffett may be looking at railroads, what do you think is going on in his head right now?"
Use verbal smoke screens that are in reality utter lies:
"the markets have already priced in the write downs"
(The same write downs that were many times more than initial predictions.)
"markets are forward looking"
(More platitude than lie, it assures people that any past crisis was a rear-view mirror event)
"markets have over-reacted to the credit problems, good companies went down with bad ones"
(Who ever said that bad companies went up with good ones when financial stocks doubled over 3 short years?)
Subscribe to the notion that a recession is more of a belief than an economically verifiable fact.
By the time a recession is self-evident, speak of "moving forward" and of shapes like "U", "L" or "V" to illustrate the path we might follow on our way to a speedy recovery to avoid the cold hard reality of the debilitating effects a recession has on the economy.
The continue success of any media organization is to hold the views attention until commercial. Your clients are by and large the very companies you discuss everyday. Is it really in anyone's best interest to be forthright about the state of the economy if that mean less consumer spending, risk-taking and use of the very services that network sponsors rely on to maintain their largese?
Increasingly the notion that network media centers can openly consider constructive analysis, unfettered by corporate interests is that of a bygone era. If the dot-com boom involved a mass-delusion in which myopic growth estimates justified record high stock valuations, then a different sort of delusion is required to keep the public buying stocks. A new paradigm of investment reporting has taken center stage, and more than ever, the availability of news via TV, radio, internet and cell-phones demands greater attention be paid to the power of major media outlets and the message disseminated.
Escape and evasion is more than just a set of tactics, it is a way of convincing people who or what to target in the pursuit of financial success. Ultimately it is the viewers themselves who are being chased while believing the medium really is the message.
Paul van EedenPosted May 12, 2008
The following article was sent to subscribers to Paul van Eeden's Commentaries on April 18, 2008.
Five years ago I was certain that the gold price would double, or triple, from its then $300 an ounce price level. I bet large and it paid off. I am now becoming equally convinced that US interest rates are going to soar and I am going to bet big again. US dollar inflation, as measured by M3, is currently more than 17% per year, the highest level of inflation since M3 was created in 1959.
Other than now, the period of highest inflation was July 1971 when M3 increased by 16.12% year-over-year.The average inflation rate during the 1970s (from 1970 to 1980) was 11% and as a result the US dollar exchange rate fell 42% against an average of the currencies that now comprise the euro. A currency crisis ensued and the US Treasury was unable to issue sovereign debt denominated in US dollars, and was forced to issue its bonds denominated in German mark and Swiss franc instead.
Interest rates soared: the yield on 10-year US Treasury bonds peaked at over 15%. It took 15% interest rates to quell the fire of 11% average annual inflation rates. Today we have a 17% inflation rate and a 10-year interest rate of only 3.6%.
Shorting US Treasuries is a slam-dunk trade if ever there was one. It may not work immediately, but when it starts working it's going to be like having bought gold in 2001.Incidentally, interest rates also have to rise to thaw the credit markets.
Contrary to what the media reports, the markets are not experiencing a liquidity crisis; there is plenty of money around. It is a credit pricing problem. Credit was issued at interest rates that were too low to compensate for the credit risks lenders were taking. Credit default swaps and complex derivative trades did not eliminate the risk: the risk was merely passed from one entity to another and lenders will not come back to the market until interest rates rise to fully reflect inflation and credit risks.
The intense competition among banks to generate fees from creating loans, packaging them up and selling them to investors with "risk insurance" caused interest rates to fall to ridiculously low levels. Now interest rates must adjust upwards so that credit markets can function normally again.
SLM Corp. (Sally Mae) reported a first quarter loss and warned that it could not make profitable loans at this time. Nobody wants to lend Sally Mae money at current interest rates. What does that mean? Simply that interest rates have to rise to compensate lenders for the default risk they have to take. Remember, it's not a liquidity problem; there is lots of money out there. It's a pricing issue. Who in their right mind would underwrite student loans at 3.6% when inflation is running at 17%? At a 20% interest rate students will be able to get loans again and if you think interest rates of 20% are out of the question, remember that inflation is currently higher than it was at any time in the 1970s (or ever).
Earlier this week the British Bankers' Association (BBA) announced it was investigating banks' reporting of short term borrowing costs. The BBA oversees the London Inter-Bank Offered Rate (LIBOR), which is the interest rate banks are charged for short-term loans. LIBOR is used across the world to set interest rates and the assertion by the BBA that banks are understating their borrowing costs, implying that LIBOR has been under-estimated, has enormous impact on all borrowers and lenders. Since Wednesday, when the BBA announcement was made, LIBOR has been increasing.
Because global credit markets are now very much inter-linked, an increase in US interest rates will put upward pressure on almost all interest rates and any pressure that will be created by interest rates on currencies with vastly different inflation rates will be alleviated in the foreign exchange markets.
Simply put: the US dollar's extremely high inflation rate will continue to put upward pressure on global interest rates and downward pressure on the dollar's exchange rate.Yet in the short term, I am concerned that we could see a rally in the US dollar exchange rate that would cause a temporary decline in the gold price. Don't let this last sentence confuse you. In the short term I think the dollar could rally, but in the medium to long term it is going to keep falling until the US trade deficit comes under control and US monetary inflation is reduced.
The gold price increased more than 50% from August to March, when it breached $1,000 an ounce. Thereafter it briefly fell below $900, bounced up, and seems to be directionless at the moment. I don't think we're out of the woods yet, but don't know how to predict the gold price, so I remain neutral to bearish for the short-term. I would not be surprised to see the gold price drop $150 an ounce, taking it well below $800 again.
Monday, May 12, 2008
|Wednesday, May 7, 2008|
When Bad News Is Good News for Gold
By MARK HULBERT
I HAVE SOME GOOD NEWS for beleaguered gold investors: The editors of gold timing newsletters finally have thrown in the towel and given up hope that the bull market in gold will soon resume.
If you have a hard time understanding why that is good news, you're not familiar with contrarian analysis. According to contrarians, the market rarely accommodates the majority, especially at major market turning points.
That means that the rallies that have the most staying power tend to be those of which the majority is skeptical, while declines thrive on the hope that the decline will be only temporary. To put it in terms of phrases that most of you probably have heard before: Bull markets like to climb a wall of worry, while bear markets like to descend a slope of hope.
This psychological perspective helps investors to differentiate between a decline that is a mere correction from one that is the beginning of a major bear market.
From this perspective, things as recently as mid-April were not looking good for the gold market. During the second and third weeks of April, for example, a period in which gold bullion dropped some $25 per ounce, the editor of the average gold timing newsletter actually became markedly more bullish. This reaction far more closely fits the template of what precedes more serious declines than mere bull market corrections, and, as a result, contrarians concluded that a bottom was not yet at hand. The price of an ounce of gold quickly dropped another $50.
Today, however, the editors of gold timing newsletters are beginning to throw in the towel. This has dramatically changed the sentiment picture, to the point that contrarians are now willing to entertain the notion that a sustainable rally can now begin.
Consider the latest readings of the Hulbert Gold Newsletter Sentiment Index (HGNSI), which reflects the average recommended gold market exposure among a subset of short-term gold timing newsletters tracked by the Hulbert Financial Digest. As of the close of trading on Tuesday, May 6, the HGNSI stood at minus 10.7%. This negative level means that the editor of the average gold timing newsletter is net short the market, advising that 10.7% of the typical recommended gold portfolio is invested in a bet that the gold market will decline.
Since the beginning of 1985, some 23 years ago, the HGNSI has been this low or lower only about one-tenth of the time.
But that's not the only reason that contrarians are encouraged: The HGNSI's decline in recent weeks has been precipitous. In mid-April, for example, the HGNSI stood at plus 25.0%. So in only about three weeks' time, the HGNSI has declined by nearly 36 percentage points. This quick a drop suggests that many gold timers have thrown in the towel, which is a bullish sign according to contrarians.
The Hulbert Financial Digest has rigorously analyzed the HGNSI back to the 1980s, studying the correlations that exist between high and low sentiment levels and how gold bullion has performed over subsequent weeks and months. These correlations are statistically significant at the 95% confidence level that statisticians often use to assess whether patterns are genuine.
To illustrate, consider first the 10% of weeks since 1985 in which the HGNSI was as low as it is currently, or lower. (About 120 individual weeks are included in this decile.) Over the 30 days following each of these instances, gold bullion produced an average annualized return of 14.1%.
Now consider how gold bullion performed in the wake of sentiment readings at the opposite end of the spectrum -- when the typical timer was quite exuberant, in other words. On average following the 10% of weeks since 1985 in which the HGNSI was highest, gold bullion produced an annualized loss of 1.4%. That's markedly worse than average.
These results definitely point to a higher gold price over the next month. But note carefully that there is no guarantee: Statistical significance does not equal a guarantee. So one most definitely should not throw caution to the winds. Nevertheless, unlike the situation that prevailed as recently as mid-April, the odds are now looking good.
Mark Hulbert is founder of The Hulbert Financial Digest. He is a senior columnist for MarketWatch.
Sunday, May 11, 2008
Saturday, May 10, 2008
New uptrends appear to be in the making but downtrend lines on all 3 charts must be pushed through convincingly to bring increased interest back to the gold market.
Thursday, May 8, 2008
By Sourav MishraThursday May 8, 08:28 PM
MUMBAI (Reuters) - India has suspended futures trading in four commodities with immediate effect in its latest move to rein in soaring inflation, but industry officials said the step would not ease price pressures.
India has taken a series of fiscal measures to bring down prices recently, and the commodities market regulator said trading in futures contracts in soyoil, potato, chana or chick pea, and rubber had been suspended for four months.
The government, facing state and national elections in the next 12 months, is keen to show it is tackling rising food prices, which contributed to a surge in annual inflation to 7.57 percent in mid-April, its highest in more than three years.
Soybean, rapeseed or mustard seed, guar seed and turmeric prices and volumes picked up as investors switched out of the suspended contracts. India banned futures trading in rice, wheat and two pulses in early 2007. Its decision to suspend four more commodities was not a total surprise to the market as inflation accelerated, stoked by oil, food and metals prices worldwide.
In recent months, New Delhi has also banned some exports and lowered duties on some imports to tame prices and the central bank has tightened policy to curb excess cash in circulation.
FMC Chairman Khatua said the suspended and banned futures would be reviewed in September and were likely to resume then.
GDX in total opposition to the financials:
Price action over the next few sessions could confirm trend changes for both sides of the equity market.
Wednesday, May 7, 2008
May 2008 issue of Basic Points from Don Coxe is availible here. Click on the tab titled: Week in Review and select page #11 of the report.
It is a condensed version but no less thought provoking.
Tuesday, May 6, 2008
Worries grow over big backers of U.S. mortgages
By Charles Duhigg
Tuesday, May 6, 2008
As home prices continue their free fall and banks shy away from lending, Washington officials have increasingly relied on two giant mortgage companies Fannie Mae and Freddie Mac to keep the housing market afloat.But with mortgage defaults and foreclosures rising, Bush administration officials, regulators and lawmakers are nervously asking whether these two companies, would-be saviors of the housing market, will soon need saving themselves. The companies, which say fears that they might falter are baseless, have recently received broad new powers and billions of dollars of investing authority from the U.S. government.
As Wall Street all but abandons the mortgage business, Fannie Mae and Freddie Mac now overwhelmingly dominate it, handling more than 80 percent of all mortgages bought by investors in the first quarter of this year. That is more than double their market share in 2006.
But some financial experts worry that the companies are dangerously close to the edge, especially if home prices go through another steep decline. Their combined cushion of $83 billion the capital that their regulator requires them to hold underpins a colossal $5 trillion in debt and other financial commitments.
The companies, which were created by Congress but are owned by investors, suffered more than $9 billion in mortgage-related losses last year, and analysts expect those losses to grow this year. Fannie Mae is to release its latest financial results on Tuesday and Freddie Mac is to report earnings next week.
Concerns over the companies' finances have prompted a fierce behind-the-scenes battle between nervous government officials and the two companies. Bush administration officials, the Federal Reserve and lawmakers all believe that the companies' financial safety cushion is far too thin and have pleaded with them to raise more capital from investors.
Freddie and Fannie, which are enjoying new growth and profits, have largely resisted those pleas, people briefed on the talks say, because selling new shares could dilute the holdings of existing shareholders and drive down their stock prices. Though executives have promised to raise money this year, they refuse to specify how much and when.
Moreover, the companies are using their new found clout to push Congress and their regulator to roll back the limits that were imposed after recent scandals over accounting and executive pay, according to participants in those conversations.
As a result, high-ranking government officials are now quietly threatening to publicly criticize the two companies if they do not soon raise large amounts of capital, people with firsthand knowledge of those threats say. William Poole, a president of a Federal Reserve bank who has since retired, has warned that companies like Fannie Mae and Freddie Mac are "at the top of my list of sources of potentially serious trouble."
A report released last month by the agency overseeing the companies warned that they pose "significant supervisory concerns" and that Freddie Mac suffers "internal control weaknesses." Lawmakers are pushing to rein in the companies with new legislation. Senator Christopher Dodd, the Connecticut Democrat who leads the Banking Committee, will soon take up legislation giving the government broad authority over the companies. Lawmakers say it is likely a bill will pass this year.
"They are on real thin ice financially," said Senator Richard Shelby of Alabama, the senior Republican on the Banking Committee. "And the way the law is written right now, there is very little we can do to correct that." The companies say such criticisms are without merit. Their latest regulatory filings, they note, show a combined financial safety net that exceeds required minimums by $7 billion. The companies raised $13 billion from investors last year and say any future losses will be offset by new revenue and by money they have already set aside.
"The irony is that right now I'm seeing the best opportunities since I've been in this business," said Daniel Mudd, chief executive of Fannie Mae, in an interview conducted last month. The companies also say that they have not demanded anything. Rather, they say, the limitations have been dropped because of the companies' commitment to financial transparency and aiding the housing recovery.
(J's comment: I have a feeling we will be quoting these soon to be ironic and telling statement in a few quarters when Fannie Mae is struggling just like we did for a certain Bear Stern's CEO on the eve of his company's destruction.)
But others remain concerned. Though the companies' main regulator, James Lockhart III, director of the Office of Federal Housing Enterprise Oversight, has voiced strong confidence in the companies, a high-ranking member of his staff said some officials had begun considering the worst. "It's not irrational to be thinking about a bailout," said that person, who requested anonymity, fearing dismissal.
Fannie and Freddie do not lend directly to home buyers. Rather, they buy mortgages from banks and other lenders, and thereby provide fresh capital for home loans. The companies keep some of the mortgages they buy, hoping to profit from them, and sell the rest to investors with a guarantee to pay off the loan if the borrower defaults.
Because of the widespread perception that the government would intervene if either company failed, they can borrow money at lower interest rates than their competitors. As a result, they have earned enormous profits that have enriched shareholders and managers alike: from 1990 to 2000, each company's stock grew more than 500 percent and top executives were paid tens of millions of dollars.
Those profits were threatened earlier this decade, however, when new competitors emerged and after audits revealed that both companies had manipulated their earnings. The companies were forced to replace top executives, pay hundreds of millions in penalties and consent to strict growth limits.
To keep profits aloft and meet affordable-housing goals set by Congress, the companies began buying huge numbers of subprime and Alt-A mortgages, the highly profitable loans often taken out by low-income and riskier borrowers. By the end of last year, the companies had guaranteed or invested in $717 billion of subprime and Alt-A loans, up from almost none in 2000.
Then the housing bubble burst. In February, the companies revealed a $6 billion combined loss in the fourth quarter of 2007, and both companies' stock prices fell more than 25 percent in two weeks. Despite those troubles, however, lawmakers had few alternatives to asking Fannie and Freddie to buy more and riskier mortgages. "I want these companies to help with affordable housing, to help low-income families get loans and to help clean up this subprime mess," said Representative Barney Frank, a Massachusetts Democrat and the chairman of the House Financial Services Committee. "Otherwise, why should they exist?"
But now that the government depends on Fannie and Freddie to keep markets humming, the companies are making demands of their own namely, repealing some of the limits created after the scandals and even some established by law. Last year, in return for buying billions of dollars of subprime mortgages to help stabilize the market, executives won the right to expand their investment portfolios. In March, the companies agreed to raise more capital within the year. In exchange, they received an additional $200 billion in purchasing power.
Last month, the companies promised to pump money into pricier reaches of the housing market. In return, Congress temporarily raised the cap on the size of the mortgages they can buy to almost $730,000 from $417,000. "We have to bow and scrape and haggle each time we need help," said a senior Republican Senate assistant who spoke only on the condition of anonymity.
Each time Congress or regulators have given the companies new room for growth, their stock prices have risen. But so far the companies have balked at raising more capital. That hesitation has lawmakers concerned that when the companies raise money this year, it will not be enough.
In a March meeting, Freddie Mac's chairman, Richard F. Syron, bolstered those fears by saying the company would put shareholders' interests first. Michael Cosgrove, a spokesman for Freddie Mac, said Syron is committed to both satisfying the company's public mission and creating shareholder value. Fannie Mae, which is in a regulatory-imposed quiet period because it will soon release financial information, declined to comment on capital-raising issues.
(J's comment: Mr. Syron will be "putting the interests of his shareholders first", before his government-backed entity created to help make homes affordable for Americans does anything else. The only thing more troubling than Mr. Syron's comments is the statement made by his "spokesperson" Micheal Cosgrove regarding commitment to their public mission and creating shareholder value. That sounds alot like a financial win-win. The telltale signs of trouble: platitudes by spokesmen. How anyone finds these statements assuring is beyond me and Fannie Mae's inflated share price.)
As worrisome as the need for new capital, some analysts say, are the companies' books. A report released earlier this month by Lockhart, the regulator, noted that although Freddie and Fannie had a combined $19.9 billion of "unrealized losses" on mortgage-related investments, neither company had reduced its earnings to reflect those declines. That is because they judged the losses to be temporary in essence wagering that the mortgage market would recover before those assets were sold. Such a wager is permitted by the rules but difficult for outsiders to analyze.
(J's comment: who decides said losses shouldn't count against the books, and who's crystal ball is being used to surmise that the mortgage crisis will be long gone before they decide to sell any troubled assets?)
Fannie Mae declined to discuss unrealized losses. Cosgrove said Freddie Mac's accounting choices had been the best way to reflect financial realities.
(J's comment: There go the spokespeople: ignoring losses reflect a reality to which only the Fannie Mae brass and their PR folks live in)
Both companies have also recently changed their policies on delinquent loans, which they previously recorded as impaired when borrowers were 120 days late. Now, some overdue loans can go two years before the companies record a loss. Fannie Mae declined to discuss the accounting of impaired loans. A representative of Freddie Mac said marking loans as permanently impaired at 120 days does not reflect that many of them avoid foreclosure.
(J's comment: 120 days... 4 months late on mortgage payments and Freddie Mac declined to comment on how this is not considered impaired? Change accounting rules to benefit your company and send in a representative to decline comment other than to suggest 4 month arrears on a mortgage payment doesn't reflect the reality that most don't foreclose. While we're at it lets consider that most people who have heart attacks don't die right away, why bother sending them to the top of triage at emergency rooms!)
But the biggest risk, analysts say, is that both companies are betting that the housing market will rebound by 2010. If the housing malaise lasts longer, unexpected losses could overwhelm their reserves, starting a chain of events that could result in a federal bailout.
A version of those events began in November, when Freddie Mac's capital fell below Congressionally mandated levels. The company stemmed the decline by selling $6 billion in preferred stock. But it might not manage that again if there is another unexpected loss, analysts say.
"The last two years have shown the real need for a stronger regulator," Lockhart said. If his agency did not curb the companies' growth earlier this decade, he added, "they would be part of the problem right now instead of part of the solution."
Monday, May 5, 2008
Today's article "Turkish Schools in Pakistan offer a milder form of Islam" from yesterdays IHT, discusses the growing enrollment of Pakistani students in Turkish educational institutions that strike a careful balance between academic and religious studies
These schools offer a desirable alternative to the poorly funded public school system and the religious institutions or Madrasas as they are known. (With the latter becoming increasingly notorious for pushing radical Islamic agenda's from Saudi funded Wahhabi charitable organizations) The Turkish alternative seeks a balance between the deeply spiritual traditions muslim states, and the technical training needed to advance one's education and find gainful employment.
While considered a European state, Turkey culturally straddles the European and Asian divide. As the historical seat of the Ottoman Empire, which ruled over much of the middle east for centuries until the early 20th century, Turks are well aware of their spiritual roots and the influence of Islam as a political ideology yet they remain a secular state seeking membership to the European Union. Can their message of moderation reach the masses in Pakistan where hard line Islamic ideals have entrenched themselves among some of the most vulnerable of the nation's youth?
Turkish schools in Pakistan offer a milder form of Islam
Sunday, May 4, 2008
KARACHI Pakistan: Praying in Pakistan has not been easy for Mesut Kacmaz, a moderate Muslim teacher from Turkey. He tried the mosque near his house, but it had Israeli and Danish flags painted on the floor for worshippers to step on. People from the mosque near his work warned him never to return wearing a tie. Pakistanis everywhere assume he is not Muslim because he has no beard. "Kill, fight, shoot," Kacmaz said. "This is a misinterpretation of Islam."
But that view is common in Pakistan, a frontier land for the future of Islam, where schools, nourished by Saudi and American money dating to the 1980s, have spread Islamic radicalism through the poorest parts of society. With a literacy rate of just 50 percent and a public school system near collapse, the country is particularly vulnerable.
Kacmaz (pronounced KATCH-maz) is part of a group of Turkish educators who have come to this battleground with an entirely different vision of Islam. Theirs is moderate and flexible, comfortably coexisting with the West while remaining distinct from it. Like Muslim Peace Corps volunteers, they promote this approach in schools, which are now established in more than 80 countries, Muslim and Christian.
Their efforts are important in Pakistan, a nuclear power whose stability - and whose vulnerability to fundamentalism - have become main preoccupations of U.S. foreign policy. Its tribal areas have become a refuge for the Taliban and Al Qaeda, and the battle against fundamentalism rests squarely on young people and the education they get.
At present, that education is extremely weak. The poorest Pakistanis cannot afford to send their children to public schools, which are free but require fees for books and uniforms. Some choose to send their children to madrasas, or religious schools, which, like aid organizations, offer free food and clothing, and many are boarding schools. Many simply teach, but some have radical agendas. At the same time, a growing middle class is rejecting public schools, which are chaotic and poorly financed, and choosing from a new array of private schools.
The Turkish schools, which have expanded to seven cities in Pakistan since the first one opened a decade ago, cannot transform the country on their own. But they offer an alternative approach that could help reduce the influence of Islamic extremists. They prescribe a strong Western curriculum, with courses taught in English and subjects ranging from math and science to English literature and Shakespeare.
They do not teach religion beyond the one class in Islamic studies that is required by the state. Unlike British-style private schools, however, they encourage Islam in their dormitories, where teachers set examples in lifestyle and prayer. "Whatever the West has of science, let our kids have it," said Erkam Aytav, a Turk who works in the new schools. "But let our kids have their religion as well."
That approach appeals to parents in Pakistan, who want their children to be capable of competing with the West without losing their identities to it.
Allahdad Niazi, a retired professor of Urdu in Quetta, a frontier town near the Afghan border, took his son out of an elite military school because it was too authoritarian and did not sufficiently encourage Islam. Instead, he enrolled him in the Turkish school, called PakTurk.
"Private schools can't make our sons good Muslims," Niazi said, sitting on the floor in a Quetta house. "Religious schools can't give them modern education. PakTurk does both." The model is the brainchild of a Turkish Islamic scholar, Fethullah Gulen. A preacher with millions of followers in Turkey, Gulen, 69, comes from a tradition of Sufism, an introspective, mystical strain of Islam. He has lived in exile in the United States since 2000, after getting into trouble with secular Turkish officials.
Gulen's idea, Aytav said, is that "without science, religion turns to radicalism, and without religion, science is blind and brings the world to danger." The schools are putting into practice a Turkish Sufi philosophy that took its most modern form during the last century, after Mustafa Kemal Ataturk, Turkey's founder, crushed the Islamic caliphate in the 1920's. Islamic thinkers responded by trying to bring Western science into the faith they were trying to defend. In the 1950's, while Arab Islamic intellectuals like Sayyid Qutb were firmly rejecting the West, Turkish thinkers like Said Nursi were seeking ways to coexist with it.
In Karachi, a sprawling city that has had its own struggles with radicalism - the American reporter Daniel Pearl was killed here, and the city's famed Binori madrasa is said to have sheltered Osama bin Laden - the two approaches compete daily. The Turkish school is in a poor neighborhood in the south of the city where residents are mostly Pashtun, a strongly tribal ethnic group whose poorer fringes have been among the most susceptible to radicalism. Kacmaz, who became principal 10 months ago, ran into trouble almost as soon as he began. The locals were suspicious of the Turkish staffers, who, with their ties and clean-shaven faces, looked like math teachers from Middle America.
"They asked me several times, 'Are they Muslim? Do they pray? Are they drinking at night?' " said Ali Showkat, a Pakistani who is a vice principal of the school. When he found goats napping by piles of rubbish near the school's entrance, Kacmaz asked a local religious leader to help get people to stop throwing their trash near the school - to no avail. Exasperated, he hung an Islamic saying on the outer wall of the school: "Cleanliness is half of faith." When he prayed at a mosque, two young men followed him out and told him not to return wearing a tie because it was un-Islamic. "I said, 'Show me a verse in the Koran where it was forbidden,' " Kacmaz said. The two men were wearing glasses, and he told them that, scripturally, there was no difference between a tie and glasses.
"Behind their words there was no Hadith," he said, referring to Islam's codified oral traditions, "only misunderstanding."
Sebnem Arsu contributed reporting from Karachi and Quetta in Pakistan, and from Istanbul.