Wednesday, June 27, 2007

The Truth Is Out There

Gold touches 3-month low as investors cut risk
Wed Jun 27, 2007 6:50AM EDT

If you recently sold your Gold to "avoid risk", I hope you use your proceeds to pay to have your head examined. Yes Gold is a is NOT a commodity. If you ask me, the "risk" is having your money sitting in cash. Ahhh, the fool and his money...

Oil finishes just shy of $69 a barrel
June 27, 2007, 5:26PM

The Energy Department reported Wednesday that gasoline inventories dropped by 700,000 barrels in the week ended June 22, contrary to the 1.1 million gain that had been expected by analysts polled by Dow Jones Newswires.

Shocking! I could have swore we were told for the past week that refiners were getting more gasoline from a barrel of Oil.

Refinery utilization rebounded 1.8 percentage points to 89.4 percent, higher than estimates of a gain of 0.8 percentage points.

Shocking! Higher refinery utilization and less gasoline...but aren't we getting more gasoline from each barrel of Oil? Geez, I guess not. Oh, and what's this little note?

...gasoline imports, which had propped up supplies the previous week, dropped by 300,000 barrels last week.

Just as I had suspected a week ago. LOL, more gasoline from a barrel of Oil. The sad part is, is that people believe this crap. Who was it that said there's a dumb ass born every minute? Wait, I'm sorry, that was "...a sucker born every minute..."

Speaking of suckers...were we not told two weeks ago that yields on T-bonds were rising because the economy was going to be so much stronger going forward? Yes I believe we were. Of course, this is what "they" wanted you to believe. Yields are rising on T-bonds because nobody wants to buy the USA brand toilet paper anymore. Seems nobody wants to buy "durable goods" either:

Demand drops for business-investment goods
Orders for durable goods decline 2.8% on broad-based weakness
2:50 PM ET Jun 27, 2007

The figures throw some cold water on the theory that business investment will be strong enough to power the U.S. economy out of a slow patch that's lasted more than a year.

"You can't look at these results and say the economy is becoming overheated," wrote Ken Mayland, chief economist for ClearView Economics.

I Can See Clearly Now...

Orders for all durable goods fell 2.8% in May, led by a hefty 22.7% drop in orders for civilian aircraft. Orders for all sorts of durable goods were weak in May; only electronic and defense goods recorded an increase.

Isn't it amusing how quickly "civilian aircraft" orders are mentioned in "the story" when durable goods numbers suck...but when they beat estimates that civilian aircraft orders number is buried somewhere near the bottom of "the story"?

There are now countless reasons for Gold and Silver's weakness of late. The more I look into this the more convinced I am that this little item may have been a heavier hammer than many first thought:

Japanese Finance Minister Koji Omi has reportedly warned the markets against making "one-way" bets, in an apparent reference to the recent massive popularity of carry trades that have caused the recent slump in the yen. This is a risky strategy where investors borrow in low-yielding currencies in order to invest in higher-yielding assets elsewhere.

To add to that, the Nikkei Kinyu Shimbunm reported that the MoF has changed its currency stance, alongside rumours that Japanese currency spokesman Hiroshi Watanabe -- who has been a proponent of yen weakness -- is set to leave his post.

"In light of what appears to the first signs of a sustained campaign of verbal intervention from the MoF in support of the yen, this change (Watanabe departure) looks potentially meaningful," said Neil Mellor at the Bank of New York.

The "yen carry trade" is too often wrongly blamed for declines in Precious Metals...but then we have people dumping Gold to avoid risk. Go figure...

Want some real insight into the Bear Stearns Collateralized Debt Obligations fiasco? The fuse has now been lit on what Warren Buffet has most often called the financial derivatives WMD. Talk about risk! Please take the time to read William H. Gross', Managing Director of PIMCO, Investment Outlook, July 2007.

Those that point to a crisis averted and a return to normalcy are really looking for contagion in all the wrong places. Because the problem lies not in a Bear Stearns hedge fund that can be papered over with 100 cents on the dollar marks. The flaw resides in the Summerlin suburbs of Las Vegas, Nevada, in the extended city limits of Chicago headed west towards Rockford, and yes, the naked (and empty) rows of multistoried condos in Miami, Florida. The flaw, dear readers, lies in the homes that were financed with cheap and in some cases gratuitous money in 2004, 2005, and 2006. Because while the Bear hedge funds are now primarily history, those millions and millions of homes are not. They’re not going anywhere…except for their mortgages that is. Mortgage payments are going up, up, and up…and so are delinquencies and defaults. A recent research piece by Bank of America estimates that approximately $500 billion of adjustable rate mortgages are scheduled to reset skyward in 2007 by an average of over 200 basis points. 2008 holds even more surprises with nearly $700 billion ARMS subject to reset, nearly ¾ of which are subprimes.

People, when this bomb goes off, you'd better own some precious Metals. And folks...the bomb Will go off.

Are you sure you want to sell your Gold to avoid risk?

Booms Were Made to Go Bust

China's advantage is that it learned from Japan's mistakes. That's why the Chinese stubbornly refuse to revalue their currency -- they don't want to make it more expensive the way the Japanese did theirs.

Currently, the Chinese yuan is pegged at 7.6 yuan to one U.S. dollar. This makes the United States accuse China of being unfair; we'd like to see the yuan float the way the Japanese let the yen float. This would make it easier for us to reduce our balance of trade, as well as pay back our debt with cheaper dollars.

The problem is that the Chinese know from the Japanese experience that we can talk tough but not act tough -- they simply hold too much of our debt for us to take measures. And if the Chinese started dumping U.S dollars and bonds on the world market, the world economy might well crumble, just as the Japanese economy crashed nearly 20 years ago.

Time for a New Standard

While it's tough to predict the future, one thing is for certain: The U.S. dollar will continue to go down in value, and savers will be losers. With people all over the world piling debt upon debt and spending like fools, it might be best to follow the Chinese.
They've never trusted banks, but have always trusted gold. Maybe it's time we started doing the same.

Once again Gold and Silver should have been up today. Yesterday's blah-blah that the drop in Oil prices lessened inflation fears was a matter of fact, yesterdays drop in Oil prices was hogwash. Oil is going higher, Oil is going higher, Oil is going higher...there, I won't mention it again. The big "Fed rate decision" will be the nonevent of the week. The Fed has lost control of interest rates...the market controls them now. Gold is the Truthsayer, and the PPT will do anything and everything with the aid of dem Rat Bastids to try and keep the shine off Gold.

Silver today caught up to Gold and printed bullish divergence on it's hourly charts. Both metals will attempt to build bases here...success in that matter remains to be seen. A "new" bottom could be in if Gold closes above 648. 645.50 may, or may not, slow Gold in that attempt. As for Silver, the repair work needed is extensive. Silver needs to close back above 12.60-5 to suggest a "new" bottom is in. 12.46 may, or may not impede the work necessary to repair Silver. I would not be surprised if both metals fished for this bottom through the 4th of July. I would also not be surprised if the US Dollar gets hammered on the Fourth as we celebrate our long since forgotten Independence.

Gold and Silver have now both revisited their respective 65 week moving averages...this moving average has proven since the beginning of this secular bull run in these Precious Metals to be major support and a superb opportunity to buy and profit in these metals. In other couldn't ask for a more "low risk" opportunity to purchase these metals.

Sell your Gold to avoid risk? Perish the thought!

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