Tuesday, November 27, 2007

It's 1984

Citi Sells Stake to Abu Dhabi Fund- AP
Citigroup said late Monday that the Abu Dhabi Investment Authority will invest $7.5 billion in the nation's largest bank, offering needed capital to offset big losses from mortgages and other investments.

Dow Closes Up 215 After Citi Secures Capital- AP
Wall Street rebounded Tuesday after the Abu Dhabi Investment Authority said it will invest $7.5 billion in Citigroup Inc. -- a vote of confidence for the nation's largest bank, which has suffered severe losses amid the ongoing crisis in the mortgage market.

OK... So let me get this straight: The world's largest bank is teetering on the brink of destruction...THE WORLD'S LARGEST BANK...and so desperate to save itself, that it accepts a pithy 7.5 billion Dollars from an Arab investment group to help it stay solvent. THE WORLD's LARGEST BANK accepts what amounts to charity from a bunch of rich Arabs and suddenly the whole world credit crisis is resolved? You have got to be pulling my leg. WAKE UP you dumb asses on Wall Street! If you ever needed proof that this "crisis" is worse than anybody can conceive, this is it. This "investment" is not "good" for anything. This is a sign of how bad things are, and how much worse things are going to get.

So the stock market goes up because Citibank has been saved with a $7.5 billion ? Ha! Where's the next $7.5 billion going to come from? And the next $7.5 billion after that? Bank of America "invested" $2 billion in Bear Sterns three months ago. The stock market "rose as a result". Today, Bank of America has seen all but a tiny portion of that $2 billion investment vaporize. Not to mention the fact that the stock market is a lot lower now than it was three months ago...AND Gold a lot higher. Abu Dhabi could throw every last Dollar they have at Citibank, and it won't change a thing. Parlor tricks and lunchroom magic are NOT going to save the world financial system. The Great Gold Sale continues...buy more now, while supplies last.

Oil Off on Economy Fears, OPEC Forecasts
NEW YORK (AP) -- Oil prices plunged Tuesday, picking up downward momentum amid concerns that a slowing economy might reduce demand for crude just as OPEC members are considering an increase in production. Prices were also pressured by apparent progress at the Mideast peace summit in Annapolis, Md.

Look fools, the price of Oil hasn't risen to within a whisper of $100 a barrel because there is a "production" problem. Oil is knocking on the $100 door because the value of the US Dollar has all but collapsed. Even IF the Arabs could produce more Oil [they are already producing as much as they can] it won't make the Dollar rise in the Forex markets. The price of Oil has doubled this year alone, AND DEMAND HAS NOT FALLEN. Gasoline demand in this country has actually risen this year along with the rise in the cost of gasoline at the pump. These headlines are a load of crap, and only are intended to deceive and give false hope to the sheep that stare at the evening news for their daily dose of doublespeak.

A Brewing Storm
Gold Poised to Move in 2008

Events are aligning to provide a bullish fundamental foundation that could push gold significantly higher in 2008. While volatility will likely remain a feature of the metals market, the price could begin to march higher as the markets react to gold’s strong fundamentals. The cable channel “experts” keep calling for a top in gold, much as they have for oil all the way from $20 per barrel on up. Once again it appears this is wishful thinking more than analysis based on the fundamentals.

“Tony Fell, chairman of RBC Capital Markets, said the world money supply has been growing by 5-10%, while the stock of mined gold has been rising by 1.6%, creating a mismatch that must be covered. Mr. Fell says the total debt burden in the US has exploded to 340% of GDP, in stark contrast to the steady levels of around 150% in the post-War era. It almost insures further dollar debasement. ‘We’re in the very early phases of a prolonged bull market,’ said Fell. RBC argues that the global dollar system known as Bretton Woods II is ‘coming apart at the seams’ as Asian, Middle East, and Latin American states start to break down their dollar links to avoid importing US inflation. The result is to resurrect gold, which is fast regaining its role as the world’s benchmark currency.”

Peak Gold
The global demand for gold is clearly outstripping supply. Global gold production was down 3% in 2006 and is nearly flat this year. South Africa’s output is down to its lowest level since 1932. According to Barrick Gold CEO Gregory Wilkins, “There’s not much gold out there.” Barrick recently told industry analysts that gold production will fall 10-15% below market expectations over the next three to five years. There appears to be a growing price-inelasticity for gold, as higher prices are not bringing more gold to market. (In addition, any future de-hedging by hedged producers like Barrick will add to gold buying demand.)

Investors are beginning to understand that massive global money creation may just lead to massive currency depreciation. New gold demand is created as buyers are looking at gold as an alternative currency and a store of value. Yet the supply of gold continues to grow very slowly in relation to demand. This is precisely the mirror opposite of the fiat dollar. This supply/demand imbalance will underpin higher gold prices in 2008.

While it is true that western central banks could begin dumping gold onto the market, who would be the buyers? China, Russia, the Middle East, and India would likely be enthusiastic buyers to hedge against their large dollar reserve positions. Selling a scarce and appreciating asset to cap the price for a few months may not seem logical, but it’s happened before. And it may happen in 2008, but as in the past, the effects will be short-lived. The longer lasting effects may be on the western central banks as they sell their legacy of tangible wealth on the cheap once again.

Gold mining shares should profit from higher gold prices, but higher mining costs, estimated at 15% annually, have taken a toll the last few years. But as gold continues to climb, the quality producers will likely enjoy substantial leverage over the price of gold. Another group to look at would be the gold and silver royalty companies, which have no exposure to higher mining costs or liabilities.

With up being down, and down being up in 1984, chart analysis would seem a bit ridiculous at this time. We all know Gold AND Silver should be substantially higher than they are today. Sit tight, be right, and ignore this noise. It will pass shortly. Suffice it to say: Gold and Silver remain at sale prices relative to inflation. Buy now while supplies last, and laugh later.

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