Sunday, June 29, 2008

Denial Won't Make It Go Away

Gold revs its engine and squeals down the track
SAN FRANCISCO (MarketWatch) -- The U.S. Federal Reserve gave gold the fuel it needed to restart its engine and the precious metal has already driven through the trading range barrier it's been stuck in for the past month.

Gold futures had been trapped in a $50 trading range between $860 and $910 an ounce on the New York Mercantile Exchange since May 28. It climbed past $920 in electronic trading Thursday evening as the U.S. dollar slumped in reaction to the Fed's failure to signal urgency to raise rates to curb inflation.

On Wednesday, the Fed decided to hold short-term interest rates steady at 2%, but sharpened its focus on inflation, saying that the risks posed to the economy by upward pressure on prices have increased. See full story.

"Gold broke decisively out of the trading range that had constrained it as investors came to realize that the Federal Reserve won't be able to begin a rate-hike campaign until 2009," said Brien Lundin, editor of Gold Newsletter.

"People are finally coming out of the fog and realizing that we're in a world of hurt and people are plain scared," said Dale Doelling, chief market technician at Trends In Commodities.

"Stocks are in the toilet, the dollar is getting hammered, oil is going through the roof, food commodities are in the stratosphere [so] there's only one solution," he said. "Buy gold! Buy silver! Buy them because they're the only defense against what's happening in all the other markets."

Intervention Will Not Stop the Dollar’s Slide
By: Peter Schiff, Euro Pacific Capital, Inc.
This week the Federal Reserve took a step closer to acknowledging reality. Unfortunately it didn’t let that admission move it from a policy course firmly guided by fantasy. In its policy statement, Bernanke & Co. took the important step in noting that inflation expectations had taken hold in the country at large. However, in asserting that it expects inflation to moderate this year and next, the Fed gave no indications that these heightened expectations are gaining traction within the Open market Committee itself. As a result, it signaled no likelihood that it was actually prepared to do something to fight a problem which it doesn’t really believe exists in the first place.

In fact, by indicating that they expect inflation to moderate, the Fed is saying that elevated expectations are unwarranted. In other words, Bernanke claims that despite the fact that so many people are carrying umbrellas, he still believes it will be a sunny day. The takeaway from the statement is that no rate hike is forthcoming. The markets saw this position for what it is….capitulation to inflation and a weakening dollar. No surprise then that the gold responded with the biggest single day gain in more than 20 years!

Stocks Tumble Toward Bear Market On Rising Economic Concerns
U.S. stocks slumped last week, pushing the Dow Jones industrial average to the brink of a bear market on mounting concern that write-downs and record oil prices will keep eroding profit and economic growth.

"The market is dealing with anxiety about further losses and also coming to grips that we're in a significantly slower period of economic growth," said Kevin Cronin, head of investments at Putnam Investments. "People thought the worst was behind us."

Barclays warns of a financial storm as Federal Reserve's credibility crumbles
Barclays Capital has advised clients to batten down the hatches for a worldwide financial storm, warning that the US Federal Reserve has allowed the inflation genie out of the bottle and let its credibility fall "below zero".

"We're in a nasty environment," said Tim Bond, the bank's chief equity strategist. "There is an inflation shock underway. This is going to be very negative for financial assets. We are going into tortoise mood and are retreating into our shell. Investors will do well if they can preserve their wealth."

The bank said the full damage from the global banking crisis would take another year to unfold.

Here today, one word has gotten The US Federal Reserve, general equity investors, The White House, and anybody foolish enough to waste their time watching CNBC to the edge of this systemic financial meltdown. Choosing to hide behind this one small word will cost millions BILLIONS. Life as they know it, is about to vanish for those unfortunate enough to be associated with this word:


For over six months now there has been denial that the US is in a recession. Arguing over the "definition" of what constitutes a recession does not make them go away, or any less severe. For the past 6 years there has been denial that the US Stock markets have been in a "bear market". Even today, the Washington Post clings to the idea that the DOW INDEX is still not in a bear market:

"The Dow retreated 4.2 percent, to 11,346.51, and needs to fall another 0.1 percent to complete a bear-market decline of 20 percent from its October record."

I like the word "pathetic" here. Friday the DOW crashed through an eight year support zone at 11,750. The Dow began it's "bear market" in the Spring of 2000 with the bursting of the Dot-com Bubble". It was only through the levitation tricks of the PPT that the Dow was able to give the illusion that there was no bear market the past six years. Adjusted for inflation, the DOW has been trapped in a horrific bear market slide that has slowly sucked the "wealth" out of all those in "denial".

Every hack on Wall Street has known for years that inflation was "out of control", but the government rigged the numbers to say otherwise, and gave investors cover for their denial. "The credit crisis is over", or so the financial media led investors to denial. 80,000 jobs were created this month, or so the government statistics led investors to denial. One percent GDP is still growth, despite the 4% inflation that makes it negative growth secreted by...more denial. "This time it's different"...more denial.

It would have been so much easier if people had respected this small word: TRUTH. Live in denial and pay the consequences. Respect the truth and live free. Gold and Silver are all that is left of the Truth now, and all that is left to protect you from the ravages of Denial.

On Thursday, Gold broke higher and out of it's three month consolidation with a move of $32 to the upside. The largest single day move in Gold since 1985. This speaks volumes of Truth, as Gold now sets it's sights on "infinity and beyond".

"On Friday, gold confirmed its breakout, which means there will be little holding it back - just like there is now very little that's holding the Dow up."
- Alex Wallenwein

Dow Stock Market Crash and Iran War Herald End of US Dollar Hegemony
Wars are rarely fought over national security issues, as political leaders often claim. At rock bottom, they are mostly fought over economic issues.

Iraq and Iran (if Congress and the administration get their way) are the only two countries the US has ever attacked preemptively. They are also the only two oil-producing countries that ever went off the petrodollar. The alleged nuclear ambitions of a terrorist-sponsoring country cannot be the real reason for the planned attack – because terrorist-sponsor North Korea was not only allowed to develop nuclear weapons unmolested, it was even allowed to test-launch a potentially nuclear-tipped ICBM at the US without any military repercussions whatsoever.

There goes the "national security" rationalization for this planned attack.

This fact exposes the attacks for what they really are. tools of US monetary policy. The dollar has no real value internationally, save for the fact that the now militarily enforced necessity for countries to buy dollars in order to buy oil creates artificial demand.

The euro's existence threatens all of this, now. Oil countries have a dollar-alternative in the euro, and so does the rest of the world. The euro is designed to not be quite as inflationary as the dollar is and has been. This is done by virtue of the ECB's exclusive mandate of "price stability", another word for inflation fighting.

Bob Chapman, The International Forecaster
Let's see now. The stock market gains for the past two years or so have just been vaporized. Over the past two years, would you have made more money based on the advice you have received in the IF, to buy gold, silver and their related stocks, or would have made more listening to the inane, jackass pundits of the fane-stream financial media and their tips about the "bargains" that are out there? Let's take a trip down memory lane to find out.

The last time the Dow was at 11,346.51 or lower was on September 7, 2006, when it closed at 11,331.44, which happens to also be almost exactly the precise figure for a 20% loss and the official start of a bear market. So let's use that date for our comparison, and see what the returns look like for the 22 months or so between September 7, 2006 and June 27, 2008.

On September 7, 2006, the Dow closed at 11,331.44 as just stated, the S&P closed at 1294.02 and the Nasdaq closed at 2,155.29. Also on September 7, 2006, spot gold closed at $618.30, spot silver closed at $12.58, the XAU was at 144.95, the HUI was at 347.92.

On Friday, June 27, 2008, the Dow closed at 11,346.51 as stated above, the S&P closed at 1,278.38 and the Nasdaq closed at 2,315.63. Also on Friday, spot gold closed at $928.10, spot silver closed at $17.59, the XAU closed at 194.49 and the HUI closed at 451.06.

First, let's see how the jackasses (not to be confused with Democrats who are Jackasses with a capital "J") in the inane, fane-stream media did. The Dow essentially gets a big goose egg. The S&P posted a loss of 1.2%. And the Nasdaq had a "whopping" gain of 6.9%, or about 3.5% annualized, way behind actual inflation and still short of official inflation.

Now let's see how our subscribers have done. Spot gold is up an impressive 50.1%, which annualized is about 25%, way past inflation with enviable profits to spare. Spot silver is up a very healthy 39.8%, which annualized is about 20%, again way past inflation with goodly profits to spare. The XAU is up 34.2% and still exceeds inflation when annualized with room to spare, as does the HUI, which is up 29.6%.

Now for the kicker. The dismal results posted for the general stock markets occurred despite the full support of the PPT which saved them from collapse numerous times. The incredible results posted for gold, silver and their related shares came despite massive cartel suppression, which has been mercilessly applied to the metals and their shares in the most underhanded and illegal of fashions. If this is what happens when the Goldilocks Matrix created by the cartel is still floating around in the vapid minds of the sheople, just try to imagine and wrap your mind around what will happen when reality finally sets in. We can't wait to find out!!!

PLEASE NOTE: I will be away from the markets Monday through Wednesday visiting with family. Please contact Steven R. Thornbury at MONEX Deposit Company for more on the TRUTH about Gold and Silver in my absence: 1-800-949-4653 ext. 2162

Friday, June 27, 2008


A sense of panic gripped Wall Street Thursday as "perceptions" were trampled by reality. The fog of deception following the Fed lead bailout of Bear Stearns has lifted, and it's not a pretty picture.

Gasp! That man behind the curtain has no clothes!

Wave of bad news sends Dow down nearly 360
NEW YORK (AP) -- A barrage of bad news including yet another record high for oil drove stocks sharply lower Thursday, hurtling the Dow Jones industrials down nearly 360 points to their lowest level in almost two years.

The market also worried about fresh signs of trouble in the financial, high-tech and automotive industries. Negative analyst comments sent shares of General Motors Corp. stock to their lowest point in more than three decades.

Oil futures shot past $140 after the head of OPEC predicted the price of a barrel of crude could rise well over $150 this year and Libya said it may cut oil production.

Citigroup Inc. stock fell sharply after an analyst give it a "sell" rating and warned investors to expect less from the brokerage sector in an uneasy economy.

Disappointing forecasts from technology bellwethers Oracle Corp. and BlackBerry maker Research In Motion Ltd. further soured investors' moods and made the tech sector one of the steepest decliners.

The great fear on Wall Street has been that rising prices and worries about their finances will force Americans to curb spending and reinforce the economic decline.

Downside risks to growth have diminished? Ben! Snap out of it! Quit trying to light that roach, don't you know that's for recreational use only? Never smoke that stuff when you're on the job, man. It will make you look like a fool. And while we're on the subject, do something about that nose of yours, you look like Pinocchio. Ben, people still have not forgotten you told them a year ago that the "sub-prime crisis" was contained and would not spread to the general economy. You've hardly become a beacon of hope, Ben. More like a Lightning Rod Of Lies. You've convinced everybody your serious about no more interest rate cuts, maybe now would be a good time to just SHUT UP! Dude, get yourself some help...

Lost in the tsunami of bad news was a rather useless headline about 1st Quarter GDP. GDP numbers never fail to be held up as "proof that the economy is growing". But in reality these numbers are backward looking as they pertain to "water that is now passed under the bridge". GDP numbers tell us more about the recent past than about today, or tomorrow. For nearly three months now we have been "lead to believe" that the US is NOT in a recession because GDP remains positive. Has it?

GDP revised upward to 1.0% in first quarter

WASHINGTON (MarketWatch) -- The U.S. economy grew at a slightly faster pace in the first quarter than originally reported, while inflation also was stronger than estimated, the Commerce Department said Thursday in its final revision to gross domestic product estimates.

The mildly stronger-than-expected report is not expected to have much impact on financial markets.

"The first half will be more difficult than the second half," Commerce Secretary Carlos Gutierrez told The Associated Press. Although "the predictions were so dire," the first quarter's performance shows "how resilient our economy is by being able to show growth in the face of challenges."

The Fed hopes its powerful series of rate reductions and the government's stimulus will lift the country out of the doldrums over time.

"...a 1% gain... Think about that for a minute, folks... With inflation over 4%, even using the current methodology, that's real growth of more than negative -3%!"
- Chuck Butler, The Daily Phennig

Chuck nails it. The US is in a recession, and likely has been since late 2007. But the "perception" portrayed by the media, government statisticians, and Wall Street has FINALLY been slayed by a very strong dose of reality. You want to talk about bubbles bursting? The biggest bubble on Wall Street the past three months has been the "Things Are Better Than They Appear Bubble". TRUTH is making a comeback.

The Precious Metals took Ben's "fears of inflation" nod yesterday and ran with it Thursday. Gold said, "Enough of this nonsense, I'm outta here," and took off. Silver dutifully followed, though perhaps slowed somewhat by it's July contract rollover.

Gold vaulted $30, and continued it's rise overnight in Asia and into this mornings opening in London. Gold has now pierced intermediate resistance at 917, and should have a solid floor at 910 as it prepares to leave the Moons orbit and head for "infinity and beyond".

Silver rose steadily Thursday thru 17, and after rising further over night in Asia, finds itself this morning morning face to face with intermediate resistance at 17.45. Clearing this resistance should set Silver up for a quick move to 18.

Both Gold and Silver have taken the gloves off, and are now prepared to fight for the Truth. A Truth few want to hear, let alone accept: The US Dollar is on life support, it's strength sapped. There is no "strong Dollar policy".

Boneheaded Miscalculations
By: Bill Bonner & The Daily Reckoning Crew

The most boneheaded miscalculation of all time…

"Terrorism will be reduced…weapons of mass murder will be limited, people will be safer around the world, human rights and democracy will be unleashed in the Middle East, and the fragile outlook for world prosperity will be improved… The uncertainty tax on world growth will be lowered too, as will the energy tax from temporarily spiking oil prices."

This was Larry Kudlow writing in March, 2003.

The spike in oil prices he described took place on March 12th, 2003, pushing the price of a barrel of crude all the way up to $37.83 and the price of a gallon of gasoline to $1.72. Yesterday, oil closed at $137 and gas sells for $4.06.

But Kudlow was hardly alone in his hallucinations. Laurence Lindsey, then George Bush's senior economic advisor, looked into his own crystal ball and saw nothing he didn't like.

"Under every plausible scenario, the negative effect will be quite small relative to the economic benefits… The key issue is oil, and a regime change in Iraq would facilitate an increase in world oil," thereby driving down oil prices.

Paul Wolfowitz, then Deputy Secretary of Defense, went on to reassure the nation that Iraqi oil revenues would pay all the costs of reconstructing the country.

Today, we are talking about one of the most boneheaded miscalculations of all time. Almost with a single maladroit stroke, a relatively small group of world-improvers undermined the progress of 9 generations. Five years later, Americans are on the losing end of the "biggest transfer of wealth in history," as T. Boone Pickens described the oil market of 2008. George W. Bush has the highest disapproval ratings of any U.S. president in history. America's most profitable industry - finance - has collapsed…its currency has lost a third of its value…and European, Chinese and Indian economists are wagging their fingers saying, "I told you so."

Bob Chapman, The International Forecaster
The Conference Board's consumer confidence index for June came in at an abysmal 50.4. This reading is down 13.25% from May's 58.1, is less than half of last June's 103.9 and is the lowest reading in 16 years. The "experts" were expecting 56.5. And then there is the index of consumers' expectations for the future, which hit an all-time low, declining 13.31% to 41.0 in June from 47.3 in May. Seventy percent of our economy is driven by consumer spending. This simple set of facts tells the whole story. It is a certifiable disaster in the making. Next, let's not forget the hundreds of billions in yearly home equity extractions that have all but completely dried up. Add in the next bubble to break, consumer credit, where people with no savings have lived paycheck to stagnant paycheck amid 12.625% inflation, thereby forcing them to exhaust available lines of credit just to keep from going under, and you move beyond disaster into a nightmarish, catastrophic, systemic breakdown of epic proportions worldwide.

The US supertanker economy has been afloat on a maelstrom of money and credit that has carried it into the rocks of hyper-stagflation, dollar destruction and fiscal profligacy as its occupants listened to the siren song of globalization, free trade, off-shoring, outsourcing and both legal and illegal immigration. The gaping holes in the hull cannot be patched. The supertanker is taking on water faster than Ben the Buck-Buster Bernanke can bail it out with his 1930's retro bailouts of banks and non-banks alike. The Fed and Congress have created a financial monster that threatens to blow oil prices into the ozone, the economy down into the earth's core and a mountain of derivatives, now closing in on a notional value of a quadrillion dollars, into an inter-dimensional wormhole where no one is quite sure what will happen, but whatever it is will have negative cosmic implications for markets around the globe.

Wednesday, June 25, 2008

Fed Whistling By The Graveyard

"There is nothing so bad that politics cannot make it worse."
- Thomas Sowell

Fed Keeps Rate at 2%, Cites `Upside' Inflation Risks
June 25 (Bloomberg) -- The Federal Reserve kept its benchmark rate at 2 percent and warned that faster inflation may accompany some strengthening of the economy.

``Although downside risks to growth remain, they appear to have diminished somewhat, and the upside risks to inflation and inflation expectations have increased,'' the Federal Open Market Committee said in a statement in Washington after a two-day meeting.

``The Committee expects inflation to moderate later this year and next year,'' the Fed said. ``However, in light of the continued increases in the prices of energy and some other commodities and the elevated state of some indicators of inflation expectations, uncertainty about the inflation outlook remains high.''

Ah Bumbling Ben, always the funny guy, talking out of both sides of his mouth.

"Although downside risks to growth remain, they appear to have diminished somewhat..."

Uhhh, what? Diminished?

"No, thanks, I'll pass." "You go ahead and take another hit man."

Diminished? What is he smoking? He actually believes people are going to believe that? Let's see now: Consumer Confidence hit a 16 year low and house prices fell the most on record just yesterday. Just today New Home Sales dropped again, and Durable Goods Orders are virtually nonexistant. Jobless claims are up on balance for the month, once again. NY Empire Stae Manufacturing -8.68, Philadelphia-Fed Manufacturing survey -17.1, Richmond-Fed manufacturing survey -12. All below expectations. Readings that fall below zero indicate contracting activity, and the lower the number, the greater the breadth of the decline. Capacity Utilization and Industrial Production, both down. Corporate profits expected to drop 10% in the second quarter. Diminished?

In its Wednesday statement, the Fed said recent information "indicates that overall economic activity continues to expand, partly reflecting some firming in household spending." The reasoning for this assertion is difficult to work out. Subtract the $600+ government handout individuals and families received over the past month, adjust for inflation, and retail sales STILL STINK! Most household spending can be attributed to rising consumer credit card debt, +$15 BILLION dollars in April, and $9 BILLION in May. Americans have been spending money they don't have for so long now, they can't stop. And now they have even less money they don't have, and are spending even more of it. The entire "boom" of the past ten years was built on false growth and a mountain of Debt. Can you say CATASTROPHE?

It should appear to anybody paying attention that not only do risks to growth exist, they are getting worse, NOT better. In fact, I don't think it to bold to suggest that the "bad" is only just now beginning, and "bad" is going to quickly get a whole lot worse. The economic data we are seeing now usually comes at the end of a recession, not the beginning. ...And yes, we are closer to the beginning of this recession [depression?] than we are the end.

The Dollar certainly showed it's lack of confidence in Bumbling Ben's tongue wagging, slipping below 73 again. Gold and Silver were oddly quiet today taking their cue to silence from minor weakness in Oil. Bumbling Ben is absolutely correct in his assertion that "upside risks to inflation and inflation expectations have increased". This comment alone should have sent Gold soaring. The Fed tried painfully hard today to give the impression that they are now inflation hawks. Nothing could be further from the truth. Chickens might be a better description. The Fed is in NO hurry to raise interest rates.

"The Committee expects inflation to moderate later this year and next year". That should read: The committee HOPES inflation will moderate later this year and next year. Sorry Buddy Ben, it's only going to get worse. Growth is going into the tank, and inflation is going skyward. They have a word for that scenario in your economic dictionary, STAGFLATION. I suggest you look it up, embrace it, and then get your ass out of Washington before the lynch mobs take to the streets chanting your name: "Pinocchio, Pinocchio, come out, come out, wherever you..."

Mortgage Bailout A Legislative Turd
The shaping of this legislative turd has been duly reported on the news pages of the Wall Street Journal, but you have to read Tuesday’s lead story to get a bracing whiff of it. What it will provide, first of all, are the kind of mortgage loans that led to the "subprime mess" in the first place -- which is to say, loans to homebuyers who cannot come up with a downpayment. The private sector is no longer making such loans, and the FHA itself has told its benefactors on Capitol Hill that it no longer wants to make them either. Of course, that didn’t prevent the bill from sailing through Congress. As Thomas Sowell once said, "There is nothing so bad that politics cannot make it worse."

Silver Delivery "Delays"
By: Stephen Kovaka, CPA

In our politically correct world, there are always new words for everything. “Fat” became “overweight” or “obese”. When these people go to buy clothes, it’s at the “Big and Tall” shop. Cripples became “handicapped”, or “disabled”, then “differently-abled” or “special”, as in “Special Olympics”. A government agency states that it may not always be right, but it is NEVER wrong.

Language has been pressed into the service of denial, as spin has become more important than reality. And the most politically incorrect word of all? LIE. Today there are “untruths”, “exaggerations”, “perceptions”, and “stories”, but very few lies. Classifying statements as truth or lie is simply not done.

So it should be no surprise that rather than silver shortages, today we hear that there are merely “delivery delays”. We are told that this is in NO WAY a shortage, which God Forbid! There is plenty of “tomorrow silver”, just not much “today silver”, as though these were the same thing.

The fact is, the market for silver promises, also known as silver derivatives, is roughly 100 times as large as the market for delivered silver, according to Jeffrey Christian of the CPM Group, publisher of the annual CPM Silver Yearbook. CRIMEX silver futures, where the eight largest silver dealers were collectively promising to deliver 120 days of WORLD silver production last year, are just one example of such derivatives. Of course, this market also has stringent delivery limitations, so everybody knows that very little of this “silver” will ever actually be delivered from the CRIMEX warehouse. By comparison, the amount of silver actually in the CRIMEX storage facilities amounts to window dressing. This makes the CRIMEX a price setting mechanism, pure and simple, unrelated to deliverable supply.

CRIMEX? Ya gotta love that! Henceforth the NY COMEX will be known only as CRIMEX.

Tuesday, June 24, 2008

The Bronx Cheer - All Hail Pinocchio!

A quiet day in the Precious Metals, for the most part as traders awaited the "words" of the man behind the curtain. What more can he say that hasn't already been said? There will not be any rate increases, of that, most are certain. Much of the focus on Silver remains on the rollover out of the July futures ahead of first-notice day at the end of the month.

Nothing positive on the economic data front today. Were it not for the meddling PPT the stock market would have surely tipped into its long awaited death spiral by now. But we could not have that occur in the hours leading up to the "words" from the great Oracle of Lies, Bumbling Ben Bernanke.

When are investors going to wake up to the TRUTH? Nothing this Pinocchio says is going to change, fix, or bandage anything anymore. The "institution" he overseas has lost ALL control. The more Bumbling Ben and Pals try to fix things, the worse things are going to get. The "other shoe" is dropping on the banking industry, and inflation is fueled and on the launch pad. The banks are going down, and inflation is going up. The Fed is powerless to stop either. Their brazen efforts to stop the accent of the Precious Metals are about to become wasted effort. Gold has been circling the Moon for three months now. Many thought it would never "go to the Moon". It has, and it has no intention of returning to Earth. Gold has simply been refueling and is now on trajectory for "infinity and beyond." Circle this date on your calendar: July 3. The ECB meets for their next rate decision. Should Trichet and friends raise Eurozone interest rates that day, there could be plenty of fireworks in the Precious Metal Markets July 4 as the NY COMEX will be closed that day. Could Gold regain it's freedom on Independence Day?

US Economy: Consumer Confidence, House Prices Slide (Update1)
June 24 (Bloomberg) -- Confidence among Americans dropped to the lowest level in 16 years and house prices fell the most on record, raising the risk that consumers will cut back on purchases after spending their tax rebates.

The Conference Board's confidence index fell to 50.4 in June, lower than forecast, from 58.1 in May. Home prices in 20 cities dropped 15.3 percent in April from a year earlier, according to S&P/Case-Shiller, the most since the group began collecting data.
Consumers, whose
spending accounts for more than two thirds of gross domestic product, are being hurt by the housing slump, rising unemployment and higher food and fuel bills.

``We've seen this dive in confidence in the last two months at the same time these stimulus checks'' have been mailed, Chris Low, chief economist at FTN Financial in New York, said in a Bloomberg Television interview. ``It tells me if we see this pop in spending, it's not going to last.''

Corporate Profits Seen Off More Than 10 Percent
NEW YORK (Reuters) - The U.S. corporate profit outlook is deteriorating rapidly, with S&P 500 earnings for the second quarter now seen falling at a double-digit pace from a year earlier, according to Thomson Reuters Proprietary Research released on Tuesday.

Second quarter profits are expected to fall at a rate of 10.2 percent, compared with the Monday estimate for a drop of 9.6 percent. At the end of May, analysts expected a 7.3 percent drop.

A worsening outlook for consumer discretionary and financials was behind the bleaker earnings view.

Status Quo-oh
A catastrophe for Iowa farmers will not be just a catastrophe for Midwestern Americans. In the Iowa floods, we'll see more evidence of how the problems of weird weather (climate change) combine and ramify the problems associated with peak oil. In this particular case they lead to an inflection point sometime around the 2008 harvest season, which will also be our time of political harvest.

These are not your daddy's or granddaddy's floods. These are 500-year floods, events not seen before non-Indian people starting living out on that stretch of the North American prairie. The vast majority of home-owners in Eastern Iowa did not have flood insurance because the likelihood of being affected above the 500-year-line was so miniscule -- their insurance agents actually advised them against getting it. The personal ruin out there will be comprehensive and profound, a wet version of the 1930s Dust Bowl, with families facing total loss and perhaps migrating elsewhere in the nation because they have no home to go back to.

Iowa in 2008 will be an even slower-motion disaster than Hurricane Katrina in 2005. Beyond the troubles of 25,000 people who have lost all their material possessions is a world whose grain reserves stand at record lows. The crop losses in Iowa will aggravate what is already a pretty dire situation. So far, the US Public has experienced the world grain situation mainly in higher supermarket prices. Cheap corn is behind the magic of the American processed food industry -- all those pizza pockets and juicy-juice boxes that frantic Americans resort to because they have no time between two jobs and family-chauffeur duties to actually cook (note: reheating is not cooking).
- James Howard Kunstler

Europe's big central banks seem to have lost their appetite for selling Gold today...
THE UNDERLYING PRINCIPLES of the Central Bank Gold Agreement laid out the attitude of European central banks towards gold, writes Julian Phillips of Gold Forecaster.

The agreements started as the Euro entered the foreign exchange markets for the first time in 1999. And all central banks prefer paper money to Gold because of the control it gives the bank over money.

Gold has a habit of undermining the credibility of paper money, as it reflects poor money management in falling values of the paper, as a result of this control. So it was almost incumbent on the European central banks – and their new headquarters and masters at the European Central Bank (ECB) in Frankfurt, Germany – to support the new Euro and frown on the monetary role of gold.

They were not so inclined, however, to frown on its value as a reserve asset. This function can be supportive of a paper currency and a nation in times of crisis.

Now the Euro has been established as an international and particularly European currency, there was no need to frown upon Gold any more. In fact, it is clear that the secondary role of gold as a "reserve asset" should be supported.

Monday, June 23, 2008

Patently Pathetic Pilfering of the Precious Metals

"If 'ifs' and 'butts' were candy and nuts, everyday would be Christmas."
-old saying

Many of you this morning I am sure, like myself, were completely enraged at the site of Gold and Silver plummeting in an instant as the NY COMEX market opened. In less than 20 minutes Gold was molested and robbed of $25. Silver fared much worse, being raped for a dollar. Blantantly criminal and inexcuseable though it was, I still found it amusing. How could Gold and Silver become so weak in an instant on such magnificently MINOR strength in the Dollar. Particularly when it was not "strength in the Dollar, but weakness in the Euro" that put this tiny bid under the Dollar. Patently pathetic pilfering of the Precious Metals by the paper pushers on the NY COMEX. No REAL bullion was sold, none traded hands. Bids were pulled by the nefarious criminals that inhabit the NY COMEX in an effort to steal your Gold and Silver, to pry it from weak fingers. An act of desperation commited by the minions of the banking industry dead set against the appreciation of Gold and Silver lest they expose the, now obvious, Truth about the US Dollar. You can only push a beach ball so far below the water before it explodes to the surface. And this baby is going to explode like the grand finale at a 4th of July Fireworks Show.

The U.S. dollar index rose this morning as the euro dropped on falling German business confidence and weak economic data that suggests the ECB might not be as aggressive in raising interest rates. When will people realize that the ECB is COMMITTED to fighting inflation? They are not going to cut interest rates no matter what the local politicians and the Western financial press suggests. What boggles my mind is that weakness in the Euro does not translate into strength for Gold. Why would anybody buy the pathetic US Dollar? Right now there is a 200 basis point difference in interest rates between the Euro zone and the US, in the Euro zone's favor. Bumbling Ben could raise interest rates 25 basis points on Wednesday, and the Euro would still have a 175 point advantage over the Dollar. Explain to me then any "advantage" to buying the Dollar? What? There isn't any? The Euro is STILL a better buy. Well, duh!

The Fed raises rates, the economy is destroyed. The Fed continues to cut rates, the economy is destroyed. The Fed does nothing, the economy is STILL destroyed. The handwriting is on the wall.

Japan had a fisrt quarter GDP of 4% and the Yen remains weak? Go figure. The US GDP was a contrived 0.9% and people still believe there is a "strong Dollar policy". Here's the truth about the "strong Dollar policy".

The "strong Dollar policy" refers specifically to the correlation between the US Dollar and the purchase of Oil that began in 1973 when the US got the Saudis to agree to accept ONLY US Dollars as payment for Oil in exchange for a lifetime of military defense of the Kingdom by the US. In time other Oil producing nations This arrangement was made so that there would be a constant demand for Dollars as all Oil purchased would have to be paid for in US Dollars. This constant demand for Dollars put a floor under the Dollar and allowed the US Treasury to print as many of them as they wanted to. In effect, for the past 35 years the US Dollar has been backed by Oil. The rising price of Oil is really in the best interest of the US' "strong Dollar policy" as it certainly creates a gigantic demand for the little pieces of trash. IN FACT most, if not ALL, commodities are bought in sold with US Dollars. Rising commodities prices create quite the demand for Dollars which the Treasury and the Fed are more than happy to provide because the only hope the country has to pay off it's gargatuan debt is to inflate the money supply.

The Dollar, being effectively backed by Oil, would certainly explain why the price of Oil, not Gold, has skyrocketed as the pace of inflation has accelerated. The Fed is shocked by this development, and powerless to stop it. The Fed heads are fools to believe a 25 point rise in interest rates will stop the rise in the price of Oil. Does this mean that our bets on Gold and Silver are in the wrong park? NO, not at all. It just means that when Gold and Silver begin their next legs up, and that next leg is fast approaching, they are going to literally explode higher. The next legs up in Gold and Silver quite probably will surpass the combined moves for both so far since the Bull Market in Precious Metals began in 2001.

They’ll Be Printing Money Like There’s No Tomorrow
That’s what master planners will be doing in continuing efforts to offset a collapsing credit cycle. And we are just a few short weeks away from when this should begin in earnest. Why not right now? Why will this likely take until July to begin in earnest? Well, for one thing master planners (heavy on the sarcasm) have it their minds they need to talk the dollar ($) up right now, at least until things start falling apart again. This is official Fed policy at present, and orthodox hedge fund managers are supporting it, along with selling commodities and precious metals. And the other thing is the stock market. As mention many times this year, hedge funds are locked into a sell commodities / precious metals and buy the $ / stocks trade for the present quarter that will be pushed aggressively right until the end of June.

US Economy to be Hit by Many Credit Crisis Hurricanes with Many Eyes
Often times it is not the leading front of the hurricane that does the most damage, it is the backside. Here is the three stage pattern of hurricane damage.

Winds from the front side weaken but do not destroy structures.

The eye of the hurricane brings a foreboding sense of unnatural calm.

Wind comes slamming from the opposite direction as the eye passes over, shearing structures from the opposite direction.

The "calm" Bernanke thinks we are in, is nothing more than the prelude to the back side of a hurricane...
- Mike Shedlock

There’s been a lot of hot air coming out of the U.S.
It is going to get worse everywhere. Inflation is in the pipes. Soon, it will be backing up in the bathtub drain and spilling over from the sink. Over the last 15 years, the world has seen huge inputs of ‘liquidity’ – cash and credit from central banks and the financial industry. Everyone was perfectly happy when this juice was going into asset prices. But one by one the bubbles have popped...and now the liquidity goes where it is unwelcome – into commodities, food, and fuel.

And the poor man didn’t bother to save money, because he didn’t need to. His house rose in price...and there was always someone ready to lend him money when he needed it. But now...the cost of credit is going up too.

“U.S. credibility and the credibility of U.S. financial markets is zero everywhere in the world,” says Joseph E. Stiglitz, a professor of economics at Columbia University.

“Anybody looking at this from the outside says, ‘There’s been a lot of hot air coming out of the U.S., so why should we listen to these guys when they didn’t know how to manage risk?’”

The Chinese yuan has gone up 11% against the dollar so far this year.
- Bill Bonner, The Daily Reckoning

Another Gold Attack, then North to $2,000!
Jun 23, 2008 - 07:03 AM
By: Alex Wallenwein

Ordinarily, gold would be right before a major breakout point at this time, which should occur this week or the following week at the latest – but Wall Street and the entire US financial structure are so near a complete breakdown that another attack on gold must be expected. Here are the reasons why:

The Dow closed on Friday only a hundred points above its year 2000 high and March 2008 low of 11750. That point is so critical that "the powers" are in no position to allow it to be breached while gold is heading north.

The dollar has suffered severely from Tricky Trichet's hammer blow. The FOMC meets again this coming Wednesday. They have nothing to offer in support of the greenback - except for talk, that is. Expect that talk to begin early Monday morning, maybe even during overseas trading hours so the powers don't have to fight a dollar-decline and gold spike that has already developed momentum.

The stock index for US Banks is about to plow through its own nine-year support level, as can be seen from the chart below, and that is probably the biggest argument for yet another preemptive hit on gold.

Sunday, June 22, 2008

...And The Beat Goes On

No Quick End to the Pain
The [US] debt-to-GDP ratio went sideways for 50 years and the economy was growing handsomely. Then the debt level tripled in 25 years [since 1982] and the growth rate slowed. So this beautiful faith we have that increasing debt will cure all problems is a complete hoax. Growth is about the level of capital spending and saving, education, technology, R&D and all those good things. It’s not about what I owe you and you owe me.
- Jeremy Grantham

The Fed Unreserved
What few economic leaders have acknowledged is that the Federal Reserve itself is responsible for the real estate and credit bubbles, which are the source of our current troubles. By keeping interest rates too low for too long, the Fed ignited a speculative fever and engendered a disregard for risk management that pushed asset prices above rational levels. Should we blame the private sector for taking advantage of all the cheap credit, or the Federal Reserve for supplying it? If a kindergarten teacher passes out handfuls of Pixie Sticks, and then leaves her classroom unattended for several hours, should we blame the five year olds for the hysteria that ensues?
- Peter Schiff, Euro Pacific Capital, Inc.

Large U.S. banks' stocks in capitulation mode
(Reuters) - U.S. large-cap regional banks' stocks now appear to be in "capitulation mode" and will likely trade below fair value in the near term as more dividend cuts and capital raises, high credit risk and an uncertain earnings outlook all weigh on their share prices, an analyst at Merrill Lynch said.

Analyst Edward Najarian said he does not expect credit metrics to recover until 2010 and forecast more dividend cuts and capital raises at banks...

Najarian also slashed his earnings estimates by an average of 22 percent for 2008 and 19 percent for 2009. He said the cuts were largely due to higher loan losses, as well as an increase in loan loss reserve building.

"Our higher credit loss outlook is driven by higher loss assumption in nearly all consumer and commercial loan categories ... we have especially increased our loss assumptions for residential construction loans and home equity," Najarian wrote in a note to clients.

IMF says US economy is set to ‘stagnate’
The US economy is likely to “stagnate” in the second half of this year, the International Monetary Fund warned on Friday, as stock markets in the US and Europe fell to their lowest levels since March and US bank shares hit a five-year low.

The IMF said continued economic weakness would result in inflation risk going down, not up, in the coming months, and urged the Federal Reserve to keep interest rates on hold for the time being – challenging market expectations that rate increases will soon be required. The IMF also suggested that the dollar had declined to a level at which it was closer to, if not at, its medium-term equilibrium value, on a broad trade-weighted basis.

John Lipsky, second-ranking IMF official, said: “We anticipate the economy will slow to virtual stagnation in the second half of the year.” The IMF is now forecasting no growth at all in the US this year, measured from the final quarter of 2007 to the final quarter of 2008.

Used Truck Trade-In Values Plunge, Deepening Auto-Sales Decline
June 21 (Bloomberg) -- Plunging prices for used pickups and sport-utility vehicles are deepening U.S. automakers' sales slide, with Ford Motor Co. the latest company to feel the pinch.

Gasoline near $4 a gallon helped send prices for used large pickups and SUVs tumbling at least 21 percent in May, Atlanta- based Manheim Consulting estimates. That cuts trade-in values, pushing light-truck sales down 16 percent in 2008, compared with less than 1 percent for cars.

Used SUVs may fetch an average of $6,100 less than they did three years ago, according to Bandon, Oregon-based industry- analysis firm CNW Research. That means a possible writedown of almost $5 billion for vehicle lessors, CNW wrote on June 16.

Writedowns at the finance units of GM and Ford may be $1.5 billion and $1.1 billion, respectively, as used-truck values drop, New York-based Lehman Brothers analyst Brian Johnson said in a note yesterday.

Al Castignetti, vice president and general manager of Nissan Motor Co.'s North American sales unit, said the lenders are being squeezed by the so-called residual value they projected for the vehicles at the end of their lease terms.

The economy starts its final descent into Davy Jones' Locker
The dollar has once again collapsed. Get ready for the next dollar debacle and the coming rally in gold and silver which have just broken out. The elitists have lost all credibility. The would-be lords of the universe have told so many pathological lies that no one "in the know" believes anything emanating from the forked tongues of Buck-Busting, Bear-Bashing, Big-Ben Bernanke and Hanky Panky Paulson. If our Fed Head and Treasury Secretary had been characters in the Walt Disney movie entitled "Pinocchio," their noses would have quickly grown to lengths that could have been wrapped around the earth's equator several times. God would have had to reverse the earth's rotation to extricate them.

Wall Street tells us the odds favor two quarter percent rate hikes to the Fed funds rate by the end of the year. We ask whether that would be before or after the economy collapses? If before, the Fed's rate hikes will destroy what is left of our economy, and the dollar will collapse, thereby erasing any benefits from the rate hikes. If after, you will see rate cuts instead of rate hikes as the Fed attempts to save the fraudsters on Wall Street who are not even remotely close to recovering from the credit-crunch despite what the elitists might tell you to the contrary. We ask who the morons are that make up these odds, and what planet they come from. They give aliens a bad name. These index predictions are just another form of jaw-boning and disinformation.

-Bob Chapman, The International Forecaster

Thursday, June 19, 2008


Oil closes almost $5 lower on China's fuel price hike

SAN FRANCISCO (MarketWatch) -- Crude-oil futures closed Thursday with a nearly $5-a-barrel loss as news that China raised retail fuel prices sparked concern over a slowdown in demand.

The price hikes for the world's second-largest oil consumer came sooner than most analysts had expected and caused a sharp decline in crude-oil futures.

The price of gasoline was raised by 17% , diesel prices were raised by 18% , and jet-fuel prices were raised by 25%.

"I don't expect this to have much impact on energy demand in the short term nor likely much impact on economic growth," David Fridley, leader of the China Energy Group at the Lawrence Berkeley National Laboratory in California, said in emailed comments.

Sean Brodrick, a natural resources analyst for, said, "oil bears and stock bulls alike are seizing on this news from China like drowning men grasping at lifelines."

"I hope they can live with disappointment," he said in emailed comments. The effect is to raise China's gasoline and diesel prices by 46 cents a gallon, he said, and that's "probably not enough to have much impact on existing demand."

At the same time, Brodrick points out that China will see at least 6.6 million new cars, trucks and vans hit their roads this year.

Given that, "I think this pullback is one that can be bought. Give it a few days -- maybe look to enter early next week," Brodrick said.

Freight transport, not personal cars, is the major driver of Chinese oil demand and demand growth, according to Fridley. As a result, the price hikes mean that moving goods and commodities around the country and to ports will become more expensive.

"That may eventually work its way through to reduced demand for certain goods, but it won't have any impact on the need to move hundreds of millions of tons of coal by truck and over a billion tons by train," Fridley said. "It will simply raise costs."

China's move to raise energy prices will exacerbate already high inflationary pressures. The consumer-price index, a key measure of inflation, eased to 7.7% in May from 8.5% in April, but still remains relatively high.

"Today's hike will greatly raise inflation pressures in China, but we think the impact on production, investment and consumption should be quite small," said Ting Lu, economist at Merrill Lynch, in a note to clients.

The latest price hikes may encourage refiners to import more crude oil, thereby causing a small rise in short-term demand.

"If they get a better price for their products, there is less reason to starve the domestic market," said Mikkal Herberg, director of Energy Security Program at the National Bureau of Asia Research.

However, "Chinese refiners are still experiencing negative margins," Herberg said. "The question is whether the government will reduce subsidies for the refiners. China's prices are still 25% to 30% below regional prices."

Shocking news? Only to those that print the news, and write the headlines. As recently as May 22 China's economic planning department dismissed as a "groundless rumor" reports saying the country might liberalize the prices of refined oil and natural gas soon. So shocking is too strong a word. Surprising? Perhaps. Most observers were convinced that China would raise the cost of fuel following the Olympics in August. Is is coincidence that the price hikes come as China and the United States wrapped up their latest so-called strategic economic dialog and ahead of a meeting this weekend in Saudi Arabia between members of the Organization of Petroleum Exporting Countries and representatives from the world's oil-consuming countries? Probably not.

That this price increase by China for fuel "sparked concern over a slowdown in demand" was your A-typical knee jerk reaction in the markets. Yes, it is rational to believe that rising costs "may" curb demand. But if there is anything traders should know by now, these markets are anything but rational. The fact is, there is really little "fundamental" evidence to conclude that Chinese Oil demand will decrease just because they raised the price of gasoline by 18%.

China last raised the price of gasoline in November 2007. At that time the Chinese raised prices by 9%. Gasoline demand in China wasn't even dented. Demand for gasoline in China increased by 11% in January 2008.

China is the world's second-largest consumer of petroleum, behind the U.S. The nation's robust demand for oil, to support its booming economy and rising standard of living, has contributed to higher global prices and has prompted Beijing to scour the world for energy resources. China relies on imports for roughly half its oil use, which is growing at about 7% annually. The US consumes about 20 MILLION barrels of Oil Daily. The Chinese consume about 8 MILLION barrels of Oil Daily.

Gasoline prices here in the US have risen about 35% since the first of the year. Demand for gasoline has dropped less than 2% year over year. And Oil prices have risen 65% since January 2008. Presently the Chinese consume about one-eighth the gasoline American use in a day. The transportation industry uses about half of the gasoline and diesel in China, while ordinary motorists accounted for 7% of gas consumption in 2006, according to China International Capital. But the number of car owners is growing rapidly, they buy one new automobile about every six seconds in China. Gasoline demand is going to be rising in China no matter the cost of gasoline right now.

It is also significant that Chinese Oil refiners presently produce gasoline at a huge loss, and are subsidized by the Chinese government to do so. PetroChina and Sinopec (as China Petroleum is called) also produce, refine and import oil. They buy crude at global prices but must sell at government-set levels. Although the companies are state-owned, their executives are nevertheless loath to sell at such a huge loss.

The upshot: They're holding back supplies until the government lets prices rise, some analysts say. This would suggest that their is "pent-up demand" for gasoline in China. Analysts are all to often wrong when projecting the Chinese economy. How many times have we been led to believe that Chinese GDP would be falling, only to have their GDP numbers defy predictions time, and time again? Falling oil demand in China? Not likely, but certainly rising inflation.

What's the benefit to Gold? Rising fuel prices will only add to rising prices of everything in China. Inflation is a GLOBAL scourge that will not be tamed anytime soon. Rising prices in China will equal ever higher rising import prices for the US. Take that to the bank and ask for Gold in exchange for your so to be even more worthless Dollars.

Wednesday, June 18, 2008

Fundamental Vision

After showing strong resolve last Thursday and Friday, Gold Bulls have gone on the offensive this week. Thumbing their noses at Bumbling Ben and his Round Table of Fiscal Fools, Gold Bulls have retaken, once again, the key 880 hill and have set their sites again on a breach of 900. A poor number from the pedestrians counting initial jobless claims today [Thursday] could be just the catalyst to vault Gold back over 900. Expect "profit taking" going into the weekend however. Gold Bulls should note that the Japanese Yen has been sitting on it's 200 day moving average for the past four days now:$xjy

Silver has been shadowing Gold for weeks now, and that trend continues. Silver today broke back thru key resistance at 17.02. It is interesting to note that almost 2 million ounces of Silver found it's way into the COMEX warehouses yesterday. Could this signal a massive short covering in it's infancy? Time will tell. Silver must now book a close above 17.46 to further pressure the shorts into taking Silver back thru 18. As with Gold, expect "profit taking" going into the weekend.

As Bumbling Ben's rate hike "threat" is looked at more closely with "fundamental vision", the line for the Dollar exit once again appears to be lengthening. When considering the consequences of ANY Fed interest rate hikes at this time, traders are quickly becoming less convinced that Benny is serious.

The Fed's Rate Dilemma
By Robert Novak
Washington PostMonday, June 16, 2008

Speculation that the Federal Reserve is about to begin inflation-fighting interest rate increases appears to be dead wrong.

Fed Chairman Ben S. Bernanke is worried more about runaway oil prices contracting the global economy than inflating it through a wage-cost spiral. According to sources close to him, America's leading central banker has no plans for a raise.

Bear bailout shows Fed doesn't follow normal rules for its own books
The Federal Reserve is just days away from completing the financing for its bailout of Bear Stearns Cos., after which the central bank will have another big decision to make: how to account for it.

Flip through the footnotes to the Fed's latest annual report, and you'll come across an open secret. The Fed doesn't follow normal accounting rules, as promulgated by any of the major standard-setting boards. Rather, the Fed writes its own, in a document called the Financial Accounting Manual for Federal Reserve Banks.

If you ever wanted to design an accounting regime to help a bank cook its books, the Fed's would be perfect. This doesn't exactly inspire faith in the U.S. financial system, at a time when a good example might help a lot.

Wall Street's credit crisis heads into second year
NEW YORK (AP) -- There are new signs that the worst of the global credit crisis is yet to come, and that banks and brokerages caught up in the market turmoil may lose $1 trillion by the time it has passed.

Major U.S. investment banks this week announced yet another painful quarter amid the implosion of mortgage-backed securities and risky credit investments. Regional banks have scrambled to secure fresh capital to stay in business, and by Wednesday there was new talk that embattled investment bank Lehman Brothers might be forced into a sale.

With each passing quarter, Wall Street's top bankers have indicated that the worst of the market turmoil was over -- only to face more pain months later. The uncertainty has caused already battered investors to lose confidence in financial companies, and expectations have increased that more layoffs, asset sales and capital raising will be needed in the weeks ahead.

"We thought this was going to be the kitchen-sink quarter, and we're finding out that CEOs and CFOs still don't have a handle on the credit crisis," said William Rutherford, a former state treasurer of Oregon who now runs Rutherford Investment Management. "We haven't disinterred all the dead bodies. What else is out there?"

RBS Issues Global Stock and Credit Crash Alert
The Royal Bank of Scotland has advised clients to brace for a full-fledged crash in global stock and credit markets over the next three months as inflation paralyses the major central banks.

"A very nasty period is soon to be upon us -- be prepared," said Bob Janjuah, the bank's credit strategist.

A report by the bank's research team warns that the S&P 500 index of Wall Street equities is likely to fall by more than 300 points to around 1050 by September as "all the chickens come home to roost" from the excesses of the global boom, with contagion spreading across Europe and emerging markets.

Such a slide on world bourses would amount to one of the worst bear markets over the last century.

A "Lot of Money" Heading Back into Gold?
...looking at the technical action on its charts, "any meaningful bounce from the 200-day moving average could bring back a lot of money into gold," ...

The 200-day moving average, as the name says, measures the average price of an asset over the last two hundred days. It's called "moving" because, as time rolls ever onwards, so too does the average – used by chart-loving technical analysts to see what the deeper, underlying trend is up to.

And why 200 days? Because that's roughly the number of trading days during one year. So the chart here, therefore, shows both the daily Gold Price as well as its 12-month trend. And you can see how the 200-day average has indeed acted as "strong support" during the bull market so far.

Well, kinda. Most of the time.

Nine times since Gold quit its 20-year bear market in 2001, the price has either bounced off or moved sharply higher through its 200-day average. The following surge – lasting an average of 21 weeks – delivered a 28% gain before the price of gold tipped lower again, back towards that ever rising up-trend.

Hanging on for another pullback from today's current Gold Price and so trying to nick a little extra off your investment outlay might prove expensive, in short. If you're looking to take a position in Gold for longer-term or deeper fundamental reasons, the kind of low-profile flat action we're seeing this June could offer your best chance to get in.

Tuesday, June 17, 2008

What's The Fed Really Up To?

The Fed and the strong dollar policy
By Henry C K Liu

A misleading impression has been given by recent press reports that the June 3 speech by Federal Reserve Chairman Ben Bernanke marked a Federal Reserve departure from a long tradition of nonintervention on the exchange value of the dollar, in response to the Treasury's renewed declaration that a strong dollar is in the national interest of the US.

The reality is that the Fed has a long tradition in supporting the lead of the Treasury in intervening on the exchange value of the dollar, albeit not always to keep the dollar strong. The Exchange Stabilization Fund (ESF) was established at the Treasury Department by the Gold Reserve Act of 1934 as part of the New Deal. Section 7 of the Bretton Woods Agreements Act of 1945 as signed by 28 nations obliged members to make subscription payments in gold or equivalent currencies for shares in the International Bank for Reconstruction and Development (World Bank). It required an amendment to the Federal Reserve Bank Act of 1913 to maintain the exchange value of the dollar, making ESF operations permanent.

Since then, the ESF has managed a portfolio of domestic and foreign currencies for the purpose of foreign exchange intervention to allow the US to influence the exchange rate of the dollar without directly affecting the domestic money supply. The ESF holds of three types of assets: dollars, foreign currencies, and Special Drawing Rights (SDRs) in the International Monetary Fund (IMF). As of April 30, 2008, the ESF was holding assets totaling US$51.2 billion of which $40.8 billion was retained profit.

By law, the Secretary of the Treasury is the chief international monetary policy official of the United States. The Federal Reserve has separate legal authority to engage in foreign exchange operations. Federal Reserve foreign exchange operations are conducted in close and continuous consultation and cooperation with the Treasury Secretary to ensure consistency with US international monetary and financial policy.

The Treasury and the Fed have closely coordinated their foreign exchange operations since early 1962, when the Federal Reserve commenced such operations at the request of the Treasury. Operations are conducted through the Federal Reserve Bank of New York, as fiscal agent of the US and as the operating arm of the Federal Reserve System.

Read the entire four part essay here:

Follow the history of deceit and con that has followed the US Federal Reserve since it's inception in 1913. What is the Fed really up to? It may now be in over it's head...

Monday, June 16, 2008

Uncertainty = Volatility

What a wild and crazy day in the Precious Metals and Forex Markets. At 5AM news hit the markets that Eurozone inflation had hit a 16 year high. Dollar Bulls promptly ran for the exits as the Euro exploded higher in anticipation of interest rate hikes by the ECB. Gold Bears fought for the exits with the Dollar Bulls as Gold exploded higher.

News of a fire in the North Sea that could shut production of up to 150,000 barrels per day of Oil sent crude to a new record high of $139.89, and sent Gold bears into a panic. A short squeeze in Gold ensued, and Gold quickly climbed over $20 by the time the NY COMEX opened.

It should come as no shock then that Gold prices peaked for the day shortly after the NY COMEX opened as the crooks that reside there were able to once again derail a powerful move in the Gold Market with their wall of paper short contracts. Gold closed almost $11 off it's early morning highs, and Silver closed almost .30 off it's highs of the day.

The Dollar remained weak all day because of strength in the Euro. Oil gave up all it's gains, and was probably also a factor in Gold and Silver's drift from their morning highs. Despite the Precious Metals lackluster close, they were both up boldly today nonetheless. And some light may have been shed on the markets psychology at this juncture.

Gold Bears may not be as strong as we may be lead to believe. The way they panicked out of the market this morning on weakness in the Dollar and strength in Oil was quite revealing. The Gold Bulls showed little strength themselves as they failed to pressure the shorts and squeeze the life out of them while they were on the run. Both camps lack conviction for their respective causes at this time and the extreme volatility we have been witnessing of late is the direct result of this "lack of conviction". It's easy to pin Gold's failure this morning on the crooks at the NY COMEX, but perhaps it had more to do with the short cover buying running out of volume, and no real buyers stepping up to the plate to sustain the move higher this morning.

Much the same could be said about the Dollar Bulls as they ran for the hills this morning, and the Dollar Bears refused to chase after them. These reactions and their consequent volatility are all because of the uncertainty in the markets at this time regarding the Fed and interest rates. In the end this uncertainty will be resolved by the simplest of truths: Inflation is here to stay, the Fed is powerless to stop it, and Gold is the single best defense against it.

Questioning the Fed's Rhetoric...
The markets are all "jacked up" on the Fed's rhetoric about "fighting inflation"... Which the markets take as interest rate hikes... But when? Next year? Oh, so you should give up the positive rate differential that the euro, Norway, Sweden, U.K., Australia, Brazil and others have vs. the dollar because the Fed MIGHT raise rates in the next year? Shame on you all you pundits out there telling people these things about rate hikes in the U.S.!

Listen to me now, and hear me later... THE FED ISN'T GOING TO RAISE RATES! The ECB IS, but the Fed ISN'T! At least not for sometime, IT ISN'T GOING TO RAISE RATES! Did you hear me? Oh, just in case you were busy listening to someone on CNBC tell you that everything is beautiful, I said... THE FED ISN'T GOING TO RAISE RATES!

Over at CitFX, the researchers there put together a great commentary yesterday that our old colleague and corporate FX guru Ashish sent along to me... The researchers at CitiFX think this whole "interest rates are going higher in the U.S." is a crock... They point out that the PCE (personal consumption expenditures) that is supposedly a fave indicator of inflation of the Fed's was 2% last July before the subprime meltdown... It now sits "drastically higher?????" at 2.1%... So, where's the emphasis to hike rates here?

They also point out that "we are looking at the only 3 severe economic downturns of the last 30 years and possibly the 4th now. The prior 3 were all jump started by a corrosive asset price fall (housing in 1979-1981 and 1989-1991 and equities in 2000-2002). In all 3 instances they were all preceded by an oil price surge, which exacerbated the drag on the economy... And all 3 say massive easing cycles from the Fed lasting 18 months, 39 months, and 29 months respectively (average 28 months)."

They other thing they point out is that when unemployment rises, the PCE falls...
-Chuck Butler, The Daily Pfennig

Saudis May Be Strapped for Oil, Close to Full Capacity
Saudi Arabia's pledge to boost oil production by 500,000 barrels per day may not be achievable, a source close to the Saudi oil industry told

...the country's ability to produce more than 9.45 million barrels a day of easily refined sweet crude is reliant on the newly-discovered Khursaniyah field, which is of yet not producing to its full capacity, a source close to the industry said.

The field was expected to start pumping oil in 2007, but only started producing in 2008 because of technical delays. And even then, it was expected to produce 500,000 barrels per day, but is currently producing just 300,000 barrels per day.

The plan is that Khursaniyah can raise its production by 200,000 barrels, but that would be the maximum, according to Saudi Aramco's annual report.

Regardless of any increase in Saudi production, supply worldwide will continue to find difficulty meeting demand. Any increased Saudi Oil production will merely compensate for the 350,000 barrels of production lost per day from Nigeria over the past year. News of Saudi Oil production increases look good in the headlines, but are most unlikely to dent prices much.

A Hidden Silver Default?
By: Theodore Butler

What makes this so bullish for silver is that there is only one good reason for anyone to naked short sell SLV shares - because the available silver needed to be purchased and put into the custodian’s vault doesn’t exist. Rather than go out and aggressively bid up the price of world silver, it is infinitely easier just to sell shares of SLV short. No one would be the wiser and it keeps the price nice and orderly. But this also confirms that real silver may be unavailable in wholesale quantities. In other words, this would be proof of a wholesale shortage of silver to go along with a retail shortage.

It is strange sometimes how we find things when we were looking for something else. I came across this video on youtube that just may be the most alarming 10 minutes of video I have ever seen. Every American should see this before his country vanishes. Folks, the Matrix is real, and it's coming to the real world sooner than we could ever imagine:


Just what is really going on behind the curtain...?

The Sky Is Falling?

Dan Denning of The Daily Reckoning Australia asks, "Isn't Bernanke vowing to fight inflation a little like an arsonist standing in the middle of a burning building and vowing to fight fire?"

PICTURE the FIRE CHIEF, Ben Bernanke, standing in a house. Picture him setting the house on fire. Picture the house burning to the ground around him. Now listen to him as he tells you he's committed to fighting fires wherever he finds them.

"Fire? What fire? Oh, I fight fires! And I light them too!

"Light and fight...Almost the same word really! Who's listening anyway?"

G-8 ministers say US housing, financial strains 'may adversely affect' world
OSAKA, Japan (Thomson Financial) - G-8 finance ministers meeting in Japan today warned that ongoing housing and financial market strains in the US could have a broader impact on the global economy, as could food and energy price hikes that are occurring around the world.

'Further declines in housing prices in the United States and greater strains in the financial markets may adversely affect the global outlook,' ministers said in a statement released after their meeting in Osaka.

'Elevated commodity prices, especially oil and food, pose a serious challenge to stable growth worldwide, have serious implications for the most vulnerable, and may increase global inflationary pressure,' the statement added. 'These conditions make our policy choices more complicated.'

The Masters Of The Obvious have spoken. What genius they have imparted to the rabble down below. Did the "ministers" just crawl out from under a rock? It is comical to think of the fools that bought the Dollar and sold their Gold and Silver ahead of this "fountain of wisdom" meeting over the weekend. More hot air contributing to global warming. Their statement sounds more like an indictment of the US Federal Reserve than commentary on the global financial blight sweeping the planet. They offered NO concrete solutions to these problems that "may adversely affect the world".

Consumer prices increase; sentiment deteriorates
Bloomberg) - U.S. consumer prices rose more than forecast in May as record oil prices reduced American confidence to the lowest level since Jimmy Carter was in the White House.

The consumer price index increased 0.6 percent, the most since November, after a 0.2-percent gain the prior month, the Labor Department said today in Washington, D.C. The Reuters/University of Michigan preliminary index of consumer sentiment fell to 56.7 in June, a reading unseen since 1980, from 59.8 in May.

So-called core prices, which exclude food and energy, increased 0.2 percent in May from April.

US Import Prices Soar; Signaling Rising Inflation Pressures
WASHINGTON -(Dow Jones)- U.S. import prices jumped for a third-straight month in May while prices from China hit a fresh record, a government report showed, suggesting rising oil prices and a weak dollar are fanning inflationary pressures. The data will be unwelcome news at the Federal Reserve, especially in light of recent comments by Fed Chairman Ben Bernanke suggesting officials are increasingly worried about the weak U.S. dollar's effect on inflation.

Import prices are the main channel through which the dollar affects domestic prices. Import prices soared 2.3% on a monthly basis in May, the Labor Department said Thursday, compared to April's 2.4% increase, which was revised up. Wall Street economists expected a 2.6% rise last month.

Import prices swelled 17.8% from May 2007, the largest annual rise since the data were first published in September 1982.

Bumbling Ben is right about one thing, prices are rising. Unfortunately for Ben, he is powerless to stop it. Funny thing about the Fed. For years they were able to get away with flooding the world with Dollars by taking advantage of rising productivity here in the US and lower production costs overseas, aka "outsourcing". Both kept wage inflation here in the US in check, and masked the Fed's insidious inflationary inhibitions. The fed exported inflation in the past, and now that inflation is finding it's way back home.

The Fed is literally shocked by the rising costs of commodities around the globe. Particularly in light of an economic slowdown. This is not supposed to happen. I'm certain Dr Frankenstein felt the same way after he created his monster. Ben can threaten to raise short money rates, and even actually raise the rates, but it will do little to put this inflation genie back into it's bottle. Ben has been inflating the Dollar supply at an annualized rate of up to 17%. Price inflation, which is a "symptom" of monetary inflation has yet to catch up to the rate of growth in the money supply. It is safe to say that inflation has ONLY just begun...and has very much farther to run. The Fed created this inflation monster, and calling after it is not going to stop it in it's tracks. Wealth destruction is a certainty now. And Gold and Silver are your best protection against this evil.

US April Consumer Borrowing Grows Beyond Expectations
WASHINGTON (Dow Jones)--Consumer borrowing slowed in April but it still grew as Americans try keeping up living standards while the economy falters and oil prices rise, a Federal Reserve report showed Friday.

Consumer credit outstanding rose $8.9 billion to $2.565 trillion, according to the Fed data. That followed a $13.1 billion advance in March, a downward revision from the previously estimated $15.3 billion increase.

The 4.2% April increase exceeded expectations. People are resorting to credit as oil and food prices mount and home equity values recede.

US foreclosure filling surged 48% in May, and the number of U.S. workers filing new claims for unemployment benefits jumped by an unexpectedly large amount last week, suggesting pressure on labor markets is growing, which could complicate a Fed rate hike. I wonder if the Fed has given ANY thought to the effect rate hikes will have on consumer debt addicts ability to pay down their debt? Rising interest rates only makes debt more expensive. Has the Fed even considered the effect of rising interest rates on the cost of US government debt? US Government debt is the mother of all adjustable rate loans.

US Government debt today stands in excess of $9 TRILLION. Imagine the cost of carrying that debt if interest rates rise. Imagine the effect rising interest rates will have on US Government deficits. It's beginning to look like those rising interest rates will do little to defend Hanky Panky Paulson's "strong Dollar" policy. In the end, rising interest rates could sink the Dollar for good by bankrupting an already bankrupt nation. Double Secret Bankruptcy. Sounds delicious for Precious Metals investors.

Don't expect intervention to support dollar
The goal of such intervention would ostensibly be to prick the bubble in commodities.

The risk of this happening is minimal.

...the link between commodity prices and the dollar is far from clear. If the goal is, for example, to lower the price of oil, then intervening in the foreign-exchange market seems too indirect and does not have high odds of success.

Look at the euro, which is where the interventionists are suggesting that the operation take place. It has been trading broadly sideways between $1.53 and $1.60, about a 4.5% range, since mid-March. In the past couple of days, the euro has fallen by 2.5%.

And oil? Using the July futures contract as our proxy, the price of crude has risen nearly 40% while the euro has been range-bound.

What about the grains? The price of foodstuffs has skyrocketed. Surely a strong dollar would reverse this, right?

That seems to be largely wishful thinking. As we have argued previously, while there are many factors influencing the price of grains, the decline in the dollar seems marginal.

Look at corn. It has rallied for six consecutive sessions. We all know about ethanol, but that has not changed. The big change is the weather. In the corn-growing region in the Midwest, there has been roughly four times more rain that normal over the past 60 days. This is leading to low rate of crop emergence (74% vs. 92% a year ago and a five-year average of 89%).

Moreover, the U.S. Department of Agriculture cut its estimate of this year's crop by 3.1% from its estimate last month. The crop may be 10% smaller than last year's.

Only 23% of the soybean crop has emerged vs. 64% a year ago. That said, Brazil is reporting that its soybean harvest will be about 2.5% larger than last year's. Brazil's corn crop also looks about 13% larger. The bottom line is that a stronger dollar does not necessarily mean lower energy or food prices.

If policy makers cannot be confident that intervention would achieve the desired impact on commodity prices, should they be concerned about the potential risks of intervention?

The global currency markets trade in excess of $3 TRILLION each and every DAY. The global Forex market is the largest market in the world. The likelihood of any attempt at currency intervention would be futile as any small increase in the value of the Dollar would be used by those wishing to dump and diversify their Dollars to do so at a better price. Currency intervention would be an unparalleled act of desperation. The Fed is POWERLESS to control commodity prices.

Don't look for relief from high prices any time soon
For those struggling to deal with record gasoline and soaring food prices, there's bad news and more bad news.

Economists think inflation is here to stay. And it's likely to get worse.

A weak dollar and growing economies in emerging markets have conspired to send commodity prices higher. Those factors are unlikely to change anytime soon.

"We're more open to influences from the rest of the world than we were before," said Jay Bryson, international economist with Wachovia. "That does make it more challenging to keep inflation under control."

What's more, the Federal Reserve is relatively powerless to deal with many of these pressures.

"The Fed can't control prices of commodities determined in a global market," said Rich Yamarone, director of economic research at Argus Research. "If it could, it would have done so already."

Despite hawkish talk, Fed rate hikes not done deal
WASHINGTON (Reuters) - U.S. Federal Reserve interest rate increases are not a foregone conclusion this year despite tough talk on inflation, with a looming election and still-fragile economy that could well keep policy on hold.

Hawkish remarks by Fed Chairman Ben Bernanke last week helped to increase odds of an August rate rise to better than 50/50. His comments reinforced other stern assurances from the U.S. central bank that it would not tolerate inflation.

Fed watchers think Bernanke is making a calculated effort to acknowledge that recent economic data has not been wholly discouraging and assure markets that he will keep inflation at bay. They also think he is keen to put a floor under the dollar by suggesting that rates will not be lowered further.

It should be clear to everyone that Bumbling Ben really cannot raise interest rates. There are far to many overwhelming negatives to such action. Yes, someday the Fed is going to have to raise interest rates. It is highly unlikely that day will come in 2008. And Bumbling Ben for all his shortcomings probably knows all to well that he can't raise rates. Then why does he threaten to? Has he? Has Ben actually come out and said interest rate increases are close on the horizon? No he hasn't. He's suggested that inflation is becoming problematic for the Fed, that the Fed may have played a bigger role in the growth of inflation than Ben will admit, and most important of all, Ben wants to make it perfectly clear that he has no intention of further lowering interest rates. Ben's basically telling us that he didn't think the fire he started would get this big and do so much damage. So in deference to those affected by the fire, he will now cease to pour more gasoline on the fire. He has no idea how to put the fire out, but he'll do his best not to let it get any bigger. ...good luck.

Regarding speculators effect on the commodity markets we'll give the floor to Bob Chapman, The International Forecaster: orgy of Wall Street fraud has brought us an economy-killing credit-crunch. That credit-crunch has forced the Fed to initiate a maniacal expansion of money and credit to keep Illuminist insider financial institutions from imploding. Much of the money and credit from that maniacal expansion is not being re-loaned because all confidence in the system has been lost due to rampant, rampaging fraud, much of which was committed by Illuminist insiders against other Illuminist insiders, proving once again that there is no honor among thieves. So where is this huge portion of all that money and credit going if it is not being re-loaned? A very large portion is being used to make substantial, speculative profits from a whole bevy of commodities, especially from crude oil and agricultural products, by virtue of a loophole provided by the depraved group of village idiots who run our country (Congress), a loophole that allows big banks to operate in the commodities markets without position limits, allowing them to run amok in those markets with privileges that are not extended to other, non-elitist players. Our government regulators always provide us with such a level playing field, don't they? What an absolute disgrace.

Bob also has some thoughts on inflation that should be shared, recognized, and respected by Precious Metals investors as they are spot on...and Gold and Silver are your best protection against the ravages of inflation:

The acceleration of inflation is baked into the economic cake for, at minimum, the next 12 to 18 months worldwide. Fed jawboning won't change that. Phony PPT dollar rallies won't change that. Fed rate hikes won't change that. The reduction of money and credit won't change that. Falling oil prices won't change that. Lies about economic statistics, and especially about inflation data, won't change that. So, why can't the rate of inflation be changed for the next 12 to 18 months, you might ask? The reason is because inflation is not determined by smoke and mirrors, or by gimmicks and false data. It is determined by the rate at which the total supply of money and credit is being expanded or contracted (what economists call M3), which is measured by determining how much money and credit is being fed into, or subtracted from, each nation's financial system by its central bank over the course of a given month, as compared with the amount determined for the previous month. That figure is then annualized. Basically, the annualized rate of M3 that is determined for any nation becomes that nation's rate of inflation (expansion) or deflation (contraction), with a delay that usually runs about 6 to 18 months.

Today's last word goes to Mr. Dan Norcini at JSMinset:

Folks - I know I have said this many times before but I honestly believe that this generation of investors in the US is absolutely the most ignorant group of unthinking clods that God's green earth has ever managed to produce. To think that there are enough people who actually believe the government's worthless CPI numbers and act on that belief by bidding stocks higher on the notion that such tame readings take the urgency off of the Fed to hike rates makes me tremble for the future of my nation. What do we have - the Fed ramping up M3 by something like 14% or even higher on an annual basis and these bozos are stupid enough to think that rising prices are not going to follow as surely as the sun rises in the East? Are these mind-numbed zombies incapable of seeing what is going on around them? I am beginning to wonder if some of these folks ever go out into the real world and leave their quote screens. They might learn something if they did!