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Saturday, July 17, 2010

Gold World News Flash

Gold World News Flash

RUST DISCOVERED ON BANK OF RUSSIA-ISSUED 'GOLD' COINS

Posted: 16 Jul 2010 05:48 PM PDT

RUST DISCOVERED ON BANK OF RUSSIA-ISSUED 'GOLD' COINS

Zero Hedge reports tonight about Bank of Russia-issued gold coins that have been found rusting, which gold doesn't do.

Zero Hedge concludes: "The Central Bank of Russia has been one of the biggest purchasers of gold in 2010, having bought gold every single month. It would be embarrassing if it were discovered that not only is the bank diluting the gold content with oxidizable materials, but subsequently passing it off for .999-proof precious metal. And if this is happening in Russia, one wonder what trickery other central banks, with a far lower amount of gold in their vaults, resort to."
Now that it seems to be in a journalistic mode again, maybe Reuters should ask the Bank for International Settlements if its recent gold swaps have anything to do with those Bank of Russia coins. Another refusal to comment from the BIS would be especially delightful right now.

Last bull standing 2011

Posted: 16 Jul 2010 05:32 PM PDT

One of the most important contributions made in the science of market analysis is the series of equity market rhythms known as the Kress Cycles. The one who discovered these cycles, Samuel J. “Bud” Kress, has done for cycle theory what virtually no one else been able to accomplish, namely discovering a series of inter-related “hard” cycles that are all harmonically related and which provide an accurate context from which to view the past, present and future financial and economic climate. Kress accurately predicted the top of the secular bull market in 2000 with his cycles as well as the credit crisis of 2007-2008. He also called the bottom in March 2009 and, more recently, forecast an interim top for April 2010. For the last 10 years, Bud has published a series of interim reports – roughly once per year – called “Special Editions” (available through his SineScope advisory service, 15 Phoenix Ave., Morristown,...


Daily Dispatch: Bring Out Your Dead

Posted: 16 Jul 2010 05:32 PM PDT

July 16, 2010 | www.CaseyResearch.com Bring Out Your Dead Dear Reader, As I write, the price of gold has again broken below its new base at $1,200, and the U.S. stock market is again under strong pressure, due to a confluence of fears, most of which point to a deflationary double-dip. The fears are fanned by disappointment in the early quarterly results now being released, by the latest CPI reports that show inflation continuing to moderate, and by yet another poll revealing faltering consumer confidence. The market is also spooked, no doubt, by just-released notes from the latest Fed Beige Book that make it clear that the Fed is (finally) beginning to understand the entrenched and endemic nature of this crisis. While the notes are written in shamanic double-speak, the point is unambiguous – members of the Fed don’t expect the economy to get back on track until 2015 or 2016. [LIST] [*]“Participants ...


Chinese Economic Growth: Commodities to Go Up Middle Class

Posted: 16 Jul 2010 05:32 PM PDT

Lately, I have been hinting to my boss that I need a raise to do my job, and she has been hinting that she needs an employee to competently do my job, so you can see how we are temporarily at an impasse in negotiations. Not so in China, however! The Economist magazine notes that in China, "Wages have been rising at 10-15% annually, but recently workers have begun to demand even heftier increases." Well, I am already astonished at this increase in incomes, and to impress you with my facility with the Rule of 72, I calculate with simple division that a 10% increase in wages will double wages in 7.2 years, which you gotta agree is a lot of extra spending power, unless inflation in prices eats it all away, which, unfortunately, it probably will. And this is compounded by the Chinese economy itself growing by at least 10% a year, too, meaning that the Chinese economy will double in size in that selfsame 7.2 years! Wow! An economy that is twice as big, and wages that doubled? My Inne...


Gold Technicals for July 16th

Posted: 16 Jul 2010 05:32 PM PDT

courtesy of DailyFX.com July 16, 2010 07:38 AM Gold has topped. Please see the latest special report for details. Near term, gold is making its way lower and in an impulsive fashion. Look for gold to form a low next week as wave 5 comes to an end. Expectations will then be for a move back to 1220. Jamie Saettele publishes Daily Technicals every weekday morning, COT analysis (published Friday evenings), technical analysis of currency crosses on Monday, Wednesday, and Friday (Euro and Yen crosses), and intraday trading strategy as market action dictates at the DailyFX Forum. He is the author of Sentiment in the Forex Market. Follow his intraday market commentary and trades at DailyFX Forex Stream. Send requests to receive his reports via email to [EMAIL="jsaettele@dailyfx.com"]jsaettele@dailyfx.com[/EMAIL]....


The Real Trade of the Decade Redux

Posted: 16 Jul 2010 05:32 PM PDT

The 5 min. Forecast July 16, 2010 10:53 AM by Addison Wiggin & Ian Mathias [LIST] [*] A follow-up to the “real” Trade of the Decade: 140,000% in April, another 1,900% now [*] The “Goldilocks economy” redefined by Fed economists… who say this economics stuff is hard [*] Checking real-world economic stats -- rail traffic, state tax receipts [*] As we prepare for Vancouver conference, media mogul advises we don’t come back [*] The ghost of George Steinbrenner looks down upon 5 readers debating estate tax [/LIST] “Goldman, those bastards.” That’s how we began these 5 Minutes on April 19, in the wake of the SEC’s civil complaint against Goldman Sachs. As we put it then, “The SEC is either stupid or corrupt for announcing their suit on options expiration Friday, the most volatile day of the month.” That’s because if you’d been lucky enough to hold April 170 Goldman put options that day, ...


Jim?s Mailbox

Posted: 16 Jul 2010 05:32 PM PDT

View the original post at jsmineset.com... July 16, 2010 07:37 AM Michigan Consumer Sentiment Index Fell in July CIGA Eric Consumer expectations, a "feel good or bad" consumption survey, serves as a good proxy of confidence for a consumption driven economy. Confidence is an important, often dificult to measure, component of currency valuation. The big drop in confidence, obviously ignoring today’s coordinated hit, will be reflected in higher future gold prices. The correlations between consumer expectations and gold during periods of deteriorationg confidence in fiat of 1968-1980 and 2000-2015 have been -0.67 and -0.73, respectively. Perfect inverse correlation is -1. Correlations of -0.67 and -0.73, therefore, are strong inverse correlations. That is, as consumer expectations declines, the price of gold tends to rise. University of Michigan Consumer Expectations (CE) and Gold: A Correlation Study: Confidence among U.S. consumers slumped in July to the lowest leve...


In The News Today

Posted: 16 Jul 2010 05:32 PM PDT

View the original post at jsmineset.com... July 16, 2010 07:39 AM Dear CIGAs, Gold is off this Friday AM. Please note the degree of concern in the office today. * Jim Sinclair's Commentary Major bonus granting in the financial industry is taking place as the last chance to take a dip from the well, maybe for a decade, is here. Citigroup Profit Falls 37% By NATHAN BECKER JULY 16, 2010, 8:56 A.M. ET Citigroup Inc.’s second-quarter profit fell 37%, which was better than analyst estimates, as year-earlier results were heavily boosted by a $6.7 billion gain related to the combination of its Smith Barney brokerage operations with those of Morgan Stanley. Citi reported profit of $2.7 billion, or nine cents a share, down from $4.28 billion, or 49 cents, a year earlier. Revenue dropped 33% to $22.07 billion. “While the market environment lowered revenues in securities and banking, credit improved for the fourth consecutive quarter,” Chairman and...


Hourly Action In Gold From Trader Dan

Posted: 16 Jul 2010 05:32 PM PDT

View the original post at jsmineset.com... July 16, 2010 10:01 AM Dear CIGAs, Click chart to enlarge today's hourly action in Gold in PDF format with commentary from Trader Dan Norcini ...


Mickey Fulp: Summer Slump Good for Gold

Posted: 16 Jul 2010 05:32 PM PDT

Source: Barbara Templeton and Karen Roche of The Gold Report 07/16/2010 A professional investor with Boy Scout genes in his DNA, Mercenary Geologist Mickey Fulp picks winners in the junior resource sector based on three criteria: share structure, people and projects. In this exclusive Gold Report interview, Mickey touches on how he studies up on such key factors as insider holdings that indicate management's skin in the game and the public float necessary for liquidity. He also suggests that the summer slump—with low volumes and low prices—is a good time for some homework on equities that could double within 12 months. The Gold Report: So far in 2010, there's been both positive and negative economic news. We now have health reform, about to have financial reform and stimulus money is still working its way through the system. The markets are bumpy. What's your view for the second half of 2010? Mickey Fulp: We always see volumes take a nosedive in the su...


Government Mules

Posted: 16 Jul 2010 05:32 PM PDT

By David Galland, Managing Director, Casey Research Watching my children grow older, now heading into the treacherous shoals of the teenage years, has been a visceral reminder of how the human mind develops. As young children, we see the world with fresh eyes and wonderment, and then quickly begin testing the physical and societal bounds as part of morphing into our more mature selves. As we age into our teens and beyond, the testing of boundaries evolves into a series of calculations. If I do “A,” we wonder, will it lead to “B” or maybe “Z”? From a young age, most of us are told to advance our education and otherwise better ourselves so that we will be able to find a good job, or a succession of good jobs, that will provide sustenance and security lasting most of a lifetime before retiring to dawdle about in our golden years. At least that is the modern view of life pursued by the vast majority of the citizenry in th...


Just Another Day Off the Calendar

Posted: 16 Jul 2010 05:32 PM PDT

Without going into a lot of detail, Thursday's action was almost a carbon copy of Wednesday's trading activity. Nothing happened in Far East and London... and gold's third attempt in a row to break through its 50-day moving average in New York trading, ran into the usual not-for-profit sellers. Nothing to see here, folks. Silver's action on Thursday was no different than gold's... and the result was exactly the same. From 3:00 a.m. yesterday morning until 5:00 p.m. yesterday afternoon, the world's reserve currency dropped a bit over 110 basis points... and nowhere in yesterday's price action in gold was there any sign of that. While I'm on the subject of the U.S. dollar... here's the 6-month dollar graph. You'll note that from its high in early June, the dollar has fallen about 6.1 cents... which is a hair under 7%. Here's the 6-month gold chart... and it certainly hasn't been tracking the dollar... as gold is down around 2.5% dur...


LGMR: Gold & Silver Slide Together with Dollar as Stocks Fall on Weak US Inflation

Posted: 16 Jul 2010 05:32 PM PDT

London Gold Market Report from Adrian Ash BullionVault 10:00 ET, Fri 16 July Gold & Silver Slide Together with Dollar as Stocks Fall on Weak US Inflation & Investment-Flow Data THE PRICE OF GOLD fell hard at the start of New York trading on Friday, dropping back to this week's early lows for Dollar buyers – and hitting the lowest price since early May for Euro, Sterling and Aussie buyers – while stock markets sank on weak US data. Commodity prices slipped, with silver also falling toward Tuesday's low of $17.80 an ounce. The Dow Jones index dropped 1.0% at the opening. "With [Thurs] afternoon's US Dollar weakness," say bullion bank Scotia Mocatta's analysts in a note, "gold bulls would have expected a decent move up to the $1225 technical pivot. "On the bright side for gold, this [was] the third consecutive close above $1200." Gold prices today slid to $1190 an ounce, while the US Dollar rallied against the British Pound but slipped to a near 10-w...


Good Gold Interview

Posted: 16 Jul 2010 05:32 PM PDT

The following is automatically syndicated from Grandich's blog. You can view the original post here. Stay up to date on his model portfolio! July 16, 2010 02:51 AM Watch [url]http://www.grandich.com/[/url] grandich.com...


Gold Seeker Weekly Wrap-Up: Gold and Silver Fall Over 1% on the Week

Posted: 16 Jul 2010 04:00 PM PDT

Gold saw a slight gain at $1209.25 in Asia before it fell off in London and early New York trade to as low as $1185.80 by a little after 10AM EST and then rebounded to $1193.08 shortly afterwards, but it ultimately fell back near its earlier low in the last few hours of trade and ended with a loss of 1.61%. Silver followed a similar pattern and ended near its midmorning low of $17.72 with a loss of 2.9%.


Should You Sell Your Pension?

Posted: 16 Jul 2010 03:08 PM PDT


Via Pension Pulse.

Emma Simon of the Telegraph asks, Should you sell your pension?:

In an unusual move, the Financial Services Authority and the Pensions Regulator have issued a joint statement cautioning trustees and advisers that in most cases such moves were unlikely to be in members' interests.

 

There are serious concerns that the inducements offered – be it cash in hand or an "enhanced pension transfer value" – are not adequate compensation for giving up valuable guaranteed pension benefits. Such offers are being made to employees who have previously contributed to a final salary pension scheme. These so-called gold-plated pensions guarantee an earnings-linked pension, rather than one that depends on the stock market and annuity rates.

 

Although many companies have now closed final salary schemes to new entrants, there are tens of thousands of people – often known as deferred members – who have built up rights within these schemes, even though they have later moved jobs and may now contribute to a different pension plan.

 

Increased longevity and a decade of poor investment returns mean many of the schemes are nursing large deficits. In a bid to reduce their deficits, some pension schemes are now offering "enhancements" to those who agree to move their pension elsewhere.

 

Laith Khalaf, a pensions expert at Hargreaves Lansdown, the advisory firm, said: "Pension savers should think twice before accepting any such deal. They should ask themselves why their former employer is making the offer: is it because it is good for them or is it good for the pension scheme? In most cases, it is going to be the latter, and people will be better off staying put."

 

To make matters worse, savers often don't have access to independent advice to help them evaluate these complex offers. "This joint statement has made it very clear that firms advising the pension scheme cannot also advise consumers, as there is a clear conflict of interest, and trustees have a responsibility to ensure their members get proper advice," Mr Khalaf added.

 

But many high street financial advisers are reluctant to advise on such issues. Param Basi of AWD Chase de Vere, another advisory company, said: "We back the Pension Regulator's stand of putting increased pressure on scheme trustees to ensure members' interests are protected. There should never be a scenario where an adviser is paid only if they recommend the member transfers away from the pension scheme, or is paid more for recommending a transfer. This leads to people getting the wrong advice."

 

He said his company was committed to providing impartial advice to scheme members on their options under any enhanced transfer value offer.

 

This is not a new problem. The Sunday Telegraph first highlighted the issue in November 2005, when it came to light that some companies were trying to persuade members to switch out of pension schemes by offering upfront tax-free cash payments. At the time consumer watchdogs complained that people were being given payments of hundreds of pounds to sign away pension benefits potentially worth thousands – and there were calls for the Pensions Regulator to investigate. So why has it taken so long to issue this guidance?

 

A spokesman for the Pensions Regulator, which regulates all occupational schemes, said: "We have had guidance on inducements since 2007." But it has now clearly beefed up its warning, particularly its advice that trustees should start with the presumption that enhanced transfers are unlikely to be in the members' interest.

 

However, there may be occasions when it would make sense to take up the offer, Mr Khalaf said. With any final salary pension there is always a nominal transfer value. This is the amount that would be needed today to buy an income equivalent to the pension rights you have already built up. With these offers the value is "enhanced" for those who agree to switch elsewhere. So if, for example, your normal transfer value is &ound;100,000, the trustees might offer to pay &ound;130,000 into a new defined contribution scheme.

 

This might strike many people as a good deal – but they should remember that they will be shouldering all the subsequent risk. Investment returns may mean that by retirement you have less than the transferred sum. And if annuity rates continue to decline you will need a significantly bigger pension fund to "buy" the same income in retirement.

 

Mr Khalaf added: "People need to look at the 'critical yield'." In other words, what return is needed on these investments to get the same pension in retirement that was guaranteed under the old scheme – remember that final salary schemes will increase benefits in line with inflation.

 

"If you need more than 6pc a year, or are only a few years from retirement, don't even consider switching – the risks are too high," he said.

 

But transfer values are typically based on buying an annuity that provides a spouse's pension. If you are single it may be worth a switch, as you can effectively convert benefits paid to married couples into a higher single annuity. Those with health problems could also benefit as they should be able to buy an "impaired life" annuity that pays a higher monthly income. As the transfer value offered will be based on current standard annuity rates, these people could potentially get a higher pension if they move.

 

Similarly, high earners worried about the future viability of their pension fund should get advice on switching. If a scheme's deficit caused it to go under, those on big salaries could find themselves getting far smaller pensions that expected, under the terms of the Pension Protection Fund (which bails out collapsed pension schemes). The key is to get individual advice.

 

Raj Mody, the chief actuary at PricewaterhouseCoopers, the accountancy firm, said: "The use of transfer deals is set to accelerate further. A recent PwC survey of 179 major employers showed that more than half planned to offer enhanced transfer values to deferred members, on top of the 8pc of respondents that already had. Likewise, a third of employers said they intended to offer retired pensioners the opportunity to give up future pension increases in return for a higher benefit now."

I caution pensioners and plan members to be very careful with these "enhanced transfers". Such deals are typically conjured up to cut costs and save the company from future pension liabilities. Of course, if there is a high likelihood the the company will go bankrupt, you might want to accept such a deal or risk seeing your pension payments get slashed.

It's quite disconcerting seeing how the pension war is being fought. Instead of bolstering pension plans to make sure members will enjoy a worry-free retirement, companies are looking at ways to cut costs, passing the responsibility onto individual members. Unfortunately, this isn't in members' best interests, and the social cost of all these cost-cutting measures will borne by taxpayers down the road.

Disaster Plan

Posted: 16 Jul 2010 03:05 PM PDT

Does your family have an economic disaster plan?  If not, why not?  By now, most people know that very hard economic times are coming.  No, America is not going to turn into a post-apocalyptic war zone where motorcycle gangs ravage the populace next week, but the truth is that it doesn't take a genius to understand that the U.S. economic system (and indeed the entire world economic system) is in the process of dying.  For decades we have lived far beyond our means by borrowing insane amounts of money, but the party is ending and now many of us are going to get to experience what it means to live below our means.  The golden days of the U.S. economic machine are gone, and now we are moving into a time when we are going to reap the fruit of the incredibly foolish economic policies of the past hundred years.  Meanwhile, the two major political parties will continue to play the American people against each other.  The Democrats will insist that everything will be great if we just give them control.  The Republicans will insist that everything will be great if we just give them control.  But the truth is that both political parties have had numerous chances over the past 50 years, and each of them have blown them badly.  Both parties have had a hand in piling up the biggest mountain of debt in the history of the world, both parties have been complicit in shipping our jobs and our factories off to China and to dozens of third world nations, both parties have dramatically expanded the size of government and the welfare state when they were in control, and both parties have continually handed more power to the big banks and to the Federal Reserve.  We built an entire economy based on paper money and a gigantic spiral of debt and now the wheels are starting to come off and people are starting to panic.  We are truly going to pay the price for decades of foolish decisions.

Not that an economic collapse is the only reason to have a family disaster plan.  We live at a time when it seems like the whole world is going crazy.  You never know when or where the next oil spill, hurricane, earthquake, volcano, pandemic or terror event is going to strike. 

So the reality is that it is imperative that we all have a disaster plan that sets out exactly how we are going to provide food, water, shelter and security for our families in the event of a major disaster or emergency.

So exactly what should such a disaster plan entail?

If you have not done so already, please read the following two articles that we previously published on this theme....

1) 20 Things You Will Need To Survive When The Economy Collapses And The Next Great Depression Begins

2) What To Do

Both of those articles lay out some of the basic principles of emergency preparedness.

But there is so much to know about emergency preparation beyond just the basics.

Over the last couple of months, the readers of this column have shared some amazing information on this topic, and we have compiled some of the very best of those tips below....

Smuggler:

As a long time hiker and back country lover I have had a bit of experience in rustic living. From Tents in the Rockies and Sierras to the bottom of the Grand Canyon and an old trapper's cabin in Alaska I have pretty much lived in that way most of my life.

Survival depends on a lot of things, not just how much grub you got or how many bottles of water are stashed away. If all roads are blocked your stocked RV is suddenly going to be a liability not an asset.With roads blocked by earthquake or check points the ability to travel cross country will be reduced to foot transportation, unless you plan to tote your pick-up over the mountains think lighter….

If it all goes up the first thing you must do is realize that this is not a camping trip, you come home from a camping trip, you won't have a home to come to if it all goes up. You are going to have to find food and water as you go and in the case of food you will most likely have to kill it and clean it. Man bites dog will have a whole new meaning.

That is where the best survival tool will be most welcome. The nice thing about this tool is it takes up no room and it doesn't weigh an oz. Become knowledgeable.learn about water and how to test it, find it and save it. learn how to preserve foods by drying or smoking. learn what plants in your area can be eaten or used for medicine.

You get the idea here, the more ya know the longer you will live. One of the places I have spent some time hiking is the Idaho and Utah boarder area and parts of the old Boozeman Trail. one of the remarkable things you see on the Trail is tons of cast Iron cook stoves, nickel trimmed Parlor stoves, furniture, house hold goods, sinks etc. that litter the ground. All tossed off overloaded wagons, from about the middle part of the Trail tapering off to just a few items the farther west they got. Take to much you have to throw it away.

A good make pro back pack, a good sleeping bag/ground pad, light tent, fire making items, [ I recommend a mag and steel striker. ]a good hand axe, a good hunting knife, a pro grade compass, [Learn how to use it.} Food, freeze dried is best very lite and can carry many days of food. Limit clothes as appropriate for the weather and how much you can carry. Water, what you can carry and treatment tablets for new sources if in doubt. Other wise boil it for ten mins.

Things like sewing kits are nice but won't kill ya if you don't have one. Judge your wants balanced against your needs, in the case of candles and radios and such, they are heavy hard to secure and take up lots of room. In the case of candles I've had them melt all over the inside of my back pack not a fun thing.

Keep it light and essential,you may have to relocate in a big hurry. Now, do you see why community is a good idea? You can survive one man alone, but in a group is easier, safer and more productive and more fun. Here's hoping all your trips are camping trips and may you always come home.

RLTW:

Food: If you are about to go on a long "hike" like for a couple of weeks… seriously fatten up. Talk to anyone who has done ranger school. They lose 20-45lbs in only 63 days. Most fatten up just before going. If you only have one meal/ day, then eat in the morning and eat small amounts throughout the day (like a candy or cracker) and keep drinking water. Surprise salt is important, dont go low sodium in food especially if you are consuming a lot of water. On the move, Eat the most perishable first, eat based solely off the energy you are expending. If you open it consume it, or you will have unwanted pests/animals. In bear country, hang it from a high limb away from where you sleep. If you cant brush your teeth, chew gum, or chew soft twigs.

Gerber or Leatherman is better than a Swiss knife, and BTW Butch I pack heat, so good luck and don't let the laser sight on your forehead deter you.

Gasoline doesnt store for very long, and know the difference between diesel and gas (I know this is basic, but some people cant tell except for what it says at the pump). And also know that Syphoning gas from new autos is impossible, so don't try, remove it from the fuel line/filter under the car.

Have a small tool kit/box, with basic tools.

If you are on the move, the right Clothing is extremely important…. Get loose fitting clothing that you can easily layer, have about 3 layers or more (depending on your local climate). One layered set should be enough, but you NEED extra socks, 2-3 pair (or more) of heavy cushioned socks are ESSENTIAL if you are on the move. Change your socks every day, even if you cannot wash them. A week could turn into a month. Dont pack underwear, b/c after a week it will be gone anyway (Most infantry soldiers go without in the field) and is just extra weight. Think of going for a long hunting trip when packing this up, and remember its always colder than you think even in the summer especially when you cannot go indoors anywhere. Pack gloves and ski type hats. At a minimum, keep your feet and shoes dry. If they get wet, walk it out, & change socks more frequently. In the cold, Keep your shoes/boots next to you when you sleep to keep them warm and be ready if you need to move out quickly. Dont be unpacked, take out what you need and leave the rest packed. You may have to take off quickly. (Pack everything you want to keep dry in gallon-sized ziplocks)

Don't rely on a store first aid kits, buy a medium sized tool bag and get a good first aid "trauma" list(most stuff you can get at walmart). But also consider learning how to start an IV and get a few. Also, address all knicks and cuts, even the small ones. Infections can put you under, ESPECIALLY ON YOUR FEET/LEGS.

Water: If you have bleach, you can use that to purify water. One drop per Quart. Be careful, if you use too much then you will have a bad case of buttmud.

Fire: can be started with 2 D-cell batteries and steel wool, but invest in a magnesium stick that you can use with a knife.

If Money is worthless, have things to bargin with & you will be better off. Consider gold coins, you can always cut off chucks to use as payment. CAUTION: To much of something valuable will make you a target, so consider things that are valuable other than Gold.

A NON-digital watch is helpful, and can be used for navigation… plz dont ask, google it or get a survival book (which is also good) – I use the SAS survival book

MAPS!!!!! Hello, a good map of your area where you intend on going is very helpful, especially of your immediate area (topographic) and will help you locate water. It is impossible to hand carry your water needs, know your sources along your route. Keep a good small atlas with your kit, may have to leave a contaminated area and may have to travel on the roads or beside the roads. You can easily use a good atlas to terrain navigate in lieu of a good topo map. Know the state evacuation routes, then plan an alternative b/c they will be packed.

Set up "rally" points that everyone knows and will link up or leave messages if safe and no communications exist.

Flashlight: invest in an efficient LED headlamp, that way you have both hands free.

The AXE is not required: You need only a good Knife, like a K-bar…dont buy a cheap hollow survival knife (they will break), buy a regular good 5-8in blade that is heavy and durable. You can use the knife with a piece of wood or log to hammer the knife like an axe for firewood….but your call. Remember, you may have to carry it.

If you have a friend in Spec ops or is a Ranger, Seal, etc… ask them for tips or advice… we train in this type of thing.

Elocutionist:

There are other things people can do; must do: Build up a network of support. Get to know your neighbors and be certain all of you support one another. I live in a small development of about 90 homes. We are closed off from the main highway and, even in these relatively 'good' times, we always rely on one another for various things (i.e. snow ploughing, lawn mowing, etc.). Make a plan with your family, if they're not nearby, so that in tough times you're not alone. Develop a skill. Learn how to make bread, for instance, from flour on a wood stove. Become an expert 'handyman,' the ability to repair things will be an important skill. Plan for the worst, hope for the best. In either case, you'll be prepared.

Jim:

You'd be surprised at how little work it takes to have a seed turn into dinner. It's almost as if that was what the seed was designed to do. Even people in apartments can cut their food down quite a bit with herbs, tomatoes, and the like in the windows. 1/4 acre can feed a family of more than four, and that's worth spending a few minutes a day if you ask me.

Paul:

A couple of useful items: Clorox. Very cheap. Can purify water and also handy for sterilizing anything. Saving a pile of old newspapers is another good cheap item — useful for starting a fire and, hey— better than nothing, using as toilet paper. More expensive — a couple of handfuls of silver coins in case no one wants US paper dollars.

John:

Also, look at yard sales and thrift shops. If you really need a couple of cheap shirts, instead of buying cheap ones made in India, recycle what is already in your community, putting some money into your neighbors' pockets.

Try to buy food locally. It's more expensive, but if you are careful, you can find a few affordable items. If you live in the city, talk to your local council and try to get projects going that allow community vegetable patches on vacant land. In some areas this is already happening. Grow herbs in your kitchen. When you are down to beans and rice, it is amazing how a little bit of fresh herbs can spice up your life. YOu have a sunny window in your house? Start growing something easy like zucchini.

Learn how to repair – anything. You won't get rich, but you might eventually make a decent living. Most of us are getting poorer and are going to want what we have to last longer. I remember as a kid in a small town there was a shoe repair shop, an electrical repair shop, a furniture repair shop, etc. Now they have all disappeared because most of us have gotten use to throwing things out and buying new. My guess is that the market for repairs is only going to grow.

Have you got a sewing machine? Buy up cheap clothing/fabrics from a thrift shop and turn them into quilts, stuffed animals, bags, interesting clothes for kids. This Xmas lots of people are going to be looking for cheap gifts for their children. You won't be making much per hour, but at least you might be making something

Go dumpster diving. Especially if you live in a private college town, you will be amazed at how much perfectly good clothing and furniture gets dumped every year. In a small town that I visit every summer, one thrift shop fills a complete dumpster with clothes every week – almost all of it in near perfect condition. The dumpsters near dorms are overflowing at the end of terms.

Boycott. Don't buy from/do business with companies that send all their jobs overseas.

If you live in a place with a community college and if you have a bit of money, learn a trade. Community colleges tend to be relatively cheap and they give you good skills. And if you have a kid of college age, ask them if they really want that degree in 18th century literature badly enough to starve.

Finally – get involved and become political. A lot of people know that they are not happy, but they are not sure what to do and are waiting around for other people to come up with the solutions. Start thinking about something that is important to you locally, regionally or nationally and figure out a way to be part of the solution. One reason we are in such a mess is because we all tuned out a bit and let the bigshots call all the shots – and they created a world that works great for them, but at our expense.

Michael:

Every once in a while, I see these "survivalist" cans of Costa Rican canned green coffee beans. Ok, so I pay about $80 bucks (not to mention some paying for some hefty shipping charges). I thought to myself-why can't I do it (in the spirit of DIY). Ok, it can be easily done. First, purchase GREEN coffee beans. Second, seal them in a good container. I use a half gallon Ball canning jar WITH an oxygen absorber. A half gallon jar will hold about 2.5 pounds of beans and I use one or two 500CC oxygen absorbers-just to make sure no oxygen exists afterwards. Thrid, Seal the jar with a new canning jar lid. Keep out of light. No moisture (dry beans and glass sealed jar), no oxygen (absorber does that), no light, and keep in cool storage (room temp or cooler); and the coffee is good to go for years!

J.E. Chapman:

I will tell you that a swiss army knife wont cut it, you need a good beefy knife like a K-Bar fighting knife something you can use to pound, dig, chop, and even kill with if nessesary, a SOG is another good choice, remember you get what you pay for.  Also read and study up time I believe is short a good manual is Emergency Preparedness and Survival Guide from Backwoods Home magazine is a very good book to have along with all the military survival manuals you can get your hands on, arm up with a Good rifle a good sidearm and plenty of ammo, enough food for a year and good luck. Praying Helps moreso than most would believe, God Bless.

Uncle Sam:

Knowledge is the store of value that "neither moth nor flame can corrupt or destoy" They can't take that from you.

Store enough food to make it through a year from ANY point in the agricultural cycle. Start growing food now, so you can learn how it works. A farmer doesn't become a farmer after one or two seasons, you must get everything wrong before you know how to do it right, and that takes time and experience. Start now, its July…plant greens in August and have salads through November just to get some experience.

Basically, you will find that it breaks down like this…If you can't grow it, mine it, trade for it, or kill for it; you are not going to have it, and if you are not prepared to do all four of those, you are in danger.

There exists a critical tipping point, a point of mass despair and anger that will capitulate our way of life. This is NOT like the 30's. In that era, we were set up to live autonomously, so long as we could keep the mortgator at bay (with a shotgun) we are not like that anymore. Americans especially are not prepared for what is coming. We are too integrated. Most have neither the means or opportunity to live autonomously, they only have fear as the motive when they run out of food or are kicked out of their homes. Very dangerous, they are forced to crime. In the 30's, people were bummed that they had to return to the agrarian lifestyle of their ancestors on the family farm instead of "making it" in the city, we don't have that option today. People will riot hard and more and more police are laid off every day.

One day, the power will go out and not return. The day that happens, the poles will be felled for the wood, and the copper stripped for trade. Then, the infrastructure is gone. Remember that sight, as the defining momonet of the descent.

Francis:

The two of us have a tiller, a grubbing hoe and some smaller hoes. Each spring we hire a tractor to prepare the garden. Get soil tested through gov't. or ag school for knowledge of correct soil amendments (lime, fertilizer etc.) Bugs will take care of themselves for the most part, though some hand work may be necessary. Diseases will need to be worked around (different varieties of plants) We don't use poisons.

We work about an hour a day in the spring, 4-5 days a week on about 1/2 acre, less as the year goes along. We grow two crops, the fall garden is usually small. Our biggest chore is weeds. The two of us could live off of this if we had to. We have about 20 fig trees and lots of other fruit trees. Yes, we are blessed. But there is something we can all do to supplement the bounty nature gives.

City folk, think small. You will be amazed at what some diligence and patience will do when joined to a willing hand and some knowledge. By the way, the sweetest meal you will ever eat is the one you grow yourself.

Lots of you talk about slavery. The best way out is to get rich. The best way to get rich is slowly. If you are profligate forget it. But if you save some of everything you get and through nothing away that has any possible worth, you will start finding ways to save a penny here and there.

And community is the long term key to subsistence. Even the hard-headedest persons I know take notice when the fruits of frugality are exposed. I can't fix a motor and my mechanic neighbor can't grow corn. I have gone out of my way to make him a friend.

We Americans are resourceful when not anesthetized by superfluity. Despise nothing. Make every object the subject of evaluation. A lot of something adds up to a little of anything.

Wake up.

Bearmaster:

Those of us who are preparing for what now seems to be at our door will be ready. Not only preparing with water, food, fuel, matches, seasonal clothing and whatever else is needed, we will be the few who do survive and will remember the rest of you who did not 'believe'.

There is no shame in getting ready for any event, especially when it comes on suddenly. Those caught by surprise are the ones who will suffer the most. If you think because you have guns and ammo that you will come and take away what you feel you need and deserve, how?

Without water after two days you will be delirious to the point you can't think straight. After five days of beans and bacon bits you'll wish you had stocked up on toilet paper. When you come staggering up with gun in hand, do you really think you'll be able to pull off this 'robbery' and take what you can, how?

Will you have a shopping cart or a little red wagon? Maybe the back of your pickup would work but where will you get the gas? How can you carry anything with guns in hand, don't you think there will be others waiting who will then take advantage of you?

Those who think the 'community' idea won't work are those who can't get along with or won't trust other people. How can you stay awake and alert for 24/7, you, the wife and kids against what odds? Think about it, trusting family, neighbors and friends in a small group will be the only way to get through this unless they bomb us into eternity.

A small group can provide many things, sharing in the expense of preparing and putting things away in the best, safest location you can find. Those living in a city, large town or even in a development, you need to have a plan of escape to quickly get to a safer location.

*****

So what do you think of the tips shared by the readers?  Do you have any additional disaster plan tips to share?  Please feel free to leave a comment with your thoughts below....

The Dollar's Predicament

Posted: 16 Jul 2010 02:37 PM PDT

Gigantic and unending U.S. Current Account Deficits were the major force behind the extraordinary foreign accumulation of our (largely debt) securities. This implies structural deficiencies in both the Credit system and real economy. Read More...



Compendium 3 Now Available!

Posted: 16 Jul 2010 02:30 PM PDT

Dear CIGAs,

At long last we are now offering Compendium Version 3 for sale. There will also be a very limited printing of Compendium Version 1 and 2 for sale as well. If you want a copy I suggest you order it while you have the chance.

We release Compendiums every couple years to help cover the operating costs of running a site like JSMineset. Over the years we have gotten quite large and these costs have grown substantially. If you like what we do here please purchase a copy – you will be supporting a good cause and allow us to continue providing this service free of charge.

**PLEASE NOTE YOU DO NOT NEED A PAYPAL ACCOUNT TO PURCHASE ANY OF THE COMPENDIUM SETS. COMPENDIUMS SHOULD ARRIVE WITHIN 2-4 WEEKS DEPENDING ON YOUR LOCATION**

What you will receive with each set:

**NEW** Compendium Version 3 ($80 USD):

Included in this two DVD set is a DVD Rom (accessible by computer DVD drive only) that is a searchable database of nearly two thousand articles over the last two years from Jim Sinclair, Trader Dan, Monty Guild and a collection of other JSMineset contributors. This is one of the largest collections of articles related to the Gold market available today on DVD and includes all charts we have posted over the last year and a half.

The second DVD is the much anticipated CIGA Meeting in Toronto from February 2010. This DVD includes over 3 hours of discussions with Jim Sinclair himself and is playable in any DVD player.

**NEW** Compendium Version 1-3 Package ($210 USD):

This package includes Compendium 1 & 2 listed below and the new Compendium 3 above.

Compendium Version 2 ($80 USD):

Compendium Version 2 includes all articles posted from December 2005 to the end of October 2008. All articles are categorized and presented in HTML format and are PC and Mac compatible. Several thousand articles are again included in this archive disc which makes up literally thousands of pages of market commentary from Jim himself. Compendium Version 2 also includes an hour long DVD video commentary on financial markets by Jim Sinclair. This disc is playable in any DVD player and any computer that supports DVD playback.

Compendium Version 1 ($50 USD):

Compendium Version 1 includes all articles posted from the inception of JSMineset in 2002 to December 2005. It comes packaged as a searchable PDF database and includes several thousand articles on Gold and financial markets. As a bonus, a separate Technical Analysis video disc by Jim Sinclair is included in the package. This video is viewable on a computer only and is both PC and Mac compatible.

Compendium Version 1 & 2 Package ($130 USD):

This package includes both compendium 1 & 2 which are shown above.

As you have noticed by this point, JSMineset does not subsidize costs with garbage advertising nor do we ever promote products through our free eblast system. If you feel JSMineset has helped you over the years, purchase Compendiums 1, 2 and/or 3 and help keep us alive! For the price you pay the information you receive is unbeatable and you know it is going to a good cause.

All prices are in US dollars and include shipping and handling.

Thank you all for your continued support!

Dan Duval
JSMineset Editor

Ending The Comex Gold Charade

Posted: 16 Jul 2010 02:29 PM PDT

Jim Sinclair's Commentary

Here are words of absolute wisdom from Trader Dan.

Dear CIGAs,

The only way to end the charade that takes place at the Comex in the gold pit is to do what I have been saying now endlessly for years – STAND FOR DELIVERY OF THE METAL.

Until the longs get it into their heads to take the actual metal out of the warehouses and force the bullion banks to come up with the gold that they are selling in unlimited quantities, the farce will continue.

It remains a source of continued astonishment to me that the longs, which have it completely in their power to end the price suppression scheme, refuse to do the ONE THING that can end it all almost overnight.

That is the Achilles' heel of the bullion banks and until exploited the Comex bears will sell with impunity.

Any entity attempting to do in wheat or cattle for example, what the bullion banks are doing in gold, would end up having their heads handed to them on a platter. Egypt would step in and buy all the wheat they wanted to sell or a large packer would end up getting a huge discount on cattle and looking forward to hearing all those Moo-moos bellowing in the rail cars that would be coming their way knowing that it is the sound of huge profits based on someone else's brazen stupidity.

The large traders in the gold pit (hedge funds) are run by mindless dolts who could not trade their way out of a wet paper bag if their life depended upon it. What else explains their inability to break the hold of the bullion banks in the gold market except a failure to think apart from their computerized black boxes.

DJ UPDATE: Liffe July Cocoa Delivery Second-Highest On Record

LONDON (Dow Jones)–Liffe cocoa has seen its second-largest delivery on record, raising concerns of a squeeze on European cocoa supplies, NYSE Euronext Liffe (NYX) data showed Friday.

A total of 240,100 metric tons of cocoa were delivered against the July contract, the highest figure for 14 years and one of only six on record over 200,000 tons, according to data from the exchange.

The delivery raised concerns that Europe may face a shortage of cocoa after data show that a total of 246,810 tons of certified cocoa stocks are currently being held in Liffe warehouses in Europe.

BNP Paribas Commodities Futures Ltd. was the biggest buyer of cocoa delivered against the July contract, accounting for 43% of cocoa bought, or 102,450 tons.

The biggest seller was Newedge Group SA, which accounted for 78% of the sales, or 188,020 tons of cocoa.

Concern over the level of cocoa stocks in Europe has been growing since the July contract expired Thursday with 24,866 options open, equivalent to 248,660 tons of cocoa.

A further 16,070 tons of expired stock waiting to be regraded are also held in Liffe's warehouse, as well as a further 17,372 tons of non-tenderable or Binfested stock, but these aren't deliverable against the current contract.

Cocoa futures on NYSE Liffe are traded as instore contracts, meaning that the warrants for the stocks will be exchanged, but no physical cocoa will be delivered at this point.

-By Caroline Henshaw, Dow Jones Newswires

Guest Post: Lloyd Blankfein's Days Are Numbered As Chairman Of Goldman Sachs

Posted: 16 Jul 2010 01:47 PM PDT


Submitted by Charlie Gasparino

Lloyd Blankfein's Days Are Numbered as Chairman of Goldman Sachs

It's a testament to the odd world in which we live that when a Wall Street firm pays a $550 million fine by conceding negligence in how it dealt with clients, its stock surges, adding billions of dollars in market value for the firm's shareholders.

But that's what's happening to Goldman Sachs, as it reached its long awaited settlement with the Securities and Exchange Commission over how it sold a basket of mortgage related debt to investors in 2007.

Back when the SEC brought the case, the conventional wisdom on Wall Street and the financial media was that Goldman didn't have to settle -- the case was weak and Goldman is, after all, Goldman.

As I wrote on these pages back then, Goldman would have to settle because: (a) the SEC dug up some real questionable activity; and (b) no Wall Street firm, not even one with the ties to government that Goldman possesses can go to war with its primary regulator.

Now that Goldman has indeed settled, the news is being spun, again mostly by the financial media, that the deal with the SEC was a victory for Goldman's CEO Lloyd Blankfein, who survived the investigation largely unscathed, paying a measly $550 million to the government (equivalent to a few days trading gains at Goldman) and without having to give up any power, such as relinquishing his role as chairman of the board, as senior executives both inside Goldman and at competing firms believed would be part of any settlement.

Well, if history is any guide, Blankfein may not go tomorrow, or even next month, but sometime in 2011, Blankfein will at the very least no longer be chairman of Goldman, and may also be forced out of the firm altogether.

If you don't believe me ask former Citigroup CEO Sandy Weill. Like Blankfein, Weill (at least on paper) was a good CEO from an operational standpoint. Following the creation of Citigroup in 1998, shares of the big bank soared. The bank was what's known as a Wall Street darling for its strong earnings and a surging stock price, and Weill was regarded as the King of Wall Street, having engineered the largest financial deal ever when he merged his company, the Travelers Group brokerage, insurance and investment banking empire, with commercial banking powerhouse Citicorp.

At the height of his power, Weill suddenly popped up on the radar screen of New York Attorney General Eliot Spitzer. Before Spitzer got involved with hookers and became a TV host, he was the sheriff of Wall Street, looking to right wrongs from the last great scandal, the internet bubble where firms sold worthless dotcom and tech stocks to unsuspecting investors. Emails he uncovered showed that Weill at least did something stupid, if not fraudulent: He pressured an analyst, Jack Grubman, to inflate his stock rating on telecom giant AT&T, which was an investment banking client (Weill also sat on AT&T's board, while AT&T CEO Michael Armstrong sat on Citi's board)

Grubman wrote in an email that as a favor for upgrading the stock, Weill got his kids in an exclusive pre-school. The scandal, was described by the Wall Street Journal, as a "kid pro quo."

Weill continued to deny wrongdoing and was never charged. Citigroup, however, was charged with fraud and ended up paying a $400 fine to settle the matter, but Weill appeared to have retained his control of the bank. The initial reaction in the press and among his peers in the financial business was that Weill had won, by having the bank pay a relatively small fine, and his status as CEO and the King of Wall Street secure.

Not quite. A few months later, Citigroup announced that Weill was stepping down as CEO, handing that job to Chuck Prince, who basically negotiated the settlement package. Citigroup maintained that the two moves were unrelated. But people in Spitzer's office told me they really weren't: While negotiating the settlement, Citigroup's board made it clear to investigators that Weill's days were numbered at the top of the firm that he founded. Spitzer was merely affording Weill a graceful exit in an effort to end the case.

Full disclosure: I have no knowledge that Goldman's board has tacitly agreed to pull a Weill on Blankfein and has plans for him to step aside, but the circumstances involving the two men are so remarkably similar. While Blankfein wasn't directly involved in the questionable trade that landed Goldman in trouble, he is responsible for remaking Goldman into predatory trading culture that has caught the attention of regulators, Congressional committees (recall Sen. Carl Levin badgering Goldman traders for selling "shitty" investments to their clients) and hurt Goldman's once stellar reputation, as Weill's actions hurt Citigroup's.

Some would say that's where the comparisons end; Citigroup deals with the general public that buys stocks through its brokerage unit (Smith Barney) and makes deposits in its branch banking offices. Goldman deals with large sophisticated investors who couldn't care less how Darwinian the company behaves.

That used to be true, but no more. Goldman's image has been battered, not as bad as say a company like BP, but not far behind. And image does count these days given the scrutiny and oversight placed on Wall Street and the banks following the financial collapse-induced bailouts.

Now that financial reform has been passed, Goldman will have to cut back on some of that aggressive trading that powered its earnings and was Blankfein's forte. That means it will have to devote more and more resources to developing its client business and relationships, convincing blue chip companies that it is the right firm to handle delicate negotiations involving mergers, acquisitions, and other corporate financing assignments.

More and more, these clients do care about image (ask yourself why has so many top companies embraced the useless but politically correct "green agenda"). In fact some have already jettisoned Goldman as scrutiny of the firm grew over the past year.

Who is the right guy to change Goldman's image to fit the new paradigm it faces? It's not Lloyd Blankfein and that's why he won't survive.

John Lee: Blame Volatility on Summer Doldrums, Not Deflation

Posted: 16 Jul 2010 01:35 PM PDT




Source: Brian Sylvester of The Gold Report 07/12/2010
In 2004, Analyst John Lee founded Mau Capital Management, a hedge fund based in Vancouver that invests mostly in junior mining companies. In this exclusive interview with The Gold Report, Lee deflates the deflation argument, discusses why he favors near-term gold and silver producers over early stage explorers and reveals some of his fund's top holdings.

The Gold Report: Everyone is concerned with the volatility in the markets. What's going on out there?

John Lee: Well, there's the proverbial "sell in May and walk away" going on, even though commodity prices have stayed fairly buoyant. In the junior market, there's a lot of paper that came out and began trading from the financings conducted in November and December. I think we're experiencing a little bit of a weak season where equity markets are vulnerable.

TGR: I was reading some of your presentations and one thing that you talk about is paper currencies being at the mercy of government and you consider gold a hedge against paper. On July 1st, one of the more popular gold futures contracts lost $40, its biggest drop since February. Investors seem to be gravitating toward T-bills because they fear deflation. Should we fear gold's prospects in a deflationary economic environment or should we expect gold ultimately to continue its record bull run?

JL: Well, you touched on a number of issues there. July 1 was Canada Day and Canadian markets were closed and you had the futures markets trading. There is actually some evidence to suggest that the markets, on a given Friday or the day before a holiday, will see a heavy correction—a one-day correction. However, gold is trading at $1,211 right now (July 2). It's only $50 from its all-time high. And so, the market is really healthy.

In terms of the discussion of inflation and deflation, I am firmly in the inflationary camp. In the history of fiat currency, there has never been a scenario where deflation has occurred. You have to adhere to the real definition of deflation, which is a decrease in money supply. The money supply is, in the history of fiat currencies, always on the way up, not on the way down. There may be brief periods when the increase in money supply slows, but rest assured that the money supply is still increasing. With deflation we're talking about an actual decrease in the money supply.

I think it's almost nonsense to become concerned about deflation. Going back to the Great Depression of the 1930s, the reason we had a deflationary scare was because gold was tied to the dollar. But this time it is not tied to the dollar. So in a true deflationary scenario, gold's purchasing power will go down because the paper currencies' purchasing power is going up. But this is not what we have today.

TGR: Right, but people like T-Bills because if you buy a $100 T-bill and you cash it out a year later or even three months later, it is still going to be worth at least the original $100. They're safe. Should people be buying T-bills, gold bullion or shares in gold companies as a hedge against what's happening right now in financial markets?

JL: You should have bonds and equities and in cash. Then you can break it down further: the equities into international equities and domestic equities; the cash, into precious metals and currencies. Also, you should really allocate a basket of commodities, and get some real estate as well. Depending on your risk tolerance, you may structure your portfolio differently. There is a place obviously for T-bills in the cash category. I think in terms of gold and precious metals, it's money so it belongs to the same category as T-bills. And it's not necessarily a good idea to put all your T-bills in U.S. dollars.

I think in a reasonable portfolio you should have about 30% cash, which is a prudent way to go. I would say 10% in foreign currencies, 10% in U.S. dollars, and 10% in precious metals. It depends on which country you live in, because I think a number of currencies trend together.

TGR: Is there anything that you put faith in when it comes to monitoring global economic conditions? Charts? LIBOR rates?

JL: Usually commodity prices are a good indicator or forecast of what is to come, and so are equity markets, particularly the emerging equity markets such as Brazil, Shanghai and Hong Kong. What they're telling me is it's a pretty mixed picture, but I would say growth in commodity prices such as copper and oil, and growth in emerging equity markets are good signs. You talked about the bond prices; usually, if bonds and equities both go down together, that is a signal of something severe that could be coming into place. But right now the bond markets are still staying fairly stable, even though the equity markets have corrected somewhat from earlier this year.

It looks to me now like there is some profit-taking, given that all the major indices, including the Canadian TSX and S&P and the Asian markets, have racked up over a 50% gain since their low in March 2009.

Another gauge is the Baltic Shipping Index. It tells you the global shipping activities from everywhere else are pretty much gravitating toward Asia and China. Since the financial crisis (in 2008) it has recouped a lot of its losses; however, it's gone down the other way quite severely; 30%–40% in the last 30 days.

I think it's a mixed picture. Nobody really knows what's going on. Even within Asia there are mixed pictures between, say, Korea, Taiwan, Thailand and China. Only in China are things going on all cylinders.

TGR: Really? I think Hong Kong's Hang Seng Index is down about 20% so far this year.

JL: Yes, and the Shanghai is down more than that.

TGR: So if China is going on all cylinders, shouldn't those markets be performing better?

JL: In the short run, there is obviously a disconnect between the equity markets and the economy. Although a lot of times the equity markets are forecasting what's going to happen, you can't read so much into the markets as they go up 10% and down 10% on a monthly basis. Keep in mind, China is very centralized; it's not a free economy. The government has $2.2–$2.5 trillion in their coffers so they can easily weather any sort of a storm and dictate the pace of progress. For example, they're spending around $1 trillion building high-speed railways; in three years time they're going to have more high-speed rails than the rest of the world combined. Any short-term corrections are not going to dissuade them from their plans. And they're building buildings, a lot of them. Their low occupancy rate is not going to stop them from trying to deploy as much of their $2 trillion as they can before the dollars go bad.

It's the first time since the 1960s that the dividend yields are lower than the interest rates. So, basically you have this giant casino going on; you have money coming in, going out; and you have the Greek situation and the Spanish situation. Every time the U.S. market rebounds, they're crediting that to Chinese growth, and every time you have an equity correction it's going back to China again. China has already surpassed the United States in both automobile purchases and auto production. Their rate of auto consumption is growing somewhere around 50% annually.

TGR: What did you think of today's job numbers out of the U.S.? 83,000 jobs added.

JL: Some people will tell you they're suspicious of the numbers and the way the numbers are calculated. If you look at the foreclosure rate, it's in the range of 15%–25%, depending on the region of the country. I think that's probably a better indicator of the employment rate than the government's stated numbers. Even though the official unemployment rate is 9.5%, the real numbers could be twice as much, depending on how you define that.

The U.S. economy is no longer the world's largest consumer of commodities; they're no longer the world's largest auto purchaser; they constitute 6% of the world's population. At the same time, they're not even the main influence on the U.S. equity market, given that S&P 500 companies derive somewhere around 50% of their revenues and profits from outside the U.S.

TGR: But you're still a big believer in junior mining companies, correct?

JL: Yes, I am. That's my specialty.

TGR: Can you talk about some of your favorite names among the junior miners?

JL: Yes, but first I would like to talk about the junior market scene. For example, on the TSX Venture Exchange, about 70%–80% of the companies listed are mining related in one way or another. It went from c$600–C$700 in 2001 to a high of C$3,300 in 2008, so that's about a 500% increase. In December 2008, it was down to C$700, and now it's back to about C$1,400. It's still less than half of what the peak was, and I think there's a lot of people who say, "You know what? If gold prices are $50 down from an all-time high, and copper is not that far from its all-time peak either—copper went from $0.70 in 2001 to $4 in early 2008, and now is trading around $2.80—then surely the juniors will have to follow, if not exceed its previous high of C$3,300." It would make sense because commodity prices have resumed their bull run.

TGR: What do you look for in a junior?

JL: I would not be so much focusing on value because a lot of management has lost a lot of their traditional means of financing. I mean it used to be that you could just walk down a Vancouver street and get broker financing at a 20% discount (to market price). It doesn't work that way anymore; the model has broken down. So, you have a lot of companies that are sitting on very good assets, but the management doesn't have the energy to go to unconventional financing sources such as the Chinese, the Middle East or the Europeans.

Therefore, I tend to focus on companies with a higher market cap and—I can't believe what's coming out of my mouth right now—the companies that are trading at a slight premium. Those companies are on the path of becoming a producer. What I am trying to say is that the gap between a producer and an explorer is widening, and I don't see that trend changing anytime soon.

More than ever you've got to be really selective on the junior market. There is not a lot of stupid money around chasing promotional stories, and when there is, instead of driving it much higher, it's barely a blip on the radar screen. I would say that with the junior market today you've got really to be cautious and look for stories that will be in production in the near term. Or gold exploration companies that have legitimate ounces in the ground.

I am not so much into drill plays because these near-term producers are still selling at extreme discounts. You don't really have to go down that far in the food chain to gain leverage.

TGR: But what do you define as a good asset?

JL: A good asset is one that has a reasonable time line and road map into production. I would not be so much into a gold deposit way out there in, say Nunavut, that has tens of millions of ounces or tens of billions of pounds. I am more into where you have a modest size, say 1–2 million ounces, in a good jurisdiction, and also you have to look for management that has a history—proven history—of an ability to raise money. Ideally, the company is aligned with one of the big backers, whether it's Lukas Lundin or Ross Beaty or Hunter Dickinson; you really have to identify a company with a good management group that can raise money. And with a deposit that doesn't require billions of dollars for infrastructure because, like I said, money is very hard to come by now.

TGR: Could you give us some of the names that you like within those parameters?

JL: Sure. Like I said, I tend to be focusing on market caps of $50 million or more. In fact, more like a $100 million market cap or more, but that has crashed back down to less than $50 million. I would stay away from micro caps because of their inability to raise money because of their lack of liquidity. In the gold space, among my favorite holdings is Minera Andes Inc. (TSX:MAI ; OTCBB:MNEAF). That's a company chaired by Rob McEwen; it has a great history, proven management, a good cash position and it's a gold-silver producer in Argentina, even though there is somewhat of a dispute with Hochschild Mining (LSE:HOC), the joint venture partner.

I like Klondex Mines Ltd. (TSX:KDX, OTCBB:KLNDF); it's a gold story out of Nevada, and again, I am a shareholder on all of these issues. I have some smaller companies like Apogee Minerals Ltd. (TSX.V:APE)—it's a silver explorer in Bolivia, but because it is in Bolivia it has been extremely heavily discounted.

TGR: What's the issue with Bolivia?

JL: For investors that follow Bolivia they will know that Evo Morales came on the scene about four or five years ago now, and it's a lot of the same talk as Hugo Chavez (president of Venezuela) in wanting to nationalize a lot of the mining industry. However, there's walking the walk and talking the talk. Morales has been talking about possibly nationalizing foreign mining companies, but it hasn't happened. A lot of the conversations are taken out of context by the Western press and because of his words, a lot of Bolivian explorers are being somewhat unjustifiably punished in terms of lower valuations than similar mining companies.

TGR: But does Apogee have a good project there?

JL: Yes, their Pulacayo Deposit silver project, which I visited. I am a shareholder of Apogee and it's a good project. It's one of the few advanced silver projects, and, in fact, I would say this is probably the only silver junior that I will hold. But then because of its geographical political risk, I would just place a small holding there. You would not mortgage your house and put all that money into a lottery ticket; you would not do the same with Apogee. However, at these prices, trading around $0.07, with over 100 million silver-equivalent ounces, which includes some very high-grade pockets, it's a very low-risk stock, very low risk for silver. And they're backed by Stan Bharti, who is well-known in Toronto. This is one company I would consider buying besides the couple of other companies I talked about earlier.

TGR: One of the companies you mentioned earlier was Minera Andes. A company that's similar to Minera is Minefinders Corporation (TSX:MFL; NYSE:MFN). Its Dolores gold-silver project in Mexico is in production. The company has a solid market cap, its mine is in a safe jurisdiction. Would that company fit your parameters for investment?

JL: Yes, it's a good gold and silver deposit, modest in size, and it does have a fairly hefty market cap, around half a billion dollars, as I recall. Its production is still in its infancy. It's a good jurisdiction, in my view. I would like to see more stabilized production and some cash flow coming out of production, because so far it is still sort of cash flow neutral. When you're in the early stage of production, there tends to be a lot of times where things might go wrong, so it's not an optimal choice for me.

TGR: It's ramping up, so that could easily change.

JL: I would wait for a quarter or two and wait to see what the situation is. I think, again, Minefinders has good management; it's a good story; it's been around for a long time. It has proven its ability to raise money; so, I think it's a story that one should follow.

TGR: Earlier you talked about China and how it is running on all cylinders. What about some junior mining companies operating there? Maybe a junior like Jinshan Gold Mines Inc. (TSX:JIN)? It's in a safe jurisdiction, it's producing gold too. It would seem to fit your guidelines.

JL: Jinshan used to be run by Canadian companies, but now it's run almost like a quasi-state enterprise because the management has been taken over by the Chinese. I think one good thing about being run by China National Gold Group, which is one of the largest gold producers in China, is that they will always save face and not let companies go down, because these are icons of how the international investors perceive the prowess of the Chinese companies. So, you're not going to lose your pants on Jinshan as a producer in China. At the same time, investors should take note of the possible transparency issue with a Chinese management running a Canadian company.

TGR: What are your top five holdings?

JL: My top five holdings right now? I like the idea of evenly spreading your bets through different commodity sectors. I tend to have the top-down approach. Currently, I favor gold and silver. But even then, that's only about 50% of my portfolio.

My top holding is Prophecy Resource Corp. (TSX.V:PCY), because recently I was appointed chairman. Besides Prophecy, my second largest holding is silver. As I said earlier, I like gold and silver, even though gold equities are trading at a bit of a discount to metal prices, but we're entering into a traditionally slow period, the summer.

TGR: And the others?

JL: The second is Minera Andes; then we have a lot of other bets across the other commodities. I like Candente Copper Corp. (TSX:DNT) for copper; I like some natural gas producers. I think natural gas is a good contrarian play. So in natural gas, I like Anderson Energy Ltd. (TSX:AXL); I also have some uranium issues, and some platinum producers—it's just all over the map. I have some zinc companies. One thing that comes to mind that I like quite a bit at current prices ($0.18) is Donner Metals Ltd. (TSX.V:DON). Donner has a joint venture with Xstrata PLC (LSE:XTA), so Xstrata is footing all the exploration bills at the Matagami copper-zinc-silver project and looking to advance Donner into production within the next 12–18 months.

John Lee, CFA, founded Mau Capital Management in 2004. John has been investing in equities for over 10 years and is a keen student of market history and psychology. Since 2001, Mr. Lee has researched hundreds of mining companies and personally met with dozens of management teams. John has degrees in economics and engineering from Rice University. He previously studied under James Turk, a renowned authority on the gold market.

John is a speaker at all major resource conferences, including the Cambridge House resource conference series among others. John has gained invaluable insights by living in three continents and making frequent globe-spanning site visits.

Want to read more exclusive Gold Report interviews like this? Sign up for our free e-newsletter, and you'll learn when new articles have been published. To see a list of recent interviews with industry analysts and commentators, visit our Expert Insights page.

DISCLOSURE:
1) Brian Sylvester of The Gold Report conducted this interview. He personally and/or his family own the following companies mentioned in this interview: None.
2) The following companies mentioned in the interview are sponsors of The Gold Report: Apogee, Jinshan and Minefinders.
3) John Lee, Mau Capital Management, LLC: GoldMau.com's officers, directors, employees and/or affiliates, may have positions in, and may, from time-to-time make purchases or sales of the securities discussed or mentioned in the interview. GoldMau.com is part of Mau Capital Management LLC. The site is not registered as a securities broker-dealer with the U.S. Securities and Exchange Commission or any state securities regulatory authority. GoldMau.com is not responsible for trades executed by subscribers to the services based on the information included in the interview, website and any other publications from GoldMau.com . The interview and the information contained therein do not represent individual investment advice or a recommendation to buy or sell securities or any financial instrument nor are they intended as an endorsement of any security or other investment. Furthermore, the interview does not constitute an offer or solicitation to buy or sell any securities or individualized investment advice. Any information contained in the interview represents John Lee of GoldMau.com' opinions, and should not be construed as personalized investment advice. We cannot assess, verify or guarantee the suitability of any particular investment to any particular situation and the reader of the interview bears complete responsibility for its own investment research and should seek the advice of a qualified investment professional that provides individualized advice prior to making any investment decisions. All opinions expressed and information and data provided therein are subject to change without notice.

Rust Discovered On Bank Of Russia Issued 999 Gold Coins

Posted: 16 Jul 2010 01:32 PM PDT


Here's a head scratcher: as everyone knows from elementary chemistry courses, gold is the most inert metal in the world - it  does not rust, nor corrode. Yet this is precisely what Russian commercial precious metal trading company, International Reserve Payment System, discovered on thousands of (allegedly) 999 gold coins "St George" (pictured insert) issued by the Central Russian Bank. The serendipitous discovery occurred after various clients of the company had requested that their gold be stored not in a safe, but in a far more secure place: "buried under an oak tree." As the website of IRPS president German Sterligoff notes: once buried, "the coins began to oxidize under the influence of moisture." And hence the headscratcher: nowhere in history (that we know of) does 999, and even 925 gold, oxidize, rust, stain, spot or form patinas, under any conditions. Furthermore, as IRPS discovered, Sberbank of Russia released an internal memorandum ordering the purchase of the defective coins with the spotted appearance. Sterligoff concludes: "It should be noted that the weight and density of the rusty coins coincide with the characteristics of gold that would be expected after after conventional testing methods would reveal. We think that the experts will be interesting to determine the nature of this phenomenon." So just how "real" is 999 gold after all, either in Russia or anywhere else?


As a consequence of this discovery, IRPS decided to "rid itself of all stocks, bought up earlier from the Central Bank on behalf of investors. Investment coins "St. George The Conqueror", as well as other gold coins of the Bank of Russia, are now excluded from the company's operations until all circumstances in the case are determined." Additional, as disclosed in the interview below for Here and Now show on TVRainRu, the Russian Central Bank would buy back the coins at a price of 9,300 rubles, despite prevailing prices for the bullion at well over 10,000.

As Zero Hedge has pointed out previously, the Central Bank of Russia has been one of the biggest purchasers of gold in 2010, having bought gold every single month. It would be embarrassing if it were discovered that not only is the bank diluting the gold content once received with oxidizable materials, but subsequently passing it off for 999 proof precious metal.

And if this is happening in Russia, one wonder what trickery other Central Banks, with a far lower amount of gold in their vaults, resort to...

h/t Janis

Weekly Credit Summary

Posted: 16 Jul 2010 12:02 PM PDT


Commentary courtesy of www.creditresearch.com

Spreads closed considerably wider today, with the biggest close-to-close widening since 6/22, as HY dramatically underperformed (pushing back above 600bps for the first time since 7/7) with the macro fears that we have been discussing crystallized and micro issues seem to be turning the same way.

Dismal confidence data along with more worrisome in-/de-flation data set the early tone and stocks and spreads pushed quickly lower (wider) out of the gate. The eight day rally that we have seen, and we have been vociferous in our view of what caused this and what was under the surface, was an exact mirror of the rally a month ago in credit. The swing from wides to tights from 6/10 to 6/21 (8 trading days) was 132 to 104.125 (which was the swing tights since 5/10's 95bps). The recent swing from 7/1 wides to 7/13 tights (126.755 to 106.5) was also over 8 trading days and the same pattern of index outperformance of intrinsics was very evident - which supports our thesis of macro hedge unwinds and underlying selling.

http://www.scribd.com/doc/34436153/IG-OHLC

On The Week

Spreads were wider on the week in all the major credit indices with Friday's rapid derisking the main culprit and running well ahead of underlying single-names. The rush for a liquid macro cover as anxiety re-appeared sets the stage for another round of single-name CDS and bond derisking and with decent fund flows in the rear-view mirror we suspect the best is behind us for the next leg. HY underperformed IG on the week as did IG ratings cohorts relative to HY cohorts which again supports a more deflationist view of modest reach-for-yield and fixed income safety over HY's levered asset devaluation. It is perhaps notable once again the relative non-existence of HY issuance this week - even as spreads screamed tighter for over a week.

With single-names relatively thinly traded today, we did not see them join the index decompression later in the day on Friday and so week-over-week comparisons are perhaps a little unclear but it certainly offers up a lot of food for thought for dealers reracking on Monday. While IG intrinsics were 3-4bps tighter on the week and IG 3bps wider, the skew is going out pretty much flat while Friday's underperformance of HY over intrinsics accounts for much of the index's cheapness to intrinsics (which we would expect to be quickly filled by opening quotes on Monday).

http://www.scribd.com/doc/34439498/CDR-CSA-20100716

Its clear that the majority of single-name moves for the week are in the lower left hand corner (equity underperforming credit) as we note 51.6% of all names are in this quadrant. This, we believe, is mostly related to the relative thinness of CDS this afternoon relative to stocks as derisking took off but was very focused in the indices for credit. Financials agreed and both deteriorated approximately in line with one another and it is perhaps also notable that Energy and Utilities saw credit significantly outperform stocks on the week as a safer harbor of both Utes and IG credit seemed to trump stocks.

ITRX FINLs underperformed on the week after a few days of decent performance but we believe this is the start of selling on the news into stress tests after some buying rumors since 7/2. IG and Main moved around the same on the week but HY notably underperformed XOver from last Friday's close but we note that FINLs underperformed ExFINLs by around 7bps on the week, starting to make up the gap between this differential and SOvX that we have been looking for (this still looks good for a short-term trade entry).

Main ExFINLs trades 9bps wide to IG ExFINLs as the latter widened 3bps and the former tightened 5bps this week but once again we suspect this will normalize fast on Monday as dealer's runs arrive.

Bottom line was that TSYs certainly signaled more weakness than stocks in the future (and they are typically right) and credit index relative to intrinsics and cash did not seem to confirm the broad performance in stocks. The dichotomy between macro weakness and hopeful micro strength met its maker on Friday as derisking hit hard on decent volumes and we await earnings next week and more event risk. Watch bond volumes also as they slowed again today after picking up in IG recently. It makes sense for relative IG outperformance of HY in a deflationary environment but if we continue to see HY index underperformance and thin HY bond/CDS volumes then that bodes very badly for underlying portfolios as inevitably bids and offers will meet (and for now it appears in HY that they can't find a happy medium).

Index/Intrinsics Changes (Friday-to-Friday)
CDR LQD 50 NAIG +0.38bps to 102.11 (21 wider - 26 tighter <> 23 steeper - 27 flatter).
CDR Counterparty Risk Index rose 0.44bps (0.32%) to 140.14bps (8 wider - 6 tighter).
CDR Government Risk Index rose 1.27bps (1.29%) to 100bps..
CDX14 IG +3.13bps to 113.13 ($-0.12 to $99.43) (FV -3.98bps to 114.56) (33 wider - 85 tighter <> 58 steeper - 66 flatter) - No Trend.
CDX14 HVOL -8.62bps to 154.78 (FV -2.06bps to 0) (9 wider - 20 tighter <> 12 steeper - 18 flatter) - Trend Tighter.
CDX14 ExHVOL +6.84bps to 99.98 (FV -4.37bps to 95.2) (24 wider - 71 tighter<> 49 steeper - 46 flatter).
CDX14 HY (30% recovery) Px $-0.88 to $96 / +23.3bps to 603 (FV -15.02bps to 584.98) (20 wider - 80 tighter <> 43 steeper - 56 flatter) - Trend Wider.
LCDX14 (70% recovery) Px $-0.06 to $95.825 / +1.62bps to 363.59 - Trend Wider.
MCDX14 -6.5bps to 225bps. - Trend Tighter.
ITRX13 Main +3.5bps to 117.25bps (FV+1.03bps to 118.39bps).
ITRX13 Xover +5bps to 531bps (FV-2.89bps to 523.82bps).
ITRX13 FINLs +7.75bps to 137.5bps (FV+2.08bps to 142.12bps).
DXY weakened 1.65% to 82.56.
Oil fell $0.32 to $75.77.
Gold fell $18.6 to $1193.
VIX increased 1.27pts to 26.25%.
10Y US Treasury yields fell 13.1bps to 2.93%.
S&P500 Futures lost 0.88% to 1063.1.

Market Summary (Friday-to-Friday)

Spreads were mixed in the US this week with IG worse, HVOL improving, ExHVOL weaker, and HY selling off. Indices typically underperformed single-names with skews widening in general as IG underperformed but narrowed the skew, HVOL outperformed but narrowed the skew, ExHVOL's skew widened as it underperformed, HY's skew widened as it underperformed.

Comparing the relative HY and IG moves to their 50-day rolling beta, we see that HY underperformed by around 7.7bps (or 33%). Interestingly, based on short-run empirical betas between IG, HY, and the S&P, stocks outperformed HY by an equivalent 9.3bps (~ 40%), and stocks outperformed IG by an equivalent 0.4bps (~ 13%) - (implying IG underperformed HY (on an equity-adjusted basis)).

The names having the largest impact on IG are Transocean Ltd. (-122.5bps) pushing IG 0.88bps tighter, and Allstate Corp (+14.59bps) adding 0.12bps to IG. HVOL is more sensitive with International Paper Company pushing it 0.64bps tighter, and SLM Corp contributing 0.32bps to HVOL's change today. The less volatile ExHVOL's move today is driven by both Transocean Ltd. (-122.5bps) pushing the index 1.15bps tighter, and Allstate Corp (+14.59bps) adding 0.15bps to ExHVOL.

The price of investment grade credit fell 0.12% to around 99.43% of par, while the price of high yield credits fell 0.88% to around 96% of par. ABX market prices are higher (improving) by 0.16% of par or in absolute terms, 0.18%. Volatility (VIX) is up 1.27pts to 26.25%, with 10Y TSY rallying (yield falling) 13.1bps to 2.93% and the 2s10s curve flattened by 9.1bps, as the cost of protection on US Treasuries rose 1.52bps to 38.14bps. 2Y swap spreads tightened 7.2bps to 24.44bps, as the TED Spread tightened by 0.6bps to 0.38% and Libor-OIS improved 0.1bps to 33.3bps.

The Dollar weakened with DXY falling 1.65% to 82.561, Oil falling $0.32 to $75.77 (underperforming the dollar as the value of Oil (rebased to the value of gold) rose by 1.13% today (a 2.07% drop in the relative (dollar adjusted) value of a barrel of oil), and Gold dropping $18.6 to $1193 as the S&P is down (1063.1 -0.88%) underperforming IG credits (113.13bps -0.12%) while IG, which opened wider at 108.25bps, outperforms HY credits. IG13 and XOver13 are -0.25bps and +5bps respectively while ITRX13 is +3.5bps to 117.25bps. Dispersion fell -7.3bps in IG.

54% of IG credits are shifting by more than 3bps and 41% of the CDX universe are also shifting significantly (less than the 5 day average of 49%). The number of names wider than the index decreased by 1 to 52 as the week's range rose to 7.5bps (one-week average 7bps), between low bid at 106.5 and high offer at 114 and higher beta credits (-1.41%) underperformed lower beta credits (-3.1%).

In IG, tighteners outpaced wideners by around 3-to-1, with 33 credits wider. By sector, CONS saw 18% names wider, ENRGs 6% names wider, FINLs 63% names wider, INDUs 15% names wider, and TMTs 38% names wider. Focusing on non-financials, Europe (ITRX Main exFINLS) underperformed US (IG exFINLs) with the former trading at 112.19bps and the latter at 103.6bps.


Index Internals (Friday-to-Friday)
Within the 240 name CDX Index Universe, sentiment is more bullish, with only 53 (23%) wideners to 165 (71%) tighteners and 101 (43%) steepeners to 122 (52%) flatteners (3.1 tighteners for every widener). Among this universe, there are 11 credits with a bullish trend, and 1 with a bearish trend (based on the previous five days trading action). The market's general sentiment is evident as we note that 54 credits are at the widest in their 5-day range currently, and 23 are at their tightest. Notably, from the 240 name index universe, there are 42 (~18%) credits that have inverted curves, with an average inversion of 30% of 5Y CDS.

Within the IG universe, dispersion overall has fallen -7.3bps to 89.3bps, as the wings of the distribution (10-90%) decreased less than the centre (25-75%) of the distribution. The distribution shifted non-linearly as the 50th percentile increased the most (-2bps /-2.19%) to 89.5bps, and the 90th percentile increased the least (-8.2bps /-3.9%) to 202.9bps.

IG Sector Moves and Betas (Friday-to-Friday)
In IG, FINL (the worst sector) out-performed IG, moving (on average) 1.4bps (0.79%) wider to an average of 177.5bps. TMT (the second weakest sector) out-performed IG, moving (on average) 0.3bps (0.25%) wider to an average of 101.1bps. INDU (the median sector) out-performed IG, moving (on average) 2.8bps (2.74%) tighter to an average of 99.3bps. CONS (the second best sector) out-performed IG, moving (on average) 2.7bps (2.9%) tighter to an average of 90.6bps. ENRG (the best sector) out-performed IG, moving (on average) 20.8bps (12.65%) tighter to an average of 143.8bps.

From the top-down, index capital structure changes shifted both weaker with credit outperforming equity. The sectors were mixed with CONS (divergent as credit beats equity), ENRG (divergent as credit beats equity), FINL (equity beating credit as they both deteriorate), INDU (divergent as credit beats equity), and TMT (both weaker with credit outperforming equity).

CDX-based regression betas indicate that TMT (1.06x) have the highest beta and ENRG (0.9x) the lowest, with INDU (1.03x), CONS (0.97x), and FINL (0.92x) in between. Comparing the regression betas to current level betas we see that CONS (0.23x rich) is the richest sector, while FINL (-0.59x cheap) is the cheapest, with INDU (0.14x rich), TMT (0.14x rich), and ENRG (-0.27x cheap) trading more in line.

Focusing on intra-sector movements within IG, we notice dispersion increasing the most in TMT which shifted 0.52% to 49.2bps, and the least in ENRG which shifted -22.61% to 111.8bps.

Single-Name Movers (Friday-to-Friday)
The biggest absolute movers in IG were Allstate Corp (+14.59bps), SLM Corp (+11.51bps), and Barrick Gold Corp. (+7.5bps) in the underperformers, and Transocean Ltd. (-122.5bps), Anadarko Petroleum Corp. (-106.66bps), and FirstEnergy Corp (-22.5bps) in the outperformers. The biggest percentage movers in IG were Allstate Corp (+15.36%), Barrick Gold Corp. (+11.03%), and Capital One Bank (+7.69%) in the underperformers, and Transocean Ltd. (-24.5%), Anadarko Petroleum Corp. (-20.49%), and Devon Energy Corporation (-14.45%) in the outperformers.

In Main, the biggest percentage movers were Anglo American Plc (+33.2%), Akzo Nobel NV (+14.93%), and Banca Monte dei Paschi di Siena SpA (+13.51%) in the underperformers, and Banco Espirito Santo SA (-9.92%), Enel SpA (-6.34%), and Volkswagen AG (-5.8%) in the outperformers.The largest absolute movers in Main were Anglo American Plc (+52.46bps), Banca Monte dei Paschi di Siena SpA (+18.92bps), and Holcim Ltd (+14.44bps) in the underperformers, and Banco Espirito Santo SA (-44.65bps), BP PLC (-21bps), and Glencore International AG (-15.05bps) in the outperformers.

The biggest percentage movers in XOver were Alcatel-Lucent (+6.2%), Wendel SA (+4.97%), and Sol Melia SA (+3.88%) in the underperformers, and NXP b.v. (-13.06%), Deutsche Lufthansa AG (-6.7%), and Ineos Group Holdings plc (-6.12%) in the outperformers.The largest absolute movers in XOver were Seat Pagine Gialle SpA (+55.98bps), Alcatel-Lucent (+45.31bps), and Sol Melia SA (+27.74bps) in the underperformers, and NXP b.v. (-149.54bps), BCM Ireland Finance Ltd (-101.47bps), and Ineos Group Holdings plc (-76.39bps) in the outperformers.

In the names of the HY index, the biggest percentage movers were Energy Future Holdings Corp. (+12.7%), Louisiana-Pacific Corp (+8.33%), and RadioShack Corp (+6.41%) in the underperformers, and Domtar Corporation (-22.22%), Pride International Inc. (-15.07%), and CSC Holdings, Inc. (-9.75%) in the outperformers. The largest absolute movers in HY were Energy Future Holdings Corp. (+271.89bps), Dynegy Holdings Inc. (+41.87bps), and iStar Financial Inc. (+41.39bps) in the underperformers, and Freescale Semiconductor, Inc. (-100.99bps), McClatchy Co./The (-74.86bps), and Boyd Gaming Corporation (-64.56bps) in the outperformers.

The CDR Counterparty Risk Index Series 2 (of brokers and banks) rose 0.44bps (or 0.32%) to 140.14bps. Barclays Bank Plc (11.73bps) is the worst (absolute) performer among the banks/brokers of the CDR Counterparty Index, whilst Barclays Bank Plc (9.38%) is the worst (relative) performer. Dresdner Bank AG (-16.04bps) is the best (absolute) performer among the banks/brokers of the CDR Counterparty Index, and Dresdner Bank AG (-13.21%) is the best (relative) performer.

The CDR Aussie Index rose 0.64bps (or 0.58%) to 111.34bps. QBE Insurance Group Limited (8.66bps) is the worst (absolute) performer, whilst QBE Insurance Group Limited (4.62%) is the worst (relative) performer. Woodside Petroleum Limited (-6.82bps) is the best (absolute) performer, and Wesfarmers Limited (-6.19%) is the best (relative) performer.

The CDR Asian Index fell -2.11bps (or -1.8%) to 115.2bps. Genting Berhad (3.75bps) is the worst (absolute) performer, whilst Genting Berhad (3.71%) is the worst (relative) performer. Acom Co Ltd (-37.96bps) is the best (absolute) performer, and Acom Co Ltd (-9.74%) is the best (relative) performer.

The Gold Silver Ratio Presents Us with a Cliffhanger. Over 69.5 It Breaks Out Upside, Under 64.5 to the Downside.

Posted: 16 Jul 2010 11:03 AM PDT

Gold Price Close Today : 1,188.00Gold Price Close 9-Jul : 1,209.60Change : -21.60 or -1.8%Silver Price Close Today : 17.773Silver Price Close 9-Jul : 18.053Change : 28c or -1.6%Platinum Price Close...

This is a summary only. Visit GOLDPRICE.ORG for the full article, gold price charts in ounces grams and kilos in 23 national currencies, and more!


Money for Nothing and Cheques from Centre Link

Posted: 16 Jul 2010 11:00 AM PDT

Governments around the world are in trouble. They face unhappy voters at every turn. It's when voters are unhappy that they tend to care. That is supposed to be good for democracy.

But who knows what sort of hair brained schemes the voting public might come up with once empowered? Telling people what clothes they can wear seems quite popular at the moment. So then you wonder whether politicians will stand up and do the right thing in the face of adverse political pressure. Will the mob rule?

That's what constitutions are for, by the way. When popular opinion goes haywire, there are certain things the majority can't do. But politicians and the judiciary have watered down their constitutions in the name of practicality, necessity and their careers.

There were poor to be supported, refugees to be saved, gunmen to be kept at bay, criminals to be cared for, consumers to be protected, rich to be made more equal and houses to be made affordable. Constitutional barriers are mere inconveniences to these lofty goals.

Now we face the consequences.

High taxes are the main one. Low employment rates are another. Who works when you get your money for nothing and your cheques for free from Centre Link?

Wait a minute. Low employment in Australia? Yup, "Australia's employment rate - the percentage of the population with a job - ranks only 20th of the 27 rich OECD countries for prime-age workers" reports Tim Colebatch at The Age. The details are very much worth a read. Never again do we wish to receive an email from subscribers about Australia's lofty employment numbers. They aren't fair dinkum.

Back to the global sphere. It's going to take an impressive set of politicians to educate the masses on the consequences of many years of free lunches. One woman who people can look to for guidance is Maggie. Janet Albrechtsen at the Australian is a fan:

Actually, let's be blunt. It's not at all clear that political leaders today, most of them men, have Thatcher's balls when it comes to transforming their sclerotic economies.

John McDonnell, a leadership contender for the British Labour Party, was asked [what he would do if he could time travel]. The former unionist said he would "go back to the 1980s and assassinate Thatcher".

Strangely enough, Margaret Thatcher probably wouldn't object to Janet's description. And she would probably measure her success by her death threats.

But Australia isn't exactly stuck in the middle of an economic crisis, so why worry? GDP stats indicate the private sector is doing just fine. And house prices barely sneezed as the US was deciding on flower arrangements for its funeral in 2008.

It hardly seems necessary to point out that the Aussie stock market did in fact plunge. And the battles raging around the world are ideological ones. It isn't likely that Australia will remain a lone bastion of Keynesianism if the world figures out how stupid that is. So change is in the air.

Where do we turn? If a rather annoyed public opinion does control politics, where will it take its political leaders?

That's where Janet Albrechtsen's second and recent article comes into play: Hey, big spenders, hands off our money. The sub-heading a slightly confused "Julia Gillard can learn much from the principles of Hayek and Friedman."

We won't get into the Hayek vs Friedman story. Aside from that, Janet probably didn't read the "Why I am not a Conservative" chapter in Hayek's The Constitution of Liberty, nor Friedman's Free To Choose. But the remaining article itself is excellent.

Labor in the 21st century is committed to a deluded philosophy where a big spending government believes it can spend our money better than we can. It can't, of course. ... there is no sign that a Gillard government will free itself from the costly fantasy that took hold under Kevin Rudd about the omnipotence of big spending government brimming with expensive and grand designs.

One example was the Green Loans Program.

Patricia Faulkner, a former head of the Victorian Department of Human Services, with support from KPMG, found: 96 per cent of procurements reviewed were done without open competition, evidence of contract splitting to avoid authorisation by senior management, repeated breaches of the Financial Management Act and Regulations, non-compliance with Commonwealth Procurement Guidelines, unaddressed conflicts of interest, lack of documentation, poor contract management, lack of commercial terms (advance payments were often made), huge cost escalations (an original contract for $49,588 skyrocketed to $462,000, while another for $770,000 ended up costing $3.4m), weak budget controls, delays in implementing an audit process and the absence of a quality assurance program.

(Perhaps the longest sentence ever written?)

Ahh, stimulus.

The Working (to be) Poor

The Age's article titled "Sea of Debt" sounded good from the beginning. It got worse. Geoff Strong went on a bit of a tangent with a so called Stacey:

Stacey, 52, never imagined it could be like this. On the face of it, her unremarkable expectations should allow her at least a small slice of the Australian dream.

But, as for increasing numbers of Australians, her tilt at the dream is being undermined by the relentless rise of staples such as electricity, gas, water and the telephone, which are eroding an already overstretched budget. In the future these pressures are likely to worsen as energy prices rise following government attempts to generate more environmentally friendly electricity, which tends to be more expensive.

We go on to read about how "the registration on her 1995 Toyota Camry has sometimes gone unpaid and she has only allowed herself a one-week holiday in Hobart in two years. Her weekly outing is ten-pin bowling with friends." And she doesn't even celebrate Christmas.

This is a sad story indeed. Then Geoff Strong drops the bombshell: Stacey has a "full-time permanent job with the state government pays $55,000 a year".

So if life is that difficult for an Aussie on that income, this country really is in trouble. But perhaps there is more to the story. Find out yourself here. (Hint: Her house was refinanced several times in a suburb with "the third-highest price rise for houses in Melbourne" in 2008.)

But if "unremarkable expectations should allow [a person] at least a small slice of the Australian dream," then communism would work. Sadly it's not about expectations. It's about reality. And changing your expectations to conform with reality is a rather basic skill, one would have thought. To console Stacy and Australians in the same position, the Greeks are having trouble with it too.

Hedgies in High Places

When your editor was young, he got stuck in a hedge maze in London while experiencing some severe hay-fever. Wherever we turned, there was another hedge. It wasn't pretty.

Now, it's the same thing all over again. Last week, we discovered a former hedge fund manager at the helm of Europe's bailout fund. This week Obama nominated a hedge fund managed from Citigroup to be his budget director. Apparently the favoured candidates were too busy fighting among themselves to see this coming. Surprisingly enough, the new guy's connections (read employment) to a bailed out firm are up for discussion at his confirmation hearings.

But it will take someone as bright as a Hedgie to do the jobs these two have been tasked with. Dan Denning pointed out the inherent flaw in the European bailout plan in his latest edition of the Australian Wealth Gameplan: "The absurdity is that a bankrupt government cannot be expected to bail out a bankrupt bank when the bank was bankrupted by the bad government debt in the first place."

And as for the American budget outlook, it seems Obama's Debt Commission is talking the talk. If the issue is left unchecked, it "will destroy the country from within". But America has already check mated itself:

"We can't grow our way out of this," [co-Chairman] Bowles said. "We could have decades of double-digit growth and not grow our way out of this enormous debt problem. We can't tax our way out... We've got to cut spending or increase revenues or do some combination of that."

The 'flations

The 'flations are back in the news. Like some sort of dysfunctional family in a reality TV series, the central bankers are all over the place.

Australia's Glen 'flation is expected to continue his rate rises. Jean-Claude 'flation has been busy doubling Spanish bank's debt to the ECB. Minutes from the Federal Reserve, home of 'flation family Chief Ben 'flation, indicated the "Committee would need to consider whether further policy stimulus might become appropriate".

One thing that has been confusing is the central banker's definition of inflation. Supposedly it's rising prices. But, based on Stacey's anecdotal evidence of rising energy prices, it seems much of inflation comes from increased costs to the businesses providing goods and services. (Climate change policy perhaps?)

A central bank's interest rate raising won't affect the cost of energy favourably. Nor the price of un-poisoned tomatoes if they become rarer. Yet the CPI's (or similar price indexes') moves supposedly dictate monetary policy. What if the central bank is merely interfering in supply and demand changes when it makes policy decisions on perfectly appropriate price changes? That might cause something like a global financial crisis or something, mightn't it?

Despite their differing behaviour, all the 'flations have one thing in common. A dislike of the US dollar. Most central banks are either questioning, berating or dumping dollars. But only Ben 'flation is capable of showing true disdain for the Greenbacks. In an ultimate display of his apathy for them, he simply creates more.

And when the great inflation begins, the 'flations will blame the free market again. But, to paraphrase investigators into South Korea's missing ship, it was either the Dear Leader, Ben 'flation, or it was the Martians.

Perhaps we are being too harsh on Ben Bernanke. Let's go to former White House Budget Director David Stockman for a fair and balanced view:

Federal Reserve Chairman Ben Bernanke "is a math teacher, he's not a central banker. He is so caught up in his equations that I think he's extremely dangerous - the worst Fed chairman we've ever had."

Bankers Get a Reprieve in Switzerland - Surprise!

Naming bank capital requirements after a Swiss city turned out to be an indication of what was to come. And it wasn't "works like clockwork" nor was it efficiency. It was secrecy and snobbery. And the banks came out on top. Closely followed by the ratings agencies. Now the circus continues:

"European banks, rattled by investor uncertainty about their ability to withstand a sovereign-debt crisis, are poised to win a reprieve in Basel, Switzerland, this week as regulators from 27 countries shape new capital rules."

This bit got Dan Denning all fired up on Wednesday.

"Representatives from the U.S. and the U.K., who have sought to rein in risk-taking, are willing to compromise on how capital is defined to reach an agreement at a committee meeting that begins tomorrow, the people said."

Dan's reply:

"You know the world's banking system is well and truly stuffed when bankers can't even agree amongst each other on what capital is."

Degraded Downgraders Downgrading the Degenerating Debts for Deutschland

Another week, another downgrade from our steadfast bastions of financial wisdom - ratings agencies. Portugal falls victim this time. As the German's see it, countries can't change their Kuhflecken, let alone leopard spots. That's why Infowars reports ze Germans are preparing a European bankruptcy framework. Supposedly with a provision for giving up state sovereignty! They are at it again...

The United Shambles of America

In order of absurdity (not sure if rising or falling though):

  • The FDIC closed four more banks over the weekend, bringing the annual total to 90.

  • Washington closed state offices.
  • California may cut 200,000 workers' pay to the minimum wage.
  • Minnesota is delaying tax refunds for a second year.
  • Illinois let $5 billion of bills go unpaid.
  • "Delaware saved $29,000 by eliminating flowers at the state psychiatric hospital and health department."
  • Springfield Police Charged One-Armed Man With Unarmed Robbery

Investment Advice

For anyone who has a basic understanding of finance, the following quotes from David Potts at The Age are worth a giggle:

"Take the most oft-quoted valuation of the market, the price-earnings (P/E) ratio, which shows how long it will take to get your investment back. The lower it is, the faster the investment will pay off and so the better the stock."

The P/E ratio measures a company's earnings, not the investors return. You don't get the money back.

"From what little I remember of maths, a bigger denominator gives a smaller figure. But take the forecasts of "E" next year and something is drastically wrong. Analysts are forecasting earnings per share will rise an average 25 per cent over the financial year, which lowers the P/E to just below 12."

Something is drastically right if people have figured out that analysts aren't particularly good at forecasts. But they can probably do their math. Unlike some:

"Our most reputable forecasters, the Treasury and the Reserve Bank, are gung-ho about the next 12 months."

Reputable? After missing the financial crisis, making a complete mess of stimulus policies (see above), and now this "significant mistake" of $7.5 billion ... reputable!? What a joke.

"Banks, the mainstay of the market, need credit to be growing much faster."

Banks decide how much credit grows by their lending practices. They can't really need something to happen when they are the ones doing it...

Until next week,

Nickolai Hubble.
The Daily Reckoning Week in Review

Similar Posts:


FRIDAY Market Excerpts

Posted: 16 Jul 2010 10:25 AM PDT

Gold price slips amid broad market sell-off

The COMEX August gold futures contract closed down $20.10 Friday at $1188.20, trading between $1185.80 and $1210.90

July 16, p.m. excerpts:
(from Marketwatch)
bananaGold futures fell hard, tracking other assets after a drop in consumer sentiment battered stocks and a report showing benign inflation for June offset gold buying on inflation fears. Gold for August delivery lost 1.7%, down 1.8% on the week. "Today you have a selloff, but if you look at it closely it doesn't have too much to do with gold" but is more of a pan-market selloff, said Jeffrey Christian, managing director at CPM Group…more
(from AP)
Stocks slumped after banks' second-quarter earnings fell short of expectations and a new survey found that consumers are becoming more pessimistic. The Dow Jones industrial average lost 261 points, and all the major market indexes dropped more than 2.5%. "It's mostly about the poor consumer confidence numbers," said Anthony Conroy, managing director for BNY ConvergEx Group. "The possibility of a double dip also starts to come to mind" for investors…more
(from Xinhua)
The Thomson Reuters/University of Michigan's consumer sentiment index slumped to 66.5 from 76.0 in June, which is much lower than analysts' expectation for 74.5. The sluggish data, coupled with the lower-than-anticipated U.S. retail sales highlighted the weakness of the nascent U.S economic recovery, and led to a broad flight from commodity and stocks markets, which heavily weighed on gold prices…more
(from Reuters)
"The data was a bit disappointing, and it created a deflationary scare. There was a move out of paper assets and equities into Treasuries, and precious metals were caught in the middle," said James Steel, chief commodities analyst at HSBC. The euro has also risen more than 9% from a four-year low in June after smooth government debt auctions in Greece, Portugal and Spain eased concerns about the euro zone's sovereign debt problems…more
(from Bloomberg)
The euro's rebound reduced demand for the precious metal as a haven against European-debt concerns, with the euro headed for a third straight weekly gain after topping $1.30 for the first time since May 10. "There's continued unwinding of the gold-euro trade," said Frank McGhee, head dealer at Integrated Brokerage Services LLC. "As the euro firms up, the risk premium comes off." The Reuters/Jefferies CRB Index of 19 raw materials also fell as much as 1.3%…more
(from TheStreet)
Contributing to gold's downside was a stronger U.S. dollar as traders rushed into cash and treasuries. Some traders are hoping that any gold selloff is short-lived as bargain-hunters look to buy the metal at "discount" prices. Mark O'Byrne, executive director of GoldCore, said that "Strong physical demand below the $1,200/oz level, particularly in Asia, is supporting gold in the traditionally weak "summer doldrums" period."…more

see full news, 24-hr newswire…

July 16th's audio MarketMinute


Is the Gold Trade “Crowded”?

Posted: 16 Jul 2010 10:16 AM PDT

When a Bear Won’t be its Usual Cautious Self

Posted: 16 Jul 2010 10:00 AM PDT

Most bears are supposed to be cautious animals that try to avoid human contact when at all possible… more often running away than bothering to interact.

Of course, bears can attack when accidentally surprised or when protecting their young, but the bear below looks to be pouncing for all the wrong reasons.

This cartoon came to our attention via Jesse Felder's post on government versus business.

When a Bear Won't be its Usual Cautious Self originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today's markets. Its been called "the most entertaining read of the day."


The Micro View - Q2 Earnings Season: Past, Present And Future

Posted: 16 Jul 2010 09:55 AM PDT


It is obvious by now that the macro economic picture is collapsing.  The only good news is courtesy of the micro economy, specifically corporate earnings, where massive deleveraging and cash hoarding is the only thing keeping the economy alive at this point. Here is Goldman's David Kostin with a perspective on the Q2 earnings season: where we were, are and are going. 

PAST: 2Q 2010 earnings season - We expect index-level 2Q 2010 earnings will positively surprise relative to bottom-up consensus expectations. Of the 37 companies already reported, 20 beat consensus EPS expectations by more than one standard deviation.

PRESENT: 2010 full-year earnings outlook - Our full-year 2010 S&P 500 operating earnings forecast of $78 per share implies 4% potential negative revisions to current bottom-up consensus estimates of $82. GS Economics expects US GDP growth will slow to 1.5% annualized pace during 3Q and 4Q 2010, below the consensus estimates.

FUTURE: How various economic scenarios will affect 2011 - EPS Investors are intensely focused on the profit outlook for 2011 more than 2Q results. We provide sensitivity analysis around our 2011 EPS forecast of $93 adjusting assumptions for US real GDP growth.

 


Austrians, Keynesians and Price Target for Mining Stocks

Posted: 16 Jul 2010 09:39 AM PDT

 

This essay is based on the Premium Update posted on July 16th, 2010

We live in an era of unparalleled confusion on monetary and economic issues. It's almost like a shoot-out among the economists in the Old West, except that here you can't tell the good guys from the bad guys. You read so many conflicting reports, editorials, and newsletters that it's easy to get befuddled.

There are those who say inflation, those who shout deflation. Some say print more money, others say halt the printing presses. There are those who say bail them out, and the others who say let them fail. There are those who say gold is going up to $2,000 and even to $5,000, and those who say it's a bubble about to burst.  We're in a bear market, sell all your stocks. No, we're in a bull market, buy, buy, buy.

At Sunshine Profits we follow the reports, read the newspapers to stay current, but we shut out the noise. Technical analysis is a world of its own and when you learn to listen you can hear its music. There are harmonies, rhythms and patterns, sometimes sharp, sometimes flat.

Nevertheless, we thought it might be useful to look at some of the economic theories and how they are being put into practice in these confusing times. It is very important to understand the difference between the various schools of economic thought employed by governments. After all, economic, monetary and fiscal policies affect us directly right where we feel it—in our pockets and in our standard of living.

There are many schools of thoughts, but today's showdown with guns loaded seems to be centered between the Keynesians and the Austrians. They don't even try to hide their contempt for one another. In 1998, Paul Krugman, a Nobel Prize winning Keynesian economist plainly dismissed the Austrian theory as not "worthy of serious study." The Austrians say the Keynesians are dead wrong about how to deal with the recent subprime crisis and, in fact, are largely responsible for it. One called the Keynesian theory "a con job from day one." Another said Krugman makes "an enticing argument that is nevertheless built on rubbish."

A Brief Explanation

Keynesian economics is a macroeconomic theory based on the ideas of 20th century British economist John Maynard Keynes, without question the most influential economist in the 20th century. The Keynesians argue that private sector decisions sometimes lead to inefficient outcomes and therefore the government should step in with active monetary policy actions by the central bank. The recent economic crisis caused resurgence in Keynesian thought with U.S., British and other world leaders using Keynesian economics to justify injecting billions into the economy with bail out programs and government stimulus programs. Keynesians claim that government policies kept the world economy from collapse and that more stimuli are needed. You might recall that it was President Richard Nixon who was quoted as saying "I am now a Keynesian in economics" when in 1971 he took the United States off the gold standard. (Keynes himself called gold "a barbaric relic.") New York Times Nobel Prize winning columnist Paul Krugman is a champion for Keynesian economics.

The Austrian School takes an opposite tack. The Austrians (They are nowhere near Austria today, but that is where the economic theory began) argue for an extremely limited role for government and the smallest possible amount of government intervention in the economy, especially in the area of money production. According to the Austrian Business Cycle Theory, the central banks attempt to control the economy is ineffective and creates volatile credit cycles and periods of boom and bust. When the central banks artificially "stimulate" the economy with artificially low interest rates it causes bubbles to form, inflation and consequent recessions. Austrians predicted the subprime bust in 2006.

Austrian theorists such as Murray Rothbard, Ludvig Von Mises, and Friedrich Hayek believed in government restraint, the protection of private property and the defense of individual rights. Austrians see entrepreneurship as the lifeblood of economic development. Many Austrian School economists support the abolition of the central banks and advocate a return to the gold standard. The Austrians advocated in 2008 that the FED should do nothing, that Fannie and Freddie should be allowed to go under, and that the stimulus bill should be voted down. Congressman Ron Paul is a firm believer in Austrian school economics, as are investors Peter Schiff and Jim Rogers. Milton Friedman of the Chicago School is closely associated.

So to simplify, the Austrians say the market is a self-correcting mechanism, just leave it alone and it will follow fairly smooth and manageable cycles. The Keynesian say government should intervene with deficit spending and ever-changing fiscal policy to "guide" market cycles.

As the financial crisis unfolded the governments reacted according to the Keynesian textbook. They began pumping the printing presses, lowering interest rates and injecting billions to bail out and jump start the economy.  Now, it's beginning to look like policy makers are making a startling about-face and are embracing austerity and deficit reductions, a more Austrian approach.
Congress recently failed to extend unemployment benefits and abandoned plans for another round of stimulus to combat what is the worst economic recession in over a generation. Are we really at the dawn of a new age of austerity? Has Austrian economic thinking replaced the Keynesian addiction to government spending? How does this affect the case for gold?

Stimulators Vs Austerians

Krugman, a Keynesian, is horrified by governments wanting to tighten the belt and what he calls "balanced-budget orthodoxy" instead of more stimulus spending. "We are now, I fear, in the early stages of a third depression," he wrote in a recent New York Times column. "And this third depression will be primarily a failure of policy." The policy to which Krugman is referring is the recent G-20 meeting where governments, spooked by the debt troubles in Greece, agreed about the need for belt-tightening when the real problem, according to Krugman, is not enough spending. He wrote:

It's almost as if the financial markets understand what policy makers seemingly don't: that while long-term fiscal responsibility is important, slashing spending in the midst of a depression, which deepens that depression and paves the way for deflation, is actually self-defeating.

Krugman calls the G-20 move "the victory of an orthodoxy that has little to do with rational analysis, whose main tenet is that imposing suffering on other people is how you show leadership in tough times." He is, of course, referring to the Austrian school.

The Austrian Response

Peter Schiff had an interesting view on the growing ideological divide between the economic thinking between Europe (Austrian) and the US (Keynesian) and some answers for Krugman. Here is what he wrote in an article for Marketwatch:

Despite the apparent deficit-cutting solidarity that emerged from the G-20 meeting in Toronto, it is clear that the great powers of the industrialized world have not been this philosophically estranged since the end of the Cold War…We now are witnessing a struggle between two camps that I playfully call the 'Stimulators' and the 'Austereians' (from Austerity).
Both warn that a worldwide depression will ensue if governments now make the wrong choices: the Stimulators say the danger lies in spending too little and the Austereians from spending too much. Each side also has their own economic champion: the Stimulators follow the banner of Nobel Prize-winning economist Paul Krugman, while the Austereians are forming up behind the recently reformed former Fed Chairman Alan Greenspan. In a recent Wall Street Journal editorial, Greenspan argued that the best economic stimulus would be for the world's leading debtors (the United States, UK, Japan, Italy, et al) to rein in their budget deficits, a strategy dubbed 'austerity' by the press…

Meanwhile, in several articles for his New York Times column…Krugman has argued that those who push for austerity in the face of recession are either doing so for political expediency or out of a 'crazy' fealty to archaic economic views. Krugman has apparently judged inadequate the trillions of dollars worth of deficit spending unleashed by the United States and European governments in the last 24 months. He believes our only remedy is to spend more – no matter how much debt results

What Krugman proposes is nevertheless built on rubbish. Economies do not grow because consumers spend; consumers spend because economies grow.

The Stimulators…believe money grows on trees and that a printing press is a legitimate creator of wealth. However, printing money merely encourages people to spend their savings now rather than wait for it to lose value through inflation. This is okay to Stimulators, because stimulating "demand" by any means necessary is the only goal they can see.

The Austereian argument is that reductions in government spending will allow the private sector to generate the additional supply of goods and services. Europe seems to understand this; unfortunately, the U.S. does not. If Greenspan and the Austereians are correct, the stimulus will fail and leave us in a much deeper hole. As long as governments create bigger deficits, we will never have a sustainable recovery.

So there you have it, the Keynesians versus the Austrians. Who is right? We continue to believe in the small government, but the history will prove to be the ultimate judge. Meanwhile, we will continue to do what we do best, study the charts.

To see how the prices of the mining stocks will do in the upcoming weeks let's begin this week's technical part with the analysis of the HUI Index (charts courtesy by http://stockcharts.com.)

The HUI Gold Bugs Index chart above gives us some insight to assist those, who are inclined to trade in precious metals stocks presently. The trend still appears to be up, but please note that after a similar trend broken in the past a sizable decline followed. In this case it may mean that we can expect a sizable decline to materialize soon.

Let's take a look at the short term GDX ETF chart for details.

The previously featured gold chart shows that the December top was followed by a big decline, though the second part of the decline was in fact smaller. The opposite appears true for mining stocks (as visible on the above GDX chart.)

Today's situation seems quite similar to December's. Both timeframes saw major tops and strong support levels tested several times. The December support level was broken on the second attempt. This could happen gain as the 50-day moving average is close to today's price level. Perhaps it has already happened (given Friday's intra-day action), but it's too early to make such conclusions.

If this is to repeat, the RSI and GDX ETF behavior have been quite similar of late. Also, Fibonacci retracement levels can be used twice to analyze the same move. The 61.8% retracement would bring us to around $52.5, close to the upper border of the trading channel. This could form if the slope of the declining trend line repeats itself here as in December.

The downside target is in the $45 – $46 area, as marked with the red ellipse on the above chart.

Summing up, even if the precious metals companies are to report huge gains, charts suggest that this information may already be "in the price" meaning that very positive earnings won't move the price while only the slightly positive one's could decrease it. It's just a matter of market's expectations. This is something that the charts could help us estimate and at this point charts suggest a move lower relatively soon, but not very likely right away. Detailed targets for gold and silver are available to our Subscribers.

To make sure that you are notified once the new features are implemented, and get immediate access to my free thoughts on the market, including information not available publicly, I urge you to sign up for my free e-mail list. Sign up today and you'll also get free, 7-day access to the Premium Sections on my website, including valuable tools and charts dedicated to serious PM Investors and Speculators. It's free and you may unsubscribe at any time.

Thank you for reading. Have a great and profitable week!

P. Radomski
Editor
www.SunshineProfits.com

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All essays, research and information found above represent analyses and opinions of Mr. Radomski and Sunshine Profits' associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Mr. Radomski and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above belong to Mr. Radomski or respective associates and are neither an offer nor a recommendation to purchase or sell securities. Mr. Radomski is not a Registered Securities Advisor. Mr. Radomski does not recommend services, products, business or investment in any company mentioned in any of his essays or reports. Materials published above have been prepared for your private use and their sole purpose is to educate readers about various investments.

By reading Mr. Radomski's essays or reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these essays or reports. Investing, trading and speculation in any financial markets may involve high risk of loss. We strongly advise that you consult a certified investment advisor and we encourage you to do your own research before making any investment decision. Mr. Radomski, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

This perfect indicator says a new recession could be here soon

Posted: 16 Jul 2010 09:33 AM PDT

From Pragmatic Capitalism:

The ECRI’s growth rate contracted at -9.8% this week – just 0.2% from a level that has always preceded recession (via Reuters).

"A measure of future U.S. economic growth was unchanged in the latest week," a research group said on Friday. The Economic Cycle Research Institute, a New York-based independent forecasting group, said its Weekly Leading Index stood at...

Read full article...

More on the economy:

The global recovery is faltering

This key "economic barometer" is plummeting

Budget crisis: 46 U.S. states face "Greek-style" deficits

SP 500 September Futures Daily Chart and Gold Chart at the Close: Option Expiry Bear Raid

Posted: 16 Jul 2010 09:30 AM PDT


This posting includes an audio/video/photo media file: Download Now

Guest Post: Is The Gold Trade “Crowded”?

Posted: 16 Jul 2010 09:14 AM PDT


Submitted by Jeff Clark of Casey's Report

Is the Gold Trade “Crowded”?

It’s true that GLD’s assets just passed the $50 billion mark, and that it’s the second largest U.S. ETF. Yes, mints had difficulty filling orders when the Greek crisis broke. And yes, the gold price is up nine years in a row.

But those who look at statistics like these are missing the other side of the equation. I think it’s less about how much money is already invested in gold and more about what’s available to invest. After all, one could be impressed that China, for example, invested $14.6 billion in gold over the past few years – until you realize they have $2.45 trillion sitting in reserves.

So, how much is invested in gold, and how much is available?

According to hedge fund Paulson & Co, if you added up all the money invested in gold ETFs, it would total $78.3 billion (at $1,200 gold). The amount of money currently sitting in U.S. money market funds, on the other hand, comes to $2.849 trillion.

In other words, all the money invested in gold ETFs represents just 2.7% of what is sitting in cash. Put another way, if just 5% of available money market funds ($142.4 billion) were to move into the gold ETFs, it would almost triple the current value.

But what if it’s 10%? And what if Doug Casey’s call for a modern-day gold rush comes to pass?

Those who claim the gold market is crowded will also point to Paulson’s extraordinary high percentage of funds sitting in yellow metal investments. Yes, he’s got a $3.4 billion stake in GLD – but the critics didn’t look under the hood. Most of those holdings are from the fund’s employees (including John himself), not outside investors. Not exactly an overheated trade.

To some, the amount of money invested in gold may “feel” high, but it’s a relative pittance compared to what’s sitting idly on the sidelines, waiting for a reason to move and a place to go. And when you consider that the vast majority of U.S. citizens don’t own any form of gold, this is a market that is the opposite of crowded. There is a lot of money that could hit our sector.

And it’s not just precious metal funds. I interviewed Andy Schectman of bullion dealer Miles Franklin, and Kevin Brekke, our Switzerland-based editor, told me it was the most informative interview we’ve published this year. Why? Because based on what Andy sees week after week regarding supply, he’s come to the conclusion that we’ll see a serious drought of bullion when the average citizen begins to buy gold. Meaning, if you wait to buy until everyone else does, you may find yourself out of luck. And the data I present this month backs up that claim; in fact, you may be surprised at some of the findings.

Top speculator Paulson is betting big on casinos

Posted: 16 Jul 2010 09:13 AM PDT

From The Daily Crux:

John Paulson made a name for himself as a contrarian... he earned billions betting against the subprime market in 2008, then jumped into financials and gold last year.

Now, he's making another big contrarian bet. This time, Paulson is buying beaten-down casinos – he's got positions in Harrah’s, MGM, and Boyd Gaming.

But critics suggest Paulson may be pushing his luck. As a rival fund manager said, "He was dead right being contrarian about subprime. But there are times when being a contrarian is wrong."

Read full article…

More on John Paulson:

Super investor Paulson sends gold plummeting

George Soros and John Paulson love this gold stock

Why super investor John Paulson is betting so much on gold

Gold remains great for the long haul

Posted: 16 Jul 2010 09:12 AM PDT

by Donald Luskin
Friday July 16, 2010 (SmartMoney) — I've been bullish on goldin varying degrees since 2001. Since then, the price has quintupled — from about $250 an ounce to as much as $1,250. Over the same period, stocks show a net loss.

And yet we still hear from some commentators that gold is a bad investment. Not just because it's gone up so much that maybe it's not positioned to go up more. That, at least, I could understand as an argument, though I disagree. I hear over and over that gold is always a bad investment, no matter what, when or why. In a nutshell the argument is: It's just a lump of metal, so why should you invest in it?

Self-evidently this isn't true. It's been one of the best investments you could have made over the last decade, as I just explained. It's also been one of the best investments you could have made this year. Stocks are off for the year, gold is up. In fact gold made all-time highs this year.

Yet plenty of people who are otherwise moderately accomplished investors just don't get it…

… Long-term, gold is where it's at.

[source]

RS View: Click through for the 'must read' angst-venting article of the day.

Is the Gold Trade 'Crowded'?

Posted: 16 Jul 2010 09:10 AM PDT

It's true that GLD's assets just passed the $50 billion mark, and that it's the second largest U.S. ETF. Yes, mints had difficulty filling orders when the Greek crisis broke. And yes, the gold price is up nine years in a row. Read More...



ShadowStats: CPI - Alt Running 4.3%, Gold $2,382 Silver $139

Posted: 16 Jul 2010 09:07 AM PDT

Chinese Treasury Dump Brings Holdings to 1 Year Low

Posted: 16 Jul 2010 09:03 AM PDT


Go here and read the Zero Hedge piece Chinese Treasury Dump Brings Holdings to 1 Year Low if you have not already seen it: http://www.biiwii.com/analysis

If England is allowing us to monetize our debt under some kind of covert agreement, it is probably not much different than the tools that the US would use to directly monetize its own debt, given the cozy relationship with our friends in the UK.

What is next, the seemingly way out there prospect of Congress directing individuals to hold these treasury instruments in their IRA's? You hold an IRA, you are in bed with the government as they extend to you tax benefits in exchange for your compliance and adherence to convention.

A couple years ago we put an addition on our house. How'd we fund it? A loan? Ha ha ha… regular after tax brokerage savings? Are you kidding me, I worked hard for that 'money' and paid my taxes on it. It's mine. No, I liquidated funds from the IRA's and paid the penalty and taxes up front.

I have not contributed squat to the IRA's since my financial awakening. After a financial adviser lost us 60% of our IRA's in 2000/2001 and I yanked them away to learn portfolio management on the job, they are up about 240% – adjusted for withdrawals and what not. This is the NFTRH "Speculative" (as opposed to "capital preservation") portfolio.

The main point is that I do not regard IRA's as serious investment accounts (although they are mighty convenient vehicles up until liquidation) and have been on alert for years as to stirrings in Washington about policy that may target these massive repositories in waiting should the inflators become yet more desperate for treasury buyers. England is a lurch in that direction if what Zero Hedge speculates is at all near target.

Either way, this is inflationary. The confidence in the long bond is not what the chart says it is.

Source: http://biiwii.blogspot.com/

The Real Trade of the Decade… Redux

Posted: 16 Jul 2010 09:00 AM PDT

The 5 min. Forecast July 16, 2010 10:53 AM by Addison Wiggin & Ian Mathias [LIST] [*] A follow-up to the “real” Trade of the Decade: 140,000% in April, another 1,900% now [*] The “Goldilocks economy” redefined by Fed economists… who say this economics stuff is hard [*] Checking real-world economic stats -- rail traffic, state tax receipts [*] As we prepare for Vancouver conference, media mogul advises we don’t come back [*] The ghost of George Steinbrenner looks down upon 5 readers debating estate tax [/LIST] “Goldman, those bastards.” That’s how we began these 5 Minutes on April 19, in the wake of the SEC’s civil complaint against Goldman Sachs. As we put it then, “The SEC is either stupid or corrupt for announcing their suit on options expiration Friday, the most volatile day of the month.” That’s because if you’d been lucky enough to hold April 170 Goldman put options that day, ...


Zookeepers Unite Against Behavioral Economics

Posted: 16 Jul 2010 09:00 AM PDT

Loewenstein and Ubel take aim at the jungle. They believe "behavioral economics," in which you actually watch what people do, is a threat to their trade.

"For all its insights, behavioral economics alone is not a viable alternative to the kinds of far-reaching policies we need to tackle our challenges," they write.

What sort of 'far-reaching policies?'

Well, to give you an idea. The feds came to the conclusion that it was not a good idea to let people get so fat. What to do about it?

"The fashionable response," say the two, "based on the belief that better information can lead to better behavior, is to influence consumers through things like calorie labeling."

But the latest studies show that "it has little impact." In other words, people don't seem to care. But instead of letting fully informed people make their own decisions about how fat they will be, the zookeepers want to decide for them.

The problem is that food is too cheap, they conclude. So "we need to consider taxes on unhealthful foods."

But "an over-reliance on behavioral economics is not limited to health care," they point out. Take energy consumption. The two note that merely telling drivers how much gas they're burning is not enough. The real problem is that "gas is still relatively cheap. An increase in the gas tax that made the price of gas reflect its true cost [what?] would be…far more effective."

Deconstruction: The two academics are closed-minded, meddling bumblers. Obviously, the fat person chooses to be fat and the gas-guzzler chooses to guzzle gas. Both of them have their eyes wide open. Loewenstein and Ubel merely want to substitute their own tastes and judgments for those of the native fauna. They're the zookeepers, after all.

Bill Bonner
for The Daily Reckoning

Zookeepers Unite Against Behavioral Economics originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today's markets. Its been called "the most entertaining read of the day."


EUR Shorts Plunge, As CHF Goes Net Long For Only Fourth Time In 2010, JPY At Most Bullish

Posted: 16 Jul 2010 08:53 AM PDT


The CFTC reports that in the week ended July 13, speculative EUR net positions dropped once again, this time to -27k, the lowest since mid-January, and the fastest plunge every recorded since the all time biggest net short position recorded in May. In other non-EUR pairs, net spec positions in the Yen spiked to a 2010 high at 47k, while the CHF posted its first net bullish spec exposure since January at 15k. Lastly, the decline in GBP bearishness continues dropping to the lowest since January at 35k positions. Obviously, the speculators are aggressively betting against the dollar and in favor of other crosses. Then again, with even Goldman joining the EURUSD bull crowd, we are now fairly certain the bullish trade is heavy.

EUR CFTC COT:

All other pairs:

Risk Rally Stalls, More Downside Likely

Posted: 16 Jul 2010 08:52 AM PDT

Brian Dolan submits:
  • Risk rally stalls, more downside likely

  • EU bank stress test are results keenly awaited

  • UK Inflation debate may be fuelled


Complete Story »


BIS footnote unlocks major development in gold use

Posted: 16 Jul 2010 08:51 AM PDT

BIS is taking after Cash4Gold.:haha:
Hmmm, maybe it's not so funny after all....



BIS footnote unlocks major development in gold use

By Jan Harvey and Veronica Brown
LONDON | Fri Jul 16, 2010 3:37pm BST

LONDON (Reuters) - A small footnote in the Bank of International Settlements' latest annual statement has flagged up a potentially major development in the way the metal can be used as an active financial instrument.

But its ultimate impact on the bullion market is dependent on the identity of the counterparty in the swap -- a topic still being hotly debated in the gold community in Europe.

The BIS noted in page 163 of its annual report, released in June, that its gold holdings included 346 tonnes of gold "which the bank held in connection with gold swap operations, under which the bank exchanges currencies for physical gold".

When analysts picked up on the move, it sparked a flurry of speculation over who the counterparty was, the origin of the gold, the impact on the market and what it said about the extent of bank stress at the height of Europe's sovereign debt crisis.
The BIS said the gold in question was used for "pure swap operations with commercial banks", but declined to respond to further questions from Reuters on the transaction.

The largest question mark hangs over where commercial banks would have found 346 tonnes of gold -- worth around $13.5 billion (8.8 billion pounds) at today's prices -- for such an operation.
In an interview with Reuters Television this week, GFMS Chairman Philip Klapwijk said commercial banks may have had enough unallocated gold on deposit to make up such a tonnage.

But even the largest commercial banks would struggle to trade that amount on an annual basis, and as this would be on behalf of clients, it would be unavailable for swaps.

"No commercial bank has ever had 350 tonnes of gold to swap," said Commerzbank analyst Eugen Weinberg. "Even 10 tonnes seems out of range."

If the gold were sourced from unallocated gold accounts, that would also raise questions over the viability of the bank effectively pawning its clients' gold to support itself.

RAISE CURRENCY
More likely, analysts say, is that the gold was sourced from the official sector, with a central bank loaning gold to a commercial bank or banks that used it to raise currency.

"Just as the bullion banks were the go-betweens between the producer and the bullion market in the days when there was gold hedging being done, in the same way, the producer may have now been replaced by the central bank, and the investment bank may be the conduit," said Credit Agricole analyst Robin Bhar.

The timing of the swap, which is likely to have taken place in December or January, suggests it may have been done by European commercial banks needing to source liquidity during the sovereign debt crisis of early 2010.

Of those countries on the front line of the crisis -- Portugal, Greece and Spain -- only Portugal has enough gold to have covered the swap, with 382.5 tonnes in its reserves. Portugal's central bank declined to comment on the deal.

But analysts point out that banks in the nations closest to the euro zone sovereign debt crisis are not the only ones exposed to it. Commercial banks elsewhere also have exposure to problems in southern Europe.

Until recently, the amount of gold that could be used in swap operations by European central banks was limited by the Central Bank Gold Agreement, which was designed to prevent disruption of the gold market by official sector activity.

In the first two CBGAs of 1999 and 2004, signatories agreed not to increase their activities in the derivatives and lending markets above the levels of Sept 1999. But the third pact, which came into force in September 2009, included no such commitment.
ULTIMATELY POSITIVE

So what does this mean for the gold market? The swap was first seized on as bearish, as some claimed it could lead to the BIS selling the metal on the market in the case of a default.

But the fact that the gold was mobilised for temporary financing without being sold was ultimately identified by analysts as positive.

"In conversations with clients we are consistently asked why central banks do not sell some or all of their gold to reduce their debt burden," UBS analyst Edel Tully said.

"The latest CBGA figures, in addition to wider sovereign activity, indicate that central banks do not want to sell their gold in 2010. The BIS swap operation highlights that central banks can mobilise their gold without selling it."

A lot will depend on the risk of default. If the counterparty in the transaction fails to redeem the gold, it could hit the market, with heavy consequences for prices.

The thesis that the swaps are connected to the financial crisis is one that can be tested. Analysts will be closely watching the next BIS statement in early August for signs that the swaps are rising, or being closed out.

"We can monitor its progress relative to the funding crisis, so if the euro crisis quietens down after the stress tests, it will go away," said Andy Smith, senior metals analyst at Bache Commodities. "If it blows up again, it should expand."

(Editing by Sue Thomas)
Market Analysis



http://uk.reuters.com/article/idUKLNE66F03J20100716

Why Ricardian Equivalence Is Nonsense

Posted: 16 Jul 2010 08:47 AM PDT

Edward Harrison submits:

By Marshall Auerback and Edward Harrison.

Marshall’s view

Ed has asked me to deal specifically with the issue of Ricardian equivalence, the theorem used by anti-government proponents to argue that fiscal deficits are counterproductive and that cutting deficits in the middle of a recession will actually be good for the economy. It suggests that when a government tries to stimulate demand by increasing debt-financed government spending, demand remains unchanged. This is because the public will save its excess money in order to pay for future tax increases that will be initiated to pay off the debt. The mainstream presumption, then, is that agents won’t spend extra income from a tax cut as they ‘know’ there will need to be a tax hike later to keep the budget balanced. The mainstream would also be concerned that the higher government deficit would somehow ‘crowd out’ private borrowing.


Complete Story »


Reuters actually puts gold questions to BIS, which clams up

Posted: 16 Jul 2010 08:33 AM PDT

BIS Footnote Unlocks Major Development in Gold Use

By Jan Harvey and Veronica Brown
Reuters
Friday, July 16, 2010

http://uk.reuters.com/article/idUKLNE66F03J20100716

LONDON -- A small footnote in the Bank of International Settlements' latest annual statement has flagged up a potentially major development in the way the metal can be used as an active financial instrument.

But its ultimate impact on the bullion market is dependent on the identity of the counterparty in the swap -- a topic still being hotly debated in the gold community in Europe.

The BIS noted in Page 163 of its annual report, released in June, that its gold holdings included 346 tonnes of gold "which the bank held in connection with gold swap operations, under which the bank exchanges currencies for physical gold."

... Dispatch continues below ...


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When analysts picked up on the move, it sparked a flurry of speculation over who the counterparty was, the origin of the gold, the impact on the market and what it said about the extent of bank stress at the height of Europe's sovereign debt crisis.

The BIS said the gold in question was used for "pure swap operations with commercial banks" but declined to respond to further questions from Reuters on the transaction.

The largest question mark hangs over where commercial banks would have found 346 tonnes of gold -- worth around $13.5 billion (8.8 billion pounds) at today's prices -- for such an operation.

In an interview with Reuters Television this week, GFMS Chairman Philip Klapwijk said commercial banks may have had enough unallocated gold on deposit to make up such a tonnage.

But even the largest commercial banks would struggle to trade that amount on an annual basis, and as this would be on behalf of clients, it would be unavailable for swaps.

"No commercial bank has ever had 350 tonnes of gold to swap," said Commerzbank analyst Eugen Weinberg. "Even 10 tonnes seems out of range."

If the gold were sourced from unallocated gold accounts, that would also raise questions over the viability of the bank effectively pawning its clients' gold to support itself.

More likely, analysts say, is that the gold was sourced from the official sector, with a central bank loaning gold to a commercial bank or banks that used it to raise currency.

"Just as the bullion banks were the go-betweens between the producer and the bullion market in the days when there was gold hedging being done, in the same way the producer may have now been replaced by the central bank, and the investment bank may be the conduit," said Credit Agricole analyst Robin Bhar.

The timing of the swap, which is likely to have taken place in December or January, suggests it may have been done by European commercial banks needing to source liquidity during the sovereign debt crisis of early 2010.

Of those countries on the front line of the crisis -- Portugal, Greece, and Spain -- only Portugal has enough gold to have covered the swap, with 382.5 tonnes in its reserves. Portugal's central bank declined to comment on the deal.

But analysts point out that banks in the nations closest to the euro zone sovereign debt crisis are not the only ones exposed to it. Commercial banks elsewhere also have exposure to problems in southern Europe.

Until recently the amount of gold that could be used in swap operations by European central banks was limited by the Central Bank Gold Agreement, which was designed to prevent disruption of the gold market by official sector activity.

In the first two CBGAs of 1999 and 2004, signatories agreed not to increase their activities in the derivatives and lending markets above the levels of Sept 1999. But the third pact, which came into force in September 2009, included no such commitment.

So what does this mean for the gold market? The swap was first seized on as bearish, as some claimed it could lead to the BIS selling the metal on the market in the case of a default.

But that the gold was mobilised for temporary financing without being sold was ultimately identified by analysts as positive.

"In conversations with clients we are consistently asked why central banks do not sell some or all of their gold to reduce their debt burden," UBS analyst Edel Tully said. "The latest CBGA figures, in addition to wider sovereign activity, indicate that central banks do not want to sell their gold in 2010. The BIS swap operation highlights that central banks can mobilise their gold without selling it."

A lot will depend on the risk of default. If the counterparty in the transaction fails to redeem the gold, it could hit the market, with heavy consequences for prices.

The thesis that the swaps are connected to the financial crisis is one that can be tested. Analysts will be closely watching the next BIS statement in early August for signs that the swaps are rising, or being closed out.

"We can monitor its progress relative to the funding crisis, so if the euro crisis quietens down after the stress tests, it will go away," said Andy Smith, senior metals analyst at Bache Commodities. "If it blows up again, it should expand."

* * *

Join GATA here:

New Orleans Investment Conference
Wednesday-Saturday, October 27-30, 2010
Hilton New Orleans Riverside Hotel
http://www.neworleansconference.com/redirect.php?page=index.html&source_...

* * *

Support GATA by purchasing a colorful GATA T-shirt:

http://gata.org/tshirts

Or a colorful poster of GATA's full-page ad in The Wall Street Journal on January 31, 2009:

http://gata.org/node/wallstreetjournal

Or a video disc of GATA's 2005 Gold Rush 21 conference in the Yukon:

http://www.goldrush21.com/

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Help keep GATA going

GATA is a civil rights and educational organization based in the United States and tax-exempt under the U.S. Internal Revenue Code. Its e-mail dispatches are free, and you can subscribe at:

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To contribute to GATA, please visit:

http://www.gata.org/node/16


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Prophecy to Become Coal Producer This Year
with 1.5 Billion Tonnes of Resource

Prophecy Resource Corp. (TSX.V: PCY) announced on May 11 that it has entered into a mine services agreement with Leighton Asia Ltd. to begin coal production this year. Production will begin with a 250,000-tonne starter pit as planned in August, with production advancing to 2 million tonnes per year in 2011. Prophecy is fully funded to production and its management team includes John Morganti, Arnold Armstrong, and Rob McEwen.

For Prophecy's complete press release about its production plans, please visit:

http://www.prophecyresource.com/news_2010_may11.php

Market Loses Nearly Half Of Short Covering Relief Rally In A Few Hours On High Volume, And A LHLL Deja Vu

Posted: 16 Jul 2010 08:25 AM PDT


Once again the actual value of accumulation volume can be seen today: after a 10 days short covering rally on fumes pushed the market higher by nearly 7%, one day alone was sufficient to cut the rally almost in half. The bounce is now back to the half way point of the most recent decline, and just above the half way point of the bounce, at just under 1,060. It appears Goldman's technical charting on the 55/200 DMA cross was spot on.

Note that this chart is just a little date, as stocks closed at 1,062.50

And yes, as usual, the volme on down days is incomparably higher than that of up days.

Lastly, note not only the Lower Highs, Lower Lows, but that the market is repeating the identical drop regime as was seen during the last plunge.

 

Hamptons Weekend Ruined, Hedge Fund Managers Enraged

Posted: 16 Jul 2010 08:03 AM PDT


Another slapdown in equities where 6 days worth of longs were wiped out in one fell swoop.  Instead of a killer weekend at The Hamptons, now the hedge fund managers will head to the Jersey shore and pick up some low grade hookers.  And after failing to unload all their holdings at the 200-day for the second time in a row, many managers are likely to "Go Gibson" on their weekend escorts.

Pretty much a chain-selling event across the board today.  Some big names were obliterated to fresh, 52-week lows:

After getting a week's profits blown out in one day, the despondent "Alpha Dog" hedge fund managers will be trolling for some skanks:

 

 

And no doubt, they will have to vent by finding something to complain about, like fake breasts

 

Here's Mel's take on the fakes:

 

And more than likely, these guys are bound to get wound up so tight, they will start hyperventilating like Mel did here:

 

It's all part of the "Get Rich Quick, then Lose It All" climate these guys live in.. One day, they feel like they are on top of the world, the next day, it feels like the end of the world. The Jersey Hookers better brace themselves..... LOL....
at

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