Red-Hot Resources

Re-Direct to My UncommonWisdomDaily Blog

2009-02-03T13:30:00.004-05:00

Due to time constraints, I have to stop publishing to this blog and focus my efforts on my UncommonWisdomDaily blog. I'll come back to this one down the road, probably, if there are things I can't fit on UncommonWisdomDaily.com. But for now, I have to redirect traffic to: http://blogs.uncommonwisdomdaily.com/red-hot-energy-and-gold/

That's a rather long and clunky web address, so if you want a tinyurl address, here you go: http://tinyurl.com/dxfyhs

It's the same great blog (perhaps without the worst of my sophomoric attempts at humor) with lots of charts and plenty of analysis of the natural resource markets. So please be sure to bookmark it.

Thanks, Sean

Will January Haunt Us?

2009-02-02T11:52:00.000-05:00

The babbling heads are atwittter with the terrible statistics on January — the Dow closed down 8.8% for the month and the S&P dropped 8.75%. And if you measure from January 2nd (first trading day of the New Year) and not December 31st, the Dow dropped 11.4% and the S&P 500 shed 11.3%.

The Wall Street standard is that if the S&P falls in January then it will fall for the rest of the year. Since 1969 this trend has been repeated 32 of a possible 39 times.

Other statistics:

Dow Jones Industrial Average: Since 1897, the Dow ’s full year has followed its January direction 72.3% of the time.

S&P 500: Since 1929, the S&P’s full year performance has followed January 76.3% of the time.

Nasdaq: Since 1970, the Nasdaq’s full year moves in the same direction as January 75.7% of the time.

The logic behind this is simple. Traders have a nose for trouble and they start selling a bad year early.

Hey, you know what had a good January? Gold ended the month up 5.2%, despite the fact that it closed down as much as 8% on January 14th.

Today gold is down about $10 as I write this, but holding support at $900. Will it continue to hold support? Stay tuned.

Here is some other news of interest …

Natural Gas Glut Could Hit U.S. As many as seven massive natural gas export terminals are expected to start up overseas this year, expanding worldwide capacity by 20 percent and flooding markets with new supplies of the key power plant and heating fuel. Dozens of new tankers capable of carrying natural gas in a liquefied form are slated to hit the seas. Just as these new supplies come on line, worldwide demand is expected to drop as the global recession deepens.

Wind turbine firms feel downturn’s pinch Last summer, wind turbine manufacturers couldn’t make parts fast enough to meet demand. Now, industry executives say, financing has all but disappeared because of the economy, causing some planned projects to be put on hold. Unless there’s a robust economic rebound, or the government steps in, they say, construction of wind turbines nationwide will be set back, and the companies that make turbine parts could be forced to cut jobs.

Zimbabwe Removes 12 Zeroes From Currency in Bid to Quell Black Market Zimbabwe, which has the world’s highest inflation rate, slashed 12 zeroes off its currency and announced measures to make trade in foreign exchange more transparent, Gideon Gono, the central bank governor, said.

Investment Planned for Australia Drops to $392 Billion as Miners Pull Back Planned investment in Australia dropped for the first time in four years as mining companies scaled back production because of the global economic slowdown, Access Economics said.

2008 Was Worst for Consumer Spending in 47 Years A Commerce Department report showed spending by individuals fell 1% last month, after dropping a revised 0.8% in November. Economists surveyed by Briefing.com had forecast a 0.9% drop.

Gold Soaring … And So Is Cost of Bailout

2009-01-30T12:54:00.003-05:00

Gold soared this morning, so I feel vindicated, if not fine.
You saw the gold chart I posted yesterday. Today’s chart is more of the same, only with surging volume, as gold rises to a 3-month high.

That’s usually a bullish sign. The question before us now is, is this a real breakout or the mother-of-all fakeouts? Remember, this is happening when the U.S. dollar is also very strong, and currency markets are much bigger than the metals markets.
I think it’s a risk worth taking. We’ll have to move fast if gold is lying to us, though, so if you’re one of my subscribers, stand by.
Now, here is news you can use for this Friday …
Goldman Sachs says the cost of shoring up banks could run as high as $4 trillion. That’s up from the $1.5 trillion already spent specifically on banks. Why, why, WHY aren’t we proceeding with a Resolution Trust Corporation solution to this? Like the one we used in the Savings & Loan Crisis in 1989. Instead, we keep pouring good money after bad. Yes, an RTC solution would cost money but not as much money as this cockamamie bailout we’re seeing now, and it would mean an end to the whole mess. Right now, the bailout is open-ended. How are we supposed to pay back another $4 trillion? The US economy is shrinking, tumbling the most since 1982.
And that, my friends, is one reason why gold is taking off.
Meanwhile, California — the world’s eight largest economy – is so broke that the state is going to start sending out IOUs. This despite the fact that the governator is going to furlough ALL of the state’s rank-and-file employees for two months. He’d better not furlough the prison guards, because once you stop sending poor people their food stamps, what else do they have to lose? I have to think the chance of riots in California is rising. Meanwhile, California is dealing with the worst drought in its history.
Another sign of impending apocalypse — scientists have invented carnivorous robots. It’s only a hop, skip and a jump to Skynet and the Rise of the Machines.
On the lighter side, here are some cool electric concept cars. Let’s hope we don’t end up too bankrupt to afford them.

A Lot Happened While I Was Away

2009-01-29T12:05:00.003-05:00

Chart of the ever-lovin’ day …

This chart is just the beginning of the new report I just sent to my Red-Hot Global Small-Caps subscribers, “3 Red-Hot Picks From Vancouver.” If you’re a subscriber, look in your in-box. If you’re not a subscriber, you can change that pretty quickly and act on these three recommendations immediately: click here.

Anyway, I’m back from Vancouver. Here are some of the things that caught my eye while I was away …

First, the Guardian in the UK gives us

“25 People at the Heart of the Meltdown.” It’s a bit British-heavy, but that’s understandable for a paper published in London. But why’d they leave out Robert Rubin? Maybe I should make my own list.

Meanwhile, John Hempton at Bronte Capital believes the

Fed should literally try throwing money out of helicopters. I have to believe there are aspects to that plan that he is just not thinking through.

Now for the story that caused steam to come out of my ears in my Vancouver hotel room. Remember how the US taxpayers have bailed out Citigroup (

C: 4.06 -0.14 -3.33%) with $45 billion of our hard-earned money? Well, Citi turned around and was going to buy a $50 million corporate jet from France.

Citigroup is one of the biggest recipients of TARP funds. It received $25 billion under the original payout late last year and received another $20 billion after its stock started to sink in November. It also got the government to backstop some $306 billion in troubled assets on its books. <>So, naturally, buying a $50 million corporate jet is the only thing to do <>

Perhaps I missed it because I was running around Vancouver like a crazy man, but I didn’t see this story on CNBC. Maybe that’s because back in 2007 — almost exactly two years ago – CNBC’s

Maria Bartiromo got in some hot water for taking Citi’s corporate jet with then Citi-executive Todd Thomson.

Oh, wait, look here: CNBC prints an AP story that

Citi will not take possession of the new jet. That story ran at 8:04 pm the day the scandal broke. Yeah, hot on the trail of that one!

And it’s not that Citi suddenly developed a sense of shame.

ABC News reports that Obama administration officials called Citi execs about the jet and told them to “fix it.”

Now, don’t you go feeling sorry for the Citi execs. Even after reducing the size of their air fleet, they STILL have two jets.

In other news, the

Congressional Budget Office compared the economic downturn we’re experiencing today to the Great Depression. Does that make it official? Someone find out for me.

Now for three non-business stories that interested me and may interest you …

1) Here is some comic relief if you have a weird (gallows) sense of humor:

An Interview With The Central Banker of Zimbabwe. And if you think a trillion is a large number when applied to currency, brace yourself for “sextillion.” I assume the central banker of Zimbabwe didn’t scream that number while spitting blood and tearing his hair out in clumps, so you’ve got to admire his coolness in crisis.

2) It will surprise many leaders in the business community (but should surprise no one) that

Free Monty Python Videos on Youtube Lead to 23,000% DVD Sale Increase. Why does that work? Because no one wants to watch bad-quality YouTube videos for very long.

3) The headline says it all: Pakistani Taliban Turns Honeymoon Spot into Slaughterhouse. Such lovely people. And yes, that was sarcasm.

Friday Morning Roundup

2009-01-23T10:29:00.004-05:00

I’m busy getting ready for my trip to Vancouver and the 2009 Vancouver Resource Investment Conference this weekend. So I’ll keep this brief.

First, a chart of Agnico-Eagle Mines (AEM: 54.18 +2.92 +5.70%). This will be of interest to my Red-Hot Global Small-Caps subscribers as well as anyone who bought by “Golden Parachute for 2009″ report …

Gold Hits 3-Week High on Safe-Haven Demand Gold has breached well above its 200-day moving average against both the euro and the dollar, but the metal remains 11% lower than its 200-day moving average in yen terms. “Since there remains ample upside in yen terms, Japanese investors may deem this as an opportunity to drive up the metal to next key targets, thus prompting global investor demand further higher,” Laidi said.

In other news, I was just on the radio talking to The Big Money Show out of Denver Colorado and promised to put up a chart of vehicle miles driven year over year … which right now are falling off a cliff.

Here you go …

Source: http://www.calculatedriskblog.com/

Briefly, the decline in miles driven is worse than during the early ’70s and 1979-1980 oil crisis. Miles driven in November 2008 were 5.4% less than November 2007, so the YoY change in the rolling average may get worse.

Now for a few Weekend ReadingLinks …

Macroblog takes a look at charts showing Presidents and where they started with GDP, unemployment, CPI and industrial production. Needless to say, President Obama has his work cut out for him. The charts are eye-popping. Here is one …

Now take a look at the rest.

Here are three (probably) good books about how Wall Street Bankers got us into the mess we’re in. The details in the book review alone will set your teeth on edge.

It turns out the NSA spied on everyone — EVERYONE — during the Bush administration. Who could have predicted that if you lifted the restraints on America’s internal spying apparatus, they would suddenly turn into the KGB? Well, just about everyone to the left of Pat Buchanan could have predicted it, but we were written off as fools and liars by the mainstream media. Now, I predict a boom for security software.

Finally, in a lighter note, apparently, some dung beetles are sick of eating crap and have decided to turn carnivore. It’s evolution in action. Fascinating. Go, beetles! Make sure you get a cool new name. I’d suggest Velociraptor Beetle. That’ll get you more respect at the bug club.

That’s it for this Friday. The broad indices are down, oil is sliding and gold and the dollar are up. We’ll see where we go from here.

Gold Near Make-or-Break Point

2009-01-22T16:04:00.002-05:00

The gold stock I recently recommended in Red-Hot Global Small Caps is doing well, but be careful. I’m watching gold like a hawk as it pushes up against overhead resistance …

Looking at a weekly chart, we can see that gold is still in a downtrend. It needs to break out of that downtrend for gold stocks to really take off.

As I explained in the RGS issue that went out today …

“Investors around the world are scared out of their pants by the financial crisis. So, they’re rushing into the U.S. dollar, even though the U.S. Treasury is printing money so fast I’m surprised the presses don’t catch on fire. And people are rushing into gold because you can’t print more of it. It is a flight from risk to safety. This is good for gold and big gold miners with plenty of cash that are leveraged to the price of gold.”

In other news …

Chinese Growth Plunges China’s economy expanded at the slowest pace in seven years as the global recession dragged down exports, increasing pressure for more government spending and lower interest rates to buoy growth. Gross domestic product grew 6.8 percent in the fourth quarter from a year earlier, after a 9 percent gain in the previous three months, the statistics bureau said in Beijing today.

The Chinese Devil Wears Prada: Why 0% Growth is the New Size 6.8% Indeed if one were to convert the 6.8% y-o-y figure in the more standard quarter over quarter annualized figure Chinese growth in Q4 would be close to zero if not negative.

Gold, Precious Metals Climb in New York as Investors Seek Out Safe Harbors Gold rose, along with silver, platinum and palladium as investors sought a store of value amid tumbling New York and European equity markets.

Potash Corp. Fourth-Quarter Profit More Than Doubles as Prices Increase Potash Corp. of Saskatchewan Inc., the world’s largest fertilizer producer by market value, said fourth-quarter profit more than doubled because of higher potash prices.

Summary of Weekly Petroleum Data for the Week Ending January 16, 2009 U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased 6.1 million barrels from the previous week. At 332.7 million barrels, U.S. crude oil inventories are above the upper limit of the average range for this time of year. Total motor gasoline inventories increased by 6.5 million barrels last week, and are at the upper limit of the average range. Both finished gasoline inventories and gasoline blending components inventories increased last week. Distillate fuel inventories increased by 0.8 million barrels, and are above the upper limit of the average range for this time of year.

Wednesday Roundup

2009-01-21T13:01:00.001-05:00

Here’s a scary chart from the Council on Foreign Relations, showing that foreigners are buying far fewer long-term US bonds than they used to.

You can draw your own conclusions.

Meanwhile, just how bad off is Chrysler? So bad off that, when Fiat basically gets a third of the company for no money, we still have to loan them $3 billion to make it happen.

For the record, I would take a third of Chrysler off someone’s hands if they would loan me $3 billion to do it. And here’s a suggestion: Why don’t we put Fiat in charge of our entire auto industry? They obviously know how to swing an advantageous deal.

Here’s a link to an amazing satellite image of yesterday’s crowd on the Mall in Washington D.C. at the Presidential inauguration. The dark clumps on the mall are people clustered around the Jumbotron TV screens.

One of our analysts, Amber Dakar, attended the inauguration. She, her mom and friends had to get up at 2 am to get to the Mall at 4 am. They then stayed through the bitter cold till the end. She told me this morning: “Now, we’re all sick, but it was GREAT!”

Here’s another meaningless Election/Politics/Market statistic/chart. I only link to it because it will likely be popular and one of your friends may buttonhole you and start yapping about it. The correct response: “It’s meaningless.”

It’s not that I hate Thomas Friedman — it’s hard to hate a person you haven’t even met in the flesh — it’s that I hate the fact that my otherwise-brilliant friends and family are snookered by such a pompous bag of wind. Matt Taibbi sums up my feelings on Friedman’s latest book.

I wrote a MoneyandMarkets.com piece about oil. In the short-term, I think it’s going lower. The longer-term forces are still there, but when will the next push higher begin? That’s the trillion-dollar question.

Momentous Day

2009-01-20T13:52:00.001-05:00

Great speech by President Obama today. See how he addressed the core crises facing America today …

That we are in the midst of crisis is now well understood. Our nation is at war, against a far-reaching network of violence and hatred. Our economy is badly weakened, a consequence of greed and irresponsibility on the part of some, but also our collective failure to make hard choices and prepare the nation for a new age. Homes have been lost; jobs shed; businesses shuttered. Our health care is too costly; our schools fail too many; and each day brings further evidence that the ways we use energy strengthen our adversaries and threaten our planet. These are the indicators of crisis, subject to data and statistics. Less measurable but no less profound is a sapping of confidence across our land - a nagging fear that America’s decline is inevitable, and that the next generation must lower its sights. Today I say to you that the challenges we face are real. They are serious and they are many. They will not be met easily or in a short span of time. But know this, America - they will be met.

Aside from politics, there is plenty of interesting news …

Story #1– Why GM shouldn’t get another dollar of bailout money. “GM Using Bail Out Money to Invest in Brazil!”

General Motors plans to invest $1 billion in Brazil to avoid the kind of problems the U.S. automaker is facing in its home market, said the beleaguered car maker. According to the president of GM Brazil-Mercosur, Jaime Ardila, the funding will come from the package of financial aid that the manufacturer will receive from the U.S. government and will be used to “complete the renovation of the line of products up to 2012.”

Story #2 — Chrysler is selling a third of itself for NO MONEY. I guess that means we should be able to go buy new Chrysler cars for a bag of chips and the coins I can find under my sofa cushions. “Fiat Nearing a Deal for Chrysler Stake”

The deal could give Fiat control of 35 percent of Chrysler by later this year and possibly raise its stake in the American company to as much as 55 percent.

Story #3 — Failing Upwards. Check out the executive compensation of notorious Wall Street CEOs in a piece from EconBrowser called “Executive Compensation” …

Bear Stearns: $34 million for CEO James Cayne. The acknowledged direct cost to the taxpayers from Bear’s demise so far is $2.7 billion; ten times that number may be a more reasonable assessment of the actual cost.
Lehman Brothers: $27 million for CEO Richard Fuld. The financial freeze that followed the collapse of Lehman is seen by many as the key event that turned the recession of 2007-08 into the frightening freefall currently under way.
Citigroup: $25 million for CEO Charles Prince. Citi’s stock price has since fallen from $50 a share to $3.50.
Countrywide Financial: $43 million for CEO Angelo Mozilo. According to Ashcraft and Schuermann, Countrywide was at that time the nation’s leading issuer of subprime mortgage-backed securities and the third biggest originator of subprime mortgages.

Other News I’m Reading …

Putin Orders New Budget with $41 Oil The Finance Ministry must base the budget on the price of $41 per barrel, or less than half of the $95-per-barrel estimate that is a cornerstone of the existing budget…A Finance Ministry spokesman said the prices were for Russia’s main Urals blend.

Analysts Cut Estimates by Record as S&P 500 Gets Off to Second-Worst Start

The Standard & Poor’s 500 Index is off to its second-worst start, shattering the biggest rally since World War II, as analysts cut earnings estimates by a record 83 percentage points and companies signal worse to come. The benchmark index for U.S. equities fell 5.9 percent in the first 11 trading days of 2009, second only to last year’s 6.5 percent drop, according to data compiled by Bloomberg going back to 1928. The decline erased about half of a 24 percent rally since Nov. 20 as optimism that government spending would revive the economy evaporated.

Roubini Predicts Bank Losses May Reach $3.6 Trillion as System ‘Insolvent’ U.S. financial losses from the credit crisis may reach $3.6 trillion, suggesting the banking system is “effectively insolvent,” said New York University Professor Nouriel Roubini, who predicted last year’s economic crisis.

Pemex’s Crude Oil Production Declines at Fastest Rate Since World War II Petroleos Mexicanos, Mexico’s state oil company, will probably report its fastest drop in production since 1942, eroding revenue as plunging crude prices limit the amount of cash available to drill for new reserves.

China Faces Worst Unemployment in Decades as Economy Cools, Exports Slump China’s official urban unemployment rate jumped for the first time since 2003 and may climb to an almost 30-year high as exports slump and a slowdown deepens in the world’s third-biggest economy.

Getting Ready for a 3-Day Weekend

2009-01-16T17:31:00.002-05:00

What a busy day! And the market couldn't make up its mind which way to go. Monday, the market is closed. We prepared for this by grabbing some gains and also adding a new position in Red-Hot Global Small-Caps.

Here is a link to my latest video on MaM-TV
http://www.moneyandmarkets.com/MAM-TV/mam-tv.php

And here is my latest interview on HoweStreet.com (it went live yesterday)
http://www.howestreet.com/index.php?pl=/goldradio/index.php/mediaplayer/1085

Have a great weekend.

Oil Drop -- Quicker Than I Thought

2009-01-15T13:34:00.005-05:00

I thought we were getting to $33 oil, I just didn't think it would happen so fast. Oil is trading at $33 and change, down $3.67 as I write this. Traders are blaming a lower demand outlook from OPEC, but I think it's a combination of deflation, demand destruction and too much oil in storage, as I mentioned in yesterday's post.

From the Bloomberg story:

OPEC said that demand for its crude will decline 4.2 percent this year as the recession in the U.S., Europe and Japan curbs fuel use.
Consumption of OPEC supplies will shrink 1.4 million barrels to 29.5 million barrels a day, according to a monthly report released today. U.S. fuel demand fell 6 percent
last year, the biggest drop since 1980, as prices touched records and the economy contracted, the industry-funded American Petroleum Institute said today.

In Other News ...

Oil Collapse Forces Gulf Nations to Run Deficits, Cut Foreign Investment Tumbling oil prices are forcing many of the richest Persian Gulf states to record budget deficits and limit a critical source of foreign investment for poorer Arab countries.

Gold mine production down but costs up 24% world-wide Producers' total cash costs rose by 22% year-on-year to an average of $472/ounce for the nine months of 2008, while total production costs were also up by 22% at $591/ounce. The figures for the third quarter of 2008 alone record an increase of 25% year-on-year in cash costs and a 24% in production costs.

S.Africa gold output falls 8.7 pct yr/yr in Nov. South African gold output has fallen since state-owned power utility Eskom 1/8ESCJ.UL 3/8 suffered a near collapse in the electricity grid last January.

Four Bad Bear Markets Update
When looking at this chart, be aware that the Great Depression crash is based on the DOW; the three others are for the S&P 500.

Sean's note: The S&P as of yesterdy was down 45.2% in the current bear market (and up 12% from its November low). I think we're going back to visit the November low.

Food Prices Overcooked Given Corn's Decline, Fuel Group Says: Chart of Day Food prices should be lower, given the decline in commodities such as corn and crude oil the past six months, according to Robert Dinneen, president of the Renewable Fuels Association.

China Passes Germany to Become Third-Biggest Economy Gross domestic product expanded 13 percent from a year earlier, more than a previous estimate of 11.9 percent, to 25.731 trillion yuan ($3.38 trillion), the statistics bureau said on its Web site today. That topped Germany’s 2.424 trillion euros ($3.32 trillion), using average exchange rates for 2007.

Why Oil Should Go Lower

2009-01-14T15:01:00.002-05:00

I think oil will go lower from here. I was supposed to go on FOX Business to talk about it but got pre-empted by endless videos of Bernie Madoff going to and from court. So, here is the case I was going to make … My current oil target is $33.

Oil for delivery in future months usually costs a few dollars more than near-term delivery. That’s called Contango. A barrel of oil that costs you $36.72 today is priced at $52.35 in July. That’s over a $15 difference -- “super-contango.”

This is why so much oil is in storage. People are taking delivery, storing it and selling it later.

Obviously, oil producers could do this by just pumping less now (and “storing” oil in the ground). Instead, many OPEC countries continue to pump near flat-out.
I believe this shows that OPEC producers are desperate for cash. This should keep downward pressure on oil prices.

Other points:

The US Energy Information Administration lowered its 2009 World Oil Demand Forecast. The EIA says world oil demand will drop by 810,000 barrels per day in 2009 compared with last year, down 200,000 bpd from its estimate in December.
Crude oil, gasoline and distillate inventories continue to rise. Today, crude inventories at Cushing, Okla., the delivery point for crude futures traded on the New York Mercantile Exchange, rose 2.5% (1.2 million barrels) to 33 million barrels, up 20% in four weeks. While this is less than estimates, the inventories level is approaching Cushing’s operable storage capacity of about 34 million barrels, as estimated by Platts.
The last four week running average net import number was 11.5 million barrels per day (mbpd). This was 700,000 bpd below the annual average number for 2007, and 400,000 bpd below the net import number for second week of January, 2007 and January, 2008 (all four week running averages). But it’s not enough to raise prices! It’s pretty clear that the decline in demand is outpacing the long term decline in net oil exports.

And that should keep downward pressure on prices. But it also gives us potential signal as to when the downward spiral will end. We’ll probably see the super-contango end before prices go higher again.

Following Up on Some of Yesterday’s Trades

2009-01-13T13:23:00.003-05:00

Yesterday I added some positions to play a potential rally in the U.S. dollar and short-term decline in gold. Let’s look at some of those trades …

UUP aims to track twice the daily movement in the U.S. dollar versus a basket of currencies. Yesterday was a good day to add it. It gapped higher today and should keep running.
Now, let’s look at the DRR, which tracks twice the INVERSE of the movement in the euro …

This one also gapped higher, naturally, because the euro has been acting like the “anti-dollar” lately. Notice how it went even higher this morning, then banged its head on its 50-day moving average and pulled back. It could take a few days to work through that 50-day MA, and I’ll keep an eye on it.
Now, let’s look at gold, as tracked by the GLD …

The GLD gapped lower yesterday. It tried to rally today, but that rally seems to be running out of steam. In the short-term, I expect it to go lower, and the 50-day moving average makes a good initial target.
Actually, gold is holding up pretty well considering the rally in the U.S. dollar. It just goes to show that nothing correlates perfectly in this market.
In one service, I also recommended getting short banks by buying the SKF. That is in slightly negative territory so far today, but I still think it’s a good bet.

More Thoughts on Unemployment

2009-01-12T07:54:00.006-05:00

Most economists ridicule the idea that what we're experiencing now could ever become anything like the Great Depression. And, says Reuters, they all point to the same statistic: 25% of Americans were out of work in the worst of the 1930s and we're nowhere near that level of disaster.
But the definition of joblessness has changed since then. Since 1994, the official rate is what the BLS has called U3. It now stands at a 16-year high of 7.2%.
But the BLS provides an alternative measure of unemployment, which rarely gets mentioned. That particular measure is labeled U6, which the BLS categorizes as "Total unemployed, plus all marginally attached workers, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all marginally attached workers."
So what's U6 currently? As of Friday, it's 13.5%, which is a 0.9% rise over last month. Last year at this time it was 8.7%.Nobel prize-winning economists says that U6 measures far more accurately than U3, and is closer to the historical measure than U3. The good news is U6 is not at 25%. However, the nation lost 524,000 jobs in December. And job losses in November were huge, too.
And that’s starting to scare some of the smart people …

“These numbers, back to back, of more than a half million a month suggest that the U.S. economy is in a freefall,” said Nariman Behravesh, chief economist at IHS Global Insight. “It’s scary, and it indicates that unless something is done and done quickly to turn this economy around, we’re looking at an awful situation this year.”
Also …
“This is unprecedented,” said Mark Zandi, chief economist of Moody’s Economy.com. “It’s coast to coast. It’s everywhere. There’s really no refuge in this job market. There’s no safe place.”Here are some charts of interest …

But all is not lost. The Canadian dollar seems to be holding up well, as are some other currencies.

It sure looks like the Canadian dollar could be poised to break out to the upside. How can this be when the global economy seems to be spiraling deeper into recession?

That disconnect is something I'll be exploring in future issues.

IN OTHER NEWS

Saudi to cut output below OPEC target: Reuters
Top exporter Saudi Arabia plans to cut oil output by up to 300,000 barrels per day below its agreed OPEC target – a pro-active step to prop up a collapsing market, industry sources said on Sunday.
OPEC's most influential member has lowered supply this month to 8 million bpd, meeting its target under OPEC's pact to reduce overall production by a record amount from Jan. 1.
“We've been told Saudi Arabia will cut to about 7.7 million in February,” said a senior oil executive. “They want to prevent a huge stock build up and a further decline in the oil price.”

Exposing the Myth of Clean Coal Power
The "clean coal" campaign was always more PR than reality — currently there's no economical way to capture and sequester carbon emissions from coal, and many experts doubt there ever will be. But now the idea of clean coal might be truly dead, buried beneath the 1.1 billion gallons of water mixed with toxic coal ash that on Dec. 22 burst through a dike next to the Kingston coal plant in the Tennessee Valley and blanketed several hundred acres of land, destroying nearby houses. The accident — which released 100 times more waste than the Exxon Valdez disaster — has polluted the waterways of Harriman, Tenn., with potentially dangerous levels of toxic metals like arsenic and mercury, and left much of the town uninhabitable.

U.S. Consumers Keep Autos Longer, Shun Showrooms as Cuts in Payrolls Mount
Drivers rattled by the worst U.S. labor market since World War II are hanging on to old autos longer instead of buying new models, threatening to crimp sales again in 2009 after demand plummeted to a 16-year low.

India Industrial Output Gains 2.4%, Rebounding From First Drop in 15 Years India’s industrial production unexpectedly rose in November, after declining in the previous month for the first time in 15 years amid a global recession.

Oil Drops Below $40 on Speculation Slump in Demand Will Outpace OPEC Cuts Crude oil fell below $40 in New York on concern production cuts by the Organization of Petroleum Exporting Countries will fail to counter a slump in demand.

Smoke and Mirrors

2009-01-09T08:19:00.006-05:00

Today, everyone will be talking about the fact that the U.S. lost 524,000 jobs in December. While this means 2008 saw the most job losses since 1945, 524,000 is way, way lower than traders on the floor were expecting. Numbers like 700,000 or even 800,000 jobs lost were bandied about.
Chart source: Calculated Risk.

So today's number is good news, right? Not exactly. The umployment rate now clocks at 7.2% versus a forecast of 7%. That's because of upward revisions to previous months' jobs lost figures.

And that brings up the next problem. December's number is so low that many people (including me) don't believe it. It could be smoke and mirrors from a government that doesn't think we can handle the truth. I expect we'll December's number revised in the future. After all, state unemployment claims systems are being overwhelmed by new filings. Things are so bad in Michigan that people are waiting in line four hours to file for unemployment. I think a lot of unemployed got left out of last month's number.

In other news, Citigroup has agreed to a "cramdown" of existing mortgages. This is probably a necessary step in the ongoing adjustment of the housing market.

And December's retail numbers are in and were worse than predicted. Even discount chains like Wal-Mart missed their targets. Driving this, a huge decline in consumer credit. Consumer credit shrank at 16 TIMES what was predicted! And the debt to income ratio has dropped by 2.5% in just 4 months!

Consumer credit fell $3.6 billion in October, split between a $0.2 billion decline for revolving credit and a $3.4 billion decline for nonrevolving debt.

In the long run, consumers shedding debt is a good thing. We may be seeing the first steps in a re-alignment of our system from one that is based on debt to one that is based on savings. But in the short run, for a capitalist system that thrives on credit, it's a very bitter pill to swallow.

What I'm Reading Today

2009-01-07T08:49:00.008-05:00

No sooner do I say that gold may go lower (and the U.S. dollar higher) than gold ramps up again and the greenback stumbles badly. Sigh. Well, my longer-term (and bigger) bets are on the right side.

Here is news I'm reading ...

Dollar Falls From Three-Week High Versus Euro as ADP Says Job Cuts Rose The dollar fell from a more-than three-week high against the euro after a private report showed U.S. job market deteriorated last month, reinforcing expectations for a long recession.

XX Sean's note -- does the ADP news surprise anybody? Yes, the loss of 693,000 jobs was higher than analysts' expectations of a loss of 495,000 jobs. But everyone I talked to thought the real number would be higher than estimates. So again, who is surprised?

Oil Traders Seek Another 10 Supertankers for Storage
Frontline Ltd., the world’s biggest owner of supertankers, said oil traders want to charter as many as 10 vessels to stockpile crude to take advantage of higher prices later in the year. About 25 supertankers were already hired for storage and there are enquiries for 5 to 10 more, Jens Martin Jensen, Singapore-based interim chief executive officer of the company’s management unit, said by phone today.

Sean's note: Note the relevance of this to my MoneyandMarkets.com column today, "Gold and Oil Short-Term Trends".

Here Comes the Commodity Index Rebalancing
I consider these contra-indicated: In a time of massive Fed credit creation and Treasury money printing, they oddly want less exposure to Gold. And with the worldwide recession getting worse, they want more exposure to Oil. Both of these are poorly timed macro-trades.

December auto sales "could have been worse"
On a seasonally adjusted basis, U.S. light vehicle sales remained deeply depressed in December. But at least things don't seem to be any worse than they had been the previous month.
Data source: Wardsauto.com

XX Sean's note: Gasoline prices are starting to go higher again, just in time to torpedo a potential auto recovery. It's like pistol-whipping a blind kid.

Robert Reich: The Need and the Size of the Stimulus Plan

In my judgment, this will require a stimulus of about 6.5 percent of gross domestic product, or a total of some $900 billion, spread over two years. That’s my estimate for the shortfall in private demand. But the federal government should stand ready to spend larger sums if necessary to get the economy back on track toward full capacity. The danger is not that the government will do too much; the danger is that it will do too little, too late.
Without such action, I estimate that another 3 million jobs will be lost in 2009, unemployment will rise to 10 percent of the workforce by the end of this year, and under-employment – including people working part-time who would rather be working full time, and those too discouraged even to look for work – will reach 15 percent.

Sean's note: The best quote from Reich in this column: "The goal should be not to save meaningless jobs but to create meaningful ones."

More Bad News Out of China, Including Capital Flight
China faces a threat of "abnormal" cross-border capital flow because of global financial tumult, the country's foreign exchange regulator said Tuesday...More money flowing out of the border could increase the risk of liquidity strain in the country, which is especially dangerous amid the global financial crisis...China's foreign exchange reserves had fallen for the first time since December 2003, Cai Qiusheng, a SAFE official, told a conference last month. He didn't give specific data of when that happened or by how much.

Copper Gains to 1-Month High in London on China, Obama Stimulus
Copper jumped to a one-month high in London on speculation China, the world’s largest user of the metal, will increase purchases this month as U.S. President-elect Barack Obama’s stimulus plan revives demand. Industrial metals including copper have advanced 9.1 percent this year, the best annual start since at least 2001, according to the London Metal Exchange.

The boss of Satyam, India's fourth-biggest software firm, has resigned after revealing financial irregularities in the firm's accounts.
"What started as a marginal gap between actual operating profits and the one reflected in the books of accounts continued to grow over the years," said Mr Ramalinga's statement, which was sent to the stock exchange. "It was like riding a tiger, not knowing how to get off without being eaten," he said.

Alcoa to Eliminate 15,000 Positions
Acknowledging that earlier cost-cutting moves are insufficient due to the sustained economic downturn, aluminum maker Alcoa Inc. announced deeper work-force cuts, more plant closures and a 50% reduction in capital expenditures.

Is Gold Poised for a Pullback?

2009-01-06T09:45:00.004-05:00

It sure looks like gold is poised for a pullback. Here are two charts that illustrate my point ...The rally in the U.S. dollar is weighing on gold just as it bumps its head on overhead resistance. It should head lower from here. The longer-term picture for gold is still good, and corrections are a normal part of any market.

In Wednesday's Money and Markets, I'll have some ideas on how to play a potential gold pullback.

Saturday Morning Reading

2009-01-03T06:33:00.005-05:00

I hope you're having a good weekend. I didn't have time to post yesterday, as I was caught up with meetings, interviews and work, work, work.

There was a wonderful smackdown on CNBC on Friday. Michelle Caruso-Cabrera was on her usual rant that Washington shouldn't use the Madoff scandal (or any failure by Wall Street) to over-regulate Wall Street. Newsweek's Dan Gross delivers a fine rebuttal, and educates Caruso-Cabrera on stuff she should know. You can see the whole thing at: http://www.cnbc.com/id/15840232?video=982673529
The interesting part of the video starts at 7:35. As usual, most of the content at CNBC is fluff and distraction. But that segment running from 7:35 to 9:39 is must-see TV.

In other news, US factory activity slumped to 28-year low. Wall Street took this news by rallying 250 points and going to the first close above 9,000 in two months. In fact, all the major indexes shot up more than six percent for the week. I know it makes no sense -- blame it on light volume if you want to, but the market's recent pattern has been to take bad economic news in stride, a pattern that began to emerge after it touched multiyear lows on Nov. 20. That doesn't mean we've seen THE bottom. But probably a bottom for awhile, until the "Obama Inauguration Rally" runs out of steam.

Meanwhile, Jim Rogers is still bullish on commodities. No big surprise there, but his argument is worth reading.

Also, Wall Street "leaders" continue to enrich themselves at the expense of everyone else. I'll let Talking Points Memo explain this one ...

Last Fall PIMCO chief Bill Gross was on the airwaves raising the alarm bell about how the backlog of toxic mortgage-backed securities were on the brink of crushing the US economy. And he certainly had some unique insight into the problem since over 60% of his firm's $830 billion in holdings were made up of those mortgage-backed securities. At the time, Gross was on the airwaves (on CNBC in particular) pledging that just out of a sense of patriotic duty he'd be willing to have his firm manage the government bail-out (i.e., government purchase of the crap CDOs) for free. Just for the sake of patriotism.
So now that his firm is one of the four that got a contract to run the program from the Fed, is he following through on the pledge? Doesn't seem like it. So far we've gotten through to three of the four firms, each of which has declined to comment on the fees the four companies are making for administering the program. PIMCO is the only one that hasn't responded at all. So it's seeming like the patriotic do-it-for-free plan hasn't panned out.

Finally, when I press "publish" on this post, I'm then going to go for a bike ride. Maybe it's time I buy a new bicycle, because bike sales are TERRIBLE.

After a summer of their dreams, bicycle store owners are facing a grim reality this winter.
Big increases in business this year led some shop owners to think that they were largely insulated from a slowing economy. But the economy has continued to spiral downward, taking bicycle sales and much else with it.

End of the Year Gold Chart and Video Mosh Pit!

2008-12-31T13:15:00.007-05:00

Is your 2008 going out with a bang, or slouching toward the exits? Here's a chart for those who like a golden end to the year ...This compares gold (green line) to silver (blue line), the S&P 500 (black line), oil (red line) and the TLT bond fund (pink line). Obviously, bonds got the better of 2008. But what will happen in 2009? That's the real question.

Here, in my latest web-cast, I try to answer some of those questions in my latest broadcast for MaM-TV.

Those are my answers. What are your answers? There are plenty of answers around, but the trick is asking the right questions.

Here are some other things to think about.

First of all, the Fed is going to buy $500 million in mortgage-backed securities by the middle of 2009. Will that finally unstick the frozen mortgage markets?

Money is tight. California is going to start paying bills with IOUs. But there's one group that is still getting a raise: Congress. Members of Congress are giving themselves a $4,700-a-year pay raise starting Thursday.

Meanwhile, the New York Times details how Washington Mutual built an empire on shaky loans. At least one of the loan supervisors did his job fueled on crack cocaine. I believe it. We bought a house with a WaMu loan about 7 years ago. They did such a bang-up job -- they assessed the WRONG HOUSE. They delivered a report in which our house backed up to a street and had no pool -- our house actually has a pool and backs up to a preserve.

How could they miss so badly? Maybe the clue is that the company that built the housing development we live in changed the street names in the middle of the project. On Google Earth, the streets still have the old labels. So, my guess would be the folks at WaMu looked at "our street" and "our house" on Google Earth, made a back-of-the-envelope guestimate, and voila -- job poorly done.

The Financial Times reports that money is flowing out of hedge funds at a record rate. The FT reports that "Investors pulled a net $32bn from hedge funds last month, making 2008 the first year in their recorded history that the funds have had significant outflows and ending the industry’s 18 years of asset growth.

Meanwhile, I've been getting death threats. We all have -- the latest round of dire warnings about how the earth will end. Some say a long-dormant super-volcano in Yellowstone National Park will do us in. Competing with that is a giant dust cloud in space that could wipe out life on Earth. The icecaps are melting fast, and a sudden melt could cause a huge and sudden rise in sea levels. And then there's the old standby, a giant asteroid hitting Earth (now with Pink Floyd soundtrack!)

My answer to all that ...

Have a happy New Year, try not to worry too much, and I'll speak to you in 2009.

The End (of the Year) Is Nigh

2008-12-30T09:42:00.003-05:00

The New Year is barreling toward us like a runaway bus. Today's Must-Read: "The Collapse of Financial Globalization"

Brad Setzer's writing style is a bit dry, but his charts are eye-popping and he makes his point like a silver bullet to the brain: "private capital inflows to the US and private capital outflows from the US have fallen sharply." As in, fallen-off-a-cliff sharply.

So then, what is propping up U.S. Treasuries and the U.S. Dollar? America's livin' large lifestyle is largely supported by China and Japan (because they want to sell us stuff). The other big lender is Saudi Arabia, which also has an advantageous financial arrangement with the U.S.

If and when China, Japan and Saudi Arabia are no longer able to support the continued growth of US deficit financing, the dollar and the bonds will decrease in value. And that fall could come with avalanche-like suddenness.

So why do they continue to prop us up? Self-interest (we are their best customer) and a healthy dose of fear ... fear of what will happen when they no longer continue to provide us with unlimited credit.

This is why the world has not developed a sound replacement for the mighty greenback ... yet. It is because if they do, it will trigger a collapse of their dollar reserves and throw a wrench in their export driven economies,. And the scale of that derailment will likely be much worse than anything we can imagine.

I'm not going to say much more, other than check out Brad's nifty charts and analysis.

After you read that, start preparing for the coming storm: Potentially, we could see hyperinflation, if the U.S. dollar is revealed to be a Ponzi scheme worse than anything Bernard Madoff could have come up with. And remember, the shift from deflation (which we are in now) to hyperinflation (a collapse of the dollar) could be stunningly swift. Going back to my avalanche analogy, you never know what will set off an avalanche, but it's usually something very small in proportion to the outcome.

Can we avoid this fate? Sure we can. Nothing is written in stone. Strong political leadership -- combined with a great deal of luck -- could make a difference. Do you feel lucky?

Here is some other news worth reading ...

China Said to Allow 500,000 Tons of Corn Exports as Harvest Set for Record China, the world’s second-biggest corn grower, will allow 500,000 metric tons of the grain to be exported next year, about 10 percent of levels seen in previous years, as the government seeks to ensure domestic supplies.

Japan's Economy May Shrink 12% This Quarter, Most Since '74, Barclays Says Japan's economy will probably shrink at an annual 12.1 percent pace this quarter, the sharpest drop since 1974, as exports collapse, Barclays Capital said.

Gazprom, Once Mighty, Is Reeling
A year ago, Gazprom, the Russian natural gas monopoly, aspired to be the largest corporation in the world. Buoyed by high oil prices and political backing from the Kremlin, it had already achieved third place judging by market capitalization, behind Exxon Mobil and General Electric.
Today, Gazprom is deep in debt and negotiating a government bailout. Its market cap, the total value of all the company's shares, has fallen 76 percent since the beginning of the year. Instead of becoming the world's largest company, it has tumbled to 35th place. And while bailouts are increasingly common, none of Gazprom's big private sector competitors in the West is looking for one.

Bumpy Crop: Farming's Sudden Feasts and Famines

The world has been producing more grain than ever. Demand has grown faster than farmers could increase their production most years of this decade, helping to drain grain reserves. Unusually good weather in most of the world this year is refilling grains stocks once again. But the situation could easily change. Some economists worry that the world will consume more grain than it produces by 2010, particularly if oil prices recover enough to make the production of ethanol from corn more profitable again.

Are Modern Recessions Different?

“Since WWII, recessions have lasted 10 months on average. We hear that a lot. Our current recession started in December 2007. Even though this go-around seems worse [than] usual, that's still a little cause for optimism ... This recession has more in common with the pre-WWII era ... recessions last an average 18 months. If this logic is right, then we're not due for sunnier skies until mid-2009.”

Armageddon in Oil and Gold? 2008 Going Out With a Bang Edition

2008-12-28T17:34:00.011-05:00

This morning, we are seeing gold build on its sizeable gains from last week, and oil is up as well. The reason for the move in oil is simple: The explosive conflict in the Middle East is acting as a catalyst on an oil market that was already deeply oversold.

Here is some of the news driving oil this morning ...

Oil jumps above $40 on Gaza conflict: Tensions generated by a widening conflict between Israel and Palestinian militants sent crude prices up sharply to above $40 a barrel Monday, with gasoline and heating oil also making sizable gains.

Defense Minister Ehud Barak said Israel is fighting a “war to the death” with Hamas, the group that controls Gaza. Prices also advanced as China, the world’s second-biggest energy consumer, said it will supplement its emergency oil stockpiles while prices are low, and the United Arab Emirates announced compliance with OPEC production cuts agreed on this month. Prices also were supported by indications that other key OPEC members were acting on commitments to cut back production, in line with a decision earlier this month to take a daily 2.2 million barrels off the market.

And yet, just remember, there is bearish news as well ...

Deutsche Bank: Demand for oil will fall by largest margin in 25 years Global demand for oil in 2009 will fall by the largest amount for 25 years, according to the chief energy economist of Deutsche Bank. Adam Sieminski said oil prices could hit a low of $30 a barrel next year, a fall of a quarter from today's price, because of the sickly global economy. He forecast an average price of $47.5 for the whole year for oil traded in New York. Deutsche Bank predicts global demand will contract by 1 per cent, or 1 million barrels a day, three times the fall seen this year and the biggest since 1983.

In a related matter, Chicago Tribune reports that falling oil prices endanger alternative energy. Well, duh. Don't worry, though. Despite the dire warning from Deutsche Bank, I don't think oil prices will stay too low for too long.

Now, on to gold ...

Gold Rises in London to 2-Month High on Middle East Fighting, Inflation Gold rose to a two-month high in London as fighting in the Middle East and higher oil prices spurred demand for the metal as a haven and a hedge against inflation. The morning “fixing” used by miners to sell metal gained the most since at least 1984.

Here are three gold charts I think you should see -- daily, weekly and monthly charts of gold.

IN OTHER NEWS ...

Do you think the Crash of '29 was bad? Then you don't know about the Panic of 1873. I'm writing about that for this week's MoneyandMarkets.com column. I'm also writing about Baron Nathan Rothschild, of "Buy when there is blood in the streets" fame. He made that comment in 1871, which was part of the Panic of 1873. The Panic started in 1869 (1873 was just the worst year) and the economic depression associated with it lasted until 1879. Ouch!

Wall St. faces record losses in last week of 2008
Investors are preparing to close out the last three trading days of 2008 with Wall Street's worst performance since Herbert Hoover was president. The ongoing recession and global economic shock pummeled stocks this year, with the Dow Jones industrial average slumping 36.2 percent. That's the biggest drop since 1931 when the Great Depression sent stocks reeling 40.6 percent.

More bad news: U.S. Corporate Profits Probably Fell for Sixth Quarter as Spending Plunged U.S. corporate earnings probably fell for a sixth-straight quarter, the longest streak in at least 20 years, as consumer spending on automobiles, homes and retailers collapsed.

Want to see something really scary? Click through to the Grandfather Economic Report series.

I like The Retroist because I'm old.

Marketwatch gives its "10 Investment Ideas for 2009." See if you agree. Meanwhile, Motley Fool likes small caps now. Remember, small-cap stocks historically outperform the market in the month of January (for the simple reason that January is when money managers are most disposed to take on risk).

There are some great new cars coming in 2009, as long as auto manufacturers can survive long enough to get them to us.

The global recession is playing out in China.

Happy Boxing Day!

2008-12-26T08:44:00.006-05:00

It looks like a stupor-inducingly dull day in the market. I survived Christmas, though my Aunt's dog, Sidney, did not. In fact, it died at my house yesterday afternoon. Sidney was a very old dog, a good dog, and very loved, and will be missed very much.

Earlier in the day, we had fun. Along with presents, tons of food, and good friends, we played games. It's something of a tradition at my house.

My team won this one: Cranium. I highly recommend it, especially for competitive families who like screaming at each other in a mix of outrage and glee.

Later, I lost this one: Carcassone. Doesn't matter -- it's a great game, and I'll win it another time. I bought Carcassone: Princess & Dragon Expansion as a gift for Cindy. She squealed with delight to find that under the tree.

Here's what I'm reading today (and so very little of it has to do with the markets) ...

Most people (who aren't mainlining Fox News) know that Christmas incorporated previously existing pagan winter solstice rituals. Rktect takes a look at some of those early celebrations, and the traditions that have carried over. I find Rktect's title "The Real Story of Christmas" misleading -- the real story of Christmas is where you find it, and for many people that's here or here or here or even here -- but the historical research is fascinating, and happy yule to ya.

Most of my immediate family likes Tom Friedman. Most of my family is wrong. My thoughts in nutshell.

Woes on Wall Street Coincide With Gold Coin Rush
"I've never seen a case where demand was so high and supply was so short," said Chicago coin dealer Harlan Berk, who has been in the business 44 years.

Retail Sales Plummet
Total retail sales, excluding automobiles, fell over the year-earlier period by 5.5% in November and 8% in December through Christmas Eve, according to MasterCard Inc.'s SpendingPulse unit.When gasoline sales are excluded, the fall in overall retail sales is more modest: a 2.5% drop in November and a 4% decline in December."This will go down as the one of the worst holiday sales seasons on record," said Mary Delk, a director in the retail practice at consulting firm Deloitte LLP.

Paul Krugman scares the bejeezus out of us with the title "The Second Great Depression Has Arrived," but then reveals it's in Ukraine.

Get ready for the Forum of Gas Exporting Countries.
Russia, the world's largest producer, accounts for 21.6% of global natural gas production. Other top ten global producers attending the meeting include Iran, Norway (as an observer) and Algeria.
"The time of cheap energy resources, and cheap gas is surely coming to an end." Vladimir V. Putin
Maybe you'd like a video with that ...

The Economist asks: "After Zero Interest Rates, Where Next?"

Would you like a little conspiracy to spice up your post-Christmas reading? Then read "The Intriguing Death of Top GOP Consultant Michael Connell"

I'm sure there is more I could write; maybe I'll add more later. Have a good day and a good weekend.

best

Sean

A Marshall Plan for the US ... From Japan?

2008-12-24T09:06:00.003-05:00

The following poem was cut from the top of my MoneyandMarkets.com column ("3 Stock-ing Stuffers,") today ...

Twas the eve before Christmas,
and all through the night
Sean’s mind was whirring,
With stocks that could ignite

Poetry is subjective, and everyone's a critic.

Before we get to the serious stuff, here's some Christmas cheer (and humor) from the Wall Street Journal. Click through for a laugh.

Now then ...

Will the Japanese Launch a 'Marshall Plan' to Save the US?
The dollar may lose as much as 40 percent of its value to 50 yen or 60 yen from the current spot rate of 90.40 today in Tokyo unless Japan takes “drastic measures” to help bail out the U.S. economy.
The Japanese government could use a new Marshall Plan as a chance to shrink its $976.9 billion in foreign-exchange reserves, the world’s second-largest after China’s, and help reduce global economic imbalances.

Crude Oil Trades Below $37 on Forecasts U.S. Supply Increased a Third Week Crude oil fell, dropping briefly below $37 a barrel in New York, before a report forecast to show that U.S. inventories rose for a third week on ebbing demand.

U.S. East Coast Refinery Maintenance May Cut Fuel Supply More Than Usual East Coast refineries are planning maintenance on fluid catalytic cracker units in February that might cut regional production by more than five times the historical average.

Pemex Oil Output Falls 6.5% to 2.711 Million Barrels a Day
Production dropped to 2.711 million barrels a day, from 2.901 million barrels a day a year earlier, the company known as Pemex said today on its Web site. In an e-mail, Pemex cited Cantarell, its largest field, as the reason for the drop.

The Coming Oil Train Wreck - First stop: Mexico?
According to Matt Simmons, by the end of 2009, Mexico will no longer be an oil exporter ... Unfortunately, it may be too little too late to replace the rapidly disappearing Cantarell production. In as little as 12-24 months, the effects may be felt both in Mexico and the US. Replacing the 1.3 million barrels per day the US now imports from Mexico won’t be easy (the US imports 1.4 million barrels per day from Saudi Arabia by means of comparison).

Mortgage applications hit almost 5-year high: MBA
Mortgage applications surged to the highest level in over five years in the latest week, as potential borrowers came out in droves to refinance as government interventions helped push interest rates down to record lows, data from an industry group showed on Wednesday.

Manufacturer Confidence Slumps the Most on Record as Recession Intensifies Confidence among Japanese manufacturers fell the most on record as exports collapsed, signaling the recession will extend into 2009.

China Stocks Lure BlackRock With `Mother' of Stimulus Plans as Mobius Buys The biggest investors in emerging markets say China is the best choice for 2009, betting plans to stimulate growth will lead a stock market recovery in the fastest growing major economy.

Merry Christmas to all, and to all a good night. I'll post again on Friday (probably, barring an eggnog overdose).

Monthly Gold Chart & Happy Festivus!

2008-12-23T12:28:00.007-05:00

Merry Christmas-Eve-Eve! Or Happy Festivus, if you're so inclined. Let the Airing of Grievances begin!

Here's my chart for today -- a monthly chart of gold. Note how the recent uptrend has been tested but hasn't broken (yet anyway). In fact, RSI, a measure of momentum, is now giving a "buy" signal.

I think gold could enter the New Year in a very positive position. Still, watch the euro-us dollar relationship that I posted about yesterday. That is probably the real key to what happens with gold.

Here is the other news and analysis I'm reading ...

U.S. debt approaches insolvency; Chinese currency reserves at risk

According to new figures published by Bloomberg in recent days, the American government has employed a total of 8.549 trillion dollars to stop the financial crisis. This means a total of about 24-25.4 trillion dollars of direct or indirect public debt weighing on American taxpayers. The complete tally must also include the debt - about 5-6 trillion dollars - of Fannie Mae and Freddie Mac, which are now quasi-public companies, because 79.9% of their capital is controlled by a public entity, the Federal Housing Finance Agency, which manages them as a public conservatorship.

Canaccord Adams: The worst for junior mining ‘is likely behind us'

"The year 2008 has shattered investor confidence, and market valuations reflect risk-averse investor sentiment," the analysts advised. "We believe that, to achieve a sustainable rally in the junior mining sector in 2009, investors must regain confidence in broader equity markets. "
"Given the ongoing issues in the global equity and credit markets, we believe that investors are likely to remain somewhat risk adverse. That said, opportunities to exist in the junior sector even under more subdued investor interest."

Why Short Sector ETFs Aren't So Smart Part 1 and Part 2

XXSean's note -- this is an interesting analysis on RealMoney.com about short ETFs. I think the author makes some good points. On the other hand, everyone has their own agenda. And the fact is, as long as you use short ETFs for short-term investing (not long-term), I think they have real advantages.

Existing Home Sales Plunge in November

I still expect sales to fall further over the next few months, although inventory has peaked for the year.

Holiday Sector Performance Relative to the S&P 500 -- From The Big Picture blog ...

Monday Morning Charts and News

2008-12-22T06:18:00.009-05:00

Here is a chart I'm watching today ...
As the euro-US dollar goes, so goes gold (at least recently)

Here is what I'm reading today ...

US ECONOMY

Stock Investors Lose Faith, Pull Out Record Amounts
One of the hallmarks of the long market downturns in the 1930s and the 1970s has returned: Rank-and-file investors are losing faith in stocks.
Investors pulled a record $72 billion from stock funds overall in October alone, according to the Investment Company Institute.

AP study finds $1.6B went to bailed-out bank execs
Banks that have their hands out in Washington this year were handing out multimillion-dollar rewards to their executives last year.

Is the Medicine Worse Than the Illness?
Barely nudging Mr. Madoff out of the top of the news was the Federal Reserve's announcement last Tuesday that it intends to debase its own paper money. , the Fed pledged to print dollars in unlimited volume and to trim its funds rate, if necessary, all the way to zero. Nor would it rest on its laurels even at an interest rate low enough to drive the creditor class back to work. It would, on the contrary, "continue to consider ways of using its balance sheet to further support credit markets and economic activity." The Fed's declaration of inflationary intent knocked the dollar for a loop against gold and foreign currencies. In many different languages and from many time zones came the question, "Tell me, again, now that the dollar yields so little, why do we own it?"

Actually -- There Is A Credit Crunch
(XX Sean's note -- good charts at this link)
1.) The latest recession is the only recession where total credit outstanding has leveled off for an extended period.
2.) In order for the US economy to grow it must have a continual supply of new credit. A leveling off is just as hazardous as a decline.

Developers Ask U.S. for Bailout as Massive Debt Looms
With a record amount of commercial real-estate debt coming due, some of the country's biggest property developers have become the latest to go hat-in-hand to the government for assistance. The Real Estate Roundtable, a major industry trade group, predicts that more than $400 billion of commercial mortgages will come due through the end of 2009. Foresight Analytics estimates that $160 billion of commercial mortgages will mature next year.

ENERGY

As Oil Sinks, Producers Reprioritize Investments
A survey by Barclays Capital found 2009 capital budgets were 12% lower than 2008 spending plans, and some believe they might head lower. Budgets in the

U.S.

and

Canada

are being cut the most, as projects in the high-cost oil-sands and unconventional natural-gas fields now make less economic sense ... A report by Cambridge Energy highlighted the danger of investment stagnating. It said the oil industry will need to spend more than $150 billion a year on new oil production over the next few years to generate adequate supplies for future demand.

Is the U.S. Rig Count about to Enter Freefall Territory?
Recently, the view began to target the potential for a 600-rig drop during the seasonally weak early months of 2009. Last week the prospect of a 700-800 rig drop emerged as a possibility and as that view began to gain some traction, the oilfield service stocks began to dive.

Shadowed by $200 oil

No one believes that $40 oil is going to last, and they’re willing to bet that as the economy rebounds, so will demand.

OPEC's President Vows to Cut Output until Prices Stabilize
The Organization of Petroleum Exporting Countries' president vowed Friday to cut production to boost sagging prices, setting it on a possible collision course with consumer countries relieved at crude's slump from record highs.

CHINA, CHINA, CHINA!

China Faces Unrest as Economy Falters
The government appears willing to tolerate some levels of worker unrest -- but only as long as the actions don't take on the overtones of a political protest. In Chaozhou, after the second strike, an open letter from the government spelling out its concessions said, "We again appeal for all the taxi drivers to express your demands and pursuits in a rational, calm, legal and reasonable way."

China Cuts Key Rates
China said it will cut its benchmark deposit and lending rates by 0.27 percentage points from Tuesday as part of its efforts to further ease monetary conditions.

Chinese Carriers Make Big 3G Push
China's wireless carriers will invest $40 billion in faster "3G" networks, which could boost the nation's telecom-equipment industry.

Follow the Bouncing Buck

2008-12-19T08:48:00.003-05:00

I recommended subscribers who are following my "Golden Parachute for 2009" bank HALF their gains on their open positions yesterday. They were double-digit gains. It was time to grab some gains because the US dollar bounced from Fibonacci support. See the dollar chart below.

I think the buck could bounce to 84 from here, where it will run into A) price resistance, B) overhead fib resistance and C) declining moving averages.

I’m sure some people will look at the buck rising from oversold (see the RSI indicator on the bottom of the chart) and say, "the buck has found the bottom." We shall see.

If I'm right and this is just a temporary bounce in the buck, we'll get a great opportunity to go long gold again when/if the US dollar tops out.

Right now, gold is down over $20 an ounce, so yesterday's decision to grab gains looks like a good call.

Videos, Interviews, Gold, Oil and More

2008-12-18T08:08:00.010-05:00

Yesterday I did a MaM-TV video talking about potential movements in ExxonMobil and gold. Exxon Mobil failed to follow through on its breakout from Tuesday; we'll have to see what happens next. I showed you the Exxon chart yesterday. Here's a version of the chart of the GLD that I showed in the video ...

You'll see that the GLD is at the top of its channel. It has support close by, and will probably go back and test it before making a serious breakout attempt. That would give everyone another chance to get long.

Or, maybe the GLD will fold its wings and plummet to the bottom of its channel. But with the US dollar sliding lower, that seems unlikely.

You can go check out MaM-TV, which is linked at the top 0f MoneyandMarket.com, if you haven't seen the video yet.

I also talked with Phil from HoweStreet.com about my latest MoneyandMarkets.com, column, Mexico’s Streets of Gold. As usual, when I talk to Phil, I enjoy myself way to much. You can listen to Phil's podcast HERE.

Here is is an update from Doug Short of dshort.com of his graph of "Four Bad Bears".A couple of notes: The Great Depression crash is based on the DOW; the three others are for the S&P 500. Our current bear market (blue line) was down 51.9% at its low (so far), beating out both the tech crash (green line) and the 1973 oil crisis (red line).

The latest Oilwatch Monthly is out. Its track of global crude oil production is an eye-opener.

The December 2008 edition of Oilwatch Monthly can be downloaded at this weblink (PDF, 1.6 MB, 24 pp).

Finally, I want to point you to some analysis by Merrill Lynch's David Rosenberg. He says 2009's dominant themes could include political risk, "Beggar-thy-neighbor" policies, rising gold prices, a bearish trend in consumer spending, and a perhaps surprisingly bullish turn in commodities.

Other stuff I'm reading ...

Gold Rises for Ninth Day in London as Dollar Extends Decline

Gold rose for a ninth day in London, its longest winning streak in two years, as the dollar’s slide boosted the metal’s appeal as an alternative investment and physical bullion purchases increased. The precious metal gained 15 percent in the past eight days, as the dollar lost 12 percent against the euro in the same period.

UAW Busting, Southern Style

The foreign nonunion auto companies located in the South have a plan to reduce wages and benefits at their factories in the United States. And to do it, they need to destroy the United Auto Workers.

They claimed that they couldn't support the bill without specifics about how wages would be "restructured." They didn't, however, require such specificity when it came to bailing out the financial sector. Their grandstanding, and the government's generally lackluster response to the auto crisis, highlight many of the problems that have caused our current economic mess: the lack of concern about manufacturing, the privileged way our government treats the financial sector, and political support given to companies that attempt to slash worker's wages.

When one compares how the auto industry and the financial sector are being treated by Congress, the double standard is staggering. In the financial sector, employee compensation makes up a huge percentage of costs.

At Goldman Sachs, for example, employee compensation made up 71% of total operating expenses in 2007. In the auto industry, by contrast, autoworker compensation makes up less than 10% of the cost of manufacturing a car. Hundreds of billions were given to the financial-services industry with barely a question about compensation; the auto bailout, however, was sunk on this issue alone.

An internal Toyota report, leaked to the Detroit Free Press last year, reveals that the company wants to slash $300 million out of its rising labor costs by 2011. The report indicated that Toyota no longer wants to "tie [itself] so closely to the U.S. auto industry." Instead, the company intends to benchmark the prevailing manufacturing wage in the state in which a plant is located. The Free Press reported that in Kentucky, where the company is headquartered, this wage is $12.64 an hour, according to federal labor statistics, less than half Toyota's $30-an-hour wage.

This Is What a Crisis Looks Like in the Balance of Payments Data

At least a crisis marked by a run out of risky US assets and into safe US assets. Right now Agency bonds — think Freddie and Fannie — are considered risky assets while Treasuries are not.

A run out of all US assets and the dollar would look very different.

Obama Considers Stimulus Spending Exceeding $850 Billion to Spur Recovery

Barack Obama may ask Congress next year to approve a stimulus plan of around $850 billion, an amount that has grown as the U.S. economy sinks deeper into recession, an adviser to the president-elect said.

2009 to witness global agri-commodity shortage

LONDON: Despite stronger production and falling prices for many food staples in the second half of 2008, the risk of food supply shortages remains acute in world markets. These supply shortage risks stem from reduced producer incentives – and ability - to boost food production.
Reduced access to trade credit, rising costs, bio-fuel competition, and infrastructure shortages are among key factors that continue to weigh on trend growth in world agriculture supply. Inventory levels are also low relative to their long run averages, highlighting the underlying tightness in food markets at present.
Tightening and more expensive credit is limiting the ability of producers to borrow to finance seasonal inputs – notably seed and fertilizer. The costs of these inputs has increased dramatically over the past few years, with the USDA estimating that US total inflation-adjusted farm costs have increased 28.5% since 2002 (a 52% increase in nominal terms).

Feel the Energy

2008-12-17T09:19:00.003-05:00

So Saudi Arabia says OPEC will cut production by another 2 million barrels a day, and Russia will go along for the ride.

This is the right move the Saudis had to make. And it's good for our long-term energy future. We need exploration to provide future supply, and the only way to get that is if oil is north of $60 to $70 a barrel.

And now let's look at a chart of ExxonMobil ...
This is pre-market, so it may be old news by the time you read it. If you’re brave, you can buy energy on XOM’s retest of around 81.90, or you can wait for a confirmation close today.

My Target on Gold ...

2008-12-16T12:04:00.005-05:00

For a couple weeks, I've been annoying people within earshot by saying that, "if gold closes above $820, it can go much higher."

Well, gold did close above 820. And then it went higher still. So today, Bruce Bragagnolo, the CEO of the gold company I visited in Mexico (which you'll be able to read about in MoneyandMarkets tomorrow), asked me, "so how high is gold going now?"

There are those who believe that the Deflationary Spiral of Doom (catchy, eh? I'm going to copywrite it) is going to suck gold down with it. So I hesitate to name a number.

But the only people who read this blog are subscribers to my services and a few friends. So I'll tell you. My target on gold is $980, and I think we can get there rather quickly. There is no magic to this -- I get my target from a simple point-and-figure chart, which you can find at any one of numerous charting sites.

Point and figure charts famously do not include "time" in their projections. But fundamental forces are lining up to push gold higher.

Longer term, my target on gold remains $1,100, though we'll probably see some backing and filling at $980 first.

And none of this MUST happen. These are just projections, and subject to change. As John Maynard Keynes famously said: "When the facts change, I change my mind. What do you do, sir?"

My even-longer term target for gold is just under $2,000. Keynes' other famous quote is: "In the long run, we are all dead."

Waiting on the Fed, US Sinks Deeper Into the Red

2008-12-16T08:29:00.004-05:00

We're all waiting for the Fed announcement shortly after 2 pm today, where it is widely expected that the Fed will cut its benchmark interest rate in half to 50 basis points. According to Bloomberg, with Fed rates at zero, Fed Chairman Ben Bernanke will then move on to using the Fed's balance sheet as the key tool for monetary policy. Options include purchasing Treasuries to inject more cash into the economy.

But where is all this money going to come from? As a result of all the bailouts for banks, automakers and other new federal outlays, our nation’s budget deficit is expected to reach $1 TRILLION in 2009. And that DOESN’T include the new, $1 trillion stimulus plan that Barack Obama’s economic team is reportedly working on.

We are seeing paper money debased. And that looks like a good time to own gold to me.

Here is other news I'm reading ...

Big Oil Projects Put in Jeopardy by Fall in Prices
From the plains of North Dakota to the deep waters of Brazil, dozens of major oil and gas projects have been suspended or canceled in recent weeks as companies scramble to adjust to the collapse in energy markets.

Russian Industrial Production Shrinks Most Since Economic Collapse of 1998 Russian industrial production shrank the most since the economic collapse of 1998 in November as the global slowdown reduced demand for steel, pipes and fertilizers, pushing the nation to the brink of recession.

Venezuela Wants OPEC to Cut Oil Production by Up to 2 Million Barrels/Day Venezuelan Oil Minister Rafael Ramirez said he wants a cut in OPEC production of between 1 million and 2 million barrels a day at this week’s meeting.

Gold Declines After Rally Entices Selling; Dollar Arrests Slide vs Euro Gold fell in London, ending a six-day rally, as an 11 percent gain in the period spurred some investors to sell and as the dollar halted its slide, reducing bullion’s appeal as an alternative investment.

3 Charts on Gold

2008-12-15T11:20:00.009-05:00

Gold is powering higher today.

To quote MacBeth: "Is this a breakout from a cup-and-handle formation that I see before me?" Well, maybe I'm taking some liberties with the bard.

But gold's move higher is translating into even bigger moves for the major gold producers ...

And we're even seeing moves higher in the little-known foreign gold miners that have been pounded into the dirt over the past six months ...

What's it all mean? I don't know. Ask me when/if gold hits 850. It sure is good news for the recommendations in my recent "Golden Parachute" gold report.

Fox Business -- Talkin' 'Bout Oil

2008-12-15T10:56:00.001-05:00

I'm appearing on Fox Business TV at 1:00 to 1:06 today on the Stuart Varney Show. Stuart's a good guy, so probably no chairs will be flung (ha-ha). Anyway, I'm going on to talk about oil prices.

If you don't get Fox Business -- I don't get it on my darned cable -- here are the talking points I'm bringing for my interview ...

Goldman Sachs predicts oil prices will fall to $30 a barrel.

OPEC President Chakib Khelil said all the group’s members support an oil output cut at this week’s meeting, including the largest producer Saudi Arabia.

OPEC is about 75% compliant with the last round of production cuts (cutting production by 1.5 million barrels a day from Nov. 1) – that’s pretty good by their standards.

Russia, a non-OPEC producer, will likely cut production as well. OPEC is asking Russia to reduce oil output by 200,000 to 300,000 barrels a day

We are already seeing oil production fall with prices. Unconventional oil reserves account for 18% of all liquids used, according to the International Energy Agency. And that represents 15.6 million barrels per day.

Next we’ll see marginal production from major producers cut.

Result: World oil supply is likely to drop by three million to five million barrels a day in 2009, due to OPEC cuts and smaller companies slashing production, compared with a decline of just one million to two million barrels a day in global oil demand.

Bottom line: Unless prices go higher, marginal production will come offline. That, in turn, will push prices higher. Oil has technical and fundamental support at current levels. We may see Goldman’s price target of $30, but not for long, and there are already forces in play that could send oil higher from here.

What could stop oil prices going higher? A severe global recession. And do you really want to root for that?

What I'm Reading Today

2008-12-14T20:25:00.009-05:00

Here's what I am reading today ...

ASIA

Japanese Business Confidence Plunges Most in 34 Years as Recession Deepens Sentiment among Japan’s largest manufacturers fell the most in 34 years, signaling companies are likely to cancel spending plans and cut more jobs, pushing the economy further into recession.

China Plans to Increase Money Supply in 2009 to Boost Domestic Consumption China aims to increase its money supply 17 percent in 2009 and encourage lending to boost domestic consumption and buoy growth in the world’s fourth-largest economy.

ENERGY
Crude Oil Rises as OPEC's El-Badri Says Sizeable Cut Is Needed at Meeting Crude oil rose, touching $50 a barrel in New York, after OPEC’s Secretary-General Abdalla El-Badri said the group needs to make a “sizable” output cut at this week’s meeting in Algeria.

OPEC Collides With Goldman Over $75 Oil in First Demand Decline Since 1983 The Organization of Petroleum Exporting Countries will probably lower output targets by at least 2 million barrels a day, or 7.3 percent, when its members meet Dec. 17, according to 18 of 33 analysts surveyed by Bloomberg. While Saudi Arabia’s King Abdullah said last month that his country needs oil priced at $75 a barrel to spur development, Goldman Sachs Group Inc. predicts crude may slide to $30 from $46.28 today.

OPEC Is in a Desperate Race Against Falling Oil Prices Oppenheimer & Co. senior oil analyst Fadel Gheit estimates the world oil supply is likely to drop by three million to five million barrels a day in 2009, due to OPEC cuts and smaller companies slashing production, compared with a decline of just one million to two million barrels a day in global oil demand.

COMMODITIES

Australia Cuts Commodity Export Sales Forecast 10% on Global Credit Crisis Australia, the world’s largest shipper of coal, iron ore and wool, cut its commodity exports forecast by 10 percent because of the global financial crisis that may continue to hinder any recovery until the second half next year.

Gold Futures Climb in New York as Dollar Extends Slump; Silver Advances Gold prices rose as the slumping dollar boosted the appeal of the precious metal as an alternative investment. Silver also gained.

China's Soybean Imports May Double This Month as Domestic Prices Advance China, the world’s largest buyer of soybeans, may double its imports this month from a year earlier, after higher prices of domestic beans prompted buyers to increase purchases overseas in the past few weeks.

World Gold Output to Rise for the First Time in Four Years, Australia Says Global gold production may rise for the first time in four years in 2009 as China and Indonesia increase output, Australia’s commodity forecaster said.

XX Sean's note -- that will be an interesting trick (to raise global producition) the way that the credit crunch is cutting into mine expansion plans, but I guess anything is possible.

US DOLLAR

Dollar Falls to Eight-Week Low Versus Euro on Auto Industry Bailout Costs The dollar fell to an eight-week low versus the euro on speculation a U.S. government rescue for the country’s automakers will leave less money to protect the financial system.

Dollar Staggers as U.S. Unleashes Flood, Deficits Increase, Fed Cuts Rates U.S. policy makers are flooding the world with an extra $8.5 trillion through 23 different plans designed to bail out the financial system and pump up the economy. The decline shows that the increased supply of money may be overwhelming investors just as the government steps up debt sales, the trade and budget deficits grow and de-leveraging by investors slows.

Treasury Benefits From ‘Massive Paranoia’ as Bailout Cost Falls Instead of shunning the U.S., where losses on subprime mortgages in 2007 triggered a global seizure in credit markets that led to the downfall of securities firms Bear Stearns Cos. and Lehman Brothers Holdings Inc., investors can’t get enough Treasuries. Even as estimates of Obama’s stimulus package and the budget deficit rise to a record $1 trillion, demand continues to increase as investors flee risky assets around the world and put their cash into U.S. bonds paying, in some cases, nothing in yield just to ensure the return of their principal.

US ECONOMY

US cost of living probably fell most in six decades
The cost of living in the U.S. probably fell in November by the most in six decades, while slumps in manufacturing and homebuilding worsened, sending the economy deeper into a recession, economists said before reports this week. Consumer prices probably dropped 1.2 percent last month, the most since records began in 1947, according to the median estimate in a Bloomberg News survey. Builders broke ground on the fewest houses in almost a half century and factory output continued to slide. Costs of oil and other raw materials plummeted last month as the credit crisis caused consumers to slash spending, prompting automakers to plead for a bailout. Tumbling sales have retailers cutting prices, setting the stage for the Federal Reserve this week to lower its key rate target to its lowest level ever.

GLOBAL WARMING

The glaciologist's worst nightmare Lakes of melted ice form on the surface of the polar ice caps in the summer months, driving cracks down through the ice, creating conduits. In Greenland recently, one such lake, three kilometres wide, emptied like a draining bathtub in just 90 minutes.So much water surging down to the bedrock of the ice sheet could contribute to massive icebergs breaking off and sliding into the sea – causing a sharp rise in sea level. It's the glaciologist's worst nightmare.

It Ain't Over Till It's Over!

2008-12-12T10:03:00.002-05:00

Even though the Senate failed to pass a bailout for US automakers, it looks like Detroit may get money after all ... The White House just announced it's considering bailout out Detroit's Big 3 using the Treasury Department's TARP program, the $700 billion rescue fund.

But didn't Bush say he WOULDN'T use the TARP money to help the automakers? Sure he did (through Treasury Secretary Paulson). But he doesn't want to go down in history as the President who let the automakers die -- he'd much rather Obama get that title (ha-ha).

Anyway, this turned around the market this morning, so it's off its lows (but still down). And we don't know where we'll end the day. Up 100? Down 300? I don't know. As I said in my previous post, we'd probably have a "sell the news" reaction to a bailout passing anyway.

And as I also said earlier, if the automakers can hold out until January, they have a much better chance of getting money out of the new Congress.

Someone needs to get a hook and yank the head of the UAW off the air. He's horrible -- his presentation doesn't help his case. After listening to him, it sounds like it's better for auto workers NOT to have a union.

I'm Back -- Did I Miss Anything?

2008-12-12T08:48:00.005-05:00

Man, you guys had fun while I was away. And look at this welcome-home party! Stock futures are swooning, as Republican senators refuse to go along with the Detroit bailout package.

On the other hand, we probably would have had "sell-the-news" stock dump even if the bailout package did pass. The economic environment is terrible. As Calculated Risk explains, weekly unemployment claims are at multi-year highs:

It's not just jobs -- retail sales collapsed in November, and other indicators are negative across the board. In case you haven't guessed, I am a reluctant supporter of the bail-out. I think letting a US car company go bankrupt in the current economic environment is like pouring gasoline on a fire. I didn't think Congress would be this stupid. After all, they don't raise a peep when Citibank got $300 billion. But some in Congress are apparently more interested in pursuing long-held ideological dreams -- like breaking unions -- than they care about this nation's well-being and health.

So is there hope? Well, if GM and Chrysler can hang on until the next Congress, sure. The final vote was 52 to 35 (12 didn't vote). Four Democrats did not vote, and Senate Majority Leader Harry Reid voted with Republicans (as a procedural matter). With 10 Republicans defecting, seven of whom will be around in 2009, new legislation will easily pass in January upon the arrival of at least seven new Democratic votes, unless Reid allows a filibuster. Reid is a total wimp, so car makers shouldn't hang their hopes on him suddenly growing a spine.

Meanwhile, everyone should read this Joseph Stiglitz piece. He's a Nobel-prize winning economist, and he identifies five key mistakes—under Reagan, Clinton, and Bush II — that laid the groundwork for financial apocalypse.

So what does this mean for gold? Gold is keying on the US dollar which has run into major problems over the past week.

The dollar has some final support at 83.75. If that fails, we could see the US dollar fall to 81. And that would be bullish for gold. Let's see how things develop today.

Now, how about my trip? I'll be telling my Red-Hot Global Small-Caps subscribers about it pretty soon, and I expect I'll make it my MoneyandMarkets piece for next week.

Viva Mexico!

2008-12-09T13:36:00.000-05:00

An exciting opportunity just came up: I'm on my way to check out a new gold mining project south of the border. So stay tuned, and I will fill you in on what I dig up as soon as possible.

Regards,

Sean

Better Than a Hot Death Sandwich

2008-12-08T04:43:00.009-05:00

After I recommended a bearish position in RCE on Friday, the markets surged like a rhino on cocaine. Typical! Still, it's better than a hot-death sandwich, if only because A) we kept the position small and B) my other services, which are longer-term, retain their bullish stance on gold, energy and agriculture.

And the markets are looking to open well up this morning, but Friday showed us how quickly these things can turn around. Keep an eye on the dollar ...It seems to be heading lower. If the US dollar breaks below 84.5, it could go to 82.65 or stronger support at 81. A weaker dollar should be supportive of gold (it has been so far this morning -- gold is up by about $24 as I write this) but it doesn't have to be. Here is the news I'm reading ...

GLOBAL MARKETS

World markets surge on global stimulus hopes
The gains came despite Friday's news that American employers cut 533,000 jobs in November -- the most in 34 years -- as investors appeared to signal their support for growth-promoting measures around the world. "The hour is darkest before the dawn and while the economic backdrop is absolutely dire, policy makers have now moved to an aggressively accommodative stance," said Jeremy Batstone-Carr, head of research at Charles Stanley in London. Chinese officials were reportedly meeting this week to discuss possible new steps to expand the $586 billion of stimulus already planned, while in Washington, a bailout of ailing U.S. automakers appeared to be falling into place.

Wall Street Looks for Upbeat Open
Wall Street was set for an upbeat start on Monday, with investors enthusiastic that President-elect Barack Obama's plan to launch the largest infrastructure-spending package since the 1950s will help boost the crippled economy. Obama announced over the weekend plans for the largest U.S. public works spending program since the creation of the interstate highway system a half-century ago. That could bolster the economy by putting thousands of people to work building schools and other construction projects.

Cheapest Stocks Since 1995 Show Companies' Cash Exceeds Total Market Value Stocks have fallen so far that 2,267 companies around the globe are offering profits to investors for free. That’s eight times as many as at the end of the last bear market, when the shares rose 115 percent over the next year.

US ECONOMY

Fears of a Million Layoffs a Month in Corporate America
As many as a million American jobs could be lost every month by next spring as businesses struggle to raise capital in financial markets consumed by fear, according to a new analysis. Graham Turner, of consultancy GFC Economics, says the rising cost of corporate debt is now flashing a red warning signal that far worse is to come over the next few months and job losses are heading for levels last seen in the 1930s Great Depression.

Financial Medicine of Lower Interest Rates Will Only Make Us All Sicker
The problem isn't the cost of credit but the availability. Credit won't become more available until the banks trust each other and the inter-bank market reboots. That won't happen until the banks are forced to reveal their potential sub-prime losses. Lower rates just delay that "day of reckoning" – by giving the banks more hope they can get away without "full disclosure".

ENERGY

Contango Pays Most in Decade as Shell Stores Crude Stockpiling crude may provide higher returns than commodities, stocks and Treasuries as the U.S., Japan and Europe endure simultaneous recessions for the first time since World War II. As many as 16 [supertankers are] booked for potential storage instead of transporting crude ... The tankers, if full, hold about 26 million barrels worth about $1 billion, more than the 22.9 million barrels sitting in Cushing, Oklahoma, where oil is stored for delivery against Nymex contracts.

Oil Price Could Fall to $25 a Barrel, Analysts Say
Merrill Lynch commodity strategist Francisco Clanch said there is possibility it could go even lower if the economic outlook worsens. "Potentially, under a number of circumstances including a recession in China and a failure from OPEC to cut enough output, we could see prices dipping all the way to $US25 a barrel," he said. "We're not forecasting that. We're saying its might happen."

SOLAR

Will Solar Power Ever Be as Cheap as Coal
“Solar power is the energy of the future – and always will be." That tired joke, which has dogged solar-generated electricity for decades due to its high cost, could be retired far sooner than many think. While solar contributes less than 1 percent of the energy generated in the United States today, its costs are turning sharply downward.

How Will Temporary Decline in Oil Prices Impact Energy Sector?
Many observers have suggested that a precipitous decline in the oil markets will have a disastrous impact on alternative energy investments. I disagree because I believe reversion to the established trend line in the oil markets can only take us back to the $70 to $80 level and many alternative energy technologies remain cost effective at that price point. Moreover, electricity prices are not likely to experience the same violent swings as oil. So the fundamental market drivers that favor the use of wind and solar power are different. Sales may decline for a time, but they will almost certainly recover with the overall economy.

METALS

Gold Gains in London as Weaker Dollar, Higher Oil Boost Demand for Metal Gold rose for the first time in four days in London as a weaker dollar and higher oil prices increased its appeal as an alternative investment to the U.S. currency and hedge against inflation. Silver and platinum also gained.

Copper Gains in London, Ending Worst Losing Streak in a Decade; Zinc Rises Copper rallied from its worst losing streak in a decade in London, buoyed by a weaker dollar and U.S. President-elect Barack Obama’s pledge to begin the biggest public works program in about 50 years. Aluminum and zinc also advanced.

Charts of Dollar and Ultrashort Consumer Services

2008-12-05T09:20:00.007-05:00

Remember how rosy things looked yesterday morning, with the market shaking off bad economic news? Well, that faded in the afternoon, and today, just rotten economic news is giving the markt its lumps. And yet gold is down despite an apparent weakening trend in the U.S. dollar. Look at a chart of the dollar ...

Maybe the dollar will be able to go higher, but it doesn't look good. So why is gold weaker? I talkeed to a Chicago broker about this late yesterday. He says too many speculators have been burned, and gold buyers are "on strike" until they get lower prices.

Meanwhile, the outlook for the U.S. consumer is awful. Here is a chart for Red-Hot Commodity ETFs subscribers ...
This is a good area for a bounce in the SCC, and the fundamentals for consumers continue to be dismal.

Here is Other News I'm Reading ...

Roubini: "How to Avoid the Horrors of Stag-Deflation"
The US and the global economy are at risk of a severe stag-deflation, a deadly combination of economic stagnation/recession and deflation. A severe global recession will lead to deflationary pressures. Falling demand will lead to lower inflation as companies cut prices to reduce excess inventory. Slack in labour markets from rising unemployment will control labour costs and wage growth. Further slack in commodity markets as prices fall will lead to sharply lower inflation. Thus inflation in advanced economies will fall towards the 1 per cent level that leads to concerns about deflation.

Employers in U.S. Cut 533,000 Jobs, Most in 34 Years, as Recession Deepens U.S. employers eliminated jobs in November at the fastest pace in 34 years and the unemployment rate jumped as the yearlong recession engulfing the world’s largest economy deepened.

China November Car Sales Drop 10%, Most in Three Years, on Cooling Economy China's November car sales plunged 10 percent, the biggest decline in more than three years, as a cooling economy caused consumers to curb spending in the world's second-biggest auto market.

'Ponzi Scheme' at Citi
A new Citigroup scandal is engulfing Robert Rubin and his former disciple Chuck Prince for their roles in an alleged Ponzi-style scheme that's now choking world banking. Director Rubin and ousted CEO Prince - and their lieutenants over the past five years - are named in a federal lawsuit for an alleged complex cover-up of toxic securities that spread across the globe, wiping out trillions of dollars in their destructive paths.

But there's always an optimist in the crowd ...

Fundamentals of Commodities Markets Are `Unimpaired,' Jim Rogers Predicts The fundamentals of commodities are “unimpaired” and prices will rebound when a lack of new supply leads to shortages, said Jim Rogers, chairman of Rogers Holdings.

Gold Chart and More

2008-12-04T08:39:00.007-05:00

Time to look at gold again ...

Gold is drifting sideways, trying to decide if it wants to rally or head lower. I'm keeping an eye on it. And now let's look at a chart of the gold's doppleganger (in the short-term, anyway), the US dollar ...

More sideways drift. In this case, the dollar looks to be testing overhead resistance, while gold is testing downside support.

Here's another great chart from Jesse ...

Click on the chart for a bigger image.

Here is more news I'm reading (it's pretty depressing)

Metal prices fall further than during Great Depression

The price of key industrial metals has fallen further over the last four months than occurred during the worst years of Great Depression between 1929 and 1933, according to research by Barclays Capital.

Oil Will Fall Further Without OPEC Action, Says BP

Oil prices will continue to fall during the next 12 to 18 months if OPEC fails to implement “sufficient cuts” and supply stays at current levels

Weak data add to fears of long slump

According to the Beige Book, which offers a picture of the economy based on anecdotal evidence provided to the US central bank, “overall economic activity weakened” across all 12 of the Fed districts since the last report in mid-October, which had also offered a grim outlook.

Martin Wolf Says Big Stimulus Programs by Big Debtor Countries Will End in Tears

What is being advocated as a Keynesian remedy is in fact the opposite of what Keynes called for in his day. Keynes' prescription then would lead to a global rebalancing, with the US depending more on internally generated demand and less on its foreign partners (who were defaulting on their government debt). But if it were successfully deployed in the US now, it wold lead to a continuation, of our excessive consumption and China's underdevelopment of its internal demand.

November Layoffs Hit Highest Level in 7 Years

Job cuts announced in November totaled 181,671, up 61 percent from October and 148 percent higher than November 2007, when job cuts totaled 73,140, outplacement firm Challenger Gray & Christmas said in a report released on Wednesday.

Latest MoneyandMarkets.com Column

2008-12-03T15:41:00.001-05:00

Here's my latest Money and Markets column ...

Quest for the City of Gold

by Sean Brodrick

Wednesday, December 3, 2008 | 7:30 AM

El Dorado … Cibola … Quivira … these are all fabled “lost cities of gold” that fired up the imaginations of explorers who pursued their dreams to the four corners of the Earth. These cities only existed … [More...]

The book I reference in this column is "The Race for Timbuktu" by Frank Kryza. Here's a link to this book on Amazon, if you want to put it on your list for Santa.

Detroit's Song of the Doomed

2008-12-03T09:18:00.004-05:00

November saw the sales of cars manufactured in North America drop to 236,000 units. That's 17% below October (which was already horrible) and 40% below the number sold in November of 2007.
Source: Econbrowser.

Meanwhile, GM and Chrysler are seeking $11 billion to avert collapse this year. In short, they are simply running out of cash. Democrats pledged to keep them out of bankruptcy without saying how.

And Marketwatch tells us that Ford, Lincoln and Mercury combined car sales fell 31.5%, GM took an even harder hit with its 41.3% drop, Volvo sales tumbled 46.5% (ouch!) and Hummer sales dropped the most, downa stunning 63.9%.

Toyota, Nissan and Honda had less-bad news, but each saw sales drop by more than 31%.

Cars are piling up on the lots. If you think they're cheap now, just wait until the after-Christmas sales. But we may be approaching the point where auto makers start to just shut down factories. Maybe Kunstler had it right when he wrote last month: "Many Americans have already bought their last car -- they just don't know it yet."

Here is some other news I'm reading ...

Qatar looks to grow food in Kenya
The deal is the latest example of wealthy countries and companies trying to secure food supplies from the developing world.

China gasoline, diesel stockpiles at record in Oct
Gasoline and diesel stockpiles belonging to China's two oil giants, Sinopec Group and CNPC, hit record highs in October, according to the OGP newsletter published by Xinhua news agency.

<>Bleak outlook for U.S. oil refiners U.S. refiners now have too much capacity and produce the wrong products (gasoline) in a fuel economy increasingly dominated by ethanol and diesel. Capacity cuts of as much as 0.5-1.0 million bpd (equivalent to 4-8 average refineries) and expensive investment to reconfigure the system to increase the diesel yield seem inevitable.

Hedge Funds, Index Funds Lose Influence on Copper Market, Bloomsbury Says Hedge funds and index funds that helped drive copper to a record in July have “dropped out” in the last several weeks, leaving “almost traditional” factors such as inventories more influential, according to Bloomsbury Minerals Economics Ltd. in London.

HSBC Investment Fund Returns to Buying Gold to Hedge Against Inflation HSBC Investment Management’s $2.6 billion Absolute Return Service started buying gold again on expectations that inflation will accelerate and may start adding coffee, sugar and grains next year.

OPEC Will `Definitely' Cut Output at Dec. 17 Meeting, Qatari Minister Says OPEC, supplier of more than 40 percent of the world’s oil, will “definitely” cut output at its next meeting in Algeria on Dec. 17 after postponing a decision last month, Qatar’s oil minister said.

Bouncy Goodness

2008-12-02T13:42:00.003-05:00

The market has enjoyed a nice bounce today. I find it untrustworthy, considering how quickly the underlying fundamentals are deteriorating. Consider ...

Credit-card industry may cut $2 trillion lines: analyst

The U.S. credit-card industry may pull back well over $2 trillion of lines over the next 18 months due to risk aversion and regulatory changes, leading to sharp declines in consumer spending, prominent banking analyst Meredith Whitney said.
The credit card is the second key source of consumer liquidity, the first being jobs, the Oppenheimer & Co analyst noted.
"In other words, we expect available consumer liquidity in the form of credit-card lines to decline by 45 percent."

More commentary on that can be found HERE.

Oil falls as global outlook dims, OPEC stands pat

On Saturday, Saudi Oil Minister Ali Naimi said the Organization of Petroleum Exporting Countries will do what needs to be done to shore up falling oil prices when the group meets Dec. 17 in Algeria, but for now it was too early to make another output cut.
Prices continued to slide despite a separate report by Iranian state TV in which OPEC Secretary-General Abdalla Salem El-Badri said a daily oil production cut of between one million and 1.5 million barrels was likely in December. OPEC, which accounts for about 40% of global supply, cut output by 1.5 million barrels a day in October.

Are we watching the death of OPEC?

OPEC couldn't agree on any production cuts in Cairo but promised to revisit the issue Dec. 17. The burden of production cuts would fall almost totally on the Saudis and other conservative Middle Eastern oil producers. That's why the Saudis didn't buy into that deal in Cairo and why they might balk again. That result could leave OPEC standing but effectively end the cartel's power to change the balance of global supply and demand.
In the short run, that would be great for consumers. In the long run, it would lead to global energy chaos.

Sears Holdings posts loss, sets store closures

As retailers face one of the worst holiday shopping seasons in years, Sears has been clamping down on costs and inventory levels to try to reverse a year-long earnings slump as the weak economy hurts sales at its Kmart and Sears, Roebuck stores.

Manufacturing, Construction Spending Weaken

The Institute for Supply Management, a key measure of U.S. manufacturing activity, said its overall index for last month moved to 36.2 from 38.9 in October and 43.5 in September. November's reading was the weakest since May 1982.
Cliff Waldman, an economist for the Manufacturers Alliance/MAPI trade group, said the sharp drop "indicates that the rapidly declining U.S. and global economies have created a deep and worrisome slump in the U.S. manufacturing sector."

Ford sales off 31%, Toyota sales off 34%

"Despite some positive news on retail sales as a whole and the beginning of the holiday shopping season, the automotive sector seems to be really continuing under a lot of pressure because our customers are just under so much pressure right now," Jim Farley, head of Ford's marketing and communications team, said in a conference call.

Calculating the Total Bailout Costs
$8.5 trillion ... and counting! Nifty spreadsheet included.

Ouch!

2008-12-01T16:41:00.001-05:00

Canadian Stocks Plunge in Broad Selloff

Lower commodity prices and confirmation of a U.S. recession triggered a broad-based selloff on the Toronto Stock Exchange Monday, erasing many of the gains built in six straight positive sessions for the S&P/TSX and pushing the index to its second-worst loss in decades.

The index was down 9.32 per cent, or 864.41 points, to 8,406.21, despite some reasons for optimism – Black Friday retail sales in the United States looked better than expected and Statistics Canada reported the Canadian economy grew more than expected in the third quarter.

“This is the time of year when historically you see optimism come back into the markets, even in the worst of times,” said Elvis Picardo, an investment strategist at Global Securities in Vancouver. “We had a good streak last week, and people were thinking maybe it wasn't as bad as we expected. But we're taking it on the chin again.”

Gold Kicks Butt Longer Term

2008-12-01T09:46:00.006-05:00

Gold is down sharply this morning (over $30 an ounce as I write this -- ouch!). Maybe the "technical" buy signal gold triggered last week was incorrect, or maybe this is a pullback for all the late stragglers to get in before gold goes higher. We'll have to see how things develop.

Meanwhile, look at this chart I made on Stockcharts.com. It shows gold's weekly percentage performance over the past five years compared to the S&P 500, the Dow, the CRB Index and the US dollar. And gold has been kicking butt. I don't know if this outperformance will continue, but it certainly is a head-turner.

(hat-tip Jesse for the original comparison)

Happy December!

2008-12-01T06:24:00.004-05:00

The Monday after Thanksgiving arrives with a hangover for investors, with commodities and stocks both pointing down. Is this just a pullback in a bigger bounce, or the start of another leg down? We'll see.

Here is some news (and a chart) that I found interesting ...

Doug Short overlays the four worst bear markets since the crash of 1932. This one is no picnic. In fact, the current bear market has now moved into first place for the deepest decline since the S&P Composite became the S&P 500 in 1957 ...
Modest start to US holiday shopping season
Reports from the U.S. showed modest gains in retail sales on Black Friday -- the traditional start of the American holiday shopping season -- but business appeared to fall off during the rest of the weekend, at least according to some accounts, and analysts said crowds were thinner than last year. Also, sales gains seemed to come at the expense of profits as companies slashed prices to lure shoppers.
According to preliminary figures released Saturday by ShopperTrak RCT, a research firm that tracks total retail sales at more than 50,000 outlets, sales rose 3 percent to $10.6 billion on Friday from the same day a year ago. A more complete sales picture of how the Thanksgiving shopping weekend fared won't be known until Thursday when the nation's retailers report November same-store sales, or sales at stores opened at least a year.
XX Sean's note -- I don't see how anyone can expect good sales considering the pressure the U.S. consumer is under this year.

They warned us: US was told to 'expect foreclosures, expect horror stories'
The Bush administration backed off proposed crackdowns on no-money-down, interest-only mortgages years before the economy collapsed, buckling to pressure from some of the same banks that have now failed. It ignored remarkably prescient warnings that foretold the financial meltdown, according to an Associated Press review of regulatory documents.

7 reasons NOT to trade in that gas guzzler
Even with gas prices falling every day, you may still be inclined to swap that Yukon for a Prius, but whether it's a good idea is far from a no-brainer.

OPEC Failure Foretells Steeper Decline 10 Years After $10 Oil
A decade after OPEC failed to prevent oil from collapsing to $10 a barrel, the world’s biggest producers are delaying the action needed to arrest the steepest slide in energy prices.

China Manufacturing Contracts by Record, Adds to Risk of Slump
China’s manufacturing contracted by the most on record, signaling the growing risk of a slump in the world’s fourth-biggest economy. The Purchasing Managers’ Index fell to a seasonally adjusted 38.8 in November from 44.6 in October, the China Federation of Logistics and Purchasing said today.

Money and Markets -- Financial Mayhem & Gold's Next Surge

2008-11-26T07:37:00.002-05:00

Here is my latest Money and Markets piece ...

Financial Mayhem to Fuel Gold’s Next Surge?

by Sean Brodrick

Wednesday, November 26, 2008 | 7:30 AM

Last week, I wrote about how our oil-rich friends in the Middle East are buying gold hand over fist. It turns out they’re not the only ones. The latest figures from the World Gold Council show a frenzy of activity … [More...]

Getting Ready for Turkey Day

2008-11-26T07:03:00.008-05:00

I am seeing a flurry of stories that base metals miners are rushing to shut down. Just look at some of the headlines from the past couple days:

Zambian copper workers face layoffs ... Indefinite shutdown for world top tantalum miner ... Mwana Africa shuts Zimbabwe nickel mines ... Denison Mines delays uranium project ... Norilsk Idles Two Mines ... I could go on, but you get the picture. This is happening because the global economy is tumbling into recession (See the China story linked below). But down the road, this is also setting up a supply squeeze and subsequent rebound.

And it's not just base metals: Australia's 2008 gold output may fall to lowest level since '89 .

In Other News ...

Gold equities expected to pay off for the patient

Scotia Capital analyst Trevor Turnbull remains bullish on gold, noting that dollar demand for the metal reached an all-time quarterly record of US$32-billion in the third quarter as investors flocked to safety. He also highlighted the identifiable investment demand gold offers, which includes ETFs, bars and coins.

XX Sean's note -- this guy's picks will look familiar to buyers of my gold report. By the way, did you get yesterday's update to "Your Golden Parachute for 2009"? It's an important one!

Gold is the answer. Now what was the question? While gold has hardly been seen to be performing well in recent months, and has failed to meet gold optimists' more extreme, or even more mild, expectations, it has still performed less badly than most other sectors of the market. As has been noted here on several occasions actual physical demand has remained extremely strong, both in eastern and western markets. Major gold suppliers have run out of inventory and seem to be having difficulty replacing it, while ETF demand remains very positive.

Synchronized Recession, Synchronized Stimulus?

If all the countries (or all the relevant countries) were to stimulate simultaneously, then the aggregate world economy would look a lot more like a closed economy, and the multiplier would be larger yet again.

Figure 1: From visualization of OECD Economic Outlook 84 [link]. Blue is negative growth, darkest blue is -9.335%; orange is positive growth, most orange is +9.335%. White is zero; gray is "no forecast".

A Global Downturn Puts the Brakes on China's Industry It is happening faster than most anyone predicted: China’s economy, long the world’s fastest-growing major economy, is slowing down. Economists are forecasting that after growing nearly 12 percent last year, China’s economy could slow to 5.5 percent in the fourth quarter of this year — a stunning retreat for a country accustomed to boom times.

The Western Financial System We Knew Has Collapsed

Getting banks to lend again is even more essential than getting primary and secondary markets for illiquid structured financial products going again. It may be even more important than getting the regular commercial paper market going again, important though that is. Small and medium enterprises rely overwhelmingly on banks for external finance. Without access to bank loans, credit lines and overdraft facilities, countless SMEs that would be perfectly viable with a functional financial and banking system are threatened with bankruptcy. Without working capital, businesses go out of business. Banks are essential. But they are not lending. Why? A number of possible explanations suggest themselves.

And now for some good news ...

U.S. Mortgage Rates Fall on $600 Billion Fed Plan U.S. mortgage rates fell more than three-quarters of a percentage point today ... The average U.S. rate for a 30-year fixed mortgage ended the day at about 5.5 percent after falling to as low as 5.25 percent, according to Bankrate Inc. It was 6.38 percent this morning.

XX Sean's note -- I'll be traveling for Thanksgiving, so my computer access over the long weekend will be very restricted. Have a great holiday, stuff yourself silly, and I'll talk to you on Monday.

Great Looking Gold Chart!

2008-11-24T07:13:00.003-05:00

We try to use technical analysis for forecasting, but it’s better used as a rear-view mirror. Here is a daily chart of gold by the numbers ...

#1 – the second part of a double-top. This signaled (in retrospect) gold’s upcoming, steep decline.

#2 – a pivot point. Measuring from 1 to 2, we get a retracement down to 720.

#3 -- 720 – which also happens to be the bottom of gold’s range.

#4 – the top of gold’s recent range. It has consolidated in a base since October 23rd, but has broken out of that range now.

#5 RSI, an oscillator that measures momentum. It is more bullish now than since any time since mid-September.

But what about the dollar? It’s usually on the opposite end of the see-saw of pain with gold. The US dollar is showing short-term weakness – giving a daily “sell” signal – but remains in a long-term, strong uptrend. If the US dollar does consolidate its gains by pulling back, the 83-84 area would be my target.

We are conditioned to think that gold and the US dollar have to move in opposite directions. But they don’t have to. Gold and the US dollar could both go higher if investors flee the major stock indices and look for safety.

It may see crazy talking about the investors fleeing stocks when the futures are up so much this morning. What is moving the market? The New York Times reports news on President-elect Barack Obama that is giving investors the holiday spirit ...

In the Democrats’ weekly radio address, Mr. Obama said he would direct his economic team to craft a two-year stimulus plan with the goal of saving or creating 2.5 million jobs. He said it would be “a plan big enough to meet the challenges we face.

Although advisers say they have not begun to fill in the details, Mr. Obama’s proposal would go beyond the $175 billion stimulus plan he proposed in October. That included a $3,000 tax credit to employers for each new hire above their current work force and billions in aid to states and cities.

Some Republicans might be won over should Mr. Obama decide not to repeal the Bush tax cuts for those making more than $250,000. By simply letting the cuts expire after 2010, as the law now provides, Mr. Obama would in effect delay the tax increase that high-income taxpayers would have faced in the next year or two under his original plan.

The rumor flying on the street now is that Obama will NOT repeal the Bush tax cuts. And that makes Wall Street very happy. They're all happy talk about Obama on CNBC now, when they were calling him a socialist just two weeks ago.

But if you look at Obama's political appointments so far, he's not progressive at all -- he's very middle of the road, and seeks a consensus.

Not to be the voice of misery at the party, but I will point out that our country and the world still has major economic problems that some tax breaks won't fix. Still, psychology is 90% of the market, and in the short-term, psychology should be bullish. We'll see how we end the day.

Drowning Market Grabs for a Lifeline

2008-11-21T13:46:00.008-05:00

There's not much I could say about the markets today that can't be said in charts. All the major averages gave weekly sell signals at the end of day yesterday.

One thing isn't going down -- gold. It is showing strength today -- maybe it's the fear trade, maybe it's just options expiration craziness. We'll have to see if there's follow-through, so stay tuned on that.

Here are the charts ...

The Progress of the Financial Crisis in One Picture: Mortgages, Flight to Safety, Credit Lock

Interest Rate Spreads. The top panel shows the LIBOR-OIS spread (dark shaded area). The TED spread (LIBOR minus the Treasury bill rate) is given by the sum of two shaded areas. It also captures the fact that Treasury bonds are especially sought-after collateral in times of crisis.

And here's the yield on T-Bills ...

The commentary on this chart: “Where the credit markets are trading, it’s all but implying a 1929 scenario,” said Joe Balestrino, fixed income strategist at Federated Investors.

...

It sure seems like the current move is driven by something other than fundamentals. A negative swap spread — according to the FT – implies that “investors are somehow reckoning that they are more likely to be paid back by a private counterparty than by the government.” That doesn’t seem consistent with what the rest of the market is telling us.

XX Sean's note -- I talked to a broker in Chicago this morning. He says the rumor in the pits is that there could be a default on delivery of December Treasury bond Futures. That may or not be true, but someone may be pricing it in. Get a load of the TLT ...

In other news worth reading, Naked Capitalism takes a look at The Ill-Considered Problem of a GM Bankruptcy .

And Bloomberg says the collapse of GM alone would cost taxpayers about $200 billion.

Gold, Cars and Government Bailouts

2008-11-20T06:45:00.004-05:00

Deflationary forces are pushing the price of gold lower. However, beyond the short-term price for paper gold, some of the news is surprisingly bullish. I'm putting out an update to my recent gold report today, with some very interesting news on supply and demand. The director of the World Gold Council was on CNBC yesterday talking about it. You can see that video here: http://www.cnbc.com/id/15840232?video=933064521

Some of the bullish news for gold ...

* Global demand rose 18% to 1,133.4 metric tonnes from 963.3 tonnes a year earlier.

* In dollar terms, the jump in demand was even bigger. Dollar demand for gold reached an all time quarterly record of $32 billion in the third quarter, a whopping 45% higher than the previous record … set in the second quarter.

* Identifiable investment, which includes purchases through exchange-traded funds and of bars and coins, climbed 56% year over year to 382.1 tons.

There's a lot more in the update. Look for it today.

In other news, the Big 3 Automakers left Washington empty-handed after Congress couldn't agree on a$25 billion rescue plan. Apparently the lawmakers were upset that the car manufacturing CEOs flew to Washington on private jets. I don't remember anyone asking if bankers used private jets when we handed them $700 billion. The real argument against it is that even if we loan them $25 billion, the automakers' business model is broken and they'll be back with begging bowl in hand pretty soon. Even the automakers admit that $25 billion is only a bridge to the next step.

It's already been shown that it will cost the government more than $25 billion if we don't give loans to the Big 3. The auto industry is 4% of our GDP. Not bailing it out will probably cost $400 billion to $750 billion in unemployment insurance, welfare payments, related businesses going broke, etc. So opponents of the plan must be thinking that the eventual cost of the bailout will be more than $750 billion. Still, you have to wonder why they're balking at $25 billion when the US government has already spent $4.3 TRILLION in bailouts.

UNLESS ... the real opposition to the bailout is that letting the car companies go bankrupt is a chance to break the back of organized labor. And some people feel that's a worthy goal no matter what the cost. After all, if they can pay American workers the same wage they pay Mexicans, then car companies won't have to ship any more production to Mexico.

I was in favor of the bailout, with many strings attached. Those strings would include ...

* Increase American automobile fuel efficiency by an average 10 mpg over the next 10 years and 20 mpg in 15 years.
* Combine the big 3 into big 2, and start laying off non-essential personnel.
* No more executive bonuses until the crisis is passed, and any percentage wage cuts for workers is matched by at least double that in percentage wage cut for top executives. After all, GM line workers make $27.81 an hour, while the CEOs of Chrysler, Ford and GM earn a combined $24.5 million per year.
* No more foreign outsourcing of jobs.
* Cut advertising budgets to 1/10th of what they are now and put the saved money into building cars, not marketing them.

There are other strings I'd attach, but you get the basic idea. Bailouts have worked in the past. Chrysler was given a government loan back in the early 1980s and this helped Chrysler survive at the time. Lee Iacocca said, "We borrow money the old fashioned way. We pay it back". In his first year, Iacocca fired 33 of the 36 vice presidents and streamlined the management. He cut workers' salaries, but they couldn't really complain because he set his own salary the first year at only $1.

There are still many problems that car makers will have to overcome, including their staggering legacy costs. But I think failure is a very bad option. America is a country that runs on cars. I think we need a car industry, and I don't want to see our manufacturing base hollowed out any more than it is, because at some point, we'll need it. After all, if there's a war, are we going to buy our tanks from China?

Meanwhile, at the US EconoMonitor, Robert Reich makes some good points about the massive TARP bailout of Wall Street's biggest banks:

Hank Paulson has just about burned through $300 billion, and it's not clear what the public has got out of it. Perhaps things would be worse without the bailout but they're certainly no better. Wall Street banks have not significantly stepped up their loans to small businesses, college students, car buyers, or distressed homeowners. Much of the auto industry is on the verge of bankruptcy. And the rate of foreclosures is rising.What happened to all the money? About a third has gone into dividends the banks are paying their shareholders. Some of the rest into executive salaries and bonuses. Another portion toward acquisitions designed to raise share values. Another chunk for bailing out giant insurer, AIG. That's not what taxpayers bargained for.

Mr. Reich's proposal: Force the banks to stop paying dividends, executive compensation or deferred bonuses, or doing any more acquisitions, and instead use their money to start lending. To that, I'd add the proposal that any company living on government handouts can't use private jets. If it's a good enough rule for car manufacturers, it's good enough for banks.

IN OTHER NEWS ...

Consumer Prices Fall Record 1% as Energy Plunges The overall and energy decreases were the biggest since the government began keeping such records. Data on the overall CPI date back to 1947, and the energy data go back to 1957.

Crude Oil Falls, Approaching $50 a Barrel, as Slowing Growth Saps Demand Crude oil fell for a fifth day, approaching $50 a barrel, as the weakening world economy increased concerns that demand for fuels will slow.

Goldman Cuts 2009 Oil Forecast, Closes All Its Oil Trading Recommendations Goldman Sachs Group Inc. cut its forecast for the average price of New York-traded crude oil in 2009 to $80 a barrel from $86, adding that it was closing all its trading recommendations for oil.

China Plans First Fuel-Price Cut in Two Years to Help Stimulate Economy China, the world's second-largest energy user after the U.S., is accelerating plans to cut fuel prices for the first time in two years as the nation's economy slows and oil costs fall, the country's top planner said.

Corn, Soybeans Fall a Third Day as Stocks Rout Increases Demand Concerns Corn and soybeans dropped for a third day as stock markets slumped, increasing concern that a worsening global economy will curb demand for food, feed and fuel. Wheat prices declined for a fourth day.

Bernanke May Find Deflation `Back on the Table' as Threat to U.S. Economy Five years after Federal Reserve Chairman Ben S. Bernanke helped stamp out the risk of deflation, the threat is returning as the financial crisis and a worsening economic slump pull inflation lower.

Ecuador Audit Commission Finds `Illegality, Illegitimacy' in Foreign Debt Ecuador's debt audit commission said it uncovered ``illegality and illegitimacy'' in the country's foreign obligations, findings that may give President Rafael Correa the legal basis he's sought to halt bond payments.

My Latest HoweStreet.com Interview

2008-11-19T15:17:00.001-05:00

The market is depressing the hell out of me, so it's good to share some laughs with Phil. We also cover some important topics, too. You can listen at: http://www.howestreet.com/index.php?pl=/goldradio/index.php/mediaplayer/1030

Charts of S&P and Vix, and the Search for a Market Bottom

2008-11-19T07:37:00.007-05:00

My MoneyandMarkets.com column today, Are Oil-Rich Sheiks Being Scared Into Gold?, is pretty bearish on everything but gold. That said, I also wouldn't be surprised to see a broad market rally this next week. In 13 of the last 15 years, the week before Thanksgiving has been a positive one in the market.

And that, in turn, could be the basis for a Santa Claus rally in a very oversold market.Three common indicators used to find a bottom are the bull/bear ratio, convergence/divergence, and capitulation as measured by the VIX (or fear) Index.

Note that I'm talking about "a" bottom, not "the" bottom. The Dow’s low of 1932 was preceded by at least seven levels that were considered major market bottoms. Looking at today’s market, we aren't looking for THE bottom, we're looking for a tradeable bottom that can be a springboard for a sustainable (several weeks to several months) counter trend rally.

Bull/Bear Ratio: Investors Intelligence surveys 140 financial newsletter writers to determine whether they are leaning bullish or bearish in their opinions to subscribers. The current bull/bear ratio of 0.44 is one of the lowest on record.

Verdict: the bull/bear ratio is a contrary indicator, so this is bullish.

Convergence/Divergence: A unanimous signal from the major benchmarks carries more weight than a fragmented signal. The markets all put in significant lows on October 27th. The Dow hasn't tested that low yet, but both the the Nasdaq (QQQQ) and S&P 500 did. Some will say the Dow has come close enough, others say not yet.

Verdict: Jury is still out. If they all make new lows, or bounce from their recent levels, that will tell us something.

Capitulation is somewhat linked to the VIX, which hit a record intraday level on October 24th and closed at a record level on October 27th. Futures were down limit the night before. There were some indications of panic but when the pit session opened, the stock market rallied back, showing limited downside market action. What we didn’t see was a record spike in volume.
Looking at the chart, you can see that the VIX has backed off its highs. However, I wouldn't be surprised to see it test those highs again -- probably accompanying a swoon in the market.

Verdict: Jury still out. If the VIX trends lower again, that would be a bullish sign.

So far, the evidence is inconclusive. We could see the regular Thankgiving rally and that could lead to a Santa Claus rally. Or we could plunge to new lows pretty quickly.

I think external forces that could move the market is news on the potential auto industry bailout, which could go either way; better news on the dismal international trade picture, which I covered in today's Money and Markets column, which could send the market higher; and a worsening economic picture in China or the global economy generally, which could send it lower.

So many uncertainties! Stay tuned!

Groping Through the Murk and Risk

2008-11-18T07:21:00.003-05:00

The US is probably going to join the rest of the industrialized world in recession and all the bad news probably isn’t priced in yet. However, it would not be surprising to see a rally soon.

We’re approaching Thanksgiving. In 13 of the last 15 years the Dow has been up the week before Thanksgiving. Combined with the light volume around the Thanksgiving holiday – there’s an old saying on the Street, “never short a dull market” – we could see a powerful move to the upside before the Dow, the S&P 500 and the Nasdaq finally hold hands and jump off the next cliff.

And then there are commodities. Crude oil fell to the lowest closing price since January 2007 as Japan entered a recession for the first time since 2001. Meanwhile, China National Petroleum, that country’s largest petroleum producer, said demand has dropped “sharply.''

The collapse in crude and other commodities was accompanied by a rip-roaring rally in the U.S. dollar. But now here’s an interesting thing. The U.S. dollar has not been able to capitalize on its recent breakout – stalling at overhead resistance – and yet commodities continue to go lower. This shows that commodities are weak all on their own – they can’t blame all their troubles on the greenback.

The fact that the dollar broke out to the upside and is now consolidating those gains rather than taking off is perplexing, considering the bad news pouring in about other economies. There was bad news for the U.S.yesterday beyond the massive layoffs by Citigroup. The New York Federal Reserve Bank's Empire State Manufacturing Index fell 0.8 points to -25.43. That's the third consecutive month in negative territory and a record low in the seven-year history of the survey.

But bad economic news hasn’t dragged on the U.S. dollar previously, because the news from other economies is so much worse. Like I said, it’s puzzling. Well, if this were easy, everyone would be millionaires. Instead, we grope through a market that is murky with risk.

Here are some stories that I find interesting ...

Why the Energy Crisis Will Oulast the Credit Crisis
The International Energy Agency's annual World Energy Outlook, released on Wednesday, predicts that oil prices will start a steep climb soon, and by 2030 will settle around $120 a barrel — more than double this week's price — as producers face rocketing costs of equipment such as drills and rigs, and are forced into the increasingly expensive business of extracting oil from less accessible fields, many of them far out at sea. Added to that, the world economy continues to grow — albeit at a slower rate — which will likely accelerate again at some point in the coming years — prompting billions more people to drive cars and burn electricity at home during the next two decades.

Big Oil: We told you so
With prices sharply lower from the summer's highs, Big Oil's decision to hold off on new production now seems rather wise.

S&P Notes Surge In Defaults
A total of 85 companies defaulted on bond debt worth $284 billion through Nov. 11, according to Standard & Poor’s, which estimates that the default rate could increase to as much as 9.6% by October of 2009. The rise in defaults contrasts with last year, in which 22 companies defaulted, and 2006, in which there were 30 defaults.

The Six Unknowns That Are Roiling the Stock Market BusinessWeek asked stock market experts to identify the biggest unknowns facing investors. These factors will be crucial to clearing up a foggy outlook. Unfortunately, it could take months—if not years—to resolve them.

Nyrstar to Cut Zinc Output 28% at Belgian, Dutch Smelters to Conserve Cash Nyrstar NV, the world's largest zinc producer, will slash output of the metal at smelters in Belgium and the Netherlands by 28 percent and may extend cuts next year to reduce costs and debt.

China May Need to Offer Grain Export Rebates to Ease Glut, Researcher Says China may need to introduce rebates to boost grain shipments and ease a glut of wheat, rice and corn as a cut in export taxes announced last week won't be sufficient to have an impact, a commodity researcher said.

3 Charts -- Gold, Dollar and Crude

2008-11-17T07:16:00.006-05:00

Today, the markets look to open lower as the parade of pain continues around the world. Japan has joined Europe in recession, President Bush lets slip that he is worried we are facing a depression "greater than the Great Depression", and China's consumption of commodities is running off the rails.

I'll have links to all these stories in a moment. First, let's look at a chart of gold.Gold may be hammering out a base. Its price action has improved enough that it is now above its 10- and 20-day moving averages, and the 10-day moving average looks ready to cross above the 20-day moving average. We'll need follow-through to be sure.

Meanwhile, momentum is improving. Gold is still in a downtrend -- we don't have a weekly buy signal -- but this looks encouraging. What could be driving it? How about reports that the Arab oil sheiks and Iran are piling into gold right now. Why would they be doing that? I'll explore that more in this week's MoneyandMarkets.com column.

Now, let's look at a chart of the US dollar ...
The dollar broke out to the upside and is now consolidating those gains rather than taking off. This is perplexing, considering the bad news pouring in about other economies. But if this were easy, everyone would be millionaires.

As the US dollar goes up, usually gold and oil go down. Let's look at crude oil ...
Oil seems to be going lower as demand falls around the world and OPEC seems to be backing off from a potential cut this month. What will turn crude oil around? Probably when it reaches new equilibrium in supply and demand. We are already seeing many new oil projects delayed or canceled due to falling oil prices, lack of finances, and so on. This is future supply that is being destroyed, just as present demand is being destroyed now. The two shall meet ... and maybe sooner rather than later.

Here is some news I find interesting ...

Japan joins Europe in recession - International Herald Tribune
Japan became the latest major economy to fall into recession on Monday with France close behind, and the IMF said it needed at least $100 billion (67 billion pounds) to fight the billowing economic crisis enveloping the world.
The euro zone is also in formal recession, with two consecutive quarters of contraction, Britain and the United States are on the brink and China is slowing sharply.

Bush: We're Trying to Avoid a Depression Greater Than the Great Depression
"I'm a free market person," President Bush told reporters after the summit ended, "until you're told that if you don't take decisive measures then it's conceivable that our country could go into a depression greater than the Great Depression."

Long, painful recession is likely - survey A survey of leading economists showed Monday that the likelihood of a prolonged recession has increased significantly as economic conditions continue to deteriorate.

Copper Drop to Deepen as China Spending Overwhelmed by Deflating `Bubble' Not even $586 billion of emergency spending by China can slow the plunge in copper, the worst- performing metal since the commodities market crashed in July.

U.S. Cotton Exports Drop at Fastest Pace in Decade as Chinese Demand Slows Cotton users are halting orders from the U.S., the world's biggest exporter, at the fastest pace in at least a decade as the economic slowdown erodes demand from China and sends prices to a six-year low.

Aluminum Falls to Three-Year Low as China May Increase Supply; Copper Down Aluminum fell to a three-year low and copper declined in London on speculation more metal will be shipped out of China, adding to global supplies as demand falters. Zinc also fell.

China Reduced Gasoline, Diesel Imports in October Because of Weaker Demand China, the world's second-biggest energy consumer after the U.S., cut diesel and gasoline imports for a third month as the economic slowdown damped fuel demand growth.

2 Charts and News for Today

2008-11-13T08:55:00.005-05:00

Yesterday we moved to the low end of the recent trading range, the 850 area of the S&P 500 (SPX) or 85 area of the SPY. Whether that constitutes a successful test of the area or not is an open question. Given that weekly oscillators reflect a deeply oversold condition, we may see a bounce attempt. From a technical standpoint, the risks seem equally balanced either way. A breakdown below the lows might well increase selling pressure and lead to much lower levels.

Lawmakers, Investors Ask Fed for Lending Disclosure on $2 Trillion in Loans

Members of Congress, taxpayers and investors urged the Federal Reserve to provide details of almost $2 trillion in emergency loans and the collateral it has accepted to protect against losses.

Total Fed lending topped $2 trillion for the first time last week and had risen by 140 percent, or $1.172 trillion, in the seven weeks since Fed governors relaxed the collateral standards on Sept. 14. The difference includes a $788 billion increase in loans to banks through the Fed and $474 billion in other lending, mostly through the central bank's purchase of Fannie Mae and Freddie Mac bonds.

XX Sean's note -- it's more like $2.3 trillion, but what's $300 billion between friends.

Trade Deficit Narrowed 4.4% in September on Declines in Crude-Oil Imports The U.S. trade deficit in September narrowed more than forecast as a record decline in the cost of foreign crude oil caused fuel imports to tumble.

XX Sean's note -- check out this chart of US crude oil imports. It's like Wile E. Coyote running off a cliff!

IEA Cuts Global Oil Demand Forecast the Most in 12 Years as Economies Slow The International Energy Agency, an adviser to 28 nations, cut its global oil demand forecast the most in 12 years as world economic growth deteriorates.

Oil Gains, Rebounding From 21-Month Low, on Proposal for Early OPEC Meet Crude oil rose, rebounding from its lowest in 21 months, after an OPEC delegate said that the group may hold a full meeting in Cairo this month before its scheduled December gathering.

Copper, Aluminum Rebound From Three-Year Lows in London as Dollar Drops Copper and aluminum rebounded from three-year lows in London as a drop in the dollar may help revive demand for industrial metals. Zinc and nickel also rose.

Australia Stocks Tumble to Four-Year Low, Led by Banks, Resource Companies Australian stocks plunged, led by banks and resource companies, after Commonwealth Bank of Australia said bad debts may double, the U.S. Treasury scrapped plans to buy mortgage assets, and metals prices dived.

Commodities to be 'Under Pressure', Morgan Stanley's Roach Says

Commodity prices, measured by the Standard & Poor's GSCI Index of 24 raw materials, have plunged by more than half from their record on July 3 as the global credit crisis threatens to push the world into a recession, reducing demand for raw materials. Crude oil has slumped 63 percent in four months.
China's 4 trillion yuan ($586 billion) stimulus package "puts a floor on Chinese growth of around 7 percent,'' said Roach. "That will provide some support and limit the correction of commodity prices from being absolutely catastrophic.''

US Dollar Breakout

2008-11-12T14:22:00.000-05:00

Wednesday News Roundup

2008-11-12T09:28:00.003-05:00

The US government is bankrupting our economy by burning through hundreds of billions of taxpayer dollars in the form of bailouts to Paulson and Cheney cronies. American Express is getting bailout money? Seriously? American Express could vanish off the face of the Earth and we'd hardly notice. I think it telling though, that American Express' customers can't pay their bills.

The government needs to focus on saving businesses that could still be saved and are worth saving. And Robert Reich has some choice words about the bailout ...

When a big company that gets into trouble is more valuable living than dead, there used to be a well-established legal process for reorganizing it - called chapter 11 of the bankruptcy code. Under it, creditors took some losses, shareholders even bigger ones, some managers' heads rolled. Companies cleaned up their books and got a fresh start. And taxpayers didn't pay a penny.

So why, exactly, is the Treasury substituting government bailouts for chapter 11? Even if you assume Wall Street's major banks and insurance giant AIG are so important to the national and global economy that they can't be allowed to fail, that doesn't mean they have to be bailed out. They could be reorganized under bankruptcy protection. True, their creditors, shareholders, and executives would take bigger hits than they're taking now that taxpayers are bailing them out. But they're the ones who took the risk. We didn't.

The Treasury seems to have lost sight of its real client. It's client is not the creditors, shareholders, or executives of any of these firms. Its sole client is the American people.

So is the automobile industry one of those industries that should be saved with bailout money rather than through bankrupcty? I don't know. But I do notice that people who were amazingly eager to throw bailout money at banks, money which then went to pay for fatcats' bonuses, are lining up in lockstep to say the automobile industry can't be saved.

Here are some news stories I find interesting today ...

US ECONOMY
Best Buy Cuts Full-Year Profit Forecast on `Seismic' Slowdown in Spending Best Buy Co., the largest U.S. electronics retailer, said full-year profit will be lower than it expected because of the recent turmoil in the financial markets and the U.S. economic slump
U.S. Slump May Be Longest in Three Decades as Economy `Fell Off a Cliff' The U.S. downturn will be the longest in three decades, and the drought in consumer spending may be the worst ever, according to economists surveyed by Bloomberg News.

CHINA
BHP's West Australian Iron Ore Exports Decline 7.6% as China Demand Wanes BHP Billiton Ltd., the world's biggest mining company, exported 7.6 percent less iron ore from Western Australia in October amid a slowdown in demand from China.
Retail Sales Climb 22% in China as Crisis Fails to Damp Consumer Spending China's retail sales rose 22 percent, close to the fastest pace in nine years, signaling that domestic demand may help the fourth-biggest economy withstand a looming global recession.

ENERGY
Oil Falls to 20-Month Low on Expected U.S. Supply Gain as Demand Weakens Crude oil fell to a 20-month low on forecasts that a report will show U.S. crude inventories grew last week as the worsening economy wears down energy demand.
World Must Find a Kuwait a Year to Meet Demand, Replace Fields, IEA Says The world must find an extra 64 million barrels a day of oil production by 2030, equivalent to replacing Kuwait's output every year, to meet demand growth and counter the decline of existing fields, the International Energy Agency said.
China Plans to Spend at Least $27 Billion on Energy Projects in Future China, the world's second-biggest oil consumer, will spend at least 188.5 billion yuan ($27 billion) to build six energy projects including a natural gas link and nuclear power plants to spur economic expansion.
OPEC President: We May Cut Again If Oil Falls Further
"If the prices continue their decline most probably OPEC will have to take a further decision on a cut in supply," Khelil told Reuters.

3 ETF Stories

2008-11-11T13:53:00.003-05:00

Here are some stories on the latest developments in ETFs and ETNs ...

Investors Sour on Exchange-Traded Notes

Investors yanked about $460 million from the 90 ETNs tracked by fund researcher Morningstar in September, a chunk of their $5.5 billion in overall assets.
October figures aren't yet available, but an early snapshot suggests they could be worse. About 12% of outstanding shares at iPath Dow Jones-AIG Commodity Index Total Return, the largest single ETN by far with $2.7 billion and run by a unit of Barclays PLC, were redeemed during the month through Thursday.
"We believe the outflows across commodity investment products, such as ETNs or ETFs, are only temporary," Barclays said. "The exchange-traded product market will continue to grow and there will continue to be new products offered to investors."

XX Sean's note -- I wonder how much of that rush to redemption has to do with the fact that AIG's name is on the fund, and AIG is about as popular on Wall Street right now as a leper at a nudist colony.

Triple Leverage ETFs Maximize Market Directions

Direxion has launched eight ETFs that are leveraged bull and bear funds designed to seek 300% of the daily performance, or 300% of the inverse of the daily performance, of the four indexes they track.

The new funds are:
Direxion Large Cap Bull 3X Shares (BGU)
Direxion Small Cap Bull 3x Shares (TNA)
Direxion Energy Bull 3x Shares (ERX)
Direxion Financial Bull 3x Shares (FAS)
Direxion Large Cap Bear 3x Shares (BGZ)
Direxion Small Cap Bear 3x Shares (TZA)
Direxion Energy Bear 3x Shares (ERY)
Direxion Financial Bear 3x Shares (FAZ)

Many ETFs Hit 52-Week Lows in October

Fears of a global slowdown and a strengthening dollar triggered a sell-off across all commodities, including gold, typically considered a safe haven amid uncertainty.
Inflows And Outflows
While investors dumped mutual funds this year, they bought ETFs.
They pulled $73.01 billion out of mutual funds across all categories in October, according to TrimTabs Data Research estimates. But they poured $4.33 billion into ETFs. Year to date investors took a net $199.37 billion out of mutual funds and put a net $83.60 billion into ETFs.

China, China, China!

2008-11-11T08:46:00.004-05:00

DC Money Show and more

2008-11-08T12:57:00.008-05:00

I spent the weekend at the Washington D.C., Money show. The show has shrunk from last year, and the opinions ranged from "this is an incredible time to buy" to "Aaaaaaiiiiiii!!!!!" I'll have more about that in Wednesday's Money and Markets column.

This morning, the market is rising on news of a $586 stimulus plan in China and a new A.I.G. bailout in Washington. I'm not sure why the market thinks this is good news. Last time I looked, the Federal Debt had soared to such levels that each American now owes over $32,000. I think that's unsustainable, as long as the US dollar holds its present value.

In other words, it would be a lot easier to bear if that debt was only (in relative terms), $3,200. That's not so scary, is it? I wonder if Uncle Sam is thinking the same thing. The Russians are already letting the ruble devalue like a stone falling from heaven.

You could say that Paulson's hand-outs of billions of dollars at a time are just the latest twist in the Bush gang's efforts to loot the public purse before they leave office. Jerome at DailyKos asks: Can Obama Stop the Looting Before It's Too Late? I don't think Jerome should get his hopes up -- the handover of power seems to be much too friendly for there to be a disruption of the pigs at the trough -- and I found especially interesting this line from a Bloomberg story that Jerome links to: Americans have no idea where their money is going or what securities the banks are pledging in return.

Here's the news I'm reading now ...

AIG May Get More in Bailout

When the restructured deal is complete, taxpayers will have invested and lent a total of $150 billion to A.I.G., the most the government has ever directed to a single private enterprise. It is a stark reversal of the government’s assurance that its earlier moves had stabilized A.I.G.

XX Sean's note -- Funny, isn't it, how eager Treasury Secretary Paulson is to throw $40 billion at a pop at A.I.G, but there's great rending of garments and gnashing of teeth over a proposed $50 billion loan package for the auto industry. Heck, even Australia is giving its car makers $6 billion over 15 years.

Europe, Asia Markets Surge on China Stimulus Plan

The gains come in the wake of Chinese government's unveiling of a massive 4 trillion yuan ($586 billion) stimulus package to help stave off much of the economic slowdown. The package involves a mix of spending, subsidies, looser credit policies and tax cuts.
China's economic growth slowed to 9 percent in the third quarter, the lowest level in five years and a sharp decline from 11.9 percent the year before -- perilously low for a government that needs to create jobs for millions of new workers and for other Asian countries that have come to depend heavily on Chinese demand.

Believing in Estimates Means 20% Advance for S&P 500

The average Wall Street forecast calls for the S&P 500 to break out of a bear market and surge 20 percent to 1,118 by Dec. 31 -- more than twice as much as the biggest-ever advance to close out a year, according to data compiled by Bloomberg. Strategists were even more bullish at the beginning of the year, predicting that the S&P 500 would end 2008 at a record 1,632.

OPEC president: Oil cuts likely if no price rally

OPEC nations could further reduce oil output if moves last month to slash production do not bolster plummeting oil prices, OPEC president Chakib Khelil said Saturday.

Saudi Aramco Says Oil Price Falls May Curb Investment

(Bloomberg) -- Saudi Aramco, the world's biggest state-owned oil company, said a further drop in crude oil prices may curtail investments needed to offset declining output in aging fields.
Investment is also needed to expand production capacity to meet long-term demand growth, Chief Executive Officer Abdallah Jum'ah said in a handout distributed today at an industry summit in Beijing.

Saudi Aramco to Cut December Crude Oil Supplies to Asia by as Much as 6% Saudi Aramco, the world's biggest state oil company, will cut crude supplies to Asia in December for the first time in at least a year as demand slumps for naphtha and diesel fuel.

Gold Advances in London Trading as Higher Oil, Weaker Dollar Boost Demand Gold rose for a second day in London as higher crude-oil prices and a weaker dollar boosted demand for the metal as a hedge against inflation.

Finally, in Sunday's New York Times, Al Gore proposes "a five-part plan to repower America with a commitment to producing 100% of our electricity from carbon-free sources within 10 years."

Ugly Thursday

2008-11-06T11:17:00.003-05:00

The morning rally in gold has faded. The market is going downhill in a hurry. Whatever bounce associated with the election seems to be fading.

Barack Obama's Yuan Calls May Place U.S. on Collision Course With China Barack Obama's calls for changes in China's yuan policy may put the president-elect on a collision course with the U.S.'s second-largest trade partner, which is holding the currency stable to support its export-led economy.

Euro Falls Against Dollar After ECB Cuts Rate to Lowest Level in Two Years The euro fell against the dollar, the yen and the pound after European Central Bank President Jean- Claude Trichet said the economy ``weakened significantly'' and the International Monetary Fund cut growth forecasts for the region.

Oil Falls, Tracking Equity Prices, on Concern Slowdown Is Cutting Demand Crude oil fell to an 18-month low, following equities, on signs that fuel demand will contract as the global economy slows.

Market paralysis ignores uranium's compelling projections The Melbourne-based financial services group BGF Capital Group says that the frozen minds of investors and developers may well see a critical shortage of uranium in two to four years time.

Global Oil Demand May Contract In 2009, 1st Time In 26 Years A starker economic outlook has some high-profile energy analysts predicting the world will consume less oil next year than this year, notching the first annual contraction since the early 1980s as emerging markets, led by China, cool off.

CIBC World Markets, in a recent report, is now saying that the current recession is caused by high oil prices. Here's a chart from the report, which shows that four of the past five recessions have followed oil price spikes ...

Why I Like Gold Here ... and News for Today

2008-11-05T09:43:00.006-05:00

If you subscribe to one of my premium services, you'll have noticed that we've added a bullish gold position or two lately. Let's look at a daily chart of gold to see why.

You can see that gold is still channeling lower, but has touched the bottom of its recent downtrend. When it has done this in the past, it usually goes higher for quite some time.

At the same time, we are getting a buy signal from the MACD indicator on the bottom -- another indicator of the shift in short-term trend. And gold is now above its 10-day moving average. This usually indicates higher prices ahead.

However, I still haven't given buyers of my recent gold report the "all clear" to buy gold and silver positions. That's because the weekly indicator I told you about in that report has still not given a buy signal. It may be close, but we don't buy until we get that signal.

The reason for this discrepancy between my premium services and the gold report is that the services can trade gold's short-term moves -- the gold report is designed to trade gold's long-term moves. You may give up a piece of gold's early move, but you'll still ride the long-term trend. And the longer-term trend gives more reliable signals.

In other news ...

Some nice young guy from Chicago got a new job. Meanwhile, many Americans continue to lose their jobs. I'd say his job isn't going to be easy.

Commodities in recession as speculative bubble bursts - but the purge is over With commodity prices now back to their January 2007 levels, "this portion of the purge should now be over", but the next two quarters are likely to see further price declines reflecting the amplitude of the recession in different parts of the world.

U.S. gasoline demand up as prices fall: MasterCard

NEW YORK (Reuters) - U.S. retail gasoline demand edged up 1.3 percent last week from the previous week as national average prices for the fuel dropped, MasterCard Advisors said on Tuesday.
But gasoline demand remained 3.9 percent below year-ago levels, said Michael McNamara, vice president of research and analysis at MasterCard Advisors, citing the economic slowdown.

IEA Report Underlines Long Term Supply Side Challenge for Oil Markets

The IEA World Energy Outlook highlights long-term supply side constraints, showing that current depletion rates outstrip future demand. On the face of it, this is welcome succour for 'peak oil' theorists, who have long been arguing that the world is actually running out of physical reserves. However, the IEA is not focusing on a shortage in the physical element, but rather in the necessary levels of investment that will be needed to meet energy demand going forward, amid high rates of depletion. According to the report, conventional production will effectively remain static, rising from 70.4m barrels per day (b/d) in 2007 to just 75.2m b/d in 2030, as 'new gains' and 'old losses' balance out.

Almost Half of New US Debt to Mature Within a Year

Anthony Ryan, the acting undersecretary for domestic finance at the U.S. Treasury, wonders how to sell all the debt securities needed to fund the Troubled Asset Relief program (TARP), the Federal Reserve's various emergency lending facilities, and the federal government's increasingly wide budget deficit for 2009.

The Treasury has borrowed $877 billion since the end of Aug - including $500 billion from the public - to boost the Federal Reserve's balance sheet and start funding the TARP.

But almost all of this borrowing has been done in the form of very short-term cash management bills - with $320 billion issued in September and another $520 billion issued in October. Little or none of it has been replaced yet with longer-dated bills, notes and bonds in the regular series.

After Worst Year Since 1937, Obama May Wind Up Inheriting Next Bull Market When it comes to the U.S. stock market, Barack Obama has time on his side. XX Sean's note -- "may" is the operative word here.

Also, here is today's MoneyandMarkets.com column: Funding America’s Future Can Make You a Whole Lot Richer …

Finally, I'm scheduled to be on Fox Business TV at 1:20 pm, discussing oil prices.

Go Vote!

2008-11-04T16:32:00.006-05:00

If you haven't already, go vote!

And here's a little something to make you smile.

Sorry, embedding it didn't work. Here's a link: http://tinyurl.com/6l2jg3

2 Forces Driving Oil Higher Today

2008-11-04T13:55:00.005-05:00

Crude oil is up about $7 a barrel as I write this. What the heck is going on? I'll show you.

First, we have the bearish outside reversal in the U.S. dollar.

Since crude oil (as well as gold) is priced in dollars, as the dollar goes lower, crude tends to go higher.

Second, we have this story: "Oil Jumps 11 Percent on Saudi Supply Cuts."

Oil jumped more than 11 percent on Tuesday on signs Saudi Arabia had made substantial cuts in crude supplies and as global financial markets rallied.
Saudi Arabia, the world's biggest oil exporter, has reduced exports by around 900,000 barrels per day from a peak in August, one source estimated.

This one-two combo is giving crude oil its own outside reversal -- a bullish one:

Also you'll note that crude oil's recent downtrend is over. This doesn't mean crude oil is going back to triple digits (soon, anyway). But we could see a playable rally.

Election Day Reading -- Chill Out Edition

2008-11-04T09:40:00.010-05:00

Sorry I didn't post yesterday. I spent much of the day wrestling with a magnum-opus, way-the-heck too-long Money and Markets column, which I have since dumped on my long-suffering editor's lap. The best way to cut it would be with a straight razor and a bottle of whiskey. Better him than me.

Anyway, it's election day. Tally the votes. It took me half an hour to get into a voting booth today; longer than last time but still shorter than my wife's wait time of an hour and a half last week for early voting.

I doubt the votes will be tallied before charges of cheating or electioneering (whatever that is) fly from one side or the other. I think we should take the advice of the National Commercial Bank of Jamaica which, when the world was running around in circles in full-scale panic mode during the credit crisis meltdown, issued a statement that "everyone should just chill out."

Here's the news that I'm reading today ...

Credit Suisse Cuts Oil Forecasts

The broker now sees global demand for oil in 2009 down by 300,000 barrels a day year over year, the sharpest drop since 1982, as demand growth from China slows.

Meanwhile, Financial Sense Online says oil prices are being manipulated around the voting cycle.

From the story:

Just think of it; two price collapses in Crude Oil, each of them commencing – almost to the day – the same amount of time prior to November Elections in the U.S.A.
With U.S. elections out of the way tomorrow, it seems we can all look forward to a new Administration, a jolly holiday season and the likelihood of increased heating costs to keep us warm through the upcoming winter months.

Robert Rapier disagrees. In "The Myth of Election Year Price Manipulation," he says:

The biggest price drop happened in a non-election year, albeit it was an anomaly caused by 9/11. Of the thirteen years recorded, gasoline prices fell between Memorial Day and November during nine of the years. This is what I generally tell people: Prices fall for seasonal reasons, and do so even when there are no elections. The reason prices fall is that demand for gasoline falls after the summer.

In other news, USA Today asks: "Is Today's Economic Crisis Another Great Depression?"

Few people deny, however, that the current economic climate bears disturbing similarities to the start of the Great Depression:
1) Big declines in the stock market reduced people's wealth and decreased spending.
2) The Dow fell 42% from its Oct. 9, 2007, high to its Oct. 27, 2008, low, roughly equal to the market's initial tumble in 1929.
3) The banking system was crippled by bad loans and speculation.

The Automatic Earth offers unsolicited advice to President Obama on how to handle the economic shitstorm that is George W. Bush's legacy. Just part of this cheery note from TAE...

Your task will be far more formidable than I think you realize. It's not Franklin D. Roosevelt that you should look at for an example, it's not about turning the economy around, this is not the 1930's. The problems you will soon face are much worse than the ones he dealt with.
If you're looking to find a presidential role model for what you are about to face, you need to go back much further in history. You have to look at Abraham Lincoln for guidance. Your most daunting task is not turning the economy around. You will be remembered in history as the man who either did or did not save the Republic.

China Slowdown May Delay Metals Recovery The consensus view in the market has been that China's consumption of metals would offset the weakness in export-sector demand, but that now seems optimistic. Demand growth isn't expected to recover until mid- to late 2009 at the earliest and possibly will recover only once there is a global economic recovery, even if China introduces a fiscal-stimulus package as many expect.

A much anticipated report from the International Energy Agency (IEA), World Energy Outlook, has been obtained in draft by Financial Times. The headline says it all:World will struggle to meet oil demand

Sunday Reading -- Linkfest

2008-11-02T07:10:00.005-05:00

If you want to put that extra hour you gained from the time change last night to good use, here is some interesting reading for a Sunday. Some of it is quite grim, so I'll open with a joke ...

Joke of the day
Hedge Fund Managers Mowed Down by Porsche...

'What's the difference between a hedge fund manager and a pigeon? A pigeon can still place a deposit on a Porsche.'

National Debt Soars $500B In Under A Month. Never before in U.S. history has the national debt increased as much and as rapidly as it has over the past month. Since September 30, the day the national debt hit the $10-trillion mark for the first time, the government has run up over $500 billion in new debt. That’s more than the federal deficit for the entire 2008 fiscal year, which ended September 30. And it’s the most rapid increase in the national debt ever: over half a trillion dollars in less than a month - 23 days to be exact.

Fear of Deflation Lurks as Global Demand Drops
As dozens of countries slip deeper into financial distress, a new threat may be gathering force within the American economy — the prospect that goods will pile up waiting for buyers and prices will pile up waiting for buyers and prices will fall, suffocating fresh investment and worsening joblessness for months or even years.

XX Sean's note -- And now for an opposing view ...

The Problem Is The Crash of the Housing Bubble: Not Deflation
In a weak economy prices may be falling. But it is not falling prices that make the economy weak. The bulk of the economics profession, as well as the media, somehow managed to overlook an $8 trillion housing bubble as it was growing. Even as it is now collapsing, they are still missing it.

The economy is taking a big hit for an incredibly simple reason. Homeowners have lost an enormous amount of equity and therefore they are cutting back their consumption. When they cut back their consumption, companies lose business and profits. Some go out of business. This will lead to sharp declines in investment, which we have already been seeing.

There is no need to look to credit crunches or deflation. The problem is quite simply a massive lost of housing wealth, compounded by the recent loss of stock wealth. The only cure will be finding alternative sources of demand. In the short-term, government will have to fill the gap. In the longer term, it will be necessary to get the dollar down so that the country's trade is closer to balance.

Finance Crises Could Hit More Often
No matter how you arrange the data, the message is the same: The modern American financial system is unstable. During the life of the current system, it has been beset by recurrent booms and busts (e.g. the Internet-stock bubble, the housing boom and the subprime mortgage bust) and by events that might have triggered a system-wide shutdown (e.g. the collapse in the late 1990s of the hedge fund Long Term Capital Management).

CDS Pricing in Increasing Treasury Default Risk

The cost of insuring against a US government default has risen by 25 times in little over a year.

Source: Prudent Bear via Naked Capitalism.

How could the US government ever renege on its debts? After all, it supplies the world’s reserve currency, and the Federal Reserve Chairman reminded us a few years ago of the US authorities’ ability to print money in unlimited quantities. Any “default” would at least be through the time-tested mechanism of inflation and currency devaluation, according to this view.

On the other hand a longer-term examination of debt markets reminds us that, throughout human history, regular default is the rule than the exception. And while sovereign defaults on external, foreign-currency debt are most common, Carmen Reinhart and Kenneth Rogoff demonstrated in a paper released earlier this year that defaults on domestic debt have happened far more often than might have been expected, particularly in times of severe economic duress.

20% of U.S. Homeowners Have Mortgage Higher Than House Is Worth
Almost 20 percent of U.S. mortgage borrowers owed more on their loans in the third quarter than their house was worth as foreclosures depressed prices and the economy weakened, according to First American CoreLogic. More than 7.5 million properties already have negative equity and another 2.1 million will follow should home prices decline another 5 percent, Santa Ana, California-based First American, a seller of economic and real estate data, said in a report today.

Two two-trillionaires

The Fed’s balance sheet just surpassed 2 trillion dollars. It has grown by a trillion dollars over the course of the year. Literally. See “total factors supplying reserve balances” at the close of business on October 29. That growth was financed by Treasury bill issuance ($560b from the supplementary financing facility) and a large rise in banks deposits at the Fed ($405b).

S&P Update and Bearish News on Commodities; SLV Chart

2008-10-31T16:14:00.007-04:00

Well, the S&P 500 did not quite go high enough to give us an outside reversal day. Last week's high was 985.44. This week's high was 948.38.However, some people will say these lines are drawn in crayon, not with razors. So, make your own decision.

In other news, lots of bearish stuff on commodities ...

Vale Will Cut Output as Credit Crunch Crimps World Iron-Ore, Metals Demand Cia. Vale do Rio Doce, the world's biggest iron-ore producer and second-largest nickel supplier, will lower output because the global credit crisis curbed metal demand.

Gold Futures Tumble 18% in October, Most in 28 Years, as Dollar Rebounds Gold futures fell, posting the biggest monthly decline in 28 years, as the dollar climbed, reducing the appeal of the precious metal as an alternative investment. Silver also fell.

Wheat Heads for Biggest Monthly Decline in 22 Years on Dollar's Strength Wheat fell for a second day as a worsening economic crisis and a rallying dollar erode global demand for supplies from the U.S., the world's biggest exporter of the grain.

Commodities Head for Worst Month in 52 Years as Economies Slow Worldwide Commodities headed for their worst month since at least 1956 on concern that a slump in global economic growth will sap demand for raw materials.

And 1 piece of of bullish news on oil ...

Crude Oil Rises as Colder Weather Increases U.S. Demand for Heating Fuels Crude oil rose, following heating fuels higher, on forecasts for lower temperatures in the Midwest next week.

And resource company news continues to be pretty good ...

Goldcorp Profit Rises Fourfold After Output Increases, Bullion Price Gains Goldcorp Inc., the world's second- largest gold producer by market value, said third-quarter profit rose fourfold because of higher bullion prices and a foreign- exchange gain.

Chevron profit doubles to $8 billion Chevron Corp. said Friday its third-quarter profit more than doubled to nearly $8 billion, built on the summer's record run of triple-digit crude oil prices. At the same time, the subsequent slump in the global economy and sharp drop in energy prices have prompted the nation's second-biggest oil company to rethink how quickly it should spend its third-quarter winnings.

Finally, let's look at the SLV.

The SLV (Silver ETF) continues to consoliate Wednesday's rally and remains above the 10-day moving average (the blue line). Momentum indicators are turning bullish hinting that sideways to higher prices are possible near-term. Upside targets are 10.24 and then 12.50.

Have a good weekend.

What to Watch on Friday Afternoon

2008-10-31T13:41:00.003-04:00

The S&P 500 is very close to giving a weekly 'buy' signal.We are very close to an "outside reversal" candlestick on a weekly chart of the S&P 500. It just has to go 5 points higher than it has already. If it does -- and the S&P 500 ends the day positively -- that would be a "buy" signal.

The weekly RSI is already giving a buy signal.

Why is the S&P 500 so positive-looking, especially with earnings generally bad? I don't know -- you can throw the chicken bones on that one.

To be sure, the market can change wildly in the last half an hour of trading. So don't jump the gun.

Dollar Chart and Global Economic Drama

2008-10-30T09:59:00.008-04:00

Here's the chart you need to watch -- currencies are driving everything. Is the US dollar going to correct lower? It hasn't broken its recent rocket ride of an uptrend. Neither has crude oil, despite its rally yesterday ...

GLOBAL ECONOMY

Treasury, FDIC Crafting Plan to Rework Millions of Mortgages Officials with the Treasury and the Federal Deposit Insurance Corp. are crafting a plan under which the government would guarantee the mortgages of as many as 3 million homeowners now struggling to avoid foreclosure, according to three sources familiar with the discussions.

It would cost between $40 billion and $50 billion, sources said. The program is being discussed as members of Congress are voicing frustrations that the $700 billion rescue program thusfar has been aimed at helping banks, but not homeowners.

IMF Creates $100 Billion Fund to Aid Crisis Fight The International Monetary Fund will offer as much as $100 billion in a new kind of loan to countries that are battered by the financial crisis ... The new three-month loans, aimed at economies the IMF judges to be troubled but basically sound, wouldn't require countries to make the often severe changes in their policies that the IMF has demanded for decades.

The Shipping News Suggests World Economy Is Toast
It is now almost 90 percent cheaper to ship goods over the oceans than it was at the beginning of the year. And because the huge vessels known as capesize ships can't currently charge much more than their daily operating cost of about $6,000 per day, their captains have slowed down to economize on fuel and save money, to about 8.68 knots from 10.33 knots in July, according to data compiled by Bloomberg.

U.S. Economy Shrank 0.3% in the Third Quarter as Consumer Spending Dropped The economy suffered its biggest decline since 2001 in the third quarter, ushering in what may be the worst recession in a quarter century and boosting the chances of Barack Obama and his fellow Democrats in next week's elections.

XX Sean's note -- the good news is this is less of a drop than was expected.

CURRENCIES

Is the "Commodities as Anti-Dollar" Trade Back? One reason for the sudden enthusiasm for commodities is that, as in the frenzied days of last spring and early summer, hard assets can serve as an anti-dollar trade. And the dollar is looking pretty richly valued right now.

Australian Dollar May Drop Below 40 U.S. Cents in 2009, State Street Says The Australian dollar may fall to a record low next year, possibly dipping below 40 U.S. cents for the first time, as slowing growth in emerging markets cools demand for the raw materials exported by the nation.

COMPANY NEWS

Barrick Gold Third-Quarter Net Income Falls to $254 Million on Writedowns Barrick Gold Corp., the world's largest gold producer, said third-quarter profit fell 26 percent after it wrote down the value of investments in companies including Highland Gold Mining Ltd.

Sino Gold Pours First Gold at White Mountain. Chief executive Jake Klein said the first gold pour is two months ahead of schedule and comes only 14 months after construction commenced and four years after the ore body was discovered.

In other news, you can listen to my most recent HoweStreet.com interview (from yesterday) here: http://www.howestreet.com/index.php?pl=/goldradio/index.php/mediaplayer/1006

HILARIOUS

These two headlines are on Bloomberg at the same time ...

Crude Oil Rises Above $70 as Interest Rate Cuts May Spur Economic Recovery Crude oil advanced on speculation interest rate cuts in the U.S. and China may spur a global economic recovery and increase demand for fuels.

Crude Oil Declines Amid Skepticism Interest-Rate Cuts Will Bolster Demand Crude oil fell amid skepticism that interest rate cuts will be sufficient to bolster the global economy and increase fuel demand.

Exxon Earnings Preview

2008-10-29T19:38:00.006-04:00

I'll be on Fox Business Thursday at 8 AM to talk about Exxon Mobil's earnings, which will be released before the market opens. Some factoids we may cover in the conversation ...

Exxon recorded the biggest profit for a company last year – more than $40.6 billion. In the most recent (July) quarter, it reported a quarterly profit of $11.7 billion, the largest in American history.

Exxon is a company that until recently had a history of spending more money on stock buybacks than new exploration. In the first quarter of this year, Exxon spent $8.8m on repurchasing its own stock and $5.5bn on exploration. Over the past three and a half years, it bought back just over $96 billion worth of its own shares.

But in March, Exxon said that spending this year on exploration, production platforms and other so-called upstream operations will rise by about 21 percent to $19 billion. The company will start 19 projects by the end of 2010 that will add the equivalent of 725,000 barrels of oil, enough to supply 10 percent of the refineries along the U.S. Gulf Coast.

Keep your eye on costs. Bloomberg reports that it cost $7.14 in 2007 for Exxon to pump a barrel of oil from the ground -- up from 2006's $6.04

According to Bloomberg, every time oil prices by $1 per barrel, Exxon gets another $400 million in each year's after-tax revenue.

Exxon Mobil ranks 25th by booked oil reserves. The top 10 are all state-owned national oil companies (NOCs). The top 13 NOCs own four-fifths of the world's known oil reserves. They don't share them cheaply.

Analysts expect the company to report a profit of $2.38 per share, according to Reuters Estimates. Put/call option activity shows investors are a bit more pessimistic than usual.

XOM is flat in the last month. The Energy sector is down 18%. Over 3 months, XOM is down 8%, the energy sector is down 34%.

In the past 3 months, the S&P 500 is down 25%, the energy sector is down 34%.

OTHER OIL INDUSTRY NEWS (that may come into the conversation) ...

Oil Company Profits Rise, But Outlook is Cautious
Record crude prices this summer are translating into huge profits, as BP and Occidental Petroleum showed Tuesday, but some energy companies are bracing for tougher times, keeping a closer tab on cash and cutting spending.
Oil producers are coming off a quarter during which crude prices reached an all-time high of $147.27. But prices have since tumbled more than 50 percent, and the global economic malaise has raised questions about energy demand at least into 2009.

Gasoline demand remains 6.4% below last year's levels, according to the MasterCard Spending Pulse released on Tuesday by MasterCard Advisors LLC, the research arm of MasterCard Inc.

Credit Crunch May Block 20% of Deep Oil Rigs, Slow Petrobras
As many as 20 of the 100 deepwater oil rigs on order worldwide may be delayed or canceled as loan availability erodes, possibly slowing developments including the biggest petroleum discovery in the Americas in three decades.

Links and More for Wednesday

2008-10-29T13:09:00.004-04:00

Our remaining short positions got cleaned out yesterday and this morning (ouch!) and now the market is waiting with bated breath to see if the Federal Reserve cuts the Fed Funds rate by 50 basis points (expected) or more or less (really not expected).

There are several technical — and temporary — reasons the major indices rallied hard yesterday. Traders seemed to anticipate a large cut to the Fed Funds rate today. The market was technically oversold. Governments everywhere are riding to the rescue on a flood of liquidity. And the yen carry trade (when traders borrow in low-interest yen to buy speculative assets) had been unwinding in a hurry, but that seems to have temporarily reversed, thanks to Japanese government intervention.

We could see more of a rally in the short-term, but fundamentals need to change to get the groundwork for a real, lasting rally. And that hasn’t happened yet.

The US economy is still tumbling into the worst recession in three decades, with no light at the end of the tunnel yet. Corporate financing is still incredibly tight. Earnings estimates are way too high, and will probably be hacked lower. Oil demand is lower, and lower prices haven’t helped, not yet anyway. The reason oil prices are rallying is because stock prices are going up … not exactly the basis for a sustainable rally.

One factor that could go either way: The notification date to withdraw from many hedge "fund of funds" is Nov. 15. According to an article by Real Money contributor Vince Farrell, because of the strength of the government bond market and the weakness of the stock market, pension fund asset allocations are out of whack and need rebalancing. Many funds are apparently overweight the bond market by 4% and underweight equities by about the same.

Farrell thinks this could lead to continued stock buying leading up to November 15. On the other hand, it could also lead to more and deeper selling of stocks if investors decide to cash out of those “funds of funds.”

It's all interesting. Here's what I'm watching ...

Gold Gains for Second Day in London as Global Equities Rally, Dollar Drops Gold rose for a second day in London as the dollar fell against the euro, buoying demand for the metal as an alternative to the U.S. currency. Silver gained.

Sean's note -- all eyes are on gold, but take a look at silver ...

Also ...

Second Planet Needed to Meet Natural-Resources Demand

That's what humans will need by the mid-2030s to keep up with our demand for metals, fossil fuels, timber and waste disposal, the environmental group WWF said in a global survey that found the United Arab Emirates to be the most wasteful country.

The temples of doom

"We think we are different," says Jared Diamond, the American evolutionary biologist. "In fact...all of those powerful societies of the past thought that they too were unique, right up to the moment of their collapse." The Maya, like us, were at the apex of their power when things began to unravel, he says. As stock markets zigzag into uncharted territory and ice caps continue to melt, it is a view increasingly echoed by scholars and commentators.
What, then, is the story of the Maya? And what lessons does it hold for us?
According to Diamond's thesis, this: the ancients built a very clever and advanced society but were undone by their own success. Populations grew and stretched natural resources to breaking point. Political elites failed to resolve the escalating economic problems and the system collapsed. There was no need for an external cataclysm or a plague. What did for the Maya was a slow-boiling environmental-driven crisis that its leaders failed to recognise and resolve until too late.

Investment key to meeting oil demand

The IEA believes oil companies and oil-producing countries will need to invest a total of about $360bn a year until 2030 to replace falling oil production and increase supply by enough to satisfy the demands of emerging countries such as China.
Investment decisions by Opec will be critical, the study argues, adding that the share of world oil production from members of the cartel, particularly in the Middle East, will grow significantly, from 44 per cent in 2007 to 51 per cent in 2030.

Dr Doom Gives Advice on the Economy

2008-10-28T09:04:00.003-04:00

NYU Economist and former Clinton administration Council on Economic Advisors member Nouriel Roubini has been uncannily correct about the global financial meltdown, earning him the nickname "Dr. Doom."

Late yesterday, speaking at a Bloomberg Media forum in New York City, Roubini called for an immediate $400-$500 billion U.S. economic stimulus package focused upon projects to improve our country's infrastructure: "U.S. Should Enact $400 Billion Stimulus, Roubini Says."

Some excerpts from the Bloomberg story ...

Oct. 27 (Bloomberg) --
"The only way to increase aggregate demand is going to be through" government spending on roads, bridges and other infrastructure, Roubini said at a Bloomberg conference in New York. "We need a huge plan, $300 billion is not going to be enough. I think we're going to need a plan of $400 billion to $500 billion."
--SNIP--
"If we don't do that fiscal stimulus today, three months from now, six months from now the collapse of the real economy is going to be so severe that anything we're doing today to recapitalize the financial system is going to be undone," Roubini said.
--SNIP--
"Financial markets are becoming totally unhinged," he said. "Fundamentals don't matter..."
--SNIP--
"We're entering literally a vicious circle where economies are spinning down, financial markets are spinning lower, and the policy makers in my view -- and that's my biggest fear -- have lost control of what's going on in financial markets," Roubini said.

Tuesday Linkfest

2008-10-28T07:35:00.002-04:00

I've been talking recently about how the credit crunch may slow project development in both energy and gold. Here are two examples ...

Credit Crisis May Block, Delay 20% of Deepwater Rigs, Slow Petrobras Boom As many as 20 of the 100 deepwater oil rigs on order worldwide may be delayed or canceled as loan availability erodes, possibly slowing developments including the biggest petroleum discovery in the Americas in three decades.

AngloGold, Gold Fields, Harmony May Spend Less as The Metal's Price Falls AngloGold Ashanti Ltd., Gold Fields Ltd., and Harmony Gold Mining Co., Africa's biggest gold producers, may review spending plans after metal prices tumbled and credit availability tightened.

And here are some more stories of interest ...

Gold Rises as Equities Pare Losses, U.S. Dollar's Rally Stalls Versus Yen Gold rose in Asia, erasing earlier losses, as equities pared losses and the dollar's rally against the euro stalled ahead of reports that may show U.S. consumer confidence dropped.

Putin Urges China to Join With Russian in Moving Away From U.S. Dollar Use Russian Prime Minister Vladimir Putin urged China to move away from the dollar, saying a global economy based on the U.S. currency has ``serious problems.''

IMF may need to "print money" as crisis spreads
The Fund is already close to committing a quarter of its $200bn reserve chest, with a loans to Iceland ($2bn), Ukraine ($16.5bn), and talks underway with Pakistan ($14.5bn), Hungary ($10bn), as well as Belarus and Serbia. Neil Schering, emerging market strategist at Capital Economics, said the IMF's work in the great arc of countries from the Baltic states to Turkey is only just beginning.

Oil Rises From 17-Month Low as U.S. Stock Futures, Asian Equities Rebound Crude oil rose from a 17-month low as stocks in Europe and Asia rebounded and OPEC ministers said the group may meet again before December, raising speculation of deeper cuts in production.

GM May Get $5 Billion Loan for Chrysler Deal
The Department of Energy is working to release $5 billion in loans to General Motors Corp. ... The funds would come from a pool of $25 billion in low-interest loans approved by Congress to help Detroit retool its plants to meet new fuel-efficiency standards. It's not clear how quickly the money could be made available or whether it would come with strings attached.

Wild End to a Wild Day

2008-10-27T17:17:00.004-04:00

It took me all day to get to posting to the blog because I had issues ... man I had issues.

Anyway, kind of a wild end to a wild day. The Dow opened way down, was up by as much as 200 points earlier in the day and was still positive 15 minutes before the close. But then, things went whee ...!

That doesn't look good. The real weakness (to me) seemed to be in energy shares. Let's look at a chart of DUG, which trades twice the inverse of the Dow Jones US Gas & Oil Index ... So does anything look good on the long side? Keep your eye on gold. It's trying to find a bottom. But it may take a while to do that.

An E-Mail from a Worker at the Northwest Territorial Mint

2008-10-24T11:53:00.005-04:00

This week, I wrote a MoneyandMarkets.com article, "Yes, We Have No Silver", about my experiences trying to buy physical silver. I mentioned the Northwest Territorial Mint. I just received a letter from one of the fine folks who works there. It reads ...

Hello Sean,

I read your article today speaking of the lack of silver in what is still the free market. I happen to work at the Northwest Territorial Mint. You are not kidding about people having trouble getting silver. I can tell you from first hand experience that we are working 10-12 hour days, and looking into starting another shift to keep up with the production of silver. It is selling faster than we can make it, that is when we get it in. Our crucible is running from about 3 AM to around 10 PM. As soon as we get any silver in it goes right out the door again. I have worked there a number of years and have never seen it so busy, nor seen us as strapped for silver.

But if you get the opportunity to mention that we do get the silver to our customers, as quickly as we can, plus that we are one of the few places that does have silver, we would appreciate it very much. Our bullion sales department is treated very harshly by many people who are calling to get silver and gold, who are understandably frustrated by the delay. The NWTM has a long history of making good on our sales, and will remain to be a great source for investment commodities.

Thank You,

Jonny

XX Sean's note -- I did indeed have the opportunity to buy silver bullion (a private deal, not from the Northwest Territorial Mint). And I'll probably buy some from NWTM when they are able to work through their backlog to reach shorter delivery times.

And have you seen the price action in gold, or the larger-cap gold and silver stocks today? It sure looks good, but if you received my recent gold report, wait for my weekly buy signal. The bears still rule until we get that.

Big Heaping Serving of White-Hot Doom, Friday Edition

2008-10-24T06:55:00.008-04:00

The babblers on CNBC are speaking in tones usually reserved for funerals this morning, as the S&P 500 futures go limit down and Dow futures are close to limit down. I am so, SO glad we added bearish positions to Red-Hot Canadian Small-Caps, Red-Hot Global Small-Caps and Red-Hot Commodity ETFs yesterday. But after the carnage in foreign currency markets the previous day and overnight -- a sign that whatever central banks were trying to do to stabilize the global financial system wasn't working -- it seemed the smart thing to do.

And it's not only stock futures that are down. OPEC didn't cut nearly enough (1.5 million barrels per day) so oil is cratering. Gold (on paper anyway) is below $700. The euro is plummeting versus the US dollar, and the US dollar is plummeting versus the yen. Hedge funds are being forced to sell EVERYTHING, and risk is anathama to global investors.

What we can take away from this ...

The world is pricing in the most severe economic downturn since at least the 1970s and maybe since the Great Depression
The financial magicians at central banks around the world will probably take extraordinary action over the weekend.
The S&P 500 could fall to 500 in the next few weeks ... or it could rebound hard if the Central Banks' flood of liquidity finally starts to unclog the financial system. Heck, we could even see a hard bottom today or Monday. My crystal ball is broken.

I'm not making any strong commitments either way, though I might recommend more downside hedges on a decent bounce.

In other news ...

Did you see Alan Greenspan speak before Congress yesterday? Now that was must-see TV. Best line of the day goes to Steve Goldstein at Marketwatch:

For a man who was once remarkably hard to decipher, Alan Greenspan is now as clear as an empty Lehman Brothers office.

And remember how the Russians were bailing out Iceland? Now, maybe the Russians need someone to bail them out! They join the long line including Hungary, Ukraine and Belarus.

And OPEC decided to cut supply by 1.5 million barrels per day starting next month. If they thought that was going to impress anybody, they're wrong. 3 million barrels per day would have been more like it. Now they'll have to cut 4 million to prevent oil going to $50.

China's economy is slowing down. Econbrowser takes a look with some nice charts.

Also, the 30 year treasury bond has now reached its lowest yield since structured trading began. It is now yielding 3.8%.

India's market drops 11%, most in 16 years.
http://www.bloomberg.com/...

Russia halts trading until next week.
http://www.bloomberg.com/...

2008-10-23T14:16:00.002-04:00

It's been a heck of a day. Gold cratered in overnight trading, then bounced, and now is headed lower again. The same for the broad stock indices. Crude oil is rallying, but not much when you consider that OPEC is about to announce a production cut (according to whispers).

METALS

Gold Falls Below $700 in New York as Investors Flee to Cash; Silver Rises Gold fell below $700 an ounce for the first time in more than a year as a rising dollar and stock-market losses forced investors to sell the metal to raise cash. Silver also dropped.

Gold's recent slump bewilders investors
The reason, according to analysts at the World Gold Council, is that the latest bout of the credit crisis has been deeper and more far reaching. Funds were forced to sell desired assets such as gold to meet margin calls, while weakness in European economies lifted the U.S. dollar, which then pushed dollar-denominated gold prices lower.

Platinum Drops to 4-Year Low in New York on Recession Concerns
Production of platinum fell short of demand in eight of the past nine years, according to London-based Johnson Matthey Plc, the maker of about a third of the world's auto catalysts. Platinum demand outpaced production by 480,000 ounces last year, the largest deficit since 2002, Johnson Matthey has said.

ENERGY

OPEC Output Cut May Fail to Halt Price Collapse as Financial Crisis Widens OPEC's first production cut in almost two years may fail to stanch a collapse in oil prices as roiling stock markets signal that the financial crisis has spread to emerging markets, the center of demand growth.

When is the Uranium Price Going Up?
With the recent market meltdown, what does the future hold? Is the uranium bull market finished or will these beaten down stocks come back?

US ECONOMY

GLG's Roman, Economist Roubini Predict Hedge-Fund Failures, Market Panic Emmanuel Roman, the co-chief executive officer at GLG Partners Inc., said as many as 30 percent of hedge funds will close and the U.S. will regulate the $1.7 trillion industry.

AIG's Liddy Says $123 Billion U.S. Loan `May Not Be Enough' to Stem Crisis American International Group Inc., the insurer bailed out by the U.S., may need to borrow more than the $122.8 billion already offered by the government if capital markets don't improve, said Chief Executive Officer Edward Liddy.

ASIA

Asian Stocks Drop to Four-Year Low on Growth Concerns; Mazda, BHP Decline Asian stocks slumped, driving the region's benchmark index to the lowest level in four years, as Japanese exports missed estimates, commodities prices tumbled and South Korea's worst financial crisis in a decade deepened.

Iron Ore Surplus Will Arrive Next Year, Earlier Than Expected, China Says China, the world's largest iron ore consumer, said the global market will be in surplus in 2009, one year earlier than expected, as the credit crisis slows economic growth and orders from steelmakers.

LATIN AMERICA

Brazil to Sell $50 Billion of Currency Swaps, Ramping Up Bid to Stem Rout Brazil's central bank pledged to sell $50 billion of currency swaps, its boldest move yet to stem a two-month, 28 percent tumble in the real that has saddled companies with losses and sparked concern inflation will surge.

AGRICULTURE

Potash Corp. Net Income Climbs Fivefold as Crop-Nutrient Prices Advance Potash Corp. of Saskatchewan Inc., the world's largest producer of crop nutrients by market value, said third-quarter profit increased fivefold as fertilizer prices advanced.

Gold Chart -- Gold Tests Support

2008-10-22T09:11:00.004-04:00

The US dollar is strengthening as capital flees higher-risk economies and flowing into the greenback. And this is weighing on gold, bringing it down to its first weekly uptrend ...

There is support below this, at at 738.90, and then the second uptrend comes into play around 675. Will gold go that low? And would it be the buying opportunity of the year if it did?

And here's my latest MoneyandMarkets.com column, "Yes, We Have No Silver".

News and Links for Tuesday ... 'Pouring Water Into an Empty Sponge' Edition

2008-10-21T09:28:00.007-04:00

About one-third of the S&P 500 reports earnings this week. Yesterday we saw euphoria and I thought it interesting that the major indices went up with oil prices. Today, oil prices are down, and stocks across the board slid at the open. Clearly, fears about the economy remain. Here are some things I'm reading today ...

Robert Reich observes that the bailout plans, for all their trillions of dollars spent, are like "pouring water into an dry sponge." he says:

Nothing will come out of it because Wall Street is so deep in debt that the banks are using the extra money to improve their balance sheets. They're hoarding it because their true balance sheets -- considering the off-balance sheet vehicles they created over the past several years -- are in such rotten shape.

Mr. Reich also says:

The underlying problem isn't a liquidity problem. As I've noted elsewhere, the problem is that lenders and investors don't trust they'll get their money back because no one trusts that the numbers that purport to value securities are anything but wishful thinking. The trouble, in a nutshell, is that the financial entrepreneurship of recent years -- the derivatives, credit default swaps, collateralized debt instruments, and so on -- has undermined all notion of true value.

With that "empty sponge" visual firmly in mind, we now read that the government has come up with yet another brand-spankin' new way to loan out more of your money in Federal Reserve announces the creation of the Money Market Investor Funding Facility (MMIFF)

Elsewhere, Brad Setzer is scaring the bejeezus out of me. He thinks we may be heading for the end of Bretton Woods 2. That, in case you don't know, is the global financial accord that set up the US and US dollar as the world's top dogs. Apparently, after the recent financial fiascos, Europe wants a new lead dog, and it ain't us. Setzer writes:

And rather than ending with a whimper, Bretton Woods 2 may end with a bang.
In some sense Bretton Woods 2 has been on life support for a while now. China’s recent export growth has depended far more on Europe than on the US. US demand for non-oil imports peaked in 2006. One irony of the past year is that the US was borrowing far more from China that it was buying from China. Campaign rhetoric that the US was paying for Saudi oil with funds borrowed from China isn’t far off – though it leaves out the fact that the US also borrows from
Saudi Arabia to pay for Venezuelan, Mexican and Nigerian oil.

In other news, in case you thought the U.S. was alone in suffering declining home prices, you'll be "happy" to know there are seven countries in worse shape than us ...

You can read more on that story (with more cool charts) at the International Monetary Fund.

You probably know that I love history. Mike Panzer over at "Financial Armageddon" (catchy name) looks at The Pain on Main. He refers to a story by Nick Turse which talks about how, during the Great Depression, writers associated with the Federal Writers' Project interviewed 10,000 Americans to get oral histories of their times. I thought this next part was very interesting ...

"One thing likely to strike you about its narratives from our last spectacular economic meltdown was how many of the speakers didn't distinguish between the 1920s and the 1930s, between, that is, "the roaring twenties" of the "Jazz Age" and the Great Depression era. For lots of them, it was all tough times. As Banks wrote in her introduction: "For most of the people in this book, the Depression was not the singular event it appears in retrospect. It was one more hardship in lives made difficult by immigration, world war, and work in low-paying industries before the regulation of wages and hours. Though they spoke of living through bad times, those interviewed by the Federal Writers seldom mentioned the Depression itself."

Panzer then draws some interesting parallels to today. It's all worth a read.

Infrastructure: Nation's physical plant another crisis for next president
As if the next president won't have enough on his plate — with the collapse of the financial markets, two foreign wars, persistent security threats and a host of other concerns — America's infrastructure is collapsing.

The civil engineers association gave the country a "D" on its 2005 infrastructure Report Card. It called for a $1.6 trillion five-year improvement program.