Sino Gold is one of the positions we’ve held in Red-Hot Global Small-Caps for awhile. I just recommended adding to the position yesterday. If you bought the U.S. tracking stock, you should have been filled pretty easily yesterday. If you placed an order to buy Sino Gold in Australia, you should have been filled on a morning pullback before the stock took off and closed on its high in the afternoon.
Looking at the chart, you can see an inverse head-and-shoulders pattern. It’s not a perfect pattern — the joint of the neck and second shoulder doesn’t touch the neckline — but you rarely get perfect patterns these days. Anyway, Sino-Gold has pushed higher through the neckline of this pattern, giving us a target of A$8.49 a share.
Stocks are heading lower and gold and silver are heading higher this morning. Gold is breaking out through overhead resistance (again!) as is the U.S. dollar. For a change, gold is outperforming silver, so far anyway. We’ll see where we end the day. Meanwhile, here’s what I am reading …
The Fed’s balance sheet doubled to as much as $2 trillion before contracting a bit in January and early February; it will likely double again as the central banks acts as buyer and guarantor of last resort.
The U.S. federal deficit is likely to be $1.5 trillion in fiscal 2009 and $1.25 trillion in fiscal 2010.
The Treasury will need to issue close to $3 trillion of debt to fund that deficit.
In what could turn out to be the greatest fraud in US history, American authorities have started to investigate the alleged role of senior military officers in the misuse of $125 billion in a US -directed effort to reconstruct Iraq after the fall of Saddam Hussein. The exact sum missing may never be clear, but a report by the US Special Inspector General for Iraq Reconstruction (SIGIR) suggests it may exceed $50 billion, making it an even bigger theft than Bernard Madoff’s notorious Ponzi scheme.
Someone, apparently someone in Asia, wants dollars. A LOT of dollars. There is a forced-liquidation event underway that is massive, it is against all asset classes and it is spreading.
It originated at approximately 7:15 CT this evening and originated out of Asia somewhere. All of the primary currency crosses got hit at once – Euro, Pound, Yen – all weakened dramatically against the dollar and it is still going on. The Asian stock markets got walloped at the same time in coordinated waves of forced selling.
At the same time the US futures markets got nailed as well, down some six handles on the /ES in a near-vertical drop. While this sounds “not that big” to move these markets in a coordinated fashion like this is a trillion-dollar enterprise – this is not some small company that went bankrupt, or even a large company.
There is no news coverage at the present time identifying the source of this but it is not small and contrary to some reports it is not “automatic selling”; this is forced liquidation.
Gold prices surged on Tuesday to a fresh seven month high on Tuesday, trading above $960 a troy ounce and hitting record highs denominated in euros and sterling, boosted by strong buying by Japanese and Chinese investors.
The strong buying in Tokyo came a day after Japan, the world’s second largest economy, reported it suffered its worst economic slump in 35 years, with the economy contracting 3.3 per cent quarter-on-quarter in the last three months of 2008.
The China bulls have commented approvingly on the growth in loans in China, seeing it as a sign of pending recovery, along with an upswing in stock prices. We’ve pointed out that economist and China commentator Michael Pettis has heard quite a few reports that many of these loans were in fact sham transactions to meet government targets.
And now it gets even better. One analyst estimates that more than 1/3 of the total “new” lending (assuming that the loans were truly extended) may have gone into the stock market.
Short of opening a Radio Shack in an Amish town, Dubai is the world’s worst business idea, and there isn’t even any oil. Imagine proposing to build Vegas in a place where sex and drugs and rock and roll are an anathema. This is effectively the proposition that created Dubai – it was a stupid idea before the crash, and now it is dangerous.
XX Sean’s note — the Dubai article is very well written (and has must-see video) but I’m not sure I agree with the premise. Time will tell if building Dubai was a bad idea or not. Oil won’t last forever, and the UAE rulers have made a serious effort to find “what comes next.” Plenty of European/American cities have seen their own booms and busts as well.
Simon Johnson’s premise is that the big Wall Street banks represent an oligarchy that is exerting undue influence and control on our government and the economy. They are turning this crisis to their advantage, and circumventing the democratic process. What we are seeing looks to Simon Johnson like a financial coup d’etat.
Nominal retail sales decreased 10.6% year-over-year (retail and food services decreased 9.7%), real retail sales declined by 10.9% (on a year over year basis).
The bounce yesterday was pathetic. The market is down triple-digits today.
So, which of these three charts do you think is more ominous? The ballooning pile of mortgages that will potentially default, the plunge in retail sales, or the swoon in the stock market? I’d be interested in your opinion
In Other News
Quote of the day…
We hate you guys. Once you start issuing $1 trillion-$2 trillion [$1,000bn-$2,000bn] …we know the dollar is going to depreciate, so we hate you guys but there is nothing much we can do.
– Lueo Ping, China Regulatory Commission (02/11/09)
My advice to Mr. Lueo Ping: There is something you can do. Buy gold.
I’ve read a lot of comments on the statement by Congressman Mike Capuano (D-Mass) at the banking hearing yesterday.
Some people think he makes the bankers look good by being too rough on them. I say anyone who thinks Capuano is too over the top just doesn’t get it. This guy should run for governor of Massachussets. I think he’d win.
While soaring gold prices may make some gold bugs jump for joy like an old prospector and shout “Gold! Go-o-o-o-o-old!”, I highly recommend you keep one thing in mind: This is the fear trade. People aren’t buying gold because they especially love it. They are buying it because other investments are rapidly turning into fertilizer (a notable exception – fertilizer stocks (: ) ).
The positions in Red-Hot Commodity ETFs are exceptionally well positioned for this market. The new additions we made to Red-Hot Global Small-Caps couldn’t have been timed better. I only wish I’d recommended more, and you hate to chase them now — fear and greed in action.
This should still be a very wild ride — with big DOWNS as well as ups. So sit tight and stay cool. Borrowing a quote from one of my favorite cheesy movies: “Gentlemen, we have a date with destiny, and it looks like she’s ordered the lobster.”
In other news you can use
While the mainstream media is trumpeting the fact that the U.S. trade defict has narrowed to the smallest gap since 2003, look beyond the headlines. U.S trade is on a slippery slope. Both exports and imports declined sharply. How sharply, you ask?
“On top of the $2 trillion plan today, we already know that Fannie and Freddie will need another $200 billion, the GSE’s that exist only so that Americans keep overpaying for their homes. What a mess we see today. Nowhere bigger than in the bond markets. Even more than in the Dow Jones numbers, that’s where the vote of no confidence increasingly looks to be coming from.”
I agree with Nouriel Roubini: Let’s grit our teeth, get it over with and nationalize the insolvent banks already. And yet on CNBC, one talking head after another parrots the same point: “Well, of course we aren’t going to nationalize the banks.” And so prompted, I keep yelling at my TV: “Why not? Why the hell not?” We’ve already given the banks enough money that we should own them. And I think I can find someone to run those banks who can lose us LESS money for a salary capped at less than $500,000 a year.
Did you see the interview CNBC did with Nouriel Roubini and Nassim Taleb yesterday? Both are widely respected economists and analysts who have been dead-on predicting the crisis we’re in. And both were treated like side-show freaks by the CNBC babbling heads yesterday.
The CNBC talkers insist on referring to Roubini and Taleb as “Doctor Doom” and “The Black Swan Guy”, constantly belittle their outlooks as “doom-mongering,” and pestering them for investments when both gentlemen are saying the entire financial system has to be reformed in a multi-year process.
Obviously, I have disagreements with both Roubini and Taleb. I like precious metals as an investment here, I think agriculture is looking better all the time, and I think that if you want to own energy, you can do it with dividend-paying stocks that will pay you to wait (as long as you have some patience). But I respect both men enough to know that, when they are talking about a deep structural crisis in the world economy, you don’t ask them for stock tips.
And these CNBC anchorpeople (I don’t know what to call them — they aren’t newsmen, are they?) can’t stop asking for stock tips. It’s a compulsion with them … it’s almost surreal.
This is a prime example of how Wall Street doesn’t get the crisis of its own making — it’s Marie Antoinette all over again.
This is must-see video from Representative Paul Kanjorski, the Capital Markets Subcommitee Chair. He says that back in September, we were literally 24 hours away from a complete meltdown in our economic and political system.
Some truly amazing quotes in here. Just a piece of it …
“Here’s the facts. And we don’t even talk about these things. On Thursday, at about 11:00 in the morning, the Federal Reserve noticed a tremendous drawdown of money market accounts in the United States to the tune of 550 Billion dollars was being drawn out in an hour or two. The treasury opened up its window to help. They pumped 105 billion dollars into the system and quickly realized that they could not stem the tide. We were having an electronic run on the banks. They decided to close down the money market accounts and announce a guarantee of $250,000 per account so there wouldn’t be further panic.
If they had not done that, their estimation was that by 2:00 that afternoon, 5.5 Trillion dollars would have been drawn out of the money market system of the United States, would have collapsed the entire economy of the United States, and within 24 hours, the world economy would have collapsed. We talked at that time about what would have happened had that happened. It would have been the end of our economic system and our political system as we know it.”
Now, Congressman Kanjorski says that was the truth as Secretary Paulson told it to him. You’ll note, however, that this threat of a global meltdown was left out of official stories at the time.
Was Paulson telling Kanjorski the truth?
If so, what are the chances that it could happen again?
If it could happen again — if we are still at risk of the global economy and political system melting down – what should gold and silver be priced at now?
Are things getting worse? Yes. Brad Setser,a former staff economist at the U.S. Treasury, explains:
The recession formally started in late 2007 or early 2008. For a while it was possible to hope that the recession might prove to be fairly shallow. Exports were doing well, and the contribution of growth from net exports helped offset the fall in residential investment. And the American consumer seemed quite willing to keep spending.
But, well, things have changed. Rather than getting better, things are still getting worse. Exports are poised to fall sharply, as the world not just the US has slowed. And the fall in US industrial production has accelerated … in an average post-World War 2 recession, the economy would be recovering by now — not getting worse.
Economist and professor at Stanford University Paul Romer says we should forget trying to repair the existing bad banks and use the remaining $350 billion in TARP money to start new banks. However, since the Obama administration seems to be as much in the pocket of Wall Street bankers (see HERE also) as the Bush administration, don’t expect Washington to listen to him.
Willem Buiter of the London School of Economics, who knows something about debtor nations who can’t pay their bills, says the U.S. and Great Britain are fast approaching banana republic status. Buiter believes a currency collapse, a scenario that most would dismiss as impossible for the U.S. dollar, is becoming more likely as Washington opens up the rip cord on spending. I’m not saying he’s necessarily right (in fact I believe that stimulus, spent correctly, is worth the risk), but his views have a certain traction with the “in” crowd. And if such views spread, that could give gold even more positive momentum.
Here’s an opposite point of view: Bill Gross, co-chief investment officer of Pacific Investment Management Co., said the U.S. should spend trillions of dollars to spur growth. Some caveats: Gross is known for talking his book (investments), and if his biggest fear is a “mini-Depression”, I think he needs a hard slap in the face from reality. I believe that, unless timely action is taken, we are running the risk of a Depression worse than the Great Depression, more along the lines of The Panic of 1873 and the ensuing Long Depression.
Alternately, we could be looking at a scenario like the Panic of 1837, which was a horrific economic implosion after a speculative real estate fever. In New York City, every bank stopped payment in gold and silver coinage. The Panic was followed by a five-year depression, with the failure of banks and record high unemployment levels. Also, several U.S. states (most notably Pennsylvania) went bankrupt. Sort of like California is going bankrupt now.
Meanwhile, Mark Zandi (an informal advisor to John McCain’s Presidential campaign) and his colleagues at economy.com calculate the fiscal bang for the buck of various proposed stimulus measures…
You see that each dollar of spending has much more impact than each dollar of tax cut. I favor spending on infrastructure, because at least you have something to show for it (like bridges that DON’T fall down) when the money is spent. But, we can’t even get much spending on America’s railroads into the current stimulus package.
Overseas …
China is outraged after India bans all toy imports. Raj Kumar, the president of the Toy Association of India, said politicians were acting in the interests of the economy and consumer safety. This case will end up in the World Trade Organization Court of Appeals.
As Stephen Colbert said, “everything produced in China contains lead, except for lead, which is made from cardboard.”
Here’s my latest interview with HoweStreet.com: http://tinyurl.com/dmmx3o. As usual, Phil and I have a lot of fun.
Here’s a grim analysis of the problems we face: “By now, it’s clear to everyone that we have inherited an economic crisis as deep and dire as any since the days of the Great Depression.”
Did you see the other news this morning? US initial unemployment claims jumped to a 26-Year high. Meanwhile, the chattering classes obsess over what taxes Tom Daschle did or didn’t pay. I guess you can’t blame media babblers like Dowd — they are idiots, they’re paid to distract us from the real problems facing America, and Barack Obama set the standards for his administration extremely high. In other words, he basically handing the media a bunch of easy targets. But unless we focus on the problems at hand, they are going to spiral out of control.
I shouldn’t complain too much. Gold refuses to go lower, instead finding support at $900 and using that to go higher.
Traders are laying the credit for gold’s rise today on a rate cut by the Bank of England and a hold on rates by the European Central Bank. Both moves are seen as supportive of inflation. No one in the mainstream media wants to address the OTHER big reason gold is doing well: There is a very real risk that global financial markets are going to spiral out of control, and worried investors are pouring their money into gold, the reliable safe haven.
Here are some charts from a special report I sent to my subscribers today …
First, a chart showing how gold has been acting against the euro and the U.S. dollar. Note how gold used to track the euro, and is now tracking the greenback?
Now for a chart showing states’ projected budget shortfalls. Is this going to be important to the economy? You better believe it.
Now, here is a chart showing (basically) how indebted American are. We are probably going to go through a period of severe deleveraging. Previous bouts of deleveraging lasted on average 10 quarters.
Do you think this recession is average, or worse than average? My views, as well as the effects I think these and other factors will have on various markets, are in today’s special report.
The report is available to subscribers to my Red-Hot Global Small-Caps. Also, my Red-Hot Commodity ETFs subscribers got it as well.
I think we could see a short-term pullback in gold, which would be a great opportunity to add to long positions.
Let’s look at the charts. First, the daily chart of gold …
And now the weekly chart …
I gave my Red-Hot Global Small-Caps subs a more detailed analysis. Here’s an excerpt …
The interesting thing about gold recently is that it has been moving in tandem with the U.S. dollar and opposite the euro.This is the reverse of how we expect it to move.This is probably happening because European investors are getting scared that their currency is in serious trouble, and when they get scared, they run for the safety of the two other global currencies — the U.S. dollar being one, and gold being the other.
Looking at the chart, you can see an inverse head-and-shoulders pattern. It’s not a perfect pattern — the joint of the neck and second shoulder doesn’t touch the neckline — but you rarely get perfect patterns these days. Anyway, Sino-Gold has pushed higher through the neckline of this pattern, giving us a target of A$8.49 a share.
Already, 
Nominal retail sales decreased 10.6% year-over-year (retail and food services decreased 9.7%), real retail sales declined by 10.9% (on a year over year basis).
Traders are laying the credit for gold’s rise today on a
And now the weekly chart …
