Second hurricane leg

Dear reader
First I'd like to make a personal note. During the next 6 months I will only post from time to time and I will not send any e mails to advice about new posts. If you are interested in my posts please check my blog from time to time. If you have a particular question send me a mail to the e mail address mentioned on the right hand side
Regards
Fritz

In the eye of the hurricane



Well dear reader this week I got an e mail from a reader I estimate very much. She let me know that she would like to get my opinion as things have calmed down considerably. Well I must say it certainly does seem like the problems we had to face over the past months have faded away. And it seems indeed that things have calmed down considerably. But have the problems really faded away? Have we really seen changes to the positive? If the press, which is managed in an Orwellian style, does not report about any major problems, does that mean that there are none? Do we have a chance to receive all the important information? Do you believe that behind the scenes some bailouts are in the preparation? Might it be that some Silver Mints are in default? Might it be that the Silver price had to be taken down to safe banks holding short positions?

Well dear reader, there are many more questions one could rise.

Musing about the above questions, I get to the conclusion that we are rather in the middle of the eye of the hurricane than being on the save side. Musing a bit more, it seems to me that the first leg of the hurricane, the leg we went through already, was maybe level 2 hurricane and it does seem to me that while we were in the eye the storm in fact has gathered strength in such a way that the second leg will hit us with a strength of at least 5 on the scale.



Maybe the storm has increase to level that so far has not even been defined on a scale. Yes dear reader it seems like we will have to face some very strong winds with heavy rainy days ahead. Damage caused might be on a level not known so far. Interestingly I found the article on the following link the same day I got the mail from my reader. To me it seems that the writer hit the nail with his opinion.

http://www.321gold.com/editorials/browne/browne090408.html


Now to the markets

from www.prudentbear.com
For the week, the Dow sank 2.9% (down 15.4% y-t-d) and S&P500 fell 3.3% (down 15.4%). The Transports dropped 4.4% (up 7.0%), and the Morgan Stanley Cyclical index declined 3.8% (down 15.9%). The "defensive" Morgan Stanley Consumer index dipped only 0.4% (down 7.1%), while the Utilities sank 6.1% (down 17%). The broader market joined in the selling. The small cap Russell 2000 declined 2.9% (down 6.2%), and the S&P400 Mid-Caps fell 3.8% (down 8.5%). Tech was hit hard. The NASDAQ100 sank 5.9% (down 15.2%), and the Morgan Stanley High Tech index dropped 6.3% (down 15.3%). The Semiconductors were clobbered for 6.5% (down 18.8%), The Street.com Internet Index declined 4.7% (down 10.7%), and the NASDAQ Telecommunications index was hammered for 8.6% (down 11.7%). The Biotechs fell 3.6% (up 2%). The Broker/Dealers dipped 0.6% (down 27.5%), while the Banks gained 4.1% (down 22.3%). With Bullion sinking $28, the HUI fell 14.3% (down 26.4%)

Commodities markets were under intense liquidation. Gold dropped 3.3% to $804 and Silver was hammered for 8.3% to $12.325. September Crude sank $9.36 to $106.23. September Gasoline fell 10.8% (up 8.5% y-t-d), and September Natural Gas dropped 6.8% (down 0.5% y-t-d). December Copper fell 8.3%. September Wheat declined 6.4%, and August Corn 6.5%. The CRB index sank 6.1% (up 2.5% y-t-d). The Goldman Sachs Commodities Index (GSCI) dropped 7.1% (up 7.8% y-t-d and 29.6% y-o-y).



Well dear reader as mentioned before, to me it seems like being in the eye of the hurricane and I expect that the second leg will be really difficult. Well it seems like we are moving out of the eye. Apart from now already 11 banks that failed, more on it a bit later, there were more and more news about Fannie Mae and Freddie Mac. The news were not positive at all.

http://biz.yahoo.com/ap/080905/mortgage_giants_crisis.html

Well dear reader the previous news turned out to be already outdated on Sunday. The government had to take over Fannie Mae and Freddie Mac. Officially the takeover will cost the taxpayers a couple of billions but the true and final cost most propably will be in the trillions. Well dear reader it does not come as a surprise at all. Reading that the pair had inflated its balance sheets does not come as a surprise either. Well what had to be expected is now reality. Well the second hurricane leg really seems to be much stronger than the first part



September 7 – Bloomberg (Dawn Kopecki and Alison Vekshin): “Treasury Secretary Henry Paulson decided to take control of Fannie Mae and Freddie Mac after a review found the beleaguered mortgage-finance companies used accounting methods that inflated their capital, according to people with knowledge of the decision. Morgan Stanley, hired by the Treasury to probe the companies’ finances, concluded the accounting, while legal, enabled Freddie, and to a lesser extent Fannie, to overstate the value of their reserves, according to the people who declined to be identified because the findings are confidential. The Treasury plans to put Fannie and Freddie into a so- called conservatorship and pump capital into the companies, House Financial Services Committee Chairman Barney Frank said in an interview yesterday. The government would make periodic capital injections by buying convertible preferred shares or warrants, according to a person briefed on the plan. Paulson is seeking to end a crisis of confidence in the companies sparked by concern the companies didn’t have enough capital to weather the biggest housing slump since the Great Depression. The Treasury was ‘convinced that the markets simply wouldn’t respond until after something like this,’ said Frank, who was brief by Paulson. ‘I think it’s an important combination.’”



Credit Crisis
Well dear reader over the past 2 weeks, we reached the number 11. Yes up to now 11 banks failed. In just 2 weeks the list of banks that failed grew by 2 or 1 per week. Last time the FDIC published the list of banks at risk the number of those at risk was already at 117. Well that does certainly not look well. I believe it is safe to assume that the banks at risk are a lot more than the 117. Why do I believe that? Well IndyMac one of the prominent financial institutions that failed, was not even on the FDIC list. Well as mentioned in my previous posts, the market expects a high number of mainly small and mid size banks to fail. The market expects as well that at least 1 big bank will fail within the next 12 months. Well again, that might be rather a conservative number.

The following text is from
http://www.therichterreport.com/content.php?id=192&menu_id=15&menu_item_id=0

On Friday, August 29, 2008, the FDIC closed another insolvent bank. Integrity Bank, located in Alpharetta, Georgia, was closed by regulators from both the State of Georgia and the FDIC. Integrity Bank had fallen victim to the real estate bear market after having made bad loans to residential and commercial developers. The bank had tried, without success, to raise additional capital. Integrity Bank had about $1.1 billion in assets and $974 million in deposits.

Regions Financial Corporation will assume all Integrity deposits. Regions will buy about $34.4 million of the bank's assets. It will pay a 1.01% premium in order to assume the deposits.

The FDIC estimates that the cost of the Integrity collapse will be between $250 to $300 million. Banks are now being closed at the fastest pace in 14 years. The FDIC's standard operating procedure is to wait until the end of the week before taking action. That works especially well before a long holiday weekend. There is no opportunity for depositors to make a run on the bank when the news hits. Last Friday's closure involved the Columbian Bank and Trust, of Topeka, Kansas. It was done the same way.

That was indeed a very special way to start Labor Day Weekend. Which bank is going to be shut next weekend?


Well dear reader the following information does not really come as a surprise
August 26 – Dow Jones (Jessica Holzer): “The Federal Deposit Insurance Corp. said that it had increased its estimate of its expected losses from taking over IndyMac. The FDIC said it expected the bank’s failure to cost its deposit insurance fund $8.9 billion, rather than $4 billion to $8 billion it had originally estimated.”
In fact, I believe that the final cost will by a multiple of the last estimation

More about FDIC
The FDIC announced yesterday that its list of banks in danger grew 30% in the second quarter, to 117 institutions -- double the number of banks in trouble last year. The FDIC report was ripe with juicy retails. Here are the highlights:
Total assets of banks on the problem list now exceed $78 billion, compared with $26 billion in Q1
Net industry assets shrank for first time since 2002
Loan loss provisions of all FDIC-insured banks quadrupled over the last year, to $50 billion
Second-quarter net charge-offs $26.4 billion, versus Q1 $19.6 billion
Second-quarter U.S. bank net operating income $5 billion versus year-earlier $36.8 billion.
“More banks will come on the list as credit problems worsen, and assets of problem institutions will continue to rise," said FDIC head honcho Sheila Bair. The FDIC mentioned that, historically, 13% of those on the list end up failing. Should that be true, about 15 more banks will bite the dust, atop the nine already resting in peace. Remember IndyMac -- the biggest bust this year -- wasn’t even on the list.

Well dear reader my feeling is that September and October 2008 could become difficult months for the financial institutions and the equity markets in general. There are several banks that have bond maturities which have to be replaced. Will they be able to get enough interest/demand from the investors? Time will tell.

August 27 – Wall Street Journal (Carrick Mollenkamp): “U.S. and European banks, already burdened by losses and concerns about their financial health, face a new challenge: paying off hundreds of billions of dollars of debt coming due. At issue are so-called floating-rate notes -- securities used heavily by banks in 2006 to borrow money. A big chunk of those notes, which typically mature in two years, will come due over the next year or so… That’s forcing banks to sell assets, compete heavily for deposits and issue expensive new debt. The crunch will begin next month, when some $95 billion in floating-rate notes mature. J.P. Morgan Chase… analyst Alex Roever estimates that financial institutions will have to pay off at least $787 billion in floating-rate notes and other medium-term obligations before the end of 2009. That’s about 43% more than they had to redeem in the previous 16 months. The problem highlights how the pain of the credit crunch, now entering its second year, won’t end soon for banks or the broader economy… As banks scramble to pay the floating-rate notes, they could see profit margins shrink as wary investors demand higher interest rates for new borrowings. They’re also likely to become less willing to make new loans to consumers and companies, aggravating economic downturns in both the U.S. and Europe…”

August 26 – Bloomberg (Pierre Paulden): “Merrill Lynch & Co., Wachovia Corp., Lehman Brothers Holdings Inc. and the rest of the U.S. finance industry are about to find out how expensive credit has become. Banks, securities firms and lenders have a record $871 billion of bonds maturing through 2009, according to JPMorgan Chase & Co., just as yields are at their most punitive compared with Treasuries. The increase in yields may cost them as much as $23 billion more in annual interest versus a year ago based on Merrill Lynch index data. Higher refinancing expenses will restrict the ability of banks to borrow in the capital markets and lend, further cutting off credit to consumers and businesses and curbing what is already the slowest growing economy since 2001. S&P said last week that it had a ‘negative’ outlook on almost half of the 50 highest-rated financial institutions in the U.S. as of June 30, the highest proportion in 15 years. ‘The gears of capitalism are grinding to a halt,’ said Mirko Mikelic, senior bond fund manager at… Fifth Third Asset Management… ‘There is a tremendous concern over the banking sector and a scramble right now for capita

Well let’s see what Larry Summer ex Chief Economist for the World Bank, US Secretary of the Treasury and President of Harvard University has to say

Recently, in March 2008, Summers stated:
..we are facing the most serious combination of macroeconomic and financial stresses that the U.S. has faced in a generation--and possibly, much longer than that…It's a grave mistake to believe in the self-equilibrating properties of economies in the face of large shocks. Markets balance fear and greed. And when fear takes over, the capacity for self-stabilization is not one that can be relied upon.

On June 29, 2008 the Financial Times quoted Summers:
... we are in an economic environment where we have more to fear than fear itself…
Well and let’s see what some Fed officials have to say

In 2006, in an article published by the St Louis Federal Reserve Bank, Professor Laurence Kotlikoff stated the US was "technically bankrupt" as there was no way the US could pay the $65.9 trillion it owed.
Evidently, Professor Kotlikoff was conservative in his estimate or we're going downhill faster than he knew. Just three months ago, on May 28, 2008 Richard W. Fisher, President and CEO of the Dallas Federal Reserve Bank estimated the obligations of the US to be actually $99.2 trillion, 50 % higher than Kotlikoff's figures.
Fisher stated:
In the distance, I see a frightful storm brewing in the form of untethered government debt. I choose the words—"frightful storm"—deliberately to avoid hyperbole. Unless we take steps to deal with it, the long-term fiscal situation of the federal government will be unimaginably more devastating to our economic prosperity than the subprime debacle and the recent debauching of credit markets that we are now working so hard to correct.

Following an opinion found on the net
Quote
We are astonished that no one picked up on Gretchen Morgenson’s NY Times story that there are $62 trillion in CDS written on Fannie and Freddie debt. We highlighted it yesterday because it is profound.
If Fannie and Freddie defaulted on their debt, there would be trillions of dollars in damage to the financial system due to exploding derivatives. Most people realize this, even if they choose to ignore it.
But what most people don’t realize is if Hank bails out Fannie and Freddie, the CDS might be wiped out, causing unfathomable damage, enormous losses, to firms that bought the CDS. According to Ms. Morgenson, $2 trillion of the $62 trillion in Fannie and Freddie derivatives are "fair value" as on 12/2007.

http://www.nytimes.com/2008/08/24/business/24gret.html?_r=1&ref=business&oref=slogin 


GASB (Governmental Accounting Standards Board): In the case of derivatives, fair value generally is the price at which the derivative can be terminated.
http://www.gasb.org/newsletter/derivatives_may2006.html
Unquote

The following 3 articles, dear reader, are in my opinion must reads

http://www.safehaven.com/article-11073.htm

http://blogs.wsj.com/deals/2008/08/25/lehman-the-tooth-fairy-and-the-revenge-of-the-short-sellers/?mod=yahoo_hs

Lending to the poor has rich rewards
By Ambrose Evans-Pritchard in Lindau, Germany
Last Updated: 11:46pm BST 22/08/2008

As banker to the world's most destitute people, Mohammad Yunus has been watching the moral collapse of western finance over the last year with a mixture of amazement and scientific curiosity.
http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/08/23/ccprof123.xml


Inflation or Deflation

Well dear reader some analysts believe we will see Deflation while others see it the other way around. Following the comment form John Williams from www.shadowstats.com.

On a year-to-year basis, annual M3 growth slowed to around 15.4% in July, from 15.8% in June and was down from the all-time high annual growth rate of 17.4% seen in April. Nonetheless, the current M3 annual growth remains highly inflationary, rivaled outside the current period only by the events preceding Richard Nixon’s closing the gold window and imposing wage and price controls in August 1971. The current pattern of slowing annual growth appears to be an artifact of the still-deepening banking solvency crisis, which likely will see still further Fed accommodation and liquidity expansion in the near future

Inflation and Deflation Good for Gold. The purported "collapsing M3," has triggered excitement in the deflationist camp, which is touting a deflation in financial assets and a credit-collapse-induced implosion of the money supply. It would be helpful if deflationist commentaries differentiated between deflation and inflation in terms of financial assets, versus in terms of prices paid by consumers for goods and services. Deflation in financial assets does not require collapsing money growth and has been underway for some time. Indeed, it likely will get much worse (particularly for equities).
Inflation in goods and services, however, has been picking up and accelerating for some time and also should get much worse. The two deflation/inflation concerns are not inconsistent, and investor nervousness about instabilities in the first case, and the need for protection from the second, feed into both the safe-haven and wealth-preservation demand for gold.


USD
Well dear reader the USD has shown some strength lately and might do so for some more time. Europe is not immune to economic slow downs and yes, times in Europe are worsening too, which does not bode well for the euro. But, we should not forget that on one side we are dealing with close to a catastrophe in the US due to so many excesses in the past half decade and on the other side we have to keep in mind that the official numbers provided by the US Government do not show the reality at all. All numbers are painted and presented in a way that the economic situation seems to be much better than it really is. Of course if you accept the numbers as presented one could believe that the US is doing well while Europe is in problems. Once again, Europe does not look that well but it is certainly not worse of than the US. What could help to have a stronger USD for a couple of weeks is the fact that basically all debt worldwide is in USD. As now the economic situation is worsening in many countries it might very well be that debt has to be repaid fast. That means that there could be some demand for dollars in order to repay debt. Well that leads me to the conclusion that although the USD might show some strength in the coming months, it is only a temporary move. The US is in a real bad shape and that will lead to a lower USD over time. Although Eurolandia seems to be heading towards a recession too and therefore the Euro might be under pressure for some time, I still believe that it is not wise to hold mainly or only USD. As a diversification the Swiss Franc (CHF) seems to be a good alternative.

Did you know that the last time the USD was this high relative to its global competitors, the Dow had just hit another all-time high. The credit crisis seemed to be under control, the stock of Bear Stearns was still USD 115 a share and crude oil at 80 USD per barrel.


Gold



Yes dear reader we have seen quite a plunge in the precious metals markets over the past weeks. Of course holding gold or silver and seeing prices fall that much is not fun at all. However it really seems that we have gone through the bottom. Well yes, prices have fallen. But the prices that have fallen were mainly the prices of paper gold or paper silver. Prices for physical gold or silver have not fallen much. Although of course the paper market is what investors look at it, these prices are in the long run not that important at all. What is important is the physical demand and nothing else. The physical demand in fact has increased strongly over the last weeks. There are several reports of physical demand (especially out of India and the Middle East) that can not be filled at all as there was simply no physical available. Some reports indicate that physical delivery would be in February next year if one places an order today. Indian dealers have their order books full but are not able to get any physical deliveries at all.

And some information about the Indian market
Indian Bullion: A discussion of "ex-duty premiums"

By John Brimelow
For centuries, India has been a massive importer of both gold and silver. For the Hindu majority in particular, gold jewelry and silver ornaments have deep appeal rooted in culture and tradition. Local mine supplies are limited.
India is by far the biggest importer in the world. One of the largest participants in the business has estimated the country might import 880 tones this year. This would be a third of global mine production.
A popular estimate is that some 15,000 tones of gold is in private hands in India. That is some 10% of the total world gold stock. By contrast, Central Banks claim to have a total of just over 31,000 tones, but an unknown quantity has been lent ("leased") out. Actual gold holdings of the Central Banks and the Indian public may in fact be quite similar.
Indians are constantly buying and selling gold to one another. Prices for the various grades and sizes popularly traded are collected by merchant associations and reported for many cities by the Indian press, usually on a twice daily basis. These could be thought of as the "small wholesale" or "large retail" prices. It is reasonable to assume that the high public interest, and competitive pressure between the news vendors, keeps them realistic.
For over 30 years, the import of gold into India was illegal, which lead to heavy smuggling. Starting in the mid 1990s more enlightened policies were progressively adopted such that gold (and silver) can now be imported freely on payment of a moderate duty.
What is of interest to outsiders is, are prices in India high enough to pay the costs of importing? Essentially, this means buying the gold in the world market by converting rupees into dollars, shipping it, paying the import duty (currently10.2 Rupees per gram), the sales tax of the local state (supposed to be harmonized at 1%, but there are a few deviants) any other local taxes, and leaving a profit margin.
The two big items are the import duty and the sales tax. I focus on what I call the "ex-duty premium" because it is a clear starting point. So, for instance, in the afternoon of November 30, 2004, in the usually leading import city of Bombay, 0.999 gold was 670.5 rupees per gram. The exchange rate was $1 =R44.6375. This meant that Bombay gold was $467.21 per oz. World gold was $451.85. Import duty came to $7.11 per oz, leaving $8.25 as the "ex-duty" premium. Out of this sales tax would have to be paid, say $4.52, leaving $3.73 for other costs and profit. Gold will be transported immense distances around the world for profits of less than $1 per oz, so it is safe to say that Bombay was a buyer from the world that afternoon.
Modern communications have revolutionized the relationship between the Indian gold trade and the world. Using telephone and the internet, Indian arbitrage dealers/importers trade to the end of the NY day. There have been estimates that laying off their business sometimes accounts for as much as a fifth of Comex volume.
Secondly, and greatly to the irritation of these Indians, it is possible, with some effort, to identify quite precisely gold and exchange rates at the key times of the day and perform these calculations. This would have been impossible only a very few years ago. So it possible to settle quantitatively the question of whether India is or is not an importer at any point.
Indian demand is price sensitive (in rupees). High premiums have been a fairly good indicator of lows in the world gold price. Sometimes, world gold rises high enough that imports are not possible. Very rarely, world prices get so high that the gap between domestic Indian and world prices is not enough to cover the import duty, which creates a negative "ex duty premium". I have never seen Indian prices anywhere near being actually below world prices. Exports sourced in India have therefore never been practical, although it is said these did occur in early 1981.

Following a comment from UBS
Demand for other coins, wafers and small investment bars remains strong, according to our Zurich desk, and jewellery demand, which we have written about a lot recently, was strong again on Thursday, buying early and late in the day at the lower end of the wide trading range. This combination of very strong jewellery and investment demand is very unusual and is keeping all refineries busy, we hear.
Thursday’s suppression of the early NY spike to $844 and closing $3.20 gain saw a 3,375 contract gain in open interest: 10.5 tones. No liquidation.

World gold had gained some $7 by the end of the Far East day this morning, but efforts to sustain this in NY were obliterated and Comex closed down $2 on quiet pre-long weekend estimated volume of 89,498 (switch effect 9,500): 40c off the bottom of a $9.20 range; an elegant example of market grooming.
Gold shorts, like Oil shorts, found protection.
The consequent price will greatly delight the Indian public, now entering their seasonal enthusiasm for bullion.

Some more about the physical market regarding precious metals. Please read on
http://news.goldseek.com/EricHommelberg/1220359803.php

Well dear reader producing gold is becoming more and more difficult. South Africa has already a declining production and it seems that Australia now too. The following story is about Australias declining gold production
http://www.theaustralian.news.com.au/story/0,25197,24271507-643,00.html



Market Manipulation

After the huge price swings in precious metals, the whole discussion about market manipulation came up again. To be clear, I do believe that the markets are manipulated or rigged in some cases. Especially the precious metal markets. Following some information about market manipulation.

Some Analysts Say Only Manipulation Is Government's Attempt to Take Down Oil

Friday, August 29, 2008
http://www.marketwatch.com/news/story/big-jump-gold-sale-spurs/story.asp...

NEW YORK -- Recent heat from Congress and regulators, along with public speculation, over whether commodity prices are being manipulated has also reached gold pits, where the debate was stirred by a surge in bets last month that gold prices would fall.
"Congress is already investigating allegations of manipulation in the oil market, and it seems likely that it is only a matter of time before a similar investigation will be required in the precious metal markets," said Mark O'Byrne, executive director at Gold and Silver Investment.
Three unidentified U.S. banks held 86,398 short positions, or bets that gold prices will fall, in the COMEX gold market as of Aug. 5 -- 10 times more short positions than a month earlier, a government report showed.
The report by the Commodity Futures Trading Commission, which regulates U.S. futures markets, also showed short positions held by three U.S. banks in silver futures had increased more than four times during the same period.
"The data in the bank participation report is so clear and compelling that it is hard to conclude anything but manipulation," said Theodore Butler, a precious metals analyst, in a note.
The sudden jump in short positions coincided with a slide in silver and gold prices, which fell $12.30 an ounce in July and another $89.20 in August, their biggest monthly loss since at least 1984, according to Factset.
... Manipulation vs. speculation
Taking a short position, even large amounts, however, doesn't equate to manipulation, which would imply collusion between several big players to influence prices one way or the other.
But the fact that three big banks were singled out in the CFTC report is nothing new. The regulator's reports always show the largest three players in futures markets in any given month.
"One can take any data and make it suit their argument," said Jon Nadler, senior analyst at Kitco Bullion Dealers.
"The theory that the market is somehow sinisterly manipulated, especially as it comes at a time when U.S. regulators are keeping a keen eye on the goings-on in the commodities and financial markets for just such type of evidence, is simply ludicrous and totally out of touch with market reality."
The talk of manipulation in metals markets follows similar allegations that crude oil and agricultural commodities prices were bid up by speculators, and were not the result of fundamental demand and supply situations.
As oil surged this year and almost reached $150 a barrel in early July, while food prices also kept on rising, cries grew louder in Congress that something had to be done.
The CFTC took steps to stamp out "excessive speculation" in the oil markets, while Congress also held numerous hearings and investigations into other futures market.
In July, the CFTC charged Dutch company Optiver Holding BV with manipulation of crude oil and of other energy futures. In at least five out of 19 attempts, the defendants successfully manipulated certain energy futures contracts, causing artificial prices, the CFTC alleged.
... Of oil and elections

Some analysts say the surge in oil and gasoline prices earlier this year caused many worries in Washington, where all eyes were already turned toward the presidential elections in November.
"My gut feeling is that the Republicans wouldn't mind taking oil back down under $100 before the elections," said Paul Mendelsohn, chief investment strategist at Windham Financial Services.
Mendelsohn said he believes the government has tried to make the U.S. economy, oil, and markets appear in better shape and also to temporarily curb the immediate effects of the slumping housing market, of bad home loans and of the credit crisis.
In July, the Securities and Exchange Commission, the stock market regulator, limited so-called "naked" short selling of shares in Fannie Mae, Freddie Mac, and 17 other financial firms.
The measure temporarily halted some financial stocks from falling further. But when the rule expired earlier this month, most stocks covered by the moratorium started dropping again.
Jeffrey Saut, market strategist at Raymond James, also believes that the commodities bull run may have run out of steam, even if only temporarily, because of the upcoming elections.
"There is a lot of nervousness, especially in energy pits, about the efforts under way to propose wrong-footed legislation from politicians who want to bring down the price of gasoline," said Jeffrey Saut, market strategist at Raymond James.
"I don't believe we have a speculative bubble, but these moves are going to drive a lot of hot money out of commodities pits between now and the elections," he told MarketWatch back in July.
... Fundamentals

Many analysts also point to fundamental factors that helped bring down prices in commodities over the past month and a half.
"There is indeed a rational explanation for the decline in the price of gold and silver: The dollar has staged one huge rally, and fundamentals suggested the dollar should rally," wrote Mike Shedlock, an investment advisor at Sitka Pacific Capital Management, in an online blog post on Wednesday.
Dollar-denominated commodities, such as gold and crude oil, tend to fall when the dollar rises, as the commodities become more expensive to purchase for holders of other currencies.
The dollar has rallied against the euro and the British pound as European economies showing increasing signs of slowing down.
A slump in the dollar in the first half of this year, as the credit crisis flared up and the U.S. economy slumped, had helped push gold and silver prices to historic highs.
... Banks and markets

As for the banks involved in the recent short selling of gold, they are only market makers, taking orders from large money players, such as hedge funds, said Jeffery Christian, founder of commodities research firm CPM Group.
Banks "stand to buy or sell the commodities, taking the other side from other people or institutions entering a market," said Christian. Gold and silver prices slumped recently "because investors, particularly short-term, technically-oriented funds, were selling."
Short-term funds tend to use over-the-counter channels to trade gold and silver and their positions were therefore not recorded by the CFTC.
"What you have here is the footprints of hedge funds exiting the commodities markets en masse," said Kitco's Nadler.
Banks, playing as a market maker to buy contracts from funds, hedge their risks by doing opposite trading in the futures market: They sell, or short, gold and silver contracts in the futures markets.
That explains the recent jump in banks' short positions, said Christian.
"Banks are the passive agents usually in markets," Christian added. "They make the markets, and take what is coming at them."

and

http://www.24hgold.com/viewarticle.aspx?langue=en&articleid=309721_A_Nasty_Twist_to_the_Cartel__End_Game____Deepcaster

Well dear reader have a look at the following picture and try to guess where we are right now regarding precious metals investments



Before seeking to apply the cycle to the present stock market situation, let’s consider a short definition of each of the stages.

Contempt: According to the cycle, a bull market typically starts when a market is at a low and investors scorn stocks.

Doubt and suspicion: They try to decide whether what they have left should be invested in a safe haven such as a money market fund. They have burnt their fingers with stocks and vow never to invest again.

Caution: The market then gradually starts showing signs of recovery. Most investors remain cautious, but prudent investors are already drooling at the possibility of profit.

Confidence: As stock prices rise, investors’ feeling of mistrust changes to confidence and ultimately to enthusiasm. Most investors start buying their stocks at this stage.

Enthusiasm: During the enthusiasm stage, prudent investors are already starting to take profits and get out of the stock market, because they realise that the bull market is coming to an end.

Greed and conviction: Investors’ enthusiasm is followed by greed, which is often accompanied by numerous IPOs on the stock market.

Indifference: Investors look beyond unsustainably high price-earnings ratios.

Dismissal: As the market declines, investors show a lack or interest that quickly turns to dismissal.

Denial: Then they reach the denial stage where they regularly affirm their belief that the market definitely cannot fall any further.

Fear, panic and contempt: Concern starts to take a hold and fear, panic and despair soon follow. Investors again start scorning the market and once again they vow never to invest in stocks again.

Well the reactions I came across let me believe that we are in the fear or panic mode. Well if that is correct we should stay course and hold on with our gold investments and if you are in the position holding cash, increasing existing positions might be something to consider.

Well dear reader gold seems to be the investment for some time to come.

What about oil?



With hurricane Gustave not being as strong as estimated, oil prices fell last week. As mentioned various times, I have no doubt at all that we will see much higher Oil prices ahead. That means that I believe that any purchase below 110 USD barrel will bear its fruits over the coming months. Well it might be that we see an oil price per barrel below 100 USD (90 is certainly a possibility). As one never knows beforehand when the bottom is in, it might be a good strategy to start to accumulate bit by bit oil related investments. Be careful with oil stocks. Higher oil prices do not mean that oil producers automatically earn more money. The cost side has gone up too and the big oil companies have more and more trouble replacing their reserves.

Rising costs erode oil industry's profits
By Ed Crooks in London
Mittwoch Sep 3 2008 17:40
Oil companies' profitability fell last year as rising costs eroded gains from the rise in oil prices, an industry study has found.
The companies' return on capital from their oil and gas production fell to 19 per cent, 3.5 percentage points lower than in 2006, according to the study from IHS Herold, a research firm, and Harrison Lovegrove, a corporate finance firm owned by Standard Chartered bank.
The study of 232 leading quoted oil and gas companies also found that they had not increased their total reserves last year, and raised production only slightly.

Well dear reader as you already know I am a strong believer of the Peak Oil theory. You know as well that I believe that we passed the Peak possibly 2 years ago. As you know I do believe that Peak Oil will change our life entirely. Will it be a fast change or will it be a slow change over 2 to 3 decades? Well maybe a slow change is more likely. Well dear reader the ones that position themselves first for what is to come, will in my opinion be the winners. What will be the businesses that will do well in a world with less oil? What will be the professions needed? Will your business be amongst the winners? The article on the following link talks about the impact Peak Oil might have. If you are interested I recommend to read on
http://thearchdruidreport.blogspot.com/2008/09/post-petroleum-job-ads.html

Equity
Following the opinion of Puru Saxena
The ongoing correction in commodity prices is helping global stock markets. It looks as though this bounce in stocks may continue for as long as the price of crude oil remains in correction mode. Make no mistake though, this pullback in energy is nothing more than a temporary setback and prices will go so high that it will make your eyes spin. When the price of oil surges again, global stock markets will resume the next downleg of their bear-markets so this is a good time to liquidate your non-commodity positions in the developed world
Don't let the pullback in crude oil fool you. 'Peak Oil' is here and it is very real. According to the EIA, global supply is struggling at 85.2 million barrels per day and demand is climbing at 86.9 million barrels per day. Global demand is expected to grow by 1.6% per annum over the next 20 years and there is no way our world can produce 120 million barrels per day - it is as simple as that! In fact, given the production declines in some of the world's large oil fields, it may well be that we are already very close to the peak in oil production. So, unless we get a global depression, brace yourself for sky-high oil prices (hundreds of dollars per barrel) and eventual shortages. This is a great time to load up on quality upstream and service companies in the oil + gas sector plus coal and uranium mining companies.
I certainly do agree with Puru Saxena regarding the sectors that should do well long term. However I am a bit cautious with stocks in general terms. Some selected stocks should do well. However if we will see a major market correction all stocks might go down in unisono.


Commodities
Well dear reader, we have been in a bull market in commodities for almost 7 years. Having to face corrections from time to time is absolutely normal. As you know I strongly believe that the actual bull market will last another 10 to 15 years. As mentioned corrections are normal that means we will have to face corrections on the way up. It is reasonable to think that after these 7 years a 2 months correction will not offset the bull market as such. As mentioned, I do not believe that the bull market in commodities is over. However it might very well be the case that the actual correction might take up to 12 months. Corrections are always excellent opportunities to reinvest. It seems that there is no need to hurry as we should get across some excellent entry points in the next months.


Investments for which I see a bright future are
Precious metals
Oil
Natural Gas
Coal
Uranium
Agricultural commodities

Well dear reader if you are interested in more info about manipulation of markets and gold in particular, following some more explanations.


Gold manipulation
On May 8, 1999 Chancellor Gordon Brown of Britain suddenly announced that Britain would be selling 415 tonnes of gold, fully 58 % of its total reserves, leaving Britain with only 300 tonnes, the lowest amount of any major country in the world. Eleven days earlier, on April 27, 1999, Brown had requested the IMF sell $10 billion of its gold on the open market.
What would cause Britain to sell off 58 % of its gold reserves, gold that had taken centuries and such pains to accumulate by way of positive balances of trade and ill-gotten gains forced from its empire of imperialism? What would cause its Central Banker to ask other institutions to do the same, sell significant portions of their gold when the price of gold was at all time lows?
Perhaps the British Central Bankers had decided it was high time to replenish their wardrobes with bespoke tailored suits from Savile Row and to drive gold even lower so as to arbitrage their wardrobe purchases in time for the new millennium to be celebrated at the revitalized Canary Wharf complex. Perhaps, but the theory rings hollow and there is another theory afoot.
The radical action taken by the Bank of England was not to raise money. The purpose of the gold sales by the Central Bank of England was to drive the price of gold lower still in order to avert a financial meltdown. The price of gold had to be lowered quickly and the announcement of gold auction by the Bank of England of over half its gold reserves was required in order to do so.

The rumor in London at the time was that New York investment bank Goldman Sachs had a 1,000 tonne short gold position in the market and if the price of gold were to rise they would suffer catastrophic losses.
Bank of England Governor Eddie George later spoke to Nicholas J. Morrell, CEO of Lonmin Plc, about the sale of Britain’s gold and said:
We looked into the abyss if the gold price rose further. A further rise would have taken down one or several trading houses, which might have taken down all the rest in their wake. Therefore at any price, at any cost, the Central Banks had to quell the gold price, manage it. It was very difficult to get the gold price under control but we have now succeeded. The US Fed was very active in getting the gold price down. So was the U.K.
The rumors also included speculation that Goldman Sachs had shorted the gold on behalf of the US government; that the US government was actively colluding with Goldman Sachs to manipulate the price of gold, and the market had turned against them.

One month after Britain had announced it would sell the majority of its gold (and in such a way as to depress the price in the process), the following comments were made in the House of Commons on June 16, 1999 by Sir Peter Tapsall.
Sir Peter Tapsall’s words bear repeating:
I regard the decision to sell 415 of the 715 tonnes of our gold reserves as a reckless act, which goes against Britain's national interest. The sale of that crucial element of the United Kingdom's reserve assets will weaken our scope to operate independently, reduce our influence in international financial institutions and diminish the United Kingdom as a world financial power.
The immediate effect has been the loss of £400 million of our taxpayers' reserves, and so far the only beneficiaries of this event have been the foreign finance houses, which have been shorting the gold market…[rumors} that some of those famous foreign finance houses have shorted gold to a huge amount—vastly greater than the tonnage of sales contemplated by the Bank of England—and that it was therefore vital for them for the gold price to fall substantially so that they could close their positions and take huge profits.
A financial crisis had brought the world to the brink of disaster. Once again, the gamblers and speculators in charge of today’s investment banks had leveraged their positions in such a way as to endanger the financial health of nations and indeed the world.



This Is How It Was Done: Beginning in the 1980s, the US Fed and other Central Banks started to loan their gold reserves to investment banks at the very low interest rate of 1 %. The investment banks would sell the gold, investing the proceeds in interest-bearing bonds paying higher, for example, 6 % interest. The 5 % spread between interest rates was their profit.

This continual new supply of gold on the market forced gold prices lower over time, which is what both the Central Banks and investment banks wanted. The Central Banks wanted gold lower because it made inflation less visible and their paper currencies appear more stable. The investment banks wanted gold lower because when it came time to repay their gold loans they could buy gold at a lower price and make even more money.
This became known as the gold-carry trade, a forerunner of the Japanese yen-carry trade that was to come later. In both instances the original asset (gold or yen) would be borrowed at low interest (1 % for gold, 0 % for yen) and would be sold, with the proceeds reinvested in assets that offered higher rates of return.
The only risk was that if the underlying asset (gold or yen) rose in price before the time came due to repay the loan, the underlying asset would have to be repurchased at a higher price, incurring perhaps serious losses for the borrower. This risk was later to become more than just apparent.
As long as prices stayed low, the gold carry-trade was a win for the Central Banks wanting to suppress the price of gold and the investment banks that were handsomely profiting once more at the trough of government largesse.
The extent of these gold loans was hidden, as the Central Banks did not want known the level of their collusion in the illegal manipulation of gold markets; and if it weren’t for the efforts of Frank AJ Veneroso, the real volume of gold loans would never have been discovered.

Frank Veneroso is also chief investment strategist for RCM Global Investors, the equity investment arm of Allianz Dresdner, the giant German insurance conglomerate which also owns the PIMCO bond funds, the bailiwick of Bill Gross.
It was in compiling the statistics on gold markets that Veneroso discovered that the Central Banks were hiding the vast majority of their gold loans from public view. Veneroso estimated that by the late 1990s, the highly lucrative and still hidden gold-carry trade amounted to 10,000 to 15,000 tonnes of gold.
The Central Banks pointed to their books which showed receipts showing large amounts of gold on deposit. What Veneroso suspected and found to be true, however, was that the gold wasn’t there. Ten to fifteen thousand tonnes of gold, an amount far larger than the Central Banks would admit, had been loaned to the investment banks in order to suppress the price of gold and now, in Veneroso’s opinion, were never coming back.
CENTRAL BANK GOLD
NOW GONE WITH THE WIND
Veneroso noted that the amount of physical gold lent, 10,000-15,000 tonnes, is far too large for investment banks to repurchase without causing the price of gold to explosively rise, the very result the Central Banks had set out to prevent.
The success of the gold-carry trade had led to its failure. Now, at the cost of almost half of their gold reserves, the Central Banks are left only with promissory notes from investment banks instead of the tons of physical gold they had once possessed.

Section IV On Monday of last week, the price of August Comex Gold closed the session at 648.70. This will be our starting point for the analysis that follows since the COT [Commitments of Traders] report will show us who did what from the following day until Tuesday of this week as compared against the price action of gold.
The next day, Tuesday, 6-6-2006, gold dropped down to 634.70. Wednesday it went down to 632.60. Thursday it took another huge hit and closed down at 613.80. Friday it closed down at 612.80. The following Monday, at the start of this week, it continued its downward progress and closed at 611.30. Tuesday, the final day of this week which is covered by the COT report, it was walloped for a gargantuan hit of $55 closing all the way down at 566.80.
It was further mauled overnight beginning in the afternoon Access session on into Tuesday evening when it began to gets it footing in the late afternoon Asian action and early morning European trading session. To sum up – gold went straight down from Tuesday of last week thru Tuesday of this week to a tune of a loss of $81.90, and if you include the Tuesday overnight action, a whopping loss of $102.30 in one week!
To further amplify on what I have described previously - Whereas the normal pattern of the last five years in gold as I have described above would have expected us to see the commercial cartel covering or reducing their shorts and booking profits, the exact opposite occurred – the commercial shorts, aka known as the gold cartel, SOLD THE ENTIRE WAY DOWN – instead of REDUCING the number of their shorts and booking profits they actually PUT ON MORE OF THEM!
The COT [Commitments of Traders] report reveals that they added a total of 5,282 BRAND NEW SHORTS as the price of gold collapsed. They have NEVER done this before during any time in this bull market in gold since it began way back in 2001.
What does this mean? – quite simple – it means that there was a concerted effort on the part of this group of short sellers to FORCE THE GOLD PRICE DOWN. They had absolutely no interest in booking profits on existing shorts as the price tumbled some $100.
This is a stunning development as it clearly indicates a concerted attempt to derail what was becoming a runaway bull market in the gold price that was threatening to garner far too much public attention. Remember - gold’s perennial function is to serve as the financial “canary in the coal mine” which alerts the workers to hidden, toxic dangers.
Quite simply, gold’s stunning rally to $730 in the matter of a few months time was sending shock waves through the corridors of the monetary elites who were “looking into the abyss” if gold continued its meteoric rise. Something had to be done and quickly or this thing was going to get out of hand.
Along that line, this past week I had sent some comments up to my good friend Bill Murphy over at GATA’s [Gold Anti-Trust Action Committee] fine site, www.lemetropolecafe.com detailing both in written and in visual chart form what appeared to me to be a deliberate assault that was being launched against the gold market beginning in the thin and illiquid conditions of the aftermarket access trading session as
53 Section IV
soon as it opened for the resumption of trading in the afternoons. Bill included those in his daily Midas reports. Also, my trading buddy and good pal Jim Sinclair (www.jsmineset.com) had posted the same comments along with the price charts detailing the attack as shown on the 30 minute interval chart.
As a trader who trades exclusively in the CBOT’s [Chicago Board of Trade] full-sized electronic gold contract every single day, I am quite attuned to the normal order flow into that “pit”. What caught my eye immediately beginning last week and continuing with the assault on gold early this week, was the huge size of sell offers that came flooding into those pits late last week and earlier this week during the normally comparatively quiet afternoon session.
Offers of 500+ to sell were relentlessly pounding the CBOT [Chicago Board of Trade] electronic gold contract. One enormous sell order of 943 hit the pit much to my stunned amazement. I found myself talking out loud to myself saying, “What in the world is going on here? Did I miss something happening in the world? Did someone Central Banker or Fed governor say something? Who in the heck is selling like this?”
To give you some perspective – I rarely see buy or sell orders in the early afternoon session exceeding 100 contracts going either way. Clearly some entity was attempting to mercilessly pound the price down into lower levels looking to run stops in the thin conditions and set off a cascade of further selling which would then be expected to carry over into the TOCOM [Tokyo Commodities Exchange] session that evening driving the price even lower as Japanese selling took over.
So the question becomes, who would do such a thing and why?
Then it all began to make perfect sense if one understands what both Jim Sinclair and Bill Murphy and the GATA [Gold Anti-Trust Action Committee] gang had been saying about this recent price decline in gold, namely, that it was an orchestrated and deliberate attack by the Central Bankers of the West to break the back of the gold market and defuse the warning message that gold was sounding abroad.
In our opinion, it started with the Bank of England either mobilizing its own gold supplies or gold from the IMF. This gold was then used to temporarily flood the market with extra supply with which to overwhelm the soaring investment demand thereby knocking the price of gold, and other commodities sharply downward to give the intended effect that fears of inflation due to commodity price rises had been effectively contained.
In order to effect the most carnage on gold, this surreptitiously mobilized supply of extra gold had to be accompanied by a concerted and well-coordinated effort on the part of the Western Central Bankers and some of their allies of tough anti-inflation talk giving the impression that the CB’s [Central Banks] were going to be especially vigilant to nip any inflation genie in the bud.
Think about this a bit and see if we can put two and two together. If you knew in advance that the BOE [Bank of England] was about to make a move to derail the surging copper market and bail out its friends at the LME [London Metals Exchange] which was on the verge of witnessing a default among some of its members who had stupidly sold short into a roaring bull market in copper, and you knew that they would also do this by
54 Section IV
launching an all out assault on the base metals and especially on the gold price using mobilized Central Bank vault gold, what do you think you could conclude?
Answer – the price of gold was going to fall sharply as it would be temporarily overwhelmed by the extra supply hitting the market. If you knew this would you not sell with complete reckless abandon? Would you not attempt to chase the market down as far as you could pushing into one set of sell stops after another?
Would you not do this in the hopes of wreaking as much carnage on the market as possible and then eventually clean up by buying all those shorts back after you had broken the back of nearly every would-be gold bull on the planet? I know I sure would have! You would be a complete nitwit not to recognize such a gift horse being dropped into your lap!
Well, that is exactly what I believe occurred. The BOE [Bank of England] in conjunction with their cohorts at the Fed, would have tipped off its agents, or better yet, would have plotted with its agents Goldman Sachs, et al, that it was about to mobilize its gold or the IMF’s gold and dump it onto the market.
In the meantime Goldman Sachs and friends were unleashed to smash the paper markets in gold at both the Comex and the CBOT [Chicago Board of Trade], and run as many speculators out of it as possible while seeking to inflict the most technical damage possible on the price charts.
The intended effect was to be to so completely dishearten and discourage the public and the investment funds from buying gold that it would suffer an ignominious death and fall off the radar screens of investors. That would effectively get it out of the headlines and remove the pesky metal’s telltale warning signs about the true state of the global economy. No more gold stories equals happy Central Bankers.
There is no doubt that the plan worked to near perfection – I have never seen so much near total despair and disillusionment among the friends of gold as I witnessed this past Tuesday and early Wednesday. Out of everywhere, as if on cue, analysts confidently pronounced that the bull market in gold and in commodities was over, finis, kaput!
However, a funny thing happened on the way to the forum. Someone showed up to meet the brazen sellers and began to buy in huge lots. Gold quickly ricocheted off the $545-$550 level running all the way back to near $590 in two days.
Today, Friday, 6-16-2006, when the same group of sellers once again attempted to break the back of the gold market which had come roaring back in overnight trade in both Asia and in Europe, and began their coordinated selling assault during the New York trading session (what else is new), out of nowhere buying came out of everywhere forcing them to beat a hasty retreat.
Gold, which at one point had been knocked down $20 off its overnight highs, came back with a vengeance stuffing the shorts and forcing them back out as it closed the session in remarkable fashion for a Friday afternoon.
The strong close augurs well for next week although gold did suffer some pretty heavy technical damage this week as a result of the attack. It will take our friend some time to
55 Section IV
repair the damage suffered but it demonstrated true grit this week by coming back from such a fierce beating in so noble a fashion to end the week.
One has to understand that as a result of the work of GATA [Gold Anti-Trust Action Committee] and especially the conference in the Klondike that the big physical market buyers know full well what is going on in the gold market and were laying in wait for Goldman and company. And why should they not?
If one understands the war involving gold and knows that there exists a group of entities who are intent on smashing the price of gold and will utilize all the resources at their disposal, why not wait for them to pull one of their stunts, step aside for a while, let them knock the price back down and then buy all that you can fit into your boats at a greatly reduced price level.
After all, if you are determined to own gold and increase your holdings of it as the Russians, Chinese and Arab interests are, why not let the fools make it available to you at a nice big discount and then load the boat compliments of your short-sighted but “generous” benefactors?
In conclusion, we will need to see the price action this next week and the COT [Commitments of Traders] report next Friday along with the daily open interest reports to see if the gold cartel is forced to cover those brand new shorts, many of which are underwater at this point and whether the funds will now trade this gold market a bit more intelligently.
We want to see if gold can hold the recent lows on any possible subsequent revisiting of those lows. If so, and if especially the volume dries up in comparison to that of the day when the lows were made, then the bottom is definitely in and gold will start its next leg up from this region after a period of base building.
We know that down at those levels there are huge buyers waiting in the physical market who want to obtain gold at what they consider to be a “value” area. That is the key. Those guys want all the cheap gold they can get and will pounce on it at a price they are happy with.
If the CB’s [Central Banks] want to dump more gold on the market, those big buyers will be more than happy to relieve them of it all. Heaven help the new shorts in this market if that gang of physical market buyers decides this is as cheap as gold is going to get again.
June 16, 2006
Dan Norcini