Golden October

Golden October


Before going a bit more into details first of all last weeks the overview from www.prudentbear.com
For the week, the Dow rallied 4.7% (down 33.3% y-t-d) and the S&P500 rose 4.6% (down 35.9%). Economically-sensitive issues, however, were under more pressure. The Morgan Stanley Cyclicals fell 4.7% (down 44.2%), and the Transports declined 1.3% (down 19.2%). The Utilities jumped 8.3% (down 34.1%), and the Morgan Stanley Consumer index gained 3.8% (down 23.3%). The small cap Russell 2000 added 0.8% (down 31.3%), and the S&P400 Mid-Caps gained 0.9% (down 35.3%). The NASDAQ100 increased 3.3% (down 37.1%), and the Morgan Stanley High Tech index rose 2.2% (down 40.3%). The Semiconductors declined 2.8% (down 41.4%). The Street.com Internet Index rallied 3.2% (down 33.1%), and the NASDAQ Telecommunications index jumped 4.1% (down 35.8%). The Biotechs rose 4.7% (down 17.7%). Financial stocks rallied. The Broker/Dealers surged 12.6% (down 52.4%), and the Banks jumped 8.2% (down 35.4%). With Bullion sinking $67, the HUI Gold index fell 18.1% (down 50.4%).


Well last week the bull was ahead





Golden October

Well dear reader you might be surprised to read Golden October. So far October has not been really golden, at least not for the gold investors. Well although it seems that October was not really golden for the Gold investors, I must say it was in fact better than one would have expected (see below not all that bad).



Well with Golden October I am referring rather to the beautiful time one can enjoy in many Northern Hemisphere countries. October is often a try month with a lot of sunshine. This combined with trees and forest "painted" in the beautiful colors like gold, red, brown, green and any combination thereof, really does invite to enjoy this wonderful weather conditions out in the nature. After having lived for almost a decade in a country where the only seasons are either a rainy season or a try season and being back in a country with 4 seasons, I must admit that I enjoy particularly these wonderful scenes.




Yes it is great to have a walk in the woods. It is great to see these wonderful colored trees. It's great to hear the incredible sounds when walking through the uncountable leaves on the ground. It's great to breathe in the fresh air and smell the wonderful scents of Mother Nature.



Of course enjoying all this with the loved ones or with friends is as great as enjoying it alone. This are the times one has to enjoy, particularly in these difficult times with a future that seems to be rather on the dark side. Yes I believe that especially in these times it is of upmost importance to enjoy precisely these precious moments.
Well dear reader writing this musings and looking out of the window in order to enjoy the precious fall scenery with the golden sunshine, one almost can forget the actual market situation.



But, looking at the market it certainly seems like being towards the end of the fall. Instead of falling leaves we see falling financial institutions. Kind of a late and intensive Kondratieff autumn. Just it seems that the falling pieces are falling much faster and winter really approaches in high speed. Over the last weeks we have seen financial institutions disappear. Others were taken apart throwing the ugly fat and useless bones (shareholders and bondholders) into the waste basket while the prime pieces (clients assets) were handed over on a golden plate to some financial institutions that desperately needed these assets in order to bring the financial ratios to better terms. It is interesting to observe that these favored institutions receiving the goodies are always the same ones. Furthermore it is interesting to observe that, as a nice side effect, these institutions in many cases are able to net out derivatives positions that otherwise would have gone against them and would have cost them direly (Bear Stearns/JPM). Conflict of interest? Nope none, no way, how could possibly such a thought have crossed your mind?




Well apart of the winners and victims mentioned before, we had to witness another trend. A trend that started last week in England. Yes the trend to partially or fully nationalize banks. It seems that no country is safe in the sense that the government does not need to help its financial sector. Even these countries that seemed to be like a solid rock in stormy water had to find out that the storm swept over the seemingly solid rocks. It seemed and possibly still does that the water mark is steadily going up and more and more rocks are under water.

Following some information about financial institutions

"Indeed, Goldman's presence in the
department and around the federal response to the financial crisis is so ubiquitous that other bankers and competitors have given the star-studded firm a new nickname:
Government Sachs."
Well dear reader Goldman has taken over. Not only in the US but worldwide. There seems no National Bank (independent or maybe not?) without having an ex Goldman boy in a top position.
Well the market gave the nickname Government Sachs. As soon as the market or the people will find out that the help of these Goldman Boys not necessarily has been to the peoples benefit, some might be tended to change the a in Sachs for an u and the h with a k.

Citibank
A remark from Jim Willie
Quote
The entire episode with Wells Fargo bidding for Wachovia, in competition from Citigroup, is steeped in comedy with vampire stars. The grapevine in Washington and Wall Street passes word that the Citigroup versus Wachovia wrestling match was actually a sponsored backdoor bailout attempt to save Citigroup, not just Wachovia. Again, the FDIC was the matchmaker. My term has been 'Dead Marrying the Dead' which still holds true, since Citigroup has been dead for one year. Under the original Citigroup proposal, the FDIC had arranged for guarantees of $42 billion for Wachovia debt by the USFed. The new Wells Fargo deal enabled the US taxpayers to get off the hook. The reversal by the FDIC to serve the public has caused gigantic Wall Street problems, as Citigroup now finds itself in a position more perilous than anyone believed. This battle has flip-flopped once, and might again. Citigroup would probably have died if not for the USGovt purchase of bank stocks
unquote

Well dear reader, although some greedy bankers brought us to the actual situation it seems as they do not bother go on with their greed. Following an article from the guardian
Financial workers at Wall Street's top banks are to receive pay deals worth more than $70bn (£40bn), a substantial proportion of which is expected to be paid in discretionary bonuses, for their work so far this year - despite plunging the global financial system into its worst crisis since the 1929 stock market crash, the Guardian has learned.
Staff at six banks including Goldman Sachs and Citigroup are in line to pick up the payouts despite being the beneficiaries of a $700bn bail-out from the US government that has already prompted criticism. The government's cash has been poured in on the condition that excessive executive pay would be curbed.
http://www.guardian.co.uk/business/2008/oct/17/executivesalaries-banking

Well coming back to my Golden October or autumn musings, I'd like to ask; Are we at the end of the crisis? Well you know already my opinion. So let's enjoy what we can enjoy. Be it the Golden October or anything golden that makes your heart jump.
Well dear reader above I mentioned that in relation to gold not all was really bad in October.



James Turk mentioned correctly that gold reached last week new record highs against the Australian Dollar, Canadian Dollar, Indian Rupee, South African Rand and the British Pound. Turk expects that Gold will soon do well against the US Dollar and Euro too. He believes that the Gold price in USD and Euros will reach a new high this year, especially now that the US is formally committed to "unlimited" creation of Dollars and the US national debt is rising at an annual rate of 75%.
http://goldmoney.com


Markets in general
Following a few comments found on the internet:

Banks borrow record $437.5 billion per day from Fed
Fri Oct 17, 2008 12:38am EDT
NEW YORK (Reuters) - Financial institutions ran to their lender of last resort for record amounts of cash in the latest week, under extreme pressure from the worst global financial crisis in a generation, Federal Reserve data showed on Thursday.

Banks and dealers' overall direct borrowings from the Fed averaged a record $437.53 billion per day in the week ended October 15, topping the previous week's $420.16 billion per day.

Some analysts are concerned that banks' dependence on Fed lending might become long term and difficult to change.

"The banking system is going to become addicted to this very cheap money. Unwinding it will be very difficult," said Howard Simons, strategist with Bianco Research in Chicago.

"We have effectively allowed the central banks to disintermediate the banking system. Why would I want to borrow from you if I could do it with the central bank, because they can always print it up and say 'here'...and they are in the business now of making sure I stay in business," Simons said.

Primary credit discount window borrowings averaged a record $99.66 billion per day in the latest week, up from $75.0 billion per day the previous week.

Primary dealer and other broker dealer borrowings were $133.87 billion as of October 15, versus $122.94 billion on October 8.

"Other credit extensions", mostly reflecting loans to insurer AIG, were $82.86 billion as of October 15, versus $70.30 billion as of October 8.

The Fed's lending to banks to enable them to purchase asset-backed commercial paper from money market mutual funds was $122.76 billion as of October 15, versus $139.48 billion on October 8.

Proceeds from the U.S. Treasury's sales of Treasury bills in the Fed's supplementary financing account, which are helping to fund the Fed's support of financial institutions, were $499.13 billion as of October 15, versus $459.25 billion as of October 8.



Well the above information does certainly not send us any signals that the liquidity crisis has vanished.

Well not only the banks are in troubles:
Layoffs spreading across corporate America

BOSTON, Oct 17 (Reuters) - Shock waves from the global financial crisis are now being felt in almost every corner of working America as companies press the eject button on increasing numbers of employees.

While the ax has been falling for months in the financial and home-building industries -- where the current economic downturn started -- as well as the Detroit auto industry, makers of everything from soft drinks to water filtration
systems have unveiled hefty rounds of job cuts in recent weeks as they brace for what some predict could become a long and deep recession.

In the past week alone, companies including PepsiCo Inc and Danaher Corp said they would lay off thousands of workers, while the state of Massachusetts disclosed plans to cut its payroll by 1,000 as it faces a tax shortfall.

The situation is poised to worsen as the holidays approach and many businesses scrutinize budgets for the coming year. The sad truth is that Christmas layoffs are common in tough times.

"It's a fairly grim outlook," said Michael Goodman, director of economic and public policy research at the Donahue Institute of the University of Massachusetts. "I don't know of any sector of the economy that will be spared."…

Well dear reader you certainly remember that I have warned about commercial real estate soon to be falling in price too. Well it seems that we are there.

5:10 Commercial real estate may be the next shoe to drop -WSJ
In a "Heard on the Street" column, the Journal notes that commercial real estate is likely to take a hit as office vacancies rise, stores close and hotel bookings slump. Alan Todd, head of research on commercial mortgage backed bonds at JPMorgan Securities, expects commercial property losses of up to $250B over the next 10 years, or about 7% of the $3.4T in outstanding debt. Of interest, the paper points out that commercial real estate values have fallen by as much as 20% since the beginning of the credit crunch, while financial institutions have already taken more than $15B in commercial property-related writedowns this year. The column goes on to highlight refinancing concerns, as according to real estate research and consulting firm Green Street Advisors, about a third of the $600B in commercial mortgage bonds outstanding will come due between 2010 and 2012.

Well dear reader, the Weimar Republic is a topic I mentioned a few times. Following some more information about the same topic
(http://en.wikipedia.org/wiki/Weimar_Republic)

A Tale from Weimar Germany

by Roland Watson




Most readers will be familiar with the great hyperinflation of Weimar Germany. Indeed, it is often held up as the icon of what can go drastically wrong when government throws off all restraint in regards to the production of fiat money. I do not need to labour the point much as to how billions and then trillions of marks were literally not worth the paper they were printed on and how workers had to be paid by the hour lest their wages rapidly lost purchasing power in the brief time between being paid and spending that same money.
As ever, gold and silver proved to be safe havens from the ravages of inflation. Indeed, anything other than the mark seemed to a good place to park one's wealth. In those days, that could be anything from bedpans to US dollars to precious metals. However, depending on one's accumulated wealth, gold and silver were amongst the top assets in terms of holding and transporting wealth. Despite this, one set of figures and one notable week in the life of Weimar Germany demonstrated that one particular form of wealth proved to be in particularly heavy demand
Comments are invited by emailing the author at newerainvestor@yahoo.co.uk.


Lessons from 1929 Stock Market

Although the present financial meltdown is quite different from that of 1929, it serves a useful purpose to revisit the 1929 stock market crash to at least pick up on the investment lessons offered by that situation. This is especially true as financial memory only seems to last a few years before analysts, investors, bankers and regulators again fall victim to greed.
This post is a compilation of eight 1929 videos, which will make for good weekend viewing, especially when reflecting upon the calamitous past two weeks.
We kick off with a five-part movie produced by Middlemarch Films, entitled “1929 Stock Market Crash”.


http://ie.youtube.com/watch?v=iLnDPntfNFw&feature=related

Firstly, “The Country is Fundamentally Sound; ‘Don’t Panic, Stocks are Safe!’”. Economist Professor Irving Fischer explains that the stock market crashed due to high expectations – not high stock prices. Too many speculators were playing the stocks with borrowed money, resulting in a run on the banks. 80 years later, the banks are speculating with borrowed money and investors are running away from them.


http://www.youtube.com/watch?v=MTCKxye9_so


Secondly, “Did You Ever Lose a Million Bucks?” Take a tip from Margaret Shotwell who dispenses advice after losing 1 million dollars in the Wall Street stock market crash on Black Friday, October 28, 1929. Her only possessions are her piano and chinchilla fur.


http://www.youtube.com/watch?v=xvkmcxLGAvk

Lastly, “Regulation Will Destroy Capitalism”. Richard Whitney, President of the New York Stock Exchange, warns of the risks both to country and to capitalism posed by government regulators in the form of the National Securities Exchange Act. This was almost four full years before he was sent to Sing Sing Prison for embezzlement.


http://www.youtube.com/watch?v=jCu2VpEiVN4


Derivatives
CDOs Imperiled by Collapse of Iceland Banks, S&P Says

Oct. 16 (Bloomberg) -- Iceland's collapsed banks pose a ``substantial' risk to collateralized debt obligations that made bets on corporate debt, according to Standard & Poor's.

Kaupthing Bank hf, Landsbanki Islands hf and Glitnir Bank hf were included in 376 CDOs worldwide, S&P said. Another 297 made bets on two of the three banks. The CDOs packaged credit-default swaps that pay investors if there is a default, and the government's placement of the banks into receivership triggered a settlement of the contracts.

Because the so-called synthetic CDOs also bet on Lehman Brothers Holdings Inc., which filed for bankruptcy on Sept. 15, and Washington Mutual Inc., the bankrupt holding company of the largest U.S. lender to fail, the ``impact of these exposures is likely to be significant,' S&P said in the statement yesterday.

KBC Group NV, Belgium's biggest financial-services company by market value, yesterday wrote down 1.6 billion euros ($2.15 billion) on its CDOs. Moody's Investors Service said Oct. 14 that it's reviewing 2.88 billion euros of the Brussels-based lenders' five CDOs linked to Icelandic banks.

Iceland's bank regulator took control of the country's three biggest lenders last week when they couldn't secure short-term funding on their about $61 billion of debt. The nation's benchmark stock index plunged 77 percent on Oct. 14, the biggest decline on record, after trading resumed following a three-day suspension.

Iceland Default Swaps

The cost of hedging against default by the Icelandic government has soared to 948 basis points, according to CMA Datavision prices for credit-default swaps. That means it costs 948,000 euros a year to insure 10 million euros of debt for five years. It compares with 118 basis points for the Czech Republic and 238 basis points for Morocco.

Sellers of credit-default swap protection must pay the buyer face value in exchange for the underlying securities or the cash equivalent after a bankruptcy filing…
some intesting info here on credit default swaps
I didn't realize the sellers of insurance on LEH paper had 2 weeks to settle. Sounds like actual settlement on a lot of it is still in doubt. Also, looks like potential auto company defaults present an even bigger issue to the CDS market than LEH did:
http://georgewashington2.blogspot.com/2008/10/next-derivatives-bloodbath-insurance.html
The real problems are just getting started. Just wait until the real economy starts to tank hard, undermining any possible support for the massive printing of dollars going on right now...the U.S. dollar is toast.

Well dear reader, regarding derivatives and CDS in particular this week will without doubt be an important and at the same time interesting week. On Tuesday October 21, those who will have to pay according to the CDS contracts and the recent auction of the Lehman Brothers CDS, will have to put the money on the table. It will be interesting to see if all parties really are able to do so and will pay the 365 billion that have to be paid. Furthermore on this coming Thursday, October 23, there will be the auction of the CDS of the Washington Mutual CDS. Washington Mutual possibly will be more or less in the same range as Lehman. Well next in line (expected early November) will be the Iceland banks Glitnir, Landsbanks and Kaupthing. Will be interesting indeed.



Consumption



A a couple of months ago, I wrote in one of my musings that I do expect consumption in general terms and consumption of luxury goods too, to go down considerably. At that time a reader correctly challenged me by saying that the people with lot's of money will not feel the crisis that much and that he believes that the consumption of luxury goods will not decrease in a meaningful manner. I must admit that before putting my opinion in my musing I was in fact musing a long time precisely about this. With other words that consumption for luxury goods will not go down crossed my mind. However I finally got to the conclusion that consumption for luxury goods will go down too. Why? Well I was convinced that the crisis to unfold will be a lot worse than we can imagine and therefore even those with excess funds will suffer. Well the crisis that unfolded in fact is worse than most expected and therefore affected even people that used to have lot's of money to spend. As I believe that we have not seen the end of the crisis yet, my guess is that we will see more and more people having to cut spending (including for luxury goods). Following an article about the topic
Luxury goods market feels the pinch
http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/3227208/Luxury-goods-market-feels-the-pinch.html


Equity



By quarantining the banking sector and injecting new capital into it, the authorities hope the financial crisis will have ended with the steep falls in share markets -- and not translate into a fundamental contraction in global economic activity. The share market will ultimately decide how bad it thinks the economy will be in the next year.
“The optimistic view is that it already HAS decided and stocks are clear to rally from here. But keep in mind, earnings analysts have yet to downgrade their expectations for the next two quarters. When they do, shares could head lower. In fact, we believe the market (in the U.S.) will eventually test the 2003 lows. But it may not happen just yet. Take a look at the two charts below:

Chart Crash 29


52% Rally



52% in just five months. It didn't make a new high. But the price action was surely enough to sucker many investors back in, believing the worst was over. It wasn't. Over the next two years, stocks fully priced in the debt deflation in the economy and fell 86%.
“This is precisely the scenario the Fed wants to prevent. It's willing to risk a hyperinflationary melt-up in order to avoid prolonged debt deflation. We just don't know, historically, what the result will be


Deflation or Hyperinflation

Well some experts believe in Deflation other in Hyperinflation. I am still sitting on the fence. What is going on is new. We have the Central Banks pumping trillions into the market, which of course should be inflationary and on the same time we have capital destructions because of bank and other failures. Looking at the Baltic Dry Index which by some analysts is used to find out if a deflation is on the way, it does look like deflation.




USD

Following a comment found on the net:
Quote
One should not lose sight of the fact that the money loaned to the American consumer came out of someone’s pocket. If the American consumer doesn’t pay, then that someone will lose. The US government can say that they’ll pay for it, but they don’t have any money. They actually borrow US $2.2 billion a day just to service the interest on all their debt. If the US government does absorb the problem, they in turn must pass it along to someone else. It is estimated that the 2009 national budget could reach US$1 trillion and the revenue from taxes does not exceed US $300 billion, and this gap does not include the armed conflicts. Now factor in the cost of the next bailout, because there will be a next bailout, and you can see that we have a little problem here (I am being very sarcastic when I say “little”). Foreigners are no longer willing to buy US debt at past rates, so what will happen when the daily requirement reaches US $4 or $5 billion. Right now we are seeing a surge in the demand for dollars as everyone around the world struggles to service their debt, and that has pushed the dollar higher. This will not go on forever
unquote


Gold



Dan Norcini from www.jsmineset.com wrote this week the following interesting comment
Quote
It was more of the same type of price action that we have been seeing in gold for some time now. The market is torn between continued deleveraging from speculative players on account of redemption requests from clients moving to cash versus safe haven buying.
It has been interesting reading the comments about this market in the financial press of late. The majority of gold pundits for the most part seems to be reading the same talking points which as usual are utterly and completely wrong. To hear them say it, gold as a safe haven is finished, over, kaput, pushing up daisies, swimming with the fishes, surfing its last wave, worm food, ad infinitum, ad nauseaum.
What these mindless robots seem unable to grasp is that the Comex is NOT the gold market. It is a paper market which has been the recipient of large speculative buys by commodity index funds. These funds take large positions in an entire gamut of commodities based on the weightings of those particular commodities in the various commodity indices that they use as a benchmark. It some cases it might be the Goldman Sachs commodity index. In others it is the Reuters/Jefferies CRB index; it still others it is the Dow Jones Commodity Index. That means they buy gold, silver, crude oil, corn, wheat, nat gas, sugar... etc... in the same percentage terms as they are weighted in those indices. For example, if the weighting in one of these indices for gold happens to be 5%, then for every million dollars of client money invested, they are required to buy $50,000 worth of gold futures contracts at the Comex. When these funds get redemption requests from clients, who now want out of the commodity sector, they are forced to sell FUTURES across the board to generate the cash needed to send back to their clients. That is why, for the most part, the entire commodity complex is sinking whether it is corn or soybeans or wheat or platinum, etc. If $20 million of cash is required to meet client redemption requests, then $20 million of commodity futures must be sold REGARDLESS OF THE FUNDAMENTALS IN THAT PARTICULAR MARKET. In other words, it is FORCED liquidation on account of redemption requests. That has NOTHING TO DO with the real physical gold market where demand remains at unprecedented levels, levels so high that it is producing serious shortages of bullion for would-be buyers. This is what is producing the increasing dichotomy between the Comex and the real gold market. I would go as far as saying that we are for all practical purposes seeing a BLACK MARKET in gold beginning to develop.
Having said all that, it should still be noted however that while every single commodity futures market is in the red today on account of this forced selling, GOLD IS STILL RELATIVELY STABLE! Hey, you dimwitted pundits who keep pooh-poohing the yellow metal?s safe haven status because it is not trading at $1000, take note. Even in spite of the forced liquidation, gold is hanging in there precisely because there are enough buyers to offset a great deal of this continued forced liquidation. And this is in the arena of the futures market. In the real world, gold is fetching $1000 an ounce out there in some instances. Premiums for one ounce gold bullion coins are running anywhere from $65 - $100 above the quoted spot price and certainly above the phony price quoted on the Comex. Last year at this time you could buy all the one ounce gold bullion coins you wanted for $20 - $30 over the spot price.
Meanwhile back in Fairy Tale land at the Comex, open interest registered a bit of an increase in yesterday?s session moving up nearly 2,500 contracts. I suspect that come this Friday, when we review the Commitments of Traders report, we are going to see increases in the fund SHORT category with a sharp drop in the fund long category alongside of short covering by the bullion banks who have been using the forced selling to cover their shorts in order to capture their paper profits allowing them to hit the metal on the next rally and do the same thing all over again.
To put things in perspective about this open interest decline ? we are down to levels last seen in November 2006. Let?s state this in terms that perhaps convey what I have been trying to say for some time now. NEARLY ALL OF THE SPECULATIVE INTEREST THAT HAS BEEN DRIVING PAPER GOLD HIGHER FOR THE LAST TWO YEARS HAS NOW DISAPPEARED due to this forced liquidation. This is incredible when you think about it a bit. So much deleveraging in gold has already occurred, that nearly all the buyers from the last two years are gone from this market. And yet, in spite of this, gold is still sitting above the $800 level. Back in November 2006, front month gold closed at the price of $646.90. Today, we are nearly $200 higher than that and yet nearly all of the speculative long side interest going back to that date is gone. Someone is buying gold because they see value in it and that buying has been sufficient to hold the price relatively firm compared to nearly every other commodity out there. What can be said about gold cannot be said about any other single commodity out there. If you doubt this, pull up the continuous price charts of corn or soybeans or platinum or copper, etc., and just look at them. Look at the chart of crude oil. Look also at the gold/crude oil ratio which has shot up strongly in favor of gold. (By the way, this alone is the reason why many of the gold mining outfits with quality mines, good management and good balance sheets are going to show some strong profits and continue to be sold down to levels that are extremely undervalued). Gold is even outperforming even longer dated Treasuries right now.
To sum up, as the equity markets fall off the cliff thumbing their noses at the monetary a
Authorities, expect further risk aversion to occur which means further forced liquidation in commodities. Watch the Euro/Yen cross and the Yen itself to get a sense of when the bulk of this will abate. The Yen as well as the Swiss Franc are benefiting from the unwinding of carry trades and will tend to be the stronger currencies out there ( along with the US Dollar) as long as the risk aversion play is in vogue.
Trader Dan
Unquote



Some more from Jim Sinclair

1. As we approach elections everything possible is being done to keep equities from total implosion.
2. As we approach elections everything possible is being done to keep the hollow US dollar firm
3. As we approach elections everything possible is being done to keep gold under control to assist in keeping the dollar firm.
4. Gold is NOT a commodity. It is a currency.
5. There is an appearance of involuntary liquidation in gold as hedge and gold funds are pressed by redemptions and needs for capital to pay off investors.
6. Gold never changes. Things change in price comparison to gold, so therefore you can jump up and down on the barometer but that will not change the circumstances it is reading.
7. The means of keeping all things in check is to demoralize those whose positions oppose the goal while showing some sunshine to those who wish to keep their positions.
8. Nobody on earth can prevent the CONSEQUENCES of Chairman Bernanke and Secretary of the Treasury Paulson's attempt to offset the unavoidable CONSEQUENCES of the same actions taken by the central bank and treasury of the 1930s.
9. The different monetary action now in the degree applied will have their own and different CONSEQUENCES in the degree of economic impact.
10. The dichotomy between the bullion supply/demand picture and the easy to manipulate paper gold market continues. Pedro says: "A "friend" of mine was in Zurich yesterday. Aside from the fact that there were no gold coins available in one of the major centers of the world gold trade, it was also noted that there are no longer any large safe deposit boxes available at Credit Suisse Banhofstrasse."
11. Here is where we are headed to some degree, regardless of the manipulation of markets to paint charts at an unprecedented level.
12. Don?t let the unprecedented bullying of all markets to meet political expediency draw your attention off the ball.
There are defined CONSEQUENCES to the new approach taken by the top expert of the 1929 to 1940 depression. The error is that these actions will have CONSEQUENCES different from 1930 and they will be more devastating than one can ever imagine.
Monetary inflation, "the unlimited creation of fiat money," will cause massive price inflation regards of the level of business activity

PROTECT YOURSELF!


More about Gold
MineWeb's Lawrence Williams interviews Jeff Nichols of American Precious Metals advisers about gold's decline on the commodities exchanges even as demand for the metal explodes, and they come up with a likely explanation -- heavy surreptitious gold leasing by central banks.
Williams writes: "Nichols reckons it has been central bank gold loans -- even more so than official gold sales -- that have really pulled the rug out from under gold. Gold loans by central banks are an alternative -- and invisible -- means of injecting liquidity into the banking system. These gold loans to banks and bullion dealers by the leading central banks are probably a significant multiple of outright official sales.
"In simple terms, a central bank may lend or deposit gold with a banker or bullion dealer who simultaneously sells forward. Even with the recent substantial increase in gold-lending rates, at the end of the day the dealer receives cash in the transaction at a cost that may be advantageous to short-term money-market borrowing costs. Central banks have great freedom to lend gold outside their government-mandated rescue programs and these lending activities are typically hidden by their accounting practices."
That is, more market manipulation by central banks, kept secret from the public and most investors, concealed on the central banks' own books, but executed through a few favored financial houses that can trade on their knowledge of the secret government policy and make huge profits for providing the central banks with cover.
Williams' interview with Nichols is headlined "Why the Fall in the Gold Price When Physical Gold Remains in Huge Demand?," and you can find it at MineWeb here:
http://www.mineweb.com/mineweb/view/mineweb/en/page33?oid=70932&sn=Detail

"This is an interesting story as France has been one of the European countries that has steadily dishoarded physical gold investment holdings over the past decade…This has been backed up with some of our own flows: some banks that have steadily sold gold to us, reflecting sales of long-held investment gold, have turned buyers on a number of occasions over the past month…over the past week or so we have noticed our own clients slow their safe haven purchases of gold. But concerns clearly remain and buying is still taking place."

Yesterday, gold notably resisted the general commodity sell off, and only closed down 50c by virtue of a sudden selling bout right at the close, which was reversed in the after market. Open interest, however, dropped 2,085 lots (6.49 tonnes): perhaps the brief spike up $19 in the early Comex day was short covering.

Today, having steadily drifted down from the Tokyo opening, gold was suddenly struck a blow of massive force at 9-30 NY time, losing over $40 in 20 minutes. Everyone got the message, and gold drifted sideways just above $800 for the rest of the day, except for rejecting a $10 downside probe around 11-30. Estimated volume was 141 859 - half of which was traded before 10 am – with a switch effect of 8,762.
Manifestly there is a force operating on Comex which wants gold down. Judging by the weak gold shares today, western hemisphere trading accounts have grasped this. Any counterforce must come from physical buyers, old or new.

Today the economic news was ugly. The worst industrial production decline in 34 years yet the stock market futures were higher (and had been higher over night BEFORE the horrible data hit the tape yet they still remained positive)




some more about Gold and the Market in General
from Adrian (found on www.lemetropolecafe.com)
Let’s deal with known FACTS and not conjecture or theory:

1) FACT: It is confirmed from many sources and particularly the big dealers who have the right contacts that almost all gold and silver is now unavailable in any sizeable quantity at all. I know people at a dealer in Phoenix and they are getting 50 calls to buy for 2 wanting to sell. They have NO bullion left except some junk silver and numismatic gold and silver coins. The US mint has already rationed eagle coins due to "unprecedented demand".
2) FACT: Silver became in short supply many months before gold did indicating more scarcity in silver than gold.
3) FACT: Two US banks in July sold short 20% of annual silver supply and 10% of annual gold supply in less than 4 weeks.
4) FACT: After years of rejecting all evidence the CFTC finally agreed this month to investigate manipulation of the silver market and then added manipulation of the gold market afterwards. This is being investigated by the Enforcement Division. This is the first time in history such an investigation has been launched. This may well be to make sure they have an excuse when the markets explode to be able to state they were investigating.
5) FACT: Silver and gold are selling at prices that are much higher than COMEX spot price. On ebay silver sells for $18-$20/oz. I have verified this myself. Gold is selling for over $1000/oz. Dealers are offering large premiums over spot to try to attract sellers to replenish their stock. So the COMEX price does not reflect the price in the physical market anymore.
6) FACT: COMEX only has enough silver to deliver on 17% of the contracts outstanding. They have only enough gold to deliver on 10% of the outstanding contracts.
7) FACT: GATA now knows of three entities who are taking advantage of the COMEX manipulated price. They are making agreements with refiners to take the 1000ozs silver bars off COMEX and 400oz gold bars and melt them into smaller sizes for the retail market and sell at very large premiums to the artificial COMEX price. This will very quickly draw down COMEX stocks and drive up the price to reflect scarcity
8) FACT: Shippers in London and Zurich are seeing record shipping volumes from their vaults to Middle East and India. People who have been in the business for 40+ years have never seen anything like it.
9) FACT: The US FED is issuing loaned money at its discount window at the rate of $100 B$ per day which is $36 Trillion annualized. The 100 B$ daily rate is actually increasing each week. These quantities of money will never be paid back because the national debt is 10T$ which it took 95 years to accumulate. This is highly inflationary
10) FACT: Every bank account has been guaranteed to 250K$ with unlimited funds to back up FDIC insurance. This is highly inflationary.
11) FACT: The US financial system is in complete panic. Even the chief officials tell us it is on the verge of collapse and required a bail-out. The mortgage industry has been nationalized. Two investment banks have collapsed. The world’s largest insurer AIG was taken over by the FED. Stock markets around the world have responded to this clear signal that the entire "State of Denmark" is rotten.
12) FACT: While the financial markets were on the brink the US dollar has rallied! This is not logical especially as the FED fund rate has been dropped to 1.5%. However, we know that the FED has made currency swaps to sell foreign currencies and buy dollars to prop up the dollar. At the same time the dollar was making unusual levitations gold and silver made swan dives on the COMEX at 9 AM or 10AM exactly on several days. This started when gold was about to break out from $930. If during an economic and financial crisis the dollar can manage to keep appreciating this will be the first time in history. The press reports this as "forced liquidations" yet the Open Interest hardly moves and in fact often rises on the supposed days of liquidation! The volume traded also does not infer massive liquidation.
13) FACT: The major gold and silver shorts on the TOCOM have been reducing their net short positions for almost 3 years to be almost neutral in gold and net long silver. These are experienced dealers who know the market very well. They do NOT want to be short after many years of having been consistently so!
14) FACT: The Bond market initially reacted to recent stock market routs by receiving safe haven investment sending the yield plunging. The bond rates have since been rising (falling bond prices) indicating an exodus from bonds is beginning (as per my latest article). If the bond market starts a sell off the dollar will fall precipitously due to inflationary concerns. When the dollar falls metal prices go up.
15) FACT: Trichet and Sarkozy are pushing for a G8 meeting to change the world financial system. They no longer want the $ as the reserve currency. They have also mentioned returning to the discipline of Bretton Woods. This explicit reference means gold backing of currencies, which is what Bretton Woods was all about: having the dollar gold backed and linking all currencies to the dollar. Once it becomes clear that the $ will lose its privileged position then all those who hold it as reserves will start to unload it. This has the potential to be dramatic. Again gold and silver would be the beneficiaries. So contrary to the unrealistic and illogical price on COMEX gold and silver have not gone out of fashion. In fact they are sold out in the retail space and foreign governments are starting to indicate a return to some sort of currency backing a la Bretton Woods.
These are facts. What do they mean? I see several possible routes to explosively higher precious metals, which is nothing more than the metals reverting to a price that reflects true supply & demand fundamentals. These metals are already scarce but the paper futures price is not reflecting that.
1) Money creation at the FED is absolutely out of control. They lend each day what until recently was lent in 2 months. The government is making free hand-outs of money to banks through purchase of ‘equity stakes". But the banks are broke so they have no equity to sell so this is just cash injection. Again this is inflationary. The use of unlimited currency swaps to boost the value of the dollar has a limited life span. It is fighting against lower interest rates and a bond market that is on the edge of breakdown. This manic manipulation may well fail on its own and the resulting free fall of the dollar will make the metals explode.
2) Entities are starting to respond to the enormous arbitrage between COMEX and real physical markets to take delivery from the COMEX and convert it into retail products. This will eliminate COMEX supplies and the COMEX will default or the price will adjust much, much higher. If the COMEX metals markets are to survive they will need to become cash only markets, with no trading in future months. This would make the COMEX a physical market, and no longer a paper one.
3) European efforts to replace the dollar for world trade by another system or to have gold backed currencies will lead to a fall of the dollar and a rush to the metals.
Any of the three possible scenarios will lead to explosively higher metals prices and it will be this that drives the mining equities to unimaginable high levels. This should have happened as the financial crisis started and there was the sudden rush to precious metals that caused them to be sold out, as many experts had predicted as the logical path. The establishment frustrated the free market price mechanisms and has "painted the tape" through the COMEX. But they have not stopped the rush to precious metals. It is only a question of time before the COMEX price adjusts to a free market price. Unfortunately the ridiculously manipulated COMEX price is what drives the perceived value of mining equities. Clearly if the COMEX price is false the price of mining equities is also false.
Is there a possibility that the resolution could be that the physical market adjusts down to the paper market as some fear? There are no signs of this. In fact just the opposite! The COMEX price is being more and more ignored. In Indonesia the gold shop owners have decided to sell gold at what they see fit with respect to supply and demand and to ignore the COMEX spot price. Seller and buyers on Ebay are ignoring the COMEX spot price and selling at significant premiums to it. Dealers who used to buy at a discount to spot are now offering to buy at substantial premiums. There are no sellers in the physical market at the COMEX price. The growing interest in taking advantage of the arbitrage between the COMEX price and the physical market will adjust the COMEX price upward to the physical market.
How long will it take for the COMEX price to adjust to physical market price? October is not a delivery month on COMEX but December is a big delivery month. The G8 want a summit on a new world financial structure before year end. The bond market is on the edge of breakdown as I write this as it responds to the unfathomable amounts of new money creation. So from many angles it would appear that there are many factors which could in the next 2 to 3 months or sooner bring about the expected cataclysmic change in the metal markets as they break free from their manipulative shackles through being overpowered by market events that are too momentous to be frustrated any longer.

Well dear reader although Gold did not shine as much as I whished it would have during October, I still believe that we will see higher prices. We might have to wait until after elections and we more central bank ordered "attacks" should be expected.