The next bubble to pop

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In this post you will find the following information


The next bubble to pop:
-the US Dollar

Gold:
-my musings about gold
-Manipulation, a proof
-We are on the move up, my musings about gold


Equity
-my musings
-"Stocks May Have Peaked For 2009"
-“We are in one of the most overbought markets in history,”
-Stock market rally is tired

Economy
-Monetary Base at Historic High
-Marc Faber: Capitalistic System Will Collapse


USD
- The Exuberance Glut or The Dollar-Euro Short Squeeze
- The dollar is dead – long live the renminbi


Banks and Banksters:
-FOMC Statement
-Financial System May Now Be In A "Far More Dangerous Place

Geopolitical:
-Iran

Oil&Gas
-Natural Gas
-Cantarell
-Finding new oil reserves becomes more expensive

Commodity watch
-Comments from prudentbear about sugar and Chinas commodity appetite




Before starting with the information following the overview from www.prudentbear.com

For the week, the S&P500 declined 2.2% (up 15.6% y-t-d), and the Dow gave back 1.6% (up 10.1% y-t-d). The Morgan Stanley Consumer index dipped 1.1% (up 14.8%), and the Utilities declined 1.5% (down 0.5%). The Morgan Stanley Cyclicals sank 4.4% (up 51.4%), and Transports dropped 4.3% (up 7.7%). The Banks fell 3.3% (up 4.1%), and the Broker/Dealers dropped 3.4% (up 48.7%). The broader market pulled back. The S&P 400 Mid-Caps lost 3.3% (up 26.0%), and the small cap Russell 2000 fell 3.1% (up 19.9%). The Nasdaq100 declined 1.8% (up 39.8%) and the Morgan Stanley High Tech index fell 2.8% (up 53.8%). The Semiconductors declined 1.7% (up 51.3%). The InteractiveWeek Internet index declined 1.5% (up 60.5%). The Biotechs dropped 3.1% (up 43.2%). With Bullion down $16.75, the HUI gold index sank 6.2% (up 31.5%).



The next bubble to pop

Well dear reader, what will be the next bubble to pop? What is your guess? Well it is the US Dollar. In fact, as James Turk, with whom I had the honor to visit 3 countries in the Central American region says, there was no Internet bubble and no housing bubble but there was only and still is, a huge USD bubble, a bubble that is close to plop. When will that be? Well my expectation so far was that this will happen in 2011. Meaning that the US Dollar will disappear in 2011. James Turk expects that we will reach the tipping point by the end of the year or maybe first quarter of next year. His studies of past examples (Weimar, Zimbabwe, Argentina) indicate that after having reached the tipping point, it will take 6 to 9 months until the respective currency collapses. Of course there is the possibility of a delay, as James Turk has mentioned during his presentations. One way to delay the unavoidable could for example be the implementation of capital controls by the US Government. The US government could for example decide to restrict the inflow of US Dollars into the US in a way that anybody who wants to send US Dollars to the US would need approval which will not be given in order to avoid that these imported Dollars will have an effect on the inflation. This would create a Domestic Dollar and an International Dollar. If South Africa who once had a similar regime (Financial Rand and Commercial Rand) can stand as an example, such a measure taken by the US Government would mean that the International Dollar could fall to a deep discount versus the Domestic Dollar. The discount could easily be 50% meaning that the International Dollar with one stroke will be worth 50% less than before. Apart from falling to a steep discount, these Dollars could not be used in the US anymore. The whole measure would, for the US Government have the positive side effect that servicing its external USD debt would become cheaper.

Well we will see how things develop. Well what ever is going to happen it definitely does not look as the US government is willing to make a U turn and go back to sound monetary policy. Any measure as mentioned, would only delay the unavoidable but not solve the underlying issue, which is reckless government spending and printing of FIAT Dollars to cover deficits. It certainly looks like the USD is on the path to its graveyard as James Turk mentions. Therefore I believe that my decision to avoid holding or investing in US Dollars if possible, is a wise decision. The US Dollar is on the way down anyway. Central Banks around the world have hinted clearly enough that they are not happy with the USD. It certainly is not a secret anymore that most holders of huge junk of the Dollars try to sell it and try to buy stuff with real value, such as tangibles.
So what should we do? Although a decision regarding holding more or less US Dollars is a decision that depends on the personal situation of each, I think it is wise to consider a diversification out of the US Dollar. Personally I avoid any and all USD investments. What are the alternatives? Well guess what. Yes it is Gold and Silver the only true money that existed over more than 6,000 years and has maintained purchasing power of the same time period. By the way, the FIAT currency (http://en.wikipedia.org/wiki/Fiat_money) experiment has failed anyway. So why not hold Gold and Silver instead? In Gold we trust.



Gold/Silver

Apart from being sound money the beauty of holding Gold and Silver is that both are still undervalued relative to other assets. Therefore I expect much higher prices over the coming months. My target for year end is still 1,360 for Gold and 25 for Silver and although we had a dip last week my targets remain the same. The Dip, dear reader, was due to an important option expiry date, which was last Thursday. As there were many options with a strike of 1,000, the bullion banks or shorts had to move the market down in order not to lose considerable amounts. Although I am convinced that these shorts do not have anywhere near as much the power as in the past, apparently they still have some gun powder left to move the market down some 30 to 40 dollars. I do expect to reassume the up move this coming week.



Following news about Gold and Silver

Gold manipulation
The following I found on www.lemetropolecafe.com

Declassified State Dept Data Highlights Global High-Level Arrangement To "Remain Masters Of Gold" By "The Reshuffle Club"
In the days before the development of the IMF's S.D.R., or Special Drawing Rights, which was a preliminary attempt at a international currency and a way for governments to push gold away as a primary form of wealth/asset equivalency, there were discussions on what the role of the international community would be i) with regard to promoting the SDR as a globally accepted "currency" and ii) and more relevantly, how to retain dominance over the critical gold market by not just the US (represented in this case by the Federal Reserve) but by its core international counterparties.
A recently declassified telegram to the Secretary of State sent in 1968, has some very distrubring revelations to gold "conspiracy theorists" who believe there could be an international arrangement to maintain a control over gold prices in the international arena. This is especially true as the G-20 meets currently in Pittsburgh behind closed doors. Could gold be one of the issues discussed?
We particularly bring readers' attention to paragraph 13 in the telegram below, which present some troubling revelations (emphasis ours):
If we want to have a chance to remain the masters of gold an international agreement on the rules of the game as outlined above seems to be a matter of urgency. We would fool ourselves in thinking that we have time enough to wait and see how the S.D.R.'s will develop. In fact, the challenge really seems to be to achieve by international agreement within a very short period of time what otherwise could only have been the outcome of a gradual development of many years.
Furthermore, apparently 41 years ago the Plunge Protection Team had a more affectionate name (paragraph 11)
Special attention has to be given to the extent of the membership of the reshuffle club. A simple and effective rule probably would be that countries with asset holdings that are higher in relation to their gold holdings than the relation that is obtained amongst reshuffling countries are free not to participate in the reshuffles. On the other hand, countries whose asset holdings are relatively low (and whose gold holdings, therefore, are relatively high) should be obliged to submit themselves to the reshuffles. Indeed, this obligation seems so essential that it would have to become part and parcel of the new reserve asset scheme.
Also notable is the following disclosure (paragraph 3):
It is unlikely that the international monetary system could stand one or two more speculative crises like we have had last November and December during which gold losses were more than $1600 million. This is so because the point may be reached at which the speculation would reinforce itself in a cumulative way. Apart from this it is uncertain that members of the pool would be willing to go on supporting the market for such big amounts.
Oh really? "Go on supporting" presumably means they currently are supporting it? With the push for Fed transparency, could this one point get some additional insight, since if over 40 years ago the Fed, and the members of the gold "Pool" were openly intervening in the gold market, one can only imagine what the situation is now, especially with hundreds of trillions of new assets having been built on top of the Gold core of the inverted liquidity triangle?
If you want to read the telegram, please click on the following link
http://www.scribd.com/doc/20215562/Gold-Telegram



On the following link you can find an interview with Bill Murphy from GATA, talking about the Federal Reserve's admission of involvement in gold swaps, gold's prospects generally, prospects for a congressionally authorized audit of the Fed, and the worldwide human consequences of the Western central bank gold price suppression and dollar support scheme
http://www.kingworldnews.com/kingworldnews/Broadcast_Gold+/Entries/2009/

Well dear reader I mentioned before that I foresee much higher exchange rates for Gold and Silver. Although I should be careful with my forecasts, not because I am afraid of not being correct, but rather because my forecasts might sound to exaggerated to many (some people did not buy gold in 2001 and silver in 2004 when I recommended them to do so because the price targets I gave them seemed to them by far to high, which made them doubt my forecast capabilities), I will give you my forecast below. In 2001 I told everybody that gold will reach 1,000 in less than 10 years and that silver will be above 50 USD soon. Of course when gold still was at 300 per ounce and silver below 5 USD a price target of 1,000 or 50 respectively seemed a bit outrageous. However I must say that I considered my official target of 1,000 as very conservative because my real target was much higher. Well anyway, running the risk that some of you might doubt my forecast capabilities again, I’d like to let you know that I see Gold above 10,000 per ounce in a relative short time. Silver will move to 100 at least. To high? We will see. I remember when somebody told me in 1990 that the Dow Jones Index will move up to 10,000, I seriously doubted such a move but as we all now know the Dow passed through 1,000 and never really looked back. I do expect gold to do the same. Once we have passed clearly the 1,030 mark gold should move higher, up to the next resistance levels. Of course there will be some corrections on the way but up it will be. Mentioning the Dow, I’d like to switch to another topic with is the stock markets.


Equity

Well dear reader as you know, I do not expect the economy to recover anytime soon. I am convinced that we have not even touched the lowest point yet. We have not yet, as mentioned in a previous post, passed the hurricane. We are in the eye of the hurricane at best. The second leg that will hit us soon will be stronger than the first one. So get your seat belts fastened please, it will be a bumpy ride and some victims will have to be counted.



Believing that we will have to go through the second leg of the storm, I am for the moment being, rather cautious with investing in stocks. Personally I prefer to be on the sidelines until at least the end of the year. What is my risk in doing so? Well I might miss an opportunity to earn some Dollars or Swiss Francs or any other currency. However I do not expect that stock markets will move up considerably over the next 2 months so this opportunity loss should be quite limited. On the other hand, in case we really will be hit by the second hurricane leg, markets might move down for some time. This would give us some buying opportunities.
So as mentioned, personally I prefer to be on the sidelines. However I am aware the sooner or later investing in stocks might make sense again. This not so much because the economy will improve, but rather because all these newly created dollars will need a place to rest. Some will certainly find it’s way into the stock market. In a hyperinflation scenario, which according to James Turk is close, stocks prices will go up as well (see my post from 2007 with the title “Dow Jones 50,000 in less than 5 years” http://themusingsoffritz.blogspot.com/2007_09_09_archive.html) . Again, we will not see higher stock prices because of good economic situations, but solely because some money will end up in the stock market. Although other asset classes such as gold and silver are in my opinion a better way to invest or hold ones money, if you want to hold stocks, I would prefer stocks of companies that produce tangibles. As mentioned in a previous post, Canadian Income Trusts, especially Oil&Gas Income Trusts might be an alternative. There are others of course. If you would like to get a couple of names of such companies, let me know.

"Stocks May Have Peaked For 2009"

Stocks may have already peaked for this year and might drop 20 percent amid renewed deflation fears, said Marc Faber, the publisher of the Gloom, Boom & Doom report.

The dollar is likely to rebound from an “oversold” position, which will be negative for equities, Faber said in an interview with Bloomberg Television on the sidelines of CLSA Ltd.’s annual investor conference in Hong Kong.

“I wouldn’t be surprised if we’d seen the peak of the market for this year because the economic news isn’t going to improve very much,” Faber, 63, said. “The correction in the market has been overdue for quite some time.”


and another opinion about the stock markets
“We are in one of the most overbought markets in history,” opines Dan Amoss. “The bulls are coming up with ever more ridiculous reasons why this rally will continue in uninterrupted fashion. Most of these reasons relate to the ‘greater fool’ theory -- rather than fundamental analysis and a professional, sober assessment of the economy’s health. Corporate profit margins will remain weak for years, so the stock market is much more expensive than you’d expect, given its discount from the 2007 peak.
“The casino that is AIG stock is a case in point -- it’s up 250% since August. Desperate money managers are trading a stock that is bankrupt several times over, in the hopes that a bigger moron will buy it from him at a premium.
“Many who are buying or day trading these stocks at today’s valuations are speculating, not investing. They are, by definition, weak hands that will hit the sell button at the first sign of a turn in the market. The question then becomes who will be there to buy? How much lower will those bids be?
“Valuations are stretched by any measure, and this is not 2003, when the market rallied strongly ahead of much tangible evidence that profits had recovered.”
If (when) the sell-off comes, will you be prepared? Might want to check out Dan’s latest short -- “a manufacturer indebted to the hilt -- with no pricing power over its main products -- as core consumers cut back. Its competitors have the better margins, so there’s nowhere to go but down.”


Richard Russell (Dow Theory Letters): Stock market rally is tired
“
I’m studying the daily chart of the Dow below. RSI appears to have hit the overbought area (70) and has turned down from there. MACD has three declining tops with the blue histograms about to turn negative. The thin red line above volume has been steadily declining, indicating a contracting of volume as the Dow climbed. All this gives me food for thought. The rally is tired. But far more important, is the rally topping out? We should know over the coming two or three weeks.”



Source: Richard Russell, Dow Theory Letters, September 24, 2009.



Economy

From www.shadowstats.com

Monetary Base at Historic High. In the last three two-week reporting periods, the Federal Reserve has spiked the monetary base by 9.6% (an annualized pace of 120.9%), reflecting a level of activity by the central bank not seen since the stock-market trough back in March. The St. Louis Fed’s Adjusted Monetary Base (seasonally adjusted) spiked to a record-high $1.837 trillion in the two-week period ended September 23rd, just topping the prior record high of $1.836 trillion seen in the two-week period ended May 20th of this year. Year-to-year growth in the latest period slowed to 93.5%, from 104.3% the prior period, as the year-ago comparison was against the first spiked period of the post-Lehman collapse.
The monetary base consists basically of currency in circulation plus bank reserves. Traditionally, it is the tool used by the Fed to address the money supply and broad systemic liquidity. Due to the extreme growth in excess reserves (a 14-fold increase over the year), the Fed’s largesse has not flowed through to bank lending in the normal stream of commerce, with the most-recent broad money growth continuing to slow on an annual basis and contracting on a weekly basis (if this changes as result of tonight’s banking data release, a further update shall follow over the weekend). These conditions remain suggestive of an intensifying systemic liquidity crisis.




Marc Faber: Capitalistic System Will Collapse, "Future Will Be A Total Disaster"
Read more at:
http://www.huffingtonpost.com/2009/09/25/marc-faber-capitalistic-s_n_299720.html



USD

The Exuberance Glut Or The Dollar-Euro Short Squeeze Race
Posted by Tyler Durden at 2:00 PM
Much speculation lately focuses not so much on what the stock market will do (the answer to that should be self-evident, especially once shorting stocks again becomes a practical reality), but what the impact of recent economic policies will be not just on inflation (regional or global), but also on that most sacrosanct piece of paper, the U.S. dollar.
http://zerohedge.blogspot.com/2009/05/exuberance-glut-or-dollar-euro-short.html

he dollar is dead - long live the renminbi
Whatever happens at the G20, the days of Western dominance are at an end, says Jeremy Warner.
http://www.telegraph.co.uk/finance/comment/jeremy-warner/6232623/The-dollar-is-dead---long-live-the-renminbi.html



Bank and Banksters

The following is copied from www.lemetropolecafe.com
Quote

The great consolidator and all international governments and central banks involved in this chicanery have gone into full blown cover-up mode over "Pascua". And they've buried their thieving, obfuscating filth and skullduggery deep in Lehman's grave where all independent forensic auditors fear to tread. Glad I'm out of this mess because they sure screwed up BIG-TIME. And now the rest of the world is paying dearly for the outrageous sins of these corporate welfare bums and cartel stooges! Down with Harper, Brown and the rest of those pathetic spooks and their minions.
Speaking of which... Here's a rather short and pithy take on the Fed and their manipulation machinations as noted by futures trader Larry Levin. I thought you might enjoy this. No mention of the "secret of the universe, gold" but then the Fed don't engage in gold swaps with foreign banks now, do they? And those same fools would have you believe that "the sun revolves around the earth" which makes as little Fed-speak sense as usual by what GATA has discovered through dogged pursuit and diligence as to revealing the who and the why behind this massive cover-up and illegally orchestrated manipulation.
Unquote


From Larry Levin's Nightly Newsletter & Trading Signals

FOMC Statement

The market was once again trading in a very tight range this morning...and it was VERY choppy. A few hours before the FOMC announcement, however, the
S&P was very quiet - waiting in anticipation.

In a nutshell, the FOMC said "We're gonna keep interest rates at zero, giving mega-banks free money, so that they can more easily rape the public to earn massive interest and fees. After all, the mega-banks are still in big trouble even though we're not going to tell you all the details. These fees and free/zero interest for the mega-banks are bringing them back to life, and even though your 401k's are now 201k's - we don't care. The mega-banks are more important than everything else under the sun."

"Speaking of the importance of the mega-banks, we will continue to monetize US debt without admitting it of course. How we do it is through the primary dealers: Government Sachs and the boys buy up all the IOUs and then we, the Fed, buy it a few days later. Since there is a middle-man holding this new debt for a few days, we can deny monetizing it and the dolts in Congress leave us alone."

"Oh, oh - and the massive $18-trillion of loans and guarantees that we have made will not be stopped any time soon. That would lift the curtain on the bank asset sheet problems and we can't have that. And according to our records and those of the Wall Street Journal, about 50% of the current bank profits are coming from their trading desks. Since we are guaranteeing everything under the sun there is no fear of loss and the banks can jam the market as high as they like. Oh yeah, and the high frequency trading scandal that is currently being discussed, we're gonna stop that. Allowing the mega-banks to cheat and steal billions of dollars from their best
suckers...clients...is OK with us at the Fed so we're gonna put and end to a few Congressional outcry's of manipulation. So what if they're right; themega-banks need the money.

"To hell with 'what's right' and legal; we're the Fed and you can't stop us."

Trade well and follow the trend, not the so-called "experts."



Neil Barofsky, TARP Inspector: Financial System May Now Be In A "Far More Dangerous Place" (VIDEO)
Read more at: http://www.huffingtonpost.com/2009/09/25/neil-barofsky-tarp-inspec_n_300178.html


Geopolitical

Well dear reader you certainly have seen the news about Iran starting a second U enrichment project. This is not to the liking of Israel, the US, UK and other Western countries. Already before this news came out there were rumors in the London market that Israel will attack the Irani nuclear installations before November 15. Well dear reader that would not be good news at all. Not only that the whole thing could easily escalate on a global level but there is another risk which is that a bombardment of Irani nuclear installations might cause major radioactivity emissions which would, on the northern hemisphere, be carried around the world due to the jetstream. As we know, most people do live on the northern hemisphere. Therefore such an event would really be catastrophic. Let’s hope and pray or if you prefer mediate that it will not happen.
Just as a precaution, dear reader, it might be a point to consider, have your food reserves stored and packed in a way that radioactive particles in the air would not contaminate these reserves.


Oil & Gas

Well dear reader, Natural gas has gone up considerably over the past 2 weeks. However we are still on a very low point. I am following the Natural Gas price move with interest. It looks like to be an interesting investment at these low levels.



Oil
Cantarell Update 2009:
The Peak Oil PosterChild Continues to Plummet
Mpayne, Peak Opportunities blog
As we last reported, in May 2009, Cantarell Field's April 2009 production averaged 713,000 barrels per day, down from 862,060 barrels per day in late 2008.
Now, according to a September 9, 2009 article in the Wall Street Journal, Cantarell is down to 500,000 barrels per day. (presumably for August 2009, and not yet plotted on the above graph). This represents a 30 % drop over only 4 months, which far exceeds the last calculated decline rate of 35 % PER YEAR.
A subsequent article in the Oil and Gas Journal, dated September 14, 2009, quoted PEMEX's recent prediction that total production will average 2.5 MMBO/D in 2010 (Mexico's total oil production averaged 3.4 MMBO/D in 2004). The article notes that this rate is down 4 % from the first half of 2009, and down 5.7 % from previous estimates. According to PEMEX, actual production was 2.561 MMBO/D in July 2009, so it is difficult for us to imagine that production could average 2.5 MMBO/D in 2010, given the precipitous decline of Cantarell and small increases seen in the KMZ and Chicontepec fields...
Well dear reader the above information is not good for the Mexian government as a huge part of the Mexican budget was financed through the receipts from the sale of oil. With this steep decline the coffers will not be filled as in the past.
The news is not positive for the US neither, at least long term. Well the demand for oil has gone down in the US but once this trend will stop or reverse, the lower production of Cantarell will have an impact as the US imports heavily the Mexican oil. This as well a geopolitical impact as Mexico is a stable ally while other oil producers certainly cannot be counted in the stable ally category. Therefore replacing the falling oil production and the respective import into the US will become more difficult and more costly.

Finding new oil gets ever more expensive

Kate Mackenzie, Financial Times
Updated: A new study by research firm IHS Herold illustrates why there are fears of a supply crunch: oil is getting much more expensive to find, but investment in finding new oil is falling this year.
Exploration spending by listed oil companies rose 21 per cent and development spending 23 per cent in 2008 - but total reserves fell 3 per cent, according to the study. Much of this was due to some existing reserves becoming uneconomic: there was a a 5.2 billion barrel decline in revisions “due to the steep drop in commodity prices”. It’s not the first time total reserves have fallen, but it makes us wonder what this year, when capital investment is set to fall further, will bring.
Meanwhile the average cost of replacing a barrel of oil equivalent rose 70 per cent to $23.44 in 2008.

Commodity watch (copied from www.prudentbear.com)

September 23 – Bloomberg (Lee J. Miller and Jay Wang): “China’s appetite for commodities will increase as the government pushes to add roads, railroads and warehouses, causing bottlenecks in land-locked parts of the world’s most-populous nation, according to Societe General SA. ‘China started stockpiling commodities in February and ran into physical warehousing constraints around May as China simply does not have the infrastructure to distribute these stockpiles quickly,’ Glenn Maguire, SocGen’s chief Asia-Pacific economist, said… ‘That dynamic now appears to be reversing. Freight carried suggests inventories have been cleared and the August data suggest commodity imports are again surging.’”
September 25 – Bloomberg (Yi Tian): “Sugar futures may triple to the highest price since 1974 as a ‘perfect storm’ of technical and fundamental indicators ‘come together in a pretty strong way,’ said Martin Snow at commodity broker PFGBest… The price has gained 94% this year as adverse weather hampered harvests in Brazil and India, the world’s largest producers…”

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