Cara's Commentary & Community Chat, Wednesday, Oct. 14, 2009

Repost from Tues chat...

stevo,

I like your plan, but really believe we need a Constitutional revision to eliminate the ability of Congress to dominate the populace.

They think, act and live like the CEOs they work with and for.

Edit: They sold off our manufacturing jobs, allowed tax breaks to bring back the foreign earned profits (2004 American Jobs Creation Act), eliminated bank regulations, and rewarded the "Too-Big-to-Fail crowd" who caused our economic meltdown.

Their pay and benefits should be linked to the average American. "We the People" should be able to fire any one of them at any time. they should Never be allowed to become lobbyists.

We could begin by making an example of Charlie Rangle (and throw in Timmy the Treasurer) for tax evasion.

I want to see some measure of justice before I die.

"This is the most important Earnings SEASON of the past several yrs"

So much so they invested in new equipment to give us breaking news up to the second. http://www.casttv.com/ext/lk52tk1. With their talking heads now standing up following the cramer dance, making gestures in front of the flat screen.

They do not do this to buy stocks cheap. or to do us any favors. or to uphold journalist integrity. They do this to put on their best pitch suit. It makes me sick.

Morning strategy. I am buying November call options on banks, tech, and HOG. I will close these positions on the earnings "surprises" and fund my short positions through March 2010 options. I already have short positions and will keep them. Don't want to add more of my own capital just yet. Irrational markets can stay irrational longer than I can stay liquid.

I do not dare open long positions on gold here. I am waiting to get into UUP, double USD. I am also watching Vix, maybe we will see it go to zero soon.

You just need to ask yourself what the gamers are doing today? is Jamie Dimon's friends and family buying today alongside you this morning? Were they all selling at the march lows?

Good morning.

GG - Upgraded to Overweight @ JP Morgan

PT Raised:

INTC - from $24 to $27 @ Credit Suisse. Outperform
INTC - from $14 to $15 @ Jefferies & Co. Underperform
LLTC - from $23 to $26 @ FBR Capital. Underperform

Other Stocks Of Possible Interest:

ABX - Upgraded to Overweight @ JP Morgan

Retail Sales in the U.S. in September Drop Less Than Forecast
http://bit.ly/4z8Sgf

Retail Sales - M/M change 2.7 % -2.1 % -2.6 % to -1.3 % -1.5 %
Retail Sales less autos - M/M change 1.1 % 0.3 % -0.2 % to 0.5 % 0.5 %

Highlights
The consumer pulled back sharply in September-but it was mostly due to the post-"clunkers" drop in auto sales. Otherwise, the numbers were surprisingly healthy for the most part. Overall retail sales in September dropped 1.5 percent after a 2.2 percent spike the month before. The September drop in sales was not as severe as the market forecast for a 2.1 percent fall. The decline was led by a 10.4 percent plunge in auto sales after a 7.8 percent boost in August. Excluding motor vehicles, retail sales advanced 0.5 percent, following a 1.0 percent jump in August. The consensus had expected a 0.3 percent rise for September.

Checking on the other volatile component, gasoline sales provided lift, gaining 1.1 percent in the latest month. Nonetheless, excluding motor vehicles and gasoline, retail sales rose 0.4 percent, following a 0.6 percent gain the previous month. Although core components were mixed, they were mostly positive and reflected sizeable gains. Apparently, the consumers that have jobs are a little more optimistic and are willing to spend.

We now have had two months of unexpectedly healthy core sales. Components outside of autos and gasoline were actually led by furniture & home furnishings, up 1.4 percent; general merchandise, up 0.9 percent; and health & personal care, up 0.8 percent. Gains were also seen in food & beverage stores, clothing & accessories, sporting goods & hobbies, and food services & drinking places. Declines were seen in building material & garden shops, miscellaneous stores retailers, and nonstore retailers.

Overall retail sales on a year-ago basis in September improved marginally to down 5.7 percent, from down 5.8 percent in August. Excluding motor vehicles, the year-on-year rate increased to minus 4.9 percent in September from down 6.3 percent the previous month.

Equities should like today's report since the number beat expectations but also should get a lift from Intel beating estimates after yesterday's close. The dollar firmed on today's news as did Treasury yields.

New Coverage:

CSCO - Wells Fargo Initiates with an Outperform
JNPR - Wells Fargo Initiates with a Market Perform
NKE - Capstone Initiates with a Hold

I'm still sore at Nader for fouling up the 2000 election, but here he has returned to his roots and he is spot on.

From WSJ Deal Journal on JPM conf. call -

9:11: We see some stablity in the early buckets of consumer loan delinquencies. “But not ready to declare it a sustained trend.” (He’s not willing to go out on a limb to say that the worst is over, which is what investors want to hear)

9:12: Charge-offs are stable from last quarter, but at a very high level.

http://tinyurl.com/yj7vgge

(sorry, don't know how to get http link to work)

Canadian silver miner Pan American Silver Corp (PAA.TO) said on Wednesday it plans to acquire exploration company Aquiline Resources Inc (AQI.TO), in a deal valued at C$626 million ($609 million). http://bit.ly/VoZoC

* Says to sell 21 mln shares at C$3.35 apiece
* Offering at 7 pct discount to Tuesday's close
* To use proceeds to fund Dokie Ridge wind project buy

Oct 14 (Reuters) - Canadian hydro-electric producer Plutonic Power Corp (PCC.TO) said it will raise about C$70.4 million ($68.5 million) through an equity sale, partly to raise equity capital required for the Dokie Ridge wind project in Western Canada.

Plutonic and GE Energy Financial Services had said on June 1 that they planned to buy the uncompleted 144-megawatt project, whose owner EarthFirst Canada (EF.TO) filed for creditor protection last year. http://bit.ly/3LSH0H

NQ futures topped this morning right below Sep high print of 1753.25. Dow transports still below Sep high. And interesting to see ES futures trade below VWAP on what you would think would be a trend up day.

Too late to open longs.

Too early to open shorts.

This is an analyst who was rated " by Starmine in 2007 – the year of the call – she ranked “1,205th out of 1,919 equity analysts.”

Suddenly she's a major influence, and has had an impact on bank shares (stocks) may we ask why ?
http://tiny.cc/vSwRN Globe and Mail, Toronto

Should we take her seriously ? To me, she;s a 'flash in the pan' (old gold miner)

http://online.wsj.com/mdc/public/page/markets_cale...

Enjoy the beats

Up nicely on earnings. If strength is due to increased demand for commodities and therefore more shipping by rail, wouldn't the dry bulk shippers also experience increased demand?

FD: Long OCNF, PRGN

Released on 10/14/2009 8:30:00 AM For September, 2009
Prior
Export Prices - M/M change 0.7 %
Export Prices - Y/Y change -6.1 %
Import Prices - M/M change 2.0 %
Import Prices - Y/Y change -15.0 %

Actual
Export Prices - M/M change -0.3 %
Export Prices - Y/Y change -5.6 %
Import Prices - M/M change 0.1 %
Import Prices - Y/Y change -12.0 %

Highlights
Import prices are posing evidence that the weak dollar is increasing inflation pressures. Key readings are import prices excluding petroleum, up 0.4 percent in September following a 0.3 percent rise in August, and import prices for industrial supplies excluding petroleum, up 1.5 percent following August's 1.1 percent rise. Pressures may now be beginning, in a mild way, to find their way to finished goods with prices for consumer goods excluding autos up 0.1 percent following two prior months of decline and prices for capital goods up 0.1 percent to end a long string of no changes.

But the headline readings are tame. Total import prices prices rose only 0.1 percent reflecting a 1.1 percent downswing in prices for petroleum products. But with oil prices now back above $75, the petroleum reading for October is likely to show an upswing. The report also includes export prices which fell 0.3 percent reflecting a downswing in agricultural prices of 2.8 percent. Finished goods prices for both consumer and capital goods exports rose 0.1 percent. Today's overall results pose little trouble for the September consumer and producer price headlines though they do indicate rising pressures for crude and intermediate goods in the producer price report.

Released on 10/14/2009 10:00:00 AM For August, 2009

Prior Consensus Consensus Range Actual
Inventories - M/M change -1.0 % -0.9 % -1.3 % to -0.5 % -1.5 %

Highlights
Businesses in August were still burning through inventories, down 1.5 percent despite an increase of 1.0 percent for sales. Retail numbers are the new data in today's report showing a clunker-skewed 2.3 percent decline but a much smaller decline of 0.3 percent excluding autos. Strength for non-auto retailers in this morning's retail sales report points to the possibility of a build for retail inventories in September. September's ISM non-manufacturing report did in fact show a build for retailers in the month. The ISM's report on the manufacturing side showed what may prove to be pivotal shift in inventories for September, pointing to a possible build or at least a smaller rate of decline for factory inventories which, in data already released, fell 0.8 percent in August. Wholesale inventories were also already released showing a 1.3 percent drop.

Businesses have been cutting expenses to an extreme degree this recession, reflected not only in the drop for inventories but also in the labor-force drop. August was another month of destocking but new indications of sales improvement in the manufacturing sector and the non-auto retail sector hint that September may mark the bottom of the destocking cycle and the beginning of the restocking cycle

http://bit.ly/xQIxw

self explanatory

14 October 2009
Wall Street Set to Pay a Record $140 Billion In Bonuses Topping 2007

While the world suffers, Wall Street pays itself record bonuses by taxing the productive economy.

These bonuses are being paid with your money, and your children's money, if you hold US dollars.

And even while this happens, the credit card banks are raising interest rates to 20+% even on customers with excellent payment records, with impunity.

The insider trading scandals yet to be told are so blatant that only a captive mainstream press keeps them from being told.

The rest of the world looks on in shock and amazement. What has gone wrong with America? What are they thinking?

The banks must be restrained, and the financial system reformed, and balance restored to the economy before there can be any sustained recovery.

Finfacts Eire
Wall Street firms set to break new records in 2009 with pay rising to $140bn; Bailed-out insurance giant AIG paid “retention bonuses” to kitchen staff
By Finfacts Reporting Team
Oct 14, 2009 - 6:10:22 AM

Wall Street firms are set to break new records with employee pay set to rise to $140bn this year. Meanwhile, it has been reported that the bailed-out insurance giant AIG paid “retention bonuses” to kitchen staff earlier this year from a $168m pot, that was ostensibly designed to keep staff from leaving the government controlled firm.

Workers at 23 top investment banks, hedge funds, asset managers and stock and commodities exchanges can expect to earn even more than they did in the peak year of 2007, according to an analysis of securities filings for the first half of 2009 and revenue estimates through year-end by The Wall Street Journal.

The Journal reports that total compensation and benefits at the publicly traded firms it analyzed, are on track to increase 20% from last year's $117bn -- and to top 2007's $130bn payout. This year, employees at the companies will earn an estimated $143,400 on average, up almost $2,000 from 2007 levels.

Average compensation per employee at investment bank Goldman Sachs, is set to reach about $743,000 this year, double last year's $364,000 and up 12% from about $622,000 in 2007, according to the Journal analysis...

self explanatory.

If I'm not mistaken baz22, buyer to seller was how it was for the majority of the population before the Fed or Roaring 20's. It is the only answer to bring the HB&B to heel: Stop spending, take your money out, become more self sufficient and turn off News Entertainment TV. Grym, you want justice or change, baz22's solution is where you will find it . . . not asking power and money addicts to change the system that empowers them.

The only question is whether the populus has the internal fortitude to go on this kind of crash diet to eliminate the parasites. I have my doubts. History seems to indicate things have to get really really corrupt and really really bad for the middle class before they are willing to enact real change (and even then does 'real change' just equal new faces?). Not enough people starving or living in cardboard huts just yet. As it is, how many people are really prepared for the kind of crisis such a change would entail?

Wi-Fi Is About to Get a Whole Lot Easier
A consortium that includes Intel, Cisco, and Apple is set to release new technology called Wi-Fi Direct that will turn a slew of gadgets into hotspots
http://bit.ly/71ejl
On Oct. 14, the Wi-Fi Alliance, a tech industry consortium, said its members will release technology that effectively turns gadgets into mini access points, able to create wireless connections with other Wi-Fi-enabled gadgets or broadband modems within a radius of about 300 feet. The alliance includes Intel (INTC), Cisco Systems (CSCO), Apple (AAPL), and more than 300 other makers of the equipment that runs Wi-Fi networks, often used to provide wireless Web connections in homes, cafés, hotels, and airports.
Sales Erosion Possible

The new technology, called Wi-Fi Direct, will be built directly into consumer electronics and automatically scan the vicinity for existing hotspots and the gamut of Wi-Fi equipped devices, including phones, computers, TVs, and gaming consoles. Owners of most existing Wi-Fi-enabled devices will be able to upgrade to Wi-Fi Direct with a simple software download.

While the revamp may make life easier for consumers and business owners, it may erode sales of other Wi-Fi compatible equipment. For starters, Wi-Fi Direct may curb demand for routers and other products that make up the $1 billion annual market for Wi-Fi access points, now present in about 30% of U.S. homes. "The IT department doesn't have to set up an access point," says Victoria Fodale, a senior analyst at In-Stat. "Same thing in the home. You can do the same thing with less equipment." Cisco and Netgear (NTGR) are among the biggest sellers of Wi-Fi equipment.

Here is an amazing piece of HB&B propaganda:

"How do you think of Dimon today? He's the most prominent banker in America, and if there is such a thing as a financial philosopher, Jamie's it. His letter to shareholders in the 2008 JPMorgan Chase annual report was a tour de force of explicatory brilliance. He explained what happened."

http://tinyurl.com/ygwq6tq

And from where does that OPM come?

IRA's, 401k's, and various other retirement and savings tax schemes invented by HB&B meant to ensure they have a long supply of OPM for an incremental and steady transfer of wealth from the more financially ignorant to the less financially ignorant.

My grandfather lost every penny he had in the 29' Crash... He was a small farmer in South Carolina, and all his money was in the bank ( pre-FDIC ).. He moved to North Carolina, where my grandmothers relatives were.... they farmed, also... He could not get any loans, after the banks ruined him. So, the family helped him and my grandmother start over... 18 hour days, 6 days a week... They survived... He never trusted the banks again. I told a story months ago, where I has purchased a house to restore and sell ( 2005 )... I paid 100% cash for the house, kept insurance on it, paid Lowes, HD, etc. In Full for every purchase, paid all Taxes... I had ZERO debt on the house.. With an appraised value of $ 120,000 in hand, I went to borrow $ 15,000 from S.T. Bank ( I think you can figure that one out ) to do a deck addition... Their answer... NO, you must LIVE IN the house... That's just our policy... and That is where I had my bank accounts... I despise the banks, to say the least... I have worked very, very hard to earn my money... construction.., and I have a BA degree, with 1 year of follow up studies... I love what I did for a living, and will re-enter the house rehab market when things settle... But, it will be cash only. Screw the banks and the people that run them...

ALOHA !!

Yes ... I have been calling them "middlemen" for years! Like the Mafia skimming casino profits!

The FDIC banks as I have reported on my REVENUE BREAKDOWN weekly reports are being fed funds through the Deposit Insurance Fund(DIF) on the US Treasury Daily Statements. This line item has been growing at a faster rate, yet no mention in the media ...

The US Treasury is a quagmire of huge sloshing debt funds. The point is that US tax revenues have become just a show for the S&P and Moody's to appease their Sovereign Credit Rating for the US DEBT. My last report showed that since FY 2010 began(Oct 1st)just 2.6% of total US DEBT can be funded with tax revenues, so the US government is living 97.4% above its means, in terms of DEBT:INCOME ratios. How long would you and I last with such a budget? What would our credit score be? 12? In order to correct this imbalance we would have to reduce the overall US DEBT by some 90% or cut US government spending and entitlements by 90% or increase tax revenues by 90%! It is political suicide to cut anything or do anything fiscally responsible in Washington DC. PAY AS YOU GO? What's that? We haven't done that since 1835! BUDGET NEUTRAL? Isn't that the same as NON-GAAP? Unending fiscal fraud is all that is left in Washington DC. Its the "GET MINE BEFORE IT ALL ENDS" mentality!

Some of the biggest line items on the US Treasury Daily Statements on the outlays and debt issues are labeled "Unclassified" and "Other"!

What HUBRIS ...

dr cosa -

I'm holding gold bars in the Perth Mint with a 10.8% gain since averaging in starting in June 09. Can't print gold. Swing trade SLW and GG if you like but critical to hold the physical too. Physical is the hedge against all paper assets including PM stock. Keep it simple.

Received this e-mail. Unfortunately I do not know how to reproduce it for the community to read in a linked form so am copying it directly.

Paul van Eeden

Gold is over $1000 an ounce; now what?
The Federal Open Market Committee recently announced that the US central bank will "... continue to employ a wide range of tools to promote economic recovery and to preserve price stability."

This means that the Fed will continue to buy agency and Treasury debt in the market to suppress interest rates and that it will do so with newly created money to keep prices from falling in aggregate. The Fed said that it would purchase a total of $1.25 trillion worth of agency mortgage-backed assets and $200 billion worth of agency debt by the end of the first quarter of 2010. It would also have bought $300 billion worth of Treasury debt by the end of October 2009. Since December 2007 the Fed's balance sheet has already expanded by $1.2 trillion.

That $1.2 trillion, for the most part, represents new money that the Fed created. When the Fed creates new money it inflates the money supply, which, in turn, devalues the dollar. That is how the Fed hopes to prevent prices from falling and keep prices rising: by devaluing the dollar.

All this inflation the Fed is creating by monetizing agency and Treasury debt has fired a healthy fear of inflation in the hearts and minds of many. Fear of inflation has created demand for investments that act as inflation hedges and that is at least one of the drivers behind the current rally in the gold price.

The other usual driver behind increases in the gold price is weakness in the US dollar exchange rate. As the US dollar exchange rate falls the gold price in US dollars rises; not because of increased demand for gold, but merely to bring the US dollar gold price back in line with the gold price in other currencies.

Since there is palpable fear of further future inflation and widespread concern that the US dollar will continue to weaken against other currencies as it loses its status as the global reserve currency, it is no surprise that some of those concerns and fears are being manifested in a higher gold price. Gold is currently trading for more than its fair value yet since markets are forward looking a case can be made that the premium in the gold price is merely a reflection of what is to come.

The question before us is therefore whether the rally in the gold price is founded in reality, or in fear induced fantasy.

As a reminder, the fair value of gold in terms of US dollars increases in proportion to the dollar's inflation rate. Thus the $1.2 trillion expansion of the Fed's balance sheet should cause the value of gold to increase versus the dollar. For a more detailed look at how the value of gold can be calculated please refer to the articles on my website: link.

For us to know whether the rally in the gold price is rational, or not, we need to do some accounting.

In December 2007 the US money supply as measured by the Actual Money Supply (link) was approximately $7.5 trillion. The current money supply is approximately $8.4 trillion, an increase of roughly $900 billion over the twenty months since January 2008.

We also know that the Fed's balance sheet has expanded by $1.2 trillion over the same period of time. We cannot merely assume, however, that the entire $1.2 trillion expansion of the Fed's balance sheet represents an increase in the money supply. Items that added to reserves (increased the money supply) on the Fed's balance sheet increased by approximately $1.2 trillion, and items that reduced reserves (removed money from the money supply) increased by approximately $300 billion. That means that the expansion of the Fed's balance sheet since January 2008 added approximately $900 billion to the US money supply.

The money supply also increases as new bank loans are created and decreases as bank loans are paid back, when banks issue equity, or when banks borrow money by selling bonds. Bank profits also decrease the money supply.

So we know that the US money supply since January 2008 increased by about $900 billion and that happens to be about the same as the total amount of money that the Fed created during the same period by monetizing US agency and Treasury debt, and from the bailouts of AIG and Bear Sterns.

Since the increase in the US money supply equals the increase in the money created by the Fed we also know that new bank loan creation was almost exactly offset by the recapitalization of the banks through equity issuances, bond issuances and from operating profits. This implies that if the Fed had not added to the money supply the US money supply would have not grown at all since January 2008 - a highly unusual condition for a fractional banking system based on fiat money.

However, it is anticipated that the banks have more assets that they'll have to write down, which means they will have to raise more capital. The Fed continues to monetize agency and Treasury debt to combat the deflationary impact on the money supply when banks raise capital.

Since the credit crisis came to light, the Fed has been creating new money and increasing the US money supply, while the banks have been sucking money out of the money supply to recapitalize themselves.

What we need to take home from this is that while the Fed has been increasing the money supply by monetizing debt, the extent to which it has inflated the money supply is $900 billion. Not $12 trillion, or $24 trillion, or any other absurd number that gets bantered about the Internet.

And while the increase in the US money supply as a result of the Fed's priming is material, and has maintained US monetary inflation at historically high levels, it is nowhere near hyper-inflationary rates, nor is there any reason to believe that hyperinflation is remotely likely in the US.

We can calculate the percentage change in the US money supply on a year-over-year basis for each month, and then calculate a rolling 12-month average of the monthly, year-over-year changes (link). The average increase in the US money supply over the past twelve months, on that basis, has been 8.44%. That is a very high rate of monetary inflation for the United States. For example, the average inflation rate during the 1970s was 8.33% based on the increase in the Actual Money Supply.

To correctly analyze gold's value vis-à-vis the dollar we also have to consider the inflation rate of the gold supply. The value of gold declines in proportion to the net amount of gold that is added to the above ground supply of gold just like dollar inflation devalues the dollar. While I don't yet have all the gold production and consumption data for 2009 to complete the calculation, I estimate that the gold inflation rate could be around 1.5% for the year.

For a quick and dirty answer we can subtract the expected gold inflation rate from the dollar's inflation rate (~8.5% less ~1.5%) to arrive at a rough guide to what gold's average value for 2009 could be in terms of US dollars. The average value of gold was $762 an ounce in 2008. If we now add ~7% to that we arrive at an estimate of $815 an ounce as the average value of gold in terms of US dollars for 2009.

Take note that that is an average value for the year, and not a year-end or current date value. Nor is it a price prediction. This method of valuing gold is an attempt to quantify the value of gold, not predict its price.

The reason for doing it, though, is that we can see what effect the monetary inflation rate of the US dollar has on the value of gold in terms of US dollars. As you can see, the Fed's activities have indeed had a positive impact on the value of gold, but not nearly as much as the market is factoring into the gold price.

The average gold price for September was $997 an ounce and gold is currently trading well over $1,000 an ounce. The current gold price is more than 25% higher than its estimated average value for 2009, and even though we would expect the current value to exceed the average value for 2009, it would not be nearly by that much.

The market appears to be too fearful of inflation and has factored too much potential future inflation into the gold price. The Fed clearly announced that it would end the monetization of Treasury debt by the end of October this year and the monetization of agency debt in the fist quarter of next year. That means that in six months' time the Fed will stop creating inflation. I realize that the FOMC could decide to extend the monetization of debt, but at this time we have no reason to believe that it will. Therefore it seems to me that the current bout of Fed manufactured inflation is coming to an end.

The US government, however, will continue to run a massive deficit that has to be financed with the issuance of Treasury debt. Assuming the Fed stops supporting the bond market and the Treasury keeps issuing record quantities of new debt, we can expect to see US interest rates start moving up.

The current level of interest rates in the US is historically, and unnaturally low. Interest rates will rise. It's a question of "when", not "if". Given that the Fed has announced it will stop supporting interest rates in six months, and that the market is forward looking, it could be sooner rather than later.

Rising interest rates could be positive for the dollar in spite of the massive issuances of US Treasury debt, and that could put downward pressure on the gold price since the gold price moves inversely to the dollar's exchange rate.

So in spite of the fact that the Fed has been inflating the US money supply by monetizing debt, and in spite of the fact that dollar-bearishness is in abundant supply, and that the US dollar is very likely losing its status as the sole reserve currency, there is a good chance that US interest rates will have to rise and that could cause a rally in the US dollar and a decline in the gold price.

Gold bugs have been conditioned to believe that the gold price has to rise in times of financial or political turmoil. But that is not necessarily the case. Lately, when greed dominates the market large institutions buy emerging market and Asian assets, and sell US dollars. That puts downward pressure on the dollar exchange rate and causes the gold price to rally. In other words, the gold price rallies when things are going well and greed is the dominant emotion.

When fear grips the market institutions sell emerging market and Asian assets and buy US dollars, sending the dollar exchange rate higher and putting downward pressure on the gold price. So when things go bad, the gold price falls.

During 2008, in spite of the fact that the United States was the epicenter of the financial crisis, the US dollar rallied, money poured in US bonds, and the gold price fell. Just a few weeks ago, when the US housing data disappointed the market, the dollar rallied and the gold price fell.

The belief that the gold price will respond positively to bad news and fear could well be misplaced, and is certainly not supported by recent market movements. It also ignores the fundamental and underlying factors that determine the value of gold and moves its price.

Aside from money, inflation and exchange rates, we hear a lot about China and its impact on markets. Chinese residents are now allowed to buy gold. China buys vast quantities of all sorts of raw materials such as copper, iron and oil and hope has been pinned on China's revival since the economic crisis began. The Chinese economy barreled ahead as if nothing happened while North America, Europe and Japan's economies collapsed.

Exports represented 35% of China's GDP last year, according the World Bank website. China's exports fell approximately 30% since last year, which means we would have expected China's GDP to decline by more than 10% this year. Instead, the Chinese economy grew by 8%! How is that possible?

The Chinese government announced a massive stimulus program, much larger than the US stimulus package as a percentage of GDP. Yet it is almost certain that only a portion of the stimulus plan has been executed. A more likely source for China's growth is the expansion of its bank credit this year. Bank credit in China has increased by 28% of GDP since January. To put that in perspective, that is equivalent to a $4 trillion increase in the US money supply, more than ten times the amount by which the US money supply actually did increase since January this year. Anyone concerned about inflation should be concerned about the inflation of the Chinese renminbi.

But I got side tracked; we were talking about the Chinese economy's miracle growth. The theory goes that the credit expansion in China is fueling a consumer binge to such an extent that China's internal consumption has replaced the lost export markets and then some. Before we just take this on blind faith, we should note that China's economic numbers are not calculated in the same way as equivalent figures in North America. Specifically, in North America GDP is measured by expenditures while China's GDP is based on production; and that is a very material difference.

For instance, the manufacturing of products is a component of Chinese GDP and not the sale of those products. Consider that if China wanted to increase its GDP all it had to do was produce more goods without regard for whether there was a market for those goods. Of course, manufacturers cannot continue to produce more and more without selling their products - they will rapidly run of money. But they could if the banks are willing to lend them money to build inventories of manufactured goods. I have a sneaky suspicion that the explosion of Chinese bank credit was used to finance a massive increase in production so that GDP growth would meet the Party's expectations.

This would explain quite a lot, and it has severe repercussions. It would explain why China continued to buy large quantities of raw materials that could not be reconciled with the collapse in the market for its goods (exports). An economy cannot sustain itself if debt is used to manufacture products for which there is no market. Either the banks, or the manufacturers, or the retailers have to eat the losses. Regardless of where those losses come home to roost such an economy as a whole is rotten to the core.

The inconsistency in the Chinese data and the anecdotal evidence that China is building vast inventories can only be reconciled if one assumes that there was a surge in the production of goods that now decay in stock yards and warehouses. That means that China's economy has the potential to implode with a reverberating bang unlike any other that has ever emanated from the East.

The Chinese Communist Party apparently learned from America that debt financed consumption was not a sustainable economic model. Their solution, it seems, is even more absurd: debt financed production in the absence of demand.

While such an economic model is flawed, China has vast resources, such as approximately $2 trillion in reserve assets, with which it can finance its folly. That implies that the Chinese conundrum could last much longer than we may expect. Even so, just like the debt financed US consumer spending spree had to come to an end, so too must China's debt financed demandless production spree.

Earlier we reached the conclusion that US interest rates could potentially start increasing and cause the US dollar exchange rate to strengthen, which, in turn, would cause the gold price to fall. We can now add that the massive inflation of China's money supply can cause the renminbi to collapse and send another currency crises rippling through financial markets. A collapse of the Chinese renminbi could also result in a stronger dollar and lower gold price.

But consider what could happen when the Chinese miracle economy is unveiled to be no better than the US miracle economy had been.

Last year when the US was the epicenter of the financial crises the US dollar rallied and the gold price fell. What would happen if China were the epicenter of an economic collapse? What happens when the gold and commodity bulls realize China cannot continue to consume at an even greater pace than it had been when the world was buying its goods, but, instead, now has to work down the excess inventory it built up? It would be a good bet that the US dollar would rally and the gold price would fall.

Given that the gold price is trading at a 25% premium to its fair value and that we can imagine several scenarios whereby the US dollar could rally and the gold price could fall, it seems to me that betting on a higher gold price right now is merely a bet on the Greater Fool Theory. That is not to say that the gold price could not continue to rally - markets can remain irrational far longer than rational people ever imagine they would. Personally, though, I have no interest in buying an over-priced asset in the hope that it will become even more over priced - not even gold.

Paul van Eeden
www.paulvaneeden.com

Look at the INTC chart. does that look like aggressive accumulation or controlled selling since the gap??

I guess the public has 2 weeks to liquidate alongside hb&b. the sheep face certain death when taking orders from the wolf.

ALOHA !!

The same old one dimensional view of the US monetary system ...

ITS THE DEBT STUPID!

All these analysts see is the USDX/GOLD relationship. They see no C WORD! They see no SPENDING! They see no DEBT! They see no PRICE FIXING! They see no EMPIRE! They see no CORRUPTION! The see no COUNTERPARTY LIABILITIES!

In their mind ... LONG LIVE MOUSE CLICKS and UNENDING PROMISES backed by DEBT!

Now that's the path to global stability and growth! MORE DEBT !!!

Bert,

I closed my bank account in 1977 when they wanted to charge me a fee for depositing checks to my business account. (Like I'm going to pay someone to accept money?!)

My money has been in a brokerage margin account since then where when I need cash I can get it a a lower rate, pay off with no penalties and I have never regretted the move.

What I want now is prosecution of the perps of the mortgage fraud and to take back control of our lives from the Congress.

I'm under the impression that the last President that was going to eliminate the FED was President Kennedy.

Many think that it was the main reason his head was exploded and a reminder to any others who want to keep their's is not to mess (muck) with powers to be.

Tomorrow is a "MONUMENTUS" earnings Bonanza! bring your popcorn and sunglasses. (Dear CNBC, feel free to use my headline)

C, GS, GOOG, HOG, IBM. The computers may crash from all the buying tomorrow.

My post in jest yesterday:
INTC = 9850 Gap up open Wed
lower USD = 10,000+ Wed session
JPM = 10,200
C = 10,400
GS = 10,600
GOOG = 10,750
HOG = 10,900 (unbelievable sales overseas the past 6 months with lower USD)
BAC = 10,999
GE = 11,000
Friday Close

Yay. We have a recovery. Can i please get a receipt with that?

This will end badly for those not hedging their long bets.

Looks like a descending triangle on INTC today, at support right now.

Long bets with no risk control always end badly. So do short bets. There is absolutely nothing new in it, that's how market always worked, and what happens these days is just a repetition of scenario any trader saw thousand times.

I really don't get the point of all this bitterness and sarcasm.

As I studied its chart closer, I saw that DGP makes a lot of mean-reverting spikes in both directions, and $25.60 is the top of its ascending trading channel. So I decided to take off my position for a small net trading gain (just enough to pay for a nice restaurant dinner with my family) and prepare to re-enter at the bottom of the channel.

Edit: as I see right now, the spike into which I sold DGP was very powerful, taking it completely out of its trading channel. But one cannot count on this happening ahead of time, and taking profits at the top of the channel is probably the right thing to do, on average...

*MINUTE OF SEPT 23 FOMC MEETING: OVERALL ACTIVITY IS PICKING UP; job losses are slowing noticeably from earlier in the year
- Seeing indications of improvement; economic slack to be substantial over next few years
- Many FOMC economists upwardly revise economic projections for 2H; sales and starts of homes provided evidence of some firming in housing activity.
- FOMC members predict unemployment not likely to fall 'appreciably'; Fed economists forecasting unemployment to fall to 9.25% by end of 2010 and 8% by end of 2011.
- Some members open to expanding some MBS purchases, one member recommended cutting $1.3T in MBS purchases
- highlights that term deposit facility could be used to withdraw stimulus

The counter-spike was even more powerful and surprising than the first spike, but it seems to have stopped with DGP in the green. Let's see what happens now...

A few weeks ago you were trading set-ups (ie, trading what you saw), and got into a nice rhythm. Don't let your emotions (which I can understand) throw you off.

QLD has established a certain range and doesn't want to break below it...

I realize short term traders can work off expectations (or expected reactions to them), but is there any reason to believe the guys a the FOMC have any real idea what is or will be?

Couldn't it just be a super way to pump the markets? A bit like knowing the enemy has broken your code and slipping him a bit of "inside info" to trip him up, perhaps.

I'll stick with what I see, not what I hear from any source for any major decisions.

The move down from the spike top was a pretty big one for the scale of the daily chart. Expecting a bounce.

NYUGrad

C......expecting 0.23 loss tomorrow.....according to analysts

"is there any reason to believe the guys a the FOMC have any real idea what is or will be?"

Grym... after Big Ben telling us that housing is bottoming out and things get back in shape after mild setback - more than 2 years ago, I believe answer to this question is pretty obvious :)

The second purchase was a bit too speculative and made my position a bit too large for my taste. So I am taking it off with a small profit, which pretty much covers the small loss I took on QLD earlier.

Let's look to North Dakota for a possible solution..... a state solution
Stop sending interest to Wall Street and the Fed. Lend at low rates to the people and institutions within your own state.

monetary reformers argue that letting banks create credit and money and then charge high interest rates creates massive levels of debt for states and taxpayers. They argue that the power to create money should be reclaimed by the government and taken away from the private banks.

“North Dakota is a sparsely populated state of less than 700,000, known for cold weather, isolated farmers and a hit movie – Fargo. Yet, for some reason it defies the real estate cliché of location, location, location. Since 2000, the state’s GNP has grown 56%, personal income has grown 43%, and wages have grown 34%. This year the state has a budget surplus of $1.2 billion!”

What does the State of North Dakota have that other states don’t? The answer seems to be: its own bank. In fact, North Dakota has the only state-owned bank in the nation. The state legislature established the Bank of North Dakota in 1919. Fleetham writes that the bank was set up to free farmers and small businessmen from the clutches of out-of-state bankers and railroad men. By law, the state must deposit all its funds in the bank, and the state guarantees its deposits. Three elected officials oversee the bank: the governor, the attorney general, and the commissioner of agriculture. The bank’s stated mission is to deliver sound financial services that promote agriculture, commerce and industry in North Dakota. The bank operates as a bankers’ bank, partnering with private banks to loan money to farmers, real estate developers, schools and small businesses. It loans money to students (over 184,000 outstanding loans), and it purchases municipal bonds from public institutions.

Still, you may ask, how does that solve the solvency problem? Isn’t the state still limited to spending only the money it has? The answer is no. Certified, card-carrying bankers are allowed to do something nobody else can do: they can create “credit” with accounting entries on their books.

Here's the link to the rest of the article...more on how they operate and other states are considering similar options
Cut off the money and the HB&B monster will starve.

http://www.webofdebt.com/articles/state_bank_optio...

A glance at Canadian mutual funds with a focus on resources YTD: +50 to +140% gains.

baz,

not to drag you into discussion you want to end, simply to illustrate my angle.

See, I do not view my trading of certain stock as supporting the company behind it. I enter long and short with equal ease, my positions are fluid, and if I buy HIG at 27.50 and sell at 28.10 (today's trade), I doubt I did anyone over there any favor. I do not trade companies (I often half-jokingly ask whether there are actual companies behind all these symbols) - I trade the chart formations and tape reading principles. I encounter situations where scanner spits out a signal, I like the chart, enter, exit - and I have no slightest idea what the company does.

Just trying to bring some constructive element... after all, we are here to help each other navigate the murky waters of the markets.

Vad, I only wish I could buy an amount that would make a difference for others that hold shares of an equity ! My concern was, and always will be ( in regard to BAC ) the large amount of people here in Charlotte that put most of their savings into BAC over the years ( since 1965, anyway, when I opened my first bank account with Mr. McColl and company ).. Average, working people, who believed in BAC's model. I've done alot of remodeling/building work for these people, and they have been hit, badly, like so many others across the country. In time, I imagine things will smooth out, but the damage has been done ( dividend cuts ).

into the close...

hamachi sashimi -- yummy... One of my favorite, along with sake (salmon). I guess I need to trade in that direction now. :)

Did you *buy* FAZ at $17.48 or just predicted the FAZ close at $17.48?

David- I bought the shares in the closing seconds, as shorts tend to cover at any price on days like this. Just playing the odds on a potential bounce in FAZ, either after-hours or tomorrow morning.

"David- I bought the shares in the closing seconds, as shorts tend to cover at any price on days like this."

Interesting observation, 2nd_ave -- I'll keep it in mind. Unfortunately, I cannot follow you into this trade as I will be sleeping tomorrow morning and might miss that pre-market bounce, into which you'll probably sell your FAZ and then flip to FAS. :)

I did decide to hold my DGP position, either for a bounce after hours or tomorrow. Just trading in the direction of a hamachi sashimi. :)

Dave, as Bill keeps reminding us, the $USD market is orders of magnitude bigger than the gold market, and hence the trend in the $USD defines the trend in gold. After breaking a support at 76, it would not be unexpected for $USD to rally back a little and test it from the downside. Such a rally might be a great opportunity for going long gold, as opposed to interpreting it as a clear sell signal.

Trading TA setups is surely hard, as multiple interpretations can be attached to the same chart.

But David, USD didn't rally today, it dropped. And gold fell too. That's what has me confused. Sure, if USD had rallied to test back to 76, I'd understand if gold fell at the same time, but that's not what went down today.

Or are you talking about something else and I just missed it?

Sold at $3.20 the shares I bought at $3.33 average. I learned a couple of things here:

(1) Selling with a 8 to 10% gain in 1 day is a GOOD thing.
(2) Dilution is far worse than I thought it was going to be. They will have approximately 130 million shares after they get an equity injection, which means the company is really worth $400 Million +. Even if they earn what they did at the last peak, the peak valuation is only 3 times higher than it is now and I have no idea how long it would take to get to that level of earnings and how much more they may have to dilute.

I'm still not sure why more of the public hasn't insisted that banks be regulated as utilities. Why not have them facilitate credit to worthy candidates, take their mandated 2.5% or 3.0% profit above where they borrow from the Fed, and that's that?
When did we start to believe that banks needed to "innovate", or become monster profit centers for shareholders? Complex financial innovation that maybe 1% of professional financial experts could adequately explain has rarely worked for the common man, IMO.
Some things should fit into the category of "public good" instead of expecting profit to steer the way to an acceptable outcome: like major network news, healthcare, and regulated utilities.

last dancer or rotation out/into riskier stocks or something else? Perplexing as usd down, markets parabolic.

HOG - Wiki invest suggests HOG sells 32% of its motorcycles internationally. Some other interesting factoids:

- Harley is arguably the only company whose customers have been known to regularly tattoo its trademark on their bodies. Despite this rebellious image, the average Harley customer is an upper-class 47-year-old white male, and has been getting older at a rate of 6 months every year for the last 20 years.

- Harley Davidson [has shipped] 25% fewer motorcycles in 2009, and [has fired] about 2,500 of its employees (2200 hourly positions, and 300 salaried positions). This accounts for about 25% of its total workforce. It is shutting down, or consolidating numerous manufacturing facilities to accommodate the drastically reduced capacity. Because it is actually shutting down factories, Harley will be able to produce fewer motorcycles for years to come

http://www.wikinvest.com/stock/Harley-Davidson_(HOG)

Things I did not know. I do ride a motorcycle, but not a heavyweight monster like a HOG. :)

In college we studied HOG and their global brand recognition was top 3. Up there with Coca-Cola, Nike. What's more of an American pleasure product than a Harley Davidson?

But its just a trade.

I am busy studying elliot wave theory this evening.

anyone follow Wendy's? I've been thinking about getting in but I can't figure out a good entry point. I was thinking of hopping back in on a move above the 200 DMA...

I seem to remember Bill seeing gold support at around 20% lower (885?) and Paul VanEeden as in #49110 sees it as about 25% overpriced at $1,000. Jimmy Rogers recently said he likes gold, but would not buy at these levels.

With the above in mind, I'm thinking of taking profits on about 50% of mine.

http://www.nni.nikkei.co.jp/e/fr/tnks/Nni20091014D...

TOKYO (Nikkei)--The net inflow of funds into publicly offered investment trusts surged 27% on the year to 2.15 trillion yen for the six months ended Sept. 30, an indication that retail investors are returning to the market.
The net inflow, which is calculated by subtracting cancellations and redemptions from new purchases, peaked at 8.42 trillion yen in the first half of fiscal 2007, but outflows exceeded inflows by 1.19 trillion yen in the second half of fiscal 2008. Many individuals left the market as mutual fund performances slumped amid turmoil in the U.S. housing market. The buying appetite of retail investors plunged further following the collapse last autumn of U.S. brokerage house Lehman Brothers Holdings Inc.
But stock markets bottomed out worldwide in March, with investors putting more into mutual funds than they took out in the six months beginning in April.
According to the Investment Trusts Association of Japan, the net inflow into publicly offered stock investment trusts came to 643.6 billion yen in September, the highest since the 738.3 billion yen posted in December 2007.
The major factor behind the turnaround is improved fund performance. The unit price of investment trusts rose 17.2% on average in the first half of fiscal 2009, according to the Nomura Research Institute, marking the best returns since record-keeping began in fiscal 1997.
Overseas real estate investment trusts and funds targeting emerging-nation stocks yielded 57.9% and 49.8%, respectively.

http://voices.washingtonpost.com/securityfix/2009/...

"Washington Post Security Fix columnist Brian Krebs recommends that banking customers consider using a Linux LiveCD, rather than Microsoft Windows, to access their on-line banking. He tells a story of two businesses that lost $100K and $447K, respectively, when thieves — armed with malware on the company controller's PC — were able to intercept one of the controller's log-in codes, and then delay the controller from logging in. Krebs notes that he is not alone in recommending the use of non-Windows machines for banking; The Financial Services Information Sharing and Analysis Center, an industry group supported by some of the world's largest banks, recently issued guidelines urging businesses to carry out all online banking activities from 'a stand-alone, hardened, and completely locked down computer system from where regular e-mail and Web browsing [are] not possible.' Krebs concludes his article with a link to an earlier column in which he steps readers through the process of booting a Linux LiveCD to do their on-line banking." Police in Australia offer similar advice, according to an item sent in by reader The Mad Hatterz: "Detective Inspector Bruce van der Graaf from the Computer Crime Investigation Unit told the hearing that he uses two rules to protect himself from cybercriminals when banking online. The first rule, he said, was to never click on hyperlinks to the banking site and the second was to avoid Microsoft Windows."

http://bit.ly/1bRPPL
new to me. Thought I'd share.

Edit: two more.
Aug
http://bit.ly/2JUhsg

may 2009 - great comments. & vid
http://bit.ly/3kR6UD

In case all the buyers were indeed sucked in today and the sell-off 2nd_ave is expecting for tomorrow morning lasts the whole day, I have just placed a buy stop limit order on all the SRS shares I sold today at the average price of $9.50 with a stop at $9.20 and limit $9.30. After all, $USD is really oversold since Monday, and a bounce in $USD is in order, which should pull all equities down.