Hi Bill,
Sorry about the melanoma. Hope all is well soon.
BTW excellent post on the state of US economy and gold market.

Pedrolx

Crucial day tomorrow?

22nd of august 2006:

Islamic celebration of the night flight of the prophet Muhammad on the winged horse Buraq, first to "the farthest mosque," usually identified with Jerusalem, and then to heaven and back (c.f., Koran XVII.1).

With this illuminated ahmedwhateverjihad, you never know if that nutty boy will not plan something "symbolic".
They have chosen that date to answer, haven't they?
Crucial!

Hi Bill,
All the best regarding your health. I was of the camp that a US recession would put the screws to the China economy but you bring up several viable scenarios that have me re-thinking things.

I never considered that the Chinese government would prop up the economy like the Fed/Bush administration. The fact that they are sitting on such a large trade surplus has me thinking that they will invest more at home.

From an industrialized nation perspective, the country is underdeveloped. There are water lines, sewer lines, roads, power, and rails to create all over the place. I can't think of a better time to ramp it up then when the US economy slows China's exports. Thanks for pushing me to think more deeply about the subject.

At this time, Chinese bank loans are roughly 100% of all of last years amount. That does not say slowdown to me. Commodity demand will continue IMHO.

China, Gold, Oil, Iran

Ok for what its worth... here are my views on these subjects... they are mostly contrary to
"current wisdom" and most views on this blog...
but here goes anyways...

China:
This is a disaster waiting to happen...
Banking system is on the brink...
They are most likely to fix the problem NOW rather than wait until the 2008 Olympics as everyone thinks.
This may not be pretty for hard assets.

Gold:
Call up a monthly chart of the continuous contract for gold all the way back to the 70's. Draw a trend line along the bottom.
Draw a parallel one aross the top (don't include the spike)
$670 is the top of the channel.
You short gold in this range until it breaks above this - then $850 is the target.
Otherwise gold goes towards the lower end of the channel: $350-$400

Oil:
The price of oil does not move on supply/demand in the long term.
The price is controlled by the (for lack of a better word) elites. If it is in their interest in shaping the global economy to let oil go down to $10 (as in 1998) then they do this. If it is in their and the global economy's interest to let it go to $80 - then they do so.
I suspect they want to contain the price now - hence despite hurricanes, Alaska, Nigeria, Iran
over the last year - it can't top $80.

Iran...
A bit of a wild card. But the elite of China and Russia took a big hit when Ben brought down the markets and commodities in May. I think they got the message - the US is still in control of the "chips". They may play ball now... Iran will be isolated - and may be more cooperative than they seem.
Will find out tommorrow on this one....

...So is it possible traders like us keep citing these "China Gold" themes over and over because we've all made money on it - and are attached to these views now?

But this China/Gold theme may not be the reality or the reality that is now forming.
This is what I am leaning toward...

Reality has a strange way of catching us all off guard.

tradesman

Hi Bill,

I'm sorry to hear about the diagnosed melanoma, but since it is still superficial, the liklihood of its removal without further complications is quite high. I wish you all the best, and thank you for taking the time to keep school in session.

Cheers...

Hi Bill- Glad you got it caught in time....take all
the rest you need.

Thanks for the great take on commodities.
Much appreciated.

Now...watch out for that strong sun in the Bahamas!
Get one of those Aussie hats!

Bill, I hope that everything is fine with your health. I will suggest that you should take rest.

There is a balant hatered comment against Muslims posted by OldSoothsayer as reply to your this posting of blog. I think we all should discourage such negative fascist expressions.

Bill, Get well soon.

Tradesmen, you are right, Iran could really shake things up and I think will. Maybe you are right about the long term of oil being controlled by the powerful, but in the short term watch out because I expect oil to go up, based on Iran and the short term speculation that will follow. You are probably right about gold. The treasury will keep a ceiling on it.

Glad your melanoma is superficial. The thinner the lesion the better the prognosis. I have a blog at nobooyahzone.com. It's nowhere near as informed as this blog. I'm about 30 years less experienced than Mr. Cara. But I'm learning and I like Mr. Cara's way of thinking about the markets. It makes sense to me.

I'll second DollarBill. Get one of those Aussie hats with the dangling corks. Women will notice you. Especially when you turn your head and hit them in the eye with one of those corks.

Great links and post - terrible news buddy on the skin. Take care oif it and be well. I have been there on this and live in Aroizona.

I have been thinking about the wider implications of BP's Prudhoe Bay pipeline problems. I was in Alaska in '71 about the time the main pipeline was finished and started operating. This sixteen mile feeder pipeline has to be at least twenty five years old.

That means it was operated through some lean years for oil companies and I think their infrastructure in general has not recovered. The railroads used to call this "deferred maintenance." That was stuff they knew needed to be fixed but, they didn't have the money.

Who would have cared if this pipeline was shut down when oil was $10/bbl? The bill is coming due now.

RE: Tradesman's "China/Gold" theme.

I, for one, have been (for 3 years) and will continue to be completely attached to the following being the key drivers to the gold bull:
1. Triple Deficits
2. Increasing interest rates that trail inflation
3. Structurally negative $usd
4. Government spending
5. Government printing press
6. Commodity bull

When most of these change, the golden bull will be over. China is only a part of #6, and not the key driver.

Tradesman, if you are right about the "elites" being able to price oil at $10 or $80 based on their needs, they are more powerful than I ever gave them credit for. Personally, I doubt that they can control the geopolitics in the middle east that imo, will drive oil to over $80. Maybe they are aliens?

Good trading!

Yes, so like the market. Thank you for letting us know. Fingers crossed here on your behalf.

P.S.: And thank you very much for your comments including the Pring link.

Damn, Bill, sorry to hear about the melanoma. Good thing you pressed your family doctor! It sounds like you got it early. For future reference, you know that conventional fabrics (in hats and shirts) don't filter sun that well. For Bahamas, you might look into the special tight-weave fabrics especially for sun protection. Also, most sun block doesn't really block so well against one of the key UV types (A or B? - the one linked to Melanoma, I believe). FDA finally just approved one that DOES, and has been around in Europe for a while. I'd study up on that. -

ALOHA !!

Bill, glad you caught the melanoma. That's right mate ... give it a rest! Too much sun there in the Bahamas.

I recall in my youthful surfing days at Newport Beach,CA my Cuban friend Louie, 21 years old, got diagnosed with melanoma on his nose. The doctors removed it and told him to stay out of the sun. Of course he disobeyed and cut out part of a credit card(maxed out)and taped it over his nose and went out surfing anyway! Lost touch with Louie, last saw him in some ad in PlayBoy magazine back in the 80's... Point is that age does not matter when it comes to melanoma or any cancer really. Lifestyle has a lot to do with longevity.

On that note "monetary cancer" is on the rise in the USA. The FRNs are multiplying like cancer and so is our debt so that does not bode well for the USA as a reserve currency speaking of "longevity". The USA is like Louie and his credit cards. The propensity to spend is omni-present and never goes away like a drug addict. The Fed is only too happy to accomodate the big spenders in Washington DC. The politicians and the US voters are the drug addicts and the Fed is the "pusher man" ... hitting bottom is the only way out ...

I'm a psychiatrist not a dermatologist, but from what I recall of the medical literature, most melanomas are surprisingly not related to sun exposure. A significant enough percentage of melanomas do seem to be related to sun exposure to be very careful, but, truth be told, I do believe the majority of melanomas are believed to occur spontaneously, often in skin areas not associated with sun exposure. You can even get a melanoma in your retina. Get that lesion excised ASAP Mr. Cara.

Warning: long post!

Bill, thanks for this overview. I love Martin Pring's work, as well as the work of John Murphy. I'm not a trader, but I study technicals because I think that they are interesting and informative. Prig did put out an extensive paper (Return of the Bear) on underlying market techinicals about 60 days ago. I keep expecting this market to crack, but it chugs (sputters?) along. I see that the ubiquitous Ken Fisher thinks that we merely had a correction and that we are still in a bull market. The difficult thing for someone such as me is that there is such divergent views from those who are very smart. I guess that is why there is cash. For if you cannot take a stand and afford to be wrong, then you've received a decent return for your neutrality.

IMV (and I'm the ubiquitous dumb money!), there are two things that folks have hung their hopes on (1) capex (2) resiliency of the consumer. I don't think that in my adulthood, and I'm 46, I've ever witnessed the dynamics of personal debt at current levels. The boon of home equity loans, and the various financing schemes (even newer event)are unprecedented. My point...I have two: (1) I think that capex will be deferred until business conditions improve as part of "batten down the hatches". (Though it would be terrific to see some real reporting on what CFO's plan to do other than buying back stock); (2) I think that the consumer will crack more than is anticipated. I think that the cementing of these two realizations (if they are indeed true, I'm positing them as opinion, not fact)will erode market support. The question is when. I also hear often that Microsoft's Vista is going to create a whole new wave of investment. Maybe so, but Microsoft has a reputation of releasing stuff so bug-ridden, the best corporate strategy is to let the first users continue to do the beta testing until a stable operating system is released.

Re: "Maybe so, but Microsoft has a reputation of releasing stuff so bug-ridden, the best corporate strategy is to let the first users continue to do the beta testing until a stable operating system is released."

I like Microsoft (MSFT). Software development is not the exact science some would like it to be. If Microsoft were to attempt the delivery of a bug-free product out of the box(impossible IMHO), we the people couldn't afford it and the time between delivery of new revisions would be decades, not years. Microsoft software is designed to operate on any open processor platform (Intel, AMD, Apple, Sun , you name it...) not so with Apple(every disgruntled MSFT user defacto standard), or Sun Microsystems (SUNW). Even Apple (AAPL) which recently decided to open its Operating System (OS) to other non-Apple micro-processors (i.e. Intel) are seeing the first signs of unauthorized hacking of their software products. And Sun is forever losing market share because of their refusal to migrate their OS to other non-Sun platforms. Even Linux, that MSFT killer is hitting a wall because it cannot standardizes its OS due mainly to all the authorize hacking (perfect oxymoron) that's taking place. Microsoft strategy of letting the user provide debugging feedback of its product is the ONLY practical alternative to low cost, user friendly software (again IMHO).

Bill
After read about your health issue honestly my thoughts of money management seem so unimportant and trivial. I lost my father at 53 to melanoma, there is no word in english that I hate more. Bill I'm positive that you have caught this in the early stages and that it will be treated successfully. The most important thing is to stay on top of it just as you stay on top of everything you do in your life. This issue will remain in my mind and I will have never ending thoughts of a totally positive out come. Stay positive and get the proper rest, PLEASE!

Facts about Melanoma:

Incidence:
• Melanoma is in epidemic growth at ~ 3% rise in cases per year
• 53,000+ new cases reported yearly / 7800+ deaths yearly
• Melanoma risk: (1935) 1:1500; (1960) 1:600; (1985) 1:150; (2000) 1:74
• Fastest growing cancer currently in USA and worldwide
• Most common cancer in young adults aged 20-30
• Currently MORE new cases of melanoma than HIV/AIDS
• Women age 25-30: melanoma = primary cause of cancer death
• Women age 30-35: melanoma = #2 cause of death (after breast cancer)
• Melanoma = 5% of all skin cancers / 71% all skin cancer deaths
• Melanoma does occur in ALL age groups – including Pediatric age groups

Causes:
• Mechanism of initiation of melanoma from normal skin = unknown
• No specific genetic locus yet identified
• Primary skin lesion sometimes never found (or is “amelanotic� = non-pigmented)
• Multiple risk factors exist for the development of melanoma including:
• UV exposure (especially 1 or more blistering sunburns in childhood)
• Moles – especially atypical or dysplastic moles
• Increase risk if person has greater than 50 moles

Survival:
• Survival when superficial melanoma is found and diagnosed early
• Diagnosis: in situ melanoma (Stage 0)
• 5 year survival = 100%; 10 year survival = 100%
• Survival when melanoma no longer superficial (Advanced stage melanoma)
• Diagnosis: melanoma in lymph nodes (Stage III disease)
• 5 year survival: IIIA (single/multiple nodes + non-ulcerated primary)= 63-69%
• 5 year survival: IIIC (single/multiple nodes + ulcerated primary) = 24-29%
• 10 year survival: IIIA = 57-63%; IIIC = 15-24%
• Diagnosis: melanoma now disseminated to major organs (Stage IV disease)
• 5 year survival: 7-9%; 10 year survival = 3-6%
• No significant advances in medical therapies (or survival) for patients with advanced
melanoma have occurred in the past 30 years
• Melanoma currently ranks #8 on the NCI Research Funding for Cancer list

One wonders how nickel fits into Mr. Pring's commodity equations?

http://news.silverseek.com/TedButler/1156198042.php

good luck...keep a positive mind

Opinion for China from a Chinese:

There are a lot of bubbles in China's current growth. A lot of CAPEX was spent in building the steel mills, auto assemblies, and of course real estates – none of these sectors seem to be fare well now – overcapacities, price war, etc. A significant portion of that CAPEX is funded by bank loans – mostly the state owned banks - so I agree with Tradesman that the banking system is on the edge.

However, I do not think they would be able to fix the problem any time soon – they have been trying so since more than 10 years ago with limited achievements. But the current thinking of the government is to dilute the bad debt level (by getting those banks listed) and to instill a profit-driven culture into the banks. But such cure will take times. I would expect government continue to print more money to support these banks – so I think there is a inherent inflation risk in China – which may support current RMB/USD exchange level.

So if export is dampened by slowing US economy, CAPEX expenditure was a proven failure, where would be growth come from to sustain a high single digit growth? The government is betting on domestic consumer spending. If you check the level of saving rate – it is astonishingly higher than anywhere in the globe. Whether such high saving rate will decrease is still to be seen – but I bet will not happen fast enough to catch the falling of US economy – if you look at the current wide unavailability of social security and a surging housing price, you will understanding why people are saving here.

Net net, what will happen in China, I do not have a clue. But I bet you will not able to tell too.

pk888prc, great post and I agree. And also, is that great savings rate due to a lack of median wages keeping pace with GDP growth, i.e., is it "company savings" due wage earner's stagnant wages? I read that China recently gave factory workers a small pay increase, but that nepotism rules in China. Do you agree?

Bill, good luck with the melanoma, sounds like you got it early.

For what it's worth, IMHO... Here in the US, we have a very expensive war to pay for (in more ways than one). The problem is, we don't have the money. So, we can default, which has never happened before, or we can print money.

My bet is we print money, lots and lots of money. As with any inflation/hyperinflation, that money will look for a home. Some will go to stocks, but more will seek out hard assets like commodities.

Other governments will inflate their currencies to keep up, but in the end, I think we (the US) will try to inflate our way out of our debt.

That inflation should inevitably favor hard assets (commodities) and real estate.

Just getting back into the swing after a brief, but glorious vacation in the redwoods of Mendocino.

Bill, best wishes for a quick and complete recovery from the melanoma.

Leisa,

"Maybe so, but Microsoft has a reputation of releasing stuff so bug-ridden, the best corporate strategy is to let the first users continue to do the beta testing until a stable operating system is released."

I'm a software developer by trade, and I know this complaint is very well-travelled. But the fact is that Vista is being sheparded through a lengthy beta phase to address security concerns.

Indeed, the issue of delivering bug-ridden code has really not been operative since the days of Windows 98. And, in fact, most of the bugs were associated with third-party driver developers carelessly mainpulating kernel memory. That's no longer the case. I haven't seen a blue screen in years. I rather doubt anyone else has either.

The most pressing issue with Microsoft operating systems -- and any others, for that matter -- is security.

I'm no big fan of Microsoft's stock right now, by the way. They really set themselves up for trouble when they botched the handling of the original design for "Longhorn", of which Vista is just a pale shadow. However, I believe strongly that their software gets an undeserved bad rap. Given the time they've taken with Vista, it should be extremely stable when it goes to RTM.

My 2 cents.