March 19, 2007
Reducing my commitment, Mon., Mar. 19, 2007, 6:45 PM
I am afraid, all things considered, that I must further reduce my commitment to this blog.

Continue reading "Reducing my commitment, Mon., Mar. 19, 2007, 6:45 PM"

Posted by Bill Cara on March 19, 2007 06:45:25 PM

I figured I would post this before it falls off the front page. Flor-Essence, anyone?

ALOHA !!

I will put out a one word prediction here ... "REPATRIATION"! Its the one kink in everybody's plan to get rich off a weak dollar! It was the silver bullet that sunk Warren Buffet's gamble on a weak dollar in 2004-2005 and it now seems most pundits have totally forgotten all about it.

In 2005 as the USDX dipped below 81 the US government announced out of the blue a plan to "repatriate" corporate profits for all US corporations overseas at a discount rate of 5%. That move created a US dollar demand and caused the USDX to rise rapidly. Will the US government use this weapon of last resort again? I believe they will.

Yet it is not up to the US government because "repatriation" can occur in other ways. For instance, the Chinese government in an effort to slow growth could tamper with the "hot" money from the US and Japan now speculating in Chinese real estate and the Shanghai Stock Index. If that happens then there would also be a rush on the US dollar and the Yen, causing both currencies to rise in value.

What the FED fears in this US dollar fiat game is "confidence" of money. Velocity is dictated by "confidence". Once confidence is gone then no amount of FED intervention will prevail and that is what the FED fears THE MOST is "loss of control", for without control the FED is exposed for what it really is ... a useless entity presiding over a worthless IOU.

The long term trend for the US dollar is shaping up overseas as foreigners perceive that the US government is bogged down in unproductive and highly inflationary wars, which translates into more debt and less "confidence" that the US government will honor those debts. It goes back to my thesis that "governments are only as honest as their money".

Boiling all this down ... I believe a "repatriation" of sorts will occur SHORT TERM either at the direct hand of the US government as happened in 2005 or by the "emerging markets" mainly CHINA. Naturally any rally in the US dollar at this point is still perceived as detrimental to the gold price and precious metal shares. There will come a day when there will be a disconnect between the US dollar/rates rising and the POG falling, but that day is not today or this year. The disconnect will have everything to do with "velocity of money" and nothing else will matter. I do not think the gold bulls are out of the woods just yet, maybe by June or July. At any rate I will want to see confirmation first either way and so far that is not happening 100% no matter what Gartman thinks. What is happening 100% is an undercurrent of market fear set off by sub-prime and the Shanghai Stock Index crash on Feburary 27th. I just do not count out a sudden US dollar rally.

The long and the short of it ... I am holding back for now ... No big swings in anything yet! I am keeping my core positions and cash. In no way am I short gold or long the US dollar, quite the opposite! As Bill says the long term trends are most important ...

Kaimu,

By "velocity" do you mean the turnover of dollars per unit of time? As I recall, that's also a component of inflation, in addition to money supply.

Shortly prior to the Feb 27/28 step back, the Bank of Japan raised rates for the first time in ages. If you think the two events are related, then Bill has described a very plausible pathway for the next big whompf down. Japan will be pressured to raise rates again when the dollar goes into free fall against the Euro. Its also reasonable to suspect that the BOJ rate hike precipitated the dramatic collapse of the subprime business. The BOJ hike probably is not the singular event, but since the yen-carry biz is a key stone in the leverage that his kept the market frothy, it may be the butterfly wings that will set off the next monster hurricane.

The BOJ's meetings may become more important than the Fed's for the near to mid term.

How is Japan going to increase it's overnight rate when they are starting to experience deflation or at least stagflation?

This whole currency and rate thing appears to be one giant game of chicken. Who flinches or pulls the trigger first?

Watcht the trends etc., trade price. Gold will get there as will oil, there are ALWAYS bumps in the road.

Speaking of gold stocks, Mr. Embry from Sprott comes on BNN today around 1PM. His top picks: AGG.V, MMM.to, and KGN.V. Most of his other recommendations from today are shown below as of 3PM, all significantly up since his appearance:

Symbol Last Trade Change Volume More Info Avg Vol 50d MA 200d MA
AGG.V 2:36pm 1.79 +0.24 +15.48% 549,000 Chart 39,934 1.6886 1.7307
BGI.TO 2:38pm 0.65 +0.05 +8.33% 503,600 Chart 83,815 0.5864 0.4988
FRA.V 2:21pm 1.91 +0.11 +6.11% 120,000 N/A N/A 0.00 0.00
KGN.V 2:40pm 4.80 +0.45 +10.34% 433,753 Chart 80,308 3.5344 2.8718
LSG.TO 2:41pm 2.16 +0.10 +4.85% 438,836 Chart, Research 602,928 2.1258 1.7101
MKR.V 2:42pm 0.56 +0.11 +24.44% 2,380,440 Chart 981,680 0.4506 0.2373
MMM.TO 2:37pm 1.85 +0.21 +12.80% 397,471 Chart 73,115 1.8003 1.704
SAM.V 2:08pm 1.05 +0.07 +7.14% 402,800 Chart 349,358 1.0367 0.7583
SWG.TO 2:38pm 8.04 +0.14 +1.77% 198,707 Chart, Research 244,795 7.9578 8.1748
TME.V 2:26pm 0.395 +0.045 +12.86% 391,803 Chart 164,658 0.3847 0.3627
TOE.V 2:39pm 1.27 +0.12 +10.43% 863,960 Chart 156,346 1.2142 0.7958

Ah, to be a fly on the wall!

agaunv--ableape has a point IMO. Times are changing.

I think this is from yesterday’s Financial Times: "Tokyo's property market is in the midst of an investment boom the likes of which have not been seen since Japan's asset price bubble burst 17 years ago. Property prices in the capital have been surging upwards in the past two years, with prime plots of land enjoying annual increases of 30-40 percent, according to a government study released last week."

From another source: Japan's household spending, as reported last week, rose at double the pace forecast by analysts last month and industrial production fell less than expected. The jobless rate held at an eight year low of 4 percent for a fourth month, a separate report showed, suggesting companies are confident enough to keep hiring. With the oil price moving higher, inflation in Asia is likely to drift higher in the latter part of 2007.

The Japanese government usually talks down possibility of rate hikes as it is in their competitive interest in selling to America and others. They may still do this. However, based on the aforementioned inflationary news, BOJ could easily raise interest rates in the very near future, giving additional support to the yen and weakness to the $USD.

Nonetheless, BOJ bears watching. Just my 2 cents.

Long--weakening dollar.

Wonderful blog.
Many thanks.
Any comments on UXG?
Srolaser

Bill,
Hope for good news.
I like the management.
Be well.
~S

ALOHA !!

omphalos ... Yes, a loss of demand for a currency can cause a severe rise in velocity which translates to an inflationary spiral like what happened in the early 1980s when gold and silver skyrocketed and the entire World was heading for the US dollar "exit"!

Bill ... any details on Western Goldfields "hedging" requirement for their $105mil loan? Here is a sample of how a hedge required in a "non-recourse" loan effects the bottom line.

READ ON:
08:45 - Apex Silver Mines Q4 Loss Per Share Widens On Charge - Quick Facts [SIL]

Apex Silver Mines Ltd. (SIL) on Tuesday posted financial results for the fourth quarter reporting a net loss of $326.4 million or $5.58 per share compared to a loss of $72.3 million or $1.44 per share in the corresponding quarter in the previous year. The company attributed the loss in the latest quarter to a $340.5 million unrealized mark-to-market charge related to the commodity hedge position required by the company's lenders in connection with the $225-million project financing for its 65%-owned San Cristobal open-pit silver-zinc-lead project located in southwestern Bolivia.

Given the instance where Apex Silver can not recover and files bankruptcy guess who owns them? Dead right ... the "company's lenders" who required the hedge for a loan. I do believe that is a total con game by investment banks to own metal companies via the backdoor and I have no interest in investing with a company that is forced into such tactics. I have sold off stocks in such companies for that very reason. I believe WGI management needs to step up to the plate now and bypass such a loan.

Yes If the USDX will break below the neckline that will almost certainly rocket gold to the moon, while on the other hand gold & silver can climb along a rising USD. IMO, far too many factors influence the POG and POS.