Moin,

Moin,

ATA Truck Tonnage Index was down 3.7 percent from a year earlier

On a seasonally-adjusted basis, the tonnage index increased to 110.9 (2000 = 100) in July, which was the highest reading since April. Despite July’s sequential gain, tonnage was down 3.7 percent from a year earlier.

Year-to-date the tonnage index was 2.6 percent lower than the same period in 2006.

"The weakness in the residential construction market continues to have a disproportionately larger impact on truck tonnage than the number of loads transported," Costello said. "Construction freight on average weighs more than general freight. As a result, the weakness in the construction market is having a bigger impact on truck tonnage

Trucking serves as a barometer of the U.S. economy because it represents nearly 70 percent of tonnage carried by all modes of domestic freight transportation, including manufactured and retail goods.

"Finally let me add that bear markets do not begin with sentiment this bearish. Never has and in my opinion never will. Sentiment is on the side of the bulls in a very big way. The bull bear percentage is basically at par. Bear markets start with extreme complacency and the bull bear percentage at 40% or more for the bulls, not at par." Jack Steinman, The Informed Trader
Hope spring eternal. No sarcasm implied.

jasper, perhaps the complacency before this bear market was a couple of months ago while setting record after record of consectutive or near consecutive up days.

ALOHA !!

Bill ... Pizza for Pesos! I am surprised the US military hasn't invaded and occupied his pizza stores! We have to defend the US Peso at all costs ... Besides it sounds as if his business is being too damn successful ... its time for the US government to step in and put an end to that nonsense!

I got some economic ground recon that I will pass on. A friend of mine is a concrete contractor based in Las Vegas,NV. He told me the other day his business, which mainly focuses on residential, has fallen off a cliff over the past couple months. So much so that he even had to layoff his own brother who has worked with him some 20+ years. In his words ... "Back to pumping ground zero!" Elluding to some past government contracts he had filling drill holes at the nuclear test site. He did say that the casino construction business is still going strong down on the Strip! I would bet that would be a lagging indicator since you cannot start/stop casino construction on a dime like a homeowner can! Committed planning and committed funds are JUST THAT! Let the chips fall where they may! (pun intended) ...

The Domino Effect is alive and well ...

Anybody else have any state of the economy "ground recon" to report?

Bill,
This is copied from an email list I'm on. I don't know how acceptable it is to post copyrighted material, so please delete it if not OK. I thought it might interest 2nd_ave and others trading UNG.

August 29, 2007 -- The fallout from a disastrous series of natural gas bets continues to prove painful to a major Canadian bank with ties to a Westchester futures broker.

The Bank of Montreal said its losses from natural gas trades grew by another $91 million in the quarter just ended. Bad bets on natural gas trades have cost BoM - Canada's fourth largest bank - just over $398 million to date in this fiscal year.

Overall, the losses are said to be north of $675 million.

Even more pain is likely however, as BoM announced that it still has to unwind $10.8 billion in natural gas trades.

As first reported in The Post, the bets were in large part due to an unusual relationship between David Lee, BoM's head natural gas trader in New York, and Kevin Cassidy, the chief executive officer of Optionable, a Valhalla, N.Y.-based electronic broker of Nymex energy futures.

Cassidy resigned after The Post first wrote of his failure to disclose a prison sentence he had served for tax fraud in the early 1990s.

At one point, nearly 40 percent of Optionable's revenues were generated from Lee's trading alone, according to Securities and Exchange Commission filings.

This unusual volume was driven in part by Lee's problematic strategy:
as losses began to mount, he continued to throw the bank's capital into the trades, in the hope of forcing the market higher.

Compounding the problem is a concern about the quality of the valuations that Optionable provided for BoM's massive and illiquid portfolio.

In its release yesterday, BoM said it was cooperating with regulators and law enforcement authorities. The Post reported in May that the SEC had begun an inquiry into the matter.

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TNtrader,

I have thought the same per VIX but other measures of complacency and bullishness are not indicated even during July. FWIW, STeinman is notoriously risk averse and he doubts that this is the big one for this reason. This is what makes a horse race, as is often said.

cyderman--a la Amaranth, is it not. I noted that F. Barbera on FSO thought there was a fund unwinding on natural gas. I suppose that it is so volatile--both up/down that it's irrestible.

If Bill is bullish stocks short term and bearish stocks long term or intermediate term, then I am the reverse for GOLD (bearish short term and bullish long term).

I don't see how we can have a major move in precious metals imminently other than seasonality which I do not place much stock in (no pun intended.) Anyways in San Diego, California it looks like the US real estate fueled economic bust is just beginning.

All of the underlying economic fundamentals such as GDP growth, inflation, etc still remainly slightly positive. We haven't even hit the recession yet and the Fed (at least we are led to believe) is supposed to be on the fence regarding rate cuts. I agree that the Fed is printing money to attempt to control asset price deflation, but their power is nothing compared to the massive deflation potential in US asset markets.

I recently read a book about the bust in Japan after their dual bubbles. Asset price deflation was such a strong force there after the bubbles that equities AND real estate fell 80% over a 10 year period. Despite MASSIVE money printing by the Japanese authorities they were unable to reflate the economy. Perhaps more amazing still, their massive monetary stimulus did not destroy the yen relative to other currencies.

There will be a point to buy commodities and GOLD again, but after a decent sell-off and BUST unfolds first. How can be buying gold before the crisis even happens?

I understand that during the 1970s there was some type of solid inverse correlation between the market averages and gold so that if gold was going up due to inflationary fears the market was likely tanking.

I don't think this same relationship exists currently. There was a bit of a debate a couple weeks ago when the market was sliding so bad and people argued that gold was being liquidated in order to meet margin calls. I would argue the opposite - gold was being sold on quite a logical basis. Why would anyone be long gold in an environment where real estate prices and equities are falling and economic growth is slowing. Where are the inflation fears there?

I guess that I place a different value on the ability of the Fed to create or control inflation vis a vis monetary policy. The pure amount of credit in the system that has allowed these asset price bubbles to develop is in my humble opinion a greater deflationary power than the potential of the Fed to attempt to reflate the economy AGAIN.

cyderman-thank you for the post..of course, disastrous bets beget the trading opportunities ;)...

Kaimu
I was just down in my hometown of Naples, FL home of WCI. It is fairly chaotic down there as the high end of the market is still going on strong but anything below 1.5 million is stagnating. My mother's firm just laid off 15% of their workforce, she works for a custom home builder and that 15% was part of their more modular line of business. Commercial real estate is still booming. I haven't been there in a year and I counted at least 20 new Starbucks. Also infrastructure projects like roads are also still going full speed ahead but the residential, a la Borat “not so much”. I talked to a couple of people refinancing and or trying to sell and they are just beginning to release that those capital appreciation on their appraised home values were merely paper gains and not real. I heard lots of negative sentiment from the entire building and real estate communities. One man cancelled a project that was going to put in another 5,000 homes and take 15 years to complete. Don’t get me wrong Naples will continue to grow just not at the terrific speed it has seen in the near past.

APA/apache/oil and gas exploration is bouncing off 200 ema with positive divergence on rsi/7. So tempting but there is a lower trend line of support when looking back 4 yrs.

ALOHA !!

Soulek1 ... "Why would anyone be long gold in an environment where real estate prices and equities are falling and economic growth is slowing. Where are the inflation fears there?"

Thats called "stagflation"! Did gas, medical, taxes, food and other basics needed to survive go down? Are we not in WW3 all of a sudden with a $1tril annual defense bill? Does the US government all of a sudden not need
debt to pay its bills? When all that reverses give me a call!

In fact I view your logic completely in reverse. The US government and the States and Counties all depend heavily on tax revenues derived from real estate and real estate related businesses. My concrete contractor pal I posted about above is a perfect example. He lays off even his brother so now his income tanks, he pays less income taxes, while the US government mops up the liabilites via entitlements! As home values tank homeowners will likely cry foul and want their property taxes restated. Job layoffs in the industry means the Feds and States have bigger unemployment and welfare roles(even if that does not show in BLS data)which means bigger debt liabilities. Falling tax revenues means the US government either raises taxes or sells yet more debt to foreigners. If either of those two options ever dry up then let the monetization of debt begin! I think the foreigners are practically fed up with US paper, especially after the MBS fraud perpetrated by the US banks on global banks. Even the head of the Swiss National Bank said so! US "credibility" is now at the forefront, not just US bank credibility, but US government policies and US debt. Add in Sovereign Wealth Funds running around the globe dumping US FRNs for metal or anything that produces real wealth. Offloading US Pesos in combination with the myriad of other counterproductive debt laden actions mainstreamed in the US economy and the US psyche are real. And those problems will never be resolved by more debt and "bailouts". THE WORLD IS WATCHING ...

Then of course you leave out the massive exposure to derivatives that did not exist in the 1970s and the fact that US citizens actually had a job and savings to fall back on. Unless you want to commute to India good luck on any long term job security. Now even unions are feeling that pinch ...

You need to go back and read what the definition of "price inflation" is. It has a lot more to do with "monetary inflation" ... too much money chasing too little goods and services. Now you have to tell me how the US government and the FED plan to wring out the massive excessive money supply that continues to grow at record levels. Whats that called? PAY BACK THE DEBT! That would reduce the money supply. And if the USA has no ability to pay the debt back(via real wealth creation through manufacturing trade not military excursions or Wall Street bonuses)? Whats the next best solution? Borrow more from foreigners who will want a higher return for more risk? Print more money to pay our debt and that kills the US Peso and then we default. Don't forget DEFAULT is an option!

So yes ... why own GOLD? Why not wait until there is a "real" crisis so you can't buy any? Of course I am sure CNBC will announce the "real crisis" a week in advance so you can prepare ...

Bill,

I'd be quite interested in more commentary on "global growth" which you do speak to. I really admire the way you connect and make a gestalt out of the smaller pieces...without following the herd. Historically, is this the longest period that emerging mkts have sustained growth? Is the carry trade the lynch pin for continuing or discontinuing growth? I saw an article in the n.y.times about wages heating up in China..at least by their standards. Another sign of getting closer to the end of the global economic cycle of expansion? Energy sector has not been punished as much as other sectors. Could this be because there is still the perception that global growth will slow but not stop? A lot more car owners in the world that will keep filing their tank, albeit in Brazil it's with sugar cane. Just some thoughts as I wonder if energy is a good buy for at least the short term. Thanks.

ALOHA !!

ToolemanUF ... Thanks for the Florida update. I once crewed on a 100 sloop from Long Island to Jacksonville in the 1970s. The the Coast Gurad impounded the boat ... Thats an even longer story!!

This is all like a wave. A wave builds from a small swell out in the ocean and if conditions like wind and tides and coastal contours are optimal then the wave builds ever bigger until it crashes onto shore. I see trouble with the "little guys" as the beginning of the wave. Based on my contracting days with the seventh largest school district in California, Mt. Diablo Unified, I know that funds first need to be secured years prior to final completion of a new school. Once a commitment of funds are secured(bond issue)then the architects and engineers come in and spend another year or two or more designing and drawing up plans for bid. Then the contractors bid on the project. Then after that the construction schedule is developed where a new school can take some two years to totally complete and they usually are burdened by cost and schedule overruns. Industrial and commercial and public works are all lagging indicators. They are the last to seize up before the wave crashes.
I bid Starbucks projects before but never got any work. Their stores are cookiecutters in terms of electrical. See once funding is in place it is the rare bird that will turn around to a bank and say ... "Here, I decided on second thought I don't want it!" Try getting a loan next time with that track record. Its even worse in public works. If a school district ever gave back funding their budget next year would drop like a rock ... there is no reward! All part of the American perpetual debt cycle ... USE IT OR LOSE IT! Once the wave gets going it cannot be stopped ...

Re: should Fed bailout homeowners
Please excuse my rant. I am not a homeowner. I would like to be. I am saving up for a responsible 25% downpayment. The growth rate of my savings and investments has been good but it hasn't kept up with the appreciation in house prices. So, I rent. In my opinion, house prices have appreciated obscenely for more than a decade because of speculation, low interest rates and too easy mortgages. I'm in Canada and the situation here can't compare to the severity in the U.S. My invesments have taken some heavy hits over the years (Worldcom, Global Crossing, Nortel, JDS) and nobody came forward to bail me out. I truly don't wish principal owners any hardship but, a significant housing correction might shake out speculators and allow me to buy my first home.

Hi Bill,

I was wondering if there is the "War Card" in any of the future projections. I firmly believe there will be a large pull out of troops starting in early '08. Wouldn't this have positive effects on the US debt problems? Wouldn't this news be positive for stocks and negative for gold?

Just wondering? Thanks. jfs

Bill -

Agree completely on the BRIC's. While their highs are higher, their lows are also lower. Particularly if you invest in their leading companies, you HAVE to trade. Dynamics of BRIC's extend to another tier of countries including Mexico.

The reason Carlos Slim is now the world's richest man is that - through his brokerage - he bought control of major companies (in a range of industries) coming out of the Mexican debt crisis in 1982. He saw the turn, and dived in when other Mexican rich were sending their capital offshore.

Gains from these investments positioned him to partner with ATT in 1990 to win TELMEX, whose cellular platform (now AMX) gained +1200% since 3/03 catapulting him past Gates & Buffett.

For "us the people" buying top stocks from BRICs, etc. the next time their RSI's fall below, and then rise above 30, safe spectacular gains are also likely.

I don't trust this market today, but I can't put my finger on it... Certainly some short squeezing going on!

Pretty good inverted head and shoulders on the QQQ's right now. (1-minute, over the last two days)

the "Silver Summit" - 9/20-21/07

Does anyone know (Bill?) how good, well-regarded, and well-attended this conference is?

http://thesilversummit.com/

I've discovered more interesting juniors than I expected, and like the fact that 88% of silver demand is non-investment-related, and that gov'ts don't hold it.

http://www.silverinstitute.org/supply/index.php

kaimu -

Cosign on stagflation and the ongoing positive fundamentals for gold. The POG can go anywhere, but I don't get how long time readers here don't understand the basic fundamentals of gold. The story hasn't changed. Stagflation is the BEST environment and makes the gold trade, if you want to trade it, one to trade from the long side.

Jock
I was going to go last year but didn't have the time, or didn't make time after seeing how silver had dropped the first half of September. I was kicking myself afterwards. I have no knowledge as to how well attended or valuable it is. Seriously looking at going this year.

Bill,

Thanks for the insight. Great as usual. Especially the Viet Nam comparison. As you said they will just go back to the drawing board and build bigger and better aramament and equip at increased costs to the taxpayer. It would seem to me that if we do pull out that there will certainly be an immediate civil war that may effect oil and gold for some short period of time. It's kind of a "catch 22" for the US & allies. Need to get the troops out before elections, but will have to deal with Iran supporting civil war to take control of Iraq.

Just some thoughts. Thanks

3 month T-Bill rate still dropping significantly today, now at 3.84%.

To echo Bill yesterday, today found sellers missing. Or did yesterday's momentum shorts squeeze themselves (and the copycat crowd) back up to a net minus 50 pts in aggregate?

I share Bill's view that the current conditions are so extreme that markets look like casinos where trading exist in and of itself. Seriously, did the underlying situation over the past two days warrant a 4% round trip (500 Dow points)? Why not the traditional dog days trading? Maybe some big player need to make up for blood lost earlier in the month and is trying to jerk & fleece some of the lemming crowd.

JML

off topic

spent most of the morning worrying about the 5 yr old...went for the first time to a dentist (not a pedatric dds) i have been seeing since moving to the bay area 17 yrs ago...he had a couple of cavities, and they worked on him for an hr...wife was with him for the first 30 minutes, then left for her own cleaning next door...

last night left upper lip began to swell, and i told him it was probably minor trauma from injection of the anesthetic and would wear off...worsened over the next few hours..at 11pm wife woke me up to say it looked bad, but elected to wait until am to call the dds...at that point entire upper lip was badly swollen...dds suspected an allergic rxn to either injectable lidocaine or topical benzocaine...pediatrican disagreed, as layer of white film on inside of mouth indicates an abrasion trying to heal, and also noted scarring above the upper lip, photos taken...dds was assisted by a female dental asst wife thought a little rude...

the little guy is very friendly, non-temperamental and usually someone people gravitate towards...so i'm certain he did not need any undue restraining...

anyone with a similar experience?

Bills comments on BRIC economic growth reminded me of an article I read this morning on poverty ( http://tinyurl.com/yvvf5r ). The articles conclusion was the there was a 'sweet motivational spot' on an income curve (50-200% of median income), where people are driven to work harder and earn more. For people in poverty, economic betterment seems such a distant goal that it feels like even trying may not be worth the effort. For people very well off, there's isn't much more to reach for since all has been attained.

It seems the BRIC economies have recently entered the sweet spot, and have a long road of betterment. Developed countries on the other hand have near peaked/plateaued, as we can hardly expect even a 5% quality of life improvement annually, no matter how hard we try.

Hey Kaimu,

Read a little something about Orchids that reminded me of you. Looks like orchids are another entity you invest in that have been around much longer than fiat ;)

http://tinyurl.com/2syqyk

Go with your instincts and your pediatrician 2nd.

Did he get xrays? Those cardboard shields aren't all that friendly and a dental assistant used to bigger mouths may struggle with a child size mouth. Maybe find a kid dentist that deals with kid issues and is more gentle? Will tend to dose less on xrays too.

You want to (overtly) show your son he has your complete support and protection and that titles (like Doctor or policeman) won't throw you off even a little bit when it comes to his care and safety.

An effort to find a better dentist should send part of that message. Hope this helps.

Huh, I don't know much about reading assay results, but I think ECU just announced potentially very positive results:

- New discovery at Terneras Mine.
- Hole BV 07-04 cuts Terneras vein yielding grades of 3,130 g/t silver.
- Significant lateral and vertical continuity of Terneras vein.
- Western lateral extension of over 900 meters.
- Vertical extension of over 600 meters.

Looking over the last 2 assay announcements, only one hole (out of over 50) exceeded 1000 g/t silver.

Maybe we'll finally see some action in this stock again! (disclosure: long ECU)

Over at Bloomberg.com, they have a video interview of Ed Hyman of ISI that is worth viewing.'

Link:http://www.bloomberg.com/index.html?Intro=intro3

Today was a solid rally but not unexpected since it is within the normal month-end window when institutional asset managers are forced to equitize cash in order to avoid benchmark risk.

Volume will begin to taper off next 2 days and many will take off Friday altogether. As we mentioned in a previous post, we expect the market to remain bid up to and just after the Labor Day holiday. Then we will see if the rally has any staying power...

After Bill's commentary on auto industry of the emerging companies I googled. I could not find a ticker for Chery who looks like they are making deals with lots of other auto makers. I cut/paste what I thought was interesting other related commentary. Korea automaker did catch my eye.

see below:

Even though China has replaced Japan as the world's second largest automotive consumer market after the United States, Chery, the youngest of the Chinese carmakers, set up in 1997, is facing a tough challenge to hold its position against the joint ventures set up by GM (nyse: GM - news - people ), Volkswagen (other-otc: VLKAF - news - people ) and Honda (nyse: HMC - news - people ) in China.

Chery, which started shipping cars abroad in 2001, found its niche in exporting to Eastern European and Middle Eastern countries. With 41,700 cars sold overseas in the first five months of this year, about 80% of the country's total vehicle exports, Chery has surpassed its peers to become the biggest Chinese car exporter.

The company has ambitious plans to boost its overseas sales to 400,000 units a year by 2010, from 52,000 units last year.
-----------------------------------------

China manufacturing is that they have no good answer for the inexpensive cars being sold by Hyundai and Kia in the U.S. Toyota Motor (TM, news, msgs) recently launched the Yaris lineup. Honda has successfully introduced its Fit subcompact, and Nissan Motor (NSANY, news, msgs) has brought out its Versa subcompact to do battle in the $11,000 to $13,000 segment.

* Video: Chery crumples in crash test

By leaving the sub-$13,000 market to the South Koreans and Japanese, Detroit has been giving up a lot of first-time buyers who will establish brand preferences. There was a time when many Detroit executives believed they could combat Korea's best with American used cars, but those days are over.

======================================

2nd,
We have been lucky with our 11 year old daughter. No cavities to date. But my wife makes her floss every night and has trained her to brush twice a day with an electric toothbrush. Her dentist applies a chemical that seals the teeth as well a think once a year. No blood drawn yet either. I would not want to watch that one on a child. The total freak out.
Still trying to unwind all positions (3) and just day trade.

Kaimu,
Thanks for responding to my post. It seems like you are making some important assumptions that I would like to make explicit and then maybe you can let me know if you agree with my characterizations of your points (maybe I am misunderstanding you - I don't know):

1) Flight out of the dollar will unfold rapidly in some type of third world crisis type event so that even if you wanted to hold gold or other currencies you basically would not have time to make this choice as it would happen overnight essentially.

2) That we are in a stagflationary environment and that consumer prices will continue to rise even if we enter into a recession (which we appear to be nearing.)

3) Monetary policy stimulus to counteract the unfolding housing bust is going to instead filter through to cause more consumer price inflation and dollar depreciation relative to the rest of the world's currencies.

My counterpoints to those above assumptions which I believe to be mistaken follows below:

1) My expectation regarding a dollar collapse over the next five years is that it will happen in spurts. The dollar has been the world's reserve currency for 50 years or longer and is not going to lose 90% of its value overnight. It is going to be a massive fight over a period of months or even years and we will be consciously and visibly aware as this unfolds whether we learn about it through this website, market prices that we receive, or even........CNBC.

2) What if monetary policy stimulus - the massive money printing which is correctly anticipated does not even make a pinprick in terms of inflationary pressures versus the massive debt deflation / liquidation cycle that is awaiting us over the next several years? That is, what if the excessive credit growth in real estate related debt and consumer loans blows up as it looks like it will and the resulting deflationary pressure makes all prices fall - that is consumption items as well as asset prices.

3) Your definition of inflation I am *guessing* is "an increase in the supply of money." The logical conclusion that follows is that if money supply is increasing then there is inflation. I mean.....that's the definition right?
So the counterpoint I'm discussing is what if despite the monetary inflation that is underway consumer prices and asset prices actually fall? This happened in Japan between 1990 and 2002. What makes Japan a better comparison to our current situation than Weimar Republic Germany? Japan had the same enormous amounts of real estate related debt and speculation in both property and equity markets in the late 1980s that the USA has experienced over the past 10 years. Yet Japan went through 12 years or more of the liquidity trap, where the authorities bailout was not only unable to reflate the economy or asset prices but it was ALSO unable to prevent a deflation.

Compare this to the massive money printing in the Weimar Republic that caused the hyperinflation. What is the difference? Why did one cause hyperinflation and the other did not? Is the important dividing line foreign versus domestic creditors? I don't know. Is the dividing line the pure amount of money printed?

You also said: "In fact I view your logic completely in reverse. The US government and the States and Co nties all depend heavily on tax revenues derived from real estate and real estate related businesses. My concrete contractor pal I posted about above is a perfect example. He lays off even his brother so now his income tanks, he pays less income taxes, while the US government mops up the liabilites via entitlements! As home values tank homeowners will likely cry foul and want their property taxes restated. Job layoffs in the industry means the Feds and States have bigger unemployment and welfare roles(even if that does not show in BLS data)which means bigger debt liabilities. Falling tax revenues means the US government either raises taxes or sells yet more debt to foreigners. If either of those two options ever dry up then let the monetization of debt begin!"

My question is why will the monetization process result in hyperinflation if it did not cause hyperinflation in Japan? Why is our situation more analogous to that of Weimar Germany or a banana republic?

You then said "Then of course you leave out the massive exposure to derivatives that did not exist in the 1970s and the fact that US citizens actually had a job and savings to fall back on. Unless you want to commute to India good luck on any long term job security. Now even unions are feeling that pinch ..."

Id like to address the derivatives issue along with the enormous amount of credit that has been created over the past ten years. I expect both to ultimately exert a deflationary pressure on the economy as the bust develops. It is precisely because the derivatives become worthless along with the loans AND THAT THE derivatives counterparties default just as do borrowers on loans that there is less money around for consumption expenditures or speculations. It is only the money that the government prints or uses in the bailout that is added to the system.

Finally, I would make explicit two phases of the economic cycle: the boom during which time credit growth expands and asset prices rise and the bust during which time debts go bad and assets are liquidated exerting price pressures to the downside.

I feel like you are somewhat simplicisticly assuming that the bailout, money printing, money stimulus, whatever you want to call it - will overwhelm everything else and it is just a waiting game until the dollar is worth less than a ply of toilet paper. So far we have already seen treasury prices rise and the dollar strengthen as the crisis begins. I expect this to continue over the near term. Over a longer time frame I am bullish on gold as I think the dollar may depreciate to some extent as the crisis develops.

Still, the point is to remain flexible. I don't understand why you can be certain that this is a Weimar Republic outcome and not a Japan type situation. I just don't think its that clearcut.

Bill,

ABB has an impressive price chart. I do not see this one as needing much trading, then again it's in a developed country as the vehicle to get undeveloped country revenue.

Look forward with great anticipation to your services, glad to see mention of it. The emerging mkts are the new frontier. Access to direct purchase of a company stock will be critical along with evaluative information about a country's politics and economics.

Meanwhile, YTD I have not accomplished what I would have liked. Going forward, I am bracing myself to exit even with many positions in the red or with meager gains. Positioning for better opportunities is now the priority goal. To keep myself occupied I will try to find those companies, as you point out, that are getting revenue from emerging mkts.

Souleki,
In regards to you Japan statement that hyperinflation did not result rather stagflation occurred.

Japanese have a very different mentality when it comes to money than the average U.S. citizen. Japensese are well known savers. When the Japanese government drop interest rates to 0% in hopes of stimulating the economy very few Japaneses went out and apply for these loans. Bascially, Japanese do not like to go into debt. As a result Japan ended up with a economy that went into stagflation.

However, when the U.S. drops interest rates the american public has no trouble piling on the debt. Thus, when the fed drops rates it actually stimulates the economy, since most american take advantage of these cheap rates. With more money comes more spending and we get more inflation.

The biggest reason for investors to be bullish on gold is the current pressure on the USD. There are a number of reason why the USD will lose value. To start foreign investors are more reluctant to buy the USD as indicated by the 30 year bond activity. Oil rich nations are asking to be paid in gold or the euro. The current trend in the USD is downward. High debt. etc.
JMHo
I appreciate you bring up this topic.

My own opinion is that Japan suffered a deflation not stagflation. Real estate prices and stock prices fell 80% from the peak values reached in 1990 to 2002. I am uncertain if consumer prices rose significantly during that time period.

You make an important point about the attitudes of US citizens versus Japanese as to spending habits. That gives an important logic for why their economy did not recover quickly from the recession, but I don't think it explains the absence of hyperinflation despite massive monetary stimulus and monetization of debts via liquidity injections directly into failing banks.

Are you implying that hyperinflation would most likely result only if money velocity rapidly rose by consumers hoarding goods due to a perceived fear of loss in value of the money?

Please explain more if you have input.

The Honorable Charles E. Schumer
United States Senate
Washington, D.C. 20510

Dear Senator:
Thank you for your recent letters of August 8 and 22, in which you express concern about the potential effects of volatility in financial markets and the tightening of credit conditions on homebuyers, consumers, and the economy as a whole.

I want to assure you that the Federal Reserve, in cooperation with other federal agencies, is closely monitoring developments in financial markets. As you recognized, the Federal Reserve has also taken steps to increase liquidity in the markets. In particular, our changes to our discount window program are designed to assure depositories of the availability of a backstop source of liquidity so that concerns about funding do not constrain them from extending credit and making markets. Also, the Federal Open Market Committee has stated that it is monitoring the situation and is prepared to act as needed to mitigate the adverse effects on the economy arising from the disruptions in financial markets.

I share your concern about the potential impact of scheduled payment resets on homeowners with variable-rate subprime mortgages. Over the next several years, many such homeowners will face significantly higher monthly payments and, consequently, an increased risk of losing their homes to forced sale or foreclosure. The federal banking regulators have encouraged banks and thrifts to work actively with troubled borrowers to modify loans or to refinance as needed to avoid default or foreclosure and have jointly issued guidances to address underwriting and disclosure practices related to subprime mortgage lending.

The twelve Federal Reserve Banks around the country are working closely with community and industry groups dedicated to reducing the risks of foreclosure and financial distress among homebuyers. The Board is also engaged in these issues; for example, Governor Randall Kroszner serves as the Federal Reserve’s representative on the board of directors of NeighborWorks America, which has a program to encourage borrowers facing mortgage payment difficulties to seek help by making early contact with their lenders, servicers, or trusted counselors. And as I noted in my testimony in July, in order to strengthen consumer protections, the Federal Reserve Board is currently undertaking a comprehensive review of the rules regarding loans subject to the Home Owner Equity Protection Act as well as some rules pertaining to mortgage-related disclosures under the Truth in Lending Act.

It might be worth considering at this juncture whether the private and public sectors, separately or in collaboration, could help the situation by developing a broader range of mortgage products which are appropriate for low-and moderate-income borrowers, including those seeking to refinance. Such products could be designed to avoid or mitigate the risk of payment shock and to be more transparent with respect to their terms. They might also contain features to improve affordability, such as variable maturities or shared-appreciation provisions for example. One public agency with considerable experience in providing home financing for low-and moderate-income borrowers is the Federal Housing Administration (FHA). The Congress might wish to consider FHA reforms that allow the agency more flexibility to design new products and to collaborate with the private sector in facilitating the refinancing of creditworthy subprime borrowers facing large resets.

As you note, the government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac are currently assisting in subprime refinancings. However, the GSEs’ charters limit their ability to take on higher-risk mortgages and their programs are relevant only to a relatively small share of subprime borrowers. The GSEs should be encouraged to provide products for subprime borrowers to the extent permitted by their charters. The current caps on GSE portfolios–which were imposed for safety and soundness reasons-need not be lifted to allow them to accommodate new borrowers. Currently, the GSE portfolios include substantial holdings of GSE-guaranteed mortgage products, which are easily placed in the private secondary market even under current conditions. Thus, the GSEs could readily sell these securities to make space for new mortgages if they wished to do so. Policymakers may also want to encourage the GSEs to increase their mortgage securitization efforts, which are not constrained by their portfolio caps.

We will continue to keep the Congress informed of developments in the subprime markets and in the credit markets more generally. As you know, Federal Reserve governors and staff have made numerous appearances before the Congress and in other forums on subprime-related issues. Board staff members have continued to brief members of Congressional staffs on these matters. Board staff members are also assisting the Government Accountability Office in the report that they are preparing that will provide a comprehensive review of developments in the subprime mortgage market.

Again, thank you for your interest and please be assured that we are following these issues closely.

Sincerely,
Ben S. Bernanke

Good evening:
I spent a glorious two days sailing. I'm a bit stiff after spending one night on the boat. My hat's off to those who regularly sleep on boats.

I see the DJI lost 280+ points yesterday and gained the same value today. Those are the kinds of symetrical moves that just have to be orchestrated.

Regarding Bill Gross' article, I have more respect for Fred's "rant" against bailing out the failing homeowners that I do for Mike Shedlock's. Fred states his honest feelings and goes to the heart of the issue from his perspective. Mike Shedlock merely attack's Gross's motives and credibility instead of the merits of his argument. Its the two year anniversery of the destruction of New Orleans, and New Orleans remains mostly destroyed. The destuction to numerous US families and neighborhoods from these massive foreclosures will be far worse. And I would not take any solace in the fact that this destruction will be dispursed. We discovered that dispursing the subprime harm has created a problem that threatens the WORLD's financial system. What will this threaten. We can all see the destruction coming. Whatever our politics, we should all be able to agree that its less socially and economically harmful to prevent disasters than to try to repair them after the fact.

Regrading the near term rally. It had better happen fast. September through October is the season for the big dip before the year end rally.

Soulek -

iTulip has an article on this inflation/deflation conundrum:

http://www.itulip.com/forums/showthread.php?p=15103#post15103

You can see that the Japanese waited too long to drop rates and the resulting deflation in prices could not be counteracted easily once it set in. With the US in the Great Depression inflation soared (along with gold miners) as a result of extremely negative real interest rates as the dollar devaluation was unsuccessful in reversing the credit contraction.

Janszen's conclusion for now is that Ben has to cut rates aggressively to prevent deflation yet balance that against crashing the dollar or bonds. If he doesn't pull off this Houdini act and real deflation sets in monetary stimulus will be impotent to reverse the credit contraction.

Kaimu's point is that even if deflation sets in, gold will be the best investment as the Fed will desperately try to inflate, ruining the dollar, even though it won't do any good because the credit contraction can not be stopped once it starts; look at the Yen - most Japanese open bank accounts in New Zealand to flee the falling Yen.

FYI - Bob Hoye has excellent commentary on credit contractions.

craig/stktrader-thanks for responding. we met with the dds and ass't this afternoon...showed us the tray/eqt used and sat down with us to review the procedures...don't think there was intent to traumatize on their part, but also can't adequately explain the injuries (did he bite his lip...pretty hard to bite the upper even if you're numb and the little one says no + would not explain the external bruising)...wife says the swelling was noticeable even before they left the office...my guess is someone slipped up or was too rough but afraid to say so=understandable but a breach of trust...switching to a pediatric dds recommended by a colleague..

Souleki,

I would call Japan in the 80's stagflation for the middle class, since the unemployment rate never dramatically declined. The middle class was spared to some extent because the government increased spending to create jobs. Deflationary pressure was also reduced for the average Japanese since few Japanese actually own a home. In Japan the corporations actually provide housing for their employees. However, Japanese corporations certainly experienced deflation since there stocks and buildings lost value. Thus, Deflation was certainly a part of the Japanese economy in the 80's, but since the middle class was spared everything from the price of cars to food never really declined.

"Are you implying that hyperinflation would most likely result only if money velocity rapidly rose by consumers hoarding goods due to a perceived fear of loss in value of the money?"
Yes,
Hyperinflation is caused by a rapid lack of confidence in a currency. A good examlpe of this is Venezuela. Venezuelains have and inflation rate over 10%. What happens in this environment is dramatically rising price because people buy now thinking next month it will be more expensive. So as people buy more you have less goods and prices go up for next month. This activity just feeds on itself creating hyperinflation. This will end by tighting the money supply and restoring confidence in the currency. Hyperinflation is something that feeds on itself creating a panic in the value of money.

I don't think the U.S. will get to the point of hyperinflation. However, that may depend on a persons perspective. The U.S. dollars has lost a great deal of its purchasing power over the years.

It's great to compare different economies, but the same problem may cause vastly different outcomes depending on the culture of that country.

I have to admit I am confused right now as well. I guess that is why most people are in cash. We can see there is a huge problem hiding in the wings, but have no real idea of the impact.

Nice to have this discussion with you.

If we are going to test the recent lows it should happen in the next 2 weeks and then we should see a the market move up from there.

I relooked at the chart on the Dow and am confident we should not see a lower low put in short term.

The value line on the Vector Vest Composite is still holding and stocks are becoming cheaper in comparison to their relative value, but having said that I don't know what will happen to all the charts once the 3rd quarter results come out: seeing that companies may have gone to putting off spending until the liquidity problems have cleared up.

Bernanke should cut interest rates a half a percentage point to stimulate the economy and avoid a panic that could ensue if the puplic becomes overly concerned with the economic conditions; which would cause spending do slow even more, rushing a recession into the economy.

ALOHA !!

Soulek1 ... You should get a grip on the magnitude of the debt obligation the US government has been accumulating over the past fifty years. In one BIG FAT word "welfare"! The USSA is alive and well! Just the interest on the measley $9trilUSD National Debt is $432 billion(near $1/2trilUSD)annually. What happens if our credit rating drops? Your assumptions only work if the USA had an honest government with a free and competitive manufacturing base and a savings base to fall back on. I guarantee you any righteous corrupt fiat empire will "monetize debt" before they will accept default.

Stop talking about Japanese comparisons! Go to Tokyo ... When you compare Americans to Japanese it is apples and oranges! After WW2 The Japanese government had no choice but to offload the "welfare" of the Japanese worker onto Japanese corporations. Its hard to promise unlimited social security and welfare after your country has been nuked to death and annihaleted your military and all your leaders. It was the Japanese corporations with the help of the US Marshall Plan that brought Japan out of the depths of hell and into US hegemony. Japanese corporations pretty much are the equivalent of the US government. Japanese corporations take care of their workers "cradle to grave" ... Here in America the US government does that "very poorly" in exchange for your vote. Japanese corporations fund directly Japanese schools and start at a very early age. They are smart because the corporations end up with a well-educated and technically trained worker after completing schooling with an actual work ethic and not a welfare drug addict ethic. US corporations end up with kids who don't know the difference between budget and Budget Rental Car but can recite every lyric to Fifty Cents. Ask Bill Gates, who has finally started up "US corporate sponsored" schools(mainly Microsoft), because he's tired of having no technically skilled labor pool here in America. We train our kids to pass low ball tests ... NO CHILD LEFT BEHIND ... my ass! On a global education scale all our kids are left behind! The American kids today have the talent but lack the opportunity. Opportunity has been stolen from them by short-sighted BIG CENTRALIZED GOVERNMENT greed!

I can personally verify that one of my school projects in the Bay Area(Fairfield,CA)the Library could not open because the district could not afford books for it! Here you have a $30mil taxpayer funded school with no books! America is so far behind the eight ball on global competition. Lets revisit the problem ... the unions got theirs, the architect and engineers got theirs, the contractors got theirs, the high paid school administrators got theirs and the kids and the US taxpayers got shafted! I can only vouch for the public schools I built in the Bay Area in the Pittsburg Unified School District, Fairfield Unified, Mt. Diablo Unified and San Jose Unified. The only school where I ever saw kids getting an education and wanting to learn was Brett Harte Middle School in San Jose(wealthy area with lots of foreigners). All the rest had that "too cool for school" attitude and the teachers were just "babysitters" so both parents can work their "American Dream Debt" asses off! When you're a contractor at a school day and night six days a week you "see" what goes on. I would bet I spent more time at those schools talking and interacting with teachers and kids more than parents do in their entire life. What you end up with here in America are kids graduating into an atmosphere of fear and abandonment. Kids graduating college in Japan move right into a position at the corporation that built the school. By the way the Japanese are not the only ones that have this corporate sponsored education. The Germans do also ... What two countries in the World have been the most productive throughout history? Germany and Japan ...

By now you are asking yourself, "What in the hell does all this education crap have to do with inflation or deflation"?

ITS THE WELFARE ... Lets get back to "welfare" ... The way I define welfare it has a very wide spectrum. Basically if you get a US government check directly or indirectly I call it "welfare". That includes a lot of the Fortune 500 companies, especially defense contractors right down to the 25 year old hippy at the Island Natural(our crude equivalent to Whole Foods)store with a food stamp EBT card! Even my own Mother. I guarantee she has been paid way more Social Security than she ever paid in. I only saw her work maybe a couple years my whole life, yet every month she gets a check for $1150USD. Corporate welfare far exceeds any amount of taxes they pay. In many cases US corporations would not exist without a US government contract or hegemony to fall back on. That in a nutshell is "the problem"!

Withdrawing from Iraq? What does that do? Thats like a bankrupt Ken Lay saying, "Hey ... I'll sell one of my Rolls Royces to help pay my debt!" Yeah the US government wouldn't have to spend $1tril per year on Iraq "rebuilding" we'd just have to spend $2tril a year on USA "rebuilding"! The infrastructure here in the USA is falling apart. Now let me make that $3tril ayear for US infrastructure and rebuilding the US military and then some. Does anybody really think if we withdraw from Iraq there won't be another one later? Russia and China are already arming up Cold War style with their assymetric warfare strategies and are on joint manuevuers. So which bankrupt European, Australian or Canadian government are we going to partner with to counter that move? I mean I don't see a lot of confidence in our policies. We "surge" in Iraq and our allies yawn or pack up and leave! See we're behind the pain curve compared to Russia and China. Both those countries have been through their darkest days of monetary default and Communism. The Russian and Chinese governments now see the error of their ways. They are now adding more capitalism and gold to their communism. Their people are used to suffering but as Bill says they see more light now. Our people are not used to suffering at all ... one bit ... and will neeed massive quantities of Viagra and Prozac to weather bad days ahead. Maybe the drug companies can come up with ViaZac! Our days of despair are still ahead of us because the US government and the FED want the VIX to cruise at 20 for eternity! They want volatility and pain to flat line! Its a losing battle because they are fighting well established ELB(Empire/Life/Business) cycles. In order to flatline through a few decades the US government has borrowed some $45tril from the Social Security Trust Fund over the past 40 years and turned the Medicare system to a free-for-all profit extravaganza for drug companies and insurers. There are consequences to corruption.

A US Dollar crisis and/or US credit rating downgrade turns Walmart into Neiman Marcus and consumer debt payments go right out the window because getting to work and eating is higher on the priority list than credit card payments, car loan payments or home loan payments. What is the total the US government owes its citizens and foreigners ... $57trilUSD??? We have reached "debt saturation". I don't see consumers picking up the debt ball even at 2% Fed rate, not after the credit/housing collapse with a tiny monetary crisis added in.

The concept of US government promises to take care of citizens from "cradle to grave" in exchange for their Rep or Dem vote has bankrupted our finances and our leadership and moral fiber and most importantly our kids futures.

Debate inflation/deflation ... I am in the realm of "default" where I believe there is no debate other than "when". Like the head of the GAO, the US Comptroller General has said many times to many people there has to be some major reorganization of entitlement(welfare)in the USA. I believe the only path the US government can ultimately go is to "default" on all Social Security and Medicare obligations. They will reduce benefits and raise premiums for as long as it "looks good" but at some point the "welfare" plan has to fail. Put the US worker onto the backs of the US corporations because that is where workers belong. What is the "entitlement/welfare" burden of the Chinese or Japanese or Russian governments? The alternative is the US corporations totally abandon the USA and move to the next pool of exploitable global slave labor and the USA becomes Fourth World! Then it becomes inflate or die ...

Does that help any? NAH ...

kaimu,

I'm with you 100%. You're the champ!

People - I don't have time for all this philosophizing. I just want to learn how better to protect my interests against all those predators out there ...

From these charts, I would presume that they were hyperinflationary markets:

http://finance.yahoo.com/q/bc?s=%5EBVSP&t=my&l=off&z=l&q=l&c=

http://finance.yahoo.com/q/bc?s=%5EMXX&t=my&l=off&z=l&q=l&c=

http://finance.yahoo.com/q/bc?s=000001.SS&t=my&l=off&z=l&q=l&c=

I would be very cautious on the emerging market story, especially going into September. They could keep going wildly up, but then their interest rates would do the same, while their currencies collapse. This could also lead to major problems in the foreign exchange. If these are bubbles and they 'pop' this would send large capital inflows into treasuries and western markets.

kaimu, you go man! That sums it up!
TimG

You might even connect the widespread insider buying in financials to the anticipation that emerging markets prone to collapse are going to, because they know full well that the money, meaning the foreign currency held in those countries, is about to be pulled out on very short notice.

Kaimu,

After all the blustering the only thing I could get out of your post was the following:

1) USA has no skilled labor % relative to its total population size AND

2) There will be an inflationary outcome because the USA has greater social welfare obligations vis a vis social security and medicare than the rest of the world?

Regarding our labor force and productivity, etc. I don't have much to say. We have an economy based on services, whether this will weather the test of time I don't know.

I do disagree with you though regarding our social welfare obligations relative to the rest of the world. Japan and Europe are in a much worse situation than our Country in terms of their welfare and medical obligations if not in term of current funded reserves then in terms of demographics.

Japan and Europe are going to have a more difficult time funding their social welfare programs than the USA because they have lower birth rates than the USA and less immigration. This is producing a growing population of elderly relative to the number of actual working members to support their pension systems whether Corporate (japanese) or Government funded (europe).

I agree that China and Russia likely have little obligations to their existing citizens plus they also have the wind in their sails economically with China a low cost producer for the entire world and Russia with enormous natural resources. Still they are both 3rd world countries / emerging markets if you will.

Have you basically lost all faith then in the US system relative to the rest of world economies?

Also are you able to comment specifically on the bailout measures followed by Japanese government following the twin bubbles of equities and real estate around 1990?

I actually went to library tonight and skimmed a couple books about hyperinflation in the Weimar Republic. It seems like there the key factor was velocity of money. As citizens lost faith in the underlying currency and sought to exchange into hard assets, this produced a shortage of currency, so the government would print more. I read something like the money supply went up by 2000X the original money supply at start of the hyperinflation, whereas prices went up more than 20,000X the original prices.

I know that we have had money supply at least the broadest measure M3 growing in USA at a 10-15% annual pace, but this is nothing close to what it will take to hyperinflate especially when considering the massive asset price deflation which we will soon experience.

For what it is worth........

Soulek1,

You are obviously a very intelligent and well read person - I respect that. It's hard to imagine that you don't have an opinion about what a debt-laden service economy will bring to the United States of America!

We all know in our gut how this will turn out... I have to believe that you have an opinion as well..

No need to debate as an 'intellectual exercise'.
We need Americans to get off the couch and get involved today! Kaimu has a lot of passion behind his opinions & they are centered on a fundamental belief in the principles that founded this once great country.

Besides greed and gimme, gimme, gimme where's the passion and principles that form an opposing view to his??? I submit that they do not exist.

Tearing down such principled opinions without an alternative foundation creates what??? I ask this only rhetorically not directed at you specifically. Something for us all to ponder.

There is obviously no problem with criticizing and questioning Kaimu's philosophy - and clearly he is very open to the dialog. I only ask where is the alternative, positive, rational viewpoint? That I have no doubt does not exist today. Let's consider for a bit the breadth and depth of the problems we face today. Then realize that we may only know 10% of the real problems......

Americans, in the fullness of time, will do the soul searching needed to turn things around. Kaimu is outspoke NOW in that effort and I commend him for his vigilance. And again...if any investor thinks this discussion of 'philosophy' is irrelevant to their investments then I wish them the best and advise them to batten down the hatches!!!

ALOHA !!

Soulek1 ... "Japan and Europe are going to have a more difficult time funding their social welfare programs than the USA because they have lower birth rates than the USA and less immigration."

According to US Census 2000 numbers we have approximately 60% of the US population that will be either too young(0 to age 20)or too old to work(65 to age 85+). We have 70million baby boomers retiring starting in 2008 and we have near 38million Americans who by government standards are "working" in poverty(low wages). Another 42million participated in some form of government welfare(food stamps, housing, unemployment, etc). Yes the birth rates of the USA are above those of Japan and Europe and so are the population growth rates(birth rates minus death rates). Did you know that the USA birth rates and population growth rates are also higher than most Asian countries including China ... Hong Kong and Macau are practically at the bottom of the list. Also the USA has higher rates than Russia. It seems mostly Africa and South America have higher birth rates than the USA. I am not sure of the advantage we will have by flooding our country with more people to work less jobs? Doesn't that only increase the US government's debt and welfare roles? Wouldn't we be following Africa's example of Third World lifestyle instead of Hong Kong Korea, China, Russia, Japan and Germany examples or reducing population? Just the simple act of allowing more people in your country means your country will need a larger supply of money. Compare global population charts to global M3 charts and they are identical.

Seems the Founding Fathers had the right idea by controlling our borders not leaving them wide open. Thats one of the US governments main Constitutional provisions to "secure our borders". More failure ... nothings secured, least of all our borders.

"Have you basically lost all faith then in the US system relative to the rest of world economies?"

I would answer that by saying ... YES! But more to the point I would say I have lost faith in the US system relative to the principles of the US Constitution and honest money. The US voters have failed in their truly monumental responsibility to elect only leaders stead fast in their determination to honor and follow the dictates of our Founding Fathers and their fight for Independence from the King. Instead the US Voters have brought the worst of leaders that only a corrupt fiat regime could produce. The embarrassing parade of political Dem and Rep idiots debating nonsense on TV only shows the World how low we have sunk as a beacon of freedom and truth. The BIG PICTURE is clear to me ...

"I can't tell you how it came to take me so many years to learn that instead of placing piking bets on what the next few quotations were going to be, my game was to anticipate what was going to happen in a big way." --Jesse Livermore

History is where its at ...
"In the end more than they wanted freedom, they wanted security. When the Athenians finally wanted not to give to society but for society to give to them, when the freedom they wished for was freedom from responsibility, then Athens ceased to be free."
--Edward Gibbons, From "The Decline and Fall of the Roman Empire.”

kaimu and soulek1 -
I appreciate a lot the discussion on Weimar/Japan scenarios. This is extremely important issue so keep it coming (maybe a bit less emotional ;-)).

On a different subject - here is what I got in email from Interactive Brokers today:

August 29, 2007 - Interactive Brokers

Information About Customer Funds Investment and Interest Benchmarks

In light of recent market volatility and increased concern over liquidity and credit exposure, we would like IB clients to be aware of our investment philosophy regarding their funds.

IB?s Policy on Customer Funds Investment

As a regulated broker, IB is subject to SEC and CFTC regulations on investment of customer funds. Permissible investment vehicles include bank deposits and a variety of top-rated government securities and related instruments. IB?s effective investment policy is even more stringent than this, reflecting our risk-averse philosophy. We only invest customer funds in government securities and repos, cash deposits in bank accounts at the largest banks and the triple A-rated JP Morgan Prime Fund (in which we invest less than 1% of customer assets).

Additionally, we limit customer exposure through the following credit policies:

Keeping investments in highly liquid, short-term instruments
Distributing client funds among a variety of banks and counterparties to avoid concentrated exposure to any single counterparty
Rigorous analysis by our Credit Committee of counterparty financial condition, as well as review of risk factors prior to permitting investment activity with or via any counterparty

IB?s investment policy is very conservative. Our strict policies when investing client money minimize our and your exposure in uncertain credit environments.
...

moab,

"FYI - Bob Hoye has excellent commentary on credit contractions."

Its looks like Mr. Hoye was a year too early when he suggested aggressive buying of exploration juniors in the gold sector. 2006 summer season did present strong buying opportunities, but we find ourselves in the exact same situation in 2007.

Problems in the U.S. real estate did not translate into a credit crunch last year. It was only when the yield curve began to steepen that problems in the asset backed commercial paper brought some of the extent of the credit crunch to light.

Juniors in the gold sector are becoming undervalued to their fundamentals as a result of short interest. The whole sector is under a pervasive cloud of short interest, divestment and renewed salting scandals in the press. There is also a good chance that those holding a bet against gold, miners and explorers are on the losing side of the trade.

Bill's comments on costs in the gold sector are very important and timely as many junior miners are tabling economic analyses.

Siguy-

I am also quite skeptical of the current apparent over-allocation of our work force to the service sector. I also feel that the USD is not a valuable "export."

That said, I also believe the USA the most capable country in the world of allowing the market to reallocate labor and entrepreneurs to more "productive" sectors of the economy. I have watched in agony as my entire city (San Diego) with the notable absence of the biotech and tourism industries has nothing left but a population of realtors, mortgage brokers, and attorneys. Peoples lives' are completely ruined for years as they have "evolved" in response to the greed / profit motive and the belief in their "equity" as in real estate.

I never had imagined the hubris that would build in this community from the fact of their home tripling in "value" over six years although it has been plainly evident in the spending habits and huge entry of new participants into the real estate investment complex.

Anyways - I would hope that the same market forces which drove so many into the get rich quick scheme in real estate can also drive people into more productive industries for America's future provided the government does not choose to screw with the incentives. The biggest shame / sham of the past five years is that American's investment and business incentives were distorted entirely due to the low interest rate environment - and arguably the government intervention which spawned it.

I will not assume that this reallocation is impossible, nor will I put a mercantilist model on a pedestal. The country model of purposely manipulating your currency and economy to run constant trade surpluses and then reinvesting the balance in gold and silver was the model of the 17th century, not the 21st. Just as we were extolling the Japanese and the Germans in the late 1980s for their peak of the capitalist model, they were about to enter a protracted period of slow growth and in Japan even deep recession.

I do not know the underlying economic statistics for Germany during that period, but I do know that Japan unwound after ten years of a debt orgy that arguably dwarfs even our binge of the last 6. If not in nominal terms then in real terms. I repeat that Japan suffered declines of 80% from peak prices for REAL ESTATE AND EQUITIES over the following 12 years despite massive monetary stimulus.

Will America suffer the same fate? I don't know nor I am the expert. I think that Mish of globaleconomicanalysis.blogspot.com is the current authority on these topics and knows 10X more than I do about the deflation issue. I have been reading his stuff, but I still struggle with the mechanics of how things MAY play out if not the bigger concepts.

Kaimu -

The demographic issue relates to the TYPE of social welfare demands being made. The type are MEDICAL AND PENSION and more generally services demanded by the Elderly. You could have 1 trillion bars of Gold AND Silver AND Platinum in gold know and ready to spend on future services - over reserved by 1000X, but if you don't have enough young workers to provide - 1) Medical services, and 2) Food, and 3) Hospice / Nursing Care to the gigantic elderly population then the small population of young people that does exist will have their wages inflated out of the stratosphere so that their services are allocated to only a few with the most gold bars. It is not an issue of having enough "money" whether that is gold, silver, or platinum or even GASP - DOLLLARS.

I guess if your Country has a more open policy on immigration then maybe you can import the correct types of young labor to provide those services. My impression is that the USA is decades ahead of the rest of the world on this issue.