Moin,

the new high in China was in the Face of this headline...

China's Inflation Rate Jumps to Highest in 10 Years

Inflation in China, the world's fastest-growing major economy, accelerated to the highest rate in more than 10 years, fueling speculation that the government may raise borrowing costs for a fourth time in 2007.

Consumer prices jumped 5.6 percent in July from a year earlier, after gaining 4.4 percent in June, the National Bureau of Statistics said today. That beat the 4.6 percent median estimate of 17 economists surveyed by Bloomberg News.

Food costs climbed 15.4 percent after a shortage of pigs pushed up meat prices and bad weather destroyed crops. The central bank is concerned that food inflation will spread, overheating an economy forecast to contribute more to global growth than the U.S. this year

Looks some institutions in China have a credibility problem.....

Good Morning all,
Everyone watching NG and oil stocks may want to keep an eye on the Atlantic weather....we have what appears to be our first Atlantic hurricane forming.

Well south of Cap'N Bill's locale it appears headed for the Carribean and the gulf.

PWE might get more wind in it's sails.

I'll be watching GE, GS and the financials and broker/dealers today and PM's etc. as usual.

UNG/PWE/NGAS: craig, thank you for the alert...
haven't seen futures look this good in a long time...

Moin again,

crunch time....

Mission West: $1.8B Buyout Deal Unlikely To Close

Mission West Properties Inc Monday said negotiations with the potential buyer announced July 14 are continuing but that closure is unlikely due to the withdrawal of the buyer's primary and secondary lenders from the market.

Mission West, a real-estate investment trust, said last month that it was being bought by an unnamed private-equity entity for $1.8 billion.

The potential buyer completed its due diligence and had agreed to the terms of the definitive merger agreement when it were notified by its lender, a major U.S. bank, that they were withdrawing from the market and wouldn't issue the previously agreed upon financial commitment to the buyer. Mission West said the buyer "has acted in good faith and made every effort to find alternative solutions, but in this very difficult debt market has been unable to do so

GDX at 39.31 looks like a good place to start scaling in...betting on a bounce in XAU...

3-min RSI(14) hit 26.92 @ 9:54; Sto(30,5) X-over imminent.

Sorry -- Last post was re GDX.

ETFC - article at seeking alpha by Andrew Corn seems to minimalize the subprime in ETFC portfolio. I bought ETFC a couple of days ago. Short leash on it though. I have no idea about Andrew Corn's accuracy.

These factors also remain largely unaffected by subprime concerns, with ETFC holding roughly $50 million out of a $29 billion loan portfolio (or 0.17%) in subprime mortgages. However, in an effort to compensate for the changes in the credit environment and potential losses experienced through this limited exposure, E*Trade increased its provision for loan losses to $30 million from $10.3 million in the second quarter. The impact was not material enough to reverse revenue gains.

I think there's probably a good deal of frustration over in the gold markets, where we see time and again bullish recommendations which don't seem to have any traction. Gold futures several months out are ~$700, but the spot market lags.

The predictions for a rise have so far been well in advance of any short interim rise, and the rises in XAU seems to have had its limitations. Many of the gold pundits base their theories on either advancing a theoretical gold bubble to invevitably occur, or postulating a Hayekian crack-up boom examples, thus proving them right. On the one hand, they have been right for a time.

On the other, its possible that they can only be right for so long a period of time. The fiat currency gold adherents so love to dismiss seems to function well in a floating regime.

Then we have to look at the liquidity injection, on whether it will work. We are seeing overconfidence in the ability of central banks to manage the situation, perhaps noboby really knows the amount of liquidity required. A miscalculation at this point would require a reduction of interest rates.

I would be very grateful if Bill and others on this board would comment on the concerns that Jim Sinclair raises in the text below. For the full text, please click on the link below.

From Jim Sinclair at http://www.jsmineset.com/
I received a concerned email regarding why there seems to be a rash of senior executives retiring or quitting from the top to the middle tier in the gold group. The question can be answered in nine words: short of gold over the counter derivative hedge positions.

Some time ago, I was speaking with the CEO of a small gold producer. He announced to his stockholders with great pride that the development loan negotiated by the major for his company's project was a non-recourse loan. I took him through the transaction to show him that his company actually had a derivative risk that could in a bull market for gold kill the economics of his project or dilute him to a 10% net profits interest which in reality means zero. He offered his resignation to his Board about two months later. The new management hasn't a clue what they face.

Therefore, there is a chance that many mid-tier and higher tier gold shares may under perform or fail to perform at all in a major generational bull market in gold.

In early 2000 I ran a cartoon in the Mining Journal called the HEDGE HOGS which properly described the many gold companies - from juniors to majors - that may have killed their Golden Goose with derivative hedging programs. I would say that Newmont's loss of 2000 million is clear and present proof that I have been right for years. But who listens?

If you believe this, then you need to allocate more $ to gold and silver bullion instead of mid to high tier miners.

For the purpose of understanding the Fed and the financial mkt, what I am beginning to understand, IF it is correct, is that the fed needs to convince the central banks to lower ten yr yield. That part of the market they don't have certain control; only the overnight rate. My questions: Is there a demand problem for debt keeping bond yields high? If the mkt is going to revolve around the ten yr yield, what would get that yield to go down?

2nd ave,
Since you sound interested in the oil sector, fwiw, I've been holding a service and exploration stock: OMNI. I bought more this morning to grease my brain circuits for buying on the dip. This one is really beaten down. Mkt edge report that just came out calls for a sell but this seems largely based on technical of chart price. Fundies still look good to great. Widening margins, increasing revenues, and peg of only .26. This one is a microcap, located in my native homeland/new orleans area where I hear first hand that oil service sector is still solid. Can't say, though, that I have any direct contact with omni per se. Debt/cap is high, just under 50%, concerns me but for a microcap i wonder if this comes with the territory.

Yes, I've been reading Jim's comments on this.

A rule of thumb should be avoiding junior exploration companies exposed to non-recourse loans from senior gold miners. In other words, senior gold miners with declining reserves are using the junior explorers' future production to keep their gold derivatives from blowing up. At the same time, the majors have been unwinding their hedge books. So it may be true that juniors with non-recourse loans are burdened, but it may also be true that the fundamentals in the gold hedging and derivatives contracts are changing for the better.

One thing to remember about Jim is every turn in the market is the BIG KAHUNA for him, so it really needs to be taken with a grain of salt. He expects that we will see an inflation just like in the '70's when deflation is in the cards.(or at least a major liquidity crisis) Just the same reports from Jim on market activity do very well when the shorts come into the market, as he watches that like a hawk.

So we are looking now at the central banks' intervention last week, and seeing that perhaps it wasn't as dire as all that. It was a pre-emptive move. Just the same, there is a measure of overconfidence in providing liquidity at this stage.

This link will help to sort out where we are in a 'crisis.' Its very clear from the chart that we have yet to move into that range.

http://www.nowandfutures.com/financial_crisis.html

So today the ECB only had to inject $65 billion of new liquidity into the banking system. They again called it a "fine-tuning" operation. Total "fine-tuning" liquidity injections over the last three trading days total over $278 billion!

For more on these liquidity injections check out our Oct06 research report, "The Fed & Liquidity Growth" at http://tinyurl.com/2ebnc8

The crisis we are witnessing is qualitative, not derived from mathematical models, therefore pre-emptive. It will have the 'Central Planning' opponents in an uproar, or an incredulous dervish.

To continue, gold price predictions have been off quite substantially. A good illustration of the divergence between a price prediction and the $US price is here:

http://www.nowandfutures.com/forecast.html#predict_gold

Euro is off today, its no surprise that interventions come on the heels of a runup in various currencies against the $. Only a very small change in these values against the $US has touched off an intervention.

Yet most people go on believing its exposure to sub-prime which is the root cause. Sub-prime is a major upset, for sure, but why does sub-prime have the cause and effect relationship to money markets?

Euro falls after ECB’s 3rd money market operation

http://tinyurl.com/yvnrvl

(hint: they are trying to prevent the collapse of the Euro)

Keep in mind that all the emerging market country central banks did not inject liquidity, and corporate bond markets appear to function normally.

Moly (MLY.TO) is on a bit of a tear today. I received a shareholder update in the mail - someone must have liked it. It's my worst performer right now.

If the stock goes > NAV ($5.40) then share buybacks kick in after August 15. If the stock hits $7.50 then warrants can be excised.

This is a pretty volatile stock & I still think moly is overhyped, but when China opened up the floodgates to fertilizer, Potash Corp (POT) took off like a rocket. Will the same happen if they turn off the taps for Moly?

http://tinyurl.com/3e2wg3

http://energy.seekingalpha.com/article/39614

I wonder if Sprott is going to store the 900,000 lbs of Moly it's buying in their offices at 200 Bay St?

Canada looks to benefit from any Moly shortages overseas.

http://tinyurl.com/2nfczx

2nd -- What's your take on today's price action in UNG & PKD?

OldGoat-sorry, man...no longer on vacation (lol)...UNG-i'm adding on the weakness here at 43.59...staying away from PKD as i haven't really been following it and other posters have characterized the chart as "toxic.."
NBR looks good here...

NBR-addendum: looks good here b/c of the heavy block-buys last week at 29.50...

2nd -- You must have a mighty good day job!

The Hedgebook Q2-07 outlines current changes in hedging activity in the gold market.

http://www.tiny.cc/CQEbR

Any thoughts on International Royalty (ROY, IRC.TO)? Is this a good price to buy?

The Hedgebook Q2-07 ( 30 page .pdf file) outlines current changes and potential impact of hedging activity by the goldminers.

http://www.tiny.cc/CQEbR

Is anyone here? You could fire a cannon in this place.....

I've been checking to see what people think of ROY. I guess everyone's day job is keeping them busy.

I don't know the co. or the fundamentals, but I'm not a fan of the chart.

If 5.70 doesn't hold it's a ways down before you hit support.

re:ROY
I see support around $5.35. Care to share fundamentals, reason for your interest?

Some newsletters have been recommending ROY as a core holding, so I wanted to check in here too. ROY has many royalties so it's diversified, and there's no exploration risk.

GDX -- 3-min RSI=19.37, Sto(30,5) X-over has occurred.

Craig,

Any thoughts on HD and WMT for tomorrow? I know Bill's WIR spoke highly of WMT even with all the problems they face.

Thanks. jfs

2nd

Thanks for the overview on PWE. Sorry I didn't respond earlier.

JFS,
Took the hint from Bill and bought a couple hundred shares of WMT as an entry and will add if earnings are as expected.

For me HD will have to wait until we see daylight in the home building/remodeling game.

Craig,

Thanks. jfs

today's market feels about right...the open was an invitation to sell, then they bring it down to shake out anyone who bought and to rekindle doubt...planning to hold UNG/NBR/PWE into the close, and adding to GDX for a swing trade...i think anywhere in the low 40s is a good entry for UNG-wouldn't be surprised to see the 50s by the end of the month...

with WMT, it's not as if there were danger the stock is going to run away from us in the short term.

Given uncertainty about US protectionism vs. China and the spending level of US consumers, I think it's safe to wait and see if it meanders downward.

If it gets down to 42.16, then I think it's almost a bullet-proof safe buy, since it hasn't penetrated this level since late '01, nor stayed below it since '99.

re UNG-latest prediction by the National Oceanic and Atmospheric Adminstration > 85% chance of an above-normal hurricane season:

August 9, 2007 — NOAA’s Climate Prediction Center today released its update to the 2007 Atlantic Hurricane Season Outlook, maintaining its expectations for an above-normal season.

As we enter the peak months (August through October) of the Atlantic hurricane season, NOAA scientists are predicting an 85 percent chance of an above-normal season, with the likelihood of 13 to 16 named storms, with seven to nine becoming hurricanes, of which three to five could become major hurricanes (Category 3 strength or higher on the Saffir-Simpson Hurricane Scale). (Click NOAA image for larger view of NOAA’s 2007 Atlantic hurricane season update. Click here for high resolution version. Please credit “NOAA.”)

The development of key climate factors through early August has increased the confidence of an above-normal season, and has also led the NOAA team to slightly tighten the ranges that had been given in their May outlook — due to development of La Niña-like conditions exerting influence. In May, NOAA predicted a range of 13-17 named storms, with seven to 10 becoming hurricanes, and three to five becoming major hurricanes.

Jock,

Thanks. I nibbled at a few shares before earnings. Will watch and add if earnings are decent.

It is awefully quiet in here...

Had a look at the ROY website, and I'd agree that it seems a fairly low risk play. The royalty business models seems similar to Silver Wheaton. But my understanding is that SLW has a fixed cost base, so worst case scenario for SLW they could actually start losing money (if silver dropped to $3/oz).

However the royalty model looks like their revenue would just decline, especially on some of their projects that use a sliding royalty scale. But Voisey Bay is their biggest project and looks fixed at 2.7% royalty, so unless metal prices or production drops, they look to be in good shape.

Perhaps Bill could expand on the comparison between Silver Wheatons model, which he clearly likes, and this type of royalty model.

But yes, chart looks kind of broken for now :)

I expected at least a 1% rally today because of the liquidity injections and the European markets being up more than 2% this morning. Anyone else surprised we closed down (marginally) today?

addendum to earlier post-the muted follow-through to the opening rally reveals/adds to skepticism about the upside, and this should add fuel for any snapper we get...gdx in particular feels like a coiled spring...we'll see...

No bounce today. I can already tell you that the market internals were weak. I don't even have to look at the final numbers or run them through the black box.

Some bears out there are licking their chops. I think they may be a tad bit early but I don't doubt their intentions.

I took my own advice Friday and put the wife's money "all-in" but in a good Equity-Income Fund. One down year in 14. Safe. Prudent. Good risk-adjusted returns.

We judge this thing by the quality of the rally, eh? We take it day by day. Today, score one for the ursine crowd.

markm-did you post an update to your market outlook friday...would be VERY interested in getting your take on things right now...reading btw the lines it sounds like you expect a short-term bounce...

KRY recorded a net loss of $11.7 million ($0.05) per share compared to $8.3 million ($0.04) per share for the comparable period in 2006.

Don't worry be happy.........

Gordon Thompson, Crystallex President and CEO highlighted that, "At the end of the second quarter the Company received news that the Ministry of the Environment and Natural Resources of Venezuela ("MinAmb") had approved the Las Cristinas gold project Environmental Impact Study ("EIS"). We are now awaiting the MinAmb to issue the Environmental Permit."

3 years and counting.........!

Thank you for the comments on ROY. Can someone walk me through how I can see that the chart is broken?

Let's see, we closed at the lows of the day on the indexes as well as the A/D lines. HB&B all closed lower. Any attempts to rally were snuffed. The almight Fed interventions didn't seem to have much of an effect beyond stanching what could have been much worse on Friday. Maybe that's all they were intended to do?

I doubt the Fed is mightier than the markets, and think we've just witnessed a top of major proportions for years to come. It's got the classic hallmarks: internal deterioration preceding it, tremendous volatility and uncertainty, and background of easy credit and easy money and utter complacency.

Completely off topic: If Maria Bartiromo and the guy who pitches OxiClean had kids, what would their voices sound like?

An interesting day. Volatility settled down quite a bit from last week. I was expecting the opening gap up on the major indices to be faded within the first two hours before a moderate bounce for the rest of the day. I suppose if everyone is expecting the same thing it isn't likely to happen! And as it turns out, we took all day to fade the gap, but at least we didn't see the kind of disorderly/chaotic selling and manic short covering that characterized last week.

I reloaded the SWC I sold last week. Glad to get back in at my original buy price in the mid-$8 range. SWC is sitting on very long term support around $8.

Nibbled at some PDN.to, one of the uranium miners I've been eyeing.

Been keeping close watch on my JBX. After a stomach churning week last week (down from $68 on Weds morning to a low of $53) its back up to $64 today. Glad I held as many must have been hoodwinked. Wish I'd left some more ammo in the holster but glad to be back from the dead on this one.

I'm a complete technical analysis novice, and i was probably premature at saying the chart looks broken.

The danger lies in the fact that it is trading right close to the June low, which acts as support. If it breaks that support I think the next support is around $5.

Even if it stops the decline before reaching $5, you'd be looking at a series of lower highs and lower lows. Mind you, it seems several gold miners have looked like this lately, and if gold breaches $700, technicals probably become less important.

Also, not sure if i'm reading the chart correctly, but it looks like since the may high, volume has been greater on down days, which is also not a great sign.

Overseas central banks continued to add liquidity into the market, with the European Central Bank on Monday saying it had provided around 47.5 billion euros ($65 billion) in loans, while the Bank of Japan added more than $5 billion.

The New York Federal Reserve injected just $2 billion in liquidity into the market on Monday, well below the $52 billion requested by banks and other institutions, according to a posting on the New York Fed's website.

The $2 billion came in the form of overnight repurchase agreements and purchases of Treasurys and agency debt. By contrast, on Friday central banks in the U.S., eurozone and Asia injected billions of dollars, including $84 billion from the European Central Bank.

"The injection of liquidity by major central banks is helping confidence that we'll be able to work our way through this credit crunch," said Art Hogan, market strategist at Jefferies & Co.

Some good charts here demonstrating effect of Central bank sales on POG.

http://www.nowandfutures.com/cb_watch.html

Thanks to Fransix for original weblink to nowandfutures.com earlier today

Cause of weak close?
http://www.bloomberg.com/apps/news?pid=20601087&sid=ak56JbXPTsL4&refer=worldwide Coventree Fails to Sell Asset-Backed Commercial Paper (Update4) By Sean B. Pasternak and Shannon Harrington Aug. 13 (Bloomberg) -- Coventree Inc., the Canadian finance company that went public in November, failed to sell asset-backed commercial paper to replace maturing debt because of the credit crunch caused by U.S. subprime mortgage losses. The shares tumbled 35 percent after the company extended maturities on C$250 million ($238 million) of commercial paper and sought emergency funding for another C$700 million of debt. Toronto-based Coventree's units have about C$16 billion of asset- backed commercial paper outstanding. ``Problems that initially seemed isolated to a few U.S. subprime mortgage lenders have led to broader concerns relating to debt capital markets generally,'' including the Canadian asset- backed commercial paper market, Coventree said in a statement today.

bill,
Would you elaborate on the subprime problem at etfc?

dond -

See Saturday's WSJ (or reprint @ thestreet.com) article by Greenberg (http://tinyurl.com/39msh7). I also believe that a few analysts came with recent notes talking about the rising weight of RE lending in ETFC's earnings and slow transformation from broker to banking (calling for lower P/E).

JML

Today was a very weak snap back rally. The big financial companies want a rate cut not just an injection. Injections have to be repaid. Injections are merely very short term rented money at high rates. These folks want to be bailed out with very low rates. So far Bernacke is not following the Greenspan script. I think the new Fed will either provide a rate cut signal this week or the market will go down hard after another one or two weak snap back rally attempts.

A take on Asset Backed Commercial Paper (ABCP) from the Financial Times: “ 'We are in the middle of a mini-crisis in the commercial paper market, at least half of which is related to the SIV conduits,' says Robert McAdie, global head of credit strategy at Barclays....The problem could be thrown into relief when billions of dollars of ABCP mature today and on Wednesday, with great uncertainty as to whether this can be refinanced."
http://www.ft.com/cms/s/8eebf016-48fd-11dc-b326-0000779fd2ac.html

HL: wavesmash and n2son-what a heckuva present you guys got today!

Hi, Bill and others
I just noticed that Bill dropped E*Trade from his Cara 100 due to the concerns about its practice in subprime business. I have my trading account with E*Trade Canada. My question is if the investors money with the company in jeopardy should the worst scenario happens?
Thank you very much for your reply.

LEND-anyone who has actually HELD this stock for the past 6 months is either oblivious (thanks to small position size), or playing options against his position. Or a masochist. How else can you possibly put up with the bungee jumps-you could rotate into KRY for a good night's sleep..

Post 9-11 liquidity injections went into inflating asset prices, ie stocks, bonds, etc.

The current liquidity injections are targeted at the credit issues. Will the current liquidity flow to the same assets as before?

The current liquidity injections are greater than 9-11. Think about that for a second. What is really behind the curtain? What has global central banks so spooked?

If todays market action continues, it doesn't bode well for liquidity sparked rallies.

Watching GS for signs. No position in GS, took small loss.

Who in their right mind would be selling gold here?

g034---"Who in their right mind would be selling gold here?" Just a few possibilities.

(a) Margin call time--sell what you can to make your nut.

(b) Some CBs selling gold---but the question is who's buying? Is it simply a paper transfer from one CB to another with a wink and a nod? Or is it China & Russia or some unknown taking advantage of the opportunities?

(c) Hedgies unwinding carry trades on the yen and/or swiss franc ahead of the anticipated rush for the exits.

Today you had several raw attempts to commit arson on the shorts via spiking the futures.

Its a time-honored trick and is often played during OpEx week. But this time it didn't work so well.

(The general game is played by people with plenty of cashola to throw around and a lot to lose if the indices don't move (back) up some - they make a big market-order buy of the spoos, then take it back off into the ensuing rally which they hope comes as shorts see the price spike and freak out. The problem is that its dangerous; due to the leverage in the futures markets if you run into someone who's waiting for you when you do it you're going to get your head handed to you. The pattern is EASY to spot if you have a real-time data feed with volume.)

Anyway, that it failed today to generate the desired rally, despite several attempts; this does not bode well for the "firepower" behind the long side at this juncture.

We shall see what tomorrow brings.....

Seamus,

I was just talking...

(a) of course, that's why gold will initially fall with stocks, then counter rally.

(b) buyers are China and oil producing middle eastern CB's for diversification out of $usd.

(c) IMHO, yen carry traders trade paper not gold - this is simply a ruse by short sellers, CB's etc. Of course, if it is beleived, it is fact.

good luck and great to have you as a contributor here! Wish I had more time...

rally? IMO, the conspicuous absence of any talk this evening in the media about a rally sets us up for one either tomorrow or later this week...

Genesis, could you please elaborate on:

"Today you had several raw attempts to commit arson on the shorts via spiking the futures."

I'm afraid I don't understand your reasoning and would be grateful if you provided some explanation.

What *I* saw today were weak attempts at rallies met with a minute or two of TICK confirmation and no follow-through.

My PPT indicator, TIKI hitting +26, registered nary a blip today. If arson is proposed, your thinking on the whom and cui bono would be much appreciated.

Bigwad posted: "Overseas central banks continued to add liquidity into the market, with the European Central Bank on Monday saying it had provided around 47.5 billion euros ($65 billion) in loans, while the Bank of Japan added more than $5 billion.
The New York Federal Reserve injected just $2 billion in liquidity into the market on Monday, well below the $52 billion requested by banks and other institutions, according to a posting on the New York Fed's website.
The $2 billion came in the form of overnight repurchase agreements and purchases of Treasurys and agency debt. By contrast, on Friday central banks in the U.S., eurozone and Asia injected billions of dollars, including $84 billion from the European Central Bank."

So it seems that mostly (or almost only) the European Central Bank is pumping a lot of money in the system. Why???
"The euro has been depressed in recent days over jitters about the extent the U.S. subprime crisis has hit the European banking system. - Steve Goldstein - MarketWatch.com"
Does it really mean that US was so perfect in giving us (Europeans) most of the bad junk? Or was Europe so greedy to speculate to much without counting the risk? Are we going to see some fireworks from an European institution with a big problem?!?

g034

I knew you were just talking. Just like to see your posts even if occasional. Be careful out there.