Thanks Bill!

For what it’s worth this weeks breadth for the overall market was less weak than the prior weeks breadth was strong (i.e. by averaging various measures this weeks breadth comes in at around -59% and the week prior was approx +68%). So, in a nutshell selling was less broad than the buying the week before. This feels more like consolidation than panicked selling. Maybe the downside exploration will be satisfied here?

Nonetheless, sector strength this week is more a matter of what sectors were the least weak - that would include among other more specific sectors - Energy, Health Services, Drugs, Transportation & Metals and Mining. On the weak side I’m seeing Homebuilders, Retail, Financials, Utilities, Software, Pharmaceuticals, Materials, Automotive and Real Estate among many others.

Good Trading,
Ralph
http://successfulonlinetrading.com/blogs/

Bill,
Every time I comment on your site I get a good number of hits!
The upcoming Retail Sales will keep showing deterioration on a y/y basis, especially if deflated by the CPI.

I expect a major rally in the Stock Market to start soon and will post the timing of it.

As you know I have been bearish for months with respect to the economy. For a while I have been ranked number one Market Timer by a reader who follows 12 market timers.

G7 leaders turn pessimistic on global economy
Sat Feb 9, 2008 9:58am EST

OKYO (Reuters) - Finance leaders of the world's top industrialized nations put on a show of solidarity on Saturday in the face of an economic slowdown and conceded that things could get even worse because of the crumbling U.S. housing market.

"This economic shock and the economic downturn is largely driven by domestic problems in the U.S. and it really can't be remedied by a globally coordinated action plan,"

U.S. Treasury Secretary Henry Paulson said global markets may face a prolonged period of unrest.

http://www.reuters.com/article/newsOne/idUST29356920080209?pageNumber=1&virtualBrandChannel=10005

Why Republicans like Obama and what it means

What is at the core of Obama's appeal?

Part of it is the eloquence and uplift of his speeches, combined with his personal grace and dignity. He seems to be a well-grounded, decent, thoughtful man. He comes across, in his person and manner, as nonpartisan. He has an unsurpassed ability to (seemingly) transcend politics. Even when he disagrees with people, he doesn't seem disagreeable.
http://www.chron.com/disp/story.mpl/editorial/outlook/5516076.html

Former House Speaker, Newt Gingrich, Says Barack Obama a "phenomenon" and comparing him to John F. Kenned and names McCain as VP Possibilities.
http://www.abcnews.go.com/print?id=4261814

JFK's speechwriter, Sorensen joins Obama's camp
http://www.abcnews.go.com/print?id=4259093

"What indicators do you watch during the day to determine market direction, and what method(s) do you use to determine that a market reversal either up/down is occurring?"
Any insight will be appreciated.
Posted by: Naples at February 9, 2008 5:50 AM

naples- that's a good question...apart from saying that i try to enter an exit positions during what i consider to be spikes in negative and positive sentiment, not sure what to say, but i'll try to answer your question without saying i can't give you an answer...

reading trends is absolutely something one can develop...remember the 'anti-establishment' atmosphere in the late 60s/early 70s?->would guess that's when i started down the path to learning how to play against the crowd...along with that, i learned to cultivate a 'stay-one-step-ahead' attitude in high school->right wing (soccer), but best highs were defensive plays correctly 'reading' where the ball was headed...also discovered how easy life could be if one were to consistently complete reading/homework assignments 2 days ahead (not to mention having classmates think you're a genius LOL)...we all do it, right?:->turning friends on to the stones when they're (still) listening to the beatles...miles ('anti-everyone-and-everything to the day i die') davis...coltrane...mingus...pony-tail...buzz cut...levi's...lee's...social work...investment banking...you get the point->trends change (what are trends other than the collective moods/behaviors of crowds), and you can stay ahead of the game by being an (allegorical) tape reader...

set-ups: you can hone your ability to recognize set-ups by consistently watching the market each day (not obssesively, of course)...i continue to learn quite a bit reading (and reading between the lines of) comments here...bill himself (IMO) is anti-establishment (for lack of a better term) and invariably a few steps ahead->i see that in his commentary every day, and is one reason i enjoy this blog so much...i don't play football, but would guess that good NFL quarterbacks learn to read defensive set-ups->do not last long o/w, right...and i'll let you complete the thought when applying that to the capital markets, which for many of us is the ultimate game...

good luck

sharkie- good to hear from you...not sure why you've imposed such isolation on yourself...

"I expect a major rally in the Stock Market to start soon and will post the timing of it.

As you know I have been bearish for months with respect to the economy. For a while I have been ranked number one Market Timer by a reader who follows 12 market timers."
Posted by: Will Rahal at February 9, 2008 11:49 AM

will- congrats on your ranking..will look forward to checking your site each day...

so yhoo thinks it's worth 40/share:

http://tinyurl.com/3x2soz

re: Bill's crop comment -

I hope everyone realizes wheat was locking limit up over the course of several days last week. Minneapolis Red Wheat locked up 11 out of 12 days. That's insane.

You aren't going to be able to jump directly into that trade with the market locking every day, plus I've noticed that after a one or more limit up days, the risk of sharp reversal increases.

However, I draw your attention to another way to join the move (for as long as it lasts - be careful...)

Western Barley is a substitute for wheat in some animal feed uses, along with it's principle use in brewing. It's begun a strong move behind wheat, but not quite as manic. As long as you see and expect wheat to stay strong, barley is a somewhat unsung beneficiary of that. OptionsXpress customers can trade the futures directly on the Winnepeg exchange. The contract is smaller than a wheat contract, even the wheat mini's, I believe. So you can trade fairly small, which is smart with futures. Mind your stops.

Re. YHOO. If YHOO is rejecting the offer, ths is good for MSFT! The question is what time the announcement will be done. A straddle could work nicely and there could be time for it on Monday. Keep in mind YHOO was trading $18/$19.

G7 approves IMF gold sales

http://tinyurl.com/3aezvv

Morgan Stanley analyst Stephen Jen said Fund holds 103.4 million ounces of gold
"The IMF is rich, if it wants to be," he wrote

G7 approves IMF gold sales - Italy econ minister

http://tinyurl.com/2yd3bd

TOKYO (Reuters) - The Group of Seven rich nations on Saturday approved the sale of gold by the International Monetary Fund from April as part of a broad reform of its budget, Italian Economy Minister Tommaso Padoa-Schioppa said.

--Didn't see this here yet. I would think that this would depress prices and lead to a good buying opportunity.

Junior miners into production - banks are not lending.

That was the strong message from two guests on BNN yesterday. Bill Harris of Avenue Investments said this was the theme at the recent Vancouver Cambridge Gold Conference.

Harris seemed a pure mining guy, and fielded phoned-in questions on a range of juniors. He maintained that if bank facilities can't now be counted on, then the equity portion also can't be financed.

Harris' conclusion was to invest only in beaten down miners who have production and cashflow (Lundin, Cameco were two picks).

Perhaps this(alongside escalating production costs and resulting doubts about juniors' ore grades)explains why juniors (as a group) have been languishing. If juniors can't finance the move into production, and seniors aren't now acquiring juniors in significant numbers, what catalyst remains for juniors' stock?

There's always new finds, and Press Releases on the increasing definition of the resources concerned. However, this leads to another conclusion (of mine): for now, well-funded junior explorers are the priority. What Kaimu calls "rob-power" - the ability of a super-promoter to attract funds becomes paramount.

Special cases including McFaulds Lake may be safe places to trade, since they already command large investor interest, and because the best names in Canadian mining are backing the major McFaulds' players.

For most quality juniors, we've been given time to study, and get positioned for their (to me inevitable) ignition and take-off.

This can begin when banks start lending to juniors again (allowing moves to production) and/or when seniors start acquiring juniors in significant numbers. At some point, seniors need to replace reserves, and most have apparently virtually eliminated their in-house exploration capabilities.

John Stephenson of First Asset funds (who spoke of both energy and mining juniors) said to watch for a couple of months of leadership by the financials as an indicator of when the deep freeze is thawing.

Remember, there had been another ominous voice earlier this week on BNN: Paul Van Eeden, who said he had liquidated all but a few small positions in juniors, and moved to cash.

Or does this chorus of grim voices suggest a contrary move coming from the juniors? What do people think?

MikeNYC

Thanks re wheat and the barley alternative, I will look into that angle. However I don't have the option to trade futures at this point. Do you know if there is a way to get exposure to barley thru stocks or options?

Don Coxe in this weeks audio cast talks quite a bit about wheat and the recent action.

quasi- try DBA (powershares)->25% corn/wheat/soy/sugar...

I don't know much about the wheat market. Just wanted to draw attention to parabolic spike ups that are followed by parabolic spike downs. We've had many examples in recent years: gold, silver, nickel, uranium, Baltic Dry Index.

Jock, doesn't this underscore the value in those juniors that have both current production AND exploration properties?

Cash flow...

Also, a couple of small resource producer/explorer/acquirers I follow did debt financing just before the credit markets locked up. That looks like a smart move, now. It's no coincidence that these are companies that I had already regarded as having good management.

I wonder if you could somehow screen for quality gold juniors that might have already locked in some of that financing.

sorry, nix that...reading too fast and now realize the subject is barley...

SteveC, I expect that big drop next month for wheat, at the latest.

Believe it or not, there are strong fundamentals driving this wheat action on the supply and demand sides. Plus the usual inflation and fund stories.

re DBA- prescient post on seeking alpha (may '07):

http://tinyurl.com/327dvj

excerpt:

"Smart money -- like commodities bull Jim Rogers -- argues that "soft" commodities are where the big gains are to be made over the next 5-10 years. What has changed? Blame the law of supply and demand.

First, consider the demand side. Rising wages among the world's middle class are doing more than just creating demand for real estate and car loans. The new middle class also wants to eat. Thirty years ago, American children were told to finish what's on their plates because "people are starving in India." Twenty years ago, three out of four people on planet earth were living on 1600 calories a day. In What's So Great About America, Dinesh D'Souza wryly observed that Indians want to come to America where even the poor people are fat. Today, these same Indians can afford to eat just like us. We've seen the same trend in countries like Japan. The result? Japanese women are four inches taller than they were 50 years ago. And "curvy" among Japanese women is "in." Just think when the same thing happens in China, where average calorie-consumption is expected to shoot up 50% over the next decade.

Let's turn to supply. Here the bogeyman is climate change. Global inventories of soft commodities haven't been this low since Richard Nixon was president. China has lost fertile land equivalent of about the size of Maine each and every year for the past decade. To feed its population adequately, it should be adding that amount. Even Mervyn King -- Ben Bernanke's counterpart at the Bank of England -- recently blamed food prices on a weather-induced drop in supply.

Australia is facing such water shortages that the government is on the verge of turning off irrigation to 50,000 farmers. Rice production has dropped over 90% and cotton production has more than halved. Even wine grape production is impaired. With food prices set to triple, Australians may be set to go on a national diet."

I'm not saying wheat doesn't have strong fundamentals. I was just thinking that people who bought at near top of gold and silver in 2006 had to wait over a year for their move to pay off. Who knows how long the wait will be for uranium, nickel, and wheat.

Sure, MikeNYC, having (profiitable) production + exploration tarets (all other things equal) is better than having just exploration targets.

Good idea on screening. I think screening for lots of cash on the balance sheet as a % of liabilities might do it. Has anyone used a Vancouver-based screening product called chartsmart.com? They claim to have juniors in their database.

Might I ask which companies you are referring to who got financing just before the credit crunch. Maybe we can fold them into the search for the best 100 Juniors.

Dinesh D'Souza is a right wing lunatic. He is a racist, misogynistic nut. He went so far as to basically blame the "cultural left" for 911. The man is just the indian version of Ann Coulter. I wouldn't put any faith in anything that man had to say. Actually, I'd probably use him as a contrarian indicator if anything.

Here is a little background on him as well as some choice quotes:

http://www.campusprogress.org/tools/118/

Will and or others-

You mentioned you think we might have a major rally going forward. Just curious what is your logic based on? Fundamentals in the credit market are actually getting worse and my interpretation borders on meltdown.Just curious on thoughts - the spreads are horrific and the banks will soon need to write billions more down and I do not see this priced in.Thanks in advance for any thoughts.

Also anyone looking at rising rates - rrpix ?

snippet

In Metz's view, foreign demand for long-term Treasurys already is waning, as overseas investors back away from dollar-denominated assets and opt for instruments in the higher-yielding euro, British pound and Swiss franc. He expects that trend to accelerate.

The Treasury rally was in part a reaction to Fed interest rate cuts and the bank's professed willingness to cut rates further to support a flagging economy. Traders often buy Treasurys, particularly the two-year note, and push their yields lower when Fed rates are expected to decline.

Bubble theorists worry that the rally and the Fed moves are at odds with news about inflation. The Commerce Department last month said inflation was a heady 2.7 percent in the fourth quarter, well above the Fed's comfort level of 1 percent to 2 percent. If future reports suggest inflation jumping out of control, the Fed may have to forgo its economic stimulation program and take steps to lower prices, the argument goes. That would send bonds falling.

Jock at February 9, 2008 3:37 PM

If the financing dries up for potential new gold producers while the hydro shuts down in one of the largest producing countries in the world,I cant see how this will not in the end have a positive effect firstly on the pog and perhaps on those jrs.Those jr's are the only hope the large caps have for expanding their resources I think. The 2001 to 2003 timeframe for the jrs was nothing but incredible. I was in them then and the moves were breathtaking. So I have to ask were the fundamentals, pog to cost,or anything else for that matter that would drive the price of those jr's any better than now? I dont see it. What I do see is a rising yield curve now that was coincident with the great relative strength of those jr's in 2001/2 happening now, and a xgd:gold ratio that is back to 2001 levels with a gold price of 923! The cdnx:gold is at a double bottom with 2001 lol( I think largely in part because of the gyx and xoi weighting per oil and base metal jrs) But that's the rub for me, the jr gold babyies were thrown out with the xoi,gyx bathwater and subprime rush to liquidity and are a bargain here. JUst a thought....

Fwiw take a good look at the cdnx(double bottom with a higher macd/with Aug lows), although it is not all pm stocks it has a heavy weighting and I think it better reflects the gold stocks than hui. If barrick had not been added to the hui at such a heavy weighting recently would the hui be higher than it's 401.69 high at 730.40 gold? I dont think it would.

I agree with you about the Mcfaulds plays, not.v has broken out of a great looking falling wedge and the others have or are poised to make significant breakouts when I look at their charts/volume especially. I have a disproportionate amount of my pf in that area.

If anyone has any comments about management for not.v, spq.v or fwr.v I would be glad to hear them,I am really poor at getting a good feel/deciphering info in this area.

steve- don't disagree with you at all...recent spikes make it a dangerous short, but certainly wouldn't be buying here...

moon- not sure rrpix would be a buy-and-hold at this point->any sharp sell-off in the market, with/without further cuts in rates, would send treasuries flying...some initial discussion here recently about the ultimate long gold/short bond trade..

clarification: first post above references steve's cautionary comments re wheat/dba...

Colin Twiggs 2/9/08:

http://tinyurl.com/7fw5r

support and resistance levels for all major indexes...note repeated comments about "short-term accumulation but long-term distribution.."

"You can also make up your own bpi at stockcharts, just make a list of stocks and do a p&f buy signal scan."
Posted by: Tbar at February 8, 2008 8:04 AM

Are you saying I need to look at each P&F chart, one by one? Or is there a simple, quick method to derive a BPI for 30+ stocks? Thanks.

Bill,

Major news out of Tokio, re Gold.

So they will use the IMF to supress the POG as of April.

Could you comment on this @ the WIR, short term and after April?

Thanks!

Cheers!

Bloomberg had an article today about Trichet saying that those who are sure about ECB rate cuts are dreaming, now I can't find it there (?), but I found it here:

http://www.guardian.co.uk/feedarticle?id=7296165

"TOKYO, Feb 9 (Reuters) - Investors gunning for interest rate cuts from the European Central Bank should heed this message: monetary easing was not on the agenda, ECB President Jean-Claude Trichet said on Saturday.
The central bank chief and his colleagues told fellow Group of Seven finance leaders in Tokyo that stubborn inflationary pressures persist in the 15-nation euro zone, even as credit turmoil weakens the region's growth outlook."

Moon: I also have no idea how someone can be calling for a major rally. Quite the opposite I think. Latest employment report translates into 95,000 job created per month, compared with 175,000 in 2006. 150,000 jobs/month are needed just to keep pace with US population growth. This is only going to get worse.

BTW, Goldman Sachs CFO (David Viniar) said there is currently a total disconnect between the equity market and the credit crisis, which as we know is only beginning.

And then there is the ISM data from last week, and the fact that MBIA and Ambak need tens or hundreds of (public funds) Billions infusion to survive, as well as big rumors of major European bank with negative equity (insolvent). At any time this is going to hit the fan. I am ready waiting.

Hi again,

Still RE POG supression by IMF:

Some people online are commenting that:

"Even if the IMF like to sell gold. They simply can't. They need approval on 85% of the voting power and the USA has 16,7% Which means they need to have legislation approval from the USA Congress. Simply won't happen. This is only some noise since they are desperate."

Does anyone know if this is the case?

Cheers!

Jock: RE: [Junior miners into production - banks are not lending.]

Spot on. This is not good news at all.

Juniors in a bind for funding was the impression I had at the Cambridge Resource show that the Cara Team attended in the later part of October 2007 in Toronto. Remember the paper (short-term investments) that some of these juniors bought that later got locked-in with the Coventree fiasco? (Cara readers wanting to review the action at this junior and not so junior mining show should go back to the commentary here of October 21 and 22. I posted a summary of my first attendance on Monday October 22, 2007 with a follow-up on October 23, 2007). The banks will think twice before lending. Do they want to give out funds like they did for housing loans? Bank of America is lately getting a lot of flack for increasing the rates of interest on credit cards to its better clients. Those teaser rates are quickly being cancelled for previous balances.

Knowing that funding for private placements will be discounted, I am surprised at the discounting lately for shares and warrants for some of the juniors. Bill's "back the jockey" is important. Funding should be something to look into if we speak to representatives at PDAC. For the few of us that are risk adverse for the juniors I will have to state that I will ease into the mining producers (SLW.to) in the current environment and steer my funds to existing shares of junior stocks (VGZ.to, WGI.to) that, near-term, aim for production and cash flow.

Did not average up in NOT.v last week. Will watch the price action near-term, as this is one junior that is flagged to buy more. Sitting on a nice gain so far (after it first went deep into a initial loss after I bought) and I don't think from the comments I have heard so far that this story with flare out any time soon.

The market here in Canada for most stocks is in the control of sellers (I still await a short-term move up). Appears Canada may avoid a recession or if it does dip into one, it definitely will be milder than the one in the US. A program on TV last week showed statistics that Canada experiences one recession for every two that the USA encounters and that recessions in Canada are usually milder than in the US. The past week has kept me on the sidelines - no stock purchases or sells. Bill C's comments on keeping in cash for the trade of (gold)?? (once in a blue moon) is driving me nuts (in a good way). Remember, M3, a broad measure of U.S. money supply is growing at almost 15%/year. It is no surprise that commodities have increased in price as noted above in the commentary (and the US dollar is going down).

I am positive (short-term) on the Oil stocks, Oil and/or gas production is an area I am looking for some of the cash on the sidelines. Also looking at trust units for short-term income. I am also starting to restrict my stable of stocks I am following to those that have a lot of volume or are in the TSX 30 index.

And now for a laugh (we can't always be serious about this market), last October 20 2007 I posted: [... And with Bill's adventure with AAPL out on the web (in his blog) we can expect a major pull-back and 'crash' in the stock price. I think we have been just given a short-term sell on the stock. lol.] Close on October 19 2007 - $170.42. Close Friday Feb 08 2008 - $125.48. Down 26% from October. The stock will need to go back up 36% to break even. Ouch!

Looking forward to seeing you (Jock and others) at PDAC. [030]

T-bar - You wrote:

"If the financing dries up for potential new gold producers while the hydro shuts down in one of the largest producing countries in the world,I cant see how this will not in the end have a positive effect firstly on the pog and perhaps on those jrs.Those jr's are the only hope the large caps have for expanding their resources I think."

Sure, IN THE END, less exploration and less production from S. Africa will be positive for POG and Jrs. The question is what happens next. Should one dive into the Jrs. now or hold one's powder. I'd love to buy after signs of ignition ... (fully realizing how hard that is to time .. )

IMF Gold fact sheet
http://tinyurl.com/2ax3y2
"The IMF may sell gold outright on the basis of prevailing market prices, and may accept gold in the discharge of a member's obligations at an agreed price, based on market prices at the time of acceptance. These transactions in gold require an 85 percent majority of total voting power."

IMF Members' Quotas and Voting Power, and IMF Board of Governors fact sheet
http://tinyurl.com/3arnue
"The Board of Governors, the highest decision-making body of the IMF, consists of one governor and one alternate governor for each member country. The governor is appointed by the member country and is usually the minister of finance or the governor of the central bank. All powers of the IMF are vested in the Board of Governors. The Board of Governors may delegate to the Executive Board all except certain reserved powers. The Board of Governors normally meets once a year."

From these fact sheets, it seems like only Paulson needs to approve the IMF sale.

Hi again,

GATA comment on alledged gold sale by IMF:

Submitted by cpowell on 01:44PM ET Saturday, February 9, 2008. Section: Daily Dispatches
11:37a MT Saturday, February 9, 2008
Dear Friend of GATA and Gold:
Before panicking about the Reuters story appended here, reporting that the G7 conference in Tokyo likes the idea that the International Monetary Fund should raise money for itself by selling some of its gold reserves, consider a few things.
1) The prospect of gold sales by the IMF has been hanging over the gold market for years.
2) For almost a decade now central bank gold sales have been accompanied by higher gold prices, not lower prices. Gold demand has been exceeding gold production by about a thousand tonnes per year, the gap being covered only by central bank dishoarding. Even with the rising price gold production is declining, the price still not being high enough to make greater production generally profitable.
3) Mobilization of IMF gold suggests that individual central bank gold reserves are nearing exhaustion or that individual central banks are no longer willing to dishoard what they have left.
4) There's no assurance that the IMF has the gold attributed to it and no report as to where the gold its kept. Further, as the Reuters story here acknowledges, any gold sales by the IMF would require approval by the U.S. Congress, which has opposed the idea in the past. This opposition has been offered in the name of supporting developing countries whose economies rely to a great extent on gold mining, but given the secrecy and unaccountability around the gold reserves of various nations, including the United States itself, it is fair to wonder whether the opposition is not also a matter of concealing some impairment of the IMF gold.
5) Though it is never questioned by the financial press, the rationale that continues to be offered for selling the IMF's gold is plainly ridiculous. That rationale is, as the Reuters story here reports, that the IMF gold should be liquidated and the proceeds invested "in financial securities with positive yields." But what "yields" could be more positive than the "yield" acknowledged for the IMF gold, an increase in value of 400 percent in five years? Is the IMF supposed to be happier with government bonds paying 4 percent per year against inflation rates several times that?
6) Those who want gold restored as the independent arbiter of the international financial system should be thrilled if all central banks and the IMF dishoarded all their gold at once and got out of the gold market for good. Until then, there really won't be a market price for gold, just a desperately manipulated one, a price well below the cost of production -- still a bargain.
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

Hi again,

Re role of the US congress in the IMF gold sale:

From the Reuters Story:
Padoa-Schioppa noted that in the case of the United States, approval for gold sales would be required by Congress, meaning "the administration must present a proposal and support it".

-------------------------------------

Further, internally, The IMF needs an 85% consensus on a move like selling gold reserves.

Interesting Interview with Jeremy Grantham in this weeks Barrons. Sticks it to Greenspan and Bernanke, regarding housing and Wall Street in general. Says earnings going forward will be big problem. Check it out.

Jock...Crystallex will be completing financing on Monday, February 11th. Latest financing will be used for mine construction. Despite the turmoil in Venezuela....positive things are happening in the mining sector down there.

Jim Sinclair on IMF gold sales
"Any sales of gold have nothing to do with the market for gold, as not one ounce will ever see the free market. The buyers will be gold-poor central banks."
http://jsmineset.com/

Comments from John Mauldin's weekly newsletter

"...I read and listen to the various bull arguments. I think there is a major disconnect between what we see in the economy and what they see as "value." Remember, if you're managing money in a long-only fashion, you cannot go on TV or in print and say, "The economy sucks, the market is going down, so redeem from my fund." Not going to happen. When Art Laffer throws in the towel, there is a bear market coming.

You need to use these bear market rallies to lighten up your long-only exposure, with the usual caveat that there are exceptions. I in fact do own one micro-cap stock I am holding on to for long-term reasons. But I would not want to be anywhere close to an index fund. And it is not too late to get out. There is still more downside in this bear..."

Since I've been receiving the newsletter John Mauldin has had a positive "We'll get through this" perspective. So I find his recent comments a little unusual but inline with Bill Cara's comments that this bear market isn't over.

Bill,

All those percentage gains you posted above are 100% too high in each case. A 100% increase is a double, a 200% increase is a triple.

for example:
seeds and chemicals
MON (Monsanto)
Dec 2005....$38
Feb 8, 2008....$110
+289% increase in 25 months, for example, should be a 189% increase.

ALOHA !!

MikeNYC and Jock ... Just screening for juniors who secured funding before the credit crunch in August in my mind is not one of the best measures. It's more complex ... I can recite a number of juniors who lost a good part of their funding they secured prior to the credit crunch due to ABCP and other derivative and hedging operations since then. I believe you have to stick with the fundamentals of the company in terms of deposit and management and their "network". Listen network is KEY ... So what do I mean by network? I define "network" as large deep pocket shareholders. Sure shareholders can be other mining companies or in one instance where I was involved British and Saudi Royalty. In my interviews in Australia I spoke with CEOs who had amoung their shareholders large Australian banks as well as Australian pension funds. In Australia "pension funds" have already moved in to buy GOLD junior explorers and have been for years! Anyone seen a US based pension fund buying US and Canadian junior explorers? I'm just giving everyone a heads up to not base decisions solely on the "usual" past funding strategies. I own a number of companies who do not depend on the usual suspect banks for their financing and in fact would prefer to never get funded the way Barrick and Newmont and even Western Goldfields got funded. What was Western's forward sales contracts(bank hedge) set at ... $804USD? They're now underwater on those forward sales. If POG goes over $1200USD, which is no longer far fetched, those forward sales will look down right miserable on their bottom line. How many years are they locked into those contracts? How many hundreds of thousands of ounces are the ex-Barrick management throwing away?

Sorry I got off on my soapbox about non-recourse and hedged loans, which are contracts that will only benefit the lenders and leave shareholders holding the bag!

Back to NETWORKS ... I have identified two kinds. Internal and external networks. Internal networks are the ones you will never hear about or participate in unless you are on the inside. For instance the building on Ventnor St. in Perth, Western Australia where I met with junior execs had Barrick Gold Aust on the third floor and Teck Cominco Aust on the the second floor(a three storey building). My junior was on the first floor. I guarantee these execs talk at lunch and after work. Probably many are friends or even related! It's a natural thing to do when you see the same people in your elevator or at the nearby restaurant or pub every day. Its only human. As soon as I walked in and looked at the elevator directory I knew exactly what was up and it answered questions right away! It made me smile ... That's an example of an internal network where companies network on the inside. An example of an external network is PDAC and all the many conferences worldwide where retail investors are present and they walk around talking to execs or geologists or newsletter writers and a host of other "interested" entities, even equipment manufacturers and service providers for the industry! Over the years I have been able to develop both types of networks. You can read websites all you want and that gives you just a framework for due diligence. I believe having networks, especially the internal type, that go past IR people gives you the edge. For me it was not easy. Unless you have a reputation and a presence like Bill Cara does doors do not open as fast. Orchid farmers from Hawaii? Well ... there's not a whole lotta celebrity clout there! HA!!!

Let me just say there are junior explorers out there who have no production at all that will never have to worry about funding because 110% of their placements are closed the same day they're announced ...

I will be writing about one such company hopefully soon. I would have never known this insider fact if I did not have an internal network! Let me just say sometimes I have gotten "insider" tips from tour bus drivers! HA!!! I love that about this sector. I have never had such open doors when I was playing the tech sector and my electrical/communications company even installed the very first VoIP system for Cisco Systems! I recall my subcontractor telling me he was going to buy Cisco stock once we tested the system and it was a thumbs up! He bought CSCO for $17USD and change in 2001. What's CSCO at now ... $23.50? A 38% gain in seven years ... While he was busy buying CSCO I was buying gold and silver ...

IMF
The same old same old dog and pony show every year! OLD HAT!!! Those in the know at the US FED won't go there. Any US Congress approval to sell gold means the cat is out of the bag. They'd actually have to document something about the US gold reserves and the sell info. Too much light on that vampire and then the silver bullet is next! Another issue is the US Treasury still values its gold reserves based on $42USD per ounce. Selling US gold reserves for $900USD per ounce means the US Treasury admits the US Dollar purchasing power sucks! A World reserve fiat currency cannot afford to admit that ... The IMF announcement always gets hyped by the powers-that-be, so I am looking for a POG pull back here. There is nobody on the face of this Earth that would like to see the POG with a 6 handle than me! Go with the GATA view, which is very similar to Jim Sinclair's view ...

GWHatesMidgets - - Venezuela

I'm going to be in Caracas later this month on othere business, but will try to meet with a couple of mining companies, although probably not KRY.

Jock...thank you for your response. Any information you can gather down in Venezuela on the mining environment and post on Bill's blog would be more than appreciated. There is a bunch of people over at the Agoracom.com KRY message board that are eager for ANY information in this regard. Enjoy your trip!

FT on S.African energy and likely Platinum price increases.

Restoration of 90% power to miners in S. Africa will keep the ore coming out of the ground, but piling up at the smelters, which need full power.

This and other interesting ideas from John Dizard's FT column.

BTW, you can now open up to 30 FT articles per month at no charge.

IMHO, the best articles are columns by Dizard, Gillian Tett and James Altucher.

You can search for these names; they each publish a couple of columns per week. So, that's about 24 articles per month.

FT reporting on the evolving debt crisis has been very insightful and ahead of the curve, whereas the Wall St. Journal has been LAME and appologist, even before Murdoch took over ....

Kaimu -

Thanks for your (customarily) insightful comments on juniors and the importance of "networks" to their financial health and staying power.

Could we develop a list of "value-added" investors, whose presence among a juniors institutional holders suggests a strong network, and perhaps rank them on this criterion?

Sorry to sound like a "social scientist" but I'm grappling with how to screen large numbers of juniors on a systematic basis to pre-qualify candidates for a Cara100 list.

ALOHA !!

Jock ... Yes, that has always been one of my top four criteria aside from management and assays and country risk. Who are the heavy hitters and deep pockets on a company's shareholder list?

There are three examples of that. One is Northern Dynasty-NDM/NAK and another is ECU SILVER-ECU/ECUXF and then there is Tanzanian Royalties-TNX/TRE. When I first started buying NAK there was a UK based company financing it aside from the HD Group by the name of Galahad Gold. For ECU there was and still is IIG Capital and a large hedge fund named Galtere International. TRE was financed by Jim Sinclair early on ... need I say more? Neither of these three companies ever used $1 of bullion bank financing from HB&B tied to forward sales and bank loan hedging. None of the above mentioned companies never really got the same HB&B analyst exposure for their projects in the early days either. Is that a downside in the end? I don't think so because in the end ... ITS THE ASSAYS STUPID! I don't mean that in an insulting way just a take on the old politico days of "ITS THE ECONOMY STUPID"! Well ... for most of America it was the "economy" but for those in the know back then and now days ... ITS THE FIAT STUPID!

HA!!

Yeah Jock, by all means a major criteria for these junior selections should be, "Who is financially backing them?" That makes all the difference when keeping the doors open is important. HA! John Kaiser of BOTTOMFISHER fame, recognizes this fact and has what he calls a PEOPLE TREE ... I call it an internal network. I have made some amazing discoveries when I have used Kaiser's PEOPLE TREE in the past! Of course Bill has quite a PEOPLE TREE of his own and I will be sad to have missed out on PDAC for that very reason amoung others!

Perhaps an assembly line approach to this CARA 100 list is best. Build the spreadsheet data framework like a car chasis going down the assembly line like Toyota does in Kobe. You know ... a few people put on the door, the hood, the trunk ... pretty soon its done ... CARA 100!!! A few people research just shareholder lists ... a few people focus just on management ... a few people on just deposits/projects ... a few people just country risk ... a few people on assays ...etc. Now I'm the "social scientist" or am I just reinventing the wheel?

Bill,

First, I'd like to thank Bill and all those who responded to my posting the last few days.

Bill, for the Trade of the Generation, why are you explicitly saying long "physical gold"? Wouldn't going long GLD be sufficient? Are you foreseeing an apocalyptic scenario? If that is true, then I think talking about CSCO 1 year from its post earnings bottom would be moot...yes? no? I'd like to see more discussion here on how to best prepare for this possibility, esp. since you have become more eager with the IMF possibly selling ( or giving the impression to sell) its gold.

I'm kind of surprised that this trade has not taken center stage in discussions here on the blog. In fact Quentusrex excellent questions (thx Quentusrex) haven't even been addressed once since he posted them....here they are again ...

"Also, I'd like to start discussing the history that lead us to the problem we are about to have.

Just like this link discusses the different views, plus the historical facts surrounding the Great Depression; I would like to help hash out a 'current state of the world markets' and also a 'what in history lead us to where we are'.
http://en.wikipedia.org/wiki/Causes_of_the_Great_Depression
(the link is narrower than the default width of the page. So tinyurl won't change anything.)

Here are some starter questions:
1. So, Bill says that the trade of the generation will be to soon sell bonds and buy gold. Why is that?
2. What will be the cause of the bond prices to fall? How will they fall? How will interventionists try to stop this? From where to where will they fall? What will stop them at the bottom?
3. What will be the cause of gold to go higher? How will it rise? How will interventionists try to stop this? From where to where will it rise? What will stop it at the top?
4. How does the market work right now? Atleast how does it work in regards to how will it break when things go bad? Will bond insurance companies losing their ratings be the next domino? What will be the cause of this? What caused that cause?
5. Who will be directly effected by the bond insurers crisis? Who will be most effected? Who will be effected first? and afterwards?
6. With the rise of bond coupon rates, and the loss of ratings of the bond insurers, what will this do to the markets? Who will be effected most? Why?
7. In 20 years, how should the world have recovered from this crisis?
8. What dangers do stupid(ignorant) politicians pose the the whole process(crisis through recovery)? What would be the biggest dangers? Will we have to worry about another Smoot-Hawley tariff act?
http://en.wikipedia.org/wiki/Smoot-Hawley_Tariff
9. Where can data be found to determine how much US currency is held outside the US? Such as forex reserves?

Posted by: Quentusrex [TypeKey Profile Page] at February 7, 2008 9:41 PM"

ALOHA !!

onlineaces ... I am not Bill! In essence every question from 1 to 9 can be answered with one word "CONFIDENCE"! If you can't pay your debt you can't issue bonds. I posted this near the end of the last chat for 2/8. Nevermind Smoot-Hawley and the past Great Depression. Fiat power and thereby your country's currency is based solely on "CONFIDENCE" and nothing else. The last Great Depression was not a global currency crisis this is! FDIC rules are being revised right before your eyes dissolved into total acquiesence and the Financial Services Modernization Act of 1999 was the lighting of the derivatives fuse of today that Warren Buffet and Ron Paul warned about years ago! We're not in Kansas and its not 1933

Don't ask me for a crystal ball to spell out the exact dates or exactly what will happen first ... then second and third ... because it has already started its just nobody wants to admit it. Am I "doom and gloom"? Really? Then when does reality become reality and not some $1mil game show fantasy land on TV? Are you alive or dead? If you have a pulse then you'll recognize that prices for everything including buggywhips and game show prizes have been rising for fifty years now. Name me one basic commodity that is now priced less than when you were a kid? Are hedge funds and speculators to blame for your childhood too? I'll say it again ... THERE IS NOTHING NEW UNDER THE FIAT SUN! Take your pulse ...

READ ON:
ALOHA !!

From the GREAT DEPRESSION to the GREAT SCAM ... Run for the hills and look who was instrumental in overturning Glass-Steagall in 1999! This is why I keep saying we need a Constitutional amendment to seperate banks from the State!

READ ON:
Oct.-Nov. 1999
Congress passes Financial Services Modernization Act

After 12 attempts in 25 years, Congress finally repeals Glass-Steagall, rewarding financial companies for more than 20 years and $300 million worth of lobbying efforts. Supporters hail the change as the long-overdue demise of a Depression-era relic.

On Oct. 21, with the House-Senate conference committee deadlocked after marathon negotiations, the main sticking point is partisan bickering over the bill's effect on the Community Reinvestment Act, which sets rules for lending to poor communities. Sandy Weill calls President Clinton in the evening to try to break the deadlock after Senator Phil Gramm, chairman of the Banking Committee, warned Citigroup lobbyist Roger Levy that Weill has to get White House moving on the bill or he would shut down the House-Senate conference. Serious negotiations resume, and a deal is announced at 2:45 a.m. on Oct. 22. Whether Weill made any difference in precipitating a deal is unclear.

On Oct. 22, Weill and John Reed issue a statement congratulating Congress and President Clinton, including 19 administration officials and lawmakers by name. The House and Senate approve a final version of the bill on Nov. 4, and Clinton signs it into law later that month.

Just days after the administration (including the Treasury Department) agrees to support the repeal, Treasury Secretary Robert Rubin, the former co-chairman of a major Wall Street investment bank, Goldman Sachs, raises eyebrows by accepting a top job at Citigroup as Weill's chief lieutenant. The previous year, Weill had called Secretary Rubin to give him advance notice of the upcoming merger announcement. When Weill told Rubin he had some important news, the secretary reportedly quipped, "You're buying the government?"END

The people now running for President and yelling out the word "C-H-A-N-G-E" are the ones that created the debt landscape of today. The last thing these candidates ever want to see is CHANGE!

I was reading where Warren Buffet is saying the banks don't have a liquidity problem they have a "sucker problem"! They cannot find any more suckers to buy their fraud like they did a year ago! I would have to correct Warren Buffet by saying he needs to use the "C WORD" and I am not talking about CHANGE, but instead "C-O-N-F-I-D-E-N-C-E" ... CONFIDENCE is what is on the line here and the US Banks are losing that battle. Once the US Banks fail then so goes the US Dollar and then the US government and all its worldwide military operations and foreign aid. I return to the concept of government finance and there is only three ways the US government can finance its day-to-day operations. TAX ... BORROW ... COUNTERFEIT(print). Without a tax base and without "confidence" in US paper what's left? The lost confidence in the US Dollar will put every other major fiat currency under the microscope. People holding paper in Europe and even China will have to ask themselves, "What good is a World currency if it collapses and becomes worthless?" Then they will consider the odds their country's paper is just as worthless. That will be the day when the "barbarous relic"(gold)will start looking a lot less "barbarous"!!

Gold supply has been declining over the past six years and now that South Africa has shut down production due to power shortages recently there will be ever more limited supply. Under conditions of limited supply and increasing demand where will the historical gold supply spigots be? That would be gold miners in production as well as the junior explorers that control future gold supply. GLD or SLV do not own production or the rights to future production. These bank owned entities have no direct claim to production and produce nothing except paper receipts, which is exactly what a US Dollar used to be. A receipt for real money(gold)stored in a warehouse somewhere and who is the custodian? Its the bank with the largest exposure to derivatives in the World and a court documented agent for the US Federal Reserve who is immune from prosecution or audit ... JP Morgan. Now that's what Warren Buffet calls "dumb money"! END

SteveC at February 9, 2008 7:27 PM

If you have a subscription at stockcharts, here is the link.
Under "Group" there is a drop down list of any lists of stocks you save under your subcription. Under "Predefined Chart Patterns" choose "P&F buy signal"
Run scan will provide the number of stocks in your list with a current P&F buy signal.

http://stockcharts.com/def/servlet/SC.uscan?s=

Jock you're right and thats where I fail usually not waiting for a good strong reason to buy. All I can say is look at the 1 yr cdnx chart with,mfi,oba,acc/dis, and cmf. The double bottom with the Aug low and a higher macd. The money flow exhibits strong accumulation on the fall from 3400 to 2300.

ronsen.blogspot.com/2008/02/pop-goes-weasel.html

It is what it is...a macro overview of the problem with some charts to support.

I have been reading the discussion of Bill's "Trade of the Generation" and am finding that my understanding of what Bill is saying is different from how others have been interpreting it. As I understand it, the expection would be for bad things to keep happening in credit markets and to the US$ for a while. Then at some point there will be an intervention by central banks that would drive down the price of gold by increasing margin requirements and selling gold. Some consequence of this would be to temporarily increase confidence in the US$ and the value/price of US govt bonds, thus driving up the price of US bonds and flattening the yield curve.

This is the point in time where the trade should be made - sell long bonds when they are expensive and buy gold at depressed prices.

The payoff would come subsequently when the central banks have exhausted their ammunition and confidence in the US$ starts to crumble. At that point, gold will soar and bonds will crash. It's not clear how things would evolve thereafter because what we're talking about here is a serious crash. Eventually one would like to reverse the trade and buy cheap govt bonds for the long term, assuming that things like risk of default are not a major concern.

Anyway, this is my understanding. I would be interested to hear if there is more or less to it than this. -- John

SPX/TSX Capped Diversified Metals and Mining Index is charted in StockCharts under the symbol - $SPTMN - and contains the Companies named at this link:
http://tinyurl.com/2atlpk

These companies might be the ones to place in one's newly created P&F signal "Buy" list, if desired.

Anyone wanting to get an idea overall how some of the Canadian Miners, mentioned here, look collectively can look at the chart for $SPTMN. The weekly chart that I use has the usual RSI(7) plus the SimpleMA's for 10/20/40 weeks. The miners appear to have been in a weekly downtrend to minor support, followed by a bounce/break up through that downtrend line to stop at the Fib(50) resistance, then followed by a drop back to Fib(38) support. So far, so good, imo, but not out of the woods because that last drow toop $SPTMN back below its wkly sma(10) which is roughly equivalent to a drop below its 50day sma - not good AND the RSI(7) bounced back below its 50_.

Here is the link to the chart that I use, but it is done in "Extra", so it might not work for all who go there.
http://tinyurl.com/2snapj

Sheesh, it sure would be easier if one could post a gif chart here!! Not a complaint, I like to read the comments here; I just think that sometimes

... sometimes a picture is worth a thousand words and gif suffix charts normally aren't heavy server demands, but wdik.

Sorry, that was left out of my last post.

Re JonEB’s comment @9:20

I interpreted Bill’s comments much the same as John, and thought about what I could do to deploy my IRA to best advantage.

Have you all checked the put price on TLT and IEF?? ITM puts were more expensive than calls across the board (except for the current month) as of Friday. And notice Jan 09 for TLT , put vs call.

Caution

spot - good point about posting charts. Some ppl do it by links to flickr or other sites. maybe if someone posts a primer on how to do that, we can all make our posts more visual.

Jock - Thanks. I think I looked into flicr a while back and it seemed to be more for use in sending photographs to friends and family, but as you say, perhaps someone could post a primer on how best to use it.

The question in my mind, also, is how secure flickr is as a site?

Perhaps, Bill would be willing to set up a separate page on his site, isolated from his main work and posts, which could be used for our posting of gif, or other suffix, chart files?

Spot / Jock

Charts in posts, Yes many of us have brought this up in the past and we're all hoping it will be an option on Bill's new site ?

Now I don't think Bill would want to provide storage for all those gif's, jpg's or png's, so we will still have to store them on a webserver somewhere else, like Flicker, ImageShack, Photobucket etc. It would be the same as what many of us do now by uploading our charts and then providing a link to that file. What would change is that we could then embed the image link in the post so it shows up right in the post rather than having to follow the link and open it in another window. Basically your browser gets the text from Billcara, gets the gif from ImageShack and puts it all together on your screen.

Spot, yes most of those sites are advertised as photo sharing services for friends and family, but that’s what we are here, friends and family. And computer browsers don't know whether a gif is a photo or a chart or snapshot of text, its all just a graphic file.

Now as to security, well everything on the web is public domain, so if you don't want people to look at it then don't put it on the web. Sure you can use passwords or encryption etc but there is always someone who can hack into it if they want to. The other problem is that these sites come and go, so one day you could find that all your charts are gone. Now if you had a local backup you could restore them to another site but you usually can't go back into all your past posts and update the links to the new URL addresses for your gif's. The other thing that happens is they start off as free unlimited storage and then later when your hooked they try to start charging or your account will be deleted.

I've put together primers on chart posting for other sites, I'll check my notes and see if I can put together something temporary for this blog. Problem is everything will change on the new site shortly.

Interesting discussion here today.
I believe the current bank problem is going to create an explosive opportunity in the next couple of years. Everything is going against the juniors, the availability of money, the time to develope a mine, the cost to develope the mine, the environment...etc.
But a few things seem evident, people don't want to hold fiat currency, the demand for commodities coming out of China and India is a long term play, we are inflationary check price of oil, gold wheat etc.
This appears similar to Bill's idea of Accumulation and Distribution Zone.......we are setting up for an Acumulation Zone for Juniors.
I am realy excited about the Cara 100 junior project that Bill, Jock, Auusieontop, Kaimu et al are putting together. Go Team Go..

Re: Trade of the Generation('TOG')

First, kudos to all those who further the discourse on the 'what, when and how' of Bill's two-pronged TOG - Quentusrex and onlineaces for the critical questions that we have to ask ourselves in order to synthesize the logic and then articulate it;

JonEB, your description sounds good to me. Since I cannot short TLT in my account, I'm targeting RRPIX to play the trade.

Here's a link to Peter Schiff's article at biiwii
on the TOG:

http://tinyurl.com/3ajeys

Couldn't be more succinct; is he persuasive, though? I believe Bill and Schiff are.

Good trading to all!

Stu

Wheat\Beans\Corn Analysis from Iowa Public Television show Market to Market

Martin: Well, basically the market is responding to a short hedge position in the board and needing to get out and the market is bidding limit. In the process we're rationing demand. But at the moment we haven't finished this off. There was news after the close today that starting Monday all exchanges on the wheat will go to 60 cent limits and if they block limit and don't trade on Monday they'll go to 90 cents on Tuesday but if they don't trade they'll go to $1.35 on Wednesday. So, this is the type of action you need to see to finish this out and clean up the market. There has been an ability to get rid of positions for the shorts if they did it through spreads whereby they would be buying the March wheat and selling the May or the July. And in doing so then they could turn around, and usually they were using the July, they'd turn around and buy back the short July as soon as they were finished off into March. I think the key thing here is that we need to look at this wheat market and it has far exceeded what most anyone thought it would do. The pasta makers are so intent on needing to have spring wheat to blend they couldn't get it and there is wheat in farmers bins in the Dakotas and in Minnesota, not majorly, maybe a third of the crop. But I think what has happened is they're not selling, they're sitting on it and usually that occurs when they overpass, make it too optimistic and then they watch the premiums disappear as the market goes down. And with these expanded limits what it says is the market can go down faster than it went up, which usually happens. So, when I look at the wheat now it's also driving the KC wheat because it's the next best protein out there and, of course, then it drags the soft red right along with it. So, I guess I would be telling producers that are in these protein areas in the KC and in the Minneapolis and even in the Chicago use these rallies here and get some stuff marketed.

http://tinyurl.com/2p8rgt

Re Chart posting and links etc

I put together a few quick notes which should get you started.

Not alot of details as Bill's site will be changing shortly so didn't want to spend too much time on it right now.

If you've got specific issues, just post a comment and I'll try to address it.

http://tinyurl.com/3be5uc

Great explanation Quasi.

For posting or hsoting images you also just use Google. With your Google id you can get 500MB storage for free and uploads images (or any files) of any size, and then link to them. There are no ads and no strings attached, no nasty poker pop-ups or screen redirections, it's very clean, safe, and easy. Google has a ton of other great tools too.

http://googlepages.com

Disclosure: I've never owned GOOG :-( I thought it was too expensive at $200.

JonEB/Quent/onlineaces-

re the long gold/short bond trade:

I would agree that to commit capital to a trade I need to be able to get my arms around it. After reading Bill's comments on the TOG a few times, I'm still unclear on what conditions need to prevail or how events would need to unfold to give us that trade. My (purely common sense) interpretation:

For the trade of a generation to occur, there has to be a DISCONNECT (similar to the one bill spotted/exploited in ’82 when he recommended buying Canadian savings bonds yielding 15%).

Normally, the POG increases with declines in the USD.
Normally, long bond prices increase with (successive ST) interest rate cuts.

Scenario (my assumption only, and so it may of course be wide of the mark):

Market drops (led by financials).
Bond prices (initially) spike on flight to safety.
Bond prices further spike as Fed cuts (discount) rate to zero to support banks.
This may be as high as bond prices can possibly go->so you short bonds.
Does it really matter which bonds you short (long-term[TLT], short-term, muni[CXE], coroporate)- would appreciate thoughts on this…

Simultaneously would (initially) see a precipitous drop in the USD.
Normally this would spike the POG.
Fed does all in its power to support the USD, including “increase the margin requirements in the commodity markets with respect to precious metals and oil.”
So instead of going up, POG drops on attempts to prop the USD. (Is this where the DISCONNECT occurs? Does the long gold trade hinge on an unexpected and severe drop in the POG?)
The POG may then drop further on forced margin selling.
At this point you buy (physical) gold.

Timing of the trades:

1) The timing of the short bond trade is pretty clear.
2) However, a whipsaw (or not) in the POG would appear to give you up to three possible trades:
a) Buy gold on (any) near-term weakness->sell as the market and the USD decline.
b) Turn around and begin to short gold as you make your last sale.
c) Buy again if/when the Fed succeeds in propping the USD.

MasWorldwide stagflation and bond (subprime and corporate) defaults, especially in developed countries coupled by an unwillingness by foreign entities to buy US Treasuries. Government has to buy/intervene more than normal/make up short fall, to buy back foreign owned US treasuries to supress yields, gold rockets.

Taking my timing of GDX trades with Gold/XAU ratio and the swiss Franc.

Ag Prices

Cash prices being offered in Canada for current and next crop are at record levels...(from Pioneer Feb 8/2008)

"Non-Board Markets:

· Feed Barley-Feb/March-$3.61 April/May-$4.01 Sep/Oct 2008-$3.70
1 can Canola- Feb-$13.11 March-$13.18 June-$13.61 July-$13.68 Sep-$11.78 Nov-$12.00 Dec-$12.22
Clearfield Canola-Feb-Aug-$13.66 New crop Dec-Feb-$13.23 March/May 2009-$13.64
1 cw Flax-Feb-$16.24 March-$16.62 Apr/May-$16.75 October 2008 new crop-$14.75
2CW Oats-Feb-$2.91 April/May-$3.11 Sep 2008-$3.26
Feed Peas-Feb/March-$6.17 Aug/Sep 2008-$4.97
Ed Yellow Peas-Feb/Mach-$10.20 May/June-$10.39 Aug/Sep-$8.49
Feed Wheat-March-$6.13"

Word on the dealers' lot is that Deere is just about sold out for 2008!

Quasi / SiO2 - Thanks for the info. I use Snagit for screen captures and its Editor works pretty good for my simple uses.

I will give your recommendations a try as soon as my ancient brain wraps around all new thinking that is involved. Bill is a young speedster compared to my rate of assimilation of different approaches to old and comfortable ways of working.

I'm always skeptical when a Warren Buffett quote appears next to any conversation about stocks, bonds, gold, or anything else. I'm a big fan of Warren and Charlie, though I think, like the Fed before they went all "transparent" on us, there is quite a bit of jawboning going on that adds to the mistique. Sort of like Trump... though I wouldn't want to lump them in his category of promoters.

I think perhaps there will be less chance of a monetary confidence crisis than there will be of an "insurance" crisis. People ("suckers" could be too strong a word, "victims" is more like it) entered into contracts to mitigate risks which didn't really make sense, and ultimately exposed them to additional risk and higher fees than if they had not done anything in the first place. Sort of like buying insurance on 28% credit card debt against the risk of losing your job. If you lose your job, the company pays the minimum payment, while piling on the interest. Sound fair? I have some land in Florida that is getting cheaper every day and some speakers I can sell you out of the back of a van.

"What New York-based JPMorgan Chase didn't tell them, the transcript shows, was that the bank would get more in fees than the school district would get in cash: $1 million. The complex deal, which placed taxpayer money at risk, was linked to four variables involving interest rates. Three years later, as interest rate benchmarks went the wrong way for the school district, the Erie board paid $2.9 million to JPMorgan to get out of the deal, which officials now say they didn't understand.

``That was like a sucker punch,'' Barker says. ``It's not about the district and the superintendent. It's about resources being sucked out of the classroom. If it's happening here, it's happening in other places.''

$12 Billion in Deals "

http://tinyurl.com/38rqoj

What is gold, but an insurance against inflation risk? I'm skeptical that this type of insurance will work in a monetary crisis, especially when there are other forces at work... like the Fed & IMF.

In the case of gold, there is a lot of hype around the metal. This article, "Warren Buffett on Gold" brings out the Buffett brand yet Warren doesn't once even mention anything shiny!

http://tinyurl.com/38rqoj

And a more recent article about the 2005 article, suggesting that every line of Berkshire's annual report has "gold" written between it.

http://tinyurl.com/2pkzuc

Call me skeptical, but there was a certain person who used the Berkshire name to sell stocks with a "Buy, Hold, and Prosper" approach. Not sure what this person is doing now... I think he's in Jamaica?

http://tinyurl.com/3xu3u9

His story was an inspirational one to me too, as he is said to have started out selling mutual funds at yard sales.

Another one using the Berkshire name is Malcolm Fobes III, fund manager for USO. His name alone tells me something...

I think Warren is worried about derivatives not because of a monetary crisis, but because of an insurance crisis. Derivatives, bonds, and other paper products have premiums which are skyrocketing due to the lack of risk-takers in the market and lack of liquidity. In addition, decreases in interest rates cause these products to backfire on their holders, ultimately benefiting the banks, and hurting the insurance companies.

So with the recent run up in commodities prices like wheat and soy grains, what effect will this have on the prices of insurance premiums?

I'm reading between the lines here, but it seems as though an increase in the price of the product being insured would lead to an increase in the premium and an increase in the worry insurers would have about the product in the event of a claim.

"Grain farmers point out that the cost of fertilizer and other farmer chemicals also are going up, along with commodity prices. Crop insurance premiums have skyrocketed, because they are tied directly to the price of the crop being covered. The cost of renting and buying acreage also is creeping up as crops become more valuable.

Sexton, who farms 1,300 acres, sees corn prices staying at or above $3.50 a bushel for several years to come. But he has no plans to expand his operation, figuring that higher fertilizer prices, crop insurance premiums, land rents and other costs will increasingly offset the rise in commodity prices.

"I'm not convinced that the profitability that we're seeing will carry forward into the future," he said.

http://tinyurl.com/2trmyq

An unlimited supply of capital is a myth... as is a $500 trillion CDO market, as is the insurance of this market. So is the real problem confidence with the US dollar or confidence in the insurance industry?

FDIC Begins "Death Watch" of US Banks, Plans to Lower Insurance to $10,000 and Give Vouchers for Hamburgers or Tacos

http://tinyurl.com/3ymuc7

One question, how do you insure physical gold holdings without putting it in a bank? Even though I'm skeptical about gold as a hedge, especially GLD & CEF paper, I'll probably follow the crowd "wisdom" and keep a bit of the shiny stuff around just in case. Just like paying off your credit cards, it couldn't hurt to hold a bit of gold... (but pay the cards off first!)

What worries me even more than Basel II is Solvency II... even though I'm just reading about it now.

"Under the Solvency II Warren Buffett will have to have more capital for his equity risk; he in fact would have to put aside some of the capital. "

http://tinyurl.com/2j9454

Of course, this is selfish since I still hold 1 share of BRKB that is doing ok for me in these markets and gets me a paper copy of the annual report & Warren's letter, and an AGM ticket I can sell on eBay. :)

Looking forward to getting my Trader Wizard book in the mail soon. I need something good to read while this stuff plays itself out in the next couple months.

USDA carryover estimates for wheat are the lowest since 1947/48.

Do you know if there is a way to get exposure to barley thru stocks or options?
Posted by: Quasi at February 9, 2008 4:09 PM

Don’t know of any direct equity exposure to barley.

FWIW, the RJA ETN composed of twenty components includes a very small weighting for barley. The largest weighting is for wheat (20.06%).

In the interest of disclosure, I have an IRA position in RJA and think I posted my entry here last month.

Thought that comes to mind are the brewers who have increased grain costs. Believe they’ve initially absorbed some of the costs, but are now passing some of those costs on with increased prices.

Chavez again threatening to cut off oil exports to the US, this time over Exxon Mobil lawsuits.
http://tinyurl.com/2prq9z

Thanks Mr. Chavez..one more endorsement for the Canadian oilsands.

Better ramp up the ethanol production... and replace Hugo's daily Cocao puffs with Xanax.

he's probably making comments under the influence->muted statements/a little backpedaling to follow LOL

above post->just translating wavesmash's comment into plain english...

I've turned bullish on the US dollar. I'm sure that I'll get shredded for this opinion but welcome it. Tight stops on weakness is where I'll be going long.

I'm still happy with picking up copper ~$3/lb. The stocks showed significant weakness but have rallied back.

Sure has been a good year to be long sugar and silver.

May you all invest profitably...

A few days ago I posted that I thought the top was already in for bonds, and now thanks to Quasi's "how to" I can show you the chart (I hope, as when I followed imageshack's instructions, they didn't show any images under my folder). Anyway, here it is:
http://tinyurl.com/2cqn75

HK selling off at the open...marketwatch provides a local take:

http://tinyurl.com/38hwql

excerpt:

"Francis Lun, general manager at Fulbright Securities said he expected Hong Kong's Hang Seng Index to decline about 300 points during the session.
"The fall won't be much because the Japanese market isn't open today and there isn't much interest. Even if the market declines, it won't decline very sharply," said Lun.

Lun added, however, that investor sentiment was weak following a string of losses on Wall Street recently and that the Hang Seng was likely to fall as low as 20,000 in a few days, before it saw a strong rebound. The Hang Seng index dropped 5.4% to 23,469.46 during a shortened session before the Lunar New Year Holidays on Wednesday."

note that the HSI 20,000 target matches the primary downside target Colin Twiggs has in mind:

http://tinyurl.com/7fw5r

Well I don't know where those women came from, but they certainly make the whole thing a lot nicer to look at :>)

anecdotal evidence that consumers (in the bay area) are paring back spending:

http://tinyurl.com/266alu

Re 9. Forex reserves by country... but take into account IMF fudge factors.

http://tinyurl.com/39rgos

Stupid politicians are just puppets for other interests.... like Ethanol lobbyists.

http://tinyurl.com/2kb5od

This paper from a Chinese assoc prof outlines the current situation with Ethanol and talks about the US and Brazil, though it focuses mainly on China.

http://tinyurl.com/34xfyk

Wow it has been a fugly year for country indices so far... except for Canada & Ireland where it was just mildly unpleasant in our oil-rich nations.

http://tinyurl.com/2wvdr2

Maybe this is one reason why Ireland is doing so well and why the lobbyists want to keep up Ethanol tarrifs in the US?

"Remarkably, all of Ireland's ethanol is domestically produced, at a time when most of Europe still relies on Brazil for supply. And because the ethanol is sourced from waste matter, this eliminates one of the most widely quoted criticisms of biofuels, which is that valuable food resources are being diverted for fuel usage."

http://tinyurl.com/3c6qo4

I went to Ireland a couple of years ago and saw lots of construction cranes... though not as many as in Beijing.

RE: charts, posting and stuff

SIO2, thanks I will check out the Google site, haven't used them much as they are mostly in the Beta mode at present. I thought about buying at the IPO but thought is was expensive, missed the train so just went elsewhere, I will check them out and add to the info page.

Cyderman, great, glad to see you got the post link working. After you have uploaded your image, just click on the "my images" tab and it should show you all your current images, just scroll down. Beside each image it will give you a list of links, copy the "direct" link code, that will give you just the chart/ image, without all the ImageShack banners etc. For your chart it is as follows

http://tinyurl.com/2x89ae

HSI- just dipped below 23K..

Chavez' threats -

He's playing to the home audience, not too unlike the way Cheney and Bush use al Qaeda.

Pump up a foreign threat to keep people from thinking about how things are at home ...

Chavez needs oil revenues as much as Cheney needs al Qaeda.

ALOHA!!

The World is awash in fiat currency of every country. No place is safe ... Think of these trade routes between major trading sectors as conduits for fiat and therefore monetary inflation. China is the designated industrial power who almost singlehandedly is the "factory" of the World. Cheap labor without union and legal and government constraints produces products and services for the World. In exchange China's major trading partners like the USA export inflation to China. Also recall that I posted many months ago here a chart showing the governments of the major BRIC countries are printing as much or more fiat than the US Fed. China M3 was at 15% for mid year 2007. Russia was over 40% and Brazil and India were running over 20% ... Is it any wonder the US Fed dumped M3 reporting?

The following article shows the most common knee-jerk reaction by governments burdened by inflation and rioting mobs when basic prices get too high. Hey, just CAP PRICES! Remember this was tried in the USA in the 1970s. That worked well as the Fed Funds Rate went to 18%! Remember it is not the prices manufacturers are charging for their goods that is the underlying problem which results in high prices. The problem is government.

Now recall the chart I posted also mid year 2007 that showed 85% of China's exports were by foreign companies who moved to China not actual Chinese. Price freezes on these multi-nationals will effect their bottom lines if they are dependent on the Chinese middle class. People here were telling me the 200million Chinese middle class would replace US consumers ... In the face of inflation the Chinese middle class will cut spending faster and deeper than any US mall rats ever will! What happens when these companies report impaired earnings due to Chinese government price capping mixed in with power outages? Doesn't sound like a whole lotta great quarters ahead for the Chinese stock market. Depends how long the Communist government keeps price controls going. Yeah ...

How dare they call price capping "Communist-style controls"! I suppose the Communists also invented "tariffs" ... Remember when Nixon was freezing wages? Read up on how well price capping has worked in Zimbabwe. If you freeze prices businesses have to close their doors because there are4 no profits. This leads to worker layoffs or at least a cut back on production, which means even less goods are being produced. That only fans the flames of inflation and ultimately causes higher consumer prices.

Of course none of these consequences will be mentioned on CNBC. If it is then they will attribute Asian market crashes to being "overbought"! Never mention the "I WORD"! Watch insider selling on China based companies.

READ ON:
China Turns to Economic Controls
Sunday February 10, 5:30 pm ET
By Joe Mcdonald, AP Business Writer

China Returns to Communist-Style Controls to Cool Inflation in Market Economy

BEIJING (AP) -- Fighting stubbornly high inflation, China's leaders dusted off a blunt tool from its pre-market reform era and commanded utility companies to freeze electricity prices.

Households got temporary relief after that September order, but the capitalist-style economy produced unwanted consequences. Coal shortages cropped up as power companies cut back on buying and mines reduced production. Freak snowstorms over the past month caught power plants with dangerously low stocks, resulting in blackouts and factory shutdowns.

Link: http://tinyurl.com/23nv4c

Yesterday I spoke to a snowbird friend of mine who lives in Maine and goes down to the Florida Keys for the Winter riding his brand new Road King Harley or is it Road Kill? One of his Harley pals he was out with is a retired steel worker(retired in 2001)from Winslow, Canada who told him the Chinese bought his former mill and dismantled it and shipped it off to China. I want to get more specific details. I will report back once I find out the five Ws! Anybody in Canada hear about this?

Bottom line is price controls are a red flag for desperation.

Kaimu, several instances of China buying and dismantling steel mills, as far back as 1994 as far as I looked
http://tiny.pl/ld2d
http://tiny.pl/ld2f
and an update to the thyssenkrup factory story
http://tiny.pl/ld25
peace
Gray

Reining in 'Cyberdisinhibition'

February 10 2008

IF, LIKE me, you have a healthy dislike of ugly words — Cyberdisinhibition is one to hate. That is appropriate. Cyberdisinhibition can do more than irritate you with its portmanteau structure. It can destroy your business or personal reputation…………

When we are angry a tiny almond shape organ deep in our brains, close to the "reptilian" brainstem creates and sustains the negative emotion. Because the neural path is short it is the amygdala, (almond shape) that kicks in first and causes us to do stupid or dangerous things. Emotion first — reason later, but only if there is feedback. Without feedback the prefrontal cortex fails to "kick in". The Internet provides few opportunities for immediate feedback and cyberdisinhibition is the result.

Webcam and audio links provide, at best, limited feedback. Blogs deliver none at all. When feedback is limited or missing there is a real danger of excessive vitriol. The Internet has created a hazardous world.

http://tinyurl.com/2qjatl

Appears that Shanghi will re-open for trading on Wednesday:
http://www.sse.com.cn/sseportal/en_us/ps/home.shtml

Holiday: Chinese New Year
From: 6 February 2008 (Wednesday)
To: 12 February 2008 (Tuesday)
No. of trading days: 5

WILL SHARES CATCH UP WITH THE GOLD AND SILVER PRICE?
Excerpts from GLOBAL WATCH: THE GOLD FORECASTER
by Julian D.W. Phillips February 8, 2008

Many of you out there are frustrated at what seems to be the very poor performance of gold & silver mining shares over the last couple of years when compared to the performance of the gold & silver price, understandably so. Even the Junior’s have not performed to their full potential. Why not?..........

http://tinyurl.com/24kebo

WORLD GOLD TRUST
Gold ETF investment may increase 30% this year
As gold continues to set record highs, the World Gold Trust, the sponsor of the world’s largest gold ETF, forecasts a 30% increase in their gold ETF products this year.

Author: Atul Prakash
Posted: Friday , 08 Feb 2008

LONDON (Reuters) -

Investment in gold Exchange Traded Funds (ETFs) promoted by the World Gold Council could surge almost 30 percent in 2008, if bullion prices continue to set record highs, a top fund official said on Thursday…….

"I don't see gold falling back to $700 an ounce given the associated mining costs. Furthermore, while there would be a reduction in GLD assets, I personally believe that they would not be that great given the investor profile." (Reporting by Atul Prakash; editing by Peter Blackburn)

http://tinyurl.com/2llf2e

Factory fire may hurt Dell, HP

KEY SUPPLIER: Damage to a Lite-On Technology plant may have a serious impact on the landscape of the LCD monitor industry in terms of market share, DisplaySearch said
By Lisa Wang STAFF REPORTER
Monday, Feb 11, 2008, Page 6

US computer monitor vendors Dell Inc and Hewlett Packard Co (HP) and China's Lenovo Group (聯想) may lose market share in the first half of the year after a major fire halted production lines at Lite-On Technology Corp (光寶科技), a major supplier, market researcher DisplaySearch said in its latest report.

http://tinyurl.com/38zdu3

ANALYSIS: G7 meeting fails to deliver quick fix investors want

AFP, TOKYO
Monday, Feb 11, 2008, Page 5

G7 finance ministers meeting in Tokyo this weekend failed to deliver the quick fix that jittery investors had been hoping for to ease the gloom on global markets, analysts said.

They said the absence of any concrete new measures from the G7 industrialized nations to boost economic growth would likely weigh on global share prices and the dollar next week………

"The market needs a quick fix to address two issues at the same time: the collapse of the financial markets and an economy [the US] that is headed towards a recession," Muramatsu said.

US Treasury Secretary Henry Paulson said he was confident that the US economy would avoid a recession, although growth was likely to slow. But, in a prepared statement, he said it would "take time to work through the current financial market turmoil."

Paulson tried to sound optimistic but his remarks seemed more cautious than those in the past, said Daisuke Uno, chief strategist at Sumitomo Mitsui Banking Corp.

"I think he is preparing the market for a recession but in several phases," Uno said………

"The G7 alone cannot handle the global economy any more," said Yutaka Harada, chief economist at Daiwa Institute of Research. "The involvement of the emerging economies is inevitable for global economic coordination."

http://tinyurl.com/2vemw6

ALOHA !!

Photogray ... Thanks, it is appreciated.

I was looking for a steel mill in Winslow, Canada but this will do!!! WOW ... in Germany, the engine for the EURO!!! Western governments, especially the USA need to wake up, but judging by the way the elections are going for 2008 it does not look like there will be any CHANGE! In Richard Maybury's 01/2008 issue he recites US General William S Wallace stating that, "The US Army sees fifteen more years of War ... We're in for an era of perhaps multiple decades of persistant conflict." That's if the US Dollar and foreigners who hold our debt will cooperate.

Those dismantled steel mills that China has been buying with their excessive supplies of Euros and US Dollars are cause for concern. Even if the USA had a modern FDR as President who wanted to create jobs and manufacture our way back to prosperity where are the basic materials you need to revitalize infrastructure? Looks like they've all been shipped to China!! At least in 1933 there was still factories and mills to man here in the USA, but we don't even have that any more. How would a WPA work today? What will the US government do send the unemployed over to abandoned Starbucks stores to rehab the cappacino machine and make lattes for export? In other words before a works or jobs program can get going to revitalize US manufacturing and infrastructure we've got to build steel mills first! So we can manufacture bullets but we can't fix bridges!

I love this!!! These German steel workers are on strike for less hours as China dismantles one of their mills and ships it back to Shanghai! I thought US unions were deaf, dumb and blind!!

The one main reason we won WW2 was due to our superior manufacturing capabilities. How can we win WW3 with Home Depot and Google?

READ ON:
Westfalenhütte Steel Mill

Now that East German workers in the metal/automotive industries are on strike to fight for reduced weekly work times (and risk basically everything that has been reached there so far), the above photos come to my mind. I took them just days ago right here in Dortmund where I live, in the now dismantled Westfalenhütte steel mill, once the city's largest employer. Dismantled? Packing company? The entire plant has been knocked down and shipped to China.

After its closure early in 2001, Chinese steel company Shagang purchased all the facilities shut down by ThyssenKrupp Stahl, read, everything you need to produce hot rolled steel: a sinter plant, blast furnaces and the hot strip mill from the Westfalenhütte and the oxygen furnace steel works from the Phoenix plant. Everything got dismantled, knocked down into handy parts, packed into wooden crates and shipped across the seas to somewhere near Shanghai, where the reinstalled facilities will produce 4 million tons of rolled steel for the domestic market, substituting imports. And now, Shagang hit the jackpot and bought the missing link: the Kaiserstuhl coking plant. Situated right in the center of the Westfalenhütte area, commissioned in 1992 and decommissioned just years later, this 1.5 billion Marks plant is the cherry on the Shagang shopping tour cake.

And in Eastern Germany, workers are on strike because two blockhead union leaders claim that their plants are "now competitive enough" to introduce the 35 hour week that is standard in many industries in the Western part. Mr Düvel and Mr Peters don't make too many friends with their course, even not among workers and workers' councils - no wonder, in an area with 20% unemployment rate where the new automotive plants and their suppliers basically are everything they have.END

ALOHA !!

Newmont is switching priorities. As a rule Newmont mines only 10mil AU ounce deposits or larger now they are moving to smaller deposits. Many successful juniors now hold gold deposits of 1-4mil AU ozs they bought dirt cheap from the majors during the 1980s. It looks as if the majors will be buying them back at a premium!

This article focuses on some Australian juniors. Some of these companies mentioned are not necessarily a recommendation, but it does point out that the BIG GUNS like Newmont Mining(NEM)will be looking to go SMALLER and that beats a path to junior explorers.

Note the implications for higher gold prices due to supply constraints as larger gold mines now become uneconomical due to lower grades and higher costs and reaching the end of their mine life.

From the Australian Business ...

Hummmmm ... "flogging"?

READ ON:
Small is beautiful as gold hits a crunch
Robin Bromby

February 11, 2008

WHILE disappointing, the news that View Resources had called in the administrators was not the big gold story of the week - although it would have been for Lion Selection Group, which had invested $7.9 million and, at the most recent substantial holder notice, held 31 million shares, or 7.1 per cent, of View.

The $10.6 million raising in November and the sale of View's stake in the Carnilya Hill nickel project for $25 million might have given ground for thinking the company could have kept its head above water at the Bronzewing gold mine. Traders clearly thought so as they heaved View's share price off the floor in mid-January.

No, the big gold story of the week came from Newmont Mining. The global miner said it was boosting its exploration budget. And they will target smaller deposits as part of the campaign.

Not to get too carried away, but this switch is an epochal event. For years, the majors have been walking away from discoveries because they did not meet size requirements; a resource of 500,000oz of gold was just not befitting a world player. And they sold off the scraps, as Barrick Gold did by flogging its Paddington mine to Norton Gold Fields.

Newmont has historically mined deposits greater than 10 million ounces - but these are getting scarce on the ground at the moment. Now they have to consider more humble targets, a sign of how gold supply is going to face further crunches ...

Link: http://tinyurl.com/2umzkf

Sez Kaimu:
==========================
Those dismantled steel mills that China has been buying with their excessive supplies of Euros and US Dollars are cause for concern. Even if the USA had a modern FDR as President who wanted to create jobs and manufacture our way back to prosperity where are the basic materials you need to revitalize infrastructure? Looks like they've all been shipped to China!! At least in 1933 there was still factories and mills to man here in the USA, but we don't even have that any more. How would a WPA work today? What will the US government do send the unemployed over to abandoned Starbucks stores to rehab the cappacino machine and make lattes for export? In other words before a works or jobs program can get going to revitalize US manufacturing and infrastructure we've got to build steel mills first! So we can manufacture bullets but we can't fix bridges!

I love this!!! These German steel workers are on strike for less hours as China dismantles one of their mills and ships it back to Shanghai! I thought US unions were deaf, dumb and blind!!

The one main reason we won WW2 was due to our superior manufacturing capabilities. How can we win WW3 with Home Depot and Google?
==========================

Link to article quoted below: http://tinyurl.com/396b3b

Link to article announcing the referenced new $3.7 billion ThyssenKrupp steel plan in Alabama: http://tinyurl.com/2emsy8

China Trade Impact on North American Manufacturing

American Metal Market’s

3rd Annual China Summit

Ritz-Carlton Hotel

Pentagon City, Virginia

September 18, 2007

Presented by

David Phelps

President, American Institute for International Steel

The subject for this panel to discuss is probably the most politically charged of the conference. As the last panel, we will have heard a lot of hyperbole about the negatives from those in the domestic steel industry who see all imports as somehow threatening and of course, China as the new boogy man. It is my job in this discussion to bring some facts and with them, some balance.

Since 2004, the US steel industry has had an incredible run of high prices and strong profits. Leaving aside the often discussed issue of subsidies assisting in the restructuring of the industry – over $9 billion in pension liabilities hived off to the PBGC for example – what the American industry has accomplished has been nothing short of miraculous.

Let’s start with a short walk through time. The American – and many other steel industries around the world – struggled through the period 2000-2002/3. While some claimed that overcapacity was a prime cause of the struggles during this period – estimates from the US industry reached 200-300 million tons – others, like WSD, claimed world overcapacity was in the neighborhood of 75 million tons, of course depending on demand. During this period, the American industry benefited from approximately 180 AD and CVDs and most importantly, the 201 duties. Did trade protection create a profitable industry? We all know the answer to that question, no.

What happened to change the basic structure and results of the US and international steel industry? Trade protection? Again, the answer is no. In short, the precipitating factor was the unprecedented growth in demand for steel in China. The US, world and Chinese steel markets surged in early 2004, led, or driven, by the insatiable demand for steel in China, which was investing heavily in steel intensive infrastructure projects like ports, power generation etc.

The China phenomenon has changed the basic nature of the steel cycle. What had been considered bullish prices for hot rolled sheet in the pre-2004 era, say $450 per net ton, in 2005 was the nadir. Hot rolled prices in China surged in early 2004 to over $600 per ton, an unheard of price at the time that drew steel to China like the proverbial magnet. Even US mills, not known for exporting to non-NAFTA countries, participated in the frenzy. It would be impossible to reach any other conclusion than it was China that created the new paradigm for the world steel industry that has benefited every steel producer in the world since 2004.

Interestingly, even when China became a net exporter in 2005-2006 and the US steel industry began its protectionist drum beat against its new perceived threat – even in the midst of record profits I would add – the price structure has not changed. A simple question comes to mind. If China and Chinese excess capacity is so bad for the US and world steel industry, why have we not seen a return to the bad old days of yore with low prices and high losses?

Of course, we have heard a lot about the loss of American manufacturing jobs during this conference, with the assertion that the 3 million jobs lost are somehow to be laid at China’s doorstep. What are the facts? 2.8 million manufacturing jobs were lost during the 2000-2003 recession. [Again, note that during most of that period, the US steel industry benefited from 201 trade protection.] Did Chinese competition cause that job loss? Since China was a major net importer of steel during this time, that is a hard argument to make. Since 2004, manufacturing job losses have flattened out, totaling some 200,000 during a period of record profits, output and strong increases in productivity. Since China became a major exporter of steel in 2005-2006, what about job losses and the health of the manufacturing base? Manufacturing output has been on a proverbial tear and of course the American steel industry has benefited mightily.

For fun, let’s look at US steel industry profits and Chinese imports. When Chinese imports were minimal, the industry was mired in bankruptcy and losses. When Chinese imports of steel hit their all time high in 2006, along with total imports, the US industry posted its all time record profits. One could make the argument that maybe we need more Chinese imports, which will generate even more profits? Just a thought.

So, where is the problem? Some say it is the hollowing out of US manufacturing. Well, US manufacturing is not a monolith but taken as whole, it is healthy, with record profits, record exports and even, gasp, record imports of raw materials, intermediate manufactured goods and production equipment. In fact, of total manufactured imports, 55% go to US manufacturers as raw materials, manufacturing inputs and capital equipment. For steel, the tale is similar, with imports of raw materials, slabs, hot rolled sheet, hot rolled bars and production equipment -- the US steel industry is clearly dependent on imports.

So, where is the problem? I would say that there is a serious problem with some of steel’s customers. And a – not the -- cause is trade protection. [Other challenges for American manufacturing compared to their foreign competitors include natural gas prices, corporate tax rates, employee benefits, pollution abatement and tort litigation.] If you look at industry data on, for example, the all important transportation, or auto, sector it is one of the weaker manufacturing sectors. It ranked last in profitability during the period 2002-2006, 13th out of 18 in revenue growth, second to last in value added, and last in exports and imports. So, all this talk about steel imports and the steel industry needs to be put in the context of the impact that substantially higher steel prices during this strong period for all manufacturing had on our customers. Would more open trade and fewer import restrictions on steel improve the health of our customers? The answer is obvious since many of our customers’ costs are highly tied to the price of steel. Yes. Would it solve all their problems? No.

How does our steel industry fare in comparison with the rest of US manufacturing since the bottom of the last recession in 2002? In primary metal manufacturing [the government classification that covers steel] revenues grew 58.7% and ranked second behind petroleum. During this period 2002-2006, profits increased by 666.9% ranking it first ahead of petroleum. Note, STEEL WAS MORE PROFITABLE THAN PETROLEUM! For output, value added, value added per worker, exports and imports, primary metals ranked second behind, you guessed it, petroleum.

And surely another sign of a weak and threatened industry [if one believes the hyperbole] is the fact that the US steel industry is contracting. Oops, it is not, it is expanding. ThyssenKrupp is investing $4.2 billion in a plant will produce 1 million tons of stainless steel and 4 million tons of carbon steel annually and create 8,000 jobs. A joint venture, Severcorr, is opening a 1.5 million ton mill. India’s Essar Steel Holding will build a 1.5 million ton mill in Duluth. Russia’s Magnitogorsk plans to build a 1.5 million ton $1 billion plant in Ohio to make auto-quality steel products. And of course, another measure of the weakness of the American steel industry is the low asset value in the midst of the merger and acquisition boom we have experienced. Again, wrong. On the contrary, both foreign and domestic bidders for steel industry assets have continued to bid up the prices paid per ton of capacity. These prices reflect the future earning potential of the acquired assets. Some have suggested that the new capacity announcements are both a reflection of optimism for the future of the US steel market and a reflection that the price of existing assets in the US has risen to the point that building new greenfield plants is financially justified. Obviously, in the eyes of investors the potential of the American steel market has not been dimmed by large steel import volumes from China.

Our customers also seem to think well of the US as a place to manufacture. A list of companies includes VW, BMW, which is doubling its production in South Carolina and Mercedes-Benz which set a production record in Alabama. Why would foreign corporations invest such vast sums if US manufacturing is threatened with destruction by imports from anywhere, including China? Maybe they don’t see the threat????

Here is a short bullet summary of the disturbing facts for the year 2006 from a recent Cato study.

· Real U.S. Manufacturing output reached an all-time high.
· Real revenues reached an all-time high.
· Real manufacturing operating profits reached an all-time high.
· After-tax profit rates reached an all-time high.
· Return on equity for manufacturing corporations reached an all-time high.
· The value of U.S. manufacturing exports reached an all-time high.
· U.S. factories remained the world’s most prolific, accounting for over a fifth of world manufacturing output. [And over 2.5 times the value added in manufacturing in China.]

Before I sign off, allow me a bit of historical and theological free trade musing. For decades, since the end of WW II and the establishment of the GATT, it was the health of the developed world’s economies that determined the health of the US and other economies. For steel, this meant the USA, Europe, Japan and Canada. When all were up, that was good, when all were down, everyone suffered. When some were up and some down, we had large price differentials between the hot and cold markets. The developing world prospered or not based on what happened in the developed world. With decades of GATT and WTO inspired trade liberalization, we have now seen the developing world come to life. China, Brazil, India, Russia, Korea and others such as in the Middle East are now engines of economic growth for the world economy. As I noted above, China is clearly the driver in the current prosperity, but in steel we see other drivers, as noted above. This is, in my opinion, the direct result of trade liberalization. It is not protection that got us to this happy point. To those who say China is a threat, I say that China is doing exactly what we all wanted her to do for decades and we are benefiting. China is also the US’s fastest growing export market! Now is not the time to turn back to the bad old days of Smoot Hawley -- we know what that got us. We need more trade liberalization, not less. For balance, I will close with the comment that while China has come a long way, it still has a long way to go, but China is on the right path. We in steel have probably benefited more than many sectors from the emergence of China. It is a time to celebrate.

Wouldn't it be a strange thing for the land of free enterprise to call for communist style closed door patronage to be enforced.

Just finished reading Hussmans Weekly Market Comment,fund is in a defensive mode yet still has 20% of fund in Precious Metal miners.

To be correct in my above posting Hussman did not say miners specifically allocation was about 20% of assets in Precious Metal shares.

Quasi: googlepages.com is not in beta. It works very well. I use it every day, as well as docs.google.com.

ALOHA !!

jsmcgraw ... The problem with Mr. Phelps' report is that he does not understand the priciples of government intervention during periods of rapid monetary inflation combined with a global confidence crisis in banking. The report Mr. Phelps issued Sept 18, 2007, mainly discusses the boom period from 2004 to 2006 for steel. I believe there will be a total different landscape in the USA in the future. Mr. Phelps is surely underestimating the power of fiat monetary systems to destroy economies, even China's. Find me a speech that says China's inflationary spiral is lessening. Or are you saying that the Chinese consumers faced with rising prices won't cut back on spending?

Where are the American manufacturing companies? Phelps goes on to mention VW and BMW are joining the rush to build plants in the USA. Where is US corporate investment in US manufacturing? All Mr. Phelps gives us are foreign corporations in America. Perhaps these foreign companies are confident the US Dollar will crash and that is why they are here. I know they are not here because of OSHA and the UAW unions! Mr. Phelps mentions nothing of foreign exchange monetary incentives for foreign corporate investments in the USA or US tax incentives even.

Mr. Phelps seems to focus more on steel profits and output of foreign owned manufacturers. That's great if you want real wealth creation to stay in foreign control. My point is where is the "real wealth" being created by US corporations? Does the USA control any "real wealth" any more or are we going to depend on foreigners for everything we import or export?

The bottom line is price controls on domestic labor and foreign trade controls do not work. The long term global economic barrier is still fiat based ...

What does jcmcgraw SEZ? Don't let Mr. Phelps do all your thinking for you ...