Today's charting theme:

Enter the volatility dragon.
http://ronsen.blogspot.com/2008/04/enter-volatility-dragon.html

craig-> positive spin left the room this morning...today could be the day...;)

SKF/FXP/QID/DXD/SDS/DZZ/HGD/DUG/SMN-> if you're holding any of the above, you're about to (finally) have a good day...

olympic torch runs through SF today...

Re: Olympic torch

I wonder how hard it is to "borrow" a
Canso.

http://rides.webshots.com/photo/1001357532013698789llLfdjdClo

2nd_ave...

Have you been looking at my portfolio?

How did you know I had all of those?

Good Morning.

Here are your Cara 100 Ratings Changes:

Downgrade:

BBBY - to Sell @ Piper Jaffray

New Coverage:

RIMM - Hold @ Needham & Co.
RIO - Hold @ HSBC

Target Price Raised:

LLTC - $33 to $35 @ UBS

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

Have a great day.

"I will sum up my concerns in one sentence: Never in my 45 years of adulthood have I seen more reason for the public to remove debt-free capital from the credit ring."

How?

[Bill Cara note: How? Try private Swiss banks and brokers, forex funds, bullion coins and bars, collectibles, jewelry, interests in debt-free private corporations, economic real estate that has iron-clad mortgages with Triple-A tenants, and on and on. These are alternatives that even in the short run are superior to worrying about a screwed-up credit-based financial system.

The problem as I see it is that every time there is a collapse of a major financial services company -- we have been watching a series of them from Japan, Australia, Europe, UK, Canada, the US -- is that clients get screwed. Yes, they may recover some or possibly all their capital, but at what cost?

Even if you wish to seek the protection of a private bank (one that does not act as principal and that is well protected against failure of some or many of its clients) there is a counter-party risk in trading with highly leveraged market makers, which is the reason why these private bank accounts are in so much cash today.

I am working on a white paper that covers the reason why this past week I signed an agreement to set up a pooled forex trading account at a Swiss brokerage house.

I don't do collectibles, jewelry or real estate, but between bullion and forex, there is no need to trade securities until after the equity market adjusts to the risks that exist today, which are not adequately priced into it. Even if I manage to find undervalued equities, I cannot be sure what happens to the price if banks and broker-dealers start to fail. I cannot trust a bank or broker-dealer to tell me the truth while facing calamity, which is why I say that at the heart of the problem is conflict of interest.]

From Bloomberg:

"The Fed is working on contingency plans to raise its lending power in case its recent actions to end credit-market paralysis are unsuccessful, the Wall Street Journal said today, citing no one.

Among the steps being considered are: have the Treasury borrow more money than is needed to finance the government and deposit the surplus at the Fed; sell debt under the Fed's name rather than the Treasury's; or ask Congress for authority to pay interest on commercial-bank reserves at once rather than wait until 2011, as planned, the newspaper said. "

2nd,
I'm with you. I'm in FXP, DUG and puts on COF.

We knew they couldn't keep painting the tape forever with the news getting worse and worse.

The market is irrational but usually not insane.

Cheers to a good day.

I need it after last night. We got pounded by the first place team in Steel-tip darts. Now we won't make the playoffs.

Rob.

Home builders collapsed yesterday following classic divergences in their 60 min. charts. I expected this given the vote on the controversial housing bill in the senate.

The politicians in Washington have been particularly venal on this issue and, I believe, didn't count on the volume of opposition to the bailouts included in this bill. Opposition that came from many quarters. Good grief, even the good soldiers at CNBC were decrying the "moral hazard" of the bailouts.

US stocks open to China savers

Chinese individuals can now invest in United States stock markets through China's Qualified Domestic Institutional Investor (QDII) program, following the signing of an agreement by the China Banking Regulatory Commission (CBRC) and the US Securities and Exchange Commission on Monday.

http://www.atimes.com/atimes/China_Business/JD10Cb01.html

I'm surprised futures aren't down more given the bad news from UPS and more hard data confirming recession is here.

Citi is up on news of its loan sale? Sheesh! Is someone having a sale on stupid this week?

But then gain, we all know that the pump job on the financials has been absolutely relentless. So it does figure that all bad news is good as the "worst" is behind us. I don't believe that for a second.

Cara 100 Update:

INTC - Wedbush Morgan initiates coverage with a Buy.
Target Price of $25.00

Good morning everyone!

bg- didn't know ;) added back 1/4 exposure to FXP/QID pre-market...

chris- does the library open that early?

I'm still on the fence. I think we go lower but I now never underestimate the ability of interventionists and gossips to jawbone it higher.

Example? Circuit City and BA this AM. CC loses "less" and BA announces another delay and they go higher. How is a person supposed to pick up a deal? :>)

Re: Dishoarding

I suppose if a pawn broker or jeweler, with extra gold or silver scrap on hand could always sell the surplus to a refinery. But they can also find a refinery which will produce investment products, such as bullion or sterling silver bars.

This would explain if there were a dearth of bars but not coins in the London markets:

"Good delivery market bars in gold (400 ozs) and silver (1000 ozs) are traded on the London fixings where client orders can be executed through Baird & Co. at very modest commissions. Kilo bars, available in .9999 gold or .999 silver are a popular alternative to the large bars and can also be traded on the fixings."

http://www.goldline.co.uk/aboutPage.page

Note that the prices paid for scrap gold are the merest fraction of monetary bullion:

http://www.goldline.co.uk/scrapPage.page

It would not be beyond probability that a scrap refiner like Baird would actively buy scrap internationally to bolster its business.

It all depends on the size of the bars coming into the market, they should be in the kilo range. -But not coins.-

Cool photo of the Mexican Mint:

http://www.cmm.gob.mx/cmm/flash/home.html

I don't read spanish, so there was no way of coming up with any information regarding precious metals smelting and refining in that country.

Here's an interesting article.

http://tinyurl.com/6ktxqf

Goldman has 96.4B of level 3 assets or 8.1% of all assets

Morgan Stanley has 78.2B of Level 3 or 7.2% of all assets

LEH has 42.5B or 5.4% of all assets.

In the 4th quarter last year Bear had 7.1% of assets as level 3.

Remember level 3 are the mark to fantasy assets.

One question I have is how much of their level 3 assets is the FED holding right now to make their balance sheets look better?

Rob.

craig- fair enough...i just put my thoughts out there, and if i'm wrong then i'm wrong-> my ego is not invested in being right, but in being honest with my take on this blog...if i say nothing, there's nothing to learn from...

Bill,

Re you comment today on PoG:

Please allow me some comments:

- PoG volatility: all markets are volatile these days, and one can not say that any other market is immune to this. Therefore, unfortunately, investors have a choice to either step aside from all this, or become traders. That is our sad reality, we have been forced into trading as we do not have the luxury of investing any more.

- Reasons for lower PoG in the short term; I agree that PoG's correction may not yet be over, but IMO this is more related to the technical picture and seazonality of the gold market than other factors. Of course one, or three new shoes can drop at any time, but I would suspect that we will have some respite for some time now that this intervention is underway.

- ETFs and other derivatives: really dangerous.

- Phisical bullion: allways a good buy and one of the few ways to protect capital in the current market.

- Gold bull: for the time being, I see no reason for the bull to be put in question. Actually, the more these problems become evident to the public, the more power will be added to this bull.

- IMF gold sales: if, as, and when they are approved, we will worry. Before that, we keep our eyes on the ball. It is not clear to me that the US Congress will approve this in election year. It is also not clear that other countries will find it a good idea. It is finally not clear that this gold will ever hit the market, as probably it will end up being sold directly to some Asian central Bank.

Thank you for your input.

Cheers!

For those of you who own physical gold, where would you recommend going to make such a purchase? Would you recommend holding the bullion yourself or pay for storage. I see advertisements on tv and hear them on the radio, but I don't know the differences between any of these jokers. Any thoughts would be appreciated.

Bought a tiny amount of SLW. Heading up.

Financials recovery may take 25 years

"It takes time ... healing the process. The financials have just entered that long chamber of time,".

"There will be violent rallies, and those might last for up to a year. But you know when liquidity comes back into a market it seeks out not the laggards but the leaders. The leaders are fertilizer stocks."

http://tinyurl.com/4jfsq4

Just bought some more. FWIW, I use the oscillators on the 1 hour chart. They gave me a buy signal today.

propaganda 101- finance
its a simple but effective plan:

1. openly question if there is a reccession inviting all sorts of "experts" to give their impression.

2. keep the tone of the dialouge as an opened ended future event, so you pose questions like:

"could we be headed towards a recession?"
as opposed to:
"are we in a recession?"

ask "experts" questions like this:
"do you forsee a reccession?"
or
"is a recession on the horizon?"

3. let experts answer but never ask it of known bears. if you do have a counter point man on hand like CNBC and FOX do when they have peter schiff on to induce a WWF style tit-for-tat debate.

4. provide doom and gloom estimates for jobs and earnings so that when they come out negative you can claim they werent as bad as expected. suddenly losses become reasons for stock rallies.

5. at first cite strong employment data to support that we arent in a recession.

when the data turns negative claim that the new paradigm of the economy shouldnt rely on outmoded stats that dont reflect reality.

6. when stocks are doing well, tell people the bears are crazy and are missing out on the bonanza.

when stocks are in the crapper tell people its bargain hunting season, and that stocks are "cheap" compared to their inflated prices of 6 months ago

7. use any sudden weekly drop in commodity stocks, especially gold to suggest the commodity run is over.

when bank stocks fall by as much, claim theres blood in the streets and its time to buy.

8. build false hype around important "low" points in the market. if indicies breakdown below those lows, cite the stocks that are still strong and claim "its a stock picker's market"

9. if stocks bounce off a major low, claim the bottom is in right away and host experts who will speculate if the bottom is indeed in, (even if stocks have lost upwards of %40 of their value in 6 months and bear markets tend to take several quarters to years to play out.)

10. diseminate rumours that Warren Buffett is buying something. based on nothing but rumour or baseless speculation, lend false credibility to the spectacle by having commentators evaluate these proposed purchases by Buffett by saying things like:

"weve heard that Warren Buffett may be looking at railroads, what do you think is going on in his head right now?"

you create a story out of nothing by head-nodding experts who are always will to give their opinion on what they think other people may or may not be thinking.

11. feign impartiality by questioning politicians "strong dollar" policy remarks before transitioning into the familiar "could the US dollar fall farther if a recession is looming?"

12. have legitimate economists like Noriel Roubini discuss reality but place him outside of prime time and use awkward camera angles where they go way too close on his face. if you ever noticed his appearances on Canada's BNN or Fox sometimes you will notice this technique.

my friend who is a camera man for CBC explains this gives the effect of an overbearing persona even if the person is saying someting reasonable. people tend to respond better and find subjects more engaging if the person discussing it is visible from the shoulders up and not just a large face shot. its subtle and possibly nuts to suggest it but i wouldnt put it past anyone.

13. flood the newsreel with bad news at the same time as somewhat good news to distract people.
federal bail outs seem like better news in comparison to UBS writting off billions.

14. use smoke screens to make things seem better,
say things like:

"the markets have already priced in the write downs"

"the markets are forward looking"

"markets have over reacted to the credit problems, good companies went down with bad ones"

"lets not dwell on the past and move forward with the recovery"

"in this low interest rate environment, banks will beable to recapitalize while deleverage at the same time in order to clean up the balance sheets and clear their books of undisclosed level 3 assests that were previously mark-to-model, so their impact on the forward P/E is in line with analyst estimates for Q4 of this year"

15. ensure banks dont issue "sell" ratings to stocks until they have bled themselves dry. the fear of sell ratings are said to induce panic and could make things worse.

no one mentions that there could be fundamental reasons why these stocks should go down, they only rely on the sheep effect of a sell rating.

16. talk up scandals within finance and politics to avoid the critical issues. Govenor Spitzer's scandal the case in point.

17. ask experts the same question and compile the different answers until people have no idea what really happened as each expert gives a slightly different account of the story.

bear stenrs bail out
bear sterns bankrupt
bear sterns bought by JPM
bear sterns on the brink of collapse
bear sterns facing derivative trouble
bear sterns forced margin call
bear sterns hedge fund implosions
bear sterns saved by JPM
bear sterns resuced by the fed and JPM
the fed loaned money to JPM to resuce bear sterns
JPM saved bear sterns with the held of the fed
JPM only bought bear sterns to get their clients
JPM is well capitalized in light of bear's assets

18. take part in the plan to take the public's money to save the select few banking titans. all while telling them its other people's fault.

its call the "rouge trader" byline.

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

the rouge trader represents everything that the mass media wants us to believe about whats wrong with the markets. that men acting alone and in the worst interests of their clients funnelled millions away from respectable institutions.

if only the legal establishement could save us and persecute these dastardly rouge elements who are the scourge of industry.

On my 1 hour SPX chart, price is now testing support at an uptrend line that extends back to March 17th.

2nd, it looks like your crystal ball is in good working order -- so far. ;)

Nah 2nd, you are a smart guy. I got some new computers.

doc - Jack OBrien left you a compliment on sykpe. I second his remark: Good post!

Bill

Thank you very nuch for answering my question on "How?".

sorry

nuch-->much

:-)

who is jack o'brien and skpe?

No worries 2nd...there is no right or wrong, there is only profit or loss.

I'm glad we're profiting!

I had added ultras premkt.....:>)
But I also have a few "long"(?) trades going....
ESLR/SGP.

SBUX 68% retracement is 17.60. Low today is 17.85.

Doc,

Skype is an instant messenger-type version of bc.com commentary which runs silmultaneously with this page. Jack OBrien is the name I registered under on skype.
Anyway, good post at 9:45. You've been keeping great notes of the media.

Re: Precious Metals Refining

To continue with the theme of dishoarding, which is really a precious metals refining story, I went to the Imperial Metals website to find out whether bullion was refined in Ontario.

http://www.imperialproducts.com/news.aspx

I was surprised to find that this company was purchased by Umicore, a European metals refiner, listed on the Pink Sheets:

http://stocks.us.reuters.com/stocks/charts.asp?symbol=UMICF.PK

Umicore is listed on so many exchanges in Europe, that I have no idea what to make of it:

http://stocks.us.reuters.com/stocks/lookup.asp?symbol=Umicore%20NV/SA&exactMatch=false

It would make sense for a European consortium involved in precious metals refining to purchase a Canadian company that does the same, given the favourable exchange rate.

ok thx jaketh,

i didnt know there was a parallel universe to billcara.com.

is it anything like backward land in superman?
where a strong dollar policy and housing stocks take centre stage?

;)

doc - You can download the Skype sofware here:
http://skype.com/

Nexalogic/SiO2 runs a "Bill5" public skype chat. Once you have installed skype, send him a chat msg and ask him to allow you into the Bill5 chat.

sofware=software

I did not have time to post earlier
but find out that nutual fund are trimming their position. and raising some cash

Doc, yeah, it's an inverse universe: Old Goat is Young Buck, Aloha is a Polleyanna, and 3rdStreet is a buy-and-hold value player.: )

Re: Precious Metals Refining

FranSix,

Umicore is a Belgian company, one of the 20 companies of the BEL20, the Belgian index.
http://www.umicore.com/en/

IMF warns of global economic slowdown

The global economic outlook is becoming increasingly grim as the United States appears unable to escape recession from a housing meltdown whose effects are still spreading, the IMF said Wednesday.

The US economy, the world's biggest, is likely in a "mild recession" and will stagnate through much of 2009 as housing prices slide further and credit conditions remain difficult.

For the world economy, there is a 25 percent chance of dropping below three percent growth in 2008 and 2009, which according to the IMF would be the equivalent of a global recession.

http://tinyurl.com/5s64sp

AdamG:
Buying bullion:Kitco.com or a good local

FranSix: For what it's worth, I saw a couple of stories in the NY papers about people pouring into the stores to sell gold (and silver, I think, but gold for sure) right after the recent 1,000+ peak did not hold. I guess the thought among the masses was "it's run up and now it's going down, I better sell that old jewlery." I don't know if that is a point of interest in your dishoarding observations.

shark: new computers? spent some of that PAL money on some new toys?

Save some for one of these:

http://tinyurl.com/2s43ka

The point of interest in dishoarding of gold and silver for refining is that there was plenty of jawboning about dishoarding as gold was going up in price.

Its become a reality now. The old addage that says: "a one percent interest will draw gold from the moon" seems to work in this case, where European interest rates are far higher than in the U.S.

Thus a company can export to Canada any gold scrap without paying customs duties using a stronger currency. How they manage to get it all to London for sale is another question, its probably traded on London, and then shipped to whatever location.

Its an important indicator of the strength of the Euro but also shows that net export of gold scrap is creating bullion outside of the U.S. and a draw down of domestic U.S. gold. (No different than the last deflation.)

Am extremely Skype challenged and would be much obliged to anyone who can provide step-by-step procedure for joining Skype chat. Clicked on “Bill5” and “Join public chat?” without success. Tried phone, nobody home. Please e-mail wally@billcara.com. MTIA.

AdamG:
My last was an error.
Buying bullion: apmex.com, NOT kitco.com. apmex is the best national retail bullion company.

Sorry about that. Having a busy day.

vinod,
So, are they trimming positions to take profits since we didn't make a higher high in any of the indexes and have been churning for the past couple of days?

With Oil still so high along with corn and other commodities, I can't see how the CPI can be anything but terrible, especially since last month they said "fuel costs moderated" Well they sure didn't this month. So, we'll have to see how they spin it.

Rob.

Fransix: Do you think the stories circulating several months ago about large amounts of individuals dishoarding in India were jawboning, or true? They make up a large amount of demand. I was surprised, because I had assumed Indians were relatively strong hands. That Indian demand is important to gold sales.

Oil: I'm sure glad I had that painful DUG removed.

Re: Jawboning

Anything said about India and gold sales are probably some form of jawboning. Investor demand is what counts in precious metals. Trading in the Indian gold market has a very shady reputation.

Any thoughts on where to buy physical gold in Canada? I think Bill has mentioned Scotiabank before as a good source - does that still apply? Any risks? Cdn bank held or sock drawer better for risk?

And what about cash in Cdn banks? Are the risks still high enough to warrant physical gold purchase instead of holding cash (<$100,000cdn)?

Thanks for all your help.

By the way the book made it to Vancouver island.

Stv

Re: POG

I have been watching a symmetrical triangle form on the dollar index. Today we are pushing the lower boundary of the triangle. A solid break to the downside and I believe gold will take off to new highs.

Re: ETF and futures

I use to think buying gold/silver on the Comex had to be safe. My naïve understanding is the commodity trading hub of the U.S. is the center of commerce. Seems to me that the world would come to a stop when I can’t get my silver from Comex. At that point I am not sure what value there would be in holding physical bullion in my possession.

As far as GLD, they currently only hold 20 million ounces of gold. So what if they don’t really have the gold, that is only a 20 billion dollar bailout, peanuts in today’s world.

Re: Bullion dealers in Canada

http://bordergold.com/

http://www.kitco.com/

Significant weakness today. I would have expected more of a snap-back rally. Maybe there is some news in the wings or late cognition of past news.

Citi is being bid up even though they are on the hook for the first 20% of losses from the bonds they are selling.

Systemic Financial crisis & its Implications for Gold

A continuing crisis in the financial system which caused a dramatic risk aversion on behalf of investors has led to a temporary distaste for the junior mining sector. When combined with exceptionally robust prices for precious metals, this has led to extraordinary values in many small cap gold and silver juniors; such are the opportunities which we continue to seek out.
http://www.resourcestockguide.com/home_page.php?hpc=15

2nd: Good call on FXP. I am green today after being down for a couple of weeks and adding at the falling price. I will just hold.

COF, LEH puts up nicely today.

Underwater in DUG about $2 from first dipping in. Still waiting to add more or not?

Vinod: Looks like S&P 1360 level is not holding.

What's everyone think about the Bank of England and European Union cutting rates tomorrow?

Will they cut or not?

There is some speculation I'm reading that if they do cut and signal more cuts are coming the dollar will start to strengthen significantly, since many expect we'll only cut .25 more for now.

We know that will drop Gold and Oil but what will it do for stocks. Will foreigners pile in to get the dual appreciation of the dollar and our market?

Rob.

WGW: $3.2
Not going along with GLD today.
Adding some here.

re: COF

"Merrill Lynch warned that the United States faces the prospect of a severe and prolonged recession as consumers cut spending, and credit-card stocks could be hit as current valuations and market estimates for the U.S. consumer finance sector assume only a moderate downturn."

http://tinyurl.com/4pkrkw

Again, curious if increased reliance on credit cards and increasing defaults are a double edged sword for card companies. I.e. doesn't increased card usage amount to increase loans, thus increased capital requirements? Maybe they can offset increased cc debt with bad debt writeoffs...

disclosure: hold COF puts

taking QID/FXP off here to once again focus on DUG/SMN...(no comment on DZZ-> ;)...

Check out MACROSHARES OIL DOWN TRADEABLE TRUST- DCR is the symbol. Down 30% so far today on record crude price.

Made my first purchase of a planned scale into U.TO - Uranium participation Co at $8.93. Planning to scale in over this and next week possibly. Still possible there will be a retest of the 52-week low so I am keeping some dry ammo. 5-day chart looking pretty nice and most U producers I follow are up today (CCJ, UUU.TO, PDN.TO).

Re: MACROSHARES OIL DOWN TRADEABLE TRUST- DCR

read this before buying:
http://seekingalpha.com/article/69137-macroshares-oil-funds-death-watch

DCR- wondering what they're holding?

jogyp- thanks for the link...

DXKSX- planning to add at today's closing price...

Been reading for years but 1st post. Enjoy and appreciate all of the comments. I got into DCR at the lows on Monday and was extremely fortunate to get out at 9.25 today. Pure luck. From what I've read, the ETF set-up quits working when oil hits $111 for 3 days and the fund must redeem shares at a fraction of the current market value. Another reason to look at the prospectus' of the other ETFs.

Bill - looking forward to receiving your book. Thanks

Thanks JogyP, appreciate the heads up :-)

Henry Paulson....Where Are YOU?

While his cronies were testifying in Congress, Hank Paulson was on a trip to China last week. I wondered what he was up to...

This is probably one of the items agreed upon.
More selling of the national wealth.

"Chinese individuals can now invest in United States stock markets through China's Qualified Domestic Institutional Investor (QDII) program, following the signing of an agreement by the China Banking Regulatory Commission (CBRC) and the US Securities and Exchange Commission on Monday."

Good to see UBS finally coming back down where it belongs. I have a few puts that are likely going to expire next week worthless, but it will be a moral victory nonetheless.

And it's nice to see those divergences in the indexes working out.

Are commodities back in favor again? Food riots and copper supply concerns to blame?

Thought I saw some talk somewhere about dow theory and how transports breaking downtrend/200DMA was a bullish sign.

Well, transports down almost 4% today.

Currently sitting at few cents above 200DMA, we'll see if it bounces. Not sure how or why, but stranger things have happened.

disclosure: bought some puts on IYT yesterday (pure luck, as I have plenty of SNM and SRS that are underwater :)

yvrapx

Does DCR short oil ?

What is on the Skype discourse that is not here? Is there a migration to Skype? Is life better there? More information? Happiness? Money?

jogyp

Thanks for the DCR link.

Someone seems to want to keep the DOW above 12500. Seems like a huge battle going on there.

Rob.

I ditched my FXP for a small gain. I was getting too nervous with expiration next week and also watching my position go down by 50% when I bought too early and then come back to the positive between yesterday and today.

Next time I jump on that horse I'm buying at least a month or two out for some time protection.

I still have my COF puts and DUG calls though.

Rob.

Here is our hope for lower oil prices and a higher price for DUG:

Massive Oil Deposit Could Increase US reserves by 10x
http://www.nextenergynews.com/news1/next-energy-news2.13s.html

http://www.businessweek.com/ap/financialnews/D8VTDV9G0.htm

I also shed about 80% of the FXP position that I had today between $83-84 as it got me above water. As of yesterday I was looking at a decent loss on FXP so better out w/ a small profit than putting myself back in the same position.

I think there will a good deal of resistance encountered on the trip back up considering how fast this moved from $110-20 range up to $73. This should provide more spots to jump back in with more clarity of market direction than I feel at the moment.

There is a battle in the financial blogosphere, which has recently turned rather shrill, regarding whether we are in for deflation or inflation in the future.

I have been thinking about this for some time and have come to the position that they will both be right.

The inflationists point to higher prices for commodities and the deflationists point to money supply/credit contraction which will cause demand destruction resulting in lower prices. They are talking past each other in a sense as one talks cause and the other effect. But in a global market it is more complicated.

The twenty years from 1980 to the turn of the millennium saw traded goods price deflation and asset price inflation in the US. I think we will see the opposite going forward. Deflation in credit will result in demand destruction and recession. However, since the dollar will likely depreciate further and Chinese inflation will likely get exported, we will see inflation in traded goods prices, especially commodities. This will squeeze margins of producers at the same time as their local demand falls due to overextended consumers cutting spending. This, in turn with the credit crisis, will cause asset price deflation in the US.

Critiques of this theory are greatly appreciated.

I am starting to think the oil price has either decoupled from the fundamentals or is no longer much influenced by US consumption. US oil demand has dropped 0.4% from this time last year, refinery utilization is 82% and supply has been fairly constant, I believe. Yet in this time the price of oil has nearly doubled. Something does not make sense. Can it all be a dollar depreciation issue? Or is out of control speculation to blame?

BillySundance,
I agree totally. Another reason I sold is that I was hoping for more of a sell-off today and instead there were late-day buyers.

I can't imagine who's going long now but I can't argue with the tape.
Cheers to Capital Preservation to fight another day.

Rob.

Hey QT this is from the Seeking Alpha blog:
'the underlying portfolios aren't transparently constructed of oil futures, physical oil or oil stocks. The trusts backing up DCR and UCR are instead stuffed with Treasury securities and short-term notes known as repurchase and reverse repurchase agreements.'

I think it's mainly dollar depreciation with some speculation thrown on top.

Watch how fast Oil and Gold drop tomorrow if the European Union either cut or signal that they will cut soon.

It seems like being Long the Euro and Short the Dollar is a very one-sided trade right now.

Rob.

moab
Inflation--In everything
deflation---In wages for those who goes to work

i just got 5% pay cut starting April 7
top people are taking 10% thats what they say

No change in the Euro yield curve, so I am assuming that Eurozone rates will not change for the forseeable future:

http://www.ecb.int/stats/money/yc/html/index.en.html

No vinod! So sorry to hear about the pay cut.

JogyP, if the Bakken area pans out BHI could be a beneficiary. BHI developed a Top Triangle from about Oct of last year with a price projection of about 60. It looks like it may have completed that and looking to go higher. Long BHI

moab,

Todd Harrison at Minyanville likes to put it as "inflation in things we need and deflation in things we want".

Karl

Another way to think of the inflation/deflation debate is that monetary/fiscal policy devalues the dollar driving up the price of commodities which are priced in the world market.

Labor is not priced in the world market, so wage disparity continues to exert downward pressure on western income levels.

So now you have dropping or stagnant income levels with rising commodity (fuel/food) prices, so those essentials eat into the disposable part of the income. The result being less demand for discretionary goods, hence deflation in consumer electronics, vacation properties, cars, etc.

And I never thought of this before, but eventually you could see continued strong inflation in the fuel/food commodities cause we truly cannot live without them (to prevent starving and freezing to death), i.e. demand pull inflation, while seeing much less inflation in metals/construction materials/etc. as demand for manufactured goods wanes.

But I suppose as governments continue to battle a decline in standards of living, they'll spend the currency into oblivion, which is why all commodities will inflate regardless, but especially gold/silver given their monetary role.

So food/fuel rise most because of increasing global demand and currency devaluation.

Manufactured goods deflate as they are mostly discretionary and people have less money.

Less manufactured goods means less demand for materials, so materials inflate solely because of money devaluation, but possibly less than 1:1 because of demand destruction.

Gold doesn't really experience demand destruction, in fact probably experiences greater demand because of turmoil and uncertainty.

Conclusion: buy a farm in a warm place and horde gold... hmm, i swear i've heard that before :)

there may be some kind of problem with the underlying structure of DCR & UCR - two oil etf's.........

read all about it @ seekingalpha

http://tinyurl.com/5rohxn

If I were to come up with an economic forecast given the above, the pessimist in me sees difficult times until the standard of living between the east and the west meet. And is that really so hard to believe?

Why should 2 billion people have to eke out a living working 60 hours a week to just be able to feed their family and maybe eventually save for a car, while ~1 billion people (europe/n. america) work 35-40 hours/week, have 2000+ sq.ft homes, air conditioned, 2 cars in the driveway, excess caloric consumption, etc., manicure, steak houses, etc?

This leveling of the playing field has been going on for the last 2 decades, which is why the avg. north american income hasn't budged in that time. The developing nations have made huge strides, but the world simply cannot support the equivalent of 2 more 'western developed hemispheres'. Without serious technological advances, there just isn't enough energy and land.

The optimist in me has me practicing my gardening skills, honing my investing skills, saving for a small piece of land and imagining a simpler future :)

proudPapa: "The optimist in me has me practicing my gardening skills, honing my investing skills, saving for a small piece of land and imagining a simpler future :)"

I like the way you think pp. I live in the country and like to garden. I like to try to protect my savings too. I might spend too much on my horses, but who knows, I might really need them before you know it.

gdiman - we might all need to start honing our gardening and horseback riding skills!
Salmon going to $40 per pound - I'm going to need to switch to fish sticks. http://tinyurl.com/5gxer2

"Salmon going to $40 per pound"
So when did they start charging for the mercury? Suddenly the pollutant is a commodity?

Good points from GFMS and forecast:

"An interesting point is that, despite perceptions, price volatility was 16%, substantially lower than the 24% registered in 2006, and that even the fourth quarter's volatility was unexceptional at just 20%. Apart from the last two months of the year gold's dollar price volatility was lower, in the main, than during 2006, with the volatility dropping markedly in the April- September period. Volatility shot up in the fourth quarter, but even then did not achieve the levels sustained in the second quarter of 2006, and even the first quarter of 2008 saw volatility much lower than in Q2 2006 [which, given the degree of interest in the market, both in terms of market participation and press coverage, underlines the importance of perception and how it can be deceptive]."

http://www.mineweb.com/mineweb/view/mineweb/en/page33?oid=50464&sn=Detail

Re the Olympic Torch:

n2s- you'll appreciate this: i left work early, around 130pm, to avoid the traffic...police started setting up barricades along every route i tried...got caught in the Union Square area, detoured W onto Pine St->N on Polk->W on Union->Green->back to Pine->Lincoln->19th->S280 and home...so hey, i led the (last minute changes in the) torch run by about 20-30 minutes the entire way:

http://tinyurl.com/5wsm63

am now home, and if i had a telescope, would be watching the closing ceremonies at SFO...(LOL)

I'm actually turning my hobby garden into a commercial vegetable farm this year. And next year I'm going for Certified Organic status as well. And if you've never tasted vegetables that you have grown, you don't know what you're missing.

With that theme, I think there's a bright future for most food-related stocks as populations grow and we devote more and more acres to bio-fuels and more and more land becomes less productive from relying on too many chemical fertilizers. Supply issues will drive the food-stock boom until there's excess supply again.

Rob.

My son and his friend own a small IT company
Called RNITS
www.rnits.com

Think the BOE cuts rates tomorrow. U.K. experiencing slowdown, housing prices dropping, etc.

Consnsus now ECB will NOT cut rates but remain firm. Inflation obvious and the Europeans don't have the same approach of ignoring it like the Fed. Germany also seems to be doing well considering, but perhaps one of our readers from there can provide their viewpoint.

http://tinyurl.com/49xvpr
Nouriel Roubini

"Estimates of $1 trillion are now a floor, not a ceiling, for the losses in this financial crisis."

"I see the stock market rally as being the last leg of a sucker's rally -- essentially people believing the Fed can rescue the economy," Mr. Roubini said in an interview Wednesday. "Once the flow of market and financial news gets worse and worse, the expectation of the Fed rescuing the economy is going to be dashed, and the stock market is going to plunge much more."

Seamus,
I suspect you're right about the BOE - UK looks like they have our problems squared.
Important to remember too that the ECB has a single mandate, stabilize the value of their money - unlike the Fed that has also to consider the health of the economy.

I know some are concerned about counter party risk here with etf shorts, but i am thinking they trade like any stock. eventually there will be gas station attendants, hair dressers and friends who dont watch the markets telling me "buy QID and SKF" just like they do now (true story) to buy gold.

No position. Sitting on cash in bank accounts and safety deposit boxes.

people have been screaming about speculators pumping up the price of oil since before it was 30.

i don't buy it. not even for a second.

several times i have posted the chart of the $wtic vs $one:$usd. the decline of the dx tracks the rise of oil perfectly.

oil production is down a bit from a peak about a year and a half ago, if I recall the chart I saw correctly.

if speculators are causing the runup, why are inventories so low? when the price of something is "too high" people stop buying. yet inventories are low. production is not being throttled back. where did it all go? it was bought by people who thought 100/bbl was a fair price at the market that day.

no, it's not an american commodity anymore.

furthermore, when speculation gets excessive, some speculators always end up holding the bag (barrel?) we're decades into the runup from 10 bucks a barrel, and some have screamed "speculatin!" all the way. yet the only bags the speculators hold are bags of money from oil consumers happy to buy at any price up to 110, so far.

I think this:

we are seeing a shift OF the demand curve, not a shift ALONG the demand curve. EC101 told us that those two things are very different.

see you at 150/bbl.

i don't think the news of a boe rate cute and today's move in gold are unrelated.