Burton Malkiel: "Underweight China at peril-
Within 20 years, China will be the top economic power, Burton Malkiel tells Barbara Kollmeyer, urging investors to buy stocks now."

http://tinyurl.com/6d3gs6

excerpts:

"People don't realize that in 1820, China was not only the most populated nation in the world, not only with the most land area, but was the greatest economic power in the world," said Princeton University Economics Prof. Burton Malkiel, who had a packed room of portfolio managers, analysts and certified financial planners hanging on his every word Wednesday evening at a presentation for the CFA Society of Los Angeles.

And in 20 years, China will once again claim that title, hence the need for investors to make sure they've got the proper exposure, said Malkiel, who wrote the recently published, "From Wall Street to the Great Wall: How Investors Can Profit from China's Booming Economy."
Continued strong economic expansion will make this prediction a reality, said Malkiel, who noted explosive growth in China the last 25 years, averaging 9% to 10% annually. In 2006 and 2007, growth exceeded 11%. "No nation in history has ever grown at this sustained rate," he said.

[Bill Cara note: http://en.wikipedia.org/wiki/Burton_Malkiel

As a trader, I have zero interest in Burton Malkiel, or his cartoonish Random Walk Down Wall Street or professorial beliefs in Efficient Market Hypothesis. I'm not a particular fan of Vanguard, where he is linked, and I understand his proclivity to support the White House and his Princeton economics colleague Bernanke. To repeat; the bottom line is I have zero interest.

Stronger words to come, if you'd like them.

Americans have to come to the understanding that bankers, politicians and business and economic school professors have set up a debt-centric financial services system and they protect it fervently. It all has to go.]

cautiously adding to SMN at 27.64...

Re. China. Mauldin's letter this week contained an article by Niels Jensen. Investing in China has its serious perils. Some excerpts:

"In China water depletion is a serious problem and the problem is exacerbated by top soil erosion and poor fertility (estimated annual water shortfall of 40 billion cubic metres). Closing that gap through artificial means (desalination, etc.) would consume the equivalent of 3% of the world's oil output.

Until recently China has been one of the world's major grain exporters. Those days are now over. By 2010 China expects to import the equivalent of 40% of US corn exports. According to estimates from UBS, China's foreign currency reserves, which are the largest in the world, could be slashed in half over the next few years if grain prices were to double again from current levels. As an aside, China has recently decided to abandon its bio-fuel programme. The reasons? A lack of water and cost inefficiencies.

Even fewer seem to realise that if oil prices and agricultural prices continue to run amok, the Asian miracle story, upon which so many investors have pinned their hopes for the next few years, may, in fact, turn into a nightmare. The reason is simple enough. Asian countries are large importers of both oil and food staples. Very large!

Over 50% of the incremental global demand for oil over the past few years has come from Asia - almost 35% from China alone. In fact, over the last 5 years, China's energy consumption has grown 5% faster than its GDP per year.

It is now projected that China will overtake the US as the world's largest energy consumer by 2010 despite its GDP being only 1/5 the size of the US GDP. No wonder the Chinese are running around in obscure parts of the world attempting to secure long term crude oil deliveries.

On the import side, Asia is paying the highest price. The current level of crude oil prices should add about $278 billion to the bill over and above what Asian countries paid for their oil imports last year.

Food prices: Rising [food] prices are hitting Asia the hardest.

On the other hand, emerging markets - and Asia in particular - beam with opportunities. The population in most emerging market countries is still young, savings rates are high and the optimism is there for everyone to see. In short, it is exceedingly hard to find anyone who wouldn't agree that Asia offers the best growth prospects going forward. So overwhelming is this view that it is virtually impossible to find a single brokerage house, institutional investor, commentator, punter, etc. who doesn't advocate an overweight of Asian shares in equity portfolios.

Rising commodity prices will hit Asia much harder than any other region in the world as it is in fact the only region in the world today which is a net importer of both crude oil and food staples.

Instead I believe investors will increasingly differentiate between the 'haves' and 'have nots'. And the 'haves' are those countries which control the world's resources. In fact, few countries are net exporters of both oil and foods on a large scale. Come to think about it, it is less than a handful. And no Asian country is on the list. So who is on it? In the old world only one - Canada. In the grey zone (emerging economies but not necessarily young and dynamic populations) perhaps two - Russia and Kazakhstan. And amongst full blooded emerging economies? None today, although Brazil has the potential to turn itself into a winner and so does Africa, if it can sort itself out.

All this is not to say that investing in Asia is doomed to fail. There are many good reasons why you want to invest there. However, the invest case is not as straight forward as it appears at first glance, and throwing in a bit of Africa, Brazil and/or Russia may not be a bad idea."

"So overwhelming is this view that it is virtually impossible to find a single brokerage house, institutional investor, commentator, punter, etc. who doesn't advocate an overweight of Asian shares in equity portfolios."

SiO2- that would be reason enough for me to be skeptical right now...my current position, of course, is a bet that beijing has both incentive and the ability to work its market up through august...

Sio2,

That information you posted is spot on.

China's real competitive advantage are their people. When prices get so high and the government can no longer subsidize their prices for commodities and fuel they will have no choice but to increase wages at a extreme rate. 1.6 billion people, 1/4 the worlds population, hardly any farmland, needing to import commodities because they ate their own rice bowl, potable water almost nonexistent. There are to name a few, we could include timber,...

When the wages increase they will lose the cheap labor advantage, multi nationals will move out of the country and seek less expensives wages in other parts of the world.
IMO this country will see it's demise before they seek their glory. If you grow to fast you will fall, fall hard.
History will repeat itself.

There will be great investing opportunity over the next couple years which will pay off but in the long term different story.

I just wish there were more reports on what could happen elsewhere in the world...

I forgot who pointed out CNSL to me, but it is near it's 52 wk low this AM, ($13.60) and pays a $1.54 div. Low vol, do your own DD.

history does 'repeat,' although never exactly...if you pick your trades carefully and time them even more carefully, should do fine...hopefully everyone here has dropped the hands-off buy-and-hold approach...

maybe more importantly, has dropped the 'hand off to your broker' approach...

Re: POO

Looks like crude is not in for a correction any time soon, I suppose seasonality will take it all the way to mid-summer.

"So overwhelming is this view that it is virtually impossible to find a single brokerage house, institutional investor, commentator, punter, etc. who doesn't advocate an overweight of Asian shares in equity portfolios."

Doesn't this sound familiar?

And if a country is so dependent on imports of food an fuel and lacks sufficient water can they really be a superpower?

Is Goldman keeping oil prices high through their predictions?
It seems to me that whenever oil is about to take a dive, goldman updates their target to a much higher number.

jogyp- i think an intraday approach to trading SMN/DUG is the way to go- lower risk, higher profits...

Re: POG

Gold spot price above $900.- this morning.

Re: Silver

Silver spot price now above $17.- (seems to have been quite a battle there.)

Looking back it seems that way.
Also with the increased demand from China for Basic metrials following the eathquake, it's looking like a tough bet for SMN/DUG.

Bovespa new all time high, touches 71,492. EWZ approaching 100.

Make that 72,379. http://www.bovespa.com.br/Principal.asp

I have refused the bank offerings whether via preferred stock or bonds. I remember that during the S&L crisis insolvent S&Ls were encouraging depositors to switch maturing CDs into the S&L's debt. Then they went bankrupt - no FDIC coverage.

We are approaching the 11:00am price curfew in gold and silver spot markets.

Norm -

And lest we all forget that China's labor pool is already more expensive than Japan's....

In a few years when their workforce dwindles to a fraction of its former self because of the one-child policy, it will really get exciting.

Well looks like my short GOLD/OIL plays are doomed to failure. Luckily I have my DIA/COF puts to offset the commodity side.

I just wish we'd make a decisive move somwehere.

I just don't see how the market and commodities and bonds can all be nearing or at new highs at once.

It just doesn't make sense.

I guess that's why I'm on both sides.

Rob.

By the way, off-topic, but....

Does anyone know a good currency shorting strategy for the longer-term? Something resembling a stock option LEAP for instance? One month contracts are too short for the long (short) play I want to enter.

TIA

Interesting that the break of 1420 resistance was immediately sold...

Financials seem to me to be treading water waiting for the next decline.

As far as the banks go. I wouldn't buy any of them at any price until I start seeing what their "assets" are and when, if ever, they start telling the truth.

How many times in the last 6 weeks have we heard "The worst is behind us and we don't need to raise more capital"

Just to find out a day later that they are out there trying to raise capital.

And then if you still think banks are OK, study the Credit-Default swap market and the way companies value their "assets" based on the insurance provided by the bankrupt monolines and you'll see why the FED has lent them more than 1/2 it's balance sheet so the banks can keep making payroll and honoring ATM and general bank business.

I still believe the only solution that will save our banking system is for the FED to demand repayment on all the loans it has out right now and then let the banks stand or fall based on their own fundamentals. Then the FED uses it's balance sheet to support the prudent banks that didn't compromise their balance sheets. Then the prudent banks expand and take over being the "Banks Of America" and thus our banking system is sound again.

How will our banking system ever be sound if we allow the same idiots who bankrupted themselves through their own greed to continue to be the premier banks in America?

Rob.

Maybe the big traders are starting to accept the facts instead of relying on the fantasies.

Rob.

Re: Forex

Ino.com lists the major currency crosses, and also forex trading companies on its home page. For Cara trading advisors, maybe its time to take a look at the Ino logo.

http://www.ino.com/

Man 2nd....I fell pretty stupid.

At yesterday's close it was looking too wonderful, low VIX, high # of stocks over 50 DMA, nice run-up, so I bought QID/SDS.....then got shaken out this AM by my own idiocy.

At least I did well on SBUX, but dang, sure had a set-up today on the indices and blew it.
Like SKF at 98.....grrrrrr.

Oh well, on to the next play....it looks down from here to support.

BTW, I feel stupid, I fell stupid a while ago.

Banking index BKX went over the ledge (81).

Iraqi veterans testified to Congress today and the results have shocked the Pentagon...

"The testimonies were the first before Congress by Iraq veterans who have turned against the five-year-old war.

Former army sergeant Kristofer Goldsmith told a half-dozen US lawmakers and scores of people who packed into a small hearing room of "lawless murders, looting and the abuse of countless Iraqis."

He spoke of the psychologically fragile men and women who return from Iraq, to find little help or treatment offered from official circles.

A group of veterans sitting in the hearing room gazed blankly as their comrades' testimonies shattered the official version that the US effort in Iraq is succeeding.

Almost to a man, the soldiers who testified denounced serious flaws in the chain of command in Iraq.

Luis Montalvan, a former army captain, accused high-ranking US officers of numerous failures in Iraq, including turning a blind eye to massive fraud on the part of US contractors.

Ex-Marine Jason Lemieux told how a senior officer had altered a report he had written because it slammed US troops of using excessive force, firing off thousands of rounds of machine gun fire and hundreds of grenades in the face of a feeble four rounds of enemy fire.

Goldsmith accused US officials of censorship."

http://tinyurl.com/5u3xp9

You would have to live in Osama's cave to not know this stuff.

Glad they are testifying, but if politicians need their testimony to understand the circumstances, they should be fired immediately, with extreme prejudice.

Don Coxe audio cast today:

- NG: Warming up to it, but it is the most weather-dependant of fuels.

- Cost of meats is going higher by Thanksgivngs and Xmas, and substantially higher next year.

- Bernanke is not trying to prevent bubbles, he is trying to prevent the current ones from bursting.

- Watch the futures curves for Contangos coming. In this case, speculators will be driving the prices (not what was happening until now), and a double dip recession coming (1st wave was due to housing), S&P will be in serious trouble.

- Commodities stocks remain cheap and undervalued because reserves in the ground are more valuable.

- China needs to raise worker's wages

- It is unlikely bankers will say the worse is *ahead* of us, since they are selling stock...

USA baby boomer going to cause the economy a challenge for years to come? Yes

China's one child policy will be far more troubling than what is to come here in the states.
By 2040 over 40% of the country will be senior citizen status, who will pick up that slack in the labor force?

Goldman Sachs raised their POO forecast to $141 for the second half, and its up to just shy of $127/bbl right now (with summer driving season coming up).

So I still cannot see short-term potential in long DUG positions (or calls), nor short positions (or puts) in USO. Bucking the trend is not my cup of tea.

Gold sharply higher today, so is this a reversal of the last few week's doldrums in the PM markets? I'm holding AUY Jul 15 and 17 1/2 calls, need a little more strength to break even or make some cash on them, though (a tad early with my trades).

Answer: The poor retired that didn't plan for retirement.

I think we will see that "retirement" was a two generation promise.

Saudi's decline Bush's request to increase production...

"Saudi Arabia, the world's largest oil exporter, rebuffed a call by U.S. President George W. Bush to pump more crude for a second time this year, saying it would only boost supplies to meet customer needs.

``What they are saying to us, we at the present time do not have customers that are making requests for oil that they are not able to satisfy,'' U.S. National Security Adviser Stephen Hadley told reporters in Riyadh today after Bush met with Saudi Arabia's King Abdullah."

http://tinyurl.com/4j3437

Letter on Jim Sinclair's site yesterday that should be noted:

Dear Jim,

I travel extensively throughout the world and just made a trip through Costa Rica, Panama, Columbia, Brazil and back into Mexico. The trip was made using a private aircraft I frequently have access to. One of the artifacts of traveling this way is that one must pay for fuel wherever one lands. In all of my many travels, US dollars have ALWAYS been the preferred method of payment by the locals. either cash US Dollars (preferred) or by credit card that will pay their account in dollars. Well this past two weeks, the local jet centers in each of the above countries refused US Dollars as payment. They wanted local currency only or a credit card that would deposit local currency into their accounts. This is a "sea change"... not just in one country, but in all countries on the list. US Dollars were no longer welcome. I was shocked yet not surprised being the prepared CIGA I am.

Chaos theory states that the wings of a butterfly can end up starting a hurricane. Well Jim, this CIGA believes he saw the wings of butterflies flapping in Central and South America these past weeks that shall lead to the Hurricane to be known as the "US dollar" or "useless dollar."

Thank you for everything!
CIGA John

Q: Why does the Fed loan our $ (? borrowed $)to banks to recapitalize them when we have a zero savings rate?

Why wouldn't the government simply give the citizenry a tax incentive for saving in an FDIC bank? Say no interest on deposits in accts, CD's and MM accts up to $100,000 with an interest rate something similar to their preferred offerings.

Wouldn't that recapitalize the banks and strengthen our currency?

Fella's,

Just had an awesome dream. Me, my mom and my cat Cupcake went to the beach, it was midsummer, and we were all swimming in big beautiful waves of happiness.

ALOHA !!

ON IRAQ
fireworks ... It all sounds way too familiar to those of us here who went through the Vietnam era. What do you expect from a couple BIG OIL good ole boys who dodged the Vietnam draft? I still do not understand why the US military is so loyal to these two 4F cowards who now occupy the Oval Office. If I were an officer in the US military now I would not salute either one. The military has a right under the US Constitution to protest.

Here is a clue as to the success of Iraq ... The US Embassy there is having to force diplomats to serve there under penalty of firing. Even with stupendous pay raises and perks nobody wants to serve there.

The US TAXPAYER is about the most abused entity on the face of the Earth. We pick up the pond scum left behind by the big banks, the defense contractors, the political hacks, the lobbyist and the foreign speacial interests ... Anyone who has the least bit of political clout has the right to steal from the US Taxpayer.

We need to excommunicate the bankers where they dwell ... at the US FED! Then we need to cut off the spineless politicians where they dwell at the IRS! We need to starve these blood sucking leeches of their only source of power ... the US PESO!

The US Treasury needs to take back control of this country's money and dump the FIAT MASTERS who have been ruining our future since 1913!

ON CHINA
I have posted many times here I would not invest in CHINA. Their population is their achillies heel and has been since their existance. Farmers have been rioting in the rural areas for years now and remain dsigruntled as well as the many millions that have been displaced by Communist policies of resource management, especially water.

I have also posted regarding the money supply growth of the BRIC countries. Inflation is there to stay and nothing makes a populace more likely to revolt than not having the luxury to eat! If you have the city dwellers in the streets and the farmers in rural China are already in the streets then you have a formula for widespread civil disobedience and we all know how well the Communist leaders tolerate that sort of thing!

My guess is th Chinese farmers will only produce enough for themselves and their families to eat since there is little incentive for them to profit for their hard work. YES ... I can confirm that farming is about 100,000 times more strainuous than clicking a mouse at a bank!

I think it is time for FARMERS of the WORLD to STRIKE! Farmers should be at the top of the financial system not the JP MORGANS!

You're killing me Shark.....ROTFLOL!

Nice to see Kaimu so optimistic today ;-) - must have been surfing shark's waves.

As far as problems with fulfilling retirement benefits, the U.S. and China will not be the only ones with difficulties.

In Italy, the long standing tradition is for retirement around age 58 I believe. At the same time, there is a growing population of non-married 30+ year olds who are not replenishing the tax-payer base (whereas a few decades ago it was more common to marry young and have children). On top of that, the average life-span is increasing due to improved health technology and a generally conducive mediterranean climate.

I imagine this is the case in a lot of countries -Italy is just one I have studied before. It would also seem logical that during a commodities boom, there are increased costs to provide basic necessities leading to a natural decline in global birth rates.

So if we thought social security was busted a decade ago, what will be in store if we see continued rapid food inflation? whereas in the past (and present) gov'ts have combated the problem by providing tax incentives for having children - will that be a remotely feasible solution during a period of rapid inflation?

I guess the moral of the story for me is that I am already taking a "write down" on the value of any future gov't sponsored social security. Too bad I can't securitize these future benefits and use them as collateral for a FED loan!

A number of countries facing demographic problems. Japan and Ruussia among others also have big problems with an aging population and declining birth rates. Russia recently had what one could call a procreation holiday where young couples were encouraged to take the day off and . . . . . Think they also may have a financial incentive program also.

One of the things keeping the U.S. from this problem is, dare I say it with all the recent postings, is our immigrant population.

Interesting to see how the option expirations played into the last couple of days trading. Been patiently watching for opportunities.

BG--taking the afternoon off and heading to Wrigley!

Enjoy the game!

typed too fast while walking out the door--first Russia above misspelled - - - - last sentence of first paragraph--delete one also . . May be more--Sorry.

Thanks and a great weekend to all--looking forward to the WIR as always.

Seamus

Have fun at Wrigley - what a great and classic place! My grandfather grew up at 12th and Wilton as a kid and has of course never seen the Cubs win a championship.

Though I am a die-hard Cards fan having grown up in St. Louis - I secretely want the Cubs to win a World series while my grandfather is around to see it!

Drink one for me at Murphy's Bleachers!

Traders will be watching for further price confirmation of this week's gains with the next overhead target set at S&P 1450 with stops set below the 1400 to 1420 support zone. A rally from here will do two things: 1) it would kill the remaining shorts and suck in all of the non-believers and, 2) negate any concern that we've only been trading a counter-trend rally. Let's see if the bulls have the mojo to press even higher
The Kirk Report

Wasn't that as of this AM when we were over 1423 or so?

Looks like we are already below that 1420 mark....

Regarding Bank Preferreds....not only are most new issues non-cumulative but some are perpetual as well. Buyer beware.

Second Ave... You said: "hopefully everyone here has dropped the hands-off buy-and-hold approach" I must strongly disagree with you.

If one identifies longer term trends correctly,enters those positions early and has the courage to hold their positions as long as the trend has not changed...large gains are certainly possible.

Although I monitor my investments closely, buy and hold is very profitable. Here's a partial list of my buy and holds..the numbers speak for themselves.

AEM + 80%
APA + 177%
BHP + 182%
CEF + 43%
DVN + 102%
ECA + 273%
OII + 91%
STO + 53%
GG + 178%
EOG + 570%
RIO + 302%
JNJ + 742%

2 quicks thoughts...It is as our good friend 2nd ave says... We are all day traders now.

Also, there is a strong element of musical chairs to this and to all markets, particularly housing.

astral25- correct me if i'm wrong, but i would not characterize your philosophy as buy-and-hold...you identified a trend, got in early, and (presumably) plan to sell somewhere near the high, right...your time horizon may be longer, but it's still a trade (and of course, many traders would have preferred to buy and sell any of your positions several times within the time you've held them, but that would just make them traders with shorter horizons)...i was thinking more along the lines of investors who would have bought the US market in 1982 and held fast through the bear market-> i just think it's prudent to have a plan to sell positions when your gains hit a certain target (and in your case, the target would be when you've decided the trend has turned)...

742% on JNJ? You must have bought it when it was just Johnson by himself. LOL!

Anyone notice that even with all the pumping and bad news being good news and commodities at all time highs the DOW and S&P still can't get above their 200Day moving averages.

S&P 1427.95
DOW 13014.34

The Nasdaq is currently above it's 200 day at 2516.37.

This is all according to Stockcharts.com

Rob.

Bernacke and Paulson must have seen my last post because now they're making a push for those levels.

Rob.

Time to sell Brazil?

Some bozo on MSN is writing how "Brazil is the new China", how valuations are still cheap, and laments that "They are not getting the credit they deserve as fiscally clean giants in a country largely free of the extreme corruption, political disharmony and waste that has hampered peers in emerging markets."

http://tinyurl.com/5k87wx

I love Brazil, and have done business there for 20 years, but don't believe for a moment that it is "free of extreme corruption". My Brazilian friends will get a big laugh out of this article.

RE: Population decrease in Russia.

About a year ago Putin has instituted a bonus of around $10000 USD for each married couple that has a second child. So they are taking the population problem seriously.

DavidV

Re: Lease Rates For Gold/Silver

Gold lease rate:

http://www.kitco.com/charts/popup/au0060lrb_.html

Silver lease rate:

http://www.kitcosilver.com/charts/silverleaserate.html

Important to note that since the last run-up in precious metals prices to new records, silver lease rates have turned positive today.

F6

David- 10000 USD is no longer serious money....

Posted by: 2nd_ave: "David- 10000 USD is no longer serious money...."

But it might be enough to stimulate those for whom the costs of a second child were not the major deterrent. The actual bonus is R250000, which is greater that $10000 USD by now.

David

It may be the same as our big $600 bonus.....not nearly enough in comparison to the actual need/cost.

Russians seem to want kids for a fraction of the cost and OUR idiot politicians want our economy stimulated with $600.

I think they are all out of touch with reality.

10 grand for a kid....incredible....that wouldn't pay for 18 years of toilet paper.
At least the Russians are playing with their own money.

Hi All,

Just got of the phone with my broker, Etrade.

Apparently I cannot trade certain stocks (see the list below)... and that is apparently because ETRADE, based on numerous requests from the clients, want to protect us - they disabled electronic trading on these stocks and the only way I can submit an (buy or sell) order, is by phone.

Stocks I could not trade: KAN.UN, WILC, ADY

I really do not like how it smells. I was able to trade KAN recently, through the web... worked fine... then suddenly it`s a restricted stock... without any clear explanation.

Now my question is... are they short on funds, or there is a real reason behind it? Can you please share your thoughts and advice?

Thanks,

p.s. I am using ETrade Canada.

For the villagers, who lead an almost self-sustained life in Russia, $10000 USD is a lot of money. One can drink a bottle of vodka every day for 10 years, and no Russian villager will refuse this given an option. :)

David

Last call to board gold train under US$1,000
by John Embry, Sprott

http://tinyurl.com/5sjwkx

[Bill Cara note: Is anybody else getting tired of all the hype that comes out by gold-bugs AFTER the gold price rallies a bit? Isn't that somewhat similar to getting people liquored up so they join the party?

There is nothing new here, and certainly no analysis. Had the piece been published in April, it would not have near the impact. But after gold rallied +40 in a couple days, the article looks better?

That's not to say that gold will not continue to rally here--who knows, maybe the US will send a missile into Afghanistan or Iran as well as Pakistan this weekend? But isn't this piece just more goldbuggery against the "anti-gold gang"?

As I see it, it's just one gang against another. As a trader, I am not much of a gang member. I prefer to flip from side to side.]

I should have mentioned that the link is a PDF

Vodka is not an option under that program - as far as I know, $10,000 is not cash, it's a cerfificate that can be used to pay for child-related services, education etc, starting from 3 years after the birth.

$10K is not a huge deal for Moscow; it's more significant for backwater places, although in those it's quite a challenge to obtain those services certificate is supposed to pay for. Also, significant part of population doesn't take anything but cash seriously - people generally do not have a good experience with on-paper obligations over there. Infamous joke about vouchers louded as part of state assets distributed to the population comes to mind: question to financial analysts "where to put it?" is met with answer "Talk to proctologist"... :)

Overall, this program will be appreciated by a couple that wanted a second child, $10K or no $10K, and will do little to stimulate those who didn't

How does this credit crunch compare with previous financial squeezes?
Economist:
WEALTHY men in pinstripes are hard to pity, but the outlook for investment banks is as bad as it has been for 30 years. An analysis by Morgan Stanley, an investment bank, and Oliver Wyman, a consultancy, concludes that the credit crunch could wipe out almost two-and-a-half years’ worth of pre-crisis profits. That is even worse than the junk-bond crisis of 1989. The industry’s woes will also last for longer than previous upsets, which include the dotcom bust and the 1987 Black Monday market crash. Altogether now: ahhh.

Billy,

Just wondering if the fact that SII.to is trading at $9.70, less than the $10 that people paid for IPO 2 days ago would have anything to do with comments coming out of Sprott.

Given the outlook for interest rates I'd tend to think that gold is going south first.

SiO2 - I haven't followed the Sprott IPO and I can't imagine how the gold article would be "useful" for Sprott other than as an advertisement of sorts for their own management services - I guess this is why all the brokerage houses shower us with their valuable free research, right?

I just saw Bill's comment and I suppose I agree on second look. Its easy to write a "last chance" for gold piece on the tail end of a week-long gold rally - not much specification as to how long the "last chance" may be here. Of course it would have been a more daring call to write this article on the tail-end of a long gold price decline...

The one piece of info I did find interesting was the mention that IMF's gold is actually allocated to each nation member and there is question as to whether these volumes are doubly accounted for by both IMF and the nation member - perhaps not a new concept, but new to me.

I did not post as an intention to cheerlead gold, just thought some may be interested in the Sprott material - I haven't followed John Embry's previous work.

Ok. First time post here. Let's see how it goes.

I think it might be worth considering that
"W" and Goldman ... ahh. I mean the treasury
department may really wish to keep Oil prices
high here. And the theatrics w/ the Saudi's
today was all about getting trader's to short
Oil and oil services stocks. All timed with
Paulsons mention of the famed PWG.

I don't pretend to know all the reasons why,
although the obvious concerns the oil
sectors contribution to the SnP.

Markets are largely about deception, and slight
of hand tricks.

Speaking of calling the gold bottom ahead of time, Mr. Sinclair did predict the decline would end by the first week of May in notes the week before. I do not recall him predicting the decline though.

He is also saying that high quality juniors will find a bottom now.

The most interesting info he has, that he says he has a way of knowing, is that the biggest mining companies are manipulating the prices of the juniors to collapse so they can consolidate the industry on the cheap, being that they desperately need to replace declining reserves.

LongTimeLurker

It all sounds reasonable - as if the Saudi's really have ever decided to pump more oil to appease the poor Americans, right? Did anyone think the Saudi's would cry tears of sympathy and send us more oil - why would they and why should they?

Bush's inner circle has plenty to gain by publicizing this - IMHO they are making a case for their oil/contracting tycoon inner circle to drill ANWR. What better way to make a case than keep oil prices high?

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

From an article I just read on CNN.com:

http://tinyurl.com/5cd4rb

"But Saudi Arabia -- and many economists -- say the high prices are a result of market speculation, the weak dollar, and demand from the developing world rather than a shortage of supply."

Can anyone tell me one respected economist who is still attributing oil price rises to "speculation" ? good grief what a garbage statement. As a student of economics, this is just an insulting statement. darned speculators.

I don't see why the administration would want oil prices high, especially going into an election where they are facing an angry electorate. Congressional Repubs are scared s******s as they just lost three special elections in heavily Republican districts. And the vote wasn't even close - 8% loss in a district that voted 62% for Bush in 2004. That is portending a landslide in November, and not for the GOP. Going into an election, typically the administration manipulates oil prices lower by releasing supplies from the strategic stockpile.

The only thing I can think of is that Republican leaders see what is coming and feel a strategic loss here is the best they can do as they can try to blame Democrats for the economic consequences of the 3 trillion dollar war. A win would saddle them with an impossible situation.

My guess is that oil prices are being driven by speculators at this point, as stocks are not exactly a good value. S&P profits collapsed 17.5% in Q1 08 (seen that reported anywhere?). The Fed's liquidity injections might be being driven into commodity speculation. To reign in the speculators they will have to reign in the Fed's liquidity programs, which would have worse consequences in their estimation.

That is my 2 cents.

BillyS,
It is entirely possible the Saudi's are
doing/saying exactly what the administration
wants them to. Of course there is no way to
know this.
I do know what I saw in the tape today and
how it interplayed with all the various, very public, statements.

Moab:

I was wondering about that, that soon the bigger miners would begin to go after the smaller juniors. It just seems to make sense as a way to build up stock before Gold begins to bounce about higher. The question is which juniors are the ones to consider. I have been eying GIX more seriously of late for this reason. Still debating UXG, but will probably begin reducing UXG to half my holdings as I get the chance.

Seems like the beginning of a fireside sale.

Happily my DVAX bounced down today upon bad news of their Allergy drug. So playing around with the bounce back right now.

Kaimu later in the month I would like to chat about Hilo with you as we begin to plan a jump there :)

peace all and have a great weekend. I am off to the beach.

A friend of mine asked me to post this to the blog this morning. I apologize for the delay.

"Question for all you Bulge Bracket, Big Law, HB&B, Big Four, Ratings Agency, etc., minions out there:

What do you do, how do you look at yourself, when you come face to face with cold, hard facts that show exactly how your corporate masters rig the game, aid the wealthy and powerful at the expense of the small, pull the strings of govt., (and pull them HARD) and generally assist, legally or in some 'gray area,' the elite in continuing to enrich themselves and to subjugate and impoverish the masses?

And I mean this in a very literal, seeing with my own eyes, 'here are the dots, all connected' manner, not some vague conspiracy theory posted on the Net.

Hey, I'm just doing my job, paying my bills.

But sometimes when I think about it real hard, it don't feel right."

Moab,
Good point. It is a puzzle to me.

Perhaps I'm wrong, however I believe the
stock market is the prefered reflation tool
in the FED's toolbox. Oil stocks now have to
go up if you want to reflate via the stock
market; financial stocks won't cut it; although
the financial company's are the risk free
recipients of the newly minted money.

There is plenty of time to deflate oil prices
before the election, but perhaps sureing up the
books of the member banks is of most importance
to the fiat system at this time.

Would you buy a used car from a Saudi King?Anybody can *say* they are going to do something in June. It's just jawboning like a pretend stock buy back.

As Prez. Knucklehead sez: "It's not in their interestsss", (that's how he sez it, slightly roll the hard R and emphasize the tsss to get it right). He likes that word, it's one of the few he doesn't royally F up (like NuwQlur).

I used the false announcement to trade more TSO.

Casey -

As Bill has said, it is the juniors with defined ounces and good, proven management that will be scooped up. The current alleged manipulation may be an attempt to coax them into selling below a reasonable NAV.

Lonetimelurker -

I think you are onto something, although that strategy is to save the markets at the expense of the politicians, and politicians usually always look out for their own skin first.

Posted by: Vadym Graifer: "Vodka is not an option under that program - as far as I know, $10,000 is not cash, it's a cerfificate that can be used to pay for child-related services, education etc, starting from 3 years after the birth."

Yeah, I forgot about that. Damn! After having my second child recently, I was hoping I could drink "free" vodka for the next 10 years. :)

DavidV

Difficult to confirm this story but...

"On Fox Business Stuart Varney announced "Here´s a story you won´t hear anywhere else". He´s right, at the time of writing I haven´t seen this mentioned anywhere else (it´s not that easy to find on Fox either!)

Apparently, six US Aircraft Carrier groups will be on their way to the Persian Gulf within the next month, and Defense Secretary, Robert Gates, was quoted as saying "It´s a reminder for the Iranian Regime".

Military experts say the US is at least preparing for an attack on Iran, or providing support for an Israeli Air Strike on Iran´s nuclear facilities.

Two, or perhaps even three carrier groups might be considered a "reminder", but six? They are not going just to flex a bit of muscle, they are going to war!"

http://tinyurl.com/4vfehn

Bill

Are you being objective when you diss the goldbugs after slamming HB+B?

"Damn! After having my second child recently, I was hoping I could drink "free" vodka for the next 10 years. :)
"

David,

not all is lost. Bathtub vodka is cheap, just need right recipe :)

THE STRIKING PRICE DAILY

Gold Options May Trade by May's End
By STEVEN M. SEARS

ONE OF THE BEST THINGS about StreetTracks Gold Trust (GLD) is that it trades at about $86. It's one of the worst things, too, because investors have not been able to use options to hedge and speculate on GLD's journey from a 52-week low of $63.39 to a high of $100.44.

All of that is about to change.

After about four years of waiting, wanting, and whining, options on GLD could be listed as early as May 30, according to the Chicago Board Options Exchange.

CBOE, like other options exchanges, is waiting for the Securities and Exchange Commission to issue an approval order for what is arguably one of the most-anticipated options products to be launched in the past five years.

The introduction of options on GLD is expected to be followed by options on other commodities, such as silver, furthering blending the securities and commodities markets.

--------------------------------------------------------------------------------
DOW JONES REPRINTS
--------------------------------------------------------------------------------
This copy is for your personal, non-commercial use only. To order presentation-ready copies for distribution to your colleagues, clients or customers, use the Order Reprints tool at the bottom of any article or visit: www.djreprints.com. • See a sample reprint in PDF format • Order a reprint of this article now.
--------------------------------------------------------------------------------

Indeed, the launch highlights the start of a new era of cooperation among regulators. The Securities and Exchange Commission, which regulates stocks and options, and the Commodities Futures Trading Commission, said in mid-March that they signed an agreement to forge closer working relationships. This is important because many worthwhile financial products, including GLD options and even credit-default options, could arguably be regulated by SEC and CFTC.

Until now, there was no easy way for the regulators to solve jurisdictional issues. Instead, they adopted the typical Washington turf conscious posture of doing nothing, and the markets and investors suffered. The new so-called memorandum of understanding establishes a framework for SEC and CFTC to discuss and coordinate common regulatory interests, such as portfolio margining, foreign security index products, and oversight of firms registered with both agencies.

Options on GLD are the test case of the new relationship. Even though the GLD exchange-traded fund was approved by SEC, commission staffers reportedly feel they made a mistake when they approved the gold ETF because it actually holds gold, and is thus outside of their regulatory purview. Commodities, including precious metals, are CFTC-regulated.

Michael Schwartz, Oppenheimer & Co.'s chief options strategist, said it is about time options on GLD were brought to market.

"Gold has been one of the biggest investment stories in the past few years," Schwartz said, "and options on GLD have been much needed, and sorely missed, by investors."

shark- personally, not in the category of "Bulge Bracket, Big Law, HB&B, Big Four, Ratings Agency, etc., minions," but i'm going to take a shot at anwswering your question anyway:

if i'm in a position to change jobs, i would do it...

if i'm not, it's a tough decision...if i'm not being asked to do anything clearly illegal or immoral, i would probably stay with the job, as my first priority is to support my family (as much as i would admire someone who ends up in the unemployment line on principle, i would equally understand that not everyone is cut out to be a crusader)...if, however, what i'm asked to do is clearly wrong (eg, promote the purchase of a financial instrument that i know is a losing proposition), then i would have to leave-> no such thing as a job you cannot afford to turn down...

as a trader, my only priority is to make money...i believe that for those of us who accept the real possibility of market manipulation with no emotional hang-ups, the task is made much easier...it's entirely possible to simultaneously despise the conditions under which one operates while maximizing the gains possible under those conditions...

ultimately, i believe that we're judged (internally or externally) on the options available to us at the time (and i think one's conscience is generally a pretty gauge)-> someone with good judgment can easily navigate his way through a complicated minefield of decisions about right and wrong-> few things are black and white...i've done a few things i'm not proud of (and would attribute to immaturity or lack of courage); on the other hand, i've been making my way towards an ideal that makes sense to me, and proud of my progress toward it...and of course, very understanding of those who fail, those who try and fail, and those who repetitively try and fail...life is unfair, and to the extent it's been more than fair to me, i try to be generous in understanding the actions of those to whom it's been less than fair...

'looking at oneself in the mirror' is usually a very revealing act, but one complicated by many
factors...no one does it the same way...

should say looking at oneself in the mirror is a very revealing PROCESS...

Re: Embry Article

Embry article was published long before it was posted on the web, as his articles appear in Investors Digest Of Canada. So my guess is it would have been composed in the teeth of the correction, long before we saw a rally.

Many people scoff at Embry's outlook, but it contains a very valid viewpoint from someone with very long experience in the industry and carries a strong counterpoint to the "glass half empty," or "gold is dead" types. Well worth the read, and not in the least bit inflammatory or irrational.

What should be noted are the comments on seasonality at this stage in the game. Is he right? Should we be positioned at this stage of the game in the precious metals sector?

POG would have to rally past $934 to be valid.

[Bill Cara note: Correct me if I am wrong, but I believe the article was published today.]

Posted by: 2nd_ave: "it's entirely possible to simultaneously despise the conditions under which one operates while maximizing the gains possible under those conditions..."

So what would be the proper strategy right now for maximizing the gains? I don't have the time to do day trading, and so the only choice that seems to be left to me is to do the good old scaling-in-on-weakness. The weakness right now is obviously in QID rather than QQQQ. So would the strategy of scaling into QID right now (by buying a bunch of shares each time it drops by 10%) qualify as the "proper" way to play this manipulated market for a non-daytrader?

Thanks,

DavidV

US Global Funds weekly alert:
"Gold may rally further in the near term as the ratio of crude oil-to-gold has reached nearly three standard deviations from the typical trading relationship, possibly suggesting that gold may strengthen to catch up with oil."
http://tinyurl.com/296e5f

ALOHA !!

vinod posted ... Michael Schwartz, Oppenheimer & Co.'s chief options strategist, said it is about time options on GLD were brought to market.

"Gold has been one of the biggest investment stories in the past few years," Schwartz said, "and options on GLD have been much needed, and sorely missed, by investors."

If GLD is backed by actual physical gold and SLV is backed by actual physical silver then what will "options" be backed by? Air? The "faith and credit" of JP MORGAN? Now we are getting down to the real reason GLD and SLV were created as a back-up for the irredeemable shorts of the COMEX!

Kaimu -

"Now we are getting down to the real reason GLD and SLV were created as a back-up for the irredeemable shorts of the COMEX!" ...

I, for one, would really appreciate a simple explanation of what the above means: whose shorts? why irredeemable? Thanks in advance.

cyderman: it seems that the disparity between gold and oil can be eliminated by having oil come down in price significantly, which is not entirely impossible.

DavidV

ALOHA !!

Jock ...

Whose shorts? COMEX. But add in NYMEX-LME-TOCOM and pool accounts and unallocated certificates all qualify.

Irredeemable? Because there isn't enough physical to cover massive worldwide short positions listed above.

Look at COT - Commitment Of Traders ...

This chart explains the misaligned gold and silver short positions in relation to days of production. Notice other commodities aside from the "monetary metals", like wheat and beef. It doesn't take a mental gisnt to figure out who the FED fears most! It takes a heck of a lot longer and costs more to grow an ounce of gold or silver than a bushel of wheat or a pound of beef!

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

Add in the estimated 1 billion ounces of silver alone held in pool accounts and unallocated certificate programs, which would dwarf the COMEX silver inventory. In the event of a demand for delivery all of these entities would be competing for physical supply, which is why I have always suggested staying with mints, like the Perth Mint, that has long established relations and direct access to miners and refiners of gold and silver.

All I am saying is that the "supposed" physical held in the GLD and SLV ETFs would be used by JP MORGAN to prop up the COMEX and NYMEX and LME in the event cash settlements were no longer diserable and physical delivery was demanded.

As an example of unallocated silver PMCP(Perth Mint Certificate Program). I spoke in depth with the Perth Mint and unallocated account silver buyers are running 10 to 1 when compared to allocated buyers. Imagine if all the unallocated silver buyers suddenly wanted allocated physical?

So who is it that owns an "irredeemable check book" and to who's advantage would it be to own options to short GLD and/or SLV? Who has the most to lose if the monetary metals spot price rises precipitously out of control?

I am always leary of "new" Wall Street inventions like ETFs and now "options" on ETFs that compete directly with the fiat monetary system.

As an example, even though uranium is not a monetary metal, look what happened to the uranium spot price as soon as Wall Street introduced "uranium futures"!

Anything that threatens their "fiat power" always meets with covert manipulatory actions, as in the phrase "much needed for investors"! What BS ... what do investors have to do with rigged casinos and a corrupt fiat monetary system?

ALOHA !!

David ... So what you are saying is that oil will come down to $55 per barrel in other words make a correction of around 56% from current levels.

Okay ... fair enough, but I won't be betting on it soon!

Just for my FedEx fuel surcharges I hope you are right ...

FYI ... Gasoline in Hilo, Hawaii is now at $3.86 for regular grade.

ALOHA !!

I find that this adequately explains what Wall Street banks have done to unsuspecting US homeloaners and the US Taxpayers. Someone in Congress please explain how it is we need to bail out these banks that invented this financial weapon of mass destruction and then recklessly pushed it onto the World financial system. I say let Goldman Sachs bail them out since Goldman Sachs made a ton of money off shorting CDOs.

Link: http://tinyurl.com/6nc9qs

ALOHA !!

Add in this FYI regarding HELOCs to my above post on CDOs.

READ ON:
From Bill Fleckenstein's Daily Rap: HELOCs: The New Subprime (Here is Fleck's Site for the Daily Rap):

Note: excerpted with permission.

The following is from Fleck's source: "The Lord of the Dark Matter"

"A couple of us tuned into Dexia's conference call yesterday, looking for clues on HELOCs. We got plenty, and they were important. In February Dexia said the absolute worse case loss for their monoline subsidiary FSA was going to be $125 million. Yesterday, they added $195 million to that. The reason given on the conference call for the poor guidance is that the servicer on their wrapped HELOC portfolio, Countrywide, had such a backlog that FSA didn't get the news that delinquencies were skyrocketing until very recently.

There is no doubt that US mortgage servicers are swamped right now, but I think there is a bigger story here, which ties in with BAC quietly announcing their HELOC loss estimates have gone up from a 2.0% to 2.5% range to 'over 2.5%.' Servicer backlogs could well be the reason why so many CEOs and CFOs are running around telling investors they are not seeing deteriorations in HELOC delinquencies.

The truth is their data is wrong. The market has, obviously, taken the view that the worst of the writedowns are behind us, and if anything it's now just a macroeconomic problem we face. I think that's dead wrong. We're now entering the phase where the macro impacts earnings, but also the stage where real cash losses start to hit the banks (subprime and Alt-A is primarily a mark-to-market issue, but HELOCs are going to be large, outright losses). Once WAMU, WFC, BAC and JPM start to get data through on how rapidly their HELOC portfolios are deteriorating, watch the losses pile up. I'm talking realised losses, not mark-to-market writedowns."END

ALOHA !!

Its called "debt attrition". That's where the cost of living stays so high over an extended period where income cannot keep up and the cost to service even the most minimal debt becomes overwhelming. Of course the $600 stimulus will fix that! Is everyone so debt free they plan to use their $600 to buy a couple iPods? I plan to use mine to buy gold. I call that a "protest vote" against fiat!

Paying off debt is a wise "investment" in this enviroment ...

Re: Embry Article

"[Bill Cara note: Correct me if I am wrong, but I believe the article was published today.]"

The article was published on or prior to May 08, 2008 IN PRINT in the Investor Digest Of Canada, as it appeared at the newsstand on the eighth of May. The publication was dated May 16th,(even though it appeared on newsstands the week before) as its publication date is one week LATER than the date it appears on newsstands, as THE END of its periodical. The INTERNET publication appears on the publication date, which is AT LEAST ONE WEEK LATER than the appearance of the actual print edition on newsstands.

Chapters/Indigo carefully writes the date it appears on newsstands on each copy, so that customers aren't confused by the future dating of the periodical nature of the paper.

(I hope thats all clear as mud.)

Quite curious though, for the timing, because Jim Sinclair had said that the bottom of the gold price correction would come in on May 08, and the appearance on the newstand of John Embry's article is the same date.

If anyone wishes to discard the notion of price fixing in the precious metals markets, they can do so at their own discretion, because efforts at price fixing have merely resulted in higher prices. So take away what you can from Embry's article.

Note that the majority focus their disdain almost exclusively on Bernanke and The Fed as the source of their problems, but Embry takes aim at the erroneous assumptions that even the most prestigious institutions operate under, especially as they are related to gold.

Take note of the forecast that investor demand will continue to rise. (but I personally believe this will not guarantee rising prices, gold can still be under great demand at much lower levels even if there is a deflationary recession.)

F6

[Bill Cara note: Thanks F6. Not in any way trying to disparage the work of Embry, Sprott or GATA, I believe you are looking at the sell-side (ie, the storytellers) who have the same vested interest in gold moving higher as say the Fed does in having it as low as possible. As a trader. I get tired of reading and hearing the same words. It's marketing and these people are preaching to a choir, using when spirits are highest. The job of a trader is to filter out the hype, to analyze the data, look for confirming evidence as to the most probable outcome for a corporation or the price series data for that corporation, and to act. That requires a focus, which marketing people or lobbyists are working against. They want you to hear their story... buy, buy, buy. But the essence of trading is that for every trade there is one buyer and one seller. We traders need to sell as much as we buy and we can only do that if we remain independent and objective and focused on the data.]

Dear 2nd Ave,

Remember it's not MY question you were answering, but that of a friend of mine who asked me to post on their behalf. Are you a lawyer 2nd? If so what type?