Finding a Post-Crash Economic Model - WSJ.com

Finding a Post-Crash Economic Model - WSJ.com: "In the wake of a financial crisis and punishing recession that the models failed to capture, a growing number of economists are beginning to question the intellectual foundations on which the models are built. Researchers, some of whom spent years on the academic margins, are offering up a barrage of ideas that they hope could form the building

Slow Distribution From Strong to Weak Hands In Bonds

I recall taking some heat after Are Bonds About To Get Steamrolled? commentary August 2010. The negative feedback wasn’t really surprising as many Americans remain in denial about many of global secular trends in place since 2000.

As Armstrong’s most recent commentary suggests, the bankers are neither naïve or foolish. They understand the ramifications of the trends in place and will not be the ones bearing the losses when they break.

The slow distribution process will continue to transfer ownership from the strong to weak hands. The controlled churning process will be characterized by fear-induced sucker rallies and “air-pocket style” declines.

US TBd (20 Years +) and the Commercial Traders COT Futures and Options Stochastic Weighted Average of Net Long As A % of Open Interest:


Source: martinarmstrong.org

Spain's Banks Face $111 Billion Funding Hurdle in 2011 Amid Bailout Threat

Following the contagion script nicely here.

Spain’s banks may struggle to refinance about 85 billion euros ($111 billion) in debt next year as costs surge on concern continental Europe’s fourth- biggest economy may need an Irish-style bailout.

“There’s a universal dumping of Spain going on,” said Andrea Williams, who helps manage about 623 million pounds ($968 million), including shares in Banco Santander SA, at Royal London Asset Management. “The fear is that Portugal, Spain and Italy are now in line after what happened in Ireland.”

Source: bloomberg.com

Calling Dr. Copper

The growing positive divergence of trend energy relative, REV(E), to the price of copper portends another up phase. The message from the copper market remains a sharp contrast to the experts calling for an end of the commodity bull due to a strengthening dollar. Building strength in the copper trend suggest that differential rates of depreciation in the paper world do not define strength.

iPath DJAIG Copper (JJC):

The Economic Motivation Behind Perception Management, Explained By The Tail of A Dead Donkey

Compliments of CIGA Giancarlo. This also explains the Western financial business strategy of breaking every law and paying a fine much less than you earned.

Jim

The Donkey

Young Paddy bought a donkey from a farmer for £100.

The farmer agreed to deliver the donkey the next day...

The next day he drove up and said, 'Sorry son, but I have some bad news. The
Donkey's died.'

Paddy replied, 'Well then just give me my money back.'

The farmer said, 'Can't do that. I've already spent it.'

Paddy said, 'OK, then, just bring me the dead donkey.'

The farmer asked, 'What are you going to do with him?'

Paddy said, 'I'm going to raffle him off.'

The farmer said, 'You can't raffle a dead donkey!'

Paddy said, 'Sure I can. Watch me. I just won't tell anybody he's dead.'

A month later, the farmer met up with Paddy and asked, 'What happened with
that dead donkey?'

Paddy said, 'I raffled him off.

I sold 500 tickets at two pounds a piece and made a profit of £898'

The farmer said, 'Didn't anyone complain?'

Paddy said, 'Just the guy who won.

So I gave him his two pounds back.'

Paddy now works for Anglo Irish Bank.

See there can SOMETIMES be benefits of procrastination

There are benefits of procrastination.A slew of biases thrown together.BusinessWorld Online Edition: Delaying tactics: "While deferring gratification may be a good character trait, postponing duties until the last minute is not viewed in the same light....Being late allows the latecomer to learn from the mistakes of the eager beaver whose ideas get shot down first. In a panel discussion, the last

Death Cometh for the Greenback

This is from Joseph Stiglitz, a Nobel Prize Winner and professor at Columbia, and Washington Economist who is not afraid to say his mind. He is a more negative on free markets than me, but regardless of your politics, he makes many important points. Well worth a read.Death Cometh for the Greenback: "For the past eight years, the dollar has increasingly become less revered. Its value has been

"Set them Up Fellas" - COT Equity Money Flows

Connected money is buying weakness.

S&P 500 and the Commercial Traders COT Futures and Options Equity Diffusion Index (DI):


Meanwhile, retail money, often dependent on the work of 'experts', is selling weakness.

S&P 500 and the Nonreportable Traders COT Futures and Options Equity Diffusion Index (DI):


Who do you think is right?

Differential Rates of Devaluation Cannot Define Strength

Do not let the management of perceptions set your reality. While money can manage the speed of the fiat race to the bottom, it cannot alter its direction.

Gold has already traded at all time highs despite the failure of the U.S. Dollar index to break its 2008 lows. This divergence and source of frustration for many readers is not dollar strength but rather a reflection of the components within the index. Although gold has emerged as the world’s currency of choice, it remains completely ignored by the U.S. Dollar Index.

One reader has characterized the rally as pseudo-strength. That is, strength defined by differential rates of devaluation. This type of strength is an illusion. The breakout and acceleration of the global price of gold as defined by the U.S. Dollar Major Currencies Index reveals the extent of this illusion.

Gold London PM Fixed and U.S. Dollar Major Currencies Index Ratio

Thanks Eric. Appreciate the reply.

While the big boys are positioning for another USD downleg, it's been 3 years now of USD going lower talk.

It has not taken out the 2008 low, nor the 2009 high for that matter. Isn't it possible that it's just a range trade, and never goes lower?

Everything subscribes to it going lower, and has for years, but it hasn't.

All unmaterialised predictions. I suppose those regular JS readers might be disallusioned as there also hasn't been the explosive upside in gold - the big guys just keep directing printed money to cap it's upside.

All frustrating. Then also Nat Gas looks like it's getting upward momentum, then gets smashed back down in an instant, even in an increased demand period.

Silver looks like the only strong one.
A

Operation Euro

While the media focuses on the next dominoes in the chain (Portugal, Spain, Italy, and possibly France), they, predictably so, have missed the steady buying into weakness by ‘connected’ money. This steady buying represents the markdown phase of an organized trade.

The US dollar strength will disappear as fast as it materialized. Once the fuel is spent, the secular trends will resume.

Euro and the Commercial Traders COT Futures and Options Stochastic Weighted Average of Net Long As A % of Open Interest:


The transition from the markdown to accumulation phase will be characterized by heavy commercial buying and a general media disinterest towards the once hyped European contagion. It's also likely that retail money will have significantly increased their short exposure. They are beginning to nimble at the bait already.

Euro and the Nonreportable Traders COT Futures and Options Stochastic Weighted Average of Net Long As A % of Open Interest


Headline: WORLD FOREX: Euro Falls Below $1.31 On Contagion Fears

The euro fell below $1.31 for the first time since Sept. 21 on Monday as an announced EUR85 billion rescue of Ireland failed to calm concerns of more euro zone contagion.

Rather than ease fears, traders immediately focused on Portugal, Spain and Italy, which also suffer from a lack of investor confidence, several analysts said.

"It hasn't stopped the contagion elsewhere," said Robert Lynch, currency strategist at HSBC in New York. "If the expectation was that it would quell some of that fear, it has so far not succeeded. Italian bond spreads are up, Belgium bonds spreads are up," he said.

US dollar Strength Will Disappear As Fast As It Materialized

Scott,

The strength in the US Dollar, an illusion revealed by the global strength in gold, will disappear as fast as it materialized from media-driven hype. "Connected" players are repositioning against the hype into strength right now. The duration of operation Euro take down depends on the quantity of contracts or amount of 'fuel' controlled by the weak hands. The secular trends of up gold, stocks, euro, and down U.S. dollar will resume when this fuel is exhausted.

Turn off the TV and follow the money. COT figures, due later today, will reveal the trail of bread crumbs to follow.

Regards,

Eric

Eric -

Given the current and potential bailouts Roubini is referring to, is it probable we see a further period of pseudo-strength in the USD accompanied by weakness in gold and shares? IOW - weakness until capital finishes its "Euro Play", as you say.

I know Jim commented on relative strength in gold a few days ago, and it's still at $1365 as I write this. So I wonder if the appetite for movement from USD to Gold will be enough to sustain it through this period.

-Scott

Putin: Russia will join the euro one day

Please review this important video

Putin speaks on the Euro. Russia takes the opportunity of the crisis as does China to get closer to Euroland. Historically when everyone runs from a situation Russian and China take advantage to their benefit. The banksters for their profit will move Euroland into a much close economic relationship with Russia and China. The West has no concept of this.

Jim

Source: telegraph.co.uk

Targeting the Weak Hands Is Easy Money

Let’s face it; this mess is not limited to Greece, Ireland, Portugal, Italy, France, and/or unique to the EU zone. The state of the US union is equally as fragile despite mono-focused analysis of a multidimensional problem. California, New York, Illinois, etc. have seen borrowing costs soar as they attempt to fix their budgetary holes with more debt. When capital finishes its “Euro play”, it will move against the weak hands to force another centralized bailout. Its easy money to press the weak hands, and the local governments will scream “save me” so loud that it will be impossible to ignore.

Headline: Roubini sees Portugal bailout, possibly Spain as well

Portugal will take an international bailout and Spain may be next as Madrid has underestimated the cost of cleaning up Spain's financial system, economist Nouriel Roubini said on Monday.

Greece will eventually have to restructure its debt and a weak growth outlook will prompt central banks, including the European Central Bank, to ease policy further, said Roubini, who is known as Dr. Doom for predicting the credit crisis before 2007. He also warned on Monday that there was still the risk of a double-dip recession in the United States.

Source: finance.yahoo.com

The Guilty Secret to Giving the Best Gifts - WSJ.com

The Guilty Secret to Giving the Best Gifts - WSJ.com: "'A good gift is something that someone really wants but feels guilty buying for themselves.' This perspective is interesting because it suggests that the ideal gift is not something that the recipient can't afford or didn't know she wanted. It all comes down to alleviating guilt. Behavioral Economics at its best: explaining what we know, but

Pluses, Minuses for Muni Bonds

It has been shown time and time again that on Wall Street people very often fail to see the thing that is right in front of them.

Jesse Livermore

This is the principle reason why investors must follow money rather then media-driven reality. The ability of money to expand and multiple depends on its ability to discern the truth despite the experts.

The municipal bond market continues to show signs of stress. Rising yields and increasing volatility depict a market once considered boring. This highly unusual action, nevertheless, has gone nearly unnoticed. The bailouts in the EU remain on the center stage for the media outlets. While out of sight and mind may shape perceptions about state of municipal finances, it has no bearing on capital flows. Similar to the weak nations within the EU, capital smells blood in the water. They will press a weak position until a bailout of the State, either direct or indirect, is required.

Investing in municipal bonds used to mean one thing: boring.

Stodgy governments, authorities and municipalities would issue bonds backed by tolls, taxes and other income. The yields weren't always splendiferous, but they were usually tax-free, and the issuers almost never defaulted. The ability to raise taxes helped ensure that bondholders would almost always get repaid.

But a combination of factors has turned the muni-bond market into another white-knuckle investing zone. A number of states (hint: California) face brutal budget equations. Local governments have very challenging pension obligations that will require more muni-bond financing. And the federal government's big spending ways are crowding the fixed-income market

Source: online.wsj.com

Quantitative Easing To The Rescue

QE to Infinity. EU too.
Next Portugal, Spain and Italy get bailed out all at ounce or in series. Currency wars to continue. Resulting in Currency Induced Cost Push Inflation.

Jim

France will enter the bailout discussions at some point.

Eric


Headline: EU approves $113 billion bailout for Ireland

EU nations agreed an euro85 billion ($113 billion) bailout deal for Ireland on Sunday to help the debt-struck country with its banking crisis, and sketched out new rules for future emergencies in an effort to restore faith in the euro currency.

Follow the Money and 'Extremes' in Equities

The Arms Index or Trin, (AN x DN)*(DV/AV), measures the force behind the movement into advancing and declining shares. Extreme movement into declining shares, highlighted by the red painted sticks, tends to foreshadow trading bottoms.

NYSE Internals:


Long and intermediate term bottoms tend to form when extreme movements are supported by leveraged inflows. This is illustrated by the Equity Diffusion index.

S&P 500 and the Commercial Traders COT Futures and Options Equity Diffusion Index (DI):

A Closer Look at Insider Trading Cases: Prosecutions, Defenses, and What Can Send You to Jail - WSJ.com

Video - A Closer Look at Insider Trading Cases: Prosecutions, Defenses, and What Can Send You to Jail - WSJ.com: "In the wake of recent FBI raids at several hedge funds, Alan Murray sat down with Joel Cohen, a former federal prosecutor and insider trading expert, to examine the complicated, and often gray world of insider trading law and prosecutions."Good interview on Insider trading.

Reader Observations About Black Friday (Consumerism)

While personal consumption still represents over 70% of national income in the US, it is beginning to decline from the secular high in the fourth quarter of 2009. The chart below provides illustration to the adage “old habits die hard.”

Personal Consumption Expenditures (PCE) As A %GDP and Personal Consumption Expenditures As A %GDP Average from 1947:


Most Americans, both private and public, have yet to realize that the message of the markets has changed dramatically since 2009. The credit mechanism that supported consumerism is a shell of its former glory. Loan creation at US commercial banks has rolled over across the board. Yet, many Americans remain in denial to this reality. It’s easier to embrace the old days of “shop ‘til you drop” rather than recognized that life has changed in a material way.

As I said many times before, market forces do not demand recognition or acceptance. Their only demand is acquiescence. Acquiescence usually takes the form of brute force by deterioration of one's purchasing power (standard of living).

Bob makes a few important observations about the inherent dangers of a consumption (consumerism)-driven society.

BLACK FRIDAY

How pathedic for People that can't afford the items They purchase even at discount just buy and add it to their Credit Card balance which will never get paid

Or how about People that are not paying their mortgages still living in a house that they never could afford out shopping instead of paying the mortgage

The power of the media is beyond belief, the control is complete They have once again convinced the masses to "Go For It" yes people are shopping but the great game of unbridled debt continues.

Events such as People actually hurting one another at a Store opening is sickening and causes Me to wonder of the I.Q's of those that the Media has termed CONSUMERS.

These are some of the same people that the majority of us are bailing out in one form or another when they go Bankrupt !

Common Sense the foundation on which We as a Nation was built has obviously and recklessly been abandoned and been replaced with Days, Months, and Years of BLACK FRIDAY'S.......(pray)

Bob.C

Gold Is the World’s Premier Currency, According To The Markets

There is so much happening now that any thought other than self protections is madness. The dollar is no safe haven. Gold will trade at and above $1650.

Jim

Russia now suggests that they could one day join the Euro. This commentary came only days after they had announced that they have quit the dollar. "Yes, there are problems", as the headline below suggests that the size of the rescue package could be increased to restore confidence in the Euro. Apparently, the fact that nearly all western nations are defaulting on their debt through currency devaluation still makes fiat (Euro) an attractive alternative.

Headline: Putin: Russia will join the euro one day

Speaking at a conference in Germany the Russian prime minister, who is in the country for talks with Chancellor Angela Merkel, said he was convinced the euro would stabilise and strengthen despite the current sovereign debt crisis.

He said: "Yes, there are problems. But the economic policy of the European Central Bank and of the governments of leading European economies ... convinces me that the stability of the euro will be ensured."

Headline: ECB's Weber Says Europe's Rescue Fund Could Be Increased If More Needed

European Central Bank council member Axel Weber said governments can increase the size of the European Union-led bailout fund if necessary to restore confidence in the euro.

“Seven hundred and fifty billion should be enough to assure the markets,” Weber said at the German embassy in Paris late yesterday. “If not, it will have to be increased.” In a worst-case scenario, the fund would need an additional 140 billion euros ($187 billion), an amount that would not jeopardize the survival of the euro, Weber said in Berlin today

Headline: European Banks ‘Nearly Bust’ If Euro Collapses, Evolution Says

The European banking system would be “nearly bust” if the euro were to be abandoned which means the 16-member currency “cannot and should not go,” Evolution Securities Ltd. said.

“If the euro is abandoned, and we go back to the peseta, lira, escudo, drachma etc., devaluations would follow immediately,” said Arturo de Frias, head of bank research at Evolution in a note to investors today, adding the industry is a “great buying opportunity.” Devaluations mean write-offs “of a size that would render the whole European banking system completely insolvent.”

The markets trends, rather than fancy rhetoric, clearly illustrate what Jim describes as a state of self preservation in the currency markets. Gold has once again stepped into the confidence vacuum as the world’s premier currency.

Key points of the following trends
(1) The fiat price of gold is rising in all global currencies
(2) The stronger fiat currencies are revealed by those yet to set new relative highs and lower angles of ascension.
(3) Gold has been the world’s premier currency since 2000-2001. This is a fact that won’t be universally recognized until nearly the end of gold’s price adjustment.

US Dollar Gold:


Yen Gold:


Mexican Peso Gold


Euro Gold:


Canadian Dollar Gold:


British Pound:


Australian Dollar Gold:


Swedish Krona Gold:


Swiss Franc Gold:


Rouble Gold:


Real Gold:

Foolish Money Reacts While Smart Money Plans

Hello Don;

Have governments redirected and confiscated private funds in the past? You don’t have to be much of a historian to know the answer is yes.

Will public outrage prevent similar investment ultimatums in the U.S? Opinions vary as to the answer of that question.

As I have already said, smart money anticipates through contingencies plans rather than reactions to real-time events. Any reactionary investment strategy based on a given public response, which would include proper recognition, organization and follow-through, better be inconsequential to success of the overall investment plan.

Jim is right, protect yourself. While the foolish money tries to react in real-time, smart money plans based on probabilities.

Best Regards,

Eric

Eric,

I’ve been reading Jim Sinclair for several years now and often wondered who CIGA Eric was until I finally stumbled onto your site. Now I read it daily, fully appreciating why Jim Sinclair quotes you so often. Your thoughts and quoted news leads are keenly prescient and offer a much needed focus on reality.

Your recent report of the Hungarian ‘pension fund ultimatum’ was a shock for me in particular, whose retirement savings are mostly in IRA accounts. Is it conceivable that the government would mandate their conversion to US bonds? I’ve heard this suggested in the past, but always thought that the public uproar would not let it happen. Now, I am not so sure. These are unusual and desperate times.

Jim Sinclair has often said to ‘protect your self’, but without many specifics. More radical blogs even mention cashing out your IRA’s, and essentially hiding the money in hard assets. I’m old enough now so that I would not have to pay a penalty, only the considerable taxes. I am, of course hesitant to take such a radical step. Inside the IRA’s I can protect the account from an ongoing debasement of the USD, but is the account itself in real jeopardy from government mandates and is bold action needed?

If I may beg of you your most valuable opinion on this, I, and I’m sure others, would be very grateful to hear it.

Best Regards,

CIGA Don

PBOC Researcher Calls on U.S. to Sell Gold Reserves, People's Daily Says

Let's assume for a moment that the U.S. has possession, not simply paper receipts, for its 8,000+ tons of gold reserves. Any official announcement that they intend to unload their reserves would send the dollar into a tailspin down the elevator shaft. This outcome using history as a guide would not be in the best interests of the United States.

The U.S. should cut its government spending and sell some gold reserves to balance its budget and fund its recovery, the People’s Daily overseas edition reported, citing Xia Bin, an adviser to the People’s Bank of China.

The U.S. has to resolve its “twin deficits” in the government budget and the current account, Xia was quoted as saying. Three ways that may help the U.S. achieve that target include reducing military expenses, selling part of its gold reserves and relaxing some export limits on technology, he said.

Source: bloomberg.com

Hungary Follows Argentina in `Nightmare' Pension-Fund Ultimatum

This should be very disturbing in light of the public musing about retirement tax accounts.

Jim

Jim,

The drive towards self preservation within a dying monetary system could very well lead to similar demands from government sponsored, “carrot on a stick” programs in the U.S. Smart money, a student of the writing on the wall, invests relative to contingencies rather than reactions to real-time events.

Eric

Hungary is giving its citizens an ultimatum: move your private-pension fund assets to the state or lose your state pension.

Economy Minister Gyorgy Matolcsy announced the policy yesterday, escalating a government drive to bring 3 trillion forint ($14.6 billion) of privately managed pension assets under state control to reduce the budget deficit and public debt. Workers who opt against returning to the state system stand to lose 70 percent of their pension claim.

Source: bloomberg.com

Headline Hype Distorts only Perceptions, Not Reality

A feel good headline (below) designed to make Americans feel better while they officially give thanks (and decide if they should spend more on black Friday). Fortunately, reality rather than perception drives capital and the markets. Better than expected this or that, while it can make us feel over the very short term, has absolutely no influence on the direction and speed of the dominant secular trends.

Personal income and spending numbers, as I suggested yesterday, have been tweaked beyond useful historical comparisons. Most of the reported strength in income and spending since August has been manufactured by statistical tweaks.

Contrary to the economic hype, new home sales remain extremely sluggish within a secular down trend. Sure, maybe the numbers beat expectations, but the trend remains down.

New Home Sales And Change YOY, SA:


What’s extremely disturbing, and likely highly influential in the Fed’s decision execute another round of quantitative easing (QE), is the shocking deterioration of both nominal (US dollar) and real (gold priced) median home prices below critical swing support levels. The October reading of $198,082.8 marks a break of the April 2010 swing low and the first reading below $200,000 since 2003.

Median Home Price And YOY Change:


The gold adjusted median home price has fallen below critical 1983 support.

Median Home Price to Gold Ratio (MHPGOLDR) And YOY Change


Let us all be thankful for what we have. Please do not let economic hype distort that understanding.

Headline: Economic data reveal a hint of consumer merriness

Americans are earning and spending more, companies are shedding fewer workers and hopes are rising for the economy as the holiday shopping season starts.

Still, with businesses spending less on manufactured goods and new-home sales near their lowest level in 47 years, consumers alone might not be able to invigorate the economy and drive down unemployment.

Source: finance.yahoo.com

China, Russia quit dollar

This comes from a reliable publication in China. Strange that is not the way it was reported in the US or Europe yesterday. It was considered a trivial step for bringing the Yuan in greater use and maybe make it more, as the Western media articles said, market related. The Chinese did it therefore the Chinese ought to know what they did, and why they did it.

Jim

The ongoing economic war has taken it up a notch.

St. Petersburg, Russia - China and Russia have decided to renounce the US dollar and resort to using their own currencies for bilateral trade, Premier Wen Jiabao and his Russian counterpart Vladimir Putin announced late on Tuesday.

Chinese experts said the move reflected closer relations between Beijing and Moscow and is not aimed at challenging the dollar, but to protect their domestic economies.

"About trade settlement, we have decided to use our own currencies," Putin said at a joint news conference with Wen in St. Petersburg.

Source: chinadaily.com.cn

Meir Statman: Amateur investors expect impossible - SFGate

Tomorrow (yes on Thanksgiving) I am speaking with Meir Statman on some Behavioral finance issues. Recently he was in the San Francisco Chronicle. His basic investment advice:Meir Statman: Amateur investors expect impossible - SFGate: "Q: You pound the drum for index funds. Is that because you think the markets are efficient and therefore unbeatable over the long-term?A: The market is not

Coincidentally, Personal Income and Spend Surge Before the Holidays

Personal Consumption As A % of Personal Income:


Investors that use personal income and spending numbers for historical comparisons today prefer government statisticians doing the thinking about the economic world for them. In the commentary, If you don’t like the message conveyed by economic time series, revise it!, I revealed how many of economic time series have been adjusted to maintain the economic illusion. In many cases, there have been multiple adjustments since 2000.

The alteration of personal income and outlays should serve as all illustration of the growing disconnect between actual and statistical economic reality. The size of the distortion will only worsen as the sovereign debt crisis intensifies.

Headline: Personal income, spending higher

With the holiday shopping season just around the corner, both personal income and spending are on the rise, the government said Wednesday.

Personal income rose 0.5% in October, after a revised unchanged rate in September, while spending by individuals ticked up to 0.4% from a revised 0.3% the prior month, according to data released by the Commerce Department.

Source: money.cnn.com

Treasury International Capital Flows

Gold continues to act out of sync with its normal motivators. Reports indicate that South Korea shoot first. Anyway international tensions have no had a major impact on gold in the past year. Yet gold held the majority of it upside today. This is the third trading day that gold has managed the shake off normal market detractions. I find that interesting.

Jim

Perhaps gold is beginning to recognize the redistribution of the foreign holders of US Treasuries. The following tables illustrate the slow and steady withdrawal of marginal purchases of US Treasuries by China since the onset of the crisis in 2009. The sharp increase in marginal participation from the United Kingdom (and its various conduits of direct and indirect money) only fuels the speculation to who represents this buying. Some of this money might have the initials BB.

Eric

Major holders of US Debt As Percentage of the Grand Total 2009:

Major holders of US Debt As Percentage of the Grand Total 2010:

Source: treas.gov

FRB: FOMC Minutes, November 2-3, 2010

By now you probably have seen the news story on the Fed lowering their growth forecasts for the coming year. For instance here is how it was reported by the Washington Post:
"Federal Reserve officials expect the unemployment rate to remain around nine percent at the end of next year and eight percent at the end of 2012, according to internal forecasts that drove the central bank to take new

SSRN-Internal Sources of Finance and the Great Recession by Michelle Barnes, N. Pancost

SSRN-Internal Sources of Finance and the Great Recession by Michelle Barnes, N. Pancost:
"The rising stockpile of cash as a share of total assets at US firms has intrigued economists...We...show that the rise in cash holdings has coincided with an increased willingness to save internally-generated cash. We show that although investment is normally sensitive to externally-generated cash, the

What's Behind The Gold and Silver ETFs?

ETF products hold nine years of global, not US as suggested below, mine supply. How much 1285.08 tonnes current holdings represent physical gold? The legal wording of the GLD prospectus should present signficant clues for investors.

There are no assurances that the gold bar exist until added to the account of HSBC custodian or subcustodians. Then the prospectus clearly states that if the subcustodian(s) do not have the gold, Trustee cannot be assured that they will be able to recover any damages from them.

Under the Allocated Bullion Account Agreement, except for an obligation on the part of the Custodian to use commercially reasonable efforts to obtain delivery of the Trust’s gold bars from any subcustodians appointed by the Custodian, the Custodian is not liable for the acts or omissions of its subcustodians unless the selection of such subcustodians was made negligently or in bad faith.

Basically, shareholders cannot be assured that the Trustee will be able to recover damages from subcustodians or any losses relating to the safekeeping of gold by such subcustodian.

Then the legal speak takes it a step further by suggesting that neither Trustee or Custodian really knows the activities or holdings of the subcustodians.

Because neither the Trustee nor the Custodian oversees or monitors the activities of subcustodians who may temporarily hold the Trust’s gold bars until transported to the Custodian’s London vault, failure by the subcustodians to exercise due care in the safekeeping of the Trust’s gold bars could result in a loss to the Trust.

When the objective of the fund is to track the price of gold, does it really have to own any gold to do it? No.

Meanwhile, the theoretical gold supply held by the gold ETF(s) continue to soar as money seeking an easy way to track the price of gold finds an easy solution. This game of musical chair will play until holders of baskets (100,000 shares or more) demand payment in gold. The music could very well stop when this happens.

Exchange-traded products own 2,088 metric tons, equal to nine years of U.S. mine supply, data compiled by Bloomberg show.

Source: financialpost.com
Source: spdrgoldshares.com

A look at the Eqyptian Stock Market

As It Shifts, Egypt's Economy Retains Some Oddities : The Two-Way : NPR:

"Nearly 30 years in office, Egypt's President Hosni Mubarak has become a strong proponent of a market economy. Only vestiges remain of the state socialism that for decades defined Egypt.

Enterprises like banks that were once state-owned are now firmly in private hands. Foreign investment, construction and tourism are

Video - Is Insider Trading Everywhere? - WSJ.com

Video - Is Insider Trading Everywhere? - WSJ.com: "WSJ's Dennis Berman discusses with colleague Evan Newmark a lawsuit filed by a retailer in Florida alleging that a research house stole trade secrets and published sensitive inside information about the company."



From the WSJ online:

"Big Lots alleges the firm pried information out of store managers, in effect stealing trade secrets and

Stocks Beat Bonds, Gold, BBH Strategist Says

Many "experts," and I use that term loosely, clearly do not understand the forces that govern secular trends. The uniform motion (or lack thereof) of the secular trend remains unperturbed unless compelled to change by external force. Until that external force materializes, the direction of the secular trend remains down.

Unfortunately, the brilliance of Newton did not always apply to the monetary and financial markets.

Silver was the basis of Britain's monetary system for hundreds of years. This is why their currency is still called the Pound Sterling.

The price or exchange value of gold and silver coins fluctuated relative to supply and demand until 1717 when Sir Isaac Newton, the Master of the Royal Mint, introduced a bimetallic currency system based on silver and gold. Newton fixed exchange ratio at 15.5:1. In other words, gold was considered to be 15.5 more valuable than silver.

Variation in supply and demand factors for gold and silver, however, created distortions within the fixed exchange. Silver was considered more valuable than gold by the markets, and Gresham's law - driving out good for bad money, slowly removed it from circulation.

The key to any monetary system, as Jim has suggested, is flexibility.

U.S. Large Cap Stocks Capital Appreciation Index (LCSCAI); S&P 500 to Gold Ratio:

Bonds are overvalued and gold is no protection from inflation, says Scott Clemons, chief investment strategist at Brown Brothers Harriman and contributor to the BBH Core Select Fund.

Source: finance.yahoo.com

Off to the Mall

AFTER TWO PAINFUL YEARS of retrenchment, American consumers are flexing their wallets again. They have paid down debt, boosted their savings and otherwise strengthened their personal balance sheets since the recession hit with terrifying force in the second half of 2008.

As a result of their improving circumstances, the nation's merchants are likely to enjoy a jolly holiday season, with retail sales up 3.5% to 4%, exceeding both last year's meager 0.4% gain and expectations of 2.3% growth forecast by the National Retail Federation. More important, the consumer-dependent U.S. economy could grow by as much as 4% in 2011, well ahead of the current consensus estimate of a 2.4% increase in next year's gross domestic product. Consumer spending accounts for more than 70% of GDP, although that figure includes government spending on health care.

There's always a fine line between hope and reality. The recent strength in retail sales, regardless of hope, is reality based largely on currency devaluation. The secular down trend in consumer spending that started in 2002 and accelerated in 2006remains unperturbed. The up tick since mid 2010, unfortunately, is nothing more than noise within the confines of the secular down trend.

Gold-Adjusted Retail Sales (RSGLDR) and YOY Change


Source: online.barrons.com

Do Bonuses Enhance Sales Productivity? A Dynamic Structural Analysis of Bonus-Based Compensation Plans — HBS Working Knowledge

Do Bonuses Enhance Sales Productivity? A Dynamic Structural Analysis of Bonus-Based Compensation Plans — HBS Working Knowledge: "Key concepts include: * Bonuses do increase productivity. * Quarterly bonuses increase sales force productivity more than annual bonuses. * Sales people tend to give up when far away from reaching a quota, but they don't slow down once a quota is

Can Wall Street Justify Its Existence? - NYTimes.com

Can Wall Street Justify Its Existence? - NYTimes.com:Yes Wall Street does much good, but does it take more money than it earns? That is the question that is asked in this week's New Yorker Magazine and is rehashed in today's DealBook."...the question stands: a strange industry exists that mints multimillionaires on the basis of stock movements and bond issues. Can it justify its existence, or

Ireland swallows bitter pill, asks EU for loan

A massive EU & US (IMF) loan to solve a problem created by excessive debt. A predictable conclusion within a tranparent plot that had the media "guessing" all last week.

Debt-crippled Ireland formally applied Sunday for a massive EU-IMF loan to stem the flight of capital from its banks, joining Greece in a step unthinkable only a few years ago when Ireland was a booming Celtic Tiger and the economic envy of Europe.

Source: finance.yahoo.com

Gold to Silver Ratio

A clean break of the 2007-2009 up trend in November would bring the 1998 and 2007 lows into place. The quickness of these tests will likely surprise the herd (the masses).

For a further discussion on GSR analysis, please read Gold to Silver Ratio Speaking Loud and Clear.

Gold to Silver Ratio (GSR):

A panel discussion on Executive Compensation

Good stuff.  Has public board members, lawyer, politicans, and a professor.  Very interesting, especially the discussion of how compensation committees set executive compensation  (i.e. what do boards do), and changes that have come up in the last few years.



Excellent even if it drags a bit at the very start.  (it is 86 minutes so you can skip around some ;) )

Here is the link. http://

TSA has met the enemy — and they are us

"In the end, more than they wanted freedom, they wanted security. They wanted a comfortable life and they lost it all - security, comfort, and freedom. When the Athenians finally wanted not to give to society but for society to give to them, when the freedom they wished for most was freedom from responsibility then Athens ceased to be free."

-Edward Gibbon The Decline and Fall of the Roman Empire

How did an agency created to protect the public become the target of so much public scorn?

After nine years of funneling travelers into ever longer lines with orders to have shoes off, sippy cups empty and laptops out for inspection, the most surprising thing about increasingly heated frustration with the federal Transportation Security Administration may be that it took so long to boil over.

Source: news.yahoo.com

Video of the Trillion Dollar Bet in 5 parts

YouTube - The Black-Scholes Formula - 1/5:

The Trillion Dollar bet, which is based on the Long Term Capital Management story (when Genius Failed) , is a staple in my classes. Here is the first of 5 parts of the old PBS video.

HIGHLY recommended! The show is really two separate stories--on one on the history of the Black Scholes formula, and one on the Collapse of Long Term Capital Management.

Gold and Silver are Immediate Stand Up and Take Notice Markets

Richard Wyckoff described the three phases of a professional trade as follows:
(1) Accumulation/Distribution
(2) Mark Up/Mark Down
(3) Distribution/Accumulation

Connected players began aggressively shorting the Euro in the middle of October. This was the quiet, professional distribution at the expense of “The Chumps”. This distribution was followed by the nonstop media blitz over Ireland's debt crisis in November. This began the mark down phase. Connected players have begun to slowly cover their shorts into weakness at the expense of the spec and retail money (see charts below). The third and final phase of the trade will be completed with the announcement of an Irish bailout.

Connected Money

Euro and the Commercial Traders COT Futures and Options Stochastic Weighted Average of Net Long As A % of Open Interest:


Specs and Retail Money "The Chumps"

Euro and the Nonreportable Traders COT Futures and Options Stochastic Weigthed Average of Net Long As A % of Open Interest:


Meanwhile, the flipside of this drama reveals impeccable timing of money flows in U.S. dollar as well.

The temporary weakness in the Euro, also 'anticipated' by accumulation of long positions in the U.S. dollar market, has allowed connected money to profit and reposition on the short side into strength. When money flows transition from down to up, it will mark the resumption of the dollar's slide.

U.S. Dollar Index and the Commercial Traders COT Futures and Options Stochastic Weighted Average of Net Long As A % of Open Interest:


The stand up and take notice markets are gold and silver. Connect money as covering their short positions into strength since August. As I have written before, covering into strength is a huge departure of control in the gold and silver. The weakness in gold and silver has not changed the flow of money. Connected money continues to cover their short positions into both strength and now weakness.

Gold London P.M Fixed and the Commercial Traders COT Futures and Options Stochastic Weighted Average of Net Long As A % of Open Interest:


Silver London P.M Fixed and the Commercial Traders COT Futures and Options Stochastic Weighted Average of Net Long As A % of Open Interest"


The only other time we saw such motivated covering (buying) by connected players was 2005-2006. Coincidentally, well likely not a coincidence, it was during this period that Buffett announced that he had sold his silver hoard and silver ETF, better know as the physical demand vacuum, was first listed. What will they do for an encore in 2010-2011? Gold and silver are immediate stand up and take notice markets. History, or retrospect analysis, will clearly mark the time in which "it all changed." Unusual changes in money flows almost always foreshadow these inflections.

With that said, let me posting one of the most important charts within my arsenal of analysis. The presistant cluster of gold diffusion index above the 40 percentile suggests that connected money wants out of the U.S. dollar. The growing hostility of finger pointing within the currency wars has not gone unnoticed by connected money. Expect the price of gold to rise and accelerate as an increasing percentage of these outflows find their way to gold.

Gold London P.M. Fixed and the Commercial Traders COT Futures and Options Gold Diffusion Index (DI):

U.S. Pursues Sweeping Insider-Trading Probe - WSJ.com

U.S. Pursues Sweeping Insider-Trading Probe - WSJ.com:

"Federal authorities, capping a three-year investigation, are preparing insider-trading charges that could ensnare consultants, investment bankers, hedge-fund and mutual-fund traders and analysts across the nation, according to people familiar with the matter.
and later:
"The investigations, if they bear fruit, have the potential to expose a

Video time: Simpsons on flashing, Bubbles, and Monkeys!

The weekend is a good time to catch up on some videos, so here are some. (And
I want my students to watch these, so I better make use a flashy article name!)

Three somewhat fun, but also pretty interesting videos:

The May Flash Crash was back in the news, so we will start off with this. You remember the flash crash. It was when stock markets fell with amazing speed back in May.
Flash

Two videos on market efficiency

These are a bit dated (from last year), but perfectly timed for class...so I will include them.

YouTube - Lessons From the Father of Modern Portfolio Theory:





And Justin Fox:



Update: 6:45 AM Nov 20:

Two other videos that also deserve mention:
* a video asking whether Modern Portfolio Theory is dead from the president of Ibbotson?

* a shorter "trailer" for the Justin Fox book.

The Race To The Fiat Bottom

The rising price in all global currencies suggests that everyone wants to win the race to the fiat bottom. It doesn't take much to turn the war of words into direct and indirect actions. Any option other than cooperative quantitative easing will have an immediate and harsh reaction in the capital markets. This would affect not only Wall Street but also as Main Street. Only a fool would cast their gold into weakness under these circumstances.

Headline: China blasts US congressional report on currency

A U.S. congressional report that called on Washington to do more to force China to increase the value of its currency constitutes interference in Beijing's internal affairs, the Chinese Foreign Ministry said Friday.

Ministry spokesman Hong Lei accused the U.S.-China Economic and Security Review Commission of having a "Cold War mentality" and of harboring a grudge against China.

Source: finance.yahoo.com

Headline: Bernanke defends bond-purchase plan, warns China

Federal Reserve Chairman Ben Bernanke hit back at critics, both at home and abroad, who have challenged the central bank's $600 billion bond-purchase program.

In a speech in Germany, he argued that Congress must help support the Fed's program with further stimulus aid. And he issued a stern warning to China, saying it and other emerging nations are putting the global economy at risk by keeping their currencies artificially low.

Source: news.yahoo.com

Irish, EU, IMF face marathon talks for loan deal

WTF??? How long does it take to open up the checkbook? Theatrics designed to unwind trades, i.e. book profits, and present the illusion that this is something other than a bailout.

DUBLIN – Irish, European and International Monetary Fund officials mounted tough negotiations Friday over terms of a massive credit line for Ireland's debt-crippled banks — with the fate of Ireland's prized low business taxes in the firing line.

Irish officials said talks were under way at several locations in Dublin involving different government departments and agencies and more than 40 officials from the European Central Bank and Washington-based IMF. Most arrived Friday.

Source: news.yahoo.com

Fear & Doubt Are the Weapons of the Gold Stock Short Sellers

Fear that the gold shares will never again outperform gold. Doubt that management will ever realize through capital gains or dividend increases the reserves in the ground.

Fear and doubt are the weapons of the gold share short sellers. As long as fear and doubt can be raised to the level of action (selling), aggressive naked shorting can slow the advance of many well run and financed gold companies.

Correlation analysis of the gold stocks relative to gold reveals how fear and doubt were pushed to extremes in 2009. The historically strong correlation between the gold stocks and gold during secular bull advances, such as 1929-1942 and 1968-1980, had fallen well below 0.80 by the end of 2009. This distortion is better revealed by bisecting the latest secular advance. The correlation between the gold stocks and gold had fallen to -0.14 since 2006. This reading suggest no correlation between the two assets and an extreme 'loosening' of tight correlation, 0.95, displayed from 2000 to 2006. The die of “fear and doubt” had been cast to create a tool for the short sellers to use against the weak hands.

Historical Correlation Gold Stocks and Gold Through 2009.12


Once investors were lured in by this contradictory, short-term “lesson”, the market has quietly begun (re)teaching its historical relationship. The loosening of historically tight correlation between the gold stocks and gold from 2006 to 2009 has been quietly reversed in 2010. The correlation has gone from -0.14 to 0.42 over the past ten months. While gold stock investors are likely still behaving in terms of the previous short-term lesson characterized by fear and doubt of holding gold shares within a secular gold bull market, the movement of capital has already adapted.

Historical Correlation Gold Stocks and Gold Through 2010.10


The correlation between gold stocks and gold has and will always be tight and profitable for investors owning well-run and financed gold companies.

China raises required reserves as inflation fight intensifies

China continues to struggle with the consequences of large sums of capital flowing into its banking system. Its soft peg to the U.S. dollar and other western currencies means adoption of western monetary policies such as quantitative easing. China’s small incremental increases in margin requirements relative to size and scope of the quantitative easing undertaken in the west can only be characterized as trying hold back failure of the Hoover dam by plugging the leaks with fingers.

China ordered lenders on Friday to lock up more of their money with the central bank for the second time in two weeks, stepping up its battle to pull excess cash out of the economy before inflation has a chance to take off.

The People's Bank of China said that it would increase banks' required reserves by 50 basis points, its fifth such announcement this year. Including a temporary increase, the move takes required reserve ratios (RRR) to 18.5 percent for big banks, a record high.

A Half-Dozen Essential "Business" Books : The D & O Diary

A former student sent me this. I confess I have not read that many of them, hence this post is a reminder to myself as well as a suggestion to others.A Half-Dozen Essential "Business" Books : The D & O Diary: "I figure that no one really needs me to suggest the usual fare from the business section at the book store, like, for example, The Smartest Guys in the Room or Liar’s Poker. If those books

Treasury Takes Initial Public Loss on GM Shares - WSJ.com

Treasury Takes Initial Public Loss on GM Shares - WSJ.com: "The Treasury paid about $40 billion for the 912 million common shares it held at the start of the day Wednesday. To get that all back at once, the Treasury would have had to sell all its shares at about $43.85 in the IPO.

After the IPO, the Treasury Department retains about a 37% stake in GM. The remaining 554 million common shares the

Dollar to Become World's `Weakest Currency,' Drop to 75 Yen, JPMorgan Says

Another way of saying this would be that JPMorgan expects the price of gold to be the strongest in U.S. dollar terms. The rewording, being equally correct, only begs further explanations. This is not an option.

It's far too late for the austerity, balanced budget, or in other words a strong dollar policy. Notice how infrequent the phrase “strong dollar policy” is spoken today. Capital knows that any serious adoption of austerity policies will bring down a world of hurt on those clamoring for it.

As I have said many times before, the flow of capital (secular trends) demand only acquiescence. Opinions, egos, or theories against their direction always fail.

The dollar may fall below 75 yen next year as it becomes the world’s “weakest currency” due to the Federal Reserve’s monetary-easing program, according to JPMorgan & Chase Co.

The U.S. central bank, along with those in Japan and Europe, will keep interest rates at record lows in 2011 as they seek to boost economic growth, said Tohru Sasaki, head of Japanese rates and foreign-exchange research at the second-largest U.S. bank by assets. U.S. policy makers may take additional easing steps following the $600 billion bond-purchase program announced this month depending on inflation and the labor market, he said.

Source: bloomberg.com

Investment Sentiment Highest Since 2007 Bearish or Bullish?

AAII Investor Sentiment Survey (AAII) measures the percentage of individual investors who are bullish, bearish, and neutral on the stock market for the next six months; individuals are polled from the ranks of the AAII membership on a weekly basis. Bullish sentiment as percentage of the total reached its highest reading since 2007. Like clockwork, commentary suggesting that extreme bullishness is bearish for stocks has begun to circulate around the Internet. While this argument sounds plausible and can be support by the data at times, it ignores the cycles of TIME behind the trend.

TIME is more important than price or sentiment. The follow chart illustrates that relatively extreme readings (either high bullish or bearish) can precede both advances and declines. Why were extreme bullish reading positive for stocks in 2003 but not in 2007 and 2008. The cycles of TIME were different. When TIME is right price will follow either up or down. TIME does not concern itself with investor sentiment.

AAII Sentiment Survey:


There are better, less biased ways of measuring extremes than sentiment surveys within the context of TIME. The following chart illustrates 1-2-3 cycles within the trend. One is complete. Two is a work in progress.



Source: aaii.com

How Companies Use Derivatives for Hedging & Risk Management | CoolAvenues.com

How Companies Use Derivatives for Hedging & Risk Management | CoolAvenues.com: "Hedging, in simple words, means reducing or controlling risk. This is done by taking a position in the futures market that is opposite to the one in the physical market with the objective of reducing or limiting risks associated with price changes."Nice introductory article. Good for class!

Sales of 1-Ounce American Silver Coins Soar, U.S. Mint Says

The market knows that the elimination of paper layers, or possession of gold and silver bullion, is the lowest risk option.

Volume is contracting at the 11/05 gap support. This is a bullish setup.

The break of the upper trading channel will be no easy feat. Once this zone falls, the gloves will come off in the silver market.

Paper Silver ETF (SLV):

Sales of 1-ounce American Eagle silver coins are headed for the strongest month since at least May, the U.S. Mint said.

About 3,175,000 of the coins have been sold this month, compared with 3,633,500 in May, according to data on the Mint website. Silver futures in New York touched a 30-year high of $29.34 an ounce on Nov. 9.

Source: bloomberg.com

MOPE has backfired

The endless barrage of MOPE has made a large cross-section of the population blind to the economic realities (trends) in place.

Critical lending subgroups such as commercial and business loans, and real estate (both residential and commercial) have been showing negative year-over-year growth for months. While consumer lending remains relative strong, it too is beginning to roll over as the effectiveness of previous stimulus wanes. This roll over will show itself as negative year-over-year declines in the coming months.

The timing of the latest monetary injection is no accident.

Breakdown of Total Bank Credit: Year-over-Year Growth for Total Loans, Business Loans, Real Estate Loans, Home Equity Loans, Consumer Loans, and Cash Assets for Commercial Banks in the US.

How Management of Perspective Economics (MOPE) backfires

The unending criticism of the Fed's action on QE must have its
foundation in a belief that has been prolifically communicated to the
public by all kinds of media.

1. The US Economy is improving and will continue to.
2. Balance sheets of US financial entities have improved greatly.

Therefore they cannot see why the Fed needs to try to stimulate
anything.

1. The answer is that the US Economic recovery is stalled. Anything
going higher more slowly is starting down on the Economic Accelerator
Factor.
The Economic Accelerator Factor is a law of economic denied now for 30
years.
The answer to number one is that the US economy is looking for a lower
low on the next move.
2. The balance sheets of the US financial entities show an improved
based on a total FABRICATION, FASB selling of their soul to Wall
Street and allowing the entities in question
to make up valuation having nothing to do with true value. The fact
that a bank holds a piece of junk to the end does not justify valuing
junk at cost. That is moronic and destroys the purpose of accounting
and auditing.

MOPE has convinced every Fed detractor that all is well. It isn't.

Top Republicans and Tea Party members are afloat in public letters and
complaints to the Fed, but inherently to the people, about the Fed.
As well meaning as they are these people are, they have no idea what
dislocation they will cause immediately.
QE is not right but it is the only tool left to the Fed.
The new bodies in the legislative will prevent any fiscal measures.
If the final hit of the fan may the result of well meaning but
economically ignorant people.
Assuming the new people prevail over the Fed gold will go to
unimaginable prices as Western society implodes.
One conclusion now is neither the right nor the left has a clue of how
serious conditions are.
As I have told you for years, there is no practical solution to what
many administrations have done.

MOPE has backfired.

Jim

Fed likely to buy entire $600 billion in plan: Bullard

Yesterday, the need to use the full $600 billion was doubted. This doubt was flashed across the newswires in regular intervals. This perception, in turn, supported the dollar and the smashing of nearly every commodity and non-dollar ‘play’. This included the stock market. Truth be told, $600 billion won't be enough. When further economic sluggishness demands more monetary injections, a similar doubting game will emerge to provide cover for paper control.

A top Federal Reserve official said on Wednesday the central bank is likely to follow through on its entire $600 billion bond buying program based on an anticipated weak economic recovery.

"As the forecast looks right now it looks like we'll be purchasing at this pace through the end of the second quarter to add up to $600 billion," St. Louis Federal Reserve Bank President James Bullard told reporters on the sidelines of a conference.

Source: finance.yahoo.com

A War On Milliseconds Being Waged At CME

When faced with technologically superior opponent, the war must be fought in a manner in which technology provides no advantage. The Vietcong, a master guerilla army, quickly learned this lesson.

Algorithm trading makes assumptions and calculations based largely on “normal” trading conditions. When “normal” transitions/cycles to panic, usually right under the noses of most experts, speculative blow ups are the end result. When government intertwines with banking*, the consequences of these speculative blows tends to increase in scope and size.

Some of the better-known, more recent speculative blow ups are known by the following names: The Mississippi Land Bubble under John Law, The Florida Land Bubble and the Stock Market Crash of the Great Depression, Orange County, Long-Term Capital Management, the Dot.com bubble of 2000, and the 2007 Mortgage crisis.

* When governments and banking intertwine, as they have slowly done since the adoption of the US constitution, the consequences of greed-driven mistakes are often postponed through bailouts of various types. This action encourages even more hubris and sense of invincibility until the two are forcibly separated by the brute strength of market forces. Thomas Jefferson, a student of Adam Smith and practical economist, understood the dangers entangling banking and government. The words chosen in the U.S. Constitution and his correspondence suggest it

Hey Guys;

Welcome to the new face of trading in the 21rst century… the smaller investing public will be the ones who end up eventually getting a one way ticket to the door as they cannot hope to compete in this sort of arena unless they really and truly deeply understand the particular markets that they are trading.

One thing about these funds – they are generally clueless about the character and nature of the individual markets they trade and their mindless selling and buying creates opportunities for those who know their markets well enough to spot when this computer based selling or buying has pushed prices well beyond fair value and out of sync with the supply/demand picture for that particular commodity.

One has only to respect the hedge fund community for the enormous sums of money at the disposal of their trading machines and the severe price swings that can result from such sums being shoved into or yanked out of markets en masse. As far as respecting them for any intimate knowledge of the things that they trade – that is a joke. Most of them would not be able to tell you the difference between a wheat plant or a corn plant but they are in those markets jerking them all over the place on any given day.

For these people, it is all about chasing movement – nothing else matters.

Dan

DJ MARKET TALK: A War On Milliseconds Being Waged At CME

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

Wed Nov 17 12:48:35 2010 EST

1748 GMT [Dow Jones] CME Group (CME) continues to whittle down
trade-execution times on its electronic futures and options markets, aiming for
transactions to go through in two milliseconds as opposed to the current five
in key markets. Energy and metals will be cut over to the faster trade-matching
engines by the end of 2010, CME CEO Craig Donohue says in investor presentation
Wednesday, with interest rates migrating in the first half of next year. There
are one thousand milliseconds in one second, and 86,400,000 milliseconds pass
by each day. (jacob.bunge@dowjones.com)

Contact us in New York. Darlene Ross, 212 416-2166;
darlene.ross@dowjones.com

(END) Dow Jones Newswires

11-17-10 1248ET

Copyright (c) 2010 Dow Jones & Company, Inc.

China May Gradually Increase Gold Reserve Holdings, Paper Says

The last thing China is going to do is telegraph its true intentions. China will surprise many by announcing a massive upward revision their gold reserves when it supports their plan and interests. Expect more of “we’re interested but not too interested in gold" press releases as they execute their plan behind the scenes.

China is considering gradually increasing the nation’s gold reserves, the 21st Century Business Herald reported today, citing an unidentified consultant to the government.

There are limits to China’s ability to increase gold holdings on a large scale within a short time, so the gains in the government reserves will be a slow, incremental process, the newspaper said, citing the consultant. China currently has 1,064 metric tons of gold, accounting for 1.6 percent of its foreign exchange reserves, it added.

Source: businessweek.com

Money Is Repositioning for Another Dollar Decline

The dollar's decline against other major currencies will resume once the right money is properly repositioned.

Connected players will use the strength to reestablish their net short positions, while retail money, guided by well-timed and highly directed media analysis, is pushed (herded) towards the long side for the eventual slaughter. The flow of money is methodical and highly controlled.

U.S. Dollar Index and the Commercial Traders COT Futures and Options Stochastic Weighted Average of Net Long As A % of Open Interest:


U.S. Dollar Index and the NonreportableTraders COT Futures and Options Stochastic Weighted Average of Net Long As A % of Open Interest:

What Are Gold and Silver Telling Us?

Gold and silver, while similar, are not identical markets.

Besides, the daily trend is filled with too much "noise" to allow such detailed comparisons. The study of forcing during the test of support or resistance, i.e. filling or closing above a trading gap, is more important than price.

A variation on the Weimar experience within a dollar-centric monetary system has silver leading gold. This leadership is clearly illustrated in the Gold to Silver Ratio (GSR).

Gold to Silver Ratio (GSR):


The smaller and larger magnets represent targets within the cycles. The pull of the smaller magnet increased once mid range consolidation broke to the downside. A retest of the 2007 ratio lows is the minimum expectation of this minor cycle. Silver’s leadership will continue as long as quantitative easing remains a policy solution.

Eric,

Tonight you mention silver must fill the gap from Nov. 5. It just about did that today. However, gold (when looking at GLD) not only filled its gap but shot past it. Is there a mixed signal from these 2 charts?

Joe