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The USDollar
is on the edge of the chasm again. The nonsense has been cast aside about a
bank recovery, a housing stabilization, and an economy that can withstand a spillover. How incredible it is to see grown adults
accept such marketing and promotional drivel. Wake up and smell the blood!
The US
financial and economic system has never been so vulnerable in almost a
century. What we see now is far more dangerous than the 1970 decade,
characterized by vast cost shocks. Back then, China
was not a player. Its current presence puts a price ceiling on finished
product pricing power, and even more importantly, on wages broadly in the labor market. Households cannot afford higher prices, as
bankruptcy pain escalates. Other key differences are discussed in the
upcoming July Hat Trick Letter. The US
financial networks and media seem to describe the entire set of symptoms that
constitute near systemic collapse, without ever mentioning the potential for
collapse. My view is that the banks will lead the process. They, for the most
part, will be making giant strides into mine fields, after having held
themselves back on accounting shenanigans. Their structured vehicles laden
with acidic cargo have been circling the cities for some time now, but must
soon return to the company back lots where their destruction might spread to
the vital corporate centers. Most banks will dilute
themselves into oblivion, as they stave off bankruptcy, improve their
liquidity, and deal with the steady stress of insolvency. Some banks have
begun to call in healthy loans in order to maintain cash positions. Some are
kiting on deposits, borrowing them illicitly during an unsanctioned three-day
period of sinister shifts. Some like Wachovia and Key are dead but have not
admitted it. Most are demanding that good borrowing customers jump through
hoops endlessly.
A couple big Wall Street
investment banks are probably walking dead also, such as Lehman Brothers and Merrill
Lynch. On the next round, they will tend to take each other down together.
General Motors is being prepared by financial funeral directors as we speak.
See the Merrill Lynch downgrade. The dead are downgrading the dead!
Preparations are being made to relax official rules in order to facilitate
bank failures, reported in the news without bother of implications cited.
Treasury Secy Paulson wants ‘additional
emergency authority’ to limit financial market disruptions. Translated,
that means he wants relaxation of bailout mechanisms, loan extension
facilities, and other bank sector subsidies, even as handouts and corrupted
doles are to be widened. He cites powerful negative forces from energy
prices, bank & bond crises, and the housing decline. He uses the word
‘liquidation’ rather openly, much like ‘fire’ in a theater. He talks openly about orderly liquidation of
large financial institutions. Implied is more JPMorgan assumption of
monumental books of business, otherwise known as casino games. Many such security
assets have no market anymore. Try selling a subprime
mortgage bond these days, or a leverage bond composed of the same decomposing
debris! He is trying for a second time to propose a blueprint for regulatory
overhaul to benefit the Wall Street elite banks that caused most of the
Western world financial destruction. When the USGovt
seeks to enact reform, Paulson wants them to reach for his blueprint.
Imagine hurricane
preparations devised by town officials, with nobody changing daily activity
and habits. For two decades, the public has subsidized corrupt, crooked,
conniving Wall Street elitists without a peep of objection. The problem is
that the public citizenry in the Untied States is profoundly ignorant, based
upon lack of reliable information and lack of ability to discern much beyond
video games and reality television shows and new hamburger options and
Hollywood star drug habits. The majority is clueless, while the enlightened
few feel helpless to contend with a corrupted system that controls the media
networks, regulatory bodies, and law enforcement. Lawsuits against JPMorgan
have all failed. Challenges against the USTreasury
on gold management have all failed, yet are ongoing. Challenges against the
commodity exchanges on oversized short position concentration have all
failed. Meanwhile, most Wall Street information shared publicly is patently
untrue, self-serving, and acts as part of their corporate brokerage trading
strategies. In order to act defensively in defiance, one must invest in gold
and silver, or else buy into an energy firm.
Last week the US Federal
Reserve blinked. This week they are hiding. They have no policy options left.
They are backed into a corner. They can defend the USDollar
and further kill both housing and credit starved commerce, or they can bow to
the stock market with further stimulus to the USEconomy
and invite additional grand increases to cost structures again. The USFed has suffered some rather substantial damage to its
private portfolios. This is unprecedented. They are not an altruistic
organization, but rather the most parasitic exploitative financial
organization ever to operate on US
soil, outside organized crime. Heck, they are Ruling Elite organized crime in
league with the USGovt! That is just another description
of my oft-quoted theme of the Fascist Business Model in full force since year
2000. That is the legacy of the current administration.
Now the Intl Monetary Fund
has decided to conduct an investigation into the financial management of the US
banking system! This is totally unprecedented. The German journal Der Spiegel wrote that the
IMF had informed US Federal Reserve chairman Ben Bernanke
of its plans for a general examination of the US
financial system. The IMF board of directors has ruled that a so-called
Financial Sector Assessment Program is to be carried out in the United States.
This, according to the German journal, “is nothing less than an
X-ray of the entire US
financial system… No Fed chief in US
history has been forced to submit to the kind of humiliation that Ben Bernanke is facing.” For some reason, the
entire story escaped the intrepid lapdog US press network system. We would
live in a different world if all financial network news was from public
funded commentators. My view is that some sort of powerful steps are being
taken to perhaps wrest control of the US
banks away from Americans, after declaring them to be a high risk to the
global financial system. In 2001, reports came out that the Bank For Intl
Settlements in Basel
Switzerland
had declared the Soviet Union
a geopolitical security risk. After large loans were called for repayment,
the Soviet Union
collapsed. Back then, the BIS also announced that the US
banking system represented a similar financial risk to the global economy.
One must wonder if some profound changes are soon to come.
USDOLLAR ON EDGE
OF BREAKDOWN
The USDollar
is showing early signs of breakdown. Look closely not at the critical support
levels from March and April, but rather the intermediate pattern. If the
intermediate pattern on display over the last four months is ignored, and a
simplistic view is taken of critical April support levels continuing to hold,
then one might conclude ‘No Big Deal’ on the recent USDollar move down in the last couple weeks. However, if
that intermediate pattern is viewed in technical terms, one must conclude
that the US$
DX index has begun a breakdown. At 72.10 late in the day Wednesday, the
breakdown continues almost silently. Gold and silver prices have
responded. Notice the 200-day moving average held firm since the bounce began
in March and April. One can easily now call that bounce as utterly feeble. It
enabled a vividly clear pause pattern. Those who call the bounce as the
beginning of a US$ recovery are exaggerating, undoubtedly motivated by the
vested interests of Wall Street to support trade of their own private book of
investments. The US$
DX index has broken below the clearly defined bearish pause flag pattern, one
found in classical technical chart textbooks. The MACD cyclical index
shows a definite downward direction in the upper chart portion. The crossover
in this moving average convergence divergence index is early but profoundly
clear.
The biggest confirmation
one can point to on the USDollar weakness, extended
from the USEconomic weakness, is the big decline in
the 2-year USTreasury Bill yield. It has continued
to fall from the time of last week’s article about the market response
to the USFed that blinked. With a 2-year USTBill yield now at 2.60%, some conclusions can be
drawn. An economic recession is confirmed. The USFed
has had a rate cut taken off the table. More price inflation is coming,
permitted as a harsh secondary expense for treating the worst recession the
nation will see in 70 years. A credit derivative accident spawned from higher
long-term rates cannot be permitted, but might occur anyway despite all the
wizards best efforts. One should regard all talk of crude oil speculation to
account for its price rise as pure distraction from the clear and powerful USDollar risk of further breakdown.
The euro
currency has been the principal beneficiary of the USDollar
weakness in the last couple weeks. It is back over 158, after having flirted with
the 154 handle for a spell, just enough to fool the silly casino players on
Wall Street. In fact, today it is near the 159 level. The euro
now threatens all-time 160 high established in April, having surpassed both
the May and June highs. Europe
has problems, but they also have a trade surplus and an official interest
rate not so absurdly low as the American rate. The EU economy is totally
bifurcated, with southern nations under extreme duress while Germany
is now running essentially flat. Maybe the Germans running the Euro Central
Bank are attempting to fracture their monetary union? Any official
interest rate hike ordered by the Euro Central Bank, which meets on Thursday,
would be ill-advised. They might do so anyway, but watch for them to take it
back later this autumn if they are so unwise as to do so. The subtle
punishment will be a euro well past 160 toward 170 in the exchange rate,
which will interrupt European exporters severely. The British pound sterling
has actually risen also, despite its utterly pathetic set of fundamentals.
Without its lofty official interest rate, the sterling would be panhandling
with licensed hired vagrants outside the FOREX trading halls. The currencies
are analyzed in more depth in the Hat Trick Letter reports.
The one loud fundamental
behind the USDollar weakness is the endless war.
Its costs are one billion straws on the camel’s back. Its sacred status
should be more debated, especially since it has contributed in an important
way to the destruction of the national finances. The debate on private
profiteering and military contract corruption, not to mention its high
priority for contraband trafficking, should begin, except for loud cries
against the patriotism of such critics. The conclusion is that patriots
should be silent to profiteering, corruption, and trafficking. Go figure! A
side comment on yet another doctored statistic. The number of soldier deaths
in Iraq
& Afghanistan
is officially tied to those who die with boots on Iraqi and Afghan soil,
excluding all soldiers who die following serious wounds in Qatar, Kuwait, Persian Gulf
naval vessels, German hospitals, Walter
Reed
Hospital,
and so on. My sources report that the war death count is 3x to 5x higher than
the official count, thus another falsified statistic. This writer wants America
safe, but the real threats reside in Wall Street, the USGovt,
and the ancillary agencies.
GOLD ON VERGE OF
BREAKOUT
The gold price leads the
precious metals. Simultaneous with the US$
weakness, the gold price has lifted above the May high. No resistance exists
between the 950-960 ribbon and the all-time 1030 high registered in March.
The retest of the May low has been successful. Its price now stands just shy
of 950 late on Wednesday. Notice the 200-day moving average held in support,
guiding FOREX traders. A powerful reversal seems evident as a bowl-shaped
pattern. A sharp uptrend in the MACD is also clear in the cyclical index. In
my view, the fundamentals are present for a triumphant challenge of the 1000
mark. When 1000 is indeed broken,
look for a powerful breakout to at least reach 1100, and probably shoot up to
1200 quickly. Recall that we are still in the slow gold season, so prepare
for something very big during the typically strong season. On the futures front,
great news that the gold Open Interest has jumped up almost 10% in just four
days, from 396k contracts to 428k contracts. That gives the gold move more
sustaining power and legitimacy.
The USFed
has no market friendly options left. Such is the plague of stagflation, as
all options are seen as deeply harmful to one or another large segment of the
USEconomic total system. With no hint anymore of
deceptive USFed rate hikes, with continuing bank
crisis mired in insolvency and soon bankruptcies, with continuing housing
glut weighing down the entire economy, with enormous costs strains led by
energy and food, the USEconomy is absolutely
certain to serve as a big drag on the global economy with its recession. Its
denied recession has given ground to a new debate on how deep the recession
will be. Of course, unelected minions in the USGovt
and entrenched conmen on Wall Street will continue to harp on how we have
avoided a recession, all stupid talk of self-serving nature. As the USGovt reacts to recession and the end effect for
handouts of beans & rice to the bedeviled
citizenry, gold will react to the inflation behind the solutions. As the USFed and Dept of Treasury react to the banking debacle
extended from mortgage bonds, gold will react to the inflation behind the
solutions. The bigger problem is that the solutions will not solve much of
anything, and will be required on a repeated basis. My theme of ‘Vicious
Cycles’ directing the destruction in the meltdown have become more
widely recognized. Each treatment of subsidies, liquidity measures, handouts,
and bailouts will be followed by more of the same. Nothing has been solved.
Structural breakdown needs more than a run through the car wash with a Wall
Street wax job in order to produce deep reform.
The silver price
improvement has finally caught up to that of the gold price. Its monster 70
cent move up on Tuesday brought a smile to my face. When 21 is indeed
broken, look for a powerful breakout to at least reach 25, and probably shoot
up to 30. Recall that we are still in the slow precious metal season, so
prepare for something very big. The central banks own no silver. The
commodity trading pits are under pressure to deny delivery. Shortages are
reported by both the USMint and diverse coin
dealers. Some silver merchants report continued brisk trade, the only arena
not flashing red lights.
FINALLY SOME MOVEMENT IN
MINERS
Finally the precious metal
mining stocks have picked themselves off the ground. A nice reversal pattern
is evident on the weekly chart. Previous charts are shown in daily terms.
Notice the W-shaped reversal pattern, better known as a ‘Reverse Head
& Shoulders’ pattern of bullish type. The neckline lies at 460. The
head has a bottom located at the 400 mark loosely determined. So in the
intermediate term, expect a move to 520 on the reversal, surely enough to
challenge the March high. Time must be spent with the right side action at
the 440-460 ribbon of resistance. True to form, Wednesday saw a down move,
which will build the right side shoulder. The next move over 460 on the HUI
index will trigger a big upleg. A challenge toward
the 520 high will come in a matter of weeks, not months. The reversal move
will offer strong momentum for that challenge. Expect new breakout highs
before September is over, probably far earlier, like later in July or in
August. Last year in surprising fashion, powerful moves were seen in gold and
the USDollar during the usually quiet early August
timeframe. Expect the same this summer.
Notice the 20-week moving
average has provided support in December 2007, in February, in
March, and might again now. The ‘Head’ of the reversal pattern
found support from the 50-week moving average this spring. Given that support
from the 50wMA, one should expect strong support from the 20wMA this summer.
An important final point must be made. During the springtime correction, the
20wMA never went below to cross the 50wMA. This implies the bull market in
mining stocks remains intact. Try telling that to the Canadian Junior mining
stocks though. Their day is coming. The low sentiment could mark its bottom.
The July Hat Trick Letter will display the HUI versus S&P500 stock index
ratio. It shows a tremendous reversal recently. In other words, as the
mainstream ‘Paper-based’ stocks in the S&P stock index have
suffered, the HUI mining stocks have advanced forward. The negative
correlation is very favorable for precious metal
investors involved with mining stocks.
In the last two months,
some important points should be kept in mind. The bigger mining companies
must replace depleted reserves. They are turning to the successful explorers,
case in point being both Goldcorp and Barrick. They
are not interested in acquisitions of mid-sized junior miners, but rather the
explorers that possess expertise in exploration and discovery of valuable ore
deposits. A bidding round of junior miners is not only likely, it is also
guaranteed. My eye is set upon the hedge funds who are in many cases
employing spread trades, going long the large mining stocks and going short
the explorer speculative mining stocks. Expect hedge funds to take heavy
losses. Some actually believe that Barrick is a
ringleader behind providing capital not to fund their own mining operations,
but to New York and London hedge funds to suppress the small
gold mining firms. Others believe that Goldman Sachs has abused its managed
GDX exchange traded fund, as they short the entire sector by shorting the
entire index. One should consider the possibility that either or both the GLD
or SLV exchange traded funds, managed by the cartel members JPMorgan and
Barclays respectively, might be assisting in suppression of mining stocks in
order to acquire them later for a price as cheap as a song. This pair of
titans surely is shorting gold and silver with paper futures contracts. We
live in a corrupt financial world. Its mafia dons reside in New
York and London.
Jim Willie CB
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Jim Willie CB is the editor of the
“HAT TRICK LETTER”
Jim Willie CB is a
statistical analyst in marketing research and retail forecasting. He holds a PhD in Statistics.
His career has stretched over 24 years. He aspires to thrive in the financial
editor world, unencumbered by the limitations of economic credentials. Visit
his free website to find articles from topflight authors
at www.GoldenJackass.com . For personal
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him at JimWillieCB@aol.com
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