SWISSY
BREAKS OUT
One should note that the Swiss franc did indeed vault to multi-year
highs last week and this week. Featured last week, it rested not at all. The
swissy avoided much of any correction recently, and established sequentially
higher highs on five consecutive weeks. Notice the 90 handle, and its reach
above the 2004 highs. Power will soon return to Switzerland
for global banking. An alternative to the USDollar as an investment
currency is being utilized effectively. This is a tectonic shift not
reported much in the financial media.
The euro has risen above
148 again. Wow, what a brief correction! The British pound sterling has risen
back above 206. Its correction down toward 195 is written in stone. At these
levels, both nations restrain their domestic economies much like with a
higher official interest rate. In fact, the currency ‘tax’ slows
their export trade, acting like a headwind. England has no export trade, so
its housing foundation (insane like US) will wither on the vine and probably
cause eventually an insolvent banking system, just like the US, at least for
the bigger money center ‘casinos’ which masquerade as banks. That
is already happening. The Euro Central Bank and Bank of England need not hike
rates, even though Trichet at the ECB wants to. The damage to come from a
higher currency is assured. In the competing currency wars, to this victor in
the currency wars goes a slowdown in export trade, dislocations in the
economic base foundation, and typically a distortion in the financial
markets. German possesses expertise in hedging against currency movement
though. The base usually sees some functions, such as manufacturing and
increasingly services, shipped abroad. The US
saw precisely that during the 1990 and 2000 decades in spades. The
consequence is a hollowed out USEconomy, overly dependent upon housing and
asset inflation in order to sustain activity. To Europe and England,
continued easy money, in time with even lower rates, will power gold upward. Gold
is in an uptrend bull market in almost every single global currency, a
feature only to be accentuated in coming months!!!
THE NEXT USFED RATE CUT
The USFed delivered its
toothless bluff of balanced risks, for economic growth versus price
inflation. The very next day, Wall Street banks and the Detroit
carmakers put the kibosh on their bluff. Massive bank losses highlight the
risk to obstruction to the credit flow for the USEconomy. The entire retail
sector is stalling, led by cars. Housing is a two-ton ankle bracelet. By the
way, any retail figure under 5% for growth is recession, since that is not an
inflation adjusted statistic. The USFed will be obedient to two things. 1)
Wall Street bank masters who secretly tell it precisely what to do, when to
do it, and how to do it; 2) the 2-year USTreasury Bill, whose yield is now
almost 1.5% below the high Fed Funds target. The futures market points to
roughly a 100% chance of a 25 basis point USFed rate cut in January, and
roughly a 100% chance of another 25 basis point rate cut in February. The
immediate effect of such rate cuts will be for gold to power toward 1000.
When it happens, much broader attention will come to the gold mining stocks. The
housing market must be rescued with lower mortgage rates, which is happening.
Lower rates are only half the problem though, as banks distrust each other as
much as borrowers, and thus lend less than they did last year. Loan
originations are down. This is discussed in more detail in the November
report.
Watch fat Freddie &
fatter Fannie, the dynamic bond cesspool processors, each caught with their
pants down and their excrement on full display. A $3 billion quarterly
loss!!! And this corrupt crippled pair is to serve as the foundation for a
revived secondary mortgage bond market? And possibly as a foundation for the
new inevitably broad based Resolution Trust Corp? Building a house atop a cesspool
is a dicey proposition. Building a centrifuge atop a cesspool can only spread
acidic spherical substances throughout the system all over again.
The banking system cannot
operate comfortably when the official USFed rate, used by banks to borrow from
the Fed, is so incongruous (out of whack) with the prevailing rate in the
bond market. Also, Wall Street banks are insolvent, an ugly truth slowly
being revealed. The phrase “insufficient capital”
means insolvent!!! The Fannie Mae & Freddie Mac horror show sounds a loud
shrill echo from the banking world beset by mortgage bond losses. Wall Street
will dictate easier money, so they can begin to speculate again. Where? On
bond yield spreads for one. On foreign currencies for another. On gold for
yet a third. And crude oil too. The financial sewage dumping sites have
grown, thus permitting this corrupt gang to hide their losses. A great quote
came from the financial markets recently when Wall Street banks were going
through the charade of admitting their balance sheet losses. “Whatever
they estimate losses to be, eventually they will end up being double.”
Simple, no nonsense wisdom. The unfortunate fact of life in business has come
to the fore. CHEAPER MONEY DOES NOT REPAIR INSOLVENCY; IT ONLY ENABLES MORE
EASY SPECULATIVE PROFITS. Gold eagerly awaits the return of very cheap money
again. It is coming.
CREDIT
DERIVATIVES OUT OF CONTROL
One might wonder why the
interest rates are not rising all over the place. Give credit where it is
due, to JPMorgan credit derivatives. The total notional value of all credit
derivatives in 2Q2007 rose by $7.7 trillion. The total for JPMorgan alone
in Q2 was $10 trillion, more than the market. These figures make liars
out of their officials, who claim their number has risen since they act as
intermediaries for both buyers and sellers. If so, then end users would not
show a decline. Also, more importantly, evidence is given on a platter that
JPMorgan is buying the hell out of bond contracts in order to accomplish two
things.
1)
keep
all interest rates down, an effective money price cap
2)
provide
the false impression of a global Flight to Quality in USTreasurys
The truth is that
foreigners are dumping USTBonds, even as purchases of US corporate bonds are
flat, all the while most FOREX reserves under
management are diversifying OUT of USDollars. To be fair, much US-based money
is shifting from stocks to bonds. An aside, obscure but important. The 2-year
swap contracts build in a full 1% spread on the fixed versus floating
contract. This speaks to huge distrust of banker assets, the absence of a
flood of private sector money floating around the bond market. It also sheds
further liar light on the so-called ruse of a Flight to Quality. This is
discussed in more detail in the November Hat Trick Letter.
THREAT
FROM SOVEREIGN WEALTH FUNDS
The biggest threat to central bank control, independence retained, and
sovereignty for that matter, is the movement toward Sovereign Wealth Funds. The
SWFs out there are colossal and growing wickedly fast. China does not own the
biggest one, but rather the Abu Dhabi
funds take the lead post. A controversy has struck up, one in parallel with
trade sanctions against China.
This new hubbub is over disclosure and control of SWF funds. The Untied
States, with full arrogance and none of the inherent humility usually found
in debtor nations, insists on attempting to exert controls over SWF fund
administrators. Talk about a bad joke! What will the US Congress mandate,
that foreign funds cannot own USTreasurys anymore? That they cannot
participate in Iranian and African energy projects?
Above is an interesting graphic of major world SWF funds. The
horizontal dimension shows the level of transparency, with Norway
providing the model for quarterly reports much like publicly traded companies
to stockholders. The vertical dimension relates to conventional type of
investment strategy employed, such as USTreasurys, corporate bonds, even US
agency mortgage bonds. A more strategic approach has more ownership of mining
properties or stockpiles or energy projects. This is discussed in more detail
in the October Hat Trick Letter special report.
GOLD
READIES FOR NEXT MOVE
Gold has completed much of
the work necessary to consolidate. So much is happening in the gold market,
that a quick summary is not practical. Foreign institutions have hedged their
asset positions vulnerable to USDollar risk with purchases of gold. OPEC
nations might smell the Petro-Dollar abandonment. The banking crisis begun in
the US,
exported globally, has encouraged more gold purchases. Basic diversification
by nations benefiting from outsized trade surpluses is turning more toward
gold. Simple supply problems are evident, as higher gold prices have not
brought more gold output to market. This is clear-cut price inelasticity. The
banking analyst community has finally begun to write openly about gold and
the surge in prices coming soon, from both US$
risk and supply shortages to meet rising demand. This is not a jewelry demand
phenomenon, centered in India,
although their demand of the metal is at record levels.
On the technical chart
side, the breakout is indisputable. Even shills on media networks are caught
offguard, as minimal poopoo arguments are made. They wonder where the CPI
high index would be if gold signals inflation, without bothering to check
money supply growth figures. My preference is to cite the normal bull market
retracement guidelines from a weekly close standpoint. The bigger picture
breakout rose above 695 by 140 points to 835, using the recent critical
resistance and ignoring the abnormal spike in 2006. A 3/8-ths retracement
would mark 782 as the invisible support level. So far, that mark has held. After
a couple more weeks or days of churning around here, the 800 handle will be a
fixture as the push occurs toward 900, then 1000, urged by the next official
rate cut. The USFed official rate cut will be a gigantic cattle prod for
gold to resume its bull market stampede.
Lastly, the ratio of
10-year Treasury Note yield to the 2-year Treasury Bill yield. The spread
between the two bond yields has risen to around 90
to 100 basis points even as the long-term rates have fallen sharply. The
10-yr TNote yield is hovering just above 4.0%, while the 2-yr TBill yield has
plumbed toward the 3.0% mark. The widening Treasury yield spread is a
loud call for price inflation, present and future, one which provides yet
another impetus for a rising gold price. The USEconomy faces enormous
headwinds from the internal inflation, much of which is passed on to end
product, but some of which harms corporate profit margins. These are
stagflation traits. To this victim in the currency wars goes massive cost
inflation, far worse energy cost increases than anywhere globally. Europe has almost no serious
energy cost increases at all.
HAPPY THANKSGIVING TO ALL
IN THE UNITED STATES
THE HAT TRICK LETTER PROFITS IN THE CURRENT CRISIS.
From subscribers and readers:
“There are four writers that I MUST
READ. You are absolutely one of those favorites!! William Buckler, Ty Andros,
Richard Russell, and YOU!!”
(BettyS in Missouri)
“I find your pieces brilliant because
they are not just about the markets or investment trends or even the emerging
new world order, but the way the ice is breaking beneath our feet. You
capture the tragedy and farce and corruption of the decline of the United
States in
a way that no one else quite does.”
(LiviaL in Florida)
“You
do excellent work. Your paid service is extremely helpful to me as I attempt
to catch up with the non-documented science of market finance and
‘market physics’ which is what I am most interested in learning. Additionally
the effort you put forth is recognizably stronger than other financial
writers.”
(JackM in Maryland)
“Your
newsletter caught my attention when the Richebächer report ended. Yours
has more depth and is broader in coverage for the difficult topics of
relevance today. You pick up where he left off, and take it one level deeper,
a tribute.”
(JoeS in New York)
“I am currently subscribed to
over 60 paid newsletters. Your analysis is by far the most accurate every
time. The most impressive characteristic of your thought processes is your
ability to think in multi-factorial terms. You are one of the few remaining
intellectuals with such capacity intact.”
(Gabriel R in Mexico)
By : Jim Willie CB
Home
: Golden Jackass website
Subscribe: Hat Trick Letter
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
questions about subscriptions, contact
him at JimWillieCB@aol.com