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Use the above link to subscribe to the paid research reports, which
include coverage of several smallcap companies
positioned to rise during the ongoing panicky attempt to sustain an
unsustainable system burdened by numerous imbalances aggravated by global
village forces. An historically unprecedented mess
has been created by compromised central bankers and inept economic advisors,
whose interference has irreversibly altered and damaged the world financial
system. Analysis features Gold, Crude Oil, USDollar,
Treasury bonds, and inter-market dynamics with the US Economy and US
Federal Reserve monetary policy.
In late summer, my
perceived strong signal for the September rate cut proved accurate. It was
the dire condition of the Wall Street broker dealer stock index, the XBD. My contention
all along has been that the official USFed rate cut
was motivated by Wall Street giant banker interests, whereby the actual
rescue stimulus was disguised and thoroughly devious. In reality it was a
mammoth subsidy for Wall Street firms. They stood first in line at the
Discount Window. No obvious recession was evident in the USEconomy,
except for a housing retreat (better labeled a
rout). In mid-September the US Federal Reserve did indeed cut the official
interest rate, both the Fed Funds target and the discount rate. The next
signal is similar. The XBD stock index has plummeted in just the last
couple weeks. Furthermore, the more conventional and broader bankers stock index BKX has also hit new lows for the last
52 weeks. It looks ominous. So signals are loud and clear from the
banking corners that the USFed will make its second
important interest rate cut. The USFed takes its
marching orders from the monolithic financial power center
in New York City. The
rest is lip service to the economy and households.
Whether the next official
rate cut is 25 basis points or 50 basis points, that
is not the important issue. Another rate cut will more firmly establish the
notion that the USFed has begun a new easing cycle.
There is no precedent, not a single example, not one, when the USFed has cut interest rates once and only once. They
start a new easing cycle each time. The reasons are many. They ease too much
when they cut rates, which produces credit explosions and bubbles that do not
have staying power. They tighten too much when they hike rates,
which produces recessions, a messy situation in need of remedy. They
are late to end the easing cycle, which ensures long periods of bubblicious times. They are late to end the tightening
cycle, which ensures hard landings. In fact, there is no evidence of a single
soft landing in the history of the USEconomy since
1971. They are incompetent in their analysis, having missed the mark badly of
almost all their public pronouncements. Their ineptitude is legendary, an embarrassment
to modern economics. Their statements are confused, jumbled, and tend toward
steered roles if not propaganda, which serves a purpose.
BROKER
DEALER STOCK INDEX PLUMMETS
The broker dealer stock
index XBD is crucial. It represents precisely the powerful Wall Street
interests. They call the shots with the USFed.
Consider that JPMorgan is acting body of the USFed, and JPM is a member of the XBD index, a select
privileged elite short list of big banking firms. Their portfolios are deeply
endangered by the mortgage bonds and associated credit derivatives, the
collateralized debt obligations. They are known as CDO’s
nowadays, whose makeup includes various amounts of subprime
slime, a unique American concoction of stupid loans, reckless lending, insane
leverage, laced with fraudulent ratings, and misrepresented to investors. The
September USFed official rate cut was fully
announced by this XBD stock index. The breakdown in July remained in
breakdown mode in August. It rebounded immediately after the rate cut. But
since then, it has suffered a technical breakdown once again. This plummet is
more dire in fact, since the 20-week moving average (in red) has crossed the
50-week moving average (in blue) to signal a bearish event early in its
unfolding bust. The decline last week was huge, a climax occurring on Friday.
Was that the anniversary of Black Monday? The XBD struggles to hold its
ground, unable to lift on a bounce at all. Another USFed
rate cut is again indicated. Give it 7-to-1 odds of occurring before
Thanksgiving or when the snows arrive in New Jack City.
BANKER
STOCK INDEX BREAKS DOWN
The banker stock index BKX is a broader index,
which includes a multitude of big regional banks as well as the elite ‘favored sons’ of Wall Street. If truth be known,
some of the Wall Street group are permitted to hide large portfolio losses by
shuffling them to a convenient cemetery for bad bonds and crippled credit
derivatives, fully protected by national security directives and the blessing
of the USGovt. Being a card carrying party member
of the Fascist Business Model, wherein the interests of the state are merged
with interests of big business, does have its privileges. Enough! The point
here is that the distress within the banking sector extends far and wide
throughout the USEconomy, to almost all corners of
the nation. The damage from mortgage loans, their CDO bonds, other structured
investment vehicles, and a raft of credit derivatives has the potential to
send the entire US
banking system into insolvency. If you doubt such an event is possible, see Japan
in 1989. The US
housing crisis and mortgage debacle is early in its pathogenesis. My forecast
is for another two to four years of declines, complete with scattered
explosions like with subprimes. The subprime mortgage problem is highly visible, but in no
way the end of the problem. Rather, it is the beginning. It is the portion
which cannot be denied, but hardly the full extent.
The entire structured risk model is going to
unravel, where all manner of offloaded risk will be upended, resulting in
wave after wave of bank problems, bond crises, derivative distress, and more.
The entire financial structure of the US
banking system is proving to be a house of cards, bubbles throughout the
foundation, improper pricing models throughout the entire network of tinkertoys in support grids, and fraud laced within its
fabric. A boycott of US$-based bonds is early in development. Corporate bonds
of US$ denomination are not attracting foreign capital. Mortgage bonds and
their CDO derivatives are in search of bond cemeteries, totally devoid of
price valuations on balance sheets. Most are actually worthless, creating
holes in bank balance sheets. Some FOMC Treasury auctions have been failures.
Foreign central bank ownership of USTreasury Bonds
is on the fast decline. The great bond bubble is in the long excruciating
process of bust. The tech/telecom stock bust of 2000 was quick, sudden, with
a certain aftermath. The
bond bust will take years to unravel.
The banker stock index BKX
is screaming of a banking crisis loudly with shrill tones. THIS IS THE
UGLIEST CHART NEXT THE HOME BUILDERS HGX CHART IN MY MODERN MEMORY!!! The
July bearish crossover of the 20-week moving average going below the 50-week
MA was powerful. It has worsened since July. The tragedy here is that lower
interest rates might not fix much at all. INSOLVENCY IS THE REAL DREADED
PROBLEM. However, those invested on the US$
bear side, on the commodity bull side, fear not! The USFed
and the USGovt will deliver wave after wave of
rescue measures, stimulus packages, complete with lower interest rates. The
plan will be to assist banks and prevent an economic recession. We have been
in a recession for a long time, unquestionably in a recession right now,
headed for one in official doctored statistical terms also. The rescues and
stimulus packages will solve little. First and foremost, they will be
designed to assist Wall Street firms. They will accomplish little for
homeowners stuck with mortgages they cannot pay, since rates will reset
higher while home values will continue down. The inventory imbalance is
fast becoming a historically unprecedented nightmare. Cheaper money will
not enable lending institutions to lend more money on home loans. They are
too unsure of their financial condition to lend.
Fear not, investors!
Cheaper money for speculative purposes will return. This is going to be a
complex jumbled mess of bailouts. My forecast is for the bailouts to ultimate
be at least $2 trillion, and perhaps as much as $4
trillion in magnitude. Misery will stand side by side with profiteering.
Households will lose everything, while speculators in gold, silver, oil,
natural gas, and other commodities will reap huge profits from investments. The
division between rich and poor will widen. The US Middle Class will endure
yet another squeeze, as cost inflation hits again, not accompanied by wage
growth. In fact, in just three years the true inflation adjusted income level
has fallen by almost 25%, an argument provided in the October Hat Trick
Letter reports. All inflation adjusted statistics are an order of magnitude
more horrendous than reported, since the endorsed lie of the official price
inflation statistic is wrong by at least 6% per year.
CRUDE
OIL SIGNALS NEXT STEP DOWN FOR USDOLLAR
In July and August, the rising crude oil price
was actually more like the preface to a stealth breakout. No really clear
events could be identified. In my view, the upward move to 77 in the crude oil price
was a vivid indication, or better described as a confirmation, that the USDollar was going to break down below the US DX 80
critical support level. It did exactly that. In September the WTIC oil price
actually made new highs, confirming the USDollar
breakdown ex post facto. Notice the swing momentum move in the price from the
71 level to the 86 level in classic fashion. A
relentless march to 100 is coming in 2008. The target of the long-term Cup
& Handle bullish chart pattern is scary, something akin to 100. See the
bottom at 52, the break line at 77, for a 25-point potential. Thus 100-102
target. The momentum is enormous. The Turkish & Kurdish conflict along
the Iraqi border is another excuse drawn to explain the crude oil price. The
conflict, as Roger Weigand agrees with me, is worth
$1.
The important point to take
away is that the USDollar is in trouble, confirmed
by a powerful uptrend in the crude oil price. New highs were reached in
October, without yet a new lower USDollar
index suffered. In my view, the key is Saudi Arabia and the rest
of the Persian Gulf
nations. If they refuse 100% US$ payment for crude oil, we will hear the
death knell of the defacto PetroDollar
standard. Eventually, look for payments of Arab oil, if not all OPEC oil,
to be made in whatever China
dictates their currency basket to be. Entire banking systems will be forced
to adjust, with massive selling of USTBonds and
accumulation of EuroBonds. This topic will be
continued in the November Hat Trick Letter.
RESILIENT
HUI MINING INDEX
The HUI index of precious
metal mining stocks has been challenged in the last two weeks. It completed a
breakout. The longer a price pattern remains confined in a bounded range, the
more powerful is its breakout, the more enduring is its strength, the greater
the attention garnered when it occurs. It is occurring. The two key moving
averages are still rising. In the current week, notice the ‘bull
hammer’ pattern, characterized by the opening and closing price being
well above intra-week price movement. The week is not over, so this is worth
watching. Bull hammers are very bullish. The HUI chart is showing resilience.
We should see a minimum of a 90-point advance from the former broken
resistance level at 380, within the next several months. The favorable autumn season is here. The leaves are falling
and are beautifully colored in the northeast states.
Many smaller mining stocks
have recovered most or all of their August painful hits. The trickle down
will work its magic, from large caps to midsized stocks to smallcaps to microcaps. My favorites are the Canadian juniors, which have received
for alert intrepid American investors a currency dividend. The loonie currency is above 103 amazingly. My forecast is
for the Canadian Dollar to approach 120 and perhaps exceed it by mid-2008. Major
challenges are coming.
REQUIEM
FOR THE USDOLLAR
The Goldman Sachs plant as
the new head of the Bank of Canada ensures the takeover of the Canadian
banking system, the introduction of the newly inaugurated amero
currency, and lost sovereignty for Canada.
This is tragic. With a crippled US banking system, a faltering USEconomic system dependent upon housing, and a Mexican
failed state in the making, my hopes for the viability of the amero currency are dim. This garbage regional currency is
doomed from the start. Canada
is a small economy with an absolutely gigantic treasure of natural resources.
The relative size of the three economies bodes poorly for the amero. With 30 million population
in Canada,
300 million in the Untied States, and 120 million in Mexico, Canada
cannot pull the three-horse team running ahead of a bizarre stagecoach. Cheap
Mexican labor, ample Canadian minerals &
resources, even with a spiffy new network of corridor transportation lines,
cannot comfortably mesh with US entities. The lopsided imbalanced upside down
corrupted mix of US elements, steered toward consumption not investment,
large & powerful rather than efficient, directed by wrong priorities,
dominated by corrupt Wall Street and aggressive military forces simply is
bound to produce little on the positive, and much on the negative. This queer
alliance will not stop gold or silver prices from rising to great heights. This
queer alliance will not prevent the energy prices from rising
either. The main policy behind the amero currency
will be inflation, no different from the USDollar.
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By : 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.
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