And counter to our prediction of an imminent, counter-trend U.S. dollar rally, the dollar is most definitely not surging. Take a look at the chart below. We’ve been writing about the decline of the dollar for nigh on ten years. So we looked at a ten-year chart to tally up the damage. It is considerable.

Dollar Index Threatens New Lows

What’s at stake with the interpretation of this chart? If the dollar rallies on short covering from the dollar carry trade (a BIG if), then other “risk” assets like gold, stocks, and emerging markets would probably sell off.

The chart shows that the index’s 50-week moving average is set to cross below its 200-week moving average. That is mixed news. The first time it happened on this chart was back in early 2003. That was the early days of a long decline in the index. The second time, though the move failed to confirm the “flight to safety” rally of 2008 had staying power in 2009.

Once the fear that gripped markets in 2008 went away, the investment world sold the dollar and started borrowing en masse to buy other, higher-yielding currencies and assets (like the Aussie dollar and resource stocks). That’s where we are now.

But based on the chart, is the next move down in the dollar index a new low, which the crossing of the long-term MA by the short-term MA would suggest? Or is it a false move? Will the dollar quickly and violently rally for some reason (geopolitical perhaps) that currently remains unknown to the human beings of this world?

“It’s an interesting chart,” said our technical analyst Murray Dawes. “But it is not useful for timing your moves out of or into trades related to the dollar’s movement.”

“So you’re saying our chart doesn’t have any useful information from a trader’s perspective?”

“Not really.”

The one piece of important information communicated by our chart is that the dollar’s trend is down. But there IS a catch.

The catch is that when this many people are this uniformly bearish, everyone is probably wrong. Consider this a warning then, that a dollar rally is just the sort of thing that will lead to a correction in the gold price and the stock market. We won’t speculate on the sort of things that could lead to a dollar rally. But surely they’re out there and sooner or later they’ll come.

The other possibility is that the dollar is in its death throes and that this is the big one, in currency terms. That is such a momentous and disastrous event that people consider it both kooky and unlikely, not to mention undesirable to a predictable and comfortable world. But it IS possible.

And do you get the feeling that this kind of manic melt up rally is the sort of irrational frenzy that comes just before everything goes haywire? Haywire is not a precise financial term. So what do we mean?

We meant that the world enjoyed a 20-year economic relationship based on a fundamentally unbalanced global economy. Manufacturing capacity migrated to Asia where wages were lower. For awhile, this was mostly good news in Western countries. Goods got cheaper but jobs didn’t vanish.

Now the situation is not so pleasant. The world is awash in manufacturing over-capacity, especially in China. Wage deflation (in the Western world) looks like a long-term trend, leading to a lower standard of living. This wage deflation is occurring at exactly the same time that Western governments are encountering demographic crises of ageing populations.

We all knew the ageing of the Boomers would put pressure on public finances right around now. But no one reckoned on a global financial crisis further saddling the public balance sheet with debt. And no one reckoned that Western wages and incomes would be falling at just the time people needed them most. And no one reckoned that savers would lose the most from low interest rates on fixed income — even though those low rates are keeping the American housing sector on life support.

It’s a bit of global impasse. America’s needed structural adjustment has come. Households and businesses are reducing debt, trying to live within their means. But the net adjustment to the American balance sheet is not happening because public sector debt is growing so fast.

Meanwhile, the other obvious adjustment is that the Chinese currency ought to be allowed to strengthen. For political and social reasons though, China will not allow this. It means China is actually adding to its industrial over capacity. It is conjuring up the world’s largest ever bubble in fixed asset investment, including commercial real estate.

It is easy to see why China is reluctant to allow a stronger Yuan. Exports account for 39% of Chinese GDP. The Chinese economy, and probably the Communist Party itself, cannot survive on unleashed Chinese domestic demand. They need American markets. But American consumers — in addition to reducing debt — are now realising that the focus on finance over manufacturing from American policy makers has worked out for Washington and Wall Street, but not terribly well for the average American worker.

Where do we go from here? How about the blame game. U.S. Treasury Secretary Tim Geithner once blamed the Chinese for being currency manipulators. He back-tracked later. And yesterday, Liu Mingkang, the chairman of the China Banking Regulatory Commission, had a go at America.

“The continuous depreciation in the dollar, and the US government’s indication that, in order to resume growth and maintain public confidence, it basically won’t raise interest rates for the coming 12 to 18 months, has led to massive dollar arbitrage speculation.” He is blaming the U.S. for fuelling a destabilising global bubble.

Of course that bubble is felt most acutely because China pegs its currency to the dollar. China is right to blame the U.S. for manipulating its currency to try and improve its competitive position. And China is right to worry about the value of its dollar-denominated assets in a world of exploding U.S. debt supply.

But China has put itself in this position. And here we are at the end of 2009 with a world still fundamentally un-adjusted to a new, workable currency arrangement. The world remains burdened by trillions in assets purchased with debt. Those assets linger on bank balance sheets, on government life support but fundamentally lifeless at fictitious book value prices.

And meanwhile, the China-US currency arrangement has fuelled a global bubble. The question is how it will end. In the U.S., the housing market looms as the Achilles heel of the economy. It could strike households, banks, and the government again in the next 12 months are more mortgages reset at higher rates (with lower home values).

If the event that pops this bubble comes from America, look for the supply of credit to the emerging world to dry up again. If the bubble pricking comes from China, what then? Well, China does everything big. So a Chinese bust would be world-class.

Regards,
Dan Denning

November 18, 2009

Editor’s Note: This article originally appeared in the Daily Reckoning Australia as “Dollar Rally the Sort of Thing that Will Lead to Correction in Gold Price.” To view the original article, please click here.

Will a Dollar Rally Lead to a Gold Correction? was originally featured on Whiskey and Gunpowder

For much of 2009, gold traded in the range of low-mid $900 per ounce. There was a dip over the summer, with a strong upswing starting in September. Gold is now trading well over $1,000 per ounce, in fact just under $1,100.

Turns out that the government of India was buying gold in mid-October. Over a two-week span, the central bank of India bought 200 tonnes (metric tons) of gold from the International Monetary Fund (IMF) at an average price of $1,045. The IMF — over which the U.S. holds veto power for most actions — got approval to sell the gold from — where else? — the U.S. Congress, last spring.

Previously, the government of India held 350 tonnes of gold reserves. This 200-tonne purchase is a 57% increase in India’s reserves. There’s joy in India, I’ll bet. (It makes me wonder what the Pakistanis think, now that their large neighbor has both nuclear weapons AND a growing gold hoard.)

Collapsing Economy?

Here’s what the Financial Times had to say. “Gold prices on Tuesday surged to an all-time high after India’s central bank bought 200 tonnes of the precious metal, swapping dollars for bullion as the country’s finance minister warned the economies of the U.S. and Europe had ‘collapsed.’ India’s decision to exchange $6.7 billion for gold equivalent to 8% of world annual mine production sent the strongest signal yet that Asian countries were moving away from the U.S. currency.” (Emphasis added.)

Have the economies of the U.S. and Europe really “collapsed”? As I sit here at my desk in Pittsburgh, I would not exactly say that the U.S. economy has collapsed around me. OK, so the economy isn’t booming, either.

Just yesterday, I saw that consumer powerhouse Johnson & Johnson foresees a long, continuing economic slump. J&J anticipates a slow recovery at best, contrary to the optimism of its namesake “No More Tears” brand. J&J management evidently believes that things will stay tough out there. And as if to add to the predicament, J&J is laying off about 8,000 employees.

Economic collapse or no, the point is that Indian gold purchases from the IMF are supporting the gold price. And the IMF has another 203.5 tonnes of gold yet to sell.

Who will buy the IMF gold? I’ve previously speculated that the Chinese are waiting in the wings. But now that the IMF has set a precedent for selling to a non-Chinese buyer, there are surely other players out there polishing their shoes and practicing their speech to the IMF bankers. We might see Arab countries buying. Or Russia. Maybe Brazil, with all its newfound energy wealth offshore.

China’s Golden Ambitions

Reuters news service has an interesting take on the matter. Reuters noted that it’s cheaper for China to buy domestically mined gold than to purchase bullion from the IMF at $1,045 per ounce. According to Li Yang, a former adviser to the People’s Bank, “China’s gold is much cheaper than that.”

In other words, China is the world’s No. 1 gold producer, and its mine costs are much les than $1,045 per ounce. So — China being governed by the Communist Party — why not just buy gold at “cost” from the mouth of the mine, right? Take the accounting hit and get the gold. In the long run, will it matter? (And we all know how the Chinese are able to think in terms of the long run.)

According to another Chinese Central Bank official — although with no direct authority over gold buying, “China is the world’s biggest gold producer, so there’s no urgency for us, as there is for India, to snap up big volumes whenever they come onto the global market. It’s cheaper for us to buy gold from the Chinese market, but it doesn’t help diversify our huge foreign exchange reserves.”

This Chinese official added, “To diversify our portfolio, we should spend dollars on things like gold. But the catch is that even if China bought half the world’s annual gold supply, it would only cost a few tens of billions of dollars, which is tiny compared to China’s huge reserves.”

And then the Chinese official offered this comment. “Having said that, I think China still should buy some IMF gold this time, and it might indeed do so, but it’s unlikely to take all the 200 tonnes that are left, as the price is, obviously, not particularly appealing. It would be a symbolic purchase, but better than nothing.”

Finally, Xia Bin, head of China’s Financial Department of the Development and Research Center also said China should buy IMF gold. “Why not? Even if it’s sold at a market price, we should still buy,” he said, according to Reuters, which was clearly a personal view from Xia Bin and not state policy. “India’s OK with it, why shouldn’t we be? What’s the use for so many dollars, whose purchasing power is weakening anyway? With so many foreign reserves in hand, I think China should buy, without doubt.”

What do you think it will mean for the dollar with the central banks of both India and China dumping dollars for gold?

On that happy note, I bid you adieu.

Until we meet again,
Byron King

November 9, 2009

India, China Central Banks Rather Have Gold Than Dollars was originally featured on Whiskey and Gunpowder

Before we delve into the reasons behind all the publicity, here’s the basic skinny on REEs: One, they are rare, at least sort of. Two, they are indispensable to modern technology. Three, the number of active, dedicated producers is tiny, with more than 90% of the world’s supply coming from China.

If you took high school chemistry, you probably remember the periodic table of the elements. But if you’re like most of us, even if you pulled a 95 on the chem final, you may not recall many of the details today. And there’s a better than even chance you never bothered to memorize the names of the REEs. It’s time to get reacquainted.

They’re generally clustered in a separate grouping at the bottom of the table, are known collectively as the lanthanoids, and these are their names, in order of atomic number (57-70): lanthanum, cerium, praseodymium, neodymium, promethium, samarium, europium, gadolinium, terbium, dysprosium, holmium, erbium, thulium, and ytterbium. Yttrium (39) and lutetium (71) are also sometimes included.

Need to Know, Point 1: Rarity

Fact is, we begin with something of a misnomer. These elements are not, strictly speaking, rare. Earth’s crust is full of them. True, they’re not as common as iron, carbon, or silicon, but are about on a par with nickel, copper, and zinc. Even the scarcest is way more abundant than gold, platinum, or palladium.

What is rare about them is that they’re widely dispersed. Very seldom are they found in economically exploitable deposits. Complicating matters further is that there are so many of them, and they clump together. They have to be separated first from the ore and then from each other.

Thus REE production comes primarily from other mines’ byproducts. The miner strips off the metal he’s really after, then sends the REE clusters to a specialty refiner.

Need to Know, Point 2: Applications

It’s safe to say that life as we know it would be very different without the REEs. The more our technological accomplishments pile atop one another, the more crucial these metals become. Because of their unique properties, there are generally no substitutes for them.

Of all the REEs, the one people may have heard of is neodymium. Alloys containing it have revolutionized permanent magnet technology, allowing miniaturization of all sorts of electronic components in appliances, A/V equipment, computers, communication systems, and military gear. Your hard drive probably has neodymium in it. So does your DVD player.

Liquid crystal displays depend on europium. Fiber-optic cables can’t function without erbium. Virtually all specialty glass products, from mirrors to precision lenses, are polished with cerium oxide. Several REEs are essential constituents of both petroleum fluid cracking catalysts and auto emissions-control catalytic converters. Half a dozen REEs go into the manufacture of the energy-efficient fluorescent bulbs that will soon be mandatory. Lanthanum-nickel-hydride rechargeable batteries are replacing older ones based on lead or cadmium. And no REEs, no electric cars. Nor next-generation wind turbines.

That’s only a partial list. But what makes REEs an increasingly sensitive topic is their role in national defense. Here are a few small items that have become dependent on them: jet fighter engines, missile guidance systems, underwater mine detectors, range finders, space-based satellite power plants, and military communications systems.

Think the Pentagon is very, very interested in maintaining a steady REE supply?

Need to Know, Point 3: Supply

95% of the world’s REE production originates in China. If you’re looking for reasons why we’re so nice to the premier Communist power left standing, this is a biggie.

We weren’t always so dependent. Not long ago, mines such as Mountain Pass in California made us nearly self-sufficient in REEs. But in the early ‘90s, China flooded the market with cheaper product, until it had driven all of its competitors out of business.

Today, Mountain Pass is being revived, but the start-up of an old mine is a lengthy and costly process. There are also some from-scratch REE development projects under way in the U.S., as well as Canada and Australia. But for the moment, China holds the hand with all of the high cards in it.

Forget your hard drive. Forget 11th-grade chemistry experiments. This is a national security issue. The American government cannot afford to lose that supply source, period. Maybe someday, but not now.

And that’s what’s behind the recent furor over these obscure elements. Because China threatened just that, a cutoff. The one thing that really gets Washington’s knickers in a twist.

In August, the story broke in the mainstream press. Sources in China leaked news of a draft copy of a report from the Ministry of Industry and Information Technology. It allegedly calls for a total export ban on five of the rare earths, with the rest restricted to a combined export quota of 35,000 metric tons a year, far below annual global consumption of 125,000 tons, and rising fast.

This doesn’t look like a move they’d follow through on, if only because of the lost trade revenues. And it’s only a recommendation; final approval rests with China’s State Council. But consider it an opening shot across our bow, if you wish. Or perhaps they’re telling us they need their REEs for the domestic economy, and we’d best go find our own supplies. Either way, the scramble is on to find alternatives.

That could backfire. REE prices and demand were already dropping last fall as the recession deepened, and China maintains a decided competitive advantage beyond control of supply: lax environmental standards (many REEs are highly toxic). Thus the new companies could spend the fortunes required to come on line, only to find themselves victims of yet another market glut engineered by the Chinese. Still, these metals are so important, it wouldn’t surprise us if the U.S. government subsidized domestic production, rather than risk a squeeze.

The Market

The market took due notice of the China story, driving the stocks of Western REE producers, and would-be producers, nearly straight up. Since late August, Avalon Rare Metals has gained 120%, Arafura Resources is up 75%, Rare Element Resources has added 72%, and Lynas Corp. is 50% higher (China, ever the master strategist, exploited the credit crisis to grab 25% of Arafura and more than 50% of Lynas). Lurking in the background is Molycorp, the private company redeveloping Mountain Pass. It’s planning an IPO that may well come out of the gate red hot.

With market action this frantic, the sector is on the frothy side at the moment. The heady market caps being awarded to these companies are obviously not based on fundamentals, and a savvy investor takes care not to get caught on the wrong side of a bubble.

Even though the Chinese export ban may never materialize, the ever-growing need for REEs is dead serious. And while the current bubble may pop any day, the long-term prospects for successful miners are outstanding.

Regards,
Doug Hornig

October 5, 2009

Why All the Fuss Over Rare Earths? was originally featured on Whiskey and Gunpowder

According to the U.S. Census Bureau, there are 6.783 billion earthlings. Meanwhile, CPM Group, a highly respected industry organization, estimates there are 4.8 billion ounces of above-ground gold in the world. And this includes jewelry, electronics, and dental. So, even if everyone around the world volunteered to have their chain, cross, or tooth melted into a coin, we’re already short. Those towards the end of the line are out of luck.

However, it’s worse than that. Of all the physical metal ever mined…

• 2.1 billion ounces, or 43%, is found in jewelry, decorative, and religious items.
• Private stock – gold already held by various private parties – accounts for 1.1 billion ounces.
• Official reserves (central banks, IMF, etc.) stand at 1 billion ounces.
• Industrial use accounts for 530 million ounces.

Very little of this is likely to come available for purchase in coin form. After all, you’re not selling any of your gold, and neither are many banks or institutions. Most everyone is buying.

So for those who don’t yet have a gold coin (or you greedy investors who want more than one), this pretty much leaves us with mine production and scrap sources.

CPM forecasts that total new supply in 2009 will be around 122 million ounces. Only a small percentage of this is made into gold coins and bars, but if all of it were, it would amount to less than two one-hundredths of an ounce, or about half a gram, for every man, woman, and child on earth this year. A product of this dimension is about half the size of that small button on your shirt collar.

Since this supply is only available annually, it means 0.018% of the global population – one in every 55 people – could buy a one-ounce gold coin this year. Or, said differently, it would take 55 years before everybody had one, assuming the population never increased (it is) and supply never decreased (it is).

But it’s worse than that. Actual 2009 coin production will be around 5 million ounces (excluding medallions or “rounds”), leaving two one-hundredths of a gram of gold (or 0.3 of a grain) available this year for each of the planet’s inhabitants. This is about half the size of the sesame seed that fell off your hamburger bun at dinner last night. It means that only 0.0007% of earth’s citizens – or one in 1,356 – can buy a one-ounce gold coin this year, and it would take 1,356 years for everyone to get one.

How’s that for a supply squeeze?

But it’s worse than that. Demand continues rising. Gold is more frequently in the news, attracting more customers every day. Hedge funds, which never before considered gold, are now buying physical metal (Greenlight Capital actually sold $500 million of GLD and bought physical gold). Central banks are net buyers of gold for the first time in 22 years. China is running TV ads encouraging its citizens to buy gold and silver. Last month Russia bought more gold than they actually produced. In a recent survey, 20 out of 22 fund managers bought physical gold for their personal investments. In other words, some investors are already scrambling to get it… and in big quantities.

But it’s worse than that. Most of the ramifications of the money printing and dollar debasement haven’t even surfaced yet. How will the general public react when the dollar is crashing and standards of living are threatened? What will they do when milk and gas prices surge to twice what they are now? How will the greater collective respond when they lose faith in government interventions? Where will they invest when they see gold and silver prices screaming upward and don’t want to be left behind?

The panic into gold by the general public hasn’t begun yet. Available supply is scarce and will get smaller. There won’t be enough.

Better get your speck while you can.

Regards,
Jeff Clark
Senior Editor, Casey’s Gold & Resource Report

September 28, 2009

What if Everyone in the World Wanted a One-Ounce Gold Coin? was originally featured on Whiskey and Gunpowder

The US International Trade Commission ruled that increased imports of Chinese tires hurts American producers, meaning labor unions.  I have a sudden vision of the Chinese hurling tires at us when one can only suppose the things were ordered deliberately by those seeking lower prices. The highly punitive tariffs on all car and light truck tires entering the United States from China are seen correctly by all as a means to pander to Obama’s vital union support and garner votes for his health care aspirations, and who cares if China gets in a snit?  They are also a direct tax on US car owners, because you may be quite certain that China will not bear the costs in the long run.

“The federal trade panel recommended a 55 percent tariff in the first year, 45 percent in the second year and 35 percent in the third year. Obama settled on slightly lower penalties — an extra 35 percent in the first year, 30 percent in the second, and 25 percent in the third,” White House press secretary Robert Gibbs said. What a fascinating view of Obama arithmetic.

“Slightly” lower turns out to be on the order of a third, and the fact that the increase is, oh, call it roughly seven-fold the first year, six-fold the second year, and a mere four-fold the third year won’t have any economic impact will it? Money means nothing to those people; it’s all about making “statements.” We’ll hardly notice when the family phaeton needs new tires.

He of the impeccable logic and ethical skills had only the highest motives. “The president decided to remedy the clear disruption to the U.S. tire industry based on the facts and the law in this case,” Robert Gibbs stated. Hey, this isn’t about money, its about fulfilling the law, a rather novel notion in this day and age.

Our concern here in the far-flung Texas Whiskey Bunker isn’t the continued ineptness of the greatest politician of the age, but how it affects our decisions. Being mean-spirited, callous, and selfish, I plan to hit Sam’s tomorrow and stock up on tires, myself. Then I will consider whether or not to short the ailing tire industry, which has seen imports nearly quadruple in the last five years. One of the great lessons of WWII and depressions is that one cannot have too many tires, too much fuel, or enough butter stashed away. What do you think we were fighting over Burma for? Rubber. They had tin and other strategic materials as well, and we were cooperating with England, which wanted its colony back, of course. As a matter of trifling interest the Burma Road was one of the national lifelines for China. How quickly they forget, the ingrates!

The steelworkers union says more than 5,000 tire workers have lost jobs since 2004 as Chinese increased US market share significantly. “The U.S. trade representative’s office said four tire plants closed in 2006 and 2007 and three more are closing this year and that during that time just one new plant opened.” Uh, could this have something to do with the Kyoto Treaty and other “green” issues? If we thought we couldn’t compete from 2004 until today, just wait until we get the glory of Cap and Trade thrust upon our staggering economy.

Roy Littlefield, the Executive Vice president of the Tire Industry Association said that increasing the tariffs “would not save American jobs but only cause tire manufacturers to move production to another country with less strict environmental and safety controls, less active unions and lower costs than the United States.” The TIA opposes the tariff increase, even though they would like to sell more tires. It is an interesting argument, since the purpose of tariffs is to make foreign goods more expensive. It certainly seems to me that sales of Chinese-manufactured tires will fall because the cost of the tariff will have to be figured into the final price the customer pays, and American Tire Manufacturers would still have their share of the market plus the fall out from higher-priced Chinese imports. I think the point here is that this argument is the last thing US manufacturers have as a weapon. “Raise our taxes, raise the tariffs, and we’ll go elsewhere.”

One of these days we’ll get around to the true cause of the War Between the States, which you may infer — correctly — started over that very issue. We’re still fighting over taxes and tariffs, with the industrialized “north” wanting both high, and the Reds wanting them low.

“U.S. imports of Chinese tires more than tripled from 2004 to 2008 while China’s market share in the U.S. went from 4.7 percent of tires purchased in 2004 to 16.7 percent in 2008, the office said,” an AP report from the White House correspondent stated.

Okay, if we want to split percentages, 18.8% would be quadrupling, while 14.1% would be triple. It is all in perception, I suppose…Here’s one (a perception, that is) from Vic Delorio, another Executive Vice President, this time from the largest manufacturer of tires in China, GITI Tire (U.S.)  He opines that we really shouldn’t do this thing because it would mean Mr. Obama had broken a campaign promise! “…the Obama administration is now at odds with its own public statements about refraining from increasing tariffs above current levels.”

What does Mr. Delorio know?! He actually called it an “unprecedented action,” not true whether we view that as protectionist tariffs, catering to unions, or Mr. Obama breaking campaign promises. Most of the G-20 is against tariffs, quite possibly because they sell us more than they buy from us, but that’s okay, because the tariff won’t go into effect until the day after the meeting of the 20 in the US! Maybe they’ll all forget about it, live and let live.

Beijing says the “duties would be a violation of global free-trade principles” and has complained about U.S. protectionism, but that is understandable because their ox is endangered.

You have to love Democrats for their quick grasp of realities and their total lack of a sense of what should not be said. “Rep.. Louise M. Slaughter, D-N.Y., who chairs the House Rules Committee, said that although the 35 percent levy was less than the 55 percent recommended in July by the ITC, it was still a significant statement of administration support for organized labor,” AP reports. (Emphasis mine.)

What matters to most of us is that viciously punishing tariffs on all car and light truck tires entering the United States from China in order to placate union supporters and garner votes for the disastrous health “care” “reform” Obama wants so desperately doesn’t strike us as worth what it will cost even if we approved of his goals, which we do not.  Even though it is unlikely that there is a voter in the USA who doesn’t know that the Union vote is in Obama’s pocket, is it wise to rub our noses in the fact that our interests will be sacrificed any time it is for the benefit of the steelworkers, autoworkers, teamsters, and so forth? It adds a whole new meaning to “preserving the Union,” doesn’t it? “Car and light truck” covers what ordinary people buy. A reasonable conjecture is that BIG tires were exempted at the bequest of Jimmy Hoffa, Junior. Or do Peterbilt and Mack have that much drag in D.C.?

We’re supposed to pay a third more for Chinese tires which are, it seems reasonable to suppose, of adequate quality and less expensive, because 5,000 US tireworkers lost their jobs and several factories went out of business? Perhaps we might consider, instead, what we all know: union workers are overpaid and under-performing, business is being strangled by taxes and regulations, and it is the way of the world that if you cannot compete you lose.

They can call it “leveling the playing field” all they want, or “fulfilling the law,” but this is just another example of politics as usual. The pigs didn’t leave the trough while there was even a morsel left, and they’re still there, gobbling and flinging giant chunks of flesh to their friends on credit. They’ve run up quite a tab at the taxpayers’ diner and the world doesn’t think their IOUs are good any more.

Unemployment is at a 26-year high and consumer spending is diminishing rapidly, which means tax revenues are falling just as fast, but those tireworkers have to be protected. (Okay, “tirelessly.”) How many of them are there, do you suppose, and why should we pay much more for tires for their benefit?

In general, when the competition is nobbled prices rise. Perhaps the Chinese should seek remedy under US antitrust laws. I only buy Michelins and Perellis, but even sweet little old domestic terrorists know that competition is what keeps people from being rapacious. So rapacious. A reasonable conjecture is that we will see all tire prices increase, but hey, we can’t be selfish. Let’s spread the wealth around for tireworkers; it’s their turn. For the rest of us? “Jam yesterday and jam tomorrow,” but it will always be today for those of us who do not have the right relatives or spouses or belong to the lucrative voter blocks.

As always, there is no point in railing about things we cannot change. The One is going to go tell the Twenty that it isn’t protectionism when we do it and probably that he won, perhaps with a few insults concerning the land of the Obama and the home of the duped.

There are only two things to be done: go buy replacement tires and see if you feel like making a bet on how tire stocks are going to do. There should be a lot of tire sales in the next ten days or so.

See you at Sam’s in the Tire Department.

Regards,
Linda Brady Traynham

September 24, 2009

Aftermath: This article was written last Sunday. Monday we sent the Segundo down to buy tires, and the prices had already leapt dramatically. Tires for a small stock trailer were over $125.00 each. Do we think of it as a little “insider trading” of information amongst unions and big money? Walmart and friends in China, at least? Once again the customer learns that by the time the news is broken the market has already discounted it. Or raised the prices, in this case. — LBT

Tires from China and the Tyranny of Tariffs was originally featured on Whiskey and Gunpowder

Some analysts now contend that China can no longer afford to let the gold or silver price slump. The rationale behind that contention is that with the Chinese government now telling the general populace to buy precious metals, it would be highly problematic should gold and silver subsequently take a nose dive.

In many cases, what a government wants and what ultimately occurs can be wildly different, due to unintended consequences rarely foreseen by officialdom, and because once the masses get it into their heads to break one way or another, government’s desires are largely ignored.

“You shall not smoke marijuana,” says the government. “Roll me another,” says John Q. Public.

But in the case of gold, interestingly enough, the Chinese government has the means at its disposal to actually do something about prices. Namely, at $1,000 an ounce, the total value of all the gold ever mined comes to about $5 trillion.

Of that amount, less than $1 trillion is held in official reserves, the rest under mattresses, in jewelry and family heirlooms, and in various ETFs – GLD being the biggest, by far, holding about $34 billion worth of gold.

Against these totals, China has foreign reserves in excess of $2 trillion. In other words, more than enough to push the tiny gold market around in any way it wishes. Given that much of its reserves are now denominated in fragile U.S. dollars that it would sorely love to replace with something more tangible, and that China is the world’s largest gold producer, the country’s involvement with gold is something more than just a passing fancy.

Simply, there is a new gorilla in the room in global gold markets. The extent to which the broader market hasn’t yet figured this out is the extent to which you as an early mover can ultimately profit. Especially in the more leveraged gold stocks, which continue to be strong even as the broader markets show weakness.

That all of this comes before the dollar hits the wall it must hit, or before the inflation that is now baked in the cake arises, lends a lot of credibility to the idea that when the gold bubble begins to expand, it could reach all the way to the moon.

No need to chase gold at these levels, as opposed to buying on dips. But buy.

Regards,
David Galland
Managing Director, Casey Research

September 18, 2009

Could China Push Gold to the Moon? was originally featured on Whiskey and Gunpowder

Now as then, China keeps its own counsel. We know what they want us to know, plus what we can surmise from rumor and reading between the lines. But lately, we’ve been able to add presumption to news and come up with something that looks very significant.

Specifically, there’s been a flood of tantalizing stories out of the East that, taken together, strongly suggest a growing preoccupation with a form of money that was ancient even in Signor Polo’s time. And it ain’t silk. It’s gold.

We already learned, back in April, that China has been salting away bullion for the previous six years, out of sight of international gold watchers. To the tune of 14.6 million ounces. Now the evidence suggests that that was merely the prologue.

Let’s take these tidbits one at a time:

Sovereign Wealth Fund Dumping $$ for Gold?

This one is still at the rumor stage, but highly-respected website Mineweb.com is supporting it. What we know for sure is that the country founded its primary sovereign wealth fund, China Investment Corporation (CIC), two years ago, with the stated aim of rapidly deploying some of its $1.5 trillion forex surpluses – $200 billion initially, with another $100 billion recently added to the kitty – into investment in non-Chinese enterprises. This it has been doing in spades, acquiring businesses around the globe. Extractive industries are among them, including Teck Corp., the diversified Canadian mining giant.

Might it also be buying up gold? We don’t know that for sure, but it seems likely. And, in addition, rumors sneaking off the mainland indicate that within the CIC, a lot of effort is being poured into prospective investment deals in the oil and precious metals sectors. The more it produces, the more it can keep.

The Chinese have made no secret of their disdain for current American economic policy and what they see as the inevitable destruction of the dollar. That they would be moving to diversify out of the greenback shocks precisely no one, and gold is one logical landing place for all those bucks. We suspect that’s exactly what is happening, behind the scenes as well as center stage.

Gold and Silver Pushed to the People

As recently as 2002, the private ownership of gold was prohibited in China. You could be jailed if caught with any in your possession. Beginning in 2009, in a stunning about-face, the central government removed all restrictions. In fact, as Mineweb and other sources report now it’s actively pushing folks to buy some personal metal, with China’s Central Television, the main state-owned television company, running news programs cum infomercials, letting the public know just how easy it is to purchase gold and silver as an investment.

It truly is as simple as can be, because every bank sells gold and silver bullion bars in four different sizes to individuals. (Try to find the same the next time you make the trek down to Wells Fargo.) Mining companies are reportedly encouraging employees to convert some of their wages to gold on payday. Gold is traded in some form 24 hours a day. And paper proxies for the metal are also soaring in popularity.

There are persistent rumors that the export of silver has already been banned. Gold could be next.

Thus China, which only yesterday was the lowest per-capita consumer of gold in the world, is bidding to become the biggest. Some analysts believe it will pass India – the top dog since forever – as early as 2010. Clearly, the government believes the country is strengthened if everyone who can holds some hard currency.

All this suggests a mania in the making, and only in the formative stage. Imagine if hundreds of millions of new consumers climb on that particular bandwagon…

China Repatriates its Bullion

Meanwhile, in early September numerous sources reported an announcement that Hong Kong is pulling all its physical gold holdings from depositories in London and transferring them to a newly built, high-security depository at the city’s airport.

That means the government is backing the promotion of Hong Kong to a more formidable status as a Swiss-style, regional trading hub for bullion, at the same time as it reduces London’s role as a key settlement and storage center.
Press reports cited government officials as saying that marketing efforts will be launched to convince Asian central banks to transfer their gold reserves to the Hong Kong facility. Outreach will also be made to commodity exchanges, banks, precious metals refiners and ETF providers.

There can be little doubt this signals that the Chinese government fully recognizes the importance of gold in a time of crisis, and that the most prudent plan involves keeping its stores close at hand.

China Threatens to “Just Walk Away”

In one of the year’s most intriguing developments, commodity and derivative markets were thrown into a tizzy on Monday, August 31, by the worldwide circulation of a story published two days earlier in Caijing magazine (and reported by Reuters here).

According to the Caijing article, a spokesperson for China’s state-owned Assets Supervision and Administration Commission – the regulator and nominal shareholder for state-owned enterprises (SOEs) – told six foreign banks that SOEs reserve the right to default on contracts.

Say what?

Maybe the commission has been paying attention to the “just walk away” forfeiture movement that blossomed among American homeowners whose overall debt on their properties far exceeded the assessed value.

Small wonder there was panic in trading houses that hold a lot of Chinese paper. They hope any problems will be worked out short of a default. In fact, “It’s [only] a handful of companies who are being encouraged by regulators to ‘re-negotiate’,” says one banking source. “It’s outrageous, but it’s China, so everyone is treading very carefully.” Very carefully.

Nevertheless, in addition to tangible losses, those potentially affected fear the establishment of a dangerous precedent, one that could lead to utter chaos in the enormous, tangled world of derivatives.

And there is one other, albeit highly speculative, possibility. Some major entities – we don’t know who, due to the opaque nature of international gold trading – have huge, perhaps quite concentrated short positions in the metal, both on the COMEX and OTC market. Is one of them China, acting through American intermediary banks?

A short position in precious metals means that the initiator of that position is obligated to deliver physical gold or silver if the buyer (who holds the long end) wants it. Suppose China is one of the big shorts. Suppose it’s been playing the market in order to buy at what it sees as bargain prices. Now suppose a gold rally induces it to just walk away from all those obligations to deliver. Who’s going to force it to make good? Guess what, no one has a gun large enough.

Granted, it’s an outlandish scenario. But impossible? No. Beijing has shown nothing but indifference to what others think of it. And if the dollar does crap out as the world’s reserve currency, there’s nothing to say that China won’t see its self-interest as lying in a completely new direction.

Conclusion. Gold, and the companies that produce it, have enjoyed a brisk runup of late, as the metal mounts yet another assault on the beckoning, symbolic $1,000 level. How much of this can be traced to what China has done, is doing, or may yet do?

We don’t know, but we suspect it’s not entirely coincidental. All rumor and speculation aside, as China clearly turns more and more bullish on gold, so will everyone else.

Regards,
Doug Hornig

September 14, 2009

What the Heck Is Going on in China? was originally featured on Whiskey and Gunpowder

Guaranty Bank in Texas became the 81st U.S. bank to fail this year. It was the 11th largest bank failure in U.S. history. This kind of thing is becoming so regular it is hardly news when it happens.

But what’s interesting to point out about this one is that the FDIC sold Guaranty to Banco Bilbao Vizcaya Argentaria of Spain. This is the first time regulators have sold a failed bank to a foreign lender. Such a turn of events would have been unthinkable only a decade ago.

So the world turns. When it comes to the question of who has the money, it’s often a non-U.S. buyer these days.

Speaking of foreign buyers, there is probably no group of buyers more watched and coveted than Chinese consumers. Recently, the Financial Times had a piece that highlights things the Chinese like to buy.

This is important because the Chinese are becoming increasingly affluent in large numbers. Total consumer spending was $1.7 trillion in 2007, compared to $12 trillion in the U.S. But that number is growing rapidly. The FT focused on the new rich. China now boasts more millionaires than the U.K. The rapid growth of this group has companies all over the world spending more money and time figuring out ways to get in their pockets.

So what do the affluent Chinese like? Outside of ordinary things like flashy cars and booze and quirky things like ivory and dried seahorses, one thing was mentioned in the FT piece that caught my eye: The Chinese love gold.

“China loves gold in all its forms,” the FT reports, “as a reserve currency, jewelry, an investment.” I’ve mentioned in the past about how the Chinese central bank doubled its holdings of gold this year, but it’s more widespread than that.

The rising middle class in China also buys a lot of gold. Since 2007, Chinese consumers have been the second largest purchasers of gold jewelry in the world, behind only India. The FT points out those gold sales were up 28% year over year in May. Total gold demand for the year was up 21%, to 400 million tonnes. There are not too many sales of any kind going up that much in this financial crisis, but there it is.

The financial crisis and weak stock market have helped gold as people look for a place to park some money. I think gold will remain a good place to be for some time yet. And gold stocks have the stars lined up for them. Many are reporting falling cash costs, yet the price of gold is staying up here in the $900s — and is likely headed much higher. That means gold stocks are reporting good increases in cash flow, among the few sectors to do so.

The Growth Is Overseas

As to the larger picture, I think trends in overseas markets should continue to be a focus, and I will keep on an eye on them. The U.S consumer is pretty well tapped out, finally. The growth is overseas.

Over the weekend, Barron’s featured a worthwhile interview with Chris Wood, the Hong Kong-based strategist for CLSA’s Asia-Pacific group. He’s been on top of some of the bigger-picture developments in Asia for years — sniffing out trouble in Thailand before the Asian crisis in 1997, for instance, and, more recently, giving early warning calls on the global troubles that would emerge after the U.S. mortgage market imploded.

What’s Wood’s take today? “The financial crisis in the Western world will lead to a long period of anemic growth,” he says. “From a global investor’s standpoint, Asia and the emerging markets stand out as a place to invest.”

When you look at some of the data rolling in, it is hard not to see it. For instance, earlier this year, oil consumption in the developing countries passed the top 30 (OECD) countries for the first time. There are now more cars sold on a monthly basis in the top 16 emerging markets than there are in the U.S., Japan and the EU combined.

More opportunities will emerge, as many of these markets are only in the early innings of the most commodity-intensive part of their development. As a result, we’ll see a lot more power plants, water treatment plants and the like built over time. Then there are the agricultural needs, not only to support population growth, but to support the boost in biofuels.

Biofuel Boom

Steven Johnston at AgCapita, a firm dedicated to investing in agriculture, put together a worthwhile newsletter. In the latest update, the group shows how biofuel production is on the rise:

This trend will surely continue, as most of the oil-producing countries have in place biofuel targets whereby they mandate that a certain amount of fuel must be biofuel. AgCapita’s own research indicated that the biofuel targets in the U.S., the EU, Canada, Japan, Brazil, India and China alone could require the use of over 400 million acres of arable land, or over 10% of the world’s total. This is in direct competition with food production and should have a significant effect on crop prices.

What a lot of people overlook is just how fertilizer-, water- and energy-intensive these biofuels are. So agriculture remains another attractive market to invest in right now in what otherwise looks like a time of tepid growth. That means opportunities in fertilizer stocks, grain handlers, farm equipment and farmland.

Have a good week, and I’ll write you again soon.

Regards,
Chris Mayer

September 2, 2009

What Chinese Money Buys: Gold Goes Green was originally featured on Whiskey and Gunpowder

Drivers in the U.S. no longer determine the global price of oil. So oil prices can remain high despite a weak labor market — as we saw in the 1970s. If this winds up being the case, it’s bad news for owners of financial and consumer stocks and good news for owners of energy stocks.

Andy Xie, formerly of Morgan Stanley, is a great strategist who, while most other economists sought to justify the housing bubble, warned of the unsustainable U.S./China vendor finance trade model that grew so rapidly between 2001-2008. He recently wrote an article for Caijing magazine on the factors that might drive oil prices in the future. He writes:

Conventional wisdom says inflation will not occur in a weak economy: The capacity utilization rate is low in a weak economy and, hence, businesses cannot raise prices. This one-dimensional thinking does not apply when there are structural imbalances. Bottlenecks could first appear in a few areas. Excess liquidity tends to flow toward shortages, and prices in those target areas could surge, raising inflation expectations and triggering general inflation. Another possibility is that expectations alone would be sufficient to bring about general inflation.

Oil is the most likely commodity to lead an inflationary trend. Its price has doubled from a March low, despite declining demand. The driving force behind higher oil prices is liquidity. Financial markets are so developed now that retail investors can respond to inflation fears by buying exchange-traded funds individually or in baskets of commodities.

Oil is uniquely suited as an inflation-hedging device. Its supply response is very low. More than 80% of global oil reserves are held by sovereign governments that don’t respond to rising prices by producing more. Indeed, once their budgetary needs are met, high prices may decrease their desire to increase production. Neither does demand fall quickly against rising prices. Oil is essential for routine economic activities, and its reduced consumption has a large multiplier effect. As its price sensitivities are low on demand and supply sides, it is uniquely suited to absorb excess liquidity and reflect inflation expectations ahead of other commodities.

Xie’s entire article is worth a read. You can find it at this link.

The Chinese government is sending strong signals to its banking system that it wants lending to slow down from its blistering pace. It remains to be seen whether this will actually result in a contraction in Chinese bank lending or whether lending may just shift from one sector to another. If I had to guess, I think oil prices will have a sharp correction this fall as Chinese stockpiling slows down and as oil and refined product inventories remain more than adequate to meet sluggish U.S. demand.

But this correction will offer trading and investing opportunities on the long side. As you see in the two charts below, the linkage between oil prices and U.S. inventories during the entire post-2002 bull market was not as close as you’d expect:

Here’s why I think a correction in oil prices will offer a buying opportunity: Inflation fears and stabilizing in global demand are not the only reasons the price of oil has doubled from its lows. Oil prices are up because the marginal cost of new supply — including from Canadian tar sands and from under thousands of feet below the ocean surface — is so high.

To Andy Xie’s important point about oil as an inflation hedge, I’d add that OPEC planners understand that they are trading a scarce, extremely energy-dense, nonrenewable, depleting asset for paper money. They also are beginning to grasp that indebted oil importers plan to ease their debt burdens by employing the heavy guns in the inflation arsenal: “quantitative easing.” So their portfolio preferences will shift away from government paper and toward retaining scarce oil in the ground for future revenues. In other words, “Why should we trade oil for dollars now if we receive higher prices five years down the road?”

This is just one of the many intricacies governing how the global oil market operates, and it helps explain why those who are perpetually bearish on oil prices waited for years and years for a rational, free-market supply response to higher prices that never arrived in force. That is, until last fall’s panic brought demand far enough below supply that prices crashed. Now, the conventional wisdom says that several million barrels per day of spare OPEC capacity will keep a lid on prices for years. We may discover by next year just how quickly this alleged spare capacity will come back online, and at what price.

The question then becomes why should national oil companies rush into the risks of making the enormous capital investments necessary to maintain production — let alone grow production. Nancy Pelosi and Ben Bernanke are not promoting policies to make energy cheaper; in fact, their playbooks virtually ensure the opposite. Privately owned exploration and production (E&P) companies that take smart risks will be the ones that deliver more supply at lower prices to help ease supply constraints.

Now, when you consider how the U.S. economy currently functions, you come to understand that rising energy prices induce enormous headaches for practically every consumer and business. Call rising energy prices a “deflationary force in the real economy” if you like. The point here is the irony of the situation: The Fed and Treasury are trying to reinflate a deleveraging private economy, and much policy could wind up accelerating the deleveraging process by adding pressure to the prices of nondiscretionary items like food and energy. After all, these are both global commodities, and capacity in these sectors is tighter than most market participants realize.

Bottom line: There is no easy, painless way out of a credit-financed asset bubble that artificially pumped up consumption. This artificial growth in consumption prompted entrepreneurs to misallocate resources into unproductive sectors that were temporarily pumped up by what looked like sustainable demand. Meanwhile, there are many sectors, including oil and gas, that have been underinvesting relative to the long-term global demand for mobile, modern lifestyles.

Sure, oil prices could correct sharply this fall as traders panic about a temporary glut in aboveground supply at storage terminals. But to use manufacturing terms, it’s the “raw material” and “work in process” inventory that really matters. That type of inventory, sitting higher up in the supply chain, is much tighter than the “finished goods” inventory sitting in storage terminals like Cushing, Okla. I expect we’ll see this tightness reflected in prices by 2010, even if demand remains stagnant.

Production capacity in oil and gas looks plentiful right now, but capacity naturally falls every year, and requires hundreds of billions in global capital expenditures just to keep supply steady. According to an exhaustive analysis published by Neil McMahon of Bernstein Research on Aug. 10, non-OPEC oil supply will keep declining in the coming years, despite healthy levels of investment. Outside of OPEC (where information regarding capacity and investment plans is murky at best) explorers are targeting smaller formations, as production from giant, decades-old fields declines. McMahon writes:

In the long term, we believe that oil prices will increase in line with the marginal cost of supply, which continues to rise as the complexity of new wells increases and production rates from established fields decline. Basically, not enough significant discoveries have been made in non-OPEC countries in recent years to help the supply situation before 2015. Additionally, flow rates from the few discoveries that have been made do not give rise to much optimism and, as in the past, the drop in absolute oil demand will be offset by rapidly declining mature field production with the recent fall in industry spending. So the continued decline in non-OPEC supply will provide an additional support for prices, as it feeds through to OPEC spare capacity. We believe that 2010 will see the next inflexion point in prices, as OPEC spare capacity begins to decline and demand shows positive growth for the first time in a number of years and we expect to see oil average $80 in 2010, $103 in 2011, $111 in 2012, and increasing to $140 in 2015.

You can imagine what this type of price trajectory will do to U.S. businesses that rely on cheap fuel, and have no ability to push through price increases. Considering how many more trillions of U.S. dollars will be floating around the global economy in 2015, and savers’ willingness hoard them declines, $140 per barrel might be conservative.

Global oil production capacity, rather than demand, will eventually drive prices. Bernstein projects 2020 oil production capacity will be about the same as it is now: 85 million barrels per day. We must consider net exports too; the global trade flows of this oil will certainly change. Over time, more tanker shipments will be diverted away from the U.S. and Europe and head to Asia. Also, in recent years, OPEC countries have been consuming more of their own product at home. Plus, the Chinese government has shown that it will beat any and all comers in the competition to secure supply under long-term contracts.

Regards,
Dan Amoss

August 28, 2009

Inflation and Oil Prices: Our Next Move was originally featured on Whiskey and Gunpowder

But some things are for sure and provide “reasonable markers” to see what a currency is doing. One of my “favorites,” although I hate to call it that, is the “civil unrest factor.”

Across the Eurozone riots and outbreaks of violence have been touched off by escalating economic problems and disagreements between members and neighbors. People involved in civil unrest are a multifold problem. First, they have too much time on their hands because they are not working. Jobless citizens, especially in a heavily socialist culture, are a continual drag on the system. Second, it costs money to keep repressing social upheaval — presenting another drag on the system. Additionally, the passions and fears of men being what they are, such activities tend to draw in more normally productive folks as the snowball gains speed and volume.

Here in the United States, we are not facing such difficulties (yet). This means a more reasonable system of work and distribution of goods and labor. All in all, this is good for a culture, the body politic and the economy. As a result, it also breeds greater confidence in the currency. And when all is said and done, investment money will go where there is a reasonable likelihood of return, even if the return may be lower.

Specifically, there are several exotic currencies that have offered high rates of return for speculative investors and traders, like the Brazilian real and the Indian rupee, just to name two. But it is difficult to place large sums of money there simply for the sake of the wild swings in value. A high interest rate is no good if the principle of the investment is destroyed by currency depreciation.

This is what has been good up to this point in the recession/depression for the U.S. dollar. And if this continues to unfold over the next year or two in similar fashion, this would still produce U.S. dollar strength compared to the euro simply by the “fear factor.”

Additionally, as I have tried to show, the situation in Europe is actually more severe than in the United States. I believe in the end that will make them copy, at least percentage wise, the same devaluing practices that have happened here. Should that occur, it would once again be advantage-USD.

If, in addition to those previous considerations, one or more of the countries leaves the Eurozone, I think the fear and disturbance that would produce again favors the U.S. dollar.

Longer term, I have to wonder if the euro has what it takes to survive this crisis. I have no doubt that the United States will emerge out the other side with all 50 states still members of the Union. I don’t know that such can be said for the European Union.

At the end of the Mel Gibson movie, The Patriot, there is a shot of Lord Cornwallis overlooking the field of battle as the colonists finish the rout of the British at Yorktown. He says, “How could it have come to this? Everything will change. Everything HAS changed.”

When I look at the dollar, I feel the same way. What we have done may be past the point of no return, the point of repair or recovery. The next generation may well find that the U.S. dollar has gone the way of all fiat currencies before her. What will replace it? I can’t say. But in the present environment, more shocks to the system will ultimately favor the dollar… at least for the time being, because it is supported by stability. And in unstable times — stability draws the highest premium.

Now let’s end with a look at my favorite currency, the Australian dollar.

Aussie Firm Despite Chinese Unrest

The Aussie dollar chart looks remarkably like the euro — going back to the beginning of June. All things considered, that’s rather remarkable given the relative strength of the Aussie economy compared to the Eurozone. Nevertheless, fundamentals will eventually rule the day, and though we may have to wait it out a bit, we look for the Aussie to rebound in the future.

One of the difficult parts of the equation at this point is the widely reported and detrimental riots in China’s western Urumqi (pronuonced U-rum-CHEE) province. Ethnic fighting between Muslims and Chinese citizens has threatened to overpower the police force.

As you know, Australia’s success going forward is inextricably tied to China. So worries about riots in one part of the country can certainly be detrimental in other parts as well. Even though the violence in other provinces may not be ethnically related, once a group of people feel they have been wronged and have the sheer numbers to overpower a military or police crackdown, all heck can break loose.

Remember, there is significant fear of unrest all over China as the depression sets in. The people were just getting their first dose of “la dolce vida,” only to have it stripped away. And gone are the days when they trusted their government to provide for them. Now it is beginning to look more like the enemy than a loving “big brother.”

For now, though, the Aussie dollar hasn’t been impacted by the fray. It has been well supported at the 78.25 level. A strong close below 78 on the daily chart would invalidate that forecast, and likely lead to more downside. We’ll just keep our eyes open.

Regards,
Bill Jenkins

July 20, 2009

Dollar Bad, Euro Worse was originally featured on Whiskey and Gunpowder