Silver and gold stock momentum considerations

The XAU gold/silver index made an overdue pullback on Tuesday, Mar. 28, closing for the day at 134.17, down 2.24%. The other major gold stock indices were down by similar percentages for the day but still closed well above their recent lows and also above the key short-term moving averages.

Taking into consideration the dominant short-term trends, the gold stock sector is still in recovery mode and has some leeway for a correction right now without going back immediately into the "danger zone." Of the five leading trend identifiers of the sector - XAU, HUI, GOX, GLD and FCX - all five are above the important 90-day moving average right now and all except the XAU are even above the 30-day and 60-day moving averages. This is a sign that the dominant trend is still up and as long as at least three out of the five remain above the 90-day MA I consider the dominant uptrend/bias to be still intact.

Even after Tuesday's pullback there were only seven on my list of 50 actively traded gold shares below the 15-day moving average. That's a very light reading and we've now seen three consecutive days when the number of gold stocks below the 15-day MA has been fewer than 10. Another couple of days of these low readings and it will confirm a short-term bottom for the gold stock market as a whole.

Another measure of the gold stock sector's short-term overbought/oversold condition is the 50-day MA indicator. This is simply a measure of how many gold stocks in our list of 50 are below the 50-day moving average as of Friday's close. On Friday, March 10, there were 27 out of 50 gold stocks below the 50-day MA, the highest 50-day MA reading since the October low in the gold stock sector. On Friday, March 17, that number was 25, and on Friday, March 24, the reading was 19. That's a drop from the past couple of weeks but it still reflects an "oversold" market condition that hasn't been completely worked off yet. The 50-day MA indicator points to continued support in the gold stock sector in the near term.

Among the actively traded gold stocks to watch for rally potential in the near term include Angogold (AU), American Bonanza (BZA:TSX), ASA Bermuda (ASA), and Goldcorp (GG).

An up-and-coming mining company worth keeping an eye on is Quaterra Resource Inc. (QTA:TSXV). According to a company representative, QTA is working on uranium right now and hopes to have some positive results to report soon. Work on gold will begin in May and the results of their latest silver program should be available next month, he said. Quaterra's President and CEO, Dr. Tom Patton, recently spoke at the Richmond Club on the company and his presentation can be found online at the following web address: http://www.richmondclub.com/QuaterraResources.asp

Of the 50 actively traded gold shares, three managed to make new highs on Tuesday with none of the 50 making new lows. The 5-day, 10-day and 20-day and 30-day HILMO indicators for the gold stocks made marginally higher highs Tuesday with only the 60-day MA continuing its recent weakness. The 60-day HILMO indicator remains the one concern for the short-term health of the gold stock market. It continues to decline since peaking back in earlier February; however, it is still well above where it was at the beginning of this year and hasn't reached what I consider to be bear market levels yet.

Silver stock internal momentum, on the other hand (as measured by our SS HILMO (Silver Stock Hi-Lo Momentum) indicator -- see chart above) rose to higher levels after the recent good showing by the silver sector, and is reflecting greater strength compared to the gold stocks. The 5-day SS HILMO indicator rose from Friday's reading of +22 to +36. The 10-day indicator rose from +38 to +52. And the 20-day indicator rose from +79 to +90. That's perhaps a little "overbought" but still an overall bullish reading and reflective of the greatly improved silver stock internal momentum. The SS HILMO indicators as described paint a picture of the silver stock sector being still strong enough overall to withstand any corrective pullbacks in the short-term.

Clif Droke is the editor of the daily Durban Deep/XAU Report, a technical forecast and overview of several leading gold stocks, including DRDGold and the QQQ available at www.clifdroke.com. He is also the author of numerous financial books, including "Gold Stock Almanac 2006."

Post from: Gold News from Gold Editor

Clif Droke: Silver and Gold Stock Momentum

Behind The Bull Market

Mary Anne & Pamela Aden

The Aden Sisters

March 21, 2006

www.adenforecast.com

There was more tension on the geopolitical front this month, and there are few signs this is going to end soon. That's especially true in the Middle East where one event after another has been making headlines. The situation is intensifying and this will continue to affect the markets, particularly gold and oil.

COMPLICATIONS IN A BAD SITUATION

Iraq, for instance, is on the brink of civil war. Fighting and bombings have spread as the death toll grows daily. Iran remains a wild card and it's holding firm on its nuclear stand, despite worldwide disapproval.

The entire situation is turning into a quagmire. Many of the Iraqi insurgents are believed to be from Iran but there are ever growing groups from other countries too. Roadside bombings are averaging 1000 per month while Bush is warning of a long war. Intelligence chief Negroponte says terrorism may spread to other Asian nations, while Rumsfeld admitted the U.S. is losing the propaganda war to al Qaeda.

This was illustrated in surprising poll results several months ago. When asked, how much confidence do you have in bin Laden, over 50% of the respondents in Pakistan and Jordan said a lot and these are countries friendly to the U.S. The results were also high in Indonesia. Unfortunately, this sentiment seems to be spreading.

GOLD LOVES UNCERTAINTY

Wars often don't work out as planned. The Vietnam War was one example that hit close to home. Iraq has become another example and U.S. opinion has changed as a result.

Bush's approval rating has declined steadily and more than 60% of those polled feel the U.S. is seriously off course. Second term presidents have often had a hard time and it looks like Bush is not going to be an exception. But he's determined to carry on with his policies, which is bullish for gold because it'll mean ongoing deficit spending and ongoing global tensions.

When gold's bull market started in 2001 it wasn't yet clear what might fuel the rise. But as these factors have evolved, they nearly guaranty a continuation of gold's bull market for years to come. Let's look at the money alone

REPERCUSSIONS OF AN EXPENSIVE WAR

The war in Iraq is now costing more than the Vietnam war, per month adjusted for inflation. Plus, the U.S. has already spent almost as much as it did in Vietnam, even though that war lasted 13 years. The U.S., however, can't afford it. So it's cutting social spending and other programs as it pours more money into military spending, which will be nearly half a trillion dollars in the year ahead. It's also creating money out of thin air to cover these expenses and that's why the budget deficit keeps hitting new all time highs. Very simply, the government keeps spending money it doesn't have.

FUELING INFLATION

As a result, all of this deficit spending and booming money supply is also fueling inflation, which has been on the rise for a while now. In other words, a loose money supply is the cause and price inflation is the effect. That's always been the case and it's happening again. And since gold is the ultimate inflation hedge and it reacts to world tension, that's why it's rising too.

The situation was very similar in the 1960-70s. As the war in Vietnam drug on, the government adopted a guns and butter policy it couldn't afford. Monetary policy was irresponsible, which almost always happens during times of war, and that eventually resulted in soaring inflation in the late 1970s. Gold also soared, hitting $850 in early 1980.

We don't think we're exaggerating when we say the situation today is more serious than it was then. The spending is bigger, the deficits are larger and U.S. debt as a percentage of Gross National Product (GDP) is now at the highest levels since 1916, and probably ever (see chart). Currently, for every dollar of GDP, there are three dollars of debt.

That's downright scary. It's even higher than during the Great Depression of the 1930s, and with the economy and housing now slowing, along with record high bankruptcies, you can bet the Fed is on the alert. It knows this debt is dangerous and if the economy were to really slow down, deflation could take hold. The Fed definitely wouldn't want that to happen and it would do everything it could to avoid it, including cranking up the printing presses as Bernanke has said in the past. That would add more coal to the inflation fire.

The historical cycles tend to reinforce deflation is not in the cards. Mega trend upmoves generally last about 22 years on average, going back to the early 1800s. This coincides with bull markets in tangible assets and since the current mega upmove started around 2000, it could continue for another 10 to 15 years, based on these cycles.

And while we don't enjoy saying this, increasingly it looks like this mega upmove is going to coincide with the clash of civilizations, the ongoing religious wars or whatever some are saying is happening in the Middle East. We hope we're wrong but the evolving oil situation tends to suggest this as well.

Demand for oil is soaring worldwide while supplies are being depleted. Oil producers have become the big men on campus and some are behaving that way. Just look at Ahmadinejad in Iran or Chavez in Venezuela as examples.

OIL PRODUCERS ARE MAKING THE RULES

Iran is a real case in point. Today they're scheduled to open their new oil bourse, which will only accept euros for oil and not U.S. dollars. Based on Ahmadinejad's actions on other issues, he'll probably go ahead. If he does, it'll be a huge economic slap to the U.S. because U.S. dollar world dominance would begin to unravel, both as the global pricing mechanism for oil and as the world's reserve currency. Plus, Norway is now saying its oil should be bought in euros too.

This would seriously hurt the dollar, but it would be good for gold since gold generally rises as the dollar falls. In the past five years, the dollar has already lost a large portion of its value in terms of gold and that would certainly accelerate if the dollar/oil relationship starts coming apart.

For now, we don't know how this will all work out. But gold's mega trend is poised to continue in the years ahead and based on what's happening in the Middle East, events there will likely be an important reason why, both financially and geopolitically.

Mar 20, 2006

Mary Anne & Pamela Aden

info@adenforecast.com

The Aden Forecast

Mary Anne & Pamela Aden are internationally known analysts and editors of The Aden Forecast, a market newsletter providing specific forecasts on gold, gold shares and the other major markets.

For more information, go to http://www.adenforecast.com/

Post from: Gold News from Gold Editor

The Aden Sisters: Behing the Bull Market

Gold and silver a buy?

Jack Chan

www.traderscorporation.com

3/18/2006

With silver breaking to new highs, a lot of excitement is generated. Precious metals and related stocks are once again in the spot light, with many bullish analysis supporting a continued move higher. If you are a long term investor and truly committed, just close your eyes and buy. Because as you can see from the chart below, all those before you who had a terrible sense of timing and ended up buying at the exact tops in the past four years, are now profitable. Therefore, unless we are staring at THE top right now, chances are good that gold prices will eventually be higher, much higher. However, suffering a drawdown is never fun, those with buyer’s remorse will very unlikely to be able to hold when their investments are down double digits, thus, people do lose money in a bull market. So, to be different, lets first look at when we should not buy.

As a market timer, my job is to spot those buying opportunities, when a correction or pullback has completed. Technical analysis is not as complex as what most people think. In fact, it could be quite simple. To buy the dips of a bull market, you simply wait when the market is oversold, or at the minimum, when the market is no longer overbought. Have a look again at the chart above, do we have to be an expert to know that now is not the time to buy? But if you must, be mentally prepared that a pullback to the 50ema support translates into a 10% drawdown, and a full correction to the 200ema support could set you back 25 to 30%. And, what is the chance that this is THE top? Well, I don’t know anyone who bought gold at $800 twenty six years ago and still holding, but I do know quite a few who bought Nortel at $80 in 2000 and are still holding…..not a pleasant topic.

How about silver? Silver is making a lot of noise now, but if you look at it objectively, the time to buy is after a correction, not before. Do I know a correction is coming? Yes. Do I know when? No. Unless you are a short seller, it matters not when the correction comes, it matters when the correction is over.

Technical analysis is not difficult at all, providing that we do not overlook the obvious. What is so obvious about the chart above? Silver has only been overbought twice: once in early 2004, and NOW. Both came off a parabolic rise of just over 60%, and as with all corrections in bull markets, the drop was breath taking, hard and fast.

How about metal stocks? From a weekly chart perspective, metal stocks have been this overbought only twice, and both times they led the metals down for a significant correction, not just in price, but in time as well. This is what we call a “corrective phase” of a bull market, and our leading indicator has identified this “CP” back in February. Some suggest that this time is different, the metals will lead stocks higher. Perhaps, but not so far.

In Dec, after gold fell $50, I issued a buy signal for all foreign investors, and it was very timely indeed. It was a fourth such signal according to our trading model. But some of our European subscribers are asking why we did not issue another buy signal in February when price appeared to have found support at the 50ema again. This, we intend to keep as secret.

Canadian gold buyers were also alerted in Dec, and now gold is a hold, not another buy.

Japanese buyers also had excellent buying opportunities in 2005, but now must also hold and not buy again until the risk is acceptable.

Summary

It is never a popular thing to do when writing about corrections in the gold sector, especially when most analysts are looking up, not down. Going against consensus is not the best way to attract new subscribers, but then again, it is my obligation to show what I see in all honesty, whether I am correct or not. The market always has the final say.

End of report

Jack Chan

http://www.traderscorporation.com

Post from: Gold News from Gold Editor

Jack Chan: Gold and Silver and Buy?

Internal momentum indications for the gold stock sector

The XAU gold/silver index was basically unchanged after Friday's (Mar. 17) trading session, closing the day at 131.74. This gave the XAU a slight gain for the week, however, coming off that oversold extreme from the previous week.

The Amex Gold Bugs Index (HUI) meanwhile closed the latest week at 302.43, slightly below its 15-day trend line and also slightly below the important 60-day moving average. Although HUI has so far managed to find support above its dominant interim 90-day moving average it is still struggling with the resistance at the 60-day MA and thus isn't completely out of the danger zone yet.

In our previous look at the gold stock sector, we looked at all the oversold indications that were flashing in the oscillators and internal indicators. In this commentary we'll look at how much the indicators have changed in the past few days of rally and whether there might be more rally potential in the immediate-term, or whether more time will be required to repair the damage done to the sector since the February sell-off.

Last time we talked about the gold stock sector's 50-day MA indicator. This is simply a measure of how many gold stocks in our list of 50 are below the 50-day moving average as of Friday's close. Last Friday (March 10) there were 27 out of 50 gold stocks below the 50-day MA. On Friday, March 17, that number was 25, not much different and still reflecting an "oversold" market condition. The last time the 50-day MA indicator reading was this high (i.e., oversold) was Oct. 21, 2005. This was near the XAU's previous interim low back in late October. But back then the XAU remained in an oversold condition for another couple of weeks before it finally reversed. If this is any indication the XAU will take some more time before attempting to reverse, and the chart suggests more time is definitely needed before a sustained rally gets underway. Notice the large increase in the number of stocks below the 50-day MA in the last couple of weeks in the chart below.

Next there is the 15-day MA indicator, which is updated daily. This is a simple measure of how many gold stocks are below their 15-day moving averages. I consider the 15-day MA to be one of the dominant immediate-term trend/momentum lines for most actively traded gold shares. Whenever the number of gold stocks below the 15-day MA exceeds 15 for more than a couple of days it shows that selling pressure is increasing. Out of the 50 actively traded gold stocks on my list, there are still too many below their 15-day MA as of Friday (Mar. 17). Although the number of stocks still below the 15-day has been shrinking since reaching almost 40 last week, there were still 20 gold stocks below the 15-day MA as of Friday's close. That's still too many and it shows that selling pressure hasn't completely lifted from the sector yet.

Next there is the matter of internal momentum. This is measured by our series of HILMO indicators, which measure the rate of change in the net number of stocks making new highs. HILMO measures the incremental demand for gold stocks better than price itself. The chart showing 5-day, 10-day and 20-day rate new high/new low momentum has been trying to reverse its rate of change for the last couple of weeks from the decline that has been underway since early February.

The 10-day HILMO indicator is still in negative territory and 5-day and 20-day HILMO haven't turned up yet in sustained fashion. Since the rate of change in the new highs hasn't reversed upward yet it is to early to call a confirmed bottom to the gold stock correction. Until HILMO reverses there could still be a re-test of the March lows in the XAU or possibly even a lower low. We'll continue to watch HILMO for a confirmation signal that the correction is over.
Clif Droke is the editor of the daily Durban Deep/XAU Report, a technical forecast and overview of several leading gold stocks, including DRDGold and the QQQ available at www.clifdroke.com. He is also the author of numerous financial books, including "Gold Stock Almanac 2006.

Post from: Gold News from Gold Editor

Clif Droke: Internal Momentum Indications for Gold Stocks

While the Chinese stock market, as measured by the China Securities Index 300, is down 18% since October 16, that follows a period of almost two years during which the CSI 300 had soared 535% since January 1, 2006. Chinese economic growth is currently running at over 11% and the big money is convinced that it will continue, while the country’s foreign exchange reserves are $1.4 trillion, the largest in the world.

A crash would appear to be imminent!

Bears on China have been common for the last decade, and their track record has not been good. To take just one unfair example, Henry Blodget, the former Internet genius, wrote in Slate in April 2005 “You’ve probably been daydreaming about the fortune to be made in Chinese stocks. Well, keep dreaming….you’ll eventually conclude that you could have done better selling insurance in Toledo.” That was about six months before the Chinese market took off, and if anybody has made 500% on their investment by selling insurance in Toledo during that period, I haven’t met him.

To see why a crash may be coming, it is worth examining the behavior of the China Investment Corporation, the $200 billion sovereign wealth fund set up by the Chinese government in September. Now $200 billion is a fair chunk of cash; you could almost buy all but three US corporations with that (at today’s prices, ExxonMobil, General Electric, Microsoft – there are 4-5 others including Google that barely top the bar.) Six weeks ago, the power of sovereign wealth funds was celebrated and China Investment’s moves into the market were awaited with bated breath.

Well, so much for that. A third of China Investment’s portfolio is to be invested in Central Huijin Investment Company, a purchaser of bad loans from the Chinese banks, and another third will recapitalize China Agricultural Bank and China Development Bank, to shape them up for privatization. $3 billion of the fund was invested in the private equity manager Blackstone in May – that may have bought China useful political contacts, but it is now worth $2 billion. And the remainder is being invested very carefully, primarily in US Treasury securities – which are also losing money steadily in yuan terms.

The lackluster investment strategy of China Investment exposes a central flaw in the Chinese economy, its lack of a rational system of capital allocation. For more than a decade, Chinese state-owned companies have made losses, and have been propped up by the banking system. Since 2004, loss-making state owned companies have been joined by overbuilding municipalities, erecting white-elephant office blocks in attempts to turn themselves into the next Shanghai. None of these losses have resulted in bankruptcy; instead the cash flow deficits have been covered by the Chinese banks. As a result, the Chinese banks have an enormous volume of bad loans -- $911 billion at May 2006, according to a later-withdrawn estimate by Ernst and Young, which must surely have ballooned to $1.2-1.3 trillion now.

That explains why China Investment is somewhat un-aggressive in its international investment strategy. China’s $1.4 trillion of reserves are in fact almost all required to prop up the banking system, when the inevitable liquidity crisis occurs. If the banks are to survive, China Investment will have to be followed by six more sovereign wealth funds of equal size, each of which will have to abandon its attempts to take over Exxon or Google and pour its money down domestic rat-holes.

A $1 trillion problem in subprime mortgages has caused even the US money market to seize up and has required frequent applications of sal volatile by the Fed. Since China’s economy is around one fifth the size of the United States’ the Chinese banking system’s bad debt problem is in real terms about five times that of the United States, about 40% of its Gross Domestic Product.

We have seen this movie before; the Japanese banking system’s bad debts after 1990 totaled around $1 trillion, about 30% of Japan’s GDP. The result was the bursting of the 1980s bubble and a period of little or no economic growth that lasted well over a decade. Admittedly the Japanese authorities made matters worse, by refusing to face up to their bad debt problem and issuing more government bonds to fund witless Keynesian public spending schemes.

Nevertheless, we can have very little confidence that the Chinese authorities, once the same problem stares them in the face, would do any better. After all, at least one of the alternative policy mixes, that tried by Herbert Hoover and the Federal Reserve in 1930-32, proved very much worse. Per Capita US Gross Domestic Product was no higher in 1940 than it had been in 1929, as in the Japanese case, but in the interval it had declined by a horrifying 28% and had recovered very slowly. If China faces the choice between a decade of stagnation, as in Japan from 1990-2003 and a decade of economic collapse, as in the United States from 1929-1940, it will rightly prefer the Japanese alternative.

It may not however have the choice. One of the factors that kept Japan out of real trouble in the 1990s was continued strong growth in the US and world economies; thus its magnificent export industries were able to continue growing, albeit at a slow rate, and provide a certain amount of traction for the economy as a whole. However, China will find it difficult to do the same, since the next decade does not seem likely to be a period of robust world growth, far from it. The United States seems fated to endure at least a few years of very sluggish growth due to its housing market crash, and Britain appears to be in a similar mess, so even relatively robust growth in the resurgent economies of Germany and Japan may not be sufficient to keep Chinese exports growing.

At that point, China will have two alternatives. It can allow the banks to work their way out of their bad loans, condemning the domestic economy to probably a decade of little growth and extremely tight credit (high Chinese savings would alleviate this problem, but they will be trapped in the Chinese banks because the authorities foolishly do not allow Chinese citizens to invest abroad.) Alternatively, it can inject more or less its entire foreign exchange reserves into the domestic banking system in order to recover its bad debts, which would allow the Chinese economy to continue expanding, but at a cost of devastatingly high inflation from the additional money pumped into the system (the $100 billion plus of Chinese bank initial public offerings carried out in 2006-07, pumped into the domestic economy, already appears to be worsening Chinese inflation and China Investment’s $130 billion will doubtless worsen the problem.)

We have seen societies with low economic growth, very high inequality (as China has now) and persistently high inflation; they are collectively known as Latin America. Since China also has much of the corruption that bedevils Latin America and its government lacks any genuine understanding of the free market and is increasingly dominated by special interests, it may indeed be fated to follow a Latin American growth path for the next few decades, with a tiny entrenched elite enriching itself at the expense of the disfranchised masses. That would be the worst possible outcome for the Chinese people, but it is not by any means impossible.

Many observers of the current US financial market downturn comfort themselves with the thought that the world now has more than one growth engine, and that China, with four times the US population, can because of its very high growth pull the world economy along sufficiently even when the US stalls. However, if China is about to incur the inevitable backlash from its recent debt and equity bubbles, during which practices have flourished that have no place in a well functioning free market, then we may be entering a world in which the two main growth engines of the last decade are both broken. Growth in such a world will be truly sluggish and inflation high, as the world struggles to cope with the effects of an excess of cheap money now grown toxic.

The problem with major recessions is that they tend to produce foolish political reactions. In the United States, it seems likely that a major recession if we have one will produce resurgent protectionism and an aversion to world trade, which to the voting public will appear to have been responsible for the loss of millions of good US jobs without any corresponding gains to the living standards of the majority. Japan, bless it, remained admirably politically stable during its sluggish decade, and eventually found a leader in Junichiro Koizumi who was able to lead it back into renewed growth.

In China, there can be no assurance whatever that a populace whose living standards have suddenly stopped improving will not turn to violent nationalism and/or counterproductive economics. Since the country is not a democracy and not likely to become one, the authorities are likely to react to hardship as did Vladimir Putin to the chaos of late 1990s Russia, imposing even more draconian repression and seeking a military adventure abroad to occupy the masses of disaffected youth and distract the public from its new poverty. That too would produce a future in the West far worse than would be cased by a mere domestic recession.

Bears who weary of observing the chaos in the US financial markets can cheer themselves up by looking at China. There will be more than one source of the oncoming world downturn!

Post from: Gold News from Gold Editor

TheprudentBear.com: The coming China crash

Click here to view the complete article (requires Adobe Reader).

Post from: Gold News from Gold Editor

Casey: The Greater Depression and What You Should Do About It

The Fed’s Strong Dollar Policy

Ever since Robert Rubin began the tradition in the mid-1990s, it has been a significant element of the Treasury Secretary’s job description to continuously state that a strong dollar is in the national interest. It is widely regarded that such utterances, if repeated often enough, can constitute the sum total of what is still laughingly known as the nation’s “strong dollar policy.”

Over the past two generations, the American government has launched many failed campaigns. To name just a few, there has been the war on drugs, the war on poverty, and the continued attempts to improve education. But the strong dollar policy must be seen as the poster child for all failed Federal policies. However, many in the market took cheer that the policy is now being greatly expanded. In an unprecedented move, the Fed Chairman is now adding his voice to the chorus and using the same rhetoric previously used by Treasury alone. That’s two people saying the words…not just one. A double barrel strong dollar policy!

As the administration is so fond of saying, a nation’s currency reflects the underlying strength of its economy, and in that sense can be seen as a nation’s economic report card. In truth, a strong currency is in the interest of every nation, just as good grades are in the interest of every student. Using this basic analogy, a flunking student cannot improve his grades by simply telling his parents, teachers, and fellow students that he has adopted a “straight A policy.” If his words are not accompanied by a change in actual behavior, whereby he stops cutting class, and starts studying more, his new policy is unlikely to achieve results. So long as his bad habits persist, the policy will not be any more effective simply because one of his friends chimes in.

In his speech this past Tuesday, Ben Bernanke finally admitted that the weakness in the dollar was contributing to both higher inflation and elevated inflation expectations. This stands in stark contrast to his recent testimony in front of the House Banking Committee, where in response to a question asked by Congressman Ron Paul, he confidently declared that the weakness of the dollar only effected Americans who travel abroad. It is amazing how little attention this complete reversal received.

The media of course wasted no time in declaring that Bernanke’s speech heralded the opening of a new front in the campaign against the falling dollar. For example, CNBC’s Larry Kudlow proclaimed that Bernanke had endorsed “King Dollar” (someone needs to remind Kudlow that the king has long since abdicated his throne) and the network ran an entire segment on how to profit from the new dollar rally. All of this because Bernanke merely mentioned the dollar, acknowledged its effects on inflation, and expressed concern for its plight. As far as the media and Wall Street are concerned, words without action are enough. Too bad that’s not the way things work here on the planet Earth.

The real take away from Bernanke’s comment is not that the dollar is about to rally, but that it is now more likely to sink even lower. I believe the main reason Bernanke has refrained from mentioning the dollar in the past is that he did not want to be put in a position of actually having to do something about its decline. He is now so fearful of an imminent dollar collapse that he must have felt compelled to throw down the gauntlet despite his fear that someone might actually pick it up.

My guess is that currency traders will ultimately see this as an act of desperation. When the dollar keeps falling a chorus will swell to demand that the Fed put teeth in its new policy. If Bernanke does nothing the world will finally see a naked emperor and the dollar’s decline will turn into a rout. If, on the other hand, the Fed raises rates to defend the dollar, and only a short term bounce results, then all remaining confidence in the Fed’s ability to support the dollar will evaporate as well. This is probably Bernanke’s greatest fear and is likely the main reason he waited so long before mentioning the dollar. The fact that he felt compelled to do so now likely means he knows the game is coming to an end. Got gold?

For a more in depth analysis of our financial problems and the inherent dangers they pose for the U.S. economy and U.S. dollar denominated investments, read my new book “Crash Proof: How to Profit from the Coming Economic Collapse.” Click here to order a copy today.

More importantly, don’t wait for reality to set in. Protect your wealth and preserve your purchasing power before it’s too late. Discover the best way to buy gold at www.goldyoucanfold.com , download my free research report on the powerful case for investing in foreign equities available at www.researchreportone.com , and subscribe to my free, on-line investment newsletter at http://www.europac.net/newsletter/newsletter.asp

Post from: Gold News from Gold Editor

The Fed’s Strong Dollar Policy

Click here to view the complete article (requires Adobe Reader).

Post from: Gold News from Gold Editor

The Far Out Financial Chemistry Kit

Click here to view the complete article (requires Adobe Reader).

Post from: Gold News from Gold Editor

PLAYING THE NDX LIKE A FIDDLE

The “BRICs” (and Mortar) of the New Global Economy

By John Browne – Senior Market Advisor, Euro Pacific Capital

In the early days of the American republic, fortune seekers were urged to “Go west young man!” Unfortunately, with the American economy now clearly showing its fragility, the rallying cry for today could be, “Go abroad!”

In the past quarter century, the center of wealth creation has steadily moved away from the United States and towards new foreign competitors, especially the so-called “BRIC” countries of Brazil, Russia, India and China, where economic growth rates have greatly eclipsed the U.S. In recent years, this economic might has translated into much higher returns on their respective stock markets. These movements are creating a wave of real wealth that wise American investors cannot afford to miss.

In the mid 1970’s, a transformation began in which the driving force of the American economy shifted from ‘producers’ to ‘consumers’. Today, as measured by the GDP, consumption accounts for some 72 percent of the American economy. It is no wonder then, that as economics is so synonymous with spending, that the recently passed “stimulus package” is skewed heavily (90%) in favor of the consumer (where the votes are) at the expense of producers.

But after a generation of consuming more than it has produced, America has dissipated vast amounts of its wealth.

Unwilling to allow the citizenry to confront the reduced living standards that such dissipation requires, successive American governments have instead produced consumer booms in technology and real estate. Inflated through a combination of deficit spending, borrowing and massive depreciation of the U.S. dollar, the bubbles created by these policies have left future generations of Americans saddled with vast debts and an anemic currency.

But while America has lost much of its wealth, the rest of the world has gained. Since the late 1980’s, a wave of economic enterprise has swept across the world. Under the leadership of the Reagan-Thatcher-Gorbachev triumvirate, communism melted, opening the world to free trade, and brought some 2 billion new consumers to the market. It also brought some 2 billion hard-working, low cost producers into direct competition with the developed West.

Today, Western consumers not only buy their clothes, toys and sneakers from BRIC factory workers, but they are also likely to use service workers in those countries to manage help-desk call centers, prepare tax returns and read X-rays. As a result, growth rates in BRIC countries skyrocketed and corporate profits and stock prices followed suit, far outstripping the average performance of U.S. stock markets.

The benefits of the great, new world consumer super boom have flowed mainly, as should be expected, to ‘producer’ nations. As an example, the S&P 500 Average Index rose by some 14 percent gross in 2006 (Incredibly, some 80 percent of mutual fund managers failed to equal even this return). Further, when deductions were made for management fees, transaction costs, 3 percent inflation and the depreciation of the U.S. dollar, many American investors actually experienced a ‘real’ net loss in that year. By contrast, the stock markets of BRIC offered far superior yields in appreciating currencies with Brazil up 33%, India 47%, Russia 71% and China 131%!

One major impact of the increased manufacturing power of the BRIC nations, and even smaller countries like Vietnam, is a greatly increased thirst for raw materials. As formerly impoverished populations gain wealth, demand for higher quality food impinges upon the established demand of the ‘mature’ markets. These two factors have greatly benefitted nations such as Canada, Australia and New Zealand that provide raw materials, energy and food.

As a result, perhaps a more appropriate and meaningful pneumonic device for international investors would be BRIC JACS (Brazil, Russia, India, China, Japan, Australia, Canada and the Smaller nations, such as Singapore, Vietnam and New Zealand).

American investors face a difficult situation. While the American economy has slowed almost to recession and a property debacle and massive de-leveraging still threaten, the economies around the world are still booming. The solution is clear; Americans must “Go abroad”, if not with themselves than at least with their wallets. Investment portfolios should be constructed not just of BRICS, but also of the JACS which largely hold them together.. macro-economic mortar so to speak.

The true dimensions of the changes heralded by the end of the Cold War are only now becoming clear. The world looks headed for a gigantic economic boom. Massive economic prizes will go to the ‘producing’ economies. Economies that produce less than they consume can expect some economic and political shocks. Investors should beware and construct their portfolios accordingly.

For a more in depth analysis of our financial problems and the inherent dangers they pose for the U.S. economy and U.S. dollar denominated investments, read Peter Schiff’s book “Crash Proof: How to Profit from the Coming Economic Collapse.” Click here to order a copy today.
More importantly, don’t wait for reality to set in. Protect your wealth and preserve your purchasing power before it’s too late. Discover the best way to buy gold at www.goldyoucanfold.com , download our free research report on the powerful case for investing in foreign equities available at www.researchreportone.com , and subscribe to our free, on-line investment newsletter at http://www.europac.net/newsletter/newsletter.asp

Post from: Gold News from Gold Editor

The “BRICs” (and Mortar) of the New Global Economy