Archived Money Matter Notes befo

Archived Money Matter Notes before 2010

2009.12.28 ASPO-USA reports that "The recovery of natural-gas prices may be slowed by hundreds of uncompleted wells in North America that can be brought online quickly to meet increased demand for the heating and power-plant fuel. As many as 1,500 gas wells were drilled and not completed as of an October estimate by Halliburton Co. Those wells can start pumping gas once prices climb above $6 per million British thermal units, limiting further gains. The largest concentration of uncompleted wells appears to be in the Barnett Shale of North Texas." So the U$6.00 proved to be a strong resistance. Once penetrated, this will imply the delivery significantly drawdown the inventory. If that does not happen, we can see a major fallback.

2009.12.25 The sales of Volvo by Ford to the Chinese car maker Geely is a vital and game changer for the world trade at multiple levels. The first is an obvious one that Geely (i.e. China) will able to access a significant advanced car manufacturing process. It is not necessary the technologies employed by Volvo cars that China could be benefited. It is more than that. Of course, Volvo's safety feature is one of the reason that will help Geely's product to pass the world's car safety standard because of the know-how to engage on the process. The technologies in safety measure could be developed through various standard in time. The process control and the engagement of safety body knowledge will not be as easy. It is similar to the making of missile. American and Russian knew the process, theory and the technologies. It was the German scientists knew how to put thing together that helped these two super power passé to develop the inter-continental ballistic missile. Second, the turning point and game changer will be the sales platform of cars to Europe and North America. Other than safety standard and emission control, sales network has been the blocking stone for the outsider to sell cars into these markets. Mitsubishi and Nippon had been using the partnership with the Big 3 to break in. It took them years to establish the sales network. By gaining the Volvo dealership, immediately, China has opened the door to the North America and Europe's middle to upper class car clientele. We have to understand that the China is not just only interested in selling low cost, low tech and low margin merchandise anymore. They want the high end to move away from the sweat shop stage of the manufacturing. Thailand and Indonesia has not move too far from that when China was before the Open Economy under Deng Xiao Ping. They still not far from that stage after twenty years. It took Japan almost forty years to reach the point to export Honda or Toyota to North America. We may see China to achieve that in less than 25 years even without the industrial base like the Japanese built up through the military industry before and after the Second World War. Geely had been singled out as the first Chinese car manufacture that has the potential to sell first Chinese car in North America. Now we can say the time table has advanced. It also path the road to the first Chinese designed and manufactured car to North America. Through this experience, BYD will leverage to sell the first electric car. So the table has turned. American cannot hold back any asset that may help the foreign SWF to gain foot hold in the home turf. It is the repeat of the history. At the second half of the Nineteen Century. West, Russia and Japan started military invasion of China for the economic benefit. Now, United States will be the bull eye of the BRICs. If American shows any attempt to stop these deals, the BRICs will simply stop announcing the buying of the Treasury. With that it will continue swap the U$ reserve to the American assets. Forget about the depreciation of the U$, it is a process to gain control the asset. At these end, there is net gain.

2009.12.17 Three out of two things happened yesterday continue today; oil and gas after USD bolted 87 bps. Gold December future falls U$39.90 (the quote on COMDEX at the end of the day is the additional loss since 2:00 pm so the major lost is in the afternoon.) The volume is extremely thin. Just wait and see. The U$1,100 resistance could be very strong. Oil is glut gas is deserted for LPG but why WTI suddenly finds significant drop in inventory and gas also suddenly reduced production. It seems a very much a shell game that moves the number around to make sensational surplus or deficit. Remember the draw down was before the cold weather kicked in last week not this week. Is it possible people could use the fuel to heat the future?

2009.12.16 Three major events happens this week. First, the U$ supported by the year end trade settlement, moved above USD 77 shortly and stays up there. Second, notwithstanding the strong U$, gold recovers. Third, after all the saying of energy glut (oil and natural gas) both recovers on the face of a strong U$. So the entertainyst's theory of strong U$ forces down the commodity is again another slap on the wrist. Is this like global warming while the temperature is falling?

2009.12.01 Investment has entered into a new era when Lehmann Brothers fell. It was not that there is a sharp turn. Rather the investment business' vale has suddenly removed. Decades the believe is that you have to do homework to research using fundamental or technical. You believe that there is a way you can pick a stock because of good management and strong product. Look at Goldman Sachs. It is a zoo there with illegitimate products sold using deception run by a group of of greedy people who awarded with or without result for the investors. Look at the Canadian banks. They can make stupid mistakes but the government will allow them to use different accounting standard to allow them avoid report lost and pump them money to backstop and run at bank. Look at Berkshire Hathaway. It buys a company at the low and lobby the government to create a niche for the company specific. So Ben Graham may turn in the grave but this is the modern financial world. How in the world, small investors will win? They are just being lurked in to be swallowed alive. It is a wonder how to survive when there is no social security, pension and personal financial safety.

2009.11.29 Last year, during the battle of Lehmann Brothers, many funds' assets were locked up along with the Lehmann Brothers' asset. When the window ajarred to sell the asset for the redemption of the fund units, the assets were dumped. This achieved the purpose of defeating high commodities prices or inflation. This is artificial and temporary but very clever. The battle of Dubai is waging on. This time, it is as big as the AIG if not bigger because the tip of the iceberg is already U$60B. It could only be worse. If there is another investment banker's assets are frozen due to the bankruptcy, then, these bankers using the relief money to speculate in commodities could lock up the assets like the Lehmann Brothers. The challenge we are facing is to mitigate the possibility of another major drop of commodities prices which will complete the second fallen leg of the W recession and the last leg of the Elliot wave. The question we have to ask ourselves is what prevents the history to repeat. First, everyone was scared to buy anything because no body believed we were in inflation (according to the government) so buying commodities would be suicidal. Second, the LIBOR was so high that no credit was available for any good reason. Third, commodities were the four letter words that everyone thought the top was over. How is now differ from than? If gold falls, central banks will buy more from the open market. This will put a stop on gold. Oil excess is getting recognized as a myth. The story about tanker storing oil because of oil glut may turns out to be holding for the future higher price. Third, LIBOR is much lower now. Those capable have raised significant capitals for the last few months one way or other other they will be ready to buy the commodities and the redemption may still be happening but not for the commodities held fund. In fact, the bidding will get more serious and extended to commodities equities for the reserves in the ground. This time is not making any different from the past during the Weimar crisis. Only last time was artificial and no body could believe any government will allow any money lord to manipulate the market in such bloody way for their own gain. However, we still have to be careful not to be blinded by the end and terrified by the way to the end. This will be a rough trip.

2009.11.28 Dubai repayment delay is a huge mystery. Let's state the obvious. Quran forbidden borrow or lend money which is interest bearing. If you say Dubai's HSBC loan bears no interest, this will be a huge surprise to everyone. If you say Dubai is doing something against the Quran, it is just surprising. Second, according to Peter Cohan's Can Dubai's energy reserves pay off its $80 billion in debt? published on 2009.11.28, she has energy reserves that value at 4 time of the debt. UAE also promises to pay off selected portion as reported by Bloomberg News report. The third part of the mystery is that, the debt could be $80B but unless you are really crazy to get off all your debt and for such a huge sum, you do not force yourself to payoff on a specific day. The repayment will set over a longer period of time. Should the U$80B is only part of a total, that will be the problem. That will bring down the world financial again. Four. Dubai did not set forth to employ 10% of world's crane for its 0.02% of world population by assuming a huge debt. It started on the basis that use the oil revenue to build a better world. So when and how did she tangled up with the huge financial obligation through unbelievable huge projects? Was is under the encouragement of someone? There was early sign which flag the situation. The article Dubia's Oil Boom Financial Centre Heading for Bust? 2008.07.23 (complement of The Market Oracle) explores the possibility. In summary, the delayed repayment could very possibly the tip of the iceberg. The total could be much bigger. This will be eruption of Mount Vesuvius which buries Pompeii.

2009.11.23 Dubai sheikh has a vision beyond the black gold are gone. The sheikh directs the investment in two directions. The local builds properties for local and attract investment investment to establish Dubai as a world class financial centre. There is a stock market but the operation is limited and listing are limited. The gold market does establish itself as one of the epicentre of gold trading. Overseas the sovereign fund invests in many ports around the world. This is lucrative business when the Baltic Dry Shipping Index was at 6000. It is still a business but may not be all ports are viable. A great attempt to survive the financial future shock. A great dream that does not necessary to be greed. There is one weakness to this chain. The source of wealth is from the oil so the wealth is accumulated in U$. To pay for the huge project and the investment, the SWF is not enough. There is leverage. In the world of depression debt at any level could be lethal. The fund's leverage does not help when the oil price recovered slowly after almost a whole year of weakness. Oil sales could not cover the repayment. This morning as reported by Reuter, Dubai struggles to easy default fear, repayment of debt will be delayed. During the boom time, when SWF invests, the invested financial institute lends back a comparable money. This is ferocious competition. Those were the days. If the investment is used as collateral to borrow more, this becomes a problem when the new investment gets sour. You cannot recover the money but you have a loan to repay. So what happened to be fashionable to lend money to SWF to attract business becomes a dose of poison for the financial institute. Europe markets had a mild earth quake this morning and we do not see anything close to Pompeii yet. Could financial institute in other part of the world involved? Very likely except China who only takes money not lending to rich guy like Arabian. Will the world economy recovery jeopardized? A small degree but the stock market will definitely be. Since the credit for the main street never gets easy so there is no impact or no deterioration for the main street's credit supply but the LIBOR will go up. Gold could be weaken because of the bearish atmosphere. A contrarian approach will see higher oil price but this could not be possible done alone by Dubai. The only thing Dubai could be cheating to export more oil to get a few more pennies. Therefore gold could be weaken and oil will be weaker. The vicious circle may be stopped when OPEC countries want the money by raising the oil price which may not be soon.

2009.11.23 In last night's USD trading, it remained in the mid 75 range and holding for losing 10 bps. As it passed the midnight, the lost intensified to 50 bps or 0.6% at some point. The downward momentum is gathering. Gold and old response with double the changes; gold 1.3% and oil 2%. Even natural gas goes up 1.6%. The USD index's battle of highland 76 could finish. Now is the battle of 74. With the falling USD, stocks in U$ will be pushed higher to compensate the purchasing power. The domino effect of competitive devaluation will force many world currencies to devaluate. This is actually deflational to those do not devaluation or devaluate slower. With U$ in the process of dethroning, cross border trading profit will be highly unsecure due to foreign exchange or trade restrictions. To ensure profit and avoid any lost, margin and price will be marked up to accommodate the uncertainty. The artificial factor of uncertainty causes inflation. The small inflation of price premium will trigger a vicious circle of inflation spiral that leads to hyperinflation. All these fears have reflected in the world stock markets which are up more than 1% except Nikki.

2009.11.17 Gold has been detached from U$ for a long time since spring. In the last few days, the majority of the commodity group start their detaching. For example, USD snaps back 40 basic points today but WTI advances U$0.60, aluminum up U$0.0113 1.3%, copper continues to make new high at U$3.111 0.2%. But some fall, lead down 0.0108 1% to U$1.0607. Zinc is down 0.6% 0.0058 to U$1.0154. This shows either no one believe U$ will go down the toilet bowl with demand is up. Or inflation is going to sky high so the price of base metals have to be up no matter what. Should this is a negative sign, it could very possible fundamental is thrown out of the window because speculation that buy high sell high is the only game in town. Either way, the market is not health or stable. Volatility and insanity are the only rules.

2009.11.16 Metal or miner stock? This is a frequent question. Miner stock is leveraged because you have access to a much larger potential mined metal. However the miner stock also has negative impact of inflation, production problem, geology surprise and human problem. Even in a very short term, the movement of metal and the miner stock and ETF cannot be synchronized. Today is an exceptional day for silver which is up U$1.08 6.2% to U$18.38 today at the NYMEX. The spot silver has reported by Kitco as up U$0.98 5.6% to U$18.40. The prices comparable. Silver Wheaton is a pure silver play. SLV is the silver ETF. SLW NYSE up U$0.64 4.2% to U$15.84. It is close but not quite and where is the leverage? SLV ETF perform better up U$0.86 5% to U$18.01. SLV supposed to be 1:1 with silver. But there is a discount. This may be an odd ball but it shows the fact that it is not necessary have all related instrument behave exactly the same. Some could be in advance and some could be at lag.

2009.11.10 Yesterday was a nail biting day when USD Index fell below 75 briefly into the 74 region. The flashing sign of breakdown is bright and shine. Very dramatically, it limped back into the 75 and lingering at the rim dangerously. The drop was serious, 75 basic point by end of day -1%. What did it do to the commodities? Base metals up less than 1% that matches the drop of the USD due to the FX. Gold is very subdued with a U$5 gain at the end of day while making a all time high of U$1111.70. Oil recovered but not because of the U$ but just oversold. At this point, after 15% rise, gold deserves a breath and profit taking will happen. If there is any incidence (like financial nuclear bomb), the market may not react as dramatic. Gold stock was suppress for awhile with dumping. The gold stocks could be in a strong rally due to short covering and buying in. CGSI made an all time record high with UGSI just shine from October 13's all time high. The rally of gold stock is further supported by the gold to UGSI ratio which declined by 10% last week and continue trending downward. The commodities bull is probably continue but may face a correction using any excuses especially when the real rate is up (not the Fed). With higher unemployment rate, the profit will be harvested. Buying time will come.

2009.11.04 After all the struggle to recover above 76, USD Index falls back to the 75 range again. The process started from 88 and continues to a descending downward spiral. If the 50 bps loss does not trigger any substantial jump in commodity prices then it could be explained by the frenzy jump yesterday. In fact, the detaching is reducing this linkage. The fall of USD Index will not necessary trigger any volatility of gold or oil but due to inflation going to be observed, through higher cost of production. Oil and gold price will rise to be on par with the real inflation. Since the collapse of the credit crisis, prices have been lower due to dumping which are below cost. The dumping could go on as far as liquidation for bankruptcy continues. Now it is close to the end of it as the economy is at its damaged state, dumping would not be an option. We are going to experience the painful stagflation period.

2009.11.03 It is a reaffirming sign of gold is detaching from the dollar for higher value. The traditional gold up while dollar down days is getting less and less happen. The USD Index has jumped back to the 76 range after dipped quite deep in the 75. The strong U$ has not toppled the gold and silver price although platinum has been very volatile. Today's gold vertical movement of over U$20 while U$ has strength is telling a very revealing gold/U$ detaching story. If the relationship is getting weaker and weaker gold could go down when U$ goes down but this will be less probably because of the actual purchasing power of U$ is diminishing. By comparison, gold is more expensive in term of money as inflation is showing. U$ is actually has not been weaken too much for the recent week after the dramatic fall from the high USD Index of 88. The fall will be very bouncy because it will be nobody's interest for a free fall U$. If gold pull back significantly tomorrow, which can happen when emotion is evaporated, then we know the market action is the reflect of knee jerk. When gold goes up, weak economy will drive down the stock market even with the help of revenue from overseas. The investment thesis of overseas revenue can boost a weak currency's book is just a myth. The product must have the pricing power. Now is not a good time for the American to exercise the pricing power. Caterpillar, Boeing, P&G, JNJ, GE et el may see a net decrease in U$ global revenue in coming years due to the rise of the BRIC countries. The BRIC countries will have competing products. The revenue will be weakened.

2009.10.29 Between yesterday and today, the TSX Index has a spread of 500 points. The investors, retail and professional, are blinded by the rapid change. One who holds a microview and microtrend of the market will be thrown off the course. With such a polarized movement, one cannot survive with the stomach which is actually the proper analysis with updated information a multiple level below the surface. In simpler term, it is the macrotrend that will keep one survive. Without proper analysis tool, methodology, time to do the analysis and the data to update the analysis, all can be wiped out during this tsunami. Take these two days as example, it could be the top out or re-instate of a trend. This is the time luck is not the only factor.

2009.10.25 The world is always at war like the heavenly bodies' fight for their orbits. In more than seven thousand years of recorded history of human, we are always at war with the nature, with our tribe, with other tribe and with the microbes. Among tribes, war is the way to satisfy economically for a single individual or the apex of the society. The war could be in the form of military action or not. The military has study different weapon without destroying the assets like neutron bombs. The most powerful one is the economic warfare, way ahead of the energy weapon such as laser gun or atomic bomb. During the war, the most effective weapon is not to kill but to damage soldier enough that they are not going to die but costing heavy medical treatment in the field, continuous assistance after the war in the form of medical and financial. As the result, psychological liability creates heavy burden to the economy which could be brought to its need. The Korean War, Vietnam War, and the two Iraq Wars have draining the economy of American dearly. To support the government, it has turned to Government Sachs. The central government is the front and the ruler is behind the scene. Economic warfare could bring down an enemy that it will never come back. The Marshall Relief after the Second World War was a form of economic warfare to create debt outside America so that American could control the world. The central piece of the plan was selling surplus food to other countries which had the infrastructure of food production destroyed. The Plan went well until 1972 when Soviet lost control of the subsidized food price and covered up grain shortage. Soviet aggressively bought grains from American in all hideous way. At the beginning, the grain sales seemed to help the grain industry in American. Acres and acres of wind breaking forest and wet land created in the 1930's were levelled to create farmland. The immediate unintended consequence was the rapid food inflation due to the high demand. The lost of protecting forest let wind blew away the thin topsoil. This created the agriculture dependency on fertilizer which had to be manufactured using low energy efficiency method. The oil shock just pushed American to the point of return of debt over debt or the high leverage investment style which fortify the Government Sachs. When economic warfare is so effective, who really cares about weapons. Even Hitler attempted to use economic warfare to attack the Allies near the end of the Second World War by printing counterfeit Sterling and Greenback to stimulate inflation. May be the Wall Street Crisis is the result of economic warfare. Just another conspiracy theory.

2009.10.23 Dr. Copper is the talk of the town again. Poor guy. When there is a correction, he/she is immediately labelled as pointing to the down. Now Copper is above U$3.00 again, every entertainlyst is quite quite this time. This is actually a challenge on how effective technical analysis on minute movement. Of course, technical analysis is on trend. The longer the better. This is consistently overlook by these entertainlysts. By reading copper is not the best way to gauge economy. If there is no confirmation by other base metal, it is only individual movement that does not reflect the economic cycle. Reviewing the current spot price of base metals, they are on a rising trend. Some at their recent high some is not. So we see a consistent picture of confirmed demand. Where is it coming from? Don't know. That is another consipiracy.

2009.10.21 You may find the market confusing because this supposes to be a devaluation market. When U$ falls, the market will go up. No. USD falls 0.6% but Dow Jones Industry falls 0.92% too. However, the commodities does not. At the end of the day, WTI up 3.3% to U$81, gold up 0.3% to U$1060, platinum does the leap of 0.9% by U$12 to U$1360. Silver the is most amazing; up 1.1% or U$0.20 to U$17.68. The most important inflationary indicator Dr. Copper is up 3.4% by U$0.10 to new high U$3.015. All these are inflationary indicators. Market supposes to go up along with the retreat of U$ only if it is devaluation. In a inflationary economy, the profit will be down because cost goes up. Price is not necessary ahead of the cost. Price is driven by the market. During weak economy, the company will have no pricing power. This will lead to the squeezing out of profit as the sales is caught between a rock (inflation of cost) and a hard place (weak pricing). Commodities is not necessary the safe heaven but it could store the wealth better. This also explains why the commodity equity is soft in a inflationary market in general. This is a horse race without any insider but manipulation still possible through psychology. A very dangerous market.

2009.10.08 When the price goes down, you need the strength to hold. When the price goes up, you have the strength to hold on. Investment is difficult when it good time or bad time. Amateur or profession share the same mental torture. The wise guy may produce enough rope to hang one. Gold rebounced from U$600 level to over U$1,000 level. The shorties build a huge short position on gold and silver. but only the GLD and SLV show accumulation. There is not massive short covering. So gold and silver are in a tug of war. If the shorties can persist, they may win. This battle's win/lost does not reflect the long term bullish macro trend. However, many will be shaken off the trend during this truggle. Gold could be higher but it is still holding at U$1,050. Until the shorties' position covered with a huge gain at 5-10% and than drops down 5%, the risk of down side should be higher than the up side. This is exactly what happens to gold at last all time high. The interday high of U$1,060 for gold and U$17.80 is not meaningful when the volume is low.

2009.10.07 Gold has been stubborn holding at U$1050. However, it has to be pointed out that NYMEX has only 200 contracts traded today. If there is any panic for short covering, yesterday's 319 contracts and today's 200 contracts may not make it. The exposure remains until the short covering happens. However, sometime this could drag on, with all the manoeuvres, it could continue a very long time, like the suppression of the gold price. WTI is in the same boat. Every time it props its head above U$71, it is pushed down below U$70. Tonight, WTI is creeping back above U$70. World currencies could not just get higher because it has to stay competitive with the American. Although Americans are restraining the spending but it is still the world largest economy until Chindia catches up which still needs one or two years. USD Index will have to break down in stages to force other to devaluate. If not, their U$ reserves could significantly vaporized which is not a funny thing. However, if other currencies devaluate, USD Index will be saved. Aussie gets out and raises interest rate is a warning shot to the American. Obama will have to deal with it. Aussie has the upper hand because of Rio Tinto and BHP control the industry raw material supply. This could become a challenge American could not blow it away. Originally, G20 is a photo opt. Now it will have some animated discussion. We will not know the details in the near future but things will change. The balance of power will be changed. One will wonder why Aussie has the gust to do that. It is an obvious neglection that China has moved in buying a lot of small Australian natural resources producers. To continue support the Aussies, Australia has no choice but follows the customer who is always right. Arabian will drop the oil pricing and payment in U$ is old story. They have been doing that in French Franc, Japanese Yen, Chinese RMB, India Rupee and Russian Rubles since 2005. This is the real reason for American "entered" Iraq to enforce U$ payment in Middle East, just like Japan "entered" China before the Second World War. A huge army present is a tour de force to Arabian. A threat to ensure Arabian remains under the thumb of American. China does not only mobilizing the BRIC to topple the U$ reserve currency throne, now it starts with the Aussie. The next could be European Union. What will she think next?

2009.10.06 Gold bug may not bring out the champaign yet. Today's U$20+ rally is just a short covering when too many shorties just dumping too much. At the moment everyone thinks the breakdown of the gold price, the market is actually in such a tight supply that it can easily drives up the gold for 4%. If oil can do a 10% swing, it is not hard to see why gold's 4% swing today to U$1040 level deserve any excitement. The champaign can flow when the gold price can hold above U$1040 in more than 2 days. With such a rally, profit taking will happen. If the demand is not there, i.e., only shorties' short covering then this knee jerk reaction is not real.

2009.10.05 USD Index has been all over the map. It is hard to understand why it is so volatile without understanding the complexity of U$ demand. When the market becomes bullish, the demand of U$ for repayment has dropped which results the fall of the USD Index. This is the very short term view. Fundamentally, strong currency can only be fortified by strong economy. Other than American wants to have a weak U$ to help export, it also wants a weak U$ to reduce the payment. But the second reason has fallacy because the debt is in U$ denomination. Weak or not, the debt created, will not be repay less unless the American government suddenly use another currency to pay off the debt. The overseas revenue is for the Imperial Business Empire, not for the government. Any foreign exchange received does not help the US government to pay off the debt unless you count the business tax which is highly eluded by all the genius accountants. Treasury will still be highly demanded by the China and Japan to support their economy. It will be a few more years these two government will give embryo cord when the blood dries up. This leaves a only reason that U$ is fluctuated so vividly: manipulation. If the currency is manipulated then you cannot juggle it. This will set the commodities free. In another word, inflation. Can the American Economy Empire dukes and count take advantage of the situation? It will be only if they can gain their market share in the BRIC. Apparently, their intentions are well observed. So their growth will be restrained. This means no help.

2009.10.04 Now is the beginning of the 'tough October' after the Gains Day. As soon as the October shows the head, the market gets hammered. The well publicized October created an immense panic among, I believe, the retail investors. Take TSX as an example, before September 15, the bullish view is wide spread. If you are a bull, you will say this is the restoration of the secular bull market. If you are a bear, you say this is the normal bear market correction with the appendix that it will end, yes after a run of 3 months. So far the TSX has fallen about 7% after fallen 21% in March, up 43% in June, down another 11 percent in July followed by last up leg 22%. From technical point of view, up out pace down. You can always add sentiment this and sentiment that to fit the bull or bear tune. If the market is a time machine into 12 month, we should be a the verge of recovering. However, if you use K-cycle, it will really not matter because K-cycle does not disallow strong rally or fixed during of each season. K-cycle was accurate but you cannot use one K-cycle model with the convenience of adding or subtracting economy at will. China was not in the model but suddenly it is included by default assuming it is in the same stage of the West. This is not a valid exercising of the theory. To me it is more like Goldman Sachs, they always predicts something that will have opposite performance in short term. Do you call that honest mistake or manipulation?

2009.10.01 As soon as the window dressing is over, the stock market becomes the garbage dump; including the commodities. Oil moves up and holds at U$70 level but energy stocks are among the casualties. If it is not directly equal to the commodity, it is sold. A very bearish picture. The built up has been so much amplified by the media. The professional and the retail investors make no different. Today is a panic (not extreme panic) driven dumping. Tomorrow could be another more horrible day because people do not know what could happen next week or during the weekend. Reason? DJ Industry is only 91.3% 200 day average volume. TSX is 87% 200 day average volume. Wilshire 5000 is only 109.8% of the 200 day average volume. The dumping may be panic but there is buyer and the selling is not massive yet. So this means 1) not at the bottom yet 2) it may not be the end of the world.

2009.09.30 All eyes on the last day of 3rd quarter. It past. It is a plain but running deep day. On the surface, energy seems going to fall but WTI and natty stand up way beyond sceptic's curse. Gold did not dip further than the U$992 resistance before recovered above U$1,000. To American commodity investor, this is a winning day. The overhang of the bad IMF report on banks U$3.4T loss is worrisome. Eric Sprott's view on banks bravely over extending remains a horribly financial fiasco to be played out. Gold stocks had a very steep sell off when the price hit U$1,000. This caused a lot of weakness on the Canadian gold stocks. American gold stocks struggled a bit but finally give in until this week when gold showing bottoming out signs. Now is a waiting game that bull and bear are at stance for attack. For the meantime, utility may be more inflation and deflation proof. One may bear in mind that USD may moving back to a more comfort zone by this is just due to the quarter end international settlement. In a few weeks, we can see the true colour of U$. U$ could not have an avalanche slump. The decline will show a number of platform which is the escape hatch for American's creditor. These are the time that true asset is swapped for the U$ in order to collapse the U$. The next critical level of USD will by 71. From now to then, there will be some plateau with the interval of 300 basic points which means we should see some strong rebound at 74 back to 76 and 71 back to 73. After that USD could complete its depreciation and if possible hangs around 71 for a year or so until the economy starts to recover. By then USD could slide further to improve export by another 1,000 basic points to 60. This will not a a very stable state because this could give U$ too much advantage. Other currencies will depreciate by at least 15% which will push back the USD back to 70. Looking back, U$ loses its value by 30% in less than one decade cannot be taken lightly because this reflects the retirement of American from the world stage like the Brits after the Second World War.

2009.09.09 Gold spot and gold future jump in and out of the U$1,000 region. Barrack dipped 6% because this its n+1 times to "dehedge". With gold poises to write the <$1,000 price into history, all investors worry about who has not come clean. At the same time, The diving of Barrack will no doubt create the margin call. Investment portfolios and funds which short Barrack or hold too much Barrack on margin (aggressive fund) will sell their holding to cover the margin call tomorrow morning. There is a high possibility the gold shares go down further until the early part of the afternoon when the margin clerks stop working. This is speculation and good material for financial mystery. Don't take it too seriously. However we do see some discrepancies on the short term (spot) and December gold as shown below. Gold spot has moved back to a much defensive position while gold future digging its heel above the U$1,000 mark. Gold dipped about 1% today with USD Index lost another 0.3%. So it still a good deal to trade U$ for gold. This kind of orderly transition could be the hallmark of USD Index. China has attempted to talk up the gold price because she encourages people to accumulate gold and silver (at 10, 100 gram chips sold at the banks) starting 3 years ago. As always, Chinese does not announce when they will do but have completed or initiated. Therefore, we can see Chinese to reap the profit. While gold is dancing the jive, swinging left and right and bobbing up and down, silver is monotonic doing the waltz or spiral up. Gold and silver ratio has dropped a hair below 60 today since 70 a month ago. We may see it to improve as much as 50 in short term and 40 in mid-term. When the 2B Watt solar farm is built in Inner Mongolia, China is built in next 10 year, you will need a lot of silver and copper to complete the infrastructure. After First Solar announces the news, copper is recuperated during the day. All looks good until the derivatives blow up.

2009.09.07 Every asset class has its own shining moment. Tech stock in 2000. Energy stock in 2007. It has been advertised that gold is the best investment asset class all time. Consider gold at the price of U$120 in 1978, it is now 8 times of 1978. But if you consider the famous quote of U$850 an oz in 1980, you only make 12% gain today after almost 30 years. This is the number game that the investment advisors love to confuse the retail investors. To invest a lump of money is different from a few thousand dollars. It will be hard to find any thing for a decent return but to preserve the capital for a few billion dollar but it may not be as difficult for a few thousand dollar. Salesmen from the financial industry always make the best pitch for the best scenario. Retail investors need to do homework to see through the fog of war, the war of preserving your own money. If there is a perpetual winning strategy, the working life of financial salesmen should be very short because they should know best. If there is not such thing why these salesmen win all the time. The secret is the commission; especially mutual fund. Once you are in, the commission will continue to siphon from your pocket whether your portfolio is going up or down. Of course, the secret is to switch the asset class at the right moment. It is hard work. You can have 20/20 hindsight to say if you buy Bayer since the beginning of 1900, you can gain 1 million times. If Nortel survives another 10 years, you may say the same thing. Bayer was not the biggest just like IBM was not the biggest during the 1930. If IBM did not have the secret business to help Nazi during the Second World War and capture the German computing industry after the Second World War, or Warren Buffet did not lobby the financing of the collapsing investment banking industry, ....

2009.09.06 2010 may be a crucial year for China to transit from high-tech manufacturing to space technology industry. China has secretly slid from low price manufacturing by massacring most of them during the 2007 economic crisis to high tech manufacturing such as BYD which produces battery, cell phone and other high tech electronics. This is on top of all TV, LCD Display, 3 meter tire and a long list of high tech manufacturing. China has launched her space lab program starting next year to launch 2 unmanned and 5 manned space vehicle to build a space lab by 2015. China Daily's report Nation strives to launch labs on 2009.09.01 details the plan. The plan has a very unusual comment. The comment states the success factor of the plan is hinged on the docking technologies. All Communist propaganda, publishes the success story and never hints any possibility of failure or what could be wrong. China is no more using the mass media as propaganda machine anymore. She has passed this point. During the 1960's space race created numerous advantage to boost the American's and Russian's manufacturing industry. Marvellous products such as Velcro and WD40 were some of the prime example. This time will write China the ticket to world domination, economically and technologically.

2009.09.03 There is an emerging pattern on the prelude activities of G20; the BRIC meets before the G20. This has been page 16 news (complement of Don Doxe famous quote) which escapes many major Western news agencies. Before the London G20 (another photo op), the BRIC met and set the agenda for the G20. Xinhau News Agency report "Stimulus measures should be maintained: Minister" reviews two things. First the spokesperson is from China which implies China is the captain of the team. In fact China is buying her way into official monetary steering committee by buying U$50B IMF bond to increase the SDR or the votes that could be exercised (China Daily Report China banking on IMF's bond idea, 2009.09.05). Second, the position of BRIC to lead the world's economy is no more subtle. The BRIC meeting was held at the same locale as the G20 immediately before the G20. However, the trend in the G20 remains unchanged; ignoring the BRIC's voice. The BRIC demands the continuation of the stimulus which has been misread by many as BRIC countries are throwing new moneys at the economy. The announcements were simply the repackaging of the old programs which have been executed years. Here we have the situation that the West continues to dream that BRIC countries are printing money like them but in fact the BRIC is mopping up the excess money. The spectacular downfall of the Shanghai index is the result of the squeeze on speculators by the Chinese government which is again blamed by the West that performing a crazy panic act. It is just sour grape; they lose money. Will the G20 follow the BRIC's demand to continue the stimulus? Germany is driving the G20 to start to think about stopping the QE in this AP report European Countries Call on G-20 Tackle Bonuses. Germany knows the effect and consequence of QE well because she has first hand experience. This is good advice which contrasts to the BRIC's recommendation. For BRIC to transit from export economy to internal growth economy, it takes time and they do not want to lost money during the transition. Also, the more the stimulus, the more debt the West will pile up. The creditor's voice will be louder and louder. China is speaking with both sides of the mouth now. On one side, she worries about the devaluation of the U$ and on the other side QE must go on. So far the American Imperial Empire is just doing as much damage to the world economy as possible by doing QE.

2009.09.02 Today, we celebrate gold which is up more than 2% for the spot and future. But the volume at NYMEX is only 64 not the high volume of 30,000+ on July 31. It has not break above the resistance U$992 yet. Although everyone says only price count but small volume could easily skew the statistics. So get a grip. WTI on the other hand has been struggling very difficultly to stay above U$68. Last time WTI rallied up to U$72 and fell to U$65. This time it rallies to U$75 and falls to U$68 so far. It is just as scary. Remember today is Wednesday after the EIA publishes the petroleum inventory number. Tomorrow will be critical.

2009.08.31 Conspiracy theory: On the very last week of summer, USD Index is in a serious breakdown mode t slide under 77. Something like last year happens but this time the scale so far is much smaller: all commodities including base metals, precious metals, oil and natural gas were got hit at different degree. Oil is the worse. Every time, it falls 4-5% but just rebounds back stronger. Natural gas is the worst. If natural gas is so cheap and supply is abundant why so many multi-fuel power plant does not use up all the NG surplus. NG is now much cheaper than LNG in North America. There is no reason why people still use oil. One could argue that the demand from the manufacturing sector diminished. But by how much? Lets find some number.

2009.08.29 The iron grip of three big iron ore producers on China will have to be loosen when China made a deal with FMG. Details are reported by The Australia. The FMG receives U$5.5B to U$6.0 finance (not sure buy in or loan) from Import-Export Bank of China to allow it to expand the production. In return the supply price is cut by 35% from the fixed price. This could be a small token compare to Japan and Korean receiving 33-44% discount with the big 3. While the Big 3 are the 800 pound guerrillas, a few hundred monkeys may beat the guerrillas. The importance of this event is that China is now trying to break the walls built by the existing economy war lords. A first step to level to the play field. There is also another hint we need to observe. The FMG supply contract is only U$5B and has been labelled as small order. Why does China buying all these metals? Is she really stocking or using? From the consumption of all steel required material, China may have a very high probability of consuming these iron ore for domestic and export purpose. Remember that U$700B railway upgrade project?

2009.08.28 U$ has been the major driver on the violent movement of oil and gold. Everytime, gold moves up, oil and gold dramatically fall and climb back slowly when the U$ falls. Thanks to the great quantum probability, they can move in same direction. Actually this may be the result of strong inflation. U$ is competively devaluated to other currency. However, other currencies fight back to support U$'s reserve status. Nowadays there is no benefit to be the reserve currency which almost like a four letter words. The commodities prices go higher due to the inflation. At the same time, competitive devaluation of currency pushes U$ up for survival. This is complicate.

2009.08.28 According to GlobeInvestor.com, China has acquired at least U$22B assets of oil and natural resources through various state owned companies so far in 2009. These are bigger deals that cost hundreds of millions dollars. There are scores of tens of million dollar investment are "too small" to get on the list. Obviously, the tally is done through news reports that announced through public interest or regulatory requirements. The unannounced deals with the Arabians, Africans and South Americans could easily add one or two multiple to this U$22B number. As Dean Lebaron says, Chinese is executing a takeout strategy with the FX she has. While this number seems dwarfs the monthly tens of billion of US T-notes/bills purchased, but it may be comparable. The strategy the Americans used was different. They entered a country's economy at a high profile through multi-billion corporate such as as IBM, GE, P&G, JNJ, Coke, and MacDonald. But the Chinese all out takeout strategy may be more effective to net all asset with decent under the radar quality. Is this the application of sweeping style takeout. No Japanese and Korean had done that before. Nothing is really new under the sun.

2009.08.26 In the 1980, Japan is the super power in world economy. Deflation hits. Nikkei went from 40,000 to today's 10,000. Is there any bright spots in Japan's stock market? Look no further from Sony (bought out Warner), Toyota (biggest car manufacturer). Investment is always find the winner. To play safe but want to win big is a contradicting concept. When you get into Index Fund, it will be high when everything is euphoric. But it does not last.

2009.08.23 MACD has been interpreted as good recovering. Please check this chart (complement of Stockcharts.com). The pattern can bee seen as the bottom and reverse head and shoulder if it could recover above 78.5. However, the long term trend is negative because the 200MA is turning down. If one measure the distance between the 200MA and the 50MA, it is closing. So the blue line will cut above the red line which means USD Index could be at its low for the current period.

2009.08.19 EIA has been the biggest promoter of demand destruction and weekly increase of stockpile and import. It is not a consistence picture because the rate of increase is unbelievable high (now should have 100's million barrel surplus since the destruction begins) with the side story of storing these surplus oil in oil tank. Suddenly, the oil has a drop of 8 million barrel in one week with the refinery input reduced by 0.5%.

2009.08.19 The market is completely dominated by the U$. It is understandable because if U$ can remain at the current value, you get the wealth preserved. This hope keeps the U$ high. But there are a lot of short so when U$ moves slightly higher short covering initiated. The butterfly effect pushes all other down by selling to cover the short margin. However, when the U$ shows any weakness, dumping of U$ continues which triggers the buying of equity to complete the paired trade. Gold continues to be illusively not the leader. Gold stock becomes the victim of no faith in gold. Silver is used to bring down the commodities because it is being thinly traded at NYMEX. This is a tug of war for the trader and market maker who is detached from the underlying assets. Assets are just the gambling chips on the green velvet top table.

2009.08.17 This is the regular Monday that drops 3-5% of the index. Today is the regular day that the sky falls. Today is the beginning of the doom. All because the commodities are lacking demand as American are not willing to buy. BKX index dropped 2.06 or 4.5% when the DJ Industry lost 2% and the Transport 3.5%. Energy and precious metals are labelled as heavy casualty. In fact the energy and precious metal stock selectively are suffered heavy casualty. CGSI lost 4.4% and the UGSI lost 4.8%. How does commodities holds up? The following is the NY Commodity Exchange's End of Day prices compared to August 14:

BZ-F	17/Aug/2009	72.22	72.22	72.22	0.28	0.4%
CJ-F	17/Aug/2009	2,795.00	2,789.00	2,795.00	-48.00	-1.7%
CL-F	17/Aug/2009	67.69	65.23	66.79	-0.68	-1.0%
GC-F	17/Aug/2009	947.40	931.50	935.00	-11.00	-1.2%
HG-F	17/Aug/2009	2.774	2.740	2.762	-0.068	-2.4%
HO-F	17/Aug/2009	1.853	1.784	1.825	-0.023	-1.2%
KT-F	17/Aug/2009	1.2725	1.2650	1.2650	0.0045	0.4%
NG-F	17/Aug/2009	3.281	3.117	3.204	-0.073	-2.2%
PA-F	17/Aug/2009	268.70	268.70	268.70	-7.90	-2.9%
PL-F	17/Aug/2009	1,223.10	1,223.10	1,223.10	-37.40	-3.0%
RB-F	17/Aug/2009	1.956	1.887	1.950	0.000	0.0%
SI-F	17/Aug/2009	13.971	13.971	13.971	-1.13	-7.5%
TT-F	17/Aug/2009	0.5728	0.5728	0.5728	-0.0189	-3.2%
UX-F	17/Aug/2009	48.00	48.00	48.00	0.00	0.0%
YO-F	17/Aug/2009	0.2205	0.2105	0.2205	0.0065	3.0%

The biggest loser is silver, 7.5%. Sugar gain 3% and so does cotton. Platinum is the bad boy which downs 3%. WTI lost more than U$1.50 at dawn to U$65.23 but recovered to U$66.79 or lost U$0.68. So how about base metals?

AG-K	17/Aug/2009	13.99	13.99	13.99	-0.72	-4.9%
AL-K	17/Aug/2009	0.8773	0.8660	0.8660	-0.0045	-0.5%
AU-K	17/Aug/2009	932.90	932.90	932.90	-14.70	-1.6%
CU-K	17/Aug/2009	2.747	2.738	2.743	-0.063	-2.2%
NI-K	17/Aug/2009	8.755	8.651	8.710	-0.068	-0.8%
PA-K	17/Aug/2009	266.00	266.00	266.00	-8.00	-2.9%
PB-K	17/Aug/2009	0.8130	0.8085	0.8085	-0.0181	-2.2%
PT-K	17/Aug/2009	1,221.00	1,221.00	1,221.00	-36.00	-2.9%
ZN-K	17/Aug/2009	0.8122	0.8054	0.8054	-0.0045	-0.6%

Again silver is suffering. Others are suffering too but not much different from the normal fluctuation. Tomorrow will be key to see what is the trend. Tonight, base metals and NYMEX future recovered about 0.5 to 1%. Stock market will be weak if it does not have a 1% rebound. Commodity will be weak if price lost another 2-5%. Stay tune.

2009.08.14 A new chief to the China National Nuclear Corporation is reported by China Daily on August 14. The report allows us to look into the inner of the China state owned business and their relationship with the Politic Bureau. The new chief held the title of Chairman of China Atomic Energy Authority from 2005 to 2008. The title in CNNC is GM. The event triggered is the previous GM was implicated in an investigation. What we can say is the legal machine is running. The Chinese Administration is deploying key resources to all key business units in the country to ensure continuity of the policy. China has a dedicated organization to oversees the use of nuclear energy in an active role because it involves actual building as contrast to the monitoring role of EIA. An August 17 report from China Daily describes "The CNNC is responsible for China's nuclear weapons, power production, and managing the country’s nuclear waste disposal facilities, according to the company's website. It made a profit of 4.8 billion yuan ($705 million) last year. China plans to build five nuclear power stations this year to reduce the country's reliance on coal and oil." China's nuclear energy is not yesterday technology. This time it is at the technology bleeding edge. Xinhau News Agency reported on April 20, 2009 that "China on Sunday started the construction of its first third-generation pressurized water reactors using AP 1000 technologies developed by US-based Westinghouse. The reactors, located in Sanmen of east China's Zhejiang Province, will also be the first in the world using such technologies." This project is a joint venture of CNNC's subsidiary SUFA and Westinghouse. There are also other technology trial with Russian as early as in 2006 reported by China Daily. The stimulus package is in fact smoke and mirror. It sounds like new money, but these type of multi-year planned project could be included in the U$500M package. The announcement is just the second run of an epic movie. Another sign to show China Government is in the driver seat to switch export oriented economy to a balanced internal consumer model.

2009.08.12 If one follows the EIA weekly energy report on petroleum or natural gas they will be dumbfound on the price has not quite tracking the inventory, especially the oil. There are a few interesting issues related to the EIA number starting with the source: it is based on voluntary supply sources which does not perform a systematic collection of raw data and performing analysis. This is criticized by Henry Groppe. Second, one of the very misleading indicator is on the days of inventory is based on the consumption rate of refinery. This is very controversial because the American refinery capacity is falling and problematic. This explains why price goes up when the days of inventory rises. Of course some people does read the actual number but the number does not have to be accurately reflecting the reality. For example, storing oil in oil tank theory has been criticized by Henry Groppe that it is a myth because it is so expansive that no one can do it. Truth may be coming out some day but the market's trend may show the tip of the truth. As all EIA and IEA effort points to excess oil, oil price has recovering to U$70 even with OPEC output cheating. Immediately, there are tons of explanation like high hope on economic recovery of America but ignoring the true needs of BRIC. WTI takes efforts to slowly climb back above U$70 after a flash drop of the price. When it happens week after week, one would wonder why the price returns higher and higher even on the face of flash rise of U$?

2009.08.10 USD Index rises above 79. This is unbelievable. Will it able to punch above 80? There is the possibility in short term. You can buy up the U$ using a U$1B here or U$1B there. You do not have to buy U$ but you can sell other currency in the fashionable borrowing style and pay the fee in U$. The momentum is strong. They cycle seems to be five days long. Let's see what will they think next. The strange effect is copper does not retreat. You can argue the industrial demand is recovering. Is it or who is recovering? If we believe the cycle of world domination, after two hundred years of domination by the West, it would be the rise of Africa. Before Africa can stand on its feet, may be East is the place to watch. Both the BRIC and Africa are rising to improved Quality of Life. This demand high degree of industrial metal. As the West wants to preserve the resource or running out of the resources, the resources at Africa have to be produced. This needs steel, nickel and copper to build the infrastructure. This is a turning point and a inflexion point. Like the wild wild west. When you develop the place, it will boom. All eyes are now watching U$ to see how long its legs are. Oil, gold and copper may give some hint. It looks like they are being accumulated and going sideway.

2009.08.09 In all economic books, the Southsea Bubble and Tulip Maniac have been labeled as the classic phony hoax that scammed millions of people. But how is this different from the fiat money and paper commodities? The demand and supply has been mistakenly mapped to the wrong market by the analysts: really consumer versus speculator. The speculators are, unfortunately, the major banks, government and central banks.

2009.08.06 USD Index is again the centre of attention. In a brief moment, it rose above into 78 but settled below into the 77 area in the evening. As soon as that rally visible, all commodities sped. WTI fell to U$70.18 but rebounded to U$71.94 EOD. Gold was at high point U$974.30 at the morning but finished to U$962.90 EOD. All industrial metals 3-4% after a weeks strong upward movement of 15-30%. The market is in a very high energy state. The high the energy the higher the entropy which is the physics' name for black swan. This also makes many unimaginable things happens like USD Index has a rally of 70 bps. Like the expression, if you cannot stand the heat get out of kitchen. Is all rules fly out of window? No. They are all inside but with new set of parameters so we have to read them differently. All rule holds just more volatile. So fundamental may be the only tool that can let us see through the fog of war which could be deployed by the banks, the brokers, the exchanges or the government if you believe in conspiracy theory. Will the devaluation create rally? Most probably because everyone will do the devaluation trick so the purchasing power will be kept in balance.

2009.08.05 USD Index dips a bit by end of day today by 4 pennies today but up 7 pennies yesterday after a whopping 200 bps in 3 trading days earlier. This is 2.5%. Gold moves up from U$927 to U$966 today for about U$40, a 4% movement. Is this a corresponding strong reaction? No. Gold has been seen as the lagger and has been dumped due to panic and covered during panic. It remains under the due effect of the Twin Tower which has been towering the situation as major resistance. Each day, the movement of oil and gold have panic reaction by short covering to move up which is not sustainable or reflect the real market direction. Gold stocks seem to have distribution which has not shown any firework yet. Lacking buyer could explain the weak upward bounce. May be there is a base building to support the rally. USD Index could continue to fall, oil continue to rise but gold may keep in trading range for a while. The major movement of gold in U$ is not mirrored in other currencies. If investors believe gold is cheap they would buy earlier. If they believe U$ will fall further but gold is not necessary to be the good investment. So unless there is a clear vision that gold in other currencies will be at high nominal value, gold price will not be support other than American. While the American is crazy on the ETF which is a derivative that does not deliver the ETF is actually disconnected to the physical gold. There has to be a trigger to remove the blockage.

2009.08.04 USD Index has a clear break down but this does not mean things are not reversible. There is always a moment of unexpected low probability. Gold may seem responded strong by bounded back but in fact it has not better than previous double top which is descending. Combine with the higher low, the opportunity of breaking U$1,000 is good. The gold vs USD chart on August 4 shows a synchronized movement of gold going higher but not in a very definitely mode until we have to break the Twin Tower. This raises a frequently asked question: buy before the confirmation or after? Before has higher risk abut higher reward. So the reward is proportional to the risk.

2009.08.03 There may be a lesson for today's USD Index down fall. In the afternoon, gold up a meager 0.1% v.s. USD Index drop of 0.8%. U$ is devaluated today. No doubt about it. The market rally. Dow Industry up 1+%. WTI up +3%. Other futures up vigorously: cocoa +2%, coffee +4%, natural gas +10%, sugar +5%. Spot industrial metals are just active: aluminum +4%, copper +5%, nickel +6%, zinc +6%, lead +5%. If gold is the reference currency, its price in term of U$ should be reflected. Of course there is always a delay. Like the rally from U$250 during the early 2000 to the current price of U$950. It is a rally of about 4 times. It is a catch up since 1980's U$850 interday high from about U$120. So in about 30 years, gold went up about 8 times. How about the U$. It may not be down 85%. Someone could justify that. So what makes gold or stock rally? If the devaluation of currency is reflected by the corresponding rise of price, this equation does not add up. There are some terms have to be added to this equation. This is inflation. Cost to produce gold just like any merchandizes, effected by the inflation of labour, time, material and degradation of the ore. Although modern machinery is much more capable in the last 30 years of revolution, like the peak oil theory, cheap minerals are exhausting; not finishing. The major drop of USD Index today no doubt will create a heavy wave ripple in the pond of market. Many hot button is pushed. The jump of many commodities could be higher than what they deserve. Tomorrow may be even more volatile. Just like the price of oil is now trading a spread of U$10. Someone is going to be sleepless tonight.

2009.08.03 In the report published by Societe Generale on Official Sector Activity in Gold First Half 2009. Swaziland and Germany are not likely to sell more gold by the second half of the year.

2009.08.02 In 2008,USD Index dipped below 72 from March to July. In everyone's astonishment, it rallied almost to 90 during the Midnight Massacre. Everyone wonder why there is such a bubble blowing? There are two ways to create paper wealth. The first is through tangible assets such as commodities and manufacturing. Another is through virtual commercial such as trading, derivatives, and many vehicle that detached from the underlying assets. You cannot create the assets of the first type but you can sell someone's shares many times during an option, short selling, CDS and many other derivatives without the consent of the owner. You can open a trading account with many institute trading broker and do short selling. Where are those shares coming from? In normal course, you need to borrow someone's share to sell short but nowaday you can do it with an account. Sprott Asset Management's first day trading after IPO is a typical example. 20% of the outstanding shares traded. Unless everyone hates Eric Sprott, no one would dump the shares so heavily after a very successful subscription, 3 times of the offering. More important is that most of the shares are not delivered to the hand of the subscribers. Since the Paul Volker's time, the high interest rate killed most manufacturing except a few, i.e. the consolidated Dow Index members. Small and medium business and manufacturer were the casualty and prisoners of these money lord. If we say Hank Paulson is the operator of the Wall Street banks than Mr. Volker is the operator of merger and acquisition during his tenure under President Reagan. While everyone praise him as the the savior but he was actually creating the compress air tank to inflate the next bubble through the saving of the whole citizen because American pushes the virtual wealth creation game to the world. It was from that time on, the Wall Street gang became international operators to plan the seed of the greed around the world and demolish the firewalls between countries' economic system. We have witness the one done everyone down episode. The fall of Lehmann Brother could affect many pension plans around the world; not just the American. Why does American take this route which is dangerous and moral hazard? The economic imperial empire of America has extended from the government sponsor during the 17th Century to the Wall Street sponsor which does not have to face the consequence. Like most recently disclosed, the Wall Street continues to distribute the TARP money from the tax payer to the pocket of Wall Street workers. The flash order of Goldman Sachs perhaps one of iceberg of many dark secret. Retail investor is just in the worst situation now.

2009.08.01 While many intelligent people are debating whether the world (read United States not even Europe), some of them are alleging China is creating another bubble. The most prominent evident is the drop of China's 8% growth so far this year. Some of them (not necessary including the first some) found the fact that China is getting in the worse of the depression (not recession) because scores of thousands of business fail and the export of machinery parts reduced by 21% in last quarter. The obvious point is contradicting information yet many see it as rapport and believe the information is consistent. Reports are obsolete when they are published these dates; so does the statistics. So when we see rallying data it could be shrinking now in reality. Analysis has to be done on the level that the foundation does not obsolete by the time analysis has finished. This was not as a tough job in the past but it is now because the reality has hastened at the communication speed. Since we are at the web speed, information can be propagated in minutes, so does the economic. At the beginning of 20th Century, the economy of grain is determined by the speed of the cable which relayed by the horse drawn carriage or train. It is at the rate of weeks. If Binge and others had their internal communication network to beat the newspaper by tapping right from the mouth of the farmer. So grain situation at Balkan and Argentina could be received and drove the decision of more barge sending out or cut the renting of elevators. What remains the same is the same human brain thinking and meticulous thinking process with great knowledge background are the key factor to do timeless (within a reasonable short time) correct analysis. It is more advantages for the people nowaday that they can update the analysis as new information poured in. In this cyber age, do not read stale reports. Read fresh or timeless one.

2009.07.30 This a great era, this is a problem era, this is a happy era, this is a sad era, this is a winning era, this is your lost your shirt era. The market is full of hot buttons everywhere. When hot button is pushed, you can see the Christmas lights flash. It is a conspiracy theory that American will try to keep the Chinese creditor happy by pushing up the U$. Yes, we see it worked the wonder .... for one day. It just likes someone know what would happen for an extreme narrow window and creates the window of opportunity. Once you missed that you lost your chance. Commodities have not rebounded as much but just slightly short. Why is it so important to have a high U$ and low commodities. High U$ maintains its throne of reserve currency. Low commodities price keep the inflation in check. Apparently someone (would it be the Goldman Sachs) has not buying enough by creating an artificial tough before going up? If this conspiracy theory is right, we are at the mercy of some money lord who runs a raked casino.

2009.07.29 After jumping 70 bps, USD Index hops 14 bps this morning. Is this tour de force? Could be. Some analyst explains the surge of U$ is attributed to the repatriation of debt or asset from overseas. If you have debt in U$ but used to buy other currency, as long as that currency's competitive devaluation is slower than U$, they can payback more later. So the repatriation of debt may not be a major factor. If U$ is falling, why on earth you want to convert the asset to U$? The surge could serve one important purpose: strong U$ for the creditor and the auction of T-bill. If this is the story, this rally is artificial without fundamental. Artificial or not, the market is not logical anymore. If this is a game of chess, pushing up U$ would be the cheapest and most effective way to knock down commodities. But we should watch the industrial metals such as copper, nickel, zinc and lead. Iron ore and steel are important but there is no spot or future market to watch. So we watch it indirectly through nickel. Updated at the end of day: The USD Index bunny continues to run on overdrive to hit 79.55 at the end of the day. The fear is built up. Oil is down almost U$4.00. The strong U$ has unintended consequence: the stock market falls too. The fall may not necessary caused by U$ strength but the overbought stock market needs a trigger to work off the overbought. Oil is the usual victim on Wednesday. Sometime it takes a few days to repair. Some time it sinks more. We should watch with care but gold is leveling at the evening.

2009.07.28 The China-U.S. Strategic and Economic Dialogue (S&ED) finishes today. The USD was hitting the low point of 78.33 today. Right after that the USD Index continue to rise to the high point of 79.06 before falling back to the 78 range. During this Sino-American talk the major focus is showing China that U$ can be strong; a soothing lollipop for China that offers little meat in comparison of U$300B of F&F investment and U$800B of T-bond. A total of accountable U$1.1T. Where is the other U$1.2T? There is no more details. Last year, when the U$ was weak, there was Mid-night Massacre. Today, a sudden surge of 70 bps, knocks down commodities to various degree. There is no Lehmann Brothers to drag down the commodities. Who is the beneficiary of the commodities drop? China. She started the accumulation of oil, copper and so on. Is it a coincidence. Today, at the junction that China may cancel the American's credit card, there is a surge of 70 bps when the level of confidence dipped? U$ should fall not next. But the financial engineers can do just do the unthinkable. Are they? At spot metal market, Aluminum up 0.8%, copper 0.1%, nickel 0.2%, lead no change, zinc down 0.3%. How long could be be continued? What will they think next?

2009.07.27 Wealth is measured in purchasing power in unit of money. Of course, purchasing power is inversely linked to the price we pay. The price we pay is reflected and measured by inflation. In turn, inflation may not appear if goods are imported and the price & the FX rate does not change. This happens when we have a competitive devaluation. It is like the water level of your bath tub, the rubber ducky and the plastic boat move up and down along with the water level. It will be danger to assume that equity and commodity will rise during competitive devaluation of currencies which is done by almost everyone. For those who do not, we face deflation. Now this will be interesting based on the Law of Supply and Demand. The Law says that if the demand is inelastic, which means the merchandize is a must, there could be minimal or no elasticity. The price does not fall when demand falls. To ensure oil demand is elastic, there must be a mirage that demand falls and supply is in excess. ASPO-USA published quotes from Henry Grouppe who does not believe the statistics published by the government and believe oil demand is slowly rising with supply dropping. During this confusing state, competitive devaluation will have no effect on labour and commodities. Therefore, corporate will gain no additional revenue from overseas when the sales revenue is converted back to local currencies. However, if there is inflation, the whole game will change. Of course, when one currency falls before others, inflation is created through import, the equity associated with the import will increase in bottom line if the manufacturing is done locally and sold oversea. This seems not the general trend of all merchandize. For example, heavy merchandize such as cars are made near or at the country of sales with imported parts. So there is inflation to the cost. This will not increase the bottom line because the cost of imported part will get higher. The manufacturer will benefit nothing but the danger to eat the additional cost. Inversely, if a company export inelastic merchandize, it has pricing power, it will drive up the bottom line by increase head line with same cost. Yes, the imported country will have inflation but this will not be reflected in the export country. We have to differential and identify the scenario of devaluation and inflation to preserve wealth. GE is a good example that shows currency devaluation does not improve bottom line. U$ is falling but demand falls too. A better method is a 360 evaluation.

2009.07.26 What are the drivers of a stock market? It could be a shocker to many if it is the stock exchange. During the early time of New York Stock Exchange before any regulation, the Exchange had to encourage participants through various success stories. Now that there is SEC or its equivalent from all countries, there still not much difference. Murray Pollitt once said that new products had to be offered to promote trading because stock exchanges lived on commission. This is a very true statement. Here we are, the stock market has index, future, options and direct trading to make the market more easy access by the retail investors who now becomes a major contributor of the commissions. There is a conflict of interest between the trading and value of the market. Quarter after quarter we hear the story of companies beating the expectation of analyst drives up the stock but ignoring the falling of revenue. So do we invest on expectation or invest on the performance of the company? Investors are now continue to ignoring the basic and rely on the media to give them guidance and in turn the media get guidance from whom? The analyst? The analyst is based on hear say or their projected numbers (i.e. imaginary friends)? During this market down fall, many companies falling along with others but they have persistent revenue, robust asset and strong customer base. But these does not matter. The price continues to fall because someone says so. Even the government is pushing the people to the casino by lowering the interest rate so that you will lose your buying power if you keep cash yet the government does not tell you that you can lose your pension and retirement saving. This is OK to the government because your saving paid the tax already. If you do not have enough money, you have to work or in other word, contribute to the tax revenue. The more you lost the money, that means someone will have a capital gain tax (don't count on it, some accountant will make sure there is no gain for tax). How to survive?

2009.07.25 Without question, this week has been a very interesting one. First, Dow Theory confirmed the bull signal fair and square on Thursday and once more, even the Dow Indices are overbought. Are we out of the wood? Richard Russell says no. If not, what is the action to be taken? Are we treating this as bear market? If so, when should we buy? The Dow Indices shares have the yield 2-3% which is not at value but the Canadian blue chips have moved out of the bottom 10% (BMO) to the current 5-6% which is still respectable good value. If this is a inflationary market, then the revenue will increase because the top line will increate. If this is a stagflation market, the bottom will drop. For those companies which have locked in supply contracts will enjoy the benefit of inflation because they can sell higher (but to retail customer only). If the clientele is corporate, the situation may not be advantageous because the supply contract will be fixed in the lower price and may be cancelled due to low business cycle. At the same time, the cost will rise due to wage and material price inflation. Those who locked in rental contract will suffer from annual rental increase. The bottom line is that in a stagflationary situation, many corporates could collapse due to the pressure from increased supply cost and reduced demand. In an inflationary situation, this could be dangerous if the variable cost could not be controlled. This will definitely be the coming problem because labour, material and real estate cost will increase but the selling price has to be low to be competitive. The only way out is when the economy recovery, i.e. when people loose the purse string again.

2009.07.19 It has been in heated debate when the "World" economy is going to recover or to be more accurate, out of depression. Eurozone and United States have the GDP shrinking and unemployment rate rising roof high. The definition of "world" may require some clarification. These group thinks like China before the 20th Century: China is the world and world is China and China dominate everything. Such concept, interestingly, established when China relinquished that notion when the world became more flat as the warships around the world were busy cruising other country's water preparing for invasion. For the meantime, both North and South America governments are experiencing the flirting of negative GDP contingency plan. Although some only admit either there will be one or two quarter and/or very small decimal point contraction. These experts also extrapolate these numbers to the BRIC. Lets focus only on China and see how accurate. China Daily has published the report China leads world toward recovery on July 19, 2009. The GDP has met the NBS's forecast of up by 8% and may have an up side risk. This crushes the theory that China cannot recover before United States because China's economy depends on the extravagant spending habit of American. They also points out the massive bankruptcy of low tech industry and high unemployment in China confirm their observation. The first point is obviously unprofessional. Business cycle will have high and low. During the low time, only the fittest should survive, no bailout. More, the rate is not high in a developing country who is strive to find the niche, the sector and growth opportunities. The agility of bankruptcy and move to other sector is the sign of an efficiency economy. China's unemployment is staggering at anytime. Western reporters love to have feature story on worker goes home unemployed. What a sensational story but this is not journalism. You cannot use the American's historical unemployment rate to see the China unemployment rate. Proper reference frame has to be used. Dr. Nouriel Roubini forecast that the recession is U shape and may be in a period of 28 months while we are 19 month in already. Well, this does not jive with the uncovering of the collapse of commercial real estate and the massive debt servicing of American. Will these drag down BRIC? The impact could be much lighter than the first time because the BRIC has been developing the internal markets. China is the first success story reported.

2009.07.15 When U$ falls, it is not necessary to have every thing afloat; stocks and commodities. Currency fluctuations are determined by many factors and can be as simple as seasonal adjustment. If there is any change, the corresponding change usually close. For example, U$ goes up 0.1%, GDP could go down 0.1%. This is not what happened to the commodity and stock market. Everyone is guessing the direction of U$ and this translated to multiple of amplitude; more often it is more than 10 times. This is also not unique. In fact it is very common during war time for merchandizes. When the currency of a country falls a bit and the political situation or war deteriorates, commodities will just shot up because the supply could be cut any time. There is also the speculative action involved. The stock market at this moment behaves like a casino more than anything and the direction is not really random. Many stocks or ETF has lost their relationship with the underlying assets. When this happen, the rule of engagement has been rewritten but not published. So how to play the game? No or extreme cautious.

2009.07.14 Efficient market could only be possible if the force of influence and knowledge is equally shared by all participants. Any golden rule cannot hold the water if all well known buy signal really the time to enter the market then there will be no seller. If there is no seller, no one could accumulate. The market will become the result of random walk. Now here comes the conspiracy theory. When some one can engineer a technical buy or sell signal, but this is artificial, investor act as predicted. Later, the reverse signal is engineered, the investor act again accordingly. So someone has to foresight. So they become the other part of the trade. Without question, they hold the better part of the bargain. Can this possible? We understand that the market advocates calling for the return of up tick rule. So we know that you can much easier to drive down a market by short selling. There is no down tick rule to drive up the market but we all know that many recommendations on some bull news trigger a surge in the upward direction. To some extend, the underwritters are doing this. Some really doing that. This begs the question is the market fair?

2009.07.12 World Economic Forum is the European economic planning and networking platform to the world. It does not offer loan like IMF or World Bank but the networking that generate support, relief and relationship have the same effect to developing countries. China was spotted and introduced to the WEF as soon as Dan Xiaoping confirmed the Open Door policy. Now you can argue, China could be the second biggest economy sharing or ahead of Japan. WEF does not customarily hosting meeting outside Switzerland. This summer, September 10-12, will have its Summer meeting at Dalian, China which is one of the top heavy industry centre (including shipping and manufacturing, e.g. gigantic tire for mining). There is a deep meaning to this location. Guangdong has been the centre of light industry for the last decade that drives China's economy. Now it is the heavy industry that allows China to advance at the world stage, either for her infrastructure development or export. Light industry like cavalry that powerful and maneuverable. It may create some success. The major attack has to be coming from the heavy artillery. With a local stage, the world reserve currency discussion may go before no one has gone before.

2009.07.09 Conspiracy Theory: What could cause Chinese President Hu Jintao left G8 L'Aquila abruptly? There is sign showing that other than the key issue on how to promote international trade through a more stable reserve currency was pushed off the table. This is not the main cause. The problem could come from the carbon foot print which China is being alleged to be the biggest culprit. The carbon dioxide caused global warming is beginning to fall apart along with the global warming theory. So with the American's Guantanamo Bay prison, the human right bash on China is dropped. Rather, the CO2 is the new theme to insult China. China does not have to take this insult anymore. This is a childish retaliation on China's RMB settlement. This is not an unique case. EU does it among her member countries. Many bilateral agreement also settle on on-U$. Because the U$ is so weak, American become sensitive and want to exercise her bully right.

2009.07.08 News report on a sudden departure of Chinese President Hu Jintao in the middle of G8 meeting. The official statement is that the President to return to China to take care of the unrest at Xingjian. Let step back and see what could happen. First the unrest at Urumqi is not a newly developed situation. The conflict of Han clan and the aborigine has the conflict since the China executes the great migration of population. The purpose is to move population from the dense district where the Han clan is the majority to the much thin density at Xingjian. The purpose is a combination of political and economical. Political is to dilute the localism so that the dominion could be more Beijing centric. Economic is obvious because you need the labour to develop the natural resources and agriculture. Even you have the machinery, you still require people to operate. There is a U$1B wind farm at Xingjian so you can expect highly industrial development other than just for residential. Understanding this background, the conflict is natural and could be ferocious and unlike any inter-racial conflict in any country. To prevent major damage to the investment to the area which significantly improve the quality of life for the aborigines has to be brought under control. Any attempt to destroy these investment is irrational and forcing a lost-lost result. Xingjian has the historic target of Russia. Mongolia was part of China over three hundred years during the Qing Dynasty and also during the Yuan (Genghis Khan) Dynasty. You can argue to the cow come home but country boundary should could the most recent period, otherwise, China should claim Japan as part of the country. Does the Urumqi conflict deserves the attention of the Chinese President? The situation is not as bad as the Tibet unrest and as bloody. You can not expect it every day but it is not as dangerous as it sound. China has setting up the stage to discuss the broadening of reserve currency. So far the West continue to ignore. The conflict between the West and China has to be so severe that there is no possibility to continue the discussion. This is not the first time and China in her subtle way to leave with an excuse. Since the motion of trade settlement in RMB is in action, it will spread from Asia and South America to Middle East and Europe at a much faster rate. Conspiracy Theory: To calm China's fustration American has artificially pushes U$ higher and dump the commodities so that China could uses the U$ reserve to buy commodities cheap. This could only be done. The behind the scene negotiation will be vigorous until the G20. The contract negotiation will be hard to verify. But the NYMEX shows much higher volume on WTI, copper, heating oil, natural gas and gasoline. If this is not for the benefit of China, then someone is making the market to exploit the fear and accumulating the commodities.

2009.07.06 Renminbi trade rule comes into effect: http://www.chinadaily.com.cn/bizchina/2009-07/03/content_8350939.htm . Together with the leaked new that China may request a debate on reserve currency set the stage to draw the line for BRIC reserve currency and non-BRIC reserve currency. G8 not likely to discuss reserve currency: analysts http://www.chinadaily.com.cn/world/2009g8/2009-07/02/content_8347946.htm. G8 has to respond but most probably will follow the tradition to ignore China until too late. This could very possible the very few chances to correct this tradition. If G8 does not follow China's suggested agenda, China will have a very good reason to defend her foreign reserve. This is the redeployment of the reserve to other assets that were untouchable.

2009.07.03 USD Index rose 100 basic points. Plunge Protection Team worked hard to restore the U$ value before G8 meeting. But raising the U$ becomes a problem of the American economy because it hurts the export which the government wants to promote. Weak U$ will make a power group of Congress lobbyist unhappy. They are the big oil companies. Lower U$ does not only hurt the bottom line but also making new investment no business viable. On one hand, Obama government relies on a low inflation to keep the interest rate low but on the other hand this only works in the 1930 when American did not have huge foreign debt. By blindly adopting the Great Depression strategy could create undesirable consequences. The stage of stagflation is setting in like the United Kingdom in the 1960. Will US Government opt for an official devaluation? This will be determined by the creditors. The term to do this could be painful. UK was in a better situation because of the national owned corporate could be privatized or sold to foreigner at a discounted price in the years following the devaluation. Two major groups will make the decision: national debt creditors and the American big corporate. Creditors will not welcome the idea but it may lead to the bankruptcy like Brazil. How about the big corporate? Devaluation may seems able to boost their enterprise value but because some assets are valued in U$. Devaluation of the U$ will mean nothing change to the American asset. The foreign assets will increase in nominal value in terms of U$. The bottom line could be negative. The second group could create tremendous pressure to resist the U$ devaluation because there is no way to redeploy their asset unless they pull out of America which will be interesting.

2009.07.03 China is going to expand the railway system big time. The report from Xinhau News Agency China to spend U$731B on railways by 2020 was coming out on December 21, 2008 way before the stimulus package in March 2009. China continues her supersonic action; you can only hear when she started the action. Where will this railway going? To the west. Consider all the natural resources that locate at Tibet, Qinghai and Xingjian where no good transportation system exists, a massive building must take place before these resources could be deployed to generate GDP. As we know, along the railway, there will be boom town. This is how American conquer the west but building the cross country railway. Similarly, Canada united all provinces through the Canadian national railway. You can bet on the success of this formulae. You can bet Chinese are on top of the money spent at all the pressure points.

2009.07.03 Inflation/deflation is not necessary to be just the effect of currency value change. The effect of these factors change with time. You cannot use the same yardstick to measure at any period of time. Labour cost is frequently consider a major contributor of inflation and deflation. When the labour cost increase, the effect is inflation and when the cost of labour decrease the effect is deflation. Consider the Ford's famous Model T. It was price at $825 in 1909 then $575 in 1923 when built using assembly line. At this price, it is more than one year of salary of Ford assembly line worker. Now, a Ford assembly work can easily buy a few Ford basic model Fit for one year of salary. So this is the deflation aspect that is not affected by the labour inflation. This case is not precise and not representative. The reason is that the cost of a Model-T was lower than any other automobile of its time but was still a very expensive item. It was expensive as a fraction of an average home. Now, not too many could afford a car cost about a fraction of an average home. However, in some other scenario, the inflation comes from the quality of life. The minimal requirement is raised. The cheapest model has no sales. For example, the first Hyundai sold in North America Pony was about U$3,500 in 1984. It had no air condition, no automatic transmission, no power window but came with a steering wheel and four tires (no spare). In just 10 years, the cheapest Accent is about U$11,500 but with many more extra. This is about 9% yearly compound which is way higher than the official inflation rate or may be a ted higher than the unofficial inflation rate too. Although the Accent may be more expensive but for sure no one will buy the Pony any more even it is available. The classic people's car Volkswagen Beatle is another example. This die hard small gem initiated by Adolf Hitler until the '90. It was extremely popular among the Bohemian but it has to be evolved to the contemporary Beatle which is a few times more expensive. We all complain about bread. If we going to pursuit the organic life, you can bet that the organic bread will not be cheaper because it represent a higher quality of life. It will cost more. What happens when you could not afford, you have to lower your standard of living. So here comes the deflation. While Bernie is trying his best to avoid deflation, the qualify of life in America has to be lowered. This type of deflation could not be avoided with reflation because the bank is grabbing the TARP fund and not passing on to the consumer. KRE (regional bank index) is performing poorly and remaining in downward trend. This indicates the Midnight massacre killed all the credits available to the people. Spending is coming to a gridding halt. Without the tap open to the consumer, reflation could not be successful. While U$ is losing ground, import inflation is not happening. America is facing the double doses of deflation. This is a much tougher problem than the starting problem.

2009.07.02 The effects of deflation and inflation are well known. Some of the causes of deflation and inflation are understood. The acceptance of inflation along side with deflation is hard because deflation and inflation are regarded as the two sides of a coin. In fact they are mingled and intertwined. American is now enjoying the pain of both. By pushing a weaker U$ to improve export is not a complete solution to revitalize the American economy. The side effect is higher import cost. With China being coerced by American Congress to give up low cost manufacturing but without languish the manufacturing to other lower cost countries which suffers during the credit crunch by no capital to pick up the demand. Until the credit crunch is eased, American will have no substitution of Chinese deflation imported. Within the country, saving may not be really increase. The measure may reflect the lowering of the debt because not enough money to buy. Americans remain the notion of spending. However with the cost increased, the only way to maintain live is to buy from block store such as Wal-Mart and Circuit City. Radio Shack has been the big promoter of importing deflation but the profit did not pass to the consumer. The way Wal-Mart operates to force deflation from China may come to an end because of higher quality of life in China along with high cost of manufacturing. China government is very much willing the sacrifice the low cost manufacturing in order to improve the GDP. When the Western report tens of thousand factories closed per month, they are seen some trickle established by the international global companies' OEM contracts. With the disappearing of imported inflation, Americans' local inflation continues to develop because people have to buy cheaper house, cheaper car and cheaper toys. Apply has lower the iPod and iPhone are the prime examples. It will not finish the credit crunch unwind until spending habits are changed. It will not finish until wealth allocation to a privilege group such as financial and green works are stopped. No illusion and no wealth reallocation. During this period, if the EU does not do the QE, demand for American export will be in vain because the U$ remains artificially expansive. China will continue her capture of the market. The SCO, Shanghai Cooperation Organization, will represent China in Near East and Asian Russia. The WEF will be the platform for Sino-European economic cooperation. With the slow down in America, China has refocus her investment in Canada. It is not to say China giving up US but applying pressure to American during the money hunger period to soften Congress. The multi-moves to dethrone U$ will have its effect seen soon. The dethrone of the U$ has a significant impact on the world money mechanics. U$ is the container for the trades. The container carriers the commodities which is wealth. It is believed that U$ has the stability and the capacity to the store the wealth. When the containers has to be replaced, new containers have to be appointed whether it is SDR or RMB or Euro or GBP or Yen. During the process, there will be a shortage of the container because old one is not reliable and the new one has yet to be identified. Can we use multiple contains? It happened before when the world was much far apart. The Mayan used one currency of trade, the Arabian used another. But they don't trade. In a world that trade among countries multi containers system will be a temporary bridging solution and it will happen until once again it is settled on one. Like the Spanish silver corn was succeeded by the GBP, was suceeded by the U$. China may use Russian to propose a wide accepted container while Chinese allies will use RMB. This political agenda will mean to be a leash to control the allies. This leash is lashing out.

2009.07.01 Patriotic rally for Fourth of July may not work this year for our American friends. The U$ usually stays firm and the American market hold up. Today, the American market did an impressive off the gate run but the steam quickly weaned. It did not finish with a whimper but much of the gain is lost for the day and the selling volume at the end is really impressive which is not really a confirmation of bullish behavior. Right from the gate, the USD Index drops 30 points to just under 80 but finishes by 60 points lower to 79.60 by the 4:00 pm. There is one more day to catch up. Let see how things go on Thursday. Yesterday, the fall of U$ pulled down the commodities, especially gold. Today, the Punch Protection Team seems gone to party a bit earlier. With that gold rallies U$16 at NYMEX. The losers are the energies. WTI starts strong and moved up to U$72 but finishes U$69.20 at the end of the day. Silver is also uncharacteristically weak. If the industry demand for energy is low, it does not reflect on the industrial metals. Aluminum up 2%, copper is persistently up 2% and so does platinum, palladium, zinc and lead. The marvel is nickel which up 5.6% to U$7.354 on the spot market. Nickel is not used by itself. Since we don't have iron spot price, Nickel could bit the proxy. The accompany gain of zinc, platinum and palladium could signal the increase on the demand of industrial metals for construction. This will align with the coal price increase for this year so far (reported by Teck). Baltic Dry Index is jumped from last year's low of 600 to 3,700 level also suggests strong shipping for commodities. This is the early 2006 level so it is before the frenetic jump in 2007Q4 and 2008Q1. To where? It will not be American. It will not be from Arabia. I bet the freight route between China and US Non-Friendly countries and US Friendly countries are very busy.

009.06.26 Will 4% Fed rate be too high for the economy? Fed rate is the discount rate for the very short term loan for the American banks borrowing money from Federal Bank. It is also a reference for the low end of all interest rate for American consumer from the bank and other country's central bank's discount rate. To comply with the competitive devaluation principle, central banks' rate are very close but other political situation may also make the American rate actually lowest. By accepting this fact, the lower Fed rate does not mean a weaker U$ but it is just more competitive. However, lower the Fed rate, when there is a change, the equilibrium scale tipped, the exchange rate could, just could but not necessary happen, lower as long as U$ is the trade settlement currency. If U$ loses the status, the exchange rate may be more sensitive to the Fed rate but not necessary will push U$ significantly lower because American remains the world's largest economy. Trading with her must us U$ for a fairy long time. A caveat has to be added that in some near future, the 100% settlement in U$ may change to a steady but slow trend to use other currencies which is not necessarily dominated by Chinese RMB. If Fed rate rises to 4%, this is not a historic high by any mean. The lowest (except sub-prime) will be about 6-6.5% which was a low rate. Some long term mortgage will be pushed to 8-9% which is a fairy typical in the past. Accepting this should surprise no one that Fed raising rate scare no one but the entertainyst. The consumers have been spoiled with very low interest rate which is artificially suppressed to promote consumption. This is not the same if you consume on credit. Credit interest rate is always at the 20% range and insensitive to the Fed rate. Fed rate at 4% may be acceptable to the economy but does it acceptable to the fragile green shoot economy? That depends on the sector. It will not good for all of them especially on the luxury side. When the interest rate for a car is 10%, people will not replace the car as often. But this goes back to the fundamental question of can we live on credit or debt for ever? Or, expect inflation to wipe out debt? These approaches are not sound and with not without negative consequence. This path is not advisable. 4% Fed rate may sounds scary but this is only a beginning. Could we see the 12% Volcker rate? This is another extreme that just sows more seed to create another low rate bubble. Perhaps someone learns the history lesson and not choose this path also. If one ask why 12% rate is bad to economy since it could promote saving. The saving is a plus but this retards the money velocity because many costs will be amplified by the 12%. At the same time, deflation will kick in when the money velocity is reduced. Deflation is just a evil as inflation. Will Fed raise it to 4% soon? Politically it is suicidal and not good the the shadow allies behind the Fed. So this will happen gradually. Inflation is good for these shadow allies to pay off the debt through artificial jacked up prices.

2009.06.25 Traditionally U$ goes up will push commodities down. Today has a changed. USD Index is still holding above 80. One day does not may a trend. So we need to watch the development. To stimulate economy, every country needs to do the competitive devaluation of their currencies to encourage export and pay current account cheaply. There are two effects, the first is that U$ is held up by competitive devaluation. The second is that people see it is close to the end of the quarter and half year. So the demand for U$ may wean. U$ could come down either by a bang or by a slip.

2009.06.24 Market has been at the mercy of the U$. It creates tremendous volatility that pushes up for short covering or dumping to cover margin when the dumping getting more serious. Commodities got hammered because of cash. Look at copper, the fluctuation is as much as 10% in a few days. Oil is down from U$72 to U$66, almost 10%. More important is the following chart for the relative strength of Standard and Poor TSX to Dow Jones Industrial (complement of www.stockcharts.com) that shows market will be more or less decoupled from the other part of the world. It is more related to the resources and local economy health. The strong tie between US and Canada ensures the rise and fall of the market is synchronized but the important thing is the TSX rises higher and falls less. So this is the different. We should accept the decoupling but we should also accept the fact that Canadian market is not immune from the movement of the American stock market. There could be the moment the collapse of the American market could bring down the Canadian market. However we should also assess that the how fast the Canadian market could rebound and move ahead or not.

2009.06.21 With all the creation of money supply in America, what is the level of inflation would hit her and how possible is hyperinflation? The term hyperinflation does not have a precise definition. When the inflation rate hit a certain high percentage, we call it hyperinflation. The most famous one is the the German Weimar but it does occur in many countries. The most recent one is at Zimbabwe. Perhaps Zimbabwe could be the case study to understand hyperinflation. Like deflation, hyperinflation should be considered as an event of a confined area. For example, hyperinflation could happen to the unofficial exchange rate but not the official exchange rate. At Zimbabwe it becomes very close to what happened to Germany after the First World War. Basic necessities have to be purchased in wheel barrel of money. However, some business' asset value may not move as much. If you consider the price of Da Vinci's painting, for sure it is hyperinflation. If the basic necessity is self-supplied and moderate amount of luxury items are imported but can live without it the inflation could be less severe. In Zimbabwe, basic necessities must be import. Export is next to nil. The wealth creation is not happening. So even there are considerable of natural resources, the unstable political environment is just impossible to operate there. Contrast to many believe, American's inflation will rise. Could it hit 100% per year? Most probably not. Could it be slapped an inflation rate of 20%? May be but not highly. Lets consider the most basic necessities other than energy. Food and mineral supply are basically sound and stable if good food is not wasted to make bio-fuel anymore. Next thread is energy. With the strong support of UAE, it will be rising but to a moderate level. One should ask the question why UAE oil price directly peg to the local production? The energy cost is usually 10% of the merchandize. So even doubling from the current level will only push the inflation by 10% more or 20% if use the shadowstat.com's number. Remember the 10% energy inflation could very possibly caused by the devaluation of U$. Many imported goods will not necessary to be higher because everyone will do the competitive devaluation. So the import inflation could not be the major reason of inflation across the board. Sterling has to devaluate 50% in the 60's because all other creditors are booming. Now the credit crunch caused everyone recesses so competitive devaluation is a must to promote export. It may not have good result because relatively nothing change but better than single out as the high currency. Paul Volcker is hailed by some people as hero because he used high interest rate to kill inflation. In fact he is the culprit that forces Greenspan to lower interest rate and expanded the money supply. Without that American's export industry will be completely destroyed. By the same token, Volcker could not lead the economy recovery because he will not just kill the export industry but also kill all the sectors from finance to manufacturing to service and to mortgage owner. Why Paul Volcker's high interest rate is impossible? Business world is operated through credit (if you do not know, you may hear the term Letter of Credit which is basically the bank is operated as the loan shark that cashes the government or social welfare cheque coming from your customer's invoice.) There are many level of letter of credit. At 10% rate, 5 level will double the cost of the merchandize (usually the LC will take less than one year so it will cost less than 100%). This 100% increase in cost will reflect in price which means inflation. High interest rate does not really fix inflation. It just kills the demand. The result is the implosion of the economy. So don't try to use high interest rate to kill inflation again. This social experiment has to be ended now. Killing demand will push inflation higher because the cost is higher when the units produced are lower.

2009.06.19 Market movement could be driven by many forces. Other than the earning power, the underlying assets can change the value of the company. The indicator of the former is the P/E. During a deflationary environment, the E will drop. So the P/E will rise. This is not saying P/E is a bad indicator. It is not the only indicator. Valuation could also be possibly performed on the future earning. One typical application is the earning from a mine after development and gone into production in the future. Obvious, the earning before production may not be impressive. There is also other aspects we can assess the value: the underlying asset. Canadian banks are famous for their power to increase fee. This is tremendous earning power that give magnificent growth of Canadian banks in the past. Can this be continued with smarter consumers and quasi-monopolized fee raising down the road will be interested to watch. Other than the intangible asset values, may be we could focus more on the tangible assets. There are two major concepts we have to differentiate: devaluation and inflationary asset value change. Both concepts deal with the value of currency and the end result are not the same. When a currency devaluates, the asset value does not have to increase in term of the nominal currency. The price has to be driven by demand and some other factors. If the demand does not change then the price usually maintain. Currency devaluate is not deflationary but it could have deflationary effect when consumers have to make a choice. The choice changes the demand. When a currency is devaluated, the sales of lower price item could increase. For example, the devaluation of currency will raise the price of imported goods. When these goods are the essential core spending, the discretionary disposable cash would be reduced. Or the ability to pay a larger mortgage could be reduced. Houses of higher value may have lower demand than the lower price house. (Sidebar: When the house sales increase, it is not necessary the recovery of the housing market. Rather it could be the consequence of reducing the demand in some submarket and transfer the demand to a lower submarket. The purchase of higher market segment was held back due to the reduction of purchasing power.) If the asset has demand and the value can be evaluated in other reference, the value of the underlying asset could be increase. For example, oil is priced in U$. When U$ relatively depreciated to the basket of reference currency, the oil price will increase. This is the devaluation increase in nominal price. It is usually responsive and noticeable. In another scenario, it is not the purchasing power of a currency that changes. But due to the shortage of supply, the labour inflation, raised cost of manufacturing, cost of sales and increase of many costs, the price of such item will increase. This is the inflationary appreciation. The obvious examples are paintings and antiques. Another aspect of inflationary appreciation is the change in quality of life. A child who satisfied with a paper folded car will have no demand of the famous Match Box because it is not accessible to this child. With the quality of life improving through higher income, the demand for Match Box could increase when you measure the inflation in terms of toy car by category. Thus the price of Match Box could increase due to the inflationary effect.

With this in mind, the devaluation of a currency does not necessary means a devaluation rally in stock market. On the other hand, inflation may boost a subset of the stocks.

2009.06.16 You can argue that Dow Jones Industry does not make a new high means stock market is in trouble. Dow Jones Industry consists of Fedex which represent quite a bit of world transportation system. But it is still a small portion in comparison to flight. Baltic Dry Index has been rally from the low of 600 level to the current 3700 level. If you argue the world merchandize shipping is weakening this will be hard to explain. To me this is the continue recovery of the world economy, mainly the BRIC countries, without the American. Lets be realistic, American economy may be large but its fragile structure and deficit situation will much less influence than the BRIC countries. When one argue the globalization is dead, it should be Americanization of the world is dead. In fact, Japan, China, Russian and Brazil are putting their fingers all over the world including U.S. of A. If so, how to explain the TSX comes down with Dow. Markets that are joint to the hip will move in some sort of synchronization. So far TSX performs excel Dow. TSX up 15% while Dow Industry down 6%. So is it really that much of a tie?

2009.06.15 What a weekend for the U$. Today, USD Index runs up 88 basic points to 81.08 at end of day. It runs up 267 points from the recent low of 78.41 on June 2 to today's 81.08 in 9 trading days. This is up by 3.4%. Impressive? Not as impressive of the fall form its 86.65 to 78.41 (824 basic points in 31 trading days) or 9.5%. We are approaching the double jeopardy point of semi-annual and quarter payment. As long as U$ is the currency of settlement, the demand will remain high during these period. This is important if people perceive the U$ is cheap when other currency has not done their competitive devaluation. Whether the auction is of American treasury has high demand or not is one thing, the actually current account settlement is far greater than the treasury auction. None of the BRIC countries and Japan want to lot their U$ reserve if they are not out already. When U$ has a rally, panic button is hit. WTI drops U$1.89 or 2.5% today. There should be panic selling. No. At NYMEX only 233,369 traded. It is about average if not slightly lower. Gold drops U$11.10 or 1.2%. No. its volume at NYMEX is 258, about half of the average of 531 for the last 8 trading days. Last time when gold runs up to 980, the volume high 7,497. So what is the panic. Copper drops 9 cents or 3.9% that may break the up trend. The NYMEX trading volume is 87 it is below the average 240 for the last 20 days. On the flip side of the coin, natural gas jumps 29 cents or 7.5%. Yes, the volume is about 20% high than the average. So why not one talks about NG?

2009.06.14 Rate hike is coming, rate hike is coming, rate hike is coming. Many analysts have crying wolf for a long time, about seven years. At a glorified moment when the interest rate rose from the 2% to 4%, they hailed victory. By a long shot, 4% Fed rate is historic low. Now it is near zero. What can we learn from this. Life is never simple. At any moment, the system is not homogeneous. Even Fed rate is the source of many decision but it is not the only decision factor. Fed rate is also has a limited circle of influence. Unless all rate is pegged with the Fed, different interest rates of different financial activities is normal. Take the interest rate of mortgage. Sometimes, some long rate is the same, some times it is not. Take credit card credit balance, it is significantly different from Fed rate with almost no relationship other than the up direction. Does this unique to this period of time. Hardly. People may argue that risk causes the interest rate to differentiate. So it is the risk that drive it not the economic. Now we are facing the risk of losing the value of money due to inflation and debasement of the fiat currency why interest rate is not high for the money we deposit but the mortgage we take out?

2009.06.10 Russian leaders are highly political motivated. Some says they always want to restore the luster of Peter the Great Age. During the beginning of Second World World, Stalin had closed door secrete meeting with Germany, Britain and America to protect their newly established boundary inside Poland. Obviously, dealing with the Allies and the Axle should not be mixed but Russian playing the politics to get reliefs from Germany when German wanted to split Poland with Russian. (This page of history is in a 4 parts documentary screened on PBS called Behind the Closed Doors.) Later Russian got reliefs from the Allies when German broke the secrete treaty and invaded Russia. Russian is playing the Europe with natural gas and the Middle East, indirectly with NATO, through oil. There are also different games in natural resources such as gold and rare earth metals with producers around the world. Many big oil could not withstand the game and left. The most recent collapse of the world economy, devastated the Russian oligarchs when margin clerks made too many calls to their hot lines. Russian Rupee is in a much worse shape than the U$. But the Europe's energy life line is controlled under Russian. Russian is also supplying energy to China who is trying to use economic to stage a world leader position. The BRIC meeting without the G7 becomes a counter play to the G7 organization. China had been lectured at every G7 and G20 meeting. The G7 never treats China as a peer but they all want China export of deflation and buying their bonds. Now the table is turned. China is using the NAF (Non-American Friendly Countries) to unseat the West's world domination. The outcome of the meeting will be very interesting.

2009.06.04 Prez O's address to Islamic community has been hailed as the grounds breaking that will connect the American and the Islamic community. If you look carefully, the attendees behaves like the football spectators in a football stadium, in another word, staged. The structure, the tone and the attitude are all talking down the Islamic and like a teacher scorning a bunch of misbehaved kindergarten kids. Islamic has been financing the American for half of the century by selling underpriced oil and be the punching bag of the American pitbull in Middle East, Israel. Prez O's task objective is to get the Arabs to continue to sell them the cheap oil and create a human shield of the American non-friendly country such as Iran. At the same time, buy American exports to support the U$. This is not going to work because the speech is like a Christian making an Islamic Pope speech to educate them they should listen to the Master American. In a not too long future, we shall see the negative effect of this visit. If American continues this attitude more and more American friendly countries will turn non-friendly. Step back a bit, you can also see the whole speech are adjectives, no meat.

2009.06.03 After years of China watching and American government interaction with China, both still do not understand the message and read the lips. When China give you the first hint, the contingency and risk mitigation plan have been mobilized. When China gives you the subtle message, the risk mitigation plan most probably complete. By the time China shows worry, that means you are toasted. The entertainysts are still debating how much China worry about the U$ bond. Remember the U$700B number every one throwing around is published by the American, not China. By doing this warning shots, suddenly the treatment of Unical reversed. China can buy the pride and joy SUV Hummer, not the military version. Just think why China has no confirmation but just warning. Please wake up.

2009.06.03 Gold is facing the U$944 barrier. It will take some time to digest. Oil is digesting the meteor rise but there is still room to move on to U$71. Soon many junior in precious metals and base metals will revive.

2009.06.01 USD Index is descending slower. It even bounds back quite a bit. If the Plunge Protection Team is at work, they work really hard. They are not only saving the U$ directly, they also have to attack the rising commodities. As the result, all commodities fall except base metals. They rise from palladium's 1.7% to copper's 5.9%. Amazing.

Dow Industry has change horses today. City and GM is tossed out. Traveller and Cisco is in. Dow Industry, according to Dow Theory should be manufacturing something that the transportation will move. I cannot see how the Traveller's insurance could generate significant that could influence the business of transportation. Cisco could be because it sell iron but still minimal in comparison with automotive industry. DJI does not care Dow Theory so they choose what they feel fit. Now some may beg the question on how good is Dow Theory now.

2009.05.31 Financial turmoil is nothing close to its mid-point because the destruction of the financial infrastructure has shaken and crack many areas that have not been reported. They are the true unemployment, the decline of small business and the commercial real property which are all linked together. The small business could not get the life saving loan or squeezed out due to the credit crunch have to layoff a significant portion of the productivities. Big guys such as Royal Dutch has the same will imply all the American big oil will follow sooner or later. Should they stupid enough to do the rumour of storing oil in expensive tanker rather than in the ground, they will lose millions per day. This will cause the bottom of food chain dries up. The small business, then medium and then large business will fall, in America. So the commercial property cannot recover but deteriorate. Banks (not Goldman Sack or Merrill Lynch) will tell you. They have to raise more capital so the façade has to be put up to lure the investors. While people continue to believe Canadian banks are practicing safe business, they are ignoring the huge American operation they are doing even without looking into the balance sheet. Europe is doing higher interest rate and less QE so the situation has been bad but the infrastructure crack is not as bad because debt buildup is slower. BRIC are different. So we have the have and have-not countries. The have produces what the have-not lack. Have-not will have high inflation because of the QE, currency devaluation and the completion of commodity dumping. As soon as the commodities return to the normal price level, the American stagflation will kick in very fast. The Fed may able the hold the Fed rate low and convince the Western allies do the same thing but the Fed rate only affecting a minority. The market, e.g. credit, set the higher rate for the bond, for the Letter of Credit, for the credit card and for any leverage. American will soon feel the heat of lower currency and higher price (even the local). Guild Investment has a wonderful May 28 article THE NUMBER ONE TREND - A WEAK DOLLAR that analyzes this situation. So the American stock market will fall. Will it drag the world's stock market with it? At the beginning panic period, it will. Soon, the have countries' stock markets will rebound without the American. The JNJ, GE, P&G, etc will reduce their influence like the East India Company shrinks after the British Empire tarnished. When this happens, the trade deficit abyss will increase. This creates a downward vicious spiral. So what happens to the green shoots we see. There is no change or improvement of situation in America. The TARP is paid out not to help the industry but the wallet of someone. The financial remains the major contributor of the American GDP. As Murray Pollitt keeps on explaining that the Wall Street is not the wealth builder. This is just running on adrenalin at overdrive. The acceleration to weakness continue. Don Coxe has correctly pointed out that we should not use the big banks as the indicator of American's recovery because they deal with hallucinogen not real business by protecting the derivative time bomb. It is the regional bank which could confirm the recovery. We have seen a wave of panic and foreclosure. But the commercial property will hit soon that could generate next wave of commercial and residential foreclosure. This will be hard and closer to the bottom. For the meantime, BRIC will grow on the saving they have generated in last decade. Centre of power will shift.

2009.05.30 A few years ago, I wrote a research note that concluded the new railway is communication network: Railway Replacement February 10, 2006. The railway carries the physical good and, of course, snail mail. Entertainment always tags along, circus, theatre, etc. Nowadays, the communication network provides the mechanism to deliver intangible goods (i.e. service, e.g. banking, news, and education). Alongside, we have the text messaging industry, the cell phone, the email, the movie distribution, etc. A group of ex-Nortel senior executives propose a plan to save the Canadian company by building a cross country communication network partnered with Canadian government. Based on my research, the cross country railway united Canada and promote the growth of Canadian industries. Today, we have so many soft product that can be delivered by the communication network, e.g. digital film screening by Cineplex, this will be another way to help Canada to advance her GDP.

2009.05.29 It is a rare situation. Like aligning the 8 planets with the sun. This is what happens to the commodities. Oil, gas, gold, silver and base metal finally at the verge of a major break up if not already. Take silver as example, the break up since U$11.80 is over 30%. Oil has gain 80% since U$33.20. Even natty joins the team by a spectacular leap of 8% yesterday to return to U$4.00 range. Copper is in a trading range between U$1.90 and U$2.30. Although USD Index recovers from below 80 but it is only the matter of when even it recovers much higher. Inflation is in. Industrial and base metal jumps led by palladium's 3.5%, others are about 2%. This is contradicting the entertainlysts' explanation that platinum and palladium should fall due to the collapse of the American industry. But they forget their is the rise of India and China auto industry. This rally technically has a base and gone through accumulation. Fundamentally, the printing press is the fuel of this rally. If this holds by closing, this is definitely an inflexion point. Update at the end of day: There were pull back but with USD drops 117 basic points, everything finishes near top. Copper fell slightly from it top of U$2.1990. The more amazing thing is not gold, it is natty. Although it bottoms out but still gaining 3 cents from yesterday's close. Such a sudden gap up will have room for a technical profit taking but nothing hurt in the long run. The current situation could spell USD stabilizing around 78 because other currencies will react an do the competitive devaluation. Only a few like C$ may push the USD further down.

2009.05.28 After dipped below 80, USD Index rebounds almost touching 81. Why doesn't it drop below? This is the key question that Don Coxe and Richard Russell explain best. Because U$ becoming weaken. Those borrow U$ and invest in other currency have to expatriate U$ to pay the debt. The delay could cause them more. Since debt is a synthetic short, the payback is a margin call so the demand of U$ surge. But this has to be temporary because gold has left the stable. Please check this chart.

2009.05.07 Murray Pollitt of Pollitt and Politt says that the market always has new products introduced to get investors participate. Don Coxe says that the financial analyst never says anything about the bear market because bear means most investors will not want to participate. No participation the market earns nothing. Before the bottom of bear market, many bull will re-affirm and re-affirm the bottom has arrived. The voice of bull will diminish but not disappear. After the market bottom out, the bear will get more noise and the bull may not get louder. The most important is that there is always the voices of bull and bear. Let's not argue where are we now. I only believe the peak and the bottom arrive without announcement and no people observes at that moment. In fact those moments are hard to decide. Is it determined by the market or is it determined by the economy? You can never nail one way or the other. As a investor, both should be the factors to consider. So it is very important to use a group of indicators that provide a consistent view. One single factor could be driven to an extreme due to specific reason. If all correlated factors reconcile, it is a better chance to nail it with proper fundamental support. The saying that stock market is always moves ahead of the economic is 80% true. It depends on the sector and scenario. Usually it is true for the up tick for the supply chain. If the supply chain shrinks, there is nothing feed to the manufacturing. So no good to be sold which cannot be reflected as a gain of GDP. During the down turn, the supply chain will be hit last unless someone knows in advance when the demand stops. The reduction of order is not when the demand at the peak but after demand declines. False start happens all the time. As soon as you order more raw material, Mr. Murphy comes to visit you. There is nothing for sure other than certain spring. We have seen the copper recovery. We have not notice the recover of aluminum, silver, palladium, platinum, nickel and zinc with the exception of lead. Lead's demand will not disappear but it will reduce because it is toxic. The use of it is replaced by silver. We have a wide recovery at the order of 40% to 80%, this is a very impressive from the bottom not from the top. Bottom is illusive. However, all these industrial metals are at the historic high other than explosive high. To avoid the blip factor, we have to see if the momentum to maintain. If it maintains, the boom is not a 6 month cycle, it will be decades of boom because the old market may reduce 30% but the new market at Asia and Africa will make up more than that significantly. As China continues to assist the economic development of African, this is the market attracts very little attention. But China has invested over 60 years at the a-z countries without much of economic payback. Nothing is fast.

2009.05.04 USD Index breaks down, i.e. moves up in the chart above.

2009.04.26 It has been said that at the bottom of the bear, the PE will be extremely low, below 6, and the yield will be high above 6. The yield of Canadian banks have been touching 10 and fall back. The question is 10 high enough? Or is the rule changes? Or is this another nerd law? Or the law should be read as when the yield is high enough after the price and the earning fall to the bottom? This is simply a logic reasoning. If the price and earning do not fall, this is not a bear market. Why earning falls in a bear market? It falls because it is a bear market which economic picture is bleak. So high yield does not mean the bottom yet. Price is harder to control than the dividend. A company can borrow money to keep on paying dividend. There are companies that losing money but they pay dividend. Where is it coming from? Even there is earning it is so small that paying dividend is the prop to prop up the price.

2009.04.25 It has been counter-intuitive for many analyst that China has not lost due to her huge $2T FX reserve. According to State Administration of Foreign Exchange (report from China Daily "China Now 5th Largest Gold Holder" the reserve generated U$8.25B (or ~4%) last year. Speculation considers China may start the hoarding since 2003 when the holding was 600 tonnes to the current reported 1054 tonnes. But I think the critical time was when she started to set up the SWF about 2 years ago. In another word, she accumulated about 454 tonnes in two years or about the national production of gold for last two years. Since China does not export gold mined or scrap, the scrap should satisfy the domestic demand (Chinese government encourage people to stock gold by allowing gold deposit accounts). Would China able to buy from other American Friendly Country central banks. If that was the case, perhaps the central banks may stop the selling much earlier. At least the American will stop it because this accelerates the debasement of the U$ as reserve. Should opportunity presents, like IMF selling the gold holding, China could become the 2nd largest gold holding country much faster than anyone expected. There is also the possibility that the concerted gold dumping by central banks may slow down unless American starts to sell her share. This could be proved to be extreme difficult if American lease out gold to keep the price down.

2009.04.24 Bull and Bear are two animals being featured on most stock exchanges' front doors and logos. There is also about boom and bust speaking on the both sides of many entertainlysts. This is a perception which we are educated to be a binary concept. It is always one way or the other. History tells a different story. It is like inflation and deflation, it should be reviewed a different levels and examine in different pockets. We found that HomeStake (the most used example) gold producer gain 5 time during the depression. By accounting the purchasing power, the gain is far more than that. During the burst of tech bubble, the seemingly unrelated retail banks dragged down 50% or more. It seems no relationship in the second case and the first case. However, lets examine the second case which is closer to us in the history. When the tech bubble busted, it was not just the high tech firm that lost its financier also, i.e. the banks. Yes, it was not just the investment banks but also the retail banks were hidden behind all the bubbles and they will boom with the bubbles and lost with the bubble because people have to use leverage to create a bubble. (On a side note, until we see the banks come clean on the damage of the books, on and off the balance sheet, we have not seen the bottom. Sometime, they just skid away because they hid the damage so well such as Enron and Global Crossing through confusing capital raising.) This is the fundamental thesis and litmus test many great analysts employ to test the bottom out of a bubble. The result of the tech bubble did not just infect the financial and the tech sector but many others because either psychologically sold off or need to raise cash to cover margin, most went down. But there are not necessary all of them. A broad stroke of brush style analysis will not give you the niche to be a winner. You financial analyst takes your money and should do the leg work to give you the recommendation. Otherwise you have to do it yourself. So when top down or bottoms up methods require proper due diligent to ensure the good fish can be caught. The Monte Carlo method works during the boom time but failures during the bust time. This is the reason why the financial advisory uses it as the escape of responsibility clause: past history does not guarantee the future return.

2009.04.20 Bank of America reported a strong quarter thanks to Merrill Lynch. This should be a shot in the arm for the financial especially the yield was 14.2% last Friday. Well it is down 25% to day and has the yield close to 19%. BKX index fell 18%. Where is the supporters financial?

2009.04.16 "The British Empire has no sunset ." That has passed. American Empire is the leader (military and economy) of the world. This will pass. What are the common points? Both end up in a war financed by a foreign country. The British and American believe that war will stimulate economy, i.e. industrial military complex. This is not necessary the government's thinking but the rich and greedy money lord behind the election. Britain believed Germany and Italy would never expand to a state that could affect the British Isles and the Japanese would not able to thin out to take hold of the Asia. There for the trade with Europe and the supply of raw material from Asia to Britain would never be impacted. When there is war, there would be stimulation of consumption at a grand scale through destruction (ammunition) and rebuilt (financing). As the Second World War waging on to the end of the 1930's, the resource strapped Britain could not mobilize the League of Nations members to spend the money including herself. The war indeed stimulated the economy, the American and brought her out of the depression. The American industry took off with a high note. The fighting was not on American soil. Damage to American industry reduced to the minimal. No problem on sacrifice of the brave soldier. Everything was according to plan until the American colonies (i.e. raw material such a sugar and rubber) were attacked and occupied by Japanese. By that time, Britain and Europe countries were all under the thumb of American through debt. American the was the world's creditor. Until 2006, the world was on an economy expansion war. American believed that the economy war would stimulate the financial industry which produce nothing from thin air, fiat wealth. The wealth would be spread among American (the rich and their serves) to enjoy life. American started two wars: military and economy. The first is the invasion of Iraq and Afghanistan. The second is the economy leaning on developing countries in Asia and South America. China was seduced to jump into the bed with American through channels of international corporations such as Costco, Coca Cola, Johnson and Johnson, GE and the list marching on. American consumes, China produces and takes care of pollution. At the same time, the American global companies buyout the local large competitors to convert the local to use products from these global companies. Simultaneously, paper wealth was created through financial structured vehicles. These vehicle supposed to be armour guarded with high return. The world was bullied on to derivative, future speculation and so on manipulated by the handfuls of American investment houses. A very excellent idea at that time. American believed that they got all the world tied down through the derivatives and structured investment. It would be the Second World War again. t was the Pearl Harbour déjà vu again. This time the location was on the American soil. The company was Lehman Brother. If we believe Larry Summer did not know the impact of bringing down Lehman Brother, it would be an ignorant assumption. However, the book was so complex that the Wall Street gang lost track on who owns what because all these derivatives were off the book and they still are. They also over estimated that China will remain to be submissive as the last two decades. She will give money as soon as Uncle Sam hooks the finger. Same thought might cross Chamberlain and Churchill's mind at one point. But these great British politician did not observe American made another National League behind their back. Just the same thing for China has the allies with the NAF (Non-American Friendly) nations. American came on Britain at a high profile. Chinese flexes her muscle in a very low profile, i.e. concerns on the foreign exchange reserve (which may significantly diversified since two years ago through spending spree to buy oil, mineral and other asset she could lay her fingers on) and reduces T-Bill buying. Does it sound like what the American did at the end of Second World War? Did American suffer after the Second World War like China's economy? The American was out of cash but the government was the creditor of the world. But there is a very much difference. Chinese government is the creditor of the world. Chinese has the foreign exchange reserve and Chinese citizen has the saving. The war continues.

2009.04.15 It is hot for the industrial metal again today. It is not the building will boom since aluminum is not rising as much. Platinum's recovery is a tear from lowly U$763.

AG	15/Apr/2009	12.76	12.76	12.76	0.02	0.2
AL	15/Apr/2009	0.677	0.67	0.67	0.01	0.9
CU	15/Apr/2009	2.188	2.177	2.181	0.10	4.9
NI	15/Apr/2009	5.591	5.523	5.546	0.32	6.1
PA	15/Apr/2009	236.00	236.00	236.00	5.00	2.2
PB	15/Apr/2009	0.70	0.694	0.694	0.04	5.9
PT	15/Apr/2009	1,219.00	1,219.00	1,219.00	14.00	1.2
ZN	15/Apr/2009	0.673	0.667	0.669	0.04	5.7

2009.04.15 To measure the changes of a group of components, an index is usually used to compute the group's behavior. Index applies the statistical method to generate a daily and day-to-day changes so that over period of time we can identify the trend. In statistics, trend is a vital component to analysis which provides a retrospective view on the history not extrapolation. Index could employ weights to each component or equal weighted. Standard & Poor TSX Composite Index computes the index by the total asset value of the components which is not based on the price only is a way to compute the worth of the components. If the index goes up 10% it would mean the wealth goes up by 10% but not necessary the share price. The subtle different between weighted index and equal weighted index is very important to understand the meaning of the change. If the asset value of the underlying component appreciate by new issue, it is different from appreciate through price. If the calculation is just based on the total asset value, the index will grow as the company issues more shares. To avoid the skewing of this, a normalization method is employed so that the increase of capital does not impact the index. On the other hand Dow Jones Indices are computed using the price only and scales to normalize the effect of stock split and component adjustment. Various methods have their own merit. The most important is the accuracy to reflect on change of value. If it does not then the index reflects nothing. The ICKO indices are computed with the normalized price with equal weighted for all index members. The daily change is the normalized different from on day to the others. The method is adopted from Hang Send Index.

2009.04.12 The market has been rally for some time. Some shares' performance are spectacular. The financial is a good example. With any change in the current situation but knowing the US government will pour more money to the bad money that are not showing, the BKX has jumped from 17.75 to last Thursday's close 33.81. There is no really good news except Wells Fargo which does not do much of investment banking. Does the business of banking profit double in just few months? Many Canadian uranium stocks have rally up 3 to 5 times. But they are still down by 90% from the top. BKX was down from the 120 level 2007 to current 34. The financial suppose to rising to moon with all these derivative but actually they are not. Rather the index rose from the 1983's 35 to 120 before the implode. It is not proportional to the growth of the derivatives which is hundreds of times. Now we have a better guestimate on the size of the derivative, we see the derivative is actually a high risk business. On the other than uranium demand exploded but it was dwarfed by the 10-40 time growth of stock in comparison to the growth of UxO to the level of U$120 from the level of U$40. It has been a round trip retrospectively. Now the banks and the uranium stocks are doing the same thing without any change of deteriorating environment. One would wonder why?

2009.03.31 Strength of U$ is a mystery to the conventional economist who evaluates the value of a currency by the debt (in inverse relationship) and productivity (in direct relationship). The currency's value should reflect the current and very near term respect to these two criteria. Conventional wisdom fails in this case. The explanation is the unwinding of the carry trade and overseas loan in U$. A USD Index chart from FX Street shows two peaks in last 10 years on a declining trend. The first is at the end of the tech bubble and the second is at the end of the recent financial bubble. From mid- and long-term perspective, the trend is down. Macro trend is the summation of many small steps. These steps could be in any direction. So the explanation on expatriating U$ pushes U$ high could be true. If we apply the quantum theory to explain this the up and down in could be very small at extreme magnitude but it still could happen. This spells the danger and opportunity for the brave and the academic.

2009.03.30 There are two major strategies for investment, ride the long term macro trend and ride the wave. The first approach does not mean buy and hold. It applies the macroeconomic and analysis of an asset class or a specific stock. The outcome is a decision to hold or to fold. Its not a static process because the situation is closely monitored and assessed. When the macro trend changed, we have to make the decision. The second approach is to take advantage on the delta of the peak and trough. The difference is the profit. It would be imperative to argue which approach is better because both have good and bad result. This makes investment interesting. Most people would master one and a few master both. It is not necessary due to the psychology but it is due to the effort. Impulse trading sounds exciting and romantic because so many storyteller foretell their success by the strike of lightning. Luck is never stay with one too long. Someone said do not confuse a bull market with brain. I can phrase it to do not confuse luck with hard work. When the trend is monotonic, it looks like luck is with you. The more important is to have the skill (mastered by your financial advisor) that help you to ride through the rough time. In a highly volatile market like now, the only way to stay focus is a system of analysis that you can gain experience. Monte Carlo method can be as good as Ben Graham's analysis method but a systematic approach would allow you to use the market as a crystal ball. It also allows you to break the nerd rule that shoehorning pass pattern to present without proper analysis. Most people is apply a level one pattern analysis such as going up 10% will have a correction. Level two analysis will see the trend of going up/down will continue until the supporting factors change. Level 3 analysis is the trend of going up/down will continue until the supporting factors changes or new factors added.

2009.02.27 Spending by consumer without restraint is bad. Spending by government without restraint although stimulus the consequent remains bad because it will be financed by debt or tax. Stimulus through spending by government is the thesis of Keynesian economy and this experiment in America has shown quite adverse results. During current economy tsunami, countries are executing the competitive devaluation to the bottom on currency to improve the export (one way to generate wealth) to compensate the destruction of domestic consumption. US$ has been used as international trade and financial settlement instrument. In current credit unavailable situation, U$ cash is very demand for settlement as well as unwinding loan. This forces U$ unwelcomely strong which is not helping the recovery of American economy. The following USD Index chart shows the strength could last awhile although it is very toppy. The situation gets many helps from the weak European economy which currencies are party of the USD Index Basket.

2009.02.16 Globe and Mail reports that the G7 have a meeting on financial crisis. This is un imaginable to have such meeting without China. First China has no debt which is uniquely showing the healthiness of the banking system (until they blow up). Although one of the attendee, India, has the growth but she is quite small in comparison to China who spends about 20% of her GDP on internal stimulus without printing money. People are ignoring the obvious just like continue to believe Canada has a robust banking system. One thing entertainlyst should pay attention to the after fact that Canadian banking system invest heavily on real-estate and lending money in Canada and of course in States. Statistics indicates there is no exception to major lost in these areas. How could the Canadian banks' profit be safe. Canadian real-estate is an area people superstitiously believe that it will withstand the down turn. Royal Bank Chief Economist Patricia Croft points out that the Canadian real-estate market and stock market are catching up with the downturn in the States because the economy of both countries are joined at the hip. While hope is a very strong motivation for survive but ignoring the true situation is suicidal.

2009.01.19 The communist countries (Russia and China) investment pioneer Dean LeBaron proposed a simple way to back the U$ by holding trading partner's currencies. If the basket of currency includes China's RMB, then RMB will be bought to appreciate as demanded by the US Congress.

2009.01.17 Bank yields are ranging from BMO`s spectacular 8.5% to Fairfax`s 2.5% with 5.7% mean:

	16-Jan-09	Change in $ and %
	Price	Yield	Week		Month		YTD		1 Year
Bank of Montreal	32.3	8.59	-1.29	-3.84%	1.95	6.43%	1.05	3.36%	-22.35	-40.90%
Bank of Nova Scotia	30.45	6.25	-2.55	-7.73%	0.35	1.16%	-2.86	-8.59%	-16.07	-34.54%
CIBC	47.95	7.17	-4.71	-8.94%	-1.95	-3.91%	-3.14	-6.15%	-19.29	-28.69%
Canadian Western Bank	12.2	3.59	-0.6	-4.69%	1.14	10.31%	-0.18	-1.45%	-15.72	-56.30%
Fairfax Financial	385.4	2.56	14.45	3.90%	24.7	6.85%	-4.6	-1.18%	92.71	31.68%
Laurentian Bank of Canada	30.9	4.33	-0.39	-1.25%	-1.85	-5.65%	-3.6	-10.43%	-2.41	-7.24%
National Bank of Canada	32.58	7.53	-1.32	-3.89%	4.86	17.53%	1.28	4.09%	-15.38	-32.07%
Royal Bank of Canada	33.64	5.88	-3.17	-8.61%	-1.26	-3.61%	-2.46	-6.81%	-14.47	-30.08%
TD Bank of Canada	43.7	5.54	-2.3	-5.00%	2.29	5.53%	0.25	0.58%	-21.55	-33.03%

The spread with the BoC rate is about 4.5% (updated on Jan 20 to reflect BoC rate cut to 1%) which is not a viable business because the bank has to pay more to get funding than borrowing from the central bank. At the same time, the spread between yield (5.7%) and banks' prime rate (3.0%) is negative. This is the reason why banks have to pocket some fund rate cut because the short term rate is below the yield they pay to investors. The bank dividend axe will drop soon after the bank raised some (just some) capital. This chart shows the trend is not turning up. The evident is that the rising volume average as the price falls. The selling pressure remains (as Russell says.)

2009.01.11 Does economic bubble always lead to disaster and destruction? The short answer is no. For some domains, the collapse of the bubble would be destructive. This is negative to the epicentre. At a higher level, if every bubble is destructive, there will be no more domain to destroy after thousands of years of destruction. I classify bubbles into two categories: wealth building and consumption. The Southsea bubble was created from nothing. It does not add a shred of net wealth or value to the society but to feed the greed (which is a bad name for ambition). The wealth created was a zero sum game. You just did not see the debt behind the wealth. Tech bubble had a lot of consumption in the aspect that it created the desire to spend money. However, it also created a large body of technologies that benefit mankind, for example the Internet and nano-electronics. It advances the civilization and improves our quality of life. The Chinese manufacturing bubble in the 18th Century ended up a weak China. However, the bubble was not just consuming the resources (since it used more than before) but also created new trading practice and logistics. The consumptions fed the develop of new technologies such as the steam engine and railway system that fuelled the improvement of the QOL of mankind. It is well believed that infrastructure building at the end of the Great Depression ended the American's misery could be the counter example of consumption bubble is constructive. If we use the Dow Index as the gauge then the recovery did not happen until some years after the World War II when the war factories converting the war surplus to consumer good. Hoover Dam could not finish the Great Depression, but the growth of the manufacturing did. Taking this to the extreme, Communists were great on infrastructure building. We do not see they had a healthy economy. China did not come out of the depression until Dan Xiao Pang started the second World Manufactory movement. Saving the economy by pure consumption is like adding lubricant to a jammed money system. It only works if there are kinetic energy in it. Without the kinetic energy, the velocity of money will be at trickle level. Wealth creation will create the kinetic energy. But it has to start from saving not from credit. Credit without the saving to back it will behave like brake rather than gas paddle. A single strategy to stimulate the economy by creating more credit available may not be the complete solution. The credit has to be diverted to wealth creation that improve the quality of life either to the local or the world population.

2009.01.10 The world's bankers believe to fix the ailing world economy is to create stimulus through injecting virtual liquidity. Virtual in the sense that it is created without backing. The media are fiat money from the printing press and the central bank fund rate slashed to zero. The assumption is to create energy to accelerate the velocity of money to break the current dead lock of lending/borrowing. To do both, they take a page out of the classic economic text book (use in wrong context). By showing no inflation, you could lower interest rate. Gold has been appreciated much below the official inflation rate. It has been kept doing it to ensure all indictors are synchronized. One more thing you have to do to keep the gold price down is to eliminate the desire to own gold by publicizing its low return and no yield. Here comes the action of complexity and this time it is backfired. As the Fed target fund rate keep on lowering, it creates an asset class has no yield which is similar to gold and subject to inflation. Although gold does not performs well but it still appreciate while fiat money cannot. So the one million dollar question will be why people want to keep money rather than the physical gold. The demand on physical gold rather than paper (such as GLD and gold future) are showing by the following chart (complement of Stockcharts.com). It is the relative strength of GLD to the Central Gold Trust of Canada is steadily rising. The Trust owns and displays the metal physically.

2009.01.07 Copper is the Doctor of economy. It has rebounded from the bottom. If the story is right and simple, the economy is showing sign of recovery. This recovery may not be a true until the trend carries into mid-January. The recovery could be the make-up buy after the year end holiday. In such situation we need to use another angle to confirm. Platinum has been in trouble for 6 months. Its price was halved. In December 2008, briefly, it was traded below Gold. Now the platinum to gold ratio is about 1.1. Because platinum is the indicator for the heavy industry. Could this mean the bottoming is real? Even the economy is bottoming it does not mean the market will turn around immediately. Most of the time, supply will precede the demand. But this is a good sign.

2009.01.07 At the end of the December 2008 and the first few days of 2009, the stock market goes up nicely. Many technical indicator based on price showing positive. Technicians always have the emphasis on whether volume is important. One camp believe price drives everything. The second camp insists volume has to be taken into consideration because it will mean much less if volume is low. In a market that a lot of intention to influence the market in different angles, a wider spectrum indicator may offer a better story. The Lowry indicators consist of buying pressure and selling pressure which is related to volume. The explanation is that if the volume is high than it shows the sentiment of investor which shapes the direction of the market. The adage of market is that you ignore the price change for those thinly traded junior which could fluctuate more than 25% in one day for a few shares. So it will make sense to watch the volume. For example, the volume of the last 5 trading days are below the 50, 100, 200 trading volume. The 200 trading volume is significant because it will mean the volume is almost for the whole year. It takes out the tax lose selling factor. In short, in a real rally should accompany by high volume not 10-20% below the average volume.

2009.01.01 During the last few days of 2008, gold continues to rise despite of the strength of U$. The spread is still too narrow to call it detachment but this is a change of direction. Gold in C$ is phenomenon because it is making record high day after day. It is technically important that this rally confirms a breakout of a double top. The spread of gold price between the U$ and C$ has been following the downward trading channel until the July 15 Massacre (Don Cox's pet phrase). It is showing top. This abnormally could be the diversion of the Mule in Issaac Asmov's Foundation Series. It throws the Foundation out of Seldon's plan. Is the spread returning to the downward channel? More study of monyamic is required.

2008.12.31 God of Market has its own mind and agenda. Crude gone up more than 10% for the last half day session of 2008. Gold advances above U$880 with USD rally more than 1% at well north of 81. Gaza situation is worrisome but not as bad as Russian cut off the natty supply to Ukraine. (This will be just the beginning for the Russian energy Czar to recuperate the fall of energy price.) However, caution is the only way to navigate this tough period. Oilexco falls more than 65% today just because bridging funding cannot be arranged. Allen Vengard fell yesterday because the huge debt is going to due next year (no different from Nortel). When credit seems dirt cheap (Fed's target rate is 0-0.25%) corporate bond is at 10% (City, BMO, GE, etc). This is the tip of iceberg that tells the story that credit is difficult to come by. If you can borrow, use it wisely. Better off, don't borrow. Cash remains a simple strategy.

2008.12.28 Can we have a unified theory for inflation and deflation? Paraphrasing this is: can we use a single way to describe the phenomenon of inflation and deflation? I think the use of potential energy and velocity of money can do the job. When money moving too fast, it is inflationary. When money moving too slow it is deflationary. It has the vivid image on how we spend the money. We can also visualize the money like the grain of sand in the sand pile of complexity theory experiment. When the money with high potential energy (gravitational) piling up and the triggering fall of the last grain of sand at the peak will trigger an avalanche to the lower potential energy. At the lower potential energy level, the probability to move will be low. As the result, the energy to move is lower and the velocity of money can become standstill. This picture depicts the hyperinflation before the deflation. Within the inflation, there is also a deflation. The hyperinflation is created by adding too much sand. At the end, if nobody adding more sand to the pile, there will be no movement. To add more sand to the pile, money has to be printed. This is why paper money is important; it can be created out of thin air. Paper money has the miracle function of regulating the velocity of money, i.e. the money supply. As of now, we have a lot of money that has low (tight purse) or no (dead debt) potential energy. To re-energize the economy, government is trying to energizing the sand pile.

2008.12.23 WTI rebounded about U$6.00 as the January contract expired and February contracts kicks in. The price difference to brent was only U$2.00. But this lasted for only a few hours. At the end of the day, the difference increased. This morning, brent up U$2.00 but WTI sinks another U$1.00 to widen the gap to about U$5.00. WTI is the reference price for world crude settlement but it is based on the "demand and supply" of the American which consistently saying the oil producer has to put their oil in oil tanker. I never understand why don't they just turn off the tap. Brent is what shipped by tanker from overseas to the American. This is also reflect the price of Europe and other countries. A difference of such level is another example of manipulation. The OPEC should buy out these excess and pumps them into the ground for future delivery and this will provide the support of the oil price.

2008.12.17 Oil price stabilized as the expectation to cut more than 2 MBPD mounting. OPEC members are now suffer in two front: lowering U$ and lower oil price. They cannot influent the U$ but they can do something about the oil supply. The supply change can spark dramatic response immediately but can be very slow. Going back to U$70 could take sometime but U$ may coming down very fast as shown by the this chart. The Fed 0.25% rate costs the USD drops from 82 yesterday end of day to this morning's 79. When your currency does not provide any return and preservation of the wealth, the demand will be limited to other functions. In this case it is the international current account settlement. The sharp fall may just have a 180 degree turnaround in January. But the long term trend has restored. Market has the reputation of overdoing thing. This will be an example. However gold is not responding fast. Does a lot of people believe oil has bottom? It may not be a lot of people but a lot of speculation is betting on oil has bottomed as shown by the Horizon BetaPro Oil Bull ETF chart. The volume starting at the beginning of November has been multiple of the beginning of the year. Now it is trading at 10-12 time of its 200 day volume average. This is highly speculative and looks like a short covering.

2008.12.09 China's U$500+B infrastructure project spending was not echoed by the West. One day after that the stock market fell follow the rally. If the world leaders all chimed in, the psychology will be significantly improved. It was the prelude for the North America G20 meeting. With help from Bush to water wash down the significant of the spending and the infrastructure approach, the G20 meeting can easily be labelled as the meeting of the lamies. President elected Obama missed the chance to really improve his international status. It is only this week, the announcement of U$1T infrastructure spending. If China budget half U$1T, American needs to spend more to pave the road of recovery. Unfortunate, these late action and the continuous drama of greed (e.g. the banks and the auto industry) also deteriorate the possibility of sovereignty wealth funds' support. Dean LeBaron's latest commentary 'Chinese Lessons' has the most important quote 'Interesting Time' from Lou JiWei, Chairman and CEO of Chinese Investment Corporation points out that the risk at the American capital market is too high. It is a very polite way to say the irresponsible and unethical behavior of the top dogs in the banking and financial sectors that caused investors losing more than 75% of their investment in just one year.

2008.12.08 While the commodity market suffered a haemorrhage blow last week yet the contango situation has not change a month. The article 'The End of the Dollar and All Fiat' (courtesy of Seeking Alpha) provides some explanation what is going on.

2008.12.05 Crude price continues coming down precipitately. At this level, it is not just only the OPEC and non-OPEC producers are hurt, the supply chain and peripheral industry (such as drilling) are hammered by significant cut back of the spending. Some will not able to last especially those not well funded large one. While the oil revenue is shrinking, labour inflation is not. The energy price for these companies is hedged at a much higher price. The result is a stagflation for the oil patches around the world. This create a lot of crack line at many geopolitical regions such as form East Europe Russian countries, Middle East, North Africa and South America. The unrest coming could be violent and long. In effect, this could become a world war. Alternatively, Sprott Asset Management has proposed a way to stablize the world economy by buoyancy of commodities. This could be a way the OPEC countries to do to stop the price fall. They could buy the near term contracts and benefit from the contango future contracts.

2008.12.01 Bloomberg reports today that OPEC seeks U$75 a barrel through cutting production. This is the conventional thinking. With the help of those holding future oil contract, it may succeed should the margin clerk does not call them or the banker does not call in the loan for them. Supply and demand does not control the price anymore. Before I could publish this blog, the market comes down so do all commodities.

2008.11.29 Since the issuing of the Bill of Credit during the early history of Americans the concept of growth by inflation and debt were stealthly deployed. Presidents after presidents continued the tradition by issuing bond/T-bill to the nation's citizens and foreign investors. This is a cheating by paying back much less wealth using inflated money for the debt. Of course this is not unique. Soon every country on earth copied the act and there came the competitive devaluation. So did the hyperinflation when the situation uncontrolled during the early 1980's. Paul Volcker has been hailed the saviour of the American economy but in fact it damaged it so severely that it toke decades of inflations and multiple bubbles to correct it. At the end it was over-corrected as the encouragement of spending at warp speed which basically destroys the balance sheet of the American. The implosion tipped the balance of the world economy. Two schools of thinking surface: the phoenix and the pump. The phoenix school believes the rebirth after destroy. But we have seen too many cases that rebirth may not happen. The pump school believes another bubble could save the world. History teaches us that old civilizations were died of bust when no phoenix could emerge from the same country. The world economy was recovered from the emerge of another bubble from some where else on the earth. In between there were wars.

2008.11.23 Year end international current account settlement is coming along with the half year and quarter settlement will usually drive up the demand of U$. Gold's U$50 move on Friday may be the result of asset allocation but at the end when U$ moves up gold could temporary pull back after such a sharp movement notwithstanding a future advance. It will be a heavy and bloody battle before the American Thanks Giving weekend which traditionally boost a market rally (i.e. financial) which means caution for commodities. However Canadian banks may not participate with more hazardous commodity, trading, credit and derivative risks and lost exposed in the coming quarter results. The chart does not look good.

2008.10.29 During the Great Depression, there was rally after the first panic low that recovered 75% of the Dow Industry Index before plunged down to the low of 41 with a few smaller rallies. Don Coxe has documented the technology bubble induced bear market from the 2000 to 2003 as the triple waterfalls which had multiple up and down. Most people lost the money not at the first panic low but bought on the first false recovery and never had the courage to get out. The psychology just fools the smartest person. This chart shows what happens during the Great Depression. At the bottom the volume was only a small fraction of the beginning of the boom period.

2008.10.20 Bear market does not mean it is just going down monotonic. The danger of bear market is similar to the bull market. During the bear market there are rally false sign of bottoming. Just like bull market there are correction similar to top. The major different will be the volume of sell or buy. In another word, we have to identify the upward sell to get out of the market during the bear market rather than the up buying. Tell tale sign is the lower or cliff jump at the end of day. But this is just true for the trivial case. Otherwise no body will lose money in the bear market. Another usual trick is buy on the rumour and sell on the news. Like the American U$700B rescue package, pushes the market up until the bill passed then the cliff jump started. We all now know that winter in North Hemisphere is the peak of energy consumption. Adding to this is the rumour on OPEC going to cut production. WTI recovered from U$69 to U$75. The true testing point would be any pull back after the announcement. Market has been so emotional that conventional wisdom fails.

2008.10.05 This is a personal note rather than observation. It will document the mistake I make during this period by making such decision if it is so. Many good advices should be followed but did not. Studying last mild crash of the tech bubble, it is a wild spread of loss of value not limited to the technologies. Banking and mining were cut into half if not more. This time supposes to be more severe. Indeed, blue chips loss 30% in 6-12 months from 2001-2002 but this time toke only 3 month. Price Earning becomes very low as everyone speculates that the previous earning will not be maintained. For those have to handle the margin call, sell price is not a concern as long as there is a buyer. We observes higher volume during the rally not at peak but during the process. There is no peak buying at the bottom. The buying dries up at the bottom shows all these are selling orders. Of course, there must be a buyer for a seller. I could not explain. Now we have seen 30% lost in value and there is almost 100% sure the lost will continue to 50% of the recent high if not more. Sherritt International drops from the peak of $15 this year to $4 level now. A drop about 70%. Banks were fluctuating between 50-60% of the peak value last year. May be it is time to agree to the thought of cash is king. Sell to curb uncertainty. In the situation that no cash has been hoard but the holdings generate income, it is not the time to invest but to hold on to the cash. If the economic winter continue, the price will continue to fall. The more the DRIP the more you lost along with the principle shares.

2008.10.02 On Monday when everyone expected to have the bailout bill passed, House of Representative throw it on the floor. The rapid rising stock market fell to record drop. Who lost money? The main street. Tomorrow, the HOR is going to vote again. Will they pass it? The market is telling them if they want to see another blood bath, do it again. Anyway, will the bailout work or not is unknown? If it acts slow, for sure it would not work. Sprott Management has the September Issue of Market at A Glance discussed this why it would not work. You have give them credit to engineer this massacre. In order to ensure no inflation by injecting U$850B, commodities have to come down. Today, commodities came down by 5% and commodity stocks down 10-30%. All triggered by the unreliable Merrill Lynch research team publishing the gloom and doom future of Potash. They also recommend buy Lehman Brothers and Freddie and Frannie just days before their collapse. Remember Goldman Sachs published a report on U$150 oil by year end? Where is that guy? Before oil jumped to $147 Goldman Sachs also published report on U$80 oil. Life is tough.

2008.09.28 When Margret Fletcher privatized UK's state owned companies, the world said socialism finally became the player of past history. Today, socialism in capitalism style reincarnated in the American's U$700B bailout program as detailed by Reuters' report. At the wee hour of today, a broad agreement (read no acceptance so it is not done yet) in principle (which could be just a face) to the package with the stipulation that the beneficiary companies will issue warrant to the state (that is the government not the people which the news report equates to the ownership of people). Without the warrant, we see the rebirth of communism with state economic planning. Now the economic principle seems switches between the East and the West. The West continues to use the people's money to finance , support and bailout private company which becomes state own. The East privatize state owned companies to entrepreneurs. China did not bailout the private fallen star but you can argue that the big one are state own. And they run well. In this whole barnacle I strongly believe the resistance is coming from the American because they think the action is just for the Wall Street fat cats. At first level yes, but if the credit freewheel does not turning fast anymore, job lost, personal loan, mortgage and business will be heavily slowed down. This is the American impact. As American is remaining 25% the GDP of the world, her slowdown direct the GDP of the world. BRIC is getting more independent of the American but not standing free. The BRIC creditors do not take any action to prevent the bailout or denouncing it is the passive evident that they support it even it means devaluation of U$ or their FX reserve in U$ T-bills. In my previous note, the lost in the reserve value is a premium paid for the insurance of economic slowdown. It is well worth it. In the future, it may show evident the BRIC and the OPEC countries are pushing the bailout. We have seen the drop of oil price when the perception of slowdown shows up couple of week earlier without support. OPEC could not lose in two front: oil price and their U$ denominated reserve.

2008.09.25 Hanky and Bernie are the humpty and dumpty sitting on the top of the wall in front of Congress to push the string tied to the tight purse of the American banks that pocket all the toxic papers that have value determined by themselves. President Bush addresses the Nation to sell the idea with a vague description. Congressmen support the idea in principle but for U$700B you want better than a vague idea and not even a concept. This is just like you give the power of attorney to a someone who even not identified yet. It is a very desperate time. Effectively, the American tax payers take up the lost of these financial institutes and the coming one. With all these point to a weak currency because debt and deficit is mounting quicker and higher. Yet the U$ continue to rally so does the stock market. The really stuff is falling; commodities other than oil gone weaker today. If you bought financial during the bottom you would hope it rally. If you buy it at high than current level, you desperately want it higher. Warren Buffet has U$5B senior preference shares of Goldman Sacks at 10% rate has two important meaning. Mr. Buffet will not lost a dime. His investment will be guarantee by the Fed for sure. His action is in the hope to boost the market. But who is the banker of America now. They are China, Japanese and Russian. All of them need to trade with US. Although their internal market is growing rapidly but it still not the point that can completely independent of the American. American is the insurance for a safe transition. See the weak these debt could devaluate U$ the other way will lose the insurance. It is reasonable to assume that China may push for this and future bail out plans at American's expense. The lost in FX value is a form of insurance premium but not pay by the beneficiary. What a wonderful arrangement!

2008.09.23 After the spectacular meteor rising of the bank shares, they fizzle on Monday, including the Canadian's. The Canadian Bank Index Chart shows top selling on last Friday.

2008.09.16 You cannot say it's over until its over. Bear Stern, Freddie and Fanny, Lehman, Merrill Lynch, and now AIG. One after another that every one could not believe their eyes. They are just too big to fail. Just like China will not let American goes to recession. The slowing down already causes too much pain for the Chinese before she can have a large sustained economic ecology by internal consumers. The spending by Fed will just continue to lower the rating of the Fed's balance sheet. It has to be approved by the creditor. So there you go. You will see Chinese slowly and strategically mop up the bodies in the field but never try to control it for some time. With the Russian visit the OPEC meeting, it gives me the chill like the wolf visit the 3 little pig. Oil is falling to near U$90. OPEC will feel the pain because of loss in multiple fronts: inflation pushed by the currency pegged with U$, the lost of revenue, the increase in cost of production and the threat of non-replaceable oil resources. Life is getting more difficult.

2008.08.26 The following is from Guild Investment’s market commentary: 5. Now is the time to raise interest rates. Because banks are weak and deleveraging, the U.S. and Europe are not going to raise interest rates. Instead, the U.S. and Europe are doing the opposite...supplying more liquidity. Liquidity will continue to be supplied to help keep financial institutions solvent in the U.S. and Europe. Japan, China, India, and many other countries are more able to raise their interest rates...and they should do so now. If so, U$ will be weaken. This is why Fed talks to raise interest. But they will never walk the talk.

2008.08.16 John Mauldin has a fabulous article discuss the 'decoupling theory'. It would be a lost if you do not read it. Extending this you could come to the conclusion of new coupling theory: when China is on diet, the world will be on fast. One simple example will explains. Starting a few month before Beijing Olympics, China has started to cut energy consumption. Then the world sees the flood of oil. When RMB appreciates, world's inflation jumps. The converse may not be true, that is, America and Europe's recession may not slow down China's growth because it has ignited the local consumer market.

2008.08.10 On Friday, USD went up 130 basis points (the speed slows down significantly during the weekend but not stopped) that surprises many commodities favoured investors. It has been long observed that with more regulation to suppress long commodities and short financial, the hedge funds and institutes holding commodities have to liquidate it at a lower than basement price. The false security created for financial sector implies no risk to many bank investors either they believe it or volunteered to believe it. Gold and precious metals react, in a knee jerk reaction, drops. This brings down a lot of gold miners; seniors and juniors. While gold falls about 10% the gold miners lost 25-40% from the peak. The climax of the fall (may be it is too early to say) was on Friday which coincide the of Georgia's incursion of republic of South Ossertia (a former USSR state). Russian has mobilized more than 10,000 troop to mount a 3-D assault. Russian holds about U$100B F&F with the guarantee from Hanky and Bernie. As the result, the banker puts the finger at the debtor's pressure point, Bush speaks softly and gently. No strong word or action. How these two seems unrelated actions play out? It could be very interesting. Canadian banks continue to benefit from this financial rally but the engagement is toppy. See the chart here. What are all these financial event could lead to: cutting interest rate. The strong USD, weak economic and false financial sector security are the best backdrop for another rate cut. Compliment of Stratfor, you could monitor the Ossertia situation from here.

2008.08.05 Gold and oil follows NG fall below the 200MA. Both are in the oversold zone. Will it rally soon? I wish so but the market may have another agenda that may not please me. GLD has 20M shares exchanged hands today; two time of the 200 days volume average. CBSI's volume is 50% above the 200MV (200 days moving average of volume). Gold Future EOD has violated the U$888 support. We just have to see any rebound. If not we have to see support at the U$820 level.

2008.07.30 Utility is a class of asset that provides stable income. The reason is steady demand. It is not different from any other manufacturer suffer the same problem of cost and labour inflation not to mention the high up front investment cost. How does it compare to energy resource producer? For strong producer (not necessary big) they have large tangible asset, stabilized production from upstream to downstream and predictable sales, with the demand consistently exceeding the supply and customer has not much of alternative. Established and healthy energy resources behaves like utility. On top of steady demand it also benefits the appreciation of the commodities. However, we can only treat these energy resources producers as utility provides they meet a very important criteria: income for shareholder. If they look like utility, smell like utility and behave like utility, I would treat it like utility. This type of company may carry a not very welcome baggage: slow growth but they could be a good holding during bear market.

2008.07.23 The current market is called a professional’s professional market. This means even professionals will have hard time to deal with it not to mention small retail investors like us. You cannot buy index because performance is not even for the companies in the same sectors. The following is quoted from Global and Mail:

Analysts have predicted that producers will likely break records again this quarter because of the commodity price surge. Earlier this month, UBS analyst Andrew Potter predicted cash flows for senior exploration and production companies would rise year on year by an average of 14 per cent, while share profit for oil companies with refining and processing operations would increase 66 per cent.

Companies due to report results Thursday include EnCana Corp., Suncor Energy Inc. and Petro-Canada. EnCana, Canada's largest oil and gas company, is expected to deliver a strong performance because of production increases at its U.S. operations, but output at both Petro-Canada – a partner with Husky on its East Coast operations – and Suncor is expected to decline.

Suncor has experienced reliability problems at its oil sands operations that have reduced output.

The list has past strong performer become weak performer. But we could not know until the last moment. Some persistent performer in the past start to fall off the race. Warren Buffet says for those who could not actively manage the portfolio can buy index. This may not be true for this market. Perhaps we should start to take investment 101 to study William Graham’s famous Security Analysis written in 1930 to understand what means value.

2008.07.16 Old school of high energy physics (i.e. Bohr or Rutherford) describe the basic particles are behaving guys at a perfect orbit without any variance. The contemporary view of high energy physics has a school called string theory. It says everything is different string of different frequencies overlapping or in parallel in one to ten dimensions. These strings can be vibrating gently to violently. This is a perfect picture for this period of market. The old 10% correction rule or 20% bear market rule may have to be thrown out of the window. Like quantum physics everything can only be described by the boundaries. Anything within the boundary can happen. It even allows some room to go beyond the boundaries. This is not even for ordinary professional; forget amateur. The basic qualifications are hard working, keen analysis, out-of-box thinking, eagle sharp eyes, a lot of faith and last but the most important catch the right trend.

2008.07.15 The market has just demonstrated a point talked by Don Coxe. If it looks like stock, smells like stock it will behave like stock. Spot gold up by U$4 and future also up about U$4 or 0.4%. Gold stocks fall from 2-6%. ETF GLD is up only a quarter or 0.2%. So nothing is sacred. Some stocks may recover from the crash but everyone falls. Volume is high but not capitulate high.

2008.07.13 Reuters reports today that the American government will lend money and buy stock if necessary to support Fannie and Freddie. Where is the money coming from? Two answers: first is the tax payer's money (translates from higher tax) second from the treasury which is coming out of printing press and endorsed by the Fed with the government paying perpetual interest to the end of time. One could say for get about the responsibility now let fix the problem. My question is this fixing the problem or putting a finger to the first leak of the Hoover Dam? The Fed's action encourage irresponsible investment and also demonstrating borrowing is the in live style. It is OK. This may comfort a lot of American live by debt but it is not a role model that will rescue them from the hell of debt. The death spiral of America is in motion.

2008.07.12 I am extending yesterday's thinking on Fed raising interest rate to fight inflation.

This is not Volcker’s time anymore. It may back fire. This is my simple mind thinking.

High interest rate works to suppress inflation when your can apply the perfect law of elasticity which will reduce the demand when price is higher. As the result, price has to be lower to stimulate demand. During the beginning of 1980’s, there was oil shock but nonetheless, American consumers could get whatever they want.
The law of elasticity does not work for rare commodities. Rare painting are costing more along with good diamonds. In fact higher price drives higher demands in the rare commodities market. There is a theory saying that if China removes all the subsidises, the Chinese government will not long require to restrict the supply. All the truck drivers will not have to wait half a day at the gas station for rationed gas even they have the money. American may have to pay more to get to these rare commodities. LNG is not shipped to the States because others are willing to pay more.
The dependence of American by Chinese has been continuing its decline. Richard Russell quoted Louise Yamada that Chinese manufacturing only has 25% shipped to America. If the ration situation in China removed, I could imaging the demand shoot up. In another word, like iron ore, China can take them all without sharing it with the rest of the world to make all the car it needs.
Higher interest rate will neutralize the RMB appreciation. The Eurozone will be very happy with this relative devaluation which will weaken the American’s competitiveness with Chinese merchandizes at the low, mid and some high end area. The Pentagon may be forced to buy the Cisco clone router from China. (They did unknowingly due to bidding procurement process.)
Internally, higher interest will imply deflation because people will have less or negative disposable income. In the 1980’s, there is still a reasonable % for the disposable income.

I believe any higher interest move by the Fed will accelerate the death spiral. This death spiral does not only create the economic nuclear winter for the American or the world but it also creates the imbalance of the world power. Like the complex theory’s sand pile experiment, interest rate raise could be the last sand that collapse the pile. When the world power entropy increases, it is never easy to get back to the equilibrium state.

2008.07.11 A very topical question is whether high interest rate could fight inflation? The theory is supply and demand. When the price is high demand retreats. In order to stimulate demand, price will come down. While many familiar with this law of elasticity but they also should know that the demand is directly proportional to the price for scarce commodities. We know oil, grains, base metal and timber are rare because they are not produced as fast as being consumed. This has been continuously reflected in the price of these commodities when people recognizes the supply situation. If this is the real picture, any raise in interest rate will pour oil to fire that increases the cost of the commodity production. The result is higher price. We have already see the beginning of the vicious cycle in energy sector which is also a consumer of the product. Cost has been creeping up about 5-10% of the price every year. There is also another major factor that the high interest rate policy works for a close system. What we are facing now is that if American not going to buy the commodities, the rest of the world will grab it without losing a heart beat.

2008.07.10 Lets count the big cockroaches: sub-prime, Bearnstein, private housing, negative American bank reserves and ignored inflation. What is coming? I collect from the intelligent and no so one: commodity derivatives, over confident oil reserve, weaker and weaker U$ ignored, deeper and deeper credit mode of American living, American centric analysis ignoring world's real situation.

2008.07.03 There may be a weak Canadian Bank recovery. See the chart. The RSI was below and rises to 31. The long term picture has not improved until the 200MA moves up. This recovery could be less powerful than the last one. The volume is just not here.

2008.07.03 The world's markets tumbled. Is it because of the inflation? Is it because of interest rate to be raised? The China Shanghai market has been singled out as sources of disaster because of its recent retreat about 55% since its height at 6100. However, we forget that it was only 1000 in 2005. Investor's emotion has been a part of these volatility. Investment is not emotional impulse. In fact, emotion has to be checked before entering the door. When to realize gain is the technique not less important than entrance. The world's fear of inflation may gain traction when ECB goes ahead with the quarter percent rate increase announced this morning. Yesterday's sell-off could be irrational or getting out of U$ denominated security. The exit of U$ valued stock is evident with a 58 basis point gain in USD this morning which jumps from 72.03 to 72.61 around 8:00 am. The gold price is also in the knee jerk reaction falling U$16. The demand of U$ is for clearing purpose to pay the sold equity. It will fall in a few days. Gold price will return to its ascending course. However, there is also a possibility that Fed could raise interest because of the massive T-Bill held by Sovereign Wealth Funds. With the deterioration of the American economy, raising interest rate will slow down the inflation but at the same time it will also trigger deflation due to reduction of disposable income that could play out a long term economic and social recessing like the 1930. This could be a healthy remedy to heal the ailing American economy but this will disgrace the American's government and world status. Politically it is not a sound move. Another fear was the break down of EEB (The BRIC ETF). The fear comes from the possibility of reducing the demands of material from the BRIC. As the result Canadian oil & gas and mineral stocks were hammered severely yesterday. Among the BRIC, China is the most import heavy. There is a certain amount for manufacturing but that is not for China, yet. It is the world's demand. The rest is for infrastructure built-out. None of them are listed companies. The infrastructure will be fund from SWF, not from the listed companies. I am very hesitate to use Chinese stock performance to relate to the demand. In one of Association for Peak Oil Study, they even point out a possibility to higher demand when the fuel price in crease because of no government subsidize. The people can buy all they want without waiting hours at the pump.

2008.07.02 Dr. Copper may have to share its throne with Nick, the nickel, as the barometer of the economy. In the modern workd, copper is on the infrastructure while nickel is on the frontend of any construction and manufacturing as stainless steel and nickel component alloys are vital to the qualities. Copper has peeked above U$4 again this morning and fell back. Nick peaked to U$24 last April and slides since then with very high inventory level. Although Copper holding its head high but Nick does not have the sign of turnaround. This could be a sign of trouble lying ahead. Nickel inventory is at 5 years high so supply is exceeding the demand. Until the nickel inventory lower we could not confirm a hot economy. It could be lukewarm at best.

2008.06.26 There is a number of commodities in contango which means future price is higher than the spot price. Due to the future commodities price are discounted for the present value, the future's price is generally lower than the spot price if the price is steady. Except during the seasonal changes such as the fuel price in winter is higher, there is no contango. In such scenario you compare the future price of same month of different year. If inflation is mild, contango does not exist. This contango is very serious. This indicates either extreme inflation or extreme demand built-up in future. According to Don Coxe the Fed does not like so many commodities in contango and would do anything to kill it. Yesterday, in a few hours the gold future fell below the spot price before the FOMC (Federal Open Market Committee) fund rate announcement. Right after that the future caught up and passed the spot by end of business day. This morning almost all metals, precious and base, are in contango. I would agree with Warren Buffet that 'I think the 'flation' part will heat up'. So the inflation evident is there. The trend is firm. Fed seems powerless to control the inflation by sacrificing the economy which could be the reason they throw in the towel to control inflation. However European and Asian countries central banks are much hawkish. At the time of writing, USD Index has fallen 70 base point to 72.66 since yesterday morning. More may come. The devaluation of U$ rescued the oil price even there is a ridiculous increase of 2.8M barrel distillate fuel inventory in one week at the beginning of air-conditioning season.

2008.06.25 After a couple days of falling gold price and stronger U$, the Fed watching team finally gets the answer: no rate change. During this period, gold price and U$ has been moving in all possible combinations. Tonight, USD falls 33 base point after the Fed announces the stay put and the USD has sunken below 73 from earlier 73.30. This is a prime example on market can be solvent as long as it want. But someone has to give. Dr. Michael Berry (http://www.michaelberry.biz/) wrote in today's Morning Note that the Fed may have to do two more rate cut due to: 1. inflation is no more a concern now 2. housing market is still free falling. This leads to the fact that we all have to live through this inflation cycle. We have to invest on either wealth storage (such as precious metal) or wealth creator (like great business franchises).

2008.06.19 The U$ has been performing in a sequence of rapid firing going quickly up and then slowly descend. This is not a good sign because this is rumour driven. Strength and weakness come in as a steady force. During the course there will will be bumps and humps as things unfolded. However the main direction does not change. At any moment, the main direction could be persuaded to the sideline either higher or lower due to incidence. The rally of U$ is not necessary has American as the only beneficiary, European exporters too. ECB has been keeping interest rate higher if not raising it to fight inflation, this keeps the Euro high which is not desirable for the European exporter. Any strength of U$ is welcome. Another conspiracy theory is that the SWFs holding U$ as reserve need this propped up moment to divesture their holding. Gold has been performing strongly in the last few days after the fear of strong U$ has been subside when the U$ popped up. Gold is simply performing its function: preservation of wealth as paper dollar devaluate continues.

2008.05.29 The market is at a very sentimental state. What I mean is the market psychology is so emotional that people will blind fold themselves to believe what they want to hear. Even with such adverse environment for the US financial, people believe the Fed could raise the rate which will mean Euro, Yen and RMB will fall. They don't have to do the voluntary devaluation. Such illusion can boost the USD index above 73 today. Fed is using talk of the talk to talk down the commodity to meet the election prophecy. However, American are not conserving because the inventory of hydrocarbon dropped significantly last week according to EIA. Talk is vapourware. It will dissipate. However, this creates the panic amount commodity investors; they sell off. This falls into the hand of those want to cover the short or create another wave of commodities volatility. The demand from American may wane but the BRIC will not. People has to learn how to de-American centric and face the reality.

2008.05.27 USD Index surges 40 points to 72.40 after the long weekend. The rejuvenation by the holiday boosts the rally. Last Thursday, the USD Index was 72.20 with gold price at U$920. Would it be the powerful to knock gold by U$20. Remember this is less than 0.5% and gold has down more than 2%. If you believe the housing problem has finished, one would have to read the fine points. A recovery of 100% from close to nothing is still dismal but the psychology is powerful even with the financial sector's earning power per share has devastatingly diluted. The financial rally and so does the Dow Industry could very possibly building the right shoulder of the right shoulder of the final head and shoulder before the downward roller coaster. Most probably all sectors may be pulled down by it.

2008.05.26 American's NOPEC Bill will create back fire to the American's energy import. LNG has shown the American that if you cannot pay the price somebody can. Pursuing to force OPEC to lower price may have a small political win in a very short period of time. But this will give OPEC the great reason to reduce capital investment to increase output. As the contract expiring, the new one will not be signed with the American because the new buyers (as usual the Chinese and Japanese) finance the new projects.

2008.05.24 Commodity demand is here. So does speculation. Whenever there is volatility there is money and speculator. The bubble creation process is not just the ruthless promotion at the beginning. Once it has started, the future (which uses leverage) will carry the torch and march on. John Mauldin's Thoughts from Front Line on 24th May, titled Wither the Price of Oil?, dissect the current situation. In this article, he points out that commodity indexed investment has grown 20 times since 2003 to U$260B. The holdings include the full spectrum of hard and soft commodities. The fluctuation of the U$260B will play a significant volatility in the market. This also increases the danger of the future driving the spot (a significant factor of bubble). Is there a correlation between the size of commodities investment and the rise in price in a significantly? The article argues both sides. A fabulous piece.

2008.05.23 So far the Dow Averages are sinking. The Industry and the Transport drop 676 and 415 from the recent peak to the lowest on Friday respectively. These are 5% and 7% drop in just 3 days with Thursday a small rebounce. The oversold status evaporated fast. Yet the falling seems no break. The volumes are about average. So are we going to see new low?

2008.05.21 The American and Canadian markets are blood bath. The TSX was OK at the beginning while the Dow Averages were pushed down right from the morning. During the afternoon the selling pressure extended to all sectors. Even the gold stocks were hit while the spot and future are moving higher. The oil stocks were beaten up at the historic high oil price. You can call it profit taking or bulldozed. Does the bear collect its power from the slip of both Dow Averages? It seems more like a fact than a coincidence. If this is a correction, the Averages will go down at least 10% which can break the low of Industry 11740 and 10% down for the Transport to 4855 but above the March low 4398. That 500 points may not be safe because the transportation sector can hurt badly by the high energy price. So it may be saved by the skin of the tooth. Believe it or not, although TSX dropped 257 points but my indicator has not call it a peak although the RSI is at the maximum. None the less, the possibility for TSX to pull back could be high. Don't stand in the way.

2008.05.21 We all claim that there is rule of behavior in the market. Entertainysts, not the analyst, do their fortune telling by reading the tea leaves of different sort (from mini-skirt, to shade of building material, to tone of Benke). This could be a good topic for them. USD Index was at 73.53 two weeks ago which was the high point for the recent rally that took a week to run up from 71.41. With similar speed, it falls to 72.15 this morning. The rally of the Dow Industry has been coincided with the USD Index and the Financial Sectors. Yesterday, the Average started to turn south in a meaningful way along with the Transport. Financial was also moving lower. Incidentally, gold moved up so does the oil not to mention the miracle recovery of silver from below U$16 to approaching U$18. Could someone read the end of the U$ rally and starts the sell off?

2008.05.20 My indicator has an interesting signal. Both the Dow Industrial and Transport are off from the peak. The Transport has an unconfirmed sell signal because it is not at overbought. The Industry is not at the overbought yet so no sell signal. Tomorrow could be an interesting day to watch. If the indices go up, the American bull remains strong. If it turn down, there may be 10% fall which will become bearish on the P&F. By the way, last time both indices topped out at close proximity was July 17,18 2007. The bottom was the August 16 crash. Industry down 10.7% and Transport down 18.9%. TSX topped out on July 19, 2007. Down 14.9%.

2008.05.20 News are spreading that the lending bankers of the BCE deal as backing off. So this is a situation how technologies may help to analyze the situation and to guide the decision making. First of all, we have to identify to existence of such provision (members of the set) in the contract. If there is no such provision, so the probability is be zero. However, the condition can apply to subsequence deals that creates a feedback term for the computation. Since we do not have the contract the most reliable source will be the rumors we collect. From the Ontario Teachers Pension Fund we hear that there is no way to back out. The contract was created during the time of money flood. To ensure no back out, it is possible by simply stating the smallest set of condition of back out that is null. It is doable. Why the bankers make the shot if there is no chance to be fruitful? It is the consequence. It is like computing a series. Each term is depending on the previous term computed. The Teachers could rely on the relationships with the bankers for further deals. The sour taste in the mouth would not be a success factor for next deal. Well, would there be another deal for the Teachers? If the Teachers completes this deal there would be a long time before they could cough up more money for any deal because of the debt loaded transaction and the 'unexpected high number of retirement' at their expected retirement time. If you trust there will be much better economy in the near term, bankers can do business with others vulture, bankers will hard press to break the Teachers.

2008.05.16 Two events create great impact on the natty yesterday. First is the U$840M LNG to gas gasification terminal project at Quebec City will have the investment from the Russian Gazprom. Gazprom will assure the supply 100% of proposed LNG capacity from the Shtokman gas fields. The second is the Canadian governmental panel postpones release of environmental report till 2009. The first will increase the supply of natty (by gasifying the LNG and distributes through the NG pipelines) and the second delays the future supply years after 2014. The first one is more intermediate term because the gasification terminal expansion project will finish by 2009. Gas from Gazprom may not be a good stabilizer for the natty market as we all observe how Russian likes to volatile the price either due to political or profit reasons. The most recent reduction of LNG supply from Saudi to North America was explained as other countries can pay a higher price. China and Japan signed and building gas pipeline for the Russian gas delivery. This will put the East and the West in direct competition on the NG. The Mackenzie pipeline is the great hope that delivers the NG treasure from the Alaska to North America. NG future reacts to these two pieces of news in a slightly positive way. It pulls back from the recent high of U$11.70 to U$11.50 this morning. However I see both events are helping the bull to push the NG in at least short term because it shows the demand exists and the supply is tight. If you check the US NG inventory chart on the Gold & HnCn page, you would see the inventory build up is virtually none. This is also supported by the contango of NYMEX NG contract up to Jan 2009 which sits at U$12.534. A whole U$1.00 premium in the future which is reaching the Katrina height.

2008.05.12 A conglomerate usually has a higher profit margin because it has a better enterprise resource planning. If its components cover the whole supply chain the whole company will benefit from the boom. For example, the train business will provide better service for the coal, the tourist and the cargo delivery during the hay days of CN. The expansion of business around a core is a proven strategy. If you spin off a unit, which IBM was prepared to do so during the end of the 20th Century due to anti-trust law possibility, you have to offer some of the pie to other companies outside the circle or the total profit has been reduced. So when to divestiture? It is the time the innovative supplier is more efficient than you are. This is the time to realize the value. When would one spin off a component? BCE spinning off Nortel to realize the value is a prime example. One should as a question before making the decision: would this line of business grow under my wing? If the answer is yes then it should not spin off.

2008.05.08 How far from the light for the unwinding of the credit crunch? During the last 2-3 weeks, the financial market in North America (which I follow) had some spectacular performance. The exodus of moneys from the commodity to the financial got Don Coxe puzzled. With more and more entertainysts to sing the chorus is over, investors (most probably not Canadians who sit on C$45B cash) jumped on the financial band wagon. The only thing that confirm the credit crisis is over is the showing of improved earning. The earning has deteriorated since 2007 Q4. Yet most overlooked the fact that the earning is at least 2 quarters delay. The foreclosure is getting higher, the value of assets got diluted, working capital continue to scaled down in an alarming rate. All these cut down the earning power of the companies. With the tightening of cost and expense starting 2007 Q3 profit should be up. If the revenue continue to decline with the profit slight up (less than 30%) than the actual scenario may not be pretty. We have to remember the highest impact of credit ill-liquid problem is starting in April. With the banks seize up all the cheap moneys from the central banks, the consumers are not benefiting; not to mention any relief of the problem. The time to get back to financial would be the moment the bank relax the credit and the consumer spending increases. In addition to this, bank profit is coming from the market (or casino as Murray Pollitte put it) and mortgage. When there is low IPO, transaction, and slow mortgage, the profit could not be high. The most recent US' housing industry recovery is only an anticipation for the bottom. There is no fundamental to support that. The increase in buying is just seasonal that entertainysts do not mention.

2008.05.06 Does Dow perform well? This is the question of viewpoint. If you talk about relative it is. If you talk about absolute we have to look at some hard data. One premise that is not arguable is that inflation is much higher than the government's 2% figure. The inflation will be reflected as the increase in revenue (but not necessary the increase in wealth) in a broad spectrum for selected companies that survive the inflation impact. Dow's component companies are these bell weathered companies so that should reflect the inflation plus any growth. The idea way to find out whether Dow companies win inflation we need to find Dow in a currency that has no inflation, no devaluation and no supply and demand fluctuation. which is the reference currency. Let's use the U$ cousin C$ which has been regarded as counterbalanced its inflation by the appreciation. The DJ Industry U$ vs. C$ weekly chart shows Dow in C$ since beginning of 2007 with their respective moving average. The first point I would like to discuss is the declining trend of the DJIA in C$. It slopes down after a big top. The second point is as just important; the 200 MA in C$ are sloping down quite steep which say it is not recovering soon.

2008.05.05 Goldcorp has reported its 2008 Q1 results. One interesting item is the increase of the operating expense by 20%. This is the reflection of inflation. Considering mining industry is energy and material intense, we humble ordinary people, would use less. I cut this by half to 10%. Since Goldcorp reports in U$ by removing the devaluation of U$ by 10% we have 8-9% inflation rate in Canada. This may seems on the high side but it could be very close to the reality because all our daily life are impacted by cost of material and energy.

2008.05.04 Would it be necessary to invest in gold which has the traditional role of inflation hedging? Would it be effective? To answer that you have to believe gold has that ability. For some gold like US$, it is there and someone guarantee the value then why not use the fiat which is much more easy to carry and widely acceptable. Of course the major difference is that you cannot print gold. Economic aside, lets look at history. The following is quoted from the Casey Research's communication on April 30, 2008 with the subject 'Gold Shares: Different This Time?': "During the last major inflationary period in the U.S., 1962 to 1982, gold shares rose, on average, 1,503%." This is annualized gain of 14.5%. The bottom line is: are we going to experience high inflation. The answer is at the supermarket. Check your grocery bill. It does not lie.

2008.04.30 Entertainysts claim the fall of the gold price is because Fed is not going to cut the Fed rate. The USD has bottomed and will rally. Today the Fed indicates the rate cut may not happen for awhile. Immediately USD falls gold rally. Since nothing has done to fix the fundamental of USD its fall should resume especially devaluation of USD is the American governments long term objective so that borrowed money can be pay back much cheaper. Now that the American economy needs the weak USD to compete. There is no way USD will be strengthen.

2008.04.30 Is the market really has the ability to foresee the future or retrospectively it is always right? Let's look at two situations. The first is the rally of Dow before 2:15 pm today. It gains 120 points but end the day with 12 points below yesterday's close. The USD is very close to 73 but shrinks to 72.60 after the market. It may go further while gold shots back another U$10 or so. If the market has discount all these factors the change should not be so rapid in a couple of hours. No good work unpunished. We have to work for the fruit. No thing comes easy. If the market is the crystal ball than the mass will follow which will disturb the original path, this is the first principle of time traveling.

2008.04.18 Transportation always play a major role in economy. It began with wheel barrel but not a major force until we have railway. In the modern world the merchandizes have two categories: tangible and intangible. Tangibles are those with solid property which require physical transportation. Intangible are those do not have a physical, like services. The industry has been evolved in phases. The first phase is the pure point-to-point delivery; the old style postal office that tightly coupled with railway system. The next generation of transportation has to be extended to include accumulation and delivery. Without the accumulation there is no value added to the merchandize. Just like postal service does not boom until the invention of post office (In Japan the accumulation includes $, i.e. saving, and many post office added new delivery type, i.e. money order). Courier service extends this idea further by the pickup and classes of services. The new addition to the second generation of transportation is telecom. The third generation of transportation has to provide more value added to the service; accumulation, assimilation and delivery. This is the knowledge industry built on top of the second generation telecom industry; or the Internet age. Therefore it makes sense to invest in knowledge providers in this Internet age. Would it immune from the down turn of the economy? This is very much depending on the sub-industry. As always, stock picking is tough. Not all transportation stock created equal.

2008.04.17 Uranium stocks have a change of mood; it is moving sideway rather than down. At least in the short term the triple waterfall action has been halted. The bottoming process may be starting. The worst would be a spike which would repeat the November 2007 rally which kicks off the triple water fall. The concern is legitimate because the yellow cake spot has fallen U$3 this week.

2008.04.17 Gold slowly establishes a firm grip at U$950, USD slowly drifts below 71, platinum afloats U$2,200, copper refuses to sink below U$4, oil shoots above U$110 and stays there, natural gas' huge base rockets the price to above U$10 and silver trends its ratio with gold to below 50. All these are the indicator of inflation and devaluation of USD. The JNJ chart on 2008.04.15 could serve as an example how careful we have to evaluate with less bias. The commodity bubble if you call the rapid increase of price is here. However this bubble is not caused by the speculation activity but rather under the law of supply and demand; the physical supply and demand. Differentiation must be made to identify the true appreciation not speculation bubble. You can live without the black tulip. You can live without the huge seaside property. But you cannot live without food. These daily life merchandize inflation is not a bubble. It hurts.

2008.04.15 There is a religiously believe that Dow's global present stocks are sacred and are protected by the oversea revenue while the U$ devaluates. These stocks include Johnson and Johnson and Coca Cola. I just pick one example and see if this conjecture holds any water. The JNJ Chart in C$/U$ and the respective return comparing to the beginning of 2000 has shown there are some shadow in this conjecture. First, JNJ has gain 40% over 8 years which has an annualized return of 4.3% plus its dividend which is about 2.5%. In total it is about 7%. For Canadian holding JNJ will only benefit from its dividend. Canadian may not be wise to invest in non-Canadian security. It may be true not to invest in global equity fund.

2008.04.15 Great comment on inflation and summary of Paul Volcker's speech on current Fed actions from the Guild Management. Please also read the food price inflation article.

2008.04.11 In last fall, banks' results have shown a very positive picture that sub-prime did not touch their earning. Entertainyst continued to down play the damages caused by the sub-prime. Common sense tells us the quarter report usually reflect the revenue committed one or two quarter earlier not driven by the event happened yesterday. Today GE stresses their business is sound with all core revenue except the finance move up strongly. History does not lie but the people lecturing it does. GE's business income are coming from orders 5 and 10 years ago because they are the huge project. The crack shows its shadow through the financial service that supports those sales.

2008.04.07 Reuters reports China will allow the Chinese banks (by implication investment houses) invest the clients' money in American banks and mutual funds. This is under the Qualified Domestic Institutional Investor scheme (from The Chinese Banking Regulatory Commission) which allows these clients' money in Hong Kong, Britain, Japan and Singapore to broaden the spectrum of investment. The timing is interesting because this has to meet two criteria to make the action justified: value and regulatory. The first is not obvious because although the American banks' price has been much lower it is hard to price the value. The second should not be a problem because American government is seeking non-controlling interest investment in its financial systems that could boost the capital supply. This is an example how the Chinese government guides the direction of investment including timing. There is also a very important piece of information: Chinese institutional investors' money is not just parked at Hong Kong. They have spread to Britain, Japan and Singapore. This wall of money will consume some of the gigantic FX reserve which China does not inform the world. While we are watching the hooked punch in fact the FX is slowly but steadily divested to non-US currencies.

2008.03.31 Regarding the US Treasury’s change today, my gut feeling is that I don’t like it. It creates opacity by centralizing. At first glance it seems centralization will easy to spot problem. The reality is the plunge protection team is monitoring everything already. The cracks are observed by outsiders when problems appear. With centralization, the cracks will be much harder to spot.

2008.03.31 We have over 1,500 gold resources companies and over hundreds of uranium resources listed on Toronto exchange but there are only a dozen of gold mines and handful of uranium mines in Canada. You can argue many more overseas but this paint you a picture there are more generals than soldiers. Investing in resources has to be careful. During the weekend, a key water permit of Imperial Oil of Canada' Kearl oil sand project has been revoked. For get the legitimacy of the permit, nonetheless, the progress will be delayed. So it is not necessary safer to invest in super-size companies. They have their share of exposure.

2008.03.25 I have created an index for major Canadian banks. The plunge was not met by the spike of the volume. It was actually the next day. This stirs up some thoughts. A bottom is matched by huge volume. You can explain it by panic sell or institutional buy. However, the huge volume happens the next day and follows seems to me dumping when the situation improves. The lift was coincide with the rescue of Bear Stearns and the bankruptcy protection of the Canadian ABCP which is reported to lost 40% now (who knows what will be the value later). Another fabulous article by Eric Sprott and Sasha Solunac, Here Comes the Helicopter, would help us to apprehend the current situation.

2008.03.25 Dr. Copper has been fallen from north of U$4.00 to the most recent low below U$3.50 before rebounds back to U$3.75 level today. This has been a contradicting scene because the LME stock level was down to about 3 days inventory only. The fall was initiated by China at the Shanghai Future Exchange. We all know that China has been doing this from time to time. Last year it was the rogue trader who short copper and nearly caused the collapse of the market. Chindia's material requirement has never reduced to build the infrastructure not to mention BRIC. We have to understand there should be a short reduction of demand from China simply due to the snow storm which stalled the consumption. As soon as the traffic is got in order, the demand shown immediately. However, we always have to remember due to the material shortage and low inventory, we can have the delusion of oversupply (say inventory jump by 100%) simply due to shipping or someone has to dump the material. Speculation will kill you just like curiosity.

2008.03.19 Within 72 hours, the market's expected Fed fund rate cut of 100 basic point become a 75 basic point reality created turmoil at different levels and at all sectors. Dow went up 400 points on Tuesday and gave back 300 points on Wednesday. If the rate cut is effective the gain should have sustain power. When rate was cut, something happened at the same time that drove U$ up; Japanese Yen went up as high as 98. Yen carry trade unwind continued that pushed up U$ which should fall. The abnormal rises of U$ created an opportunity for those who want to suppress the commodities which should gain because they are priced in U$ that loses value. Let's use quantum theory to rationalize this time rather than the manipulation. This just means the commodity prices fall is only a very short term. The more the deviation from the norm the more potential to go back to the norm. So when gold fell from the high of U$1033 on Monday to U$914.50 on Wednesday, the $118.50 lost or 12% should qualify a correction. From technical perspective, it is a very good thing for the overbought provide it can recover. Tomorrow is the day before the long weekend. Things may change because shorties will worry about the flash points at Jerusalem during the Easter. Literally, gold and oil could recover some of the losing ground. There real test will be next Tuesday when the senior traders return to the trading post.

2008.03.18 Fed cuts the fund rate by 75 basic points to 3.25% which is 25 basic points less than most desired. Anyway, as usual the market rally. Dow up 400 and TSX 184 points. Reviewing the situation, nothing has done to resolve the credit crunch but central bank continue to provide the easy money to the banks. I am not sure the credit card would cut their rate or the long term mortgage rate will be cut because Fed rate affect them. The small investor victims of the house bubble and the credit crunch benefit zero and will suffer the subsequence of devaluated currency. Any 1% of the value devaluated (i.e. foreign exchange rate) could translate to 6% rise in the inflation. USD has been fallen from the 74 at the beginning of the year to the current 72. So 12-15% of inflation will be expected but it would not show up at your next purchase of car or computer but your loaf of bread and the pound of roast beef will definitely be more expensive. Bank stocks had no reason to rally but they went up anyway which is also behaved contrast to the expected yesterday when the bust of Bear Stearns should slump the financial but nothing happened. Gold should rally today but it sacked 3%. If you apply the Punch Protection Theory, it would make sense. The Punch Protection team will buy up the market in the financial sector yesterday and create the rally to sell them today to make a profit. They have shorted gold days before to surpress it to go higher and buries precious metal today to cover their short. They need to refill their ammunition for next battle. If this is the real ugly scene, tomorrow or days to come will be the reverse of today. History may not repeat but this happened last 5 fund rate cut.

2008.03.11 What is wrong with this picture: gold down U$2.00 and HUI up 19 points or 4%? Stock is not really leading the rally it is just play catch up. The volume has not unveil any big money from the institute investors.

2008.03.10 Federal Reserve Board Chairman Dr. Bernanke did his doctoral dissertation on the Depression. We all hear and believe he will mobilize everything to avoid another Depression by preventing the deflation. The path that brought American out of the Depression was through the rebuilt of infrastructure such as highway, dam (the famous Hoover Dam) and many others. Would this trick work this time? I would raise the contrarian opinion that no it does not work unless the education system is reformed not even war. Along the infrastructure work, the good Americans were throwing themselves to the college, university, technical institutes and all higher education. As soon as the society stabilized, the intellectual properties kicked in to boost the industry. We saw the success of numerous examples from Boeing to Howard Hughes, from RCA to National Semiconductor. People who lived through the Depression remembered to make saving and not just money but also knowledge. China is taking this medicine and she grows tremendously. On the other hand Americans have been so well trained to spend there may be a very long period until they are awaken. Until than we see the great American Empire sank like the Great British Empire.

2008.03.06 In an equilibrium economic system all prices bear a ratio against each other hinged by supply and demand. The range has some flexibility. In short term one could be quite deviate but in time they all levels up. Gold and oil has the historic ratio of one to ten. The race of playing catch-up becomes vigorous when oil explodes above U$100. Gold price ascends. Platinum is about 2 time of gold. Now platinum is at U$2,300 range some one has to blink and looks like platinum does not budge. Silver has the historic ratio about 1 to 35 with gold. The parabolic movement of silver could be explained as normal. The near height of silver may be at the range of U$35. A long way to go.

2008.03.01 John Mauldin has a very interesting March 1 InvestorInsight newsletter (Complement of InvestorsInsight) which argues that the inflation is coming down other than materials especially wages. This is could allow Fed to lower interest rate further. This happens to Hong Kong after the boom at the end of 20th Century because wages came down, house price gone up and busted, and high import inflation. The 10 years of economic recession may be duplicated by the North America economic winter.

2008.02.24 How were the Canadian big five banks doing during the financial turmoil in the past 10 years and compare to now? The following chart shows some statistics. All price as adjusted for split and high and low are the inter-days. Please pay attention to the time the drop happened before and after the Fed inflated and disinflated the economy. One could argue the safety of investing in Canadian banks but not all created equal. Looking back, I would ask the question whether Canadian banks are safe for widow and orphan income? Perhaps, because they all increase dividends in the last 10 years and survive these volatility.

From

To

High

Low

Change

%

Bank of Montreal

28-Aug-01

24-Jul-02

$    44.10

$    31.00

-$    13.10

-29.70%

12-Feb-01

04-May-01

$    44.40

$    34.20

-$    10.20

-23.00%

30-Nov-07

21-Jan-08

$    63.44

$    51.35

-$    12.09

-19.10%

Bank of Nova Scotia

16-Apr-98

05-Oct-98

$    22.35

$    11.40

-$    10.95

-49.00%

24-Apr-07

21-Jan-08

$    54.73

$    43.10

-$    11.63

-21.20%

CIBC

15-Apr-98

09-Oct-98

$    59.80

$    24.40

-$    35.40

-59.20%

11-Apr-02

08-Oct-02

$    58.04

$    33.96

-$    24.08

-41.50%

05-Oct-07

21-Jan-08

$ 103.64

$    64.25

-$    39.39

-38.00%

TD

16-Apr-98

04-Sep-98

$    37.38

$    18.75

-$    18.63

-49.80%

13-Apr-99

10-Aug-99

$    45.50

$    24.40

-$    21.10

-46.40%

11-Apr-02

04-Oct-02

$    45.03

$    25.17

-$    19.86

-44.10%

30-Nov-07

22-Jan-08

$    75.00

$    61.00

-$    14.00

-18.70%

Royal Bank

03-Jun-02

24-Jul-02

$    29.45

$    22.53

-$      6.92

-23.50%

21-Aug-01

21-Sep-01

$    26.63

$    20.80

-$      5.83

-21.90%

25-Jan-01

24-Apr-01

$    26.40

$    21.21

-$      5.19

-19.70%

24-May-07

16-Aug-07

$    61.08

$    50.50

-$    10.58

-17.30%

30-Nov-07

21-Jan-08

$    54.50

$    45.15

-$      9.35

-17.20%

2008.02.23 Evolved economy increases demand and consumes the ever limited resources creates a vicious circle of inflation. The rate of inflation is tamed by the outburst of productivity from less developed economy and technology which creates deflation. Whether money system exists or not inflation and deflation are the two forces co-exists and inflation wins at the end. Is recession the ultimate result of economy development with some preceding boom? Many ancient empires disappeared apparently by conquer. With a strong economy and the enforcement to protect its survival either diplomatic or military would provide the proper guard. Would they collapse because of the implosion due to he invisible recession when the military-government complex at its peak?

2008.02.14 February is the light color precious metals month. Platinum started below U$1800 and has broken the U$2000.00 this morning. A change of over 10% in 8 trading days. Silver started at a weaker position that being corrected from U$17.00 to below it. It is stubbornly to refuse going down further after beating after beating. From the low of February at U$16.40 level to this morning's U$17.30 it is another 5% volatility. While Platinum is in an extreme oversold situation but silver is just forming a solid footing to rally. Gold is even more volatile. It has gone through a violent volatility period like last fall. And similar to silver, after corrected to U$888.40 from U$940.30, it bounces back staggerly to the U$910 range. The previous low was U$864.00; a trend that is high low progression. Also worth to notice is palladium has risen from the low of U$360 in January to this morning's U$437.00, 20% gain. All this happens when USD has been strengthened to 76-77 range. Is U$ really bounce back? What do the precious metals tell us? While entertainyst claim U$ is rallying, wheat, soy, coffee, fertilizer, copper, aluminium, zinc and lead are rallying parabolically. Official inflation number is still in the low single digit so that central banks can cut the fund rate. Does it mean the true value of my asset shrinking in fiat money?

2008.02.07 Gold and silver backed off from historic high and have less than 10% correction if it is correction. For the meantime platinum and palladium has leading the recovery and continue to make daily historic high while USD rebound into the low 76 level when Yen approaches 105. Does gold bear come out and reign the market? Gold price's down pressure may come from oil which has continued its down journey but holding to the support at U$86. By reviewing the record, last time USD at 76 level gold was just under U$800 (Dec 07) and just under U$900 (Jan 08). So the premise of weakness does not exist. The ETF Streektrack Gold chart has a reduced volume for the turnaround day February 6. It shows hesitation. There is not heavy volume for the turnaround could mean the turnaround is short live. However, previous pattern identifies this is the situation that people misses the next major movement of the macro trend which is up.

2008.02.04 Gold has achieved meteorite status last week by touching U$940. Two reports provide balanced aspect of the short term and long term view. Complement of Aden's Sisters' Mega Move Underway, Stay with It and Jon Nadler of Kitco.com's Investing 101: Expect the Unexpected.

2008.01.28 Gold makes another historic record high today (U$930.00 for spot and U$929.80 for March) which is interesting in the sense that USD is at 75.50 level which was there a month ago when gold was not at today's high. Does it mean Fed's interest rate cut is priced in? So this is very interesting related to the crude. WTI was at U$86 level last week. Fundamentally nothing really changes but it pops back to U$91 level today also with the gold's rally. So where are the guys talking about recession reduces oil demand? If we apply the quantum theory which does not prescribe a precise position things could be rather the possibility. Last week's oil price does confirm to the quantum theory as price can be any level. This leads an observation that short term movement can be a random walk but long term trend could be precisely. If someone doubt that gold will fall back, they could check gold's future prices. The further it is the higher it is. This is not for a flat commodity price. Another observation is that base metals are climbing back after the weekend dip. While we are watching gold and platinum, silver is stealthily creping back.

2008.01.26 Fiat currencies have reached a critical junction when U$ is capitulated its defense for valid by decidedly lower the Fed fund rate by 75 basis point this week. Its determination to bailout the banker will further be confirmed by next week's FOMC meeting. Should any rate cut you could conclude that the desperation to liquidate the capital market is writing on the wall. However, the help has not included the consumers who drives the economy. Again this is the use of scare resources for the rich that creates further imbalance of wealth. BOE has not given up the fight of inflation but with the deterioration of the economy and the 'rogue trade' and other financial mishaps there will be no alternative but take drastic action to bailout the rich again. Effectively the West gets what they ask for: the appreciation of Chinese Remenbi as Chinese is continue to raise interest rate. Will the world economy collapse? When everyone is measure and compare the destiny of world economy using the American's consumer model, it will be easy to come to the conclusion that world recession will come and the demand for commodities will wither. However, entertainysts overlooked the growth of BRIC is driven in a very small way by consumer economy. The main force is the infrastructure building which is exactly what happened during the 1930-1960 in America. The building of highway system, transportation system, education system and promote the desire to have higher education led to the fruitation of 1970 booming era. BRIC is just doing that. I believe the right question is would the BRIC's infrastructure building accelerate fast enough to fill the gap when the West's consumer economy shrink?

2008.1.25 After a short period of depressing price for the yellow metal, spot touches another new high, U$924.70, along with platinum spot hitting U$1697. It is important in the sense that USD is also rising by 29 basic points to 75.94. Again, this shows the U$ has been dethrone the reference currency status. At the same time it reflects a general inflation when copper, nickel, zinc, lead aluminum which are pushing the recent high rally from the bottom. The weakness of all fiat currencies are also shown as gold rises against not just one single currency but many. Oil supports the rise by moving above the U$90. It would be my speculation that the strength of the U$ is drawn from the gain of gold because of the margin call has to be settled by U$. Just like the carry trade that when JPY rises, U$ rises too. It is too complicated for me.

2008.01.16 During this rough period, the credit crunch has significantly impair many financial institutes' Tier 1 capital. There are ways to restore: raise debt or issue shares. Raising debt is a way of borrowing without diluting the net asset value per share if it is not convertible. The interest rate will be high. Citigroup got the infusion from Dubai paying 14% interest which is 3% above junk bond and convertible. This is not a favourable term. Literally the bank loses its control because of such big banker. Others issues new shares from treasury to raise capital. This is usually done at a very low price which has a negative effect on the share's market price because why investors would pay anything higher than that. However, in short term, the market price may not have to fall to those new issue price. When that happens, the new issue price is attractive and could boost subscription of new shares. But we have to step back and look at the situation to ask the question why someone pay a higher price for the new issues which is going to dilute the per share earning power. One should also consider the possibility of earning growth during the tough time that could lead to dividend cut or yield reduction which will trigger the price fall. Some entertainysts claim that the company can buy back the shares when the situation turns positive which means these new issues will be bought back at a significant high price. Again this increase the cost. The act shows the company is in a desperate situation to get capital infusion; a major deterioration of the internal structure. Could it collapse? This is not the right question. The question we should ask ourselves is whether there is another better opportunity or another better time. Before the mortgage reset completes by 2010, financial sector is full of sharp objects. Scraping the bottom of barrel may not be the best strategy.

2008.01.14 Today, gold closed above U$900 at U$903.40. This is meaningless to me because I see U$920 as the resistance. However, it still may have news value to note this event although the record high has been created daily since last week. The gold stocks are moving feverishly. See the chart.

2008.01.08 Gold sets the historic high days in a role so does platinum. Silver has reach the 52 weeks high while USD has been recovered from the 52 weeks low. USD and the precious metals should move in opposite direction but now the two groups have there unrelated path. It is just like Don Coxe says the precious metals have been compressed and now is the time for them to expand. Tonight gold explodes again. Since last night the Asian market did not beat it down rather started the jump. If it does not beat down the gold price and the trend continue (unless it is a correction) we can call the bull run for precious metal has left the train station when we were not looking.

2008.01.08 Gold resumes its ascend while USD hanging around 76. This is a strange situation because before USD has fallen a bit from 77, gold was about U$820. This could be an indicator for the detachment of gold and USD. If this is true than USD has lost it monetary reference status (Not reserve. If you hold it as money back up for the non-U$ currency it is reserve. A reference money is the foundation of measuring the value of a currency. Gold has been playing this role for thousands of years.) Once this happen, inflation will be springing up everywhere in terms of U$ because U$ loses value so the price has to go up. This leads to another evident that Dr. Copper has been rising from the bottom of Sport U$2.841 to U$3.2 level today. This could be a false indicator for the demand rise. The jury may be still out on the world recession but Dr. Copper's lecture has become more complicated and deceptive.

2008.01.06 To gauge the influence of an economy, you can use either the consumer or the manufacturing economy. American started out as the world's manufacturing leading since WW II, evolved to become the leader of consumer economy. The later led to the implosion of the mortgage by over extending the American's consumer economy. The big question would be 'When the BRIC could pick up the slack?' From Larry Jeddeloh's 2008.01.03 MIR, it quotes Heritage Fund that China has surpassed American to be the leader of the manufacturer economy. Do we see a pattern emerge? At the Eighteenth Century, the Qing Dynasty of China was the world's manufacturer economy so she dominated the world economy. Moving forward to the late Nineteenth and early Twentieth Century, British and Europe were the factory of the world so they drove the world's consumer economy. During the war period of WW II, American emerged as the world leader through its manufacturing. During the war of fighting inflation, China (actually all other BRIC too) emerged as the leader of manufacturer economy. So the question of whether American's recession will spread to the world may be answered. Why? Because demand is always generated from the manufacturer leader. The actual question should be how smooth the transition could be? When fact does not align with perception, volatility is created.

2008.01.02 2008.01.02 At 8:26 AM gold passes U$850. The yellow metal holds on the gained ground to close at U$860.00, up U$22.00. Oil broken the U$100 mark at noon 12:09 but did not hold. However it finishes a new closing high at U$99.62, up U$3.64.

2007.12.31 Now it is official that gold is closed above U$800 at month end ever at the price of U$838.

2007.12.27 Complement of Guild Investment 2008 will be a year where food inflation makes us profits.

2007.12.19 After many attempts by foreign sovereign wealth fund to buy a piece of America and barricaded by the government, more and more such deal shows up: City Group by Dubai and Morgan Stanley by China. There is no change of heart but bow to the reality. Fire sales continues.

2007.12.11 Fed cut twenty five basis points for the fund rate and discount rate. Market went into panic frenzy. Solid gain for bank stocks in America and Canada sold off as well as gold stocks and gold bullion. Richard Russell always says that market discount all possible scenarios but reacts news if does not like. So the market does not like the news. In a down market (especially bear) every stock hurts without exception but some would rebound better than the others. One has to keep his or her cool. As Ron Meisels says "Fear the greed and greet the fear." We are facing the fear now. Give it a few days to settle.

2007.12.11 Copper has been recovering erratically but nonetheless it is recovering from the low of $2.90. Nickel is bottoming since its historic high of $25. If copper is the indicator of economy, the world demand is picking up. If nickel is a future indicator of steel demand (you cannot make steel without nickel) iron mine demand will surge again. The RTZ bid confirms that. The thesis about China and India could pick up the slack on energy created by the Americans if Americans may. All the communting (by public transportation and by car) and the life style make the demand of energy and other resources demands stable. American economy may have a recession but I could see it may limited at the consumer area. Military spending will not slow down in any foreseeable future which will continue drive the demands for base and rare metals.

If I could put the American aside and look at China and India now. Every entertainyst has proclaimed the high inflation rate will kill the growth at the BRIC. Perhaps I could point out the obvious. First, any growing country will increase productivities which will better the QOL which includes wage inflation. This is the result of any industrial revolution if people could study history. For the citizen of BRIC, the only thing they could feel the pinch is diminishing of the growth which inflation inflicts damage. One thing you discussed but not picked up by many is that BRIC (now African) was behind so much, the base of change is so small and change will create high inflation.

2007.12.10 Monty guild's Global Market Commentary, 2007.12.10 The Bail Out Begins in Earnest ... Its Effect Will be More Inflation

2007.12.10 Twenty five or fifty? Of course, this is the number of basis point Fed may cut the Fund Rate tomorrow. Gold has not voted for the fifty basis point which would trigger a fall of USD from the current 76 level to 72 which is a drop of 5 percent. In other word, gold should gain 5% or 40 dollars. How to translate the fund rate cut to the change of commodity price? This is result of a butterfly effect of the complex theory. Whoever say they have a precise way is lying to their teeth; not even with many quantum computers because you cannot identify all the related relationships and factors. Anyway, a 50 basis point cut will push the market much higher because of devaluation rally so does the inflation. Although Fed worry about the deflation which has been ceased exported by the factories of China and India due to the parabolic energy price. All the U$ FX bond and T-bill holders are literally hold American government responsible for the lost of their wealth. A slow gradually devaluation is the normal. But slower the cut the more difficult to liquidify the consumer spending because liquidity inject by Fed to the Banks are soaked up by the Banks to save them. A Dr. Michael Berry says "Fed has been tighten the rate too much too long."

2007.12.10 Gold in C$ makes new 2007 at C$818.14.

2007.12.04 China's exports of deflation may have come to an end as its cost rising due to the energy price. It could be argued that other third world country such as Vietnam or Indonesia could replace China to continue the deflation export. This is the theory but the cost of energy for these countries should rise much more higher than China where the energy cost is subsidized. So the other alternative country theory would not work. The impact to the world in the financial recession is not able to cut too much rate which could boost the inflation. Everyone is expecting the Fed to cut 50 basis point next week. If it happens, it just means the financial system is in great disaster because the liquidity injected by the central banks do not pass to the consumer but used up by the banks. The rate cutting is the only way to liquidify the consumer spending. But this has a very short limit of effectiveness.

2007.12.04 China's Boasteel (the biggest metal conglomerates in the country) is mulling to bid Rio Tinto. China has contracts with BHP which makes an offer to Rio Tinto earlier will not want to see a single dominant in the iron supply in any case. The counter action is a move to ensure the country's demand for high and low time. Should the Chinese economy engages in high gear, the security and supply of iron ore must be guaranteed. In low time, you want to buy the cheapest available by soliciting competitive bids. This event is not necessary a confirmation that China is definitely on the highway of economic expansion. It is just a normal course of action to protect the supply security and deploy the massive FX reserve. This is the reason Chinese government is involved. China's Baosteel mulls Rio Tinto bid: report China Daily, 2007.12.04

2007.11.20 Today Chinese Premier Wen Jiaboa told a business audience in Singapore that it had been coming difficult to manage China's U$1.4T FX because its value had been under unprecedented pressure. This is old news. What we should read is the U$1.4T FX. After China's FX investment fund, the buying of overseas stakes, even with the monthly monster grow, it should not be U$1.4T. This gives the listeners the illusion that the diversification has not begun which is a tactic but not a fact. The actual amount in U$ would be hard to determine but could be just above 50% now.

2007.11.15 Has US$ falls too fast? You bet. It is no good the the current holder and this could be the reason why bipolar messages have been sent out by China. Cheng Siwei (Vice Chairman of the Standing Committee of the National People's Congress of China) said diversification. Today, Yi Gan (Assistant Governor of the People's Bank of China) said the dollar has to be continue as key component of the country's U$1.4T reserve (Why it is not from the Governor? Another personal comment? There is no such thing as personal opinion in China.) according to a China Daily report on 2007.11.15. Anchor does not means remaining at the current percentage and does not exclude including other value store such as gold. In fact if China wants to own gold, the simple and straight forward way is to buy an African gold producer who is suffering by a heavy hedged book. She can take the lost but get the hands on the yellow metal.

2007.11.14 What is the relationship between oil, gold and USD? The first two used to be moving in the opposite direction of USD. Today, the USD moved back to 75.81 from low 75 but gold and oil moved quite a bit higher. This could be explained as the detachment of these two groups. Oil and gold represent their stories. USD is no more the only string attached. Another explanation is that the rebound of USD does not steer its downward direction.

2007.11.11 The world's financial train their scope at the Dow Jones Industrial Average to see whether it would breaks below the August 16 12,845.78. This number has enormous importance to Dow Theorist because this would confirm the rare bear signal. Technician will watch the down trend because S&P 500 or Whishire 5000 is already trending down. While everyone is holding his/her breath, Yen carry trade is unwinding. If Yen continues to rise, selling pressure on market to raise money will be mounted. This would accelerate the decline of the market and enlarging the fissure. Tomorrow will not be just another day. We can just hope for a miracle.

2007.11.08 On 2007.11.07 Cheng Siwei, vice chairman of China’s National People's Congress suggested that country will diversify its foreign exchange reserves. It will seek “strong currencies over weak ones.” Many Entertainysts dismissed the importance of this because they do not understand how the Chinese government and media work. First if it comes from any official document it is too strong. Panic will be much worse. Second, when some one in the National People's Congress they speak for the government. Third, when Chinese high rank says some thing, it has already started unless a tangible project is described. The panic sell-off for the U$ is a normal reaction but it could be a little bit late. Just think about the consequence if Chinese government did not execute that earlier. We have the gray matter between our ears, it would be nice to put it to work.

2007.11.06 Oil hit U$97 while USD dropped below 76. USD fell one percent so oil went up about three percent. Not gold. It gone up 1.5%. Even in C$ (U$ fell 1% against C$) rose C$2. This can mean gold is not just rise against U$ but others. In another word, inflation overnight was about 0.3% in Canada? Horrible. Gold's triple identities (wealth storage, fiat money guarantee, and jewelry) have been exploited Entertainysts to explain everything. If gold is just a metal, it should reflect the jewelry demand. Why it moves in reverse direction of U$?

2007.11.04 My yesterday's Sovereign Wealth Fund conjecture is inspired by an article from Guild Management titled Where has the US Dollars gone? published on 2007.11.01.

2007.11.03 American's financial sector cockroaches have a stamped all levels en masse but many investors have not paid any attention yet. Since the financial sectors around the globe are interconnected. No one region's financial companies could be immune. The deterioration is at the corporate level but this does not exclude the impact of consumer. The car manufacturer (without sub-prime financing, car sales is difficult) Chrysler has started the layoff. The spending rate of American must be self-constrain to conserve the personal wealth to reduce the debt burden which could have very negative consequent down the road. The best scenario would be a certain point of deterioration the Sovereign Wealth Fund will take advantage of the situation. The American government will no long able to refuse. The history has been repeated but this time the beneficiaries are the non-American rather than the British, French, etc.

2007.11.01 After the rate cut, USD did not fall but rises from 76.43 yesterday afternoon to 76.83 this morning (RSI broke 70 twice). From the FX trader perspective, they may see the bottom which is a short term view because what they see is an artificial limit. Gold has been retreated may be due to profit taking. Oil did not but you can explain it with all the geopolitics. This is an inconsistent picture which means some fact is not right. With all the rosy picture painted by an orchestrated effort of the American government (to ensure tax revenue), bankers (to ensure business), analysts (to ensure their job) and media (to ensure the sales) USD could rise until another bad news break. A typical triple waterfall model.

2007.10.31 Now that you know the Fed cuts quarter of a percentage. But the message we should take home is that it may be a long while before another cut. Fed could not cut any more until the bankers (T-Bill/T-bond/U$ holders transfer their U$ to assets). Market has been cheered too early.

2007.10.31 The continuous showing of cockroaches in the American banking sector has changes the credit rating of many companies related to banking, mortgage and lending, and investment. There has been huge write off such as the U$7.9B by Merrill Lynch (Merrill Lynch Q3 2007 Report announcement, 2007.10.24). More such write-off may be reported by other financial institutes in the year year end report due to the credit rating change. Canadian banks are regards as immune from the impact which could be proved to be a perception. First even the Canadian banks have minimal exposure but they could be caught by the downdraft. In fact banks around the world could be. Second, banking activities have been seen as a must for the growth component of any bank. Operating in the United States will get infected by the cockroaches. Caution should be put on assessing the Canadian banks.

2007.10.23 WTI Crude was closed at U$87.56. The price dropped to U$85 during the night session. The U$2.00 drop was caused by the expiring of the November contract yesterday end of day. The market expects the demand and/or Middle East Turkey/Kurd conflict resolved quickly. With the situation escalating, the WTI jumped from the session open this morning U$85 to $86 in an hour. Gold fell U$10 when USD rose above 78 yesterday and recovered U$5.00 after the USD fell to 77.70 this morning. All these indicates supply and demand law temporary gone out for a short vacation. Panic, greed and manipulation reign the market in short term. Retail investor could be roasted if the macro view is not maintained.

2007.10.18 Gold at 27 Year High; Platinum & Oil at Records, 2007.10.18 By Mary Anne & Pamela Aden

2007.10.17 With a hint from BOC's David Dodge on rate cut, the Canadian stock market rally is expected. At the same time this will slow the influx of capital into Canada until further details to prevent FX lost. However, this will definitely fire up acquisition train engines from various capital markets around the world.

2007.10.16 Gold and USD are moving in tandem again. USD has bounced back to 78 while gold continues its rally above U$760 for both spot and December future. The spot price rally above $760 is a significant mark because this confirms the continue upward momentum. The future is still U$2.00 above the spot also indicates there is believe the future will continue rather than a spike of geopolitics which is the current play. As the result, crude stays above U$86 due to the risk premium as well as the weak USD.

2007.10.16 CITIC eyeing stake in Bear Stearns, FT.COM October 16, 2007. After one year of offering its financial infrastructure to the American to build the network and learn the intricacy now is China's turn to take a pound of flesh from the hunter.

2007.10.15 WTI crude explodes above U$84 which I see it as a critical barrier has a significant meaning. This break up paves the way to U$90 in the near future but also implies USD will fall to a significant level most probably at 75 in a very near term and 72 in near term. Oil demand may be up a bit but the rise of energy is now fueled by the devaluation of U$. Canadian investor enjoy a moment of happiness today because C$ falls. However, if Mark Carney, incoming BoC governor, does not lower the value, the manufacturing and energy sector could suffer. Yet there is always the silver lining. Foreign investors may find it warm a fuzzy to have a brave currency that will appreciate against other currency. But this has to be fortified by a clear Canadian FX policy. This could be the reason why no line up to take out the extremely undervalued Canadian natural gas companies.

2007.09.29 USD closed at 77.625 on yesterday; down 62 base point. The intraday low was 77.58 with the open price at 78.18. This violates four indicators: daily close low, weekly close low, monthly close low and quarterly close low. If these indicators mean anything then it could point to further slide of the USD. What we see here is the Dec 07 future contract which means at some point someone will use it for international trade settlement. Should this does not rebound, it confirms the weakness of USD. We should watch its fall to 73.5 level. Gold is moving inversely to USD because of its wealth storage property. P&F for gold points to a whooping U$930 target. I would settle for U$760 as the very near term target. Would this be an extreme overbought if no correction from now to then? In U$, gold is parabolic. In C$ it has just cross the 200MA C$739 this week. This is bullish but not overbought. Perhaps we should start to use non-U$ currency to review the trend of gold.

2007.09.25 Finally, someone in the money business makes a simple and authorative comment on the proposed Canadian income trust tax changes. Seymour Schulick, a self-made entrepreneur and creator of C$200M endowments around Canadian college and community points out the changes would hurt the retail investors not those guru who sell them and pocket the money in this video.

2007.09.21 DOW could be doubled but the purchasing power might be halved. Many analysts are bullish on American’s stock. They are right but they may forget the purchasing power is falling faster than the rally of DOW. In last few days, DOW should be better than the July high but it does not. This reflects the gain in DOW could not catch up the fall of purchasing power. Even with the devaluation rally, I believe the US stock market does not store the wealth. It is just better than holding cash.

2007.09.20 I am wrong. Parity is here.

Gold may not need a base before attack U$760 even its RSI is pushing 80 or should I say C$760 since USD has broken below the very important psychological barrier at 79 .

2007.09.19 After the Fed's fund rate cut, the USD dropped drastically. Since then there was an effort to prop it up and pushes down gold as usual. The following chart shows that USD jumped last night against several currencies but inevitably weaken again. The process was very volatile. For the meantime, nickel which is my indicator for civil construction has continued its recovery after the low in August 2007 along with the LME inventory growth. Nickel gained about 4% today after 7% gain yesterday. This has been confirmed by copper's another 3% gain. The central banks' recent actions to increase liquidity also fuel inflation. American may go to stagflation while the rest of the world is in inflation. In the short term, we should watch gold carefully. Most recently the Commercial has increase 20K short contract. The rally in gold yesterday will initiate short covering for sure. We can only say gold is on its due course up if the price could be stablized in a week. Gold future's RSI is also above 70. Gold could have a correction or sideway if USD holds. This is a very difficult market.

2007.09.18 USD's fate has been sealed. Inflation wave will roll in. USD is just a thread above 79. Crude stays above U$82. Base metal is pushed higher. Today could be the break through day for precious metals price.

2007.09.17 "The government of Queensland, Australia has prepared a report warning of massive social dislocation, rising food prices and infrastructure problems because of rising oil costs. The report on the looming "peak oil" crisis concludes that we will have to re-think the way we live and travel in the next few years as cheap liquid fuels fade away." from Peak Oil Review 17 September 2007 published by ASPO-USA.

2007.09.15 According to Scotia Mocatta's Report September 10 Report there is an increase of 20K short contract by Commercial the week before. It will be interesting to see how the gold play out when USD falls.

2007.09.11 Gold broke U$700 then U$720 with oil broke U$78 again. Even the spot gold stands above U$700. This is impressive. But will the gold suppressing group stand sideline and does nothing. May be this time because they have working on the money pump to pump out liquidity which afloat gold. BRIC will grow their demand but will their demand growth dove tail to the fall of American. If not there will be a period of stagflation. Investor should consider utility for income and gold for storage of wealth in time and space. However, utility are either seized by private equity or too high the price in Canada. One may consider high quality Canadian income trust which more or less status quo until 2011.

2007.09.07 Thomas Hoenig, President of the Federal Reserve Bank of Kansas City & U.S. Treasury Secretary Henry Paulson Offer Their Outlooks On The Economy on PBS's Nightly Business Report 2007.09.07

2007.08.28 The other shoe of Fed finally dropped this afternoon. The markets react negatively. People are alleging the "no action" of Fed, which reads no rate cut, ignores the urgent need to bail out the credit crunch. These short sighted people are just ignoring the bigger picture Fed to maintain: the value of U$. As the credit crunch unfold, it is no more localized to American but global. It is not only consumer but also asset backed debt. All these just aligned to a very soon show-up cockroach: impact to the consumer means reduction of business. Business cycle will be slowed and this just means next shoe of negative iteration that will affecting commercial properties. This could start from the small business and easily percolated to mid-size and large enterprise. The best would be confinement of these problem in America only.

2007.08.28 From my study on natural gas supply, it has indicated the supply is tight to very tight. During last weekend, the natural gas price at NYMEX dropped 25% from its recent high of U$6.940 to U$5.380 yesterday. Today, it pops up to U$5.64 level, up by 6%. Apparently this is not supply and demand in action. Not even hurricane Dean can do that because it never threats the Gulf. The market has become very irrational. Any market timing trading is brave.

2007.08.23 "MARKET TALK: Toronto-Dominion 3Q Results Should Be A Relief" is a headline for a Dow Jones Newswire. Since many of the cockroaches did not appears until two weeks ago, how could the market fall be reflected in 3Q? It also puzzles me why this provides any confident assurance and comfort. Perhaps we could have a better picture in 4Q earliest.

2007.08.21 First cockroach housing price slump, second cockroach subprime mortgage, third cockroach CDO, fourth cockroach LBO money dry up, fifth cockroach asset backed commercial paper, sixth recession?

2007.08.18 BMO Capital Market's Chief Economist Sherry Cooper says in an interview that "The worst is now over in financial markets." Abby Cohen also said the same thing before the Triple Waterfall of the tech bubble burst. In the same well balance article it points out the credit problem still hidden and exists. Financial Analysts are not fortune teller. They do not know the future but a real one know what are the precautions to handle one. We need to prepare the worst and hope for the best but not panic. All the dividend you are receiving from your energy stock, bank stock and utility may not change until we see a global slow down which has not showing yet.

2007.08.15 The market continues the crumble trail with no other trend in sight. This could be caused by the further rise of the Yen. It hits 116.24 this evening. As the squeeze continues market crunch will last and more margin call will be made so investors will sell in panic. People temporarily lost faith in the financial sector where it has been hit hardest and most and most volatile. This crunch is not a localized trend because event retail investors could buy global stocks. So the margin desk is working overtime around the clock.

2007.08.14 Boris Sobolev of Resource Stock Guide writes that Asian countries do not have to sell the U$ T-Bond yet; they just can just stop buying U$ T-Bond. So the U$ could depreciate slowly. As such, the daily fluctuation of U$ does not imply a gold bull market. http://www.kitco.com/ind/Sobolev/aug142007.html.

2007.08.09 If correction means 10% fall, 10% of 14,000 will be 12,600 then there is another 1,000 points to go from today’s 13,652. More, it only stops if no more subprime and other concern. The economy’s infrastructure has fractured by subprime and could deteriorate. American asks Chinese to appreciate the RMB because this will mean inflation will be fueled. Not sure if this is a good thing to ask.

2007.08.04 Yield Chaser.

2007.08.03 If you invest in a stock which maintains its dividend yield and have share price appreciated, you could have a high income source. More details could be found in Yield Chaser.

2007.07.28 Two Chinese automakers merge may signal the beginning of ferocious efficiency improvement for the budding Chinese automotive industry. This could be a sign for second Chinese automaker export to the world after Chery. More details on this merge is reported in Carkmakers set to join forces, China Daily, 2007.07.28

2007.07.23 DJIA gains 100 point and every American analyst hale to the market and celebrate the bull is live and strong. Lets take a look on the dirt under the carpet. One month ago DJIA was 13,360. Today it is 13,943. USD slipped from 80.50 to just the skin of tooth above 80.00. The buying power of USD dropped 1%. The market gained 4%. This is just reflection of losing currency value. Nothing to be happy.

2007.07.22 Pamela Aden says gold and interest rate move in tandem in an interview by Smartstox http://www.smartstox.com/interviews/a_pamela_aden.php.

2007.16 Iran will settle oil sold to Japan refineries in JPY and Russia is considering to sell Ural oil in rubbles. USD is on a very slippery slope.

2007.07.16 Brent crude has touch an 11-month high at U$77.68 last Friday which is only about U$1.00 shy from all time high U$78.65 which was higher than Katrina attacked the Gulf in 2005. Should you sell your oil stock and buyback at lower level, good for you. Otherwise, why not keep it when the macro trend is up and avoid missing the boat. The essence of investment other than make money is to know the rationale of executing the trade not someone told you so or insider.

2007.07.14 John Mauldin in his weekly Outside the Box says "Wal-Mart sales were up a higher than expected 2.4%. They noted that home goods and apparel sales were weak but that grocery sales surged. No kidding. " The real sales is actually shrinking in America. This is may be true to some extend in Canada.

2007.07.12 USD to JPY has fallen from 123.466 on July 10 to today's 121.724 after peaking at 123.962 on June 23; more than 1.5% in a few days may signal the rapid rise of the JPY, momentum likely to continue. This will evaporate the spread for Yen carry trade. Those borrow Yen to buy U$ for lending in subprime world will have a double squeeze. More severe market, consumer and economy impact will surface.

2007.07.11 "OPEC can do nothing about high oil price: Qatar", Financial Post 2007.07.11. When your oil reserve is at draw down mode and the currency you are paid is losing purchasing power, why would you like to reduce the price. It is the same argument that we would like high paid to combat inflation or should I say fiat currency deterioration.

2007.07.05 John Budden has opined that the carry trade is a wild card for the US market. The spread between the low Japanese interest rate and the high interest rate of the North American bond could be evaporated in a nanosecond when the Yen goes up. Although Chinese will use the FX reserve to invest in world security but it does not mean they would buy at high point. It may not be wise to count on these moneys to push the Dow or S&P higher and ignoring any down turn risk.

2007.07.04 China is advancing her automotive manufacturing agenda aggressively through Chery. Its most recent actions include a deal with Daimler/Chrysler to export small car to Latin America in one year and to US in 2 1/2 year. Chery also signs a deal with Italian Fiat Group to supply 100,000 petrol engines to latter for cars built both in China and abroad. Fiat is going to spend 16 RMB in China and forecasted to sell 263,000 cars a year by 2010 (30,000 cars in 2006).

2007.07.02 USD is challenging 81. U$ is losing ground to every currency today. I just hope the firework could be held after the 4th of July.

The Chinese U$203B special T-bonds for forex may be late.

China issue U$203.49B special T-bonds to buy forex (http://www.chinadaily.com.cn/bizchina/2007-06/27/content_903838.htm) may provide a cushion for the fall of the weak U$.

2007.06.20 China has done a couple of things very sensible to manage her neck braking growth. First is the crack down on the slave child labour which would be unheard ten years ago due to its scandal nature. The crack down may not even happen due to the corruption. This is progressive. The second thing is to encourage people to invest sensibly using their saving rather than speculation to fight the growing pain of inflation. The open of stock exchanges in China is the result but abuse also follows. Chinese government has measures to discourage speculation by raising transaction tax (stamp fee), loan reserve and rate. Bloomberg has reported PetroChina may raise U$6B in Shanghai Exchange (http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aBBNdEcetuk4). This could mean Shanghai Stock Exchange may not have major market correction in short term. It is also a measure that will lure Chinese to invest in quality security and share the wealth among people. Progressively we could see more activities to introduce investment in stock market to Chinese citizen. This is a very important step to balance to Yuan revaluation and strong inflation. China could not let the citizen lost their wealth in the saving account.

2007.06.18 Canadian Dollar vs US Dollar

2007.06.11 China's Aluminum Corporate will buy 28% of Canada's Peru Copper has two interesting meanings. First, to support the electricity demand, 40 nuclear generator and over 400 coal fired generator will be built. This requires huge amount of copper for the dynamo. So you could expect copper supply will be tight in the coming decade. The secondary effect of energy supply will be demand for higher Quality of Life. As Dr. Michael Berry (http://www.michaelberry.biz) says QoL will generate demand. The second people has been focus on the U$200B investment corporation managed by the China government for its surplus, please do not forget, this does not include the investment oversea by other companies (state own or not) like CNOOC. This is a way to allow the hot money from China to combat the global inflation. To understand the requirement of copper, you could read Dr. Berry's fabulous Morning Note on June 11, 2007 at http://beearly.com/pdfFiles/MNs%20Mon%20June%2011%202007.pdf.

2007.06.010 American continues her untired effort to push Chinese Remenbi up and even using WTO to threat China. In fact Remembi is the slowest appreciation currency. If it is up, it is still the cheapest manufacturer of the world but the good in Wal-Mart will be up accordingly which means higher inflation. Is American really ready to hurt is already week economy caused by the collapse of housing market?

2007.06.07 The world has started a flurry of raising interest. Fed Chair Dr. Bernanke makes hawkish statement to raise interest to fight inflation. Is he going walk the talk while the secrete prayer is to have a weak U$. Now the prayer is answered. As for Canada, the C$ has been appreciate so much that it is equivalent to raising one percent of interest. Any further appreciation to U$ will deteriorate further the export to US. A tough day for the central banker of North America.

2007.06.04 Bank of Canada is facing a very tough decision while Canadian Dollar has hit the exchange rate of U$0.94 cents. in 2000, the rate was about U$0.66. The C$ has appreciated almost 50% against the U$. Since American is Canada's major import country, this should translate to a deflation of 8%. However, what we have seen is the continuous inflation which reduced by Chinese imported goods which will inflate along with the rise of Remenbi. The deflation has never shown up in any American imports. The manufacturers have never benefit from this ghost deflation. Interest rate is the only tool for Bank of Canada to combat inflation but raising interest rate will not help rather it will kill Canadian manufacturing industry, unacquired junior miners and energy producer. The cause of inflation is high Canadian Dollar and higher energy price. Raising interest rate is not the solution but it could accelerate the inflation. The component in the price that contribute to the inflation is the energy cost and reduction of profit from export. The price has to be increase to accommodate that. Energy price will not be tamed by higher interest rate. Export profit will diminish with the raised rate. An indirect way to tame inflation could be done by enforcing the profit from lower import cost to be passed on to consumer. Raising interest rate will just intensify it.

2007.05.31 China has implemented a very sensible measure to control the inflation of the Shanghai speculation bubble by tripling the stamp duty of stock (transaction tax) to 0.3%. This rate will have significant impact on frequent traders because this could literally triple the cost for day trader. For long term investors, this change has minimal impact. The Chinese government is on the course to promote long term investment to combat the inflation due to blooming economy and currency revaluation through more investment vehicles (see China: 2007.05.29 for more details). At the same time, she puts more pressure to the unhealthy investment practice of speculating by mortgaging your house. American does not speculate as much but they mortgage their house for their spending. I just would like to see other country could have such a magic hand to balance such situations.

2007.05.30 India has never been a communist country. In fact it has quite a bit of rough history with her communist neighbour China while courted by the Soviet Russia. Starting right after the independent from the British, it is a free trade country with the West. During the late '70, WIPRO, Infosys and alike attracted many computer giants to set up off-shore offices or subcontract to these India high tech titans. TATA was subsidized by the Indian government to become the world's largest steel manufacturer. In Tom Friedman's 'A Brief History of 21st Century' he regarded India is the leader and China is the challenger because the infrastructure established decades earlier than China. Yet you hear the Chinese leads the manufacturing in LCD TV, engine parts, magnetic levitated train and even going to build super jumbo class of air carrier. This is obvious decade ahead of India. The following special series from PBS's Nightly Business Report provides a glimpse to the mystery. http://www.pbs.org/nbr/site/features/special/IndiasPromise_special/ With India going to surpass China's 1.3 billion population at 1.6 billion, the country is a boom, or in Dr. Berry's word, Quality of Life will improve. The demand on commodity will rise. The withering American military industry is seeing opportunities from India's military U$30B spending spree: Delhi's Defense Spending Spree, Spectrum Magazine June 2007. It is interesting to see how the India military integrating its Russian based weapon system to the American. Mr. Putin may have a concern.

2007.05.29 While the world is worrying about the Shanghai stock market's stellar performance for a correction in short term Chinese government is unleashing more vehicle to invest which covers the state-owned enterprise. However, there will be measure for protection. It would be interesting to see how these rule may spread to the current listed B shares. http://www.chinadaily.com.cn/bizchina/2007-05/29/content_882425.htm.

2007.05.26 According to Reuters, China is the second largest exporter of toothpaste to the United States behind Canada. This trigger my thought about the future of J&J/P&G. Would J&J/P&G’s future be tarnished with the growth of the Chinese personal hygiene products? This has an implication on the thesis of investing US based global large cap equity which becomes very popular. US global large cap will continue its strength for awhile until the Chinese counter parts grow up. I use Taiwan’s computer OEM industry as example. Twenty years ago, they started with small PC OEM contracts with American computer manufacturers. Now most American PC are made by Taiwan companies in Taiwan or China. At the same time, their own brand names Acer/Asus are competing with the American ferociously. Perhaps the alternative way to invest globally can go back to the fundamental methodology by identify potential stocks around the world rather than assuming the US large caps are the safe bet.

2007.05.24 Quantum Theory of Investment

2007.05.17 The natural gas supply of American is in trouble. EIA releases the NG inventory as of last Friday was 1,842 BCF comparing to 2,067 BCF in last year same period. This an almost 11% reduction while the NG should be building up for the summer electricity generation. If the trend continues into June, we shall see NG and electricity price go up so does the cost of your backyard barbecue.

2007.05.16 Microsoft sues Red Hat for software patent infringement, reported by CNN on May 14, 2007, http://money.cnn.com/magazines/fortune/fortune_archive/2007/05/28/100033867/. While this will be a long a winding process to the final verdict, this is the reality for freeware user who should aware such legal entanglement. In an application, development cost should include the coding and design, and testing, as well as the less accounted for support and sales. The coding could be as small as 10%. People usually overstates the benefit of software by consistently emphasis the zero cost which is not true.

2007.05.14 This quarter is definitely the quarter of uranium. It is not so much that uranium rises above U$100 and many uranium stocks reach all time high and fall back. This quarter is the launching of the uranium future at NYMEX and the IPO of the Global Uranium Fund which is an ETF with holding in uranium stocks. Uranium spot market has been the star performance but the small market is very volatile due to no visibility of the future price. The future price could have a glimpse from the term contract but it is a bilateral agreement between the buyer and seller. The trend is not quite accurate not to mention the confidential nature. With the NYMEX's uranium future contract starting from May 4, 2007, the visibility higher. The price will be stabilized a bit and reflect the demand better. Nonetheless, the share and sport supply of uranium would be tight due to the IPO of Global Uranium Fund. As the result, the price could have a small rally during summer but pull back by fall.

2007.05.07 Thanks to Eugene Chan, this webcast is a must read: http://www.vcall.com/IC/CEPage.asp?ID=116593. This shows how a real manager can make a difference for those closet index hugger.

2007.03.19 Thanks to Eugene Chan who locates this wonderful video: The truth about the Federal Reserve System.

2007.02.28 After the exciting freefall yesterday, the market seems recovering from the mass sell off trigger by the Chinese stock markets. One should understand the bubble has been there for very long time. Chinese government has been muscling all efforts to reduce liquidity to contract the bubble. The burst of bubble will drain the saving and put a brake on Chinese economic machine which will have severe consequence as discussed in the 2007.02.21 article. However, once the agenda is set in motion, it may not be easy to stop. Chinese government would do as much as possible but not at all cost to savage the situation. Investors should not regard today's recovery as the end of the action. One should prepare more negative action could follow due to the triggering of margin call on hedge funds. I quote John Budden's suggestion here: "Sell to the sleeping point for what you don't feel comfortable, buy small portions to average down." If it does not average down, you will be just doing OK.

2007.02.21 China's Egg Shell Economy

Chinese central bank People's Bank of China raises the deposit reserve ratio by 0.5% starting February 25, 2007. This will take away 150 billion yuan from the money supply. Some criticizes the measure is ineffective to reduce liquidity. I believe it reflects the true intention of the Chinese government to control the growth through bankers by selecting business more selectively without shocking the economy. At the same time, it still discourage saving (high interest rate encourage saving) and encourage spending which is a method to fuel internal growth; a way to reduce trade surplus by balancing the demand between internal and oversea market. Despite all the noises made on the effort to slow down economy, this policy could mean a continuous growth on Chinese economy (to ensure employment), slowly appreciate the yuan without losing the price competitiveness before shifting the product from low to high price and reduce the foreign current reserve. News on the topic: http://www.chinadaily.com.cn/china/2007-02/18/content_811689.htm.

2007.01.27 Investment or Gamble

Money Matter: 2007.01.18 Middle East (Iraq, Iran, Lebanon and Afghanistan) has become the Indo-China Peninsular of the 1960 which provided a great opportunity to grow the military complex. The consequence of that was the boosting of American industry and economy but also created the Japan economy empire. This time with the huge deficit, the trick may not work and has the possibility of bring down the American empire like the British Empire after the two World Wars of the Twentieth Century. During which the Brits incurred enormous debt to the American. This time China could reign the world when American fighting the wars and fixing the deficit.

2007.01.13 Uranium stocks may be going to take a breath after two-three years of running. Details please see Uranium.

2006.12.22 Geopolitics in Middle East at Afghanistan, Iraq and Iran has turned to nuclear direction. Oil supply is at stake. Israel is possibly aggressively to defend its interest. Would this leads to a situation combining the 1967's Middle East Six Day War and Vietnam which created oil shock in 1970's and gold spike in the 1980 (observed by Larry Jeddeloh of TIS) . A report from Roger Wiegand on precious metals. Be-aware of the volatility of the energy, precious metals and base metals especially the U$'s value is in doubt.

2006.11.18 An interesting report by Aden Sisters June 2006 issue.

2006.09.27 Market Entropy

2006.09.19 SCO

2006.09.18 Natural Gas Price

2006.09.17 Potential Problem of American Banks

2006.09.08 Jack Field Oil Discovery

2006.09.02 China is gaining weight in IMF

2006.08.21 China: Pick your poision

2006.08.12 American high-tech economy battle ground

2006.07.11 Increate rate may not curb inflation

2006.07.07 Trading Stocks

2006.06.30 A herald to diversify China's foreign reserve from US$. Action could come soon including converting the US$ to gold. China central banker urges reserve diversification, China Daily, http://www.chinadaily.com.cn/china/2006-06/28/content_628079.htm. The ideal course of action should be smooth and gentle. Any sudden fall in the value of US$ is a lost of China's foreign reserve.

Rules are made to be broken 2006.06.30

Canadian government apologizes for Chinese Head Tax 2006.06.26

Get on the bandwagon 2006.06.21

Which G8's economy is smaller than China? 2006.06.20

Beneficiary of Plummeted Gold Price 2006.06.13

U.S. Offers Iran Talk 2006.05.31

How real is high priced metal? 2006.05.26

Is China Iran’s white knight? 2006.05.07

China raises lending rate causes gold up 2006.04.27

Is Africa next economic power house? 200604.27

“China’s industry rise no threat to US” Gutierrez 2006.04.01

Asia consumer market 2006.03.24