China wants Europe to solve its own problems

Oops. How quickly the confidence of change fades when reality remains unaltered. China smart enough to distance itself from a savior role that must come from within. A savior must demand one currency, one debt, and plenty of devaluation.

Headline: China wants Europe to solve its own problems

LONDON: China has stressed it will not be a ''saviour'' to Europe as the Chinese President, Hu Jintao, embarks on an official visit to the continent that will take in Thursday's crucial Group of 20 summit in Cannes.

The warning came as the European Commission President, Jose Manuel Barroso, and the European Council President, Herman Van Rompuy, urged G20 leaders to use the meeting to address Europe's debt crisis, saying measures proposed last week were not enough by themselves.

The French President, Nicolas Sarkozy, has said Beijing has a ''major role to play'' in proposals to expand the European Financial Stability Facility to €1 trillion ($1.32 trillion), possibly through a special investment vehicle that would attract sovereign wealth funds.

Advertisement: Story continues below However, Mr Sarkozy came under fire from opposition leaders for seeking China's help.

Source: smh.com.au

Japan intervened to stem yen's climb: finance minister

A sharp decline and bearish setup in the Yen's diffusion index (DI) last week illustrates how leveraged money flows often anticipate headline events.

Yen (FXY) and the Commercial (C) & Nonreportables (NR) Traders COT Futures and Options Stochastic Weighted Average of Net Long As A % of Open Interest


Headline: Japan intervened to stem yen's climb: finance minister

(Reuters) - Japan intervened unilaterally in the currency market to weaken the yen after it scaled another record high against the dollar on Monday, Finance Minister Jun Azumi said.

Tokyo's foray into the market -- it's second in less than three months -- follows repeated warnings by policymakers that they were ready to act to prevent the yen's strength from hurting the world's third largest economy.

The dollar spiked more than 3 percent to as high as 78.55 against the yen from around 75.65 yen and a record low of 75.31 yen touched earlier on Monday.

Azumi told a news conference the solo intervention started at 10:25 local time (9:25 p.m. EDT). He declined to comment on the size of yen-selling, but added Tokyo would continue to intervene until it was satisfied with the results.

Source: reuters.com

Still Work To Be Done In Silver?

Most likely.

Commercial traders' (smart money) long and short postions showed massive long buying and short liquidation towards the end of the D-wave decline in 2008. This was the perfect money flow setup. A similar setup is underway in 2011. Massive short liquidation, defined by statistical concentration, will likely mark its end in 2011-2012.

Silver London P.M Fixed and the Commercial Traders COT Futures and Options Stochastic Weighted Average of Long & Short As A % of Open Interest


Smart money wants (needs) to cover its shorts. Who will be the source of selling?

Silver's bounce from the October low has attracted retail buying (see red circle). Smart money will likely target thse new longs in effort to further reduce their short positions as they did in 2008.

Silver London P.M Fixed and the Commercial (C) & Nonreportables (NR) Traders COT Futures and Options Stochastic Weighted Average of Net Long As A % of Open Interest

Hi Eric is it possible for us to make the chart Silver or Gold COT ZScore weighted average of long and shorts as a % of OI?

It is ineteresting to see how that % evolves in the coming weeks before we will/could have a real advance out of these prices.

Gretings and thanks for the site.

Bert

Gold And US Dollar As Safe Havens

Capital will increasing seek safe havens of gold and the best looking horse in the glue factory – the US dollar as debt crisis worsen in Europe despite political assurance. That’s why the breach of the down 45 line in 2009 in the US dollar index has raised some eyebrows of concern.

U.S. Dollar Index

EU Debt Deal Not A Lasting Solution

Distribution in the Euro demands objectivity replace europhia towards the proposed EU debt deal.

Euro ETF (FXE)


Headline: Eurozone debt deal tackles symptoms, not cause

Eurozone leaders are as far as ever from finding a lasting solution to the bloc’s underlying problem of economic divergence, despite their latest progress in managing the symptoms of its debt crisis.

The complex agreement reached in Brussels in the early hours of Thursday lends credence to the view that the euro zone will somehow muddle through. But it is not the Grand Plan that optimists had hoped for: what was the 14th summit in less than two years to tackle the crisis will not be the last.

“This is another step in the right direction, but it is not enough to get us to the end game,” said Stephane Deo, chief European economist at UBS. “It buys time but it does not address the fundamental problem of the sovereign debt crisis.”

European equities and the euro rallied after the summit exceeded markets’ modest expectations. Banks agreed in principle to a 50 percent reduction in the face value of their Greek bonds and leaders said they intended to increase the firepower of their financial rescue fund to 1 trillion euros ($1.4 trillion).


But nearly 35 percent of Greek bonds is in the hands of public institutions such as the European Central Bank (ECB) and is not subject to the mooted writedown. As a result, Greece’s debt would still be an eye-watering 120 percent of gross domestic product in 2020 — exactly the level of late 2009.

And even that assumes decent economic growth and ambitious structural reforms including large-scale privatisation of state assets.

“From the macroeconomic point of view, if it’s purely a 50 percent ’haircut’ on the nominal bonds, without an extension of the maturity and a reduction of the coupon, I’d still be reasonably suspicious about the sustainability of Greek debt,” Deo said.

REASONS FOR SCEPTICISM

Greece, however, has become something of a sideshow. Investors long ago judged that it was not just illiquid, but insolvent. Much more critical is what the euro zone could do to prevent the debt rot from spreading to bigger, systemically important but stagnant economies, notably Italy.

Markets will have to wait for details as to how the European Financial Stability Facility will be scaled up; whether the likes of China will top up the bailout fund; and how operationally it will enhance the credit of member states’ new bonds.

But some analysts are sceptical. Economists at Royal Bank of Scotland said they expected markets to reprice sovereign debt across the euro area given the size of the losses imposed on Greece.

Expressed as the “net present value” of the bonds, the proposed loss will be close to 70 percent, much more than the 40 percent hit that banks had volunteered to take, RBS said.

What’s more, the EFSF will be too small to offer help to any country that might need it for any length of time. And a promise by governments to help banks regain access to long-term bond market funding implies they will have to assume extra contingent liabilities, thus adding to their debt burdens.

“We find no convincing arguments in the new policy response to suggest that sovereign bond spreads in the euro area will tighten meaningfully vis-a-vis-Germany,” RBS said in a note.

Italian 10-year bond yields did in fact fall 11 basis points on Thursday to 5.81 percent. But they were still around 30 basis points higher than in early October when the leaders of Germany and France promised a far-reaching solution to the debt crisis.

Source: business.financialpost.com

Max Keiser: Debt slash = debt hike, collapse guaranteed!

Economy grew 2.5 pct. in Q3 as consumers rebound

Now there's shock, consumption rebounded unexpectedly.

We've been unexpectedly consuming our way to prosperity since 1982. The path was so obvious that we went all-in on consumption by 2000. Yet, despite this obvious choice, social discontent continues to grind higher under the constant suffocation of debt, job loss, and chronic under employment.

Also, advanced GDP estimates which tend to be accurate as weather forecasting only through observation of today’s conditions are often revised beyond recognition when no one is looking.

Personal Consumption Expenditures (PCE) As A %GDP and Personal Consumption Expenditures As A %GDP Average from 1947


Headline: Economy grew 2.5 pct. in Q3 as consumers rebound

WASHINGTON (AP) -- A summer of modest economic growth is helping dispel lingering fears that another recession might be near. Whether the strength can be sustained, though, is far from clear.

Buoyed by a resurgent consumer and strong business investment, the economy expanded at an annual rate of 2.5 percent in the July-September quarter, the government said Thursday.

The expansion, the strongest quarterly growth in a year, came as a relief after anemic growth in the first half of the year and weeks of wild stock market shifts.

The economy must grow at nearly double the third-quarter pace to lower high unemployment, which has been near 9 percent for the more than two years since the recession officially ended.

And though consumer spending was triple the level of the second quarter, Americans earned less, on an inflation-adjusted basis, in the July-September period. That meant that many people financed their spending binges by cutting back on savings. Few economists think that can continue.

Source: finance.yahoo.com

Occupy Wall Street Clash With Police Illustrates Democrats’ Political Risk

The movement, while still fragmented and disorganized at the moment, represents far more than political risk. As time passes, it will organize and cross party lines. The lack of a politically acceptable response will lay the foundation for a well-organized, third party in the US.

Headline: Occupy Wall Street Clash With Police Illustrates Democrats’ Political Risk

Clashes between members of the Occupy Wall Street movement in Atlanta and Oakland with police followed by dozens of arrests underscore the hazards for Democrats in embracing the burgeoning movement.

“With any nascent movement like this, there are always going to be risks because they haven’t clarified what they stand for,” said Glenn Totten, a Democratic political consultant in Alexandria, Virginia. “Anytime you take to the streets there’s an inherent sense that you are somehow rabble-rousers.”

The demonstrations, which began in New York on Sept. 17, are aimed at the financial industry and driven by the nation’s growing wealth gap. The top 1 percent of earners saw their inflation-adjusted, after-tax earnings grow by 275 percent between 1979 and 2007, while those with incomes in the bottom 20 percent saw an 18 percent increase, according to the nonpartisan Congressional Budget Office.

In Atlanta, police arrested 53 people early yesterday as they cleared a park that had been occupied by protesters for more than two weeks, according to the Atlanta Journal- Constitution. Police lobbed tear gas at protesters in Oakland Oct. 25 as they dismantled a two-week-old encampment and made more than 100 arrests, according to the Oakland Tribune. Police said protesters threw rocks and bottles at them.

Not Afraid

Patrick Bruner, 23, a spokesman for the Occupy group in New York, called the arrests “unconscionable” and said the protesters will not be deterred. “What the police and government seem to not have realized yet is that we are done being scared. They can’t frighten us away from exercising rights. Every time they attempt to shut us down we only grow stronger,” he said.

Source: finance.yahoo.com

Euro deal leaves much to do on rescue fund, Greek debt

Trend energy reveals that downside force has been dominating the Euro’s recent trading range. This is illustrated by a series of lower highs and lows in REV(E) since mid 2008. While the Euro has rallied on news of an enhanced bailout, it has yet to reverse its footprint of distribution.

Euro ETF (FXE)



Headline: Euro deal leaves much to do on rescue fund, Greek debt

BRUSSELS (Reuters) - Euro zone leaders struck a last-minute deal to limit the damage from the currency bloc's debt crisis early on Thursday but are still far from finalizing plans to slash Greece's debt burden and strengthen their rescue fund.

After a summit in Brussels, governments announced an agreement under which private banks and insurers would accept 50 percent losses on their Greek debt holdings in the latest bid to reduce Athens' massive debt load to sustainable levels.

Reached after more than eight hours of hard-nosed negotiations between bankers, heads of state and the IMF, the deal also foresees a recapitalization of hard-hit European banks and a leveraging of the bloc's rescue fund, the European Financial Stability Facility (EFSF), to give it firepower of 1.0 trillion euros ($1.4 trillion).

European stocks surged to a 12-week high and the euro shot above $1.40 to reach its top level against the dollar in seven weeks following the deal, which had appeared at risk due to deep differences between Berlin and Paris.

But key aspects of the deal, including the mechanics of boosting the EFSF and providing Greek debt relief, could take weeks to pin down, meaning the plan to rebuild confidence after two years of crisis could unravel over the details.

"I see the main risk is that we are left waiting too long again for the implementation of these agreements," European Central Bank policymaker Ewald Nowotny said on Thursday. "Speed is very important here," he told national broadcaster ORF.

Source: finance.yahoo.com

Brown to seek sweeping pension cuts

Will Californians greet Greek-style austerity measures with open arms? While Europe may have kicked the can down the road, the problem of excessive debt remains. A test of resolve will come when the wolfpack turns on Italian debt.

Headline: Brown to seek sweeping pension cuts

SACRAMENTO, Calif. (AP) -- Gov. Jerry Brown will propose sweeping rollbacks to public employee pension benefits in California, including raising the retirement age to 67 for new employees who are not public safety workers and requiring state and local employees to pay more toward their retirement and health care, according to a draft of the plan obtained Wednesday by The Associated Press.

The governor will also propose Thursday a mandatory "hybrid" system in which future retirees would get their retirement from a guaranteed benefit and a 401(k)-style plan subject to market whims. For employees with at least 30 years of service, retirement benefits would aim to replace about 75 percent of an employee's salary through retirement funds and Social Security, according to the draft.

The plan, as drafted, also would end so-called pension "spiking" that lets employees boost their payouts by including overtime and other benefits, and end the practice of buying additional service credits.

"It's time to fix our pension systems so that they are fair and sustainable over a long time horizon," Brown said in a prepared statement to the AP. "My plan raises the retirement age and bans abusive practices like "spiking" and "air time" while mandating that public employees pay an equal share of pension costs."

The administration estimates its proposal would save about $900 million annually.

Source: finance.yahoo.com

DeMark Says S&P 500 May ‘Trap’ Bulls After Rally

Let's counter balance some of the euphoria today. The list of negative divergences and intermarket nonconfirmations are growing by the day, but rising prices tend to override their message. While negative divergences can reverse, they often persist quietly ignored until a sharp and unexpected decline confirms their presence.

Gold, silver, equities, and movable assets will be driven higher by currency devaluation. Today’s bailout announcement out of Europe is yet another example of currency devaluation in response to excessive debt burdens. Europe provides more funds to bailout its banks, essentially kicking the can down the road, and the equity markets around the world respond to the devaluation.

Be warned, kicking the can down the road is no solution. As long as negative divergences exist, unexpected declines within an increasingly violent trend will be the norm rather than the exception.

Headline: DeMark Says S&P 500 May ‘Trap’ Bulls After Rally

The Standard & Poor’s 500 Index may climb above its close yesterday before starting a retreat in the next three weeks that will “trap” bulls, said Tom DeMark, the creator of indicators to show turning points in securities.

After the decline that began today ends just above 1,200, the benchmark gauge for U.S. equities may rally about 5 percent and begin a process that would signal another drop, DeMark said. The index’s peak will come in November after it closes higher on four to six successive days, he said.

“The market is going to build a trap, and many of the people who are bullish are going to be trapped,” DeMark said in an interview today on Bloomberg Television’s “Street Smart” hosted by Lisa Murphy and Adam Johnson. “It’s going to be tired and disappoint everyone.”

The S&P 500 fell 1.9 percent to 1,230.63 as of 3:45 p.m. New York time, after rallying 3.7 percent over three days.

DeMark said on Oct. 18 that the S&P 500 would climb to 1,254 before reversing and falling more than 5 percent. The index closed at 1,254.19 yesterday. His prediction last month that a decrease in the index that started Sept. 16 would end at 1,076 proved prescient when the gauge bottomed at 1,074.77.

Source: bloomberg.com

Argentina Orders Oil, Gas, Mining Firms To Repatriate Export Sales

Capital flows are impeded by centralized policies always redirect. Any centralize policy that diverts capital flows from its domestic economy is certain to carry unintended consequences that ensures its future failure.

Myopic policy choices invariably sacrifice long-term economic goals for short term political gain. That means past political speeches, choices, policies, etc. with subtle changes for time, place, language, and names could very well be cut and paste over time.

Headline: Argentina Orders Oil, Gas, Mining Firms To Repatriate Export Sales

-Argentina orders oil, gas and mining companies to repatriate export proceeds immediately

-Mining industry probably most affected by the presidential decree

-Decree is most recent attempt by Kirchner administration to staunch capital flight

(Updates throughout with background)

BUENOS AIRES -(Dow Jones)- Argentina on Wednesday ordered oil, gas and mining companies to repatriate all of the proceeds from their export sales as the administration of President Cristina Kirchner struggles to staunch capital flight.

Argentines and foreigners pulled $9.8 billion out of the country in the first half of the year alone by one measure of capital flight tracked by the central bank. Those outflows are widely believed to have accelerated in the third quarter as investors became increasingly worried about Kirchner's high-growth, high-inflation economic policies.

A presidential decree published Wednesday in the Official Bulletin abolished regulations that allowed oil and gas companies to freely dispose of up to 70% of their export revenues. Mining companies, which up until now were largely free of foreign-exchange restrictions, will also have to repatriate all of their export proceeds.

The new foreign-exchange rules aim to give "equal treatment to all productive activities," according to the decree, which is effective immediately.

Exports of copper, precious metals, oil, natural gas, and related products totaled about $7.7 billion in the first nine months of the year, according to national statistics agency, Indec.

Nomura Securities said in a note the measure could represent between $3 billion and $4 billion through the end of the year, allowing the Central Bank of Argentina to reduce the pressure on its international reserves.

The impact on oil and gas companies could be limited as Argentina has applied onerous taxes on oil and gas exports for years in order to force producers to supply the domestic market.

Source: foxbusiness.com

NYSE Accumulation or Distribution?

Head and shoulder patterns tend to be symmetrical. The right shoulder formation must test support on lighter volume for the pattern to be reclassified as accumulation rather than distribution.

If the 1x1 Gann line, a measure of equilibrium between supply and demand, is broken to the downside it suggests that the next lower angle will become support. This would be the 2x1. Price’s hold above the 1x1 is tenuous at best right now.

NYSE Composite

Felix Zulauf: The Die is Cast

Felix Zulauf is always worth the extra time to read or listen.

The highlights:

• We are on a spiral caused by mass credit creation, excessive borrowing, reckless spending, and a enormous credit crisis. The end result is inevitable, and most likely unavoidable.

• The Europeans have created their own credit crisis, and it is attributable, in part, to the creation of the EU. They EU is following a path similar to what the US went through n 2008-09.

• There will be yet another bailout in the US and QE3 (or more) — but not until the situation gets much worse; That refers to both the market and the economy.

• There was a window for an Austrian economics solution, but that opportunity has passed. Worse still, imposing Austrian economics on weak countries here and now will only make the situation worse, causing a recession or making any contraction worse.

• Equities remain in a long term secular bear market dating back to 2000, one that is unlikely to end before 2017.

• Multiples will compress over this time period. Look at more than P/E — consider Price to Sales as well.

• Of all the currencies in thew world, the US Dollar is the least ugly. That says less about the Greenback than it does about the Euro and Yen.

• The Eurozone was problematic since its inception. You cannot have a monetary union but not simultaneous fiscal union.

• Policy makers inevitably punish savers.

• Germany is the creditor to the rest of Europe. Given their history, their biggest concern is hyper inflation, while nations like Greece, Italy and Ireland are facing deflation.

• Watch for rising populism in response to economic turmoil. It is already happening in Europe, and will eventually come to the US.

• The political situation in Europe is unlikely to improve until the crisis is much worse. The same is likely true in the US.

• There will be an eventual repricing of all currencies.

• Greece may very well will leave the Euro, but Italy is probably to big to do so.

• Countries that can print & devalue their own currencies get to invite tourists, stimulate economy, and climb out of their morass. Tied to the Euro, they simply cannot.

• There is no currency that will retain its value over the next decade except Gold. Every other currency is in a race to print and devalue, inflating away the debt.

• There is no price target on Gold, but he expects higher prices, and perhaps significantly higher prices over the next decade.

Eurozone Setback Sends Gold Futures Surging

"The perception now: further monetary easing from the European Central Bank may ensue."

How is this news? Policies choices constrained by the realities of politics inevitably follow the path of least resistance. The path of least resistance will be currency devaluation disguised as unlimited quantitative easing - QE(n).

Headline: Eurozone Setback Sends Gold Futures Surging

Traders and investors say safe-haven buying has fueled a spike in gold Tuesday morning as traders and investors rush in from sidelines into the precious metal.

December gold futures have surged nearly $50, topping $1,700 an ounce, while gold priced in Euros has rallied above 1218 an ounce, another key technical level.


Reports of the cancellation of a meeting of European finance ministers that had been set to take place ahead of Wednesday's highly-anticipated summit of European leaders was one of the primary factors spurring buying, traders say.

The perception now: further monetary easing from the European Central Bank may ensue.

Source: cnbc.com

Overextended States With The US Union

Headlines: The Little State With a Big Mess

On the night of Sept. 8, Gina M. Raimondo, a financier by trade, rolled up here with news no one wanted to hear: Rhode Island, she declared, was going broke.

Maybe not today, and maybe not tomorrow. But if current trends held, Ms. Raimondo warned, the Ocean State would soon look like Athens on the Narragansett: undersized and overextended. Its economy would wither. Jobs would vanish. The state would be hollowed out.

Source: cnbc.com

Headline: Bankrupt Harrisburg, Pa. cancels Christmas

(AP) HARRISBURG, Pa. - Santa Claus isn't coming to town this year for Pennsylvania's financially struggling capital city — at least not to its annual holiday parade.

City officials have canceled the Nov. 19 event because organizers were not able to raise enough money. The parade needed about $25,000 in financial support, but donations have fallen far short, parks director Brenda Alton told The Patriot-News of Harrisburg.

"We had one letter of commitment and one verbal commitment," she told the newspaper.

Source: cbsnews.com

Another Sign of Distribution

Recognizing distribution (from strong to weak hands) before the panic is never easy. Signs of distribution are often revealed well before the fact.

History tells us that when the s*** hits the fan unlimited QE will unleashed in the heat of panic. The panic, however, will be sequential. The weaker prey must culled until only the world’s reserve currency stands against the wolf pack.

Chicago Fed National Activity Index (CFNAI) and S&P 500 Average


Source: chicagofed.org

Signs of Distribution in Euro Suggest Caution Towards Risk Assets

Global markets have been held captive by endless policy discussions out of Europe. Equity traders vacillate between risk on and off with every hint, allegation, and the rare sprinkle of truth, while long-term investors, frustrated by the volatility, throw their hands up in disgust. If European policy has become the tail that wags the dog for equities and other risk-on plays, the message of the Euro currency market should be the center of attention.

Euro Tape Observations:

1. The retest of the 2009 low on higher volume in 2010 suggests not only increasing downside force within the trading range but also a future retest. A break of the 2009 lows with force will signal a "break through the ice" and the beginning of a mark down phase.



2. The retest of 2009 high on lower volume in 2011 suggests decreasing upside force within the trading range.



3. REV(E) is tracing out a pattern of lower highs and lows while price remains range bound since 2009. REV(E), often referred to as trend energy, analyzes the force behind the trend. Point 1 & 2, as well as REV(E)'s negative divergence with price illustrate classic distribution.



4. The 9/9 breakdown gap on the weekly chart between 140-141 is pulling at price like a magnet over the short-term. If price fills and closes below this gap on lighter volume, it would be yet another sign of distribution.



5. Caution must be extended to risk on assets until distribution turns to accumulation in the Euro.

Euro ETF (FXE):

Stocks Accumulation or Distribution?

Richard Wyckoff, a master of reading the tape, was only interested buying or selling mark up or down phases or what are commonly referred to as trending markets. While Wyckoff recommended against trading non-trending phases, often described as accumulation or distribution, he studied them closely in order to act quickly when price either "jumped the creek" higher or "broke the ice" lower.

The charts below examine the last two accumulation and distribution periods for small cap stocks.

Chart 1 shows a consolidation phase from June to September after the flash crash of 2010. While investors focused on the possibility of sticky fingers slamming stocks again, they likely missed a growing positive bias in trend energy - REV(E) within trading range. This positive setup hinted that demand was slowly overwhelming supply and a mark up phase was fast approaching. Price jumped the creek in October.

Chart 1 Russell 2000 ETF June-September 2010


Chart 2 illustrates a classic distribution setup. Stocks settled into a trading range after the Japanese quake from March to July of 2011. Trend energy, unlike that displayed after the flash crash, was displaying a negative bias (no new highs) and downward trend as price remained range bound. This setup reflected distribution masked by price until ice was broken in August.

Chart 2 Russell 2000 ETF March-July 2011


Chart 3 studies the current consolidation after August's sharp decline. Does supply/demand setup represent accumulation or distribution? It's impossible to say with 100% certainty until price either “jumps the creek” or “breaks the ice”.

The negative bias and downward trend in trend energy, however, implies distribution, again masked by price. In other words, watch out for thin ice in the coming months as long as this setup remains in place.

Chart 3 Russell 2000 ETF August-Present

EU Actively Mulls Temporary Bans On Sovereign Ratings

Rating agencies react to market factors, not the other way around. That's why S&P’s rating change (downgrade) of the US was met not with panic but rather indifference in the US Treasury market. Go ahead and ban sovereign ratings altogether. The decision won’t stop the wolfpack from culling the weak.

Headline: UPDATE: EU Actively Mulls Temporary Bans On Sovereign Ratings

BRUSSELS (Dow Jones)--The European Union's executive is leaning toward proposing a ban on the issuing of sovereign credit ratings for countries in bailout talks, European internal market commissioner Michel Barnier said Thursday.

"I think it's legitimate to have a special treatment when a country is in negotiation or is covered by an international solidarity program with the IMF or a European solidarity [program]," he said.

Barnier said if the Commission comes to the view that rating for these countries are inappropriate, "we could ban it or suspend the rating for the ...

Source: online.wsj.com

Credit Trends At Commercial Banks Warn of Trouble Ahead

Credit growth, the lifeblood of capitalism, remains weak in the United States.

Highlights:

• Real estate loans, representing only 37.4% of total credit, continues to contract at a steady rates. Home equity loans and residential and commercial loan (mortgages), key sub sectors of real estate loans, are all contracting. The US economy, largely consumption driven based on leverage provided by the real estate sector, will face significant headwinds as long these trends persist.



• Consumer loans, representing only 11.7% of total credit, have contracted for the sixth straight month. Consumer loans which include credit cards loans have decayed steadily since early 2010.



• Business and commercial loans are the only bright spot. They continue to up tick since bottoming out in late 2010. Business loans, unfortunately, only account for 14% of the total credit created.



• Cash assets sharp year-over-year up tick and rising percentage of total bank credit in early 2011 provided a clear warning of trouble times ahead. This message has not changed.

Breakdown of Total Bank Credit All Commercial Banks:

Deadbeat State: Ill. Owes Billions in Unpaid Bills

Illinois is not the only cash strapped state within the US union. If the public sector (state or local) cannot pay, the formula’s trend, already under pressure in 2011, will weaken significantly in 2012.

Headline: Deadbeat State: Ill. Owes Billions in Unpaid Bills

Drowning in deficits, Illinois has turned to a deliberate policy of not paying billions of dollars in bills for months at a time, creating a cycle of hardship and sacrifice for residents and businesses helping the state carry out some of the most important government tasks.

Once intended as a stop-gap, the months-long delay in paying bills has now become a regular part of the state's budget management, forcing businesses and charity groups to borrow money, cut jobs and services and take on personal debt. Getting paid can be such a confusing process that it requires begging the state for money and sometimes has more to do with knowing the right people than being next in line.

As of early last month, the state owed on 166,000 unpaid bills worth a breathtaking $5 billion, with nearly half of that amount more than a month overdue and hundreds of bills dating back to 2010, according to an Associated Press analysis of state documents.

Source: abcnews.go.com

German Bund sale undersubscribed as risky assets rise

Centralized governments, also known as debt junkies, are having trouble getting their fix. Short term trend changes US Treasuries and US Dollar confirm it.

U.S. Dollar ETF


U.S. Treasury Bond ETF


The wolfpack, already wreacking havoc in Europe, will turn on the world’s reserve currency when all the easy prey have been culled without drastic, preemptive monetary changes. Unfortunately, history says don’t count it. Central planners will be using their own verison of the broken arrow call when it happens.

Headline: UPDATE 1-German Bund sale undersubscribed as risky assets rise

By Kirsten Donovan

LONDON Wed Oct 19, 2011 7:11am EDT

Oct 19 (Reuters) - Germany saw poor demand for its 10-year bonds at an auction on Wednesday as a modest pick up in equities hit appetite for safe-haven debt and low yields failed to lure investors.

It was the second weak result in a row for Germany, with a 30-year bond sale last week also technically uncovered despite chunky cash inflows from coupon and redemption payments.

Shares and the euro were higher, and German Bund futures lower, before the sale on optimism policymakers will take major steps at a weekend summit to resolve the euro zone debt crisis.

Source:reuters.com


JB Slear
Fort Wealth Trading Co LLC.
866-443-0868 Ext 104
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Don't risk what you cannot afford to lose....

Goldman Advises The Fed To Go Nuclear, And Set A Target For Nominal GDP

Market forces will have “gone nuclear” on nearly all central banks before this crisis is over. Smart ones that understand market forces and capital flows have not been increasing their gold reserves because of intense jewelry demand.

Headline: Goldman Advises The Fed To Go Nuclear, And Set A Target For Nominal GDP

In his latest US Economics Analyst note, Goldman's Jan Hatzius offers up his suggestion for the next phase of Fed policy.

With short-term interest rates near zero and the economy still weak, we believe that the best way for Fed officials to ease policy significantly further would be to target a nominal GDP path such as the one shown in the chart on the right, indicating that they will use additional asset purchases to help bring actual nominal GDP back to trend over time. The case would strengthen further if deflation risks reappeared clearly on the radar screen.

Source: businessinsider.com

Berlin dampens summit hopes, banks under pressure

Policies designed to “save the day” for the status quo tend to come after, not before, the crisis.

Headline: Berlin dampens summit hopes, banks under pressure

DUESSELDORF, Germany/LONDON (Reuters)- - Germany lowered expectations on Monday of a breakthrough in the euro zone's sovereign debt crisis, saying a weekend summit of EU leaders would not produce a definitive solution, in comments that pushed down the euro and European stocks.

Financial markets have risen in the last week on hopes that the 27 European Union leaders will agree on a comprehensive plan to draw a line under the two-year-old crisis, which is weighing on the world economy.

But German Finance Minister Wolfgang Schaeuble said in Duesseldorf on Monday that while European governments would adopt a five-point platform to address the turmoil, it was wrong to expect miracle cure from the summit.

"We won't have a definitive solution this weekend," he said.

Source: finance.yahoo.com

A Turn In Silver May Have to Wait For The Shorts to Cover

A confluence of buying and short covering by commercial traders often precedes major turning points within the secular trend. The chart below reveals the statistical concentration of buying and selling of commercial traders (smart money). L%WA and S%WA illustrate statistical analysis of their long and short positions, respectively. Any reading beyond +/-2 sigma records statistically significant concentration of buying and/or selling.

D-wave decline tend to display specific money flow setups. Smart money tends to strengthen its hand by aggressively buying and selling during fear-based declines directed at the weak hands. While commercial traders’ buying has been significant and concentrated (2.66 L%WA), their short covering has been relatively lackluster (-0.67 S%WA). In simply terms, this setup suggests that smart money, while aggressively buying, has yet to cover their shorts with a sense of urgency often found at the end of D-wave declines.

Smart money still has too many shorts left sitting on the table for traders to reach that “ah-ha” moment in silver. The masters’ of paper control will attempt to reduce their short into weakness, possibly extreme chop, in the coming weeks/months.

Can the commercial traders effectively clear the decks against the weak hands one more time? Only time will tell. Silver is volatile game that demands respect from those that sit behind the curtain. Waiting for specific money flow setups before risking capital is an integral part of maintaining that respect.

Silver London P.M Fixed and the Commercial Traders COT Futures and Options ZScore Weighted Average of Long & Short As A % of Open Interest

US gov't runs $1.3 trillion budget deficit in 2011

Whether stocks are rising or falling over the short-term, the chart below clearly suggests that very little has changed since 2001. The budget deficit as a percentage of GDP, -8.7% of GDP as of September 2011, continues to deteriorate within the second pause of the secular downtrend that began in 2001. A downside break the current consolidation channel will foreshadow not only economic weakness but also another headline named crisis. The "crisis in Europe" has potential to sell fear. The downside break of consolidation in the summer of 2008 preceded the “Lehman crisis” by a mere three months.

US Federal Budget (Surplus or Deficit As A % of GDP, 12 Month Moving Average) and Gold London P.M. Fixed:


Headline: US gov't runs $1.3 trillion budget deficit in 2011

WASHINGTON (AP) -- The government ran a $1.3 trillion deficit for the budget year that ended last month, the third straight year it has operated more than $1 trillion in the red.

The 2011 budget deficit was the second highest on record. It's slightly ahead of the previous budget year's $1.29 trillion deficit but below the $1.41 trillion imbalance record in 2009.

A decade ago, the government was running surpluses and trillion-dollar deficits seemed unimaginable. But those deficits now loom over tense negotiations in Washington.

Lawmakers are under pressure to agree by Thanksgiving on where they can cut $1.2 trillion over the next decade. If they cannot, automatic cuts to Medicare, defense spending and other critical areas of the budget would go into effect in Jan. 2013.

For 2011, the government had to borrow 36 cents of every dollar it spent. The string of massive debts has made interest on that debt the fastest growing budget category. For 2011, net interest payments rose 15.7 percent to $227 billion.

Source: finance.yahoo.com

S&P Downgrades Spain One Notch, Highlighting Contagion Risks

Who's next? Market forces anticipate vulnerable well-ahead of rating agency changes. Even the slightest pressure on a weak position, regardless of the assurances provided by stress tests, has the potential challenge the cartoon-based accounting practices quickly adopted by the West after the onset of the crisis.

UPDATE: S&P Downgrades Spain One Notch, Highlighting Contagion Risks

Standard & Poor's Ratings Services on Thursday downgraded Spain a notch, citing increasingly unpredictable financing conditions that could squeeze a private sector already pressured by lackluster economic growth.

The ratings cut is the latest blow to a large European sovereign's credit status after S&P last month downgraded Italy a notch, citing many of the same problems afflicting euro-zone economies. It also underscores the challenges euro-zone leaders face in restoring financial stability, which Group of 20 finance ministers will attempt to confront in a Paris meeting that kicks off later Friday.

S&P now rates Spain at double-A-minus, three steps below the top triple-A rating. Its outlook is negative.

The euro dipped on the announcement, falling to $1.3737 from $1.3768. But the downgrade had no major effect on the common currency as S&P's action was largely anticipated, coming as it did after Fitch downgraded Spain last week.

"In the grand scheme of things, [Spain's debt rating] is a couple of notches above the non-Japan Asia average and on par with that of Japan," said Andy Ji, a currency strategist at CBA in Singapore. "Having said that, given the size of the Spanish economy and outstanding debt, the downgrade will keep contagion risk high and risk sentiment down."

Source: online.wsj.com

The Difference Between Headline and Real Trends

Today’s positive headline retail sales numbers could be positioned as economic strength by the various media outlets. I caution against accepting this argument.

Retail sales priced in US dollars are a nonstationary time series. That is, currency devaluation (price inflation) causes the time series to creep higher regardless of economic conditions. This phenomenon referred to as base creep by statisticians makes historical comparisons and conclusions based on them useless.

Retail sales priced in gold, however, factors out inflation. This trend turned down in 2001 and sharply down in 2005. Today’s positive headline numbers did not alter these trends.

Gold-Adjusted Retail Sales (RSGLDR) and YOY Change


Headline: Retail Sales in U.S. Climbed More Than Forecast in September

Retail sales in the U.S. rose more than forecast in September, easing concern slumping confidence and scant hiring will derail the biggest part of the economy.

The 1.1 percent advance, the biggest since February, followed a 0.3 percent gain for August, a stronger performance than previously estimated, Commerce Department figures showed today in Washington. The median forecast of 85 economists surveyed by Bloomberg News called for a 0.7 percent rise in purchases last month.

Macy’s Inc. (M) and Kohl’s Corp. (KSS) are among retailers planning to boost hiring heading into the year-end holidays, even as gains in payrolls are too small to reduce unemployment. President Barack Obama, lawmakers and the Federal Reserve face pressure to spur the jobs needed to support household spending, which accounts for about 70 percent of the world’s largest economy.

Source: bloomberg.com

S&P downgrades Spain's debt rating on weak economy

The market, not rating agencies, will force the issue until there's one debt and currency or numerous debt and currencies within the EU.

Headline: S&P downgrades Spain's debt rating on weak economy

NEW YORK (AP) -- Standard & Poor's on Thursday downgraded its long-term debt rating on Spain, citing the country's weak growth prospects and risks facing its banks.

The Spanish economy is burdened by high unemployment, tight credit, heavy private-sector debt loads and prospects that its main trading partners will also stumble, S&P said in a statement.

"Despite signs of resilience in economic performance during 2011, we see heightened risks to Spain's growth prospects," it said.

Spain's banking system will also likely weaken further as the pile of troubled assets rises, S&P said.

It cut its long-term rating to "AA-" from "AA." The outlook on the rating is "negative," which implies it could be lowered again at some point. But it affirmed its short-term rating of "A-1+" on Spain.

Source: finance.yahoo.com

Fed leaves door open on QE3

The door that controls access to QE(n) fell off its hinges long ago. Any comment that implies monetary restraint is nothing more than expectations management.

Headline: Fed leaves door open on QE3

NEW YORK (CNNMoney) -- Federal Reserve policymakers left the door open to another round of asset purchases in the near future, according to minutes of their most recent meeting.

At the two-day meeting that concluded Sept. 21, the Fed unveiled plans to sell short-term Treasuries and buy longer-term debt, a move popularly known as "Operation Twist," in an effort to drive down interest rates without pumping additional money into the economy.

Source: money.cnn.com

Financial Stocks Continue to Underperform

As long as relative performance of the banking stocks (BKX) against equities and gold remains down, it suggests outflows in the space and trouble ahead. I expect the 2009 lows in the BXK to gold ratio to be decisively broken between 2012 and 2015.

Banking Index (BKX) to S&P 500 Ratio


Banking Index (BKX) to Gold Ratio


Headline: JPMorgan Chase's income falls 4 percent in 3Q

JPMorgan Chase's third-quarter income fell 4 percent on weaker investment banking and trading results and a loss in its private equity division. The bank also set aside $1 billion for litigation tied to poorly-written mortgage loans and securities.

The New York bank said Thursday it earned $4.3 billion, or $1.02 per share, compared with $4.4 billion, or $1.01, during the same quarter last year. Analysts surveyed by FactSet forecast the bank would earn 91 cents per share.

JPMorgan Chase & Co.'s fees from investment banking fell 31 percent to $1 billion as investors stayed away from markets during the tumultuous third quarter.

Source: finance.yahoo.com

Coming To Your City or State Soon

Harrisburg PA represents the latest of a growing number of municipalities succumbing to a vicious, downward cycle within the public sector. A shrinking tax base is forcing European-style austerity (spending and job cuts) and a general reduction in the standard of living in nearly every state of the US union. The influence of this cycle despite a general media blackout is spreading quickly across America.

Headline: Harrisburg, Pennsylvania, Files for Bankruptcy, Lawyer Says

Oct. 12 (Bloomberg) -- The city of Harrisburg, Pennsylvania, facing a state takeover of its finances, filed for bankruptcy protection following a vote by City Council, according to a lawyer for the council.

Mark D. Schwartz, a Bryn Mawr, Pennsylvania-based lawyer and former head of municipal bonds for Prudential Financial Inc.’s mid-Atlantic region, said he filed the documents by fax to a federal bankruptcy court last night. The filing couldn’t be confirmed with the U.S. Bankruptcy Court in Harrisburg.

Source: businessweek.com

Alcoa Posts Disappointing EPS, Sees Growth Slowing

As always, follow the money in the real economy. An investment strategy based on the timely execution of public policy to save the day tends to disappoint more often than not.

Headline: Alcoa Posts Disappointing EPS, Sees Growth Slowing

Earnings season began today, with a whimper.

Alcoa (AA) shares fell 4.3% in after-market trading as the company said its growth rate should slow in the second half of the year as fears of a global slowdown persist.

Alcoa posted 15 cents of EPS, versus analysts expectations for 22 cents. The company’s $6.42 billion in revenue was in line with expectations.

Source: blogs.barrons.com

Corn closes 'limit' up

Corn has been showing heavy accumulation since September. The longer corn goes limit up, the more likely confidence and patience goes limit down in cash strapped households.

Headline: Corn closes 'limit' up

DES MOINES, Iowa (Agriculture.com)--With corn finishing 'limit up' and the rest of the CME Group farm futures sharply higher, the stage is set for tomorrow's USDA Crop Production & Supply/Demand Reports.

The floor traders remained stunned that today's market rallied so far, so fast.

The Dec. corn futures closed up it's daily limit of 40 cents at $6.45. The Nov. soybean contract settled 58 cents higher at $12.35 1/2. The Dec. wheat futures settled 49 1/2 cents higher at $6.61 3/4. The Dec. soymeal futures closed $12.10 per short ton higher at $320.60. The Dec. soyoil futures clolsed $2.07 higher at $52.18.

In the outside markets, the NYMEX crude oil is $0.44 per barrel higher, the dollar is lower and the Dow Jones Industrials are down 6 points.

Source: agriculture.com

Global Liquidity Is Tightening

As Faber suggests, global liquidity is tightening. A breakdown of credit at US commercial banks reveals this disturbing trend. I have often discussed changes in credit conditions as the cycle between liquidity and hemorrhage phases within a broadening, global debt crisis. Yet another hemorrhage phase is underway.

Marc Faber Bullish on US Dollar

Peanut Butter Prices Are Rising By 24 to 40 Percent

It doesn't take much to turn demonstration into riot.

Headline: Peanut Butter Prices Are Rising By 24 to 40 Percent

You can now add peanut butter, a long-time recession staple food item, to the list of things that "the 99 percent" may no longer be able to afford. Thanks to droughts, the price of peanut butter has gone up from $450 a ton to $1,150 a ton in just one year and now peanut butter makers are about to pass on the increased costs to consumers.

The Wall Street Journal reports that wholesale prices for Jif are going up 30 percent beginning in November. Peter Pan will increase its prices by as much as 24 percent in a couple of weeks. Skippy prices are already 30 to 35 percent higher now than they were a year ago, and Kraft Foods Inc., which launched Planters peanut butter in June, is raising its prices by 40 percent on October 31.

Source: clevelandleader.com

Loose Cannon On the Gold & Silver Ship Will Be Tethered Soon

The well-orchestrated paper attack on gold, silver, and quality gold share, similar to a loose cannon on deck during a hurricane, is wrecking havoc on the deck hands (investors). Falling prices engenders fear. Fear, in turn, facilitates even more selling, and margin calls grease its wheels. The cycle repeats until there’s no paper fuel left.

A diffusion index (DI), already well above 60%, suggests growing statistical concentration and huge reduction in paper fuel. This implies that the loose cannon despite growing fears that everything will be lost will be tethered down soon. A DI reading in the 80’s or 90’s, similar to 2005 and 2008, should mark the point of maximum panic – deck damage. Once the final rope has been secured, it will become obvious that a large number of deck hands have been lost from the gold and silver ship. Welcome to the gold and silver game.

Gold London P.M Fixed and Gold Diffusion Index (DI)


Silver London P.M Fixed and the Silver Diffusion Index (DI)

Census: Housing bust worst since Great Depression

The housing bust will get worse before it gets better.

U.S. Median Home Price (MHP) And MHP to Gold Ratio


Headline: Census: Housing bust worst since Great Depression

New census figures show homeownership over the past decade saw the biggest drop since the Great Depression.

The analysis released Thursday by the Census Bureau found the homeownership rate fell to 65.1 percent in 2010, from 66.2 percent in 2000. That drop-off of 1.1 percentage points after the housing bust is the largest since 1940, when the rate plummeted more than 4 percentage points over a 10-year period, to 43.6 percent.

Analysts say the notion of homeownership as the "American dream" may be changing. Many economists believe the U.S. will never return to its mid-decade peak, in which roughly 70 percent of occupied households were owned by their residents.

Source: businessweek.com

Cracks In America's New Economic Norm

The civilian labor force and total nonfarm employment expanded by 423 and 103 thousand, respectively. Yet, despite this obvious mismatch, the civilian unemployment rate held 9.1%? What gives. As the old saying goes, there's more than meets the eye here.

The civilian labor force has been steadily contracting since 2009. This means the workers unable to find full jobs have increasingly given up their search in America’s new economic norm.

Civilian Labor Force (CLF) And Year-Over-Year (YOY) Change


Adding insult to injury, the façade this new norm is beginning to display a growing number of small cracks. Employment sectors sensitivity to the global economic growth, such as transportation and warehousing, have clearly lost their upside momentum in 2011. This momentum loss is illustrated in the chart below.

Truckers and Warehousing Payroll And YOY Change


Moreover, recent trend changes in announced layoffs and initial jobless claims suggest that these cracks, still undiscernable to the naked eye, are likely to expand in coming months without further stimulus. This may prove to be difficult in world where austerity is viewed as solution to the world's economic problems.

Headline: Economy adds 103K jobs, rate stays 9.1 percent

WASHINGTON (AP) -- Employers added 103,000 jobs in September, a modest burst of hiring after a sluggish summer. Still, job growth remains too weak to lower the unemployment rate, which stayed at 9.1 percent for the third straight month.

The Labor Department also said Friday that it has revised the previous two months to show that companies hired at a stronger pace than first estimated.

Employers have added an average of only 72,000 jobs in the past five months. The economy must create about twice as many consistently just to keep up with population growth.

Source: finance.yahoo.com

More Signs of Economic Decay At Hand

The breach of the power down trend (PDT) of initial jobless claims to the upside in 2008.05 foreshadowed a period of economic decay. A similar power down trend breach occurred in 2011.07. Will this as well as numerous other trend changes foreshadow another period of economic decay in 2011 and/or 2012? Recent weakness in stocks suggests that capital is beginning to discount this possibility.

Average Weekly Initial Claims State Unemployment (AWIC) And YOY Change:


Headline: More people sought unemployment aid last week

WASHINGTON (AP) -- The number of people who applied for unemployment benefits rose slightly last week, a sign that the job market remains weak.

Weekly applications increased by 6,000 to a seasonally adjusted 401,000, the Labor Department said Thursday.

The modest gain comes after applications plummeted by 33,000 in the previous week. The drop partly reflected technical difficulties with the department's seasonal adjustment process.

The four-week average, a less volatile measure, fell for the second straight week to 414,000, its lowest level in a month.

Still, applications are higher than they would be in a healthy economy. They need to fall below 375,000 to signal sustainable job growth. They haven't been that low since February.

The slumping economy has led many employers to pull back on hiring. Economists expect employers added just 56,000 jobs last month and the unemployment rate remained stuck at 9.1 percent for the third straight month. The government issues its September jobs report on Friday.

Source: finance.yahoo.com

Natural Gas Showing Some Interest?

Yes it can, Dennis. That's why bullish and bearish money flow setups require technical confirmation (i.e. a technical trigger) to transform intellectual strategy into real-world action. Dennis’s instincts to place NG on "let's at least watch it" list are correct. If DI breaches 60%, it would trigger "let's at least watch it" from the computers.

Natural Gas (UNG) and Natural Gas Diffusion Index (DI)

Eric,

Natural gas is a good example of just because something is way down in price and cheap that it can't get even cheaper. I follow, but do not own, UNG. Wow, a new low today. The chart looks like natural gas is down for a long time. I was wondering what your thoughts are on this market. eYou showed the chart on UNG a long time ago said it was waiting for a trigger. It was about $11 now it is $8.72 a new low. Considering the reverse split of 1 for 10 this stock is almost at 0. Amazing.

Thanks,
Denny

Economy Contracting At An Increasing Rate

As we've said many times in the past, economic activity is either rising or falling at an increasing rate. The sharp roll over in the ISM's PP to PMI ratio this summer suggested it was falling at an increasing rate well ahead of public discussion. It's bad enough for the Fed to finally acknowledge it.

ISM Prices Paid Index (PP) to National Purchasing Manager's Index (PMI) Ratio:


As for the headline below, substitute 'may help fight' with 'won't influence the outcome'.

Headline: Manufacturing may help fight off new U.S. recession

WASHINGTON, Oct 3 (Reuters) - U.S. factories grew more quickly in September as production and hiring increased, suggesting that manufacturing would help keep the economy from slipping into a new recession. Other data on Monday offered more good news for the troubled U.S. economy, with strong demand for new motor vehicles putting sales on track to surpass August's rate, and construction spending unexpectedly rebounding in August. "That hardly sounds like an economy flat on its back. The economy is still moving forward. But no one should confuse direction with speed," said Joel Naroff, chief economist at Naroff Economic Advisors in Holland, Pennsylvania.

Source: reuters.com

Another QE(n) Blast Is Coming

Announced layoffs began their upward turn in September 2010. The markets have been sending the message of decaying economic growth for months. Unfortunately, not many beyond the confines of Insights and CIGA community have recognized it until now.

The short-term smashing of gold, silver, and various safe havens are designed to shake investment discipline and clear passengers from the secular bull market train. While paper operations can be painful over the short-term, they do provide excellent long-term entry points for those that understand the power of the secular bull.

Challenger, Grey, and Christmas Announced Layoffs (ALO) And YOY Change


Headline: Announced U.S. Job Cuts Rise 212% From Year Ago, Challenger Says

Oct. 5 (Bloomberg) -- U.S. employers announced the most job cuts in more than two years in September, led by planned reductions at Bank of America Corp. and in the military.

Announced firings jumped 212 percent, the largest increase since January 2009, to 115,730 last month from 37,151 in September 2010, according to Chicago-based Challenger, Gray & Christmas Inc. Cuts in government employment, led by the Army’s five-year troop reduction plan, and at Bank of America accounted for almost 70 percent of the announcements.

While the bulk of firings are not “directly related” to economic weakness, they “could definitely be a sign of more cuts to come,” John A. Challenger, chief executive officer of Challenger, Gray & Christmas, said in a statement. “Bank of America is not the only bank still struggling in the wake of the housing collapse, and the military cutbacks are probably just the tip of the iceberg when it comes to federal spending cuts.”

Source: businessweek.com

Hello Mr. De Groot,

Regarding to Bernanke "listening to the message of the market," I believe that the Fed has desired and programmed this environment; lower commodities, perhaps even orchestrating downward pressure on silver and gold (with a further increase in gold/silver margins requirement EVEN AFTER the recent plunger was underway, among others....for good measure, of course) as a set up for the next round of QE+. All to create a more fertile political environment for it and to silence the anti-stimuli Tea Party types with some more bad market action and negative jobs pain. I noted the increased flow of negative news coming out of the cooperative financial press, as well. Certainly not the usual cheerleading. Just saw a report from Challenger..."September biggest layoffs in years.." QE will be just what the doctor (Bernanke) ordered!

Best regards an thank you for your insights,
Stephan

Recovery "close to faltering", Fed could act

The Fed will act again. Bernanke appears to be listening to the message of the market. A growing list of negative divergences of key intermarket relationships relative to equity prices, new lows unconfirmed by stock prices, illustrates decaying global economic growth.

Copper to Aluminum Ratio:


Chicago Fed Economic Activity Index:


Bill Gross said it best, recession risk overtaking new normal. I agree.

Anyone that believes the Fed's response will be anything but QE to infinity because gold and the gold shares continue to get pounded, simply fail to recognize the role paper operations, often referred to as open interest flushes, play in trend control.

Headline: Recovery "close to faltering", Fed could act

(Reuters) - The Federal Reserve is prepared to take further steps to help an economic recovery that is "close to faltering", Fed Chairman Ben Bernanke said on Tuesday.

Citing anemic employment, depressed confidence and financial risks from Europe, Bernanke urged lawmakers not to cut spending too quickly in the short term even as they grapple with trimming the long-run budget deficit.

He also made clear the Fed -- the U.S. central bank -- stands ready to ease monetary conditions further following its launch of a new stimulus measure in September.

Source: reuters.com

Open Interest Is Key Piece Puzzle For Timing The Correction In Gold & Silver

Jim and Kenny,

The last piece golden puzzle lies within open interest.

Whether it be through volatile chop or orchestrated hit, the decline will be over when open interest's WA is flushed as low as physical market will allow it. Silver's massive flush in 2011 foreshadows the desired outcome in gold.

Gold London P.M Fixed (Gold) and the COT Futures and Options Open Interest Stochastic Weighted Average (WA):


Silver London P.M Fixed and the COT Futures and Options Open Interest Stochastic Weighted Average


Eric

"If December does NOT correct with lower closes over the next one or two days, but instead closes above $1695 over the next several days, then our figures would consider this corrective action as finished - albeit the normal back and forth widening action to come, notwithstanding. The other option (still in play), is a continuation of a V bottom and a spike rally moving very quickly up to the second resistance level at $1800/$1850, with very little widening along the way."

Source: jsmineset.com

A Bottom In Gold Not A Matter of IF But WHEN

A super spike in long buying preceded a major bottom for gold in 2008. A similar super spike has emerged in 2011. This spike suggests that a bottom in gold is not a matter of if but when at this point.

If history repeats, the current super spike will be followed by a mini spike after a retest of the reaction low. The confluence of the May 2011 highs and the 2001-2011 upper trading channel should act as strong support during the testing process. This support zone is illustrated by the magnet pulling at price.

Gold London P.M Fixed and the Commercial Traders COT Futures and Options ZScore Weighted Average of Long & Short As A % of Open Interest


Gold's diffusion index (DI), a composite and historically comparable view of money flows in the futures and options market, provides another perspective of the setup. While the DI reading of 52 suggests a bullish setup, it still remains well below the November 2008 high of 97. In simple terms, this difference says the paper takedown in gold in 2011, unlike silver, has been far less severe in comparison to 2008. Of course, this setup could change, but the 2001-2011 upper trading channel should act as strong support. This means a DI reading in excess of 90% might be difficult to achieve or will require more time and volatility to chop out the weak hands.

Gold London P.M Fixed and Gold Diffusion Index (DI)


With that said, be advised that 2011 is not 2008 and history tends to rhyme rather than repeat.