Gold Sector Reflecting Persistent Strength
A chart of the HUI/S&P500 ratio
showing the upward trend -
- reflecting persistent strength in the Gold sector
relative to the overall stock market -
- that has been in place since November of 2000...
http://www.safehaven.com/images/saville/1257_a.gif
Anyone who wants to increase his/her exposure
to the Gold sector should now be preparing
to do some buying.
Currency Wars, Budget Woes
What is one to make of it?
In the month of January the Bank of Japan (BOJ) spent
a whopping US$67 billion (later revised up to $71 billion)
defending the Yen.
Over the entire year of 2003 they only spent US$187 billion.
And what did it accomplish?
Well, not a lot.
The Yen started the year at .9375 and ended the month
of January at .9468, a small rise.
Of course the BOJ is not the only one spending bundles
of money to defend their currency.
The Europeans have been at it as well but definitely
not on the same scale.
Canada lowered the interest rates to try and discourage
the Cdn$ from rising.
If one thinks of a country's currency like a stock
one would think that they would be happy that their
currency was rising and that it is negative when
it is falling.
But in our mixed up world the Europeans, Japanese
and Canadians view their rising currency negatively
and the US views their falling currency positively.
Trouble is the world has geared itself towards exports
(globalization) and a rising currency makes the
country's exports more expensive.
On the other side the US views their falling currency
as positive because it might encourage jobs and plants
to come back to America.
Unfortunately for America that is unlikely to happen
as the plants and jobs were exported to countries with
fixed exchange rates and very low wages
like China and India.
And unless wage costs in America fall to the levels
in China and India too often what is happening is
that it is American companies themselves that are
exporting plants and jobs out of the country.
Needless to say while it does wonders for the
bottom line of the company it comes at a potential
huge cost to the domestic economy.
Indeed the news on outsourcing and transferring of
jobs overseas is not only ongoing it just seems
to get worse.
Recent announcements of significant layoffs
include Eastman Kodak (EK-NYSE), IBM (IBM-NYSE),
Schering-Plough (SGP-NYSE), Tyco (TYC-NYSE)),
Verizon (VZ-NYSE) , Toy's 'R' Us (TOY-NYSE) ,
SBC Communications (SBC-NYSE) and
Sprint (FON-NYSE) all just in
the past 3 months.
These companies alone announced over 58,000-job cuts
grant you in some cases spread over three years
and not all necessarily related to outsourcing.
There are numerous other companies that are also
announcing closings or transfers.
These are generally well paying jobs and there is
little on the horizon to replace them except
for McJobs if even that.
No wonder the last jobs report showed such sluggish
growth of only 1000 jobs.
This month's expectations are for growth of
at least 160,000 jobs.
Given the ongoing job cuts announcements we will be
surprised if it is that strong.
The non-farm payroll numbers are notoriously inaccurate
and subject to numerous revisions so the December
numbers could be revised up even if the January
numbers are below expectations.
On another note though, it is well known thousands
will be losing their unemployment benefits over
the next few months.
The US has two main deficits.
Budget and current account.
These deficits are currently running over $1 trillion
per year and require roughly $2.7 billion per day
to finance.
Total US Federal debt totals roughly $7 trillion or
almost 63% of GDP.
This number differs from what one might find in
the Federal Reserves Flow of Funds, as the Flow
of Funds is only domestic budgetary debt and
not debt related to the current account deficit.
The debt has roughly doubled since 1990.
Despite some recent improvement in the monthly
trade deficit numbers because of the weaker
US Dollar, it is still growing at roughly
$40 billion/month.
According to a recent budget tabled by
President Bush the US budgetary debt appears
destined to grow further over coming years.
The growth in the debt is largely attributable
to the massive military and security expenditures
following 9/11 and comes at the expense of
the domestic economy.
Both these areas may provide some degree of
job growth going forward.
The US has over 700 bases in 130 countries
around the world so there is a price
to global empire.
We are always reminded of the eventual costs of
global empires to other former great empires
including most recently Russia and Britain
and in more ancient times, Rome and Greece.
The US current account deficit is made up of the
trade deficit (the biggest portion 90%) plus the
balance on investment income and unilateral transfers.
Today the US has shifted to what has been called
the "Roman" imperial economic paradigm
(Executive Intelligence Review, December 26, 2003)
where the US no longer produces its own goods
and exacts from (the colonies?) around the world
in the form of imported goods.
It goes one step further in that they export jobs
and import goods.
And taking it another step the populace is kept
happy with their own form of bread and circuses
with the latest episodes of "Survivor" or
"Fear Factor" or ongoing distractions such as
the Laci Peterson murder case and Michael Jackson.
Even murder and child molestation is just another
form of entertainment.
The countries of the G7 are growing increasingly
concerned about not only the state of the US$ but
also the growing deficits including the very high
levels of private sector debt particularly the
consumer that in 2002 reached 110% of disposable
income and the ratio has grown further since.
Curiously the G7 meets this weekend and we are sure
that issues regarding the US$ and their growing
deficits will be raised.
Whether it will go anywhere is another issue and
the simple answer is that it probably won't although
it may trigger another round of currency intervention.
Listening to numerous US politicians lately defend
the budget deficits they are convinced they
don't matter.
Well in the short term they do provide a high degree
of stimulus but ultimately they are dangerous and
drain the country of its resources leading to
bankruptcy and depression.
The Europeans concern has even reached the stage where
they have discussed the possibility of the introduction
of capital controls (Daily Telegraph, December 4).
It was mused that controls would not be considered
unless the Euro reached a level of $1.35.
The recent high was $1.28.
We are of course reminded that currency and capital
flow controls was a mainstay of the Bretton Woods
Agreement during the 1950's and 1960's.
The Bretton Woods Agreement ended in 1971 when
President Nixon took the US off the gold standard.
Floating exchange rates then became the mainstay of
the 1970's and remain with us today.
But overall the Europeans appear to be more accepting
of the rise in their currency, as they do not seem
to be indicating either lower interest rates and
seem willing to over stimulate their economy in
order to increase demand.
The Japanese on the other hand along with some other
Asian countries are the prime financiers of the US's
burgeoning foreign debt.
The Japanese in particularly have sharply increased
their holdings of US securities and of course are by
far the largest holders of US debt followed by China.
This is becoming a problem for them as well as a
continued decline in the US$ will lower the value
of their holdings.
There has been musings to diversify more of the
holdings into Gold or Euro holdings but this is
a two edged sword as that would put pressure both
on the US$ and on US Treasury bond prices.
Their only ace may be in their large holdings in
how they can pressure the US.
They certainly can't continue to spend their way
to financing the US debt because they are going
into debt themselves to finance this activity.
Everyone is in a catch 22 position.
The Fed doesn't mind occasional bumps in the US$ to
the upside because that allows them to maintain a
possible more orderly decline of the US$ and prevents
an all out run.
Of course this could eventually happen anyway.
The Japanese on the other hand may be in a worse position
as continuing to spend money at the rate they did in
January is unsustainable.
But it is only unsustainable to the extent that they
can't find anyone to take their Yen.
As a central bank they can create Yen to whatever extent
they want and sell it for dollars as long as there are
speculators or others willing to take the Yen from them
and give them dollars.
But ultimately this is a game that will run out of room
as well especially if the Japanese stock market started
to fall where we suspect a lot of this money has gone.
In the US, the huge rise in the stock market over the
past year has been fuelled by a massive credit expansion,
coupled with tax cuts (now spent) and ongoing low
interests that remain below the rate of inflation.
This is a situation that cannot carry on without
negative consequences.
The thinking seems to be that it can and that an endless
source of liquidity will be provided to the market to
maintain the illusion of prosperity.
Real wages for the majority of the population have been
falling for years while they have been maintaining
the illusion of their life style on the credit card.
At some point it will be unable to continue.
Just because we do not as yet appear to have reached
that point doesn't mean it will not happen.
The stock market rally of 2003 has the feeling of the
sucker rally of 1930 that was seen following the stock
market crash of October 1929.
The question is "Is it March or April 1930"
(the market topped on April 16, 1930). No matter.
What followed was an endless downward spiral that
did not bottom for another two years.
We are currently about a year and half from the
last four year cycle bottom in October 2002.
If as we suspect we are in a secular bear market
then the market could be topping now although
it is possible to hang for a little while longer
but most cycles top out by the first week
of February.
It will start slow and have numerous counter rallies
but if a death spiral into 2006 and the next
4-year cycle low is correct then we have seen the top.
We are showing a weekly chart of the US Dollar Index.
The chart basically starts with the US Dollar's rise
in 1995 to the top in 2001/2002 and the subsequent fall.
Note how market on the way down mimics the rise with
often support and resistance coming at old areas of support/resistance.
Currently we are the second last stop where considerable
support can be seen in the 85 area.
A rebound lasting a month or two that takes us back
to resistance around 90 and even up to 92 can not
be ruled out. This may already be underway.
Once firmly through the 85-support zone the next drop
is down to the lows of 1992/1995 centred on support at 80.
Below that would be new territory and projections could
take us down to 40.
The US Dollar Index is displaying possible characteristics
of a massive head and shoulders top with a series of
lower shoulders.
The 40 level would be a possible target if we were to
firmly break under 80.
We loath to think of what type of crisis that might
be occurring if that were to happen.
Currency wars and budget woes.
Markets are overconfident that the Fed will continue
to manoeuvre interest rates and liquidity favourably
to allow the economy to grow and the market to
continue higher. This is mislaid confidence.
A falling currency and ongoing huge deficits
is not healthy long term.
And the charts especially for the US$
is telling us this.
http://www.safehaven.com/images/chapman/1267.gif
********
Woodrow Wilson signed the 1913 Federal Reserve Act.
A few years later he wrote:
I am a most unhappy man.
I have unwittingly ruined my country.
A great industrial nation is controlled by its system
of credit.
Our system of credit is concentrated.
The growth of the nation, therefore, and all our activities
are in the hands of a few men.
We have come to be one of the worst ruled,
one of the most completely controlled and dominated
Governments in the civilized world no longer
a Government by free opinion, no longer a Government
by conviction and the vote of the majority, but
a Government by the opinion and duress of a small
group of dominant men.
-Woodrow Wilson
GOLD 2004 Bull Reflextion of 1980 Bulltrend
GOLD 2002 - 2003 is a mirror reflection of
GOLD 1978 - 1979, is
GOLD 2004 to be a mirror reflextion of
GOLD 1980 - Bulltrend,
GOLD TA on strong Bulltrend TI Longterm comeback...
http://cbs.marketwatch.com/charts/...ick=1&rand=604274928&siteid=mktw
We may see Gold make a repeat of 1st week of Oct.
mmm's try shakeout of weak apples.
Fast down - fast UP - mirror reflextion!
http://stockcharts.com/def/servlet/...v05.ServletDriver?chart=$GOLD,E
A chart of the HUI/S&P500 ratio
showing the upward trend -
- reflecting persistent strength in the Gold sector
relative to the overall stock market -
- that has been in place since November of 2000...
http://www.safehaven.com/images/saville/1257_a.gif
Anyone who wants to increase his/her exposure
to the Gold sector should now be preparing
to do some buying.
Currency Wars, Budget Woes
What is one to make of it?
In the month of January the Bank of Japan (BOJ) spent
a whopping US$67 billion (later revised up to $71 billion)
defending the Yen.
Over the entire year of 2003 they only spent US$187 billion.
And what did it accomplish?
Well, not a lot.
The Yen started the year at .9375 and ended the month
of January at .9468, a small rise.
Of course the BOJ is not the only one spending bundles
of money to defend their currency.
The Europeans have been at it as well but definitely
not on the same scale.
Canada lowered the interest rates to try and discourage
the Cdn$ from rising.
If one thinks of a country's currency like a stock
one would think that they would be happy that their
currency was rising and that it is negative when
it is falling.
But in our mixed up world the Europeans, Japanese
and Canadians view their rising currency negatively
and the US views their falling currency positively.
Trouble is the world has geared itself towards exports
(globalization) and a rising currency makes the
country's exports more expensive.
On the other side the US views their falling currency
as positive because it might encourage jobs and plants
to come back to America.
Unfortunately for America that is unlikely to happen
as the plants and jobs were exported to countries with
fixed exchange rates and very low wages
like China and India.
And unless wage costs in America fall to the levels
in China and India too often what is happening is
that it is American companies themselves that are
exporting plants and jobs out of the country.
Needless to say while it does wonders for the
bottom line of the company it comes at a potential
huge cost to the domestic economy.
Indeed the news on outsourcing and transferring of
jobs overseas is not only ongoing it just seems
to get worse.
Recent announcements of significant layoffs
include Eastman Kodak (EK-NYSE), IBM (IBM-NYSE),
Schering-Plough (SGP-NYSE), Tyco (TYC-NYSE)),
Verizon (VZ-NYSE) , Toy's 'R' Us (TOY-NYSE) ,
SBC Communications (SBC-NYSE) and
Sprint (FON-NYSE) all just in
the past 3 months.
These companies alone announced over 58,000-job cuts
grant you in some cases spread over three years
and not all necessarily related to outsourcing.
There are numerous other companies that are also
announcing closings or transfers.
These are generally well paying jobs and there is
little on the horizon to replace them except
for McJobs if even that.
No wonder the last jobs report showed such sluggish
growth of only 1000 jobs.
This month's expectations are for growth of
at least 160,000 jobs.
Given the ongoing job cuts announcements we will be
surprised if it is that strong.
The non-farm payroll numbers are notoriously inaccurate
and subject to numerous revisions so the December
numbers could be revised up even if the January
numbers are below expectations.
On another note though, it is well known thousands
will be losing their unemployment benefits over
the next few months.
The US has two main deficits.
Budget and current account.
These deficits are currently running over $1 trillion
per year and require roughly $2.7 billion per day
to finance.
Total US Federal debt totals roughly $7 trillion or
almost 63% of GDP.
This number differs from what one might find in
the Federal Reserves Flow of Funds, as the Flow
of Funds is only domestic budgetary debt and
not debt related to the current account deficit.
The debt has roughly doubled since 1990.
Despite some recent improvement in the monthly
trade deficit numbers because of the weaker
US Dollar, it is still growing at roughly
$40 billion/month.
According to a recent budget tabled by
President Bush the US budgetary debt appears
destined to grow further over coming years.
The growth in the debt is largely attributable
to the massive military and security expenditures
following 9/11 and comes at the expense of
the domestic economy.
Both these areas may provide some degree of
job growth going forward.
The US has over 700 bases in 130 countries
around the world so there is a price
to global empire.
We are always reminded of the eventual costs of
global empires to other former great empires
including most recently Russia and Britain
and in more ancient times, Rome and Greece.
The US current account deficit is made up of the
trade deficit (the biggest portion 90%) plus the
balance on investment income and unilateral transfers.
Today the US has shifted to what has been called
the "Roman" imperial economic paradigm
(Executive Intelligence Review, December 26, 2003)
where the US no longer produces its own goods
and exacts from (the colonies?) around the world
in the form of imported goods.
It goes one step further in that they export jobs
and import goods.
And taking it another step the populace is kept
happy with their own form of bread and circuses
with the latest episodes of "Survivor" or
"Fear Factor" or ongoing distractions such as
the Laci Peterson murder case and Michael Jackson.
Even murder and child molestation is just another
form of entertainment.
The countries of the G7 are growing increasingly
concerned about not only the state of the US$ but
also the growing deficits including the very high
levels of private sector debt particularly the
consumer that in 2002 reached 110% of disposable
income and the ratio has grown further since.
Curiously the G7 meets this weekend and we are sure
that issues regarding the US$ and their growing
deficits will be raised.
Whether it will go anywhere is another issue and
the simple answer is that it probably won't although
it may trigger another round of currency intervention.
Listening to numerous US politicians lately defend
the budget deficits they are convinced they
don't matter.
Well in the short term they do provide a high degree
of stimulus but ultimately they are dangerous and
drain the country of its resources leading to
bankruptcy and depression.
The Europeans concern has even reached the stage where
they have discussed the possibility of the introduction
of capital controls (Daily Telegraph, December 4).
It was mused that controls would not be considered
unless the Euro reached a level of $1.35.
The recent high was $1.28.
We are of course reminded that currency and capital
flow controls was a mainstay of the Bretton Woods
Agreement during the 1950's and 1960's.
The Bretton Woods Agreement ended in 1971 when
President Nixon took the US off the gold standard.
Floating exchange rates then became the mainstay of
the 1970's and remain with us today.
But overall the Europeans appear to be more accepting
of the rise in their currency, as they do not seem
to be indicating either lower interest rates and
seem willing to over stimulate their economy in
order to increase demand.
The Japanese on the other hand along with some other
Asian countries are the prime financiers of the US's
burgeoning foreign debt.
The Japanese in particularly have sharply increased
their holdings of US securities and of course are by
far the largest holders of US debt followed by China.
This is becoming a problem for them as well as a
continued decline in the US$ will lower the value
of their holdings.
There has been musings to diversify more of the
holdings into Gold or Euro holdings but this is
a two edged sword as that would put pressure both
on the US$ and on US Treasury bond prices.
Their only ace may be in their large holdings in
how they can pressure the US.
They certainly can't continue to spend their way
to financing the US debt because they are going
into debt themselves to finance this activity.
Everyone is in a catch 22 position.
The Fed doesn't mind occasional bumps in the US$ to
the upside because that allows them to maintain a
possible more orderly decline of the US$ and prevents
an all out run.
Of course this could eventually happen anyway.
The Japanese on the other hand may be in a worse position
as continuing to spend money at the rate they did in
January is unsustainable.
But it is only unsustainable to the extent that they
can't find anyone to take their Yen.
As a central bank they can create Yen to whatever extent
they want and sell it for dollars as long as there are
speculators or others willing to take the Yen from them
and give them dollars.
But ultimately this is a game that will run out of room
as well especially if the Japanese stock market started
to fall where we suspect a lot of this money has gone.
In the US, the huge rise in the stock market over the
past year has been fuelled by a massive credit expansion,
coupled with tax cuts (now spent) and ongoing low
interests that remain below the rate of inflation.
This is a situation that cannot carry on without
negative consequences.
The thinking seems to be that it can and that an endless
source of liquidity will be provided to the market to
maintain the illusion of prosperity.
Real wages for the majority of the population have been
falling for years while they have been maintaining
the illusion of their life style on the credit card.
At some point it will be unable to continue.
Just because we do not as yet appear to have reached
that point doesn't mean it will not happen.
The stock market rally of 2003 has the feeling of the
sucker rally of 1930 that was seen following the stock
market crash of October 1929.
The question is "Is it March or April 1930"
(the market topped on April 16, 1930). No matter.
What followed was an endless downward spiral that
did not bottom for another two years.
We are currently about a year and half from the
last four year cycle bottom in October 2002.
If as we suspect we are in a secular bear market
then the market could be topping now although
it is possible to hang for a little while longer
but most cycles top out by the first week
of February.
It will start slow and have numerous counter rallies
but if a death spiral into 2006 and the next
4-year cycle low is correct then we have seen the top.
We are showing a weekly chart of the US Dollar Index.
The chart basically starts with the US Dollar's rise
in 1995 to the top in 2001/2002 and the subsequent fall.
Note how market on the way down mimics the rise with
often support and resistance coming at old areas of support/resistance.
Currently we are the second last stop where considerable
support can be seen in the 85 area.
A rebound lasting a month or two that takes us back
to resistance around 90 and even up to 92 can not
be ruled out. This may already be underway.
Once firmly through the 85-support zone the next drop
is down to the lows of 1992/1995 centred on support at 80.
Below that would be new territory and projections could
take us down to 40.
The US Dollar Index is displaying possible characteristics
of a massive head and shoulders top with a series of
lower shoulders.
The 40 level would be a possible target if we were to
firmly break under 80.
We loath to think of what type of crisis that might
be occurring if that were to happen.
Currency wars and budget woes.
Markets are overconfident that the Fed will continue
to manoeuvre interest rates and liquidity favourably
to allow the economy to grow and the market to
continue higher. This is mislaid confidence.
A falling currency and ongoing huge deficits
is not healthy long term.
And the charts especially for the US$
is telling us this.
http://www.safehaven.com/images/chapman/1267.gif
********
Woodrow Wilson signed the 1913 Federal Reserve Act.
A few years later he wrote:
I am a most unhappy man.
I have unwittingly ruined my country.
A great industrial nation is controlled by its system
of credit.
Our system of credit is concentrated.
The growth of the nation, therefore, and all our activities
are in the hands of a few men.
We have come to be one of the worst ruled,
one of the most completely controlled and dominated
Governments in the civilized world no longer
a Government by free opinion, no longer a Government
by conviction and the vote of the majority, but
a Government by the opinion and duress of a small
group of dominant men.
-Woodrow Wilson
GOLD 2004 Bull Reflextion of 1980 Bulltrend
GOLD 2002 - 2003 is a mirror reflection of
GOLD 1978 - 1979, is
GOLD 2004 to be a mirror reflextion of
GOLD 1980 - Bulltrend,
GOLD TA on strong Bulltrend TI Longterm comeback...
http://cbs.marketwatch.com/charts/...ick=1&rand=604274928&siteid=mktw
We may see Gold make a repeat of 1st week of Oct.
mmm's try shakeout of weak apples.
Fast down - fast UP - mirror reflextion!
http://stockcharts.com/def/servlet/...v05.ServletDriver?chart=$GOLD,E
