The Resourceful Bear Blog

Article Update
In retrospect it was awareness of the impact of FASB 141, and awareness of AIG's difficulties, as well as those at Washington Mutual, that turned the market in favor of gold.

The US Dollar Turned Down Today, Friday September 12, 2008 To Close At 79
Stockcharts.com reports that the US Dollar, $USD, closed yesterday at 80.22; today it closed at 78.98 ... $USD

Gold Turned Up To Close At 766 Today, Friday September 12, 2008
Gold, $GOLD, it closed at $766. Chart is courtesy of Ted Burge ... $GOLD

The gold ETF, GLD, closed at 75.55; chart is courtesy of Ted Burge ... GLD

The Privateer provides the 2x3 chart for gold showing support at $750.

The ongoing Yahoo Finance chart of the 200% inverse of the emerging markets, EEV, compared to DRR, FXP, DEE, GLD and EFA reflects that the Euro, FXE, has temporarily found support; gold and the world markets rose ... GLD and EFA are up while FXP, DEE, DRR, and EEV, are down ... FXE has found support ... DRR shows a parabolic turn lower

The Yahoo Finance five day ongoing chart of of UUP and DRR compared to GLD shows that GLD rose and DRR and UUP fell ... GLD is up and DRR and UUP are down

The Yahoo Finance five day ongoing chart of USD/EUR relative to GLD reflects that the US Dollar fell and gold rose.

The Yahoo Finance five day ongoing chart of EUR/USD relative to GLD, XME and EFA reflects that the Euro, FXE, rose taking gold, the metal manufacturing shares and world stocks higher,

The Yahoo Finance five day ongoing chart of the USD/JPY relative to the EUR/JPY reflects that the rise in the EUR/JPY pulled gold higher and the US Dollar lower.

The Yen Fell Lower Today
CMS Forex in ActionForex article Yen Gives Up Yesterday's Gains as New Deal for Lehman Boosts Risk Appetite reports that the Yen, FXY, fell.

Forex Analysts Report An Uptick In The US Dollar ... And Some Give Bearish Prospects The US Dollar
ActionForex in article Is Market Turning Around? shows the EUR/USD ticked up to trade at 1.4093.

ActionForex in article Dollar Retreats Further on Poor Retail Sales reports that the GBP/USD rose to trade at 1.7768.

Candice Zachariahs of Bloomberg in aticle Australian, N.Z. Dollars Gain as Investors Boost Carry Trades provides a bullish report: "The Australian and New Zealand dollars rose as Asian equities rallied, increasing investors' appetite for higher-yielding assets ... "We've got quite a strong rebound under way", said Tony Morriss, a currency strategist at Australia & New Zealand Banking Group Ltd. in Sydney. Australian government bonds fell. The yield on the 10-year note rose 2 basis points, or 0.02 percentage point, to 5.68 percent".

ActionForex in article USD/JPY Mid-Day Outlook shows the USD/JPY trading at a level of support at 107.06.

Crown Forex in ActionForex article Majors Extend Gains against Greenback reports in bearish tone that "the worst than expected retail sales didn't do the U.S. dollar any good".

Global Forex Trading in ActionForex article Dollar Rally Done For Now? reports that the Chinese may diversify away from dollar assets according to China Daily; and that strong Strong AUD employment data may keep RBA stationary in October; and that Fed's Kohn sees no housing bottom yet; and that CB Trichet is unabashedly hawkish stating that inflationary pressures remain enormous and that the ECB will need to guarantee price stability.

TheLFB-Forex in ActionForex bearish toned article Midnight For The US Dollar reports that the dollar fell on increased speculation of a Fed rate cut by December. And that The Pound, FXB, made its biggest one day gain since September 2005. The Aussie, FXA, made its biggest one day advance since May 16, 2008, as gold futures advanced nearly $15. The Canadian Dollar, FXC, fell for the fist time this week as prices for gold, oil and other commodities rose. The Swiss Krona, FXS, rose.

AC Markets in ActionForex article US Trade Deficit And Weaker Stocks Weighed On Dollar reports that late on Thursday, the Dollar dropped against majors, weighed down by a combination of weaker global stocks and data showing the US trade gap expanded to $62.2b, it's widest since March 2007.

TheLFB-Forex in AtionForex article Dollar Index And The Financial Sector provides a bearish slant that Washington Mutual, WM, the nation's largest savings and loan, had its debt ratings cut on Thursday. The bank is heading to its fourth straight quarterly loss and is facing as much as $19 billion in loses tied to residential mortgages. The drop on its credit ratings could force WaMu to sell part of its $143 billion deposit base, which would mean selling branches. "Toxic" might be the best descriptor for the Financial Sector. It would seem there just is no reason to invest while so much uncertainty exists. AIG (-27%), FRE (-23%), LEH (-15%), FNM (-9.6%) and MER (-9.2%) were the biggest percentage losers on Friday. WM (+4.24%) was an unlikely bright spot after the company issued statements saying its capital position was adequate, allaying market fears that it might be the next big bank to go down. On the day, the XLF fell 0.30 points (-1.40%) to close on 21.15, Chart of XLF is courtesy of Ted Burge ... XLF

Trader Tim Knight Is Terrifically Bearishg Gold
Tim Knight in article Getting Ready for the Gold/Energy Short relates: I wonder what cuteness the Feds are going to pull this weekend? Use taxpayer dollars to bail out Lehman? Send everyone a $2,000 check they can spend at WalMart? Cut interest rates to 0%? Make short-selling illegal? You just never know. verything is waiting to see what happens to LEH, of course. With only 365 cents left to its share price, there's not much left to fall. This last posting of the week is going to be somewhat different - - I'm not going to provide any opinion on the broad market. Instead, I'm going to offer a "theme" to invest. Specifically - - re-entering short positions on the energy/gold sector (I think of them as one sector these days, strange as that may sound). My narrative is pretty simple. I think the EUR/USD, which has been firming up, won't get much past the ~1.43 level, tinted below.

Peak US Treasuries Has Been Observed
The Resourceful Bear News Service is reporting that the interest rate on the 10 Year Note, $TNX, is going up from 3.6% ... $TNX

The bailout of the debt toxic and debt overwhelmed mortgage guarantors was "the mother of all credit writedowns" making for "Peak Treasuries On September 9, 2008".

The chart of the Treasuries ETF, TLT, shows the fall of the US Government bonds ... TLT

And the gravestone doji in BTTRX relates that the zero coupon bonds have peaked out ... BTTRX

All debt got a write-down this week because of the bailout, as is seen in LQD and AGG falling lower ... LQD

The Direxion mutual fund, DXKSX, which is 200% inverse of the rate on the 10 Year note, as seen in The Street ongoing monthly chart of DXKSX will provide low risk and good growth of investment for corporations seeking to preseve corporate wealth ... Chart of DXKSX

For historical note, the spike down bottom low of 13.25 in DXKSX was established September 9, 2008.

Recent Peak Stock Wealth Occurred August 11, 2008
In as much the dollar rally in stocks ended August 11, 1008, recent "Peak Stock Wealth" has occurred.

The stock market is in bearish mode, primarily over concerns of growth, as is seen by the Proshares bear market ETFs QID rising. It's recent bearish engulfing candlestick, followed by today's small gain provides a safe entry point for going short the Nasdaq, 100, QTEC. Chart of QID is courtesy of Ted Burge ... QID

Hurricane Ike Is Reported Bearing Down On Houston
Mary Foster of the Associated Press relates that a Hurricane Hunter monitoring Ike, says: "it's a big one, and it's going to get bigger".

Kondratieff Winter Settles In As Conflict, Bank Insolvency, Stagflation And The Mortgage Crisis Intensifies

Conflict
Mike Mish Sheldon in article Test Of Wills At Boeing relates "Time will tell who, if anyone, wins the battle. Most often both sides proclaim victory even though no one does".

Peter Symonds in GlobalResearch.ca article President Bush Authorises US Ground Operations Inside Pakistan reports that the US carried out a military strike to crack down on militant groups in its Federally Administered Tribal Areas, FATA.

Kaveh L Afrasiabi in GlobalResearch.ca article US a Step Closer to Iran Blockade reports that the EU US Western World Government has imposed new sanctions on Iran, this time targeting its shipping industry, by blacklisting the main shipping line and 18 subsidiaries, accusing the maritime carrier of being engaged in contraband nuclear material, a charge vehemently denied by Iran.

While the economic impact of the measures against Islamic Republic of Iran Shipping Lines, IRISL, will be minimal in light of the near absence of any connection between the shipping company and US businesses, this latest US initiative against Iran sends a strong signal about the US's intention to escalate pressure on Iran, even unilaterally if need be. And, perhaps, it is a prelude for more serious and dangerous actions in the near future, above all a naval blockade of Iran to choke off its access to, among other things, imported fuel.

Bank Insolvency
Scott Lanman of Bloomberg reports in article Fed Direct Loans Lose Stigma as Banks Push Borrowing to Record relates that the use of Federal Reserve Facilities has gone balistic as banks desperately seek liquidity and capital.

The article reports: "The low cost may 'delay necessary adjustments': at banks, said Vincent Reinhart, a resident scholar at the American Enterprise Institute in Washington who was director of the Fed's monetary affairs division from 2001 to 2007. Lenders may 'have a hard time if the Federal Reserve tries to take it away,' he said.

Geithner, along with Fed Vice Chairman Donald Kohn, told a group of banks including Citigroup Inc., JPMorgan Chase & Co. and Bank of America Corp. on an Aug. 17 conference call that tapping the so-called discount window was a 'sign of strength' ".

Yes, a sign of strenght indeed -- not of the banks who avail themsleves of the liquidity, but rather of growing state corporatism, that is state corporate rule in a desperate move to achieve financial stability.

Elaine Meinel Supkis in article US Struggles As Ports Are Hammered By Mother Nature writes: "Note how the bankrupt Citigroup head as well as Geithner are calling this obvious raid on the Cave, a sign of strength! HAHAHA. Up is down, in is out and negative is positive. This is pure Outer Darkness Lightning territory. Whenever we see people stand reality on its head, we are looking at magic. Magicians believe that if you lie about the true condition of things, reality changes. This belief is stupid, of course. The gods control reality and the gods are really all goddesses: Mother Nature and the three evil sisters, History, Inflation and Depression. They love to use numbers and charts and unlike the liars who try to fool us, they keep very accurate accounts. Everything is carefully tracked and when the graphs show the 'hockey stick' sudden rise upwards, these demonic forces sharpen their fangs and claws and tear into whatever has dared to go off the charts. They hate things going off the charts. Balance is everything with them! They love to make everything equal zero."

Stagflation
Kevin Franco of CEP News in ActionForex article BOE's Tucker Says Slow Growth, Higher Inflation Likely reports that Bank of England Monetary Policy Committee Member Paul Tucker said: "If in the interests of sustaining growth in the short run, we were to let inflation become established at higher levels, things could easily get out of control as higher medium-term inflation expectations would become embedded," Tucker said. "We would then find it much harder to bring inflation back to target, and could well end up having to generate a serious recession to put the genie back in the bottle."

Mortgage Crisis
Dan Levy of Bloomberg in article U.S. Foreclosures Hit Record in August as Housing Prices Fell reports that U.S. foreclosure filings rose to a record in August as falling home prices made it harder to sell or refinance homes to pay off the mortgage, RealtyTrac Inc. said. California had eight of the 10 metropolitan areas with the highest foreclosure rates, led by Stockton at one in 50 households. Merced, Modesto, Vallejo-Fairfield and Riverside-San Bernardino ranked second through fifth. Bakersfield, Salinas- Monterey and Sacramento, the state capital, ranked eighth through 10th.

Presidential Candidate Obama Appeals To The Idealism Of Youth And Students For National Service
Patrick Martin in WSWS.org article Obama Calls For US Military Mobilization reports that the Democratic candidate said at the Forum on National Service, Thursday September 11, 2008, sponsored by Time at Columbia University in New York.
As president he would stand behind a National Service Initiative: "There was that sense of sacred obligation that, frankly, we have lost during these last two wars," Obama said. "I want to restore that." The candidate continued: "And I think it’s important for the president to say, this is an important obligation. If we are going into war, then all of us go, not just some."

The Zoo provides Key Quotes in Video Format.

Douglas Hester in article Hitler Obama Youth recalls that another country went down this road 60 years or so ago, and it didn't work out so well.

Obama said: "'We cannot continue to rely only on our military in order to achieve the national security objectives that we've set,' ... 'We've got to have a civilian national security force that's just as powerful, just as strong, just as well funded.'"

He said he would make federal assistance conditional on school districts establishing service programs and set the goal of 50 hours of service a year for middle and high school students.

The night's forum seems to just be a continuation of Obama's speech in Colorado Springs where he is quoted by Reuters saying: " Loving your country must mean accepting your responsibility to do your part to change it." Colorado Springs is in a conservative region of the state that is home to a military base, the U.S. Air Force Academy, and is the hub of many christian religious non-profit organizations, as well as to a host of Evangelical Christian megachurches.

Yes, the Hitler Youth will be returning, so get your brown shirts and jack boots ready if Obama is elected.

Hitler Youth recruitment poster. The wording translates to: “Youth serves the leader. All ten year-olds into the Hitler Youth.“

To some degree I find it strange that black man would endorse slavery. But then again, his words, prove that even he is a neocon. Yes there are neocons on the left and on the right. And they take morality, taxation and investment every which way but right.

The Question Is: Will Gold Rise Or Fall?
The Euro moved above a support line first at 141.140 and then at 142 to close at 142.38; and the Yen fell to close at 92.43 ... FXE and FXY

The Stockcharts.com chart of the EUR/JPY, that is, FXE:FXY, shows the EUR/JPY at support. This abeyance, but not abatement, to the unwinding of the yen carry trade, enabled gold to rise today ... FXE:FXY

Greg Michalowsk in article EURUSD approaches resistance at 1.4225. Expect Resistance writes: "The 1.4225 level is approaching. The price corresponds to the high from September 9th and the 200 hour moving average (at 1.4227). I would expect sellers at the level".

James Chen in ActionForex FXSolutions article Chart Of The Day shows the strong downdraft of the EURUSD.

And Catalin in Euro Daily Update provides an Andrews Pitchfork view of the EUR/USD which to me suggests further down.

And Greg Michalowski in article USDJPY Is Testing Key Technical Resistance Aat 107.70 relates "The USDJPY is testing the 200 hour moving average resistance at the 107.70 level." It appears that the USD/JPY is bouncing around the top of an Ellott Wave 2 up and sometime will go down into an Elliott Wave 3 Down.

The real mover has been the EUR/JPY; it is forcefully down, as it is in an Elliott Wave 3 Down.

Unlike Elliot Wave 3 Ups which are powerfully sweeping up, Elliott Wave 3 Downs are aggressive and very severely down as we see in the fall of the Euro, FXE, taking down the world stocks, EFA, the emerging market stocks, EEM, and the natural resource stocks, such as metal manufacturing, XME, the HUI indexed precious metal mining shares, GDX, steel producres, SLX, coal producers, KOL, energy producers, XME, and energy service, OIH as well as the whole commodity complex, RJI, oil, USO, and even gold, GLD.

The chart of UUP weekly shows a massive gravestone doji. The gravestone doji would suggest an end to the dollar rally and a rise in gold, yet all this is is just an ETF, it is the outcome of greater currency trading ... UUP Weekly

If Holistic Forex comments, I will post its comments here.

Here is the comment of Jesse, in article US Dollar Weekly Chart with Commitments of Traders which says: "The explosion in the open interest, which is unprecidented in our memory, and the record level of funds long positions suggests a blow off top driven by forced panic buying probably in some short of squeeze or unwind."

Jesse is a Dollar Bear and a Gold Bull.

I have to ask how did the explosion get there? Did the plunge protection team produce the explosion by using US Federal Reserve dollars to go long the futures market? Did yen carry traders use loans from the bank of Japan to long the futures as well? Did the Federal Reserve twist the primary dealers to create it by going long? Or did the Saudis or the Bank of Japan use their massive reserves to drive the US Dollar up?

What if the explosion is not a blow off top but rather a blow down top -- a top to blow down of oil and gold. In other words, Jesse sees the committment of traders report as bearish, while the fact is it could be bullish, if the longs keep committed to the US Dollar.

The deflationry presssure in EUR/JPY is terrific, and I really do not see any particular reason for it to let up.

Although I am bearish the US Treasuries, and have documented that a top is in for them, I do not see a run on them, so therefore, I do not see any particular flight from the dollar yet.

Could it be that "they", the currency traders, will continue to drive gold down by shorting the EUR/JPY? I rather think so, simply because they are in control, and probably don't feel any need to take profits and go long?

Yes, the effect of shorting EUR/JPY will be more down for the Euro, FXE, Gold, GLD, the world stocks, EFA, the emerging market stocks, EEM, and its leaders Russia, RSX, and Brizil, EWZ, and the natural resource stocks, such as metal manufacturing, XME, the HUI indexed precious metal mining shares, GDX, steel producres, SLX, coal producers, KOL, energy producers, XME, and energy service, OIH.

Here is the big "but": there is a systeic risk event coming, the banks are really insolvent, that is in desperate need of obtaining capital. And because of the impact of FASB 141, unable to get capital to stay liquid, so they have to rely on the lending window at the Federal Reserve to stay operational.

AIG insurane had a capital loss event today. Greg Farrell and Nicole Bullock in FinancialTimes article
AIG Falls On Fears Over CDS Exposure report that "Investor panic over the state of the US financials spread to AIG on Friday, as the stock dropped 31 per cent during active trading. The shares fell 2 per cent further in extended trading after Standard & Poor's, the credit rating agency, said it may cut the insurance company's credit rating. More than other insurance companies, AIG has significant exposure in real estate and the credit default swap market, two segments that have been crushed in the past year by the decline in asset prices. Although it boasted revenues of $110bn in 2007, AIG has taken $18.5bn in losses over the past three quarters".

Felix Salmon in SeekingAlpha article AIG The Mark-to-Lehman Market relates that "Ooh now this is ugly. AIG's shares are down 26% today to their lowest level in over 15 years; the firm's credit default swaps, CDS, are wider than Lehman's. Note that AIG is not trading at zero, in the way that Lehman (LEH) and WaMu (WM) are: its market capitalization is still a substantial $35 billion or so. But the credit markets are certainly far from reassured that there's any value in the equity. Your shares can -- and quite possibly will -- go all the way to zero".

Doug Noland writing in Safehaven.com article, Too Big To Fail, writes that "while the media directed its attention to Lehman, the pricing of AIG Credit Default Swaps, DCDS, exploded this week. This is a company with a Trillion dollar balance sheet and enormous exposure to the CDS market and other derivatives. And although its balance sheet is only about a third the size of AIG's, Washington Mutual also saw its CDS blow out. And while most holders of Fannie and Freddie obligations have come out of the GSE fiasco unscathed (or better), one can see how this crisis going forward will see more pain meted out to the corporate bondholder - not just the poor lowly equity owner. Perhaps the prospect of Lehman debt holders suffering losses has pushed the acutely vulnerable CDS market to the edge."

I want to go back to concept mentioned above of bank insolvency. The banks are on life support, they use to get a little triage, then they got a transfusion, but now they are on total life support, sustained only by TAF, TSLF and PDCF as related by Adrian Ash of BullionVault in Safehaven.com article Safehaven.com article PLIF!! Just an Everyday Emergency

The banks and investment bankers, will one day have an "AIG Insurance like event", where they will get further capitally depleted, and then kaboom, the stock market fall, and the whole world wide financial system freeze up, and the US Dollar go into a nosedive.

At that time those owning gold will survive; and those who do not own gold will not. Peter Schiff Last in Safehaven.com article Last Gasp of a Doomed Currency writes: When the dust settles, the Federal government will be left with staggering liabilities that will be impossible to repay with legitimate means (taxation or borrowing). To make good, they must rely on the printing press to create money out of thin air. The rapid expansion in money supply will push the dollar down mercilessly. Right now every asset on the planet is being sold except the U.S. dollar. To me this rally looks like the last gasp of a dying currency. Just like a toy rocket ship, once the dollar runs out of fuel it will crash back down to Earth.

So what is one to do?

Does one invest in gold now, only to suffer loss at a falling EUR/JPY?

Does one go short gold, GLD, now? or short with DRR, DEE or DZZ now, as the the EUR/JPY is likely to continue to fall sharply lower?

I Encourage That Pay For Investment Insight From Two Sources
1) Ted Burge TedLines
2) Gary Dorsch's Global Money Trends newsletter or call toll free to order, Sunday thru Thursday, 8 am to 9 pm EST, and on Friday 8 am to 5 pm, at 866-553-1007. Outside the US call 561-367-1007.

Mr. Dorsch wrote in Safehaven.com artcle Safehaven.com Is The Super Commodity Cycle Dead Or Alive that the direction of gold prices and inflation expectations also hinge on the direction of world oil prices. It's doubtful that the ECB hawks and the Group-of-Six central banks would have been so successful in knocking gold and oil prices lower without the help of Saudi king Abdullah, the central banker of oil. Iran and Venezuela would like to see the Saudis cut their oil output at the upcoming OPEC meeting on Sept 9th to stabilize the oil market, and prevent prices from moving lower.

However, the Saudi kingdom might be looking at the US political calendar, and would feel more comfortable with a John McCain presidency, thus Riyadh might be inclined to leave its oil output unchanged awhile longer. Already, the 25% drop in crude oil prices from five-weeks ago is paying dividends for Riyadh. In a sharp turnaround, Republican John McCain has opened a 5-point lead on Democrat Barack Obama in the US presidential race, wiping out Obama's solid 7-point advantage in July, and taking his first lead in the monthly Reuters/Zogby poll.

So is the "Commodity Super Cycle" dead or alive? Is now the time to buy badly battered commodities? The answers to these tough questions will be published in the August 23rd edition of Global Money Trends.

And Mr. Dorsch wrote in Safehaven article "Maverick McCain" and the Resurrection of the US$ that "As soon as you think you've got the key to the stock market, they change the lock," lamented Joe Granville, who is mostly remembered for his bearish calls on the US stock market during the 1970's, 1980's, and the 1990's. Nowadays, many currency traders are scratching their heads, trying to figure out what's behind the sudden resurrection of the US-dollar, which is flexing its muscles for the first time in two-years, and defying conventional logic, by climbing sharply higher against most foreign currencies, including those that offer much higher rates of interest.

The Euro has plummeted 12% vs the US-dollar since July 15th, tumbling to as low as $1.410 today. Earlier this week, Euro-zone Finance chief Jean-Claude Juncker gave currency traders the green-light to trash the Euro. "Things are developing in the right direction, in line with the commitments of the US Treasury that it stated in recent months. The Euro is less than $1.44, and it reflects economic fundamentals better than the Euro flirting with $1.60. I still think that the Euro is overvalued, not only against the dollar, but also against other currencies," he said.

What's behind this sea-change in market psychology towards the US-dollar, where the focus has shifted away from interest rate differentials, and instead, has veered-off towards other key factors? They are several reasons that are beyond the scope of this article, but were highlighted in the August editions of the Global Money Trends newsletter.

Throughout the US-dollar's tortuous 40% slide over the past six-years, the Arab oil kingdoms in the Persian Gulf stayed loyal to their archaic US-dollar pegs, even while the Fed's indifference to the sliding US-dollar sent inflation shock waves through their dollar-linked economies. Saudi Arabia was forced to expand its M3 money supply by more than 20% in order to defend the dollar peg, which in turn, fueled inflation to +11.1% in July, it's highest in 30-years. In Abu Dhabi, the biggest member of the UAE federation, prices were 12.9% higher in June.

The Arab oil kingdoms rescued the US-dollar from the brink of collapse, by rapidly expanding the supply of Kuwaiti dinars, Saudi riyals, and UAE dirhams, and then recycled about $250 of Petro-dollars into US Treasuries over the past 12-months, through their brokers in London. In return, the US armed forces are defending the Arab Oil kingdoms from their dangerous neighbors to the north in Iran, which seeks nuclear weapons, and is closely aligned with czarist Russia, and Venezuela's mercurial kingpin Hugo Chavez, - forming the "Axis of Oil."

The recycling of Arabian Petro-dollars into US Treasuries put a floor under the US$ Index at the 70-level this summer, and persuaded bearish currency traders to cover massive short positions that had been built-up in the US$ over the past six-years. King Abdullah of Saudi Arabia upped the ante, in support of the dollar, by boosting the kingdom's oil output by 1.1 million barrels per day (bpd) from a year-ago to 9.7 million in July, which finally deflated the crude oil bubble by $45 barrel so far.

On Sept 3rd, Saudi Arabia announced that it had started pumping crude from the Khursaniyah field, which would boost the kingdom's output capacity by 500,000 bpd to around 11.8 million barrels, and aims to boost its total oil production capacity to 12.5 million bpd by the end of next year. But with crude oil experiencing its largest slide in history, (in dollars) OPEC hawks Iran and Venezuela called for production cutbacks, to put a floor under the market at $100 /barrel.

On Sept 8th, OPEC chief Chakib Khelil said he expected the oil market to be oversupplied at the end of this year. "There is plenty of oil in the market, stocks are pretty good. There will be an oversupply of one-million bpd by early next year," he predicted. Khelil also noted that oil prices were easing as the value of dollar rose. US crude fell to under $102 as the dollar hit an 11-month high against the Euro. "What we are seeing now is the inverse relationship between the US dollar and the oil price is verified. The dollar is strengthening, the oil price is going down," he added.

In a compromise, to placate the mullahs in Tehran, the Saudis agreed to a surprising cutback in oil output, in an effort to stabilize the market. OPEC is pumping roughly 790,000 bpd above target, the bulk of which comes from Saudi Arabia, the central banker of oil, which is pumping around 750,000 bpd above its official quota. "If you do your own calculations properly, OPEC will be a lowering its production by about 520,000 barrels per day," said OPEC chief Khelil.

But the Arabian monarchs also have their eyes on the US political calendar, and have driven oil prices lower, in order to help John "Maverick" McCain get elected, and become the next commander in chief of the US armed forces in the Persian Gulf. On August 31st, South Carolina Senator Lindsey Graham reminded the Arab oil kingdoms that Democratic vice-presidential nominee Joe Biden lacked the backbone to stand up to powerful foes or to fix broken governments in the Middle East.

"Biden has national security experience. But experience and judgment need to come together. Biden voted against the first Gulf War to evict Saddam Hussein from Kuwait. He opposed the surge in Iraq. He wants to partition Iraq," Graham said. As chairman of the Senate Foreign Relations Committee, Biden did oppose the recent US troop buildup to defeat al-Qaeda and has called for separating Iraq into three autonomous provinces - Shiite, Sunni, and Kurdish, which is diametrically opposed to the views of the Arab oil kingdoms in the Persian Gulf.

Between now and Nov 4th, the Saudi and Kuwaiti monarchs will attempt to put a lid the oil market, allowing US gasoline prices to trickle lower, and ease the anxieties of jittery swing voters who are worried about the economy. Soybean and corn prices have already plunged by 30% since early July, in sympathy with lower oil prices, and with a little bit of luck, Americans might see lower food prices before the November 4th election. What's likely to happen to the oil market after Nov 4th, will be presented in the upcoming Sept 12th edition of Global Money trends.

Not since the contest between Jimmy Carter and Ronald Reagan in 1980, has expectations of the outcome of a US-presidential election impacted the currency markets in a big-way. In 1980, any signal that Carter was pulling ahead in the polls, would send the dollar plummeting in the foreign exchange market. Conversely, Reagan's landslide victory, by a 51% to 41% margin in the popular tally, and a whopping 489 to 49 in electoral-college votes, set in motion a vigorous four-year bull-run for the US dollar, and lifted the greenback to 3.50 German marks.

In 1980, when Reagan defeated Carter, the British pound lost 10% vs the dollar after six-months, 22% after one-year and 47% by the end of Reagan's first term. The "Reagan Revolution" included big tax cuts, and wide swaths of working-class Democrats defected to the Republican Party, which Mr McCain hopes to attract in the weeks ahead, with his plan to stimulate the US economy by cutting the corporate tax rate 10% to 25%, and extending the Bush tax cuts beyond 2010.

There are several reasons that explain the sudden plunge in the Euro, including the unwinding of "yen carry" trades, but few traders have noticed that the dollar's resurrection is mirroring the odds of a McCain victory in November. Futures traders dealing at the on-line parlor Inntrade, based in Dublin, Ireland, have lifted their bids on "Maverick" McCain to a 47.5% probability of winning the election, up from 30% in mid-July. The perceived shift in "Maverick" McCain's" political fortunes are linked to the latest Gallup poll, putting him 5% ahead of Mr Obama, due to a huge 15% shift of independent voters and women, leaning towards Alaskan governor Sarah Palin.

Governor Sarah Palin of Alaska introduced herself to America before a roaring crowd at the Republican National Convention last week, as "just your average hockey mom" then pitched herself as a champion of government reform, sliced and diced Democratic candidate Barack Obama as an elitist, and attacked the liberal media. McCain wants to put Sarah Palin in charge of US oil and energy policy if he becomes president, to lessen American dependence on foreign sources of oil, which in turn, could have a big impact on the dollar in the years ahead.

Alongside McCain's jump in the polls, the US-Dollar Index rallied 12% towards the 80-level, gaining support from the emergence of a militaristic Russia, which invaded South Ossetia and Abkhazia, and threatened to cut-off energy supplies to Europe. Kremlin kingpin Vladimir Putin has refurbished the US-dollar's traditional status as a "safe haven" currency. Not since the end of the Cold War, has the US-dollar been treated as a "safe-haven" currency in times of dangerous geopolitical turmoil.

Nowadays, the Persian Gulf oil kingdoms regard the possibility of a nuclear armed Iran as a "dire and direct threat" to their own existence, and are flocking to the US-dollar as a safe haven. The sovereign wealth funds (SWF's) controlled by Dubai, Abu Dhabi, Kuwait and Saudi Arabia have roughly $1.7 trillion between them, dwarfing the largest private equity funds in the world. During the first half of 2008 alone, Saudi Arabia raked in $192 billion from oil exports,just $2 billion less than the kingdom's total oil export revenues in 2007.

With their enormous size, the Persian Gulf SWF's can easily move global financial markets. By 2015, the Persian Gulf SWF's could grow to $5-6 trillion. If Chinese, Russian, and Korean SWF's are taken into account, the total global SWF value could top $12 trillion, or almost equal to the output of the Euro-zone's economy. SWF's are quickly becoming the most powerful investors in the world, and account for 12% of the trading volume in commodities. Their activities will increasingly impact financial markets, and the distribution of strategic resources.

Russia holds the world's largest natural gas reserves and the eighth-largest oil reserves. It supplies one-quarter of Europe's oil supply and 30% of its natural gas. In July, deliveries to the Czech Republic through the Druzhba pipeline were cut by 40% after Prague signed an agreement with the US to install an anti-missile shield. The emergence of a militaristic Russia, under former KGB spy master Putin, in alliance with the "Axis of Oil," has tarnished the Euro's stellar image, and added an extra degree of risk in investing in European stock markets.

Putin has declared that a new Cold War with the West has already begun and is considering arming Russia's Baltic fleet with nuclear warheads and pointing them at European cities. "Of course we are returning to those times. It is clear that if a part of the US nuclear capability turns up in Europe, and, in the opinion of our military specialists will threaten us, then we are forced to take corresponding steps in response. The strategic balance in the world is being upset and in order to restore this balance, we will be creating a system of countering that anti-missile system. Naturally, we will have to have new targets in Europe," Putin warned.

Since Russia invaded South Ossetia and Abkhazia on August 7th, the Kremlin's foreign exchange reserves have declined by $16.4 billion, the biggest outflow of capital since the country's financial meltdown in 1998. Foreign investors, who hold roughly half of all Russian shares outstanding, many listed in London and New York, have sold an estimated $20 billion of Russian stocks. The Russian central bank was forced to sell US$5 billion in the foreign exchange market to stabilize the Russian rouble, after it tumbled 10% against the resurgent US$, to a one-year low.

While the Kremlin's coffers have mushroomed, the Russian corporate sector is still heavily reliant on foreign investors. The local bond market is small, with just $60 billion worth of ruble issues. Russian companies borrow funds on the world capital markets, and foreigners own half of the $1 trillion debt. But now, Russian companies are facing a liquidity crunch, since foreign lenders are balking and won't touch any Russian paper. The impact on the Russian stock market has been severe.

The Russian Trading system Index (RTS) was roiled by the exodus of foreign investors, who are on high alert for political risk. Since peaking in May, the Russian stock market plunged 40%, shaving roughly $500 billion from the value of Russian stocks. Foreigners dumped large blocks of Russian mining companies after Kremlin kingpin Putin, accused a large steel and coal mining company, Mechel, MTL.n of tax evasion, causing its share price to collapse. When Putin targets a company, there can be dire consequences, such as the demise of Yukos, a big oil company that was bankrupted on trumped-up tax charges.

Roughly half the RTS Index is comprised of energy related companies, which have also been hard hit, by the slide in crude oil prices to $102 /barrel. Soaring oil prices were behind Russia's political and economic resurgence, and help lift the RTS Index by an astounding 720% from six-years ago. But nowadays, the term "Peak Oil" is invoking images of a peak in oil prices and global demand, due to a synchronized slide in the global economy, rather than fears that the world is running out of oil.

One big surprise at this week's OPEC meeting was the presence of Russian deputy prime minister Igor Sechin, sent by Putin, who announced that "Broad cooperation with OPEC is one of Russia's top priorities. OPEC is one of Russia's key partners on the global oil market." In the past, Russia has agreed to trim production in line with OPEC output cuts to support prices, and traders must monitor Putin's next move.

Most interesting is the observation that the Euro's slide against the US$, is the near-perfect inverse image of the US-dollar's climb against the Russian rouble. The emergence of militarist Russia, ready to aim its nukes at Europe, and a stranglehold over Europe's energy supply, has triggered a mini-flight of capital from the Euro and the Russian rouble. In contrast, the US-dollar, backed by the world's most powerful military, wins by default as a safe haven.

The foreign Exodus from Brazil's Bovespa stock exchange, EWZ, and undermines the Brazilian currency The Real.

Yet there appears to be more reasons behind the US-dollar's rally against all major foreign currencies, than just its newly polished image as a "safe-haven" currency. Brazil is not under any threat of military attack from Russia or Iran, and it's self-sufficient in energy, yet it's currency, the real, has lost -14% against the US-dollar in recent weeks, even though Brazil's interest rates are +11% higher.

Foreign investors pulled money out of Brazil's stock market for a third straight month in August, triggered by the steepest plunge in commodities in five decades. Slumping commodity prices led Sao Paulo's Bovespa stock index sharply lower, to below the psychological 50,000-level, or 34% off from its May 20th all-time high. More than half of the Bovespa index is made up of natural resources companies and steel mills, whose fate largely hinges on the direction of the global economy.

The Dow Jones Commodity Index has tumbled 27% from a record high set eight weeks ago. Steel prices have plunged 30%, and soybeans are 30% lower. Brazil had posted a trade surplus of $40 billion last year on exports of $160 billion, and strong demand for commodities helped secure a 27% jump in exports, from January to July of this year, compared to the same period a year ago.

An unwinding yen carry trade unravels Brazil's trade surplus.

Latin America's largest economy enjoyed a current account surplus for the last five years, its currency rose to a nine-year high while the central bank stockpiled enough US-dollars to pay off its entire foreign debt and become a net creditor for the first time. But imports are growing at twice the rate of exports this year, due to the super-strong real, and Brazil's trade surplus plunged 42% in the first half of this year. Now the virtuous cycle is moving in reverse, as commodity prices slide, and foreigners repatriate their money, to avoid losses related to the Bovespa index.

The unwinding yen carry trade has deleverage the top two emerging markets.

The Brazilian real has plunged 10% in the past 10-days to 1.77, its lowest level against the dollar since February. The performance of Brazil's currency and stock market, which largely hinge on the direction of commodity markets, haven't differed much from Russia's. These top-2 emerging markets are leveraged plays on the global economy, and when commodities trend lower, it has a double barreled selling effect on emerging markets.

My Personal Investment Strategy
ActionPoints in article Index Watch For September 15, 2008 provides the article Weekly Dollar Chart which shows $80.40 to be strong resistance for the US Dollar.

Gold trades inversely of the US Dollar, and so the implication is that gold has the potential to go up, as the US Dollar hits resistance and falls lower.

Jesse documents that there is a terrific number of futures contracts long the US Dollar in article US Dollar Weekly Chart with Commitments of Traders which says: "The explosion in the open interest, which is unprecidented in our memory, and the record level of funds long positions suggests a blow off top driven by forced panic buying probably in some short of squeeze or unwind."

I take the comments recognising that Jesse is a Dollar Bear and a Gold Bull, so I tone it down a bit and think that there is a massive position long that is supporting the US Dollar.

From reading the Gary Dorsch article "Maverick McCain" and the Resurrection of the US$, I conclude that the future postions are probably owned by the Saudis, who are likely to hold their position until their McCain-Palin team is elected.

The falling EUR/JPY, that is a falling Euro, FXE, since the selling by speculators of oil futures on July 14, 2008, enforced by a historic level of longs in the futures market for the US Dollar, $USD, has sent the price of gold lower, and will likely continue to send gold lower even more ... FXE and FXY ... Chart of FXE:FXY -- EUR/JPY

Soon we will have a systemic risk event, most likely, a "liquidity scare" will come, on issues surrounding mortgage backed securities, credit default swaps, CEDS, counterparty risk, and the inability of financial organizations to obtain capital due to FASB 141.

When the world wide financial breakdown comes, and only then, will gold rise in value, and establish itself as the defacto international currency, and means of garnering and maintaining wealth.

I am currently long a few SKF and have a few gold coins, so it's going to be a while before I see any investment gain.

Gold could easily fall to the $650 to $675 to $690 range shown in the July 11, 2007 Kitco Alf Field article Gold We Have Lift Off

The Jesse article Gold and Oil Long Term Weekly Charts As of August 27, 2008 provides the chart of gold where $675 is seen as strong support.

Dollar Exuberant Stocks Will At One Time Fall ... I Present These Charts As Tombstones To The Bygone Era Of Prosprity
CY, BBBY, PLCE, AAPL, AZO, ITB, QCOM.

Since August 15, 2008, there has been a measurable investment demand for gold, $GOLD, even as the US Dollar, $USD, has risen; this even more so since the US government has taken over Freddie Mac, FRE, and Fannie Mae, FNM .... $GOLD closed at $802 ... $USD closed at 79.47

The MSN Finance chart of DGP, compared to FXE, FXY, UUP, TLT, since August 15, 2008, communicates that both gold and the Dollar are up, as the yen carry trade, the EUR/JPY, better called the euro carry trade, has unwound; and the chart communicates that US Treasuries will likely sell off in response to the bail out of the two mortgage guarantors .... DGP, compared to FXE, FXY, UUP, TLT.

The 3 month ongoing Yahoo Finance chart of DGP, compared to FXE, FXY, UUP, TLT, relates the very same thing: an up trending gold and dollar, since August 15, 2008, and an unwinding yen carry trade, with US Government Bonds likely topping out in value ... DGP, compared to FXE, FXY, UUP, TLT.

The ongoing 5 day Yahoo Finance Chart of $TNX, compared to $TYX, shows the bond market place has declared a defacto interest rate hike in response to the Statement of James Lockhart director of the Office of Federal Housing Enterprise Oversight, OFHEO, who will head the Federal Housing Finance Agency, FHFA, being created to oversee mortgage backers Fannie Mae, FNM, and Freddie Mac, FRE ... ^TNX compared to ^TYX

Stockcharts.com shows $TNX turning up today from a spiked bottom... $TNX ... Mortgage rates and all interest rates will be heading higher now.

Today is a watershed day in investment history: we have likely reached Peak Treasuries.

The rewards of mortgage securitization have been privatized; and the losses of home ownership socialized to the public, investors and the world at large: the US Taxpayer is now on the hook for the debt of the two mortgage underwriters.

A run on the US Treasuries will likely now commence as investors gain greater insight and clarity into the true and ongoing cost of the nationalization of the US mortgage industry.

US Treasuries, TLT, rose to a almost a new weekly high. The zero coupon mutual bond fund, BTTRX, likewise ... TLT weekly and BTTRX weekly

Here is TLT Daily ... TLT Daily closed at 95.88 on September 8, 2008.

Yet the futures market place treasuries, $USB, has turned down. And the ratio of US Treasuries, to futures Treasuries, TLT:$USB, suggests that the cash market place in government bonds is over-extended, that is overbought ... TLT:$USB

The Resourceful Bear says: "TLT ain't no life boat of safety ... it's a looming Titanic!!" Yes the futures market investors have abandoned ship.

DXKLX Direxion 10 Year Note Bull 2.5 Fund will be going down ... DXKLX

DXKSX Direxion 10 Year Note Bear 2.5 Fund will be going up. DXKSX

The homebuilding, banking and value stocks rose today.
the Homebuilding, XHB,
the Regional Banks, IAT,
the Multicap Value, FAB,
the Large Cap Value, FTA
the Small Cap Value, RZV
the Russell 2000 value, IWN.

The 3 month ongoing Yahoo Finance chart of IAT, compared to FAB, FTA, RZV, IWN shows how the value stocks are driven by the banking sector. .... IAT, FAB, FTA, RZV, IWN

The one year chart of value stocks shows how the small cap value stocks were terrifically injured by the Citigroup CDO Bust of October 8, 2007. Given the failure of securitization and financialization, one can truly say we have reached the end of value investing ... IAT, FAB, FTA, RZV, IWN

The growth stocks, that is the NASDAQ stocks, QQQQ, $NDX, continued to fall lower; it closed at 43.31; which is below support at 44 ... QQQQ

The NASDAQ was led lower today by:
the broad line semiconductors, CY, which is set for a massive fall lower.
the semiconductor memory chips, SNDK which manifested a lollipop hanging man candlestick
the communication stocks, RIMM, AAPL, QCOM All of which are now perched at the edge of massive head and should patterns in their weekly charts.
the biotechnology stocks, XBI, This ETF is also on the edge of a massive head and shoulders pattern.

It's the end of a growth age; specifically the end of a bullish age of prosperity in the Nasdaq 100, QTEC. When one one compares QTEC, to SMH in the two year ongoing Yahoo Finance chart, one has to ask, "which of these two are going to fall faster"? And by implication which is a better investment, SSG or QID, as seen in the three month ongoing Yahoo Finance chart? Personally. I think QID will outperform SSG from now on out.

The S&P, $SPX, SPY, manifested a massive lollipop hanging man candlestick at its 50 day moving average; thus giving the clarion call to the end of a dollar driven stock rally ... SPY

The Dow, DIA, $INDU, manifested a kind of dragonfly candlestick ... DIA

The Russell 2000, IWM, $RUT, manifested a harami at 72.48, which is at the apex of a 'broadening top pattern' that goes back to May 1, 2008; all I can say is "lookout below" ... IWM

The Dollar Rally in stocks ran up Autozone, AZO, America's Car Mart and Dollar Thrifty Auto Group; these are now terrific short selling opportunities .... AZO, CRMT, DTG.

Petsmart, PETM, has been a discretionary and retail leader in the Dollar Stock rally that began July 14, 2008 when the yen carry traders sold oil to take profits and bought financial, homebuilding, retail, biotechnology, consumer, retail, and health care stocks ... PETM

Consumer pharmaceutical company Johnson and Johnson, JNJ, has been a dollar stock rally leader as has Walmart, WMT ... JNJ and WMT

UUP has gone parabolic up; and today manifested a gravestone doji; this indicates a market top is coming in the US Dollar, that is, $USD .... UUP closed at 24.56 in a gravestone doji and $USD closed at 79.47

The battle between the US Dollar and gold can be followed in the ongoing 5 day Yahoo Finance of UUP compared to GLD.

And the battle can be followed on the INO.com Dollar, Dow and Gold Page as well.

For reference and insight in the ongoing Gold and US Dollar, Kitco.com provides good reference.

Although, there is a bullish cross in the US Dollar chart; and a bearish cross in the gold chart, I believe the dollar will capitulate; and gold arise the victor to rule currency trade world wide.

Yes it's reasonable to believe that the Dollar is topping out: the day off Peak Dollar is fast approaching. As stocks fall from here, risk aversion will manifest to being long the US Dollar. I fully expect the USD/JPY to sell off from 108.035 as is seen in this on going FXStreet chart of the USD/JPY, aiding in the fall of the Dollar.

And I am hoping that the EUR/JPY will rise from 152.62 as is seen in this ongoing FXStreet chart of the EUR/JPY.

Stockcharts.com shows the EUR/JPY to be 1.54 ... FXE:FXY is 1.54 on August 8, 2008.

Here is ongoing five day Yahoo Finance chart of the EUR/JPY

My Investment Maxim Is Two Fold
Sell at market tops; buy at market bottoms.

In a bull market be a bull; in a bear market be a bear. In a bull market, one buys on dips; in a bear market, one sells into strength.

The Investment Application
We are still in a bear stock market, therefore I recommend the use a trust account to
1) buy 200% inverse of the financial sector SKF; The spike down in SKF to 103.24 is a buy signal.
2) sell short the guarantors: MBI, ABK; MBIA shows a dark cloud cover candlestick; and Ambac a massive lollipop.
3) sell short the suretors: RDN, MTG, SUR, AGO, SCA, Radian Group manifested bearish engulfing today.
4) sell short homebuilders: XHB, MTH, BZH, HOV, SPF, TOL The homebuilders ETF, XHB, closed in a massive long legged doji, communicating the active battle between bulls and bears.
5) sell short DEE as it is terrifically overbought; sell DEE at 29.41 ... DEE

I recommend a small short position in USD/JPY in a Forex account, if one can obtain a put above 108.

And I recommend the purchase of gold at BullionVault.com and GoldMoney.com as protection against systemic risk events -- the risk of a financial marketplace breakdown.

And in as much as we are in a market bottom for DXKSX at 13.40, for corporations, I recommend a purchase of DXKSX.

The other reason for buying gold is that the former well springs of liquidity, the USD/JPY and the EUR/JPY, have now gone toxic on risk aversion to inflation, debt and decreased profit and growth opportunity.

These currency pairs will now be the 'saws of destruction' working to cut asunder fiat wealth; and in the process of sawing, gold will fall out as the world's currency and measure and means of garnering and preserving wealth.

In as much as gold relative to US Stocks, GLD:VTI, continues to stay above 1.15, there is an measurable ongoing investment demand for gold ... GLD:VTI.

The investment demand for gold is seen in the 3 month ongoing Yahoo Finance chart of GLD compared to GDX, XME, SLX, EEM, SLV .... GLD, GDX, XME, SLX, EEM, SLV. The story here two fold: First, the unwinding yen carry trade, FXE:FXY, has caused disinvestment from the natural resource stocks. And second, disinvestment from commodity currencies, the Euro, FXE, the Australian Dollar, FXA, and the Canadian Dollar, FXC, has caused disinvestment from the emerging markets as risk aversion has grown to being invested long, due to rising producer price inflation, diminished growth prospects, and the level two and level three assets at banks and investment bankers.

And the investment demand for gold is communicated in the three month on going Yahoo finance comparison of the gold ETF, GLD, to the commodities ETF, RJI, and the oil ETF, USO ... GLD, RJI and USO.

Moise Levi has a helpful chart analysis on gold; and relates "Conclusion ; not a buyer yet ; let us first see another higher lows first, mid to long term trend is down".

West Texas Intermediate Crude, $WTIC, closed at 106.25; which is approximately near the level in Rick Pendergraft article How the Government’s Short-Selling Ban Killed Oil Prices.

The HUI Indexed precious metal mining shares, that is the gold stocks started to disconnect from the price of gold in November 2007 and even more severely so in March 2008 ... ^HUI and GLD ... March fall in the HUI Shares

Kondratieff Winter Has Set In
When I look at the Eddy Elfenbein chart article September 9, 2008 30 Years of Fannie Mae and reflect that a year ago the prices were closer to 70, it is clear that and age of prosperity that came via securitization and financialization is over.

Kondratieff Winter has set in. Socially responsible investing is sure to fail; it like value investing and growth investing is part of a bygone era. The ETF iShares KLD 400 Social Index, DSI, is an excellent metric of green investing; but investing here is sure to drive one to financial ruin. The lollipop hanging man candlesticks in DSI weekly warn the investor to flee to gold and to short selling ... DSI Weekly

And I present the coffin investment, that is TDX Independence 2040 ETF, TDV, which seeks investment perfromance of the Zacks 2040 Lifecycle Index. The longer one stays invested here, the sooner one will NOT be able to even afford a coffin ... TDV

The Potential Of Systemic Risk Is A Compelling Reason For Investment In Gold
Systemic Risk potentialities abound ... yes little fires continually burn and can become monster blazes that burn entire nations, and even the world financial system to the ground ... that is why one should be invested in gold.

Here is just one of many systemic risk potentials that exist today:

Oliver Biggadike and Shannon D. Harrington of Bloomberg in article Fannie, Freddie Credit-Default Swaps May Be Settled report that investors may be forced to settle contracts protecting more than $1.4 trillion of Fannie Mae and Freddie Mac bonds against default after the U.S. seized control of the companies in a bid to bolster the housing market.

Thirteen ``major'' dealers of credit-default swaps agreed ``unanimously'' that the rescue constitutes a credit event triggering payment or delivery of the companies' bonds, the International Swaps and Derivatives Association said in a memo obtained by Bloomberg News today. Market makers for the privately traded contracts will discuss how to settle them in a conference call at 11 a.m. in New York, the document said.

``This is a big deal,'' said Sarah Percy-Dove, head of credit research at Colonial First State Global Asset Management in Sydney. ``The market is not experienced at settling a credit event for a name of this size, so it is a bit of an unknown.

Systemic Risk events do happen. Rob Kirby writing in Financial Sense.com article The Stars are Aligning - But For What? writes that Fannie and Freddie were finally nationalized on Sunday, September 7, 2008 – a date that may very well live in infamy. Shareholders of the mortgage behemoth mortgage giants have been effectively wiped out ... yes wiped out by the US Government ... that's why I recommend gold.

Summary Comments For Today
Capitalism and sound investing died this weekend as Freddie Mac and Fannie Mae were nationalized, state corporate rule now governs commerce, finance, trade and investment.

As Jesse relates: Word For The Day: State Capitalism

I. Introduction
We have reached Peak Dollar.

The international financial market place knows that the cost of rescuing the GSE is not the $25 Billion mentioned in Congressional testimony; but for all practical purposes unlimited, as brought out in Bonddad Blog article What's the Cost For Fannie and Freddie?.

The bond market place has effectively ended the AAA rating on the US Treasury Bond with Congress now giving Bernanke authority over the GSEs, providing them liquidity as well as capital.

If stock trader and software developer Tim Knight who wrote article The Rescue, has figured out who the winners and losers are, you can bet the foreign investors have as well. And they, like Mr. Knight, who believes that the US "slips that much closer into oblivion with this travesty", will be taking action -- selling US Treasuries, stocks and the US dollar.

Capitalism died with the Federal Reserve assisted JP Morgan buy out Bear Stearns. And now the US Congress, in granting Bernanke authority to open a lending window to the GSEs, and capitalize them as well, together with passing the Dodd Frank Housing Bill, is simply putting the nails in Capitalism's coffin. The Congressional action privatizes wealth and gain to bankers, and socializes losses onto the US taxpayer.

II. Chart Analysis
The charts presented below show the six day long Fannie Mae and Freddie Mac Rescue Rally, has now run its course: the US Dollar will now be turning lower.

A. Commodities are likely to hold at their current level
Oil, USO, has fallen to major support at $100.

Gold, GLD, closed at 90.50, and could easily fall lower to 89 or 89; but if oil holds here, gold is likely to as well.

Commodities, RJI, has fallen to major support at 12.50; it could easily fall lower yet to find support somewhat lower at 12.25.

B. Stocks have likely reached their rally high
Bank of America, BAC, has risen to 33.44 which is near resistance at 34.

Citigroup, C, has risen to resistance at 21.12.

The chart of Fannie Mae, FNM, shows a long legged doji candlestick at 15.00 indicating completion of the battle between the bulls and the bears; although one can no longer short this and eighteen other stocks, the peak value of this GSE has been reached.

The chart of the financial sector, IYF, shows a hammer completion at resistance at 74.85.

The harami candlestick in the chart of the investment bankers, KCE; and the gravestone doji in the chart of the banks, KBE, at resistance at 34, relate the GSE Rescue Rally is over.

The US stocks, VTI, are likely to fall lower now, and the US Dollar will fall lower with them as well.

C. The Yen is headed higher and the Euro lower
The weekly chart of EUR/JPY, FXE:FXY, the barometer of the yen carry trade, shows a dark cloud covering hammer candlestick, in an ascending wedge, with rising price on falling volume: a fall lower in value is imminent. This means there will be disinvestment from stocks; traders will be taking profits and buying yen, FXY, to repay their 0.5% interest loans.

The ongoing three month chart of the Yen, FXY, indicates a near double bottom, shown here: the Yen will now be moving higher. Notice how it moved higher in mid June as investors bought the Yen after the minutes of the Bank of Japan, BoJ, were released to news services such as CEP News, relating that rising inflation poses an investment risk.

The Euro, FXE, is headed down as can be seen in the EUR/USD chart courtesy of ActionForex.com in article Action Insight Mid-Day 7-23-2008.

Another scenario has all currencies falling lower in a death spiral together; with the Euro, falling more than the yen.

D. Interest rates are heading higher and the Dollar lower
The interest rate on the 30 Year US Treasury Bond, $TYX, has been rising ever since the Freddie Mac and Fannie Mae Rescue Rally started; this trend will continue.

The ongoing five day chart of USD/JPY has retraced near its recent high of 108.58 to close at 107.74.

The weekly chart of the dollar laden Powershares DB G10 Currency Harvest Fund, DBV, shows bearish harami. The wells of liquidity have run dry, and the spigots of liquidity for stock investing have been turned off -- the Fed is running out of bullets, and risk aversion is rising to using the BoJ lending window now that inflation is raising its head, so the almighty dollar is in decline. However, those with good credit history with the BoJ will have margin for going short or investing in gold.

The daily chart, DBV, shows bearish engulfing.

The US Dollar, $USD, has risen to its 50 day moving average at $72.79.

The direction for the US Dollar is now down.

Investment Application
In as much as the bear stock market is set to resume, one should consider investing bearishly by going long these Proshares 200% inverse ETFs.

Google Finance Comparative Chart
SKF Financial
SRS Real Estate
SJF Russell 1000 Value
FXP China
SCC Consumer Services
Google Comparative Chart
DXD Dow 30
TLL Telecommunications
RXD Health Care
SSG Semiconductors
TBT US Treasuries

The Financial Ninja relates: Financials: Time to Go Ultra Short, Again

SuccessTrading reports: Top Oversold ETFs for Traders: SKF, SJF, DXD.

Of course, only TBT has been successful in short selling of late; and in fact it may very well fall lower in value, as the bear market resumes, and investors sell stock, and park some of their proceeds in US Treasuries TLT. Yes a fall lower will be the buy signal in this ETF. For those who do short sell, I recommend that one be ready to allocate twenty percent of one's portfolio here, so that while the stock shorts are not performing this will be.

The chart of SSG shows yesterday's gain as investors sold out of Texas Instruments, TXN; and the chart shows today's loss, as semiconductors, XSD, moved up with the Nasdaq, QQQQ.

The chart of DXD shows today's 1% loss as the DOW, DIA, traded up 0.46%.

Having presented the option of short selling, my investment recommendation is to be invested in gold as although one will have gains from short selling, the value of one's portfolio is going to be forever depreciated by a falling dollar.

I don't want a dollar denominated anything: the US dollar is going to experience total devastation as regional trading alliances and currencies arise, and as China uses its $2 Trillion or more Forex reserves, to become the world's economic super power.

Elaine Meinel Supkis writes frequently of the Rising Giant Of The East with her article Congress Nationalizes Mortgage Debts being just one example.

My investment maxim is simple: in a bull market be a bull; in a bear market be a bear. In a bull market, one buys on dips; in a bear market, one sells into strength.

Therefore, the current fall in gold presents a buying opportunity.

A strong investment demand for gold began in late 2007 when the federal reserve began to aggressively drop interest rates. The US Central Bank, in lowering interest rates and providing facilities of TAF, TSLF, and PDCF, has debased the US currency and stimulated the purchase of gold. This investment demand for gold can be seen in the chart of gold relative to stocks: GLD:VTI. Notice how the demand picked up in May; this was when the institutional investors sold their high yield dividend paying stocks, PEY, to go long commodity futures and commodity indexed mutual funds and ETFs with the yen carry traders, investing in RJI, GLD, USO, and DBA. Notice how the investment demand picked up even more sharply in late June, as the minutes of the May meeting of the Bank of Japan were released indicating that inflation is an investment risk factor: the yen carry investors sold stocks and bought gold. Then there was the commodity sell off to take profits. Now investors will once again be selling stocks and buying gold.

The investment demand for gold can also be seen in the chart of gold relative to oil: GLD:USO.

The US has told it must either cooperate or face a confrontation within 10 days; their cooperation is unlikely; the US and the EU is likely to carry out a military strike to eliminate the security threat poised by Iran's nuclear ambitions. Either this will result in a systemic risk event, or a systemic risk event will arise from some other source, where one may not have full and immediate access to one's wealth to invest in gold at that time.

Therefore, I recommend that one start to now to 'dollar cost average' a diversified investment in gold day-by-day at BullionVault.com, GoldMoney.com, and in a gold ETF, in a trust account, in Switzerland.

Chart of gold, $GOLD, shows today's close at $922.

Yen carry traders sold oil to take profit
Today, the yen carry trade unwound, much like a year ago, in fact almost to the very day, on growing concern over the financial sector, and in particular concern over mortgage backed securities, as yen carry traders took profits on oil, USO, which fell 4.3%. Kevin's Market Blog reports that it was the largest drop since the gulf war.

It's risk aversion to the level two assets and level three assets at the banks, KBE, and investment bankers, KCE, as well as confidence over the Federal Reserve's effect and also authority to effectively capitalize and guarantee the two mortgage GSEs, Freddie Mac, FRE, and Fannie Mae, FNM, which each fell 26% today, that was the impetus for today's stock market sell off.

The barometer of the yen carry trade, EUR/JPY, FXE:FXY, gapped 1.2% lower on opening to close at 1.673. The chart of FXE:FXY weekly shows the current exhaustion of the yen carry trade.

The yen, FXY, rose 1.2%, the Euro, FXE, fell 0.1%, and the Aussie, FXA, rose 0.7%.

Gold, GLD, rose 0.3%, even though oil, USO, sold off 4.3%, indicating that an investment demand for gold is underway.

The ongoing chart of the USD/JPY fell hard: USD/JPY fell from yesterday's 106 to 104.7.

The US Dollar, $USD, was off sharply in early morning trading; but recovered on oil's fall to close 0.2% lower at $71.79. It is now trading below 72 -- that which was once support will serve as resistance.

Biotechnology, XBI, rose 2.8% based largely upon the rise in SVNT, ONXX, ALXN, OSIP, MYGN; given a market downturn is at hand, these are an excellent short selling opportunity.

The HUI indexed precious metal mining shares, GDX, struggled to rise with gold, GLD: the gold shares fell 2.4%, compared to gold's 0.3% rise.

Gold stocks, GDX, manifested a hammer in the weekly chart at the 49.60 which is the middle of a 'broadening top pattern' going back to October 2007.

Gold stocks, GDX, are once again disconnecting once from the price of gold, GLD; this is seen in the chart of gold stocks relative to gold, GDX:GLD. This disconnection comes from the yen carry traders selling the metal manufacturing stocks, XME, to take profits and repay their 0.5% Bank of Japan loans: XME fell 4.1% today.

Those invested in the gold mining shares are wise to trade out of the gold stocks for the real thing, as the stocks are likely to fall lower with the rest of the stock market as interest rate differential investors take profits.

Yen carry traders continued to disinvest from the BRICS
Yen carry trade disinvestment not only came out of oil, USO, energy shares, XLE and OIH, and metal mining shares, XME; but out of Asia, the BRICs and related yen carry trade favorites in the emerging markets which included the steel manufacturing stocks:
Taiwan, EWT, 4.0%
South Korea, EWY, 2.9%
China, FXI, 3.1%
China Real Estate, TAO, 2.5%
India, INP, 2.7%
BRICS, EEB, 2.7%
Steel, SLX, 2.8%
Coal, KOL, 4.2%
Agriculture, MOO, 2.1%
Alternative Energy, GEX, 2.1%

The chart of the BRICs, EEB, clearly shows risk aversion and destruction to traditional yen carry trade investing in the emerging markets: the termination of the TAF, TSLF rally on May 19, 2008 and then the announcement of the Bank of Japan minutes of May meeting on June 6th and June 23, 2008 and then today's 2.7% sell off.

The chart of Cabot Oil and Gas, COG, a "come lately" yen carry trade investment that accompanied the rise of natural gas, GAZ, shows, early June, late June, and today's yen carry trade disinvestments.

Other dynamics of today's stock market sell off
Demand destruction is continued to cause a sell off in the industrial shares:
Industrials, XLI, 2.0%

Financial and mortgage shares fell on Freddie's and Fannie's 26% fall:
Financial, IYF, 2.8%
Mortgage REITS, REM, 3.2%
Insurance, IAK, 3.2%
Insurance, AIG, 8.5%
Preferred, PFF, 5.1% these fell sharply on Moody's Cut GSE Preferred Stock Rating (courtesy of CreditWritedowns)
Office REITS, FIO, 4.9%

Wall Street Bearish Diva Meredith Whitney targeted, Wachovia, WB, which holds a substantial $170 billion residential mortgage portfolio; a whopping $121 billion of that total was in the form of option ARMs at the end of Q1: its shares saw investment shock-and-awe today.

Energy shares fell on oil's, USO, 4.3% fall:
Energy Services, OIH, 4.1%
Oil Producers, XLE, 4.2%

Volatility, $VIX, has been on the rise since May 19, 2008, when the TAF, TSLF, and PDCF rally ended.

The daily and weekly chart of SKF suggest it is wise to start to start taking profits as this has gone parabolically up.

Another reason for taking profits on SKF, is that CreditWritedowns is reporting in Welcome to The United Socialist States of America that The Wall Street Journal reports the following regarding short-selling:

"The Securities and Exchange Commission announced an emergency action aimed at reducing short-selling aimed at Wall Street brokerage firms, Fannie Mae and Freddie Mac, and will immediately begin considering new rules to extend new requirements to the rest of the market.

SEC Chairman Christopher Cox said the SEC would institute an emergency order requiring any traders to pre-borrow stock before shorting Fannie Mae and Freddie Mac, the embattled government-sponsored entities that own more than half the nation's mortgages. It would also apply to the stocks of Lehman Brothers, Goldman Sachs, Merrill Lynch and Morgan Stanley. The order is a near-term fix and will expire in 30 days.

Mr. Cox said the SEC "will undertake a rulemaking to address the same issues" across the market.

The move will likely limit short-selling for the two mortgage entities, which have seen their stock prices fall sharply in recent weeks. Wall Street has been calling for the SEC to address short-selling, which some believe is contributing to market volatility and could be used to manipulate shares of financial stocks."

The weekly chart of the overall stock market, VTI, relative to the financial shares, IYF, VTI:IYF, suggests that either the overall stock market is going to correct lower or the financial shares are going to correct higher: I expect a systemic risk event failure of the stock market is at hand; and that stocks are going to fall sharply lower.

Aversion to US Treasuries continues from last week when concern grew over Freddie's and Fannie's capital losses
US Government treasuries, as traded by the government bond ETF, TLT, fell 0.1% to 92.94 which is down from Wednesday July 9, 2008 recent high of 93.50.

Treasury Bonds weekly, TLT Weekly shows a gravestone doji at the edge of a massive head and shoulders pattern: all I can say is "look-out below".

The interest rate on the 30 Year US Government Bond, $TYX, is up from July 8, 2008, as the bond market place sees the Federal Reserves guarantee and capitalization of the GSEs not as a strong dollar policy, but rather as a weak dollar policy.

The zero coupon mutual bond fund BTTRX, manifested what is likely to turn out to be a shooting star.

The yield curve, $TYX:$UST2Y, has been increasing since mid June 2008, when the Yen Carry Trade began to unwind as the minutes of the May Bank of Japan meeting were released which noted that rising global inflation is an investment risk factor.

A rising yield curve relates investor concern over inflation; and the Resource Bear says: "Interest rate inflation is a gold thriller and a bond killer".

The bond market place independent of Federal Reserve action is in the process of calling interest rates higher and the value of government bonds lower.

Gold remains in its channel in its growth to chart objective of $1,000 while commodities fall lower
The chart of the gold ETF, GLD, shows a rise of 0.3% to 96.17

Oil, USO, fell 4.3%.

Timber and wood, CUT, 2.0%.

Natural gas, GAZ, fell 4.3%.

Base Metals, JJM, fell 2.7%.

Agricultural Commodities, DBA, fell 0.9%

Grains, JJG, fell 2.1%

$CRB commodities, RJI, fell 2.6%.

The fact that gold is rising relative to oil, GLD:USO, stocks, GLD:VTI, and commodities, GLD:RJI, indicates that an investment demand for gold is underway.

The President announced that the troubled financial system is 'basically sound'
Terrence Hunt of the Associated Press reports that President Bush Says The Troubled Financial System is 'Basically Sound" and urged lawmakers to quickly enact legislation to prop up mortgage giants Fannie Mae and Freddie Mac. He also called on the Democratic-run Congress to follow his example and lift a ban on offshore drilling to help increase domestic oil production.

Bush said the two troubled mortgage companies play a central role in the nation's housing-finance system and that government action to help them were not bailouts because the two would remain shareholder-owned companies.

Bush went on to say that: "I don't think the government ought to be involved in bailing out companies," Bush said.

(Yet, the Bernanke Rescue Plan where the Federal Reserve provides capital for a special class of shares is a bailout, and is doomed from the start, as those shares, if they become publically traded, will surely be sold short, just like the existing shares.)

(The investment and economic truth is that Freddie Mac, FRE, and Fannie Mae, FNM, are toxic zombie corporations, financial Chernobyles; they are so capital depleted that they cannot continue in their securitization and financialization role.)

Bush also said: "It's been a difficult time for many American families." But he also said that the nation's economy continues to grow, if slowly.

(This latter clearly is not the case, economic reports show basically no growth.)

Bush said that despite the woes of Fannie Mae and Freddie Mac and the recent government takeover of California bank IndyMac, U.S. depositors should not worry because their deposits are insured by the government up to $100,000. "If you're a depositor, you're protected by the federal government," Bush said.

(Well, that again is not true, because there were many depositors who were over the $100,000 limit and will loose up to probably $1 Billion.)

More on the Freddie and Fannie Rescue Plan
The administration and the Federal Reserve announced an emergency rescue plan Sunday to bolster Fannie Mae and Freddie Mac, which hold or guarantee more than $5 trillion in mortgages — almost half of the nation's total.

The plan would temporarily increase a long-standing Treasury line of credit that could be provided to either company. Treasury also said it would, if necessary, buy stock in the companies to make sure they have enough money to operate.

The Fed also announced that it would allow Fannie and Freddie to get loans directly from the Fed — a privilege previously granted only to commercial banks until this March, when the Fed extended the borrowing to investment banks to deal with the collapse of Bear Stearns.

(The provision of a line of credit and loans is clearly without legal authority. If carried out it would simply be an announcement and execution of a framework agreement -- an application of global governance where a leader declares oversight and regulation for economic stability or political security.)

(And if the Treasury owns shares, it really isn't a shareholder owned corporation in the traditional sense of the word. Such ownership would constitute outright transfer of ownership of debt to the tax paying public; it would be a new kind of state corporatism).

At the same time, a housing package was heading toward final congressional passage. It would modernize the Federal Housing Administration and create a new regulator and tighter controls for Fannie Mae and Freddie Mac.

(I'm in favor of holding the current regulators accountable; and having the current controls promptly and effectively enforced).

Congress could move as early as this week on the housing legislation to send it to Bush. First, though, House and Senate leaders must strike a deal in consultation with Treasury Secretary Henry Paulson to resolve key differences so Bush, who has threatened to veto the measure, will sign it.

(While the legislation is a housing package, it is in reality a Bank of America, BAC, rescue bill and not genuine mortgage assistance and not real estate market stabilization. It is terrifically expensive at $300 Billion, which is the cost of two years of war in Iraq. The truth is that the Dodd Frank housing bill nationalizes real estate debt, where mortgage backed security losses are socialized onto the taxpaying public, and gains accrue to investment bankers who get financial relief they otherwise would not.)

Bush defended his insistence that the U.S. economy was not in a recession, even though many economists believe it is.

(The President is living in a bubble; and is totally disconnected from economic reality)

On Capitol Hill, Fed Chairman Ben Bernanke warned that inflation seemed likely to move even higher and economic growth would be "appreciably below its trend rate,"

"In general, healthy economic growth depends on well-functioning financial markets," Bernanke said. "Consequently, helping the financial markets to return to more normal functioning will continue to be a top priority," he said.

(The financial markets can not return to normal until there is genuine financial statement transparency, that is until FAS 157 is reworked and/or reapplied; and level two assets and level three assets at Banks, KBE and IAT, and Investment Bankers, KCE, are stated at their true market value, rather than as they are now marked to fantasy. And financial markets cannot return to normal until qualifying special purpose entities, SPEs, that is SIVs, are brought back fully back onto lending institutions books at their true market value. Application of the principles of mirage accounting must cease, interest rates must rise, and central bank facilities end, for stability to return to the stock, bond and currency markets.)

Congressional Democrats are considering a second round of rebates to taxpayers, saying the benefits of the first checks sent to more than 100 million households this year are being eroded by rising energy prices, Bloomberg's Laura Litvan reports.
``We will be proceeding with another stimulus package, and we once again hope we will work in a bipartisan way,'' House Speaker Nancy Pelosi said after House Democratic leaders met with a group of economists to discuss the spreading housing crisis and rising gas prices.

Pelosi and other House Democrats said that in addition to more rebates a second stimulus package would probably include additional spending for roads and other infrastructure, expanded unemployment benefits, home-heating assistance for low-income families and aid for states struggling with budget deficits.

Elaine Meinel Supkis relates: this alarming news is total insanity:

Across the nation, every politician is lining up to demand gas taxes be terminated as if dropping a 20¢ tax per gallon is going to do much of anything. The idea that we can have endless tax 'rebates' is pure insanity. Our budget, dear people, is IN THE RED. Terribly in the red! All our systems are in the red! And instead of offering higher interest rates so people save, the government is setting up these perpetual money making machines in every town square and like in Weimar Germany or Stalinist Russia, the money will be printed up and then we can rush off and use it to buy a loaf of bread. But first, we need to buy wheelbarrows to cart this new money around. Wheelbarrow makers will become rich, I tell you! Rich!.

Interesting reads
RUT Levels The RUT (IWM) Daily Chart shows the high wave doji candlestick that formed today as first the stocks gapped lower on opening and then rallied for the Bernanke and then settled; it was a real battle between the bulls and the bears

SPX Close Below 1220 Not Good The SPX (SPY) Weekly Chart has broken support.

Investment application
Because of many investment market dislocations, weaknesses, and multiple systemic risk potentialities, one may not have immediate and full access to one's wealth in brokerage accounts and in money market funds in the near future, that is at the time of a systemic risk event: I recommend that one invest in the gold ETF, in a trust account (not a brokerage account) this next week, as well purchase gold at both BullionVault.com and GoldIsMoney.com.

Financial Market Report For Wednesday, July, 2, 2008

Introduction
Oil, USO, traded up 1.95% to close at 116.8 as oil went past $144 on news that US oil supplies have fallen lower, Adam Schreck, of the Associated Press reports. West Texas Intermediate Crude, $WTIC, closed at 142.

There was a massive unwinding of the yen carry trade today; to complement two others that occurred on June 6, 2008, and June 20, 2008, which can be seen in the BRICs, EEB, falling 3.8% today.

The spigots of investment liquidity have been turned off
The chart of the Brics, EEB, shows that the twin spigots of liquidity have been turned off.

The first spigot of liquidity, the Alan Greenspan, Ben Bernanke Federal Reserve liquidity has exhausted, as seen in the TAF, TSLF, and PDCF rally of March 18, 2008 to May 19, 2008, ending, with a doji and island reversal dark cloud cover candlestick.

The second spigot of liquidity, the Bank of Japan, BOJ, liquidity of 0.5% interest lending, has been turned off by risk aversion due to oil based inflation, a market place loss of value, and a higher yen, FXE, at 94.

Yen carry traders massively sold out of stocks today
Yen carry traders massively sold out of their deep trades made long ago as seen in the following ETFs falling sharply:
metal and mining producers, XME, 12%
coal producers, KOL, 10%
steel producer, SLX, 10%
solar, TAN, 8%
basic materials, IYM, 7%
agriculture, MOO, 6%
water, FIW, 5%
alternative energy, GEX, 5%
transportation, IYT, and additional selling pressure came from today's higher oil price, 4%
Russell 2000 Growth, IWO, 3.3%

Today's massive sell off in interest rate differentially favored investments can be seen in the fall of the following stocks:
James River Coal, JRCC, 22.1% (producer of both steam and metallurgical coal)
Cleveland-Cliffs, CLF, 17.2% (producer of iron ore pellets)
Consol Energy, CNX, 14.6% (producer of steam coal)
AK Steel Holding Corp, AKS, 13.6% (steel manufacturer)
United States Steel, X, 12.5% (US based steel manufacturer)
Intrepid Potash, IPI, 8.2%
BHP Billiton Ltd, 6.2%, (producer of base metals)
Peru Copper, PCU, 5.8%,
Aluminum Corp of China, ACH, 3.9%

The Russell 2000, fell heavily: 3.2%; the reason being that it has seen a lot of yen carry trade investment, i.e. the case of the small US natural gas producer, Cabot Oil And Gas, COG, which fell 3.4%.

The Russell 2000, got oversold on March 18, 2008 with the collapse of US investment banking which produced the Federal Reserve assisted JP Morgan buyout of Bear Stearns; and then "the RUTT" got overbought on June 6th and June 19, these being the days that the yen carry trade really started to unwind, as can be seen in the chart of the Russell 2000 compared to the S&P, IWM:SPY.

In addition to the BRICS, other investments which were inflated by the yen carry trade, saw disinvestment today: Chinese real estate, TAO, and latin america, ILF, both fell 4%.

BRIC components fell as follows Brazil, EWZ, 4.3%, Russia, RSX, 3.0%, China, FXI; 3.6%, India, INP, having fallen a lot of late rose 0.7%.

The barometer of the yen carry trade, EUR/JPY, was up today on the ECB's high interest rate policy, and on activation of lending to go long commodities, RJI, oil, USO, gold, GLD and agricultural products, DBA ... EUR/JPY, FXE:FXY, closed at 1.69.

It's going to be just like July 2007 all over again. The weekly chart of EUR/JPY, FXE:FXY shows a double top: we have three weeks now of 1.68 or above which makes for the second double top that matches the former top in July 2007.

At that time Gary Dorsch writing in Safehaven.com article Stock Market Gyrations and the "Yen Carry" Trade wrote: "The sharp unwinding of "yen carry" trades from July 19th through August 16th, highlighted by the US dollar's slide from 123.50-yen to as low as 112.10-yen, contributed significantly to the downfall of the Dow Jones Industrials from the 14,000 level to as low as 12,500 ... This time, with the dollar falling under the March low at 116-yen, the unwinding of the "yen-carry" trade hit the stock markets like a hurricane. Global traders, who leverage about 10 times their own cash to trade stock index futures contracts, were unwinding losing positions with the trigger of automatic stop-loss limits. The dollar quickly plummeted 4.5-yen to as low as 112.10-yen on August 16th."


Many investment sectors fell hard today
Small cap value, which trades much like the Russell 2000, RZV, fell 3.3%; home construction, XHB, 3% and the industrials, XLI, 3%.

The HUI indexed precious metal, GDX, fell 2.8% lower with the basic materials; I have consistently warned investors that gold stocks are disconnecting from the price of gold, and no longer serve as leverage over gold. The chart of gold stocks relative to gold, GDX:GLD weekly shows the ongoing disconnect and failure of gold mining stocks.

Silver mining exploration company Silver Standard Resources Inc, SSRI, fell 3%; and silver producer Pan American Silver PAAS 4% on silver's, SLV, 1.9% rise.

Energy service shares, OIH, fell 3.9%, and energy producers, XLE, fell 3% even though oil rose today.

Needless to say, the days of profitable natural resource investing are over.

Investors sold out of the "global stock leaders"
First Trust IPOX-100 Index, FPX, fell 3.5%; in as much as it trades as a hyper-variant, a volatile multiple of the Russell, 2000: one can expect the IPOX companies to begin to fall very quickly now.

Global design, build and construction, PKB, fell 5%, evidencing that global deflation in stock wealth is at hand, even though that stock wealth be based on gulf nation oil reserves and recent booming construction. Disinvestment in global construction companies is exemplified by today's fall of Fluor Corporation, FLR, 6%, and Catepillar, CAT, 5%.

Exxon Mobil, XOM, closed down 1% at 87.41; for historical purposes I record its Market Cap as $462 Billion; with a PE (ttm) of 11.36; dividend of $1.60 and yield of 1.80%.

The Financial Jockeys, those who ride the midcaps sold out today; the 3.32% loss in the Joc-K-Hee iShares Morningstar Mid Growth Index, JKH, being a case in point; its trading stock values show a May 20th, 2008 termination of Bernanke rally, and June 6,2008 and June 18, 2008, unwinding of yen carry trade investing as they were moved by announcement of the minutes of Bank of Japan meetings that inflation presents investment risk.

Banks, such as Regions Financial, and Bank of America together with bond guarantor, MBIA, led the financial sector lower today
MBIA, MBI, 7.2%, and Regions Financial, RF, 8.5%, Bank of America, BAC, 5.3%, taking the financial sector, IYF, 1.5% lower.

The chart of overall stock market relative to the financial sector, VTI:IYF weekly, relates the dislocation that is coming from the financialization sector. The sector that was the financial engine of capitalism has gone into reverse -- that which once financial asset inflationary is now financial asset asset deflationary.

The issue that is the catalyst for deflation of overall world stock wealth, VEU, is debt of all types; which is seen in debt's weekly charts: aggregate, AGG, corporate, HYG, governmental, BTTRX.

This debt is now being liquidated and will continually be done away with with the result being the application of the Liquidation Thesis: government services and payments, service sector jobs, public and private debt of all types, and unfunded retiree benefits are going liquidated, that is done away with.

Currencies were volatile today, with the "gold currencies" supporting gold and moving the dollar lower
British Pound, FXB down to 199.44
Aussie, FXA, up to 96.39
Swiss krona, FXS, up to 157.75
Yen, FXY, unchanged at 94.15
Euro, FXE, up to 158.81
Lonnie, FXC, up to 98.66

An investment demand for gold is clearly underway
The chart of gold relative to stocks, GLD:VEU, shows an investment demand for gold is underway which began strongly in late 2007 in response to the Fed's December 11, 2007 announcement of a 0.75% interest rate cut. And then the investment demand for gold picked up steam on May 11, 2008 as institutional investors traded out of the high paying bank and investment banker stocks, PEY, to go long commodity indexed funds, such as RJI, and oil, USO, and gold, GLD.

Then once again, investment demand for gold picked on June, 6, 2008 and June 20, 2008 (as evidenced by sell off in the trading of the Russell 2000 Growth, IWO, and Aluminum Corporation of China, ACH), as yen carry trade investors sold out of their traditional investments in the BRICS, and transportation, IYT, and Russell 2000, IWO; and went long commodities, RJI, oil, uso, gold, GLD, and agriculture, DBA.

The recent Ben Bernanke-FOMC announcement of a 2.0% central bank interest rate is seen as a weak dollar policy: this can be seen in the chart of USD/JPY turning down from 108.4 to today's 105.86: this has stimulated gold, as gold trades inversely of the US Dollar.

Accumulated evidence presented in this blog, the Resourceful Bear Blog, is clear, cogent and convincing: the Federal Reserve's actions of lowering the central bank interest rate and the provision of TAF, TSLF, and PDCF facilities have debased the US Currency and inflated the price of commodities, oil gold and agricultural products and deflated stock value world wide.

Gold, $GOLD, close up at $945; and the gold ETF, GLD at $93; while the US Dollar, $USD, closed down at strong resistance at $72, yet this is also the edge of a massive head and shoulder pattern, with support lower at 71.25; and then nothing but thin air until $69.

Commodities across the board rose with oil
Oil's, USO, 1.95% price rise, took $CRB, commodities across the board higher:
Commodities, RJI, 1.3%
Gold, GLD, 0.5%
Base Metals, JJM, 1.9%
Copper, JJC, 2.8%
Agriculture, DBA, 1.9%

Commodities, as a whole, both oil and gold look very much topped out: RJI Daily shows a dark cloud cover candlestick followed by weakness; and RJI weekly shows a dragon fly candlestick.

I believe that a sell off is imminent in commodities, only to be followed by oil moving higher once again and gold soaring beyond belief.

US Treasuries manifest as bearish
Although trading up today, the US Government Bond ETF, TLT, manifests as bearish having fallen in a bear cross, with 50 day moving average crossing over 200 day average; and the chart shows a lollipop hanging man candlestick in late 2007 serving as a dark cloud covering; and the shooting star candlestick of March 19, 2008, all relate that wealth can no longer be preserve by investing in Treasuries.

Fugitive financier turns himself in
Eddy Elfenbein reports that Samuel Israel, the fugitive hedge-fund firm founder convicted of directing a $400 million fraud at Bayou Group LLC, surrendered in Massachusetts, almost a month after fleeing instead of starting his 20-year prison sentence.

The 'Age of financial disinvestment and instability' and the 'Age of State Corporate Rule' have commenced
The five year crack up boom in stock wealth, seen in the ongoing five year Yahoo Finance chart of the energy service companies, OIH, and the HUI indexed precious metal mining shares, is history.

The above facts show that a higher oil price has unwound the traditional stock based yen carry trade; the unwinding of the yen carry trade will be ongoing. It is all part of what economist Mike Mish Sheldon relates as Deflationary Hurricanes To Hit U.S. And U.K.

He writes of hurricanes plural, yes not only stock wealth is going to be destroyed, but bond wealth, and possibly commodity wealth as wealth as well. And I believe a hurricane is coming to destroy currency wealth as well: the US dollar will lead all currencies lower in a death spiral lower together; it's as Elaine Meinel Supkis relates: "red ink kills currencies".

Higher inflation in consumer goods, is likely Jesse writes, as producers pass on oil and chemical related costs; frankly I believe that the current governmental CPI inflation reports are unreliable; yet at least they are better than nothing; I believe CPI will be going up soon.

As long as the interest rates remain negative in real terms, inflation in oil prices will get worse. Hence we have inflation coming through producer prices and not consumer or wage factors.

Higher inflation in food and fuel, is likely relate Mary Anne and Pamela Aden of The Aden Forecast in Safehaven.com article.

Inflation currently is more of a misery factor in the emerging markets that in the US as Kartik Goya reports in Bloomberg that: "Indian truckers, who haul the majority of the nation's goods, went on strike today to protest against taxes and rising fuel costs, a union official said. More than 4 million heavy and light commercial vehicles are staying off the nation's roads from today after talks with the government to avert the strike failed last night, said Charan Singh Lohara, president of the All India Motor Transport Congress, an umbrella organization representing the truckers."

Higher interest rates are coming due to risk avoidance of debt: the 30 US Treasury bond rate, $TYX, and the 10 Year Government bond rate, $TNX, which rose as the Federal Reserve announced the TAF, TSLF, and PDCF facilities, are at some point going to move higher as the market place declares a bond interest rate hike independent of Federal Reserve action; there is just too much swapped out junk debt in the US Treasury for rates to stay as low as they are now.

The age of 'investment prosperity' is over, its as good as it is ever going to get; it is not going to get better: traditional wealth is turning down.

The age of 'financial disinvestment and instability', and the age of 'state corporate rule' is rising.

The western governmental powers are poised to take security actions against global security threats as authorized by the Declaration of EU US 2008: US military chief Admiral Michael Mullen is expected in Israel this week, amid speculation of a possible aerial strike aimed at Tehran’s nuclear weapons program. “Obviously, when Chairman Mullen speaks with the Israelis, they will no doubt discuss the threat posed by Iran,” said Pentagon spokesman Geoff Morrell on June 25th. “The US is committed to resolving the nuclear threat posed by Iran through diplomacy and international sanctions, while at the same time holding out the option of a military strike, if necessary,” he warned.

Toby Harnden in Telegraph.co.uk article relates that Israel 'will attack Iran' before new US president sworn in, John Bolton predicts

Investment Application
The chart of gold relative to stocks, GLD:VEU, documents that a strong investment demand for gold is underway.

If oil falls faster than stocks, which is very possible, then for a while the investment demand for gold, GLD:VEU, will fall quickly; GLD could easily fall from its current 93 to 85 or 84 very rapidly as gold tumbles lower with oil.

Yet, chaos is at hand: chaos is going to be more of an 'investment moving factor' than deflation!

A systemic risk event, that is a financial system breakdown, is imminent, stemming from the one or more of following factors:
1) bond insurers failure, MBIA, MBI, and Ambac, ABK, causing a municipal bond market freeze up.
2) mortgage insurers failure PMI Group, PMI, and MGIC Investment, MTG, causing a meltdown of banks and investment bankers,
3) commercial lending gridlock and lending failure, CIT Group, CIT, and Capitol One Financial, COF,
4) mortgage GSE failure, Fannie Mae, FNM, Freddie Mac, FRE,
5) run on home loan savings and loans and banks Regions Financial, RF, or Wachovia, WB,
6) run on money center banks, Bank of America, BAC

A systemic risk event or risk events would cause an immediate investment demand for gold: gold will likely gap limit higher in price for many days.

Of note: the USA Today in article Black Currency writes that the record oil prices are also a "no-confidence vote in the U.S. economy and currency." Take the dollar. If it hadn't weakened 45 percent against the euro this decade, oil would be at $100 a barrel. Investors are turning to oil as a sort of bet that the U.S. won't "face up to its problems," namely a "destructive borrow-and-spend habit" afflicting consumer and government alike. In that way, oil is now "a kind of alternative currency," like gold.

The negative for oil is its parabolic rise.

Ultimately the factor influencing gold is a falling price of the US Dollar: I expect the US Dollar, to lead currencies in a deflationary death spiral lower together; and in as much as gold trades inversely of the US Dollar, gold will be going higher.

From the charts, $850, "any which way you deflate it" seems to be a floor for gold.

Given the deflationary outlook above, but most importantly the chaos ensuing from the imminent risk of a financial system breakdown, where one may not be able to have access to one's wealth, I recommend that one dollar cost average an investment in gold in the gold ETF, GLD, in a trust account over the next two weeks, as well as a dollar cost average purchase of gold at both BullionVault.com and GoldIsMoney.com.