The Resourceful Bear Blog

The four horsemen of the apocalypse and their horses mentioned in Revelation 6:1-8 have been given free reign to rule over mankind; and they are riding with ever increasing intensity and ferocity.

Here is one artist's rendition of the four horsemen of the apocalypse.

Below is another artist's rendition of the rider on the pale green horse of Revelation 6:8, which is chaos, whose ride is seen as being fulfilled in the Matthew Craze Bloomberg report of October 13, 2008, which relates that "Argentine farmers face bankruptcy because of falling prices and rising costs, soybean producer Gustavo Grobocopatel told Radio 10. Grobocopatel called on the government and farmers to restart talks aimed at resolving a conflict over taxes and export restrictions that began in March this year".

Artist's rendition of the rider on the pale green horse of Revelation 6:8

Toby Harnden of Telegraph.co.uk reports from Londonderry, New Hampshire that: "There was a carnival atmosphere among the crowd of some 4,000, who almost drowned Mr Obama out as he reached his crescendo and said: "I promise you. We won't just win New Hampshire. We will win this election and, you and I together, we're going to change the country and change the world."

His supreme self-belief has also been the target of late-night comedians. "With just 19 days left until the election, Barack Obama warned supporters today to guard against overconfidence," Tina fey of Saturday Night Live reported.

"Then he boarded Air Force One, blasted 'We Are The Champions' and shouted 'I'm King of the World'.""

I can assure you that Barack Obama is God's Change Element and a one of God's Change Leaders, that is, one who will be effecting Change.

Also, Amy Chozick of the Wall Street Journal relates that Obama Rally Draws 100,000 in Missouri on the grassy lawn under the Gateway Arch.

Change is held forth in the bible prophecy of Revelation 6:1-8, where the four horsemen of the Apocalypse ride forth globally.

Click here for an artist's rendition of the four horsemen of Revelation; these are: white signifying conquest over mankind, red signifying violence, black signifying increasing famine and inflation and financial death, and pale green signifying chaos.

Click here for an artist's rendition of the Rider on the Pale Green Horse, that being chaos, of Revelation 6:8 which relates a stark bible prophecy.

I've decided not to vote, or get involved in politics; rather, I watch and pray always that I might be accounted worthy to escape all things that are coming, and stand before the Son of Man.

Related Reading
The Four Horsemen Of Revelation Are Riding With Ever Increasing Intensity And Strength

Introduction
A Lack of trust between lender and debtor is at the root of the lending gridlock.

And there are a number of factors causing economic dysfunction.

The factors of economic dysfunction include:
1) Different interest rates between central banks. The US is at 2%, the ECB 4% and the Bank of Japan is at 0.5%; and the BoJ loans aggressively to the well connected. These of late have gone short the EUR/JPY, causing the yen carry trade, better termed the euro carry trade, to unwind, unleashing many deflationary hurricanes.

Interest rate differential investing took the Australian natural resource investing shares up, and then down as can be seen in the ongoing Yahoo Finance chart of Australia stocks, and the metal mining shares, and the Australian Dollar. The Elliott Wave 3 Down is always more sharp than the Elliot Wave 3 Up. Currency traders in London, Hong Kong, Brussels, and the Caribbean Cove Islands became super wealthy on the wave up and also on the wave down by borrowing at 0.5% interest from the Bank of Japan lending window. The ongoing Yahoo Finance Chart of EWA, XME, and FXA shows the recent dissolution of stock wealth caused by currency traders as they work interest rate differentials to their advantage ... EWA, XME and FXA

The chart of the yen carry trade, that is EURJPY, FXE:FXY, shows the power of interest rate differential working in reverse ... FXE:FXY

2) The interest rate on the 10 Year US Treasury Note, $TNX, and the 30 Year US Government Bond, $TYX, are too low; that is they do not reflect the risk of default on home ownership. And they do not reflect the true cost of capital.

Government interest rates being low discourage saving, and encourage speculative investing in gold.

But you know, now that the US Government has nationalized the housing industry by acquiring the two private lenders, Fannie Mae, and Freddie Mac, and will become title owner of foreclosed homes given the passage of EESA, the default risk of loss of capital investment has gone down considerably now that the risk has been passed on to the US taxpayers.

And the interest rate on the 10 Year note could go lower. I personally want to go 250% long the 10 Year interest rate, with the Direxion mutual bond fund DXKSX; but am restrained from doing so by the knowledge that EESA provides the authority for the Federal Reserve to go to zero percent interest rate. And I am very troubled by that prospect.

Unfortunately, we live in a topsy turvy world where down is up, and left is right. The Cat In The Hat has unleashed a party globally. Will it return to set things right? Or will a global monetary authority, GMA, arise to provide unified regulation of banking globally?

3) The 911 of capitalism, investing and lending occurred on September 11, 2008, when banks and other financial institutions found that they could not obtain capital by selling stock.

The banks started to turn off the spigots of lending, driving corporate finance officers and Treasurers to the press to moan bitterly.

The reason banks became unable to sell stock on September 11, 2008 include:
1) no one knows the true value of the CDOs, level two assets, and level three assets on the banks balance sheets.
2) no one knows how much asset, that is debt, is kept off balance sheet in QSPEs, and SIVs.
3) no one knows what exposure to counterparty risk the banks have to the settlement of Lehman Brothers credit default swaps.
4) tax rules of accounting started to disfavor investing in banks.
5) interbank lending became non existent because banks are unsure if their peer is going under.
6) few believe the S&P and Moody's ratings on suretors and guarantors such as Radian Group, RDN, Ambac, ABK, and MBIA, MBI.
7) few believe the S&P and Moody's rating on mortgage backed securities.

4) Most tax free municipal bond funds and bond funds want to own short term municipal debt and short term US government debt, and nothing else, the demand being reflected in the short term government bond ETF SHY moving higher, and the debt ETFs, and the tax free municipal bond mutual funds and municipal bond ETFS lower beginning 9-11-2008, when banks could not sell stock to obtain capital; these caused all lending markets to become "dis-eased".

Debt ETFs include LQD, HYG, CFT and EMB which will likely continue to loose value; and the principal value of the tax free municipal bond mutual funds like USSTX, will likely continue to fall, as interest rates rise. And the municipal bond ETFs such as MUB and TFI will likely continually go lower as well ... Chart of SHY, LQD, HYG, CFT, EMB, and MUB.

Jeremy R. Cooke of Bloomberg in September 30, 2008 article reports: "U.S. state and local government bonds are headed for their worst quarterly performance in as much as 14 years as a wave of Wall Street consolidation undermines support for the municipal market. Tax-exempt bonds have fallen 3.15 percent since the end of June, according to Merrill Lynch & Co.'s total-return Municipal Master Index. The quarter's decline may exceed the 3.18% drop in the second period of 2004, which was the steepest since the 5.75% decline in the first three months of 1994."

Jeremy R. Cooke of Bloomberg in October 3, 2008 article reports: "U.S. states and municipalities were all but shut out of the tax-exempt bond market for a third week, as borrowers managed to sell less than 15% of a typical week's new fixed-rate issues, data compiled by Bloomberg show ... 'This market has run into trouble again,' T.J. Marta, a fixed-income strategist at RBC Capital Markets ... said ... 'The most recent dislocation will exacerbate the negative developments already taking place for state and local government finances.'"

Michael McDonald in October 2, 2008 Bloomberg article repots: "Massachusetts Governor Deval Patrick said he is seeking budget cuts amid financial market turmoil that forced the state this week to cancel plans to borrow money to fund operations. The governor, citing a $223 million shortfall in tax collections, ordered a spending reduction of 7%. The state this week canceled the sale of commercial paper as investors boycotted the markets."

These reports tell me that the municipal bond market has utterly broken down. This is a silent neutron bomb that is going to cause massive layoffs in state and local governments; these governmental units will basically have to go into shut down mode; except for some low level of law enforcement there will be a swift shut off of services.

Cynthia Koons of Dow Jones in October 2, 2008 article reports: "The junk bond market suffered its largest monthly decline in more than 20 years last month ... The widely quoted Merrill Lynch Master II index was down 8.3% for September, spelling year-to-date returns of negative 10.6% ... 'Underlying it all is just a breakdown of ordinary banking, the nuts and bolts of the credit markets, counter-party approvals, and the commercial paper market,' [Marty] Fridson said."

Denis Maternovsky and William Mauldi in October 3, 2008 Bloomberg article report: "Developing nations' borrowing costs jumped to the highest in four years compared with U.S. rates while stocks headed for the worst week since 2002, as the global banking crisis drives investors from emerging markets ... The extra yield investors demand on developing-nation bonds over Treasuries increased 14 bps to 4.45 percentage points, the highest level since 2004, JPMorgan Chase & Co.'s EMBI+ Index shows."

5) We have arrived at the point where the government is the 'only lender' and 'last lender of resort'. As mentioned above banks have turned off their spigot of liquidity. The TAF, TSLF, and PDCF stock market rally ended May 19, 2008. Ever since, all liquidity that has been supplied by ongoing TAF and recent $600 billion emergency liquidity injection, has been trapped. Scott Lanman of Bloomberg details the injection: "Commercial banks and bond dealers borrowed $348.2 billion from the Federal Reserve as of yesterday, an increase of 60% from the prior week amid a worsening credit freeze. Loans to commercial banks through the traditional discount window rose about $10 billion to $49.5 billion ... The total surpassed the previous record after the 2001 terrorist attacks. Borrowing by securities firms totaled $146.6 billion, up from $105.7 billion. Under a new emergency program announced September 19, banks borrowed $152.1 billion as of yesterday to buy commercial paper from money-market mutual funds, more than double a week ago."

I believe that the $700 billion of EESA bailout liquidity will be evaporated, that is vaporized, as soon as it is injected.

6) Cash hoarding by banks and corporations as reported by October 2, 2008, The Economist Print Edition article World On Edge that reports: "Banks used to borrow from each other at about 0.08 percentage points above official rates; on September 30th they paid more than four percentage points more. In one auction to get dollar funds overnight from the European Central Bank, banks were prepared to pay interest of 11%, five times the pre-crisis rate. Astonishingly, rates scaled these extremes even as the Federal Reserve promised $620 billion of extra funding.

Bankers have always earned their crust by committing money for long periods and financing that with short-term deposits and borrowing. Today, that model has warped into self-parody: many of the banks’ assets are unsellable even as they have to return to the market each day to ask for lenders to vote on their survival. No wonder they are hoarding cash.

This is why those politicians who set the interests of Main Street against those of Wall Street are so wrong. Sooner or later the money markets affect every business. Companies face higher interest charges and the fear that they may one day lose access to bank loans altogether. So they, too, hoard cash, cancelling acquisitions and investments, in order to pay down debt".

Capitalism, investing and lending is a dead thing. It has been replaced by state corporatism, that is state corporate rule.
Corporatism has come by three means:
1) Announcement of framework agreements, declaration of initiatives, and provision of working groups and councils. Two cases in point being the Declaration of EU US 2008, at the White House, and the Security And Prosperity Partnership Of North America, the SPP at Baylor University. The former has generated a demand that Iran reveal its nuclear ambitions or face confrontation. The latter has produced the North American Competitiveness Council, the NACC, as well as various Working Groups.
2) Ruling, that is edict, of governmental agency. A case in point being that of the SEC to abandon 'fair value accounting rules' on October 2, 2008, which will only make the credit dis-ease greater. Another case in point being the ban on short selling; I lost a whopping 30%, when I was forced to close out of my investment in the 200% inverse of the financial sector SKF as a short covering rally took financial stocks massively higher.

3) Legislative granting to rulers unprecedented authority and power. A case in point being the granting to the chairman of the Federal Reserve, dramatically new authority and power in the passage and signing of Emergency Economic Stabilization Act, which provides the TAPR facility. The truth about EESA is that it is a weapon of mass financial destruction.

The fairy tale neoliberal laissez fair economic policies of Milton Friedman died September 11, 2008. The age of asking "free to choose" is gone. I once thought as a child, but now being an adult, I put the childish ways and thinking aside.

Who is trustworthy?
Trust is a two way street.

Lenders, being capital impaired, have become untrusting.

And debtors, seeing high interest rates, consider banks to be untrustworthy.

Reports of distrust include
1) ... Philip Blenkinsop and Michele Sinner in October 4, 2008, Reuters report: "Belgium and Luxembourg scrambled on Saturday to find a buyer for the remains of troubled financial group Fortis and mulled a further nationalization after the Netherlands took over its Dutch units.

The break-up of the cross-border banking and insurance group, less than a week after a first rescue attempt in which the three governments injected 11.2 billion euros ($15.4 billion), highlighted the ferocity with which the global crisis has swept into Europe.

Luxembourg's economy minister said French bank BNP Paribas was one possible bidder for parts of Fortis and a solution had to be found by the end of the weekend.

"BNP Paribas is one among many possibilities," Jeannot Krecke told Luxembourg's RTL radio station.

"Now we have to return to the solution we were looking at last Sunday, that is to find a strong partner because the Belgian government is the main shareholder of Fortis Luxembourg Dutch media were split on Saturday over the government's decision to put the Dutch units under state control.

Calling it a baffling move, leading financial daily Het Financieele Dagblad said in an editorial: "In one move, ABN AMRO and Fortis have become the most trustworthy banks in the market. This is an unfair competitive advantage during the current credit crisis."

But left-wing daily De Volkskrant said the move was unavoidable due to the uncertainties swirling around ABN AMRO and as depositors withdrew their money.

Fortis, a Belgian-Luxembourg group, is now made up of Fortis's banking and insurance activities in Belgium, Fortis Banque Luxembourg, international operations, notably banking in Poland and Turkey, and asset management arm Fortis Investments".

2) ... Nouriel Roubini on Friday Oct 3, 2008 in article Financial And Corporate System Is In Cardiac Arrest: The Risk of the Mother of All Bank Runs relates: "Several hundreds of billion dollars in emergency liquidity support to the financial system by the Fed and other central banks in the last week alone have not been enough to stop the seizure of liquidity in interbank markets and the shut down of financing for the corporate sector as counterparty risk is now extreme (no one trusts any more in this crisis of confidence even the most reputable and trustworthy financial and corporate counterparties".

3) ... See Think Feel in article Seizure relates: "Short-term money markets remained in turmoil, heightening the likelihood the credit pullback may harm the broader economy.

Inside markets that are hidden to most Americans -- the overnight Treasury repo market, the short-term commercial-paper markets and the floating-rate municipal bond markets -- action was unfolding that will soon affect how companies meet payroll, pay vendors and make investments.

These markets allow companies with ample reserves to squeeze out a few extra dollars by investing the cash in securities with life spans of just days or weeks. All that cash helps keep the economy lubricated by distributing money to other firms that need short-term loans to buy inventory or meet payroll.

Some distressing signs emerged Thursday from one of the most important of these marketplaces, the commercial-paper market, where companies borrow money for periods of just a day to up to a year. The market contracted by $61 billion in the week ended Sept. 24, its largest decline since August 2007, when investors fled over some of the first warning signs of the subprime-mortgage crisis. In the latest week, banks and other financial companies accounted for most of the decline, as they took $50.3 billion of paper off the market.

The decline follows a $52.1 billion shrinkage in the week ended Sept. 17, which reduces the overall market to $1.702 trillion".

And continues citing (“Debt Market Distress Spreads; Commercial Paper Shows Signs of Tightening as Investors Flee.” Liz Rappaport and Anusha Shrivastava. Wall Street Journal: September 26, 2008. pg. C.1)

"NOTHING ELSE MATTERS if markets cease to function. That is the end of capital-ism as we know it.

We have long put our trust in the notion that value and worth were established by the invisible hand of buyers and sellers exchanging in an efficient nexus of supply and demand.

If we see markets ceasing to establish reliable indications of value and worth, if market prices appear capricious and disconnected from reality, we lose confidence in the validity of the market mechanism. We hold back from participating; there is no market, and we can't see anything.

Once this unreliability and invalidity catch hold in the minds and hearts of those who otherwise would be market participants, markets seize-up and a market-based economy falters and halts.

If this occurs in money markets, then other markets likely will freeze too.

Faith, hope, belief, trust -- the eyes, ears, mind, heart, spirit and soul of our world".

4) ... The Foreign Currency Exchange Outlook in September 22, 2008 article How $200 Billion Of Bad Mortgages Could Have Created Such A Falling Pyramid Effect relates: "We are having a hard time understanding how $200 billion of bad mortgages could have created such a falling-pyramid effect. It’s true that banks and brokers tried to make a silk purse out of a sow’s ear, with the aid of the ratings agencies, believing modern portfolio theory was the alchemist’s stone, but still, how did something so small become so big?

The answer is that it didn’t.

The $200 billion in liar’s loan mortgages were not magically, virally multiplied to infect every CDO and other alphabet-soup asset class to the extent of $700 billion or $1.5 trillion or any other number.

In fact, because of various accounting and mark-to-model rules, the ultimate owners of a lot of this paper are going to make a tidy profit of it. It’s not bad, just not trusted. (That doesn‘t mean the US taxpayer will get the profit. The agencies tasked with buying and then selling the paper will manage to siphon off the gains to the insiders and interested parties).

The key is “not trusted.” Trust is everything. It’s everything in romance, commerce and finance. In a nutshell, the banks don’t trust one another today, perhaps projecting their own bad actions on others, and the old banker’s principle of “know your customer” is out the window.

You can’t legislate trust.

Critics are moaning about how the fat cats will only get fatter from the bailout while the little guy gets hosed, but anyone with a 401k plan is not complaining too loudly and in any case, the immediate losses or escape from losses is not the main event.

The main event is the loss of trust in society at large, not just the financial sector. The social contract was broken, and it was broken in Washington. Raw naked capitalism may be good at setting optimal prices, but that’s about it. To say total lack of regulation is a necessary corollary of capitalism is to have read no economic history and to misread human nature.

And gosh, isn’t Washington where the rescue is coming from? If a poll were taken today asking the public whether it trusts Wall Street or Washington to “do the right thing,” the answer would be an overwhelming “no.” This is not a political statement (please don’t write) but rather an economic observation.

Trust is essential to economic activity. You need trust to get new companies funded and trade conducted (think of letters of credit, not to mention open account trade). You need trust to let the gas tank in your car go down to one-quarter and not be filling it up every day just to be sure you can get it. You need trust to have a successful economy.

Observers in less developed countries note that the key reason they do not get growth is that they have no banking sector or capital markets.

Well, why not?

In large part because Tribe A doesn’t trust Tribe B.

We can see nothing that Washington or Wall Street can do this week to reverse the situation. In fact, more bad news is surely on the plate. The only thing that can save the US Dollar Outlook now is a Shock from elsewhere, like Germany. (Japan seems safe for the moment.) Aside from the mysterious yen, the US dollar is toast.

5) ... Doug Noland in September 27, 2008, Safehaven.com article Changed Financial Landscape relates "Today's finance-related economic headwinds are Cat-4 (and gaining) Hurricane Systemic Credit Seizure, compared to last year's Tropical Storm Subprime. Federal Reserve-dictated interest rates are extremely low - and the Fed and global central bankers have injected unfathomable amounts of liquidity - yet Credit Conditions have turned the tightest they've been in decades.

The Lehman bankruptcy marked a major inflection point in the confidence of contemporary "money." It was a decisive blow against trust in various money market instruments - the very foundation of our monetary system. "Money" has now tightened significantly for virtually all players that had previously enjoyed cheap short-term financings." (Financings which were used to invest long, Richard)

The Lehman bankruptcy also marked a major inflection point in confidence for the various "daisy chain" players involved in intermediating risky loans into contemporary "money." The market was convinced Lehman was "too big to fail." Its failure inflicted thousands of market participants with losses - from Primary Reserve Money Fund investors caught with short-term Lehman paper to holders of Lehman's long-term bonds. Investors all over the world were impacted.

The hedge fund community suffered mightily. The status of hundreds of billions of derivatives and counterparty obligations was suddenly up in the air or in the hands of the bankruptcy court. And, importantly, huge losses were suffered in the Credit Default Swap marketplace - the marrow of one of history's most spectacular speculative manias. (This created a Liquidity Meltdown, Richard)

Trying to add a bit of simplicity to the Complexity of a Credit Market Breakdown, I'll say the Lehman collapse marked a critical inflection point in at least five major respects: First, the Crisis of Confidence jumped the "firebreak" from risk assets to contemporary "money," shattering trust in various facets of contemporary finance that was forged over decades. Second, it required the marketplace to reexamine exposures to various direct and indirect counterparty risks, a terminal blow for derivatives markets. Third, it pushed the Credit default swap marketplace into full-fledged dislocation and instigated a long-overdue regulator onslaught. Fourth, it decisively burst the "leveraged speculating community"/hedge fund Bubble. This has ushered in another round of problematic de-leveraging and accelerated the reversal of "Ponzi Finance" dynamics. Fifth, it instilled global fear with respect to the risks of participating in the inter-bank lending market with American institutions.

Basically, the Lehman collapse marked the end of "Wall Street" risk intermediation as a significant component of system financial intermediation. Going forward, Credit growth will be chiefly generated by the banking system, supported by various forms of government backing (Fed, FDIC, Washington bailouts/recapitalizations, etc.), the government-operated GSEs, and various forms of federal government debt issuance.

Importantly, this new financial structure will ensure minimal risky lending as well as significantly reduced risk-taking. And from a global perspective, I believe newfound fears of lending to the American financial sector marks the beginning of the end of our economy's capacity for trading new financial claims for imports of energy and goods.

Over time the Changed Financial Landscape will have a profound impact on the underlying economic structure. Our economy will have no alternative than to get by on less Credit, less risk intermediation, and fewer imports.

In the near-term, the effects will be a rapid and pronounced slowdown of our economy's "output."

And while we'll only know over time, I'd bet this new financial structure will allocate much less finance to entrepreneurial activities, productive endeavors and the asset markets - while at the same time providing ample (government-directed) purchasing power to ensure stubborn consumer price inflation."

6 ... Asha Bangalore of Northern Trust in October 2 2008, Daily Global Commentary, October 2, 2008 relates the ripple effects of frozen money markets: "Latest evidence indicates that a thaw of frozen money markets is not around the corner. The spread between the 3-month Libor and the 3-month Treasury bill rate is scaling new heights everyday. This reflects the intensity of suspicion about what is contained on the balance sheets of institutions. "The reach of this frozen money market is far and wide because it affects everyday activities of the economy. The cost of inter bank borrowing for the short-term has risen by over 200bps versus the target federal funds rate instead of a few basis points above the target rate. Firms are charged a spread above the Libor rate for their credit lines depending on the risk involved in their business. Anecdotal evidence of a sharp increase in borrowing costs and reduced credit lines for firms with sound credit history has already appeared in main stream media. If firms continue to face tight credit conditions, payrolls may not be met, payments to suppliers may suffer, and job losses will follow. The Senior Loan Officer's Survey of the Fed has ample evidence of tightening of credit conditions which runs counter to the fact that the Fed has eased monetary policy." Current Quote Of The Ted Spread by Bloomberg ... Chart of The TED Spread

7) Bespoke Group reports in October 2, 2008 article Yield Spreads At Record Highs: Up, Up, And Away! Yesterday, we highlighted that high-yield credit spreads were approaching record highs. Less than a day later, high-yield spreads are now at record highs. As of yesterday's close, based on data from Merrill Lynch, the interest rate spread between high yield bonds and comparable Treasuries rose to 1,124 basis points. This breaks the previous record of 1,120 basis points that we saw in October 2002, and given today's market action, these spreads are only likely to rise.

Printing more money won't make the credit dis-ease go away
The TARP facility provided under the authority of EESA, is definitely the printing of more money, right out of thin air.

Elaine Meinel Supkis relates the cost of credit default swaps has gone up, and this makes credit more expensive even to the best of companies; she says "The cost of credit defaults has shot up because no one is paying up after selling their services! The default credit default payee are the unfortunate taxpayers of the G7 nations, in particular, the USA. So many investors [the Chinese and OPEC] have been badly burned and require a lot of persuasion before handing out the legendary 'savings glut' money to various people in the G7 seeking loans. This is natural in all contractions. And the central banks thought, all they had to do was print more money and voila! More credit would be available".

One is guided by either a philosophical belief or spiritual doctrine.
Philosophical beliefs or spiritual doctrines form the basis of one's knowledge, and they influence one's action which has moral consequence. And the government's and business leader's beliefs form policies which guide a nation's economy and influence.

I trust gold will better preserve my wealth than Bernanke's banks.

Yes great trust that gold will preserve and protect my wealth; and no trust that Bernanke and his banks will do so.

I recommend diversification of investment in gold in four locations immediately because of financial system instability and lack of liquidity: the gold ETF, GLD, directly through streetTRACKS Gold Trust, and not in a brokerage account; two BullionVault, three GoldMoney; and four a limited number of gold coins.

I am guided by the Christian doctrine of the Election of Grace
I find God and His Word alone to be trustworthy.

I believe in the doctrine of the Election of Grace. And thus I believe that God from eternity past foreordained those to be saved; that He choose me to believe in Him, and to stimulate me to call upon the Name of the Lord, and be saved; and that he will preserve me from the corruption of sin until my Judgment Day.

I trust in God, I believe Him to be Sovereign, and what ever He provides is fine by me.

Keywords
nationalized banks, nationalization of banking, liquidity crisis, liquidity evaporation, liquidity vacuum, evaporation of liquidity, financial system meltdown, financial system breakdown, liquiditymeltdown, liquidity meltdown, liquidity evacuation, financial armageddon, crisis of confidence and trust,

Paul Kane and Lori Montgomery of of the Washington Post report that a renegade bloc of Republicans moved to reshape a massive bailout of the U.S. financial system yesterday, that is Thursday, surprising and angering Bush administration and congressional leaders who hours earlier announced agreement on the "fundamentals" of a deal.

At a meeting at the White House that included President Bush, top lawmakers and both presidential candidates, House Minority Leader John A. Boehner (R-Ohio) floated a new plan for addressing the crisis that has hobbled global markets.

Democrats accused Boehner of acting on behalf of GOP presidential candidate Sen. John McCain (Ariz.) in trying to disrupt a developing consensus.

The new proposal also displeased White House officials, including Treasury Secretary Henry M. Paulson Jr., who chased after Democrats leaving the meeting and -- half-jokingly -- dropped to one knee and pleaded with them not to "blow up" the $700 billion deal, according to people present at the meeting.

Before the meeting broke up, President Bush had issued a stark warning about the impact on the nation's economy if the measure did not pass. "If money isn't loosened up, this sucker could go down," Bush said, according to one person in the room.

Under the alternative Republican plan, the government would set up an expanded insurance system, financed by the banks, that would rescue individual home mortgages. The government would not have to buy up the toxic mortgage-backed assets that are weighing down financial institutions.

Sen. Robert F. Bennett (R-Utah), the chief negotiator for Senate Republicans, said early in the day that he was optimistic. "I now expect we will indeed have a plan that will pass the House, pass the Senate and be signed by the president and bring a sense of certainty to this crisis," Bennett said.

"We've reached fundamental agreement on a set of principles," said Sen. Christopher J. Dodd (D-Conn.), chairman of the Senate Banking Committee, adding that a bill could pass within days.

Commentary
I like Bush's pragmatism, where he said: "If money isn't loosened up, this sucker could go down"; its already down; like down and out. All I can say is got gold?

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.