I. An Early Morning Financial Market Report For Friday August 29, 2008A. Dollar And Gold Traded Volatily As The Battle Unfolds For Rulership As The World's Currency
Charts from Kitco.com showed high volatility in gold, $GOLD, and the US Dollar, $USD today.
The Yahoo Finance 5 day chart of the gold ETF, GLD, and the Dollar ETF, UUP
showed gold up and the Dollar down in early moring trading; but by the end of the day, the situation reversed as the Euro, FXE, fell throught the day ... GLD UUP at end of day shows UUP up 0.04% and GLD down 0.6%
... FXE fell throughout the day
Of note: August was a very good month for the dollar with the currency seeing its strongest 1 month rally in more than 15 years.
Mr. Danish in FXDD article USDJPY Breaks Supports behind Japanese Economic Stimulus Package
provides a handy chart of the USD/JPY.
The struggle between the US Dollar, $USD
, will soon be over with gold, $GOLD
, rising supreme and the dollar vanquished
INO.com provides the ongoing US Dollar Index, DX, Dow and Gold, $GOLD, Chart page
.B. USD/JPY Fell Trading To Trade Around First Support Level Of 108.95
FXStreet reports that the USD/JPY
fell to 108.7. The dramatic news here is that the dollar carry trade is unwinding.
PFGlobal provides an ongoing chart of the USD/JPY
; it shows that the USD/JPY has fallen to the edge of its channel
James Chen in article FXStreet article USD/JPY Update - Key 108.50 Level
provides this chart of the USD/JPY
My-Zue presents the article Action Forex Market Overview Aug 30 08 Yen Could Dominate in a Week of Central Banks and Key US Data
which relates: "The Japanese yen was the biggest winner last week as seen with yen crosses topping the top movers chart. While most of the moves were done on Friday following the 170pts fall in Dow, such declines did have the significance of indicating that yen is regathering strength for medium term rally. As discussed before, most yen crosses should have topped out in Jul, except USD/JPY. The pair has been steady due to dollar's strength but upside momentum was seen diminishing after making at high at 110.66. Outlook is mixed in the pair for the moment with possibility of a reversal. And if the last defense is taken down and USD/JPY does reverse, further massive buying could be seen in the yen which pushes other yen crosses further lower. This will probably be the main focus in September."
Marketiva ocvers the USD/JPY
and provides this hourly chart of USD/JPY trading on Friday August 29, 2008
as well as the daily chart
which shows 'Peak Dollar' on August 15, 2008, and Friday's breakdown and fall through a 'broadening top pattern' at 109; one can see how the USD/JPY took the US Dollar Rally up both in the Dollar itself and in stocks on July 15, 2008.
The effects of today's fall in the USD/JPY are limited -- oil and gold are stabilizing, as well as the US Dollar. These are in a struggle of their life for supremacy and sovereignty as the global ruling currency.
Ye Xie and Gavin Finch of Bloomberg report that Dollar Falls Against Yen as Personal Spending Slows in July C. The Dollar Rally Is Over
Although the Dollar is trading higher, the Dollar Rally in stocks is over as the financial sector, IYF, having risen to 50 day support is falling sharply; and as is seen in the ratio of US Stocks to World Stocks, VTI:VEU and VTI:EFA, turning lower on August 15, 2008.
The fall in the financial sector has caused the Russell 2000, IWM, $RUT, to fall, causing a doji candlestick to form at 73.83 which is immediately below strong resistance at 74.00. Support lower for the Russell is found at 73.40, 73.00, 72.00, 70.75, 70.11.
The chart of the Russell 2000 Value share compared to the growh shares, IWN:IWO
, shows a dark cloud cover candlestick, suggesting that the value shares, IWN, are now going to start to fall faster than the growth shares, IWO.
Of all the indices, the Nasdaq, QQQQ, $COMPQ, is off the most, that is 2.2%, being taken down by the Nasdaq 100, QTEC, which is off 2.9%.
Semicondutors, SMH, are off 3%.
Google, GOOG, is off 2%.
Just as a rising USD/JPY was benefecial for the dollar driven stocks of the Nasdaq; a falling USD/JPY is now going to be bearish for rimm, adbe, csco, ctsh, orcl, intc, aapl, mcd, hd.
And vice-versa as well; falling Nasdaq stock prices are going to pull the US Dollar down
Losses for these lynchpin stocks are as follows:
HD -.5%D. The EUR/USD Moves Down Below Pivot Level 1.4729
FXStreet reports that the EUR/USD
fell to 1.470. The EUR/USD has its biggest monthly fall ever, this August.
This action came as the yen carry trade unwound as described below; ActionForex provides charts of the EUR/USD in article EUR/USD Weekly Outlook Aug 30 08
. E. The EUR/JPY Moved Down Below 1.60
FXStreet reports that the EUR/JPY
to 159.38. The dramatic news here is that the yen carry trade is unwinding which is powerfully seen in the Yahoo Finance 5 day chart of FXE and FXY
. Had not the USD/JPY fallen, gold and oil would have fallen significantly.
ActionForex provides charts of the EUR/JPY in article EUR/JPY Weekly Outlook Aug 30 08
The HUI Indexed precious metal mining shares, GDX, are disconnecting from the price of gold, and are falling lower with the metal and mining shares, XME, the Brics, EEB, the emerging markets, EEM, and China, FXI, as the latter falling the most as it had risen the most up to 50 day moving average.
I have continually documented that the gold shares have been falling relative to physical gold ever since early November 2007 2007; and today is no exception: GDX is down 0.7 while GLD is up 0.5%. The Yahoo Finance ongoing 1 year chart of GDX compared to gold
shows the disconnect quite well. The Yahoo Finance six month chart of GDX relative to gold
shows the disconnect picked up steam in mid-March 2008 as the Fed announced facilities of TAF, TSLF and PDCF ... One year GDX GLD
.... Six month GDX GLD
The Yahoo Finance 3 month ongoing chart of the energy service providers, OIH, compared to gold, GLD
, shows that the yen carry traders began to sell their deep investments, that is investments made long ago in the energy service companies, in mid June 2008, as risk aversion grew to decreased invesment opportunities, caused by dwindling growth world wide, and as the announcements of the May 19, 2008 Bank of Japan meeting were released, and carried by news services such as CEP News on Forex websites such as ActionForex.
The unwinding yen carry trade has induced the British shares to fall significantly lower as Lukanyo Mnyanda and Andrew MacAskill of Bloomberg report Pound Set for Monthly Loss as Confidence Holds Near Record Low
Part of the reason why the yen carry trade unwound today is that Aaron Pan and Tracy Withers of Bloomberg are reporting that Australia, New Zealand Dollars Log Monthly Drop on Rate Outlook
The unwinding yen carry trade also induced the other commodity currencies Swiss Krona, FXS, and the Canadian Dollar, FXC, to fall. II. End Of The Day Comments
We are on the verge of an epic investment shift: gold is soon going to arise as the defacto world currency and means of garnering and accumulating wealth.
between the US Dollar, $USD
, will soon be over with gold, $GOLD, rising supreme and the dollar vanquished.
The Yahoo Finance 5 day ongoing chart of the Euro, FXE, compared to the Yen, FXY
shows how the yen carry trade unwound this week.
Even though the USD/JPY unwound some as well, the lower Euro, FXE, that came via the unwinding yen carry trade, kept the US Dollar high as is seen in the chart of the Yahoo Finance 5 day ongoing chart of UUP vs GLD
. And gold rose 1% on the week, as lack of supply at coin dealers and jewelrs maintained price up.
The Yahoo Finance 3 month ongoing chart of the energy service providers, OIH, compared to gold, GLD
, is most helful in understanding the dramatic shift that is about to take place ... 3 month OIH compared to GLD
July 25, 2008 definitely marked 'Peak Currencies
', this is seen in the fall of both Gold, GLD, and the natural resource stock leader OIH, falling lower seen in the chart.
August 15, 2008, through today August 29,2008, for all practical purposes has marked 'Peak Dollar
' as gold rose from its 'spiked down' bottom as seen in the chart. The word 'spiked' comes from the volleyball terminology like in volley "spike down".
Note the trajectory in gold since August 15, 2008 -- is up.
Note the trajector in the energy service shares -- is topping out and turning down.
The bottom line here is that, wealth can no longer be garnered in investing long the markets, long the US Dollar, and certainly not in any of the commodity currencies such as FXE, FXA, FXS, FXC.
The US Dollar, $USD, closed the week up 0.65% in a doji at 77.31.
The Dollar ETF, UUP, finished the week up 0.63% in a doji at 23.94.
Gold, $gold, closed the week up 0.20% in a doji at $835.20.
The gold ETF, GLD, finished the week up 0.78% in a gravestone doji at 81.71.
Oil, USO, closed the week up 0.36% in a gravestone doji suggesting a fall lower.
The Russell 2000, $RUT, finished the week 0.26% higher in a long legged doji at 739.50
The DOW, $INDU, finished the week 0.72% lower.
The S&P, $SPX, fininshed the week lower 0.73% lower.
The Nasdaq, $compq, finished the week 1.95% lower. Jack Chan of JC's Buy and Sell Signals
, gave his sell signal on the Nasdaq, QQQQ
, several days ago.
The homebuilding stocks have been at the forefront of the Dollar Rally, that began July 15, 2008. Thier ETF, XHB
, manifested a doji at 19.73 after having hitting resistance of 20 and falling lower. Here is the MSN comparsion chart of mth, kbh, spf, ctx, bzh, hov, len
The weekly chart of XHB shows a 3.9% rise to 50 day moving average on falling volume: this implies a completion of rally.
The trucking group, was the worst performer, falling 7%, led by its single member, Ryder System, R. A brokerage analyst downgraded the trucking sector, predicting that freight volumes in the peak shipping season through November might be weaker than expected because of the soft US economy.
The transportation sector, ITY, like the industrial sector, IYJ, like the overall US stock turned down on August 11, 2008 -- days before Peak Dollar on August 15, 2008.III. Fiat Wealth Will Be Destroyed By The "Saws Of Liquidity" ... Gold Will Arise As The Defining Measure And Means Of Wealth
The US Central Bank lowering of interest rates and provision of the Facilities Of TAF, TSLF and PDCF, was one of two well springs of wealth. It ran dry on May 19, 2008 as the TAF rally ended.
The other well spring of wealth has been been the Bank of Japan 0.5% interest to fund interest rate differential currency investing, in first the BRICS, and then in the emerging markets, and then most recently in the US beginning on July 15, 2008, as the yen carry traders sold oil, USO, and the metal manufacturing stocks, XME, and the gold stocks, GDX, to take profit and invest in the financial sector. They have been selling their interest in the US stocks on August 15, August 22, and today August 29, 2008, as can be seen in the fanning of the US stock ETF, VTI.
Risk aversion to investing long is rising due to level two assets and level three assets at banks, the announced liquificiation and capitalization of Freddie Mac, FRE, and Fannie Mae, FNM, rising inflation, decreased growth opportunities, and reducing corporate profits: this effectively has shut off the other well spring of wealth.
Now the falling currency pairs, USD/JPY, EUR/USD, and EUR/JPY will act to delever all forms of fiat wealth lower; these will act like saws on wood cutting and destroying wealth.
However in the process, the hidden jem of wealth, gold, burried away in the wood, will emerge as that which economically sustains.
Even though stocks sold off, US Treasuries, TLT, did not pick up the slack, they fininshed the week in a a doji, much like the previous dojis in mid December in 2007, and in mid March 2008, suggesting that the bond market place is once again going to call market place interest rates higher, such as the interest rate on the 30 year US Government bond, $TYX, even though the Federal Reserve is keeping its rate at 2%. The US Government bonds are most likely going lower very soon. Here is Jack Chan's, JC's Buy and Sell Signals
, chart of TLT
When trading resumes Tuesday, September 2, 2008, I fully expect the financial sector to lead the US stock market lower next week.
Given the projected fall in wealth, clearly a investment in gold is the way to go to preserve and possibly garner wealth. An insight of caution comes from Here is Jack Chan's, JC's Buy and Sell Signals
, chart of the gold ETF, GLD
as well as USO
, both of which are currently influenced by the same currency trading dynamics.
I envision gold rising in value in relation to oil -- I envision GLD:USO
rising from 0.84.
I envision gold and oil stabilizing.
I envision energy service stocks, OIH, falling, just in the same manner, that gold stocks disconnected from the price of oil; a hint of such being seen in the comparative chart of GLD, USO and OIH from August 15, 2008, throught August 29, 2008
Here is Jack Chan's, JC's Buy and Sell Signals
, chart of the energy services ETF, OIH
; I believe it will deteriorate quickly compared to gold, GLD.
Prieur du Plessis writing in Safehaven.com article Words from the (Investment) Wise for the Week That Was (August 25 - 31, 2008)
relates: "West Texas Intermediate crude, $WTIC, traded between $115.0 and $118.76 a barrel last week before closing 0.8% up at $115.46 on Friday. The gain was relatively small given the impending arrival of Hurricane Gustav and concerns about the geopolitical situation with Russia, but word from the Department of Energy that it would release strategic oil stocks to combat any disruption kept oil prices in check. (The Gulf of Mexico is responsible for 25% of US crude oil production and 15% of US natural gas production.)IV. We Have Passed Out Of The Age of Prosperity That Came Via Financialization And Securitization
The Commodity Futures Modernization Act, along with the repeal of the Glass-Steagall Act, set in motion the events that are now battering the financial system; this is desribed in the article 'How Phil Gramm and the Wall Street Investment Banks Helped to Destroy the US Financial System'.
Eddy Elfenbein writing in article August 29, 2008, Ouch!
documents how rapidly the power and wealth of investment capitalism has gone toxic: "The $14bn in losses for 2007 and the first two quarters of 2008 equal half of Merrill’s profits since the beginning of the decade."
The Summit Of International Bankers in Jackson Hole Wyoming proved fruitless to provide financial stability. Krishna Guha of Financial Times in article Bankers Caught Between Hope And Despair reports that "More than a year into the credit crisis, the world's top central bankers admit they are still in the dark as to what its ultimate impact on the global economy will be. By the same token they are unsure to what extent weakening growth will help to ease high inflation. There is enormous uncertainty about where we stand at the moment,' Stanley Fischer, governor of the Bank of Israel, said at the close of the Federal Reserve's annual retreat in Jackson Hole, Wyoming. His comments came as US Treasury officials worked through the weekend on options for Fannie Mae and Freddie Mac, the troubled mortgage groups, amid expectations an announcement could come this week. "Mr Fischer told central bankers from 43 nations 'we are in the midst of the worst financial crisis since World War II'. But it was still not clear how big an event it would turn out to be. So far, he said, 'in real economy terms we are not looking at anything exceptional'. But the crisis was entering a 'second round' in which economic and financial weakness could feed on each other. Other current and former central bankers shared this view. Alan Blinder, a former Fed vice-chairman, said: 'It is amazing a year later how much is still unresolved.'
Asha Bangalore of Northern Trust in article Consumer spending - strong likelihood of decline in Q3 reports that "Nominal consumer spending increased 0.2% in July, following a 0.6% gain in June. However, inflation adjusted consumer spending fell 0.4% in July after a 0.1% decline in June. Consumer spending will have to advance in leaps and bounds in August and September for a flat reading in the third quarter. In other words, a decline in third quarter consumer spending is nearly certain. Assuming our forecast is accurate, this would be the first quarterly decline in consumer spending since fourth quarter of 1991."
BCA Research reports: "Our investment spending model forecasts that capex growth will drop to zero by the end of the year. Sticky corporate bond yields, and a further slowing in final demand at home and abroad, will cause companies to defer expansion plans: expect more weakness ahead."
BeSpoke Investment Group in article Credit Sreads Continue To Get Worse reports: "FDIC Chairman Sheila Bair commented in a press conference this afternoon that she expects the credit markets to continue to worsen, and judging by the recent action in credit spreads, the market seems to agree. According to Merrill Lynch data, interest rates on investment grade corporate bonds are currently not only at higher levels than they were at the Bear Stearns low, but they are also at their highest levels ever. As of yesterday's close, investment grade corporate bonds were yielding 312 basis points more than Treasuries, which is a 118% increase over year ago levels."V. Today The World Transitioned Into Kondratieff Winter
If there ever was a trasitional day, an epic day, a watershed day; today was the day that introduced Kondratieff Winter as marked by
1) the fall of Dell stock value on announcemnet of decreased growth and profits.
2) the breakout of the bear market semiconductor ETF SSG and Nasdaq ETF QID
3) the fall of both the world stocks, VEU, and the US Stocks, VTI,
We have likely reached 'Peak US Treasuries', with evidence coming from
1) the gravestone doji in the zero coupon bond mutual fund BTTRX
2) the gravestone doji in the US Treasuies in the futures market place, $USB
3) The breakout of the Proshares Bear Market ETFs, SSG and QID
I find the chart of US Treasuries, TLT Daily
and TLT Weekly
frightening. Most consider government bonds to be the life boat of safety; I do not. I shuddder when I think of the cataclysmic fall that is coming, and the social impact that the fall will have on people living in America.
In as much as I have written the Liquidation Thesis
, which holds that government services and payments, service sector jobs, public and private debt of all types, and unfunded retiree benefits are going to be liquidated, that is done away with, I've already done my weeping and mourning.
Kondratieff Winter has a political component as well as an economic component; and commentary by DrKrbyLuv
in Elaine Meinel Supkis article 'One Year Of Bad Banking Continues', provides some insight into the dynamic of political chaos.
A systemic risk event or events will quickly unfold, which will be the cornerstone of Kondratieff Winter producing a finanical system meltdown.
Numerous systemic risk potentialities abound. One is that of credit drought progressing to becomer credit gridlock where corporations cannot obtain cash to refund long term debt as it comes due. Carrick Mollenkamp of the Wall Street Journal reports: "U.S. and European banks, already burdened by losses and concerns about their financial health, face a new challenge: paying off hundreds of billions of dollars of debt coming due. At issue are so-called floating-rate notes -- securities used heavily by banks in 2006 to borrow money. A big chunk of those notes, which typically mature in two years, will come due over the next year or so ... That's forcing banks to sell assets, compete heavily for deposits and issue expensive new debt. The crunch will begin next month, when some $95 billion in floating-rate notes mature. J.P. Morgan Chase ... Analyst Alex Roever estimates that financial institutions will have to pay off at least $787 billion in floating-rate notes and other medium-term obligations before the end of 2009. That's about 43% more than they had to redeem in the previous 16 months. The problem highlights how the pain of the credit crunch, now entering its second year, won't end soon for banks or the broader economy ... As banks scramble to pay the floating-rate notes, they could see profit margins shrink as wary investors demand higher interest rates for new borrowings. They're also likely to become less willing to make new loans to consumers and companies, aggravating economic downturns in both the U.S. and Europe."
Pierre Paulden of Bloomberg reports: "Merrill Lynch & Co., Wachovia Corp., Lehman Brothers Holdings Inc. and the rest of the U.S. finance industry are about to find out how expensive credit has become. Banks, securities firms and lenders have a record $871 billion of bonds maturing through 2009, according to JPMorgan Chase & Co., just as yields are at their most punitive compared with Treasuries. The increase in yields may cost them as much as $23 billion more in annual interest versus a year ago based on Merrill Lynch index data. Higher refinancing expenses will restrict the ability of banks to borrow in the capital markets and lend, further cutting off credit to consumers and businesses and curbing what is already the slowest growing economy since 2001. S&P said last week that it had a 'negative' outlook on almost half of the 50 highest-rated financial institutions in the U.S. as of June 30, the highest proportion in 15 years. 'The gears of capitalism are grinding to a halt,' said Mirko Mikelic, senior bond fund manager at ... Fifth Third Asset Management ... 'There is a tremendous concern over the banking sector and a scramble right now for capital.'"
Another systemic risk event that could easily eplode are issues surrounding the two GSE's. Financial Times relates that in article Fannie And Freddie Doubts Grow reports that "Shares in Fannie Mae and Freddie Mac fell on Friday amid concerns foreign investors were reassessing their exposure to the troubled US mortgage financiers' bonds and guaranteed securities". "Bill O'Donnell, analyst at UBS said: 'If this recent theme of cooling passions for GSE's debt becomes a longer-term trend, then it could be problematic for the GSEs given that the central banks have taken ... roughly 30% to 60% of new GSE issuance in recent months and years." "The US Treasury was granted powers last month to extend its credit lines to Fannie and Freddie and to invest in their debt and equity." The weekly charts show Fannie Mae, FNM, fell 14%, and Freddie Mac, FRE, fell 15%.
Times Online in article Buffett Predicts game Over For Fannie And Freddie relates: "For Fannie May and Freddie Mac the game is over. The Sage of Omaha has spoken. "Warren Buffett, the world's richest man, said it was no longer feasible for America's two biggest mortgage finance companies to exist independently. He went on to forecast that the US economy would remain in the doldrums for at least five months. "Fannie and Freddie, which underpin America's mortgage market by buying home loans and packaging them into bonds, did not have any net worth, Mr Buffett told CNBC. Both face losses of tens of billions of dollars on the bonds. Analysts said they look increasingly likely to need a cash injection from the Government and Mr Buffett said they were too big to fail, predicting: 'You will see some action fairly soon."
I have to ask the question: "If these organizations do not have any net worth, why, just why in the world should they be allowed to keep issuing debt"? Perhaps the answer is like Elaine Meinel Supkis relates: The Purpose Of Modern Capitalist Banking Systems Is To Create Increasing Debt And Not Increasing Wealth
Another systemic risk is that US automakers will simply run out of money, and lacking access to credit, or sought after government loans to retool to the extent of $50 Billion as CNN News reports
, go out of Business.
As a systmeic risk event unfolds, the US Dollar will tumble lower with all currencies; and authoritarian state corporate rule rising to enforce civil security laws such as the Security and Prosperity Partnership of North America, the SPP.
Two current example of authoritarian rule include the Glenn Greenwakd Salon article Police Preemptively Raid GOP Convention Protesters
and the Sean Rayment Telegraph.co.uk report that Elite British SAS Force Has Taken 3,500 al-Qaeda Terrorists Off The Streets In Baghdad In The Last Two Years
Society will become pyramidal with a few ruling elite at the top, government and industry stakeholders overseeing the factors of production, as well as commerce, finance and trade, and a pauperized mass of humanity at the bottom .VI. Kondratieff Winter Will Be Experienced Globally
Marcus Gee writing in Globe and Mail article Warning Signs From The Centre Of The Boom
reports of economic downturn in China:
"The ruling Communist Party is worried enough that Premier Wen Jiabao and other leading officials toured coastal export industries last month. Mr. Wen professed himself “very concerned about the difficulties they are up against.” Since then, the Politburo has met to underline its support for “steady and fast” economic growth, a shift from the previous emphasis on reining in the excesses of the economy.
After fretting for the past five years or so about how to keep the economy from overheating, Beijing is now faced with the novel problem of how to keep it from cooling. “If you're sitting in Beijing, you're saying, ‘We've already lost two percentage points of economic growth. How much more are we going to lose?'” said Nicholas Lardy, a senior fellow at the Peterson Institute of International Economics in Washington.
“That's a big turning point for the Chinese economy. That means questions of profitability, questions of unemployment, questions of social stability.”
In the textile industry, which employs 25 million workers, increasing wages and the rise of the Chinese currency, the yuan, have raised costs and made it more expensive for other countries to buy Chinese-made clothing. Energy costs are up too, and a new law forcing companies to provide social benefits to workers has increased labour costs for employers. As a result, hundreds of companies have moved their production to cheaper countries such as Cambodia and Bangladesh.
China's problems stem in part from its very success at turning itself into the world colossus in low-cost global manufacturing, an export dynamo whose rapid growth has been fuelled by cheap labour, energy, capital and a willingness to accept narrow profit margins.
It's a condition that Vitaliy Katsenelson labels “late-stage growth obesity.”
The director of research with Investment Management Associates in Denver, he coined the expression to describe what happens when economies and corporations expand at such a rapid clip they fall victim to inefficiencies that worsen as time goes on, particularly in a case like China's, where tight government control over the banking system, rampant crony capitalism and continuing corruption mean that capital is not always allocated on the basis of merit or need.
As a result, growth may be high, but its quality is low, which makes it even more likely that decisions on asset allocation will be poor.
He cites the famous case of the vast Dongguan South China Mall, named The Mall Of Misfortune
, by Michael Donohue of TheNational, which was opened with much fanfare in Dongguan in 2005. Although larger than the West Edmonton Mall, it draws no more traffic than a typical small Canadian strip plaza and most of the 1,500 stores are vacant. It is the world's leading example of a 'Dead Mall'.
China's worst short-term problems lie in manufacturing, the engine of its spectacular growth.
As any Canadian producer can attest, manufacturing can be a volatile activity, prone to booms and busts. But the Chinese have enjoyed nothing but growth for 30 years, leaving industry with rising fixed costs, lots of excess capacity and workers they can't easily shed when demand finally declines.
As it becomes harder to meet payments on debt (the primary source of capital) and maintain payrolls, all those millions of people who were encouraged to migrate from farms to urban factory jobs will find their meagre livelihoods threatened.
“This is when you discover how dysfunctional this economy was,” Mr. Katsenelson says.
“It's a highly vulnerable country,” agrees George Friedman, chief executive of Stratfor, an Austin, Tex.-based company that provides global intelligence to clients. “With energy prices rising dramatically as a [cost] component, the ability of the Chinese economy to keep functioning the way it used to is in severe doubt.”
To begin with, China's financial system is not as solid as it looks. According to Mr. Friedman, the government's conservative estimate on the level of Chinese loans on which no principal or interest is being collected is $600-billion (U.S.). Stratfor's research places the actual figure at closer to $1.1-trillion, held by commercial banks as well as so-called asset management corporations, government entities set up to buy debts.
“Japan went south when non-performing loans got to about 20 per cent of GDP. South Korea, about 25 per cent,” Mr. Friedman says. “These guys [Chinese] are conservatively at 40 per cent of GDP. And then they get hit by commodity prices. So for China, it's the perfect storm.”
And inflation isn't licked yet. Though it has indeed moderated after a worrying runup earlier in the year, falling to 6.3 per cent in July from 7.1 per cent in June, a rate of 6 or 7 per cent is far above the average for the past decade of 1.3 per cent a year. And while the consumer price index is down, producer prices – which are what affect companies – rose 10 per cent last month.VII. Kondratieff Winter Means An EU US Iran War, Fighting Terrorists, And Eventually The Outbreak Of World War IIIEU US Iran War
: A confrontation between the trans-Atlantic EU US Western World Government and Iran, is imminent over its nuclear ambitions, and will manifest as a military strike on Iran, by the naval armada
currently residing in the Persian Gulf.Fighting Terrorists
: Umberto Pascali writing in GlobalResearch.ca article Obama's Running Mate Presents The Strategic Plan For The Next Administration quotes
Joe Biden as saying at the Democratic Convention in Denver on August 27, 2008: "The fact of the matter is, al-Qaida and the Taliban - the people who have actually attacked us on 9/11 - they've regrouped in the mountains between Afghanistan and Pakistan and are plotting new attacks. And the Chairman of the Joint Chiefs of Staff has echoed Barack's call for more troops and John McCain was wrong and Barack Obama was right. Should we trust John McCain's judgment? When he rejects, when he rejected talking with Iran and asked what is there to talk about? Or Barack Obama, who said we must talk and must make clear to Iran that it must change?"World War III
: F. William Engdahl writing in GlobalResearch.ca article Missile Defense: Washington And Poland Jst Moved The World Closer To War
writes that "The signing on August 14 of an agreement between the governments of the United States and Poland to deploy on Polish soil US ‘interceptor missiles’ is the most dangerous move towards nuclear war the world has seen since the 1962 Cuba Missile crisis. Far from a defensive move to protect European NATO states from a Russian nuclear attack, as military strategists have pointed out, the US missiles in Poland pose a total existential threat to the future existence of the Russian nation. The Russian Government has repeatedly warned of this since US plans were first unveiled in early 2007. Now, despite repeated diplomatic attempts by Russia to come to an agreement with Washington, the Bush Administration, in the wake of a humiliating US defeat in Georgia, has pressured the Government of Poland to finally sign the pact. The consequences could be unthinkable for Europe and the planet.
The preliminary deal to place elements of the US global missile defense shield was signed by Polish Deputy Foreign Minister Andrzej Kremer and US chief negotiator John Rood on August 14. Under the terms, Washington plans to place 10 interceptor missiles in Poland coupled with a radar system in the Czech Republic, which it ludicrously claims are intended to counter possible attacks from what it calls "rogue states," including Iran.
To get the agreement Washington agreed to reinforce Poland's air defenses. The deal is still to be approved by the two countries' governments and Poland's parliament. Polish Prime Minister Donald Tusk said in televised remarks that "the events in the Caucasus show clearly that such security guarantees are indispensable." The US-Polish missile talks had been dragging for months before recent hostilities in Georgia.
The Bush White House Press spoksperson, Dona Perino stated, officially, "We believe that missile defense is a substantial contribution to NATO's collective security." Officials say the interceptor base in Poland will be opened by 2012. The Czech Republic signed a deal to host a US radar on July 8.
The signing now insures an escalation of tensions between Russia and NATO and a new Cold War arms race in full force. It is important for readers to understand, as I detail painstakingly in my book, to be released this autumn, Full Spectrum Dominance: The National Security State and the Spread of Democracy, the ability of one of two opposing sides to put anti-missile missiles to within 90 miles of the territory of the other in even a primitive first-generation anti-missile missile array gives that side virtual victory in a nuclear balance of power and forces the other to consider unconditional surrender or to pre-emptively react by launching its nuclear strike before 2012. Senior Russian lawmakers said on Friday the agreement would damage security in Europe, and reiterated that Russia would now have to take steps to ensure its security".
Mike Whitney writes in GlobalResearch.ca article Nuclear Chicken in Poland: Putin Can't Afford to Back Down
that: "If the Bush administration proceeds with its plan to deploy its Missile Defense System in Poland, Russian Prime Minister Putin will be forced to remove it militarily. He has no other option. The proposed system integrates the the entire US nuclear arsenal into one operational-unit a mere 115 miles from the Russian border. It's no different than Khrushchev's plan to deploy nuclear missiles in Cuba in the 1960s.
Early last year, at a press conference that was censored in the United States, Vladimir Putin explained his concerns about Bush's plan:
“Once the missile defense system is put in place it will work automatically with the entire nuclear capability of the United States. It will be an integral part of the US nuclear capability....And, for the first time in history---and I want to emphasize this---there will be elements of the US nuclear capability on the European continent. It simply changes the whole configuration of international security…..Of course, we have to respond to that.”
Nuclear weapons specialist, Francis A. Boyle, says the Bush administration's plans represent the “longstanding US policy of nuclear first-strike against Russia." In Boyle’s article “US Missiles in Europe: Beyond Deterrence to First Strike Threat” he states:
“By means of a US first strike about 99%+ of Russian nuclear forces would be taken out. Namely, the United States Government believes that with the deployment of a facially successful first strike capability, they can move beyond deterrence and into "compellence."… This has been analyzed ad nauseam in the professional literature. But especially by one of Harvard's premier warmongers in chief, Thomas Schelling --winner of the Nobel Prize in Economics granted by the Bank of Sweden-- who developed the term "compellence" and distinguished it from "deterrence." …The USG is breaking out of a "deterrence" posture and moving into a "compellence" posture. (Global Research 6-6-07)
Bush's real goal is to force Moscow to conform to Washington’s diktats or face the prospect of first-strike nuclear annihilation. Putin must respond".VIII. As Kondratieff Winter Rushes In, Public Sentiment Swells Calling For A Change
Michael Charmichael writin in Huffington Post article Obama Obliterates McCain
In Denver, Barack Obama faced his toughest challenge to date. In one crucial week, Obama desperately needed to halt his slide in a spate of recent polls. Facing the serious threat of popular momentum toward his opponent, Barack Obama delivered in the clutch and produced a Democratic National Convention that did much more than merely accomplish its mission.
Obama's ringing acceptance speech thrilled the enormous throng at Invesco Field. Turning the tables on McCain, Obama reversed the polarity of the presidential campaign. Obama's spellbinding oratory came not a moment too soon, but it will certainly catapult him upward in the polls with a renewed momentum that will obliterate the faltering surge of John McCain.
Delivering a historic acceptance speech that can only be compared with FDR and JFK, Obama clearly established his vision for America's future in the heart and mind of Middle America.
Against the backdrop of a convention that started cautiously but gradually found its balance and steadily built its narrative of suspense toward the dramatic climax in Invesco Field, Obama calmly yet passionately defined himself and his prescription for America in radical juxtaposition to the record of George Bush and the agenda of John McCain.
Seventy thousand of the faithful gathered in the massive arena to experience their personal epiphany at the epicenter of the Obama phenomenon. Never before in American history have so many people witnessed such an extraordinary political convention.
On the forty-fifth anniversary of Dr. Martin Luther King Jr.'s iconic "I have a dream" speech at the Lincoln Memorial, Barack Obama recaptured the moment when America pivoted from the age of Jim Crow to embrace Civil Rights. In captivating his audience, Obama painted a far broader spectrum of hope for positive change than even the redoubtable Dr. King.
Moving decisively into the process of change at the heart of his vision, Obama exploded every minute particle of the now totally shattered case for John McCain. Pointing to the multifaceted crisis confronting America -- from homelessness to massive unemployment and crushing poverty to the collapse of the mortgage industry then expanding his palette from the unjust war in Iraq to the collapse of confidence on Wall Street -- Obama demolished George Bush's America and his heir apparent, John McCain.
The tides of public momentum are massive and elemental energies. The collision between Barack Obama and John McCain is stirring primeval forces now building waves and crests and currents that ripple and crash against the shoals of time".IX. Many If Not Most Professionals Take A Position 180 Degrees Different Than I Do And Write Bullishly
In many of my most recent articles I have made reference to the bullish position of the professionals who express the consensus of the marketplace today: the US Dollar and the US Stock Markets are going up.Jay DeVincentis
writing in Safehaven.com relates
"Friday is day 38 in our Up Cycle.
The Stock Barometer signals follow 5, 8, 13, 21 and sometimes 34 day Fibonacci cycles that balance with 'normal' market cycles. Knowing where you are in the current market cycle is important in deciding how long you expect to maintain a position.
Potential Cycle Reversal Dates
2008 Potential Reversal Dates: 12/31, 1/11, 2/1, 2/13, 3/6, 4/5, 4/22, 5/23, 6/6, 6/27, 7/13, 9/2. We publish these dates up to 2 months in advance.
With 9/2 only two trading days away, we're within the window for a turn and I believe that turn will be higher."Bill McLaren
writing in Safehaven.com relates
"The objective for this move up remains the 3//8 retracement of the entire bear campaign around the 1340 price level. Once the index moves above 1313 it becomes at risk of reversing but the probability of the 3/8 retracement is very strong. The index closed on the high and that could have been a temporary exhaustion but the 1340 level looks reachable. There are a number of Dow 30 stocks that have obvious multiple higher low basing patterns that should rotate out of those bases and bring about the continuation of the rally".LiveMemories relates
"Looking at various charts, I am getting more and more convinced that the worse of this bear market is now behind us ... The good ol' US Dollar seems to be the only bullish trade in town these days. I love this chart. It is a picture perfect bullish chart. While it does indeed look like the dollar is extended here, it can easily get a lot more extended ... The home builders index, XHB, is working on building a nice base here ... This may not be "THE" bottom in XHB. I am willing to bet it is".The BeSpoke Investment Group
takes note of the fact that 64% of stocks in the S&P 500 are currently trading above their 50-day moving averages: "As shown in the chart below, the reading has been creeping higher and higher since mid-July, and looks to be on its way to the 80% to 85% levels seen twice over the last year. Readings above 50% are signs of a healthy market, and it hasn't been above 50% for much of 2008."J Clinton Hill relates
"Hillbent’s advice is to stop shooting, lay down your arms, and prepare for the impending bull market".Jacob Oubina, Currency Strategist at ActionForex relates
"The USD will continue to strengthen. There are a plethora of top-tier US indicators due up in the week ahead. ISM manufacturing and construction spending kick things off on Tuesday. Factory orders and the Fed's Beige Book are due up on Wednesday. We will provide a detailed report on what to expect from the Beige Book next week. ADP employment, productivity and the usual weekly jobless claims data are due on Thursday while Friday closes out the week with the all-important NFP employment report (which) will likely be a case in point (to test the strength of the US Dollar). We will be watching closely to see if the USD is able to shrug off another expected job loss, which would be another indication of the long-term nature of the current USD recovery. Should the USD react more negatively, we'll take it as an indication that consolidation is ongoing".Corey Rosenbloom
, a Chartered Market Technician Candidate
on the US Dollar: "I cannot underscore how powerful and meaningful this recent momentum impulse was and what it means for the US Dollar Index. This is one of the strongest upward surges in the index in years (both on the daily and weekly chart) and the assumption is that it is powerfully bullish for the Dollar. New momentum highs often precede new price highs.
The trend of the Dollar Index is now positively confirmed as “up” (after making a higher low, higher high, and then taking out that high) and then breaking solidly above moving average resistance.
In terms of the moving averages, the 20, 50, and 200 day moving averages are officially in the “most bullish orientation possible” in terms of the 20 being above the 50, with both above the 200. One cannot ignore this development - these moving averages now serve as expected price support.
The downtrend has ended and now we’re into a new environment - be sure to pay attention to all the intermarket relationships and economic realities that will come from this new development".INO.Com relates
of the USD/JPY: The September Dollar closed higher on Friday as it consolidates above the 75% retracement level of the 2007-2008 decline crossing at 77.20 with ongoing INO chart of the US Dollar Index, DX, seen here
. The high-range close sets the stage for a steady to higher opening on Tuesday. Stochastics and the RSI are diverging and turning neutral hinting that a short-term top might be in or is near. Closes below the 20-day moving average crossing at 76.33 are needed to confirm that a short-term top has been posted. If September extends this summer's rally, the 87% retracement level of the 2007-2008 decline crossing at 78.14 is the next upside target. First resistance is Tuesday's high crossing at 77.71. Second resistance is the 87% retracement level crossing at 78.14. First support is the reaction low crossing at 76.17. Second support is the 20-day moving average crossing at 76.33.
Chris Perruna relates
"I was witness to the USD gaining some strength over the past few weeks while traveling. The large chart shows that this is the first true buy signal in more than 3 years (2005)'.
I feel it necessary to present my biography: I have no credentials or financial licenses whatsover; I am a low income blogger who communicates an observable and ongoing investment demand for gold and the 'Liquidation Thesis'. As a matter of course any investor should seek advice from a licensed investment professional before making any investment decision.X. Get ready for some real excitement .... posssibly some shock and awe
: "Interest rate expectations will play a pivotal role in the overall health of the carry trade next week as four G10 central banks are scheduled to deliver monetary policy decisions. It’s this high level of event risk on the horizon that shines a bright spotlight on the precarious position the popular Forex strategy".XI. Investment Application
I recommend that one be invested 1/3 long SKF in a trust account, and 2/3 invested in gold at BullionVault and GoldMoney.XII. Keywords and symbols used in this report
GLD, UUP, IYM, FXE, FXA, FXS, FXC, IYM, QQQQ, QTEC, SMH, EEM, USO, FXI, EEB, EEM, GDX, OIH, XME, VTI, TLT, VEU,
goog, rimm, adbe, csco, ctsh, orcl, intc, aapl, mcd, hd, fre, fnm
$GOLD, $USD, DX, $RUT, $COMPQ, USD/JPY, EUR/USD, EUR/JPY, FXE:FXY, IWN:IWO, $TYX