The Resourceful Bear Blog

Eric Walberg in Global Research Al Ahram Weekly article Russia Is Determined To Bring NATO’s Expansion Eastward to a Halt: The Ghost Of Stalingrad relates: In a provocative analogy, Russian President Dmitri Medvedev called Georgia’s 8 August attack on Ossetia Russia ’s 9/11, and said Russia would react the same even if Georgia is accepted as a prospective member of NATO. He announced to the Russian Information Agency 31 August “Five Points of Russian foreign policy” already dubbed the Medvedev Doctrine, as a response to what we might call the Bush I/ Clinton / Bush II Doctrine, i.e., the dismemberment of the USSR / Russia to ensure a US-dominated unipolar world. They include:

-a commitment to the principles of international law,

-a statement that “the world should be multipolar”,

-the wish to have peaceful friendly relations with all nations,

-the intent to protect its citizens “wherever they may be”, and

-the decisive fifth point: “as is the case of other countries, there are regions in which Russia has privileged interests. These regions are home to countries with which we share special historical relations and are bound together as friends and good neighbours. We will pay particular attention to our work in these regions and build friendly ties with these countries, our close neighbours.”

The Russian navy has resumed its (or rather its predecessor’s) presence in different regions of the world’s oceans. A naval task force from Russia’s Northern Fleet conducted a two-month tour of duty in the Mediterranean Sea and North Atlantic from December 2007 to February 2008.

Russia’s Foreign Ministry spokesman Andrei Nesterenko insisted that Russia’s decision to send its armed forces to Venezuela was made before Russia’s war with Georgia. “This deployment had been planned in advance, and it’s unrelated to the current political situation and the developments in the Caucasus.” But the announcement was made just a week after Prime Minister Vladimir Putin warned that Russia would mount an unspecified response to recent US aid shipments to Georgia.

Thankfully, the war is still at the level of hot air. “Go ahead and squeal, Yankees,” Venezuelan President Hugo Chavez said in a national broadcast in which he announced the exercises. The US mocked the announcement. State Department spokesman Sean McCormack poked fun at Russia’s navy, expressing surprise that “they found a few ships that can make it that far.”

Just in case Venezuela is too far from US shores for the outmoded Russian vessels, Russia has signaled it is keen to restore military and intelligence ties with Cuba. There are rumours it is seeking a naval base in Vietnam.

Not to be left out of the increasingly complex maritime equation, in June the US Navy announced it was re-establishing the Fourth Fleet, disbanded in 1950, which would direct naval operations in the Caribbean and Latin America. It is also negotiating with Georgia and Turkey to establish a naval base at the Georgian port of Poti.

One of the responsibilities of US Special Forces in the region is to ensure the security of an oil pipeline passing through Georgia.

As US “aid” flows to the Black Sea in US warships, Russian military hardware flows to the Caribbean, as Venezuela recently bought 24 Russian Sukhoi fighter jets, as well as submarines and missiles. Chavez has said that he would allow Venezuela to be a strategic base for Russian bombers should it be required. “In Venezuela they will always have a green light, they will be welcome, because Russia is an ally of Venezuela,” said Chavez. He proceeded to expel the US ambassador last week until after the November presidential elections.

Sergei Markov, a United Russia Duma member, sees this as posturing rather than the prelude to setting up a permanent base in the Americas. “We need bases on the territory of Iran and Syria where our strategic interests lie.” While it indeed looks like Russia will re-establish a permanent presence in the Mediterranean using a Soviet-era base in Tartus, Syria, this talk of bases in Iran is a new development. It is rumoured that Russia may set up bases there and supply Tehran with the cutting edge S-300 missile system to help protect its nuclear facilities from airstrikes.

Arash Zahedi, in GlobalResearch.ca article reports the interview by Press TV of Iran, with Russian State Duma Deputy Sergey Markov in Moscow, where Markov communicates that the US attacked Russia, by enabling its proxy, Georgia, to kill Russian citizens in Georgia and South South Ossetia.

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.

Damien McElroy reports in Telegraph.co.uk article that Dick Cheney, the US Vice-President, upbraided Ukraine's bickering leaders on Friday as he warned that Russia was using blackmail and intimidation to divide America's allies.

Dick Cheney used Cold War phraseology in his attack on Russia

After separate meetings with Ukraine's pro-Western president Victor Yushchenko and reformist Prime Minister Julia Timoshenko in Kiev, Mr Cheney made clear the depth of Washington's concerns over Moscow's spreading influence among its eastern neighbours.

"We believe in the right of men and women to live without the threat of tyranny, economic blackmail or military invasion or intimidation," Mr Cheney declared. "Ukraine's best hope to overcome these threats is to be united - united domestically first and foremost, and united with other democracies."

Ukraine was the third stop on Mr Cheney's tour of Russia's "near abroad".

On stops in Georgia and Azerbaijan, the Vice-President focused on important energy corridors to the West and unveiling an American assistance package to bolster the weakened Georgian president, Mikheil Saakashvili. But in Ukraine his mission was explicitly political.

The already fractious relationship between Mr Yushchenko and his prime minister descended into open warfare on the eve of Mr Cheney's visit, as the president withdrew his supporters from the governing coalition.

The openly hostile Mr Yushchenko is now threatening to effectively sack his former ally in Ukraine's democratic revolution by dissolving parliament and calling fresh elections.

Aides said he had advised both leaders that the true source of their divisions lay in Moscow. Megan Mitchell, a spokesman for Mr Cheney, said: "He acknowledged it's a challenging time for Ukraine because of recent developments in Russia."

In a nation deeply divided between Russian speaking eastern regions and its more liberal West, Mrs Timoshenko sought a political boost from signalling her opposition to the president's hardline stance.

"Yushchenko's personal support for Georgian President Mikheil Saakashvili has isolated him politically at home and undermined his bid to lead Ukraine into NATO," the American analysts, Medley Global Advisors reported.

"Russia is looking on with thinly veiled satisfaction and, as critical gas price talks loom, will be hoping that Timoshenko teams up in a government with pro-Moscow forces."

Russia is keen to derail Ukraine and Georgia's bids to join the eastward expansion of Nato. Mr Cheney's task in the Ukraine was to demonstrate American resolve in the face of Russia fury that the two ex-Soviet states have been told they will one day be offered membership.

"Ukrainians have a right to choose whether they wish to join NATO, and NATO has a right to invite Ukraine to join the alliance when we believe they are ready and that the time is right," he said.

"No outside country has a veto. The allies agreed in Bucharest that Ukraine will eventually be able to enter, and that is the way it stands today,"

Moscow said similar reassurances delivered by Mr Cheney in Georgia would only tempt the country's leadership to repeat the mistakes that led to last month's war.

"The new promises to Tbilisi relating to the speedy membership of NATO simply strengthen the Saakashvili regime's dangerous feeling of impunity and encourages its dangerous ambitions," said Foreign Ministry spokesman Andrei Nesterenko.

Kondratieff Winter began on August 7, 2007 as an Elliott Wave 3 Down began in the EUR/JPY (which saw a massive unwinding of the yen carry trade) and as the 'War in the Caucasus' began as referenced by by Michel Chossudovsky below.

'Peak Stock Wealth' followed in the period of August 11th to August 15, 2008 as is seen in the ongoing MSN chart of the financial ETFs iwn, iwo, jkh, xhb, xrt .... IWN, IWO, JKH, XHB, XRT.

Who was Kondratieff and what was his Kondratieff Wave Theory?
Following is an part of the Who Was Kondratieff? article found on Kwaves.com and KondratieffWinter.com. To introduce the Kondratieff Theory, we must go back over seventy years and examine a remarkable story in economic history, encompassed within the life of one still little known man. I am certain that, in time, Kondratieff will rank with the giants of discovery as Einstein and Newton. Like these men, his insights have begun to alter radically and permanently our perceptions of economic history.

The Kondratieff wave cycle goes through four distinct phases of beneficial inflation (spring), stagflation (summer), beneficial deflation (autumn), and deflation (winter). Since, the last Kontratyev cycle ended around 1949, we have seen beneficial inflation 1949-1966, stagflation 1966-1982, beneficial deflation 1982-2000 and according to Kondratieff, we are now in the (winter) deflation cycle which should lead to depression.

Professor Nickolai Kondratieff ( pronounced "Kon-DRA-tee-eff") Shortly after the Russian Revolution of 1917, he helped develop the first Soviet Five-Year Plan , for which he analyzed factors that would stimulate Soviet economic growth. In 1926, Kondratieff published his findings in a report entitled, "Long Waves in Economic Life". Based upon Kondratieff's conclusions, his report was viewed as a criticism of Joseph Stalin's stated intentions for the total collectivization of agriculture.

Soon after, he was dismissed from his post as director of the Institute for the Study of Business Activity in 1928. He was arrested in 1930 and sentenced to the Russian Gulag (prison); his sentence was reviewed in 1938, and he received the death penalty, which it is speculated was carried out that same year.

Kondratieff's major premise was that capitalist economies displayed long wave cycles of boom and bust ranging between 50-60 years in duration. Kondratieff's study covered the period 1789 to 1926 and was centered on prices and interest rates. Kondratieff's theories documented in the 1920's were validated with the depression less than 10 years later.

Today, we are faced with another Kondratieff Winter (depression) when the majority of the world anticipates economic expansion. Each individual needs to weigh the risk of depression in light of Kondratieff's work.

Reference by Michel Chossudovsky on 'War in the Caucasus'
War in the Caucasus: Towards a Broader Russia-US Military Confrontation? by By Michel Chossudovsky writing in GlobalResearch.ca August 10, 2008:

During the night of August 7, coinciding with the opening ceremony of the Beijing Olympics, Georgia's president Saakashvili ordered an all-out military attack on Tskhinvali, the capital of South Ossetia.

The aerial bombardments and ground attacks were largely directed against civilian targets including residential areas, hospitals and the university. The provincial capital Tskhinvali was destroyed. The attacks resulted in some 1500 civilian deaths, according to both Russian and Western sources. "The air and artillery bombardment left the provincial capital without water, food, electricity and gas. Horrified civilians crawled out of the basements into the streets as fighting eased, looking for supplies." (AP, August 9, 2008). According to reports, some 34,000 people from South Ossetia have fled to Russia. (Deseret Morning News, Salt Lake City, August 10, 2008)

The importance and timing of this military operation must be carefully analyzed. It has far-reaching implications.

Georgia is an outpost of US and NATO forces, on the immediate border of the Russian Federation and within proximity of the Middle East Central Asian war theater. South Ossetia is also at the crossroads of strategic oil and gas pipeline routes.

Georgia does not act militarily without the assent of Washington. The Georgian head of State is a US proxy and Georgia is a de facto US protectorate.
Who is behind this military agenda? What interests are being served? What is the purpose of the military operation.

There is evidence that the attacks were carefully coordinated by the US military and NATO.

Moscow has accused NATO of "encouraging Georgia". Russia’s Foreign Minister Sergey Lavrov underscored the destabilizing impacts of "foreign" military aid to Georgia: .

“It all confirms our numerous warnings addressed to the international community that it is necessary to pay attention to massive arms purchasing by Georgia during several years. Now we see how these arms and Georgian special troops who had been trained by foreign specialists are used,” he said.(Moscow accuses NATO of having "encouraged Georgia" to attack South Ossetia, Russia Today, August 9, 2008)

Moscow's envoy to NATO, Dmitry Rogozin, sent an official note to the representatives of all NATO member countries:

“Russia has already begun consultations with the ambassadors of the NATO countries and consultations with NATO military representatives will be held tomorrow," Rogozin said. "We will caution them against continuing to further support of Saakashvili."

“It is an undisguised aggression accompanied by a mass propaganda war,” he said.

(See Moscow accuses NATO of having "encouraged Georgia" to attack South Ossetia, Russia Today, August 9, 2008)

According to Rogozin, Georgia had initially planned to:

"start military action against Abkhazia, however, 'the Abkhaz fortified region turned out to be unassailable for Georgian armed formations, therefore a different tactic was chosen aimed against South Ossetia', which is more accessible territorially. The envoy has no doubts that Mikheil Saakashvili had agreed his actions with "sponsors", "those with whom he is negotiating Georgia's accession to NATO ". (RIA Novosti, August 8, 2008)

Contrary to what was conveyed by Western media reports, the attacks were anticipated by Moscow. The attacks were timed to coincide with the opening of the Olympics, largely with a view to avoiding frontpage media coverage of the Georgian military operation.

On August 7, Russian forces were in an advanced state readiness. The counterattack was swiftly carried out.

Russian paratroopers were sent in from Russia's Ivanovo, Moscow and Pskov airborne divisions. Tanks, armored vehicles and several thousand ground troops have been deployed. Russian air strikes have largely targeted military facilities inside Georgia including the Gori military base.

The Georgian military attack was repelled with a massive show of strength on the part of the Russian military.

In this image made from television, Russian military vehicles are seen moving towards the capital of South Ossetia, Tskhinvali, on Friday, Aug. 8, 2008. (AP / APTN)

Act of Provocation?

US-NATO military and intelligence planners invariably examine various "scenarios" of a proposed military operation-- i.e. in this case, a limited Georgian attack largely directed against civilian targets, with a view to inflicting civilian casualties.

The examination of scenarios is a routine practice. With limited military capabilities, a Georgian victory and occupation of Tskhinvali, was an impossibility from the outset. And this was known and understood to US-NATO military planners.

A humanitarian disaster rather than a military victory was an integral part of the scenario. The objective was to destroy the provincial capital, while also inflicting a significant loss of human life.

If the objective were to restore Georgian political control over the provincial government, the operation would have been undertaken in a very different fashion, with Special Forces occupying key public buildings, communications networks and provincial institutions, rather than waging an all out bombing raid on residential areas, hospitals, not to mention Tskhinvali's University.

Tskhinvali's University before the bombing.

The Russian response was entirely predictable.

Georgia was "encouraged" by NATO and the US. Both Washington and NATO headquarters in Brussels were acutely aware of what would happen in the case of a Russian counterattack.

The question is: was this a deliberate provocation intended to trigger a Russian military response and suck the Russians into a broader military confrontation with Georgia (and allied forces) which could potentially escalate into an all out war?

Georgia has the third largest contingent of coalition forces in Iraq after the US and the UK, with some 2000 troops. According to reports, Georgian troops in Iraq are now being repatriated in US military planes, to fight Russian forces. (See Debka.com, August 10, 2008)

This US decision to repatriate Georgian servicemen suggests that Washington is intent upon an escalation of the conflict, where Georgian troops are to be used as cannon fodder against a massive deployment of Russian forces.

US-NATO and Israel Involved in the Planning of the Attacks

In mid-July, Georgian and U.S. troops held a joint military exercise entitled "Immediate Response" involving respectively 1,200 US and 800 Georgian troops.

The announcement by the Georgian Ministry of Defense on July 12 stated that they US and Georgian troops were to "train for three weeks at the Vaziani military base" near the Georgian capital, Tbilisi. (AP, July 15, 2008). These exercises, which were completed barely a week before the August 7 attacks, were an obvious dress rehearsal of a military operation, which, in all likelihood, had been planned in close cooperation with the Pentagon.

The war on Southern Ossetia was not meant to be won, leading to the restoration of Georgian sovereignty over South Ossetia. It was intended to destabilize the region while also triggering a US-NATO confrontation with Russia.

On July 12, coinciding with the outset of the Georgia-US war games, the Russian Defense Ministry started its own military maneuvers in the North Caucasus region. The usual disclaimer by both Tblisi and Moscow: the military exercises have “nothing to do” with the situation in South Ossetia. (Ibid)

Let us be under no illusions. This is not a civil war. The attacks are an integral part of the broader Middle East Central Asian war, including US-NATO-Israeli war preparations in relation to Iran.

The Role of Israeli Military Advisers

While NATO and US military advisers did not partake in the military operation per se, they were actively involved in the planning and logistics of the attacks. According to Israeli sources (Debka.com, August 8, 2008), the ground assault on August 7-8, using tanks and artillery was "aided by Israeli military advisers". Israel also supplied Georgia with Hermes-450 and Skylark unmanned aerial vehicles, which were used in the weeks leading up to the August 7 attacks.

Georgia has also acquired, according to a report in Rezonansi (August 6, in Georgian, BBC translation) "some powerful weapons through the upgrade of Su-25 planes and artillery systems in Israel". According to Haaretz (August 10, 2008), Israelis are active in military manufacturing and security consulting in Georgia.

Russian forces are now directly fighting a NATO-US trained Georgian army integrated by US and Israeli advisers. And Russian warplanes have attacked the military jet factory on the outskirts of Tbilisi, which produces the upgraded Su-25 fighter jet, with technical support from Israel. (CTV.ca, August 10, 2008)

When viewed in the broader context of the Middle East war, the crisis in Southern Ossetia could lead to escalation, including a direct confrontation between Russian and NATO forces. If this were to occur, we would be facing the most serious crisis in US-Russian relations since the Cuban Missile crisis in October 1962.

Georgia: NATO-US Outpost

Georgia is part of a NATO military alliance (GUAM) signed in April 1999 at the very outset of the war on Yugoslavia. It also has a bilateral military cooperation agreement with the US. These underlying military agreements have served to protect Anglo-American oil interests in the Caspian sea basin as well as pipeline routes. (The alliance was initially entitled GUUAM, Uzkbekistan subsequently withdrew and the name was changed to GUAM: Georgia, Azerbaijan, Ukraine, Moldova).

Both the US and NATO have a military presence in Georgia and are working closely with the Georgian Armed Forces. Since the signing of the 1999 GUAM agreement, Georgia has been the recipient of extensive US military aid.

Barely a few months ago, in early May, the Russian Ministry of Defense accused Washington, "claiming that [US as well as NATO and Israeli] military assistance to Georgia is destabilizing the region." (Russia Claims Georgia in Arms Buildup, Wired News, May 19, 2008). According to the Russian Defense Ministry

"Georgia has received 206 tanks, of which 175 units were supplied by NATO states, 186 armored vehicles (126 - from NATO), 79 guns (67 - from NATO), 25 helicopters (12 - from NATO), 70 mortars, ten surface-to-air missile systems, eight Israeli-made unmanned aircraft, and other weapons. In addition, NATO countries have supplied four combat aircraft to Georgia. The Russian Defense Ministry said there were plans to deliver to Georgia 145 armored vehicles, 262 guns and mortars, 14 combat aircraft including four Mirazh-2000 destroyers, 25 combat helicopters, 15 American Black Hawk aircraft, six surface-to-air missile systems and other arms." (Interfax News Agency, Moscow, in Russian, Aug 7, 2008)

NATO-US-Israeli assistance under formal military cooperation agreements involves a steady flow of advanced military equipment as well as training and consulting services.

According to US military sources (spokesman for US European Command), the US has more than 100 "military trainers" in Georgia. A Pentagon spokesman Bryan Whitman "said there were no plans to redeploy the estimated 130 US troops and civilian contractors, who he said were stationed in the area around Tblisi." (AFP, 9 August 2008). In fact, US-NATO military presence in Georgia is on a larger scale to that acknowledged in official statements. The number of NATO personnel in Georgia acting as trainers and military advisers has not been confirmed.

Although not officially a member of NATO, Georgia's military is full integrated into NATO procedures. In 2005, Georgian president proudly announced the inauguration of the first military base, which "fully meets NATO standards". Immediately following the inauguration of the Senakskaya base in west Georgia, Tblisi announced the opening of a second military base at Gori which would also "comply with NATO regulations in terms of military requirements as well as social conditions." (Ria Novosti, 26 May 2006).

The Gori base has been used to train Georgian troops dispatched to fight under US command in the Iraq war theater.

It is worth noting that under a March 31, 2006, agreement between Tblisi and Moscow, Russia's two Soviet-era military bases in Georgia - Akhalkalaki and Batumi have been closed down. (Ibid) The pullout at Batumi commenced in May of last year, 2007. The last remaining Russian troops left the Batumi military facility in early July 2008, barely a week before the commencement of the US-Georgia war games and barely a month prior to the attacks on South Ossetia.

The Israel Connection

Israel is now part of the Anglo-American military axis, which serves the interests of the Western oil giants in the Middle East and Central Asia.

Israel is a partner in the Baku-Tblisi- Ceyhan pipeline which brings oil and gas to the Eastern Mediterranean. More than 20 percent of Israeli oil is imported from Azerbaijan, of which a large share transits through the BTC pipeline. Controlled by British Petroleum, the BTC pipeline has dramatically changed the geopolitics of the Eastern Mediterranean and the Caucusus:

"[The BTC pipeline] considerably changes the status of the region's countries and cements a new pro-West alliance. Having taken the pipeline to the Mediterranean, Washington has practically set up a new bloc with Azerbaijan, Georgia, Turkey and Israel, " (Komerzant, Moscow, 14 July 2006)

While the official reports state that the BTC pipeline will "channel oil to Western markets", what is rarely acknowledged is that part of the oil from the Caspian sea would be directly channeled towards Israel, via Georgia. In this regard, a Israeli-Turkish pipeline project has also been envisaged which would link Ceyhan to the Israeli port of Ashkelon and from there through Israel's main pipeline system, to the Red Sea.

The objective of Israel is not only to acquire Caspian sea oil for its own consumption needs but also to play a key role in re-exporting Caspian sea oil back to the Asian markets through the Red Sea port of Eilat. The strategic implications of this re-routing of Caspian sea oil are far-reaching. (For further details see Michel Chossudovsky, The War on Lebanon and the Battle for Oil, Global Research, July 2006)

What is envisaged is to link the BTC pipeline to the Trans-Israel Eilat-Ashkelon pipeline, also known as Israel's Tipline, from Ceyhan to the Israeli port of Ashkelon.

"Turkey and Israel are negotiating the construction of a multi-million-dollar energy and water project that will transport water, electricity, natural gas and oil by pipelines to Israel, with the oil to be sent onward from Israel to the Far East,

The new Turkish-Israeli proposal under discussion would see the transfer of water, electricity, natural gas and oil to Israel via four underwater pipelines.

http://www.jpost.com/servlet/Satellite?cid=1145961328841&pagename=JPost%2FJPArticle%2FShowFull

“Baku oil can be transported to Ashkelon via this new pipeline and to India and the Far East.[via the Red sea]"

"Ceyhan and the Mediterranean port of Ashkelon are situated only 400 km apart. Oil can be transported to the city in tankers or via specially constructed under-water pipeline. From Ashkelon the oil can be pumped through already existing pipeline to the port of Eilat at the Red Sea; and from there it can be transported to India and other Asian countries in tankers. (REGNUM)

In this regard, Israel is slated to play a major strategic role in "protecting" the Eastern Mediterranean transport and pipeline corridors out of Ceyhan. Concurrently, it also involved in channeling military aid and training to both Georgia and Azerbaijan.

A far-reaching 1999 bilateral military cooperation agreement between Tblisi and Tel Aviv was reached barely a month before the NATO sponsored GUUAM agreement. It was signed in Tbilisi by President Shevardnadze and Israel's Prime Minister Binyamin Netanyu. These various military cooperation arrangements are ultimately intended to undermine Russia's presence and influence in the Caucasus and Central Asia.

In a pro forma declaration, Tel Aviv committed itself, following bilateral discussions with Moscow, on August 5, 2008, to cut back military assistance to Georgia.

Russia's Response

In response to the attacks, Russian forces intervened with conventional ground troops. Tanks and armored vehicles were sent in. The Russian air force was also involved in aerial counter-attacks on Georgian military positions including the military base of Gori.

The Western media has portrayed the Russian as solely responsible for the deaths of civilians, yet at the same time the Western media has acknowledged (confirmed by the BBC) that most of the civilian casualties at the outset were the result of the Georgian ground and air attacks.

Based on Russian and Western sources, the initial death toll in South Ossetia was at least 1,400 (BBC) mostly civilians. "Georgian casualty figures ranged from 82 dead, including 37 civilians, to a figure of around 130 dead.... A Russian air strike on Gori, a Georgian town near South Ossetia, left 60 people dead, many of them civilians, Georgia says." (BBC, August 9, 2008). Russian sources place the number of civilian deaths in South Ossetia at 2000.

A process of escalation and confrontation between Russia and America is unfolding, reminiscent of the Cold War era.

Are we dealing with an act of provocation, with a view to triggering a broader conflict? Supported by media propaganda, the Western military alliance is intent on using this incident to confront Russia, as evidenced by recent NATO statements.