ThxPORTAL - My OnlinE InvestmenT ProgresS

- Clive Maund

What was really odd about yesterday was that we saw a big dollar breakout, but Treasuries fell heavily. We are now believed to be on the verge of another massive deflationary downwave, similar to last year, but worse. However, this time it is very possible that while we will see a flight to cash, we will not witness a stampede into Treasuries, or at least not on anywhere near the same scale. So what is going on here? - what are the principal underlying dynamics? Anyone who has had the misfortune to watch a nuke exploding, misfortune because you get irradiated, knows that first you see a very bright flash, then there is a period of tranquillity as the flash dies down and the mushroom cloud starts to rise, before the shockwave hits, when things get pretty rough to say the least.

Youv'e seen the flash - now get ready for the shockwave...

What happened in Dubai just over a week ago was the bright flash, and the media have used the intervening period before the shockwave hits to reassure everyone that everything is going to be just fine - "You just relax, nothing will come of it, it's only $60 billion down the drain or whatever - have a cup of tea". The trouble is that it's not $60 billion at all - the reality is that this is a default on a massively larger scale. Dubai was a vast sinkhole into which western banks and governments unquestioningly poured not just billions but trillions of dollars which was then leveraged enormously by means of derivatives enabling Dubai to build itself up into a latter day Rome, with a level of opulence and extravagence that would have made Caesar green with envy.

When people think of Dubai the things that come to mind are the massively extravagent 7-star hotels, the towering record breaking skyscraper, palm-shaped island resort complexes etc and forests of new office buildings and apartments etc. What the vast majority don't realize is that the stupendous leverage afforded by derivatives has in addition enabled Dubai to create an immense global empire of businesses, most of the elements of which are broke, having racked up staggering levels of debt. Dubai is the nexus of the derivatives pyramid and it is flat, stony broke.

Where did all the money come from to pay for all these things? - why from taxpayers and pension fund contributors the world over of course, but especially in the US, with Wall St acting as a giant conduit sluicing a torrent of cash into Dubai. The interesting thing is that there was never any accountability - countries and companies vied with each other for the privelege of pumping money into the exalted kingdom, seduced by its supposedly limitless oil wealth, and requesting or requiring guarantees was regarded as impolite. Now that Dubai is broke, the Dubai government has suddenly distanced itself from Dubai World, and the attitude towards the Western banks and governments who have poured trillions into Dubai is "Tough luck - you lose, suckers".

What this means is that trillions of dollars which are now counted as assets on the balance sheets of banks worldwide and especially in the US are actually liabilities. So what do you think is going to happen to the stock prices of these banks - and stockmarkets generally, when the world wakes up and acknowledges this reality - when the shockwave hits?? Small wonder that the charts for Goldman Sachs and J P Morgan look very like the market charts before the '87 crash, but that was "small potatoes" compared to what is coming down the pipe this time.

Introducing Sukuk: Islamic Loophole for Dubai Debt Debacle

Islamic followers can be capitalists too. Although oil prices (currently around $77 per barrel) have fallen from the peak near $150 per barrel in 2008, oil rich nations have gotten creative in how they raise debt-like financing. Critical to fueling the speculative expansion in some oil rich areas has been the growth in sukuk bonds, which have been created as a function of loophole exploitation in Islamic finance principles.

U.S. Does Not Have Monopoly on Debt Driven Greed

The pricked debt bubble that spanned the range of Icelandic banks to Donald Trump (read more) has now spread to Dubai commercial real estate, evidenced by the plastering of recent global headlines. At the center of the storm is Dubai World, a quasi-government owned conglomerate of Dubai, which is in the process of negotiating a $26 billion debt restructuring with the government and sukuk bondholders.

This overleveraged Dubai market ($80 billion in total debt) helped finance the tallest building in the world, largest man-made islands, and a ski-resort based in the desert, in the face of collapsing real estate prices. Critical to Dubai World’s debt restructuring is a $3.5 billion sukuk bond issued by its commercial real estate subsidiary Nakheel Development (“Nakheel”). So what exactly is a sukuk (plural of sakk)?

Investopedia lists the following definition for sukuk:

“An Islamic financial certificate, similar to a bond in Western finance, that complies with Sharia, Islamic religious law. Because the traditional Western interest paying bond structure is not permissible, the issuer of a sukuk sells an investor group the certificate, who then rents it back to the issuer for a predetermined rental fee. The issuer also makes a contractual promise to buy back the bonds at a future date at par value.”

more HERE

PETALING JAYA: The debt payment crisis of conglomerate Dubai World will not adversely affect the Islamic finance industry in Malaysia as it has limited exposure to the sheikhdom’s debt, according to industry observers.

CIMB Islamic Bank Bhd CEO Badlisyah Abdul Ghani said the situation in Dubai was purely a credit issue and applicable for both conventional interest-based and Islamic capital market in the Middle East.

Credit issue was not exclusive to Islamic capital market and the problem Dubai was facing had no bearing on the structure of the sukuk market or its instruments in particular, he said in an email reply to StarBiz.

“What’s happening in Dubai has no impact on Islamic finance in Malaysia as Malaysian Islamic banks are not exposed to the Dubai market, with most concentrating on doing business in Malaysia only or regionally in South-East Asia. If (there is) any, exposure would be extremely insignificant,” he added.

The Malaysian Islamic finance industry, he said, was unparallelled in terms of depth and sophistication and had gone through two major global financial crises with one involving Malaysia directly and emerged practically unscathed both times.

Ernst & Young Advisory Services head of assurance Abdul Rauf Rashid agreed, saying that there was limited direct implication to the local financial industry as not many investors were directly exposed to Dubai or papers issued by organisations from the Gulf Cooperation Council (GCC) countries.

In response to a query, Bank Negara governor Tan Sri Dr Zeti Akhtar Aziz said: “The Malaysian conventional and Islamic banks have limited exposure to Dubai and the recent development has not had an impact on their operations.

“The fundamentals of the banking system remain strong and continue to support the economic recovery process.”

more HERE

While I remain highly suspicious of the wildly gyrating stock market, it is increasingly clear that we are witnessing the honest-to-goodness gold rush we have been forecasting since 2000 (and before. Though nothing goes straight up, and it wouldn't surprise me to see gold retest the $1,000 mark - it increasingly appears that that is the new floor for gold. Personally, the next level I’m looking to is $1,250 as that is roughly equivalent to where the gold stocks went hyperbolic in the gold bull market of the 1970s.

Regardless, with Obama's Reign of Error in full sway, a healthy measure of gold clearly belongs in every portfolio. On that topic, even the New York Times is now getting into the picture, with an article on Friday titled "Inside the Global Gold Frenzy."

While the article provides a lot of supporting commentary about why big and small investors are rushing into gold, a couple of paragraphs struck a cautionary note for me. I think you'll understand why when you read them…

In addition to high anxiety about the future, recent political trends may also be playing a part in the global gold fever. With a crackdown on tax havens worldwide and Swiss bankers handing over the names of wealthy American clients to authorities, some experts say rich people now prefer an investment that can easily be hidden from the prying eyes of tax collectors.

"In Europe, people want physical gold to store themselves, with no documents," said Bernhard Schnellmann, director for precious-metal services at Argor-Heraeus. Often, the company doesn’t know the ultimate destination of the bars it makes, only the identity of the bank in Zurich or London that is handling the order.

As you don't need me to tell you, this is exactly the kind of red meat that politicians like to sink their teeth in when it comes to drafting new regulations designed to corral the income-earning. You can almost hear the brain cells of some bright young congressional aide as he concocts a new bit of legislation to pass across to the boss over a long lunch down at the Grill. At the least, he will propose, gold purchasers/owners should be made to reveal themselves. But maybe they can also be made to pay a special tax of some sort? And if down the road, push comes to shove, a database of who owns the stuff could be very useful in making them hand the stuff over - "in the national interest"?

To which the congressman would lay a fatherly hand on the bright young aide's shoulder and murmur, "Good idea. Why don’t you draft it up?" before giving the waiter the familiar signal for another round to celebrate the moment.

Keep your ear to the ground, as will we.

source HERE

We are living history as I write this article.

Gold is now setting new all-time high prices daily. Since the 28-year high of $850/oz. was eclipsed in March 2008, the gold price has been surging like a kite in a gale.

The bull market in gold has motivated investors to call us every day, with questions such as, “Is it too late to buy gold?” “Should I wait for a lower price?” and, “How high will gold go?”

They are all are good questions. Where do we find good answers?

Today we have a multitude of sophisticated methods and expensive equipment to help us gather information. There are faxes, telephones, computers, charts, research analysts, the Internet and when all else fails, there is always a W.A.G. (wild-ass guess).

Together, my partner and I have nearly 80 years of experience in the precious-metals markets. So you can be certain we do have an opinion. But one thing I have learned is, just when you think you’ve got gold all figured out, it can fool you.

So, not to be fooled, we need a course to follow to analyze this new bull market. And, we need a plan rather than just throwing money at the market.

In ancient times men would use the stars to guide them, get their bearings, and plot a course from one location to another. Then, the compass was invented. Now many of us rely on our helpful Garmin or Tom-Tom lady to guide us, thanks to global positioning satellites (G.P.S.).

We need a G.P.S. for this bull market in gold.

When analyzing the gold market (or any market, for that matter), there are three primary factors to consider:

1. Fundamentals – what are the underlying economic factors;
2. Technicals – what do the charts say; and,
3. Emotions – don’t let your heart overrule your brain.

When it comes to buying and selling, emotion is usually wrong. But listening to your heart is a common mistake. The solution is to think things through ahead of time. By pre-planning, we can eliminate a knee-jerk reaction and negate emotion.

Let us first look at the fundamentals of gold.

The underlying economic factors in play today are not all that different from 1980. Remember monetary growth soaring, unemployment climbing, gold and silver hitting new highs and other signs of an economic malaise?

Then Paul Volker was made Chairman of the Federal Reserve and he slammed on the brakes of monetary expansion. For the next 20 years we were told things were getting better, despite a real estate and stock market meltdown in 1987 and the first Gulf War in 1990. But, were things really getting better?

To make sure the economy was well-lubricated, under Alan Greenspan the Fed shifted gears and, for the next 15 years, oversaw record growth in the money supply. The theme song became “let the good times roll.” And they did, with a boom of monumental proportions.

The old problems under Nixon, Carter, Reagan and Bush 41 were not solved, merely postponed. All of them would rear their ugly heads again in the new millennium.

During the administration of Bush 43 we saw the 9-11 attacks, passage of the Patriot Act, creation of Homeland Security, Gulf War #2 (Afghanistan and Iraq), the subprime lending fiasco and failures in the securities, banking, insurance and automotive industries. Government’s answer was to flood the country with trillions of dollars in bailouts and takeovers. Do you see things getting better yet?

We are now in the eye of a perfect economic storm. There are a multitude of underlying economic factors providing fuel to the current bull market in gold.

Unlike 1980, when gold peaked at $850/oz., it was primarily a U.S. dollar phenomenon. But in 2009 gold moved up against all major currencies – the U.S. dollar, British pound, Swiss franc, Japanese yen, Euros, etc. What we are witnessing is a subtle but definite exodus from fiat currencies.

Rising gold prices and a falling dollar have led many central banks to decrease their dollar exposure. Both China and India, for example, have announced that they have become major purchasers of gold. We expect this trend to continue.

When you look at the fundamentals, things are definitely not getting better for the U.S. dollar.

So what does technical analysis tell us? There is a cardinal rule when it comes to technical analysis or charting:

What has been resistance on the upside, once breached, becomes support on the downside.

The old all-time high for gold was $850/oz., set in January of 1980. That 28-year resistance point was not eclipsed until March 2008. The low from 1980-2008 was $250/oz.

Once gold exceeded $850/oz. in March 2008, it ran, almost non-stop, to a new all-time high of $1,007/oz. It then corrected down to $850/oz. Therefore, to a chartist, $1,007/oz. became the new upside resistance and $850/oz. became the new downside support.

Gold has now decisively broken through the “new” resistance of $1,007. As I write, it is 20% above that old mark. This means that $1,007 is now the support level for this new gold bull.

So after examining the factors, fundamentally and technically, for the current bull gold market, let us ask that question: “Should I buy gold now at record highs, or wait for a dip?”

Here is our G.P.S. on the golden bull. This is not a normal market where you have a surge forward in price followed by a 50% pull back.

In a normal market, dollar-cost averaging (investing the same dollar amount every month, for example) is usually a good technique. You buy less when the price soars and more on dips, but averaging only works when you expect volatility on the upside and weakness to the downside.

But let me say it again, this is not a normal market. When you have a market that is trending up, averaging only guarantees you a higher average price.

What about waiting to buy on that elusive “dip”? That could mean seeing gold march steadily higher to $1,500/oz., then “correcting” to $1,400. It could even mean gold approaching $2,000/oz., then dipping to $1,800. In other words, any dips could occur at much higher levels than we’re seeing today.

Let me give you some other reasons why we believe gold could rise a lot further before we see any significant correction.

1. In constant 1980 dollars, gold should be $2,300/oz. today.
2. Gold is appreciating against all currencies.
3. The U.S. needs foreign capital - lots of it - to fund their debt.
4. We have had a record increase in the money supply.
5. A record $2-3 trillion in bailout money.

The bottom line is that our G.P.S. for gold is saying to buy now. Yes, that’s essentially the same thing we’ve been saying for years as gold has marched from under $250 to over $1,000. We were right then and we expect to be proven right again.

Glen O. Kirsch
Executive Vice President

source HERE

I don’t believe most investors understand the significance of the possibility that the March to October rally was an upward correction in a bear market. The majority of analysts believe that the advance that started from the March lows represented the beginning of a new bull market. I disagree, and I’ve explained in detail why I do not believe March marked the start of a new bull market.

For the sake of argument, let’s just assume that I’m right and that what we’ve seen since March was a bear market rally. If that’s true, we’re in a very dangerous situation. It appears to me that the rally is in the process of topping out. Again, let’s assume that we’ve been in a bear market rally. If the rally is indeed topping out, then the stock market will soon be again in the grip of the bear.

The rally ran from March to October, a period of seven months. In other words, the bear market has been “held back” for a period of over half a year. My thinking is that the bear is “angry” at being held back, and it will probably want to make up for lost time in the period ahead. From everything I see, hear or read, I gather that almost everybody believes the March lows are safe, that they will not be violated, no matter what.

However, if the bear market rally is now in the process of breaking up, my thought is that stocks could decline very rapidly, much faster than most people are prepared for. If late-coming traders suspect that the rally is over, we could see a frenzy to get out of this market. This along with a panic from pros who want to get out with what profits are left.

source HERE

• Will 2010 be a 1930 or, comparable to 1937? Is it different this time? When one nation state of a formerly high productive stature destroys itself with inflation, the untouched others can soften the blow and in time bail out the fallen one. This was Germany's fate in the 1920's. In our current instance, most all of the world's economies are on their knees with some hurting worse than others. Who can help with recovery this time? There is no one. It will not be China as some suppose as China shall suffer the same systemic collapse as the U.S, and all of Europe, Russia, and South America. China's neighbors Japan, Taiwan, Korea, India, Indonesia and others will join the fallen.
  
• Japan is in the worst shape with public debt versus GDP now standing at 270%. With an aging population and not nearly enough young workers entering their workplace, deflation arrived again and the Nikkei Stock Market is taking big hits. The U.S. and Europe except for the U.K have 125% of debt versus GDP with the U.K's at 105%. (Source for percentages Societe Generale).
• Stocks are peaky and will shorter term correct. We think the nearby correction will be mild and new buying can return in January, 2010 continuing through spring, 2010. The Dow could easily find an 8850 base and then return to a new rally. The S&P's might base at 950. Meanwhile, we could experience an 11-12% Dow and S&P haircut.
• Depressions normally and historically last ten years. It could take consumers that long to pay down all of their debts before a return to normal conditions. Savings rates are up but with so much debt and few or zero salary raises in the face of new and rabid inflation, consumers will be economically slaughtered.
• The bond market is so huge it takes time for it to roll over and slide off a cliff. Asia and the U.S Federal Reserve have been our larger paper buyers. While they still buy some to keep markets glued together they are: (1) exiting the longer term paper for shorter terms and, (2) buying less of it turning to other ideas in the commodity markets.
• China is in very serious trouble as the U.S. consumers have stopped buying their stuff. Their TARP for early this year exceeded that of the United States in both amount and rapidity of spending. It is estimated they spent in four months from January, 2009 to May, roughly $600 Billion with most of it going into projects now at over-capacity. The U.S.' lack of buying cut China's entire year of exports by -25%. Also, note the Chinese economy is 1/4th the size of the United States' economy.
• There are hundreds of idle Chinese factories and millions of laid-off workers with no new factory employment and not much work of any kind. Further, millions sold subsistence farms to work in the city. Now that work is gone and so are the farms that would have fed them. Watch for a slow motion or, faster collapse of China with a descent into riots and other social problems in 2010. China need 24mm new jobs each year just to stay even and are remain far behind that job generation power curve; never mind new job growth gains.
• Fund managers and traders are not married to markets and move to ideas that produce. Gold and silver shares can top and correct in the near term but then take-off in new 2010 rallies. Bigger funds have invested in long-only commodities baskets including gold, silver, grain, copper, platinum and others. They regularly buy the whole cycle from Labor Day to May, endure the dips and trade on 50 and 200 day averages. With a falling dollar these managers forecast stronger gains in these markets. December gold futures were trading near $1,200 this morning of December 1. We see a near-term mild correction followed by more buying.