China 2010.09.02 The news of China moves the market. The market is entering an irrational phase that it could be the beginning of a serious bear market crash or the last phase of a bull rally. Or it could be the combination of both (bull then bear as part of the bear market correction) to make the situation danger. This is the microeconomic view. From the macroeconomic view, the fog of war shrouds the growth engine or engines of the world. There is no question that BRIC countries combined together have the potential to replace American as the world's biggest economy but cannot replace American as the world's biggest consumer market. So if the BRIC grows at a pace faster or greater than the American's shrinking, the world's demand on material will grow. This is the key for the future trend of commodities. Unfortunately, economists have not get used to the American centric analyst which leading to inaccurate results. With export to the West continues to decline during the coming years, the world's economy's growth has to lie on the internal consumption. This is the development of the consumer market of the BRIC countries. We observe, subjectively, that the living standard has been improved. While the income average is only a meager fraction of the West but the population size makes up to a certain extend and it remains climbing by the fact that exporting deflation is not one of the major export fro the BRIC. The following is quoted from the newsbite from ASPO-USA today:

"China continues to grow. China’s manufacturing increased modestly in August after several months of contraction as the government implemented measures to rein in credit and slow housing speculation. Beijing also announced that passenger car sales rose 59 percent in August over 2009. While there is still trouble ahead, particularly the likely slowing of exports to the US, China’s GDP is still expected to grow by about 9 percent for the rest of 2010 and 2011.

"India reported this week that its economy grew by 8.8 percent in the 2nd quarter as compared to last year. The New Delhi is trying to increase this to 10 percent. It seems clear that increasing demand for oil from Asia will be with us for a while. "

The newsbite shows the consumer market is continue to grow in a very rapid pace. Again, this rapid pace in percentage is not necessary the long term view because of the small base of reference. But the increasing volume (absolute) is what we watch out.

2010.08.16 The EOD gold price has broken above 50MA which is above 200MA. The P&F chart shows the completion of bottom H&S and challenges the resistance at U$1,227. If break through, gold will have a stampede run.

2010.08.14 The world's largest economy, American economy, has been considered as the focus and centre of changes. This a wrong concept and will lead to wrong analysis. On paper American remains the biggest but not necessary the strongest. First the internal is not good because of high debt to GDP ratio. Second, the saving rate for people is low that would not able to pay down of the citizen debt fast (i.e. consumer demand will be moderate). The government continue to use Keynesian economy to manage the government budget could lead to catastrophic failure like the Weimar Inflation or the Japanese Deflation or British High Tax System. It is also wrong to completely discounting the influence of this huge body of economy. There are still considerable demands and productivities. However, the ratio of American to BRIC will significantly reduce in the coming years. It is also wrong to isolate each BRIC country as individual and using each individual to compare with American economy. Analysis should use BRIC as whole. There are a few reasons to do that. They have similar growth model: looks overheated but pretty much government controlled. They have the same demand model: people's quality of life continues to climb which stimulates significant consumer products at different price points. To support the improvement of quality of life will mean more demand on infrastructure built out. Singapore has been a road model of such kind of development. It does not have any natural resources but found an edge on financial centre which improved the quality of life of people. As the result, mass built-out of affordable cost housing, communication network, education facilities and road system led to more business to Singapore. BRIC countries have similar economy composition. All of them have agriculture which is the basic necessity. They have expanded beyond that to manufacturing industry to service industry to high tech industry to finance industry. One step at a time, their growth is helped out by the American's global companies which would like to milk cheap labour from BRIC. At the end, the know-how is passed on to BRIC and the BRIC started to home grown industry. It is very different from the 20th Century when this Economic Empire took strong hold on some country, the country will be under their thumbs and never have a chance to struggle free. It is not necessary the failure of the Gun and Rose policy. People are getting more knowledgeable and understand the true intention of these American global companies (or any global companies). Cisco has a dire outlook and forecast weaker revenue. If you look at Huawei it tells a different story. The weakness seen by Cisco is the also seen by Huawei. But the market share of Cisco is losing to Huawei (revenue grows from U$7B in 2005 to U$22B in 2009, 33% CAGR). Other than Cisco and Huawei, we also see Google and Baidu.

 There is no explicit solution for the equation of economy. We can only use guess work to calculate the values. Use BRIC as a single entity, we can conclude a better world economy despite the dire outlook of the West. The day that American is the major economic factor may be passé.

2010.08.11 USD jumped 200 bps. The market is not flooded with money so shell game is played; money has to cover the U$ short from somewhere and somewhere is commodities. A characteristic of a very small number of players and very thin trade. Is this a turning point? The factor is determined by what the Fed going to do with the U$. In 2008, Fed used commodities' fall to rescue U$. The method is force people to sell commodities after Lehmann Brothers' asset was frozen. At a very narrow window, clients of Lehmann Brothers had to sell the asset to pay redemption. The dumping is at any price. The result created a black hole of commodity price. Can Fed pull the same trick again? If so, another bank has to fold. This bank must have a tremendous number of client holding commodities. The only candidate that fits the bill will be Goldman Sachs. This possibility will be very low. So the chance to repeat the history could be slim but not impossible.

2010.08.10 While gold got hammered the OBV of UGSI has encouraging development. It has a lift off above the 200MA. Although the CGSI is just as lucky. So we have the case that the price and OBV are both rise above the 200MA. Therefore, we may see the gold stocks moving higher.

2010.08.04 A new twist for the gold and U$. While USD rose 0.5% gold rose 0.8%. Gold does not back down. The reason USD rises has to be related to the Euro and GBP. Both are the heavy weighted currency in the USD basket. As the result, even U$ is not strong, USD is being involuntarily jacked up relatively. U$ is not up. This could be the reason why gold gain 0.8%. As time go by, using USD to gauge the direction of gold will not valid during this match of competitive devaluation. Commodities such as base metal are not rising as quoted. However, if we look at Dr. Copper, it is on track to the old high U$3.60. In fact all base metals have the price cross over the 50MA and 200MA with 50MA up stiffly when 200MA start to level or turn. Judging from the daily change may be delusional.

2010.08.02 The USD is not looking good. Today, it crosses below the 200MA. With the 50MA falling, it is a very strong signal for a downward trend. This is also confirming a triple top without break up pattern; it is another way to say a top is put in. With this strong signal, the US equity market would be a inflation rally if there is such a possibility. The Dow loses almost 38 points with a confirmed peak (sell) indicator. This becomes a very negative picture for the American financial market. With such a weak U$, we should consider a high gold. Gold only rose a few U$ today. What does it mean? It shows U$ is weaker in comparison with other currency. This is for sure. By why gold does not climb higher? We may find the answer in oil. WTI rose U$1 to U$82.42. So a weak U$ reflects stronger commodities but not all commodities. Most of the base metals are down too. Platinum is down U$20 or 1.3%. Precious metals and base metals are weaken. This is a sign of topping; deflation or not.

2010.08.01 This is the middle of the summer. By the old adage, we should sell in May and go away. There were some exciting news that push fertilizer stocks up significantly. There is some news on the falling of iron ore and followed by the metallic coal prices. TSX is down by 100 points. Dow made the June low and confirmed a bull signal in July. This means there were buying opportunities in the middle of the summer. It can not be said that the opportunity is over but the bottom may be missed. During the first 3 quarter of the 20th Century, the summer vacation developed during the 19th Century carried forward. As the market globalized and the rhythm of trade runs around the world, summer vacation tradition remains but action goes on. There may be less big deals but nonetheless there are deals. As time goes on, the summer rhythm will be just as active. From now, where the market will be under the inflationary pressure of resources (all peaked) but the falling of the Western GDP? The BRIC is definitely marching on without question and they will take the first (China), second (India) and Third (Brazil or Russia) places and replace American, Germany and Japan. This will happen perhaps within next 5 years. It was only 3 years after China to replace Germany as the 3rd biggest economy to replace Japan as the 2nd. The GDP growth rate of India is leveling with China at the tune of 10%. American does not want to fall but the deflationary pressure of debt will definitely does not help to keep her position. So the change of guard will happen but the big question is will the world GDP decline. This is a topic that has not been visibly debated. The gap will be there. The dimple will be shown. This is why all the pressure on the commodities prices other than speculation. What we have to think hard and fast is how big is the dimple. So far the deceleration of the Western economy is low but this could change as soon as the debt increase by the QE2 and the value of USD decline. The import heavy (for resources and low prices merchandises) will force the American to go to a form of Great Depression II. In the modern days, this Great Depression II will not be measured easily due to the mobility of people. The lower echelon already suffer. The higher echelon does not have to stay at American and earn their living in America all the time. There is not necessary to do that nowadays. At the end, the dimple may not be reflected correctly. Yet the mortgage default and bankruptcy rate rally will signal this Great Depression II. Since the Wall Street banks hold up the zero cost money from Fed to shore up their balance sheet and none flows to the regional banks which bankrupt at an alarming (approaching 150+ per year), it should not be any improvement of the state government's balance sheet. The next big thing will be the bankruptcy of the state government as correctly pointed out by many economist. This time the impact will be much bigger than the fall of the British Empire because American population is much large than the British Isles. So what does this mean to those international America registered companies such as Intel or Microsoft. The U.S. government will do their best to keep them maintain their shell HeadQuarter in America but as we know most of the R&D centres are all over the world. There is not really inflow of money back to the mother ship. The price of the companies are actually going to fall if they cannot restoring their price power due to the technical competency decline and failing the use of Economic Imperialism to buy out developing world's competitors. We should take a look at the Royal Dutch Shell as an example. While the oil price continue to rise, its share price continue to fall. GE has raised the dividend only after a dramatically shock to share holder that it cut dividend last year. We see on cockroach. The day of Guns and Roses are gone. Be careful of so called global investing strategy which means investing in American companies with oversea factory. We may not see a inflationary American stock market rally.  

2010.07.25 The TSX S&P Index is definitely overbought as indicated by the steep OBV.  If there is any inflation, there may be more buying and holding. When there is buying and holding, the supply of stock in the market is becoming scarce. So it is not necessary rally is supported by high volume. When rally is supported by high volume is either short covering or panic buy. Both are not healthy indicators. Now we should debate on whether inflation will push the value of the equity which will drive up the price. It is wrong to assume the inflation will drive up the equity price in discriminately. When the product of a company has the pricing power, the inflation will pass on to the customer so the profit margin of the company could be protected. If the company loses it pricing power, for example due to vicious competition, the profit margin will not be pushed up. The value of the company may go up due to the inflation of the asset held. This is again go back to the factors that equity's value is based on. GE is a good example that its assets are world class. But the share price does not go anywhere in the last 10 years. Why? Because the rise of the BRIC which is emerged from lost price product manufacturing to high tech. Bell weathered company such as Coca Cola grows through competitors destruction does not work any more when BRIC set up the fair competition rules that do not dominated by the American Economic Empire. Analysis in the market is traditionally tied to first level of observations which manipulated by media. If you can control the media, you can control the company report. The actual fact is lying 3 or 4 layer below which Don Coxe calls the 16th page news. Why now the professional analysts have difficulty because they are not trained to analyze fact 3 or 4 level deep. This is why retail investor are in a very difficult position if they could not do their homework. This is why you cannot just buy and hold using the first level fact. You still can do that using much deeper levels of fact because this is the reason why you hold and wait for the growth opportunities.

2010.07.11 Day to day, we do our business (real or virtual) using money. We put away our salary, saving etc mostly in our bank (piggy or not). It is not surprise to me that common people see money equate the wealth. But it comes to me as a major shock that analyst and economist see money is wealth. This is saying weight is equal to mass in physics. They are related closely but not exactly the same because money is the projection of wealth. The real McCoy could not be mixed up with its shadow. Who studies economy understand the world could not develop efficiently without money which is an exchange rate (when tangible becomes the exchange medium) between goods (including arts and human life). Along that line, when did the economist and analyst forget the fundamental of economic and started to say money is wealth? The money system (use of money for trading) creates a systematic, measurable, and descriptive way to do transaction within a circle of influence (the same money system). (Note: The EU as many pointed out now that, is a number of circle of influence bond together by political whip.) Beyond the same money system, the recursive function (defining the rate of exchange is now not for object but between currencies) repeats itself. When the bank note issuer say the money is backed by something, it is a security system put in place to ensure the integrity of transaction during the lifetime of the transaction. When this integrity falls apart you will have a currency that changes its stability (exchange rate of objects) volatily fluctuates that makes the transaction's integrity jeopardized because you are not sure what is needed to complete the transaction. This has been observed by many economist that volatile foreign exchange rate (not necessary getting higher or lower) will kill international trade because the planning becomes extreme difficult. Does money really needed gold or some stable backing? The question should be divided into two parts: stable backing and whether gold is a good candidate to back money. If promise could be enforce, promise could be. The trouble with promise is that it could be fabricated. It is not necessary to be gold, anything that could not be created out of thin air can do. In fact, many new founded countries do not have any hard asset backing their currency before they were formed by need a currency for political or practical reason are simply backing the currency with trust. There is nothing wrong with trust until it evaporates. If we drill deeper on the fact that people complain about non-gold backed currency suffered from inflation. This simply not true. Materials are consumed. It is getting more scarce. So supply is reducing. The law of elasticity can tell us that the life is getting harder because we have to pay more from from a smaller pool which means lower supply and higher or unchanged demand. In a closed reference system, e.g. a country, the demand will not be the same because the population and the distribution of wealth will change. It is always the government's intention to grow the salary which means more tax revenue to pay the devaluated treasury. If we accept that, we also have to agree on the fact that the level of economic progress around the world are not even. Some will be lagged and some will be more advanced. When the advanced moves slower, they may not reduce the consumption but the lagged may increase the pace. As the result, we are witness the increase in demand. Consider the population at the beginning of the 20th Century, according to Vaughns-1-pages.com (http://www.vaughns-1-pagers.com/history/world-population-growth.htm), the world population was 1.6B. At the end of 20th Century, the population is 6.1B. A growth of roughly 4 times. This could push the price by a factor of more than 10 folds using the famous hyperfolic supply and demand curve. We should also observe that the growth rate at Asian is about 4.5 times of the West. This menas the Asian's demand on material will exceed 4.5 times because Asian was lived in a much lower living standard than the West. The West has been living on what the Est could not afford. When the table is turned, the purchasing value of a U$ reduces to a penny is not surprising.

 2010.07.08 After the new high U$1,266 on June 21, gold has gone done quit a bit to the current U$1,190 level. There is a different about U$80 dollars. This is a big drop in absolute dollar value. Is gold enter a severe correction? The following table shows the inflexion points of gold prices. What we see here is the gain is greater than the lost. One should pay attention the gain or lost is getting narrow. This is what we should watch out. This is either a base formation or a top out.

2010.06.28 U$ may be fiat and back up by no hard asset. So does currencies around the world. The Fed's balance sheet is weak but the gun will keep it going without any bankruptcy. Higher interest rate may be paid for the auction of bills and bonds but the interest rate are coming out of thin air. The people's pockets are also deep. The bottom line is the gun and the economic imperial empire will keep the U$ going. Other countries will love to have a currency stronger than theirs. The following charts (complement of stockcharts.com) shows a bowl pattern. The weekly chart shows much better than the daily chart that USD is just continuously high above the 50 and 200 period MA. The P&F shows bullish pattern. Will technical win this time over fundamental?

The following complement charts from bigcharts.com shows a very huge base for the U$. Will this mean a recovery of U$?

2010.06.27 RMB is floating again. China resumes to use the reference basket of money to evaluate the RMB. There could be a wild card on what is in the basket down the road. The current components consist of fiat currencies. In the future, there is a very high possibility to fortifying it with precious metals. The objective of adding precious metals is not to harden RMB which is hard enough but to stabilizing the world economy. By adding gold in to the money basket, it could be the beginning of gold standard again. Rather than back RMB by gold fully, which means China has to buy up gold held by the rest of the world which basically drives RMB and gold to the sky. This high value RMB and gold is no good to anybody. However, the present of gold in the money basket could stabilizing the value of RMB which reduces the volatility. This will be the key success to import and export planning. One could ask how will gold stabilize the value of RMB. It is by using weighed factors. Gold  could be heavily weighted but not backed. There is no need to have any physical gold involved because it is not backing the currency. But how could the gold tie to the RMB? This will be coming from the IMF's withdrawing right. Yes, there will be reform in IMF and it will happen in not too far future. Another way to stabilizing RMB is to create a synthetic future contract for the RMB to avoid it runaway. This future contract is the RMB denominated bond. The issuing of RMB bond has already begun. The RMB bond is purchased now using the RMB current value. When it is matured, if there is no roll over (it may be as doubtful as can be) the bond could be converted back to other currencies which is selling RMB. This is what happens to the U$ which was shorted by borrowing U$ for other currency. When expatriated, the U$ rally. Why RMB would not be pushed higher when the bond mature? I strongly believe it is not China's intention to become the first top two world settlement currencies. By holding the third position and leave the top to U$ and German mark, the expatriation could be reduced yet, there is influence in the world trade stage. In the Far East, the ASEAN (Association of South East Asian Nation) will continue to trade using the RMB to a greater extend but it remains in the family. The trade and the exchange is being closely managed by China. The runaway risk will be reduced to minimal. As the result, China uses ASEAN to take on the low price manufacturing while she took up the role of high price (high tech and big ticket items such as automobile), China controls the quality of trade and enjoy the import of deflation from the ASEAN and West while manages the appreciation of RMB within a reasonable rate.

2010.06.21 The “unpegging” of RMB to U$ was over exaggerated and completely blown out of proportion by many entertainysts. The statement from China says limited floating, not completely free float. According to PBOC, the change is needed as the balance of payment is reaching equilibrium. This confirm the view point of currency volatility risk. The spokesperson also says “"With the BOP account moving closer to equilibrium, the basis for large-scale appreciation of the RMB exchange rate does not exist," ” It is imperative that the unpeg does not mean a good thing for the American. When China started to peg, she did it to protect the export from the volatility of the currency movement. Any volatility in currency is japerdy to import/export trade because of the currency risk. It does not really just to keep the RMB low for export. Whether the RMB is really low to stimulate export is one way to see it but this also implies less U$ to be received. You are talking about giving up profit. We see how bad it could be when the Chinese low cost/profit margin manufacturing collapse due to the margin vapourized during the 2007-2009 world economic crisis. When there is no pegging, one should also consider the two ways street scenario. With such powerful currency control and huge FX reserve, the RMB could be driven down. How, sell RMB in contract in directly through bonds. When bonds are matured, the money in RMB will be converted back to other currencies. This is happening and happening fast. Today, when the reallity of unpeg sinks in, the American stock market is less enthusiastic, the commodities market almost tanked. This is a true reflection.

2010.06.21 Copper has dropped from its recent high of U$3.68 to the current level of just under U$3.00 this morning. This is a drop of over 20%. Copper being haled as the Dr. of economic and a trial and true indicator of the status of the economy. Does it reflect the past, present or future. If it is in future, how far is it in the future and is it a fixed or variable case of case? If the indicator is for the past, it does not help our investment too much. History is water under the bridge. Present and future is more interesting to us. If it is present it has the value of showing the true picture so that we can react properly if it contrast to the market's superficial view. If it is for the future, the important question will be how far in the future? Is the range change case by case or even in very case? If it even changes in one single case, it is not a very used indicator even it is very accurate. A study for the range of fluctuation for copper's interday high and low within 40 trading days over a one year period shows a range of U$0.50 to U$0.90. If this is the fluctuation we are looking at, the drop from U$3.68 to current level is just somewhere in the chaos of fluctuation. By taking into account of 200MA, copper is not in good shape. However, could it be a very wide trading range we are looking at? The fall of 20% is not necessary the right threshold? The copper price was 10% below the 200MA last week. Today, it is 5% below. This is a strong momentum movement which also confirmed by the rising of OBV. In conclusion, the copper indicator reading may be more complicated than just reading its up or down in a very short term.

2010.06.07 USD has peaked above 88 and the momentum shows a possibility to break 89. The more such the threat the more short covering or short term investment preference despite the long term dire outlook of the USD. At the same time, commodities are not getting cheaper. In any short period of time, commodities may be corrected in various ways but the average trends are not really falling due to the continuous recognition of limited reserve. What happen to some "strong" currency such as U$? There is inflation plus implosion of the economy; a very difficult situation to get out. The export is heavily impaired by the fluctuation and high value of the currency that will cut down the competiveness and deteriorate signing of deals. If any deal is done, the currency risk has to be hedged which increases the cost. Although the American economy is down turning, the inter-relationship of world economy will not benefit and to some degree affected. However, the change of leader has been obviously shifted to the BRIC. But the BRIC is not mature enough to lead yet. There will be some gap of confusion until the BRIC can have a clear grip like the West after the Second World War. A period of 10 years may need to reach the equilibrium which may be the run of this Kondratieff winter.

2010.06.02 Bull and bear is not just the name of an English pub. It is the polarity of the stock market, commodity market and bond market. So they say. They also say that in a bull market everything rises like the rubber ducky in a bath tub filling up with water. They also emphasis that in a bear market, everyone loss. The winner is who loses least. To some surprise, some claims that we are in a bear market but there is a gold bull market. Is it talking with the both sides of the mouth? We do not know. Is it possible that some asset class will rise during a bear market? With the margin clerk running at overdrive, this may not be possible. But it may be possible for a very small number of equity can do that. The most frequently quoted is Homestead which rose to the tune of 60 times from the lowest low. This Homestead was a gold producer. Deflation killed all the cost to make the production so cheap the profit margin is very high. The need for the wealth storage pushed the demand of the wealthy to the top. So there is possible but one has to be very lucky.

2010.05.24 Some analysts interpret Reuter's CRB Index that the world is heading towards deflation because the index is heading down. The following is a CRB's monthly chart (complement of Moore Research Center, Inc http://www.mrci.com/).

There is a major pullback in the year of 2008 follows by a rise that peak at the end of 2009. How accurate is this interpretation? Without a question, the index indicates a short price deflation. There is a major characteristic that has not be take into account. Price spikes due to seasonal event. In general it is a much smoother change. Any spiking is just speculative action. So by smooth out the recent volatile action, we see a much rapid rise in commodity price. But it may be too early to say this is the scenario. If we look at the CRB after 1980 the deflation is obvious until 2001. We may be witness the beginning of another deflation starting 2009. If we count the change since 2001up to now, we are still seeing 150+% inflation. If we try to collate the price oil to retail gasoline price, good luck. We have seen the peak of gasoline and fall but not falling that much and even the price of oil pulled back meaningfully but not the gasoline. If the transportation and fuel cost rises, you could pretty much bet that the food and energy bill go up.

2010.05.23 Greek's debt is visible because it borrows money (in terms of actual loan from IMF) and selling bond. For such a small country it triggers a rescue package at U$1T level. Although not all of it will be given to Greek but it compares to the world's largest economy, United States. However, the debt of American is almost invisible. People only sees the fiscal imbalance. The tradition of bond auction disguises the loan. Traditionally government auction bond to minimize cost but the loan will be repaid at the end of the period. It is like financing the operating capital of a company through the revolving door line of credit with a floating rate. Once you stopped the revolving door, the debt will accumulate like a snow ball. So there is a strange but pressing question why American still spends billions of dollar for the military and performs so called 'world police duty'? Literally, reducing the military budget will help to shrink the deficit. On the other than the military budget provides employment, maintain a huge portion of the GDP and export. So there is the vicious circle.

2010.05.13 Panic started to simmer in the markets. There was panic but people are back to complacency and then panic again. The Europe is using debt to fight debt. This old formulae never failure but has major major consequence. Consumption can be in two forms: spending of the people and war. Europe has part of it spending but not war. American does both. The damage is far severe. With debt, it creates a hole that when filled up, you lost the sovereignty of the country for a long time. During the Great Depression, American Government used all kinds of debt to restore the country. Without that the vicious circle did not break. It is true that debt will damage but you have a chance to dig yourself out. Only if you are under water with liability more than asset then you may not get out. You need the debt as the bridge funding to survive. Without the bridge funding you cannot win back the future to level of debt. Japan may be in a depression but people are living not in poverty. House may be expensive but some people can own house. Japanese Yen may be high but the high quality products can bring in revenue. It is totally different from the PIIGS. American are losing the resources because they owned by the economic empire not the country. Is Europe in big trouble? It is but not as bad as all the loan lent out by France and German are defaulted. As long as the loan is not defaulted, the balance sheet does not have to write off the loan. So the volatility should not be there if there is no market makers. The market makers play with the fear and euphoric of retail investor to squeeze them dry. The market goes up they win. The market goes down they win. They have long and short for long and short term. The market does not have to fall significantly because someone from the East will play the same game with these market makers. The only way retail investors to win this war is to understand the demand of the world. Even U$ could be the store of the money by political pressure. It does not have to be gold. U$ has done that over a century. It still can play such game as long as the economic imperial empire in favour of the American. It seems the shift to the East or North will happen sooner than expected.

2010.05.06 Without a question, the market is in big trouble. It is not just only the debt of PIIGS anymore. There are confusion on the commodities demands, bond yields, BRIC GDP growth and stability of the U$ and the American economy. People may have been betting the wrong horse. When they find the horse is not the one that they expect, after the one wanted out of the stable that causes panic. If we stand at 10,000 feet, there is a slight different this time than the crash of 2008 and 2009. So far, gold has not been dumped and gold stocks are not falling in sympathy with the market. In fact gold stocks are strong, no relatively but absolutely. To ensure a better interpretation of this situation, we have to take the situation in a broader spectrum. Copper has a correction of 20 percent with all the tell tail signs of a lower copper demand. Oil is close to 15%. Copper’s correction is triggered by the worry of slow or negative growth in China as the Shanghai Expo project is finishing up. You cannot expect the demand maintained a high all seasons. Oil’s fall is due to the demand temporarily clogged by the reduced activity in the aviation industry. Both could be resolved in short time. Gold’s strong performance signals a non-deflationary future. By combining the QE goes with the debt, inflation is not a question of will but when. Today, the market has reached some level of capitulation. It may need a few more such days to hit the bottom. Updated: At the end of the day, Dow Industrial dipped 1,000 point and rose 653 to close by down 347. There is some capitulation driven by energy sector. Next few days will be interesting.

2010.05.06 We may want to ask the question does it really Greek debt trigger this May correction? It is an obvious conclusion to draw based on the circumstantial evidence. Taking away the panic on financial, debt is deflationary for disposable income. It is also inflationary relative to the other currencies. The higher the currencies the more financial and political stability of the country. No strong currency exists without strong export and government with a highly secured society. In the case of PIIGS, their financial factors of the equation is weak. Import is high. GDP is low. These are not the ingredients of strong currency. The import dependency will be the other blade of a two blade sword. U$ is also facing the similar difficulties. Even we have the deflationary factor, the inflationary factor will spread the wild fire of inflation. Zimbabwe is the best example. She has heavy debt and almost no export but the inflation is at hundred percent per month. If it is deflationary, the price of wealth storage will rise. So the stock market, commodities and precious metals will rise. There is also another major ingredient that amplify the effect which is the BRIC factor. While the west is highly debt laden, the BRIC countries are not. They have strong export, relatively stable political and social structure. This contributes to a inflationary side of the equation. China and Australia took the lead to cool down the economy before it is overheated. China's continuous constructively increase bank reserve will create much better heavy banking system than what can be done by a bunch of Wall Street politician to the Wall Street. Whenever there is action, there is reaction. By raising the reserve in China and tax in Australia trigger the selling. This correction may not be driven by the PIIGS factor but it helps. The really reason could very possibly by the temporary removing money off the table. To confirm that we have to watch two things. The first is the continuous healthy manageable GDP growth with a slow increase in interest rate. Even moderate interest rate hike will accelerate the collapse of the PIIGS (by extension the Euroland) economy. One may argue the bond market demand higher interest rate. However, if the economy collapse even the bond market has to suffer. So the correction is needed for the runaway bull market. So far, the selling is amplified by the action of the margin clerk. We could not have a firm reading on the true direction. As usual, wealth is destroy along the way. How much to correct or will it replay the Great Depression market? It is still too early to say. One major difference between now and then is the missing of a group of huge sovereign wealth funds which long for asset. These funds are smart and patience. Time is on their side.

2010.05.05 USD Index surges from the brink of falling below 80 to a whopping 84+ in a few days after EU promises to bail out Greek. It is the bell tolling that let people aware of the PIIGS danger of contagion is real and now. Euro will be dragged down despite Germany's steady economy. Steady is not good enough. EU even wants to talk away the rating agencies down grade of any other countries in the future by threatening to replace these rating agencies' country rating function by a government agency. This is to say if private rating agencies do not follow the lead of EU, a puppet rating agency will replace their function. This threat is not just empty but ironic. A liar replaces another liar. For this reason, the money has to flee Euro to other currencies. Australian dollar is stable, Canadian dollar is table, New Zealand dollar is stable but not Japanese yen, British pound and U$. Among the last three, U$ is the less of all evil and it is highly liquid rather than first 3. U$ becomes the choice of emergency exit for now. When U$ rises, it upsets the balance of market and the margin clerks have to work overtime. Commodities and equity have risen significantly so they are the first one to hit. However, there is already signs of slowing down the dumping. In a week, the smoke will be thinner, the money will find a home. We shall see the true home of the money next week.

2010.05.03 Australia government does not only see her economy recover fast but also sees the opportunity to fix the pension underfunding by levy a very heavy 40% tax on the natural resources companies. Without question, this is a rush decision which does not only provoke giants such as BHP Billiton, Rio Tinto and Xstrata but also Canada (e.g. Ventura and Teck) but the most important one China. China's FX fund has no place to go but natural resources around the world. For the recent years, she took over many small and medium resources company not just in Australia but also in Canada, in South America, Middle East and Africa. But the most important and strategic area must be Australia because of low hanging fruits. The Australia action could meet with equal reaction which could cripple her plan. It is just like Alberta's oilsand royalty regime that created tremendous opposition, capital withdrawn and development shutdown. At the end, Alberta government has tone down the royalty regime. As the result, natural resources stock were hampered badly today and could continue for a while until the details are revealed. Then the swing will continue. The market's fear is the cockroach effect. One country could levy heavy tax on natural resources, other could follows. If any country could stand up and guarantee no such action in the future, the hot money will pour to that country. Will American and Canada follow? There may be some possibility but Canadian Harper government may be wiser. Obama government may be refrained to do so because this is the opposite of Quantitative Easing by raising any tax which is deflationary.

2010.05.03 While everyone is worry and biting nails on whether Greek will have the bail out money, there is a side story that did not catch the attention of many. Don Coxe has been identified Greeks' financial problem is only the canary of many sovereignty debts. It is not just PIIGS. How does it play out will have a profound impact on the world's financial world. Guild Investment published a commentary that the debt default could trigger a 10% market correction around the world. Therefore, it is many country's interest to put a soft cushion for the default. According to a INK Report on April 26, 2010,China is going to give a lending hand to Greek. "the stakes are extremely high for China and other countries to get the Greek situation under control. So it is not a big surprise that over the weekend People’s Bank of China Deputy Governor Yi Gang said that China was “part of the force” helping to stabilize the Greek situation according to Bloomberg news". The bad news is that the problem is much bigger and the good news is that China will be part of fire brigade.

 2010.04.028 PIIGS is not coined yesterday. These five EU countries have a history of economic struggle decades. Most probably, the Olympic Games at Barcelona and Athens did not improve the countries' economy and might be worsen it. A lot of debate held around the eligibility to remain in the EU as a member whose debt to GDP ratio should be kept below 6% while PIIGS are near or at double digit. Standard and Poor and Moody credit rating agencies cannot ignore these facts in conjunction with the industry hardship in these countries caused by the financial melt down with or without any IMF help. At a very close brink of IMF provides a package to bail out Greek the credit rating agencies down grades Greek to junk bond level. This is the repeat of history when Bearsterns, Lehmann Brothers and others failed. What the effect is to create a short covering opportunities who knows the 100% sure fact that will lead to a lower rating but has not announced. The institutes will not be that ignorant and complacent to do nothing. Rather synthetic short such as CDO from Goldman is created to benefit the situation. If all these are foreseeable where is the panic coming from ? The answer is retail investor with the help of flash trading and high frequency trader program that accelerates the market movement to ensure the world is under their thumb. There is an interesting article by Ellen Brown on these type of trading, Computerized Front Running and Financial Fraud, How a Computer Program Designed to Save the Free Market Turned Into a Monster by Ellen Brown, 2010.04.21. There will be a period of panic ranging from days to months coming as PIIGS countries come clean one by one.

 2010.04.023 Mystery of Greek's debt financier is solved. The bond market is not the white knight. Greek has to get the support funding from IMF. Or IMF does not allow Greek to fall so that its balance sheet and EU's balance sheet looks bad. Debt on top of debt. The situation is too much in parallel with the post WWI Germany. The pressure cooker is at its top limit.

 2010.04.022 The market has been in a strange mode. It discounted the fact that Greek had more debt than disclosed before. More strange, Greek does not go for EU or IMF but to the bond market which may provide some interest since last bond offering. If the world is going to collapse and these bond becomes junk bond, the sophisticated bond market should not take it. On top of all these the Irish debt is mounting. When the rest of PIIGS come clean, the whole southern Europe become the belt of debt except France. This become a tremendous opportunity for Russia to penetrate and control these long desired countries. But if the bond market does not help out but holds on to the presumably U$, its inflation rate will definitely higher than the 0.25% it pays, then the bond money will have to find a parking lot. The world economy is not recovering evenly. The East and South (Africa and Australia and Brazil) is better than the America and Northern Europe. With the threat of volcano ash that could hinder the traveling in next few years, the tourist industry is tarnished. Right at this time, better and better economic news are coming from the BRIC. If you look at I00 ETF of the world's international companies (so called global fund concept), it is not doing well. Will BRIC becomes the Atlas of the world economy? If so, this is a tall order. Holding on cash will suffer the diminishing of purchasing power. Invest in commodities is threaten by the manipulator and derivative unwind. Invest in equity is not so much safe heaven because of the off book balance syndrome. North America stock markets open low and climb in a steady way. It is a bullish sign. If finance sector collapse, it seems the epicenter will be at New York or London not Frankfurt or Toronto or Shanghai. Will it be safe to invest in these countries?

 2010.04.015 The current notion of economic recovery gears on the economic health of the West is a wrong assumption. The notion of higher oil price can hurt the world's economy recovery is also dead wrong. The Western analysts remain equate the American to the world even fair and square the BRIC is rising. The demand waning at the West does not shrink meaningfully but the BRIC's growth is stronger every day. The destruction of demand at the West is made up more than enough by the East as the domestic consumption at BRIC expand. The issue of BRIC's currencies will also rise which means the cost of commodities to the BRIC countries will be less impacted by higher U$ prices.

 2010.03.28 Unical is the trough of the China buying spree limited by the Congress. Since then the rule has been relaxed, a lot. Does China flexing the creditor muscle or what? Not necessary. Energy is always a strategic reserve for American or any nation just like the port container terminals. It is not desirable to be controlled by a foreigner no matter how poor you are. Just take a look at Hong Kong. Every freighter had to stopped at Hong Kong before transport by barge to the much shallow Pearl River or through train to the inland. Now Hong Kong is the independent political nugget that also help the China's financial and economical activities. During the 50's to 90's, Brits skimed much of the profit from this entrepot terminal. Most recently, the American entertainysts have not comment on the vital development of invasion of Chinese automobile industry to the home land America. First, the Hummer deal (gone sour), now is the Geely buying Volvo. Volvo is the Swedish pride but the American really spoil it to make it no different from any Ford car for just U$1.8B. What makes Volvo so important is exactly why Geely failed to enter the North America or World market two years ago: crash test. Volvo is famous for its cabin's safety. Now, rather than spends a few years to figure out how to pass the crash test, the technology is handed to China on a silver plate. The U$1.8B price is a bargain price consider what will happen when the Americans have to down size to a smaller car. While the Big 3 auto-manufacturer still making gasoline T-rex, Geely can easily fill the need of lower purchasing power American. For those green guys, the Chinese BYD electric card is coming. The importance of these changes are two fronts. The first is that the export to America is not just those in Wal-Mart. It is the higher price item. Not just a bit higher, it is the American's first love, automobile. Second, the infiltration of Chinese investment is no longer up held by the Congress when the real administration (the big companies) says yes even it means losing business in the future.  Will China going to revaluate the RMB? This will mean less revenue for China but lower price for American for the good sold in America. The Congress wishes to wane the cheap stuff made in China sold in Wal-Mart but now it is out flow the more money by buying big ticket items made in China. The higher the RMB, the more competitive because China will be building manufacturing plan in America using either the devaluated U$ or grant from Congress. These American built cars may have lower profit margin but China will make it as competitive as hell. China can sacrifice the FX reserve for nothing, why can't it sacrifice more for a pound of American's flesh. The competitiveness is not measured by price. It is by the ability to grow the industry and know how. China could almost pay American to take these product. Because it grows the manufacturing industry. China has the FX reserve to finance the lose until its heavy industry is on the top of the world while its domestic economy grows to feed the Chinese citizen. China purchases Bombardier trains five years ago to run the Tibet railway. Now it is selling train to Montreal, Bombardier's home turf. Scary not?

 2010.03.23 On Monday, the whole market was flooded with fear, greed and speculation. During the early morning, the instability of the Eurozone's economy suddenly hit the nerve after IMF warned about the sovereign debt deterioration. The panic created a demand of U$. USD shot up and almost broke the glass ceiling of 81. The strength of U$ apparently took the speculators by surprise. So some lamb had to be sacrificed. Commodities took a across the board hit. WTI was down to below U$79 to U$78.86 and volume was only 12% of 200 day average. Gold panic was worse because the decline continued after last Friday's almost U$18 drop. Trading was heavy, 400% of 200AV with a daily spread of $16. At the end of the day, the lost was only U$4.70. The boat rocks left and right. Some one on board will be thrown to the rough sea. The short term fluctuation is difficult to ride. Would it be day trader's paradise or hell? This morning USD climbs again by 0.3% but the panic on commodities has been subsided. Silver and heating oil is the lamb down by 0.6%. Others about 1%. Again the tight collation between commodities and U$ has started to get loose.

 2010.03.21 The following weekly complementary chart from www.stockcharts.com shows an interesting short term behavior of the WTI relative to the USD. It is in a downward trend. In a bigger scheme,  if the USD rally finishes, we can see the WTI goes up even USD remains strong to other currencies.

 2010.03.18 A very insightful analysis on China's "bubble economy" and other major economies by Guild Investment's newsletter "WE SUGGEST THAT INVESTORS LISTEN TO WHAT CHINA IS SAYING" published on March 18, 2010.

 2010.03.17 WTI flirts with U$83 again. The glass ceiling is U$84. Once broken, we are going to see triple digits oil price.

 2010.03.17 There is a market believe that American is reducing the consumption of petroleum products so there is not enough demand to support the current level of oil price. With words from OPEC that the price is in there expected range, the oil bull takes a hit. Although there is a general believe that China's growth could support the demand. However entertainyst has been singing from the old song sheet that the "mild" growth of the China will disappear soon and quickly face a economy collapse. Right after these comments, China publishes the January economy growth is 28% year over year. To someone, 28% growth is falling through the floor of demand destruction without seeing the fact that deals after deals sealed by the Chinese state own petroleum companies. It starts make somebody wonder why. First, even EIA also publishes the stats that American is not cutting down petroleum consumption NOW. After the financial crisis in 2008 and 209, people are resuming the consumption habit which will also include the merchandize transportation. If there is any destruction of demand, it is returning. The government would like the people to believe greener future by telling people are reducing consumption. The story from EIA is not. There is a interesting stats included on the imported goods. After a significant reduction in 2008 and 2009, it is more or less recovered by forecast. Is this pacifying the people? If the increase in petroleum consumption is based on the thesis of the recovery, is this too optimistic? The following is from the EIA March 10, 2010 report:

*Projected **Includes transportation diesel, heating oil and some bunker fuels. In 2008, transportation diesel (on-highway, railroad, and vessel bunkering) accounted for 70 percent of total distillate fuel usage (EIA, Fuel Oil and Kerosene Report, December 2009, Table 13). Source: EIA, Short-Term Energy Outlook, March 2010.

Second, the American big oils are losing reserve without ability to replenish the reserve because of wrong focus on high expensive oil like those in deep sea area of the Gulf. In order for them to buy cheap reserve, they have to talk it down. This is definitely a good conspiracy theory. We know we are facing peak oil plus end of cheap oil. This is not just for American. The domination of American's big oils have been fading along the control of world through the American based company is just fading day by day.

Third, American always think they are the centre and master of the universe without knowing that things have changed. To understand the world, we have to diversify our research.