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Archived All Notes Before 2010

Energy 2009.12.31 According the the EIA's published petroleum statistics on yesterday, the drawdown happens on the US West rather than the US East when the cold weather affects the Northeast. Conventional wisdom would consider the refinery at the East would do double time to produce fuel distillate so that the response time is faster and the cost of transportation is lower. It would be unreasonable to assume that the crude is shipped from the West to the east for the refinery. As the result of over shipment, the East has higher inventory than the West through the pipelines because distillate will need surface transportation. This theory has two problems. First, we are told that all the storages are filled to the brim so that super tankers are used to store at sea and no more tanker is available. If so the inventory could not be increase but drawdown. Second,  There is an alternative explanation that the refineries failure to operate at higher capacity to produce the fuel. And possibly worse, their capacities are lower so that they could not operate at a higher rate to drawdown the inventory.

Money Matters 2009.12.28 ASPO-USA reports that "The recovery of natural-gas prices may be slowed by hundreds of uncompleted wells in North America that can be brought online quickly to meet increased demand for the heating and power-plant fuel. As many as 1,500 gas wells were drilled and not completed as of an October estimate by Halliburton Co. Those wells can start pumping gas once prices climb above $6 per million British thermal units, limiting further gains. The largest concentration of uncompleted wells appears to be in the Barnett Shale of North Texas." So the U$6.00 proved to be a strong resistance. Once penetrated, this will imply the delivery significantly drawdown the inventory. If that does not happen, we can see a major fallback.

Money Matters 2009.12.25 The sales of Volvo by Ford to the Chinese car maker Geely is a vital and game changer for the world trade at multiple levels. The first is an obvious one that Geely (i.e. China) will able to access a significant advanced car manufacturing process. It is not necessary the technologies employed by Volvo cars that China could be benefited. It is more than that. Of course, Volvo's safety feature is one of the reason that will help Geely's product to pass the world's car safety standard because of the know-how to engage on the process. The technologies in safety measure could be developed through various standard in time. The process control and the engagement of safety body knowledge will not be as easy. It is similar to the making of missile. American and Russian knew the process, theory and the technologies. It was the German scientists knew how to put thing together that helped these two super power passé to develop the inter-continental ballistic missile. Second, the turning point and game changer will be the sales platform of cars to Europe and North America. Other than safety standard and emission control, sales network has been the blocking stone for the outsider to sell cars into these markets. Mitsubishi and Nippon had been using the partnership with the Big 3 to break in. It took them years to establish the sales network. By gaining the Volvo dealership, immediately, China has opened the door to the North America and Europe's middle to upper class car clientele. We have to understand that the China is not just only interested in selling low cost, low tech and low margin merchandise anymore. They want the high end to move away from the sweat shop stage of the manufacturing. Thailand and Indonesia has not move too far from that when China was before the Open Economy under Deng Xiao Ping. They still not far from that stage after twenty years. It took Japan almost forty years to reach the point to export Honda or Toyota to North America. We may see China to achieve that in less than 25 years even without the industrial base like the Japanese built up through the military industry before and after the Second World War. Geely had been singled out as the first Chinese car manufacture that has the potential to sell first Chinese car in North America. Now we can say the time table has advanced. It also path the road to the first Chinese designed and manufactured car to North America. Through this experience, BYD will leverage to sell the first electric car. So the table has turned. American cannot hold back any asset that may help the foreign SWF to gain foot hold in the home turf. It is the repeat of the history. At the second half of the Nineteen Century. West, Russia and Japan started military invasion of China for the economic benefit. Now, United States will be the bull eye of the BRICs. If American shows any attempt to stop these deals, the BRICs will simply stop announcing the buying of the Treasury. With that it will continue swap the U$ reserve to the American assets. Forget about the depreciation of the U$, it is a process to gain control the asset. At these end, there is net gain.

Money Matters 2009.12.17 Three out of two things happened yesterday continue today; oil and gas after USD bolted 87 bps. Gold December future falls U$39.90 (the quote on COMDEX at the end of the day is the additional loss since 2:00 pm so the major lost is in the afternoon.) The volume is extremely thin. Just wait and see. The U$1,100 resistance could be very strong. Oil is glut gas is deserted for LPG but why WTI suddenly finds significant drop in inventory and gas also suddenly reduced production. It seems a very much a shell game that moves the number around to make sensational surplus or deficit. Remember the draw down was before the cold weather kicked in last week not this week. Is it possible people could use the fuel to heat the future?

Money Matters 2009.12.16 Three major events happens this week. First, the U$ supported by the year end trade settlement, moved above USD 77 shortly and stays up there. Second, notwithstanding the strong U$, gold recovers. Third, after all the saying of energy glut (oil and natural gas) both recovers on the face of a strong U$. So the entertainyst's theory of strong U$ forces down the commodity is again another slap on the wrist. Is this like global warming while the temperature is falling?

Money Matters 2009.12.01 Investment has entered into a new era when Lehmann Brothers fell. It was not that there is a sharp turn. Rather the investment business' vale has suddenly removed. Decades the believe is that you have to do homework to research using fundamental or technical. You believe that there is a way you can pick a stock because of good management and strong product. Look at Goldman Sachs. It is a zoo there with illegitimate products sold using deception run by a group of of greedy people who awarded with or without result for the investors. Look at the Canadian banks. They can make stupid mistakes but the government will allow them to use different accounting standard to allow them avoid report lost and pump them money to backstop and run at bank. Look at Berkshire Hathaway. It buys a company at the low and lobby the government to create a niche for the company specific. So Ben Graham may turn in the grave but this is the modern financial world. How in the world, small investors will win? They are just being lurked in to be swallowed alive. It is a wonder how to survive when there is no social security, pension and personal financial safety.

Money Matters 2009.11.29 Last year, during the battle of Lehmann Brothers, many funds' assets were locked up along with the Lehmann Brothers' asset. When the window ajarred to sell the asset for the redemption of the fund units, the assets were dumped. This achieved the purpose of defeating high commodities prices or inflation. This is artificial and temporary but very clever. The battle of Dubai is waging on. This time, it is as big as the AIG if not bigger because the tip of the iceberg is already U$60B. It could only be worse. If there is another investment banker's assets are frozen due to the bankruptcy, then, these bankers using the relief money to speculate in commodities could lock up the assets like the Lehmann Brothers. The challenge we are facing is to mitigate the possibility of another major drop of commodities prices which will complete the second fallen leg of the W recession and the last leg of the Elliot wave. The question we have to ask ourselves is what prevents the history to repeat. First, everyone was scared to buy anything because no body believed we were in inflation (according to the government) so buying commodities would be suicidal. Second, the LIBOR was so high that no credit was available for any good reason. Third, commodities were the four letter words that everyone thought the top was over. How is now differ from than? If gold falls, central banks will buy more from the open market. This will put a stop on gold. Oil excess is getting recognized as a myth. The story about tanker storing oil because of oil glut may turns out to be holding for the future higher price. Third, LIBOR is much lower now. Those capable have raised significant capitals for the last few months one way or other other they will be ready to buy the commodities and the redemption may still be happening but not for the commodities held fund. In fact, the bidding will get more serious and extended to commodities equities for the reserves in the ground. This time is not making any different from the past during the Weimar crisis. Only last time was artificial and no body could believe any government will allow any money lord to manipulate the market in such bloody way for their own gain. However, we still have to be careful not to be blinded by the end and terrified by the way to the end. This will be a rough trip.

Gold 2009.11.28 Even with a rallying C$, gold finally hits the all time high C$ close price C$1,264.37. This is also the all time high weekly close for C$ gold C$1,248.26 notwithstanding the all time high close U$ gold price at U$1,175.50.

Money Matters 2009.11.28 Dubai repayment delay is a huge mystery. Let's state the obvious. Quran forbidden borrow or lend money which is interest bearing. If you say Dubai's HSBC loan bears no interest, this will be a huge surprise to everyone. If you say Dubai is doing something against the Quran, it is just surprising. Second, according to Peter Cohan's Can Dubai's energy reserves pay off its $80 billion in debt? published on 2009.11.28,  she has energy reserves that value at 4 time of the debt. UAE also promises to pay off selected portion as reported by Bloomberg News report. The third part of the mystery is that, the debt could be $80B but unless you are really crazy to get off all your debt and for such a huge sum, you do not force yourself to payoff on a specific day. The repayment will set over a longer period of time. Should the U$80B is only part of a total, that will be the problem. That will bring down the world financial again. Four. Dubai did not set forth to employ 10% of world's crane for its 0.02% of world population by assuming a huge debt. It started on the basis that use the oil revenue to build a better world. So when and how did she tangled up with the huge financial obligation through unbelievable huge projects? Was is under the encouragement of someone? There was early sign which flag the situation. The article Dubia's Oil Boom Financial Centre Heading for Bust? 2008.07.23 (complement of The Market Oracle) explores the possibility. In summary, the delayed repayment could very possibly the tip of the iceberg. The total could be much bigger. This will be eruption of Mount Vesuvius which buries Pompeii.

Money Matters 2009.11.23 Dubai sheikh has a vision beyond the black gold are gone. The sheikh directs the investment in two directions. The local builds properties for local and attract investment investment to establish Dubai as a world class financial centre. There is a stock market but the operation is limited and listing are limited. The gold market does establish itself as one of the epicentre of gold trading. Overseas the sovereign fund invests in many ports around the world. This is lucrative business when the Baltic Dry Shipping Index was at 6000. It is still a business but may not be all ports are viable. A great attempt to survive the financial future shock. A great dream that does not necessary to be greed. There is one weakness to this chain. The source of wealth is from the oil so the wealth is accumulated in U$. To pay for the huge project and the investment, the SWF is not enough. There is leverage. In the world of depression debt at any level could be lethal. The fund's leverage does not help when the oil price recovered slowly after almost a whole year of weakness. Oil sales could not cover the repayment. This morning as reported by Reuter, Dubai struggles to easy default fear, repayment of debt will be delayed. During the boom time, when SWF invests, the invested financial institute lends back a comparable money. This is ferocious competition. Those were the days. If the investment is used as collateral to borrow more, this becomes a problem when the new investment gets sour. You cannot recover the money but you have a loan to repay. So what happened to be fashionable to lend money to SWF to attract business becomes a dose of poison for the financial institute. Europe markets had a mild earth quake this morning and we do not see anything close to Pompeii yet. Could financial institute in other part of the world involved? Very likely except China who only takes money not lending to rich guy like Arabian. Will the world economy recovery jeopardized? A small degree but the stock market will definitely be. Since the credit for the main street never gets easy so there is no impact or no deterioration for the main street's credit supply but the LIBOR will go up. Gold could be weaken because of the bearish atmosphere. A contrarian approach will see higher oil price but this could not be possible done alone by Dubai. The only thing Dubai could be cheating to export more oil to get a few more pennies. Therefore gold could be weaken and oil will be weaker. The vicious circle may be stopped when OPEC countries want the money by raising the oil price which may not be soon.

Gold 2009.11.23 In last night's USD trading, it remained in the mid 75 range and holding for losing 10 bps. As it passed the midnight, the lost intensified to 50 bps or 0.6% at some point. The downward momentum is gathering. Gold and old response with double the changes; gold 1.3% and oil 2%. Even natural gas goes up 1.6%. The USD index's battle of highland 76 could finish. Now is the battle of 74. With the falling USD, stocks in U$ will be pushed higher to compensate the purchasing power. The domino effect of competitive devaluation will force many world currencies to devaluate. This is actually deflational to those do not devaluation or devaluate slower. With U$ in the process of dethroning, cross border trading profit will be highly unsecure due to foreign exchange or trade restrictions. To ensure profit and avoid any lost, margin and price will be marked up to accommodate the uncertainty. The artificial factor of uncertainty causes inflation. The small inflation of price premium will trigger a vicious circle of inflation spiral that leads to hyperinflation. All these fears have reflected in the world stock markets which are up more than 1% except Nikki.

Gold 2009.11.19 Stock or the metal (not paper)? Stock is leveraged so it goes up and down more than the metal. It also has the additional risk of management and unexpected geology surprises which is also can become a premium for good reserve properties. Many have commented on how gold outperforms the stock. The following chart shows the ratio of gold to HUI (the unhedged gold producer index) for the last 10 years. There are period, gold really out perform the stock but these are spikes. After the spike, the more important trend is declining. From the time when gold was about U$200 in 2000, the ratio is definitely higher than now. During the financial crisis in 2007 and 2008, the ratio did not spike until the beginning of 2009 when there was stamped to exit the gold stock asset class. The current trend of the ratio has a very strong tendency to go down further which means HUI will be advantage.

Gold 2009.11.19 The Canadian gold price is only about C$40 from its all time high of C$1,258.76. Can this price be better? The momentum says yes but the important thing is what after. We need to consider two factors that fuel the momentum. The first one is the inflation and the second is the good reason to have gold. Inflation will be surface so this will provide some fuel. Will there be a good reason to hold gold which creates the demand? There is still a chicken and egg issue. If there is hyperinflation than gold is the way to gold because it is believed that gold is the reference currency. For the meantime, gold is not really recognized as the reference currency at the retail investor level so there will be some slow down.

China 2009.11.18 On the world stage, another lock horned bud head between China and US is in favour of China even from the eye of American journalism. China Holds Firm on Major Issues in Obama's Visit, 2009.11.18 Complement of The New York Times. This report highlights a few important protocols that showing American started with the wrong foot with the bad assumption that China is under her thumb. The article begins with a picture showing President Obama surrounded by the usual entourage in a visit to the Forbidden City. Pres. Obama is wearing a leader bomber jacket with all and no exception everyone else dressed in formal attire. This is not something you can taking it lightly in diplomatic protocol. It is comparable to President Bush Jr.'s casual lunch with Chinese President Hu Jintao in 2006 rather than a state dinner during a state visit. Other than this mistakes, American just never learns that China will not have any chance to entertain American's phoney human right supremacy while the Guantanamo Bay Prison remains as dark as the Beijing's Great Wall Prison. As for the support of American's debt, you can spin a dead cat as much as possible but when nine life is gone, it will be gone.  China is at the verge of redirecting the dependency of export to American by diversify to the rest of the world and more important to the Chinese middle class consumer. The only thing left on the table is the Himalaya debt which American pretends to be non-exist. There is not much to talk about. In fact, American is extending her dependence on China. The most recent energy deal signed between Iraq and Exxom is an example. Exxom is so much desperate to replenish the oil reserve and income, it agrees to produce Iraq oil on a U$2.00 per barrel only after the help of China. The Imperial American Empire is withering fast.

Money Matters 2009.11.17 Gold has been detached from U$ for a long time since spring. In the last few days, the majority of the commodity group start their detaching. For example, USD snaps back 40 basic points today but WTI advances U$0.60, aluminum up U$0.0113 1.3%, copper continues to make new high at U$3.111 0.2%. But some fall, lead down 0.0108 1% to U$1.0607. Zinc is down 0.6% 0.0058 to U$1.0154. This shows either no one believe U$ will go down the toilet bowl with demand is up. Or inflation is going to sky high so the price of base metals have to be up no matter what. Should this is a negative sign, it could very possible fundamental is thrown out of the window because speculation that buy high sell high is the only game in town. Either way, the market is not health or stable. Volatility and insanity are the only rules.

Money Matters 2009.11.16 Metal or miner stock? This is a frequent question. Miner stock is leveraged because you have access to a much larger potential mined metal. However the miner stock also has negative impact of inflation, production problem, geology surprise and human problem. Even in a very short term, the movement of metal and the miner stock and ETF cannot be synchronized. Today is an exceptional day for silver which is up U$1.08 6.2% to U$18.38 today at the NYMEX. The spot silver has reported by Kitco as up U$0.98 5.6% to U$18.40. The prices comparable. Silver Wheaton is a pure silver play. SLV is the silver ETF. SLW NYSE up U$0.64 4.2% to U$15.84. It is close but not quite and where is the leverage? SLV ETF perform better up U$0.86 5% to U$18.01. SLV supposed to be 1:1 with silver. But there is a discount. This may be an odd ball but it shows the fact that it is not necessary have all related instrument behave exactly the same. Some could be in advance and some could be at lag.

Gold 2009.11.12 Panic runs across the precious metals market. The actions are different. Metals respond less than stock. While the USD Index jumps 60 basic points or 0.7% gold only responds with -0.8% but HUI is down 3.2% or 14.65. The panic happens 24 hours later. Yesterday, gold has degradation with the spot higher than the future. Tonight, contango returns. USD sinks 0.1% with gold up 0.3%. Tonight, contango returns. We could have a rally in gold stock and gold tomorrow even USD remains above 75.

Gold 2009.11.11 From mid-night to early morning, USD dips into the 74 region. This time, gold responds the 0.2% dip of USD by a full 1% of change which makes up some lag yesterday. The trading of spot gold showing a very jerky jump for this very U$10. This is a very jitter moment for trader of long and short sides. The future of gold is more reactive by a 1.3% gain of U$14. This again a very need jerk action. Base metals is not quite follow this game of chicken. Once the short is covered, the market could return to a more calm state if USD linger slightly below the 75. However, if USD recovers back to 75, we could see some pressure on gold and old again like yesterday. This seesaw activities will contribute to create a solid base for gold to attack the mid-term target of U$1318 and the oil's U$99 mid-term target. Before anything, there is still a 25% possibility of USD return to high end of 75 near Christmas thanks to the triple jeopardy of quarter, semi-annual and year end financial payment. Updated at the end of day: So much for the base theory, gold pops up another U$11 even when the USD returns to the 75 territory. USD is weak.

Energy 2009.11.10 According to Association for the Study of Peak Oil and Gas USA's Weekly Report Published on November 9, 'Storage of crude on tankers in the US Gulf is now down to 7 tankers from a high of 20 in May as the spread between current and future crude prices has narrowed, making floating storage less attractive.' This is a rare report to reflect that oil tanker story is due to the contango of oil price not before of demand destruction. We know that the oil price has suffer significant damage just like gold price due to no real reason but the margin call. So the cat is out of the bag.

Money Matters 2009.11.10 Yesterday was a nail biting day when USD Index fell below 75 briefly into the 74 region. The flashing sign of breakdown is bright and shine. Very dramatically, it limped back into the 75 and lingering at the rim dangerously. The drop was serious, 75 basic point by end of day -1%. What did it do to the commodities? Base metals up less than 1% that matches the drop of the USD due to the FX. Gold is very subdued with a U$5 gain at the end of day while making a all time high of U$1111.70. Oil recovered but not because of the U$ but just oversold. At this point, after 15% rise, gold deserves a breath and profit taking will happen. If there is any incidence (like financial nuclear bomb), the market may not react as dramatic. Gold stock was suppress for awhile with dumping. The gold stocks could be in a strong rally due to short covering and buying in. CGSI made an all time record high with UGSI just shine from October 13's all time high. The rally of gold stock is further supported by the gold to UGSI ratio which declined by 10% last week and continue trending downward. The commodities bull is probably continue but may face a correction using any excuses especially when the real rate is up (not the Fed). With higher unemployment rate, the profit will be harvested. Buying time will come.

Money Matters 2009.11.04 After all the struggle to recover above 76, USD Index falls back to the 75 range again. The process started from 88 and continues to a descending downward spiral. If the 50 bps loss does not trigger any substantial jump in commodity prices then it could be explained by the frenzy jump yesterday. In fact, the detaching is reducing this linkage. The fall of USD Index will not necessary trigger any volatility of gold or oil but due to inflation going to be observed, through higher cost of production. Oil and gold price will rise to be on par with the real inflation. Since the collapse of the credit crisis, prices have been lower due to dumping which are below cost. The dumping could go on as far as liquidation for bankruptcy continues. Now it is close to the end of it as the economy is at its damaged state, dumping would not be an option. We are going to experience the painful stagflation period.

Money Matters 2009.11.03 It is a reaffirming sign of gold is detaching from the dollar for higher value. The traditional gold up while dollar down days is getting less and less happen. The USD Index has jumped back to the 76 range after dipped quite deep in the 75. The strong U$ has not toppled the gold and silver price although platinum has been very volatile. Today's gold vertical movement of over U$20 while U$ has strength is telling a very revealing gold/U$ detaching story. If the relationship is getting weaker and weaker gold could go down when U$ goes down but this will be less probably because of the actual purchasing power of U$ is diminishing. By comparison, gold is more expensive in term of money as inflation is showing. U$ is actually has not been weaken too much for the recent week after the dramatic fall from the high USD Index of 88. The fall will be very bouncy because it will be nobody's interest for a free fall U$. If gold pull back significantly tomorrow, which can happen when emotion is evaporated, then we know the market action is the reflect of knee jerk. When gold goes up, weak economy will drive down the stock market even with the help of revenue from overseas. The investment thesis of overseas revenue can boost a weak currency's book is just a myth. The product must have the pricing power. Now is not a good time for the American to exercise the pricing power. Caterpillar, Boeing, P&G, JNJ, GE et el may see a net decrease in U$ global revenue in coming years due to the rise of the BRIC countries. The BRIC countries will have competing products. The revenue will be weakened.

Gold 2009.11.03 It is a shocker that IMF sold 200 tonnes of gold from its reserve to India for U$6.7B. The price is U$934.70 which is a discount of U$130 to yesterday and U$150 today's close price. While speculation points to China, India is just another black horse. Actually any BRIC country will do this deal for a more than 10% discount of spot or future price. It is very possible that China, India and some unknown countries from Arabian Peninsula participated in this race and India won. China is in #1 gold producer in the world with access to South Africa's production. It is discernable that China does not have to beat up the gold price. Should American is behind the sale, there will be a good explanation why China does not get it because American still want China to buy billions of T-note. U$6B is not a large number especially there could be special agenda to sell more gold from IMF. Share the love is the way to go so that a platform is built to let China get more gold from IMF without obvious reason.

China 2009.10.30 According to UxC.com report, China will be leader of the nuclear plan in 2030. By 2020, 78 GWe new nuclear capacity should be built. The current status is that 16 is building, 250+ are planned and over 70+ are identified.

Money Matters 2009.10.29 Between yesterday and today, the TSX Index has a spread of 500 points. The investors, retail and professional, are blinded by the rapid change. One who holds a microview and microtrend of the market will be thrown off the course. With such a polarized movement, one cannot survive with the stomach which is actually the proper analysis with updated information a multiple level below the surface. In simpler term, it is the macrotrend that will keep one survive. Without proper analysis tool, methodology, time to do the analysis and the data to update the analysis, all can be wiped out during this tsunami. Take these two days as example, it could be the top out or re-instate of a trend. This is the time luck is not the only factor.

Money Matters 2009.10.25 The world is always at war like the heavenly bodies' fight for their orbits. In more than seven thousand years of recorded history of human, we are always at war with the nature, with our tribe, with other tribe and with the microbes. Among tribes, war is the way to satisfy economically for a single individual or the apex of the society. The war could be in the form of military action or not. The military has study different weapon without destroying the assets like neutron bombs. The most powerful one is the economic warfare, way ahead of the energy weapon such as laser gun or atomic bomb. During the war, the most effective weapon is not to kill but to damage soldier enough that they are not going to die but costing heavy medical treatment in the field, continuous assistance after the war in the form of medical and financial. As the result, psychological liability creates heavy burden to the economy which could be brought to its need. The Korean War, Vietnam War, and the two Iraq Wars have draining the economy of American dearly. To support the government, it has turned to Government Sachs. The central government is the front and the ruler is behind the scene. Economic warfare could bring down an enemy that it will never come back. The Marshall Relief after the Second World War was a form of economic warfare to create debt outside America so that American could control the world. The central piece of the plan was selling surplus food to other countries which had the infrastructure of food production destroyed. The Plan went well until 1972 when Soviet lost control of the subsidized food price and covered up grain shortage. Soviet aggressively bought grains from American in all hideous way. At the beginning, the grain sales seemed to help the grain industry in American. Acres and acres of wind breaking forest and wet land created in the 1930's were levelled to create farmland. The immediate unintended consequence was the rapid food inflation due to the high demand. The lost of protecting forest let wind blew away the thin topsoil. This created the agriculture dependency on fertilizer which had to be manufactured using low energy efficiency method. The oil shock just pushed American to the point of return of debt over debt or the high leverage investment style which fortify the Government Sachs. When economic warfare is so effective, who really cares about weapons. Even Hitler attempted to use economic warfare to attack the Allies near the end of the Second World War by printing counterfeit Sterling and Greenback to stimulate inflation. May be the Wall Street Crisis is the result of economic warfare. Just another conspiracy theory.

Money Matters 2009.10.23 Dr. Copper is the talk of the town again. Poor guy. When there is a correction, he/she is immediately labelled as pointing to the down. Now Copper is above U$3.00 again, every entertainlyst is quite quite this time. This is actually a challenge on how effective technical analysis on minute movement. Of course, technical analysis is on trend. The longer the better. This is consistently overlook by these entertainlysts. By reading copper is not the best way to gauge economy. If there is no confirmation by other base metal, it is only individual movement that does not reflect the economic cycle. Reviewing the current spot price of base metals, they are on a rising trend. Some at their recent high some is not. So we see a consistent picture of confirmed demand. Where is it coming from? Don't know. That is another consipiracy.

Energy 2009.10.23 Are we seeing the rally of energy driven by the devaluation of the U$? This is a complex and compounded problem that exuberated by the disguising real demand with excess supply. With the strong and powerful propaganda machine, it can create mass influence. While a simple turning off a tab could fix the excess supply problem, it is dramatically described as filling up to the brim for all possible storage. There is a shut-in method better than storing. Arabian does that when they see the price is too low. According to the Wednesday EIA petroleum report, the oil is in excess and the gasoline is in shortage because the refinery is not at the high production capacity. Immediately, the oil price drops and the gasoline price rises. One day later, everything returns to up trend even with the USD Index bounced back above 75. Now, this morning, WTI returns to U$81 range while USD up 13 bps to 75.13. On one side of the mouth, the media says that Fed is holding down a weak U$ to create a competitive edge for American. At the same time, every entertainlyst says that all currencies are rushing to the bottom to competitively devaluate. If everyone is devaluating their currency, the commodity price will not rise. Exchange rate likes the buoyancy of the rubber ducks in a bath tub, if it we add more water to the tub, all ducks relatively at the same level. But the water level increases. The price of commodities in all these currencies go up; this is inflation.

Money Matters 2009.10.21 You may find the market confusing because this supposes to be a devaluation market. When U$ falls, the market will go up. No. USD falls 0.6% but Dow Jones Industry falls 0.92% too. However, the commodities does not. At the end of the day, WTI up 3.3% to U$81, gold up 0.3% to U$1060, platinum does the leap of 0.9% by U$12 to U$1360. Silver the is most amazing; up 1.1% or U$0.20 to U$17.68. The most important inflationary indicator Dr. Copper is up 3.4% by U$0.10 to new high U$3.015. All these are inflationary indicators. Market supposes to go up along with the retreat of U$ only if it is devaluation. In a inflationary economy, the profit will be down because cost goes up. Price is not necessary ahead of the cost. Price is driven by the market. During weak economy, the company will have no pricing power. This will lead to the squeezing out of profit as the sales is caught between a rock (inflation of cost) and a hard place (weak pricing). Commodities is not necessary the safe heaven but it could store the wealth better. This also explains why the commodity equity is soft in a inflationary market in general. This is a horse race without any insider but manipulation still possible through psychology. A very dangerous market.

China 2009.10.20 Xinhau News Agency reports that China has become the third country, after US and Japan, produces 10 million automobile a year. With Japan's auto industry slowing down and American auto industry declining, China is on her way to become the number one auto producer. For the meantime, we can count on the demand comes from internal. As time go by, China will turn to high efficient car either fossil fuel or alternative energy. With the high volume and strong base technology (e.g. BYD is the world leader of battery), the export is not what but when. There another crown jewel lost by the American.

Energy 2009.10.18 Iraq had imposed a rule on foreign oil company. They can get U$2.00 from the produced oil. This turned off many oil producers who seek interest in Iraq's giants. The most recent, the second, auction has born fruit rather than fruitless than the first auction. The first one emerged is not surprising not American contender, it is BP-CNPC (a British and Chinese joint venture) consortium. It sought U$3.99 per barrel produced but later fell back to U$2.00 as asked by the Iraq government. The details is in the AP report. This outcome has profound meaning. First, American remains out of the oil game in Iraq after pouring billions of dollars to the Iraq war. Seconding, BP wins this auction only after it gets a Chinese partner who is already buying oil from Iraq. Iraq supposes to be American friendly now but it is not. American's foreign oil policy may have to amend as she gets less and less friends around the world.

Energy 2009.10.15 Gold and WTI bears the ratio of 10 in the past and now it has restoring to the current value of 13.50. This will push the oil price to U$100 if gold holds its current position but don't count on it. Natural gas has been identified as glut and excess with no demand. As the result it fell below U$3.00. Without any major news, it bounces back to the high U$4.00 range. To me it is much more manipulation than anything else. The NG surplus chart shows the consumption is steady. Very much contrasts the excess theory. One question these theorists need to answer is why the producer does not shut off the valve. It is not impossible and it happened before. In the most recent days, with the threat of falling U$, energy is steadily rising. This winter we may see U$100 WTI and U$10 natural gas. Even in C$, they will be higher than current price level.

Money Matters 2009.10.08 When the price goes down, you need the strength to hold. When the price goes up, you have the strength to hold on. Investment is difficult when it good time or bad time. Amateur or profession share the same mental torture. The wise guy may produce enough rope to hang one. Gold rebounced from U$600 level to over U$1,000 level. The shorties build a huge short position on gold and silver. but only the GLD and SLV show accumulation. There is not massive short covering. So gold and silver are in a tug of war. If the shorties can persist, they may win. This battle's win/lost does not reflect the long term bullish macro trend. However, many will be shaken off the trend during this truggle. Gold could be higher but it is still holding at U$1,050. Until the shorties' position covered with a huge gain at 5-10% and than drops down 5%, the risk of down side should be higher than the up side. This is exactly what happens to gold at last all time high. The interday high of U$1,060 for gold and U$17.80 is not meaningful when the volume is low.

Money Matters 2009.10.07 Gold has been stubborn holding at U$1050. However, it has to be pointed out that NYMEX has only 200 contracts traded today. If there is any panic for short covering, yesterday's 319 contracts and today's 200 contracts may not make it. The exposure remains until the short covering happens. However, sometime this could drag on, with all the manoeuvres, it could continue a very long time, like the suppression of the gold price. WTI is in the same boat. Every time it props its head above U$71, it is pushed down below U$70. Tonight, WTI is creeping back above U$70. World currencies could not just get higher because it has to stay competitive with the American. Although Americans are restraining the spending but it is still the world largest economy until Chindia catches up which still needs one or two years. USD Index will have to break down in stages to force other to devaluate. If not, their U$ reserves could significantly vaporized which is not a funny thing. However, if other currencies devaluate, USD Index will be saved. Aussie gets out and raises interest rate is a warning shot to the American. Obama will have to deal with it. Aussie has the upper hand because of Rio Tinto and BHP control the industry raw material supply. This could become a challenge American could not blow it away. Originally, G20 is a photo opt. Now it will have some animated discussion. We will not know the details in the near future but things will change. The balance of power will be changed. One will wonder why Aussie has the gust to do that. It is an obvious neglection that China has moved in buying a lot of small Australian natural resources producers. To continue support the Aussies, Australia has no choice but follows the customer who is always right. Arabian will drop the oil pricing and payment in U$ is old story. They have been doing that in French Franc, Japanese Yen, Chinese RMB, India Rupee and Russian Rubles since 2005. This is the real reason for American "entered" Iraq to enforce U$ payment in Middle East, just like Japan "entered" China before the Second World War. A huge army present is a tour de force to Arabian. A threat to ensure Arabian remains under the thumb of American. China does not only mobilizing the BRIC to topple the U$ reserve currency throne, now it starts with the Aussie. The next could be European Union. What will she think next?

Gold 2009.10.07 It will be in denial if we say gold is not rising. Most of the comments point to the fact that U$ is weakening is the fuel for the rise of gold. If that is the real cause, it should behave like exchange rate; the up and down % of the both side is the same or not too far. At the same time, we could also check the gold price in other currencies. Gold in other currency is rising but at a much slow pace. This morning, the USD Index is down 0.1% and gold up 0.4%. These is a spread of 0.3% different which is way too much. In view of huge gold and gold stock short position, gold's rise is immanent. However, this is short covering. Can we allow overshoot? If it is overshoot, then there will be profit taking for short term investors. Now it is the problem of whether we should take some profit off the table. Before all situation is unveil in hindsight, we do not know will this be the beginning of an up leg. We could only judge from the view of long term trend. This draws the conclusion of short term trade could be very frustration because you can jump off the ship before it leaves the pier by examining the short term trend.

Money Matters 2009.10.06 Gold bug may not bring out the champaign yet. Today's U$20+ rally is just a short covering when too many shorties just dumping too much. At the moment everyone thinks the breakdown of the gold price, the market is actually in such a tight supply that it can easily drives up the gold for 4%. If oil can do a 10% swing, it is not hard to see why gold's 4% swing today to U$1040 level deserve any excitement. The champaign can flow when the gold price can hold above U$1040 in more than 2 days. With such a rally, profit taking will happen. If the demand is not there, i.e., only shorties' short covering then this knee jerk reaction is not real.

Money Matters 2009.10.05 USD Index has been all over the map. It is hard to understand why it is so volatile without understanding the complexity of U$ demand. When the market becomes bullish, the demand of U$ for repayment has dropped which results the fall of the USD Index. This is the very short term view. Fundamentally, strong currency can only be fortified by strong economy. Other than American wants to have a weak U$ to help export, it also wants a weak U$ to reduce the payment. But the second reason has fallacy because the debt is in U$ denomination. Weak or not, the debt created, will not be repay less unless the American government suddenly use another currency to pay off the debt. The overseas revenue is for the Imperial Business Empire, not for the government. Any foreign exchange received does not help the US government to pay off the debt unless you count the business tax which is highly eluded by all the genius accountants. Treasury will still be highly demanded by the China and Japan to support their economy. It will be a few more years these two government will give embryo cord when the blood dries up. This leaves a only reason that U$ is fluctuated so vividly: manipulation. If the currency is manipulated then you cannot juggle it. This will set the commodities free. In another word, inflation. Can the American Economy Empire dukes and count take advantage of the situation? It will be only if they can gain their market share in the BRIC. Apparently, their intentions are well observed. So their growth will be restrained. This means no help.

China 2009.10.04 Komatsu, Japan's Caterpillar, reported that China buys more hydraulic excavator in 30% in June, 50% in July, 60% in August, and 75% in September on year over year basis. This is a staggering number after the 2008 Olympic. It means there is a significant demand stems from the infrastructure activities. Considering China already has the railway modernization U$700B in action. The nuclear plan and the solar farm project could definitely use more machinery. This also confirmed by the higher sales of methanol by Methanex. All in all are coercive to a strong spending story.

Money Matter 2009.10.04 Now is the beginning of the 'tough October' after the Gains Day. As soon as the October shows the head, the market gets hammered. The well publicized October created an immense panic among, I believe, the retail investors. Take TSX as an example, before September 15, the bullish view is wide spread. If you are a bull, you will say this is the restoration of the secular bull market. If you are a bear, you say this is the normal bear market correction with the appendix that it will end, yes after a run of 3 months. So far the TSX has fallen about 7% after fallen 21% in March, up 43% in June, down another 11 percent in July followed by last up leg 22%. From technical point of view, up out pace down. You can always add sentiment this and sentiment that to fit the bull or bear tune. If the market is a time machine into 12 month, we should be a the verge of recovering. However, if you use K-cycle, it will really not matter because K-cycle does not disallow strong rally or fixed during of each season. K-cycle was accurate but you cannot use one K-cycle model with the convenience of adding or subtracting economy at will. China was not in the model but suddenly it is included by default assuming it is in the same stage of the West. This is not a valid exercising of the theory. To me it is more like Goldman Sachs, they always predicts something that will have opposite performance in short term. Do you call that honest mistake or manipulation?

Money Matter 2009.10.01 As soon as the window dressing is over, the stock market becomes the garbage dump; including the commodities. Oil moves up and holds at U$70 level but energy stocks are among the casualties. If it is not directly equal to the commodity, it is sold. A very bearish picture. The built up has been so much amplified by the media. The professional and the retail investors make no different. Today is a panic (not extreme panic) driven dumping. Tomorrow could be another more horrible day because people do not know what could happen next week or during the weekend. Reason? DJ Industry is only 91.3% 200 day average volume. TSX is 87% 200 day average volume. Wilshire 5000 is only 109.8% of the 200 day average volume. The dumping may be panic but there is buyer and the selling is not massive yet. So this means 1) not at the bottom yet 2) it may not be the end of the world.

Money Matter 2009.09.30 All eyes on the last day of 3rd quarter. It past. It is a plain but running deep day. On the surface, energy seems going to fall but WTI and natty stand up way beyond sceptic's curse. Gold did not dip further than the U$992 resistance before recovered above U$1,000. To American commodity investor, this is a winning day. The overhang of the bad IMF report on banks U$3.4T loss is worrisome. Eric Sprott's view on banks bravely over extending remains a horribly financial fiasco to be played out. Gold stocks had a very steep sell off when the price hit U$1,000. This caused a lot of weakness on the Canadian gold stocks. American gold stocks struggled a bit but finally give in until this week when gold showing bottoming out signs. Now is a waiting game that bull and bear are at stance for attack. For the meantime, utility may be more inflation and deflation proof. One may bear in mind that USD may moving back to a more comfort zone by this is just due to the quarter end international settlement. In a few weeks, we can see the true colour of U$. U$ could not have an avalanche slump. The decline will show a number of platform which is the escape hatch for American's creditor. These are the time that true asset is swapped for the U$ in order to collapse the U$. The next critical level of USD will by 71. From now to then, there will be some plateau with the interval of 300 basic points which means we should see some strong rebound at 74 back to 76 and 71 back to 73. After that USD could complete its depreciation and if possible hangs around 71 for a year or so until the economy starts to recover. By then USD could slide further to improve export by another 1,000 basic points to 60. This will not a a very stable state because this could give U$ too much advantage. Other currencies will depreciate by at least 15% which will push back the USD back to 70. Looking back, U$ loses its value by 30% in less than one decade cannot be taken lightly because this reflects the retirement of American from the world stage like the Brits after the Second World War.

Energy 2009.09.29 Natural gas went up more than U$1.00 or 28% from U$3.74 to U$4.80 after the October future concedes to the November. The price gap is the biggest between the October and November. The gap between November and December is U$0.70 and the spread diminishing to further down the road with the contango extended to January 2011 at U$7.256. Is this a turnaround of NG. The jump is unusual but not the only situation.

Energy 2009.09.22 While gold holding its breath and tries to stay put, the fall of the U$ creates a panic and something has to be sold to cover the margin for the fall of 50 bps. The effect as usual pushes the U$ back into the 76. The fight to maintain the position will be very ferocious. WTI is at the vulnerable position by choice without much real depending on fundamental. Tonight, the WTI starts to bottom out as USD falls. There is no real direction but market maker attempts to create one.

Uranium 2009.09.22 Yellow cake drops U$2.50 this week while uranium stock marching north. A strong contrast. Updated on 2009.09.23. Uranium stocks are all over the map. This could be the inflexion point with differentiation.

Gold 2009.09.17 Gold has rallied from the recent low of U$940 level to the current U$1,010 level. This is about 7.5% which by no mean exciting but interesting in the volatile market. If we look back, gold has bounded between U$700 to U$1,000. The current work of gold is being considered as a milestone. Indeed this is an interesting milestone. The more important is that there is no explosion of rally and no major short covering. Comparing to oil, gold is moving gently. Comparing to the rapid movement of silver which has a record high short position, gold is very gentle. If this gentleness could continue, it will be the success factor for gold. Any rapid movement will mean speculation action. The foundation is not steady.

Energy 2009.09.10 Whether oil inventory is up or down, the day EIA announces the inventory will push down the WTI. Today is an exception. Is this a sign? Speak of conspiracy theory, there is nothing short to talk about putting a lid on oil and gold prices. Oil has dipped and bounded violently. Gold is popping up and down along with USD Index. Any new theory?

Gold 2009.09.09 Gold spot and gold future jump in and out of the U$1,000 region. Barrack dipped 6% because this its n+1 times to "dehedge". With gold poises to write the <$1,000 price into history, all investors worry about who has not come clean. At the same time, The diving of Barrack will no doubt create the margin call. Investment portfolios and funds which short Barrack or hold too much Barrack on margin (aggressive fund) will sell their holding to cover the margin call tomorrow morning. There is a high possibility the gold shares go down further until the early part of the afternoon when the margin clerks stop working. This is speculation and good material for financial mystery. Don't take it too seriously. However we do see some discrepancies on the short term (spot) and December gold as shown below. Gold spot has moved back to a much defensive position while gold future digging its heel above the U$1,000 mark. Gold dipped about 1% today with USD Index lost another 0.3%. So it still a good deal to trade U$ for gold. This kind of orderly transition could be the hallmark of USD Index. China has attempted to talk up the gold price because she encourages people to accumulate gold and silver (at 10, 100 gram chips sold at the banks) starting 3 years ago. As always, Chinese does not announce when they will do but have completed or initiated. Therefore, we can see Chinese to reap the profit. While gold is dancing the jive, swinging left and right and bobbing up and down, silver is monotonic doing the waltz or spiral up. Gold and silver ratio has dropped a hair below 60 today since 70 a month ago. We may see it to improve as much as 50 in short term and 40 in mid-term. When the 2B Watt solar farm is built in Inner Mongolia, China is built in next 10 year, you will need a lot of silver and copper to complete the infrastructure. After First Solar announces the news, copper is recuperated during the day. All looks good until the derivatives blow up.

Gold 2009.09.08 After a leaderless Monday, the USD Index has a swan dive of 80 bps this early morning to 77.23. The lowest hit 77.16. As knee jerk reaction, gold rose 1% above U$1,000 to U$1,009.30. Silver is just stronger rose to U$16.74 or 3%. Oil is not driven by the supply/demand anymore but the U$ rose 2% to U$69.48 when all suggest the glut of oil will sink the price further. Copper shares the excitement to U$2.9505 or 2.9%. The only sad story is NG which fell almost 1% to U2.7050. Market is irrational and driven by day speculator.

Gold 2009.09.07 Every asset class has its own shining moment. Tech stock in 2000. Energy stock in 2007. It has been advertised that gold is the best investment asset class all time. Consider gold at the price of U$120 in 1978, it is now 8 times of 1978. But if you consider the famous quote of U$850 an oz in 1980, you only make 12% gain today after almost 30 years. This is the number game that the investment advisors love to confuse the retail investors. To invest a lump of money is different from a few thousand dollars. It will be hard to find any thing for a decent return but to preserve the capital for a few billion dollar but it may not be as difficult for a few thousand dollar. Salesmen from the financial industry always make the best pitch for the best scenario. Retail investors need to do homework to see through the fog of war, the war of preserving your own money. If there is a perpetual winning strategy, the working life of financial salesmen should be very short because they should know best. If there is not such thing why these salesmen win all the time. The secret is the commission; especially mutual fund. Once you are in, the commission will continue to siphon from your pocket whether your portfolio is going up or down. Of course, the secret is to switch the asset class at the right moment. It is hard work. You can have 20/20 hindsight to say if you buy Bayer since the beginning of 1900, you can gain 1 million times. If Nortel survives another 10 years, you may say the same thing. Bayer was not the biggest just like IBM was not the biggest during the 1930. If IBM did not have the secret business to help Nazi during the Second World War and capture the German computing industry after the Second World War, or Warren Buffet did not lobby the financing of the collapsing investment banking industry, ....

China 2009.09.06 2010 may be a crucial year for China to transit from high-tech manufacturing to space technology industry. China has secretly slid from low price manufacturing by massacring most of them during the 2007 economic crisis to high tech manufacturing such as BYD which produces battery, cell phone and other high tech electronics. This is on top of all TV, LCD Display, 3 meter tire and a long list of high tech manufacturing. China has launched her space lab program starting next year to launch 2 unmanned and 5 manned space vehicle to build a space lab by 2015. China Daily's report Nation strives to launch labs on 2009.09.01 details the plan. The plan has a very unusual comment. The comment states the success factor of the plan is hinged on the docking technologies. All Communist propaganda, publishes the success story and never hints any possibility of failure or what could be wrong. China is no more using the mass media as propaganda machine anymore. She has passed this point. During the 1960's space race created numerous advantage to boost the American's and Russian's manufacturing industry. Marvellous products such as Velcro and WD40 were some of the prime example. This time will write China the ticket to world domination, economically and technologically.

China 2009.09.04 There is an emerging pattern on the prelude activities of G20; the BRIC meets before the G20. This has been page 16 news (complement of Don Doxe famous quote) which escapes many major Western news agencies. Before the London G20 (another photo op), the BRIC met and set the agenda for the G20. Xinhau News Agency report "Stimulus measures should be maintained: Minister" reviews two things. First the spokesperson is from China which implies China is the captain of the team. In fact China is buying her way into official monetary steering committee by buying U$50B IMF bond to increase the SDR or the votes that could be exercised (China Daily Report China banking on IMF's bond idea, 2009.09.05). Second, the position of BRIC to lead the world's economy is no more subtle. The BRIC meeting was held at the same locale as the G20 immediately before the G20. However, the trend in the G20 remains unchanged; ignoring the BRIC's voice. The BRIC demands the continuation of the stimulus which has been misread by many as BRIC countries are throwing new moneys at the economy. The announcements were simply the repackaging of the old programs which have been executed years. Here we have the situation that the West continues to dream that BRIC countries are printing money like them but in fact the BRIC is mopping up the excess money. The spectacular downfall of the Shanghai index is the result of the squeeze on speculators by the Chinese government which is again blamed by the West that performing a crazy panic act. It is just sour grape; they lose money. Will the G20 follow the BRIC's demand to continue the stimulus? Germany is driving the G20 to start to think about stopping the QE in this AP report European Countries Call on G-20 Tackle Bonuses. Germany knows the effect and consequence of QE well because she has first hand experience. This is good advice which contrasts to the BRIC's recommendation. For BRIC to transit from export economy to internal growth economy, it takes time and they do not want to lost money during the transition. Also, the more the stimulus, the more debt the West will pile up. The creditor's voice will be louder and louder. China is speaking with both sides of the mouth now. On one side, she worries about the devaluation of the U$ and on the other side QE must go on. So far the American Imperial Empire is just doing as much damage to the world economy as possible by doing QE.

Gold 2009.09.03 September Gold has crashed the glass ceiling, for today. The interday high is U$993.80 which is above the resistance of U$992. The NYMEX close of the day session is U$992.8. If we use the December gold price which is quoted on NYMEX web site is U$997.70 which is above the U$992. At 5:00, the End of Day price for December is is U$993.40 which is above the U$992. So here we are when USD Index is virtually unchanged standing at 78.40 level but we got a huge rally of gold which threatening to have a shot a the record high of U$1,007. If the gold could close above the U$992 tomorrow, this is a very positive sign to turn the U$992 resistance to become the support.

China 2009.09.03 "Chinese stock market has gone crazy. The rally cannot be sustained.", "Chinese stock market is damping that will finish the bear market rally.", "During a bear market everything goes down.", "During the Great Depression Homestead gone up 10 times.". It seems there is pattern emerging. When you say something contrarian, you are in fashion without any real support. This likes a stopped watch it can tell the time absolutely right two times everyday. When China promotes the economy starting five years ago but updates recently, they say the pouring money now flood the economy with money does not work. When the China government tightens the money supply to combat stock speculation, they say the Shanghai Index falls 25% in a quarter is disaster. Please look carefully. Shanghai Index moves up and down 6% in one day a lot. It is usual fluctuation. Market commentators start to cross the profession of advertisement: bold words is in fashion. This obscures the true advise from some good one.

Money Matters 2009.09.02 Today, we celebrate gold which is up more than 2% for the spot and future. But the volume at NYMEX is only 64 not the high volume of 30,000+ on July 31. It has not break above the resistance U$992 yet. Although everyone says only price count but small volume could easily skew the statistics. So get a grip. WTI on the other hand has been struggling very difficultly to stay above U$68. Last time WTI rallied up to U$72 and fell to U$65. This time it rallies to U$75 and falls to U$68 so far. It is just as scary. Remember today is Wednesday after the EIA publishes the petroleum inventory number. Tomorrow will be critical.

Money Matters 2009.08.31 Conspiracy theory: On the very last week of summer, USD Index is in a serious breakdown mode t slide under 77. Something like last year happens but this time the scale so far is much smaller: all commodities including base metals, precious metals, oil and natural gas were got hit at different degree. Oil is the worse. Every time, it falls 4-5% but just rebounds back stronger. Natural gas is the worst. If natural gas is so cheap and supply is abundant why so many multi-fuel power plant does not use up all the NG surplus. NG is now much cheaper than LNG in North America. There is no reason why people still use oil. One could argue that the demand from the manufacturing sector diminished.  But by how much? Lets find some number.

China 2009.08.29 The iron grip of three big iron ore producers on China will have to be loosen when China made a deal with FMG. Details are reported by The Australia. The FMG receives U$5.5B to U$6.0 finance (not sure buy in or loan) from Import-Export Bank of China to allow it to expand the production. In return the supply price is cut by 35% from the fixed price. This could be a small token compare to Japan and Korean receiving 33-44% discount with the big 3. While the Big 3 are the 800 pound guerrillas, a few hundred monkeys may beat the guerrillas. The importance of this event is that China is now trying to break the walls built by the existing economy war lords. A first step to level to the play field. There is also another hint we need to observe. The FMG supply contract is only U$5B and has been labelled as small order. Why does China buying all these metals? Is she really stocking or using? From the consumption of all steel required material, China may have a very high probability of consuming these iron ore for domestic and export purpose. Remember that U$700B railway upgrade project?

Money Matters 2009.08.28 U$ has been the major driver on the violent movement of oil and gold. Everytime, gold moves up, oil and gold dramatically fall and climb back slowly when the U$ falls. Thanks to the great quantum probability, they can move in same direction. Actually this may be the result of strong inflation. U$ is competively devaluated to other currency. However, other currencies fight back to support U$'s reserve status. Nowadays there is no benefit to be the reserve currency which almost like a four letter words. The commodities prices go higher due to the inflation. At the same time, competitive devaluation of currency pushes U$ up for survival. This is complicate.

China 2009.08.28 According to GlobeInvestor.com, China has acquired at least U$22B assets of oil and natural resources through various state owned companies so far in 2009. These are bigger deals that cost hundreds of millions dollars. There are scores of tens of million dollar investment are "too small" to get on the list. Obviously, the tally is done through news reports that announced through public interest or regulatory requirements. The unannounced deals with the Arabians, Africans and South Americans could easily add one or two multiple to this U$22B number. As Dean Lebaron says, Chinese is executing a takeout strategy with the FX she has. While this number seems dwarfs the monthly tens of billion of US T-notes/bills purchased, but it may be comparable. The strategy the Americans used was different. They entered a country's economy at a high profile through multi-billion corporate such as as IBM, GE, P&G, JNJ, Coke, and MacDonald. But the Chinese all out takeout strategy may be more effective to net all asset with decent under the radar quality. Is this the application of sweeping style takeout. No Japanese and Korean had done that before. Nothing is really new under the sun.

Money Matters 2009.08.26 In the 1980, Japan is the super power in world economy. Deflation hits. Nikkei went from 40,000 to today's 10,000. Is there any bright spots in Japan's stock market? Look no further from Sony (bought out Warner), Toyota (biggest car manufacturer). Investment is always find the winner. To play safe but want to win big is a contradicting concept. When you get into Index Fund, it will be high when everything is euphoric. But it does not last.

Money Matters 2009.08.23 Many has opined that USD Index is going to have a free fall. Despite of what they say, the same pattern, higher high of the MACD has been interpreted as good recovering. Please check this chart (complement of Stockcharts.com). The pattern can bee seen as the bottom and reverse head and shoulder if it could recover above 78.5. However, the long term trend is negative because the 200MA is turning down. If one measure the distance between the 200MA and the 50MA, it is closing. So the blue line will cut above the red line which means USD Index could be at its low for the current period.

Energy 2009.08.19 EIA has been the biggest promoter of demand destruction and weekly increase of stockpile and import. It is not a consistence picture because the rate of increase is unbelievable high (now should have 100's million barrel surplus since the destruction begins) with the side story of storing these surplus oil in oil tank. Suddenly, the oil has a drop of 8 million barrel in one week with the refinery input reduced by 0.5%.

Money Matters 2009.08.19 The market is completely dominated by the U$. It is understandable because if U$ can remain at the current value, you get the wealth preserved. This hope keeps the U$ high. But there are a lot of short so when U$ moves slightly higher short covering initiated. The butterfly effect pushes all other down by selling to cover the short margin. However, when the U$ shows any weakness, dumping of U$ continues which triggers the buying of equity to complete the paired trade. Gold continues to be illusively not the leader. Gold stock becomes the victim of no faith in gold. Silver is used to bring down the commodities because it is being thinly traded at NYMEX. This is a tug of war for the trader and market maker who is detached from the underlying assets. Assets are just the gambling chips on the green velvet top table.

Money Matters 2009.08.17 This is the regular Monday that drops 3-5% of the index. Today is the regular day that the sky falls. Today is the beginning of the doom. All because the commodities are lacking demand as American are not willing to buy. BKX index dropped 2.06 or 4.5% when the DJ Industry lost 2% and the Transport 3.5%. Energy and precious metals are labelled as heavy casualty. In fact the energy and precious metal stock selectively are suffered heavy casualty. CGSI lost 4.4% and the UGSI lost 4.8%. How does commodities holds up? The following is the NY Commodity Exchange's End of Day prices compared to August 14:

The biggest loser is silver, 7.5%. Sugar gain 3% and so does cotton. Platinum is the bad boy which downs 3%. WTI lost more than U$1.50 at dawn to U$65.23 but recovered to U$66.79 or lost U$0.68. So how about base metals?

Again silver is suffering. Others are suffering too but not much different from the normal fluctuation. Tomorrow will be key to see what is the trend. Tonight, base metals and NYMEX future recovered about 0.5 to 1%. Stock market will be weak if it does not have a 1% rebound. Commodity will be weak if price lost another 2-5%. Stay tune.

China 2009.08.14 A new chief to the China National Nuclear Corporation is reported by China Daily on August 14. The report allows us to look into the inner of the China state owned business and their relationship with the Politic Bureau. The new chief held the title of Chairman of China Atomic Energy Authority from 2005 to 2008. The title in CNNC is GM. The event triggered is the previous GM was implicated in an investigation. What we can say is the legal machine is running. The Chinese Administration is deploying key resources to all key business units in the country to ensure continuity of the policy. China has a dedicated organization to oversees the use of nuclear energy in an active role because it involves actual building as contrast to the monitoring role of EIA. An August 17 report from China Daily describes "The CNNC is responsible for China's nuclear weapons, power production, and managing the country’s nuclear waste disposal facilities, according to the company's website. It made a profit of 4.8 billion yuan ($705 million) last year. China plans to build five nuclear power stations this year to reduce the country's reliance on coal and oil." China's nuclear energy is not yesterday technology. This time it is at the technology bleeding edge. Xinhau News Agency reported on April 20, 2009 that "China on Sunday started the construction of its first third-generation pressurized water reactors using AP 1000 technologies developed by US-based Westinghouse. The reactors, located in Sanmen of east China's Zhejiang Province, will also be the first in the world using such technologies." This project is a joint venture of CNNC's subsidiary SUFA and Westinghouse. There are also other technology trial with Russian as early as in 2006 reported by China Daily. The stimulus package is in fact smoke and mirror. It sounds like new money, but these type of multi-year planned project could be included in the U$500M package. The announcement is just the second run of an epic movie. Another sign to show China Government is in the driver seat to switch export oriented economy to a balanced internal consumer model.

Energy 2009.08.12 If one follows the EIA weekly energy report on petroleum or natural gas they will be dumbfound on the price has not quite tracking the inventory, especially the oil. There are a few interesting issues related to the EIA number starting with the source: it is based on voluntary supply sources which does not perform a systematic collection of raw data and performing analysis. This is criticized by Henry Groppe. Second, one of the very misleading indicator is on the days of inventory is based on the consumption rate of refinery. This is very controversial because the American refinery capacity is falling and problematic. This explains why price goes up when the days of inventory rises. Of course some people does read the actual number but the number does not have to be accurately reflecting the reality. For example, storing oil in oil tank theory has been criticized by Henry Groppe that it is a myth because it is so expansive that no one can do it. Truth may be coming out some day but the market's trend may show the tip of the truth. As all EIA and IEA effort points to excess oil, oil price has recovering to U$70 even with OPEC output cheating. Immediately, there are tons of explanation like high hope on economic recovery of America but ignoring the true needs of BRIC. WTI takes efforts to slowly climb back above U$70 after a flash drop of the price. When it happens week after week, one would wonder why the price returns higher and higher even on the face of flash rise of U$?

Money Matters 2009.08.10 USD Index rises above 79. This is unbelievable. Will it able to punch above 80? There is the possibility in short term. You can buy up the U$ using a U$1B here or U$1B there. You do not have to buy U$ but you can sell other currency in the fashionable borrowing style and pay the fee in U$. The momentum is strong. They cycle seems to be five days long. Let's see what will they think next. The strange effect is copper does not retreat. You can argue the industrial demand is recovering. Is it or who is recovering? If we believe the cycle of world domination, after two hundred years of domination by the West, it would be the rise of Africa. Before Africa can stand on its feet, may be East is the place to watch. Both the BRIC and Africa are rising to improved Quality of Life. This demand high degree of industrial metal. As the West wants to preserve the resource or running out of the resources, the resources at Africa have to be produced. This needs steel, nickel and copper to build the infrastructure. This is a turning point and a inflexion point. Like the wild wild west. When you develop the place, it will boom. All eyes are now watching U$ to see how long its legs are. Oil, gold and copper may give some hint. It looks like they are being accumulated and going sideway.

Money Matters 2009.08.09 In all economic books, the Southsea Bubble and Tulip Maniac have been labeled as the classic phony hoax that scammed millions of people. But how is this different from the fiat money and paper commodities? The demand and supply has been mistakenly mapped to the wrong market by the analysts: really consumer versus speculator. The speculators are, unfortunately, the major banks, government and central banks.

Moneynamic 2009.08.06 USD Index is again the centre of attention. In a brief moment, it rose above into 78 but settled below into the 77 area in the evening. As soon as that rally visible, all commodities sped. WTI fell to U$70.18 but rebounded to U$71.94 EOD. Gold was at high point U$974.30 at the morning but finished to U$962.90 EOD. All industrial metals 3-4% after a weeks strong upward movement of 15-30%. The market is in a very high energy state. The high  the energy the higher the entropy which is the physics' name for black swan. This also makes many unimaginable things happens like USD Index has a rally of 70 bps. Like the expression, if you cannot stand the heat get out of kitchen. Is all rules fly out of window? No. They are all inside but with new set of parameters so we have to read them differently. All rule holds just more volatile. So fundamental may be the only tool that can let us see through the fog of war which could be deployed by the banks, the brokers, the exchanges or the government if you believe in conspiracy theory. Will the devaluation create rally? Most probably because everyone will do the devaluation trick so the purchasing power will be kept in balance.

Gold 2009.08.05 USD Index dips a bit by end of day today by 4 pennies today but up 7 pennies yesterday after a whopping 200 bps in 3 trading days earlier. This is 2.5%. Gold moves up from U$927 to U$966 today for  about U$40, a 4% movement. Is this a corresponding strong reaction? No. Gold has been seen as the lagger and has been dumped due to panic and covered during panic. It remains under the due effect of the Twin Tower which has been towering the situation as major resistance. Each day, the movement of oil and gold have panic reaction by short covering to move up which is not sustainable or reflect the real market direction. Gold stocks seem to have distribution which has not shown any firework yet. Lacking buyer could explain the weak upward bounce. May be there is a base building to support the rally. USD Index could continue to fall, oil continue to rise but gold may keep in trading range for a while. The major movement of gold in U$ is not mirrored in other currencies. If investors believe gold is cheap they would buy earlier. If they believe U$ will fall further but gold is not necessary to be the good investment. So unless there is a clear vision that gold in other currencies will be at high nominal value, gold price will not be support other than American. While the American is crazy on the ETF which is a derivative that does not deliver the ETF is actually disconnected to the physical gold. There has to be a trigger to remove the blockage.

Gold 2009.08.04 USD Index has a clear break down but this does not mean things are not reversible. There is always a moment of unexpected low probability. Gold may seem responded strong by bounded back but in fact it has not better than previous double top which is descending. Combine with the higher low, the opportunity of breaking U$1,000 is good. The gold vs USD chart on August 4 shows a synchronized movement of gold going higher but not in a very definitely mode until we have to break the Twin Tower. This raises a frequently asked question: buy before the confirmation or after? Before has higher risk abut higher reward. So the reward is proportional to the risk.

Moneynamic 2009.08.03 There may be a lesson for today's USD Index down fall. In the afternoon, gold up a meager 0.1% v.s. USD Index drop of 0.8%. U$ is devaluated today. No doubt about it. The market rally. Dow Industry up 1+%. WTI up +3%. Other futures up vigorously: cocoa +2%, coffee +4%, natural gas +10%, sugar +5%. Spot industrial metals are just active: aluminum +4%, copper +5%, nickel +6%, zinc +6%, lead +5%. If gold is the reference currency, its price in term of U$ should be reflected. Of course there is always a delay. Like the rally from U$250 during the early 2000 to the current price of U$950. It is a rally of about 4 times. It is a catch up since 1980's U$850 interday high from about U$120. So in about 30 years, gold went up about 8 times. How about the U$. It may not be down 85%. Someone could justify that. So what makes gold or stock rally? If the devaluation of currency is reflected by the corresponding rise of price, this equation does not add up. There are some terms have to be added to this equation. This is inflation. Cost to produce gold just like any merchandizes, effected by the inflation of labour, time, material and degradation of the ore. Although modern machinery is much more capable in the last 30 years of revolution, like the peak oil theory, cheap minerals are exhausting; not finishing. The major drop of USD Index today no doubt will create a heavy wave ripple in the pond of market. Many hot button is pushed. The jump of many commodities could be higher than what they deserve. Tomorrow may be even more volatile. Just like the price of oil is now trading a spread of U$10. Someone is going to be sleepless tonight.

Money Matters 2009.08.03 In the report published by Societe Generale on Official Sector Activity in Gold  First Half 2009. Swaziland and Germany are not likely to sell more gold by the second half of the year.

Money Matters 2009.08.02 In 2008,USD Index dipped below 72 from March to July. In everyone's astonishment, it rallied almost to 90 during the Midnight Massacre. Everyone wonder why there is such a bubble blowing? There are two ways to create paper wealth. The first is through tangible assets such as commodities and manufacturing. Another is through virtual commercial such as trading, derivatives, and many vehicle that detached from the underlying assets. You cannot create the assets of the first type but you can sell someone's shares many times during an option, short selling, CDS and many other derivatives without the consent of the owner. You can open a trading account with many institute trading broker and do short selling. Where are those shares coming from? In normal course, you need to borrow someone's share to sell short but nowaday you can do it with an account. Sprott Asset Management's first day trading after IPO is a typical example. 20% of the outstanding shares traded. Unless everyone hates Eric Sprott, no one would dump the shares so heavily after a very successful subscription, 3 times of the offering. More important is that most of the shares are not delivered to the hand of the subscribers. Since the Paul Volker's time, the high interest rate killed most manufacturing except a few, i.e. the consolidated Dow Index members. Small and medium business and manufacturer were the casualty and prisoners of these money lord. If we say Hank Paulson is the operator of the Wall Street banks than Mr. Volker is the operator of merger and acquisition during his tenure under President Reagan. While everyone praise him as the the savior but he was actually creating the compress air tank to inflate the next bubble through the saving of the whole citizen because American pushes the virtual wealth creation game to the world. It was from that time on, the Wall Street gang became international operators to plan the seed of the greed around the world and demolish the firewalls between countries' economic system. We have witness the one done everyone down episode. The fall of Lehmann Brother could affect many pension plans around the world; not just the American. Why does American take this route which is dangerous and moral hazard? The economic imperial empire of America has extended from the government sponsor during the 17th Century to the Wall Street sponsor which does not have to face the consequence. Like most recently disclosed, the Wall Street continues to distribute the TARP money from the tax payer to the pocket of Wall Street workers. The flash order of Goldman Sachs perhaps one of iceberg of many dark secret. Retail investor is just in the worst situation now.

Technology 2009.08.01 While many intelligent people are debating whether the world (read United States not even Europe), some of them are alleging China is creating another bubble. The most prominent evident is the drop of China's 8% growth so far this year. Some of them (not necessary including the first some) found the fact that China is getting in the worse of the depression (not recession) because scores of thousands of business fail and the export of machinery parts reduced by 21% in last quarter. The obvious point is contradicting information yet many see it as rapport and believe the information is consistent. Reports are obsolete when they are published these dates; so does the statistics. So when we see rallying data it could be shrinking now in reality. Analysis has to be done on the level that the foundation does not obsolete by the time analysis has finished. This was not as a tough job in the past but it is now because the reality has hastened at the communication speed. Since we are at the web speed, information can be propagated in minutes, so does the economic. At the beginning of 20th Century, the economy of grain is determined by the speed of the cable which relayed by the horse drawn carriage or train. It is at the rate of weeks. If Binge and others had their internal communication network to beat the newspaper by tapping right from the mouth of the farmer. So grain situation at Balkan and Argentina could be received and drove the decision of more barge sending out or cut the renting of elevators. What remains the same is the same human brain thinking and meticulous thinking process with great knowledge background are the key factor to do timeless (within a reasonable short time) correct analysis. It is more advantages for the people nowaday that they can update the analysis as new information poured in. In this cyber age, do not read stale reports. Read fresh or timeless one.

Money Matter 2009.07.30 This a great era, this is a problem era, this is a happy era, this is a sad era, this is a winning era, this is your lost your shirt era. The market is full of hot buttons everywhere. When hot button is pushed, you can see the Christmas lights flash. It is a conspiracy theory that American will try to keep the Chinese creditor happy by pushing up the U$. Yes, we see it worked the wonder .... for one day. It just likes someone know what would happen for an extreme narrow window and creates the window of opportunity. Once you missed that you lost your chance. Commodities have not rebounded as much but just slightly short. Why is it so important to have a high U$ and low commodities. High U$ maintains its throne of reserve currency. Low commodities price keep the inflation in check. Apparently someone (would it be the Goldman Sachs) has not buying enough by creating an artificial tough before going up? If this conspiracy theory is right, we are at the mercy of some money lord who runs a raked casino.

Money Matter 2009.07.29 After jumping 70 bps, USD Index hops 14 bps this morning. Is this tour de force? Could be. Some analyst explains the surge of U$ is attributed to the repatriation of debt or asset from overseas. If you have debt in U$ but used to buy other currency, as long as that currency's competitive devaluation is slower than U$, they can payback more later. So the repatriation of debt may not be a major factor. If U$ is falling, why on earth you want to convert the asset to U$? The surge could serve one important purpose: strong U$ for the creditor and the auction of T-bill. If this is the story, this rally is artificial without fundamental. Artificial or not, the market is not logical anymore. If this is a game of chess, pushing up U$ would be the cheapest and most effective way to knock down commodities. But we should watch the industrial metals such as copper, nickel, zinc and lead. Iron ore and steel are important but there is no spot or future market to watch. So we watch it indirectly through nickel. Updated at the end of day: The USD Index bunny continues to run on overdrive to hit 79.55 at the end of the day. The fear is built up. Oil is down almost U$4.00. The strong U$ has unintended consequence: the stock market falls too. The fall may not necessary caused by U$ strength but the overbought stock market needs a trigger to work off the overbought. Oil is the usual victim on Wednesday. Sometime it takes a few days to repair. Some time it sinks more. We should watch with care but gold is leveling at the evening.

Money Matter 2009.07.28 The China-U.S. Strategic and Economic Dialogue (S&ED) finishes today. The USD was hitting the low point of 78.33 today. Right after that the USD Index continue to rise to the high point of 79.06 before falling back to the 78 range. During this Sino-American talk the major focus is showing China that U$ can be strong; a soothing lollipop for China that offers little meat in comparison of U$300B of F&F investment and U$800B of T-bond. A total of accountable U$1.1T. Where is the other U$1.2T? There is no more details. Last year, when the U$ was weak, there was Mid-night Massacre. Today, a sudden surge of 70 bps, knocks down commodities to various degree. There is no Lehmann Brothers to drag down the commodities. Who is the beneficiary of the commodities drop? China. She started the accumulation of oil, copper and so on. Is it a coincidence. Today, at the junction that China may cancel the American's credit card, there is a surge of 70 bps when the level of confidence dipped? U$ should fall not next. But the financial engineers can do just do the unthinkable. Are they? At spot metal market, Aluminum up 0.8%, copper 0.1%, nickel 0.2%, lead no change, zinc down 0.3%. How long could be be continued? What will they think next?

Money Matter 2009.07.27 Wealth is measured in purchasing power in unit of money. Of course, purchasing power is inversely linked to the price we pay. The price we pay is reflected and measured by inflation. In turn, inflation may not appear if goods are imported and the price & the FX rate does not change. This happens when we have a competitive devaluation. It is like the water level of your bath tub, the rubber ducky and the plastic boat move up and down along with the water level. It will be danger to assume that equity and commodity will rise during competitive devaluation of currencies which is done by almost everyone. For those who do not, we face deflation. Now this will be interesting based on the Law of Supply and Demand. The Law says that if the demand is inelastic, which means the merchandize is a must, there could be minimal or no elasticity. The price does not fall when demand falls. To ensure oil demand is elastic, there must be a mirage that demand falls and supply is in excess. ASPO-USA published quotes from Henry Grouppe who does not believe the statistics published by the government and believe oil demand is slowly rising with supply dropping. During this confusing state, competitive devaluation will have no effect on labour and commodities. Therefore, corporate will gain no additional revenue from overseas when the sales revenue is converted back to local currencies. However, if there is inflation, the whole game will change. Of course, when one currency falls before others, inflation is created through import, the equity associated with the import will increase in bottom line if the manufacturing is done locally and sold oversea. This seems not the general trend of all merchandize. For example, heavy merchandize such as cars are made near or at the country of sales with imported parts. So there is inflation to the cost. This will not increase the bottom line because the cost of imported part will get higher. The manufacturer will benefit nothing but the danger to eat the additional cost. Inversely, if a company export inelastic merchandize, it has pricing power, it will drive up the bottom line by increase head line with same cost. Yes, the imported country will have inflation but this will not be reflected in the export country. We have to differential and identify the scenario of devaluation and inflation to preserve wealth. GE is a good example that shows currency devaluation does not improve bottom line. U$ is falling but demand falls too. A better method is a 360 evaluation.

China 2009.07.26 Like clockwork, China is advancing her agenda to open the access to American's assets. The G8 did not answer China's request to broaden reserve currency, China announces that the forex reserve must have reasonable return, if not it is not good enough, China Daily: China's forex reserve not investment fund: central banker July 18, 2009. (Note: China used U$200B to set up China Investment Corp 2 years ago to diversify.). We have to be very careful with China's wording. She does not say U$ foreign reserve. As a small token to comfort American, there is a U$30M joint clean energy research centre (China Daily: US energy chief wraps up China tour July 18, 2009) in respond to American's demand to reduce carbon emission. Now the heavy weapon is out. The China-U.S. Strategic and Economic Dialogue (S&ED) will be held at Washington on July 27-28 to facilitate talks between presidents from both side preparing for the Copenhagen and G20 meeting. (China Daily China-US dialogue to facilitate cooperation July 26, 2009) U.S. could not keep on brushing China away. The report singles out the fact that "The Obama administration intends to remain focused on the trade gap. It plans to stress at the talks Monday and Tuesday that China can't rely on U.S. consumers to pull the global economy out of recession this time." This could be read as American offers nothing to China while she does not need American to get her out of the recession because she has her internal market on the way to replace the export to American. In another word, American did nothing but shrinking the wealth of China, why China wants to help American. China can help Europe, Russia, South America, Africa and not the last the Arabian. After China's head fake in IMF to use SDR as reserve currency, the idea to unseat U$ using SDR is doppred. In the report China Daily: Nation to get $9b in SDRs July 22, 2009, down play her need of SDR which supposes to replace her forex reserve. The S&ED move is a very small change of U.S. Government's mentality. If we see President Hu leaves for some internal affair, we shall know the meeting fails again. To the least, American should have a state banquet for the meeting not a casual lunch. Both sides will definitely using the carbon footprint as lance to fight in this tournament. American is collecting the dirt for China so does China. According to China Daily: US must lead the climate battle by example, July 17, 2009, American is not doing enough. Lets stay tune...

Money Matters 2009.07.26 What are the drivers of a stock market? It could be a shocker to many if it is the stock exchange. During the early time of New York Stock Exchange before any regulation, the Exchange had to encourage participants through various success stories. Now that there is SEC or its equivalent from all countries, there still not much difference. Murray Pollitt once said that new products had to be offered to promote trading because stock exchanges lived on commission. This is a very true statement. Here we are, the stock market has index, future, options and direct trading to make the market more easy access by the retail investors who now becomes a major contributor of the commissions. There is a conflict of interest between the trading and value of the market. Quarter after quarter we hear the story of companies beating the expectation of analyst drives up the stock but ignoring the falling of revenue. So do we invest on expectation or invest on the performance of the company? Investors are now continue to ignoring the basic and rely on the media to give them guidance and in turn the media get guidance from whom? The analyst? The analyst is based on hear say or their projected numbers (i.e. imaginary friends)? During this market down fall, many companies falling along with others but they have persistent revenue, robust asset and strong customer base. But these does not matter. The price continues to fall because someone says so. Even the government is pushing the people to the casino by lowering the interest rate so that you will lose your buying power if you keep cash yet the government does not tell you that you can lose your pension and retirement saving. This is OK to the government because your saving paid the tax already. If you do not have enough money, you have to work or in other word, contribute to the tax revenue. The more you lost the money, that means someone will have a capital gain tax (don't count on it, some accountant will make sure there is no gain for tax). How to survive?

Money Matters 2009.07.25 Without question, this week has been a very interesting one. First, Dow Theory confirmed the bull signal fair and square on Thursday and once more, even the Dow Indices are overbought. Are we out of the wood? Richard Russell says no. If not, what is the action to be taken? Are we treating this as bear market? If so, when should we buy? The Dow Indices shares have the yield 2-3% which is not at value but the Canadian blue chips have moved out of the bottom 10% (BMO) to the current 5-6% which is still respectable good value. If this is a inflationary market, then the revenue will increase because the top line will increate. If this is a stagflation market, the bottom will drop. For those companies which have locked in supply contracts will enjoy the benefit of inflation because they can sell higher (but to retail customer only). If the clientele is corporate, the situation may not be advantageous because the supply contract will be fixed in the lower price and may be cancelled due to low business cycle. At the same time, the cost will rise due to wage and material price inflation. Those who locked in rental contract will suffer from annual rental increase. The bottom line is that in a stagflationary situation, many corporates could collapse due to the pressure from increased supply cost and reduced demand. In an inflationary situation, this could be dangerous if the variable cost could not be controlled. This will definitely be the coming problem because labour, material and real estate cost will increase but the selling price has to be low to be competitive. The only way out is when the economy recovery, i.e. when people loose the purse string again.

Money Matters 2009.07.19 It has been in heated debate when the "World" economy is going to recover or to be more accurate, out of depression. Eurozone and United States have the GDP shrinking and unemployment rate rising roof high. The definition of "world" may require some clarification. These group thinks like China before the 20th Century: China is the world and world is China and China dominate everything. Such concept, interestingly, established when China relinquished that notion when the world became more flat as the warships around the world were busy cruising other country's water preparing for invasion. For the meantime, both North and South America governments are experiencing the flirting of negative GDP contingency plan. Although some only admit either there will be one or two quarter and/or very small decimal point contraction. These experts also extrapolate these numbers to the BRIC. Lets focus only on China and see how accurate. China Daily has published the report China leads world toward recovery on July 19, 2009. The GDP has met the NBS's forecast of up by 8% and may have an up side risk. This crushes the theory that China cannot recover before United States because China's economy depends on the extravagant spending habit of American. They also points out the massive bankruptcy of low tech industry and high unemployment in China confirm their observation. The first point is obviously unprofessional. Business cycle will have high and low. During the low time, only the fittest should survive, no bailout. More, the rate is not high in a developing country who is strive to find the niche, the sector and growth opportunities. The agility of bankruptcy and move to other sector is the sign of an efficiency economy. China's unemployment is staggering at anytime. Western reporters love to have feature story on worker goes home unemployed. What a sensational story but this is not journalism. You cannot use the American's historical unemployment rate to see the China unemployment rate. Proper reference frame has to be used. Dr. Nouriel Roubini forecast that the recession is U shape and may be in a period of 28 months while we are 19 month in already. Well, this does not jive with the uncovering of the collapse of commercial real estate and the massive debt servicing of American. Will these drag down BRIC? The impact could be much lighter than the first time because the BRIC has been developing the internal markets. China is the first success story reported.

Money Matters 2009.07.15 When U$ falls, it is not necessary to have every thing afloat; stocks and commodities. Currency fluctuations are determined by many factors and can be as simple as seasonal adjustment. If there is any change, the corresponding change usually close. For example, U$ goes up 0.1%, GDP could go down 0.1%. This is not what happened to the commodity and stock market. Everyone is guessing the direction of U$ and this translated to multiple of amplitude; more often it is more than 10 times. This is also not unique. In fact it is very common during war time for merchandizes. When the currency of a country falls a bit and the political situation or war deteriorates, commodities will just shot up because the supply could be cut any time. There is also the speculative action involved. The stock market at this moment behaves like a casino more than anything and the direction is not really random. Many stocks or ETF has lost their relationship with the underlying assets. When this happen, the rule of engagement has been rewritten but not published. So how to play the game? No or extreme cautious.

Money Matters 2009.07.14 Efficient market could only be possible if the force of influence and knowledge is equally shared by all participants. Any golden rule cannot hold the water if all well known buy signal really the time to enter the market then there will be no seller. If there is no seller, no one could accumulate. The market will become the result of random walk. Now here comes the conspiracy theory. When some one can engineer a technical buy or sell signal, but this is artificial, investor act as predicted. Later, the reverse signal is engineered, the investor act again accordingly. So someone has to foresight. So they become the other part of the trade. Without question, they hold the better part of the bargain. Can this possible? We understand that the market advocates calling for the return of up tick rule. So we know that you can much easier to drive down a market by short selling. There is no down tick rule to drive up the market but we all know that many recommendations on some bull news trigger a surge in the upward direction. To some extend, the underwritters are doing this. Some really doing that. This begs the question is the market fair?

China 2009.07.12 World Economic Forum is the European economic planning and networking platform to the world. It does not offer loan like IMF or World Bank but the networking that generate support, relief and relationship have the same effect to developing countries. China was spotted and introduced to the WEF as soon as Dan Xiaoping confirmed the Open Door policy. Now you can argue, China could be the second biggest economy sharing or ahead of Japan. WEF does not customarily hosting meeting outside Switzerland. This summer, September 10-12, will have its Summer meeting at Dalian, China which is one of the top heavy industry centre (including shipping and manufacturing, e.g. gigantic tire for mining). There is a deep meaning to this location. Guangdong has been the centre of light industry for the last decade that drives China's economy. Now it is the heavy industry that allows China to advance at the world stage, either for her infrastructure development or export. Light industry like cavalry that powerful and maneuverable. It may create some success. The major attack has to be coming from the heavy artillery. With a local stage, the world reserve currency discussion may go before no one has gone before.

China 2009.07.09 Conspiracy Theory: What could cause Chinese President Hu Jintao left G8 L'Aquila abruptly? There is sign showing that other than the key issue on how to promote international trade through a more stable reserve currency was pushed off the table. This is not the main cause. The problem could come from the carbon foot print which China is being alleged to be the biggest culprit. The carbon dioxide caused global warming is beginning to fall apart along with the global warming theory. So with the American's Guantanamo Bay prison, the human right bash on China is dropped. Rather, the CO2 is the new theme to insult China. China does not have to take this insult anymore. This is a childish retaliation on China's RMB settlement. This is not an unique case. EU does it among her member countries. Many bilateral agreement also settle on on-U$. Because the U$ is so weak, American become sensitive and want to exercise her bully right.

China 2009.07.08 News report on a sudden departure of Chinese President Hu Jintao in the middle of G8 meeting. The official statement is that the President to return to China to take care of the unrest at Xingjian. Let step back and see what could happen. First the unrest at Urumqi is not a newly developed situation. The conflict of Han clan and the aborigine has the conflict since the China executes the great migration of population. The purpose is to move population from the dense district where the Han clan is the majority to the much thin density at Xingjian. The purpose is a combination of political and economical. Political is to dilute the localism so that the dominion could be more Beijing centric. Economic is obvious because you need the labour to develop the natural resources and agriculture. Even you have the machinery, you still require people to operate. There is a U$1B wind farm at Xingjian so you can expect highly industrial development other than just for residential. Understanding this background, the conflict is natural and could be ferocious and unlike any inter-racial conflict in any country. To prevent major damage to the investment to the area which significantly improve the quality of life for the aborigines has to be brought under control. Any attempt to destroy these investment is irrational and forcing a lost-lost result. Xingjian has the historic target of Russia. Mongolia was part of China over three hundred years during the Qing Dynasty and also during the Yuan (Genghis Khan) Dynasty. You can argue to the cow come home but country boundary should could the most recent period, otherwise, China should claim Japan as part of the country. Does the Urumqi conflict deserves the attention of the Chinese President? The situation is not as bad as the Tibet unrest and as bloody. You can not expect it every day but it is not as dangerous as it sound. China has setting up the stage to discuss the broadening of reserve currency. So far the West continue to ignore. The conflict between the West and China has to be so severe that there is no possibility to continue the discussion. This is not the first time and China in her subtle way to leave with an excuse. Since the motion of trade settlement in RMB is in action, it will spread from Asia and South America to Middle East and Europe at a much faster rate. Conspiracy Theory: To calm China's fustration American has artificially pushes U$ higher and dump the commodities so that China could uses the U$ reserve to buy commodities cheap. This could only be done. The behind the scene negotiation will be vigorous until the G20. The contract negotiation will be hard to verify. But the NYMEX shows much higher volume on WTI, copper, heating oil, natural gas and gasoline. If this is not for the benefit of China, then someone is making the market to exploit the fear and accumulating the commodities.

China 2009.07.06 Renminbi trade rule comes into effect: http://www.chinadaily.com.cn/bizchina/2009-07/03/content_8350939.htm. Together with the leaked new that China may request a debate on reserve currency set the stage to draw the line for BRIC reserve currency and non-BRIC reserve currency. G8 not likely to discuss reserve currency: analysts http://www.chinadaily.com.cn/world/2009g8/2009-07/02/content_8347946.htm. G8 has to respond but most probably will follow the tradition to ignore China until too late. This could very possible the very few chances to correct this tradition. If G8 does not follow China's suggested agenda, China will have a very good reason to defend her foreign reserve. This is the redeployment of the reserve to other assets that were untouchable.

Money Matters 2009.07.03 USD Index rose 100 basic points. Plunge Protection Team worked hard to restore the U$ value before G8 meeting. But raising the U$ becomes a problem of the American economy because it hurts the export which the government wants to promote. Weak U$ will make a power group of Congress lobbyist unhappy. They are the big oil companies. Lower U$ does not only hurt the bottom line but also making new investment no business viable. On one hand, Obama government relies on a low inflation to keep the interest rate low but on the other hand this only works in the 1930 when American did not have huge foreign debt. By blindly adopting the Great Depression strategy could create undesirable consequences. The stage of stagflation is setting in like the United Kingdom in the 1960. Will US Government opt for an official devaluation? This will be determined by the creditors. The term to do this could be painful. UK was in a better situation because of the national owned corporate could be privatized or sold to foreigner at a discounted price in the years following the devaluation. Two major groups will make the decision: national debt creditors and the American big corporate. Creditors will not welcome the idea but it may lead to the bankruptcy like Brazil. How about the big corporate? Devaluation may seems able to boost their enterprise value but because some assets are valued in U$. Devaluation of the U$ will mean nothing change to the American asset. The foreign assets will increase in nominal value in terms of U$. The bottom line could be negative. The second group could create tremendous pressure to resist the U$ devaluation because there is no way to redeploy their asset unless they pull out of America which will be interesting.

China 2009.07.03 China is going to expand the railway system big time. The report from Xinhau News Agency China to spend U$731B on railways by 2020 was coming out on December 21, 2008 way before the stimulus package in March 2009. China continues her supersonic action; you can only hear when she started the action. Where will this railway going? To the west. Consider all the natural resources that locate at Tibet, Qinghai and Xingjian where no good transportation system exists, a massive building must take place before these resources could be deployed to generate GDP. As we know, along the railway, there will be boom town. This is how American conquer the west but building the cross country railway. Similarly, Canada united all provinces through the Canadian national railway. You can bet on the success of this formulae. You can bet Chinese are on top of the money spent at all the pressure points.

Moneynamic: 2009.07.03 Inflation/deflation is not necessary to be just the effect of currency value change. The effect of these factors change with time. You cannot use the same yardstick to measure at any period of time. Labour cost is frequently consider a major contributor of inflation and deflation. When the labour cost increase, the effect is inflation and when the cost of labour decrease the effect is deflation. Consider the Ford's famous Model T. It was price at $825 in 1909 then $575 in 1923 when built using assembly line. At this price, it is more than one year of salary of Ford assembly line worker. Now, a Ford assembly work can easily buy a few Ford basic model Fit for one year of salary. So this is the deflation aspect that is not affected by the labour inflation. This case is not precise and not representative. The reason is that the cost of a Model-T was lower than any other automobile of its time but was still a very expensive item. It was expensive as a fraction of an average home. Now, not too many could afford a car cost about a fraction of an average home. However, in some other scenario, the inflation comes from the quality of life. The minimal requirement is raised. The cheapest model has no sales. For example, the first Hyundai sold in North America Pony was about U$3,500 in 1984. It had no air condition, no automatic transmission, no power window but came with a steering wheel and four tires (no spare). In just 10 years, the cheapest Accent is about U$11,500 but with many more extra. This is about 9% yearly compound which is way higher than the official inflation rate or may be a ted higher than the unofficial inflation rate too. Although the Accent may be more expensive but for sure no one will buy the Pony any more even it is available. The classic people's car Volkswagen Beatle is another example. This die hard small gem initiated by Adolf Hitler until the '90. It was extremely popular among the Bohemian but it has to be evolved to the contemporary Beatle which is a few times more expensive. We all complain about bread. If we going to pursuit the organic life, you can bet that the organic bread will not be cheaper because it represent a higher quality of life. It will cost more. What happens when you could not afford, you have to lower your standard of living. So here comes the deflation. While Bernie is trying his best to avoid deflation, the qualify of life in America has to be lowered. This type of deflation could not be avoided with reflation because the bank is grabbing the TARP fund and not passing on to the consumer. KRE (regional bank index) is performing poorly and remaining in downward trend. This indicates the Midnight massacre killed all the credits available to the people. Spending is coming to a gridding halt. Without the tap open to the consumer, reflation could not be successful. While U$ is losing ground, import inflation is not happening. America is facing the double doses of deflation. This is a much tougher problem than the starting problem.

Money Matters: 2009.07.02 The effects of deflation and inflation are well known. Some of the causes of deflation and inflation are understood. The acceptance of inflation along side with deflation is hard because deflation and inflation are regarded as the two sides of a coin. In fact they are mingled and intertwined. American is now enjoying the pain of both. By pushing a weaker U$ to improve export is not a complete solution to revitalize the American economy. The side effect is higher import cost. With China being coerced by American Congress to give up low cost manufacturing but without languish the manufacturing to other lower cost countries which suffers during the credit crunch  by no capital to pick up the demand. Until the credit crunch is eased, American will have no substitution of Chinese deflation imported. Within the country, saving may not be really increase. The measure may reflect the lowering of the debt because not enough money to buy. Americans remain the notion of spending. However with the cost increased, the only way to maintain live is to buy from block store such as Wal-Mart and Circuit City. Radio Shack has been the big promoter of importing deflation but the profit did not pass to the consumer. The way Wal-Mart operates to force deflation from China may come to an end because of higher quality of life in China along with high cost of manufacturing. China government is very much willing the sacrifice the low cost manufacturing in order to improve the GDP. When the Western report tens of thousand factories closed per month, they are seen some trickle established by the international global companies' OEM contracts. With the disappearing of imported inflation, Americans' local inflation continues to develop because people have to buy cheaper house, cheaper car and cheaper toys. Apply has lower the iPod and iPhone are the prime examples. It will not finish the credit crunch unwind until spending habits are changed. It will  not finish until wealth allocation to a privilege group such as financial and green works are stopped. No illusion and no wealth reallocation. During this period, if the EU does not do the QE, demand for American export will be in vain because the U$ remains artificially expansive. China will continue her capture of the market. The SCO, Shanghai Cooperation Organization, will represent China in Near East and Asian Russia. The WEF will be the platform for Sino-European economic cooperation. With the slow down in America, China has refocus her investment in Canada. It is not to say China giving up US but applying pressure to American during the money hunger period to soften Congress. The multi-moves to dethrone U$ will have its effect seen soon. The dethrone of the U$ has  a significant impact on the world money mechanics. U$ is the container for the trades. The container carriers the commodities which is wealth. It is believed that U$ has the stability and the capacity to the store the wealth. When the containers has to be replaced, new containers have to be appointed whether it is SDR or RMB or Euro or GBP or Yen. During the process, there will be a shortage of the container because old one is not reliable and the new one has yet to be identified. Can we use multiple contains? It happened before when the world was much far apart. The Mayan used one currency of trade, the Arabian used another. But they don't trade. In a world that trade among countries multi containers system will be a temporary bridging solution and it will happen until once again it is settled on one. Like the Spanish silver corn was succeeded by the GBP, was suceeded by the U$. China may use Russian to propose a wide accepted container while Chinese allies will use RMB. This political agenda will mean to be a leash to control the allies. This leash is lashing out.

Money Matters: 2009.07.01 Patriotic rally for Fourth of July may not work this year for our American friends. The U$ usually stays firm and the American market hold up. Today, the American market did an impressive off the gate run but the steam quickly weaned. It did not finish with a whimper but much of the gain is lost for the day and the selling volume at the end is really impressive which is not really a confirmation of bullish behavior. Right from the gate, the USD Index drops 30 points to just under 80 but finishes by 60 points lower to 79.60 by the 4:00 pm. There is one more day to catch up. Let see how things go on Thursday. Yesterday, the fall of U$ pulled down the commodities, especially gold. Today, the Punch Protection Team seems gone to party a bit earlier. With that gold rallies U$16 at NYMEX. The losers are the energies. WTI starts strong and moved up to U$72 but finishes U$69.20 at the end of the day. Silver is also uncharacteristically weak. If the industry demand for energy is low, it does not reflect on the industrial metals. Aluminum up 2%, copper is persistently up 2% and so does platinum, palladium, zinc and lead. The marvel is nickel which up 5.6% to U$7.354 on the spot market. Nickel is not used by itself. Since we don't have iron spot price, Nickel could bit the proxy. The accompany gain of zinc, platinum and palladium could signal the increase on the demand of industrial metals for construction. This will align with the coal price increase for this year so far (reported by Teck). Baltic Dry Index is jumped from last year's low of 600 to 3,700 level also suggests strong shipping for commodities. This is the early 2006 level so it is before the frenetic jump in 2007Q4 and 2008Q1. To where? It will not be American. It will not be from Arabia. I bet the freight route between China and US Non-Friendly countries and US Friendly countries are very busy.

Money Matters: 2009.06.26 Will 4% Fed rate be too high for the economy? Fed rate is the discount rate for the very short term loan for the American banks borrowing money from Federal Bank. It is also a reference for the low end of all interest rate for American consumer from the bank and other country's central bank's discount rate. To comply with the competitive devaluation principle, central banks' rate are very close but other political situation may also make the American rate actually lowest. By accepting this fact, the lower Fed rate does not mean a weaker U$ but it is just more competitive. However, lower the Fed rate, when there is a change, the equilibrium scale tipped, the exchange rate could, just could but not necessary happen, lower as long as U$ is the trade settlement currency. If U$ loses the status, the exchange rate may be more sensitive to the Fed rate but not necessary will push U$ significantly lower because American remains the world's largest economy. Trading with her must us U$ for a fairy long time. A caveat has to be added that in some near future, the 100% settlement in U$ may change to a steady but slow trend to use other currencies which is not necessarily dominated by Chinese RMB. If Fed rate rises to 4%, this is not a historic high by any mean. The lowest (except sub-prime) will be about 6-6.5% which was a low rate. Some long term mortgage will be pushed to 8-9% which is a fairy typical in the past. Accepting this should surprise no one that Fed raising rate scare no one but the entertainyst. The consumers have been spoiled with very low interest rate which is artificially suppressed to promote consumption. This is not the same if you consume on credit. Credit interest rate is always at the 20% range and insensitive to the Fed rate. Fed rate at 4% may be acceptable to the economy but does it acceptable to the fragile green shoot economy? That depends on the sector. It will not good for all of them especially on the luxury side. When the interest rate for a car is 10%, people will not replace the car as often. But this goes back to the fundamental question of can we live on credit or debt for ever? Or, expect inflation to wipe out debt? These approaches are not sound and with not without negative consequence. This path is not advisable. 4% Fed rate may sounds scary but this is only a beginning. Could we see the 12% Volcker rate? This is another extreme that just sows more seed to create another low rate bubble. Perhaps someone learns the history lesson and not choose this path also. If one ask why 12% rate is bad to economy since it could promote saving. The saving is a plus but this retards the money velocity because many costs will be amplified by the 12%. At the same time, deflation will kick in when the money velocity is reduced. Deflation is just a evil as inflation. Will Fed raise it to 4% soon? Politically it is suicidal and not good the the shadow allies behind the Fed. So this will happen gradually. Inflation is good for these shadow allies to pay off the debt through artificial jacked up prices.

Money Matters: 2009.06.25 Traditionally U$ goes up will push commodities down. Today has a changed. USD Index is still holding above 80. One day does not may a trend. So we need to watch the development. To stimulate economy, every country needs to do the competitive devaluation of their currencies to encourage export and pay current account cheaply. There are two effects, the first is that U$ is held up by competitive devaluation. The second is that people see it is close to the end of the quarter and half year. So the demand for U$ may wean. U$ could come down either by a bang or by a slip.

Money Matters: 2009.06.24 Market has been at the mercy of the U$. It creates tremendous volatility that pushes up for short covering or dumping to cover margin when the dumping getting more serious. Commodities got hammered because of cash. Look at copper, the fluctuation is as much as 10% in a few days. Oil is down from U$72 to U$66, almost 10%. More important is the following chart for the relative strength of Standard and Poor TSX to Dow Jones Industrial (complement of www.stockcharts.com) that shows market will be more or less decoupled from the other part of the world. It is more related to the resources and local economy health.  The strong tie between US and Canada ensures the rise and fall of the market is synchronized but the important thing is the TSX rises higher and falls less. So this is the different. We should accept the decoupling but we should also accept the fact that Canadian market is not immune from the movement of the American stock market. There could be the moment the collapse of the American market could bring down the Canadian market. However we should also assess that the how fast the Canadian market could rebound and move ahead or not.

Money Matters: 2009.06.21 With all the creation of money supply in America, what is the level of inflation would hit her and how possible is hyperinflation? The term hyperinflation does not have a precise definition. When the inflation rate hit a certain high percentage, we call it hyperinflation. The most famous one is the the German Weimar but it does occur in many countries. The most recent one is at Zimbabwe. Perhaps Zimbabwe could be the case study to understand hyperinflation. Like deflation, hyperinflation should be considered as an event of a confined area. For example, hyperinflation could happen to the unofficial exchange rate but not the official exchange rate. At Zimbabwe it becomes very close to what happened to Germany after the First World War. Basic necessities have to be purchased in wheel barrel of money. However, some business' asset value may not move as much. If you consider the price of Da Vinci's painting, for sure it is hyperinflation. If the basic necessity is self-supplied and moderate amount of luxury items are imported but can live without it the inflation could be less severe. In Zimbabwe, basic necessities must be import. Export is next to nil. The wealth creation is not happening. So even there are considerable of natural resources, the unstable political environment is just impossible to operate there. Contrast to many believe, American's inflation will rise. Could it hit 100% per year? Most probably not. Could it be slapped an inflation rate of 20%? May be but not highly. Lets consider the most basic necessities other than energy. Food and mineral supply are basically sound and stable if good food is not wasted to make bio-fuel anymore. Next thread is energy. With the strong support of UAE, it will be rising but to a moderate level. One should ask the question why UAE oil price directly peg to the local production? The energy cost is usually 10% of the merchandize. So even doubling from the current level will only push the inflation by 10% more or 20% if use the shadowstat.com's number. Remember the 10% energy inflation could very possibly caused by the devaluation of U$. Many imported goods will not necessary to be higher because everyone will do the competitive devaluation. So the import inflation could not be the major reason of inflation across the board. Sterling has to devaluate 50% in the 60's because all other creditors are booming. Now the credit crunch caused everyone recesses so competitive devaluation is a must to promote export. It may not have good result because relatively nothing change  but better than single out as the high currency. Paul Volcker is hailed by some people as hero because he used high interest rate to kill inflation. In fact he is the culprit that forces Greenspan to lower interest rate and expanded the money supply. Without that American's export industry will be completely destroyed. By the same token, Volcker could not lead the economy recovery because he will not just kill the export industry but also kill all the sectors from finance to manufacturing to service and to mortgage owner.  Why Paul Volcker's high interest rate is impossible? Business world is operated through credit (if you do not know, you may hear the term Letter of Credit which is basically the bank is operated as the loan shark that cashes the government or social welfare cheque coming from your customer's invoice.) There are many level of letter of credit. At 10% rate, 5 level will double the cost of the merchandize (usually the LC will take less than one year so it will cost less than 100%). This 100% increase in cost will reflect in price which means inflation. High interest rate does not really fix inflation. It just kills the demand. The result is the implosion of the economy. So don't try to use high interest rate to kill inflation again. This social experiment has to be ended now. Killing demand will push inflation higher because the cost is higher when the units produced are lower.

Money Matters: 2009.06.19 Market movement could be driven by many forces. Other than the earning power, the underlying assets can change the value of the company. The indicator of the former is the P/E. During a deflationary environment, the E will drop. So the P/E will rise. This is not saying P/E is a bad indicator. It is not the only indicator. Valuation could also be possibly performed on the future earning. One typical application is the earning from a mine after development and gone into production in the future. Obvious, the earning before production may not be impressive. There is also other aspects we can assess the value: the underlying asset. Canadian banks are famous for their power to increase fee. This is tremendous earning power that give magnificent growth of Canadian banks in the past. Can this be continued with smarter consumers and quasi-monopolized fee raising down the road will be interested to watch. Other than the intangible asset values, may be we could focus more on the tangible assets. There are two major concepts we have to differentiate: devaluation and inflationary asset value change. Both concepts deal with the value of currency and the end result are not the same. When a currency devaluates, the asset value does not have to increase in term of the nominal currency. The price has to be driven by demand and some other factors. If the demand does not change then the price usually maintain. Currency devaluate is not deflationary but it could have deflationary effect when consumers have to make a choice. The choice changes the demand. When a currency is devaluated, the sales of lower price item could increase. For example, the devaluation of currency will raise the price of imported goods. When these goods are the essential core spending, the discretionary disposable cash would be reduced. Or the ability to pay a larger mortgage could be reduced. Houses of higher value may have lower demand than the lower price house. (Sidebar: When the house sales increase, it is not necessary the recovery of the housing market. Rather it could be the consequence of reducing the demand in some submarket and transfer the demand to a lower submarket. The purchase of higher market segment was held back due to the reduction of purchasing power.) If the asset has demand and the value can be evaluated in other reference, the value of the underlying asset could be increase. For example, oil is priced in U$. When U$ relatively depreciated to the basket of reference currency, the oil price will increase. This is the devaluation increase in nominal price. It is usually responsive and noticeable. In another scenario, it is not the purchasing power of a currency that changes. But due to the shortage of supply, the labour inflation, raised cost of manufacturing, cost of sales and increase of many costs, the price of such item will increase. This is the inflationary appreciation. The obvious examples are paintings and antiques. Another aspect of inflationary appreciation is the change in quality of life. A child who satisfied with a paper folded car will have no demand of the famous Match Box because it is not accessible to this child. With the quality of life improving through higher income, the demand for Match Box could increase when you measure the inflation in terms of toy car by category. Thus the price of Match Box could increase due to the inflationary effect.

With this in mind, the devaluation of a currency does not necessary means a devaluation rally in stock market. On the other hand, inflation may boost a subset of the stocks.

Energy: 2009.06.18 In Matt Simmons' Twilight in the Desert, he wrote about his research on oil price and demand. His finding is that higher oil price does not necessary curb consumption. Forget the U$147 oil. The current level of U$70 is already 75% higher than the U$40 a few years ago. With all the negative economic climate, gasoline consumption continue recovers and oil stock continue to decline. In yesterday's EIA's weekly report, crude stock fell 3.9M barrel, nearly double of the expectation. US gasoline consumption was up 1.3%. Consider the continue decline in the American economy with all the manufacturing slow down, the consumption is edging up. You could conclude all the hand waiving on how China is slowing down become meaningless when she still maintaining a stubborn growth when thousands of manufacturer bankrupted. As an editorial note, there is not short of millions of business in China because she is climbing the curve of developing economy. The typical model has huge number of small business (not even medium) before consolidated to medium size business to a few 800 pound gorillas. It does not mean those dozens of 800 pound gorillas is final. Rest a sure, more will come. Look out P&G, J&J, Caterpillar, Coca Cola. BYD, Geely, CNOOC and SINOPEC are prime examples of these gorillas.

China: 2009.06.17 Last October, G7 had a pre-meeting for G20. Chinese Premier Wen JaiBoa went to Washington to discuss the action to respond the credit crisis. He got cold shoulder. On the following November 9, 2008, China announced the massive stimulus for infrastructure building amount to half a billion U$. The major function of the the stimulus is not the spending but to rebuild the confident. Should American echo or even just acknowledge the contribution of China, we could have credit easing a quarter earlier. No, nothing came out from the States while Bush continue to act like he knew how to solve the problem in fact no. The positive effect is now emerging from the Asia, for example, record high auto sales in China in 2009 will hit 11 million with first quarter sales up from 25-40%. This contrast significantly to the big three in the States. It is interesting that although the auto sales is growing such rapidly, the entertainyst firmly declares that iron ore world demand will drop significantly. States is not the world any more. China has been rising to the third largest world economy. Combining other BRIC countries, they are not much behind the #1. They want to have their share of world power. If American prevents the rise of the power and share the stage, they will build their without American. The BRIC meeting in Russia is the beginning of a new era. The BRIC countries does not have to share the old playground. They have their new one. If reform in IMF, UN, even UN does not with proper consideration of the economic power of BRIC, the confrontation will be serious down the road and it will not be in favour of the old boys' club.

Money Matters: 2009.06.16 You can argue that Dow Jones Industry does not make a new high means stock market is in trouble. Dow Jones Industry consists of Fedex which represent quite a bit of world transportation system. But it is still a small portion in comparison to flight. Baltic Dry Index has been rally from the low of 600 level to the current 3700 level. If you argue the world merchandize shipping is weakening this will be hard to explain. To me this is the continue recovery of the world economy, mainly the BRIC countries, without the American. Lets be realistic, American economy may be large but its fragile structure and deficit situation will much less influence than the BRIC countries. When one argue the globalization is dead, it should be Americanization of the world is dead. In fact, Japan, China, Russian and Brazil are putting their fingers all over the world including U.S. of A. If so, how to explain the TSX comes down with Dow. Markets that are joint to the hip will move in some sort of synchronization. So far TSX performs excel Dow. TSX up 15% while Dow Industry down 6%. So is it really that much of a tie?

Money Matters: 2009.06.15 What a weekend for the U$. Today, USD Index runs up 88 basic points to 81.08 at end of day. It runs up 267 points from the recent low of 78.41 on June 2 to today's 81.08 in 9 trading days. This is up by 3.4%. Impressive? Not as impressive of the fall form its 86.65 to 78.41 (824 basic points in 31 trading days) or 9.5%. We are approaching the double jeopardy point of semi-annual and quarter payment. As long as U$ is the currency of settlement, the demand will remain high during these period. This is important if people perceive the U$ is cheap when other currency has not done their competitive devaluation. Whether the auction is of American treasury has high demand or not is one thing, the actually current account settlement is far greater than the treasury auction. None of the BRIC countries and Japan want to lot their U$ reserve if they are not out already. When U$ has a rally, panic button is hit. WTI drops U$1.89 or 2.5% today. There should be panic selling. No. At NYMEX only 233,369 traded. It is about average if not slightly lower. Gold drops U$11.10 or 1.2%. No. its volume at NYMEX is 258, about half of the average of 531 for the last 8 trading days. Last time when gold runs up to 980, the volume high 7,497. So what is the panic. Copper drops 9 cents or 3.9% that may break the up trend. The NYMEX trading volume is 87 it is below the average 240 for the last 20 days. On the flip side of the coin, natural gas jumps 29 cents or 7.5%. Yes, the volume is about 20% high than the average. So why not one talks about NG?

Money Matters: 2009.06.14 Rate hike is coming, rate hike is coming, rate hike is coming. Many analysts have crying wolf for a long time, about seven years. At a glorified moment when the interest rate rose from the 2% to 4%, they hailed victory. By a long shot, 4% Fed rate is historic low. Now it is near zero. What can we learn from this. Life is never simple. At any moment, the system is not homogeneous. Even Fed rate is the source of many decision but it is not the only decision factor. Fed rate is also has a limited circle of influence. Unless all rate is pegged with the Fed, different interest rates of different financial activities is normal. Take the interest rate of mortgage. Sometimes, some long rate is the same, some times it is not. Take credit card credit balance, it is significantly different from Fed rate with almost no relationship other than the up direction. Does this unique to this period of time. Hardly. People may argue that risk causes the interest rate to differentiate. So it is the risk that drive it not the economic. Now we are facing the risk of losing the value of money due to inflation and debasement of the fiat currency why interest rate is not high for the money we deposit but the mortgage we take out?

Money Matters: 2009.06.10 Russian leaders are highly political motivated. Some says they always want to restore the luster of Peter the Great Age. During the beginning of Second World World, Stalin had closed door secrete meeting with Germany, Britain and America to protect their newly established boundary inside Poland. Obviously, dealing with the Allies and the Axle should not be mixed but Russian playing the politics to get reliefs from Germany when German wanted to split Poland with Russian. (This page of history is in a 4 parts documentary screened on PBS called Behind the Closed Doors.) Later Russian got reliefs from the Allies when German broke the secrete treaty and invaded Russia. Russian is playing the Europe with natural gas and the Middle East, indirectly with NATO, through oil. There are also different games in natural resources such as gold and rare earth metals with producers around the world. Many big oil could not withstand the game and left. The most recent collapse of the world economy, devastated the Russian oligarchs when margin clerks made too many calls to their hot lines. Russian Rupee is in a much worse shape than the U$. But the Europe's energy life line is controlled under Russian. Russian is also supplying energy to China who is trying to use economic to stage a world leader position. The BRIC meeting without the G7 becomes a counter play to the G7 organization. China had been lectured at every G7 and G20 meeting. The G7 never treats China as a peer but they all want China export of deflation and buying their bonds. Now the table is turned. China is using the NAF (Non-American Friendly Countries) to unseat the West's world domination. The outcome of the meeting will be very interesting.

Money Matters: 2009.06.04 Prez O's address to Islamic community has been hailed as the grounds breaking that will connect the American and the Islamic community. If you look carefully, the attendees behaves like the football spectators in a football stadium, in another word, staged. The structure, the tone and the attitude are all talking down the Islamic and like a teacher scorning a bunch of misbehaved kindergarten kids. Islamic has been financing the American for half of the century by selling underpriced oil and be the punching bag of the American pitbull in Middle East, Israel. Prez O's task objective is to get the Arabs to continue to sell them the cheap oil and create a human shield of the American non-friendly country such as Iran. At the same time, buy American exports to support the U$. This is not going to work because the speech is like a Christian making an Islamic Pope speech to educate them they should listen to the Master American. In a not too long future, we shall see the negative effect of this visit. If American continues this attitude more and more American friendly countries will turn non-friendly. Step back a bit, you can also see the whole speech are adjectives, no meat.

China: 2009.06.03 After years of China watching and American government interaction with China, both still do not understand the message and read the lips. When China give you the first hint, the contingency and risk mitigation plan have been mobilized. When China gives you the subtle message, the risk mitigation plan most probably complete. By the time China shows worry, that means you are toasted. The entertainysts are still debating how much China worry about the U$ bond. Remember the U$700B number every one throwing around is published by the American, not China. By doing this warning shots, suddenly the treatment of Unical reversed. China can buy the pride and joy SUV Hummer, not the military version. Just think why China has no confirmation but just warning. Please wake up.

Money Matters: 2009.06.03 Gold is facing the U$944 barrier. It will take some time to digest. Oil is digesting the meteor rise but there is still room to move on to U$71. Soon many junior in precious metals and base metals will revive.

Money Matters: 2009.06.01 USD Index is descending slower. It even bounds back quite a bit. If the Plunge Protection Team is at work, they work really hard. They are not only saving the U$ directly, they also have to attack the rising commodities. As the result, all commodities fall except base metals. They rise from  palladium's 1.7% to copper's 5.9%. Amazing.

Dow Industry has change horses today. City and GM is tossed out. Traveller and Cisco is in. Dow Industry, according to Dow Theory should be manufacturing something that the transportation will move. I cannot see how the Traveller's insurance could generate significant that could influence the business of transportation. Cisco could be because it sell iron but still minimal in comparison with automotive industry. DJI does not care Dow Theory so they choose what they feel fit. Now some may beg the question on how good is Dow Theory now.

Money Matters: 2009.05.31 Financial turmoil is nothing close to its mid-point because the destruction of the financial infrastructure has shaken and crack many areas that have not been reported. They are the true unemployment, the decline of small business and the commercial real property which are all linked together. The small business could not get the life saving loan or squeezed out due to the credit crunch have to layoff a significant portion of the productivities. Big guys such as Royal Dutch has the same will imply all the American big oil will follow sooner or later. Should they stupid enough to do the rumour of storing oil in expensive tanker rather than in the ground, they will lose millions per day. This will cause the bottom of food chain dries up. The small business, then medium and then large business will fall, in America. So the commercial property cannot recover but deteriorate.  Banks (not Goldman Sack or Merrill Lynch) will tell you. They have to raise more capital so the façade has to be put up to lure the investors. While people continue to believe Canadian banks are practicing safe business, they are ignoring the huge American operation they are doing even without looking into the balance sheet. Europe is doing higher interest rate and less QE so the situation has been bad but the infrastructure crack is not as bad because debt buildup is slower. BRIC are different. So we have the have and have-not countries. The have produces what the have-not lack. Have-not will have high inflation because of the QE, currency devaluation and the completion of commodity dumping. As soon as the commodities return to the normal price level, the American stagflation will kick in very fast. The Fed may able the hold the Fed rate low and convince the Western allies do the same thing but the Fed rate only affecting a minority. The market, e.g. credit, set the higher rate for the bond, for the Letter of Credit, for the credit card and for any leverage. American will soon feel the heat of lower currency and higher price (even the local). Guild Investment has a wonderful May 28 article THE NUMBER ONE TREND - A WEAK DOLLAR that analyzes this situation. So the American stock market will fall. Will it drag the world's stock market with it? At the beginning panic period, it will. Soon, the have countries' stock markets will rebound without the American. The JNJ, GE, P&G, etc will reduce their influence like the East India Company shrinks after the British Empire tarnished. When this happens, the trade deficit abyss will increase. This creates a downward vicious spiral. So what happens to the green shoots we see. There is no change or improvement of situation in America. The TARP is paid out not to help the industry but the wallet of someone. The financial remains the major contributor of the American GDP. As Murray Pollitt keeps on explaining that the Wall Street is not the wealth builder. This is just running on adrenalin at overdrive. The acceleration to weakness continue. Don Coxe has correctly pointed out that we should not use the big banks as the indicator of American's recovery because they deal with hallucinogen not real business by protecting the derivative time bomb. It is the regional bank which could confirm the recovery. We have seen a wave of panic and foreclosure. But the commercial property will hit soon that could generate next wave of commercial and residential foreclosure. This will be hard and closer to the bottom. For the meantime, BRIC will grow on the saving they have generated in last decade. Centre of power will shift.

Technologies: 2009.05.30 A few years ago, I wrote a research note that concluded the new railway is communication network: Railway Replacement February 10, 2006. The railway carries the physical good and, of course, snail mail. Entertainment always tags along, circus, theatre, etc. Nowadays, the communication network provides the mechanism to deliver intangible goods (i.e. service, e.g. banking, news, and education). Alongside, we have the text messaging industry, the cell phone, the email, the movie distribution, etc. A group of ex-Nortel senior executives propose a plan to save the Canadian company by building a cross country communication network partnered with Canadian government. Based on my research, the cross country railway united Canada and promote the growth of Canadian industries. Today, we have so many soft product that can be delivered by the communication network, e.g. digital film screening by Cineplex, this will be another way to help Canada to advance her GDP.

Money Matters: 2009.05.29 It is a rare situation. Like aligning the 8 planets with the sun. This is what happens to the commodities. Oil, gas, gold, silver and base metal finally at the verge of a major break up if not already. Take silver as example, the break up since U$11.80 is over 30%. Oil has gain 80% since U$33.20. Even natty joins the team by a spectacular leap of 8% yesterday to return to U$4.00 range.  Copper is in a trading range between U$1.90 and U$2.30. Although USD Index recovers from below 80 but it is only the matter of when even it recovers much higher. Inflation is in. Industrial and base metal jumps led by palladium's 3.5%, others are about 2%. This is contradicting the entertainlysts' explanation that platinum and palladium should fall due to the collapse of the American industry. But they forget there is the rise of India and China auto industry. This rally technically has a base and gone through accumulation. Fundamentally, the printing press is the fuel of this rally. If this holds by closing, this is definitely an inflexion point. Updated at the end of day: There were pull back but with USD drops 117 basic points, everything finishes near top. Copper fell slightly from it top of U$2.1990. The more amazing thing is not gold, it is natty. Although it bottoms out but still gaining 3 cents from yesterday's close. Such a sudden gap up will have room for a technical profit taking but nothing hurt in the long run. The current situation could spell USD stabilizing around 78 because other currencies will react an do the competitive devaluation. Only a few like C$ may push the USD further down.

Money Matters: 2009.05.28 After dipped below 80, USD Index rebounds almost touching 81. Why doesn't it drop below? This is the key question that Don Coxe and Richard Russell explain best. Because U$ becoming weaken. Those borrow U$ and invest in other currency have to expatriate U$ to pay the debt. The delay could cause them more. Since debt is a synthetic short, the payback is a margin call so the demand of U$ surge. But this has to be temporary because gold has left the stable. Please check this chart.

Money Matters: 2009.05.26 American financial has come to a major junction reflected by a few major events. First the USD Index broke down below 80 and recovery. This signifies the support above 80 is weakening. As the result, the Treasury auction become less enthusiastic. The meaning is that American Government (controlled by Federal Reserve Bank) has difficult to raise money to finance the bailout of the moral hazard. Second, all these point to deterioration of confident in American or the credit rating (ignore the joker like rating agency) diminishing. Export and manufacturing will be difficult because all of them need load/letter of credit to business. While the interest paying to the depositor will remain low but the business cost to get credit (determined by the long bond) will be high. At the end, the business will suffocated. Under such condition, the multi-nation empires built by GE, P&G, J and J and Coca Cola could have difficult to expand if not surviving. Strong and deep pocket as Royal Dutch has to cut back its payroll is a very important event entertainlysts are not discussing. Third, the ratification of derivative by setting up an exchange for derivative may prove to be a disaster because the epidemic may be more widespread and severe than quadrillion being forecast. As the result, manipulation of the market to save the Fed member banks may be very difficult. When the top 5 banks collapse, the swirl will suck many along with them. Fourth, the American could not hold down their spending habit and encouraged by their President would just mean no hope to recover. Pocket of strength will exist but it could possible outside the global economic empires. The myth that GM and Chrysler could not fall has come clean and down. GE, P&G, JNJ and many others are spending other people's money by leveraging can form the house of card. Their success is based on the continuous economic invasion and displacing the victim's manufacturing by them. This strategy will not be welcomed in China, India, Brazil and Russia. Without the feeding from the BRIC and the competitive devaluation of Eurozone, the income of these companies could wither if they could not hold stance when the BRIC countries attack.

Money Matters: 2009.05.07 Murray Pollitt of Pollitt and Politt says that the market always has new products introduced to get investors participate. Don Coxe says that the financial analyst never says anything about the bear market because bear means most investors will not want to participate. No participation the market earns nothing. Before the bottom of bear market, many bull will re-affirm and re-affirm the bottom has arrived. The voice of bull will diminish but not disappear. After the market bottom out, the bear will get more noise and the bull may not get louder. The most important is that there is always the voices of bull and bear. Let's not argue where are we now. I only believe the peak and the bottom arrive without announcement and no people observes at that moment. In fact those moments are hard to decide. Is it determined by the market or is it determined by the economy? You can never nail one way or the other. As a investor, both should be the factors to consider. So it is very important to use a group of indicators that provide a consistent view. One single factor could be driven to an extreme due to specific reason. If all correlated factors reconcile, it is a better chance to nail it with proper fundamental support. The saying that stock market is always moves ahead of the economic is 80% true. It depends on the sector and scenario. Usually it is true for the up tick for the supply chain. If the supply chain shrinks, there is nothing feed to the manufacturing. So no good to be sold which cannot be reflected as a gain of GDP. During the down turn, the supply chain will be hit last unless someone knows in advance when the demand stops. The reduction of order is not when the demand at the peak but after demand declines. False start happens all the time. As soon as you order more raw material, Mr. Murphy comes to visit you. There is nothing for sure other than certain spring. We have seen the copper recovery. We have not notice the recover of aluminum, silver, palladium, platinum, nickel and zinc with the exception of lead. Lead's demand will not disappear but it will reduce because it is toxic. The use of it is replaced by silver. We have a wide recovery at the order of 40% to 80%, this is a very impressive from the bottom not from the top. Bottom is illusive. However, all these industrial metals are at the historic high other than explosive high. To avoid the blip factor, we have to see if the momentum to maintain. If it maintains, the boom is not a 6 month cycle, it will be decades of boom because the old market may reduce 30% but the new market at Asia and Africa will make up more than that significantly. As China continues to assist the economic development of African, this is the market attracts very little attention. But China has invested over 60 years at the a-z countries without much of economic payback. Nothing is fast.

Gold: 2009.05.06 USD Index continues the downward spiral. It has broken the trend line. It passes the resistance line. At this rate, it may cut through the 200 days MA. This could spell the interlude of the U$ rally. See the chart.

Energy: 2009.05.05 Association for the Study of Peak Oil & Gas - USA Chapter has published an interview with the energy expert Matt Simmons. This interview provides interesting view on the glut of oil.

Money Matters: 2009.04.26 It has been said that at the bottom of the bear, the PE will be extremely low, below 6, and the yield will be high above 6. The yield of Canadian banks have been touching 10 and fall back. The question is 10 high enough? Or is the rule changes? Or is this another nerd law? Or the law should be read as when the yield is high enough after the price and the earning fall to the bottom? This is simply a logic reasoning. If the price and earning do not fall, this is not a bear market. Why earning falls in a bear market? It falls because it is a bear market which economic picture is bleak. So high yield does not mean the bottom yet. Price is harder to control than the dividend. A company can borrow money to keep on paying dividend. There are companies that losing money but they pay dividend. Where is it coming from? Even there is earning it is so small that paying dividend is the prop to prop up the price.

China: 2009.04.25 It has been counter-intuitive for many analyst that China has not lost due to her huge $2T FX reserve. According to State Administration of Foreign Exchange (report from China Daily "China Now 5th Largest Gold Holder" the reserve generated U$8.25B (or ~4%) last year. Speculation considers China may start the hoarding since 2003 when the holding was 600 tonnes to the current reported 1054 tonnes. But I think the critical time was when she started to set up the SWF about 2 years ago. In another word, she accumulated about 454 tonnes in two years or about the national production of gold for last two years. Since China does not export gold mined or scrap, the scrap should satisfy the domestic demand (Chinese government encourage people to stock gold by allowing gold deposit accounts). Would China able to buy from other American Friendly Country central banks. If that was the case, perhaps the central banks may stop the selling much earlier. At least the American will stop it because this accelerates the debasement of the U$ as reserve. Should opportunity presents, like IMF selling the gold holding, China could become the 2nd largest gold holding country much faster than anyone expected. There is also the possibility that the concerted gold dumping by central banks may slow down unless American starts to sell her share. This could be proved to be extreme difficult if American lease out gold to keep the price down.

Money Matters: 2009.04.24 Bull and Bear are two animals being featured on most stock exchanges' front doors and logos. There is also about boom and bust speaking on the both sides of many entertainlysts. This is a perception which we are educated to be a binary concept. It is always one way or the other. History tells a different story. It is like inflation and deflation, it should be reviewed a different levels and examine in different pockets. We found that HomeStake (the most used example) gold producer gain 5 time during the depression. By accounting the purchasing power, the gain is far more than that. During the burst of tech bubble, the seemingly unrelated retail banks dragged down 50% or more. It seems no relationship in the second case and the first case. However, lets examine the second case which is closer to us in the history. When the tech bubble busted, it was not just the high tech firm that lost its financier also, i.e. the banks. Yes, it was not just the investment banks but also the retail banks were hidden behind all the bubbles and they will boom with the bubbles and lost with the bubble because people have to use leverage to create a bubble. (On a side note, until we see the banks come clean on the damage of the books, on and off the balance sheet, we have not seen the bottom. Sometime, they just skid away because they hid the damage so well such as Enron and Global Crossing through confusing capital raising.) This is the fundamental thesis and litmus test many great analysts employ to test the bottom out of a bubble. The result of the tech bubble did not just infect the financial and the tech sector but many others because either psychologically sold off or need to raise cash to cover margin, most went down. But there are not necessary all of them. A broad stroke of brush style analysis will not give you the niche to be a winner. You financial analyst takes your money and should do the leg work to give you the recommendation. Otherwise you have to do it yourself. So when top down or bottoms up methods require proper due diligent to ensure the good fish can be caught. The Monte Carlo method works during the boom time but failures during the bust time. This is the reason why the financial advisory uses it as the escape of responsibility clause: past history does not guarantee the future return.

Money Matters: 2009.04.20 Bank of America reported a strong quarter thanks to Merrill Lynch. This should be a shot in the arm for the financial especially the yield was 14.2% last Friday. Well it is down 25% to day and has the yield close to 19%. BKX index fell 18%. Where is the supporters financial?

Money Matters: 2009.04.16 "The British Empire has no sunset ." That has passed. American Empire is the leader (military and economy) of the world. This will pass. What are the common points? Both end up in a war financed by a foreign country. The British and American believe that war will stimulate economy, i.e. industrial military complex. This is not necessary the government's thinking but the rich and greedy money lord behind the election. Britain believed Germany and Italy would never expand to a state that could affect the British Isles and the Japanese would not able to thin out to take hold of the Asia. There for the trade with Europe and the supply of raw material from Asia to Britain would never be impacted. When there is war, there would be stimulation of consumption at a grand scale through destruction (ammunition) and rebuilt (financing). As the Second World War waging on to the end of the 1930's, the resource strapped Britain could not mobilize the League of Nations members to spend the money including herself. The war indeed stimulated the economy, the American and brought her out of the depression. The American industry took off with a high note. The fighting was not on American soil. Damage to American industry reduced to the minimal. No problem on sacrifice of the brave soldier. Everything was according to plan until the American colonies (i.e. raw material such a sugar and rubber) were attacked and occupied by Japanese. By that time, Britain and Europe countries were all under the thumb of American through debt. American the was the world's creditor. Until 2006, the world was on an economy expansion war. American believed that the economy war would stimulate the financial industry which produce nothing from thin air, fiat wealth. The wealth would be spread among American (the rich and their serves) to enjoy life. American started two wars: military and economy. The first is the invasion of Iraq and Afghanistan. The second is the economy leaning on developing countries in Asia and South America. China was seduced to jump into the bed with American through channels of international corporations such as Costco, Coca Cola, Johnson and Johnson, GE and the list marching on. American consumes, China produces and takes care of pollution. At the same time, the American global companies buyout the local large competitors to convert the local to use products from these global companies. Simultaneously, paper wealth was created through financial structured vehicles. These vehicle supposed to be armour guarded with high return. The world was bullied on to derivative, future speculation and so on manipulated by the handfuls of American investment houses. A very excellent idea at that time. American believed that they got all the world tied down through the derivatives and structured investment. It would be the Second World War again. t was the Pearl Harbour déjà vu again. This time the location was on the American soil. The company was Lehman Brother. If we believe Larry Summer did not know the impact of bringing down Lehman Brother, it would be an ignorant assumption. However, the book was so complex that the Wall Street gang lost track on who owns what because all these derivatives were off the book and they still are. They also over estimated that China will remain to be submissive as the last two decades. She will give money as soon as Uncle Sam hooks the finger. Same thought might cross Chamberlain and Churchill's mind at one point. But these great British politician did not observe American made another National League behind their back. Just the same thing for China has the allies with the NAF (Non-American Friendly) nations. American came on Britain at a high profile. Chinese flexes her muscle in a very low profile, i.e. concerns on the foreign exchange reserve (which may significantly diversified since two years ago through spending spree to buy oil, mineral and other asset she could lay her fingers on) and reduces T-Bill buying. Does it sound like what the American did at the end of Second World War? Did American suffer after the Second World War like China's economy? The American was out of cash but the government was the creditor of the world. But there is a very much difference. Chinese government is the creditor of the world. Chinese has the foreign exchange reserve and Chinese citizen has the saving. The war continues.

Money Matters: 2009.04.15 It is hot for the industrial metal again today. It is not the building will boom since aluminum is not rising as much. Platinum's recovery is a tear from lowly U$763.

 Money Matters: 2009.04.15 To measure the changes of a group of components, an index is usually used to compute the group's behavior. Index applies the statistical method to generate a daily and day-to-day changes so that over period of time we can identify the trend. In statistics, trend is a vital component to analysis which provides a retrospective view on the history not extrapolation. Index could employ weights to each component or equal weighted. Standard & Poor TSX Composite Index computes the index by the total asset value of the components which is not based on the price only is a way to compute the worth of the components. If the index goes up 10% it would mean the wealth goes up by 10% but not necessary the share price. The subtle different between weighted index and equal weighted index is very important to understand the meaning of the change. If the asset value of the underlying component appreciate by new issue, it is different from appreciate through price. If the calculation is just based on the total asset value, the index will grow as the company issues more shares. To avoid the skewing of this, a normalization method is employed so that the increase of capital does not impact the index. On the other hand Dow Jones Indices are computed using the price only and scales to normalize the effect of stock split and component adjustment. Various methods have their own merit. The most important is the accuracy to reflect on change of value. If it does not then the index reflects nothing. The ICKO indices are computed with the normalized price with equal weighted for all index members. The daily change is the normalized different from on day to the others. The method is adopted from Hang Send Index.

Money Matters: 2009.04.12 The market has been rally for some time. Some shares' performance are spectacular. The financial is a good example. With any change in the current situation but knowing the US government will pour more money to the bad money that are not showing, the BKX has jumped from 17.75 to last Thursday's close 33.81. There is no really good news except Wells Fargo which does not do much of investment banking. Does the business of banking profit double in just few months? Many Canadian uranium stocks have rally up 3 to 5 times. But they are still down by 90% from the top. BKX was down from the 120 level 2007 to current 34. The financial suppose to rising to moon with all these derivative but actually they are not. Rather the index rose from the 1983's 35 to 120 before the implode. It is not proportional to the growth of the derivatives which is hundreds of times. Now we have a better guestimate on the size of the derivative, we see the derivative is actually a high risk business. On the other than uranium demand exploded but it was dwarfed by the 10-40 time growth of stock in comparison to the growth of UxO to the level of U$120 from the level of U$40. It has been a round trip retrospectively. Now the banks and the uranium stocks are doing the same thing without any change of deteriorating environment. One would wonder why?

China: 2009.04.11 China is holding U$2T foreign exchange reserve. Is this real or is this a myth. The statistics is never published or confirmed by China recently. It is calculated based on the current account. If we step into the shoe of China, immediately we will feel very uncomfortable with such a large lump sum held in cash (actually more in T-Bill). It is just a basic financial management principle that you do not want to have a 10% factor that could cause any major trouble. This is not a reasonable assumption right from the beginning that China will hold it indefinitely. The original intention was to hold the money in T-Bill which will mean lending money to US Government to stimulate American spending. There are signs that China divested the reserve to invest in stock market. A U$200M fund was announced 3 years ago as the first step of divestiture. There is no subsequent announcement but you can bet that it does not stop there. It should be safe to say China does not hold all these U$2T but a certain amount has been put into different asset classes. Then why such a secrecy? If the cat is out of the bag, we can see the collapse of the U$. This does not do any good to American and China. If a speculation has to be made, the current unexplained high of U$ is the escaping hatch for China to divest her U$ to other asset classes such as other currencies (not a safe bet because of competitive devaluation), equities (many Chinese state or private companies are buying companies overseas may use these T-bills) and investment payment (such as building the NG pipeline in Russia to supply NG to China). It this is true, this is the golden opportunity to exchange the unreasonable high U$ with the suppressed gold price. One day, when the vile of intricacy is lifted we would appreciate how China negotiates out of this U$2T reserve.

Gold: 2009.04.07 This note summarize my reading on why gold/gold share could hedge both inflation and deflation at the both ways. This is based on the assumption that gold is in high demand when the financial turmoil happens. During inflation, the purchasing power of fiat money dwarf quickly. Gold as a reference currency would not be changed. So gold will be in high demand. Gold producer (not explorer) has the asset in the ground so the potential future value will be high. During deflation, the price of merchandizes will keep on going down. Holding fiat money should be no problem. However, deflation could tie to political instability. Thus the fiat money's existence could be in question. As the result gold will be in high demand. In another word, the producer has a higher demand. The value of the gold stock would also increase due to the reduction of cost in a deflation environment. However, a few factors should be taken into account that could impair the shares. During inflation, the cost of production will increase. During deflation, material may not be available because the price could below cost.

Money Matter: 2009.03.31 Strength of U$ is a mystery to the conventional economist who evaluates the value of a currency by the debt (in inverse relationship) and productivity (in direct relationship). The currency's value should reflect the current and very near term respect to these two criteria. Conventional wisdom fails in this case. The explanation is the unwinding of the carry trade and overseas loan in U$. A USD Index chart from FX Street shows two peaks in last 10 years on a declining trend. The first is at the end of the tech bubble and the second is at the end of the recent financial bubble. From mid- and long-term perspective, the trend is down. Macro trend is the summation of many small steps. These steps could be in any direction. So the explanation on expatriating U$ pushes U$ high could be true. If we apply the quantum theory to explain this the up and down in could be very small at extreme magnitude but it still could happen. This spells the danger and opportunity for the brave and the academic.

Money Matter: 2009.03.30 There are two major strategies for investment, ride the long term macro trend and ride the wave. The first approach does not mean buy and hold. It applies the macroeconomic and analysis of an asset class or a specific stock. The outcome is a decision to hold or to fold. Its not a static process because the situation is closely monitored and assessed. When the macro trend changed, we have to make the decision. The second approach is to take advantage on the delta of the peak and trough. The difference is the profit. It would be imperative to argue which approach is better because both have good and bad result. This makes investment interesting. Most people would master one and a few master both. It is not necessary due to the psychology but it is due to the effort. Impulse trading sounds exciting and romantic because so many storyteller foretell their success by the strike of lightning. Luck is never stay with one too long. Someone said do not confuse a bull market with brain. I can phrase it to do not confuse luck with hard work. When the trend is monotonic, it looks like luck is with you. The more important is to have the skill (mastered by your financial advisor) that help you to ride through the rough time. In a highly volatile market like now, the only way to stay focus is a system of analysis that you can gain experience. Monte Carlo method can be as good as Ben Graham's analysis method but a systematic approach would allow you to use the market as a crystal ball. It also allows you to break the nerd rule that shoehorning pass pattern to present without proper analysis. Most people is apply a level one pattern analysis such as going up 10% will have a correction. Level two analysis will see the trend of going up/down will continue until the supporting factors change. Level 3 analysis is the trend of going up/down will continue until the supporting  factors changes or new factors added.

China: 2009.03.28 A group of research from the Munk Centre for International Research publishes a report on GhostNet which is a network of infected computer around the world to collect intelligence. The news report from NY Times could be found at here. A chart for the numbers and location of these infected computer is shown by this chart from NY Times. The researchers suggest the ring is controlled by Chinese but stopped at the Chinese government. There is a few observations that I am compelled to share:

1. Virus/malware is not just a destructive game for some one without a big agenda. It could be used in many ways especially in espionage. The origin of virus technology was born at Bell Lab on as Unix machine as a research for defend and vulnerability analysis on military computers. Now it lives to its original expectation.

2. The number of infected computers are very small in comparison to the CIA/FBI/MI-6/KGB/etc network which could easily incorporated with the computer manufacturer. To substantiate that I would quote that all telephone switches are embedded with the spy code to log calls, trace call, tapping live by the request of government. All data centre in US were tapped by CIA/FBI for all traffic and monitored live with or without warrant (report by PBS). So adding malware/spyware to PC are very possible without your knowledge.

3. The western located spied computer are relatively small. The high concentration is at Taiwan and Hainan in China and Vietnam. The high concentration should be at political centre. Location at south of Illinois does not have much high political value. Location at Hainan is also ridiculous because it is Chinese navy base, vacation and trade centre for a Chinese spy network unless the information is not for China.

4. The Dalai Lama case example is weak. We all know that Internet chat room security is next to none. The transcript is not necessary coming from GhostNet. Perhaps the report substantiate it better.

5. The statement saying Chinese ‘patriotic hackers’ controls the GhostNet because the controlling machines are at China would just say Eastern Europe countries control all the spam mail in the world because most of the machines sending out is from the Eastern Europe.

Gold: 2009.03.19 Gold moves up about 2% and USD Index down 1.5%. At one point USD Index was below 83 or down 2%. Today's Gold USD chart shows USD Index is catching up with gold, i.e. USD Index falling. But gold is rising. The gap is so wide that if it does catch up, gold will be pushed above U$1,100 due to panic. If gold remain at current position, USD Index may have to fall to 72 which will be very scary and create significant inflation in the States. In turn, commodities will be pushed up. So the chance for commodities to stay put is not high. Just looking at Dr. Copper. It is crawling back to U$1.80 a pound. Is there boom time or just inflation?

Gold: 2009.03.18 Two major events may occur complementing each other today. USD Index drop below the support 86 and challenging 84. A drop more than 250 basic point in just a few hour after Bernie spoke. At the same time, gold reverse the prince from U$880 level to about U$940 level; a swing of U$60. This will scare the gold shorty to death. The latest chart of Gold vs USD Index was as if gold going to break down. With today's action, gold may break through U$1,000 soon. Today's chart. By the way HUI went up 9%.

China: 2009.03.15 Real analysts are watching the moves of China on how to survive this global financial tsunami. The current mode of thinking is that China hurts badly because the demand destruction causing the significant slow down of the world's factory. As the result, China has to continue her funding to the biggest consumer of the world, American. Analysts predict that the unemployed in China is increased in hundred of thousand by day will cause the social unrest. This could force social disturbance. Forget this theory, Chinese deals with social unrest thousands of year. Not a big deal. The world's third economy will soon pass Japan as the second not because of export but now is the time for internal consumption and manufacturing sophistication. Within one and two years, we could see China emerges as the global brand names from fashion to high end consumer products. Low end manufacturing will push back to India and South East Asia. Those international global industries will be surprised how they are confronted and competed with the Chinese. The hope of global company to survive by increasing market share in China could be over estimated. Entertainysts use the geek thinking to predict Coca Cola, Pepsi, MacDonald, Proctor and Gamble, GE and many big names will benefit from the China's survival. Therefore, the global fund will be a desirable class of asset. History tells us that Chinese will compete with the world after being taken over by the outsider (like the end of 19th Century) and still emerges as the world leader no matter how weak it was. The key is the educated overseas Chinese link to mainland China. It started with Chen who assisted von Braun to develop the space program in US went back to China. If you visit the frontier of the industries in China, you would see many faces who have been holding senior position overseas. Call it patriotic if you like but they have better opportunity to grow and perform than in the West. The second factor is the gold factor that China is hording gold. This will secure her monetary system. Third, when China completes the transition from low end manufacturing to high end (it took Japan over 40 years) triggered by this financial tsunami, all these global companies will be competed. For example, when P&G marketing the high end diaper and tooth paste, China can do it better. Why P&G has not faced its competition? No, it did. It uses the marketing machine to drown the competition. This time, it will be the other way around. The Western concept of Coca Cola and MacDonald will soon be replaced with the equivalent. This is not necessary to be patriotic. It is the behaviour. Simply put, Chinese likes to learn from the best and create the next best. It is not unique to Japanese. This is the Eastern thinking.

China: 2009.03.13  Chinese Premier Wen Jiabao says China is 'worry' about her foreign reserve investment on American's Treasure Bill. This is not the first time China makes such statement and American never takes it seriously. Why should American response differently? US government lectures China on very topics from humanity, foreign policy, technology development, trading, environmental to quality of life. If you use the same criteria on the American, none will pass its own test. The imperial supremacy ego of Uncle Sam does not change at all for the last two centuries. Finger is pointing at the others but not applicable to herself. When you have enough military force to enforce the bulliism that it is OK. Let take a look at the reality, American still has not paid up all the due to UN. So this is a typical bully behavior to kick others in order to squeeze more lunch money of others. Without any question, China has been depending on the spend like no tomorrow attitude of the American to support her export. Now this export trade is not as much needed by China but required by American to maintain her life line. Without the cheap import driven by Wal-Mart, the Fed cannot lie about the deflation. It is true that the commodity is in deflation but everything else is inflationary. More important the American needs the T-Bill to finance stimulus package which is common knowledge. Could you bully your biggest creditor to get more money? The answer is easy and simple.

Money Matter: 2009.03.04  The normal relationship of WTI higher than Brent is returning. It is still flirting the boundary but this morning when Brent is last session's price, it is determining advancing. This cannot be dismissed after a strong down draft of sell off and economic dissimal. The close prices on Friday will tell us more information. Updated: At the end of the day, WTI really passes Brent.

Money Matter: 2009.02.27  Spending by consumer without restraint is bad. Spending by government without restraint although stimulus the consequent remains bad because it will be financed by debt or tax. Stimulus through spending by government is the thesis of Keynesian economy and this experiment in America has shown quite adverse results. During current economy tsunami, countries are executing the competitive devaluation to the bottom on currency to improve the export (one way to generate wealth) to compensate the destruction of domestic consumption. US$ has been used as international trade and financial settlement instrument. In current credit unavailable situation, U$ cash is very demand for settlement as well as unwinding loan. This forces U$ unwelcomely strong which is not helping the recovery of American economy. The following USD Index chart shows the strength could last awhile although it is very toppy. The situation gets many helps from the weak European economy which currencies are party of the USD Index Basket.

 Energy: 2009.02.26  Since the collapse of the WTI, its prices has been persistently below the Brent at end of the day close. This morning, the situation has reversed. If this continues, the concept of surplus WTI could be fading away.  (Evening update. WTI closed at U$44.49 above Brent's U$41.51. Now the U$3 premium relationship has restored. The excess WTI may not be that much excess now.)

China: 2009.02.16  Globe and Mail reports that the G7 have a meeting on financial crisis. This is un imaginable to have such meeting without China. First China has no debt which is uniquely showing the healthiness of the banking system (until they blow up). Although one of the attendee, India, has the growth but she is quite small in comparison to China who spends about 20% of her GDP on internal stimulus without printing money. People are ignoring the obvious just like continue to believe Canada has a robust banking system. One thing entertainlyst should pay attention to the after fact that Canadian banking system invest heavily on real-estate and lending money in Canada and of course in States. Statistics indicates there is no exception to major lost in these areas. How could the Canadian banks' profit be safe. Canadian real-estate is an area people superstitiously believe that it will withstand the down turn. Royal Bank Chief Economist Patricia Croft points out that the Canadian real-estate market and stock market are catching up with the downturn in the States because the economy of both countries are joined at the hip. While hope is a very strong motivation for survive but ignoring the true situation is suicidal.

Energy: 2009.02.11  This week is vital and pivotal for the gold and oil which implies U$. Gold in all currencies except U$ are making record high. Gold in U$ is reaching the 6 month peak. More important the 200MA for U$ gold price is turning up since last week. C$ gold price 200MA turned up long time ago. This is a strong signal for the U$ gold price to break all time high again. While gold is signalling a strong inflation ahead, oil is signalling a week economy in very short term. It continue to slide but not below U$30 yet while contango of near term still at a very high premium. May be this tells us the short term demand destruction is only very short term. However we have to be very careful because even contango exists but the price continues to slide. At the current level, the oil industry is suffering. It is not just the producer but the peripheral suppliers and service providers. This puts extra weight on the overall weak economy. Many large service providers, like drilling, have to raise capital which is very close to suicide. If these peripheral industries die, we can see the partial collapse of the oil industry that leads to large producers only. The result is monopolizing the producing and sky high oil price in the future. For the meantime, Alberta oilsand is facing this exact scenario. Oilsand production need at least U$45 per barrel to survive. Many have shutdown existing projects and stop new new one. If the demand destruction is real, the supply and demand may achieve a meta balance. With all the manufacturing sectors slowing down this could be partly true. The other side of the equation is consumer. According to IEA, gasoline consumption only decline by half a percent. So the supply and demand may not be balanced.

China: 2009.01.30  World Economic Forum is the stage that China continuous escalating her weight on the world stage. Starting years ago as an observer to now as the third largest economy of the world after America and Japan. Even Japan's second place may be doubtful during this economic shakeout. China always shows support to this venue due to the history. The benefits of attending this forum can be divided into two periods. The learning period when China started the economic revolution spearhead by Deng XiaPing. Financial, economic and social scholar as well as bureaucrats could have a window to absorb and interact with the western in real-time. Starting four years ago, the Forum become one of the venue to announce China's economic policies especially those related to Europe. American government never admits its interest in public and continues to choose to ignore this communication publicly. This attitude is a form of childish game of ignoring the world trend. When China announced the stimulus package in December last year, if the American could echo and had a proper dialog, the confident crisis abyss could be less deep. The Chinese effort to create a climax to the Bush's world leader meeting was forfeited by the American. On January 28, Chinese Prime Minister Wen JiaBao discloses a 4T RMB package at WEF which includes the part of 11th Five Year Plan and new items. You can tell from the expansive and stimulus form of the package, China is in a mode that the foreign exchange reserve could be put into great usage. Again, the policy align with what the December announcement: infrastructure building. The special item is to build more housing for rural area. The objectives of course is to reverse the migration from rural to urban. This does not mean to push people back to farming only. The rural of China has been evolved to small and light industry centres. What China doing is to accelerate the decentralization of business/industry from major cities to the rest of the country rather than that 5% of land near the coast. This is not just the spreading of wealth but the proper reallocation of resources. It may be too early to know the details but it could be a significant turning point to cool the overheated and imbalanced Chinese economy. What emerges from the other end will be a more evenly developed China across the land which she failed during the last economic reform under Deng's direction. It is not criticism. It is an observation. The lesson will be worthwhile if the lesson is learnt. Economic revolution has to involve the whole country. It could not be dominated by a small portion of the population. Deng's original plan was initiating the change at five major cities and special area like Shenzhen near Hong Kong. However, migrants from far west moved to these locations to work deserting their home. This created an unintended lopsided development. During this economic downturn, many migrants will return to their origin cities. Their knowledge and skill will be spread. If the economic stimulus can reach them, the next wave of Chinese economy growth will exceed exponentially. If not, it is still worthwhile to do the experiment.

Gold: 2009.01.29  Gold continue to rise and defying a strong U$ as show by this chart. Gold up 2.5% and USD up 0.9%. How can this be? We cannot say detach. And I do not want detach. I want the normal scenario, gold up U$ down. Detach could be complicate and has hidden problem. Silver is silently creeping up without getting much of attention.

Gold: 2009.01.29  Does the demand/supply of ETF reflects the underlying financial instrument? The long and short answer is no. The ETF DS is really the speculation indicator because physical delivery is either not possible (e.g. get some bank equity out by cashing in the ETF is not possible). There is a major differentiator between type of ETF especially in precious metals. Some of them do not hold all the precious metal in bullion. Some of them are in paper. As we know bullion has a higher premium so the price of ETF calls for a higher premium. Central Gold Fund and Central Gold Trust hold the bullion and frequently doing audit to ensure the possession. The next question is whether you can redeem the ETF. Weh we invest, the choice of vehicle has to be very careful and do the due diligence.

Money Matters: 2009.01.19  The communist countries (Russia and China) investment pioneer Dean LeBaron proposed a simple way to back the U$ by holding trading partner's currencies. If the basket of currency includes China's RMB, then RMB will be bought to appreciate as demanded by the US Congress.

Money Matters: 2009.01.17  Bank yields are ranging from BMO`s spectacular 8.5% to Fairfax`s 2.5% with 5.7% mean: 

The spread with the BoC rate is about 4.5% (updated on Jan 20 to reflect BoC rate cut to 1%) which is not a viable business because the bank has to pay more to get funding than borrowing from the central bank. At the same time, the spread between yield (5.7%) and banks' prime rate (3.0%) is negative. This is the reason why banks have to pocket some fund rate cut because the short term rate is below the yield they pay to investors. The bank dividend axe will drop soon after the bank raised some (just some) capital. This chart shows the trend is not turning up. The evident is that the rising volume average as the price falls. The selling pressure remains (as Russell says.)

Energy: 2009.01.15 WTI and Brent have a wide margin; 35.4 and 47.83 respectively. One is produced from Texas and the other is shipped over the sea. If the story is true, Texans are storing their WTI using the supertanker to store the their oil. So those produced from the overseas priced at WTI are down precipitately. While the oil has to be sent from Northsea to Europe will pay a high 47.83. If this story is true, the margin will get wider and wider. But why those brent buyers buy WTI? Nothing is logical. If it is logical, the days for the wide margin will come to an end.

Money Matters: 2009.01.11 Does economic bubble always lead to disaster and destruction? The short answer is no. For some domains, the collapse of the bubble would be destructive. This is negative to the epicentre. At a higher level, if every bubble is destructive, there will be no more domain to destroy after thousands of years of destruction. I classify bubbles into two categories: wealth building and consumption. The Southsea bubble was created from nothing. It does not add a shred of net wealth or value to the society but to feed the greed (which is a bad name for ambition). The wealth created was a zero sum game. You just did not see the debt behind the wealth. Tech bubble had a lot of consumption in the aspect that it created the desire to spend money. However, it also created a large body of technologies that benefit mankind, for example the Internet and nano-electronics. It advances the civilization and improves our quality of life. The Chinese manufacturing bubble in the 18th Century ended up a weak China. However, the bubble was not just consuming the resources (since it used more than before) but also created new trading practice and logistics. The consumptions fed the develop of new technologies such as the steam engine and railway system that fuelled the improvement of the QOL of mankind. It is well believed that infrastructure building at the end of the Great Depression ended the American's misery could be the counter example of consumption bubble is constructive. If we use the Dow Index as the gauge then the recovery did not happen until some years after the World War II when the war factories converting the war surplus to consumer good. Hoover Dam could not finish the Great Depression, but the growth of the manufacturing did. Taking this to the extreme, Communists were great on infrastructure building. We do not see they had a healthy economy. China did not come out of the depression until Dan Xiao Pang started the second World Manufactory movement. Saving the economy by pure consumption is like adding lubricant to a jammed money system. It only works if there are kinetic energy in it. Without the kinetic energy, the velocity of money will be at trickle level. Wealth creation will create the kinetic energy. But it has to start from saving not from credit. Credit without the saving to back it will behave like brake rather than gas paddle. A single strategy to stimulate the economy by creating more credit available may not be the complete solution. The credit has to be diverted to wealth creation that improve the quality of life either to the local or the world population.

Money Matters: 2009.01.10 The world's bankers believe to fix the ailing world economy is to create stimulus through injecting virtual liquidity. Virtual in the sense that it is created without backing. The media are fiat money from the printing press and the central bank fund rate slashed to zero. The assumption is to create energy to accelerate the velocity of money to break the current dead lock of lending/borrowing. To do both, they take a page out of the classic economic text book (use in wrong context). By showing no inflation, you could lower interest rate. Gold has been appreciated much below the official inflation rate. It has been kept doing it to ensure all indictors are synchronized. One more thing you have to do to keep the gold price down is to eliminate the desire to own gold by publicizing its low return and no yield. Here comes the action of complexity and this time it is backfired. As the Fed target fund rate keep on lowering, it creates an asset class has no yield which is similar to gold and subject to inflation. Although gold does not performs well but it still appreciate while fiat money cannot. So the one million dollar question will be why people want to keep money rather than the physical gold. The demand on physical gold rather than paper (such as GLD and gold future) are showing by the following chart (complement of Stockcharts.com). It is the relative strength of GLD to the Central Gold Trust of Canada is steadily rising. The Trust owns and displays the metal physically.

Money Matters: 2009.01.07 Copper is the Doctor of economy. It has rebounded from the bottom. If the story is right and simple, the economy is showing sign of recovery. This recovery may not be a true until the trend carries into mid-January. The recovery could be the make-up buy after the year end holiday. In such situation we need to use another angle to confirm. Platinum has been in trouble for 6 months. Its price was halved. In December 2008, briefly, it was traded below Gold. Now the platinum to gold ratio is about 1.1. Because platinum is the indicator for the heavy industry. Could this mean the bottoming is real? Even the economy is bottoming it does not mean the market will turn around immediately. Most of the time, supply will precede the demand. But this is a good sign.

Energy: 2009.01.07 Conspiracy and complexity theory: Russian may use the energy trump card to influence Europe by cutting off the NG supply to Ukraine using the excuse of debt owned by Ukraine and alleging Ukraine stealing the NG delivered to Europe through the country (80% of the Russian delivery). This move is executed during the coldest month to create the most effect. As the result, insult is added to injury, it is a lose-lose result. Europe is frigid and Russian is poor and has to deal with excess NG (according to news report which is not necessary true because Gazprom can turn off the tap). Ukraine's strong position could be backed up by American who has strong tie and turning Ukraine to be the bridge fort to curb Russia to restore the glory U.S.S.R. Ukraine will be back down from her strong stance under the pressure of Europe. While the story is not completely unfold, both sides have encountered unexpected results. Pressure is adding to the pot. Warm weather may solve this knot. If not, both side could have very unexpected outcome including military action or destroy of NG pipeline.

Money Matters: 2009.01.07 At the end of the December 2008 and the first few days of 2009, the stock market goes up nicely. Many technical indicator based on price showing positive. Technicians always have the emphasis on whether volume is important. One camp believe price drives everything. The second camp insists volume has to be taken into consideration because it will mean much less if volume is low. In a market that a lot of intention to influence the market in different angles, a wider spectrum indicator may offer a better story. The Lowry indicators consist of buying pressure and selling pressure which is related to volume. The explanation is that if the volume is high than it shows the sentiment of investor which shapes the direction of the market. The adage of market is that you ignore the price change for those thinly traded junior which could fluctuate more than 25% in one day for a few shares. So it will make sense to watch the volume. For example, the volume of the last 5 trading days are below the 50, 100, 200 trading volume. The 200 trading volume is significant because it will mean the volume is almost for the whole year. It takes out the tax lose selling factor. In short, in a real rally should accompany by high volume not 10-20% below the average volume.

Gold: 2009.01.04 Gold marked another successful 2008 by finishing it YOY higher. Notwithstanding the gold advance, USD continues to its rally into January despite of virtually zero percent Fed rate. This is the international settlement effect. Two driving forces is breaking down the negative entanglement relationship between gold and U$. It seems in the coming short period, perhaps to the end of January, the divergence remains until they are in reverse entanglement again. This may be advantage of gold. But the really reason could be the Gaza and Ukraine unrest that may be intensified in coming months. Gold tends to gain during these dangerous years. What would be the black swan? It should be a grey one because U$ rally when the economy was broken down. Now we know the story but this grey swan may not disappear. The ratio of Dow to gold is swinging between 10 and 11. When Dow goes up, gold could come down. However, Dow remains in in the trading range pattern in the chart. The breakout may not happen soon. If it happens, we should see the short covering reflected by higher volume. Yet we have to see the definitive buying.

Money Matters: 2009.01.01 During the last few days of 2008, gold continues to rise despite of the strength of U$. The spread is still too narrow to call it detachment but this is a change of direction. Gold in C$ is phenomenon because it is making record high day after day. It is technically important that this rally confirms a breakout of a double top. The spread of gold price between the U$ and C$ has been following the downward trading channel until the July 15 Massacre (Don Cox's pet phrase). It is showing top. This abnormally could be the diversion of the Mule in Issaac Asmov's Foundation Series. It throws the Foundation out of Seldon's plan. Is the spread returning to the downward channel? More study of monyamic is required.

Money Matters: 2008.12.31 God of Market has its own mind and agenda. Crude gone up more than 10% for the last half day session of 2008. Gold advances above U$880 with USD rally more than 1% at well north of 81. Gaza situation is worrisome but not as bad as Russian cut off the natty supply to Ukraine. (This will be just the beginning for the Russian energy Czar to recuperate the fall of energy price.) However, caution is the only way to navigate this tough period. Oilexco falls more than 65% today just because bridging funding cannot be arranged. Allen Vengard fell yesterday because the huge debt is going to due next year (no different from Nortel). When credit seems dirt cheap (Fed's target rate is 0-0.25%) corporate bond is at 10% (City, BMO, GE, etc). This is the tip of iceberg that tells the story that credit is difficult to come by. If you can borrow, use it wisely. Better off, don't borrow. Cash remains a simple strategy.

Money Matters: 2008.12.28 Can we have a unified theory for inflation and deflation? Paraphrasing this is: can we use a single way to describe the phenomenon of inflation and deflation? I think the use of potential energy and velocity of money can do the job. When money moving too fast, it is inflationary. When money moving too slow it is deflationary. It has the vivid image on how we spend the money. We can also visualize the money like the grain of sand in the sand pile of complexity theory experiment. When the money with high potential energy (gravitational) piling up and the triggering fall of the last grain of sand at the peak will trigger an avalanche to the lower potential energy. At the lower potential energy level, the probability to move will be low. As the result, the energy to move is lower and the velocity of money can become standstill. This picture depicts the hyperinflation before the deflation. Within the inflation, there is also a deflation. The hyperinflation is created by adding too much sand. At the end, if nobody adding more sand to the pile, there will be no movement. To add more sand to the pile, money has to be printed. This is why paper money is important; it can be created out of thin air. Paper money has the miracle function of regulating the velocity of money, i.e. the money supply. As of now, we have a lot of money that has low (tight purse) or no (dead debt) potential energy. To re-energize the economy, government is trying to energizing the sand pile.

Gold: 2008.12.28 Gold has a very clear identity that central banks hate: it reflects inflation, social unrest, financial instability and economic black hole. Silver and platinum are not so lucky. Although they are used in jewellery but usually they are linked to industrial use which is exactly the same situation for gold. Gold has been used in the connectors in electronics as well as the vehicle to deliver medicine. But platinum's association with spark plug is so strong that entertainysts explain the up and down of platinum with the auto industry. Silver's use in photography has diminishing but as antiseptics is rarely known. So what cause the platinum trade at par with gold and then now platinum and gold ratio is at 1.03? The recovery of the economy? Dr. Copper is falling but not bottom yet. What is the story there? While all market entities are heading a single major down trend, what we are looking for is the sign of deceleration of the downfall.

Money Matters: 2008.12.23 WTI rebounded about U$6.00 as the January contract expired and February contracts kicks in. The price difference to brent was only U$2.00. But this lasted for only a few hours. At the end of the day, the difference increased. This morning, brent up U$2.00 but WTI sinks another U$1.00 to widen the gap to about U$5.00. WTI is the reference price for world crude settlement but it is based on the "demand and supply" of the American which consistently saying the oil producer has to put their oil in oil tanker. I never understand why don't they just turn off the tap. Brent is what shipped by tanker from overseas to the American. This is also reflect the price of Europe and other countries. A difference of such level is another example of manipulation. The OPEC should buy out these excess and pumps them into the ground for future delivery and this will provide the support of the oil price.

Money Matters: 2008.12.17 Oil price stabilized as the expectation to cut more than 2 MBPD mounting. OPEC members are now suffer in two front: lowering U$ and lower oil price. They cannot influent the U$ but they can do something about the oil supply. The supply change can spark dramatic response immediately but can be very slow. Going back to U$70 could take sometime but U$ may coming down very fast as shown by the this chart. The Fed 0.25% rate costs the USD drops from 82 yesterday end of day to this morning's 79. When your currency does not provide any return and preservation of the wealth, the demand will be limited to other functions. In this case it is the international current account settlement. The sharp fall may just have a 180 degree turnaround in January. But the long term trend has restored. Market has the reputation of overdoing thing. This will be an example. However gold is not responding fast. Does a lot of people believe oil has bottom? It may not be a lot of people but a lot of speculation is betting on oil has bottomed as shown by the Horizon BetaPro Oil Bull ETF chart. The volume starting at the beginning of November has been multiple of the beginning of the year. Now it is trading at 10-12 time of its 200 day volume average. This is highly speculative and looks like a short covering.

Energy: 2008.12.13 Conspiracy theory: oil demand destruction is a weapon aimed at the Russian and non-American Friendly oil producers (RANAFOP). The last time oil future traded at U$47 range was February 2005, three and a half years ago. Consider the demand grows at 4% a year (BRICS definitely drives much higher than that) the demand growth will be about 15% increase since then or about 5-6 MBPD. This is below the 1.5 MBPD growth per year by IEA or even EIA. From July to December is only about 5 months, how could one to explain the demand destruction is so significantly that the price falls back to 2005. Report has been shown that the low price is caused by producer storing crude by oil tanker because ground storage is very tight. In order to avoid the high cost of ship rental, near future contract is sold dirt cheap. This simply not holding water because producer could just reduce the production. Yes, the future becomes spot and they have to deliver. Again this is not true, they can be roll over to next month or even further down future. Another strange condition is that at such low price, American strategic reserve is not refilled since the release. China's strategic reserve program remains inactive. At such low price why are they not refilling? Consider who could suffer most from lower oil price, it is obvious the Russian, Iran and Venezuela. When Russian and Venezuela is using the oil as lever to control the West now the hot weapon goes cool. The thread of cutting NG to Europe from Russia could not be materialized because Russian need the money. So does Venezuela. Now Iran could not mount new campaign for any terrorist activities. Or you can expect Tali Ban and Al Qada activities to be reduced. Would it be a loss-loss for the Big Oil? No, their reserve is declining rapidly. It they can use any excuses to cut the production to preserve the reserve, it is a great idea because you can sell it much higher in the future (a multiple). Would this be a short term or long term? Complex theory says you cannot really predict the result. Just like the sub-prime crisis caused the Lehman bankruptcy than world financial crunch. The oil price rewind is most probably is out of hand of anyone now because lower the price more output is required for Russian, Iran and Venezuela to support their budget. The price will be just spiral down. I just hope it will not come to a point that similar to T-bill.

Gold: 2008.12.11 Today's gold future is closed at C$ record high. Please see the chart.

Energy: 2008.12.10 Today's number published by the EIA is that inventory continues to increase. This is indicated by the number of days of supply that has increased from 19.9 to 21.8 days YOY. When this happens, entertainysts claim this is the cause of that 10% crude price drop. The American has got into energy diet. So oil price has to be falling precipitously. While credit card companies have already indicate the maximum reduction month over month was only 4%. Most recently the gasoline consumption has increased. So how good is the days of supply. This is a myth. This is the input to the refinery. When the refinery has problem to churn out gasoline, it is being labelled as reduction of consumption by consumer. This should drive down the price. OPEC has nothing can do to change this destruction of demand. Today a new concept has re-emerged. OPEC can push up price by cutting production. You can fool some people sometime....

Money Matters: 2008.12.09 China's U$500+B infrastructure project spending was not echoed by the West. One day after that the stock market fell follow the rally. If the world leaders all chimed in, the psychology will be significantly improved. It was the prelude for the North America G20 meeting. With help from Bush to water wash down the significant of the spending and the infrastructure approach, the G20 meeting can easily be labelled as the meeting of the lamies. President elected Obama missed the chance to really improve his international status. It is only this week, the announcement of U$1T infrastructure spending. If China budget half U$1T, American needs to spend more to pave the road of recovery. Unfortunate, these late action and the continuous drama of greed (e.g. the banks and the auto industry) also deteriorate the possibility of sovereignty wealth funds' support. Dean LeBaron's latest commentary 'Chinese Lessons' has the most important quote  'Interesting Time' from Lou JiWei, Chairman and CEO of Chinese Investment Corporation points out that the risk at the American capital market is too high. It is a very polite way to say the irresponsible and unethical behavior of the top dogs in the banking and financial sectors that caused investors losing more than 75% of their investment in just one year.

Money Matters: 2008.12.08 While the commodity market suffered a haemorrhage blow last week yet the contango situation has not change a month. The article 'The End of the Dollar and All Fiat' (courtesy of Seeking Alpha) provides some explanation what is going on.

Energy: 2008.12.05 Crude price continues coming down precipitately. At this level, it is not just only the OPEC and non-OPEC producers are hurt, the supply chain and peripheral industry (such as drilling) are hammered by significant cut back of the spending. Some will not able to last especially those not well funded large one. While the oil revenue is shrinking, labour inflation is not. The energy price for these companies is hedged at a much higher price. The result is a stagflation for the oil patches around the world. This create a lot of crack line at many geopolitical regions such as form East Europe Russian countries, Middle East, North Africa and South America. The unrest coming could be violent and long. In effect, this could become a world war. Alternatively, Sprott Asset Management has proposed a way to stablize the world economy by buoyancy of commodities. This could be a way the OPEC countries to do to stop the price fall. They could buy the near term contracts and benefit from the contango future contracts.

Energy: 2008.12.01 Bloomberg reports today that OPEC seeks U$75 a barrel through cutting production. This is the conventional thinking. With the help of those holding future oil contract, it may succeed should the margin clerk does not call them or the banker does not call in the loan for them. Supply and demand does not control the price anymore. Before I could publish this blog, the market comes down so do all commodities.

Money Matters: 2008.11.29 Since the issuing of the Bill of Credit during the early history of Americans the concept of growth by inflation and debt were stealthly deployed. Presidents after presidents continued the tradition by issuing bond/T-bill to the nation's citizens and foreign investors. This is a cheating by paying back much less wealth using inflated money for the debt. Of course this is not unique. Soon every country on earth copied the act and there came the competitive devaluation. So did the hyperinflation when the situation uncontrolled during the early 1980's. Paul Volcker has been hailed the saviour of the American economy but in fact it damaged it so severely that it toke decades of inflations and multiple bubbles to correct it. At the end it was over-corrected as the encouragement of spending at warp speed which basically destroys the balance sheet of the American. The implosion tipped the balance of the world economy. Two schools of thinking surface: the phoenix and the pump. The phoenix school believes the rebirth after destroy. But we have seen too many cases that rebirth may not happen. The pump school believes another bubble could save the world. History teaches us that old civilizations were died of bust when no phoenix could emerge from the same country. The world economy was recovered from the emerge of another bubble from some where else on the earth. In between there were wars.

Money Matters: 2008.11.23 Year end international current account settlement is coming along with the half year and quarter settlement will usually drive up the demand of U$. Gold's U$50 move on Friday may be the result of asset allocation but at the end when U$ moves up gold could temporary pull back after such a sharp movement notwithstanding a future advance. It will be a heavy and bloody battle before the American Thanks Giving weekend which traditionally boost a market rally (i.e. financial) which means caution for commodities. However Canadian banks may not participate with more hazardous commodity, trading, credit and derivative risks and lost exposed in the coming quarter results. The chart does not look good.

Money Matters: 2008.10.29 During the Great Depression, there was rally after the first panic low that recovered 75% of the Dow Industry Index before plunged down to the low of 41 with a few smaller rallies. Don Coxe has documented the technology bubble induced bear market from the 2000 to 2003 as the triple waterfalls which had multiple up and down. Most people lost the money not at the first panic low but bought on the first false recovery and never had the courage to get out. The psychology just fools the smartest person. This chart shows what happens during the Great Depression. At the bottom the volume was only a small fraction of the beginning of the boom period.

Money Matters: 2008.10.20 Bear market does not mean it is just going down monotonic. The danger of bear market is similar to the bull market. During the bear market there are rally false sign of bottoming. Just like bull market there are correction similar to top. The major different will be the volume of sell or buy. In another word, we have to identify the upward sell to get out of the market during the bear market rather than the up buying. Tell tale sign is the lower or cliff jump at the end of day. But this is just true for the trivial case. Otherwise no body will lose money in the bear market. Another usual trick is buy on the rumour and sell on the news. Like the American U$700B rescue package, pushes the market up until the bill passed then the cliff jump started. We all now know that winter in North Hemisphere is the peak of energy consumption. Adding to this is the rumour on OPEC going to cut production. WTI recovered from U$69 to U$75. The true testing point would be any pull back after the announcement. Market has been so emotional that conventional wisdom fails.

Money Matters: 2008.10.05 This is a personal note rather than observation. It will document the mistake I make during this period by making such decision if it is so. Many good advices should be followed but did not. Studying last mild crash of the tech bubble, it is a wild spread of loss of value not limited to the technologies. Banking and mining were cut into half if not more. This time supposes to be more severe. Indeed, blue chips loss 30% in 6-12 months from 2001-2002 but this time toke only 3 month. Price Earning becomes very low as everyone speculates that the previous earning will not be maintained. For those have to handle the margin call, sell price is not a concern as long as there is a buyer. We observes higher volume during the rally not at peak but during the process. There is no peak buying at the bottom. The buying dries up at the bottom shows all these are selling orders. Of course, there must be a buyer for a seller. I could not explain. Now we have seen 30% lost in value and there is almost 100% sure the lost will continue to 50% of the recent high if not more. Sherritt International drops from the peak of $15 this year to $4 level now. A drop about 70%. Banks were fluctuating between 50-60% of the peak value last year. May be it is time to agree to the thought of cash is king. Sell to curb uncertainty. In the situation that no cash has been hoard but the holdings generate income, it is not the time to invest but to hold on to the cash. If the economic winter continue, the price will continue to fall. The more the DRIP the more you lost along with the principle shares.

Money Matters: 2008.10.02 On Monday when everyone expected to have the bailout bill passed, House of Representative throw it on the floor. The rapid rising stock market fell to record drop. Who lost money? The main street. Tomorrow, the HOR is going to vote again. Will they pass it? The market is telling them if they want to see another blood bath, do it again. Anyway, will the bailout work or not is unknown? If it acts slow, for sure it would not work. Sprott Management has the September Issue of Market at A Glance discussed this why it would not work. You have give them credit to engineer this massacre. In order to ensure no inflation by injecting U$850B, commodities have to come down. Today, commodities came down by 5% and commodity stocks down 10-30%. All triggered by the unreliable Merrill Lynch research team publishing the gloom and doom future of Potash. They also recommend buy Lehman Brothers and Freddie and Frannie just days before their collapse. Remember Goldman Sachs published a report on U$150 oil by year end? Where is that guy? Before oil jumped to $147 Goldman Sachs also published report on U$80 oil. Life is tough.

China: 2008.09.28 ShenZhou VII completed its mission to carry 3 taikonauts with a 20 minutes of External Vehicle Activities by Zhai Zhigang which included the standard celebration of waving a Chinese flag and retrieve a graphite based solid lubricant from the spacecraft's outside body to the inside. Technical achievement is high and put all those doubt sayer to rest about Chinese ingenuity. One of the less discussed point is the change of attitude in the Chinese government from close to now much pragmatic. The objective of the EVA is to test the $4.4M home made space suite. In this action, there is another backup taikonaut wearing a Russian made space suite. The backup taikonaut actually exposed to the space vacuum and  in a very brief moment when his head was outside the spacecraft. So what is so special. First the broadcast is live not taped. The second is the mention of the backup suite by Russian. It is no more the ego driven policy to deny any possibility of flaw in home grown design. This is progressive.

Money Matters: 2008.09.28 When Margret Fletcher privatized UK's state owned companies, the world said socialism finally became the player of past history. Today, socialism in capitalism style reincarnated in the American's U$700B bailout program as detailed by Reuters' report. At the wee hour of today, a broad agreement (read no acceptance so it is not done yet) in principle (which could be just a face) to the package with the stipulation that the beneficiary companies will issue warrant to the state (that is the government not the people which the news report equates to the ownership of people). Without the warrant, we see the rebirth of communism with state economic planning. Now the economic principle seems switches between the East and the West. The West continues to use the people's money to finance , support and bailout private company which becomes state own. The East privatize state owned companies to entrepreneurs. China did not bailout the private fallen star but you can argue that the big one are state own. And they run well. In this whole barnacle I strongly believe the resistance is coming from the American because they think the action is just for the Wall Street fat cats. At first level yes, but if the credit freewheel does not turning fast anymore, job lost, personal loan, mortgage and business will be heavily slowed down. This is the American impact. As American is remaining 25% the GDP of the world, her slowdown direct the GDP of the world. BRIC is getting more independent of the American but not standing free. The BRIC creditors do not take any action to prevent the bailout or denouncing it is the passive evident that they support it even it means devaluation of U$ or their FX reserve in U$ T-bills. In my previous note, the lost in the reserve value is a premium paid for the insurance of economic slowdown. It is well worth it. In the future, it may show evident the BRIC and the OPEC countries are pushing the bailout. We have seen the drop of oil price when the perception of slowdown shows up couple of week earlier without support. OPEC could not lose in two front: oil price and their U$ denominated reserve.

Money Matters: 2008.09.25 Hanky and Bernie are the humpty and dumpty sitting on the top of the wall in front of Congress to push the string tied to the tight purse of the American banks that pocket all the toxic papers that have value determined by themselves. President Bush addresses the Nation to sell the idea with a vague description. Congressmen support the idea in principle but for U$700B you want better than a vague idea and not even a concept. This is just like you give the power of attorney to a someone who even not identified yet. It is a very desperate time. Effectively, the American tax payers take up the lost of these financial institutes and the coming one. With all these point to a weak currency because debt and deficit is mounting quicker and higher. Yet the U$ continue to rally so does the stock market. The really stuff is falling; commodities other than oil gone weaker today. If you bought financial during the bottom you would hope it rally. If you buy it at high than current level, you desperately want it higher. Warren Buffet has U$5B senior preference shares of Goldman Sacks at 10% rate has two important meaning. Mr. Buffet will not lost a dime. His investment will be guarantee by the Fed for sure. His action is in the hope to boost the market. But who is the banker of America now. They are China, Japanese and Russian. All of them need to trade with US. Although their internal market is growing rapidly but it still not the point that can completely independent of the American. American is the insurance for a safe transition. See the weak these debt could devaluate U$ the other way will lose the insurance. It is reasonable to assume that China may push for this and future bail out plans at American's expense. The lost in FX value is a form of insurance premium but not pay by the beneficiary. What a wonderful arrangement!

Money Matters: 2008.09.23 After the spectacular meteor rising of the bank shares, they fizzle on Monday, including the Canadian's. The Canadian Bank Index Chart shows top selling on last Friday.

Gold: 2008.09.23 Commodity bug is a cult, a religion. To debate with them may lead to animated heated debate without touching the real fact. This article from  Frank Holmes "Leveraged Hedge Funds are Major Drag on Commodities" (complement of Kitco.com) provides a very objective presentation of bias information. However, you could see the thinking process which is a good mental exercise.

Gold: 2008.09.21 When U$ rallies, gold falls because of their inverse relationship. From a mathematical perspective, the relationship holds well within a 2% range and getting more inaccurate with a wider range. The mathematical relationship is just a way to measure whether the tie has been in or out. When the relationship is broken that means new factors are in play but the technical analysis does not say what. This is where the fundamental comes in. The spot gold and USD index chart has a dramatically change starting about a week ago when the spread getting wider. Last week, the spike (statistics always ignore spike because they are abnormality unless continues which become a jump or drop). This has to be watched. The conspiracy theory of gold price suppression may not be completely true but the function of gold may finally realized.

Money Matters: 2008.09.16 You cannot say it's over until its over. Bear Stern, Freddie and Fanny, Lehman, Merrill Lynch, and now AIG. One after another that every one could not believe their eyes. They are just too big to fail. Just like China will not let American goes to recession. The slowing down already causes too much pain for the Chinese before she can have a large sustained economic ecology by internal consumers. The spending by Fed will just continue to lower the rating of the Fed's balance sheet. It has to be approved by the creditor. So there you go. You will see Chinese slowly and strategically mop up the bodies in the field but never try to control it for some time. With the Russian visit the OPEC meeting, it gives me the chill like the wolf visit the 3 little pig. Oil is falling to near U$90. OPEC will feel the pain because of loss in multiple fronts: inflation pushed by the currency pegged with U$, the lost of revenue, the increase in cost of production and the threat of non-replaceable oil resources. Life is getting more difficult.

Oil & Gas: 2008.09.12 Three years ago, I wrote a piece on Katrina quoting whether the oil price jump justify because the Gulf only accounts for 10% of the oil production. Most recently, the number has jumped to 25%. I don't have the exact number to compare a rise or actually a decrease in total. But the EIA reports inventory is comparable. This means the American production has been dropped and import increased.

Gold 2008.09.04 This is another puking week for gold bug. The low has been keep on being challenged with the unbelievable rising U$. By doing the relative strength analysis, we can see gold is getting out of tight coupling with U$. This chart shows the detaching.

China: 2008.08.30 Tiananmen Affair will forever scar the history of China among many struggles in human history. The West has unforgivingly brought up the incidence in any context relevant or irrelevant discussion which is obscene. Should anyone talk about the Mei Lai massacre or slave history in the West that tortured and killed thousands they would be provoked. The crux of the Tiananmen circles around the suppression of freedom of speech. The Western journalists claim that China's freedom of speech has been improved during the Olympics Games period but it is next to close. It becomes a strong evident to their wrong observation about Tiananmen which happens 19 years. Would you expect that massive demonstration was not supported by any political and military power in such media controlled age? Culture Revolution started as small and used by some opportunist who had strong military support to create the massive disruption. Deng Xiao Peng knew it just too well because he was the victim. If the fire allowed to spread, it would put all his effort to modernize China in vain. We shall not see the progress in China now.

Gold: 2008.08.28 Gold has the traditional function of reference currency. When a currency has higher value, gold has a lower price in that currency. This is what happens to the U$ that has an equivalent of U$35 per 1 oz of gold to now at U$800+ because U$ is devaluated. This is the macro relationship. In micro relationship, each of them can have their trend and direction either go in parallel or in opposite direction. During the international trade settlement period, although U$ may be devaluated, but the demand of U$ to pay the current account, it could temporary detached from the relationship with gold to a certain extend. Now is about time to settle the quarterly trading account. U$ is in fact getting higher with the help of weaker GBP, Euro, and Japanese Yen. In the past, gold will behave like a commodity in this period of time and lost its exchange rate with U$. However, the most recent movement, being alleged by gold bug that the gold price is manipulated, gold is significantly suppressed. As the result, gold falls more than the rising U$. Starting two weeks ago, a new phase may be started. Gold is rising faster than the falling U$. In some situation, it rises in conjunction with gold like last couple of days (the green circle area). I have mentioned in previous entries. This could be critical because if this becomes the trend, the technical term is gold detached from U$. This could create a spectacular rise of gold price. Please take a moment to review this chart.

Money Matters: 2008.08.26 The following is from Guild Investment’s market commentary: 5.  Now is the time to raise interest rates.  Because banks are weak and deleveraging, the U.S. and Europe are not going to raise interest rates.  Instead, the U.S. and Europe are doing the opposite...supplying more liquidity.  Liquidity will continue to be supplied to help keep financial institutions solvent in the U.S. and Europe.  Japan, China, India, and many other countries are more able to raise their interest rates...and they should do so now. If so, U$ will be weaken. This is why Fed talks to raise interest. But they will never walk the talk.

Energy: 2008.08.20 This may be the beginning of a new era on oil future market. Every Wednesday, oil future traders tune to the EIA station for the inventory statistics. The market will move up if the inventory drops which signals a higher demand. The market falls if the inventory climb. Right after the announcement, the future market just responded like the old days and dropped couple of dollars to U$112.60. About few hours later, the situation reversed. WTI ends the day AT U$115.56 up U$1.03. American consumes 25% of the world energy. Their consumption definitely deserves the domination. What happens today? There are two possibilities. The first is commonly believed that the future (even near future i.e. next month) is dominated by the rest of the world not American only. The rest of world demands oil and the supply is tight plus a lot of risk so the price may be bottoming or bottom out. The second could be a little bit controversial. EIA keeps on publishing extremely fluctuated inventories back to back. In some drastic situation, additional shipping of 2M barrels per day. Understanding the shipping and production of oil is tight, the sudden increase of oil by 2M barrel per day sounds like miracle. Or, some of the inventory was not accounted for a few previous weeks. If that is the situation, the credibility would be in doubt so the information will be less value. The consequence of both scenarios comes to a new trend. The future price will be much less influenced by the EIA statistics. On top of this, EIA traditionally under-estimate in their forecast significantly. We may have to give a huge discount on the reduction of demand claimed by EIA but pay more attention to the actual development of the rest of the world. For example, the world's energy demand reduced with the Beijing Olympics' energy curfew. After this, the drivers resume their driving and the factories get back to catch up the production. Will the demand from China be cut back?

Energy: 2008.08.18 Please read the section 2 “Oil from the Caspian”and 3 “Chinese Demand” of the Peak Oil Review issued today. My view is that risk for oil supply is getting higher so will be the risk premium. As for China, the demand on oil and base metal is just getting begin not end.

Energy: 2008.08.17 Russian may rebuild the iron curtain. Just this time is not iron; it is oil and gas. This starts with Georgia, a West befriended ex-Soviet republic. Under the pressure continuous pounding shrouded by a cease fire, Georgia may get the message to disassociate herself with the West. The Globe and Mail article, Moscow transforms real-world game of RISK, dissect the situation for you.

Money Matters: 2008.08.16 John Mauldin has a fabulous article discuss the 'decoupling theory'. It would be a lost if you do not read it. Extending this you could come to the conclusion of new coupling theory: when China is on diet, the world will be on fast. One simple example will explains. Starting a few month before Beijing Olympics, China has started to cut energy consumption. Then the world sees the flood of oil. When RMB appreciates, world's inflation jumps. The converse may not be true, that is, America and Europe's recession may not slow down China's growth because it has ignited the local consumer market.

Gold: 2008.08.13 It is very important to point out a special relationship has been developing between USD index and spot gold price shown in this chart. In the last couple days, when the spot gold and gold stocks have been so suppress that it seems the trend never breaks, gold stocks lead the rebound yesterday while the USD Index continues the upward movement. Today, USD continues to move up. With the bad news from UBS and others, financial sink. This time gold stocks move much higher and break their sympathetic tie with the financial sectors. Two years ago, gold had a short period that detached from USD. It could be my wishful thinking such detachment occurs prematurely again. If we think at a deeper level, the bankers of American (especially China and Russian) would not let the USD to go down the toilet bowl but inflation is more than 10% the fundamental points to a higher gold price which is gold's function. The USD has to be at current level to protect the bankers' interest, it may even get higher. If such development is demanded by the bankers, gold will detach from USD with the help of sinking financial sector. The implication will mean commodities will resume its course to the north. The bankers are very powerful now as illustrated by the weak American response to the Russian and Georgia conflict.

China: 2008.08.13 Is China's growth going to be slowing down after the Olympic? Will the Sichuan earth quake slow down its growth? Are these reasons for demand destruction? Let's answer the second question. Rebuild always stimulate growth. Although asset lost but the growth comes from the spending to the reconstructions. To a certain extend, the Sichuan rebuild will accelerate the modernization of the central part of China. Sichuan has its share of growth but not exactly the member of the recent 10 years' growth at the coastal part of China which lives about 4-5% of the total population with about 4-6% migrants from other part of China for the 5-10% of strip of land. The growth around the costal area will continue to grow but with proper nourishment the quality of growth could still be extreme strong because of high quality foundation but it has to solve the housing and product tier problem. If the housing problems (price and availability) could not be solved the growth could suffer implosion. But the Chinese government is solving it with a very stern hand. If the products manufactured remain at low to mid price range, the growth will be limited by the low margin. This is again aggressively addressed by Chinese government by shutting off small factories. It is always China's state objective to spread the growth to the west, to the northwest and the sourthwest (yes, Tibet which the Bombardier rail goes). The wealthy costal area will provide the funding, technology and ambition to modernize the Sichuan area which locates slightly to the east of the central part, the Chinese call this area the “gate to the centre”. This becomes a springboard to spread the growth to the other parts of China. Now let's look at what happen to post-Beijing Olympic. While many countries attempted to make Olympic financially responsible but not really close to success. Beijing Olympic is actually a trade show which has stunted the world with artistic success (showmanship), commercial viable product (e.g. the big screen), and array of products that facilitate the competition (civil engineering technique such as the water cube). If you are in the Olympic venue, you will be immersed in all China mid and high tech products. If you watch NBC, for example you will be hit by Lenovo. The material used to construct the water cube’s pillow, ETFE, has a factory in Beijing. Rest assure, there will be huge order after the Games if not during. Another major effect of the Games is to show what luxury product Chinese can pursuit other than established bland name MacDonald, Wal-Mart Ikea, Coke, Chanel, Blackberry, Nokia etc. There are many more merchandizes used by the visitors. Without question, they will escalate the consumer awareness for more variety of gadgets that would improve their quality of life. Last, I take a report by ASPO-USA.org very seriously. It says that demand for petrol product in China is limited by the subsidized program which set a quota for the supply. The real demand is actually much higher and much willing to pay for the price because it comes from either the new rich baby boomer or the transportation industry. The later can transfer the cost to the consumers who are very willing to pay for the merchandize. Remember, not everyone can afford these merchandizes but there is a huge population that is willing even it is a small percentage.

Money matters: 2008.08.10 On Friday, USD went up 130 basis points (the speed slows down significantly during the weekend but not stopped) that surprises many commodities favoured investors. It has been long observed that with more regulation to suppress long commodities and short financial, the hedge funds and institutes holding commodities have to liquidate it at a lower than basement price. The false security created for financial sector implies no risk to many bank investors either they believe it or volunteered to believe it. Gold and precious metals react, in a knee jerk reaction, drops. This brings down a lot of gold miners; seniors and juniors. While gold falls about 10% the gold miners lost 25-40% from the peak. The climax of the fall (may be it is too early to say) was on Friday which coincide the of Georgia's incursion of republic of South Ossertia (a former USSR state). Russian has mobilized more than 10,000 troop to mount a 3-D assault. Russian holds about U$100B F&F with the guarantee from Hanky and Bernie. As the result, the banker puts the finger at the debtor's pressure point, Bush speaks softly and gently. No strong word or action. How these two seems unrelated actions play out? It could be very interesting. Canadian banks continue to benefit from this financial rally but the engagement is toppy. See the chart here. What are all these financial event could lead to: cutting interest rate. The strong USD, weak economic and false financial sector security are the best backdrop for another rate cut. The question I would like to ask is: would it be the rich or the common people to be benefited? If you could monitor the Ossertia situation from here. Compliment of Stratfor.

China: 2008.08.08 Today supposed to be the coming out party of China that planned at least 10 years ago. My believe was that China would use this opportunity to align the economic policy with capitalism, escalate global positioning, educate citizen to the world outside China and with a little bit of luck gain brand recognition for the manufacturing. The results are amazing. It is not only all these targets are exceeded but much earlier. The coming out party becomes a celebration party because China has been recognized as the major player and leader of many areas. For example, when the energy curfew is in action, there are much oil to spare around the world. The elimination of low price manufacturing to force the industry to return the low price manufacturing back to India or Africa, will improve the GDP as well as worker's skill set. On the economic side, three years ago China was recognized as the 4th larges world economic country. Without question, it can be easily to sharing the third or even second. One of the biggest criticism about China is her human right record. Yes, like all Communist countries, the record was dark for the political dissidents. However, one should differential information filtering and human right. When a country catching up the world at 10 or even 100 time the speed, unprepared citizen would have adverse effect to not fully understood information. The filtering has to be done because during the neck breaking speed economic growth, there are many cracks created. The Chinese government are plugging as they happen but the negativity will hurt and confuse the good. For example, in a fast pace growth, the very possible crack to meet the building boom is cutting corner on quality to meet schedule and demand. People consistently pointing the building collapse at Sichuan province was the result of lousy quality. Some of them may be. Yet building a school that withstands 6 Richter scale quake would be either too expansive or impractical. Try to impose that to New York, I don't think 20% of the buildings will qualify. To conclude this short comment, I just want to add a note about the number 8 which is only the southern Cantonese regarded it as lucky because it pronounce same as the word prosperous. The noble number is 9 which represent royal and heaven and power. Would the China prosperous balloon inflated after the Olympic Games, with the curfew on manufacturing production, mining, shipping and any thing consuming energy, I believe the boom will resume.

Money Matters: 2008.08.05 Gold and oil follows NG fall below the 200MA. Both are in the oversold zone. Will it rally soon? I wish so but the market may have another agenda that may not please me. GLD has 20M shares exchanged hands today; two time of the 200 days volume average. CBSI's volume is 50% above the 200MV (200 days moving average of volume). Gold Future EOD has violated the U$888 support. We just have to see any rebound. If not we have to see support at the U$820 level.

Oil & Gas: 2008.08.04 Oil drops more than U$4.00 during the day and recover above U$121 at the end of the day shown in this chart. Technically, WTI does not touch the oversold until recently. Last time the RSI was around 20 before rebounded. It was the time everyone thought oil would go back to U$40. Negative sentiment is building on oil. Is it negative enough?

Energy: 2008.08.04 Geology survey, unless it is 100% sure, they qualify the finding on the probability of reserve based on the sample they collect either from rock grab or drilling core sample. The most recent report by the American media regarding the Arctic petroleum reserve provide by the US Geology Society seems a little more than deviated from the normal practice. According the the ASPO-USA's August 4, 2008 newsletter, the total reserve is calculated by summing up all the samples discarding the probability. To understand why this could potentially provide big surprise, please read the commentary at the end of the newsletter.

Gold 2008.08.04 Spot platinum is at U$1569 at the time of writing. Platinum has fallen from the historic high at north of U$2,100 to this level or 27% down. Gold did not make the U$1,050 (the traditional 2:1 ratio) but gold is at U$903 now which is about 15% premium to platinum. It is not necessary to say gold will fall below U$800 but because the precious metal are interrelated, we should see gold takes the cue from platinum to pull back. It is the famous market law: guilty by association.

Money Matters 2008.07.30 Utility is a class of asset that provides stable income. The reason is steady demand. It is not different from any other manufacturer suffer the same problem of cost and labour inflation not to mention the high up front investment cost. How does it compare to energy resource producer? For strong producer (not necessary big) they have large tangible asset, stabilized production from upstream to downstream and predictable sales, with the demand consistently exceeding the supply and customer has not much of alternative. Established and healthy energy resources behaves like utility. On top of steady demand it also benefits the appreciation of the commodities. However, we can only treat these energy resources producers as utility provides they meet a very important criteria: income for shareholder. If they look like utility, smell like utility and behave like utility, I would treat it like utility. This type of company may carry a not very welcome baggage: slow growth but they could be a good holding during bear market.

Gold 2008.07.27 Gold has suffered quite a bit of setback from the previous few weeks. The crust of the puzzle is that why gold falls in the face of a weak U$. The U$ Index vs Gold Spot chart shows the inverse relationship changes that gold price gain lagging the fall of U$. When USD index falls below 72 (when the red line above the reverse scale of 72) gold does not follow. The relationship can be maintained for a long time with gold price suppressed. In the longer term, the relationship would be restored. In another word, gold will make up the gain.

Money Matters 2008.07.23 The current market is called a professional’s professional market. This means even professionals will have hard time to deal with it not to mention small retail investors like us. You cannot buy index because performance is not even for the companies in the same sectors. The following is quoted from Global and Mail:

Analysts have predicted that producers will likely break records again this quarter because of the commodity price surge. Earlier this month, UBS analyst Andrew Potter predicted cash flows for senior exploration and production companies would rise year on year by an average of 14 per cent, while share profit for oil companies with refining and processing operations would increase 66 per cent.

Companies due to report results Thursday include EnCana Corp., Suncor Energy Inc. and Petro-Canada. EnCana, Canada's largest oil and gas company, is expected to deliver a strong performance because of production increases at its U.S. operations, but output at both Petro-Canada – a partner with Husky on its East Coast operations – and Suncor is expected to decline.

Suncor has experienced reliability problems at its oil sands operations that have reduced output.

The list has past strong performer become weak performer. But we could not know until the last moment. Some persistent performer in the past start to fall off the race. Warren Buffet says for those who could not actively manage the portfolio can buy index. This may not be true for this market. Perhaps we should start to take investment 101 to study William Graham’s famous Security Analysis written in 1930 to understand what means value.

China 2008.07.18 It is this type of gossip makes me feel sorry for the misled retail investors. The article from Telegraph Oil price shock means China is at risk of blowing up paints a doomsday picture for China’s economy. The following are a few of my observations that Chinese government has already foreseen the issues and taking action already: 

• 1.      The plunge of the Shanghai market was well warned by the Chinese government through high interest rate, higher stamp duty and higher margin. More important is the fundamental for some of the underlining companies are sound. For example, CNOOC and Lenovo are growing in revenue and profit. Speculative activities have gone too far ahead.

• 2.      Shipping cost for China will not be as bad as described because the freight company has to keep the ship moving to reduce maintenance cost. Stationed ship costs to keep it too. All shipments are bi-directional. China’s export to the West has been riding the low end of freight charge may be ending. So does the export of deflation. The more expensive trip is from the West to China. Deglobalization is always a balancing act of globalization. Don’t take Jeff Rubin’s word out of the context.

• 3.      China is not just doing low cost production like shoes or sandal. The latest acquisitions such Lenovo (computer) and TLC’s joint venture with French Thompson group (now becomes world's larges TV manufacturer) has and already dominate the market in their respective sectors.

• 4.      China’s energy inefficient small factories, mines and smelters have been systematically shutting down by the state starting at least 3 years ago as a national energy improvement program. One of the recent activity to joint venture with Ottawa’s Thermal Energy to recover energy is another example to improve national energy efficiency.

• 5.      The continuous rise in oil price may not hit as hard as the West. China has ventured out to secure energy supply from American friendly countries such as Saudi and NAF (Not American Friendly) countries such as Iran, Russian, Venezuela and even African. This includes future contract at a price lower than the commodity exchange future.

• 6.      China’s $1.8T reserve could be used to subsidize the energy course if necessary but it chooses to reduce internal subsidize to promote energy efficiency. It is not just petroleum product. It includes electricity which partly comes from hydro and coal. However if needed, I believe the subsidize will be used to maintain the health of the economy.

China is not immune from the stock market crash because of the globalization of the financial market. Any worry or gossip will bring down the highest performers and SSEI is one of them. Journalism has becoming an entertaining business that only sensual news would be provided to improve the readership. Journalist are just digging the worst and the best but not in the same article to balance the information. It is not a bad thing as long as you have to tell people what is the percentage or probability of such incidence has/could occur.

Energy 2008.07.17 It is very interesting to hear the entertainysts singing a tune that makes Americans believe their government is doing something for them: bailing out the strapped homeowner (actually the executives of F&F not even the investor) move towards sustainable and energy independent. The later was done by announcing increase in inventory. But reference to what? If you look at the data published by EIA yeaterday, the crude inventory is at the lower end of the range. This translates to 19.3 days of supply v.s. 22.7 days of supply last year same period. Gasoline has a much better number. It has 22.9 days of supply v.s. 21.1 days last year. Distillate is in similar situation. It is 30.1 days of supply v.s. 29.5. Does this mean reduction of consumption? Why doesn't EIA publish a simple number, gallon used in the period? These days of supply can be misleading because there was significant draw down before. The fill up is just to restock.

Money Matter 2008.07.16 Old school of high energy physics (i.e. Bohr or Rutherford) describe the basic particles are behaving guys at a perfect orbit without any variance. The contemporary view of high energy physics has a school called string theory. It says everything is different string of different frequencies overlapping or in parallel in one to ten dimensions. These strings can be vibrating gently to violently. This is a perfect picture for this period of market. The old 10% correction rule or 20% bear market rule may have to be thrown out of the window. Like quantum physics everything can only be described by the boundaries. Anything within the boundary can happen. It even allows some room to go beyond the boundaries. This is not even for ordinary professional; forget amateur. The basic qualifications are hard working, keen analysis, out-of-box thinking, eagle sharp eyes, a lot of faith and last but the most important catch the right trend.

Money Matter 2008.07.15 The market has just demonstrated a point talked by Don Coxe. If it looks like stock, smells like stock it will behave like stock. Spot gold up by U$4 and future also up about U$4 or 0.4%. Gold stocks fall from 2-6%. ETF GLD is up only a quarter or 0.2%. So nothing is sacred. Some stocks may recover from the crash but everyone falls. Volume is high but not capitulate high.

Money Matter 2008.07.13 Reuters reports today that the American government will lend money and buy stock if necessary to support Fannie and Freddie. Where is the money coming from? Two answers: first is the tax payer's money (translates from higher tax) second from the treasury which is coming out of printing press and endorsed by the Fed with the government paying perpetual interest to the end of time. One could say for get about the responsibility now let fix the problem. My question is this fixing the problem or putting a finger to the first leak of the Hoover Dam? The Fed's action encourage irresponsible investment and also demonstrating borrowing is the in live style. It is OK. This may comfort a lot of American live by debt but it is not a role model that will rescue them from the hell of debt. The death spiral of America is in motion.

Money Matter 2008.07.12 I am extending yesterday's thinking on Fed raising interest rate to fight inflation.

This is not Volcker’s time anymore. It may back fire. This is my simple mind thinking.

1.  High interest rate works to suppress inflation when your can apply the perfect law of elasticity which will reduce the demand when price is higher. As the result, price has to be lower to stimulate demand. During the beginning of 1980’s, there was oil shock but nonetheless, American consumers could get whatever they want.

2. The law of elasticity does not work for rare commodities. Rare painting are costing more along with good diamonds. In fact higher price drives higher demands in the rare commodities market. There is a theory saying that if China removes all the subsidises, the Chinese government will not long require to restrict the supply. All the truck drivers will not have to wait half a day at the gas station for rationed gas even they have the money. American may have to pay more to get to these rare commodities. LNG is not shipped to the States because others are willing to pay more.

3. The dependence of American by Chinese has been continuing its decline. Richard Russell quoted Louise Yamada that Chinese manufacturing only has 25% shipped to America. If the ration situation in China removed, I could imaging the demand shoot up. In another word, like iron ore, China can take them all without sharing it with the rest of the world to make all the car it needs.

4.  Higher interest rate will neutralize the RMB appreciation. The Eurozone will be very happy with this relative devaluation which will weaken the American’s competitiveness with Chinese merchandizes at the low, mid and some high end area. The Pentagon may be forced to buy the Cisco clone router from China. (They did unknowingly due to bidding procurement process.)

5. Internally, higher interest will imply deflation because people will have less or negative disposable income. In the 1980’s, there is still a reasonable % for the disposable income. 

I believe any higher interest move by the Fed will accelerate the death spiral. This death spiral does not only create the economic nuclear winter for the American or the world but it also creates the imbalance of the world power. Like the complex theory’s sand pile experiment, interest rate raise could be the last sand that collapse the pile. When the world power entropy increases, it is never easy to get back to the equilibrium state.

Money Matter 2008.07.11 A very topical question is whether high interest rate could fight inflation? The theory is supply and demand. When the price is high demand retreats. In order to stimulate demand, price will come down. While many familiar with this law of elasticity but they also should know that the demand is directly proportional to the price for scarce commodities. We know oil, grains, base metal and timber are rare because they are not produced as fast as being consumed. This has been continuously reflected in the price of these commodities when people recognizes the supply situation. If this is the real picture, any raise in interest rate will pour oil to fire that increases the cost of the commodity production. The result is higher price. We have already see the beginning of the vicious cycle in energy sector which is also a consumer of the product. Cost has been creeping up about 5-10% of the price every year. There is also another major factor that the high interest rate policy works for a close system. What we are facing now is that if American not going to buy the commodities, the rest of the world will grab it without losing a heart beat.

Money Matter 2008.07.10 Lets count the big cockroaches: sub-prime, Bear Stern, private housing, negative American bank reserves and ignored inflation. What is coming? I collect from the intelligent and no so one: commodity derivatives, over confident oil reserve, weaker and weaker U$ ignored, deeper and deeper credit mode of American living, American centric analysis ignoring world's real situation.

Technology 2008.07.10 Ancient Greek geeks constructed a mechanical calendar that can compensate leap year, integrate lunar and solar calendar (similar to the Chinese calendar) and phases of moon. This wonderful machine is all gears. This report on The Antikythera Mechanism: A computer Science Perspective provides a window to the past for the great brains that helps the evolution of human technologies.

Money Matter 2008.07.03 There may be a weak Canadian Bank recovery. See the chart. The RSI was below and rises to 31. The long term picture has not improved until the 200MA moves up. This recovery could be less powerful than the last one. The volume is just not here.

Money Matter 2008.07.03 The world's markets tumbled. Is it because of the inflation? Is it because of interest rate to be raised? The China Shanghai market has been singled out as sources of disaster because of its recent retreat about 55% since its height at 6100. However, we forget that it was only 1000 in 2005. Investor's emotion has been a part of these volatility. Investment is not emotional impulse. In fact, emotion has to be checked before entering the door. When to realize gain is the technique not less important than entrance. The world's fear of inflation may gain traction when ECB goes ahead with the quarter percent rate increase announced this morning. Yesterday's sell-off could be irrational or getting out of U$ denominated security. The exit of U$ valued stock is evident with a 58 basis point gain in USD this morning which jumps from 72.03 to 72.61 around 8:00 am. The gold price is also in the knee jerk reaction falling U$16. The demand of U$ is for clearing purpose to pay the sold equity. It will fall in a few days. Gold price will return to its ascending course. However, there is also a possibility that Fed could raise interest because of the massive T-Bill held by Sovereign Wealth Funds. With the deterioration of the American economy, raising interest rate will slow down the inflation but at the same time it will also trigger deflation due to reduction of disposable income that could play out a long term economic and social recessing like the 1930. This could be a healthy remedy to heal the ailing American economy but this will disgrace the American's government and world status. Politically it is not a sound move. Another fear was the break down of EEB (The BRIC ETF). The fear comes from the possibility of reducing the demands of material from the BRIC. As the result Canadian oil & gas and mineral stocks were hammered severely yesterday. Among the BRIC, China is the most import heavy. There is a certain amount for manufacturing but that is not for China, yet. It is the world's demand. The rest is for infrastructure built-out. None of them are listed companies. The infrastructure will be funded by SWF, not from the listed companies. I am very hesitate to use Chinese stock performance to relate to the demand. In one of Association for Peak Oil Study, they even point out a possibility to higher demand in China when the fuel price increases because of no government subsidize. The people can buy all they want without waiting hours at the pump.

Money Matter 2008.07.02 Dr. Copper may have to share its throne with Nick, the nickel, as the barometer of the economy. In the modern world, copper is on the infrastructure while nickel is on the frontend of any construction and manufacturing as stainless steel and nickel component alloys are vital to the qualities. Copper has peeked above U$4 again this morning and fell back. Nick peaked to U$24 last April and slides since then with very high inventory level. Although Copper holding its head high but Nick does not have the sign of turnaround. This could be a sign of trouble lying ahead. Nickel inventory is at 5 years high so supply is exceeding the demand. Until the nickel inventory lower we could not confirm a hot economy. It could be lukewarm at best.

Gold 2008.07.01 According to this article from Business Report ECB vows to keep gold prices stable, ECB has sold 37 tonnes of gold recently but the gold price is recovering nicely to a two and a half month high. Looks like the lid for gold price may not be that tight.

Gold 2008.06.30 Today gold pull back a bit but still very strong. Spot price continue to advance. Gold future is down U$3. Does it mean gold is topping as U$ rallied an impressive 30 base point? In order to analysis the situation one has to understand today is the triple or quadruple or quintuple etc. day. Today is the month end, quarter end, half year etc of the year for the financial clearance. As long as the world uses the U$ for payment, there is always a demand for these critical day for payment. What we need to see is the impact on commodities. Last time when such U$ move occurs, gold, oil and silver drop like a stone. Today, you can say just a little bit. After saying this the rally of the commodities is going to take its toll on the world economy as it forcing the rise of inflation. World would suffer especially the under-developed area (not necessary country-wide).

Money Matters 2008.06.28 In today's John Mauldin's fabulous Weekly E-Letter "The Slow Motion Recession Re-Visited", right at the beginning, he quotes Malcolm D. Knight, General Manager, Bank for International Settlements: "I would argue that what we are seeing is an acceleration of expected consumer price inflation in the context of a sharp expansion in global liquidity. It is hardly surprising that the prices of those commodities, such as oil, for which the short-run price elasticities of supply and demand are low move upwards strongly when there is a rise in expected general inflation." This is an amazing observation on the non-elasticities due to anticipation of inflation. We better prepare. We better read the article.

Gold 2008.06.26 There is a number of commodities in contango which means future price is higher than the spot price. Due to the future commodities price are discounted for the present value, the future's price is generally lower than the spot price if the price is steady. Except during the seasonal changes such as the fuel price in winter is higher, there is no contango. In such scenario you compare the future price of same month of different year. If inflation is mild, contango does not exist. This contango is very serious. This indicates either extreme inflation or extreme demand built-up in future. According to Don Coxe the Fed does not like so many commodities in contango and would do anything to kill it. Yesterday, in a few hours the gold future fell below the spot price before the FOMC (Federal Open Market Committee) fund rate announcement. Right after that the future caught up and passed the spot by end of business day. This morning almost all metals, precious and base, are in contango. I would agree with Warren Buffet that 'I think the 'flation' part will heat up'. So the inflation evident is there. The trend is firm. Fed seems powerless to control the inflation by sacrificing the economy which could be the reason they throw in the towel to control inflation. However European and Asian countries central banks are much hawkish. At the time of writing, USD Index has fallen 70 base point to 72.66 since yesterday morning. More may come. The devaluation of U$ rescued the oil price even there is a ridiculous increase of 2.8M barrel distillate fuel inventory in one week at the beginning of air-conditioning season.

Gold: 2008.06.25 After a couple days of falling gold price and stronger U$, the Fed watching team finally gets the answer: no rate change. During this period, gold price and U$ has been moving in all possible combinations. Tonight, USD falls 33 base point after the Fed announces the stay put and the USD has sunken below 73 from earlier 73.30. This is a prime example on market can be solvent as long as it want. But someone has to give. Dr. Michael Berry (http://www.michaelberry.biz/) wrote in today's Morning Note that the Fed may have to do two more rate cut due to: 1. inflation is no more a concern now 2. housing market is still free falling. This leads to the fact that we all have to live through this inflation cycle. We have to invest on either wealth storage (such as precious metal) or wealth creator (like great business franchises).

China: 2008.06.20 Yesterday at New York, WTI future dropped U$4.75 and China has been blamed. The prices increase for one litre of gasoline and diesel will be 0.8 and 0.92 yuan. It is explained that the raise of fuel prices could dampen the booming nation's oil consumption. Putting oil into the fire is another announcement by Iraqi's signing supply agreement with several major Western big oils. The trader may be freaked out but certainly the market magician is at work to make wave. This morning, the future has recovered half of the loss and it is a very good possibility to recover all in coming week if not higher which has become a pattern: big drop and new high. Other than the real demand that pushes the long term price (confirmed by the 200MA of oil future sitting above U$100) we also know a certain pocket of speculation in a very tight spot market. When the speculator does not willing to deliver by the time contract expires the price will drop as they have to dump it. Yesterday was the first trading day of July future which means delivery has to be made soon. When the shortie covers the deliverym the price will be high. The reasonable thing to do is watch the 50MA. Now lets look at the fact. PetroChina has reported that their profit has dropped 30% in the first quarter of 2008. The reason is the government controls fuel price. The more the Chinese companies sell through the Chinese retail, the more they lost. All China oil companies bear the same pain. What China government doing is to move forward to a autonomous economy slowly. It takes time for a young market to be efficient.  Although this could increase the CPI there is a price for everything. Will the demand dampen, only time will tell but with the forecast of number of cars in China to be doubled in coming years, you better not believing it.

Money Matters: 2008.06.19 The U$ has been performing in a sequence of rapid firing going quickly up and then slowly descend. This is not a good sign because this is rumour driven. Strength and weakness come in as a steady force. During the course there will will be bumps and humps as things unfolded. However the main direction does not change. At any moment, the main direction could be persuaded to the sideline either higher or lower due to incidence. The rally of U$ is not necessary has American as the only beneficiary, European exporters too. ECB has been keeping interest rate higher if not raising it to fight inflation, this keeps the Euro high which is not desirable for the European exporter. Any strength of U$ is welcome. Another conspiracy theory is that the SWFs holding U$ as reserve need this propped up moment to divesture their holding. Gold has been performing strongly in the last few days after the fear of strong U$ has been subside when the U$ popped up. Gold is simply performing its function: preservation of wealth as paper dollar devaluate continues.

Energy: 2008.06.18 The 200 day moving average of WTI has secretly pass the U$100 mark without any announcement on last Friday, June 13 and remains there up to today. May be this is the technical proof for the techies.

Money Matters: 2008.06.018 The following are my latest conspiracy theory. The American market is doomed to fall. It is based on the Industrial and Transport Indices. Most recently, the peaks were not above the RSI 70 Rather, it is getting lower and lower. It could not be good. Please take a look at the charts DJ Industrial and DJ Transport.

 Energy: 2008.06.012 Oil price has been extremely volatile while natty has been much stable. I have updated the oil and NG chart one day ahead to compare with the EIA NG inventory data. Oil is stubbornly refuses to stay lower. Natty is just the same. No matter what negative news coming up on economy or IEA's demand reduction, nothing has really materially change the trend. Of course it will be for the meantime but the momentum is so strong that it proves to be a tough bull. One thing I would like to bring out is the natty's price. Comparing the current surplus level with 2005 pre-Katrina months, they are at the same level and same price. Could this mean the inflation is discounted for natty and only the supply is included in the equation? The most important point is the inventory built-up continues to fail. This could lead to an inventory level even lower during the Katrina time so U$16 natty is very possible during the hot summer months.

China: 2008.06.12 In the MarketWatch.com's news title China's consumer inflation pace slows in May reports that the inflation has come down from April 2008's 8.5% to May 2008's 7.7%. It is hard to believe someone could consider this as good news. But I believe it lies the important message that China is getting a better grip of inflation now but they may not cool inflation too much as inflation links to controllable (possible increase in supply and price control) and uncontrollable (oil price and scarcity of material). The Chinese inflation is strongly tied to growth which is what the government driving. In another related report from Globe and Mail, Inflation in China eases to 7.7%, it increases in farm products (promotion of productivity) to reduce the price. One thing we, who live in the West, forget that the price of underdeveloped countries are always low. During the progression to the improvement Quality of Life the consumable’s quality will increase so those the prices which pushes up the inflation. It is not necessary a bad thing to have inflation as long as it does not create a balloon.

Energy: 2008.06.06 At the end of the Second World War, the pivotal point was the Invasion of Normandy by the Allies on June 6, 1944. Oil price jumped U$10 today.  Is this the invasion of inflation? John Budden on his Budden Minute indicates that Israel may enter Iran, the second biggest oil producer. Such move has been reported by many sources. Combine today and yesterday, oil goes up by U$16 in just two days. This may be a combination of the coming of a black swan event and the short covering. The shorties get squeeze because of yesterday's gain. The squeeze got intensified creates the cascade effect of getting more margin call. The more the short sold the harder the squeeze and as the word squeeze implies when you squeeze the ball attached to a tube filled with water, the water level gone parabolic.  Today is a dangerous day because no trading tomorrow so they try to balance the book before weekend. By the end of the day the oil gone mad. During the first oil shock in the '70, oil consumption (i.e. Americans) was cut back by 8% but this time, according to http://ASPO-USA.org/, EIA report that American is only cut back 1%. On the positive side, the consumer as still very resilient to the high price (in the '70 the energy expense was 10% of the income which is much higher than today because the energy price has not caught up with the inflation). On the negative side, commodity tends to falter after a jump. Both scenarios are possible. Gold rubbed some squeeze in sympathy with the oil because of the weaken U$ (When did it get stronger? It was just got unreasonable expensive without fundamental.) and gone up U$24 to U$902.20 at the Spot market and the June Future for Gold closed at U$895 for the week. The future after hour market peaks at U$902. The more important point is that RSI for daily is only around 50. No overbought. The run may continue.

Energy: 2008.06.05 Every body is saying that the high energy price will curb the demand. This is North America-centric thinking. When the world says only the Americans have a massive demand on NG, the price of NG dipped when LNG is heavily imported by Americans. However the LNG is shipped to China et al now with natty going to record high. When the oil price is holding up at $133 and drops to $122 entertainyst says the oil barges are circling the harbour to wait for better price but due to high barge rent they have to dump at much cheaper price. With all these in the backdrop, the NYMEX oil price jumped U$5.49 when the ECB declares no rate cut to fight inflation. If there is no demand for oil the price should stay put. Just use the talk to keep the oil down does not work. Gold price may be released from it shackle soon because my gold stock indices jump 6 points or 3% today. This could translate to U$30 jump in gold price while the gold future price has been held at U$875.50 today.

Money Matters: 2008.05.29 The market is at a very sentimental state. What I mean is the market psychology is so emotional that people will blind fold themselves to believe what they want to hear. Even with such adverse environment for the US financial, people believe the Fed could raise the rate which will mean Euro, Yen and RMB will fall. They don't have to do the voluntary devaluation. Such illusion can boost the USD index above 73 today. Fed is using talk of the talk to talk down the commodity to meet the election prophecy. However, American are not conserving because the inventory of hydrocarbon dropped significantly last week according to EIA. Talk is vapourware. It will dissipate. However, this creates the panic amount commodity investors; they sell off. This falls into the hand of those want to cover the short or create another wave of commodities volatility. The demand from American may wane but the BRIC will not. People has to learn how to de-American centric and face the reality.

Money Matters: 2008.05.27 USD Index surges 40 points to 72.40 after the long weekend. The rejuvenation by the holiday boosts the rally. Last Thursday, the USD Index was 72.20 with gold price at U$920. Would it be the powerful to knock gold by U$20. Remember this is less than 0.5% and gold has down more than 2%. If you believe the housing problem has finished, one would have to read the fine points. A recovery of 100% from close to nothing is still dismal but the psychology is powerful even with the financial sector's earning power per share has devastatingly diluted. The financial rally and so does the Dow Industry could very possibly building the right shoulder of the right shoulder of the final head and shoulder before the downward roller coaster. Most probably all sectors may be pulled down by it.

Energy: 2008.05.26 American's NOPEC Bill will create back fire to the American's energy import. LNG has shown the American that if you cannot pay the price somebody can. Pursuing to force OPEC to lower price may have a small political win in a very short period of time. But this will give OPEC the great reason to reduce capital investment to increase output. As the contract expiring, the new one will not be signed with the American because the new buyers (as usual the Chinese and Japanese) finance the new projects.

Money Matters: 2008.05.24 Commodity demand is here. So does speculation. Whenever there is volatility there is money and speculator. The bubble creation process is not just the ruthless promotion at the beginning. Once it has started, the future (which uses leverage) will carry the torch and march on. John Mauldin's Thoughts from Front Line on 24th May, titled Wither the Price of Oil?, dissect the current situation. In this article, he points out that commodity indexed investment has grown 20 times since 2003 to U$260B. The holdings include the full spectrum of hard and soft commodities. The fluctuation of the U$260B will play a significant volatility in the market. This also increases the danger of the future driving the spot (a significant factor of bubble). Is there a correlation between the size of commodities investment and the rise in price in a significantly? The article argues both sides. A fabulous piece.

Money Matters: 2008.05.23 So far the Dow Averages are sinking. The Industry and the Transport drop 676 and 415 from the recent peak to the lowest on Friday respectively. These are 5% and 7% drop in just 3 days with Thursday a small rebounce. The oversold status evaporated fast. Yet the falling seems no break. The volumes are about average. So are we going to see new low?

Money Matters: 2008.05.21 The American and Canadian markets are blood bath. The TSX was OK at the beginning while the Dow Averages were pushed down right from the morning. During the afternoon the selling pressure extended to all sectors. Even the gold stocks were hit while the spot and future are moving higher. The oil stocks were beaten up at the historic high oil price. You can call it profit taking or bulldozed. Does the bear collect its power from the slip of both Dow Averages? It seems more like a fact than a coincidence. If this is a correction, the Averages will go down at least 10% which can break the low of Industry 11740 and 10% down for the Transport to 4855 but above the March low 4398. That 500 points may not be safe because the transportation sector can hurt badly by the high energy price. So it may be saved by the skin of the tooth. Believe it or not, although TSX dropped 257 points but my indicator has not call it a peak although the RSI is at the maximum. None the less, the possibility for TSX to pull back could be high. Don't stand in the way.

Money Matters: 2008.05.21 We all claim that there is rule of behavior in the market. Entertainysts, not the analyst, do their fortune telling by reading the tea leaves of different sort (from mini-skirt, to shade of building material, to tone of Benke). This could be a good topic for them. USD Index was at 73.53 two weeks ago which was the high point for the recent rally that took a week to run up from 71.41. With similar speed, it falls to 72.15 this morning. The rally of the Dow Industry has been coincided with the USD Index and the Financial Sectors. Yesterday, the Average started to turn south in a meaningful way along with the Transport. Financial was also moving lower. Incidentally, gold moved up so does the oil not to mention the miracle recovery of silver from below U$16 to approaching U$18. Could someone read the end of the U$ rally and starts the sell off?

Money Matters: 2008.05.20 My indicator has an interesting signal. Both the Dow Industrial and Transport are off from the peak. The Transport has an unconfirmed sell signal because it is not at overbought. The Industry is not at the overbought yet so no sell signal. Tomorrow could be an interesting day to watch. If the indices go up, the American bull remains strong. If it turn down, there may be 10% fall which will become bearish on the P&F. By the way, last time both indices topped out at close proximity was July 17,18 2007. The bottom was the August 16 crash. Industry down 10.7% and Transport down 18.9%. TSX topped out on July 19, 2007. Down 14.9%.

Technologies: 2008.05.20 News are spreading that the lending bankers of the BCE deal as backing off. So this is a situation how technologies may help to analyze the situation and to guide the decision making. First of all, we have to identify to existence of such provision (members of the set) in the contract. If there is no such provision, so the probability is be zero. However, the condition can apply to subsequence deals that creates a feedback term for the computation. Since we do not have the contract the most reliable source will be the rumors we collect. From the Ontario Teachers Pension Fund we hear that there is no way to back out. The contract was created during the time of money flood. To ensure no back out, it is possible by simply stating the smallest set of condition of back out that is null. It is doable. Why the bankers make the shot if there is no chance to be fruitful? It is the consequence. It is like computing a series. Each term is depending on the previous term computed. The Teachers could rely on the relationships with the bankers for further deals. The sour taste in the mouth would not be a success factor for next deal. Well, would there be another deal for the Teachers? If the Teachers completes this deal there would be a long time before they could cough up more money for any deal because of the debt loaded transaction and the 'unexpected high number of retirement' at their expected retirement time. If you trust there will be much better economy in the near term, bankers can do business with others vulture, bankers will hard press to break the Teachers.

Energy: 2008.05.16 Two events create great impact on the natty yesterday. First is the U$840M LNG to gas gasification terminal project at Quebec City will have the investment from the Russian Gazprom. Gazprom will assure the supply 100% of proposed LNG capacity from the Shtokman gas fields. The second is the Canadian governmental panel postpones release of environmental report till 2009. The first will increase the supply of natty (by gasifying the LNG and distributes through the NG pipelines) and the second delays the future supply years after 2014. The first one is more intermediate term because the gasification terminal expansion project will finish by 2009. Gas from Gazprom may not be a good stabilizer for the natty market as we all observe how Russian likes to volatile the price either due to political or profit reasons. The most recent reduction of LNG supply from Saudi to North America was explained as other countries can pay a higher price. China and Japan signed and building gas pipeline for the Russian gas delivery. This will put the East and the West in direct competition on the NG. The Mackenzie pipeline is the great hope that delivers the NG treasure from the Alaska to North America. NG future reacts to these two pieces of news in a slightly positive way. It pulls back from the recent high of U$11.70 to U$11.50 this morning. However I see both events are helping the bull to push the NG in at least short term because it shows the demand exists and the supply is tight. If you check the US NG inventory chart on the Gold & HnCn page, you would see the inventory build up is virtually none. This is also supported by the contango of NYMEX NG contract up to Jan 2009 which sits at U$12.534. A whole U$1.00 premium in the future which is reaching the Katrina height.

Money Matters: 2008.05.12 A conglomerate usually has a higher profit margin because it has a better enterprise resource planning. If its components cover the whole supply chain the whole company will benefit from the boom. For example, the train business will provide better service for the coal, the tourist and the cargo delivery during the hay days of CN. The expansion of business around a core is a proven strategy. If you spin off a unit, which IBM was prepared to do so during the end of the 20th Century due to anti-trust law possibility, you have to offer some of the pie to other companies outside the circle or the total profit has been reduced. So when to divestiture? It is the time the innovative supplier is more efficient than you are. This is the time to realize the value. When would one spin off a component? BCE spinning off Nortel to realize the value is a prime example. One should as a question before making the decision: would this line of business grow under my wing? If the answer is yes then it should not spin off.

Money Matters: 2008.05.08 How far from the light for the unwinding of the credit crunch? During the last 2-3 weeks, the financial market in North America (which I follow) had some spectacular performance. The exodus of moneys from the commodity to the financial got Don Coxe puzzled. With more and more entertainysts to sing the chorus is over, investors (most probably not Canadians who sit on C$45B cash) jumped on the financial band wagon. The only thing that confirm the credit crisis is over is the showing of improved earning. The earning has deteriorated since 2007 Q4. Yet most overlooked the fact that the earning is at least 2 quarters delay. The foreclosure is getting higher, the value of assets got diluted, working capital continue to scaled down in an alarming rate. All these cut down the earning power of the companies. With the tightening of cost and expense starting 2007 Q3 profit should be up. If the revenue continue to decline with the profit slight up (less than 30%) than the actual scenario may not be pretty. We have to remember the highest impact of credit ill-liquid problem is starting in April. With the banks seize up all the cheap moneys from the central banks, the consumers are not benefiting; not to mention any relief of the problem. The time to get back to financial would be the moment the bank relax the credit and the consumer spending increases. In addition to this, bank profit is coming from the market (or casino as Murray Pollitte put it) and mortgage. When there is low IPO, transaction, and slow mortgage, the profit could not be high. The most recent US' housing industry recovery is only an anticipation for the bottom. There is no fundamental to support that. The increase in buying is just seasonal that entertainysts do not mention.

Energy: 2008.05.06 WTI has made the historical high at U$122.73 and closed at U$121.84. Strangely it is not at overbought; RSI is only 63. Rather the previous high at U$119.90 (closed at U$119.37) was at the overbought RSI 87. From fundamental perspective it tells us new high would correct quickly. But this is counter intuitive  because the new high was made when the RSI falls from 87. In another word, when the momentum is reduced the price still increase. This could be an incredible strong sign. Warning sign should be put up because when the momentum is high the volatility is also high which means short term fluctuation could be very high.

Money Matters: 2008.05.06 Does Dow perform well? This is the question of viewpoint. If you talk about relative it is. If you talk about absolute we have to look at some hard data. One premise that is not arguable is that inflation is much higher than the government's 2% figure. The inflation will be reflected as the increase in revenue (but not necessary the increase in wealth) in a broad spectrum for selected companies that survive the inflation impact. Dow's component companies are these bell weathered companies so that should reflect the inflation plus any growth. The idea way to find out whether Dow companies win inflation we need to find Dow in a currency that has no inflation, no devaluation and no supply and demand fluctuation. which is the reference currency. Let's use the U$ cousin C$ which has been regarded as counterbalanced its inflation by the appreciation. The DJ Industry U$ vs. C$ weekly chart shows Dow in C$ since beginning of 2007 with their respective moving average. The first point I would like to discuss is the declining trend of the DJIA in C$. It slopes down after a big top. The second point is as just important; the 200 MA in C$ are sloping down quite steep which say it is not recovering soon.

Money Matters: 2008.05.05 Goldcorp has reported its 2008 Q1 results. One interesting item is the increase of the operating expense by 20%. This is the reflection of inflation. Considering mining industry is energy and material intense, we humble ordinary people, would use less. I cut this by half to 10%. Since Goldcorp reports in U$ by removing the devaluation of U$ by 10% we have 8-9% inflation rate in Canada. This may seems on the high side but it could be very close to the reality because all our daily life are impacted by cost of material and energy.

Gold: 2008.05.04 Would it be necessary to invest in gold which has the traditional role of inflation hedging? Would it be effective? To answer that you have to believe gold has that ability. For some gold like US$, it is there and someone guarantee the value then why not use the fiat which is much more easy to carry and widely acceptable. Of course the major difference is that you cannot print gold. Economic aside, lets look at history. The following is quoted from the Casey Research's communication on April 30, 2008 with the subject 'Gold Shares: Different This Time?': "During the last major inflationary period in the U.S., 1962 to 1982, gold shares rose, on average, 1,503%." This is annualized gain of 14.5%. The bottom line is: are we going to experience high inflation. The answer is at the supermarket. Check your grocery bill. It does not lie.

Gold: 2008.05.03 In the article by Bix Wier "The Battle of May Day" of LeMetropoleCafe.com, Weir identifies a massive withdrawal of physical gold and silver that could related to the massive delivery at COMDEX last week. As we know the commodity derivatives market (commodities represented by a piece of paper) may represent the same piece of commodities a few time, when the delivery happens the multiplying effect will mean a run to cash out the commodity (an equivalent of bank run) could kick off the unwind of the derivatives market. This battle will not pretty as Eric Sprott et al have identified in the danger in the U$500T derivatives market Deriding Deriving: Theory versus Reality, December, 2007. One may not agree with me because the paper market has fallen so bad how could it reflect the demand. My conjecture is that if the shorties do not sell the delivery contract you have to delivery the merchandize. If there is no way to fulfill the contract it will spell disaster. Can the shorties buy up the contracts? This also calls for disaster.

China: 2008.05.03 Last China item reports China discouraging agriculture commodity export. This is really the tip of the iceberg. Although import and export of all merchandize is normal economic activities but it is only during emergency situation you would discourage the flow direction to ensure you have enough supply. Under panic situation, the flow will completely shut off. We know China is a major food import country. The obvious reason is the population. The continuous growth on the demand of high protein food such as meat will demand much higher use of lower grade grain (for feeding livestock) and more fertilizer (to grow). The demand pushes the price inflation as consequence it increases the cost of production for export of all spectrum. Under the pressure from the world China can just make a measured RMB appreciation which is the major source of inflation around the world. With the agriculture commodity inflation there will be vicious inflation cycles that pushes the imported cost for China and accelerate the export inflation. Although all fronts have confirmed that the recession of American does not mean world recession but there still adverse effect to the world economic health. During the stabilization of shifting majority demand out of America the volatility of commodity price will be completely driven by the panic and fact (i.e. rumor and news) until a patent of demand has been solidify and the chain of supply to meet this demand pattern is established. Investment in China and in commodities will be just as exciting as investing in sub-prime.

China: 2008.04.30 China has executed strict measures to control agriculture resources. Xinhau report. http://www.chinadaily.com.cn/bizchina/2008-05/01/content_6656095.htm. The measures discourage export to redirect them for domestic consumption. The report has mentioned a 8% increase in the CPI that includes food.

Money Matters: 2008.04.30 Entertainysts claim the fall of the gold price is because Fed is not going to cut the Fed rate. The USD has bottomed and will rally. Today the Fed indicates the rate cut may not happen for awhile. Immediately USD falls gold rally. Since nothing has done to fix the fundamental of USD its fall should resume especially devaluation of USD is the American governments long term objective so that borrowed money can be pay back much cheaper. Now that the American economy needs the weak USD to compete. There is no way USD will be strengthen.

Money Matters: 2008.04.30 Is the market really has the ability to foresee the future or retrospectively it is always right? Let's look at two situations. The first is the rally of Dow before 2:15 pm today. It gains 120 points but end the day with 12 points below yesterday's close. The USD is very close to 73 but shrinks to 72.60 after the market. It may go further while gold shots back another U$10 or so. If the market has discount all these factors the change should not be so rapid in a couple of hours. No good work unpunished. We have to work for the fruit. No thing comes easy. If the market is the crystal ball than the mass will follow which will disturb the original path, this is the first principle of time traveling.

2008.04.30 A quote from trading desk "I sleep like a baby; waking up every hour."

Money Matters: 2008.04.26 The most favourite strategy to control inflation is through increase interest rate. This concept requires further examination to ensure its validity for today's complex multi-polar economic system. The original theory uses the assumption that when interest rate is increase the consumption will reduce. When demand reduces the supply has to lower the price. This simple model implies the demand can be cut off. When this apply to stable food such as rice, bread and butter, the applicability will be much less because you could not reduce the basic necessity. Gasoline could be another example that no reduce could be further even the price is higher. In the States, those live at high population density area are using the mass transit system already. For people who are living far away at premium remote locations that have no mass transit system, there will be no quick and fast solution for them to reduce gasoline consumption. While car pool seems a logical solution but this implies a significant change of mentality and habit. This is quite different from the European counterpart which already at a very restricted fossil fuel consumption. At BRICs the Quality of Life has just improving. With all the money in hand, it would be hard to contain the demand for material. There is another important factor to the inflation: increase in cost of production. In this cycle of inflation, it has been lagging due to the export of deflation from China. The cost inflation was disguised. By increasing the interest rate, this just adds more oil to the fire. Rather than suppress inflation, it explodes it. Bottom line is that the wall of demand is getting taller and taller while the river of supply is getting weaker and weaker. The commodity bubble as Dr. Michael Berry discussed on the 24th April Morning Note that it is not a bubble; the only thing assemble to the bubble is the rapid increase in price. The demand is supported by the series of war, riot and unrest rather than swap, trade, or speculation.

Money Matters: 2008.04.18 Transportation always play a major role in economy. It began with wheel barrel but not a major force until we have railway. In the modern world the merchandizes have two categories: tangible and intangible. Tangibles are those with solid property which require physical transportation. Intangible are those do not have a physical, like services. The industry has been evolved in phases. The first phase is the pure point-to-point delivery; the old style postal office that tightly coupled with railway system. The next generation of transportation has to be extended to include accumulation and delivery. Without the accumulation there is no value added to the merchandize. Just like postal service does not boom until the invention of post office (In Japan the accumulation includes $, i.e. saving, and many post office added new delivery type, i.e. money order). Courier service extends this idea further by the pickup and classes of services. The new addition to the second generation of transportation is telecom. The third generation of transportation has to provide more value added to the service; accumulation, assimilation and delivery. This is the knowledge industry built on top of the second generation telecom industry; or the Internet age. Therefore it makes sense to invest in knowledge providers in this Internet age. Would it immune from the down turn of the economy? This is very much depending on the sub-industry. As always, stock picking is tough. Not all transportation stock created equal.

China: 2008.04.18 Most of the people has a very narrow scope of political interest. Basically, it starts with office, municipality, country and foreign country with descending knowledge and interest. The Tibetan Separatist creating tremendous impact on the social order in many countries may not help their political agenda. Without knowing the detailed background, citizens of many countries would treat them as violent fundamentalists who disrupt the city life one enjoying. Great tradition such as the parade of Olympic Flame has been interrupted that may not bring shame to China but was felt frustration because it degrades the quality of life one entitled to enjoy. Great leaders must have the influence to keep any political movement to the minimal disruption of others life. This is the basis of democracy. If the non-government party does not respect this how could the people try them when they are in power?

Money Matters: 2008.04.17 Uranium stocks have a change of mood; it is moving sideway rather than down. At least in the short term the triple waterfall action has been halted. The bottoming process may be starting. The worst would be a spike which would repeat the November 2007 rally which kicks off the triple water fall. The concern is legitimate because the yellow cake spot has fallen U$3 this week.

Money Matters: 2008.04.17 Gold slowly establishes a firm grip at U$950, USD slowly drifts below 71, platinum afloats U$2,200, copper refuses to sink below U$4, oil shoots above U$110 and stays there, natural gas' huge base rockets the price to above U$10 and silver trends its ratio with gold to below 50. All these are the indicator of inflation and devaluation of USD. The JNJ chart on 2008.04.15 could serve as an example how careful we have to evaluate with less bias. The commodity bubble if you call the rapid increase of price is here. However this bubble is not caused by the speculation activity but rather under the law of supply and demand; the physical supply and demand. Differentiation must be made to identify the true appreciation not speculation bubble. You can live without the black tulip. You can live without the huge seaside property. But you cannot live without food. These daily life merchandize inflation is not a bubble. It hurts.

Money Matters: 2008.04.15 There is a religiously believe that Dow's global present stocks are sacred and are protected by the oversea revenue while the U$ devaluates. These stocks include Johnson and Johnson and Coca Cola. I just pick one example and see if this conjecture holds any water. The JNJ Chart in C$/U$ and the respective return comparing to the beginning of 2000 has shown there are some shadow in this conjecture. First, JNJ has gain 40% over 8 years which has an annualized return of 4.3% plus its dividend which is about 2.5%. In total it is about 7%. For Canadian holding JNJ will only benefit from its dividend. Canadian may not be wise to invest in non-Canadian security. It may be true not to invest in global equity fund.

Money Matters: 2008.04.15 Great comment on inflation and summary of Paul Volcker's speech on current Fed actions from the Guild Management. Please also read the food price inflation article.

China: 2008.04.14 Economist at the People's Bank of China has identified an interesting relationship between the American economy and the GDP of China. According to Xinhau's news report, one percent slide in American economy would lead to 5-6% drop in China's American export. This study provides one additional interesting number. The decline of 1% export to American can be translated to 1% decline in the Chinese GDP. Now the coupler will be very happy because there is explicit document on the coupling. The decoupling will be more happy because there is only a one to one link between the Chinese and the American GDP. If the American gone to a disaster of 0% GDP this will meet make the Chinese GDP pulled down from 12% to 9% which is about the official forecast of 8.9%. Lets not forget Europe has been increasing its import from China. This only come to a conclusion that don't count on China's to diet on its material demand.

China: 2008.04.13 Tibet Separatists are making a big mistake by attacking the Olympic flame parade. The parade is the tradition of Olympic Games and conducted outside China. The attack does not contempt to the governments by violating the local law but also seriously disrepect the citizen of the world. Ignoring the historical fact that Tibet has been part of the China over thousand of years, any terrorist like act will not earn the sympathy and support of the movement. Rather, it has degraded the meaning and intention of the movement. China has been exploiting this opportunity to earn the respect of the world on handling this matter with great success. This sequence of events help Chinese Government frame the violent and irrational behavior of the Tibet Separatist which is not a good path to go down.

Money Matters: 2008.04.11 In last fall, banks' results have shown a very positive picture that sub-prime did not touch their earning. Entertainyst continued to down play the damages caused by the sub-prime. Common sense tells us the quarter report usually reflect the revenue committed one or two quarter earlier not driven by the event happened yesterday. Today GE stresses their business is sound with all core revenue except the finance move up strongly. History does not lie but the people lecturing it does. GE's business income are coming from orders 5 and 10 years ago because they are the huge project. The crack shows its shadow through the financial service that supports those sales.

Energy: 2008.04.09 Natural Gas may have good a breakup. Please see the chart.

China: 2008.04.07 Reuters reports China will allow the Chinese banks (by implication investment houses) invest the clients' money in American banks and mutual funds. This is under the Qualified Domestic Institutional Investor scheme (from The Chinese Banking Regulatory Commission) which allows these clients' money in Hong Kong, Britain, Japan and Singapore to broaden the spectrum of investment. The timing is interesting because this has to meet two criteria to make the action justified: value and regulatory. The first is not obvious because although the American banks' price has been much lower it is hard to price the value. The second should not be a problem because American government is seeking non-controlling interest investment in its financial systems that could boost the capital supply. This is an example how the Chinese government guides the direction of investment including timing. There is also a very important piece of information: Chinese institutional investors' money is not just parked at Hong Kong. They have spread to Britain, Japan and Singapore. This wall of money will consume some of the gigantic FX reserve which China does not inform the world. While we are watching the hooked punch in fact the FX is slowly but steadily divested to non-US currencies.

Gold: 2008.04.01 This is no April Fool Joke. According to Casey Research's April 1, 2008 Daily Plus, the central banks is leasing gold at a negative rate which literally increases the incentive to glut the market with physical gold supply. Should someone leases it and short for profit, you can expect a sharp rise somewhere down the road. Of course, if you are shaken out at this point, your lost cannot be recover.

Money Matters: 2008.03.31 Regarding the US Treasury’s change today, my gut feeling is that I don’t like it. It creates opacity by centralizing. At first glance it seems centralization will easy to spot problem. The reality is the plunge protection team is monitoring everything already. The cracks are observed by outsiders when problems appear. With centralization, the cracks will be much harder to spot.

Money Matters: 2008.03.31 We have over 1,500 gold resources companies and over hundreds of uranium resources listed on Toronto exchange but there are only a dozen of gold mines and handful of uranium mines in Canada. You can argue many more overseas but this paint you a picture there are more generals than soldiers. Investing in resources has to be careful. During the weekend, a key water permit of Imperial Oil of Canada' Kearl oil sand project has been revoked. For get the legitimacy of the permit, nonetheless, the progress will be delayed. So it is not necessary safer to invest in super-size companies. They have their share of exposure.

Money Matters: 2008.03.25 I have created an index for major Canadian banks. The plunge was not met by the spike of the volume. It was actually the next day. This stirs up some thoughts. A bottom is matched by huge volume. You can explain it by panic sell or institutional buy. However, the huge volume happens the next day and follows seems to me dumping when the situation improves. The lift was coincide with the rescue of Bear Stearns and the bankruptcy protection of the Canadian ABCP which is reported to lost 40% now (who knows what will be the value later). Another fabulous article by Eric Sprott and Sasha Solunac, Here Comes the Helicopter, would help us to apprehend the current situation.

Money Matters: 2008.03.25 Dr. Copper has been fallen from north of U$4.00 to the most recent low below U$3.50 before rebounds back to U$3.75 level today. This has been a contradicting scene because the LME stock level was down to about 3 days inventory only. The fall was initiated by China at the Shanghai Future Exchange. We all know that China has been doing this from time to time. Last year it was the rogue trader who short copper and nearly caused the collapse of the market. Chindia's material requirement has never reduced to build the infrastructure not to mention BRIC. We have to understand there should be a short reduction of demand from China simply due to the snow storm which stalled the consumption. As soon as the traffic is got in order, the demand shown immediately. However, we always have to remember due to the material shortage and low inventory, we can have the delusion of oversupply (say inventory jump by 100%) simply due to shipping or someone has to dump the material. Speculation will kill you just like curiosity.

Money Matters: 2008.03.19 Within 72 hours, the market's expected Fed fund rate cut of 100 basic point become a 75 basic point reality created turmoil at different levels and at all sectors. Dow went up 400 points on Tuesday and gave back 300 points on Wednesday. If the rate cut is effective the gain should have sustain power. When rate was cut, something happened at the same time that drove U$ up; Japanese Yen went up as high as 98. Yen carry trade unwind continued that pushed up U$ which should fall. The abnormal rises of U$ created an opportunity for those who want to suppress the commodities which should gain because they are priced in U$ that loses value. Let's use quantum theory to rationalize this time rather than the manipulation. This just means the commodity prices fall is only a very short term. The more the deviation from the norm the more potential to go back to the norm. So when gold fell from the high of U$1033 on Monday to U$914.50 on Wednesday, the $118.50 lost or 12% should qualify a correction. From technical perspective, it is a very good thing for the overbought provide it can recover. Tomorrow is the day before the long weekend. Things may change because shorties will worry about the flash points at Jerusalem during the Easter. Literally, gold and oil could recover some of the losing ground. There real test will be next Tuesday when the senior traders return to the trading post.

Money Matters: 2008.03.18 Fed cuts the fund rate by 75 basic points to 3.25% which is 25 basic points less than most desired. Anyway, as usual the market rally. Dow up 400 and TSX 184 points. Reviewing the situation, nothing has done to resolve the credit crunch but central bank continue to provide the easy money to the banks. I am not sure the credit card would cut their rate or the long term mortgage rate will be cut because Fed rate affect them. The small investor victims of the house bubble and the credit crunch benefit zero and will suffer the subsequence of devaluated currency. Any 1% of the value devaluated (i.e. foreign exchange rate) could translate to 6% rise in the inflation. USD has been fallen from the 74 at the beginning of the year to the current 72. So 12-15% of inflation will be expected but it would not show up at your next purchase of car or computer but your loaf of bread and the pound of roast beef will definitely be more expensive. Bank stocks had no reason to rally but they went up anyway which is also behaved contrast to the expected yesterday when the bust of Bear Stearns should slump the financial but nothing happened. Gold should rally today but it sacked 3%. If you apply the Punch Protection Theory, it would make sense. The Punch Protection team will buy up the market in the financial sector yesterday and create the rally to sell them today to make a profit. They have shorted gold days before to surpress it to go higher and buries precious metal today to cover their short. They need to refill their ammunition for next battle. If this is the real ugly scene, tomorrow or days to come will be the reverse of today. History may not repeat but this happened last 5 fund rate cut.

Energy: 2008.03.17 Reported by the ASPO's March 17, 2008 weekly report, US LNG imports of 16.2 million tons in 2007 will increase by more than 400% to 70 million tons/year contracted into the US by 2012, according to Martin Houston, a VP with BG PLC Group. He says that excess production capacity is unlikely to emerge in the system any time soon. NG's price fall in last 2 years was blamed on LNG. With the LNG import growth continue, why the NG price continue to mushroom?

Money Matters: 2008.03.11 What is wrong with this picture: gold down U$2.00 and HUI up 19 points or 4%? Stock is not really leading the rally it is just play catch up. The volume has not unveil any big money from the institute investors.

Money Matters: 2008.03.10 Federal Reserve Board Chairman Dr. Bernanke did his doctoral dissertation on the Depression. We all hear and believe he will mobilize everything to avoid another Depression by preventing the deflation. The path that brought American out of the Depression was through the rebuilt of infrastructure such as highway, dam (the famous Hoover Dam) and many others. Would this trick work this time? I would raise the contrarian opinion that no it does not work unless the education system is reformed not even war. Along the infrastructure work, the good Americans were throwing themselves to the college, university, technical institutes and all higher education. As soon as the society stabilized, the intellectual properties kicked in to boost the industry. We saw the success of numerous examples from Boeing to Howard Hughes, from RCA to National Semiconductor. People who lived through the Depression remembered to make saving and not just money but also knowledge. China is taking this medicine and she grows tremendously. On the other hand Americans have been so well trained to spend there may be a very long period until they are awaken. Until than we see the great American Empire sank like the Great British Empire.

Energy: 2008.03.10 WTI shots up north of U$107 when the USD is rally a bit just south of 73. The picture does not jive. NG also takes the benefit of surging WTI to hit U$10.024 and hangs around the same level after the NYMEX closes for the afternoon. NG may break the resistance of U$10.10. Gold fell U$12.00 and recovers just about U$2.00 below the Friday close. The market has incredible under current to prevent the commodities to move up but the underlying demands is so strong that it will overcome the down draft. However, volatility would not be minimal.

Energy: 2008.03.06 We may be heading towards an above U$10.00 NG. Please refer to the "Seasonal NG Inventory Surplus vs Price" chart under Gold & Hydrocarbon.

Money Matters: 2008.03.06 In an equilibrium economic system all prices bear a ratio against each other hinged by supply and demand. The range has some flexibility. In short term one could be quite deviate but in time they all levels up. Gold and oil has the historic ratio of one to ten. The race of playing catch-up becomes vigorous when oil explodes above U$100. Gold price ascends. Platinum is about 2 time of gold. Now platinum is at U$2,300 range some one has to blink and looks like platinum does not budge. Silver has the historic ratio about 1 to 35 with gold. The parabolic movement of silver could be explained as normal. The near height of silver may be at the range of U$35. A long way to go.

Money Matters: 2008.03.01 John Mauldin has a very interesting March 1 InvestorInsight newsletter (Complement of InvestorsInsight) which argues that the inflation is coming down other than materials especially wages. This is could allow Fed to lower interest rate further. This happens to Hong Kong after the boom at the end of 20th Century because wages came down, house price gone up and busted, and high import inflation. The 10 years of economic recession may be duplicated by the North America economic winter.

Money Matters: 2008.02.24 How were the Canadian big five banks doing during the financial turmoil in the past 10 years and compare to now? The following chart shows some statistics. All price as adjusted for split and high and low are the inter-days. Please pay attention to the time the drop happened before and after the Fed inflated and disinflated the economy. One could argue the safety of investing in Canadian banks but not all created equal. Looking back, I would ask the question whether Canadian banks are safe for widow and orphan income? Perhaps, because they all increase dividends in the last 10 years and survive these volatility.

	From	To	High	Low	Change	%
Bank of Montreal
	28-Aug-01	24-Jul-02	$    44.10	$    31.00	-$    13.10	-29.70%
	12-Feb-01	04-May-01	$    44.40	$    34.20	-$    10.20	-23.00%
	30-Nov-07	21-Jan-08	$    63.44	$    51.35	-$    12.09	-19.10%
Bank of Nova Scotia
	16-Apr-98	05-Oct-98	$    22.35	$    11.40	-$    10.95	-49.00%
	24-Apr-07	21-Jan-08	$    54.73	$    43.10	-$    11.63	-21.20%
CIBC
	15-Apr-98	09-Oct-98	$    59.80	$    24.40	-$    35.40	-59.20%
	11-Apr-02	08-Oct-02	$    58.04	$    33.96	-$    24.08	-41.50%
	05-Oct-07	21-Jan-08	$  103.64	$    64.25	-$    39.39	-38.00%
TD
	16-Apr-98	04-Sep-98	$    37.38	$    18.75	-$    18.63	-49.80%
	13-Apr-99	10-Aug-99	$    45.50	$    24.40	-$    21.10	-46.40%
	11-Apr-02	04-Oct-02	$    45.03	$    25.17	-$    19.86	-44.10%
	30-Nov-07	22-Jan-08	$    75.00	$    61.00	-$    14.00	-18.70%
Royal Bank
	03-Jun-02	24-Jul-02	$    29.45	$    22.53