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CARTEL CAPITULATION WATCH
The US stock market loved the sharp sell-off in oil. Had too. The economic news continues to disappoint. The DOW rose 83 to 10,181 and the DOG gained 24 to 1860.
Rumors are floating that a hedge fund, Dunn Capital, has blown up.
US economic news:
08:30 July Durable Goods orders reported 1.7% vs. consensus 1%; ex-Transportation 0.1% vs. consensus 1.3%
Prior readings were revised to 1.1% and (0.2%), from 0.9% and (0.4%), respectively.
* * * * *
10:00 July New Home Sales reported 1.134M vs. consensus 1.3M
Prior reading revised to 1.211M from 1.326M.
* * * * *
WASHINGTON, Aug 25 (Reuters) - U.S. new home sales fell more than expected in July to the their lowest pace since December, as higher mortgage rates cooled the housing market, a government report showed on Wednesday.
Sales of new homes tumbled 6.4 percent to a seasonally adjusted annual rate of 1.134 million units last month from a downwardly revised 1.211 million in June, the Commerce Department said. Analysts polled by Reuters were expecting sales to slow more gently to a 1.29 million clip from the originally reported 1.33 million unit pace.
Inventories of homes available for sale at the current sales pace ballooned to a 4.2 months' supply, the highest level since February 2003.
NEW YORK, Aug 25 (Reuters) - Applications for U.S. home loans fell 6.3 percent last week after a brief bounce in early August spurred by a drop in mortgage rates, an industry group said on Wednesday.
The Mortgage Bankers Association said its market index, a gauge of mortgage activity, fell to a seasonally adjusted 646.3 in the week to Aug. 20 from 689.4 the week before. –END-
10:32 API reports crude oil inventories (3.4M) barrels
Gasoline inventories +1.5M barrels, while distillate inventories (633K) barrels.
* * * * *
10:31 DOE reports crude oil inventories (1.7M) barrels vs. consensus (250K) barrels
Gasoline inventories unchanged vs. consensus (2.25M) barrels, while distillate inventories + 500K barrels vs. consensus +1.325M barrels.
* * * * *
Here is a real surprise as we head into our Presidential election:
15:29 US may sell some strategic crude oil, UPI -- Bloomberg
The head of the IEA said Tuesday that the prospect of using strategic crude oil stocks is higher now than it was a year ago. The White House is reportedly considering a sale of some of the nation's reserves to curb prices.
* * * * *
Crude oil was clobbered, falling to $43.47.
GATA’s Mike Bolser:
Hi Bill:
The Fed added $7.5 Billion in temps today August 25th 2004, an action that dropped the repo pool a bit to $49.015B. The pool's 30-day moving average stayed flat running at $45 Billion while the DOW's own moving average tracks along at the bottom of a down cycle. The DOW continues weakly sliding down a gentle slope even as the Fed maintains a high repo pool. This suggests that other needs are being met with the federal Reserve's repo funding machine. Oil derivatives, bond intervention and currency markets are the usual suspects. As we move into the political season and the stakes rise, the probability increases for more Fed market mischief. However, at some point the DOW will regain the Fed's attention and be made to respond upward. Those who believe that fundamentals matter are underestimating the determination of the Fed to continue their own existence.
After all, the failure of this series of Federal Reserve interventions will be the final failure for that institution. Bob Landis' recent essay at http://www.goldensextant.com
concludes with the view that the Fed's monetary failure mechanism will be catastrophic and sudden. I fully agree with Bob's view and offer additional scientific support to be found in a GOOGLE search of the term "catastrophe theory". This area of mathematics has steadily gained respect since the 60's when it was first introduced.
The theory stipulates that after a long period of force application (Fed market intervention) against the normal condition (free markets), there will be a sudden, sharp and catastrophic failure. The most obvious example can be found in closed population studies where the population of say, Reindeer rises over time, only to crash to near zero after the limited food supply has been consumed.
Perhaps the best example of all is an earthquake. The slow buildup of pressures leading to a sudden, massive release of energy. Mises himself used that analogy when he said of the 1920's Weimar Republic runaway inflation,
"For the most part people stood their ground. It was the ground itself that was about to give way".
The Fed's looming failure will usher in an unimaginable period of change and they will fight this change to the bitter end, using every tool at their disposal. No strategy or tactic will be off limits. One will be either with them or against them.
In the case of market intervention, the relentless acid that breaks down the Fed's structure is the distribution of truth itself and the resultant reaction of large financial entities to the realization that due to inappropriate intervention, investment rules of the past are no longer trustworthy and must be replaced with new tactics, the accumulation of precious metals being foremost.
John Embry and Andrew Hepburn of Sprott Asset Management are to be commended for their courage in publishing "Not Free-Not Fair-The Long-Term Manipulation of the Gold Price" http://www.sprott.com. It is a complete review of the situation and as such represents a vital milestone in the distribution of current market truth. While others dally on the deterioration of historical commodity ratios, they come straight to the point of causation-government intervention.
Oil shares looking weak
Although certainly no proof, we see the theoretical power of the Fed's primary dealers to short a commodity-based equity sector against the fundamentals:
Oil shares breaking down
Commentary: Outlook turning as crude prices peak
By Kenneth J. Gruneisen, CANSLIM.net
Last Update: 11:17 AM ET Aug 23, 2004
LIGHTHOUSE POINT, Fla. (CANSLIM.net) -- With oil recently topping $49 a barrel, many analysts expect energy stocks to do well over the foreseeable future. On a technical basis, however, many of the highly ranked leaders in the group have broken down in recent weeks.
Several companies in the oil and gas group have seen their share prices dive under their 50-day moving averages. The disconnect between the performance of energy stocks and oil prices suggests that the outlook for future earnings growth is diminishing. END
This is why I prefer metal and smaller mining firms with no debt, good scientists and verified resource potential.
Mike
"Fed Guynn: Easy Policy Not Appropriate As Econ Improves
NEW YORK (Dow Jones)--Despite recent softness in economic data, the U.S. economy should see good gains in output and employment in coming quarters, Federal Reserve Bank of Atlanta President Jack Guynn said Wednesday.
That should allow the Fed to continue to push interest rates to a more neutral level in a "measured" way, Guynn added.
"My sense is that the recent softness in the economy, while somewhat disappointing, is more fleeting than fixed," Guynn said in prepared remarks to a business group in Atlanta.
"I expect momentum to resume, and I think we'll see good output and job growth over coming quarters," Guynn said.
If that's the case, then the Fed's rate-hike cycle - that's so far included two quarter-point rate increases - should continue, Guynn's remarks suggest.
"Although troublesome inflation problems do not seem imminent, a continuation of accommodative monetary policy is not appropriate as the economic expansion gains momentum and breadth," Guynn said.
The Fed has raised interest rates by 50 basis points since June to 1.50% and is widely expected by financial markets to raise them by another 25 basis points when it meets in September.
Guynn is a nonvoting member of the Fed's policy committee this year.
"I would like to emphasize that these policy moves were not taken, as some have suggested, because policy makers believed the economy was growing too fast," Guynn added in reference to the June and August rate moves.
"Rather the data and anecdotal reports we have at this time continue to suggest we can work our way toward a more neutral interest rate setting in a 'measured' way."
Guynn did, however, reiterate that the Fed has "flexibility" to react should economic prospects change. "
-END-
Jesse responds:
Let me put one thought on the table.
The 'right' monetary growth is that which the market demands at a market clearing rate of interest.
There is no 'right' monetary growth rate that can be set by a central planning group like the Federal Reserve, because invariably whatever they set up will not be market based, and will have unintended consequences that can build over time into seismic imbalances.
Further, and Greenspan was not just being cute when he said this, it is increasingly difficult to measure the money supply because the difference between 'money' and 'credit' is blurring rapidly given the new technologies and new instruments for buying, selling and trading.
I view the Central Bank's setting the 'right' money supply growth and interest rates about the same as the Soviet Union's central planning board setting the 'right' five year plan for steel, wheat, corn and whatever else the central planners tried to do.
The real answer is to restrain the Federal Reserve to all non-policy operations, meaning they would only become involved in the operations, and temporary situations caused by outages and disasters, and let the market set rates and prices and production and everything else.
Whatever we learned about money supply and inflation in school is based on the monetarists and Milt Freidman, and will be as outdated as buggy whips in the next iteration of economic thought after this coming economic dislocation.
Jesse
Here is a horses's ass comment for you, from Bill Fleckenstein this evening:
Here is one report on gold market manipulation. It is too big and I could not make much out of it after spending a lot of time. Here is the link, if anyone is interested -
http://www.sprottassetmanageme…notfreenotfair_letter.pdf
• I was forwarded about 10 copies of this...I think it is a giant waste of time .
-END-
Fleckenstein is the epitome of the "none are so blind who refuse to see" camp.
????????????????
Gold advisers too bullish
By Mark Hulbert
Last Updated: 8/24/2004 12:01:00 AM
ANNANDALE, Va. (CBS.MW) -- If bull markets like to climb a wall of worry, and bear markets like to descend a slope of hope, then the gold market may be on shaky ground right now.
Consider: The editor of the average gold-timing newsletter is currently as bullish as he has been at any time since February 2002, some 21/2 years ago.
So far this year, furthermore, even though gold bullion ( 38099902 ) has fallen by some $10 per ounce, the gold market exposure of the average gold-timing newsletter has risen by nearly 60 percentage points.
These are not encouraging developments from a contrarian point of view, since the market rarely accommodates the majority. It would be less worrisome if there weren't so many gold timers convinced that gold is in a bull market.
Consider the latest readings of the Hulbert Gold Newsletter Sentiment Index (HGNSI), which reflects the average recommended exposure to the gold market among a subset of gold timing newsletters tracked by the Hulbert Financial Digest. As of Monday night's close, the HGNSI stood at 69.2 percent.
As recently as Aug. 6, the HGNSI stood at 7.7 percent. In other words, the HGNSI has risen by more than 60 percentage points in a little more than 21/2 weeks. By no stretch of the imagination can such an unseemly rush to jump on the bullish bandwagon be considered a wall of worry.
The HGNSI rose to as high as the current level on just two other occasions since February 2002, and soon after both of them the gold market entered a significant correction. The first came at the end of 2002, soon after which gold bullion dropped by more than 16 percent, and the second was in late May of 2003, following which bullion dropped by more than 8 percent.
The current HGNSI reading is worrisome not only because it is so high in an absolute sense. It also is high in a relative sense.
For example, consider the HGNSI level in early April, when bullion nearly reached $430 per ounce, nearly $20 per ounce higher than its current price. At that time the HGNSI got no higher than 46.9 percent, or more than 20 percentage points lower than the current reading.
In other words, despite gold being significantly lower today than then, the average gold timer is much more bullish.
These developments in the gold market are well illustrated in the accompanying chart, which compares the HGNSI so far this year with the price of an ounce of gold bullion. Note carefully the upward slope of HGNSI's trend line, which is the line that is the closest fit to this index's daily readings since New Year's. Sure looks like a slope of hope, doesn't it?
To head off at the pass the e-mails I no doubt otherwise would get, let me stress that the decline that this analysis suggests is imminent need not be the beginning of a bear market. On the contrary, that decline does not necessarily have to last very long or take gold's price down very far.
In fact, that decline could be relatively mild if, during the next correction, the average gold timer quickly becomes more skeptical of gold's prospects.
But if the average gold timer remains stubbornly bullish in the face of that decline, then a tradable bottom may have to wait until the gold market has dropped a lot further.
-END-
And a response to this article from Houston’s Dan Norcini:
Here's the problem with his assessment. His deduction is based on the assumption that the current gold market make-up actually reflects the consensus of the newsletter editors he is referencing.
I form my opinion of market psychology from analysis of open interest in conjunction with Commitments of Traders data. Even a cursory glance at the data that I employ is enough to effectively refute this writer's claims.
Open interest levels peaked this year in gold near 305,000 contracts in April when the gold price was trading near $430/ounce. At that time, the COMBINED SPEC LONG POSITION was 243,163. The most recent data I have that includes the Commitments data reveals that current open interest was at 227,948 as of 8/17/2004. Of that interest, COMBINED SPEC LONG POSITION was at 140,635 or nearly 103,000 LESS than that which they were carrying in April 2004 at the recent price peak. Since it is these speculators which are primarily the source of concern for many market analysts when they become excessively positioned on one side of the market or the other, I think it is safe to say that Mr. Hulbert's deduction from his claim that the:
"Consider: The editor of the average gold-timing newsletter is currently as bullish as he has been at any time since February 2002, some 21/2 years ago."
is glaringly inaccurate. If the editors of these "average gold-timing newsletters" are "currently as bullish as he has" seen them "at any time since February 2002", then it is quite obvious that the readers of the self-same newsletters are apparently ignoring the editors and not acting on their recommendations. If they were, the open interest figures and the commitments data would reveal it. The SIMPLE FACT IS THAT IT DOES NOT. It is irrelevant whether newsletter writers are excessively bullish or bearish if the composition of the actual market participants does not reflect that extreme. In our current case in gold, IT DOES NOT.
Even after making allowances for the astounding increase in Open interest that we have witnessed this past week where gold has seen an addition of some 33,874 contracts since the Commitments Data which was good for Tuesday of last week was released, we are still nearly 43,800 contracts beneath the peak reached in April of this year. Clearly, the current sentiment in the gold market is bullish from the speculators standpoint but to assert that it is greater than it has been at any time since February 2002 based solely on an analysis of gold-timing newsletters is utter and complete nonsense.
A quick side note -The gold price peaked at $308/ounce in February 2002. with open interest peaking at 149,665 for that same time frame.
If and when the total open interest approaches levels above 305,000, then we can talk about Mr. Hulbert's claim that bullish sentiment is at an extreme level. Until it does, I think it best to simply dismiss this unsubstantiated claim which may make for good PR for Mr. Hulbert, but is of no consequence in the real scheme of things.
Dan Norcini
The gold shares showed some spunk with the XAU up 2.50 to 94.16 and the HUI up 5.98 to 205.33. Both closed on their highs.
The Gold Cartel is disgusting. They couldn’t get gold down during Comex hours so as soon as the Access market opened, they hit the price for $2, just like they did on Monday. Perhaps they will be surprised again tomorrow and be forced to retreat further. If not then, soon.
GATA BE IN IT TO WIN IT!
MIDAS