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GATA’s Mike Bolser:
Hi Bill:
The Federal Reserve added $4.5 Billion in temporary repurchase agreements today September 22nd 2004, an action that caused the pool of un-expired repos to rise to $62.114 Billion a very high value. The DOW remains unresponsive and is down 100 at this hour (10:20AM), although its 30-day moving average is still in a mini up turn. The Fed has its hands full with an oil demand shock as the next two pieces reveal:
This official government energy website reports that things aren't getting back to normal as quickly as hoped for after Ivan roared through:
MMS: 39.2% Oil, 22.7% Gas Production Shut In US Gulf
http://www.gomr.mms.gov/homepg…ewsreal/2004/040921s.html
NEW YORK (Dow Jones)--The U.S. Minerals Management Service reported Tuesday
that 39.2% of daily oil production and 22.7% of daily natural gas production remain shut-in in the U.S. Gulf of Mexico five and a half days after Hurricane Ivan made landfall.
This is only a small improvement from Monday's reported oil and gas shut-ins covering 41.6% of oil and 23.5% of gas production, respectively. The much slower-than-expected pace of recovery has worried traders and analysts who had been confident that the situation would be mostly back to normal by the end of this past weekend. END
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Absorb the following statistic from Sven Lorenz for The Daily Reckoning
http://www.dailyreckoning.com
"The following is hardly known by the public...but this agreement means that 13% of the world's tanker fleet will have to be scrapped by April 2005. By 2010, a staggering 40% of the world's oil tanker fleet needs to be replaced." (As a result of double hull tanker requirements).
Mike: What this means is that 13% of sea-born oil deliveries will cease next April. Herein lies an unavoidable Fed disaster as oil prices will make $50/bbl look cheap. 80% of all oil consumption is delivered by sea.
There is no escaping the fact that hyperinflation triggered by an oil demand shock will blossom in 2005. Continued denial of this reality only makes it worse and gold is one of the few escape routes.
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The Georgian turmoil continues as Russia's Foreign Minister, Sergei Lavrov and Georgia President Saakashvili traded barbs over disputed autonomy for two regions in Georgia, Abkhazia (In the far West) and South Ossetia. In my opinion, Russia will soon attack bases in Georgia on the assertion that they are being used to train and house Chechen terrorists.
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Ten-Year Treasury Note Melt-up?
Elsewhere at the Café, Steve Saville correctly reports that bonds are no longer indicators of what they once were. This is because important treasury notes like the Ten-Year are manipulated by the Federal Reserve.
Yesterday's bond run caught traders off guard and the Fed again demonstrated its ability to play traders and their computer black boxes like a violin, effectively funding primary dealer's operating costs with their ill-gotten manipulation profits.
Just when everybody thought long rates were going higher, the Fed engineered an ambush. It is their MO to do this sort of thing. My expert bond colleague called yesterday in a depressive state about predicting higher yields a week or so ago. He needn't have been too worried about yesterday. It was an aberration.
Examine the Ten-Year Yield chart nearby. The flat part of the pma is REALLY flat and the hairpin turn part is REALLY sharp. Indeed, going back to 2000 (in unpublished work) there are two other major hairpin turns and flat parts even flatter and at least as sharp as the latest interval (Shown in the chart's box). I look carefully at these phases with unique analytical tools. What does all it mean?
"Flat" doesn't happen in random markets. It happens as a result of computer controlled daily movements designed to steer certain moving averages. Hairpin turns don't happen either. They are designed by the Fed to throw traders off the wagon and they do a good job of it because the majority of trading houses utilize complex TA "black box" algorithms and these gizmos get hosed every time.
It is very difficult to allow one's self to accept that the wild swings in yield above and below the target are purposely put there in order to construct the ma flat line but that is exactly what the lines and turns are telling us. "Teaching" was the word a physicist colleague of mine used to say.
So the recent period of rising ten-year yields has been a Fed target that they stayed close to while making everybody think the market was jumping all around. IF they fell behind on their targets during their daily progress, they had time to make it back up and produce the nice, flat phase we see ("1" is a perfect R squared regression value).
Long rates are not going to stay flat (Or deliver another hairpin turn down). This is logically because $47/bbl oil is wrecking the Fed's inflation world and it will get unbearably worse next year. We know this because they have sent out their "Communications policy" teams to report that rising energy costs "Don't filter into the rest of the price world". One reads the Fed by reading their Tokyo Rose propaganda by-lines. This Wall Street clap-trap is actually fooling some otherwise smart people.
So the Ten Year yield will keep going up along the Fed's target regression pathway (Unless they are forced to move into a higher slope) and yesterday's raid is a major short signal against this yield. Expect 5.30%, just as my expert bond friend said several weeks ago.
Mike
More hints of market manipulation coming from the widely followed Bernie Schaeffer. From Café member RL:
Bernie Schaeffer is a chartist and he can see what is happening but chartist never really get the big picture or motivations from their charts. GATA fills in all the blanks nicely.
I will never forget what the ex-Fed governor Wayne Angell said on television in 2001: "The Fed will lower rates until the money hoarders are forced out of their passbook accounts and into equities." Wayne Angell in an interview on CNBC
Remember how the Fed was considering ways to provoke a negative savings rate on passbook accounts in the event they needed it to 'stimulate demand?'
They did a good job enough. People have been fleeing 'cash' or "safe" investments like gold and passbook accounts and have been embracing higher risk and with abandon. Thus are the seeds of hyperinflation bubbles sown in higher risk assets including heavily leveraged homes, conceptual economy stocks, and artificially priced bonds. ***
From Mr. Schaeffer:
http://www.schaeffersresearch.…bservations.aspx?ID=11180
Frequent readers of this page know that I'm of the opinion that gold has a lot of rally potential before it peters out. Its relative strength, as compared to the broader market, has just begun to recover after nearly two decades in the rough. Meanwhile, some sentiment factors continue to suggest that there is plenty of room aboard the bullish gold bandwagon. Throughout the latest rally in gold, put players have been predominant, especially during the past several months. Since late June, the put/call open interest ratio on gold futures has advanced sharply, constructing an impressive "wall of worry" for the metal to scale
Unfortunately, there's a faction out there that prefers to disagree with me. Looking at today's intraday chart of gold futures for December delivery (GC/Z4), it looks as though someone is trying very hard to keep gold below the $411-$412 region
Perhaps this is the work of call sellers, who have a vested interest in keeping gold below their sold strike. If their written positions expire worthless, they retain the original premium collected. Then again, it could be overeager traders on commodities exchanges working to their own advantage. Whatever the cause, it is a region to be reckoned with for gold bulls.
Bernie Schaeffer
Jesse chimes in:
None so blind as they who will not see
Central banks leasing their gold to be selectively dumped, central banks buying enormous sums of treasuries and agencies to move prices and rates, the Fed applying enormous batches of liquidity to the primary dealers and loaning them securities in high numbers: what more is it going to take for people to wake up and smell the coffee?
Gold is being manipulated along with the longer interest rates and the dollar. The case is quite compelling, and Bernanke has laid almost the entire game plan out there for us.
When that manipulation finally cracks, all hell is going to break loose. There might be an 'event' to try and cover it, but in time all the sordid details will come to the light of day, and I only hope I am here to see it.
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An insider’s heads up:
Hi Bill,
I was struck by one of the comments in Monday’s Midas about Goldman Sachs. As a headhunter in specialising in fx and commodities it is abundantly clear that investment banks are there for two things only. Firstly to generate flow (and therefore commission) secondly to trade their balance sheets. Investment banks are hype machines, by their nature they are structured to sell, like any other business and whatever the new rule governing conflict of interest they are unlikely to recommend buying an asset in public without being long the market. Investors who believe banks are there to publish objective analysis should be careful, remember these people are out to take as much money from you as they can.
The only way to tell what the banks really think is to watch where they are building sales and proprietary trading teams. In commodities the hot area is energy, from oil through to power. The process has reached the stage now where banks are becoming meaningful players in the physical market, owning the underlying generating assets and storing the physical inputs such as crude and coal. MSDW is now buying crude direct from north sea producers (36m barrels co-owned with Deutsche Bank) and Goldman who recently bought 10m barrels and owns a large physical portfolio of power generating assets. Morgan Stanley has even become a preferred supplier to the SPR in the US.
What effect will this have on gold. My reasoning is as follows. Banks understand the that the weakness in the commodities complex is not the quantity of known commodities themselves but rather the infrastructure to supply them to the market. It is the infrastructure that has suffered form chronic underinvestment for the past 20years and it is these assets they are now buying. By controlling these assets they will be able to exert even more control on prices than they already do and ultimately will pump and dump as they always do. Between them Morgan and Goldman will book profits near $3bn for this year from businesses that employ only 700-800 people between them (including back office) and they don't want anyone spoiling the party.
Therefore with these giants going so long in physical assets (not to mention the growth of their client businesses in this area) it would be reasonable to say this move has some way to go. The only place they seem to be short is gold, but in time they will cover (force the central banks onto settling for cash) and that too will then get the same treatment as the rest.
If the banks are long infrastructure you can be sure their client base will be seen as the ultimate targets when it is time to book profits and retreat. We are a long way from that point so the market has legs for some time to come. I am confident gold will ultimately benefit as the banks find ever more creative ways of pushing commodity based products to their clientbase.
I will leave you with this thought. I know a number of very establishment money mangers in London looking to use commodities as a diversification tool in conservative money management. They see it as sensible and necessary. However these people do not view futures and options as particularly suitable due to the exchange risk and volatility of the paper market. They want physical, longer term exposure. It is not easy to gain this exposure in a compliant way and they are looking here at energy, bulk and PM's. These people work in companies controlling hundreds of billions of £'s but are ahead of the senior management in seeing this need. It will not long before the mainstream are demanding this exposure and the banks will be looking for ways to give it to them. It is happening now but will take some time.
"Veteran Café member"
Silver input:
Hi Bill:
I thought that you should be advised that silver lease rates more than doubled yesterday, and despite this large volume of borrowed selling, silver advanced all day in London and New York. Silver's rates are now a more normal three to four times the lease rates for gold. The borrowing was spread over all terms, at an even .20% rise. Who ever did this took some pains to spread the metal debt out, and even borrowed metal at the one year term, which is the usual preserve of mine hedgers. I think they did this to avoid backwardation in the yield curve, and to reduce costs. I suspect that if they had front loaded the borrowing, we could have had a ten fold increase in the one month rates and broadcast the tightness in the physical market.
Can't have that.
Regards, Rhody
Enjoyed the usual fun conversation with Mahendra this morning. He remains resolutely bullish on gold and silver, looking for the price of gold to soar the next two weeks. Many of his subscribers are happy campers so far, loading up below $400. As far as the stock market goes, he is sticking to his guns that from here on in, the market begins a downtrend which will last years.
From Mahendra’s newsletter last week:
STOCK MARKET
Monday will be the best day to go short all around the world stock markets because they will come into bear grips. THE BEAR TREND IS FINALLY ENTERING THE WALL STREET (DOW JONES) AND ALL BLUE-CHIP STOCKS WILL SHOW WEAKNESS. MONDAY’S LAST HOUR TRADING SESSION OR TUESDAY COULD BE THE DAY and bears will make the complete a unbreakable circle by 21st September. Though between 13 and 21, the USA market will try to fool everyone by a false rising one or two time in intraday trading or in opening or closing time. Finally the rising history of the DOW will end on 21 September. Indeed, we will not see the current index in the next 7 years. Other world financial markets like Europe and India will also start falling from this week. My advice is start selling market in small lot from money and sell every after two day till 21 September.
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