[Blockierte Grafik: http://www.goldseek.com/news/LemetropoleCafe/lmpc.jpg]
http://www.lemetropolecafe.com
CARTEL CAPITULTATION WATCH II
Looking back at the Big One, in its 42nd month gold had gained more than 720% over its price at the start of the cycle. That gain is calculated using the peak price from January '80, of course. Still, even three months earlier in month 39 (October '79) gold had already gained more than 300% from its cycle lows.
And now? Well, we're presently up about 60% from our cycle low in April '01, but then we had already hit the 60% mark back in December last year; so we've actually been treading water for about nine months. Even so, a 60% gain on one's money over the last 42 months sounds pretty damned good compared with CDs paying 3--5% APR over the same period, wouldn't you agree? Not only that, but gold doesn't incur interest income tax, which widens the profitability gap even further.
Lastly, I've written before about the double-digit decline phenomenon (interested readers please see "Midas" commentary from March 14, 2003) from the late 70s market. Briefly, I discovered that whenever the price of gold declined at least 10% from any peak, it ALWAYS went on to put in new highs at least 27% greater than the bottoming low. (This double-digit decline thing only happened five times in those 42 months, and the other four price advances were SIGNIFICANTLY more than 27% above the bottoming lows.)
I also found that the shortest period between the double-digit decline bottom and the new higher peak was 32 trading days. Even the longest period required to put in a new peak price was still only 77 trading days. We haven't been nearly so fortunate, as you'll see below.
So far in our golden bull, we've experienced four double-digit declines from peak (two were just slightly less than 10%, but that's close enough for unremunerated "Midas" contributors). Under the current "managed price" environment (translation: illegal freakin' price rigging) our new peaks are happening alright, but not nearly as quickly as those of the 70s. The first one (in May '01) didn't add 27% to the bottoming price of $263.95 until nineteen months later, in December of '02 (but at least it DID keep the pattern intact.)
Coincidentally (or perhaps it was no coincidence at all), our second double-digit decline took place that same month. The bottoming low price that month was $316.45. The pattern didn't fulfill itself until exactly one year later, last December. To maintain the 27% minimum climb, we needed a price of at least $401.89. What we got was $416.25, or a 31.5% increase off the double-digit decline low a year earlier.
Two-digit decline number three occurred in February of '03. Bottoming price was $344.10, which would require a London PM fix of $437.00 to keep the pattern intact. The price of gold did actually get within about three or four bucks of that target price during intraday trading back in January and again in April this year, but the PM fix didn't reflect it. For all practical purposes, though, I still consider the pattern fulfilled. (I believe we'll likely get the OFFICIAL London fix confirmation soon!).
Finally, our fourth (and most recent) double-digit decline took place back in May, with the bottoming price of $375—a 12.23% decline from the high in April of $427.25. From $375 we need to attain a price of at least $476.25 to keep the minimum 27% advance "rule" intact. Jim Sinclair has staked his reputation on the assertion that we'll see at least $485 soon (although he missed his self-imposed deadline of August 15th), and I certainly wouldn't bet against it myself.
One last point. There are those who argue that world financial and geo-political conditions aren't nearly the same now as they were back in the late seventies. To them I would simply reply, "You're right... they're a damn site WORSE!!!"
Thanks, Bill. Hope this was informative and not too dry,
Derek
Our other MIDAS Texan contributor, Dan Norcini, sent us the following last evening:
Hi Bill:
I thought I'd poke another hole in the make belief world that the denizens who comprise the FOMC apparently inhabit.
To quote from our illustrious masters in their recent FOMC release of yesterday:
"Despite the rise in energy prices, inflation and inflation expectations
have eased in recent months.
This is what they unabashedly proclaimed from the rooftops yesterday. Now for the REAL WORLD. I can tell you first hand as a livestock trader that BOTH BEEF and PORK prices at the wholesale level have been breaking all kinds of records. Here's a story from Reuters that details the problems at the producer level. But remember - "inflation ... has eased in recent months".
Best,
Dan
High beef prices still plague restaurants-experts
LOS ANGELES, Sept 22 (Reuters) - U.S. beef prices are expected to remain high and strain restaurant company profits for at least the rest of this year, even though prices have retreated from their peak, experts said on Wednesday. Earlier this year, restaurant operators like Outback Steakhouse Inc. and Lone Star Steakhouse & Saloon Inc. said soaring beef costs due to limited cattle supplies were hampering margins and trimming earnings.
As prices on boxed beef moderated from their April peak, analysts for the most part put concerns about higher input costs for steakhouses and burger chains behind them.
But Tuesday's profit warning from No. 3 U.S. hamburger chain Wendy's International Inc. , which blamed higher-than-expected beef prices for some of the shortfall, shed light on the difficulties beef buyers still face. One analyst said the industry is still struggling with higher beef prices and said more restaurant company earnings warnings blaming those costs were possible.
"(Higher beef costs) is something everyone is going to see," said Crowell Weedon & Co. restaurant analyst Doug Christopher.
Another analyst, however, said companies like No. 1 hamburger chain McDonald's Corp. had been more conservative in their beef price forecasts than Wendy's.
"It's in the stocks, it's in the earnings numbers," Harris Nesbitt Gerard analyst Matt DiFrisco said.
Prices on beef used to make hamburgers are up about 24 percent from a year ago because ranchers are holding back cows from slaughter due to higher dairy and cattle prices.
A U.S. ban on imports of Canadian cattle following a case of mad cow disease last year has also tightened supply at a time of increased consumer demand for beef due to the popularity of low-carbohydrate diets.
Wendy's said on Tuesday it had been expecting beef prices to stabilize in the third quarter, but they had instead rose due to low beef production through the late summer.
One expert said demand was particularly high during the heavy grilling months of July and August, and said prices have come down since then. Other fundamentals propping up beef prices, however, are not likely to go away any time soon.
"Even though we've got somewhat weaker seasonal demand, we still have weaker supplies from Canada, beef ranchers are retaining more heffers, and we still have strong demand," said Todd Duvick, an analyst with Banc of America Securities. Companies like Wendy's should face better comparisons with year-ago beef prices in the coming months, Duvick added, but said prices would continue to be high.
"You can't repeal the laws of beef supply," said Malcolm Knapp, president of restaurant market research firm Malcolm M. Knapp Inc. "There is a real imbalance in terms of what we process and what we eat."
-END-
Sur American Gold Corporation is an exploration company to keep any on. They keep coming through and management is superb. It is a "rapidly growing junior exploration and development company actively exploring and developing gold/silver and copper/gold projects in the Philippines. The Company’s flagship project called Batoto which is a very large low-medium grade porphyry-related gold project covering a known area of about 6 sq km which is transacted by more than 70 larger high grade veins as well as countless smaller veins, veinlets and microveinlets." The Company trades on the TSX Venture Exchange (Canada) with the symbol "SUR-V".
The HUI surged early to 217.82, then sold off as the day wore on, closing at 215.72, up 2.48. Resurgent Golden Star Resources (my top holding along with Samex Mining) led the way, finishing up 27 cents (5.92%) to $4.83. No reason for Golden Star not to regain its higher flyer status it earned late last year.
HUI
http://bigcharts.marketwatch.c…&o_symb=hui&freq=1&time=8
The XAU was more subdued, gaining only .26 to 96.07.
Gold was immediately taken below the pivotal $410 level at $409.40 as soon as the Access Market opened this afternoon, so for all of today’s good market action, the cabal still has gold below the area it defended all summer long.
Who knows what the bums will do tomorrow. They are petrified of gold closing above $412, so they could do anything in the short-term. What I do know is the "perfect storm" is lining up out there to take the prices of gold and silver sharply higher. Iraq is a mess. The US economy is far worse off than what Wall Street, the Fed and Washington are telling us. The price of crude oil won’t go down. Commodity prices are close to multi-decade highs. Long-term interest rates are very low in the US. The dollar stinks. Physical gold demand is stellar and building. The Gold Cartel is short gold up the wazoo and can’t get out. At the same time most of the market pundits are bearish and looking for $355 to $370 gold, not $455 to $570 gold.
Meanwhile, the senior gold shares have broken out in decisive fashion.
Put this all together and you have a recipe for colorful gold and silver fireworks!
GATA BE IN IT TO WIN IT!
MIDAS
There was a good deal of commotion swirling around Fannie Mae today. For the second session in a row its share price was hit hard, closing down another $3.54 to $67.15. It is hard to say if what is going on over there could develop into a significant problem for US financial markets. We have no idea what sort of derivatives problems they may have incurred. However, it is time to monitor how their paper trades in the next few days compared to US Treasuries. Some Fannie Mae material to ponder:
NEW YORK (Standard & Poor's) Sept. 23, 2004--Standard & Poor's Ratings Services said today that it placed its 'AA-' risk-to-the government rating, subordinated debt ratings, and preferred stock credit ratings on Fannie Mae (FNM) on CreditWatch Negative due to the accounting and internal control and regulatory capital adequacy issues raised in the Office of Federal Housing Enterprise Oversight's (OFHEO) "Report of Findings To-Date," special examination report, and the uncertainty these findings present to the current and previously issued financial statements. The 'AAA/A-1+' senior unsecured debt ratings are affirmed.
CreditWatch Negative means that the 'AA-' ratings will either be downgraded one notch or affirmed based on the final resolution of the SEC's informal inquiry,…
-END-
Bill
I have extracted 2 paras below on the numbers involved in FNM's derivatives exposure compared to their earnings, from this article:
http://quote.bloomberg.com/app…s3y0&refer=top_world_news
....A month after Freddie Mac's June 2003 disclosure of its accounting errors, Howard said in a presentation to Fannie Mae directors that ``a stable pattern of earnings'' was a requirement if the company was to be seen as a low-risk investment, Ofheo said. Fannie Mae earned $7.91 billion in 2003, up from $3.91 billion in 1999...........................
...............Substantial Impact'
Ofheo said Fannie had $12.2 billion of such deferred losses from hedging at the end of 2003, as well as $7.2 billion of adjustments in the carrying value of balance-sheet liabilities relating to its hedges.
These losses and adjustments should be apportioned against earnings in the periods in which they occurred, Ofheo said. As a result, such a restatement might have a ``substantial impact'' on Fannie Mae's regulatory capital, Ofheo said........................
END
Best
Alan
Fannie Mae Takes Steps to Respond to SEC
Thursday September 23, 3:09 am ET
By Marcy Gordon, AP Business Writer
Fannie Mae Taking Steps to Respond Amid Findings of Serious Accounting Problems, SEC Inquiry
WASHINGTON (AP) -- Fannie Mae is taking steps to respond to a regulator's findings of serious, pervasive accounting problems that they say cast doubt on the giant mortgage company's past earnings reports and even its financial soundness.
The findings also raised the possibility of deliberate accounting maneuvers designed to bring bigger bonuses to executives.
The price of the Fannie Mae shares dropped nearly 7 percent Wednesday on the New York Stock Exchange after the company disclosed what the Office of Federal Housing Enterprise Oversight found in an eight-month investigation and the existence of an ongoing inquiry by the Securities and Exchange Commission.
Experts said it was difficult to discern at this stage what the impact of Fannie Mae's situation could be. Fannie Mae, a government-sponsored company that is the second-largest U.S. financial institution behind Citigroup Inc., also is the second-biggest seller of securities behind the U.S. Treasury. It uses funds from those sales to buy trillions of dollars in home mortgages from banks and other lenders, which it says provides more liquidity and lower mortgage rates to home buyers.
If Fannie Mae were found to have violated accounting regulations, it could be ordered to decrease its financial leverage by raising fresh capital or buying fewer mortgages -- potentially making it harder for some buyers to obtain financing for their home purchases.
OFHEO, a little-known federal agency, sprang into prominence in mid-2003 after Freddie Mac, Fannie Mae's smaller competitor in the home mortgage market, disclosed that it had understated profits by some $4.5 billion for 2000-2002 in an effort to smooth earnings. Fannie Mae's accounting then came under closer scrutiny, though its leaders insisted that it had no problems of that sort.
In at least one instance, the OFHEO regulators found, it appeared that Fannie Mae management put off some accounting for expenses to a future reporting period in order to meet earnings targets that triggered bonuses for executives.
A 210-page report released late Wednesday by the agency laid out what it described as a pervasive pattern of earnings manipulation, lax internal controls and a corporate culture "that emphasized stable earnings at the expense of accurate financial disclosures."
Management at Fannie Mae "deliberately developed and adopted" inappropriate accounting policies, supported widespread violations of generally accepted accounting principles, tolerated lax internal controls and failed to properly investigate an employee's concerns about accounting, the report said. Fannie Mae's chief financial officer, Tim Howard, "failed to provide adequate oversight," it charged.
The Fannie Mae board has named a special committee of outside directors to respond to OFHEO's allegations and the preliminary inquiry by the SEC, the presiding director of the board disclosed in a public statement.
That means a crucial function effectively has been removed from Fannie Mae's chairman and chief executive, Franklin Raines, and other top managers. Raines has in recent months defended the company's accounting and said that it has unfairly suffered "collateral damage" from the accounting crisis at Freddie Mac.
He said Wednesday that company management "strongly supports the leadership" shown by Ann McLaughlin Korologos, who is the presiding director of the board, and the other outside directors in responding to OFHEO's investigation and the SEC inquiry.
"We will assist them in any way we can as they carry out their duties," Raines said.
In a statement early Wednesday, Korologos said the board had hired attorney and former New Hampshire senator Warren Rudman as independent counsel to advise the new committee. Rudman's law firm will in turn hire an outside accounting firm.
"It is a 'wow' situation," said Arvind Sachdeva, an analyst for Victory Capital Management who follows the company. But, referring to OFHEO's findings, he added, "These are opinions."
Rep. Richard Baker, R-La., a longtime critic of Fannie Mae and Freddie Mac, called it "a sad and disturbing day for investors, homebuyers and taxpayers alike. ... Investors have been fooled, homebuyers have been cheated and taxpayers are at risk."
The OFHEO regulators found that Fannie Mae violated generally accepted accounting principles in its reckoning for transactions involving derivatives, financial instruments that it uses to hedge against interest-rate and other risk.
They also found that the company used an improper "cookie jar" reserve in accounting for some items. The SEC maintains that the practice -- setting aside artificially large cash reserves to reduce revenues, with the idea of reversing that procedure to bolster revenues in less profitable times -- gives investors an inaccurate picture of a company's financial performance.
OFHEO's report said its findings "are serious and raise doubts concerning the validity of previously reported financial results, the adequacy of regulatory capital, the quality of management supervision, and the overall safety and soundness" of Fannie Mae.
Last October, Fannie Mae disclosed a $1.2 billion accounting error for the third quarter, which it said was due to a change in accounting rules and did not affect net income.
Fannie Mae: http://www.fanniemae.com/
Freddie Mac: http://www.freddiemac.com/
Securities and Exchange Commission: http://www.sec.gov/
Report at Office of Federal Housing Enterprise Oversight site: http://www.ofheo.gov/media/pdf/FNMfindingstodate17sept04.pdf
