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CARTEL CAPITULATION WATCH
Another "Hail Mary" rally late in the say propelled the DOW to a 59 point advance. The DOG was stellar all session long, rising 29 to 1894. All is Hunky Dorey as Bush sails into the big debate tomorrow evening.
The oil inventory numbers surprised everyone:
10:30 DOE reports crude oil inventories +3.4M barrels vs. expectations (3.7M) barrels
Gasoline inventories reported (900K) barrels vs. consensus (1.5M) barrels. Distillate inventories reported (1.3M) barrels vs. consensus (1.3M) barrels. November crude is trading lower to $49.80/barrel in reaction to the data.
* * * * *
10:33 API reports crude oil inventories +3.7M barrels
Gasoline inventories (848K) barrels, while distillate inventories (44K) barrels. Nov. WTI crude continues to trade lower on the DOE inventory build of 3.4M barrels, as shown in the DOE data.
* * * * *
Perhaps the real story:
Bill,
Here is my take on the oil.
Hope it is useful.
It looks like a full press is on to keep a lid on oil prices as well as other commodities prior to the election.
Today's oil numbers are ... quite humorous.
An increase of 3 million barrels, ... seems quite improbable, ... near impossible.
There is only one place this oil could have come from if the numbers are correct.
From June 19 to Sept 3, the API weekly oil inventory has averaged a drawdown of 2.9 million barrels.
In July, the average weekly API drawdown was 1.75 million barrels.
In August, the average weekly API drawdown was 4.45 million barrels.
In other words, the drawdowns in August increased by more than 150% with oil prices moving higher.
Hurricanes didn't effect these numbers.
Hurricanes began effecting the oil numbers with Ivan.
Considering the substantial increases of the September drawdowns, if the hurricane effect is excluded, it appears that the size of the September drawdowns may have increased since August.
Basically, if oil the oil flow is just back to normal, which is doubtful (oil flow should be back to normal in another week or two), a drawdown of 4 to 7 million barrels should have occurred.
The market was expecting a 3 million barrel drawdown.
The fact that there wasn't a drawdown suggests another agent is at work.
I believe this oil could have only come from the SPR. (I wonder if there is even enough off-loading capacity for importing oil for inventories to catch-up and show an increase.)
It looks like a full court press will be put on oil from now until the election.
If so, drawdowns for the next few weeks would be unlikely.
This has the smell of intervention all over it.
As a result, this may be the beginning of an intervention induced short-term correction in energy stocks.
If there is a correction I would expect it to be less than 10% and to last no more than 2 weeks.
Considering many oil stocks have had major multi-year breakouts and the size of the oil sector, pushing these stocks lower will prove very very difficult.
It won't be like pushing gold stocks lower.
Furthermore, with these major breakouts, there will be strong hand buying on these pullbacks.
The long-term technicals and fundamentals continue to be bullish and look to remain so.
I believe opportunity is knocking on any sell-offs in oil, gold, silver, etc.
Thanks for your wonderful site,
All the best,
Raymond Green
RGreen@ilnk.com
Meanwhile, oil only closed off 35 cents at $49.55. Pretty impressive performance considering a truce was declared in Nigeria and the inventory numbers were such a bearish surprise. The market’s tepid response suggests it believes more in Raymond’s analysis than anything else.
Chuck checks in:
Bill:
It's amazing how the news is accumulating here for a buying panic in the metals. Today is a nice quiet reaction to the upward pressure. I suspect that will be the pattern for a little while. A good day followed by a mild, milktoast reaction in the shares. We should start to see some good pops in the juniors and exploration companies. (By the way, if you remove the downgrade by Morgan on Freeport, the XAU and HUI would probably be unchanged)
Chuck
Bond guru Bill Gross of Pimco came out with his October 2004 outlook and it created quite the stir. Titled "Haute Con Job" he sounds a bit like some of us in the GATA camp, except he just can’t bring himself to calling a "spade a spade":
"No I cannot sit quietly on this one, nor as I’ve mentioned, have other notables in the past few years. The CPI as calculated may not be a conspiracy but it’s definitely a con job foisted on an unwitting public by government officials who choose to look the other way or who convince themselves that they are fostering some logical adjustment in a New Age Economy dependent on the markets and not the marketplace for its survival. If the CPI is so low and therefore real wages in the black, tell me why U.S. consumers are resorting to hundreds of billions in home equity takeouts to keep consumption above the line. If real GDP growth is so high, tell me why this economy hasn’t created any jobs over the past four years. High productivity? Nonsense, in part – statistical, hedonically created nonsense. My sense is that the CPI is really 1% higher than official figures and that real GDP is 1% less. You are witnessing a "haute con job" and one day those gorgeous statistics just like those gorgeous models, will lose their makeup, add a few pounds and wind up resembling a middle-aged Mom in a cotton skirt with better things to do than to chase the latest fad or ephemeral fashion. If those Moms are holders of government bonds based upon a benign outlook for inflation, they had better cash some of them in, especially at today’s 4.0% yield for 10-year Treasuries."
For the entire piece:
http://www.pimco.com/LeftNav/L…y/IO/2004/IO_Oct_2004.htm
***
What has taken Bill Gross so long? What Mr. Gross has to say has been routine Café fare for a very long time.
This Aussie has no trouble with spades:
I am a qualified engineer (now retired) with more than 30 years experience in the field of mechanical engineering.
I spent many years working for GM (Holden Engine Works Australia), Toyota Australia and Victoria University of Technology.
My main area of work has been quality control, which involves high level statistical analysis.
One of my major achievements was writing the quality control manual for Smorgon Steel Australia.
As a consequence I am very alert to data analysis that points to a process that is "out of control".
Recently I have made an investment in gold - mainly because I saw a growing weakness in the US dollar and felt that I needed some sort of insurance to cover a decline in its value.
Having made this investment I then took an interest in the price of gold and the behaviour of the spot gold market.
My conclusion, like many others, is that this market is "out of control".
A dealer would say in layperson's terms that the market is being manipulated but the strict statistical term is "out of control".
I do not wish to get too complex so I will keep my observations simple.
One sign of "out of control" is six or seven consecutively decreasing price movements (say taking a reading every five minutes).
This happens quite often in the spot gold market.
Another sign of "out of control" is the development of an unusually shaped graph of the spot gold price.
For example, if you look at a graph of a normally traded share price you will find that it tends to follow a random pattern as well as a general trend. That is, the price jumps up and down over short time spans but over a longer period trends up or down.
What I commonly see in the graph of the spot gold market is partial parabolic curves (see NOTE at base of text). The chances of any engineering plot of normal process data following a parabolic curve is at least several million to one - I have never seen it in my lifetime as an engineer. In other words sometimes the spot gold market appears to be unbelievably tightly controlled by one participant. At times it loses all components of a free multi-agent market. (There is an irony here - an engineer would say that this process is "out of control" but in fact the market is totally under control - by one agent).
The most simple explanation of a graph that might go parabolic is a graph of water flow as one turns off the tap one notch at a time over a period of minutes.
I now get into the realms of the definitely unbelievable. If I was to try to make the price of any commodity follow a parabolic path to arrive at a target price I doubt that I could ever do it. Say I was at the main city wholesale fruit market and I had unlimited truckloads of apples to sell and the current price was $1 per apple and I wanted to bring the price of apples down to 80 cents following a parabolic path - I could not do it. However with a computer programmed to tell me how many apples to sell at what price and how often to sell, I could do it.
The conclusion for the spot gold market is that not only is it being tightly manipulated at times but it is most likely controlled directly or indirectly by a computer program.
I find it has been somewhat amusing for me to watch the spot gold market and see the market periodically go into "parabolic mode". If I was a floor trader in gold I could exploit this phenomenon. Incidentally, sometimes a big agent does come in as a bidder apparently with a competing computer program, or else one player is just having a bit of fun. How else can I explain full parabolic shapes that sometimes become evident!
Feel free to send me e-mails on this topic. I find it very interesting.
robertkna@optusnet.com.au
NOTE: a parabola is the graph formed by the application of the equation Y=aX(squared)+ bX + c of which the simplest form of the parabola would be Y=X(squared). The shape formed by pointing a jet of water up at an angle of about 45 degrees is close to parabolic (not quite a parabola since it will be distorted by wind resistance).
Robert Knapp
Bill;
Just a follow up on a news item from a couple of days ago. Told you I would forward correspondence.
best,
Rob
From: Allister Heath
To: rob kirby
Sent: September 29, 2004 1:36 PM
Subject: RE: DJ UK PRESS: Pressure Grows On G7 To Agree Dlr Devaluation
apologies, just got your email now as i was in Brighton for the Labour Party conference. Probably far too late for you but here goes:
The headline was misleading, I'm afraid, but the story was real. This is the genesis of the story: a reliable Washington source told me that some senior US administration people- but not necessarily in the cabinet -- are convinced that the dollar needs to fall further. These people are trying to convince their colleagues, as well as people like the Treasury Secretary, to exert pressure on the G7. Unfortunately, I don't know whether "these people" include Greg Mankiw, members of the CEA or who exactly they are -- even more importantly, as I said in the piece, these people are "urging" and "trying to influence" the Treasury and/or the White House to accept the need for greater depreciation and tell the G7 -- they may not succeed and the offical US position may stay the same.
What is clear is that opinions are divided within the broader US administration and the only thing they care about right now is re-election. Some think a lower dollar, by boosting earnings expectations, would lead to a rebound in stock prices and hence help achieve re-election. Others believe it would be interpreted as a sign of weakness by the general public.
On balance, I suspect that the G7 comminique will be harder on Asia but otherwise the same - the point of the piece was just to highlight some internal US tension.
Hope this is of some use
regards
Allister
Allister Heath
Economics Editor
The Business
PA News Centre
292 Vauxhall Bridge Road
London SW1V 1SS
United Kingdom
+44 (0)20 7961 0041
aheath@thebusiness.press.net
Could not agree more with Peter R on this one:
Bill,
According to Barron's, Small Cap volume picked up a wee-bit last Wednesday and Thursday. This helped raise the week's volume up to 342,656,000 from 296,908,000 a week earlier. The year ago volume was 1,098,962,000, so year-over-year there were 69% fewer shares trading hands. It's been like this for a while now. I believe that this is an indication that the individual investor, whipsawed by 2004's range-bound stock market, has temporarily given up on putting their spare cash into stocks (at least you can watch a plasma screen!). That also means there is HUGE potential buying power out there to jump on any breakout — like the one coming in precious metals. The fireworks in gold and PM stocks that you have been predicting will be an awesome sight to see!
Best wishes,
Peter R.
There has been some discussion lately concerning the true status of Newmont’s hedge book. A fellow Café member has some feedback for us:
Bill
I spoke with Bruce Hansen, Newmont's CFO. They have 2.3 million ounces committed at about $375 on average. But these ounces are not counted as hedging according to GAAP. The reason is that these are sales contracts with a vendor, and therefore do not have to be accounted for as a hedge. Also, these contracts dates back to 1999 when Newmont panicked and did some put buying and call writing -- so these contracts were not acquired from Normandy (the Normandy hedge book has been eliminated). These sales contracts need to be filled over the next few years. NEM produces nearly 7 million ounces annually, so it's not a big amount compared to production, but at $475, their opportunity cost would be $200 million -- a big number. I didn't know that NEM had these contracts, but they are disclosed in their financials -- somehow I just missed them up until you forwarded the email below and I started to look closely at NEM financials.
****
Three years??? At $775 gold, this sales contract loss will really add up. The opportunity cost to Newmont shareholders will soar to $800 million, not exactly chump change and a heckuva footnote in their annual report. Newmont was conned into these "sales contracts" by the cabal and friends at the bottom of the gold market in 1999. The fees made by the "Hannibal Lecter" crowd were substantial and made bullish Newmont look foolish.
Bite the bullet Newmont and get out of these contracts, or buy call protection against them.
Speaking of Newmont, at least they have taken a baby step in the right direction:
From: Randy.Engel@Newmont.com [mailto:Randy.Engel@Newmont.com]
Sent: Tuesday, September 28, 2004 7:14 PM
To: wholt@holtshapard.com
Subject: RE: Wistar Holt @ Holt & Shapard Capital Management
Dear Mr. Holt
With respect to Jennifer Van Dinter's September 21st email regarding John Embry's report, "Not Free, Not Fair", we would like to clarify that Newmont’s response should not have referenced the September 14th Gartman Letter or referred to it as "objective." Just as it is Newmont’s policy not to comment on reports about gold such as "Not Free, Not Fair," nor is it our policy to recommend other’s views such Mr. Gartman’s. Rather, we suggest that people read "Not Free, Not Fair", and form their own views about the report's analysis and conclusions. We regret any misunderstanding that our September 21st email may have caused.
Sincerely,
Randy Engel
Newmont Mining Corporation
Golden Star Resources keeps coming up with the goods:
Golden Star Confirms New Surface Mineralization at Bondaye and Tuapim near Its Bogoso/Prestea Gold Mine
Tuesday September 28, 5:34 pm ET
…..Peter Bradford, President and CEO, commented: "The new deeper drilling is expected to result in an increase in the inferred mineral resource and, subject to technical and economic studies, is expected to provide sufficient continuity to allow the conversion of some of the inferred mineral resource into reserves. In the event that additional reserves are determined, these would provide additional feed for the proposed Bondaye processing plant that Golden Star expects to commence constructing once all environmental permits have been secured. Construction and commissioning of the Bondaye plant is expected to result in an increase in Golden Star's gold production rate to more than double to in excess of 350,000 ounces per annum from mid-2005. In addition to the open pit potential, several areas of high grade mineralization have been identified suggesting that a viable underground resource may exist in this new area." …..
http://biz.yahoo.com/bw/040928/286073_1.html
-END-
The gold shares took a breather today with the XAU dipping a bit to 99.39, down .39. However, the HUI came back late to actually close a tad higher at 293.98, up a scant .09.
GATA BE IN IT TO WIN IT!
MIDAS
