Quartet Resources LTD (QRL.P)

[NYBob]

The Central Bank - Fiat Papers at a Glance -
June 2006 -

Given the drubbing that has taken place in the markets over the
past month or so - what may be happening in these rather
turbulent times.
Given the violence of the recent market correction, investors
cannot be blamed for believing that a global meltdown is taking
place, the brunt of which is being felt in the sectors that have
heretofore performed the best;
i.e., commodities, energy, and gold.
There can be no denying that the first quarter was a “great
year” for commodity investors.
Commodity prices, and commodity equities, soared. So much so
that one could take the pragmatic view that commodities et al
were “overbought” and therefore due for a correction.
However, we are of the belief that there are greater
machinations at work beneath the surface than mere technical
indicators. There is a chess - banksters game of paramount
importance being played that is driving current market
conditions... at least in the short term.
The game of chess in question pits the world’s central banks
against the “free” markets. The opening move in the central
banks’ repertoire was a gambit. This occurred, not
coincidentally, at the same time that commodity prices were
hitting new highs and gold was breaking out above $700 per
ounce. In chess parlance, a gambit is a ruse or trick in the
form of a sacrifice of material (usually a pawn) with the hope
of gaining a decisive advantage in space and time early in the
game. If this advantage isn’t made to count (i.e. the bankers’
initiative peters out), then the market’s advantage in material
will eventually win the day. We’ll call this opening the
Central Bank Gambit. It is a desperate move to take control of
an inflationary environment where they may already have lost
control. For now the central banks have the initiative and are
on the attack. But if the markets are able to hang on, then they
will win the endgame and checkmate the central banks.

So what does chess have to do with financial markets, you may
ask? It goes without saying that it has been of no small concern
to the central banks that commodities have had a spectacular run
in the first four and a half months of the year.
Gold started the year at $515 per ounce. It peaked in May at
$730 per ounce.
Oil started the year at $61 per barrel. It peaked in May at $75
per barrel.
Copper: $2.06 per pound at the start of the year, almost $4 per
pound in May.
Silver: $8.80 per ounce at the start of the year, $15.20 per
ounce in May.
This is on top of gains enjoyed since the commodity bull market
began in earnest in 2001.
Using the CRB Index as a proxy, commodities as a whole have
doubled in that time and some of the major commodities, such as
oil, copper, and iron ore, have done far better than that.
This commodity bull run has indeed been ubiquitous and
long lasting, with practically all commodities soaring with
hardly an exception.
In every which way it was reminiscent of hyperinflation.
Clearly, the central banks could not let this state of affairs
continue while at the same time claiming that inflation
was under control. They realized that something had to be done.
Based on the latest inflation , annualized inflation is running
in excess of 5% so far this year. By mid-May, the housing market
was clearly in decline and interest rates were rising across the
yield curve. The financial markets and the economy were being
threatened. Inflation had to be stopped in its tracks, come hell
or high water.
In many ways it was a desperate move – a gambit.
They had to reign in liquidity (or at least appear to do so) and
talk tough on inflation. They knew full well that such a move
would bring down global equity markets as well. But the stock
markets were likely doomed regardless. Better that they come
down when commodities, and particularly gold, are coming
down as well, than to have a broad market crash while gold
continues to soar.
The central banks wanted to preemptively discredit gold as the
“flight to safety” investment vehicle. They wanted to ensure
that gold won’t be the place to hide when global liquidity takes
it on the chin and forces asset prices down.
That was the move envisioned, not just by the Federal Reserve,
but by central banks around the world.
The central banks conspired to raise rates in tandem, some
unexpectedly. Recently we’ve seen the European Central Bank,
India, South Korea, South Africa, Turkey, Denmark, Thailand, and
Switzerland all raise interest rates within days of each other.
Japan proclaimed the imminent end of “quantitative easing” and
the Yen carry trade. Then came the tough talk on inflation by
the world’s central bankers. It was a mass chorus: a newfound
vigilance on inflation – it must be quelled at all cost.
The primary target: gold.
Gold took the brunt of the central banks’ attack. The price of
gold is the outwardly public manifestation of inflation. By
bringing down gold it was hoped that other commodities would be
taken down as well, thus easing inflationary fears. But therein
lies the Achilles Heel of the central banks, and what will
ultimately prove their gambit to be unsound.
Under a fiat currency system, the central banks are the
undisputed masters of paper…
but they are rather impotent when it comes to controlling the
market for “real” things. As such, there is little they
can do to manipulate the markets for things like oil and copper
– the markets for these commodities are just too big.
Oil, for example, trades to the tune of six billion dollars per
day and is too large for central banks to have any say over.
The market for gold, on the other hand, is only 1/30th the size
and the easiest commodity to manipulate in the short term.
Furthermore, the central banks still have some gold in their
vaults as added ammunition.
So the game plan was simple: hammer gold and cause a selling
panic in all commodities.
Although some kind of correction may have been expected in
commodities given the magnitude of their escalation in such a
short period of time, the violence of it was orchestrated and in
every which way intended and cajoled by central bank action.
Be that as it may, investors in “real” things can take heart in
the chart on the top of the next page:
In our opinion, this chart epitomizes the futility of the
Central Bank Gambit. Merely looking at the upper black
line, much has been made of the equity market turnaround in the
past three years. It appears to be up 50% from the bottom;
albeit, still down 18% from its 2000 peak. Nonetheless, it would
seem that copious amounts of Fed liquidity have successfully
reversed the ill-effects of the stock market crash of 2000.
Chalk one up for monetary policy!
The blue line, on the other hand, tells an altogether different
story. This line measures the performance of the S&P 500 in
inflation-adjusted Euros. Here the comeback has been much less
impressive. In fact, there has hardly been a comeback at all.
This is the performance that a foreign investor might see.
A US equity market that is still flailing along the bottom, and
down 42.5% from its peak to boot.
Using gold as the “base currency” (appropriately, the gold line
in the above chart), the performance of the US stock market has
been even more dismal. The S&P still looks like it’s in
freefall! Perhaps even more interestingly, the recent drubbing
of gold in the past month (resulting in an ever so slight uptick
in the S&P relative to gold) has hardly changed the picture at
all. The S&P is still down almost 60% from its peak relative
to gold.

So has the Fed, through easy monetary policy, successfully
fought off the bursting of the stock market bubble of
2000? In nominal terms yes. In real terms no.
This goes to show that the Fed is in a box when it comes to
manipulating markets.
It is unable to prop up the markets relative to “real” things,
regardless of how much liquidity it provides and how much money
it prints.
Gold, commodities, and all things real have been the places
to be this decade and, in our opinion, will continue to be so.
Nothing has changed regarding our view on inflation.
The economic policies of the US, in the form of twin
deficits and reliance on asset bubbles for economic growth, have
been fundamentally unsound and this is being reflected in the
value of the dollar. In spite of recent feather pluming on
inflation, we do not believe that central bankers are serious
about pulling the reins on inflation at any cost.
They may talk the talk, but when push comes to shove they won’t
be able to walk the walk.
Historically, central bankers have been chronic debasers
of money over time.
They are addicted to money-induced asset bubbles.
Although the central banks don’t mind seeing gold and commodity
prices crash, history shows that they have a soft spot for
equity and housing markets.
Nary has a crash ever occurred in these areas without the
central banks turning on the spigots.
Highly doubt it will be any different this time.
This is why we believe the Central Bank Gambit will ultimately
backfire, as all orchestrated market manipulations do.
Not only is gold and silver now cheaper to buy, but its
underlying fundamentals (shortage of supply versus demand)
remain as favourable as ever.
Furthermore, high prices in other major commodities have
failed to impede demand. It only stands to reason that the
likelihood of shortages will only be greater at the
artificially-induced lower prices that the central banks want.
Although the correction was a painful one (as it was intended to
be), we believe the long term trend for commodities remains
intact.
It is also worth noting that the price of oil has barely budged,
remaining in the $70 per barrel range in spite of the liquidity
scare.

One thing that central bank maneuvers have caused is a crash in
global equity markets.

http://news.bbc.co.uk/2/hi/americas/4290944.stm

If a financial crisis were to ensue as a result, we believe
Gold will once again a LT shine.

Biggest Scam In History -

http://www.wtv-zone.com/Mary/FEDERALRESERVE.HTML

http://www.investorshub.com/boards/board.asp?board_id=5404