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[basserdan]

*** Corruption, Greed and Propaganda ***

G'morning Frank,
From Puplava's 'right hand man'


Today's WrapUp by Mike Hartman 11.19.2003

Corruption, Greed and Propaganda



The financial markets are a big mess these days. Greed and corruption seem to be the standard on Wall Street. Mutual fund managers and prominent Wall Street brokerage houses have been blatantly ripping-off the investing public, and it’s been going on for quite a long time. Alan Greenspan and Treasury Secretary John Snow are calling for new legislation to regulate mutual funds and to punish the “criminals” who use mutual funds to steal from investors. If these rip-off artists were exposed when the Dow was trading at 7,600, investors would have been SCREAMING, but with the Dow closer to 10,000 the investment community seems indifferent. The scandals have been non-stop since Enron was exposed as a bunch of crooks.

The violations by the Wall Street brokers and funds have been blatant illegal acts, not just grey-area ethics issues. Now we have a new one that just surfaced today with the CBS MarketWatch headline that reads, “Currency Traders Nabbed in FBI Sweep. Federal prosecutors are charging dozens of currency traders with bilking retail investors out of millions of dollars in the latest scandal to rock the financial sector.” Currency traders at UBS and JP Morgan were arrested along with employees from 16 other trading houses.

On face value it appears that the markets are out of control from a regulatory perspective. Every sector of the markets has been involved in scandal. Who can you trust with your money? I strongly suggest that you keep a very tight rein on your broker. This is ugly stuff. Praying openly in public schools was removed from our society in 1962 and now we have an entire generation that believes the law matters only when one gets caught. These people should go to jail, but the Wall Street way is a simple hand slap and out of court settlements.

Housing Starts Remain Vibrant: Bad for Bonds, Good for Stocks

Homebuilders broke ground on 1.96 million homes at an annual rate last month, the highest level in nearly 18 years. The number came as a surprise since the median forecast of economists polled by Bloomberg News called for a decline in housing starts to a 1.85 million annual rate. The good news in housing today put a damper on bond prices pushing the yield on the 30-year bond to 5.08% and on the 10-year note to 4.24%. The stock market had a better day today with the good news from the homebuilders. The Dow Industrials gained 66 points to close at 9,690, the NASDAQ added 17 to 1,899 and the S&P 500 grew by 8 points to close at 1,042.

The housing starts clearly indicate there is still some strong momentum in the economy since the Federal Reserve has been working to re-liquefy the markets via low interest rates and monetary aggregates. Most recently, interest rates are still at artificially low levels, but aggregates have begun to contract. Economists are now forecasting 4% GDP growth for the fourth quarter following the third quarter GDP growth of 7.2%. Just remember that the 7.2% rate of growth last quarter was temporarily inflated with spending on the war in Iraq and the tax rebates that were spent immediately into the economy. Take away the military spending along with the tax rebate checks, and the actual GDP growth comes in around 3%.

Do as I Do, Not as I Say

Yesterday Bloomberg News televised a debate between currency strategists, Steven Saywell of Citigroup, the world’s largest financial company and Monica Fan from RBC Capital Markets. During the interview the Citigroup spokesman said that he expects the U.S. dollar to strengthen from 117 euros to 111 euros. On the flip side, Monica Fan projected the dollar to weaken until it reaches 125 euros to the dollar. Citigroup’s Saywell was quoted as saying, “We still think the market is underestimating the potential for the U.S. economy to rebound in the fourth quarter and next year. The growth differential relative to Europe will grow.”

Just a few hours later Mr. Saywell had to be thoroughly embarrassed when he learned that his company did exactly the opposite. Later in the day the Dow Jones Newswire released the headlines, “Citibank Closes All Long Dollar Positions As Unit Plunges.” The article goes on to say, “The move, on the day the dollar plunged to record lows against the euro, is significant in that the dollar’s slide has forced one of the most aggressive dollar bulls in the market to temper its optimism toward the currency. In a research note, Citibank currency analysts cite three specific reasons: the U.S. decision to impose temporary quotas on certain textile imports from China, the dollar’s failure to respond to positive U.S. economic data and the breakdown of key technical levels such as dollar index support at 90.56.” (See chart above)

Citibank’s spokesman was on national TV saying the dollar was sure to strengthen based on an improving economy, but the players at the trading desks were selling dollars as fast as they could. With all the dollar selling, who is buying? You guessed it, Japan.

Here’s another example of do what I do, not what I say. Just weeks ago Japanese Prime Minister Koizumi said that Japan would refrain from currency intervention to allow the dollar to weaken in the foreign exchange market. Then we read in Bloomberg News today that, “The yen had its biggest drop in eight months after the Bank of Japan sold its currency in a bid to slow its advance and protect an export-led recovery. The dollar rose a day after it fell to a record low versus the euro.” The Bank of Japan has sold over 16 trillion yen this year to support the dollar and weaken the yen. President Bush helped Mr. Koizumi get re-elected; now it’s back to business as usual for the BOJ.

This week I have been wondering how the bond market has remained at such lofty levels, especially the longer maturities of 10-year and 30-year. It would not surprise me one bit to learn that the BOJ sold yen for dollars then used the dollars to buy long-dated treasuries. The bond market is not pricing in the inflation that will be upon us next year. Mostly what we hear is that interest rates are rising due to a growing economy, but I rather believe rates are moving higher due to excessive money creation which is true inflation resulting in a falling dollar. If this whole scenario plays out like it did back in the Seventies, we will see interest rates double and more probably, triple over the coming years.

Pressure Building

The falling value of U.S. dollars is building pressure under commodity prices. Gold is at the verge of taking out the $400 level, silver is working to break through the $5.40 level on its way to $6.00, then to $7.00, then to the moon, and oil is still hovering in the $33 per barrel area ready to move toward $40. As I say that commodity prices are heading higher, today was a big down day in most of the commodity pits. Meats were down 1 to 4%, metals were down 0.5 to 2%, energies down 1 to 3%, and the grains were clobbered for 1 to 4% on average with wheat down a whopping 6.25% today and soybeans down almost 4%. The falling dollar is the primary contributor to rising commodity prices, but there are now some new developments emerging.

Currency Wars Lead to Trade Wars

The falling dollar has led to turmoil in the currency market and has created a real wrestling match with foreign exchange rates. China’s Renmibi is pegged to the dollar causing the Chinese to be more competitive in world markets. Mexico has lost tons of manufacturing business to China as has Japan. Japan continues to intervene weakening the yen, and Europe has maintained better fiscal discipline than the U.S. giving strength to the euro. The currency wars are now leading into heated trade wars as countries run for protectionist policies.



Since President Bush imposed import tariffs on foreign steel, the Japan, Europe and China have protested. In fact, they appealed to the World Trade Organization who deemed the steel tariffs to be illegal. The foreigners have given the Bush administration until mid-December to eliminate the steel duty or they will impose tariffs on U.S. imports to their respective countries. The trade wars are putting even more pressure on the dollar. Some analysts suggested the dollar decline was accelerated after the Bush administration said it intends to limit imports of some textiles and apparel from China to stem a record flow of goods from that nation and protect mills in states such as North Carolina. Many believe President Bush needs to take these drastic measures with an election year just around the corner. The Chinese Commerce Ministry said on its website, “The Chinese government expresses deep regret and firmly opposes this decision.”

The geopolitical developments are sure to affect our financial markets. Just look at what happened to the price of wheat and soybeans today. China was getting ready to send an entourage here to the U.S. to negotiate soybean contracts and arrange for wheat processing equipment until they learned of the newly proposed import duties. They canceled their trip today. According to St. Louis Federal Reserve President William Poole, "Protectionist measures, even short term, impose costs on an economy that outweigh any benefits."

It's a lot to think about but the falling dollar has a huge ripple effect, both domestically and globally. Protect yourself as best you can for the continuing decline of the U.S. dollar.

Have a great evening!
Michael Hartman
Technical Analyst & Market Commentator

http://www.financialsense.com/Market/wrapup.htm

[rails]

Hello Frank: and Greetings to the Thread: Been lurking a while. Trading some PMs and holding some PMs. Note: Been watching YUKOS and bot some last couple days. Got lucky, up 7% today, after a really big fall the last two months; most likely up on the bombings in Turkey and rise in crude. Bot 1st lot at US$49.00, 2nd at 46.00 and last 1/2 at under US$43.00.

You all doing well, I have noticed. Excellent trading history for the bunch of you here. Miss trading like I used to do, but have been working my regular day job way too much.

Best Wishes;
Rails