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GOLD, HOUSING, AND THE INVERTED YIELD CURVE

 
Inanna of Sumeria
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02/17/2007 01:02 PM
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GOLD, HOUSING, AND THE INVERTED YIELD CURVE
Thoughts From The Frontline
John Mauldin's Weekly E-Letter
Gold, Housing and the Yield Curve
by John Mauldin
2/16/2007
[link to investorsinsight.com]

Introduction
An Impressive Bull Run in Gold
What the Yield Curve Tells Us
GDP is AWOL
That "Shocking" Housing Data

Introduction

I have often written about the high probability of a recession following an inverted yield curve (where short-term rates are higher than long-term rates), based upon research which suggests the yield curve is our most reliable indicator of future recessions. I am often asked whether a yield curve causes a recession. The (very) short answer is no. But then what is the mechanism that makes it so reliable? Is it different this time? How can we believe that the economy has a few bumps in its future when things are just so darn good? We ponder these questions in today's letter, as well as peruse the "shocking" housing data released this morning, and look at a very interesting chart on gold.

But first, let me call to your attention the official announcement of my 4th annual Strategic Investment Conference, co-sponsored by my friends at Altegris Investments. The conference will be April 19-21 in La Jolla, California. The line-up of speakers is quite impressive. Richard Russell, of course, will be there. It is one of his few live speaking engagements of the year, as he does not travel to speak. So we bring the mountain to Mohammed, so to speak. Dennis Gartman will regale us with his stories and wisdom. Dr. Woody Brock, one of the world's better economists and frequent speaker at Davos will be there. George Friedman of Stratfor (what a treat!) will give us his views on how the world will develop politically over the coming years, and hopefully give us a preview of his forthcoming book. Louis-Vincent Gave will kick things off. Rob Arnott will follow. And Dr. Mike Roizen (YOU: The Owner's Manual) will give us the latest on how to stay healthy, live longer, and enjoy our lives. And your humble analyst, of course.

In designing a conference, I put together a group of speakers that I want to hear and learn from. Many conferences have one or two headliners and then fill in the rest of the time. This conference has nothing but headliners. Every speech is a keynote. And there are plenty of chances to meet the speakers personally.

If you are looking for one place to come and learn about what the economic climate may be for the next few years, and for ways to both protect and take advantage of an ever-changing world, then you should consider this conference. No booths, no vendors, just investors like you and experts.

But it is more than just a theoretical event - investors will also have the chance to learn about the many different hedge fund strategies and options that are appropriate for their particular risk tolerance, investment goals, and investment experience, in the many manager sessions during the conference.

I find first-class speakers, but my partners at Altegris run a first-class show. Everything is top-notch. Most attendees tell me that this conference is the best they have even been to, and we make a point of trying to make it better each year. The price you pay for the conference has been substantially less than what it costs us to do, so you get value! And the Hyatt Aventine in La Jolla is a great venue with a wonderful spa. And the best part of the weekend is that you get to meet some really great new people.

The bad news is that because of the regulatory requirements to which we are subject, we have to limit attendees to those who have a liquid net worth of $2,000,000 or more. Thus, the conference is by invitation only, as we are required to talk with every attendee prior to their coming to the conference. I wish it were different, but we are very serious about playing by the rules.

An Impressive Bull Run in Gold

One of the more frustrating things about being an analyst is to make a call and then wait for what may be a long time before the market decides to approve of your intuitive foresight ... or brutally punish your hubris. But it comes with the territory, so if you have been doing this long enough, you eventually develop some emotional calluses as well as a certain quantum of humility. Some of the more dangerous characters in this business are those who refuse to acknowledge they can be wrong and demand the market confirm their superior wisdom. A good investment or great market call is evidence of their genius, but if something negative happens, it is simply bad luck or an intransigent market. Those who ride a bull need to realize that it is easy to get thrown off. Risk controls are the mantra of the better players in the investment game.

I find the better analysts that I meet have a very refined sense of their potential for being wrong at any given time. In fact, the better they are, the more humility they seem to exhibit. They may pound the table when espousing their point of view, and argue with great and laudable vigor; but they constantly keep an open mind, looking to learn and grow with each missed call.

Thus, when you do make a call and the market decides to confirm your wisdom fairly quickly, it is an easy thing to remember. It also is a reminder that luck is a sometimes good thing. I became bearish on the dollar and thus bullish on gold in early 2002. And it has been an impressive bull run.

Most of my bullishness about gold has been admittedly centered in my still long-term bearish posture on the US dollar. And in the beginning of the run, that was the correct position. But of late, gold has been in a bull market across the board. My good friend and South African partner Prieur du Plessis sent me the following graph and table, following a discussion on gold. While we are familiar with the rise in gold in terms of the dollar, it is instructive to look at how it has done in other major currencies (the euro, pound, yen and Swiss franc):

Image
[link to www.investorsinsight.com]

For the last three years, gold has been in a bigger bull run in terms of yen than in any other major currency, making new recent highs. And look at the following table, which shows the percentage increase for gold in terms of nine different currencies over the last two years:

Image
[link to www.investorsinsight.com]

Gold is at $668.50 and is having trouble busting through $670. There are persistent rumors that there is a major seller at this level. Dennis Gartman (no gold bug he, but he is currently bullish on the barbarous relic) writes this morning:

"Moving on to gold, we note that the resistance between $668-670 has proven formidable indeed, for gold has effectively traded within that range for the half day prior to writing yesterday's TGL and for the past full day. Once again, we've no idea who it is that is selling spot gold at $670, but it is someone of very real consequence and with very material selling to be accomplished. Once again, it may be a government, it may be a hedge fund, it may be miners hedging forward production because of bank agreements made on a project or two or three... it may be a combination of the above, or it may simply be very large 'specs' wishing to take profits on old long positions or wishing to get materially short.

"All we care about is that it is someone or something that has thus far successfully stopped gold from advancing, and with the week's end upon us, we shall not be at all surprised to see that seller remain successful in keeping gold from moving through his offers. Next week, however, the 'game' shall be played with a bit more enthusiasm, and the seller... whoever or whatever 'he' might be... shall have a far more difficult time keeping gold in check."

As I have said many times, gold is a neutral "currency." It is the one currency that cannot be printed by a reserve bank, and thus, is a long-term hedge against monetary deterioration. Gartman gives us a very wise quote from James Burton, Chief Executive of the Gold Council, and one with which I totally agree. When queried about whether a return to a gold standard is possible in the foreseeable future, he answered:

"No - the gold standard was appropriate to the second half of the 19th century, but circumstances are now different. But this does not mean that gold no longer has a monetary role. It remains an important reserve asset for central banks since it is the only reserve asset that is no one's liability. It is thus a defense against unknown contingencies. It is a long-term inflation hedge and also a proven dollar hedge while it has good diversification properties for a central bank's reserve asset portfolio."

I would expect to see more developing central banks put some of their reserves into gold over time, as the developed world sells some of their gold. I would also not be surprised to see another bubble in gold develop at some point, as there is something about the metal that seems to alter mental reality when it starts to run. I hope not, for a bubble and the following aftermath would do a great deal of damage.

What the Yield Curve Tells Us

The yield curve is the slope of the line between short-term and long-term interest rates. In a normal world, you get more interest (yield) for longer-dated maturities. But sometimes (rarely) the interest-rate world gets out of sorts, and short-term rates become higher than long-term rates. The yield curve is said to be inverted, as it is today - witness the graph from Bloomberg below:

Image
[link to www.investorsinsight.com]

I have written at length about the various studies, first by Professor Harvey Campbell of Duke and then later by New York Federal Reserve economists Mishkin and Estrella, which show an inverted yield curve to be the best indicator of a future recession. For those not familiar with the studies, you can go to my December 30, 2005 e-letter to review: [link to www.investorsinsight.com]

In short, the yield curve inverted significantly last fall; and if past performance is indicative of future results, the studies suggest we should see a recession as early as the late second quarter of this year, or more likely in the third quarter. Note: we have never had an inverted yield curve as we currently have without a recession following within about 4 quarters.

But a yield curve does not cause a recession. It simply tells us that something wicked this way comes. Something is out of kilter in the economy. Looking back at past recessions, it has been different things, so we can't look to history with any sense of reliability to say, "This is it!"

So, when the yield curve gets inverted we must pay special attention. As we examine the economic landscape today, what could bring about a recession or serious slowdown? The service sector certainly seems to be in good shape. Agricultural firms are getting record high prices. The financial sector, with the notable exception of mortgage firms, is seeing ever higher profits. The world seems awash with cash.

What could be the problem? As I have written for the past few months, I think the culprit is going to be the housing market. Both as a result of a slowdown in construction which will modestly increase unemployment, but more importantly as a result of a decrease in the ability of the US consumer to borrow against their home as home values go flat or fall and mortgage lenders have to tighten up the credit standards. This is going to put a constraint on consumer spending, and that is going to be enough to tip us into what I think is going to be a mild recession.

Ken Fisher writes in this weeks Forbes that we have seen the bottom on the housing market. "In the last six months housing stocks are up 24%, well ahead of the market. If housing were destined to fall apart in 2007 these stocks wouldn't be so strong now."

And maybe he's right, as the stocks are still relatively good values if they meet their 2007-8 earnings projections. But the same argument could be made about tech stocks in 1999. And the stock market was telling us in August of 2000 that the economy was getting ready to boom. The stock market does not always get it right.

That being said, the data which has been coming out for the past few months has not been kind to my predictions, but today we have new inputs which suggest that maybe we are starting to see some cracks in the economy.

GDP is AWOL

Only a few weeks ago, we were told that the GDP for the fourth quarter was 3.4%, which is rather robust. I must admit I was taken somewhat aback by that number, as it did not square with the rest of what I was seeing. But you have to be ready to admit you are wrong when you are. Only, we find the data is not as robust as first thought.

The first estimate of GDP growth is done on a basis of estimates of inventory and productivity, among other things. It turns out reducing inventories were the basis of much of the growth estimate. Reducing inventories is not the same as increased production. JP Morgan estimates GDP may have been overstated by as much as 1%, and we will see that official number revised downward in the next few months.

That "Shocking" Housing Data

This morning, while driving into the office, I was listening to CNBC. The reporter was talking about the "shocking" housing starts number, which plunged 14.3%. As it happened, I was driving in with my daughter, and turned to her and said, "There's nothing shocking about that number. It's what you would expect." Well, maybe that's not quite the case. The lowest estimates were for about 6% above what the actual number came in at (a 1.4 million starts pace, down from 1.6 million).

The number of homes under construction declined, the number of completions declined, and the number of houses authorized but not yet started declined. There is a simple explanation. Even with construction off more than 38% in the past two quarters, inventories have only fallen by about 6% from a record high in July of 573,000 homes.

Slower sales and cancellations of existing orders have caused the number of unsold homes to pile up. The supply of homes at last year's sales rate averaged 6.4 months' worth, up from 4.4 months' worth in 2005 and 4 months in 2004. And as the buying is slowing down, that inventory is rising. Sellers of previously owned homes are lowering prices to drum up demand. The median price of a previously owned, single- family home fell in 73 of 149 metropolitan areas in the fourth quarter, a National Association of Realtors report showed yesterday.

Toll Brothers Inc., the largest US luxury home builder, reported a 33 percent plunge in orders during the quarter ended Jan. 31. Ken Fisher has the company on his buy list at 19 times what he calls depressed earnings. With today's announcement it looks like earnings could get more depressed.

I think it is going to get worse as the sub-prime mortgage market starts to cough homes that were sold the last two years back onto the market because of foreclosures. Foreclosures are up five times in Denver, as an example.

Dave Seiders, chief economist at the National Association of Home Builders, predicts that the cut in residential investment (construction) will shave one percentage point from the economy's inflation-adjusted growth rate in the first quarter, more than he was anticipating late last year.

But the real hit comes from the decrease in mortgage equity withdrawal. Let's look again at the following graph. I know I have used it before, but it is at the crux of my potential recession argument.

Mortgage Equity Withdrawal (MEW) accounted for over 2% of last year's GDP growth. Take away that and 1% for construction, and we would have been close to a recession.

Image
[link to www.investorsinsight.com]

Now MEWs are not going to disappear. This is the US consumer we are talking about. They are committed to supporting world trade through increased borrowing. No, the problem is going to be that MEWs are going to be harder and harder to get, especially for sub-prime mortgages.

A decade ago sub-prime mortgages were a mere $35 billion. Today they are one-fourth of all mortgages, about $665 billion. Somewhere in the neighborhood of $1 trillion in adjustable-rate mortgages is eligible to be reset in the next two years, sharply increasing payments and lowering the discretionary spending ability of those homeowners.

But the real hit is going to be the inability of many to actually get loans. In the same issue of Forbes where Fisher was telling us to buy home builders and that the housing market is going to rebound, is a very interesting article about the problems of sub-prime lenders. Here are some of the high (or maybe low) lights.

Some 79% of the loans by FirstFed Financial were so-called stated income loans, in which the borrower's income did not have to proven with W-2's, tax statements, or payroll checks. The list of institutions with such problematic loan policies is long. And the result is that there are going to be a lot of new homeowners getting into financial difficulty. The Center for Responsible Lending estimates that as many as 20% of the subprime mortgages made in the last two years could go into foreclosure, or about 5% of the total homes sold. If just half of those homes come back onto the market, it will cause home prices to fall, limiting the ability of people to borrow, causing valuations to fall and a reduction in MEWs.

Compound that with probable legislation sponsored by Democratic Congressman Barney Frank and Senator Chris Dodd to tighten up lending standards and disclosure rules, and you could see loans at the lower end of the market dry up. And by the way, full disclosure requirements would be a very good thing.

The subprime mortgage market is going to be a scandal by the end of this year, as these loans have been packaged and sold as investment-grade bonds by numerous investment banks, mostly to European and Asian institutions. Some of these Collateralized Debt Obligations, or CDOs, are going to default and there is going to be a major wave of lawsuits.

So, will there be a recession? I still think so, and I think the culprit is going to be the housing market, which is going to trigger a slowdown in consumer spending, the first such slowdown since 1991. If Fisher is right and the housing market is getting ready to take off, then I am going to be not just wrong, but really wrong. We'll see.

.
Shadow

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02/17/2007 01:05 PM
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Re: GOLD, HOUSING, AND THE INVERTED YIELD CURVE
According to recently updated IMF reserves statistics, some central banks have begun purchasing significant quantities of gold over the past few months, in stark contrast to the most recent figures available to the market, says Donald W. Doyle, Chairman and CEO of Blanchard and Co. Inc.

[link to www.gata.org]

Good call Inanna.
Over the side and damn the barracuda
Inanna of Sumeria  (OP)

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02/17/2007 01:11 PM
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According to recently updated IMF reserves statistics, some central banks have begun purchasing significant quantities of gold over the past few months, in stark contrast to the most recent figures available to the market, says Donald W. Doyle, Chairman and CEO of Blanchard and Co. Inc.

[link to www.gata.org]

Good call Inanna.
 Quoting: Shadow


Yours too. IMF is fudging at the moment. They want to sell at highest profit to clear red ink, if at all. I work with a former IMF geek.
Juanwhoknows

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02/17/2007 01:49 PM
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"It simply tells us that something wicked this way comes."

Wicked indeed.

Would the moron that gave this thread one star get a head start by getting in line at the soup kitchen now!
"One can evade reality, but one cannot evade the consequences of evading reality." --- Ayn Rand
Inanna of Sumeria  (OP)

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02/17/2007 02:01 PM
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"It simply tells us that something wicked this way comes."

Wicked indeed.

Would the moron that gave this thread one star get a head start by getting in line at the soup kitchen now!
 Quoting: Juanwhoknows


Hi Juan (nice avatar by the way), I also noticed that 'One Star Bandit' must be roaming the boards today. koolaid
F.B. Nyte
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02/17/2007 02:15 PM
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According to recently updated IMF reserves statistics, some central banks have begun purchasing significant quantities of gold over the past few months, in stark contrast to the most recent figures available to the market, says Donald W. Doyle, Chairman and CEO of Blanchard and Co. Inc.

[link to www.gata.org]

Good call Inanna.
 Quoting: Shadow


hello Inanna and Shadow, Consider this from the IMF also just in:

Gold sales hit record $65.3bn
ByChris Flood

Published: February 15 2007 13:30 | Last updated: February 15 2007 21:58

Gold sales jumped 22.4 per cent to a record $65.3bn last year in spite of a 10 per cent fall in demand in tonnage terms, according to the World Gold Council, which released its fourth-quarter report on the market on Thursday.

Ask the expert: Gold
James Burton, World Gold Council CEO, answers your questions
Last year, price volatility affected the jewellery market, particularly in the first half, but the volume of both investment and industrial demand rose in 2006.

Rapid growth in the popularity of gold exchange traded funds means that ETFs have become the main driver of investment demand growth. The launch of several new gold exchange traded funds helped inflows into ETFs rise by 27 per cent, to 265 tonnes, last year. At the end of last year, total gold stocks held by ETFs and other similar funds amounted to 652.5 tonnes, worth around $13.3bn.


The rest here:
[link to www.ft.com]

Looks like next week it will be interesting to see if gold can make it above $670.
Shadow

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02/17/2007 02:23 PM
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Hey F.B.!!

Any truth to the rumor that an attack on Iran can be predicted by PMs?
Over the side and damn the barracuda
F.B. Nyte
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02/17/2007 02:39 PM
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Hey F.B.!!

Any truth to the rumor that an attack on Iran can be predicted by PMs?
 Quoting: Shadow

Shadow, In todays world, I wouldn't think so. To many dots.

(BTW I always thought PMs was plural for afternoon;-})
Inanna of Sumeria  (OP)

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02/17/2007 02:50 PM
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Hey F.B.!!

Any truth to the rumor that an attack on Iran can be predicted by PMs?
 Quoting: Shadow


Crude Oil Price is a pretty good bet if the in-the-know, know and act on it.
Shadow

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02/17/2007 02:54 PM
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I'm trying to find charts on what PMs and energy did in Feb '03. Could be indicative, maybe not, too.
Over the side and damn the barracuda
Shadow

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02/17/2007 02:58 PM
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[link to www.kitco.com]

March 2003 gold dropped, didn't plunge though.
Over the side and damn the barracuda
Inanna of Sumeria  (OP)

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02/17/2007 03:17 PM
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[link to www.kitco.com]

March 2003 gold dropped, didn't plunge though.
 Quoting: Shadow


Oil, on the otherhand, also dropped in April 2003, but has trended upward since mid-2003.

[link to www.ioga.com]

Iraq and geopolitcs were very different at that time.

The thinking was, Iraq submission would calm Oil prices.

Beknownst to most, the North Korean and Iranian nuke card came into play. Iran is second to Saudi's in oil production/resources, but both are falling quickly behind Russia.

This time, Oil will blow past $100 a barrel, quickly. But only a few bucks (maybe 10-20) just before.
Juanwhoknows

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02/17/2007 04:51 PM
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"It simply tells us that something wicked this way comes."

Wicked indeed.

Would the moron that gave this thread one star get a head start by getting in line at the soup kitchen now!


Hi Juan (nice avatar by the way), I also noticed that 'One Star Bandit' must be roaming the boards today. koolaid
 Quoting: Inanna of Sumeria



Thanks. I hope this doesn't come out wrong but are you long on PMs?
"One can evade reality, but one cannot evade the consequences of evading reality." --- Ayn Rand
F.B. Nyte
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02/17/2007 05:05 PM
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Shadow, the vidio at the following link is rather long (1.75 hours) but I just finised watching it.

It gives insight to who TPTB are, their agenda, and why there are wars. With all the other factors pointed out on this vidio, could be that we could see a war with Iran. If so, the economy will surely tank and gold would be a good thing to have, IMHO.
[link to video.google.com]
F.B.Nyte
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02/17/2007 05:12 PM
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Inanna, you said, "Oil, on the otherhand, also dropped in April 2003, but has trended upward since mid-2003."

This could be more indicative of war than the price of PMs.
Iraq was producing oil and if the price goes down, Iraq has less income to finance a war.

Right now, oil is well off its highs, and since Iran derives 70% of it's GDP from oil. In other words, they too are being deprived of finances. Maybe only to deprive the masses of that country a piece of the pie to cause an uprising. So is the price of oil being manipulated too??

Got to go for now, Be back later.
Inanna of Sumeria  (OP)

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02/17/2007 05:17 PM
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Thanks. I hope this doesn't come out wrong but are you long on PMs?

 Quoting: Juanwhoknows


Yes.
Inanna of Sumeria  (OP)

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02/17/2007 05:30 PM
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Inanna, you said, "Oil, on the otherhand, also dropped in April 2003, but has trended upward since mid-2003."

This could be more indicative of war than the price of PMs.
Iraq was producing oil and if the price goes down, Iraq has less income to finance a war.

Right now, oil is well off its highs, and since Iran derives 70% of it's GDP from oil. In other words, they too are being deprived of finances. Maybe only to deprive the masses of that country a piece of the pie to cause an uprising. So is the price of oil being manipulated too??

Got to go for now, Be back later.
 Quoting: F.B.Nyte 197108


Hi FB. Lot of intertwined questions there...

From Jan 03 to March 03, Oil was up by 30+% relative to its PPB at that time, a nice return (Fear Premium). Then it dropped a little after the invasion.

And now, despite that oil is off it's 'high', it is still, as of today, %100 return from the Feb 03 PPB [link to www.ioga.com] .

The Oil price did drop prior to the elections and during the warmer that average late Nov 06 thru early Jan 07 weather. But not that much of a dent to Iran at all (despite their huge economic issues - welfare state induced trance). Now, get down to $30 PPB is another story. Although Russia is now playing a roll in supply they never played before to offset, but they both lack refining capacity.

Not totally convinced that Oil is being manipulated to 'precisely' match desired effects as would be required in a global market.

Price Manipulation info.. [link to www.theoildrum.com]

On PM's, you know the story. Particularly Gold, is now running on a life of its own, not always reacting lock and stef to its usual friends or foes.
Juanwhoknows

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02/17/2007 08:52 PM
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Although Russia is now playing a roll in supply they never played before to offset, but they both lack refining capacity.

 Quoting: Inanna of Sumeria


On PM's, you know the story. Particularly Gold, is now running on a life of its own, not always reacting lock and stef to its usual friends or foes.
 Quoting: Inanna of Sumeria



Russia's development of its oil production capabilities increases supply. During times that the price of gold appears to be "coupled" to the price of crude one would think that with higher production, the price of crude would fall and gold would follow. However, when countries like Russia take their currency reserves generated by energy sales (oil and gas) and purchase gold reserves, as they have done in the past and are currently doing, there is a temporary decoupling of the price of gold from crude. They do tend to recouple on the upside in any event.
"One can evade reality, but one cannot evade the consequences of evading reality." --- Ayn Rand
paladin

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02/18/2007 10:58 AM
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Re: GOLD, HOUSING, AND THE INVERTED YIELD CURVE
hey all...


BONDS ARE FORECASTING A 2007 RECESSION
by Robert McHugh, Ph.D.
February 17, 2007

[link to www.financialsense.com]




(snip)
Mortgage applications rose 1.5 percent in the latest reporting week. But those are apps. Let’s see how many loans close given the sub-prime lender problems and declining prices (appraisal values). There’s only one way out of this mess: sacrificing the dollar. A planned hyperinflation of the money supply and devaluation of the dollar will assure that markets rise in nominal prices, a necessity given the debt crisis that is looming. There is simply an imbalance between income and debt service, and if asset valuations are permitted to decline, the result will be economic chaos. There is no choice here for the Fed. They must print and get that money into as many consumer hands as possible. They must lift market prices higher — buy bonds (and ergo stimulate housing) and stocks; and raise cash for increased entitlement payments — put cash directly into the hands of consumers. The Fed must pretend to be inflation vigilant, while doubling the money supply. This is a magician’s act, a house of cards. Precious metals should benefit.


<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<

it looks like gold/silver is about to go to the moon... :smirking p:
F.B. Nyte
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02/18/2007 04:12 PM
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Re: GOLD, HOUSING, AND THE INVERTED YIELD CURVE
Hi All, check out this chart.

[link to stockcharts.com]
Looks good for PMs.
paladin

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02/19/2007 07:00 PM
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Re: GOLD, HOUSING, AND THE INVERTED YIELD CURVE
this is what got me thinking..


from the above post..


(snip)
no choice here for the Fed. They must print and get that money into as many consumer hands as possible. They must lift market prices higher — buy bonds (and ergo stimulate housing) and stocks


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is this saying the FED will buy bonds and stocks??????
paladin
User ID: 198095
United States
02/19/2007 08:04 PM
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Re: GOLD, HOUSING, AND THE INVERTED YIELD CURVE
this is a must read..


[link to www.leap2020.eu]
paladin

User ID: 199061
United States
02/21/2007 07:31 PM
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Re: GOLD, HOUSING, AND THE INVERTED YIELD CURVE
this is what got me thinking..


from the above post..


(snip)
no choice here for the Fed. They must print and get that money into as many consumer hands as possible. They must lift market prices higher — buy bonds (and ergo stimulate housing) and stocks


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is this saying the FED will buy bonds and stocks??????
 Quoting: paladin




gold is in a break out..

[link to www.rallymonkey.com]
paladin

User ID: 199940
United States
02/23/2007 03:11 PM
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Re: GOLD, HOUSING, AND THE INVERTED YIELD CURVE
FIRST INFLATION THEN DEFLATION? - FINANCIAL CRASH
by Christopher Laird
PrudentSquirrel.com
February 22, 2007

With gold up over $20 on Wed, it looks like $700 is around the corner. So then, if a big gold surge is around the corner, one may ask, what is a longer term prognosis for not only gold but financial markets? Answer: first inflation and then deflation.

Right now, the world is inflating like mad. Money growth in most of the major world economies is near or exceeding 10% a year, and China is the biggie at 18% plus. That, combined with historically low interest rates is causing huge finance and asset bubbles. Central banks are way behind the inflation/interest rate curve right now, and are basically stuck in that rut because if any of them combat inflation by raising interest rates, they find their currencies strengthen, and lose market share.


[link to www.financialsense.com]
paladin

User ID: 207055
United States
03/10/2007 12:28 PM
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Re: GOLD, HOUSING, AND THE INVERTED YIELD CURVE
hey Inanna..


hey...all..

consider markets at 50 to 1 leverage ....

this is a great read...by Mike Whitney



[link to dissidentvoice.org]
paladin

User ID: 207117
United States
03/10/2007 04:28 PM
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Re: GOLD, HOUSING, AND THE INVERTED YIELD CURVE
hey Inanna..

what stands out here is this,,


For 2007 to date, yen carry trade loans invested in U.S. equities have had a negative return.




GOLD THOUGHTS
by Ned W. Schmidt, CFA, CEBS
Schmidt Management Company
THE VALUE VIEW GOLD REPORT
Disciplined Analysis of Gold
March 9, 2007

GOLD THOUGHTS: On Tuesday equity markets began a demonstration of long known fact, even a dead cat bounces when thrown into the air. Market corrections can certainly include days of temporary relief. A possible end to the correction is being called by some. More likely it is a bear market trap. Such commentators, having failed to anticipate end of liquidity driven rally, now have ability to identify bottoms. Real ability or expectational biases? Even Mark Hulbert, with his dubious analysis of newsletters, has suddenly been able to find statistics suggesting end of equity correction may be near. Common characteristic of these gurus is that they have something to sell you, something that failed to suggest extracting your money from paper equity markets before the slide.

With economic momentum model now in negative territory, U.S. economy is entering a recession. Collapsing factory orders are simply further confirmation of inherent weakness in U.S. economy. And, the implosion of mortgage mountain is only in early stages. For some time the fantasy forecasters have contended that no one will be hurt by housing slide. Well folks, someone owns the $23+ billion debt of New Century Financial(NEW), and someone is going to pay a price for that ownership. NEW rose by more than 25% at one point on Tuesday. Is that a rational response or a dead cast bounce?

With Japan in economic recovery and U.S. sliding into recession, a small bounce in the yen must be viewed as a transitory event. That giant elephant, the yen carry trade loans, has not suddenly disappeared one Tuesday morning never to be seen again. For 2007 to date, yen carry trade loans invested in U.S. equities have had a negative return. That kind of return does not pay the partners' salaries. Given the size of this elephant, the yen is going a lot higher over time. The real investment stories for the year will be the massive losses of hedge funds in mortgage debt and yen-to-equity trades. A good office pool might be on how many hedge funds disappear before year end as return attrition takes hold. Perhaps a good investment idea out of all this is to short or buy puts on WB.

Market volatility always provides investment opportunities for those looking forward. In the past week, short-term buy signals have been triggered for US$Gold, CN$Gold, &#1028;Gold, £Gold and the GDM. Latter is the index used to create the GDX, a Gold stock ETF trading on the Amex. If Hillary Clinton, not a practicing economist as far as we know, can understand the risk facing the U.S. dollar, the rest of us should be able to do so. Gold's sympathetic slide is an opportunity to invest in Gold before the super cycle pushes it to ultimately more than US$1,400.

[link to www.financialsense.com]





GLP