Gold's Still Shining...Despite Skepticism.

Last Friday, gold was moving to another new high for the week in dollars and making another new all-time high in euros.

Any move that puncture through $920 (spot) will likely trigger a mad dash of short covering from anyone unlucky enough to have shorted the metal last week at an all-time high. My own near-term target remains at $1000+.

I'd also noted that the gold shares (based on Friday's sharp move up) appear to be finally realizing that gold's move up to all-time highs is not just a weak dollar phenomenon. After seeing it rally in the face of the strong move up in the dollar index in the wake of the ECB appearing to indicate that it was now ready to join the global printathon started by the US Fed and sacrifice inflation-fighting in favor of trying to stimulate growth.

There was never a doubt that all the G-10 nations would eventually turn to the printing press in the wake of the US housing bust and the US recession that is already underway, and that's why gold is rallying in all these confetti currencies. What's the result going to be? The dreaded -Stagflation!

As for the gold shares, they have lagged the metal over the past few weeks based on this "disbelief". They will come to believe soon enough though! Anyone buying the gold shares over the past three days is now "in the money" when looking at all the major gold indices.

As far as the shares lagging the metal like this, we saw something very similar to this action when gold crossed $500 back in late 2005. The shares lagged and lagged and then suddenly "caught up" as people realized that "something was different" in gold. The same will happen here now as people watch gold blow back through its $936.92 all-time high and onward to over $1000.

Happy Chinese New Year!

May this spring brings joy, prosperity and good health to all..

The Fed has just 300 basis points left to play with...

I think we are about to see a massive shift in sentiment which will be manifest in global markets from stocks to bonds to currencies. This shift could be the result of a financial crisis, or could simply arise from a 'final straw' being laid atop the mountain of financial problems thus far.

Either way, the upshot will be to spur fears of deflation. Witness the relentless obsession with the Fed, as if whether they go 50 or 25 actually makes a difference?!!

At some point, investors will do the math. Hmmm... if the financial institutions and bond insurers are already unable to function, with delinquency rates barely up from record lows, what's going to happen when things really get bad ?

On the bright side, at least the fed is trying to get the credit wheels turning. In the Eurozone the ECB is taking their economy on a Thelma & Louise roadtrip. Pedal to the metal, they are speeding straight over the clif.

Again, all of this seems patently obvious. But talking about deflation in the abstract is very different from living it. From a macro trading standpoint the standard relationships will break down. Many already have. Like bonds and gold, the yield curve... and so on. I expect the euro will soon begin to trade inversely with rates (eg., the tighter the ECB the weaker the euro, because it virtually ensures they completely disintegrate). Meanwhile, in the US, the Fed, running out of room to cut short rates, will shift to the long end and US treasuries will move well below 3% evemtually. This isn't a statement about the value of Treasuries. Heck, there wasn't any value in Treasuries!! But that's not the point.

Stay tuned, because things are about to get very, very interesting.

"Harapkan pagar, pagar makan padi" - What do you know about BERNAS BHD?

An interesting article I have came across about - BERNAS BHD.

http://www.malaysia-today.net/2008/content/view/1630/46/

Xiao-Lung-Bao.. anyone?

It’s rough out there, as anyone within shouting distance will tell you. And make no mistake, there’s a lot of yelling going on. Politicians are barking at each other and there’s a heightened state of tension spreading throughout the world, from New York to Tokyo.

While it’s easy to get caught up in the doom and gloom, we must remember that the sword swings both ways. An ability to view obstacles as opportunities is the hallmark of human spirit and silver linings exist in this economic twist. The credit crunch is more pervasive than the dot.com and real estate crazes but we’ve been there and done that on both sides of the bubbles.

As the only difference between mistakes and lessons are an ability to learn from them, we would be wise to recall the past as we cast an eye towards the future. It will be a long hard road but as with any journey, it will be ripe with uphill climbs. And as always, the path that we take to get there is entirely more important than the destination we arrive at. I’ve been cautious on the big picture for quite some time. While it’s not a good idea to be a contrarian for the sake of swimming against the tide, there is certain utility in variant opinion. With a conscious nod that hope isn’t a viable investment vehicle, there still exist reasons for optimism as negativity swirls through the street.

No, it’s not going to be easy but nobody said it would be. We’ve got a long journey ahead, fraught with risk and littered with reality, but it’s the path we’ve chosen. We indeed live in interesting times. We’ve been through worse and we’ll get through this. Meanwhile...lets settle for a Xiao-Lung-Bao ! Ohh, by the way, don't just stare.. How many did she ate?

The Growing Gold Bubble.

With the equity market now likely set up for some sort of bear market rally in the wake of the Fed detonating its 75 bp "nuclear weapon" on Tuesday, the "fear of the margin clerk" - which has weighed on gold and gold shares over the past week or so - should now be removed, and that opens the door for both to release to the upside and make new all-time highs very shortly. My own near-term target for the yellow metal is USD$1000+, but that's just me.

Remember, the Fed is easing with gold at an all-time high. When has this ever happened in history? It hasn't, because never before has the threat to the financial system been so horrific due to all the leverage and financial engineering that has built up over the past 25 years. To allow this to "unwind" (as it should have been allowed to years ago) is now virtually impossible due to the dire consequences involved.

Faced with that prospect as stocks began to crash and the two largest credit insurers were teetering on bankruptcy, the Fed was forced to ease 75 bps in a single day on Tuesday (and promise more easing to come), even as the equal-weighted CRB Index was just a few percent off its all-time high and gold was at an all-time high. The result is going to be that Wall Street will now take that 75 bps and create more money and credit (i.e. "print money"), but the "liquidity" won't go where the Fed wants it to go (i.e. the US credit markets).

Where it will go, however, is into gold and certain other hard assets, because this time around "printing money" is not going to blow an asset bubble that will support the US economy, unlike in 1998 (when the Fed created the stock bubble) and 2001-2003 (when the Fed created the housing bubble). Now all we are going to get is a collapse of the world's fiat dollar-based monetary system, more inflation on top of a weak economy (i.e. stagflation), and a "bubble" in gold.

Predictably, the Fed has chosen to "run the printing press" and inflate its way out of the housing bust, and inflation is exactly what it will get for its efforts. If this thought process sounds new, it shouldn't be, because I've been talking about how the Fed would inevitably respond to the housing bust and what the likely result would be for over a year. And I feel things continue to unfold pretty much to script...

The Shifting Of Economic Center Of Gravity.

Economic historians may record that 2007 was the start of the credit crunch, as well as a crucial shift in the balance of power from the West to the East. The East here is metaphorical - including the Middle East and Russia, both flush with cash from higher oil revenues, as well as the more traditional East.

Ecologists identify three forms of symbiosis between competing species: commensalism (one species benefits); mutualism (both species benefit); parasitism (one species benefits, the other species suffers). It is not clear which of these three forms the current East-West money symbiosis represents.

It is a shift in power from borrowers (the West) to savers (the East). Even before the current credit crisis the vast current account surpluses and savings of the East were being recycled into investments in North America and Europe.

The credit crisis has accelerated and altered the reliance on eastern capital. Barclay's secured equity capital of up to 13.4 billion euros from China Development Bank and Singapore’s Temasek Holdings in support of its ultimately unsuccessful bid for ABN-Amro. More recently, banks and sovereign wealth funds from the Middle East, Singapore and China have invested $40 billion in Citigroup, UBS, Merrill Lynch, Morgan Stanley and Bear Stearns to help shore up balance sheets ravaged by losses from the credit crisis.

The economic center of gravity has also shifted east. In recent history, U.S. consumer spending buttressed by a strong dollar has been the primary engine of global growth. The current credit crunch has exposed the weaknesses of the U.S. consumption miracle. Markets are now looking to the emerging markets of Asia, Eastern Europe and the Middle East as the driver of the global economy.

How important is this shift in balance? In the 1980s, Western firms feared a takeover by gargantuan Japanese banks. In the 1990s, there were predictions of a new Asian century.

The jury is out on the merits of the recent investments in distressed banks. The investment rationale for many transactions is questionable. The flow of capital may also not continue at its recent rate. Citigroup is rumoured to have sought to raise $2 billion in capital from China Development Bank. There are suggestions that there is opposition to the investment within China's government. This appears to reflect growing backlash in China following the $3 billion investment in Blackstone that has decreased sharply in value (by about 30%).

There are also increasing signs that Western governments and public opinion is increasingly restive about the prospect of significant foreign ownership of key companies in strategically important sectors. Remember the fuss that ensued when CNOOC, the Chinese state oil company sought to purchase Unocal leading ultimately to the transaction being abandoned.

For the moment, the West and the East are like Siamese twins that share vital organs. Eastern capital and growth offers one of the few bright spots in a darkening global outlook. It is the lifeline that the U.S. and European economies and institutions that are clinging to.