The wise are instructed by reason, average minds by experience, the stupid by necessity and the brute by instinct...Marcus Tullius Cicero, statesman, orator and writer (106-43 BCE)

A note from this weekend.... After the US financial markets’ dramatic day on Friday (the result of a stunningly disappointing US jobs report), I thought I would pay special attention to how the pundits viewed the developments, like those on Fox TV’s Saturday morning business market shows.

Several things stood out:

*Most were still bullish, yet admitted confusion over the surprisingly lousy jobs number. That the economy has deteriorated so quickly the past month or two has them befuddled. It seems to have done so under the radar screen of Wall Street? Perhaps a number of them ought to subscribe to this column or read the very insightful King Report. What they might have picked up:

1. The jobs reports were overstated all along due to something esoteric called the Birth/Death Hedonic Adjustment Indicator. Bill King has been all over this after each report, citing they were not nearly as strong as trumpeted by Washington and Wall Street. Without utilizing this indicator, the job numbers would have been weakish for some time. Perhaps the Labor people felt they just couldn’t get away with their fudging any longer. There are also a number of Café members who now believe the "powers" behind the scenes won’t mind if Bush is dumped as he has become a liability to their grandiose plans. Meanwhile, they have another Skull & Bones Yale man in Kerry to step in and take his place.

2. While the jobs numbers have been overstated, inflation has been understated. Even without taking into account the juggling of the real numbers, the fact that the core CPI, the most focused on inflation number, is calculated without implementing energy costs is ludicrous. As oft-mentioned here, next to health costs what item could be more important to the average American? Consequently, US corporations and the average Joe and Jane are being squeezed and it is beginning to really show. This should not surprise either as 80% or more of the US economic reports the past two months have been sup-par and more anemic than anticipated.

3. The manipulation of US financial markets is beginning to catch up to the price managers. A false sense of economic well-being has been force-fed on the public. PRICE ACTION MAKES MARKET COMMENTARY. Many of the US financial markets have been nothing but technical illusions from a chart/TA standpoint. This has resulted in an unusual amount of complacency among investors, which could lead to dangerous herd investor movements in the months ahead.

4. What really surprised me was how few of the pundits were bearish and NONE suggested investors should "batten down the hatches" and prepare for some very difficult economic times. Amazingly NONE focused on the tax cuts running their course, the effects of the incredibly low interest rates for an extended period of time having run their course, as well as the initial stimulus of spending on the Iraq War having also run its course.

5. For years one of my rants has been the artificial suppression of the price of gold was going to come back and haunt the riggers and eventually prove to be calamitous for the average American. The basic reason is very simple. Rightfully so or not, gold is used as a barometer as far as the health of the US economy is concerned. When the price of gold is soaring EVERYONE talks about inflation, crisis, or safe-haven investing. Each of is a negative for Wall Street, which is why the disingenuous, corrupt ones in The Gold Cartel have made such an effort to keep the price down. Had they let it take its natural free market price course, gold would be MUCH, MUCH higher than it is today; and, the average American would have been given a fair signal to be more defensive with their investments.

***

It’s Monday morning. As if to prove my point made over the weekend about gold being a key indicator for both Wall Street economists and the public, Bear Stearns chief economist, John Ryding, was on CNBC early on saying gold was his key inflation indicator. Thank you very much! It could not be more obvious why The Gold Cartel is suppressing the gold price. It’s called motive.

One need only flip the page to another Wall Street apologist, CNBC’s Larry Kudlow, to give you some idea to what length The Gold Cartel has gone to suppress the price of gold. The following three year old piece says it all:

-END-

Kudlow and the rest of the mainstreamers on Wall Street have selective memories. Yes, gold should be at $765 per ounce today. Why aren’t the Kudlows of the world suggesting something seems to be very wrong with the price of gold from a historic perspective? This is what The World Gold Council and the entire gold industry ought to be jumping all over as even more anecdotal evidence of a nefarious gold price suppression scheme.

Once again we see how PRICE ACTION MAKES MARKET COMMENTARY – commentary the price managers want the public to read – and that is gold continues to lose its historic value in terms of oil, inflation and safe-haven investing. Not only is this an outrage, it is disingenuous to the extreme, and is only postponing the inevitable truth/result. The gold price is going to go bonkers when the crooks lose control of their scam.

A big thanks to Lois Ringel for bringing this old Kudlowism to my attention.

The big news of the day was crude oil (it closed at $44.89 per barrel with a $44.98 high and up 94 cents), as it approached $45 per barrel.

11:56 Iraqi oil official says southern oil output to remain shut until fighting threat is lifted, reports Reuters
* * * * *

AP) - A radical Shiite cleric vowed to fight to the death as his loyalists battled U.S. troops for a fifth straight day Monday, and bombings in Sunni regions outside Baghdad -- including a failed attempt to assassinate a deputy governor -- killed at least 10 Iraqis. The fighting with Muqtada al-Sadr's Mahdi Army militia began to have economic fallout. Iraq's southern oil company stopped pumping oil to the southern city of Basra where militiamen were controlling main streets because of threats to infrastructure, an official with the company said.
* * * * *

12:48 Reuters reports YUKOY's main unit Yugansk seized again by bailiffs
Recall this is the unit that received a favorable court ruling on Friday 8/6
* * * * *

Incredibly, thanks to the price managers, and after a lower opening, gold yawned and only drifted higher as the day wore on. Volume was very light.

The gold open interest only rose 2038 contracts on Friday to 219,618. This tells us there was a fair amount of short-covering and not much new buying as the price ran up so quickly. Once at the $400 level, the price-cappers did their thing. This is VERY good news as there is room for 100,000 specs to come in on the long side to bury the bums. Perhaps it will take the specs a little more time to get their nerve up. Most have to be sick and tired of the cabal picking their pockets.

Silver was wobbly above $6.70 on Friday and stayed that way. Early on a 200 lot order took the price down to $6.55. There were no bids, however, selling dried up and silver recouped most of these early losses. The silver open interest rose 141 contracts to 98,325.

A nice silver plus for the day: the Comex warehouse stocks fell a sizeable 2,117,277 ounces to 111,548,374, a new LOW for the move. Just what MIDAS has been looking for and advertised at the end of June.

The way I see it, this is the calm before the storm. Certainly, this is a time to have your ducks in the water as far as gold and silver are concerned. It is our ducks' kind of weather.

Indian ex-duty premiums: AM $4.26, PM $3.91, with world gold at $398.50 and $398.40. Slightly below legal import point. The rupee weakened in afternoon. Premium compression, of course, is to be expected when world gold rises abruptly. The Shanghai Gold Exchange moved to actual discounts on world gold. Standard London continues to show premiums on their kilo bar Dubai prices.

Despite the some times gold-friendly weakening of the yen since Friday’s Tokyo close, TOCOM showed no enthusiasm: on volume of only 13,393 Comex equivalent (up 35% on Friday, however) the active contract was up 5 yen but world gold was down 75c on the NY close at the end of trading. Open interest fell the equivalent of 995 Comex lots to only 95,090 Comex equivalent, and preliminary indications are that this may understate the degree of liquidation by the public. (NY on Friday traded 65,334 contracts; open interest increased 2,038 lots to 219,620.)

On Friday, gold following the employment data essentially tracked the dollar, a number of commentators noting the failure to make progress in other currencies. The small open interest increase given the $7.30 jump in gold suggests that fresh buying was largely satisfied out of short liquidation. One remains bemused as to why commercially-motivated shorts would go short in the teeth of the premium data around last week – maybe they were not aware of it. The highly professional Rhona O’Connell in her weekly column on Thebulliondesk does not mention the huge and dramatic July Turkish gold import number available last Thursday, which appears to suggest huge Middle Eastern demand.

In general, neither the enemies nor the weary friends of gold were particularly impressed by Friday’s superficially dramatic gold action. Australia’s Privateer notes dourly:

"The most important feature on the weekly chart is the fact that the 40 week moving average (MA) is firmly above the 20 week moving average… The August 6 up move has pushed Gold back above its 20 week MA but not yet back to its more important longer-term 40 week MA…a level above $US 410 is necessary before Gold can mount any challenge to its February/April 2004 highs in the high $Us 420s (spot future closing price basis)."

"The point and figure chart has keeled over from its distribution zone in the mid $US 400s and has slid all the way back down to just below the uptrend line. With the $US 4.00 gain on Friday, the chart has turned up again and now rests just below the line."

"The biggest change in the point and figure chart is the simple fact that with the rise on August 6, Gold is once again well above its uptrend line…On this chart, a move above $US 410 in the absence of any more distribution would be a sign of drastic increase in upside strength. We'll wait and see."

This diffidence on the part of gold’s friends is perhaps the strongest short term Bullish argument.

JB

CARTEL CAPITULATION WATCH

Two minor "Hail Mary" late DOW rallies failed. Each time the DOW was lifted to 40 higher on the day, it gave up the ghost, closing at 9815, down 1 and on the lows of the session. The DOG was unable to gain any traction at all, losing 2 to 1775.

The dollar rose .03 to 88.49, while the euro dropped .04 to 122.65 ahead of tomorrow’s FOMC meeting.

Wall Street is waiting to hear what the Fed has to say tomorrow. Why? Greenspan and his recent comment to Congress about the economy being in a "temporary soft spot" and high oil prices being "transitory" was about as far off as you could get in a short period of time.

What Wall Street wants is spin – Goldilocks pabulum. If they get it, Greenspan will look even worse down the road than he does now. Lose, lose for the Fed no matter what they do or say. The shocker will be if they tell it as it really is!

Long the stock market?

Get ready for a Nagasaki to shake you up any day or week now!

Economic news items of interest:

10:00 June Wholesale inventories reported 1.1% vs. consensus 0.6%
Prior reading revised to 1.4% from 1.2%.
* * * * *

The inventories increase was unexpected and not inconsequential. Goods are not moving off the shelves as hoped for.

Buffett increases bet against dollar to $19 bln

NEW YORK, Aug 9 (Reuters) - Warren Buffett increased Berkshire Hathaway Inc.'s bet against the U.S. dollar to $19 billion at the end of the first half of 2004, his holding company disclosed in a regulatory filing.

The value of the Omaha, Nebraska-based company's contracts in foreign currency had increased by $8 billion by June 30, the company said its quarterly filing with the U.S. Securities and Exchange Commission.

Buffett previously disclosed making investments in five foreign currencies in a belief the dollar will decline in the long run as a result of the United States' ballooning trade deficit. He has never specified which currencies he was investing in, only saying they were major…. –END-

Warren Buffet has become the second richest person in the world for very good reasons. Betting against him is a sure way to the poor house.

Bill:
The Fed added $4.75 Billion in repos to day August 9th 2004, an action that upped the repo pool a bit to $44.269 Billion and kept it quite high. The DOW is struggling at 9850 at this hour. The Fed continues to march along its pre-determined linear path upwards, seemingly uninterested in the DOW's troubles. It's almost as if the Fed is content, knowing a future event will turn things around for the DOW and perhaps for the election chances of the
President.

They HAVE been all over the bond rig, making sure the 30-year yield stays almost exactly on 5%.

Oil continues to track above $44/bbl at this hour and there's no relief from Venezuela. Indeed, if the administration thought they were going to install a puppet regime in Caracas by stirring things up, it seems to have backfired according to this story:

Why Hugo Chávez is heading for a stunning victory

Just wanted to pass on an observation regarding Newmont yesterday. When has it been on the most up list with the stock market down sharply. This contrasts starkly with the previous days as Newmont weakened with the market. My guess is that it should be proctored for its relative strength. A sharp move up above the $43 level and a weak market would be immensely positive. The Rydex PM Fund is a point only seen at major lows. The XAU and HUI look like 2002 revisited after the crash. If so, we should start to see very positive action in the golds.

Jay (Taylor), if that is the gist of what Jim Rogers wrote, it reeks with smugness and pride. As we know, "Pride goes before a fall, and a haughty spirit before destruction."

Take a look at the world markets after last week. It is pretty frightening. It looks like a panic coming up. Keep looking at NEM and the other major listed stocks for real divergence. If we don't bounce after the opening on Monday, we might be into it. Chuck

and then again this early afternoon:

So far the market has behaved as hoped. I assumed that the market would try to rally all day especially with the Fed meeting. It has a very heavy feel to you considering the drop of the past few days. Also, I liked to see the major article in Barrons on a bank positively comparing it to Citigroup.

And for gold, given the bounce in the dollar and the Pavlovian drop in the shares, it is also performing well, now over $400 even with some upward pressure in the buck. I would assume that the dark forces will try to close it under the round number and say "so there." But the next move might follow the Fed's rate decision. They are between the proverbial rock and a harder place at this point. I am assuming that any decision will have negative consequences upon the market, but I have said this before.

One day soon, the calm and confidence will give way to a scary volatility. I believe we are in transition here. Chuck

A potentially devastating development for US financial markets:

WASHINGTON Aug 8 : Voracious purchases of US Treasury bills by Asian central banks are coming under scrutiny ahead of presidential elections amid concerns over national security and a ballooning current account deficit.

Led by Japan and China, Asian economies have been gobbling up US dollar based assets, particularly US Treasuries running into hundreds of billions of dollars, over the last two years.

By investing in US securities, the Asian economies stash away proceeds from selling their own currencies in an attempt to prevent them from rising against the dollar and so making their exports cheaper and more appealing to American consumers.

Some say that while the massive Asian holdings may keep US interest rates low and help bankroll America's debts, they are propping up the US record 541.8 billion dollar current account deficit -- the balance of goods and services between US and the rest of the world.

Others fear that such immense US wealth in foreign hands could boomerang if, for example, the assets are unloaded abruptly in a deliberate attempt to destroy the American economy.

Lawrence Summers, Harvard University President and US Treasury Secretary under ex-President Bill Clinton, likened the Asian purchases to hoarding of gold by European states centuries ago.

"Much has been made of US dependence on foreign energy, but the country's dependence on foreign cash is even more distressing," Summers said in the latest issue of the US magazine, Foreign Policy.

"In a real sense, the countries that hold US currency and securities in their banks also hold US prosperity in their hands," he said. "That prospect should make Americans uncomfortable."

Foreigners already hold almost 40 percent of marketable US Treasury debt. The Asian central banks have increased their holdings of US assets to about one trillion dollars, according to market estimates….
- AFP

Meanwhile Summers, one of the major proponents of the gold price suppression scheme and the US strong dollar policy, is going to have to crawl into a hole one day when it is exposed how he was instrumental in cultivating what is ahead. He and Robert Rubin will go down as some of the baddest financial market characters in the history of our once great nation.

With Iraq completely falling apart, it was hard to pass this one up too:

In his memoirs, "A World Transformed," written five years ago, George Bush Sr. wrote the following to explain why he didn't go after Saddam Hussein at the end of the Gulf War.

"Trying to eliminate Saddam...would have incurred incalculable human and political costs. Apprehending him was probably impossible.... We would have been forced to occupy Baghdad and, in effect, rule Iraq.... There was no viable "exit strategy" we could see, violating another of our principles. Furthermore, we had been consciously trying to set a pattern for handling aggression in the post-Cold War world. Going in and occupying Iraq, thus unilaterally exceeding the United Nations' mandate, would have destroyed the precedent of international response to aggression that we hoped to establish. Had we gone the invasion route, the United States could conceivably still be an occupying power in a bitterly hostile land."

If only his son could read!!!!!

***

*400 Iraqi dead yesterday. How many friends and family members will this affect?
*More US soldiers dead in June and July this year than last year with this August running ahead of this past July.
*An arrest warrant out for Ahmed Chalabi, the man who sat next to Mrs. Bush at The State of The Union address in January and who the neo-cons in the Bush Administration relied on to give them intelligence on Iraq before the war.
*Oil exports were shut down.

Some thoughts from a Swiss Café member on Sunday:

Bill
The surge of the oil price over 40 us$ recently appears to be one of the key factors in a chain of reactions leading to a weakening US economy, and the significant drop in the DJIA and the $ on Friday, with the corresponding surge in the POG to 399 $/oz.

The Fed may be able to manipulate many things, but oil may not be one of them, (currently at any rate).

In this respect another key event is looming in this critical month of August, the Venezuelan vote on August 15th.Latest indications are Chavez may win. Chavez's popularity has gained recently as he has pumped increasing oil revenue(from the rising oil price) into social programs into the economy.

Chavez Likely to Win August Recall-Venezuela Poll

If Chavez wins, the threat of a potential oil embargo against the US will hang over the markets, if Chavez perceives the US moving against him. If he loses, there is a heightened risk of unrest and oil production disruptions.

Facit: "Cave Ides Augustus" Beware the ides of August, and talking of soothsayers, it would be interesting to hear Mahendras latest thoughts on the oil price situation? August 15th I will be on Chavez / oil watch.

All JMHO and definitely not investment advice.
Best
Alan

Bill
This article gives more specific background to my commentary on Venezuela of 06.08.04, in particular this extract:

***

One precious metals company after another is reporting disappointing earnings. Relative to companies in other financial market sectors, these disappointments rank our sector near the bottom as far as under achieving for the last quarter is concerned. Costs keep going up, while the prices of gold and silver are capped. The CEOs of these companies should be screaming bloody murder about what The Gold Cartel is doing to their firms. What a bunch of powder puffs as a group! Shareholders ought to be irate about their bewildering silence. The outrage from my perspective continues on all counts. Here’s another example of disappointment in this inept and dysfunctional industry: