Have a Good, Long Weekend

Have a good weekend!

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News You Can Use for Friday

Oil Rises, Heads for Biggest Weekly Gain in Two Months as Storm Shuts Rigs Crude oil headed for its biggest weekly gain in almost two months and natural gas rose as producers evacuated rigs before the arrival of Gustav, forecast to be the largest hurricane in the Gulf of Mexico since Katrina.

U.S. Reviews Its Ties With Russia

The Bush administration, escalating its response to Russia's actions in Georgia, has placed under review talks with Moscow focused on missile defense and nuclear-weapons disarmament, according to U.S. officials. A delay would cast uncertainty over the Strategic Arms Reduction Treaty, or Start, a successor to Cold War era arms-reduction agreements that expires at the end of 2009. The treaty restricts the number of long-range nuclear weapons each side is allowed to have

XX Is this new cold war worrying you? Because it’s scaring the crap out of me.

Obama Pledges to Restore `America's Promise,' Says McCain `Doesn't Get It' Barack Obama accepted the Democratic nomination for president, mixing a soaring pledge to preserve the ``American promise'' with a sharp attack on John McCain's judgment on the war, the economy and support of George W. Bush.

XX It was a great speech. Even Pat Buchanan loved it. The Associated Press, however, not so much. And they got called on it. OUCH!

Paladin Energy Forecasts Doubling of Uranium Output This Year

Production should rise to 3.6 million pounds of uranium oxide in the year ending June 30, 2009, from 1.71 million in the preceding 12 months, Managing Director John Borshoff said on a conference call. Output should increase to 6.8 million pounds the following year, to 7.4 million in 2010-11 and 9.3 million in 2011-12, he said.

XX Sean’s note – we’ll see. Paladin has disappointed us before.

India Economic Growth Slowed to 7.9% Last Quarter; Weakest Pace Since 2004 India's economy grew at the slowest pace since 2004 last quarter as the fastest inflation in a decade and increased borrowing costs damped consumer spending.

Bank of China flees Fannie-Freddie

ank of China has cut its portfolio of securities issued or guaranteed by troubled US mortgage financiers Fannie Mae and Freddie Mac by a quarter since the end of June. The sale by China’s fourth largest commercial bank, which reduced its holdings of so-called agency debt by $4.6bn is a sign of nervousness among foreign buyers of Fannie and Freddie’s bonds and guaranteed securities.

The Energy Challenge: Wind Energy Bumps Into Power Grid’s Limits

The dirty secret of clean energy is that while generating it is getting easier, moving it to market is not. The grid today, according to experts, is a system conceived 100 years ago to let utilities prop each other up, reducing blackouts and sharing power in small regions. It resembles a network of streets, avenues and country roads.

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Uh-Oh ... From Russia, With Anger

Gee, who woulda thought that if you continually poke a bear with a stick, he gets ticked off ...

Russia May Cut Off Oil Flow to the West
Reports have begun to circulate in Moscow that Russian oil companies are under orders from the Kremlin to prepare for a supply cut to Germany and Poland through the Druzhba (Friendship) pipeline. It is believed that executives from lead-producer LUKoil have been put on weekend alert.

And while some may say that the Bear deserved poking, the Russians probably need our money less than we need their oil and gas.

By the way, on the subject of how and why John McCain's top advisers seem to be cranking up the rhetoric with Russia, Iran, etc. -- they sure do seem to have a deep and burning desire for conflict. Conflicts aren't cheap, especially when you pick fights with major energy suppliers. Just sayin'.

Ah well, on the bright side, the report about Russia cutting off energy supplies was in a British paper. They tend to be more excitable than most. It may be nothing but wind (here's hoping for the best).

XX UPDATE: Turns out things did work out for the best: Russia says will ensure oil to flow to Europe

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Bearish news on energy

Oil prices are cratering today; I guess investors think the bad news is factored in. I kind of expected this investor reaction, which is why I got my RCE subs out of DIG on Monday, and I'm glad I did.

And it's not just oil. Bearish news (short-term, anyway) on natural gas continues to roll in. From Bloomberg …

Inventories advanced 102 billion cubic feet in the week ended Aug. 22, to 2.757 trillion cubic feet, the U.S. Energy Department said today. Analysts forecast an increase of 84 billion. The average change for this time of year is 57 billion cubic feet.

Stockpiles are 71 billion cubic feet above the five-year average for this time of year, the department said today.

Meanwhile, if US oil production is knocked out in the Gulf of Mexico, we’ll get help from overseas …

The International Energy Agency IEA is ready to release strategic oil stocks if Tropical Storm Gustav hits the Gulf of Mexico oil hub early next week, the energy adviser to 27 rich nations said on Thursday.

In other news, Weather Underground has the scoop on Gustav and its progress. But here in Florida, we are starting to turn nervous eyes on Tropical Storm Hanna, which has, as Mike Larson informed me, taken an “Andrew-esque” path.

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Iraq Seals the Deal with China ... Bad News for US Oil Giants

Here is an interesting bit of news ...

China Seals $3 Billion Oil Deal With Iraq

Why is that interesting? Because of this story ...

Iraq May Abandon Contracts With Other Foreign Companies

The Iraqi government is likely to abandon plans to sign short-term contracts with foreign oil companies, negotiations over which have been halting, a senior U.S. diplomat in Baghdad said on Sunday.

So, in other words, now that Iraq has an oil deal with China, it no longer needs the lop-sided deals it signed with the US and European oil majors.

Tell me, why did we invade Iraq again? Looks like the oil angle may not be working out.

Check out my new gold and energy blog at MoneyAndMarkets.com

Either the Global Economy Is Heading Into Recession or Commodities Are About to Surge

That's my take-away from what I've been reading around the web recently -- a real conflict of opinion. You know my opinion -- I believe we are in a long-term commodity supercycle. But let me show you the stories I've found and you can decide for yourselves.

First, I mentioned a couple days ago that Pakistan – a nuclear-armed power with a strong Taliban insurgency – seems to be melting down. They’ve gone from tragedy to comedy …

Pakistan Sets Floor on Stock Prices to Stop Plunge

Pakistan set a floor for stock prices on the benchmark exchange, moving to halt a plunge that has wiped out $36.9 billion of market value since April.
Securities can trade within their daily limit of 5 percent ``but not below the floor-price level'' of yesterday's close.

Yes! That’s what I’ve always wanted – a stock market that can only go up. Don’t tell Bush about this solution or we may see it enacted on Wall Street.

In other news, Bloomberg really knows how to bury the lead in this next story. Check out what I’ve highlighted …

Financial Crisis Is Absent From Agendas of Parties, Candidates

The U.S. is facing the worst financial crisis since the Depression. You would never know that from the Democrats' platform in Denver or its Republican counterpart, or from listening to Barack Obama or John McCain.

XX Sean’ note – Splutter! Excuse me while I a do a spit-take, Bloomberg, but did you say the U.S. is facing the worst financial crisis since the Great Depression? For Pete’s sake, don’t tell Larry Kudlow, at least when he’s walking by an open window.

The rest of that Bloomberg story is heavy on politics and light on economics. Seriously, I want a Bloomberg story detailing why they agree (with the folks at Weiss Research, who have been saying it for months) that the US is facing the worst crisis since the Depression.

South and South-East Asia in the Midst of a Global Recession

Trade and financial linkages with the G-7 countries mean that Asia is unlikely to remain unscathed. Asian economies dependent on exports to the US and Europe and having large current account surpluses (China, Taiwan, Hong Kong, Singapore and others) will suffer from the G-7 recession.

XX Sean's note -- unless, of course, the G-7 doesn't slide into recession. I only mention that because America's Q2 growth was revised much higher to 3.3%.

Riders on the Storm …

"Corn and soybeans have rebounded as reduced crop yields push U.S. stockpiles to near five-year lows. Oil has reversed on U.S.-Russian tensions. Nickel has turned after Xstrata Plc closed a Dominican Republic plant.

The worst rout in the history of commodities may be ending, signaling a replay of the 2006 tumble that preceded a doubling of prices in the next 17 months as measured by the Standard & Poor's GSCI index. Only this time, the driver is supply cuts rather than increasing demand. Supply constraints are "coming more and more to the fore'' and that "will separate the performance of individual commodities," said Alan Heap, global commodity analyst at Citigroup Inc. in Sydney. "We're still looking for higher prices next year and in some cases the year after."

XX Sean’s note – the same piece quotes a contrary view …

"The whole cycle that began around the turn of this century ended," said Michael Aronstein, chief investment strategist at Oscar Gruss & Son Inc. in New York, who returned 15 percent a year in the 1990s managing commodity investments. "Human ingenuity creates productivity, and the real price of almost everything that's extracted or manufactured goes down over time. That's the nature of human progress."

Lead Climbs to Three-Week High on Speculation of Rebound in China Demand Lead rose to the highest in three weeks in London on speculation demand improved in China, the world's largest consumer and producer of the metal.

Crude Oil Rises a Fourth Day as Tropical Storm May Threaten Gulf Platforms Crude oil and natural gas rose as Royal Dutch Shell Plc, BP Plc and ConocoPhillips evacuated drilling rigs before the arrival of Gustav, forecast to become the worst Gulf of Mexico hurricane since Katrina.

Australia's Mining Boom Drives Faster-Than-Forecast Business Investment Australian business investment rose more than twice as much as economists forecast in the second quarter as mining companies spent extra on machinery and equipment to meet demand from China.

Check out my new gold and energy blog at MoneyAndMarkets.com

The Gustav Menace, and Other Stories

I exited a bullish oil position in Red-Hot Commodity ETFs yesterday because of oil’s lackluster response to Hurricane Gustav. It turns out some traders with long ears may have already heard about the bearish product demand that came out after the market closed yesterday. In short, oil product demand dropped 5.6% in June, more than expected. With that news out of the way, oil is up again, but not as much as you might think with a hurricane seeming to take aim at Louisiana.

If you’ve been reading my stuff, you know that I keep saying “Drill-Drill-Drill” isn’t a real answer, because we don’t have enough drill rigs and we don’t have enough crews for those rigs. Now, it turns out the shortage of trained rig workers is even more acute than first thought.

Meanwhile, here’s a story I find interesting …

The winds of change in our energy consumption could still be light years away. Wind accounts for less than 1 per cent of the energy produced in Canada (Ontario is the wind-farm leader). The Canadian Wind Energy Association believes it can be 5 per cent by 2010.

The European Wind Energy Association is predicting that 28 percent of the European Union's electrical consumption will be supplied by wind turbines by 2030; currently, it's about 3 percent. In the U.S., they're talking about a target of 20 percent in 20 years. Now, it's less than 1 percent.

XX Sean’s note -- this sounds daunting, but on the other hand, MIT says we could cut our gasoline/diesel use in half by 2035 by transitioning as quickly as possible to lightweight and plug-in hybrid vehicles.

Another story I'm watching ...

Medvedev: We’re ‘not afraid’ of a new Cold War
XX Sean’s note: Not that anyone’s asking, but I’m not in favor of provoking the Russian bear. We have a weak hand right now because our assets are tied up in that Godforsaken hell-hole called Iraq. The Russians have a strong hand, they know it, and they’re not afraid to play it (as Georgia found out).

In Other News …

Durable-Goods Orders in U.S. Unexpectedly Climbed 1.3% in July on Exports Orders for U.S. durable goods unexpectedly increased in July, indicating growing demand from abroad is still helping companies weather a slump in consumer spending.

Corn, Soybeans, Wheat Advance as Dollar Weakens Against Euro, Crude Gains Corn and soybeans rallied as a drop in the dollar boosted the appeal of U.S. supplies for overseas importers and rising energy costs increased demand prospects for biofuel. Wheat gained for the first time in four days.

Gold Advances in London on Investor Demand for Safe Haven, Falling Dollar Gold rose in London on demand for precious metals as a haven from housing-related financial losses and an alternative investment to the declining dollar.

XX Sean’s note – you mean investors FINALLY noticed that there are severe housing-related financial losses and that that might be a reason to buy gold? Why the heck didn’t that happen LAST month? My timing on this stuff leaves much to be desired.

Check out my new gold and energy blog at MoneyAndMarkets.com

Gasoline Demand Dropped in June

Gasoline demand dropped in June. You're probably thinking: "whoop-de-duh!", because of course demand went down as prices went up, and prices didn't peak until July. But the latest data we have from the EIA is June, and that's what came out today, after the market closed today. The drop was quite large.

From Marketwatch ...

A monthly report issued by the EIA on Tuesday said total crude oil and products supplied, which is a good indication of domestic consumption, was at around 19.553 million barrels per day in June of this year. That was down from 20.737 million barrels per day a year earlier.

and from Dow Jones Newswires ...

Amid record high prices, U.S. oil demand in June was 1.17 million barrels a day, or 5.6%, lower than a year ago, at 19.553 million barrels a day - the lowest level for the month since 1998 - revised government figures released Tuesday show.

The revised June figure shows the weakest demand for any month since May 2003, data from the Energy Information Administration show. The decline in June demand for oil is the steepest in any month since a 7.2% fall in February, when demand fell 1.527 million barrels a day.

I'm guessing news of this EIA data leaked out, which explains why oil prices didn't blast off today as Gustav took aim at the Gulf of Mexico.

I'm also guessing that we'll see usage drop again next month -- because that's when we'll get July's numbers. The more interesting thing to find out is what is happening now. Are people starting to drive more again as prices at the pump fall? Gas prices are down an average 42 cents a gallon since peaking in mid-July.

Check out my new gold and energy blog at MoneyAndMarkets.com

News You Can Use for Tuesday

Waiting for Gustav

Hurricane Gustav grew stronger as it moved on a path projected to take it over Haiti on Tuesday and just south of Cuba on Wednesday, according to the National Hurricane Center.
Forecasters say they believe Gustav will strengthen into a "major hurricane" and move into the central Gulf of Mexico by Sunday, but there is little certainty about where it might go from there.

CRUDE OIL

Oil Companies Win $1 Billion Reimbursement Over Drilling Leases
Devon Energy Corp. and Anadarko Petroleum Corp. were among a dozen oil companies that should be reimbursed more than $1 billion they paid the U.S. for leases to drill off the California coast, an appeals court ruled today.

XX Sean’s note – Anadarko was recommended in my Running on Fumes energy report and Devon was recommended in my Energy Panic of 2008 report. So, if you have those reports, this is a heads-up. Also, a heads-up on Petrobras.

OPEC likely to keep output steady in Sept.
OPEC is likely to keep oil output policy unchanged at its meeting in September as prices remain high despite a sharp fall from July's peak, an OPEC source said on Monday.
U.S. demand fell 800,000 barrels per day (bpd) on the year in the first half of 2008, the steepest fall in 26 years. But in the long-term, fundamentals looked tight, the OPEC source said.

Foreign oil producers have U.S. over barrel
AGRICULTURE

The Grain Markets Are Getting Ready to Rip
Corn just flat isn’t going to make it. “It’ll run headlong into problems with frost. In addition, though, it’s dry not only in the eastern Corn Belt, but the entire Corn Belt. As a result, corn prices will continue to go up. The harvest lows are already over—and we haven’t even gotten to harvest yet!” Woolverton says.

XX Sean’s note: And yet …

Wheat Futures Decline on Dollar Gain, Production Outlook; Soybeans Tumble Wheat declined for a third day as the dollar strengthened, making U.S. grain less attractive to buyers overseas, and on speculation favorable weather in major producing countries will help increase harvests. Soybeans dropped.

WIND POWER

US becomes top producer of wind power
The U.S. wind industry now tops Germany in terms of how much energy is being produced from wind, the American Wind Energy Association (AWEA) said.

Germany still has more installed capacity -- 22,000 megawatts vs. 17,000 in the United States at the end of 2007. But the average wind speed is stronger in the United States, which means more energy is being generated, the group said. This year, Germany will add only about 1,600 megawatts of wind energy, while the United States will add more than 6,000 megawatts, said Randy Swisher, executive director of the association.

Wind, solar projects race to finish before tax credit expires
A congressional stand-off that has blocked extension of federal tax credits for renewable energy projects is setting off a boom in the wind and solar industries. Developers and customers are racing to install systems by year's end to qualify for the credits, which can cut the cost of a large commercial system by 30%.

US DOLLAR

Dollar's `Unprecedented' Gain Has Further to Go, Lehman Says The dollar's rally over the past month is ``close to unprecedented'' in the 35 years since the currency was decoupled from gold and will have room to rise on bets the European Central Bank will begin cutting borrowing costs, according to Lehman Brothers Holdings Inc.

URANIUM

Paladin Energy Says That It Is Set to Expand Uranium Production in Africa Paladin Energy Ltd., the Australian producer of uranium in Africa, said an expansion of its mine in Namibia is due for completion at the end of the year, while a project in Malawi will start operating in January.

MINING

Rio Tinto Earnings Double as Iron-Ore Miner Fights $142 Billion BHP Offer Rio Tinto Group, fighting a $142 billion hostile offer from BHP Billiton Ltd., posted first-half profit that beat analyst estimates on increased aluminum sales and record iron ore prices.

GOLD

U.S. Mint resumes gold coin orders on limited basis
The Mint said that it will equally divide its Eagles inventory available for sale each week into two equal pools, with the first allocated equally among all authorized dealers, and the second pool distributed according to the dealers' past sales performance

Check out my new gold and energy blog at MoneyAndMarkets.com

New Interview on HoweStreet.com ... Waiting for Gustav

Phil and talk about many things. And while we were talking the new storm in the tropics got its name ... Gustav. I suppose Gustav will be knocking on my door sometime next week.

Anyway, if you want to listen to me and Phil ramble on, click here ...

http://www.howestreet.com/index.php?pl=/goldradio/index.php/mediaplayer/939

Check out my new gold and energy blog at MoneyAndMarkets.com

Monday Charts on Gold, Oil & The Dollar -- and Plenty of News You Can Use

Analysts said this week -- with some U.S. markets closing early on Friday for the Labor Day holiday -- would likely be characterized by volatile prices and low trading volumes.
http://biz.yahoo.com/ap/080825/oil_prices.html

News of Interest

ECONOMY

U.S. and Global Economies Slipping in Unison

Only a few months ago, some economists still offered hope that robust expansion could continue in much of the world even as the United States slowed. Foreign investment was expected to keep replenishing American banks still bleeding from their disastrous bets on real estate and to provide money for companies looking to expand. Overseas demand for American goods and services was supposed to continue compensating for waning demand in the States. Now, high energy prices, financial systems crippled by fear, and the decline of trading partners have combined to choke growth in many major economies. The International Monetary Fund expects global growth to slow significantly through the end of this year, dipping to 4.1 percent from 5 percent in 2007.

How to stop the next bubble

"The financial crisis has shown that markets are bubble-prone and that laissez-faire regulation doesn’t work. The authorities need to get a grip if we are to avoid a mega-bubble. But we may need an even deeper crisis for that to happen."

BANKS

Columbian Bank and Trust Company, of Topeka, Kansas, is the latest bank to fail. Can things get worse? Heck, yeah! Check out the following chart from Calculated Risk …

From Calculated Risk: even with the failure of almost 3,000 banks and thrifts during the S&L crisis, the overall economy stayed fairly healthy with only a mild-to-moderate recession starting in July 1990.

Libor Signals Credit Seizing Up as Banks Balk at Lending in Money Markets Most of the bond strategists and salesmen that Resolution Investment Management Ltd.'s Stuart Thomson talked to last August expected the credit crunch to be long over by now. Instead, money markets show there's no end in sight, and it may even worsen.

CURRENCIES

Organized Crime Groups Dump Weak US Dollar For Euro

The weakened US dollar has fallen out of favor with organized crime groups to pay for drug shipments or to settle scores, a Canadian government report said Friday.

PAKISTAN -- THE NEXT CRISIS?

Pakistani Government On Brink Of Collapse

Pakistan's ruling coalition was at risk of collapsing Monday if its junior partner carries out a threat to quit unless judges ousted by ex-President Pervez Musharraf are restored immediately.

Taleban winning war (in Pakistan), says Zardari

The Pakistani Taleban have "the upper hand" and should be put on the list of banned organisations in Pakistan, Benazir Bhutto's widower has said.

CHINA

Olympics disappoint China business owners

Many owners of small restaurants, hotels and shops in Beijing are wearing long faces this summer, especially those who poured their life savings into buying businesses or sprucing up their shops ahead of the Games. About half a million foreign visitors were expected in Beijing this month. But many businesspeople think that because of stricter visa rules and other hassles, there are no more here now than there were last August, when 420,000 visitors from abroad came to the capital. In July, Air China, the nation's flagship carrier, saw its international passenger traffic fall by 19% from a year earlier.

China's Economic Gains Give Way to Hazy Future

In the next few years, China will cross the threshold to a majority-urban society. China's urbanization rate is about 40% to 45% now, well below levels of about 75% in most of Western Europe and Latin America, but statistics show that growth in China's urban population is already slowing.

China's 1.3 billion people each consumed the equivalent of 1.4 tons of oil in energy last year, a relatively low figure. If each Chinese was to consume the same amount of energy as each person in the U.S. does -- the equivalent of 7.82 tons of oil -- then China alone would consume nearly as much energy as the entire world does now.

So far, China's government is falling behind in its drive to cut the amount of energy required to produce each yuan of economic output. It managed a reduction of just 2.9% in the first half, less than last year's 3.7%

MINING & RESOURCES

Mining Industry Shifts on Bad News

Weaker commodity prices and higher costs are starting to take a toll on the global mining industry as the billions of dollars being spent on new projects could take years to recoup.

…

Demand for resources by China and other emerging markets still is expected to soar in the years ahead.

Some analysts view the recent mine closures as bullish for commodity prices in the long run, because the moves suggest companies are imposing more financial discipline than in past booms. As miners curb output, it could help prop up prices.

Still, the economics of mining have shifted drastically in recent years. The cost of energy to run mining trucks and other equipment has skyrocketed, while steel and other building materials also are more expensive.

Commodities Hint of Bottom as Mines Close, Crop Supplies at Five-Year Lows Corn and soybeans have rebounded as reduced crop yields push U.S. stockpiles to near five-year lows. Oil has reversed on U.S.-Russian tensions. Nickel has turned after Xstrata Plc closed a Dominican Republic plant.

Corn, Soybeans Jump as Midwest Crop Tour Forecasts Smaller U.S. Harvests Corn and soybeans gained after Professional Farmers of America said harvests in the U.S. will be smaller than forecast by the government as dry weather in August hurt Midwest crops already stunted by flooding in June.

Check out my new gold and energy blog at MoneyAndMarkets.com

Happy Friday -- I.O.U.S.A

It’s the weekend. You should go see the movie “I.O.U.S.A.” Some very smart people I know at Agora are deeply involved in the making of this movie. Here’s Roger Ebert’s review.

In Other News ...

China’s Oil Thirst Hits New High

China's oil demand growth hit a two-year high in July but the pre-Olympic spurt will likely fall off in the autumn, undermined by high prices, global economic woes and the end of official pressure to stockpile for the games.

XX Sean’s note – funny, but I’d think that after the Olympics (or at least, after the Para-lympics), China’s oil demand will ramp up again. We’ll have to see.

China Warns on Winter Energy Supply

China warned on Thursday that its energy supply problems were likely to last into winter as it struggles to ensure stable sources of coal, oil and power, the People's Daily reported, citing a senior official.

Some markets are too illiquid to trade. Here is a cautionary tale about rhodium (with charts).

On the other hand, money is pouring into the SLV (silver ETF).

So much for a surplus of gold. You can’t buy American Gold Eagles now if you want to.

You know how things were going pretty well in Iraq lately because a bunch of Sunnis switched sides and became our friends (because we were paying them)? Well, now, the Shi’ite-led government of Iraq has decided to arrest and/or kill those Sunnis. It makes you wonder whose side the Iraqi government is on, anyway.

Want to know more about Obama’s economic plan? The New York Times breaks it down for you.

And here's some dance music to get your weekend off to a good start.

Happy weekend!

Check out my new gold and energy blog at MoneyAndMarkets.com

New Rule for Oil Companies

I'm suggesting a new rule for big oil companies. For every dollar they spend on lobbying politicians, they have to give a dollar toward a fund to be spent researching and developing alternative fuels. That would be $36.2 million so far this year alone.

Check out my new gold and energy blog at MoneyAndMarkets.com

CNN Radio Notes on Oil

I just talked to the always-excellent Bill Caiaccio on CNN Radio. I made some notes for the interview, but of course, once we got talking we went off where his questions led us.

Here are my notes ...

Geopolitical events are driving oil prices. Russia blocked the entrance to Georgia’s main oil port, and Russia is showing that it can control Europe’s natural gas supply. The neocons in Washington seem to be hoping for a new cold war with Russia, and they just might get it. Unfortunately, fear of such a cold war add to the price of oil.

Supply and demand is also in play.

Drawdown of gasoline stockpiles in US was more than twice expectations -- 6.3 million barrels. Demand destruction may have been short-term. Since prices have pulled back, people may be driving again.

Chinese demand dipped during the Olympics as they shut down factories and took cars off the road. It will probably increase again after the Olympics.

On the supply side, Mexico, Nigeria, Norway, Britain and Russia are all seeing production go down year over year. Nigeria’s shortfall is due to civil war, everyone else may be hitting production peaks.

Check out my new gold and energy blog at MoneyAndMarkets.com

Charts and News for Thursday

I am so glad I sent out an issue yesterday to Red-Hot Commodity ETFs subscribers telling them to buy the DGP (double-gold ETF) and DIG (Double oil index ETF). Oil is up more than $4 this morning before the open and gold is up $20 an ounce as I write this.

Does this mean we're out of the woods on commodities? Not by a long shot! However, this is a playable bounce. What will determine how high the bounce will go? Probably action in the US dollar. Let's look at a weekly chart of the dollar ...And now let's close up on that next support on a daily chart.
That test of support for the greenback will be very interesting.

Jurojinweekly.com has an interesting chart of the week ...The accompanying commentary ...

The run up in housing created perceived wealth for Americans similar to that driven by the technology boom in stocks in the late 1990s. Interestingly, when housing values stopped going up and started going down, people were still spending and investing-and the economy was rolling on the fumes. Stocks soared on the wealth-effect by 24% after the top in housing was put in during July of 2006 (as measured by the Case-Shiller Index).

The market has since, given it ALL back. This now places the value of the stock market at the same level as it was when the euphoric housing mania was at its peak. Hmmm!

Note: I am involved with The Secret Order of Jurojin, but it in no way is affiliated with Weiss Inc. Futures aren't for everybody, and odds are they aren't for you.

In other news ...

The Neo-Cons are getting the war they always wanted -- a renewed cold war with Russia. This has sent oil prices soaring this morning which, again, is exactly what the powers that be in Washington (I'm looking at you, ExxonMobil) have wanted, despite their "drill-drill-drill" mantra.

This ugly turn of geopolitical events prompted former Soviet Union President Mikhail Gorbachev to write the following op-ed in the New York Times ...

In recent days, Secretary of State Condoleezza Rice and President Bush have been promising to isolate Russia. Some American politicians have threatened to expel it from the Group of 8 industrialized nations, to abolish the NATO-Russia Council and to keep Russia out of the World Trade Organization.

These are empty threats. For some time now, Russians have been wondering: If our opinion counts for nothing in those institutions, do we really need them? Just to sit at the nicely set dinner table and listen to lectures?

Read Gorbachev's whole piece. He doesn't have a monopoly on the truth. But we have to know where the Russians are coming from if we want to reach a compromise everyone can live with.

China replaces the US as Japan's #1 customer.

Honda Motor Co. and Komatsu Ltd. are turning to China, the world's fastest-growing major economy, as the U.S. slowdown intensifies and rising fuel and food costs weaken demand at home. Higher oil prices caused the import bill to climb to a record last month, triggering an 87 percent drop in the trade surplus.

XX Sean's note -- "Decoupling" anyone? Oh wait, I can't use that word. It's been proven not to exist!

Goldman Sachs renews its call for $149 oil by the end of this year.

Check out my new gold and energy blog at MoneyAndMarkets.com

Gold in Them Thar Hills

My latest MoneyandMarkets.com column, "Gold in the Clouds," is up. It's about the Pikes Peak Gold Rush.

Flash forward to today, and there is some interesting news ...

The World Gold Council reported that demand for gold rose 7% to 736 metric tons in the second quarter, compared with the first quarter.

Meanwhile, the Comex division of the NewYork Merc reports that gold bullishness (measured by open interest, or number of contracts) is down sharply.

Does that sound maybe like people doing the wrong thing at the wrong time, as traders so often do?
Oh, and I also talked to Tom at HoweStreet.com. You can listen to the webcast here.

Check out my new gold and energy blog at MoneyAndMarkets.com

Commodities Glass Half Empty or Half Full?

The Wall Street Journal has a story today about the commodities pullback. They see it as a reason to stop worrying about inflation (not in so many words, but that's the gist of the story). I think it shows a set-up for the next move higher. History will show who's right. In the meantime, here's a great chart of the pullback in some leading commodities ...In other news from the Journal this morning ...

Global demand for grains is rising rapidly enough to sustain high prices. That kinda puts a crimp in their other argument about falling commodity prices, don't ya think?

Remember "Mr. Fusion" from the "Back to the Future" movies? Well, amateur "fusioneers" are working on building working nuclear fusion reactors in their garages and basements. Cue the Earth-shattering KA-BOOM! Just kidding on that last part.

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Crude Oil -- Supplies Will Fall Short of Demand

This story in the New York Times is getting some talk on the trading floor today. Here's a quote ...

In 1994, the top five oil companies spent 3 percent of their free cash on share buybacks and 15 percent on exploration. By 2007, they were spending 34 percent of their free cash on buybacks — in effect, propping up their share prices — and a mere 6 percent on exploration, according to figures compiled by a team led by Ms. Jaffe and Ronald Soligo of Rice University. As a result, some experts warn that supplies will fall short of the demand over the next decade, perhaps sending prices well above today’s levels.

Also of interest ...
Export Boom Helps Farms, but Not American Factories
All exports of goods and services in the first half of the year rose at a $52 billion annual rate, adjusted for inflation, up 7.1 percent. Commodities accounted for 41 percent of the increase and manufactured products contributed just 12 percent, the bureau reported.

And then there's the inflation number that everyone is talking about ...

Wholesale Prices Surge at Fastest Pace Since 1981
The Labor Department reported that wholesale prices shot up 1.2 percent in July, pushed higher by rising costs for energy, motor vehicles and other products. The increase was more than twice the 0.5 percent gain that economists expected.

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Tropical Storm Fay Is Dancing in My Driveway

Tropical Storm Fay is dancing in my driveway -- the rain is relentless and lightning is crackling around me so much the air is thick with ozone. But I shouldn't complain too much. I looked at a weather projection for Vero Beach -- a little to the North of us -- and those poor bastards are supposed to get 14 inches of rain today. Fourteen inches?! You better hope your second car is a boat, for Pete's sake.

Anyway, before I lose power, I wanted to post some charts of interest ...


Weather chatterers on the TV say there are tornadoes in Wellington, hail on Singer Island, and "if you're in the Acreage, get in your safe room now." Crap, crap, crap! This is only a tropical storm. What gives?

9,000 homes in Palm Beach County without power? Argh!

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Charts of the Dollar, Gold and More

The dollar is running the show, and its rally should weigh on commodities in the short term.

And now some news you can use ...

ENERGY

OPEC official says output cuts may be needed
An Iranian official in the Organization of Petroleum Exporting Countries said Saturday that the producers group is considering leaving oil production levels unchanged or perhaps even trimming them to shore up flagging prices and defend market share. "The market is oversupplied by at least 1 million barrels a day. If OPEC would like to remove this additional oil out of the market, then OPEC has to cut some production," OPEC governor Mohammad Ali Khatibi told Dow Jones in a telephone interview.

Crude Oil: Supply and Demand Prospects
Despite the high prevailing prices, demand in 2008 is expected to total 86.9 million barrels compared to 85.96 mb/d in 2007. For 2009, global oil demand is expected to reach 87.7 mb/d.

Did you hear that Alaska has more oil than the Middle East?

Busting the myths about cheap and unlimited oil being broadcast by Rush Limbaugh, Jerome Corsi and other ignoramuses.

Goldman Cuts U.S. Natural Gas Price Forecast 23% Citing Higher Production Goldman Sachs Group Inc. cut its U.S. natural gas price forecast for the Northern Hemisphere winter by 23 percent because of higher-than-expected output and lower demand from power plants.

ECONOMY

Bracing for Inflation
Growing evidence suggests American consumers, businesspeople, and political leaders should all be bracing for double-digit inflation, probably as early as 2009. The skyrocketing price of oil is obviously a central element in the accelerating price spiral. But a sea change in China's role is beginning to have a huge impact as well.

US Banks Scramble To Refinance Long-Term Debt
Battered US financial groups will have to refinance billions of dollars in maturing debt over the coming months, a move likely to push banks’ funding costs higher and curb their profitability, say bankers and analysts.

The banks’ need to raise capital to offset mounting credit-related losses is forcing them to pay higher interest rates to entice investors.

CHINA

China raises tax on big cars to curb pollution
But cars with an engine size of between 1 and 2.5 liters, which account for nearly 90 percent of the world's second-largest car market, will have their tax rate unchanged.

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TGIF -- Charts and News

Man, this has been such a wild week, Friday couldn't come soon enough. Let's look at some charts, starting with one we've been following all week -- the US dollar.

The US dollar has definitely broken above that weekly downtrend. A pullback and test of that support wouldn't surprise me. This breakout opens the door for a rally in the dollar to the 80+ level.

And naturally, the rally in the greenback is kicking gold lower ... Gold could make a stand here. But the bullishness in the dollar tends to tell me that gold will go down to test that weekly uptrend I've marked as (2).

Now, let's look at the CRB Index, a broad commodity index (though it is weighted heavily toward energy) ... It is testing support as well. So, maybe this will bring a rally early next week. I think I've pointed out why that rally could fade quickly.

And sure, energy could lead the rally. But pay attention to agriculture -- that's where I'm seeing some real bullishness right now. IN OTHER NEWS ...

URANIUM

Cameco Cuts Production Target by 1 Million Pounds
Cameco said its share of uranium production for 2008 is now projected to total about 19.6 million pounds of U3O8, down from the previous forecast of 20.6 million pounds of the fuel used to power nuclear generating plants.

XX Sean’s note – good thing Cameco got that sweetheart, hush-hush deal to resell 550 tonnes of Iraqi uranium, or it might have to cut its production target even more, eh? Now, how’s your money bet on Cameco cutting its production target again? Do you feel lucky?

Uranium One Reduces Production Targets Of Dominion Mine
The company said that it expected to produce 320,000 lb of uranium from Dominion this year, compared with a previous forecast of 590,000 lb.

XX Sean’s note – A slew of companies have cut production targets. Keep an eye on the spot market over the next couple weeks and let’s see if utilities are getting nervous.

Raids Suggest Russia Targeted Energy Pipelines
A neat row of large craters in a field in southern Georgia strongly suggests that Russia dropped bombs near oil and gas pipelines bringing fuel to the West.

XX Sean’s note – this story is in the Wall Street Journal, which hands its political reporting over to crackpots and wingnuts, so take it with a grain of salt. Also, while Russia won the war on the ground, Georgia has won the information war hands-down. On the other hand, would you put it past the Russians to bomb Georgian pipelines? I sure wouldn’t – I think Russia is trying to build a new Empire of Energy. The only question in my mind is, if this is true, why didn’t Russia follow through?

US Economy

U.S. Industrial Production Unexpectedly Gains 0.2%, Led by Cars, Metals Industrial production in the U.S. unexpectedly rose in July, helped by gains in automobiles, metals and machinery.

CHINA

China's Factory, Property Spending Growth Quickens on Disaster Rebuilding China's factory and property spending growth accelerated, fueled by rebuilding after the Sichuan earthquake in May and snowstorms in January and February.

COMMODITIES

Silver, Oil, Wheat, Copper Plunge as Dollar's Rebound Saps Commodity Boom Gold plunged below $800 an ounce, platinum posted the biggest drop in almost seven years and oil, corn and copper slumped as the dollar's rebound reduced the appeal of commodities after a six-year boom.

OPEC Leaves 2009 Oil Demand Growth Estimate at Lowest Rate in Seven Years The Organization of Petroleum Exporting Countries, the supplier of more than 40 percent of the world's oil, left its forecast for 2009 oil demand growth unchanged at the lowest rate in seven years and warned that consumption may fall further.

OPEC's 2008 Oil Revenue to Exceed U.S. Income Tax Receipts: Chart of Day OPEC is pulling in more money from oil sales than the U.S. government is raising from individual taxpayers.

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Chart for the Day ... Oil Exports Still Trending Down

Chart for the day ...How do you like that trend?

In other news ...

Astounding! Joe Kernan is sucking up to Erik Prince of Blackwater on CNBC this morning. Maybe next, Joe will interview Satan and lead off by saying: “Why are those holier-than-thou types so hard on you? You’re just doing your job.”

Oh, now Michelle Caruso-Cabrera is joining the party. Hey, there’s a woman who’s comfortable with the dark side. She’s perfect to interview the head of the world’s largest, most corrupt and bloodthirsty mercenary outfit.

I can’t wait to see who's next!

U.S. Consumer Prices Rise Twice as Much as Estimated on Energy, Food Costs
The consumer price index climbed 0.8 percent, twice as much as anticipated, the Labor Department said today in Washington. The cost of living was up 5.6 percent in the year ended in July, the biggest jump in 17 years. So-called core prices, which exclude food and energy, also rose more than projected -- 0.3%.

XX Sean's note: Consensus estimates were for a rise of 0.4% in the consumer price index. Core prices were expected to climb 0.2%. Guess not. The dollar is down on the news, but still pretty strong, all things considered. Just how bad do investors expect the news to be elsewhere in the world?

US Foreclosure Filings Surge 55 Percent
Nationwide, more than 272,000 homes received at least one foreclosure-related notice in July, up 55 percent from about 175,000 in the same month last year and up 8 percent from June, RealtyTrac Inc. said. That means one in every 464 U.S. households received a foreclosure filing last month.

RealtyTrac noted that it had more than 750,000 foreclosed homes in its database of properties for sale, equal to about 17 percent of the 4.5 million U.S. homes that were up for sale in June.

EU: Euro Economy Shrinks in Second Quarter
Growth in the 15 economies that share the euro currency contracted by 0.2 percent from the first quarter, expanding just 1.5 percent from the same period a year ago, the EU statistical agency Eurostat said.

How moon rocks could power the future
The moon is once again a popular destination, as several space-faring nations are talking about setting up bases there. One reason would be to mine fuel for future fusion reactors.

The fuel in this case is helium-3, a lighter isotope of the helium used in balloons. In high energy collisions, helium-3 fuses with other nuclei to release more energy and less waste than the reactions in traditional nuclear reactors.

Signs of the Times. Just click through ... you'll see.

Thought for the day:

If we stopped driving our cars tomorrow, America would still need five million barrels of oil a day. Rubber, Plastic, Nylon, Aerosols, Resins, Solvents, and Lubricants--none can exist without oil. -- The History Channel

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