S&P Update and Bearish News on Commodities; SLV Chart

Well, the S&P 500 did not quite go high enough to give us an outside reversal day. Last week's high was 985.44. This week's high was 948.38.However, some people will say these lines are drawn in crayon, not with razors. So, make your own decision.

In other news, lots of bearish stuff on commodities ...

Vale Will Cut Output as Credit Crunch Crimps World Iron-Ore, Metals Demand Cia. Vale do Rio Doce, the world's biggest iron-ore producer and second-largest nickel supplier, will lower output because the global credit crisis curbed metal demand.

Gold Futures Tumble 18% in October, Most in 28 Years, as Dollar Rebounds Gold futures fell, posting the biggest monthly decline in 28 years, as the dollar climbed, reducing the appeal of the precious metal as an alternative investment. Silver also fell.

Wheat Heads for Biggest Monthly Decline in 22 Years on Dollar's Strength Wheat fell for a second day as a worsening economic crisis and a rallying dollar erode global demand for supplies from the U.S., the world's biggest exporter of the grain.

Commodities Head for Worst Month in 52 Years as Economies Slow Worldwide Commodities headed for their worst month since at least 1956 on concern that a slump in global economic growth will sap demand for raw materials.

And 1 piece of of bullish news on oil ...

Crude Oil Rises as Colder Weather Increases U.S. Demand for Heating Fuels Crude oil rose, following heating fuels higher, on forecasts for lower temperatures in the Midwest next week.

And resource company news continues to be pretty good ...

Goldcorp Profit Rises Fourfold After Output Increases, Bullion Price Gains Goldcorp Inc., the world's second- largest gold producer by market value, said third-quarter profit rose fourfold because of higher bullion prices and a foreign- exchange gain.

Chevron profit doubles to $8 billion Chevron Corp. said Friday its third-quarter profit more than doubled to nearly $8 billion, built on the summer's record run of triple-digit crude oil prices. At the same time, the subsequent slump in the global economy and sharp drop in energy prices have prompted the nation's second-biggest oil company to rethink how quickly it should spend its third-quarter winnings.

Finally, let's look at the SLV.

The SLV (Silver ETF) continues to consoliate Wednesday's rally and remains above the 10-day moving average (the blue line). Momentum indicators are turning bullish hinting that sideways to higher prices are possible near-term. Upside targets are 10.24 and then 12.50.

Have a good weekend.

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

What to Watch on Friday Afternoon

The S&P 500 is very close to giving a weekly 'buy' signal.We are very close to an "outside reversal" candlestick on a weekly chart of the S&P 500. It just has to go 5 points higher than it has already. If it does -- and the S&P 500 ends the day positively -- that would be a "buy" signal.

The weekly RSI is already giving a buy signal.

Why is the S&P 500 so positive-looking, especially with earnings generally bad? I don't know -- you can throw the chicken bones on that one.

To be sure, the market can change wildly in the last half an hour of trading. So don't jump the gun.

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

Dollar Chart and Global Economic Drama

Here's the chart you need to watch -- currencies are driving everything. Is the US dollar going to correct lower? It hasn't broken its recent rocket ride of an uptrend. Neither has crude oil, despite its rally yesterday ...

GLOBAL ECONOMY

Treasury, FDIC Crafting Plan to Rework Millions of Mortgages Officials with the Treasury and the Federal Deposit Insurance Corp. are crafting a plan under which the government would guarantee the mortgages of as many as 3 million homeowners now struggling to avoid foreclosure, according to three sources familiar with the discussions.

It would cost between $40 billion and $50 billion, sources said. The program is being discussed as members of Congress are voicing frustrations that the $700 billion rescue program thusfar has been aimed at helping banks, but not homeowners.

IMF Creates $100 Billion Fund to Aid Crisis Fight The International Monetary Fund will offer as much as $100 billion in a new kind of loan to countries that are battered by the financial crisis ... The new three-month loans, aimed at economies the IMF judges to be troubled but basically sound, wouldn't require countries to make the often severe changes in their policies that the IMF has demanded for decades.

The Shipping News Suggests World Economy Is Toast
It is now almost 90 percent cheaper to ship goods over the oceans than it was at the beginning of the year. And because the huge vessels known as capesize ships can't currently charge much more than their daily operating cost of about $6,000 per day, their captains have slowed down to economize on fuel and save money, to about 8.68 knots from 10.33 knots in July, according to data compiled by Bloomberg.

U.S. Economy Shrank 0.3% in the Third Quarter as Consumer Spending Dropped The economy suffered its biggest decline since 2001 in the third quarter, ushering in what may be the worst recession in a quarter century and boosting the chances of Barack Obama and his fellow Democrats in next week's elections.

XX Sean's note -- the good news is this is less of a drop than was expected.

CURRENCIES

Is the "Commodities as Anti-Dollar" Trade Back? One reason for the sudden enthusiasm for commodities is that, as in the frenzied days of last spring and early summer, hard assets can serve as an anti-dollar trade. And the dollar is looking pretty richly valued right now.

Australian Dollar May Drop Below 40 U.S. Cents in 2009, State Street Says The Australian dollar may fall to a record low next year, possibly dipping below 40 U.S. cents for the first time, as slowing growth in emerging markets cools demand for the raw materials exported by the nation.

COMPANY NEWS

Barrick Gold Third-Quarter Net Income Falls to $254 Million on Writedowns Barrick Gold Corp., the world's largest gold producer, said third-quarter profit fell 26 percent after it wrote down the value of investments in companies including Highland Gold Mining Ltd.

Sino Gold Pours First Gold at White Mountain. Chief executive Jake Klein said the first gold pour is two months ahead of schedule and comes only 14 months after construction commenced and four years after the ore body was discovered.

In other news, you can listen to my most recent HoweStreet.com interview (from yesterday) here: http://www.howestreet.com/index.php?pl=/goldradio/index.php/mediaplayer/1006

HILARIOUS

These two headlines are on Bloomberg at the same time ...

Crude Oil Rises Above $70 as Interest Rate Cuts May Spur Economic Recovery Crude oil advanced on speculation interest rate cuts in the U.S. and China may spur a global economic recovery and increase demand for fuels.

Crude Oil Declines Amid Skepticism Interest-Rate Cuts Will Bolster Demand Crude oil fell amid skepticism that interest rate cuts will be sufficient to bolster the global economy and increase fuel demand.

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

Exxon Earnings Preview

I'll be on Fox Business Thursday at 8 AM to talk about Exxon Mobil's earnings, which will be released before the market opens. Some factoids we may cover in the conversation ...

Exxon recorded the biggest profit for a company last year – more than $40.6 billion. In the most recent (July) quarter, it reported a quarterly profit of $11.7 billion, the largest in American history.

Exxon is a company that until recently had a history of spending more money on stock buybacks than new exploration. In the first quarter of this year, Exxon spent $8.8m on repurchasing its own stock and $5.5bn on exploration. Over the past three and a half years, it bought back just over $96 billion worth of its own shares.

But in March, Exxon said that spending this year on exploration, production platforms and other so-called upstream operations will rise by about 21 percent to $19 billion. The company will start 19 projects by the end of 2010 that will add the equivalent of 725,000 barrels of oil, enough to supply 10 percent of the refineries along the U.S. Gulf Coast.

Keep your eye on costs. Bloomberg reports that it cost $7.14 in 2007 for Exxon to pump a barrel of oil from the ground -- up from 2006's $6.04

According to Bloomberg, every time oil prices by $1 per barrel, Exxon gets another $400 million in each year's after-tax revenue.

Exxon Mobil ranks 25th by booked oil reserves. The top 10 are all state-owned national oil companies (NOCs). The top 13 NOCs own four-fifths of the world's known oil reserves. They don't share them cheaply.

Analysts expect the company to report a profit of $2.38 per share, according to Reuters Estimates. Put/call option activity shows investors are a bit more pessimistic than usual.

XOM is flat in the last month. The Energy sector is down 18%. Over 3 months, XOM is down 8%, the energy sector is down 34%.

In the past 3 months, the S&P 500 is down 25%, the energy sector is down 34%.

OTHER OIL INDUSTRY NEWS (that may come into the conversation) ...

Oil Company Profits Rise, But Outlook is Cautious
Record crude prices this summer are translating into huge profits, as BP and Occidental Petroleum showed Tuesday, but some energy companies are bracing for tougher times, keeping a closer tab on cash and cutting spending.
Oil producers are coming off a quarter during which crude prices reached an all-time high of $147.27. But prices have since tumbled more than 50 percent, and the global economic malaise has raised questions about energy demand at least into 2009.

Gasoline demand remains 6.4% below last year's levels, according to the MasterCard Spending Pulse released on Tuesday by MasterCard Advisors LLC, the research arm of MasterCard Inc.

Credit Crunch May Block 20% of Deep Oil Rigs, Slow Petrobras
As many as 20 of the 100 deepwater oil rigs on order worldwide may be delayed or canceled as loan availability erodes, possibly slowing developments including the biggest petroleum discovery in the Americas in three decades.

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

Links and More for Wednesday

Our remaining short positions got cleaned out yesterday and this morning (ouch!) and now the market is waiting with bated breath to see if the Federal Reserve cuts the Fed Funds rate by 50 basis points (expected) or more or less (really not expected).

There are several technical — and temporary — reasons the major indices rallied hard yesterday. Traders seemed to anticipate a large cut to the Fed Funds rate today. The market was technically oversold. Governments everywhere are riding to the rescue on a flood of liquidity. And the yen carry trade (when traders borrow in low-interest yen to buy speculative assets) had been unwinding in a hurry, but that seems to have temporarily reversed, thanks to Japanese government intervention.

We could see more of a rally in the short-term, but fundamentals need to change to get the groundwork for a real, lasting rally. And that hasn’t happened yet.

The US economy is still tumbling into the worst recession in three decades, with no light at the end of the tunnel yet. Corporate financing is still incredibly tight. Earnings estimates are way too high, and will probably be hacked lower. Oil demand is lower, and lower prices haven’t helped, not yet anyway. The reason oil prices are rallying is because stock prices are going up … not exactly the basis for a sustainable rally.

One factor that could go either way: The notification date to withdraw from many hedge "fund of funds" is Nov. 15. According to an article by Real Money contributor Vince Farrell, because of the strength of the government bond market and the weakness of the stock market, pension fund asset allocations are out of whack and need rebalancing. Many funds are apparently overweight the bond market by 4% and underweight equities by about the same.

Farrell thinks this could lead to continued stock buying leading up to November 15. On the other hand, it could also lead to more and deeper selling of stocks if investors decide to cash out of those “funds of funds.”

It's all interesting. Here's what I'm watching ...

Gold Gains for Second Day in London as Global Equities Rally, Dollar Drops Gold rose for a second day in London as the dollar fell against the euro, buoying demand for the metal as an alternative to the U.S. currency. Silver gained.

Sean's note -- all eyes are on gold, but take a look at silver ...

Also ...

Second Planet Needed to Meet Natural-Resources Demand

That's what humans will need by the mid-2030s to keep up with our demand for metals, fossil fuels, timber and waste disposal, the environmental group WWF said in a global survey that found the United Arab Emirates to be the most wasteful country.

The temples of doom

"We think we are different," says Jared Diamond, the American evolutionary biologist. "In fact...all of those powerful societies of the past thought that they too were unique, right up to the moment of their collapse." The Maya, like us, were at the apex of their power when things began to unravel, he says. As stock markets zigzag into uncharted territory and ice caps continue to melt, it is a view increasingly echoed by scholars and commentators.

What, then, is the story of the Maya? And what lessons does it hold for us?

According to Diamond's thesis, this: the ancients built a very clever and advanced society but were undone by their own success. Populations grew and stretched natural resources to breaking point. Political elites failed to resolve the escalating economic problems and the system collapsed. There was no need for an external cataclysm or a plague. What did for the Maya was a slow-boiling environmental-driven crisis that its leaders failed to recognise and resolve until too late.

Investment key to meeting oil demand

The IEA believes oil companies and oil-producing countries will need to invest a total of about $360bn a year until 2030 to replace falling oil production and increase supply by enough to satisfy the demands of emerging countries such as China.
Investment decisions by Opec will be critical, the study argues, adding that the share of world oil production from members of the cartel, particularly in the Middle East, will grow significantly, from 44 per cent in 2007 to 51 per cent in 2030.

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

Dr Doom Gives Advice on the Economy

NYU Economist and former Clinton administration Council on Economic Advisors member Nouriel Roubini has been uncannily correct about the global financial meltdown, earning him the nickname "Dr. Doom."

Late yesterday, speaking at a Bloomberg Media forum in New York City, Roubini called for an immediate $400-$500 billion U.S. economic stimulus package focused upon projects to improve our country's infrastructure: "U.S. Should Enact $400 Billion Stimulus, Roubini Says."

Some excerpts from the Bloomberg story ...

Oct. 27 (Bloomberg) --
"The only way to increase aggregate demand is going to be through" government spending on roads, bridges and other infrastructure, Roubini said at a Bloomberg conference in New York. "We need a huge plan, $300 billion is not going to be enough. I think we're going to need a plan of $400 billion to $500 billion."
--SNIP--
"If we don't do that fiscal stimulus today, three months from now, six months from now the collapse of the real economy is going to be so severe that anything we're doing today to recapitalize the financial system is going to be undone," Roubini said.
--SNIP--
"Financial markets are becoming totally unhinged," he said. "Fundamentals don't matter..."
--SNIP--
"We're entering literally a vicious circle where economies are spinning down, financial markets are spinning lower, and the policy makers in my view -- and that's my biggest fear -- have lost control of what's going on in financial markets," Roubini said.

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

Tuesday Linkfest

I've been talking recently about how the credit crunch may slow project development in both energy and gold. Here are two examples ...

Credit Crisis May Block, Delay 20% of Deepwater Rigs, Slow Petrobras Boom As many as 20 of the 100 deepwater oil rigs on order worldwide may be delayed or canceled as loan availability erodes, possibly slowing developments including the biggest petroleum discovery in the Americas in three decades.

AngloGold, Gold Fields, Harmony May Spend Less as The Metal's Price Falls AngloGold Ashanti Ltd., Gold Fields Ltd., and Harmony Gold Mining Co., Africa's biggest gold producers, may review spending plans after metal prices tumbled and credit availability tightened.

And here are some more stories of interest ...

Gold Rises as Equities Pare Losses, U.S. Dollar's Rally Stalls Versus Yen Gold rose in Asia, erasing earlier losses, as equities pared losses and the dollar's rally against the euro stalled ahead of reports that may show U.S. consumer confidence dropped.

Putin Urges China to Join With Russian in Moving Away From U.S. Dollar Use Russian Prime Minister Vladimir Putin urged China to move away from the dollar, saying a global economy based on the U.S. currency has ``serious problems.''

IMF may need to "print money" as crisis spreads
The Fund is already close to committing a quarter of its $200bn reserve chest, with a loans to Iceland ($2bn), Ukraine ($16.5bn), and talks underway with Pakistan ($14.5bn), Hungary ($10bn), as well as Belarus and Serbia. Neil Schering, emerging market strategist at Capital Economics, said the IMF's work in the great arc of countries from the Baltic states to Turkey is only just beginning.

Oil Rises From 17-Month Low as U.S. Stock Futures, Asian Equities Rebound Crude oil rose from a 17-month low as stocks in Europe and Asia rebounded and OPEC ministers said the group may meet again before December, raising speculation of deeper cuts in production.

GM May Get $5 Billion Loan for Chrysler Deal
The Department of Energy is working to release $5 billion in loans to General Motors Corp. ... The funds would come from a pool of $25 billion in low-interest loans approved by Congress to help Detroit retool its plants to meet new fuel-efficiency standards. It's not clear how quickly the money could be made available or whether it would come with strings attached.

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

Wild End to a Wild Day

It took me all day to get to posting to the blog because I had issues ... man I had issues.

Anyway, kind of a wild end to a wild day. The Dow opened way down, was up by as much as 200 points earlier in the day and was still positive 15 minutes before the close. But then, things went whee ...!

That doesn't look good. The real weakness (to me) seemed to be in energy shares. Let's look at a chart of DUG, which trades twice the inverse of the Dow Jones US Gas & Oil Index ... So does anything look good on the long side? Keep your eye on gold. It's trying to find a bottom. But it may take a while to do that.

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

An E-Mail from a Worker at the Northwest Territorial Mint

This week, I wrote a MoneyandMarkets.com article, "Yes, We Have No Silver", about my experiences trying to buy physical silver. I mentioned the Northwest Territorial Mint. I just received a letter from one of the fine folks who works there. It reads ...

Hello Sean,

I read your article today speaking of the lack of silver in what is still the free market. I happen to work at the Northwest Territorial Mint. You are not kidding about people having trouble getting silver. I can tell you from first hand experience that we are working 10-12 hour days, and looking into starting another shift to keep up with the production of silver. It is selling faster than we can make it, that is when we get it in. Our crucible is running from about 3 AM to around 10 PM. As soon as we get any silver in it goes right out the door again. I have worked there a number of years and have never seen it so busy, nor seen us as strapped for silver.

But if you get the opportunity to mention that we do get the silver to our customers, as quickly as we can, plus that we are one of the few places that does have silver, we would appreciate it very much. Our bullion sales department is treated very harshly by many people who are calling to get silver and gold, who are understandably frustrated by the delay. The NWTM has a long history of making good on our sales, and will remain to be a great source for investment commodities.

Thank You,

Jonny

XX Sean's note -- I did indeed have the opportunity to buy silver bullion (a private deal, not from the Northwest Territorial Mint). And I'll probably buy some from NWTM when they are able to work through their backlog to reach shorter delivery times.

And have you seen the price action in gold, or the larger-cap gold and silver stocks today? It sure looks good, but if you received my recent gold report, wait for my weekly buy signal. The bears still rule until we get that.

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

Big Heaping Serving of White-Hot Doom, Friday Edition

The babblers on CNBC are speaking in tones usually reserved for funerals this morning, as the S&P 500 futures go limit down and Dow futures are close to limit down. I am so, SO glad we added bearish positions to Red-Hot Canadian Small-Caps, Red-Hot Global Small-Caps and Red-Hot Commodity ETFs yesterday. But after the carnage in foreign currency markets the previous day and overnight -- a sign that whatever central banks were trying to do to stabilize the global financial system wasn't working -- it seemed the smart thing to do.

And it's not only stock futures that are down. OPEC didn't cut nearly enough (1.5 million barrels per day) so oil is cratering. Gold (on paper anyway) is below $700. The euro is plummeting versus the US dollar, and the US dollar is plummeting versus the yen. Hedge funds are being forced to sell EVERYTHING, and risk is anathama to global investors.

What we can take away from this ...

• The world is pricing in the most severe economic downturn since at least the 1970s and maybe since the Great Depression
• The financial magicians at central banks around the world will probably take extraordinary action over the weekend.
• The S&P 500 could fall to 500 in the next few weeks ... or it could rebound hard if the Central Banks' flood of liquidity finally starts to unclog the financial system. Heck, we could even see a hard bottom today or Monday. My crystal ball is broken.

I'm not making any strong commitments either way, though I might recommend more downside hedges on a decent bounce.

In other news ...

Did you see Alan Greenspan speak before Congress yesterday? Now that was must-see TV. Best line of the day goes to Steve Goldstein at Marketwatch:

For a man who was once remarkably hard to decipher, Alan Greenspan is now as clear as an empty Lehman Brothers office.

And remember how the Russians were bailing out Iceland? Now, maybe the Russians need someone to bail them out! They join the long line including Hungary, Ukraine and Belarus.

And OPEC decided to cut supply by 1.5 million barrels per day starting next month. If they thought that was going to impress anybody, they're wrong. 3 million barrels per day would have been more like it. Now they'll have to cut 4 million to prevent oil going to $50.

China's economy is slowing down. Econbrowser takes a look with some nice charts.

Also, the 30 year treasury bond has now reached its lowest yield since structured trading began. It is now yielding 3.8%.

India's market drops 11%, most in 16 years.
http://www.bloomberg.com/...

Russia halts trading until next week.
http://www.bloomberg.com/...

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

It's been a heck of a day. Gold cratered in overnight trading, then bounced, and now is headed lower again. The same for the broad stock indices. Crude oil is rallying, but not much when you consider that OPEC is about to announce a production cut (according to whispers).

METALS

Gold Falls Below $700 in New York as Investors Flee to Cash; Silver Rises Gold fell below $700 an ounce for the first time in more than a year as a rising dollar and stock-market losses forced investors to sell the metal to raise cash. Silver also dropped.

Gold's recent slump bewilders investors
The reason, according to analysts at the World Gold Council, is that the latest bout of the credit crisis has been deeper and more far reaching. Funds were forced to sell desired assets such as gold to meet margin calls, while weakness in European economies lifted the U.S. dollar, which then pushed dollar-denominated gold prices lower.

Platinum Drops to 4-Year Low in New York on Recession Concerns
Production of platinum fell short of demand in eight of the past nine years, according to London-based Johnson Matthey Plc, the maker of about a third of the world's auto catalysts. Platinum demand outpaced production by 480,000 ounces last year, the largest deficit since 2002, Johnson Matthey has said.

ENERGY

OPEC Output Cut May Fail to Halt Price Collapse as Financial Crisis Widens OPEC's first production cut in almost two years may fail to stanch a collapse in oil prices as roiling stock markets signal that the financial crisis has spread to emerging markets, the center of demand growth.

When is the Uranium Price Going Up?
With the recent market meltdown, what does the future hold? Is the uranium bull market finished or will these beaten down stocks come back?

US ECONOMY

GLG's Roman, Economist Roubini Predict Hedge-Fund Failures, Market Panic Emmanuel Roman, the co-chief executive officer at GLG Partners Inc., said as many as 30 percent of hedge funds will close and the U.S. will regulate the $1.7 trillion industry.

AIG's Liddy Says $123 Billion U.S. Loan `May Not Be Enough' to Stem Crisis American International Group Inc., the insurer bailed out by the U.S., may need to borrow more than the $122.8 billion already offered by the government if capital markets don't improve, said Chief Executive Officer Edward Liddy.

ASIA

Asian Stocks Drop to Four-Year Low on Growth Concerns; Mazda, BHP Decline Asian stocks slumped, driving the region's benchmark index to the lowest level in four years, as Japanese exports missed estimates, commodities prices tumbled and South Korea's worst financial crisis in a decade deepened.

Iron Ore Surplus Will Arrive Next Year, Earlier Than Expected, China Says China, the world's largest iron ore consumer, said the global market will be in surplus in 2009, one year earlier than expected, as the credit crisis slows economic growth and orders from steelmakers.

LATIN AMERICA

Brazil to Sell $50 Billion of Currency Swaps, Ramping Up Bid to Stem Rout Brazil's central bank pledged to sell $50 billion of currency swaps, its boldest move yet to stem a two-month, 28 percent tumble in the real that has saddled companies with losses and sparked concern inflation will surge.

AGRICULTURE

Potash Corp. Net Income Climbs Fivefold as Crop-Nutrient Prices Advance Potash Corp. of Saskatchewan Inc., the world's largest producer of crop nutrients by market value, said third-quarter profit increased fivefold as fertilizer prices advanced.

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

Gold Chart -- Gold Tests Support

The US dollar is strengthening as capital flees higher-risk economies and flowing into the greenback. And this is weighing on gold, bringing it down to its first weekly uptrend ...

There is support below this, at at 738.90, and then the second uptrend comes into play around 675. Will gold go that low? And would it be the buying opportunity of the year if it did?

And here's my latest MoneyandMarkets.com column, "Yes, We Have No Silver".

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

News and Links for Tuesday ... 'Pouring Water Into an Empty Sponge' Edition

About one-third of the S&P 500 reports earnings this week. Yesterday we saw euphoria and I thought it interesting that the major indices went up with oil prices. Today, oil prices are down, and stocks across the board slid at the open. Clearly, fears about the economy remain. Here are some things I'm reading today ...

Robert Reich observes that the bailout plans, for all their trillions of dollars spent, are like "pouring water into an dry sponge." he says:

Nothing will come out of it because Wall Street is so deep in debt that the banks are using the extra money to improve their balance sheets. They're hoarding it because their true balance sheets -- considering the off-balance sheet vehicles they created over the past several years -- are in such rotten shape.

Mr. Reich also says:

The underlying problem isn't a liquidity problem. As I've noted elsewhere, the problem is that lenders and investors don't trust they'll get their money back because no one trusts that the numbers that purport to value securities are anything but wishful thinking. The trouble, in a nutshell, is that the financial entrepreneurship of recent years -- the derivatives, credit default swaps, collateralized debt instruments, and so on -- has undermined all notion of true value.

With that "empty sponge" visual firmly in mind, we now read that the government has come up with yet another brand-spankin' new way to loan out more of your money in Federal Reserve announces the creation of the Money Market Investor Funding Facility (MMIFF)

Elsewhere, Brad Setzer is scaring the bejeezus out of me. He thinks we may be heading for the end of Bretton Woods 2. That, in case you don't know, is the global financial accord that set up the US and US dollar as the world's top dogs. Apparently, after the recent financial fiascos, Europe wants a new lead dog, and it ain't us. Setzer writes:

And rather than ending with a whimper, Bretton Woods 2 may end with a bang.

In some sense Bretton Woods 2 has been on life support for a while now. China’s recent export growth has depended far more on Europe than on the US. US demand for non-oil imports peaked in 2006. One irony of the past year is that the US was borrowing far more from China that it was buying from China. Campaign rhetoric that the US was paying for Saudi oil with funds borrowed from China isn’t far off – though it leaves out the fact that the US also borrows from
Saudi Arabia to pay for Venezuelan, Mexican and Nigerian oil.

In other news, in case you thought the U.S. was alone in suffering declining home prices, you'll be "happy" to know there are seven countries in worse shape than us ...

You can read more on that story (with more cool charts) at the International Monetary Fund.

You probably know that I love history. Mike Panzer over at "Financial Armageddon" (catchy name) looks at The Pain on Main. He refers to a story by Nick Turse which talks about how, during the Great Depression, writers associated with the Federal Writers' Project interviewed 10,000 Americans to get oral histories of their times. I thought this next part was very interesting ...

"One thing likely to strike you about its narratives from our last spectacular economic meltdown was how many of the speakers didn't distinguish between the 1920s and the 1930s, between, that is, "the roaring twenties" of the "Jazz Age" and the Great Depression era. For lots of them, it was all tough times. As Banks wrote in her introduction: "For most of the people in this book, the Depression was not the singular event it appears in retrospect. It was one more hardship in lives made difficult by immigration, world war, and work in low-paying industries before the regulation of wages and hours. Though they spoke of living through bad times, those interviewed by the Federal Writers seldom mentioned the Depression itself."

Panzer then draws some interesting parallels to today. It's all worth a read.

Infrastructure: Nation's physical plant another crisis for next president
As if the next president won't have enough on his plate — with the collapse of the financial markets, two foreign wars, persistent security threats and a host of other concerns — America's infrastructure is collapsing.

The civil engineers association gave the country a "D" on its 2005 infrastructure Report Card. It called for a $1.6 trillion five-year improvement program.

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

Oil and Gold Charts and Monday News

Here are some things to keep your eye on ...

ENERGY

Oil cartel calls meeting as prices tumble Analysts said the overall market trend was bearish and noted that the Organisation of the Petroleum Exporting Countries had decided to hold a special meeting next Friday - instead of in November - to discuss the global financial crisis and its impact on the market. The thought of oil prices falling back to $US40 or $US50 a barrel in a slowing global economy is terrifying to the OPEC members, Mr Ernsberger said, predicting they may be tempted to make a production cut "that is very bullish".

XX Sean’s note – oil prices will probably rally into the meeting, but any cut should be priced in by then.

Oil Options Point to $50 Crude as OPEC Prepares for First Cut Since 2000 OPEC, the supplier of more than 40 percent of the world's oil, plans to cut output for the first time in almost two years as the worst financial crisis since the 1930s sends crude toward $50 a barrel.

CHINA

China's Economy Grows 9%, Slowest Pace in Five Years, on Financial Turmoil China's economy grew 9 percent in the third quarter, the slowest pace in five years, underscoring concern that the spreading financial crisis threatens the biggest contributor to global growth.

World Bank Forecasts China Growth Slowdown As the markets for its exports in Europe and the U.S. shrink, the World Bank's senior Beijing-based economist said that the nation's economic growth would slow. Banks are topped up with cash and have strict capital controls. The nation's companies tap stock markets less for capital. The bank's forecast for 2008 remains at 9.8% growth and for 2009 it's sticking to a 9.2% rate--healthy in most other nations of the world.

Widespread commodity forecast cut, but healthy rebound expected post-recession Slowing growth in China and a recession in the developed world means metal markets are much more likely to move into significant surpluses in 2009 and 2010. As a result, RBC Capital Markets has made widespread cuts to its commodity price forecasts – everything from iron ore and coal to uranium and copper. But by 2010, RBC Capital Markets expects a boost in demand. This after analysis of the past nearly 50 years and the associated six recessions. It noted the decline for each commodity and ensuing recovery.

GOLD
Gold Climbs From One-Month Low as Dollar Weakens Before Bernanke's Speech Gold rose in London as a weakening dollar increased the metal's allure as an alternative asset.

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

News and Charts, TGIF Edition

If you bought my new gold report, this chart will interest you. It's weekly chart of the GDX ...
Agnico Expects Share Declines, Bankruptcy for Some Junior Mining Companies Agnico-Eagle Mines Ltd., the Canadian gold producer planning to increase output fivefold, said smaller mining and exploration companies may go bankrupt as their cash dwindles and the credit freeze makes borrowing more difficult.

Gold Poised for Biggest Weekly Loss in Two Months in London on Stocks, Oil Gold headed for the biggest weekly loss in two months in London as global equity markets rose and crude-oil prices declined, reducing demand for the metal as a haven and an inflation hedge. Palladium fell to a five-year low.

US ECONOMY

U.S. Consumer Confidence Falls the Most on Record; Housing Starts Decline Confidence among Americans fell by the most on record and single-family housing starts hit a 26- year low, posing an increasing threat to consumer spending that accounts for more than two-thirds of the economy.

`Armageddon' Loan, Bond Prices Fail to Lure Investors as Funds Liquidate Credit markets have fallen so far that they are providing a ``once in a lifetime opportunity,'' and investors are still selling.

ENERGY

OPEC Brings Forward Crunch Meeting

Even Saudi Arabia, the cartel’s most powerful member, which initially opposed the 500,000 barrel a day cut announced last month and is close to the US, appears to be in agreement that the group needs to reduce its production.

Oil Rises More Than $3 on Signs OPEC Will Announce Output Cut Next Week Crude oil advanced more than $3 a barrel in New York on signs that OPEC will announce a production cut at a meeting next week.

CHINA

China's Economy Probably Slowed, Increasing Pressure for Further Rate Cuts China's economy probably expanded at the slowest pace in almost four years in the third quarter, adding pressure for interest-rate cuts and government spending to prevent a slump.

Gross domestic product grew 9.7 percent from a year earlier, according to the median estimate of 12 economists surveyed by Bloomberg News, down from 10.1 percent in the previous three months. The data is due to be released on Oct. 20.

Have a great weekend.

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

Ah ... So That Explains Today's Price Action in Gold

Something I heard this morning, and it was just confirmed (as much as these things can ever be confirmed) by an article on RealMoney.com ...

Reports of the liquidation of a large hedge-fund position in gold contributed to sending futures on the safe-haven metal sharply lower -- despite what for all intents and purposes would seem like a great market for fearful investors to seek solace in a hard, scarce asset. Shares in gold producers are trading sharply lower today, as option traders position with corresponding bearishness.

XX -- here's my take.

I'm using a weekly chart because daily charts are unreliable in such a volatile market. Anyway, with today's breakdown, gold will likely head down to that line I've marked "1st Uptrend." Beyond that, next support is at 738.90

Driving that move lower? Probably liquidation from hedge funds, who will have to sell once their stops are hit.

The good news is this short-term selling will bring us down to great buying opportunities, the better to ride the longer-term uptrend, as I explained in my new gold report.

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

Could King Dollar Be Toppled?

On the one hand ...
EU Pushes for Overhaul of Postwar Financial System

EU leaders called for a global summit as soon as next month to rewrite the 1944 Bretton Woods accord that paved the way for Europe's post-World War II reconstruction and set up the institutions that oversee the world economy today.

XX Sean's note -- that sounds like the EU is gearing up for an attack on the US Dollar's status as world reserve currency, doesn't it? And yet, at the same time ...

Trichet Urges Return to `Discipline' of Bretton Woods

European Central Bank President Jean-Claude Trichet said officials reshaping the world's financial system should try to return to the "discipline'' that governed markets in the decades after World War II.

XX This leaves me totally confused about what the Europeans want to accomplish ... and I suspect they are confoozled, too.

In other news ...

US ECONOMY

Consumer Prices in U.S. Are Unexpectedly Unchanged as Fuel Costs Decline The cost of living in the U.S. was unchanged in September, restrained by plunging fuel costs and decreases in automobile prices and airline fares that signal the slowing economy is starting to cool inflation.

PRECIOUS METALS

Gold Declines in London Trading as Investors Seek Cash Amid Bank Turmoil Gold declined in London for the first time in three days as investors sold the metal and other assets to raise cash. Platinum fell to the lowest since September 2005.

Why Gold Is Dropping When It Shouldn't
Fund managers' other bets are losing money fast, now, so they need to raise cash to keep up the overall value of their respective funds, so they can earn their management bonuses and avoid getting booted for lack of relative performance. Guess what they cash in on? The very same Comex paper-gold they mistakenly bought as a 'hedge', of course.
Meanwhile, real investors in real gold are enjoying their shopping spree – except that the spree turned into a treasure hunt as the shelves and display cases of gold dealers look more and more like the supermarket shelves in the old Soviet Union - bare.

ENERGY

OPEC President Khelil Says Crude Oil's `Ideal' Price Is $70-$90 a Barrel The ``ideal'' price for crude oil is between $70 and $90 a barrel, OPEC President Chakib Khelil said today.

Atomic Reactors May Supply a Fifth of the World's Power by 2050, OECD Says Nuclear reactors may produce more than a fifth of global electricity by 2050 as demand for power rises in countries such as China and India, according to a report by the Organization for Economic Cooperation and Development.

And here's a note for Christmas ...

Flat-panel TV prices set to dive, analysts say
A combination of weak consumer spending and a peak in manufacturing capacity will push prices for flat-panel TVs down to unprecedented lows this holiday season, according to analysts.

XX Sean's note -- naturally, I bought my flat panel TV last month. Argh!

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

Wednesday News Roundup

I'm Dreaming of a Blue Christmas ...

Source: Calculatedrisk.blogspot.com

From the LA Times... Retailers cutting back on holiday hiring

A recent survey of more than 1,000 managers responsible for hiring hourly workers found that each manager planned on hiring an average of 3.7 seasonal employees this year, roughly 33% less than the 5.6 workers they hired during last year's holiday period.

OTHER U.S. ECONOMIC NEWS

Treasury Can't Influence How Banks Use Cash Infusion
Treasury Secretary Henry Paulson persuaded nine major U.S. banks to accept $125 billion in government investment. Getting them to lend it out may prove a tougher sell.
"The truth of the matter is, they can't put a gun to their head and say you have to lend this money,'' said Charles Horn, a former official at the Office of the Comptroller of the Currency, part of the Treasury Department, and now a partner at the Mayer Brown law firm in Washington.

Three-Month Libor for Dollars Declines for Third Consecutive Day, BBA Says The London interbank offered rate, or Libor, that banks charge each other for three-month loans in dollars fell 9 basis points to 4.55 percent today, according to the British Bankers' Association.

XX Sean's note -- on the other hand, LIBOR and the TED Spread Still Show Extreme Stress

PRECIOUS METALS

Gold Advances for Second Day as European Stocks Decline; Platinum Falls Gold rose in London as European equity markets opened lower, buoying demand for the metal as an alternative investment. Platinum fell.

Also, mints are making gold coins flat-out, but can't keep up with demand.

ENERGY

OPEC Is Likely to Cut Crude Production 1 Million Barrels, PFC Energy Says OPEC will probably announce a production cut of 1 million barrels a day at its November meeting, said PFC Energy, an industry consultant that correctly called the decision at the group's last summit.

Paladin Energy Says Global Credit Crunch May Delay, Scupper Uranium Plans Paladin Energy Ltd., the Australian company producing uranium in Namibia, said the global credit crisis will delay or scupper planned industry projects, cutting supplies of the nuclear fuel.

CHINA

Cement Prices Will Fall in China Next Year, Biggest Maker Anhui Conch Says Anhui Conch Cement Co., China's biggest maker of the building material, said prices will decrease early next year on cooling demand for new property and infrastructure in some regions. The shares fell by the most in more than seven years.

Finally, from the Department of Statistics that May or May Not Mean Anything ...

Since 1929, Republicans and Democrats have each controlled the presidency for nearly 40 years. ... As of Friday, a $10,000 investment in the S.& P. stock market index would have grown to $11,733 if invested under Republican presidents only ... Invested under Democratic presidents only, $10,000 would have grown to $300,671 at a compound rate of 8.9 percent over nearly 40 years.

XX What this New York Times Editorial doesn't add is that there is a financial shitstorm bearing down on us, and no matter who's in charge, we'll probably end up poorer. The Times' graphics are cool, though.

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

3 Charts for Tuesday

I didn't blog yesterday because I was busy putting the finishing touches on my new gold report, "Your Golden Parachute for 2009." It goes out today, kicking and screaming apparently, from all the trouble we've had trying to load it to the web site.

Red-Hot Canadian Small-Caps subscribers, Red-Hot Global Small-Caps subscribers and Red-Hot Commodity ETF subscribers all the get the report for free, my way of saying "thanks for sticking with me." Look in your email inbox.

Here are some charts you might find interesting ...

According to Chart of the Day, the first year of this current correction in the markets is the most severe of all major Dow corrections since 1900.


Next, let's look at a chart of the growth in Federal Reserve assets ...

The Federal Reserve is currently engaging in an unprecedented expansion of the money supply. Is that inflationary? We'll see.

Next, let's look at a monthly chart of the S&P 500 ... On this monthly chart of the SPDR Trust, which tracks the S&P 500, I’ve circled the “long-tail” bounces – where the leading stock index sold off hard, only to reverse and move higher. Two of the last three times this has happened, this signaled that the “tail” low wouldn’t be violated for a couple of months.

This doesn’t mean the bear market is over by any means. But we could have a playable bounce.

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

Gold Sells Off as Investors Raise Cash

So much for chart action. Bloomberg tells us ...

Gold tumbled from the highest since July as the dollar strengthened and investors sold the metal to cover losses in equity markets. Silver plunged 11 percent.

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

Friday in the House of Pain and Gold Chart

I didn't blog yesterday because I'm too busy working on A) issues and B) my new gold report, which is being published Tuesday. Along with my picks and analysis, I've been doing some interviews with some very smart people. Busy, busy!

And then there are these frakking markets. Yeah, we have hedges on -- it still sucks. My target for the Dow is 7,500. I think we could get there early next week. Martin and Mike (Larson) have a target that is a LOT lower.

Economist Paul Krugman is saying that "If a new rescue plan is not announced this weekend, the world economy may experience its worst slump since the Great Depression."

The problem is Paul -- and may I call you Paul? -- you still don't get it. The Republicans rule the White House. That means they are running point on this crisis. But the Republicans HATE government. I mean, that's their brand, that's what they've run on since Reagan -- that "government is the problem, not the solution."

So now, Paul, you expect a party that hates government to get serious about governing? Ha-ha-ha!

Even CNBC's Larry Kudlow is sounding like a socialist now. And that is freaking me out.

And you want to know something really scary? Even the "smart" Democrats went along with Paulson's plan to buy toxic debt. The obvious thing to do was to recapitalize the banks while guaranteeing bank deposits and underwriting new interbank lending. We're just getting to recapitalizing the banks NOW ... and had to wait for dotty ol' Great Britain to show us the way. We. Cannot. Afford. To. Waste. Time.

I'm ready to get out the pitchforks.

Seriously, my target is Dow 7,500, though if you have short positions on, you may want to grab them sooner than that, because even dead cats bounce. Beyond that, you know it's likely that something will happen that will cause a 1,000-point rally. Beyond that, my crystal ball is cloudy. Maybe Martin and Mike are right. I hear a lot of smart people calling for an economic recovery late next year, which is far enough away that you know it's economist-speak for "I'm just pulling a time target out of my butt."

One thing that I'm a little more sure of -- gold is looking better all the time. Let me show you a chart of gold ...


This is a short-term (daily) chart, so take it for what's it worth. And in the current market environment, technical charts aren't working that well.

Oh, in other news, I had a new MoneyandMarkets.com column on Wednesday: "7 Trillion Reasons to Own Gold."

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

Is This a Game Changer?

Ripped from the Bloomberg News Wire ...

The Federal Reserve, European Central Bank and four other central banks lowered interest rates in an unprecedented, emergency coordinated bid to ease the economic effects of the financial crisis.
The Fed cut its benchmark rate by a half point to 1.5 percent, the central bank in a statement. The ECB and central banks of the U.K., Canada, Sweden and Switzerland are also reducing rates, the Fed said in a statement.
``The recent intensification of the financial crisis has augmented the downside risks to growth and thus has diminished further the upside risks to price stability,'' according to a joint statement by the central banks. ``Some easing of global monetary conditions is therefore warranted.''

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

News for Today

I've been putting out a bunch of issues today. The rally that looked so sure this morning has faded away. The close should be interesting. Meanwhile ...

`Windfall' Bullion Price for Newcrest, Australian Miners: Chart of the Day Newcrest Mining Ltd., Avoca Resources Ltd. and rival Australian gold producers are set for ``windfall'' gains as the value of the precious metal in Australian dollars climbed to a record as the local currency fell.

Crude Oil Gains as Drop Deemed Excessive, on OPEC Output Cut Speculation Crude oil rose for the first time in five days as an interest-rate cut in Australia triggered speculation that other central banks will ease policy to shore up economic growth.

Gold Climbs on Haven Buying, Speculation Central Banks Will Reduce Rates Gold rose for a second day in London, buoyed by demand for a haven from financial market turmoil as banking shares tumble around the world. Platinum also rose.

Libor for Overnight Dollar Loans Jumps; Banks Seek Cash as Freeze Deepens The cost of borrowing in dollars overnight in London jumped as U.K. lenders held talks with the government on emergency funding and Iceland nationalized its second-biggest bank amid an unprecedented credit squeeze.

Europe May Raise Deposit Insurance Fivefold in Response to Global Crisis European Union finance ministers are considering a fivefold increase in deposit insurance for consumers across the EU after failing to agree on a U.S.-style bank-bailout fund to stem the deepening global credit crunch.

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

Another Monday, Another Meltdown

Today, global markets in Asia and Europe sold off hard, and Wall Street faces more troubles dead ahead. But you want to know what’s looking good today? Gold!

Gold recovers as flight to safety balances dollar

Prices are being supported by strong investment demand for gold coins and bars, traders say, as well as money pouring into in bullion-backed exchange traded funds.

In other news ...

Report: UK Government Considering Plan to Recapitalize Banks

Alistair Darling, the Chancellor, could give the banks billions of pounds in return for shares in an emergency bailout plan to be enacted if the financial crisis worsens, The Daily Telegraph has learnt.

Note -- This is more like the Swedish solution, or the RFC in the U.S. during the Depression, as opposed to Paulson’s cockamamie TARP plan.

In other news, Germany has guaranteed private bank accounts, following the path laid down by Ireland and Greece.

The worse the US does, the better the dollar does …

Drossos and Nie note that US banks have grown reluctant to lend to banks abroad — and many banks abroad have significant holdings of dollar debt and thus need dollar financing.

The solution to a world where US banks won’t lend to the global funding market? Simple, the US central bank lends dollars to European central banks who lend dollars to their banks — dollars that European banks can no longer get from US banks. Call it cross-border central bank intermediation. this is why the Fed has, in some sense, become a global lender of last resort.

We still don’t know what will happen once the forced buyers of dollars by actors scrambling to repay dollar debts ends. The US will likely still have a sizeable external deficit that needs to be financed for a while longer, which could drag the dollar down. On the other hand, the US won’t be the only country in a recession.

Bernanke May See Lending to Companies, States as Next Credit-Crisis Fronts Federal Reserve Chairman Ben S. Bernanke may find the next fronts of the financial crisis to be just as chilling as last month's downfall of Wall Street titans: its spread to corporate America and state and local governments.

COMMODITY MELTDOWN (EXCEPT FOR GOLD AND SILVER) …

Commodities R.I.P. as Disappearing Leverage Reduces Futures Contracts 26% Commodities markets are heading for the biggest annual decline since 2001 as investors exit leveraged bets and slowing economic growth erodes demand for raw materials.

Crude Oil Falls Below $90 on Concern Slowing Global Growth May Curb Demand Crude oil fell below $90 a barrel in New York for the first time since February as the credit crisis deepened in Europe, adding to concerns that global economic growth will slow and reduce demand for fuels.

Soybeans Drop to 1-Year Low on Worsening Demand Outlook; Corn, Wheat Fall Soybeans tumbled to the lowest in almost a year and corn dropped on signs slowing global economic growth, the dollar's strength and declining energy costs will reduce demand for the crops used in food, feed and fuel.

Copper, Zinc, Aluminum Tumble by Trading Limit in Shanghai After Holidays Copper, zinc and aluminum plunged by the exchange-imposed daily limit in Shanghai, catching up with losses on international markets in the past week when China's exchanges were closed for holidays.

And yes, I know the coding is screwed up, but there's no time to fix it.

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