End of the Year Gold Chart and Video Mosh Pit!

Is your 2008 going out with a bang, or slouching toward the exits? Here's a chart for those who like a golden end to the year ...This compares gold (green line) to silver (blue line), the S&P 500 (black line), oil (red line) and the TLT bond fund (pink line). Obviously, bonds got the better of 2008. But what will happen in 2009? That's the real question.

Here, in my latest web-cast, I try to answer some of those questions in my latest broadcast for MaM-TV.

Those are my answers. What are your answers? There are plenty of answers around, but the trick is asking the right questions.

Here are some other things to think about.

First of all, the Fed is going to buy $500 million in mortgage-backed securities by the middle of 2009. Will that finally unstick the frozen mortgage markets?

Money is tight. California is going to start paying bills with IOUs. But there's one group that is still getting a raise: Congress. Members of Congress are giving themselves a $4,700-a-year pay raise starting Thursday.

Meanwhile, the New York Times details how Washington Mutual built an empire on shaky loans. At least one of the loan supervisors did his job fueled on crack cocaine. I believe it. We bought a house with a WaMu loan about 7 years ago. They did such a bang-up job -- they assessed the WRONG HOUSE. They delivered a report in which our house backed up to a street and had no pool -- our house actually has a pool and backs up to a preserve.

How could they miss so badly? Maybe the clue is that the company that built the housing development we live in changed the street names in the middle of the project. On Google Earth, the streets still have the old labels. So, my guess would be the folks at WaMu looked at "our street" and "our house" on Google Earth, made a back-of-the-envelope guestimate, and voila -- job poorly done.

The Financial Times reports that money is flowing out of hedge funds at a record rate. The FT reports that "Investors pulled a net $32bn from hedge funds last month, making 2008 the first year in their recorded history that the funds have had significant outflows and ending the industry’s 18 years of asset growth.

Meanwhile, I've been getting death threats. We all have -- the latest round of dire warnings about how the earth will end. Some say a long-dormant super-volcano in Yellowstone National Park will do us in. Competing with that is a giant dust cloud in space that could wipe out life on Earth. The icecaps are melting fast, and a sudden melt could cause a huge and sudden rise in sea levels. And then there's the old standby, a giant asteroid hitting Earth (now with Pink Floyd soundtrack!)

My answer to all that ...

Have a happy New Year, try not to worry too much, and I'll speak to you in 2009.

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

The End (of the Year) Is Nigh

The New Year is barreling toward us like a runaway bus. Today's Must-Read: "The Collapse of Financial Globalization"

Brad Setzer's writing style is a bit dry, but his charts are eye-popping and he makes his point like a silver bullet to the brain: "private capital inflows to the US and private capital outflows from the US have fallen sharply." As in, fallen-off-a-cliff sharply.

So then, what is propping up U.S. Treasuries and the U.S. Dollar? America's livin' large lifestyle is largely supported by China and Japan (because they want to sell us stuff). The other big lender is Saudi Arabia, which also has an advantageous financial arrangement with the U.S.

If and when China, Japan and Saudi Arabia are no longer able to support the continued growth of US deficit financing, the dollar and the bonds will decrease in value. And that fall could come with avalanche-like suddenness.

So why do they continue to prop us up? Self-interest (we are their best customer) and a healthy dose of fear ... fear of what will happen when they no longer continue to provide us with unlimited credit.

This is why the world has not developed a sound replacement for the mighty greenback ... yet. It is because if they do, it will trigger a collapse of their dollar reserves and throw a wrench in their export driven economies,. And the scale of that derailment will likely be much worse than anything we can imagine.

I'm not going to say much more, other than check out Brad's nifty charts and analysis.

After you read that, start preparing for the coming storm: Potentially, we could see hyperinflation, if the U.S. dollar is revealed to be a Ponzi scheme worse than anything Bernard Madoff could have come up with. And remember, the shift from deflation (which we are in now) to hyperinflation (a collapse of the dollar) could be stunningly swift. Going back to my avalanche analogy, you never know what will set off an avalanche, but it's usually something very small in proportion to the outcome.

Can we avoid this fate? Sure we can. Nothing is written in stone. Strong political leadership -- combined with a great deal of luck -- could make a difference. Do you feel lucky?

Here is some other news worth reading ...

China Said to Allow 500,000 Tons of Corn Exports as Harvest Set for Record China, the world’s second-biggest corn grower, will allow 500,000 metric tons of the grain to be exported next year, about 10 percent of levels seen in previous years, as the government seeks to ensure domestic supplies.

Japan's Economy May Shrink 12% This Quarter, Most Since '74, Barclays Says Japan's economy will probably shrink at an annual 12.1 percent pace this quarter, the sharpest drop since 1974, as exports collapse, Barclays Capital said.

Gazprom, Once Mighty, Is Reeling
A year ago, Gazprom, the Russian natural gas monopoly, aspired to be the largest corporation in the world. Buoyed by high oil prices and political backing from the Kremlin, it had already achieved third place judging by market capitalization, behind Exxon Mobil and General Electric.
Today, Gazprom is deep in debt and negotiating a government bailout. Its market cap, the total value of all the company's shares, has fallen 76 percent since the beginning of the year. Instead of becoming the world's largest company, it has tumbled to 35th place. And while bailouts are increasingly common, none of Gazprom's big private sector competitors in the West is looking for one.

Bumpy Crop: Farming's Sudden Feasts and Famines

The world has been producing more grain than ever. Demand has grown faster than farmers could increase their production most years of this decade, helping to drain grain reserves. Unusually good weather in most of the world this year is refilling grains stocks once again. But the situation could easily change. Some economists worry that the world will consume more grain than it produces by 2010, particularly if oil prices recover enough to make the production of ethanol from corn more profitable again.

Are Modern Recessions Different?

“Since WWII, recessions have lasted 10 months on average. We hear that a lot. Our current recession started in December 2007. Even though this go-around seems worse [than] usual, that's still a little cause for optimism ... This recession has more in common with the pre-WWII era ... recessions last an average 18 months. If this logic is right, then we're not due for sunnier skies until mid-2009.”

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

Armageddon in Oil and Gold? 2008 Going Out With a Bang Edition

This morning, we are seeing gold build on its sizeable gains from last week, and oil is up as well. The reason for the move in oil is simple: The explosive conflict in the Middle East is acting as a catalyst on an oil market that was already deeply oversold.

Here is some of the news driving oil this morning ...

Oil jumps above $40 on Gaza conflict: Tensions generated by a widening conflict between Israel and Palestinian militants sent crude prices up sharply to above $40 a barrel Monday, with gasoline and heating oil also making sizable gains.

Defense Minister Ehud Barak said Israel is fighting a “war to the death” with Hamas, the group that controls Gaza. Prices also advanced as China, the world’s second-biggest energy consumer, said it will supplement its emergency oil stockpiles while prices are low, and the United Arab Emirates announced compliance with OPEC production cuts agreed on this month. Prices also were supported by indications that other key OPEC members were acting on commitments to cut back production, in line with a decision earlier this month to take a daily 2.2 million barrels off the market.

And yet, just remember, there is bearish news as well ...

Deutsche Bank: Demand for oil will fall by largest margin in 25 years Global demand for oil in 2009 will fall by the largest amount for 25 years, according to the chief energy economist of Deutsche Bank. Adam Sieminski said oil prices could hit a low of $30 a barrel next year, a fall of a quarter from today's price, because of the sickly global economy. He forecast an average price of $47.5 for the whole year for oil traded in New York. Deutsche Bank predicts global demand will contract by 1 per cent, or 1 million barrels a day, three times the fall seen this year and the biggest since 1983.

In a related matter, Chicago Tribune reports that falling oil prices endanger alternative energy. Well, duh. Don't worry, though. Despite the dire warning from Deutsche Bank, I don't think oil prices will stay too low for too long.

Now, on to gold ...

Gold Rises in London to 2-Month High on Middle East Fighting, Inflation Gold rose to a two-month high in London as fighting in the Middle East and higher oil prices spurred demand for the metal as a haven and a hedge against inflation. The morning “fixing” used by miners to sell metal gained the most since at least 1984.

Here are three gold charts I think you should see -- daily, weekly and monthly charts of gold.

IN OTHER NEWS ...

Do you think the Crash of '29 was bad? Then you don't know about the Panic of 1873. I'm writing about that for this week's MoneyandMarkets.com column. I'm also writing about Baron Nathan Rothschild, of "Buy when there is blood in the streets" fame. He made that comment in 1871, which was part of the Panic of 1873. The Panic started in 1869 (1873 was just the worst year) and the economic depression associated with it lasted until 1879. Ouch!

Wall St. faces record losses in last week of 2008
Investors are preparing to close out the last three trading days of 2008 with Wall Street's worst performance since Herbert Hoover was president. The ongoing recession and global economic shock pummeled stocks this year, with the Dow Jones industrial average slumping 36.2 percent. That's the biggest drop since 1931 when the Great Depression sent stocks reeling 40.6 percent.


More bad news: U.S. Corporate Profits Probably Fell for Sixth Quarter as Spending Plunged U.S. corporate earnings probably fell for a sixth-straight quarter, the longest streak in at least 20 years, as consumer spending on automobiles, homes and retailers collapsed.

Want to see something really scary? Click through to the Grandfather Economic Report series.

I like The Retroist because I'm old.

Marketwatch gives its "10 Investment Ideas for 2009." See if you agree. Meanwhile, Motley Fool likes small caps now. Remember, small-cap stocks historically outperform the market in the month of January (for the simple reason that January is when money managers are most disposed to take on risk).

There are some great new cars coming in 2009, as long as auto manufacturers can survive long enough to get them to us.

The global recession is playing out in China.

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

Happy Boxing Day!

It looks like a stupor-inducingly dull day in the market. I survived Christmas, though my Aunt's dog, Sidney, did not. In fact, it died at my house yesterday afternoon. Sidney was a very old dog, a good dog, and very loved, and will be missed very much.

Earlier in the day, we had fun. Along with presents, tons of food, and good friends, we played games. It's something of a tradition at my house.

My team won this one: Cranium. I highly recommend it, especially for competitive families who like screaming at each other in a mix of outrage and glee.

Later, I lost this one: Carcassone. Doesn't matter -- it's a great game, and I'll win it another time. I bought Carcassone: Princess & Dragon Expansion as a gift for Cindy. She squealed with delight to find that under the tree.

Here's what I'm reading today (and so very little of it has to do with the markets) ...

Most people (who aren't mainlining Fox News) know that Christmas incorporated previously existing pagan winter solstice rituals. Rktect takes a look at some of those early celebrations, and the traditions that have carried over. I find Rktect's title "The Real Story of Christmas" misleading -- the real story of Christmas is where you find it, and for many people that's here or here or here or even here -- but the historical research is fascinating, and happy yule to ya.

Most of my immediate family likes Tom Friedman. Most of my family is wrong. My thoughts in nutshell.

Woes on Wall Street Coincide With Gold Coin Rush
"I've never seen a case where demand was so high and supply was so short," said Chicago coin dealer Harlan Berk, who has been in the business 44 years.

Retail Sales Plummet
Total retail sales, excluding automobiles, fell over the year-earlier period by 5.5% in November and 8% in December through Christmas Eve, according to MasterCard Inc.'s SpendingPulse unit.When gasoline sales are excluded, the fall in overall retail sales is more modest: a 2.5% drop in November and a 4% decline in December."This will go down as the one of the worst holiday sales seasons on record," said Mary Delk, a director in the retail practice at consulting firm Deloitte LLP.

Paul Krugman scares the bejeezus out of us with the title "The Second Great Depression Has Arrived," but then reveals it's in Ukraine.


Get ready for the Forum of Gas Exporting Countries.
Russia, the world's largest producer, accounts for 21.6% of global natural gas production. Other top ten global producers attending the meeting include Iran, Norway (as an observer) and Algeria.
"The time of cheap energy resources, and cheap gas is surely coming to an end." Vladimir V. Putin
Maybe you'd like a video with that ...


The Economist asks: "After Zero Interest Rates, Where Next?"

Would you like a little conspiracy to spice up your post-Christmas reading? Then read "The Intriguing Death of Top GOP Consultant Michael Connell"

I'm sure there is more I could write; maybe I'll add more later. Have a good day and a good weekend.

best

Sean

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

A Marshall Plan for the US ... From Japan?

The following poem was cut from the top of my MoneyandMarkets.com column ("3 Stock-ing Stuffers,") today ...

Twas the eve before Christmas,
and all through the night
Sean’s mind was whirring,
With stocks that could ignite

Poetry is subjective, and everyone's a critic.

Before we get to the serious stuff, here's some Christmas cheer (and humor) from the Wall Street Journal. Click through for a laugh.

Now then ...

Will the Japanese Launch a 'Marshall Plan' to Save the US?
The dollar may lose as much as 40 percent of its value to 50 yen or 60 yen from the current spot rate of 90.40 today in Tokyo unless Japan takes “drastic measures” to help bail out the U.S. economy.
The Japanese government could use a new Marshall Plan as a chance to shrink its $976.9 billion in foreign-exchange reserves, the world’s second-largest after China’s, and help reduce global economic imbalances.

Crude Oil Trades Below $37 on Forecasts U.S. Supply Increased a Third Week Crude oil fell, dropping briefly below $37 a barrel in New York, before a report forecast to show that U.S. inventories rose for a third week on ebbing demand.

U.S. East Coast Refinery Maintenance May Cut Fuel Supply More Than Usual East Coast refineries are planning maintenance on fluid catalytic cracker units in February that might cut regional production by more than five times the historical average.

Pemex Oil Output Falls 6.5% to 2.711 Million Barrels a Day
Production dropped to 2.711 million barrels a day, from 2.901 million barrels a day a year earlier, the company known as Pemex said today on its Web site. In an e-mail, Pemex cited Cantarell, its largest field, as the reason for the drop.

The Coming Oil Train Wreck - First stop: Mexico?
According to Matt Simmons, by the end of 2009, Mexico will no longer be an oil exporter ... Unfortunately, it may be too little too late to replace the rapidly disappearing Cantarell production. In as little as 12-24 months, the effects may be felt both in Mexico and the US. Replacing the 1.3 million barrels per day the US now imports from Mexico won’t be easy (the US imports 1.4 million barrels per day from Saudi Arabia by means of comparison).

Mortgage applications hit almost 5-year high: MBA
Mortgage applications surged to the highest level in over five years in the latest week, as potential borrowers came out in droves to refinance as government interventions helped push interest rates down to record lows, data from an industry group showed on Wednesday.

Manufacturer Confidence Slumps the Most on Record as Recession Intensifies Confidence among Japanese manufacturers fell the most on record as exports collapsed, signaling the recession will extend into 2009.

China Stocks Lure BlackRock With `Mother' of Stimulus Plans as Mobius Buys The biggest investors in emerging markets say China is the best choice for 2009, betting plans to stimulate growth will lead a stock market recovery in the fastest growing major economy.

Merry Christmas to all, and to all a good night. I'll post again on Friday (probably, barring an eggnog overdose).

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

Monthly Gold Chart & Happy Festivus!

Merry Christmas-Eve-Eve! Or Happy Festivus, if you're so inclined. Let the Airing of Grievances begin!

Here's my chart for today -- a monthly chart of gold. Note how the recent uptrend has been tested but hasn't broken (yet anyway). In fact, RSI, a measure of momentum, is now giving a "buy" signal.

I think gold could enter the New Year in a very positive position. Still, watch the euro-us dollar relationship that I posted about yesterday. That is probably the real key to what happens with gold.

Here is the other news and analysis I'm reading ...

U.S. debt approaches insolvency; Chinese currency reserves at risk

According to new figures published by Bloomberg in recent days, the American government has employed a total of 8.549 trillion dollars to stop the financial crisis. This means a total of about 24-25.4 trillion dollars of direct or indirect public debt weighing on American taxpayers. The complete tally must also include the debt - about 5-6 trillion dollars - of Fannie Mae and Freddie Mac, which are now quasi-public companies, because 79.9% of their capital is controlled by a public entity, the Federal Housing Finance Agency, which manages them as a public conservatorship.

Canaccord Adams: The worst for junior mining ‘is likely behind us'

"The year 2008 has shattered investor confidence, and market valuations reflect risk-averse investor sentiment," the analysts advised. "We believe that, to achieve a sustainable rally in the junior mining sector in 2009, investors must regain confidence in broader equity markets. "
"Given the ongoing issues in the global equity and credit markets, we believe that investors are likely to remain somewhat risk adverse. That said, opportunities to exist in the junior sector even under more subdued investor interest."

Why Short Sector ETFs Aren't So Smart Part 1 and Part 2

XXSean's note -- this is an interesting analysis on RealMoney.com about short ETFs. I think the author makes some good points. On the other hand, everyone has their own agenda. And the fact is, as long as you use short ETFs for short-term investing (not long-term), I think they have real advantages.

Existing Home Sales Plunge in November

I still expect sales to fall further over the next few months, although inventory has peaked for the year.

Holiday Sector Performance Relative to the S&P 500 -- From The Big Picture blog ...

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

Monday Morning Charts and News

Here is a chart I'm watching today ...
As the euro-US dollar goes, so goes gold (at least recently)

Here is what I'm reading today ...

US ECONOMY

Stock Investors Lose Faith, Pull Out Record Amounts
One of the hallmarks of the long market downturns in the 1930s and the 1970s has returned: Rank-and-file investors are losing faith in stocks.
Investors pulled a record $72 billion from stock funds overall in October alone, according to the Investment Company Institute.

AP study finds $1.6B went to bailed-out bank execs
Banks that have their hands out in Washington this year were handing out multimillion-dollar rewards to their executives last year.

Is the Medicine Worse Than the Illness?
Barely nudging Mr. Madoff out of the top of the news was the Federal Reserve's announcement last Tuesday that it intends to debase its own paper money. , the Fed pledged to print dollars in unlimited volume and to trim its funds rate, if necessary, all the way to zero. Nor would it rest on its laurels even at an interest rate low enough to drive the creditor class back to work. It would, on the contrary, "continue to consider ways of using its balance sheet to further support credit markets and economic activity." The Fed's declaration of inflationary intent knocked the dollar for a loop against gold and foreign currencies. In many different languages and from many time zones came the question, "Tell me, again, now that the dollar yields so little, why do we own it?"

Actually -- There Is A Credit Crunch
(XX Sean's note -- good charts at this link)
1.) The latest recession is the only recession where total credit outstanding has leveled off for an extended period.
2.) In order for the US economy to grow it must have a continual supply of new credit. A leveling off is just as hazardous as a decline.

Developers Ask U.S. for Bailout as Massive Debt Looms
With a record amount of commercial real-estate debt coming due, some of the country's biggest property developers have become the latest to go hat-in-hand to the government for assistance. The Real Estate Roundtable, a major industry trade group, predicts that more than $400 billion of commercial mortgages will come due through the end of 2009. Foresight Analytics estimates that $160 billion of commercial mortgages will mature next year.

ENERGY

As Oil Sinks, Producers Reprioritize Investments
A survey by Barclays Capital found 2009 capital budgets were 12% lower than 2008 spending plans, and some believe they might head lower. Budgets in the U.S. and Canada are being cut the most, as projects in the high-cost oil-sands and unconventional natural-gas fields now make less economic sense ... A report by Cambridge Energy highlighted the danger of investment stagnating. It said the oil industry will need to spend more than $150 billion a year on new oil production over the next few years to generate adequate supplies for future demand.

Is the U.S. Rig Count about to Enter Freefall Territory?
Recently, the view began to target the potential for a 600-rig drop during the seasonally weak early months of 2009. Last week the prospect of a 700-800 rig drop emerged as a possibility and as that view began to gain some traction, the oilfield service stocks began to dive.

Shadowed by $200 oil

No one believes that $40 oil is going to last, and they’re willing to bet that as the economy rebounds, so will demand.

OPEC's President Vows to Cut Output until Prices Stabilize
The Organization of Petroleum Exporting Countries' president vowed Friday to cut production to boost sagging prices, setting it on a possible collision course with consumer countries relieved at crude's slump from record highs.

CHINA, CHINA, CHINA!

China Faces Unrest as Economy Falters
The government appears willing to tolerate some levels of worker unrest -- but only as long as the actions don't take on the overtones of a political protest. In Chaozhou, after the second strike, an open letter from the government spelling out its concessions said, "We again appeal for all the taxi drivers to express your demands and pursuits in a rational, calm, legal and reasonable way."

China Cuts Key Rates
China said it will cut its benchmark deposit and lending rates by 0.27 percentage points from Tuesday as part of its efforts to further ease monetary conditions.

Chinese Carriers Make Big 3G Push
China's wireless carriers will invest $40 billion in faster "3G" networks, which could boost the nation's telecom-equipment industry.

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

Follow the Bouncing Buck

I recommended subscribers who are following my "Golden Parachute for 2009" bank HALF their gains on their open positions yesterday. They were double-digit gains. It was time to grab some gains because the US dollar bounced from Fibonacci support. See the dollar chart below.

I think the buck could bounce to 84 from here, where it will run into A) price resistance, B) overhead fib resistance and C) declining moving averages.

I’m sure some people will look at the buck rising from oversold (see the RSI indicator on the bottom of the chart) and say, "the buck has found the bottom." We shall see.

If I'm right and this is just a temporary bounce in the buck, we'll get a great opportunity to go long gold again when/if the US dollar tops out.

Right now, gold is down over $20 an ounce, so yesterday's decision to grab gains looks like a good call.

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

Videos, Interviews, Gold, Oil and More

Yesterday I did a MaM-TV video talking about potential movements in ExxonMobil and gold. Exxon Mobil failed to follow through on its breakout from Tuesday; we'll have to see what happens next. I showed you the Exxon chart yesterday. Here's a version of the chart of the GLD that I showed in the video ...

You'll see that the GLD is at the top of its channel. It has support close by, and will probably go back and test it before making a serious breakout attempt. That would give everyone another chance to get long.

Or, maybe the GLD will fold its wings and plummet to the bottom of its channel. But with the US dollar sliding lower, that seems unlikely.

You can go check out MaM-TV, which is linked at the top 0f MoneyandMarket.com, if you haven't seen the video yet.

I also talked with Phil from HoweStreet.com about my latest MoneyandMarkets.com, column, Mexico’s Streets of Gold. As usual, when I talk to Phil, I enjoy myself way to much. You can listen to Phil's podcast HERE.

Here is is an update from Doug Short of dshort.com of his graph of "Four Bad Bears".A couple of notes: The Great Depression crash is based on the DOW; the three others are for the S&P 500. Our current bear market (blue line) was down 51.9% at its low (so far), beating out both the tech crash (green line) and the 1973 oil crisis (red line).

The latest Oilwatch Monthly is out. Its track of global crude oil production is an eye-opener.

The December 2008 edition of Oilwatch Monthly can be downloaded at this weblink (PDF, 1.6 MB, 24 pp).

Finally, I want to point you to some analysis by Merrill Lynch's David Rosenberg. He says 2009's dominant themes could include political risk, "Beggar-thy-neighbor" policies, rising gold prices, a bearish trend in consumer spending, and a perhaps surprisingly bullish turn in commodities.

Other stuff I'm reading ...

Gold Rises for Ninth Day in London as Dollar Extends Decline

Gold rose for a ninth day in London, its longest winning streak in two years, as the dollar’s slide boosted the metal’s appeal as an alternative investment and physical bullion purchases increased. The precious metal gained 15 percent in the past eight days, as the dollar lost 12 percent against the euro in the same period.

UAW Busting, Southern Style

The foreign nonunion auto companies located in the South have a plan to reduce wages and benefits at their factories in the United States. And to do it, they need to destroy the United Auto Workers.

They claimed that they couldn't support the bill without specifics about how wages would be "restructured." They didn't, however, require such specificity when it came to bailing out the financial sector. Their grandstanding, and the government's generally lackluster response to the auto crisis, highlight many of the problems that have caused our current economic mess: the lack of concern about manufacturing, the privileged way our government treats the financial sector, and political support given to companies that attempt to slash worker's wages.

When one compares how the auto industry and the financial sector are being treated by Congress, the double standard is staggering. In the financial sector, employee compensation makes up a huge percentage of costs.

At Goldman Sachs, for example, employee compensation made up 71% of total operating expenses in 2007. In the auto industry, by contrast, autoworker compensation makes up less than 10% of the cost of manufacturing a car. Hundreds of billions were given to the financial-services industry with barely a question about compensation; the auto bailout, however, was sunk on this issue alone.

An internal Toyota report, leaked to the Detroit Free Press last year, reveals that the company wants to slash $300 million out of its rising labor costs by 2011. The report indicated that Toyota no longer wants to "tie [itself] so closely to the U.S. auto industry." Instead, the company intends to benchmark the prevailing manufacturing wage in the state in which a plant is located. The Free Press reported that in Kentucky, where the company is headquartered, this wage is $12.64 an hour, according to federal labor statistics, less than half Toyota's $30-an-hour wage.

This Is What a Crisis Looks Like in the Balance of Payments Data

At least a crisis marked by a run out of risky US assets and into safe US assets. Right now Agency bonds — think Freddie and Fannie — are considered risky assets while Treasuries are not.

A run out of all US assets and the dollar would look very different.

Obama Considers Stimulus Spending Exceeding $850 Billion to Spur Recovery

Barack Obama may ask Congress next year to approve a stimulus plan of around $850 billion, an amount that has grown as the U.S. economy sinks deeper into recession, an adviser to the president-elect said.

2009 to witness global agri-commodity shortage

LONDON: Despite stronger production and falling prices for many food staples in the second half of 2008, the risk of food supply shortages remains acute in world markets. These supply shortage risks stem from reduced producer incentives – and ability - to boost food production.

Reduced access to trade credit, rising costs, bio-fuel competition, and infrastructure shortages are among key factors that continue to weigh on trend growth in world agriculture supply. Inventory levels are also low relative to their long run averages, highlighting the underlying tightness in food markets at present.

Tightening and more expensive credit is limiting the ability of producers to borrow to finance seasonal inputs – notably seed and fertilizer. The costs of these inputs has increased dramatically over the past few years, with the USDA estimating that US total inflation-adjusted farm costs have increased 28.5% since 2002 (a 52% increase in nominal terms).

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

Feel the Energy

So Saudi Arabia says OPEC will cut production by another 2 million barrels a day, and Russia will go along for the ride.

This is the right move the Saudis had to make. And it's good for our long-term energy future. We need exploration to provide future supply, and the only way to get that is if oil is north of $60 to $70 a barrel.

And now let's look at a chart of ExxonMobil ...
This is pre-market, so it may be old news by the time you read it. If you’re brave, you can buy energy on XOM’s retest of around 81.90, or you can wait for a confirmation close today.

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

My Target on Gold ...

For a couple weeks, I've been annoying people within earshot by saying that, "if gold closes above $820, it can go much higher."

Well, gold did close above 820. And then it went higher still. So today, Bruce Bragagnolo, the CEO of the gold company I visited in Mexico (which you'll be able to read about in MoneyandMarkets tomorrow), asked me, "so how high is gold going now?"

There are those who believe that the Deflationary Spiral of Doom (catchy, eh? I'm going to copywrite it) is going to suck gold down with it. So I hesitate to name a number.

But the only people who read this blog are subscribers to my services and a few friends. So I'll tell you. My target on gold is $980, and I think we can get there rather quickly. There is no magic to this -- I get my target from a simple point-and-figure chart, which you can find at any one of numerous charting sites.

Point and figure charts famously do not include "time" in their projections. But fundamental forces are lining up to push gold higher.

Longer term, my target on gold remains $1,100, though we'll probably see some backing and filling at $980 first.

And none of this MUST happen. These are just projections, and subject to change. As John Maynard Keynes famously said: "When the facts change, I change my mind. What do you do, sir?"

My even-longer term target for gold is just under $2,000. Keynes' other famous quote is: "In the long run, we are all dead."

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

Waiting on the Fed, US Sinks Deeper Into the Red

We're all waiting for the Fed announcement shortly after 2 pm today, where it is widely expected that the Fed will cut its benchmark interest rate in half to 50 basis points. According to Bloomberg, with Fed rates at zero, Fed Chairman Ben Bernanke will then move on to using the Fed's balance sheet as the key tool for monetary policy. Options include purchasing Treasuries to inject more cash into the economy.

But where is all this money going to come from? As a result of all the bailouts for banks, automakers and other new federal outlays, our nation’s budget deficit is expected to reach $1 TRILLION in 2009. And that DOESN’T include the new, $1 trillion stimulus plan that Barack Obama’s economic team is reportedly working on.

We are seeing paper money debased. And that looks like a good time to own gold to me.

Here is other news I'm reading ...

Big Oil Projects Put in Jeopardy by Fall in Prices
From the plains of North Dakota to the deep waters of Brazil, dozens of major oil and gas projects have been suspended or canceled in recent weeks as companies scramble to adjust to the collapse in energy markets.

Russian Industrial Production Shrinks Most Since Economic Collapse of 1998 Russian industrial production shrank the most since the economic collapse of 1998 in November as the global slowdown reduced demand for steel, pipes and fertilizers, pushing the nation to the brink of recession.

Venezuela Wants OPEC to Cut Oil Production by Up to 2 Million Barrels/Day Venezuelan Oil Minister Rafael Ramirez said he wants a cut in OPEC production of between 1 million and 2 million barrels a day at this week’s meeting.

Gold Declines After Rally Entices Selling; Dollar Arrests Slide vs Euro Gold fell in London, ending a six-day rally, as an 11 percent gain in the period spurred some investors to sell and as the dollar halted its slide, reducing bullion’s appeal as an alternative investment.

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3 Charts on Gold

Gold is powering higher today.

To quote MacBeth: "Is this a breakout from a cup-and-handle formation that I see before me?" Well, maybe I'm taking some liberties with the bard.

But gold's move higher is translating into even bigger moves for the major gold producers ...

And we're even seeing moves higher in the little-known foreign gold miners that have been pounded into the dirt over the past six months ...

What's it all mean? I don't know. Ask me when/if gold hits 850. It sure is good news for the recommendations in my recent "Golden Parachute" gold report.

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

Fox Business -- Talkin' 'Bout Oil

I'm appearing on Fox Business TV at 1:00 to 1:06 today on the Stuart Varney Show. Stuart's a good guy, so probably no chairs will be flung (ha-ha). Anyway, I'm going on to talk about oil prices.

If you don't get Fox Business -- I don't get it on my darned cable -- here are the talking points I'm bringing for my interview ...

Goldman Sachs predicts oil prices will fall to $30 a barrel.

OPEC President Chakib Khelil said all the group’s members support an oil output cut at this week’s meeting, including the largest producer Saudi Arabia.

OPEC is about 75% compliant with the last round of production cuts (cutting production by 1.5 million barrels a day from Nov. 1) – that’s pretty good by their standards.

Russia, a non-OPEC producer, will likely cut production as well. OPEC is asking Russia to reduce oil output by 200,000 to 300,000 barrels a day

We are already seeing oil production fall with prices. Unconventional oil reserves account for 18% of all liquids used, according to the International Energy Agency. And that represents 15.6 million barrels per day.

Next we’ll see marginal production from major producers cut.

Result: World oil supply is likely to drop by three million to five million barrels a day in 2009, due to OPEC cuts and smaller companies slashing production, compared with a decline of just one million to two million barrels a day in global oil demand.

Bottom line: Unless prices go higher, marginal production will come offline. That, in turn, will push prices higher. Oil has technical and fundamental support at current levels. We may see Goldman’s price target of $30, but not for long, and there are already forces in play that could send oil higher from here.

What could stop oil prices going higher? A severe global recession. And do you really want to root for that?

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

What I'm Reading Today

Here's what I am reading today ...

ASIA

Japanese Business Confidence Plunges Most in 34 Years as Recession Deepens Sentiment among Japan’s largest manufacturers fell the most in 34 years, signaling companies are likely to cancel spending plans and cut more jobs, pushing the economy further into recession.

China Plans to Increase Money Supply in 2009 to Boost Domestic Consumption China aims to increase its money supply 17 percent in 2009 and encourage lending to boost domestic consumption and buoy growth in the world’s fourth-largest economy.

ENERGY
Crude Oil Rises as OPEC's El-Badri Says Sizeable Cut Is Needed at Meeting Crude oil rose, touching $50 a barrel in New York, after OPEC’s Secretary-General Abdalla El-Badri said the group needs to make a “sizable” output cut at this week’s meeting in Algeria.

OPEC Collides With Goldman Over $75 Oil in First Demand Decline Since 1983 The Organization of Petroleum Exporting Countries will probably lower output targets by at least 2 million barrels a day, or 7.3 percent, when its members meet Dec. 17, according to 18 of 33 analysts surveyed by Bloomberg. While Saudi Arabia’s King Abdullah said last month that his country needs oil priced at $75 a barrel to spur development, Goldman Sachs Group Inc. predicts crude may slide to $30 from $46.28 today.

OPEC Is in a Desperate Race Against Falling Oil Prices Oppenheimer & Co. senior oil analyst Fadel Gheit estimates the world oil supply is likely to drop by three million to five million barrels a day in 2009, due to OPEC cuts and smaller companies slashing production, compared with a decline of just one million to two million barrels a day in global oil demand.

COMMODITIES

Australia Cuts Commodity Export Sales Forecast 10% on Global Credit Crisis Australia, the world’s largest shipper of coal, iron ore and wool, cut its commodity exports forecast by 10 percent because of the global financial crisis that may continue to hinder any recovery until the second half next year.

Gold Futures Climb in New York as Dollar Extends Slump; Silver Advances Gold prices rose as the slumping dollar boosted the appeal of the precious metal as an alternative investment. Silver also gained.

China's Soybean Imports May Double This Month as Domestic Prices Advance China, the world’s largest buyer of soybeans, may double its imports this month from a year earlier, after higher prices of domestic beans prompted buyers to increase purchases overseas in the past few weeks.

World Gold Output to Rise for the First Time in Four Years, Australia Says Global gold production may rise for the first time in four years in 2009 as China and Indonesia increase output, Australia’s commodity forecaster said.

XX Sean's note -- that will be an interesting trick (to raise global producition) the way that the credit crunch is cutting into mine expansion plans, but I guess anything is possible.

US DOLLAR

Dollar Falls to Eight-Week Low Versus Euro on Auto Industry Bailout Costs The dollar fell to an eight-week low versus the euro on speculation a U.S. government rescue for the country’s automakers will leave less money to protect the financial system.

Dollar Staggers as U.S. Unleashes Flood, Deficits Increase, Fed Cuts Rates U.S. policy makers are flooding the world with an extra $8.5 trillion through 23 different plans designed to bail out the financial system and pump up the economy. The decline shows that the increased supply of money may be overwhelming investors just as the government steps up debt sales, the trade and budget deficits grow and de-leveraging by investors slows.

Treasury Benefits From ‘Massive Paranoia’ as Bailout Cost Falls Instead of shunning the U.S., where losses on subprime mortgages in 2007 triggered a global seizure in credit markets that led to the downfall of securities firms Bear Stearns Cos. and Lehman Brothers Holdings Inc., investors can’t get enough Treasuries. Even as estimates of Obama’s stimulus package and the budget deficit rise to a record $1 trillion, demand continues to increase as investors flee risky assets around the world and put their cash into U.S. bonds paying, in some cases, nothing in yield just to ensure the return of their principal.

US ECONOMY

US cost of living probably fell most in six decades
The cost of living in the U.S. probably fell in November by the most in six decades, while slumps in manufacturing and homebuilding worsened, sending the economy deeper into a recession, economists said before reports this week. Consumer prices probably dropped 1.2 percent last month, the most since records began in 1947, according to the median estimate in a Bloomberg News survey. Builders broke ground on the fewest houses in almost a half century and factory output continued to slide. Costs of oil and other raw materials plummeted last month as the credit crisis caused consumers to slash spending, prompting automakers to plead for a bailout. Tumbling sales have retailers cutting prices, setting the stage for the Federal Reserve this week to lower its key rate target to its lowest level ever.

GLOBAL WARMING

The glaciologist's worst nightmare Lakes of melted ice form on the surface of the polar ice caps in the summer months, driving cracks down through the ice, creating conduits. In Greenland recently, one such lake, three kilometres wide, emptied like a draining bathtub in just 90 minutes.So much water surging down to the bedrock of the ice sheet could contribute to massive icebergs breaking off and sliding into the sea – causing a sharp rise in sea level. It's the glaciologist's worst nightmare.

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It Ain't Over Till It's Over!

Even though the Senate failed to pass a bailout for US automakers, it looks like Detroit may get money after all ... The White House just announced it's considering bailout out Detroit's Big 3 using the Treasury Department's TARP program, the $700 billion rescue fund.

But didn't Bush say he WOULDN'T use the TARP money to help the automakers? Sure he did (through Treasury Secretary Paulson). But he doesn't want to go down in history as the President who let the automakers die -- he'd much rather Obama get that title (ha-ha).

Anyway, this turned around the market this morning, so it's off its lows (but still down). And we don't know where we'll end the day. Up 100? Down 300? I don't know. As I said in my previous post, we'd probably have a "sell the news" reaction to a bailout passing anyway.

And as I also said earlier, if the automakers can hold out until January, they have a much better chance of getting money out of the new Congress.

Someone needs to get a hook and yank the head of the UAW off the air. He's horrible -- his presentation doesn't help his case. After listening to him, it sounds like it's better for auto workers NOT to have a union.

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

I'm Back -- Did I Miss Anything?

Man, you guys had fun while I was away. And look at this welcome-home party! Stock futures are swooning, as Republican senators refuse to go along with the Detroit bailout package.

On the other hand, we probably would have had "sell-the-news" stock dump even if the bailout package did pass. The economic environment is terrible. As Calculated Risk explains, weekly unemployment claims are at multi-year highs:

It's not just jobs -- retail sales collapsed in November, and other indicators are negative across the board. In case you haven't guessed, I am a reluctant supporter of the bail-out. I think letting a US car company go bankrupt in the current economic environment is like pouring gasoline on a fire. I didn't think Congress would be this stupid. After all, they don't raise a peep when Citibank got $300 billion. But some in Congress are apparently more interested in pursuing long-held ideological dreams -- like breaking unions -- than they care about this nation's well-being and health.

So is there hope? Well, if GM and Chrysler can hang on until the next Congress, sure. The final vote was 52 to 35 (12 didn't vote). Four Democrats did not vote, and Senate Majority Leader Harry Reid voted with Republicans (as a procedural matter). With 10 Republicans defecting, seven of whom will be around in 2009, new legislation will easily pass in January upon the arrival of at least seven new Democratic votes, unless Reid allows a filibuster. Reid is a total wimp, so car makers shouldn't hang their hopes on him suddenly growing a spine.

Meanwhile, everyone should read this Joseph Stiglitz piece. He's a Nobel-prize winning economist, and he identifies five key mistakes—under Reagan, Clinton, and Bush II — that laid the groundwork for financial apocalypse.

So what does this mean for gold? Gold is keying on the US dollar which has run into major problems over the past week.

The dollar has some final support at 83.75. If that fails, we could see the US dollar fall to 81. And that would be bullish for gold. Let's see how things develop today.

Now, how about my trip? I'll be telling my Red-Hot Global Small-Caps subscribers about it pretty soon, and I expect I'll make it my MoneyandMarkets piece for next week.

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

Viva Mexico!

An exciting opportunity just came up: I'm on my way to check out a new gold mining project south of the border. So stay tuned, and I will fill you in on what I dig up as soon as possible.

Regards,

Sean

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

Better Than a Hot Death Sandwich

After I recommended a bearish position in RCE on Friday, the markets surged like a rhino on cocaine. Typical! Still, it's better than a hot-death sandwich, if only because A) we kept the position small and B) my other services, which are longer-term, retain their bullish stance on gold, energy and agriculture.

And the markets are looking to open well up this morning, but Friday showed us how quickly these things can turn around. Keep an eye on the dollar ...It seems to be heading lower. If the US dollar breaks below 84.5, it could go to 82.65 or stronger support at 81. A weaker dollar should be supportive of gold (it has been so far this morning -- gold is up by about $24 as I write this) but it doesn't have to be. Here is the news I'm reading ...

GLOBAL MARKETS

World markets surge on global stimulus hopes
The gains came despite Friday's news that American employers cut 533,000 jobs in November -- the most in 34 years -- as investors appeared to signal their support for growth-promoting measures around the world. "The hour is darkest before the dawn and while the economic backdrop is absolutely dire, policy makers have now moved to an aggressively accommodative stance," said Jeremy Batstone-Carr, head of research at Charles Stanley in London. Chinese officials were reportedly meeting this week to discuss possible new steps to expand the $586 billion of stimulus already planned, while in Washington, a bailout of ailing U.S. automakers appeared to be falling into place.

Wall Street Looks for Upbeat Open
Wall Street was set for an upbeat start on Monday, with investors enthusiastic that President-elect Barack Obama's plan to launch the largest infrastructure-spending package since the 1950s will help boost the crippled economy. Obama announced over the weekend plans for the largest U.S. public works spending program since the creation of the interstate highway system a half-century ago. That could bolster the economy by putting thousands of people to work building schools and other construction projects.

Cheapest Stocks Since 1995 Show Companies' Cash Exceeds Total Market Value Stocks have fallen so far that 2,267 companies around the globe are offering profits to investors for free. That’s eight times as many as at the end of the last bear market, when the shares rose 115 percent over the next year.

US ECONOMY

Fears of a Million Layoffs a Month in Corporate America
As many as a million American jobs could be lost every month by next spring as businesses struggle to raise capital in financial markets consumed by fear, according to a new analysis. Graham Turner, of consultancy GFC Economics, says the rising cost of corporate debt is now flashing a red warning signal that far worse is to come over the next few months and job losses are heading for levels last seen in the 1930s Great Depression.

Financial Medicine of Lower Interest Rates Will Only Make Us All Sicker
The problem isn't the cost of credit but the availability. Credit won't become more available until the banks trust each other and the inter-bank market reboots. That won't happen until the banks are forced to reveal their potential sub-prime losses. Lower rates just delay that "day of reckoning" – by giving the banks more hope they can get away without "full disclosure".

ENERGY

Contango Pays Most in Decade as Shell Stores Crude Stockpiling crude may provide higher returns than commodities, stocks and Treasuries as the U.S., Japan and Europe endure simultaneous recessions for the first time since World War II. As many as 16 [supertankers are] booked for potential storage instead of transporting crude ... The tankers, if full, hold about 26 million barrels worth about $1 billion, more than the 22.9 million barrels sitting in Cushing, Oklahoma, where oil is stored for delivery against Nymex contracts.

Oil Price Could Fall to $25 a Barrel, Analysts Say
Merrill Lynch commodity strategist Francisco Clanch said there is possibility it could go even lower if the economic outlook worsens. "Potentially, under a number of circumstances including a recession in China and a failure from OPEC to cut enough output, we could see prices dipping all the way to $US25 a barrel," he said. "We're not forecasting that. We're saying its might happen."

SOLAR

Will Solar Power Ever Be as Cheap as Coal
“Solar power is the energy of the future – and always will be." That tired joke, which has dogged solar-generated electricity for decades due to its high cost, could be retired far sooner than many think. While solar contributes less than 1 percent of the energy generated in the United States today, its costs are turning sharply downward.

How Will Temporary Decline in Oil Prices Impact Energy Sector?
Many observers have suggested that a precipitous decline in the oil markets will have a disastrous impact on alternative energy investments. I disagree because I believe reversion to the established trend line in the oil markets can only take us back to the $70 to $80 level and many alternative energy technologies remain cost effective at that price point. Moreover, electricity prices are not likely to experience the same violent swings as oil. So the fundamental market drivers that favor the use of wind and solar power are different. Sales may decline for a time, but they will almost certainly recover with the overall economy.

METALS

Gold Gains in London as Weaker Dollar, Higher Oil Boost Demand for Metal Gold rose for the first time in four days in London as a weaker dollar and higher oil prices increased its appeal as an alternative investment to the U.S. currency and hedge against inflation. Silver and platinum also gained.

Copper Gains in London, Ending Worst Losing Streak in a Decade; Zinc Rises Copper rallied from its worst losing streak in a decade in London, buoyed by a weaker dollar and U.S. President-elect Barack Obama’s pledge to begin the biggest public works program in about 50 years. Aluminum and zinc also advanced.

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