Oil Drop -- Quicker Than I Thought

I thought we were getting to $33 oil, I just didn't think it would happen so fast. Oil is trading at $33 and change, down $3.67 as I write this. Traders are blaming a lower demand outlook from OPEC, but I think it's a combination of deflation, demand destruction and too much oil in storage, as I mentioned in yesterday's post.


From the Bloomberg story:

OPEC said that demand for its crude will decline 4.2 percent this year as the recession in the U.S., Europe and Japan curbs fuel use.
Consumption of OPEC supplies will shrink 1.4 million barrels to 29.5 million barrels a day, according to a monthly report released today. U.S. fuel demand fell 6 percent
last year, the biggest drop since 1980, as prices touched records and the economy contracted, the industry-funded American Petroleum Institute said today.

In Other News ...

Oil Collapse Forces Gulf Nations to Run Deficits, Cut Foreign Investment Tumbling oil prices are forcing many of the richest Persian Gulf states to record budget deficits and limit a critical source of foreign investment for poorer Arab countries.

Gold mine production down but costs up 24% world-wide Producers' total cash costs rose by 22% year-on-year to an average of $472/ounce for the nine months of 2008, while total production costs were also up by 22% at $591/ounce. The figures for the third quarter of 2008 alone record an increase of 25% year-on-year in cash costs and a 24% in production costs.


S.Africa gold output falls 8.7 pct yr/yr in Nov. South African gold output has fallen since state-owned power utility Eskom 1/8ESCJ.UL 3/8 suffered a near collapse in the electricity grid last January.


Four Bad Bear Markets Update
When looking at this chart, be aware that the Great Depression crash is based on the DOW; the three others are for the S&P 500.

Sean's note: The S&P as of yesterdy was down 45.2% in the current bear market (and up 12% from its November low). I think we're going back to visit the November low.

Food Prices Overcooked Given Corn's Decline, Fuel Group Says: Chart of Day Food prices should be lower, given the decline in commodities such as corn and crude oil the past six months, according to Robert Dinneen, president of the Renewable Fuels Association.


China Passes Germany to Become Third-Biggest Economy Gross domestic product expanded 13 percent from a year earlier, more than a previous estimate of 11.9 percent, to 25.731 trillion yuan ($3.38 trillion), the statistics bureau said on its Web site today. That topped Germany’s 2.424 trillion euros ($3.32 trillion), using average exchange rates for 2007.

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

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

Charts of Dollar and Ultrashort Consumer Services

Remember how rosy things looked yesterday morning, with the market shaking off bad economic news? Well, that faded in the afternoon, and today, just rotten economic news is giving the markt its lumps. And yet gold is down despite an apparent weakening trend in the U.S. dollar. Look at a chart of the dollar ...

Maybe the dollar will be able to go higher, but it doesn't look good. So why is gold weaker? I talkeed to a Chicago broker about this late yesterday. He says too many speculators have been burned, and gold buyers are "on strike" until they get lower prices.

Meanwhile, the outlook for the U.S. consumer is awful. Here is a chart for Red-Hot Commodity ETFs subscribers ...
This is a good area for a bounce in the SCC, and the fundamentals for consumers continue to be dismal.

Here is Other News I'm Reading ...

Roubini: "How to Avoid the Horrors of Stag-Deflation"
The US and the global economy are at risk of a severe stag-deflation, a deadly combination of economic stagnation/recession and deflation. A severe global recession will lead to deflationary pressures. Falling demand will lead to lower inflation as companies cut prices to reduce excess inventory. Slack in labour markets from rising unemployment will control labour costs and wage growth. Further slack in commodity markets as prices fall will lead to sharply lower inflation. Thus inflation in advanced economies will fall towards the 1 per cent level that leads to concerns about deflation.


Employers in U.S. Cut 533,000 Jobs, Most in 34 Years, as Recession Deepens U.S. employers eliminated jobs in November at the fastest pace in 34 years and the unemployment rate jumped as the yearlong recession engulfing the world’s largest economy deepened.


China November Car Sales Drop 10%, Most in Three Years, on Cooling Economy China's November car sales plunged 10 percent, the biggest decline in more than three years, as a cooling economy caused consumers to curb spending in the world's second-biggest auto market.


'Ponzi Scheme' at Citi
A new Citigroup scandal is engulfing Robert Rubin and his former disciple Chuck Prince for their roles in an alleged Ponzi-style scheme that's now choking world banking. Director Rubin and ousted CEO Prince - and their lieutenants over the past five years - are named in a federal lawsuit for an alleged complex cover-up of toxic securities that spread across the globe, wiping out trillions of dollars in their destructive paths.

But there's always an optimist in the crowd ...

Fundamentals of Commodities Markets Are `Unimpaired,' Jim Rogers Predicts The fundamentals of commodities are “unimpaired” and prices will rebound when a lack of new supply leads to shortages, said Jim Rogers, chairman of Rogers Holdings.

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

Getting Ready for Turkey Day

I am seeing a flurry of stories that base metals miners are rushing to shut down. Just look at some of the headlines from the past couple days:

Zambian copper workers face layoffs ... Indefinite shutdown for world top tantalum miner ... Mwana Africa shuts Zimbabwe nickel mines ... Denison Mines delays uranium project ... Norilsk Idles Two Mines ... I could go on, but you get the picture. This is happening because the global economy is tumbling into recession (See the China story linked below). But down the road, this is also setting up a supply squeeze and subsequent rebound.

And it's not just base metals: Australia's 2008 gold output may fall to lowest level since '89 .

In Other News ...

Gold equities expected to pay off for the patient

Scotia Capital analyst Trevor Turnbull remains bullish on gold, noting that dollar demand for the metal reached an all-time quarterly record of US$32-billion in the third quarter as investors flocked to safety. He also highlighted the identifiable investment demand gold offers, which includes ETFs, bars and coins.

XX Sean's note -- this guy's picks will look familiar to buyers of my gold report. By the way, did you get yesterday's update to "Your Golden Parachute for 2009"? It's an important one!

Gold is the answer. Now what was the question? While gold has hardly been seen to be performing well in recent months, and has failed to meet gold optimists' more extreme, or even more mild, expectations, it has still performed less badly than most other sectors of the market. As has been noted here on several occasions actual physical demand has remained extremely strong, both in eastern and western markets. Major gold suppliers have run out of inventory and seem to be having difficulty replacing it, while ETF demand remains very positive.

Synchronized Recession, Synchronized Stimulus?

If all the countries (or all the relevant countries) were to stimulate simultaneously, then the aggregate world economy would look a lot more like a closed economy, and the multiplier would be larger yet again.

Figure 1: From visualization of OECD Economic Outlook 84 [link]. Blue is negative growth, darkest blue is -9.335%; orange is positive growth, most orange is +9.335%. White is zero; gray is "no forecast".

A Global Downturn Puts the Brakes on China's Industry It is happening faster than most anyone predicted: China’s economy, long the world’s fastest-growing major economy, is slowing down. Economists are forecasting that after growing nearly 12 percent last year, China’s economy could slow to 5.5 percent in the fourth quarter of this year — a stunning retreat for a country accustomed to boom times.

The Western Financial System We Knew Has Collapsed

Getting banks to lend again is even more essential than getting primary and secondary markets for illiquid structured financial products going again. It may be even more important than getting the regular commercial paper market going again, important though that is. Small and medium enterprises rely overwhelmingly on banks for external finance. Without access to bank loans, credit lines and overdraft facilities, countless SMEs that would be perfectly viable with a functional financial and banking system are threatened with bankruptcy. Without working capital, businesses go out of business. Banks are essential. But they are not lending. Why? A number of possible explanations suggest themselves.

And now for some good news ...

U.S. Mortgage Rates Fall on $600 Billion Fed Plan U.S. mortgage rates fell more than three-quarters of a percentage point today ... The average U.S. rate for a 30-year fixed mortgage ended the day at about 5.5 percent after falling to as low as 5.25 percent, according to Bankrate Inc. It was 6.38 percent this morning.

XX Sean's note -- I'll be traveling for Thanksgiving, so my computer access over the long weekend will be very restricted. Have a great holiday, stuff yourself silly, and I'll talk to you on Monday.

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

3 Charts -- Gold, Dollar and Crude

Today, the markets look to open lower as the parade of pain continues around the world. Japan has joined Europe in recession, President Bush lets slip that he is worried we are facing a depression "greater than the Great Depression", and China's consumption of commodities is running off the rails.

I'll have links to all these stories in a moment. First, let's look at a chart of gold.Gold may be hammering out a base. Its price action has improved enough that it is now above its 10- and 20-day moving averages, and the 10-day moving average looks ready to cross above the 20-day moving average. We'll need follow-through to be sure.

Meanwhile, momentum is improving. Gold is still in a downtrend -- we don't have a weekly buy signal -- but this looks encouraging. What could be driving it? How about reports that the Arab oil sheiks and Iran are piling into gold right now. Why would they be doing that? I'll explore that more in this week's MoneyandMarkets.com column.

Now, let's look at a chart of the US dollar ...
The dollar broke out to the upside and is now consolidating those gains rather than taking off. This is perplexing, considering the bad news pouring in about other economies. But if this were easy, everyone would be millionaires.

As the US dollar goes up, usually gold and oil go down. Let's look at crude oil ...
Oil seems to be going lower as demand falls around the world and OPEC seems to be backing off from a potential cut this month. What will turn crude oil around? Probably when it reaches new equilibrium in supply and demand. We are already seeing many new oil projects delayed or canceled due to falling oil prices, lack of finances, and so on. This is future supply that is being destroyed, just as present demand is being destroyed now. The two shall meet ... and maybe sooner rather than later.

Here is some news I find interesting ...

Japan joins Europe in recession - International Herald Tribune
Japan became the latest major economy to fall into recession on Monday with France close behind, and the IMF said it needed at least $100 billion (67 billion pounds) to fight the billowing economic crisis enveloping the world.
The euro zone is also in formal recession, with two consecutive quarters of contraction, Britain and the United States are on the brink and China is slowing sharply.

Bush: We're Trying to Avoid a Depression Greater Than the Great Depression
"I'm a free market person," President Bush told reporters after the summit ended, "until you're told that if you don't take decisive measures then it's conceivable that our country could go into a depression greater than the Great Depression."

Long, painful recession is likely - survey A survey of leading economists showed Monday that the likelihood of a prolonged recession has increased significantly as economic conditions continue to deteriorate.

Copper Drop to Deepen as China Spending Overwhelmed by Deflating `Bubble' Not even $586 billion of emergency spending by China can slow the plunge in copper, the worst- performing metal since the commodities market crashed in July.

U.S. Cotton Exports Drop at Fastest Pace in Decade as Chinese Demand Slows Cotton users are halting orders from the U.S., the world's biggest exporter, at the fastest pace in at least a decade as the economic slowdown erodes demand from China and sends prices to a six-year low.

Aluminum Falls to Three-Year Low as China May Increase Supply; Copper Down Aluminum fell to a three-year low and copper declined in London on speculation more metal will be shipped out of China, adding to global supplies as demand falters. Zinc also fell.

China Reduced Gasoline, Diesel Imports in October Because of Weaker Demand China, the world's second-biggest energy consumer after the U.S., cut diesel and gasoline imports for a third month as the economic slowdown damped fuel demand growth.

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

China, China, China!

More on the China Stimulus Plan ...

$586 billion is a massive number for an economy the size of China's. Recall our first stimulus package here was $150 billion, and a second that is assumed to total $300 billion is under discussion. China's economy on a purchasing power parity basis is estimated to be about $7 trillion dollars as of 2007, versus its size at then current exchange rates of just under $3 trillion. By contrast, the US economy was just under $13 trillion, so if you accept the larger PPP value, the Chinese stimulus package would be tantamount to a $1.1 trillion program here (and even larger if you use the nominal exchange rate).

XX Sean's note -- the question now being asked on Wall Street is how is China going to pay or this plan? Maybe by selling some of those $541 bilion in US Treasuries they have stashed away as part of their $2 trillion in foreign reserves? What would that do to the price of U.S. Treasuries?

Copper Falls on Concern China's Consumption Will Take Months to Rebound Copper fell in London on speculation China's $586 billion spending to support its economy will take months to spur demand for the metal used in cars and homes.

China Stocks May Need More Than Stimulus to Lure Investors After 66% Drop China may have more work ahead to revive investors’ confidence in the world’s worst-performing major stock market after unveiling a 4 trillion yuan ($586 billion) stimulus plan.

Noble Says Commodities Bottoming, to Rebound on Government Spending Plans Noble Group Ltd., the commodity supplier that more than doubled third-quarter profit, forecast a rebound in demand for metals and grains over the next 12 to 18 months as government investment programs boost economic growth.

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

DC Money Show and more

I spent the weekend at the Washington D.C., Money show. The show has shrunk from last year, and the opinions ranged from "this is an incredible time to buy" to "Aaaaaaiiiiiii!!!!!" I'll have more about that in Wednesday's Money and Markets column.

This morning, the market is rising on news of a $586 stimulus plan in China and a new A.I.G. bailout in Washington. I'm not sure why the market thinks this is good news. Last time I looked, the Federal Debt had soared to such levels that each American now owes over $32,000. I think that's unsustainable, as long as the US dollar holds its present value.

In other words, it would be a lot easier to bear if that debt was only (in relative terms), $3,200. That's not so scary, is it? I wonder if Uncle Sam is thinking the same thing. The Russians are already letting the ruble devalue like a stone falling from heaven.

You could say that Paulson's hand-outs of billions of dollars at a time are just the latest twist in the Bush gang's efforts to loot the public purse before they leave office. Jerome at DailyKos asks: Can Obama Stop the Looting Before It's Too Late? I don't think Jerome should get his hopes up -- the handover of power seems to be much too friendly for there to be a disruption of the pigs at the trough -- and I found especially interesting this line from a Bloomberg story that Jerome links to: Americans have no idea where their money is going or what securities the banks are pledging in return.

Here's the news I'm reading now ...

AIG May Get More in Bailout

When the restructured deal is complete, taxpayers will have invested and lent a total of $150 billion to A.I.G., the most the government has ever directed to a single private enterprise. It is a stark reversal of the government’s assurance that its earlier moves had stabilized A.I.G.

XX Sean's note -- Funny, isn't it, how eager Treasury Secretary Paulson is to throw $40 billion at a pop at A.I.G, but there's great rending of garments and gnashing of teeth over a proposed $50 billion loan package for the auto industry. Heck, even Australia is giving its car makers $6 billion over 15 years.

Europe, Asia Markets Surge on China Stimulus Plan

The gains come in the wake of Chinese government's unveiling of a massive 4 trillion yuan ($586 billion) stimulus package to help stave off much of the economic slowdown. The package involves a mix of spending, subsidies, looser credit policies and tax cuts.

China's economic growth slowed to 9 percent in the third quarter, the lowest level in five years and a sharp decline from 11.9 percent the year before -- perilously low for a government that needs to create jobs for millions of new workers and for other Asian countries that have come to depend heavily on Chinese demand.

Believing in Estimates Means 20% Advance for S&P 500

The average Wall Street forecast calls for the S&P 500 to break out of a bear market and surge 20 percent to 1,118 by Dec. 31 -- more than twice as much as the biggest-ever advance to close out a year, according to data compiled by Bloomberg. Strategists were even more bullish at the beginning of the year, predicting that the S&P 500 would end 2008 at a record 1,632.

OPEC president: Oil cuts likely if no price rally

OPEC nations could further reduce oil output if moves last month to slash production do not bolster plummeting oil prices, OPEC president Chakib Khelil said Saturday.

Saudi Aramco Says Oil Price Falls May Curb Investment

(Bloomberg) -- Saudi Aramco, the world's biggest state-owned oil company, said a further drop in crude oil prices may curtail investments needed to offset declining output in aging fields.

Investment is also needed to expand production capacity to meet long-term demand growth, Chief Executive Officer Abdallah Jum'ah said in a handout distributed today at an industry summit in Beijing.

Saudi Aramco to Cut December Crude Oil Supplies to Asia by as Much as 6% Saudi Aramco, the world's biggest state oil company, will cut crude supplies to Asia in December for the first time in at least a year as demand slumps for naphtha and diesel fuel.

Gold Advances in London Trading as Higher Oil, Weaker Dollar Boost Demand Gold rose for a second day in London as higher crude-oil prices and a weaker dollar boosted demand for the metal as a hedge against inflation.

Finally, in Sunday's New York Times, Al Gore proposes "a five-part plan to repower America with a commitment to producing 100% of our electricity from carbon-free sources within 10 years."

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

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

Energy News Roundup

Mexican oil production falls 9 percent
Mexico's state-run oil company says output fell 9 percent to 2.83 million barrels a day in the first eight months of the year. Petroleos Mexicanos says sagging oil production is due a drop at its main Cantarell oil field. Output there was down by 26 percent to 998,000 barrels a day. The company said Monday that the decline helped cut exports to 1.43 million barrels a day, down 16 percent from the year-ago period.

Saudis Cut Oil Sales To Large Global Customers - US Refiner
Saudi Arabia is cutting oil exports to some of its biggest global refining customers, but not in the U.S., an independent U.S. refiner said Monday. "There are Saudi cutbacks, but it did not affect us," a person familiar with the refiner's crude purchasing said. "It affected some of their big global customers."

Not All Oil Sands Plans Face Huge Costs Hikes
The multibillion-dollar cost jump that has hit the Fort Hills oil sands development is not representative of other proposals in the industry, which is struggling to deliver projects on time and on budget, the new head of Canada's main oil and gas lobby said Monday.

China's August Oil Demand Strong But Outlook Muted
The stockbuilding has given an injection to apparent demand growth, which in July soared to a two year high even as oil hit a record above $149 a barrel and China's drivers wrestled with a surprise rise in state-set fuel prices.

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

Maelstrom Tuesday

What a wild day it was today. I published one Red-Hot Global Small Caps issue, one Red-Hot Commodity ETFs issue, and two Red-Hot Canadian Small-Caps Issues -- all of them trading issues. I also put out another update for my most recent oil report.

So, I didn't have time to blog until the trading day ended. Here's what caught my eye today ...

GOLD

Gold, Precious Metals Fall in New York as Investors Sell to Raise Cash Gold fell as investors sold commodities to raise cash and cover losses in other markets. Silver fell a two-year low and platinum dropped the most since at least 1986.

CRUDE OIL

Oil at 7-month low on Wall Street woes
Oil prices settled at a seven-month low Tuesday as the meltdown on Wall Street pulled the oil market's focus to the economic slowdown that has already been cutting away at demand for energy.

XX Sean’s note – I think oil is due for a bounce, but just in case, I’ve taken protective action in the RGS and RCE portfolios. Once these sell-offs get started, they can go further, faster, than might seem logical or even possible.

Saudi Arabia Will Probably Cut Oil Supply, Riyadh Banker Says
Saudi Arabia, the world's biggest crude oil exporter, will probably reduce supplies before the next OPEC meeting in December after the group pledged to respect output quotas, a Riyadh-based banker said.

XX It’s like we’re buying oil from a split personality. Will the Saudis cut production? They’ve muddled the waters so much that it’s impossible to tell. Maybe that was their aim all along.

By the way, The new OPEC Monthly Oil Market Report came out this morning. OPEC cut its 2008 forecast oil demand growth. OPEC now expects that Oil demand will rise by 880,000 barrels per day (bpd) this year, 120,000 bpd less than the previous forecast.

Nigerian militants say Shell pipeline destroyed
LAGOS (AFP) - A Nigerian rebel group said Tuesday it had blown up and destroyed a Royal Dutch Shell pipeline in the latest attack in its "oil war" on western firms.

Weak oil and debt markets may bedevil oil sands plans
CALGARY, Alberta (Reuters) - A double whammy of tumbling crude prices and shaky credit markets could force some companies to delay multibillion-dollar Canadian oil sands projects, cutting the country's overall output forecast.

XX Sean’s note – this applies to oil sands companies that use bucket loaders to move tons of sand, not SAGD companies like the one in the RCS portfolio – that has a much lower cost structure.

US ECONOMY

U.S. Stocks Climb on Speculation Fed Will Rescue Insurer AIG From Collapse U.S. stocks rose, helping the Standard & Poor's 500 Index rebound from its steepest drop in seven years, as expectations grew the Federal Reserve may rescue American International Group Inc. from collapse.

Consumer Prices in U.S. Fall First Time in Almost Two Years as Fuel Drops U.S. consumer prices fell in August for the first time in almost two years as fuel costs declined from record levels.

Texas Struggles to Prevent Health Crisis After Ike Cuts Off Water, Power Three days after Hurricane Ike delivered a less-powerful punch than predicted, coastal Texas is struggling to fend off a health-care crisis.

CHINA

China May Cut Rates Again, Increase Lending, Spend More to Boost Economy China may cut interest rates again, ease limits on bank lending and boost spending to spur economic growth after lowering borrowing costs for the first time in six years.

CANADA

Canada July Factory Sales Gain More-Than-Expected 2.7% on Metals, Vehicles Canadian factory shipments rose 2.7 percent in July, almost three times as much as economists anticipated, on higher sales of metals and motor vehicles.

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

Freaky Friday -- Hurricanes and More

Considering that Ike looks poised to give Texas a Tina-Turner-sized whuppin' (yes, I'm going to hell for that one), it's surprising that oil prices haven't moved higher. This shows the extreme bearishness of the market right now.

What could really be impacted is gasoline production. But that's not really being priced in either. I guess traders figure that production facilities were hardened after the carnage of Rita and Katrina, and so should be able to ride out the storm just fine. We'll see.

Hurricane Ike Bears Down on Texas Coast South of Houston; Thousands Flee Hurricane Ike bore down on Texas, heading for landfall as early as today in Galveston, where forecasters warned residents of ``certain death'' if they ignore a mandatory-evacuation order.

Weather junkies can check out the Hurricane Ike Mashup. And here's more from Bloomberg on the storm's potential impact.Finally, Rigzone.com has a good list of production facilities and rigs in the direct path of the storm.

US ECONOMY

Foreclosures in U.S. Reach Record in August as Housing Crisis Cut Prices U.S. foreclosure filings rose to a record in August as falling home prices made it harder to sell or refinance homes to pay off the mortgage, RealtyTrac Inc. said.

MORE OIL NEWS

Chavez Expels American Ambassador, Threatens to Cut Venezuelan Oil Exports Venezuelan President Hugo Chavez yesterday ordered the American ambassador to Caracas to leave and threatened to halt oil exports to the U.S. in a show of solidarity with his Bolivian counterpart Evo Morales.

XX Sean's note -- I think Chavez is a toothless tiger on this one.

CHINA

China's Industrial Output Expands at Slowest Pace in Six Years on Exports China's industrial production grew at the slowest pace in six years on weaker export demand and factory shutdowns for the Olympics, increasing the likelihood the government will stimulate the economy.

August Retail Sales Rise 23.2% in China, Close to Fastest Pace Since 1999 China's retail sales grew at close to the fastest pace in at least nine years as rising incomes encouraged consumer spending.

GOLD

Gold Rebounds From an 11-Month Low in London Trading as the Dollar Weakens Gold rebounded from an 11-month low in London as the dollar fell against currencies such as the euro, bolstering the appeal of the metal as a hedge against further declines. Platinum and palladium also advanced.

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

Is China on the Rocks or Not?

I can’t walk to the water cooler without hearing from someone how China’s economy is deflating like a balloon. Oh really? Let’s look inside the latest Bloomberg story, “China Inflation Cools to 4.9% as Export Growth Slows,” and see what’s happening.

Sept. 10 (Bloomberg) -- China's inflation weakened to the slowest pace since June 2007 and export growth cooled, stoking speculation the government will cut taxes and ease loan restrictions to spur the world's fourth-largest economy.

XX Sean’s note – that sounds bad, eh? Read on!

Consumer prices rose 4.9 percent in August from a year earlier, less than economists estimated, after gaining 6.3 percent in July, the National Bureau of Statistics said today. Exports rose 21.1 percent in August, down from July's 26.9 percent gain, the Customs Bureau said.

XX Sean’s note – nonetheless, exports rose 21%! Does that sound like an economy in trouble? If America’s exports rose 20%, Wall Street would smile a smile so broad they’d out-dazzle the sun.

Stocks rose, erasing earlier losses, on expectations China may lower taxes, slow the yuan's gains and ease lending restrictions to protect jobs at exporters after four quarters of slowing economic growth. Cooling inflation also leaves room for the government to counter power shortages by raising energy prices, encouraging refiners and generators to boost output.

XX Sean’s note – so, China is going to stimulate the economy? Won’t that make it heat up?

China's producer prices climbed 10.1 percent, the fastest pace since at least 1996, after rising 10 percent in July, today's data showed.

XX Again, a 10% rise in producer prices is not exactly what you expect in an economy that’s deflating. Now, contrasted with the rise in consumer inflation (4.9%) it’s obvious that Chinese producers are absorbing some of the cost pressures. That may be a problem for the Chinese stock market, but I don’t see how it’s a problem for commodity consumption.

XX later in the article we read …

Officials are working on a plan for as much as 400 billion yuan ($58 billion) of tax cuts and spending to prevent an economic slump, according to economists and reports in domestic news media.

XX That’s a heck of a lot of stimulus. Could the Chinese err on the side of overstimulation? Yes. What would that do to commodity prices?

Consumer prices in Japan rose 2.3 percent in July, the fastest pace in more than a decade, while Malaysia's inflation accelerated to 8.5 percent, the quickest in more than 26 years.

XX There’s that phrase again – “the fastest pace in a decade.”

August's trade surplus climbed to a record $28.7 billion as import growth weakened to 23.1 percent from a year earlier, the slowest pace in almost a year, on falling commodity prices. Foreign direct investment pumped another $7 billion into the financial system last month, the commerce ministry said today.

XX And the trade surplus is hitting a record even though China is a big energy importer? What does that tell you about China’s customers? I think it tells us they’re still buying. Meanwhile, commodity prices are down, but we know that. That should just make it easier for people to buy more stuff.

Consumer-price inflation has slowed for four months, edging closer to the central bank's target of 4.8 percent for the year. February's 8.7 percent pace was the fastest in 12 years. Food prices rose 10.3 percent in August from a year earlier after gaining 14.4 percent in July. Non-food prices increased 2.1 percent, the same as in July.

XX I talked about the “Agriculture Bomb” in Wednesday’s MoneyandMarkets column. Sure looks like higher prices aren’t slowing Chinese food consumption.

The expansion in factory and property spending, one of the key drivers of the economy, maintained its pace in the eight months through August. Urban fixed-asset investment rose 27.4 percent to 8.49 trillion yuan from a year earlier, the statistics bureau said today. That compared with a 27.3 percent gain for the first seven months.

XX Really, money is pouring into projects in China.

China's economy expanded 10.1 percent in the second quarter. The pace of growth remains the fastest of the world's 20 biggest economies.

XX Ya think?

In July, the central bank eased restrictions on how much banks can lend by raising 2008 loan quotas for national banks by 5 percent and regional lenders by 10 percent, according to reports by Goldman Sachs Group Inc., BNP Paribas SA, and China Merchants Bank Co.

XX So it’s “easy money time” in China. Later in the story (read through on the link) you’ll see that China is thinking of making lending even easier. We know what happened when we got easy money here in the US – the economy boomed.

XX So is the Chinese economy really hitting the skids as people say? They haven’t proved it to me with this story.

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

Weaker Oil Demand?

China August Car Sales Fall, First Decline in 3 Years
China's passenger-car sales fell in August for the first time in more than three years as the Beijing Olympics and a slumping stock market prompted drivers to delay purchases.
"The August decline is mainly because of one-off factor of the Olympics that deterred consumers' attention,'' said Yale Zhang, director at CSM Asia in Shanghai. "Car sales growth may recover as soon as September as automakers start to add new models and offer incentives again.''

XX Sean's note -- During the Olympics, around Beijing, drivers were only allowed to drive on alternate days. Would you buy a new car if you were only allowed to drive it half the time? Let's see how September's sales go.

U.S. Jan-June Oil Demand Falls Most Since 1982
U.S. oil demand during the first half of 2008 fell by an average 800,000 barrels per day compared to the same period a year ago, the biggest volume decline in 26 years, the Energy Information Administration said on Tuesday.
The drop in U.S. oil demand helped offset a 1.3-million-barrel-per-day increase in petroleum consumption in nonindustrial countries during the first half of the year.
As a result, preliminary data shows that global oil consumption rose by 500,000 barrels a day in the 6-month period, the EIA said.

XX Sean's note. Gasoline prices were rising from January through June ... what are they doing now? Still, I don't think it matters what the news is -- bullish or bearish -- now that oil has momentum to the downside, a test of $100 a barrel seems inevitable.

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

News and Charts -- TGIF Edition

Dr. Jeff Masters gives us the latest on monster hurricane Ike …

Ike's long-term fate has two main possibilities:

1) Ike may hit eastern Cuba, as forecast by the latest (12Z, 8am EDT) runs of the GFDL and ECMWF models, and a number of ensemble members of the latest 12Z GFS model (Figure 2). A hit on Cuba would severely disrupt the storm, weakening it to a Category 1 or 2. Ike could then move on into the Gulf of Mexico and re-intensify, as forecast by the ECMWF model.

2) Ike may plow through the Bahamas and come very close to South Florida (the consensus of the HWRF, NOGAPS, and GFS models). A trough of low pressure may then pull Ike to north. This turn to the north might occur over Florida, or over the western Bahamas, within 200 miles of the Florida coast. In the latter case, North Carolina might be at risk. The recent model trend has been to depict a weaker trough, resulting in Ike getting stranded, like Fay and Gustav did. Ike would resume a slow motion to the west as ridge of pressure builds in, potentially crossing Florida into the Gulf of Mexico.

XX Sean's note -- I think the potential for Ike to cross into the Gulf of Mexico is not reflected in oil's price right now, which is why I hesitate to add a hedge on oil at this time.

And then there's OPEC. They meet next Tuesday. What the heck are they going to do? ...

OPEC Is Unlikely to Cut Production at Vienna Meet, Goldman's O'Neill Says OPEC is unlikely to cut supply at next week's meeting in Vienna because of the hurricane season, Goldman Sachs Group Inc. Chief Economist Jim O'Neill said.

XX Sean’s note – I disagree. I think OPEC is going to cut either official or unofficial production. Stay tuned.

GOLD

I’m about to show you some bullish fundamentals. The fact that gold keeps falling in the face of bullish fundamentals is quite bearish for the short term.

South Africa gold production falls 10 percent

JOHANNESBURG, South Africa (AP) — Gold production in the world leading supplier South Africa fell more than 10 percent in the second quarter compared to the same period last year, the industry said Thursday, blaming electricity shortages since the beginning of the year.

A dire fuel shortage caused by poor government planning forced rolling power cuts across the country in the first couple of months of the year. Since February, industries have been limited to 90 percent of their normal power usage.

Weak India Gold Prices Attract More Buyers

Indian gold demand rose on Friday as buyers and sellers kept themselves busy ahead of the peak festive season due to a fall in prices, dealers said.

"The demand is rising significantly as we are heading for a peak festive season," said Rahul Gupta of Delhi-based P P Jewellers.

XX Sean's note -- but this bullish news matters not when the traders are ready to sell.

Gold Heads for First Weekly Drop in Three in London as Dollar Strengthens Gold headed for its first weekly drop in three as the dollar strengthened against the euro, curbing demand for the metal as an alternative investment.

AGRICULTURE

Agriculture Prices to Stay High on China, India Demand Global agricultural prices will probably remain higher than in the previous decade as strong demand from China and other developing nations outstrips gains in production, a U.S. agriculture official said.

Australian Wheat Crop May Be Below Forecast on Dry Weather, JPMorgan Says Australia, the world's sixth-largest wheat exporter, may produce less of the grain than forecast because of dry weather, JPMorgan Chase & Co. said.

US ECONOMY

U.S. Payrolls Fell 84,000 in August; Unemployment Rate Increases to 6.1% The U.S. lost more jobs than forecast in August and the unemployment rate climbed to a five-year high, heightening the risk that the economic slowdown will worsen.

U.S. House Price Decline Could Be Worse than Great Depression, Economist Shiller Says

* Home price declines are already approaching those in the Great Depression, when they plunged 30% during the 1930s. With prices already down almost 20%, it's not a stretch to think we might exceed that drop this time around.

* There are about 10 million homeowners whose debt is higher than their home value, which has broad implications for how Americans feel about their wealth and spending habits (read: more pressure on consumer spending).

GLOBAL ECONOMY

Global Wealth May Fall 10% This Year Due to Markets, Financial Post Says Global wealth may decline 10 percent this year because of volatility on financial markets, the Financial Post reported, citing a study released by the Boston Consulting Group.

Australia, New Zealand Dollars Decline to Lowest in Two Years Against Yen The Australian and New Zealand dollars slumped to the lowest levels in more than two years against the yen as a decline in U.S. stocks prompted traders to sell higher-yielding assets financed in Japan's currency.

Australia's S&P/ASX Falls to 2-Week Low; James Hardie, BHP Billiton Drop Australia's stocks fell for the fifth day, with the benchmark index heading to its lowest in two weeks, after rising jobs claims in the U.S. and declining metal prices heightened concerns of a global economic slowdown.

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