Charts - 9 October 2007 - Jeudi Noir

"Those that wish to be wealthy beyond their labor fall into temptation and a tangled web, and many errors and lusts,
foolish and hurtful, that sink them and their kinsmen into ruin and destruction." 1 Timothy 6

This cascading waterfall decline has been remarkably quiet and orderly, with few rallies and significant drops into the closing hour each day.

Few realize that one year ago the US equity markets hit their all time highs. They are now down from thirty to forty percent.

This last leg since September 19 has taken from 25 to 30 percent off the major indices and may be remembered as 'the crash' depending on where we form a bottom and how the bounce occurs.

What we are doing is unwinding the reflation that Greenspan created after the Crash of 2000-2003. The efforts to stop the decline are not working because they selective bailouts of the wealthy and a few select banks.

The economy will not recover until broader efforts are undertaken to provide jobs and wage growth to the people, rather than rebuilding the artifice of crony capitalism and the politics of privilege.

The impact of this financial destruction will be felt for the next several years. The worst is yet to come.

TED Spread, the US Dollar, and the Independent Functioning of the European Capital Markets

An earlier essay The Dollar Rally and Deflationary Imbalances in the US Dollar Holdings of Overseas Banks demonstrates that a significant dollar demand has been created overseas by the deterioration of dodgy, if not fraudulent, US debt assets and dollar deposits.

There is something ironic if not pathetic in the EU coming hat in hand to the Federal Reserve to beg for additional supplies of dollars at higher prices after taking heavy losses from US debt instruments that were founded on deception and false premises.

One obvious solution is for Europe to "go off the dollar standard" as Roosevelt went off the gold standard in 1933 within the US.

For example, for those covenants that are payable in dollars only, the EU can declare that the obligations may be settled in euros at prevailing exchange rates.
As it says on the US dollar, "This note is legal tender for all debts, public and private."

Dollars ought not to be required to settle primarily domestic accounts, as gold was no longer required to settle debts within the US after 1933. Dollar transactions should be treated as forex transactions.

The gold standard was superior to the dollar standard as gold could not be created or destroyed at will by private US banking manipulation.

The US will object strenuously, as will US private companies. After all, there should be little doubt that the bankers are using the current dollar hegemony to their advantage. If Europe is content to subsidize American extravagance then they should continue to do nothing about it. But they need to be prepared for a descent into a kind of debt peonage.

It should be almost embarrassingly obvious to everyone that the Dollar no longer deserves to be treated as the singular reserve currency and as a universal monetary standard, especially not for primarily domestic transactions.

Charts in the Babson Style for Miércoles Matado 8 October 2008

Gulf State Central Banks to Increase Gold Reserves

Gulf News
Gulf central banks look to gold as uncertainty rises
By Cleofe Maceda, Staff Reporter
October 07, 2008, 23:26

Dubai: Central banks in the Gulf and elsewhere in the world will likely turn to gold as the global banking crisis boosts the metal's appeal as a buffer against dire economic conditions, industry sources said on Tuesday.

With bank shares across the world plunging and the US dollar still unstable, central banks have no better option but to diversify their reserves into gold, considered the only alternative to the US dollar and euro.

Analysts said demand from banks will likely affect gold prices, and retail consumers will resort to investing in bullion as well, particularly in exchange traded funds (ETFs), coins and small bars.

"Gold will definitely see a revival as a reserve asset for central banks. The main purpose for the central banks when investing is not to generate the highest possible returns, but to provide a safe and sound financial basis for the currency and the economy built on it," Rolf Schneebeli, former head of the World Gold Council, told Gulf News.

Schneebeli said suitable central bank assets must be universally recognised and must provide a liquid market that is deep enough to absorb major transactions. However, he noted, there are not many currencies that can be used as possible assets.

Earlier this year, the US dollar plummeted against the euro. Although it has started to strengthen recently, doubts remain over its outlook.

"The only alternative to the US dollar is the euro. The pound sterling is probably not strong enough anymore. The yen and the Swiss franc, both strong currencies, do not have enough depth ... Hence, gold is really the only alternative to the dollar and euro," Schneebeli added.

Another advantage of investing in gold, Schneebeli said, is that the precious metal is "nobody's liability."

"This means one is not at the mercy of other governments. After all, governments might use the financial system to exercise pressure on other governments. In the case of gold, this is quite difficult," he said.

K.P. Baiju, managing dir-ector and chief executive officer of Buz Consulting, said gold demand from banks "will impact the prices and will help sustain the current levels for the time being".

Baiju noted that demand from consumers will continue to increase as well, because "gold is considered a good means of small-time savings."

"Gold prices are currently ranging around $825 to $850 an ounce, which was last year's fourth quarter level and the consumers know that this is a good time to buy," Baiju told Gulf News.

Among UAE consumers, Schneebeli sees an increase in demand for ETFs, coins and gold stocks.