The Net Asset Values of Certain Precious Metals Funds and ETFs

The China Bubble and the Convergence of Oligarchies

This is an interesting story from a source that we will be consulting regularly for their news items and insightful analysis.

Regular readers of this blog will notice that we strike the same recurrent themes.

Some years ago Mr. Bill Gates traveled to China, and liked what he saw. This was the model of capitalism which he favored: a small but powerful elite centrally planning an economy peopled by semi-feudal serfs, and living large on the backs of the many.

With all deference to Jimmy Rogers, China is a bubble. The central government will grow increasingly repressive and manipulative as the people improve in education, health and material means. Propaganda will grow more sophisticated and remain as pervasive as it is today.

When the bubble bursts, the iron fist will be unveiled and there will be popular uprisings, and those who believe they are in elite positions now may then find themselves on the docks piled on their baggage waiting for the next ship to take them to safer destinations.

This is certainly nothing new. After the collapse of the first Federal Reserve credit bubble in the late 1920's, the West turned to Soviet Russia and the fascist countries of Italy and Germany for the answer to the 'failure' of Western free market capitalism. Hitler and Mussolini were heavily favored by Wall Street, having a firm hand to rein in the mob.

On the optimistic side, freedom wanes, but still and in remarkable ways, never seems to die.

The Daily Bell
Chinese bank announces bombshell
Issue 343 • Friday, July 10, 2009

Yesterday on their website, the People's Bank of China announced a shocker. New Chinese bank lending for June was 1.53 trillion yuan ($224 billion), double the lending in May. The total already for the year is an astounding 7.4 trillion yuan when the target for the entire year was 5 trillion.

Putting this in context, total lending this year so far has amounted to 25% of 2008 GDP. As I wrote earlier this week, Chinese regulators are getting concerned that this lending is going towards poor credit and bleeding into commodity market speculation.

As most know, bank lending is high powered monetary stimulus due to its high velocity. This is the key difference between fiscal stimulus vs. monetary stimulus. Actually, monetary stimulus will only work well if the banks receiving the funds lend them out. In the US, this is clearly not happening due to banks loan losses and caution over new lending (expanding balance sheet.) In China, this is not the case and new loans are flowing. - CNBC

Dominant Social Theme: China is heating up.

Free-Market Analysis: We've written about this before. China backed into "capitalism" about 30 years ago and the impetus for where it is now was increased by the problems with Tiananmen Square. The Chinese leaders are not interested in political theory at this point (if they ever were). Their currency is power and the way to maintain power is to create an apolitical system where citizens "can grow rich." Western systems work a good deal better than communist systems in this regard. And thus China has built a facade of a Western system.

Yes, it is really only an imitation of a Western system (from a political and big business perspective anyway) in our opinion, just as its banks are only imitations of Western banks and its stock markets are only imitations as well. In fact, to grow rich by investing in the Chinese stock market one apparently simply has to listen intently to the noises coming from the government as to what companies will grow and what companies will not. (And this is different from the US now in what way? - Jesse)

As far as the banks go, the system is probably even more basic than in the West. The central bank prints as much money as it can, and the commercial banks disseminate it. These banks may act as independent entities, but they still have a foot in state government as do many large companies in China.

It is all fairly well jury rigged. China has incorporated a façade of Westernism but to cast China as the world's financial engine is to understand how desperate the West has become. China's economy grows by 10 and 15 percent a year, and now appears be heating up even more. This is not normal growth but central banking generated growth. The same clique still runs China, but the economy has been supercharged by additional printing.

China is said to be turning inward now, as Western countries cannot afford to buy its products. But whether China will be able to maintain its growth by using its own huge population as a purchasing pool remains to be seen. What will certainly happen sooner or later is that the supercharged money being used by the Chinese will create the same boom-bust cycle as has happened elsewhere. Only when it ends in China after so many years, it will be the mother-of-all blow-offs.

Conclusion: It is difficult to see what Chinese leaders expect to happen once the bubble busts. Maybe they are gambling that they can control the unrest that will come in its wake. Maybe they assume the bubble will not bust for many years. (And this is different from the US now in what way? - Jesse)

But articles like the one excerpted above show us that sooner or later China's overheated and pseudo-Western economy will implode, and likely even more violently than Western economies ever have. And here's a thought: The Chinese in the meantime are said to be big buyers of gold on a government level and also personally. Perhaps what is going to eventually happen is better known in China than the West.

SP Futures Hourly Chart

I think that most would agree that the US equity futures have put in some kind of a top, both in the short and intermediate term which is not shown here.

The question now is, 'Are they in the process of putting in some kind of bottom, or is the trend of the decline merely moderating?'

I have highlighted with horizontal lines a few levels of support and resistance that most traders are watching carefully.

It was not bullish that Alcoa was unable to hold its gains today from its 'good news.'

Goldman Sachs reports next week. That may give some spark to the financial sector, but Goldman is really a 'one-off.' One off what I am not quite sure, but whatever it is I think it says much more about them and their secret trading software and access to information than the economy or anything else.

SP Weekly Chart Updated and Some General Thoughts on Trading and Markets

Today we will take a look at the longer term SP 500 weekly price chart, updating the weekly chart which we published on March 23, 2009.

The rally, although sharp, is well within the bounds of expectations for a rally from a major market bottom off a steep decline. It was more than a technical bounce, but has not yet signalled a 'new bull market' despite the optimism of the Wall Street salespeople. Insiders are still diversifying from equities in record numbers, and the "investment banks" (if we can still speak of such an animal in their traditional commercial bank halloween costume) are spending more time 'gaming' the market than investing in the real economy for the longer term.

The target we set for the rally to the neckline around 960 'worked' which tends to validate it, for now, as a proper neckline.

If in fact this neckline holds, and the SP breaks down through key support, the chart formation sets up an objective of 360 on the weekly SP cash chart.

Here is the SP weekly chart update:



Keep in mind that the chart formation is long term, not immediate, and it must be validated further by a breakdown through key support. If, for example, the Federal Reserve decided to monetize even more aggressively than it has been doing, then it would be likely that the neckline would be broken to the upside, and we have a target showing where we think that will go.

Think of these charts as a 'map' to help us see where we have been, the most likely path, and the terrain, the lay of the land. Charts are not firmly predictive, only probabilistic. Those who make contrary claims for their system have always been shown to be exaggerated and highly selective in their result recording and reporting.

Too often "successful" traders merely exploit weaknesses and minor informational or systemic advantages or inefficiencies in the market and in essence place a 'tax' on the other market participants, usually the naive and inexperienced.

Sorry, but that is the way that it is. This even includes some of the 'too big to fail' boys who have no business exploiting the markets which need to function as efficient capital allocation mechanisms.

There is a tendency to seek to gain unfair advantage. The notion of good and rational markets that can self-regulate with participants who voluntarily obey the rules should be an obvious howler to anyone who has recently driven on a major highway. It is a fallen world, and regulation and enforcement are a sine qua non, and always in need of refreshment and improvement as are all things temporal.

Here is the original March chart.



Some traders are better than others, and some much better. The vast majority of people are in no position to trade, and have no temperament for it, and should leave it alone. They are investors, and enjoy a diversity of lifestyle. Trading is a profession, and needs to be respected as such.

The average person who is even in decent physical condition would hardly think to step into the boxing ring with the world heavyweight champion. And yet this same person thinks nothing of placing leveraged wagers in markets dominated by professionals who do little else for a living, heavily influenced even own the rules boards and help to pick the referees and pay their salaries.
So, what next?

The outlook is rather gloomy for the SP 500 in real terms, decidedly. There is no recovery in the real economy, merely fakes and the push and pull of 'flation. The Federal Reserve and the Obama Economic team are not even beginning to address the issues that will create a sustainable recovery, and are just doing the same thing that has failed before. The recovery from the 2003 market lows was nothing more than a monetary credit bubble, glossed up with statistical and accounting frauds. This is just more of the same, to a more extreme, even more cynically corrupt, degree.

So what next?

Gold still looks like a winning place as a store of value in times of corruption, decline and deception, although nothing is certain.



When the time comes and the economy appears to improve it is likely that silver will decidedly outperform gold on a percentage basis. Silver as well as gold are being heavily manipulated by a few banks who have enormous short positions. If they are ever forced to cover these there will be stretchers taking them out of the pits. But do not hold your breath, remembering who owns the casino, and the casino management. Still, all financial frauds and ponzi schemes come to their inevitable messy end. Bernie Madoff may merely not have as much company in prison as he deserves.

Yes, if you were able to time the market and buy the bottom in stocks, and pick the right ones, and hold on until the top, and then take your profits, and not been caught in the plunging decline of 2007, you have some remarkable gains and I wish you well. You are also gambling. As long as you realize this, and manage your money accordingly, you may keep some or even a good portion of your gain.