2011.11.11 While we believe the commodities are back to rally, we have to revisit copper which is still holding above U$3.00 but not U$3.50 which is concerning. The following is the near period chart of copper future at COMEX. The continuous trading down of high and the 50MA is not turning up after the price crossed over and dipped paints a gloomy picture. This followed by the diving OBV all showing a heavy dumping of the metal after a pump. However, the double bottom should be broken before we start to worry. We should also observe the band of heavy volume in periods. The voilatility comes from more active trading. As the result, how to see through the fog of speculation is the more important question than whether we worry about the price moves by +/-20% range due to the speculation activities.

2011.11.07 Association for the Study of Peak Oil and Gas wrote in its 2011.11.07 Peak Oil Review reported that "China’s oil companies will be free to set retail prices for fuels under a new government pricing system. For years, Beijing has been slow to respond to changes in international oil prices which have left refiners in the position of selling oil products at a loss when the cost of imported oil rose. Under the new policy retailers can move retail prices freely within a range set by the government. The range which is based on international crude prices was not announced. Beijing will step in only when prices move outside of the range. Since 2009 Beijing has a policy of adjusting retail prices only when a moving 22 day average price of a basket of foreign crudes rose or fell by more than 4 percent." Since hydrocarbon fuel is the major inflation contributor of the Chinese inflation, we can conjecture two things: the rally of inflation or inflation is brought under reasonably control. When the hydrocarbon fuel is set to the free market, the Chinese petroleum companies will cut the loss. Share price will rise. The more important is that China may have acheieved the desired inflation control using a combination of measures and policies. The latest free-floating the fuel price may not be as inflation as it is. This move may be a economic stimulus as well as. By the higher price, it will curb the demand because the domastic fuel price of China and the internal price has a healthy 20-30% difference. By raising the price, the demand can be reduced due to affordability. At the same time, the higher revenue for the petroleum companies will be translated to higher economic development fuel.

2011.11.02 Greek's austerity acceptance is pending on a referendum but copper has made its call. The following chart shows the bottom out of COMDEX future. There is a buy signal. The double bottom may build the supporting floor further supported by the crossing of the 50MA.

2011.11.01 The reality sinks in; the Greek plan is not a plan. It does not only facing the Greek's resistance to give up entitlement but also create more inequality between who can live outside or inside the law of land. The deal is based on the perception that Greek will accept the terms and condition the IMF and ECB laid down without the consultation of the reality. The purpose is to put up a good show to save the skin of the German and Franch banks who hold most of the Greek bond before and during the crisis. China is standing outside the fire ring watching the side show carefully. It is not necessary that China is short of money to save her local government debt; it is the matter of timing. It is not ulgy enough. Comparing this to the plot in John Perkin's Confession of Economic Hitman, the West is doing the job for Chinese. When the debt crisis is here, the stock market retreat. The global stock markets lower by 2-3% and 4% at the low point. For hindsight, last week was the perfect time to sell high. When this happen, the commodities come down as the results of paired trade. Gold did not make any dramatic break up any resistance so it could retreat back to U$1,600 or lower. Silver broke the resistance of U$32; it has 90% staying above the $32 although it looks much volatile. Copper pulled back to just below U$3.50. It would be essential to hold above the U$3.50 but there is nothing to do with the economy. The other casualty include WTI. It sank below U$91. This will be temporary. The major player should be NG. The price keep on pushing up following the seasonal trend to near U$4.00. Worth to mention is platinum to gold ratio has sunken to 0.92.

Updated at the end of the day: While gold dipped below U$1,700, it resurfaces at the day end. Oil did not budge and did the same after submerged below U$90.  The stock index did not do the trick to pull down commodities completely. This is specially supported by the HUI which gone down slightly by 1.70. CGSI is up 10.04 2.5% and UGSI only dipped 0.56 0.1%. Choice of the horse is the trick to win the battle.

2011.10.28 The market performs in a very confusing and out-of-box mode. With the higher debt, the consumer spending will be limited that is the basis for the reduced oil demand. However, oil jumps back to U$90 range with a 4M barrel stock increase. When the market reacts different from conventional wisdom the news or the reaction should be in question. In case of oil, I question the news. The more important story is told by the following chart:

Platinum to gold ration is rising from 0.91 to the level of 0.95 in just in two weeks. The rise is just as fast as the fall.

After few months of dramatic fall of silver, it has broken the U$32 resistance. When it happens, it bolts to U$35. Copper is back above U$3.5. Quietly NG jumps 8% this morning. Is the old man winter here already?

2011.10.22 If we say this week is tough, it may be better to say it is confusing to micro-watcher. This week is no different from the other week that the market or the retail investors are driven by news who knows where it is created. To say these are news are kind. At the best they are guess. We have seen many of these news are created to move the market to a direction that does not necessary reflect the true direction of the economic or market situations. For the last 6 months, every effort seems to sell the American remains the driving force of the world. With its recovery or without the ability to recover will drag the world down. Starting this month, the news focus on a neck braking growth of Chinese's 9% GDP growth as horrible economic development while one year ago the most common song sheet was 9% were not sustainable growth. Who are these people and what is wrong with their memory. Double standard is applying liberally and randomly. There are statistics throwing around. They compare the disparity between the rich and poor that claim China is in trouble because Chinese disparity between the rich and the poor matches the American. By any standard, the poorest in America can easily better than the poor in China. All these news are not news. Gold has been praised by some as the barometer. On the other hand, they blame the paper commodities market does not reflect the true value. Is this only true when gold does not go up or it is actually over priced. Copper is sitting above the U$3.00 which is very profitable according to Don Coxe. This should be interpreted as very high demand. It is unreasonable to compare the peak price of copper at >U$4.00 to interpret the demand is dropped significantly. Can we tell the gold bug that gold is now U$300 lower or 20% down, the demand is 20% lower? Demand and price are not reflected instantly due to the hysteresis of action. This is related to the production and delivery cycle. What happens at the COMDEX are very artificial which is the fluctuation.

With most of the entertainysts now accept the fact that the world has not recovered as well as expected, the interest rate will not go higher soon. Lets take a closer look to see what may happen. The loan market for consumer and business is not determined by the central bank's discounted rate nor the over night rate. Those rate are the privilege of the banks. Consumer and business can never be benefited to them. The association of the discount rate to the consumer loan is a myth that created by the banker to jack up the rate. There is no law to enforce it. All these associations are illustion created to make people believe the government can control the bank's lending rate. If this is a solid relationship, let it become the law of the land. The rate is always driven by the economic activities and the greediness of the bank. A simple example is the credit card interest rate. Another example is when the discount rate set by Paul Volker was at 12% in the 1980s, the bank can charge 50% and more to more than 20%. These are in excess of 50% profit margin. If banks are so profitable, why the dividend rate are so low? Where have thay gone? If the banker are such elusive bunch of people in Canada or in States, why should we invest it? Is it because it is willing to payout 20-30% of the profit after the executives and some employees pocket the first prime cut?

2011.10.09 Other than Doctor Copper, there is Baltic Dry Index for the shipping of dry goods. The following BDI from Bloomberg, show a upward trend of a U shape recovery which is powerful. This is contradicting analysts' reading of Doctor Copper which fell from the all time high by 20%. Does this spell the opposite? With paper commodity around, it is hard to judge the real demand. BDI is more accurate than copper.

2011.09.28 Celebration has to wait. It is not a good day after a half hearted rally. Yesterday's gain are sent back and more. Market volatility is weighing to the down side. Mother bear is playing with the investors.

2011.09.27 Precious metals have a dead cat bounce; or not. A drop of very 10% without a period of repairing will betray the technical and fundamental analysis. After violation of technical level, repair period must elapse to ensure the wound is healed. When a major drop happens, the supply and demand shows a metastable. To go back to stable equilibrium will also take a lot of time. We should pay very serious attention to gold which at one point leaped about U$80 but at the end of day only return to U$1,650 or up U$22. Silver do better but only stay put at U$31 level. WTI is the strongest. At the dawn of the day, it rests at the gain of 3.7%. All commodities stock slides at the end of market despite strong gain in the morning. The close to 300 point gain of Industry only keeps half of it to have a gain about 150 at the end of the day. Lets do not celebrate yet. Tomorrow will be the same level of volatile perhaps to the down side. Gold stocks indicate the rally in gold is not convincing. HUI down 0.6%, CGSI down 1.6% and UGSI down 0.9%. People are selling on rebound.

2011.09.24 Believe or not, all the analysts who predicted the full blow bear market were wrong. These broadcast has the same effect as Richard Russell explains when the analysis is used by everybody it lost its accuracy. If the analysts were right, they should sell before the fall. If they don't eat their cooking, how could people trust them. If they sold before the fall, there will be not panic selling and we should not see the major break down. We cannot just quote what happened in history and qualified it by sometime in future. Money is a serious business. People's live can hang on it. Gold has been gone out of proportionly rally with the hype from everyone that it can go one direction. Silver is being dragged down by psycological effect of the Hunt's Brothers in the '80s. People continue to beileve biased analysis based on the Western economy ignoring the BRIC's domestic economy that could replace them and has been half way through. There is still danger the reducing the transition because all BRIC countries are exercising the inflation control to cool the economy. Even with the cooling, we still can see the enormous 7+% growth. This growth sustainable or not can be debated. From the number perspective, the base GDP was rediculous small comparing to the population. It was only a tiny fraction of the West. With that in mind, the group of upper single digit is equivalent to the lower single digit. Nonetheless, such growth induces hyperinflation but this is can be argued that this is the improvement of the standard of living from way below proverty. I strongly believe that 7+% should be reasonable with heavy handed inflation control which impact speculative side more than anything.

2011.09.07 At close today, the performance of gold and gold stocks are at two different poles. Gold future dipped below U$1,800 to U$1,791 and finished at U$1,817 from the start of day at U$1,880; down 3%. HUI up 2% while CGSI and UGSI are symbolically up fraction of a percent. A recover from the low of down 2-3% to a fractional gain with gold lost about 5% in last two days. Gold stocks can be sitting on a turning point. It could start the rally any time.

2011.09.07 After two days (3 days for out of America) of sold off, stock markets around the globe stabilized and make some 1+% gain. During this period of Chaos, USD jumped above 75 and flirting 76 yesterday due to Switzerland action selling off as much as needed to keep its exchange rate with other currency down. This makes the U$ more expensive. Gold is weakening and trading within the range between U$1,800 to U$1,900. For the meantime, USD is saved from breaking down below 74. Even with the help of financial systemmatic break down, the demand for U$ will remain high to either repatriate the money back to US or settle the debt by U$. Stock market can rally after the fear subside but the rally will be very selective to selected individuals that could provide income or show steady revenue during the storm.

2011.09.06 Gold was brilliant in the morning; rose above U1,900. At the end of the day, it retreated to U$1,870 level. The market went down but not imploded. When the lost of indices were more than 100+ points, gold stock bloomed. As the indices recovered some of the lost, gold stock shrink but all managed a gain. Gold near future end of the day closed at U$1,874.40 down U$25.60 or -1.4%. HUI rose 3.75 +0.6% to 621.78 down about 13 point from the high of the day 634.85. CGSI and UGSI  gain 6.96 (+1.5%) and 2.76 (+0.6%). This is an obvious change of attitude towards gold stock because the market down and gold down but not good quality gold stock. We should have a much closer watch at the gold stocks.

2011.09.06 Wall of worry is mounting because of continuous bad economic news are pouring out one after another. One of the major concern is the US jobless number has no improvement. American is the biggest economy on earth but not the growing engine of the world. Due to the habitual culture, the Western's economy is the only concern. There is another indicator we can see the health of economy. The following is the Baltic Dry Index chart from Bloomberg. We are at the peak of last 6 months and coming out of a bottom. Can it be a good sign?

2011.09.04 It is common theme among many entertainysts that U$ is a fiat currency. The litmus test they use is that you cannot ask for one oz of gold with U$35 which is the official rate set by the government before the gold window is shut. What should be the exchanged rate between the U$ note and gold is one fair question one should answer. Today, let's look at the other side of the equation. Do you need to allow the free exchange of the gold and the note? This act is contradicting the purpoase of money reserve. Money reserve is to back the whole monetary system and the money in circulation. As we all know that the money in circulation is physically more that the amount issued. During economic activities, such as letter of credit, businessmen create money. House owner does not have the money to buy the house can create money to buy it through mortgage. Mortgage is the money created and circulates in the system. By removing the gold reserve, it will cascade to create the deflation effect and restricted the normal operation of business. Therefore, cashing in the gold is not a reasonable request for any gold standard monetary system.

Returning to the gold reserve situation of US Government. Although the Fed is in a denial state to allow the audit of the gold holding and the exchange of the gold, we missed a major act the US government can control the price of gold to prevent it to make the gold rocket. The way entertainlyst to calculate the price of gold is by dividing the amount of US government's official obligation through the sold treasury by the amount of American gold reserve. Some also includes the social and welfare obligation such as heath and social security plans. Using this formula, the gold price will be at the tune of U$6,000 to U$12,000 according to the article "The rise and fall of US confidence" by World 2011.08.30. The mechanism of reserve is to set a balance restrain to grow the money in circulation. Issuing government bond or treasury note is a form of money creation that beyond the control but have the effect of money supply. Without an official valuation of a currency to a reference currency such as gold, will easily devaluate the currency. The reserve does not have to physically permit the free exchange of backing reserve and the currency. It is a misunderstanding and the exchange will collapse any reserve currency. The currency can partially back up by gold and a basket of other currency. This is not a precise way to compute the value a currency but has been accepted de facto. This creates a recursive dependency because other currencies are also calculated on the value of U$. None the less, adding gold to the money basket of USD will prevent the rise of of gold price as predicted by many analyst to the U$6,000 level even with war. While many people explaining how gold valued during the war time when they do not have the first hand experience. The truth is that gold did not have a fair price during the war. It was traded at a shocking percentage of the perceived value for those who use gold as currency. It was commonly use one piece of gold to exchange whatever you wanted. The price is not set by you but the seller of the merchandize. Who can sell can hoard the gold and makes great fortune if they could wait and keep the gold until peace time.

2011.08.25 Gold bug shows more colour today. No more pamper. The market is biased to the inflational. Precious metals are coming back cautiously. Nobody is dare to do big movement. Today's gold jumped from the low near U$1,700 to the end of day at high point. Volume for gold future is low for the last few days; only 30% of the 200 day average. The low volume amplified the voilatilty together with the margin increase. The market is contradicting itself by the rise of USD by 30 bps to 74.25 and the rise of precious metals. Dr. Copper is sitting on the fence of U$4.00.

2011.08.24 Gold drops one hundred dollars today back to the U$1,700 zone. This is the correction we may want to see before gold rally.

2011.08.23 Dow Jones Industry Index rallied 300+ is not abnormal. But USD refuses to go down much below 74 is a mystery while oil recovered. Gold advanced from below U$1,700 to above U$1,900 in 3 days bounded to have a correction. So does silver. Gold dropped to U$1,830 level a one point but manageed to recover to U$1,859 at 6:00 p.m. Dr. Copper does not fall. Everything is moving in all directions. It is the destination we can foretell not the side trips.

2011.08.22 Well it is official to go into the U$1,900 territory. This is very interesting because the U$1,800 supposed to be a very strong resistance level but with the help of the Europe debt crisis, it melts away like butter. Spot gold closed at U$1,905.70 and the gold future End of Day closed at U$1,898.20 with the interday high for the future at COMEX hit U$1,900.90. The after hour trading pushes beyond this high and hit U$1,910.60. Silver future and spot reach U$44. So the precious metals are crazy. Even WTI crude went up after peace of Lybia is almost there. The more interesting is USD holds on to the 74 level. All are difficult to discern. As pervious indicated, silver's movement can be fast from here to re-challenge the U$50. It took gold three trading days to move from U$1,700 high end to U$1,900. Siver can just do that. From here on, inflation is hinted by the market. If so, the ratio of Dow Industry to Transport can continue to be low.

2011.08.21 The commodities market did not take a breath during this weekend. The following shows gold, silver, platinum are all in action. Oil and gas are disappointing as usual during the night. One of the important ratio is the the platinum to gold. The traditional ratio is two to one. There were two period platinum and gold are close to one. One is during the low point of gold during the late 1970's. The other was when gold slumped in 2008. Both happens to be the very low point of the period after the correction. Now gold is on rocket fuel but it is on par with platinum. What does it mean? Correction: On December 16, 2008, the ratio did sank to a low of 0.973 but in the month of October 1996, it was just a thread higher than 1. See the other chart. Since than, gold started the rocket engine.

2011.08.15 The North America stock markets have a very strong recovery starting last week. We have two indices below. One for the S&P TSX (on the left or above) and other is the Dow Jones Industry (on the right or below).

They have similar and major difference features. TSX did not fall as severe and recover is on the way. DJIA fell precipitately and had a broken double bottom. The OBV is above the index for TSX which is relatively more actively buy than the rate of change for the index. DJIA's OBV is below the index and not as active buying as the rally of the index. The good thing for TSX is heavy volume before the dip and after. There are panic sell and bottom after the index recover. As for the DJIA, there were major panic sell on July 25, 2011 but no major buy on the way to recover. The recovery of DJIA is weak. The recovery of TSX is strong. We can see if this is true in the coming weeks.

2011.08.13 The strong market volatility throw a lot of retail investors off the track. Stay calm may not be the best strategy but this time it is. If you were complacent during the 2008, you may not able to survive depending your holding. The stock market is the reflection of the economic eco system. The famous Kondratiev Cycle identifies a 60 year cycle of economic activities. Four seasons are used to describe each season. The following is a chart for the ratio of Dow Jones Industry to Transport Index. It shows a small 30 year cycles and a large 60 year cycle. To confirm this study's validity, we need at least two full cycles. For the meantime, we can use it as a mind exercise.

If Kondratiev cycle has 4 seasons. Each of it is approximately 15 years. We should not take the duration of each season too rigidly within the 60 year cycle. There should be some give or take. Looking at the chart and use the up or down slope as one season, we have counted the current season is spring. The interpretation and the characteristics of each season is well defined. For this study, these characteristics are not used. Rather, we focus on the relative relationship of manufacturing and the transportation. Each season indicates the shift of consequence of economic activities. During winter, essential good is the main staple. Shipping outperforms the manufacturing. The ratio is shifted from low to high when winter is passed. During the spring, demand for merchandise will increase but it is for lower cost. So the ratio is reduced until Summer begins when high price merchandises are in demand. During the fall, the high price merchandise wanes until the arrival of the winter. The trough of the chart can also be seen as peak inflational; the top is peak deflaitonal.

2011.08.08 The latest update from the spot metals is not good. In comparison to few days ago, they drop. Base metals drop abut 10% since August 1. This shows the base metals are reacting to the news not discounted the future.

The fall is mild but not insignificant. As the S&P dropped the bomb to down grade US government's long term rating as promised, the world political leaders are tasked to work. China Daily has a summary on what is the impact to the US government in this report: S&P cuts US credit rating to AA-plus 2011-08-07 by Xin Zhiming. This is one of the rare reports that spells out some numbers. In this report it quots JP MOrgan Chase & Co "estimated the cost increase could be about $100 billion a year." or about a quarter of billion a day of tax payers' money. This could not be taken lightly without raising tax. This down grade has been condemned by the White House as unpolitically sensitive, untimely and bogus because it is based on a miscalculation. Reuters report White House adviser slams S&P after U.S. downgrade 20110806 is childish and selfish. S&P has been alleged to not doing its job properly before the 2008 crisis. Now it is doing its job but get slammed. Anyway, it is still not doing its job because it should downgrade the U.S. many years ago when the debt continues to mount. How can one can have AAA rating when one cannot payback the debt?

Now the news leads to the fact that part of the risk mitigation is to buy Italian bond to avoid Italy to default by ECB. If this formula is used, China should buy more US bond to keep the party going which is not what is in China's mind. There is also reports hinting the forgiving of debt like the Bretton Woods agreement and the Brazil hyperinflation. This could mean someone raising a balloon to test how the U$ concedes the world trade currency. However, there is another possibility many have been proposed that U$ could be partially backed by gold (not 100%) but inconvertible also. However, this could spell the dead of the Federal Reserve Board. Anyway, an audit on US's gold reserve will be demanded by China to ensure there is gold to back it up. This could be the major crisis. Who will be the beneficiaries of this fiasco? BRIC. Next week will be a drama week.

2011.08.01 With the news of a deal is sealed by the American politician to be voted on, i.e. more drama coming, the spot price of precious and base metals behave just as expected. The precious metals are not safe heaven. Speculative on the precious metals are now subsided which creates a temporary mild pull back. Gold is holding its ground before the jump so does silver. Until the dust settles, gold and silver will not move dramatically in either directions. On the other side, base metals advance including Dr. Copper. It should also be noted that the high tech metals, (silver, palladium and platinum), are advanced too. They are needed in electronics and other high tech products. All in all, it is the sign of a good deal. Can this hold? We can confirm how good the markets discount the future by tomorrow.

2011.07.29 Things are getting dark this morning. The negative is overwhelming the spot base and precious metals market. The following is the quotes from Kitco.

At the end of the day, the following are the quotes from Kitco:

The situation is slightly better. Dr. Copper even gains a bit. Does the base metal market discounted the bad news already?

2011.07.28 Analysts often use the future of base metals as a crystal ball to see the storm is coming. American's debt ceiling is a pure artificial paper landmark in the financial landscape. Lifting it or not does not solve any credit problem. To combat debt with more debt is the only Western way. It has been applied to the PIIGS. Now it is applied to America. The only purpose to avoid the default which will force the Wall Street fat tycoon to write off the book. Without the write off they can continue to get huge pay. Not that they don't if there is a write off. If the economy will jump to a depression as some of the analysts and politicians see, the demand for the base metals should be falling off a cliff. Perhaps it will happen on the news but not this morning. The following are the prices of precious and base metals from Kitco. But there is also another major storm brewing. Most of the base metals are having multiple tops without breaking up. This is a critical moment of make it or break it. The chart for zinc is included below.

2011.07.24 Off prime time trading is not necessary the mainstream trading. Yet, it is great time to observe how some people are thinking. As long as the volume is respectable, the trend is tradable. Many worldwide panic started as the night trading of North American and day trading in Asia. The metal world has been returning to the East. So we should respect the precious metal direction. Tonight gold stared off with a high jump of U$18 to U$1,618. By this time, it is settle down at U$1,613. This makes the gold to silver ratio just a hair below the 40 because silver action is vicious, especially next 10 days. Oil hands tight around U$99 no matter what the analysts say.  Copper is also very stubborn. What do these mean? The Fed will be in panic mode to shutdown all these to prop up U$. It will repeat whatever is needed to kill the commodities. Only this time, the BRIC is watching with pens and cheque books in hand; ready to buy what is falling from the sky. Will Fed care about the BRIC to mop up the commodities. This is not a question of mopping up to squeeze the commodities price. Last time, it killed Lehmann Brothers which frozen hundreds of billions of commodities in custody accounts. When Fed let open a gap, woozed out some at lower than fire sale price because people need money. These paper commodities have completely detached from the reality but it will drag down the investor without making a dent to the inflation number.

2011.07.23 This is the best time and this is the worst time to invest. (Borrowed from Tales of Two Cities by Charles Dickens). Information is as confuse as ever. In the past, the fact or rumour can be cleared later so we can learn from the history. Now, all sealed under the seal of official. What exactly happened in 2008 that triggered the financial tsunami had very little leaked out. Whatever leaked out is scary. How could the fate of Lehmann Brothers and Bear Stearns determined by the other who were the competitors and organized by the "quasi" official body called Federal Reserve Bank who spent the people’s money to benefit this private organization. The results were causing more lost passed to the retailed investors and citizens. Marketers promote familiar and unfamiliar products such as CDO and the traditional equity. Rating agencies give out warning as an after fact rather than doing what it supposed to be early warning. Only the insiders enjoy the benefit of the facts which will be transformed to whatever spins they want to steer the market. Retail investors have very minimal chances to win. Can they survive using the investor advisors? Goldman Sachs has the track record of selling investment that benefits Goldman Sachs rather than the investors. We have IQ and EQ. Now we may want to have high FQ for financial intelligence.

2011.07.20 Excitement was cooled down when gold dipped below U$1,600. As discussed in previous notes, the breaking of U$1,600 has no technical significant but the psychological. Now the gold bears can come out to sing and dance. Gold had 3 very active sessions. So rather than short covering, it could be the shorties sell off for profit. On the other hand USD falls to 74 range. There will be money movement which could help the precious metals. But the killer could come from WTI's surge to U$98 range. The judgment call could be made tomorrow. Updated at end of day: The picture enhanced at the end of the day. Gold satisfies the psychologist's demand to go back above U$1,600 with silver over U$40.

2011.07.18 Gold closes above U$1,600. So what  happens next? The answer is nobody knows. With gold peeks above U$1,600, the psychological barrier may be broken but there is no technical achievement until U$1,737. This is like silver went up but hesitated in front of U$50. Why the levels are so far apart? It is because the base is much bigger. From U$1,560 to U$1,737 is only 11.4%. It is slightly higher than 10% which is almost the rule of thumb for any up or down movement. Even we don't know what is going on but there are some tell tale signs. First, silver follows the rally but at a much faster paste. It has broken down the gold to silver ratio to below 40 and rose above U$40. Last time, the silver action after U$40 was very fast. It took 11 trading sessions to peak at U$49 before fell back. So in the next two weeks we may see the firework again. If it falls back without breaking above U$49 barrier, then we have a double top. It will be a couple of months to break such barrier until the high season of precious metal. Is gold pushed up by weak currency? By supply and demand? Or by panic? First, COMEX's gold trade is very active for the last 3 sessions. All above 100,000. This is very high. Silver has two very active session that were more than 40,000. If the volume continues, then the rally can continue. This seems a short covering to avoid delivery. If so, after the avoidance of delivery, the price can pull back. If the pressure to deliver continues, there will be major firework.

Previously, I believe the gold shares start to outperform the metal once the gold break the psychological barrier. HUI jumps 9 point today. Now, if gold can hold above U$1,600, panic short covering will happen. When shares rise, it can push the metal high because it gives the illusion of higher demand. But these are investment demand and has nothing to do with the metal. On the record, today's commodities deserves a picture to mark the occasion.

2011.07.15 This not your usual week. USD although up 1 bps to 75.13 but it is at the recent high and pulled back from 76 interweek. Copper hold the ground at U$4.409 with all bad default news from Europe and America. If these two region's economy matters, copper should go down. No. Dr. Copper responds to China's continued neck breaking growth of 9.5% even after raising interest rate 3 times. We have to see what is the effect of the 4th one. We may not expect 10% but it should not drop below 9%. 9% is a very respectable and hourable growth that does not happen often in the history even for the American. However, if its only 1 bps below this quarter's 9.5%, the entertainlyst will spell the death knell. Oil is very volatile but still up by 1% or U$1 to U$97.24. All in all, gold leads everything up. Does it means fiat currency is down the pipe? People mixed up money and storage device for wealth. These are two different things. Gold is can now store more wealth but it does not mean the money is worth nothing. Money will always worth whatever the government decide because it is not the storage of wealth. It is the medium of business transaction.

2011.07.13 After gold made the historical high in U$ and it does not retreat. But I am sorry, due to the weakness of U$, it does not make the record high in C$ even there is an advance of U$10 or 0.7% gain because the exchange lost 0.5%. Silver should catch the eye as it gone up 2.8% for the future which is in the wild zone again. If the world economy is getting worse but the commodities continue to rally, disposable income is getting less and less. Update: At the end of the day, the gold made the historic high in C$1,523. Of course, it made the historic high at U$1,581.80. Silver has an explosive jump of 7% to U$38.13 which lowers the gold to silver ratio to 41.47.

2011.07.12 Gold is on the first page news headline today. It made the all time high close. This is not a easy task. The U$850 record high in 1980 was interday. At close is at U$540. Today, the close is still all time high in U$ but not in C$. It is only C$4 shine from the record of C$1522. Not a bad day when USD is at 76. Is this the story telling people that U$ is safe heaven and money moves to U$ for wealth storing or there is another reason to have gold shot high with the U$ is high too? It is not just the U$ get rally, so does the WTI and copper and NG. There is bad news; Ireland will need another bailout. Why commodities rise when the economy comes down. Where are the entertainysts? Is this the sign of inflation? If so what causes it? And the more important question is in term of what currency, the inflation is reflected?

2011.07.09 The entertainysts continue to "educate" the public how the U$ is inversely linked to commodities. When it works, they advertise it. When it does not work, they skip over it. This week is déjà vu again. Gold and silver up 3.9% and 8.4% week over week while USD up 1.1%. So where is the relationship. We have to separate the demand of the precious metals from the speculation. This is similar to the speculator shorting a stock which can be nothing to do with the fundamental using rumour, news or incorrect analysis. Precious metals demands have been evolved from the traditional jewelry, storage of wealth (backing money is a form of storing the sovereign wealth) and industrial usage. The new application is speculations in future and ETF. There were a form of speculation in precious metals like any thing. But the different is that the turnover is now become mainstream with huge daily volume. The speculative activities were used to be a hedging activities for a smaller group of people or miner. Now, it almost becomes a national sport in the investment world. Even with these huge propaganda machine running, the percentage in precious metals compares to the whole investment universe remains low. So when we see entertainyst compares the price in ETF to the price of future to the demand/supply of the underlying commodities, one has to laugh. If we can separate these factors that govern the price of the metals, ETF and the shares, we understand why the precious metals stocks do not have to move in synchronization. We should also want to differentiate the short term to the long term.

2011.07.01 Precious metals are down especially silver is -2.5% in the morning. But the base metals are up considerably like zinc is +1.5% in the morning. The investment thesis theorist may hypothesize that the U$ is stabilized so precious metals are out of fashion. On the other hand the precious metals remain very much above the 200MA. Even silver is 5% above the 200MA. So any loss  due to the gain or loss of U$ short margin has to be compensated by selling the precious metals. This raises a very fundamental question why those believe in U$ hold precious metals if U$ is the thing to invest. Or they are actually see the inverse relationship, which is much weakly linked now, so they do the paired trade of U$ and precious metals. With the weak link between U$ and precious metals, someone will get squeeze from both sizes. This is when the stock market has an unexpected rally or dip. This could what happen today. The Dow goes up more than 100 points in the morning so someone got squeeze. When stock market goes up, this is not the signal for prosperity now. It is the signal of inflation as the American or European economy are no good. We also have to be very careful about the price of commodities and see through the fog of deception. For example, Brent crude is now about U$15-U$20 higher than WTI. This is a reverse to decade of tradition that Brent is U$3 under WTI. The explanation is that the Cushing oil hub is glut with oil because it could not ship the oil to the Texas for refinery. So where the hell is WTI (Western Texas) and how far is it from Cushing that make the oil price so much difference. Western Texas supposes to be the place oil is refined. According to Wikipedia, there are 26 refineries at Texas which is about few hundred miles south of Cushing. At Oklahoma, there are 6 refineries. For the price differential of U$15-20, it is more than worthy to truck it. Before the WTI at Cushing is lower than the Brent, the excuse was the floating tank storage that drives the price down. Now that the EIA has to release oil from the strategic reserve to balance the supply. And this is not justified enough to make the price higher. Is this interesting?

2011.06.26 On today's Telegraph, the newspaper has a report titled "Enter the Dragon 'to save the Euro'", by a joint report of Malcolm Moor, Peter Foster and Andre Cave. This article written completely from the perspective of the Western stating that "it is in China's interest to save the Euro". This sounds the action is not heroic and a selfish action. This notion further pushed forward by the following sentence: "China ... will want a share of the West’s buying power in return." This far much better than the British demand compensation by forcing the Chinese to smoke opium. In a economic eco system, there is nothing free. China does not have to solve the Eurozone debt problem. She just has to wait for the right moment and buy out the Europe like the American use the European countries money (in form of debt during the Second World War) to buy out Europe or apply the same trick to the Southeast Asian countries or the Arabian Peninsula countries using the Arabian's oil. China is taking advantage of this opportunity to throw U$ out of the throne. In a China Daily report, "Wen Proposes more cooperation with Europe" Xinhau News Agence, Wen proposed a 5 bilateral and recipical on ecomonic, investment, culture and financial with the Central and Eastern Europe. In another word, China will help the ex-Warsaw pact members to ally with China. The natural course is to use RMB as the trading currency. In another China Daily article "" by China Daily's Fraser Cameron, it states that there is no central and united policies for China among the EU States. It further hints that the cooperation will create such a united policy. This is another way to say China will use the cash as carrot to drive the donkey.

2011.06.15 Is this Dante's Inferno? The market is coming down hard. With the continuous falling, the major TSX and New York indices are falling. Does it mean the end of the rally? Today is a very confused day because gold and silver move up along with USD. Silver, according to some analysts, would not move up during a deflationary and stagflation period when the industry productivity is low because silver is required almost from electronic to medical supply. Silver jumps up 1% with gold 0.5%. But the kicker is USD which moves back to the 75.55 with a leap of 1.5%. Lets examine the TSX S&P and the Dow Jones Industrial. TSX is trying to form some resistance while DJIA falls from the top. The important fact is both OBV are falling or leveling off at best. In summary, it may not be as bad for the commodities full TSX but DJIA is not good.

2011.06.05 USD is losing the battle of competitive devaluation, or does it? As recent as July 2010, we have USD standing about 89 which was the highest since April 2009 during the recovery of the stock market. On the other hand, we know that the American Fed's agenda is to inflate away all the debt obligation. The inflate away debt may not be the main agenda because inflation is overruling the world which is living on limited supply of resources. Everything are consumed with very little recycled. The recycling part may continue to increase. It is being advertised to death that human being start to recycle only now. This is not true. Thousands of years, human being recycle significantly as practice including the first hundred years of the American. The un-recycling when the American dumping partially used merchandize to the dump site when the national average income sky rocketed. The big enterprises do not build things that last anymore. Every product will be broken down sooner than later. Take cell phone as example, why on earth it has to be replaced, obsolete and no replacement parts for just a few months. Most of the time, any advancement could be achieved with just a software upgrade now. Android phone has the proximity hardware since the first one come out of the market. But why is it no in use but until Gingerbread which possibly becomes mainstream by 2012. Going back to U$'s value and what could happen. The earnest question is not will it continue to fall but what will its role in the future? A currency fall could be attributed to GDP, political stability and diplomatic influence. U$ was strongest during the 70s and 80s period when its military reach dominated the world then followed by the economic military reach hitting the world with all those American export. During the end of 90s, it is weakening by the lacking wars. The American's GDP falls. The Wall Street money lords started the financial war by creating different type of fear, panic, greed and demand to continue the war thesis rather than just the ammunition industry. The false success created the false security of economy that stimulated huge consumer demands. The results feed the greed of Wal-Mart to export the manufacturing to the underdeveloped world in exchange to import deflation that creates a vicious circle of consumer demands. Until the American can wane their consumption to a more balanced level to the rest of the world, it is not possible to rebuild the nation's economy from the grounds up. The GDP could grow but this is the effect of the big enterprise. A country without saving has been proved to be vulnerable to the economic stability. Down the road, if the consumption pattern does not change, the U$ will continue her fiscal imbalance. The foundation of the country will be dismantled. Britain is a good historic example. In a very short term, if the US government links the U$ the gold not using gold as reserve, it will be the best way to slow down the U$ devaluation which is a key to recovery. If U$ devaluate too fast, the export is destroyed. The import flushes out major inflation. There is no time to deal with it when the people are over taxed. From the chart, USD may have a chance to hit 70 at the end of this year or early next year. The stock market may not able to respond to the devaluation with the same speed of value gain. These engineering maneuver does not really create wealth. The positive effect will be temporary. Should the government ties the U$ to gold, the U$ could win back some prestige to be the world's major settlement currency but not the only one. This will throw the gold bug a curve ball.

2011.06.04 After a very volatile week, the judges are still out. But they are not for lunch, probably a drink of water. There are orbits for the PIIGS and BRIC. The PIIGS go down and the BRIC go up. There is one common strategy for both; try not to follow that direction too fast. All the PIIGS news are not new. They have to walk the economic deteriorate path. If they run the full course, there will be systematic risk for the western bankers. The function of weeding out these greedy bankers will not be performed because of their self preservation and they are able to do that. As the result, more money transfer from the tax payer to the money lord. The world is very unbalance. For the BRIC, their thrifty strategy of saving and producing pulling many lower class people to the middle class through export. The middle class starts to pick up the consumption part of the demand equation. The result is reduced dependencies on the export while the West starts to reducing the consumption due to the shrinking of disposable income through higher tax, higher inflation, lower exchange rate and so on. When 10% of the population consumes 25% of the world resources, it not necessary wrong. This is typical because the world is not fair. You can not say this is inbalance. The rich always consumes more than the poor. If one can be the student of history for a moment, we know the level of wealth is moving around every geographic area around the world. During the queen Sheba period, Africa's Ethiopia was strong and wealth. China was strong during the first and one half millennium until the rise of the Christians. Without question, the frame of reference for the western scholars will use the rise and fall of the West as the main stream analysis premises. This breaks down during the end of the last century when the world is flat. This mode will not be broken easy until one authority wake up.

2011.05.19 If you predict only one side of market action, up or down, you going to hit the nail on the head. When that happends, you could quote in the future prediction how good you are. Therefore, investment houses are required to disclose the percentage of bullish and bearish rating of companies. But there is no disclosure on how many time bull/bear forecast put down and duration of these period. If there is no self promotion later but analyze what gone wrong then it turns a phony operation to a genuine learning exercise. When copper goes up, people quote Dr. Copper to forecast the bull trend is in tact. However, if it pulls back due to normal market action, they forecast the bear is back. To perform a true analysis, the verdict should decide the change is a pull back or top. There is also another trick entertainyst eploits to help their accuracy by saying watch out "it could be this or that". Every one knows it is either up or down. All these tricks are employed by many. On the other side of coin is that technical analysis is attacked to be voodoo magic because it says the wind changes direction when the value breaks up or down at a certain level. Many time, it happens but turnaround in a few days. So what could be an example. Copper (future and spot) broke below the 200MA. This signal a bearish fall. But in 4 days, it is up and broke up the 200MA for both the future and spot. With all the programmed trading that keyed to the technical event, it is possible to trigger a massive buy or sell by a concentrated buy or sell. Therefore, we need the help of the fundamental to see through the fog of money. The market anticipates a lot of fear when Denis Gartman tells the world that Glencore is cashing out. He goes on to say this is the clearest signal that commodities is top. But looking a the demands from the BRIC, it is not easy to see why. With Dr. Copper recovers, this could be end of the correction. One more indicator, uranium spot is up U$1.25 this week. This is not a weak sign.

2011.05.08 Today, commodities rebounded. USD did not because it is on a row to climb. When U$ and commodities move in Unisom, something is wrong. If I were the bear that pushed down the market, I would like to make it bound a little to trap the bulls. So why not wait a bit more until the air is clear. Don Coxe on his Basic Points said that when a bull market like silver relied on the rumour there was a huge short which would be squeezed was unhealthy.

2011.05.07 Has the commodities correction finished? The implication is when can we safely get back to the market? If this is engineered or not will dominate the thinking process. Should this be the natural course of the market action, we should check against the input factors such as economic status and the balance of demand and supply. If this is an engineered activity, we have to see the vehicle to deliver this correction. If the delivery mechanism has run its course and the butterfly effect has settled, we know the bottom has been hit. Lets assume the event is triggered by the dumping of silver. COMEX shows a very high concentrated selling from last week to this week. The activities were subsided on Friday. This wave is finished. Will there be another wave. If so, when will it happen? With the silver fell over one third, all margin will be called; the hell broke loose. Why does the shortie not push it down further? Is it because anything further will create a systemmatic melt down that create problems of his/her own wealth? Or, is this really an economic motivated action rather than the retaliation of bin Laden followers? All of these have to wait and be answered. What we could see is that the equity that has silver as underlying asset did not lose a much yet. This is the early stage. If it is over, the precious metal stocks will rebound vigorously. It should be note that during this war energy stock suffer least. They are out of sync with the 15% lost of the crude. CESI included below shows a dip of 23. or 3.5% which is only a small fraction of the oil drop. This indicates the reality and the speculators are detached. However, if the speculators can hold down the crude future long enough, the selling price of oil will drop so will the energy companies' top line. The crude future's volume was double of the 200 day average. It will be important to see the crude does not increase volume while the price continue to plunge.

2011.05.04 As far as the war of competitive devaluation, U$ is winning. The question we should examine is why? Is it because of the direct interference or the consequence of the losing the value. April is a very important month only second to December because of international settlement for trade current account. U$ is demanded to pay the balance. The decline of the USD is continuous and continues to breaking support downward or lacking the evident of any support at all. If this is in conjunction of rising commodities, it could say the reallocation of asset. For last few days, both commodities and U$ fall together just like some days they all rise together. The thesis of asset allocation does not hold. The money has to move from one spot to the other. This is like a two dimensions being observing the disappear of an object on a pane while this object is travelling to another spot of the same pane. It is the hidden and unidentified vector of influence that could not and should not be explained by guessing which will contaminate the thinking process.

2011.04.28 Silver has been ballistic as identified on 2011.04.18. It becomes daily high every day except last two days which was a correction. If trading out two days ago and want to a further down to buy back, the window of opportunity closed in 24 hours. In the coming days, silver could break the U$50 major psychological barrier. Once broken, many retail investors and follower can easily pushes silver to U$60. At U$60, after another 20% gain, there is the really resistance due to profit taking. This will the moment of true to test how much the correction will be. Today the RSI was dropped from 2011.04.18's 93 to 79. Some steam has been blown off. Lets see if the RSI continues to push. If the rally continues, RSI will rise. The question is how fast silver is going to rise.

2011.04.25 China's story, even spells out explicitly, Western experts still misread the message about inflation control. The guiding principle of Chinese government is simple; control only applies to the speculators, not the low income. The high percentage of retired civil servants remains living on the meager retirement pension with minimal adjustment. The decision is correct not to index to the real inflation rate because it is hard to measure and the base of these pension is too low to do any real benefit. The major expense on pension is huge. Any unrest arise from the dissatisfactory retiree will be violent. So the price control comes in handy. With the huge foreign exchange reserve, China's price subsidize to low income  can be wide and deep to reduce the impact of the inflation. For those speculators, we shall see more measures to increase the cost of investment and restrictions on what could be invested.

2011.04.18 The precious metals are really strong. Gold and silver made new high not because of U$ weakening; on contrast, it is when it bounded back 78 bps which is enormous when America's outlook is being downgraded by Standard & Poor. All these are completely incoherent. As the result gold and silver made new high in C$ too. On the contrast, the precious metal stocks are not doing as well. Many fall only the lucky one is up. Silver Wheaton may be on a tear so that it has to pull back. But when silver is advancing? This shows investors are chicken out and like to cash out. This is not the sign of a bubble or over price.

2011.04.15 Finally, there may be some good news for Canadian gold bug. This morning the near future gold in C$ hits an all time high of C$1,431.65. If the record maintains until end of the day, this is an important milestone because the previous record was set in December 2010. Updated at the end of day: The gold in C$ has the all time high close at C$1,434.29. So this is not a double top. This break through is more important than the string of all time high in U$ which is deteriorating.

2011.04.07 While USD is falling close to 75 but it does not mean USD will fall through the floor quickly. It is just not going to happen in the very near future although it will when the U$ is unseated as the world's only trading currency. There are rising stars: the Chinese RMB for the South East Asia, the Euro for the EU and the Near East and Africa where French connection is high, last is the worldwide Yen of Japan. The fall of USD has to be the result of rising Yen, Euro, A$ and GBP. GBP could be an non-issue because it is free falling so it will not help the fall of USD. A$ is very helpful because it is commodities based currency like C$. Yen has been helped by the natural disaster to devaluate so USD is propped up. Eurozone is haunted by the PIIGS but others Eurozone countries are recovering especially Germany. After the exciting yearend settlement, the U$ demand will take a breath. The USD will win the devaluation war because it will continue to let inflation unchecked by keeping the interest rate low when other country could not afford that. While the USD does not fall, the buying power is vanishing not so much to the inflation but the lack of deflation. Medium to store the wealth will be on demand. In another word, all tangible assets are on demand. When the deflation weakening, it is different from inflation which we have to be very carefully differentiate the situation because the result could be very different.

2011.04.05 Today should be the critical moment for the precious metals for gold hit another all time high in U$. It is also breaking the psychological barrier of holding pattern around the U$1,400. Technically, gold is just into the overbought area. If the momentum carries, there could be room to be sideway or up. As for silver, it is extreme overbought because it made two 31 year new high in a row. Gold is just a pop which indicates some sort of squeeze. Silver is just a grinding stone that started a rally at U$14.65 since February 2010. If the U$B silver short is true, the squeeze is on. The gold silver ratio is just above 37. It looks like it could break down below 37. As soon as all these wonderful climax, we should prepare the empire strike back that pushes down the gold and silver. With the USD hovering 76, this means everyone is rushing to the bottom for competitive devaluation. Precious metals will be a better choice of store of wealth so the demand will be high. For the gold bug, it may be the time to sell in May but if the QE 3 shows up, there is not time to go away for vacation. Today, HUI went up 5%. This is huge. CGSI and UGSI both went up 4%. This should be one of the top 95% movement date.

2011.03.24 Today, gold and silver made new high or all time high. Oil stays firmly above U$100. It is not without attempts to topple it but failed this time. USD is sitting on a huge head and shoulder with 50MA and 200MA pointing downward. Stock indices may rally but this could be temporary. If stagflation settles in, the stock market will sink. Gold to silver ratio is now firmly below 40. Copper is back to U$4.40 level. Even NG is staying above U$4.00 before May. Friday will show how much the traders believe the commodities are on.

2011.03.20 Energy is never too far from politics. Energy does not control the mobility but also the source of financial. Energy producer rarely bankrupts because it has price power. Saudi got rich but the American oil companies got richer at the beginning of the Twentieth Century because the black gold was sold to the American at dirt cheap price. Nowadays, it is still selling a the below price. Just a simple calculation. The price of oil as about U$1.00 at 1900. After One hundred and ten years and with a inflation rate of 4%, the price will be about U$75. This is based on the ample supply without any additional cost of finding and development; not to mention about the higher expensive oil. With all the additional factors it could easily double the price. Why the second part of the argument is valid? The oil pumped out at the beginning of 20th Century was basically free-flowing from underground or required very simple pumping mechanism with oil was located very close to the surface. This is contrast to the kilometers deep of oil now. This is not a new phenomenon that oil owner want to sell higher price while oil producer want to buy low and sell high. A simple way is to use political power to suppress the selling price and use the pricing power to sell at the high price. The situation can exist if the government support the low production price which could be different from the real cost. Iran was been an oil producing companies with little government owned producer during the Czar period. As the people wanted to take the oil back, there was a political change. Iraq followed but Iraq's oil problem was 'helped' by the West (i.e. American and British not the French who has French oil producer in Iraq) to liberal the country. Libya is just another oil rich country which has many foreign owned oil producers. When the people wants to take back the oil ownership by removing the government that support foreign oil ownership, the Ally moves in. This is Western Shamanism. This is interfering of the internal affair. If American led Western Ally continues to operate this, the community of Non-American Friendly will be grown by the BRIC led by China. However, if the Western Ally does not take action, they will lost the oil field in the Libya case but will not accelerate the lost of those not in the pipeline.

2011.03.14 The earth quake at Japan has stopped. But the earth quake at the world's stock markets seem just started. Yesterday and tonight, the Nikkei falls about 6%. This is a great opportunity to squeeze down the gold price but precious metals are fairy firm. Only pull back slightly and bounced back a bit; small fluttering. Will the world markets pulled down by this natural disaster? Analysts are flip-flopping on the impacts. Without questions, assurance industry experiences the heaviest blow because of the pay out. When such heavy lost experienced, premium will increase; this will percolate more inflation. This inflation does not stimulate economy. It is deflational because it squeezes out disposable income. Because of the market fluctuation, money will be lost. Lost money will create impedance to the money velocity. Infrastructure rebuilt could easy the viscosity but the consumer will seize up the spending in Japan. At the end, if the impact could be localized in Japan, the impact to the rest of the world could be reduced. This disaster creates panic fear in the uranium industry. Generally, uranium stocks drop from 15-25% in one day. The long term demand will not reduce but this is not same as short term. The massive fluctuation in the stock market will be parallel to the size of tsunami. May be Richard Russell is right; when you know now what to do, do nothing.

2011.03.13 The world stock market experienced a 5.0 quake after the Japan's earth quake on Friday early morning. The considerations were the slowing down of the Japanese economy that could cut short the world's economic recovery. As the damage statistics emerged, the destruction was serious, death tolls were mounting but the infrastructure was quickly stabilized. This is destruction of wealth in huge scale. All properties and assets lost will be replaced. The lost of productivity and the insurance companies will suffer financial lost due to huge payout. Japan economy suffered from the stagflation during the last two-three decade because saving was sky-high, real-estate was also sky-high but price did not change and the people's living standard did not advance. While economist continues to rate Japan suffering from deflation but everything is so expensive that people could not afford it. The money supply is plenty because of low interest rate but still there is no results on stimulus because of the low disposable income. If there is real deflation, the price should be much comparable to the international price of the food, real-estate and discretionary. We read the report of how the social welfare system in Japan is broken that caused many old age citizens starved to death because the financial supplement could not meet the living standard. This is a contradiction statement of deflation. The facts draw to a conclusion that the Japan economy is not in a deflationary cycle. It is in a inflation cycle that slows all the money velocity. The only chance for the companies to make money is not in Japan through exporting, high price or not. Japanese yen's high value does not necessary translate to lower export. Forget those numbers. They only quote the statistic to scare people. Now the infrastructure has to be rebuilt. The money velocity is not limited by the price tag. This could be a sad example to say that Japan could emerge from the stagflation cycle through the quake. Who would be the beneficiary? First, Japan has a very strong tie with China at the government, investment and social level. Although it is very difficult to migrate to Japan, there is a huge population of Chinese heritage. This due to the historic linkage starting from the beginning of the modern China. One of the less known fact is that the Chinese high-tech industry is pretty much helped by the Japanese who exports the slightly older generation technologies just lower than the state of art technologies. There are many manufacturing equipments owned by Chinese factories are supplied by Japan. The maintenance of these equipments are under the terms that they are maintained by Japanese technician only. As time goes by, these dependencies will be eliminated when the Chinese high-tech industry get more mature. But the result will be a reverse flow of investment and technology export due to the business relationship. Take Taiwan as an example. During the 1980's, Taiwan businessmen invest in China. Now their partners invest in Taiwan. This is a great opportunity. In the coming years, Japan may win back title of world's second largest economy when America falls to the third. Before that happens in coming decade, Japan and China could share the second place many years because of this quake. During the Szechuan quake, everyone believe China will have a major setback. The result is higher domestic GDP that took over the export. As long as there is saving for the country, the economy could not be too bad.

2011.03.09 It is just amazing that while the commodities are rising but the USD is not falling. Of course, USD is indexed by other currencies which try their best to rushing to fall. The 76 USD has been holding. As long as everyone dancing to the devaluation music, USD could hold on at this level for a very long time. What thus this means? RMB will appreciate through its minute range permitted by the government. Even with this minute range change, it will appreciate. This provide higher purchasing power for the RMB that means higher demand on commodities. Oil price is seen being the threat to the "world" which means America, not even North America because Canadian dollar and economy is so healthy that it could withstand all the curse from all inflation threat. Inflation is one of the major growth engine; deflation is not. The hope of analyst to avoid inflation is not a realistic economy fact. Cycle of inflation creates the opportunity of forward investment for next economic growth area. The excessive inflation, i.e. over 6%, is a fact of life the industry have to embrace rather than complain. Manufacturing is a battle field; not a greenhouse. I repeat the story that U$ was the strongest currency after the second world war and inflation in Japan went through the roof at the same time. Both created two economic strong men. Economy could not be judged through a pipe. It is a global picture even in the Medieval period (remember the silk route?). Without question, excessive inflation will create heavy casualty. This nothing new. If it is not inflation, it will be tariff and so on. Some industry will wither because there is no way to optimize the productivity. So let it be. Strive where you can. Analyst has to throw away one dimension thinking. The world is flat so at least use two dimension. With the backdrop of global economy, there at least a handful of dimensions for any proper analysis. Look at China as example. She grew through the cycle of minimal export to low cost manufacturing by winning business from her neighbour such as India, Thailand, Malaysia and Indonesia. Nowadays, she passes the baton back to them. She grew from the point of no FX reserve to the king of world's FX reserve. Economist should start to work rather than waning.

2011.03.06 Once a while, you wonder why there is a large production documentary talks about facts that seem untrue. The 2010 Oscar documentary winner "Inside Job" is one. This is quoted from the IMDB.com: "Takes a closer look at what brought about the financial meltdown. ". In this Sony movie, the sheriff Eliot Spitzer, fund manager George Soros, professor Nouriel Roubin, were interviewed. It also disclosed how the banks helped to launder drug money, help diverted money for Iran's nuclear program, Freddie and Fannie overstating their earning at hundreds of millions, big banks helped covered up Enron rather than exposing, a very concise description of CDO and CDS. Time will be well spent.

2011.03.05 The tale of two precious metals; gold and silver. Gold made all time high but the rally is not as spectacular as silver. The following two charts show the demand pattern. The GC-F chart is the NYMEX gold while the SI-F is the NYMEX Silver. The OBV shows how much the accumulation or distribution is. The rise is accumulate and the fall is the distribution. These OBVs are normalized with the high and low of the price in the chart. So it is much accurate on telling the demand and supply. The gold OBV shows continuing the accumulation but there is sign of distribution or profit taking. The silver OBV is a sudden leap forward showing a demand jump. For industrial demand, this is not a normal sign because industry would not buy at peak unless high peak is coming. There is alternative explanation for the steep silver OBV, short covering. If the rumor of million silver short outstanding, there will be long way to cover the silver short or a long way to cover the short. The longer the way, the more panic buy.

2011.03.02 Now that WTI rises above U$100 with Brent above U$110. Is WTI supply in surplus? The following charts show there is continuous sell-off of WTI to keep the price down or the famous word shorting. If the chart is right, the WTI is suppress to keep the price down not necessary glut. Brent continues to rise without the sell-off. When the price is high enough, the shortie will have cover. This could trigger the catch up with the Brent. The short covering can create an explosive rally. The right chart of Brent shows the continuous buying can come to a halt or level off.

2011.02.27 Monday could be the judgment day of many longie or shortie of WTI. Brent continues to rise. WTI could not be held back too long. The supply and demand remains the ruler of the universe. Libya only supplies 2% of the world oil. The rest of the Africa is not the major oil supplier to the North America. The biggest beneficiary are China and Japan. Saudi UAE always claim they can pump additional a few percent on demand. Why there is panic unless oil has been short for a long time while UAE could not pump any more. Matt Simons' Twilight in the Desert reports that Saudi has peaked their oil production. Their reserve is less than they claim. There is no real oil glut. Can the world survive oil shock? We had been enjoying ridiculous cheap oil squeeze by the American. This does not mean it has to be staying there forever. European learns to drive small and more efficient car. American does not. One could not continue to use the influence to keep the price down for their extravagance oil consumption. Move back to the city and don't live in single house; live in apartment.

2011.02.24 WTI price shots up to U$100 and Brent above U$114. So where is the oil glut. Libya only provides 3% of the world supply. It is heavily guarded by the oil companies militia even Qadaffy could not enter so what is the exposure? The exposure could be the pipeline which is not operated smoothly anyway because of the local stealing oil and the insurgence attack. The bottom of all these market panic origin from two pole of information. People being jerked from oil slut to oil supply interruption. The panic was further exaggerated by saying the spread of oil supply interrupt to the rest of Africa or even Arab. These are just pipe dreams. This is part of the market manipulation. Media should be more rational and more analytical and more critical on the facts rather than sensational reporting. Oil supply should be tight all the time. All these oil glut are smoke and mirror to hide the true of oil supply. The market maker makes money by swinging the market. News is the vehicle of the swing. How can we know supply is tight? The WTI contango is always there. Small retailers should be very careful. After the oil, natural gas will also have a major price swing without any change of the fundamental.

2011.02.23 Libya is Africa's major oil supplier. Egypt is not. During the unrest in Egypt, the worry of suspending the use of Suez Canal that slows the supply to America sounds a major help to the up rally of the WTI. Looking closer you can find WTI was above U$90 along with the rally of Brent. At the same time, why no body use the floating oil tank that alleged to cause 'flight capacity' problem? Libya has many foreign oil companies but their are not the suppliers of America. Europe is the customer. All of them are under heavy military guard. No matter who is in power, these oil facilities will not be touched because the government in power or the tribes will benefit from the oil tax. The evacuation of the European is a natural move for any unstable political situation. It does not mean oil facilities are under attack. The biggest lost of supply in Libya is the insurgence that attacks the pipeline. So whether Qadaffy is in power or not these insurgence or local people continue to steal or attack the oil. This is another example of moving the market by commentary not by news. News are neutral the interpretation changes the sentiment. With the higher oil price, inflation will follow suit. Entertainyst forgets they insist inflation will float the market. The latest spin is higher oil price will hurt the economic recovery. But which economic recovery. The BRIC economy will continue the demand at any price. They are the engine of growth. American is the world's biggest economy. But it will not reduce the oil consumption due to the strange reason and switches to natural gas which in excess supply and dirt cheap. Why the market crash? There is a dimension we have to consider. Most of market participants are still on margin. When the oil and other commodities prices gone up, these shorties are squeezed. So they have to sell something that have gone up quite a bit. The short squeeze happened conveniently when the COMEX is not traded. The electronic ICE could do transaction far much faster, the flash order. This is another episode of conspiracy.

2011.02.21 Overnight, the rally of oil and precious metals continues with natural gas lonely left behind. Brent is not traded until later part of the day. Whether it will catch or not will be left to be seen. So far, the sprint of prices are extreme. Copper is going to shoot for all time high again. Gold recovered back to U$1,400 level. The most worth noted is silver. On Feb 9, gold silver ration was 45. Last night it was 42. This morning, it dropped below 42 despite of gold's strong U$14 jump.

2011.02.20 WTI closed at U$86.20 on Friday while Brent was U$102.52; a spread of U$16. Anyone has any common sense will know that all those 'surplus oil stored on the supertanker just park off the coast'  should turnaround and set sail to Europe to capitalize the spread. This spread was not just only a day, a week. It was building up since beginning of January when the spread was U$3.00. Any surplus oil should send to Europe. If someone says that Europe could not use those oil because there is a contract. The contract was drawn when? When it was U$30 or U$40 with a mark up of U$102? These fluctuation is very suspicious. Tonight, the WTI jumped U$5.00 when tomorrow is a holiday at North America. Now, who is willing to pay U$5.00 more a barrel of oil?

2011.02.09 Silver quietly recover above U$30 and the gold to silver ration slipped under 46 with gold to oil dropped to 15.70.

2011.02.06 When we assess the change of an asset, what is the trigger level for action?  In general there are two dimensions; the percentage and the $ value. This is valid when the price range falls in a certain boundary. Out of the boundary, it does not apply. Consider a penny stock with two cents value and the minimal price increment is half a penny, the minimum percentage change will be 25%. In some case, this is good enough to take a profit or cut the lost. However, this will not necessary the case for this penny stock. We should reference to the volume and fundamental material changes. In another case, when a stock is at $20,000 like the Berkshire Hathaway, you can make a profit or cut the lost if it change just 0.5% for the day trader. By the same token, does the correction of U$120 gold shows the weakness of gold? My view is a definitive yes. We talk about the gold price (not the ETF price) is actually the contract price traded at the COMEX or LME. The margin does not change along with the price. So the major impact factor is the $ value change not the %.

2011.01.31 Financial market has many dimensions; precious metals, base metals, banking, bonds, stocks, real-estate, economic productivities, etc. All of them should be in phase if they have the same cycle length. Because they don't, once the market is in motion, the begin and end of the cycle will not necessary to be aligned. This make some of the dimensions become the lead indicator but some lag indicator while the market is somewhere in the middle. Last week's precious metal remark was that the gold bottom was not firm while it enjoyed a rally of U$20+ on Friday. Such bottom's confident is discounted by the Friday effect which means everyone will try to balance the book with minimal long or short carried through the un-traded two days of weekend. This morning, gold continues the fall but not as severe despite the unrest of Egypt. Egypt's unrest has been regarded as the fuel to the gold recovery using the traditional wisdom. This is a single dimension thinking. The modern world has grows out of single dimension thinking. So there is break down of the analysis. It is not to say the analysis is invalid. It is the premise. Analysis is based on the premise. When the premise is not set right, it is like building a house on an unsounded foundation. Who changes the rule of the game? It is the market. There are more players and wider geographic. So what the market tells us. The unrest at Egypt could have the butterfly effect to impact the rest of the world. One immediate effect is the oil from the Middle East which travels through the Egyptian controlled Suez Canal. The supply may slow. As the result, WTI traded as high as U$90. However, this ignore the fact that this oil are to Europe. Brent has jumped to U$96 range last week because Brent is local oil. The oil market has discounted the effect of Suez and jacked up the Brent price. To North America, all the 'surplus' oil will have a chance to put in good use. There should be no panic. If the WTI rises, we can gauge how much 'surplus' oil is there.

Despite of all these confusion, we can take a look of the spot metal markets; precious and base. The following table, captures the price at 8:00 a.m., shows that precious metal continues to fall which could be a cashing out due for longie as discussed a few days ago. The interesting is the long term economic view hinted by the base metal is a much healthy look. The conclusion could be that in the short term the tug of war between precious metals longie and shortie goes on but the base metal telling us the demands remains healthy. At the end of the day, the picture could be interesting. Updated at the end of the Day: How does the metal market does today? The lower chart is the price at the end of the day. Position changed hand slightly. Base metals remain to be the gainer and the precious metal lower. USD Index does not change. The trend holds. It will take a few days to settle.

2011.01.05 On the second day of trading, the commodities are "sold off". In general, the fall by 3-5%. The volatilities of the commodities remains to be gauged by amateur with irrelevant method. A asset is sold off when it is being sold at a much lower rate than the normal fluctuation. If an asset moves within a 5% commodity channel, a drop of 3% is not sold off. During the period from 2009 to 2010, the maximum gain in one day is 5.06% and loss is -4.16%. Gold dropped 2.5% yesterday. It cannot be regarded as the small but definitely not panicky. Gold's recent rise is too fast and too high so it deserves a correction. It should not confused with the sudden rise of U$. C$ is on par with U$. But the USD basket of currency is pretty much lower due to their economy is either deteriorating or being drag down by other such as Germany. The following chart shows USD is trading within a horizontal channel and the short term 50MA is on a up trend. We should not be surprise to see more strength of U$. U$ should be weaken to strong currency such as C$ and A$ but USD could very much remain within a trading channel between 75 to 88.

2010.12.31 Today is the New Year Eve. With 20/20 hindsight, we can conclude the last decade belongs to commodities. The following two charts shows the major leader (so to speak) of the pack. It shows gold has moved in an parabolic manner that closes above U$1400+ for the year. The chart shows a growth more than 5 fold since year 2000. This is impressive. However, if you use the nominal high of U$540 (rather than the interday high of $850) in January of 1980, we see the compound growth of 3.2%. Let do not get emotional about gold bug or not. Gold prices was on a steady rise from 1978 to 1980. Number crunching can give you excitement. If we use the U$175 since 1978, the annual compound growth is 6.7%. This is amicable return. But we also observed that 6.7% may be also the number we are familiar with: great mortgage rate during the 1950, the average inflation rate during normal year and so on. By alleging gold is the best performer of the year, it is fact but we may also taking fact our of context. This also illustrates the importance of asset allocation at different period. Now lets turn to oil. Oil was about U$5 before the oil shock during 1970 (which is about 7 year before the gold historic high in 1980). Today we have oil at U$90. It is 7.5% annual compound growth rate. Is oil price at $90 reasonable. It is because the $5 oil did not start from 1970. You can trace it back to 1920. Then the growth rate is 3.2%. Is this realistic? No it is too low. While rapid rise of oil price will harm the economy but the rise is necessary to reflect the true value of the good. The cost to produce oil in 1920 is far much lower than the deep sea oil or tar sand oil today. So oil still cheap. The question is can the economy work with the $100 oil. The answer will be yes. The demand is there and it is inelastic. In the West, the social structure build on it either the transportation or home comfort. The East is demandingly increases their Quality of Life that demand more energy consumption. So the Arabian will sell either to the West or to the East. There will be higher oil. If we ignore the spike in the chart below, oil is actually rising on a steady trend. Steady trend is the trend the difficult to change. In the coming year, commodities will be growing fast. West has been spoiled with abundant material. When the price is adjust to fairer value, they cry foul because the East what to share it. Gun does not work now. Suck it in.

2010.12.27 Gold and silver rose $22.80 (1.6%) and $1.06 (3.6%) when USD rose 10 bps closed at 80.37 (all end of the day numbers). Gold did not recover when USD was under 80 but broke up when USD stays above 80. This is counter intuitive if we attempt to explain this using U$ depreciate. This time gold and U$ rose at the same time when USD holds above the critical level of 80. We know gold and silver have huge short position by the commercials. These commercials are not the the fund managers. They do not dress the window. The short position is to manipulate the market. Checking the volumes. Both precious metals are training about 1% of the 200 days average. This is just the act of small investors who balance the book before the year end. The true movement comes from the first week of January.

2010.12.11 When the Central Economic Work Conference is undergoing at Beijing, the government media start to shape the tone of the announcement. China Daily's article Tightening policy to be outlined in conference (By Wang Bo 2010.12.11) points the cause of the inflation at the economic stimulus started two years ago. The article from Xinhau News Agency China's Nov CPI up 5.1%, a 28 month high (2010.12.11) reports the food price increase contributes 74% to the CPI (11.7%) jump. Another major cause of inflation is supply. The same report also hinted the price control imposed by the government is not observed by vendors. If the demand on food has to suppressed, raising interest rate will not work. In a developing country, the food demand (quality and quantity) will increase due to the increase of income. Although the wealth fortune still has to spread to the inland of China, the quality of life is improving from extreme harsh to a less harsh. For 1.2B population, this remains an extreme cause of food inflation. Chinese government choose price control to reduce its effect. Food, at least stable food, is inelastic. The only way to resolve this specific type of food inflation is by supply.

2010.12.10 (Updated) Japan's 2010 3rd Quarter GDP is below China for the first 3 quarters by U$0.01B above China (China's GDP tops Japan in Q3) amount to U$3.96B. This is a strong indicator that China sustains the ahead position. GDP can be divided into two parts: domestic consumption and export. China's trade surplus hits U$22.89B in Nov or 35% is a very good gauge to tell us whether there is internal overheat or not. The surplus is due to the increase of export to Russia 73% and Africa 48%. The export to America and Europe rose by 30% and 33% respectively. Import rose by 37%. So the import growth is higher than the export. This could be a dangerous sign for inflation. Inflation is rising which is a 10 years old problem. In a rapid growth economy, this is normal especially when China arises from almost zero. However, the import are infrastructure and energy related. Infrastructure has been planned. Energy shortage is well documented. So these are not the main causes of inflation. Food is the the major cause but food shortage is again an old problem due to the infrastructure deficiency. The infrastructure development to revolute not just the manufacturing but also the agriculture through increasing machine application.

The overheated economy we are familiar refers to the overheated in majority of the population, income classes, industries and geographical location. As the result, raising interest rate will cool down the economy because higher interest rate has the overall effect. In China, the economy overheat is very much limited to some industry (not agriculture), very limited income classes (who ride the economy wave but not those in the inland) and specific area (luxury housing). By raising interest rate to cool economy can harm most of the population and will undo what the Chinese government has done. One example is the liability for the retired population will increase because their pension (until most recently, all retirees are civil servants) is indexed. To some extend, the interest rate hike has to be done but will be in a must moderate rate and specific so that they can be target properly. Tomorrow, we are going to see the real deal.

2010.12.06 If there is a stock that it pays 1% dividend every month, it will attract a lot of attention if the payout can be sustained. If a stock can gain 85% in one specific day, this is hot stock. If the daily change is not so spectacular but over a not so long period of time, this is spectacular. Since the beginning of September it broke above U$20 and rally to just under U$30 now for about 60 days or 3 months. This is equal to an average of daily gain of 0.67%. 0.67% is not a small change but it is not a huge. On day, some stock could pop up 0.67% but not continuously over 60 days. This stock is the metal silver. This is kind of slow change (up or down) usually does not catch the eye of investor unless someone continuously and systematically monitor the market across the board. Some may monitor silver but the daily change is so minute that it does not trigger any attention. The market is deceptive. This type of slow change kills many investor when their stock whither. As an investor, proactive to monitor the portfolio from short, mid and long term perspective is a basic survival measure. Returning to silver, the rally is stealthy. It begs for the question what happen and what drives the price up. The slow motion indicates it is not short covering for small volume. Could it be systematic accumulation or short covering of a huge short? In both case, it may not be negative.

2010.11.28 Establishing the Chinese currency as the world trading currency is not something new. A strong country (political, diplomatic, economic, military and social order) will implicitly create a strong currency. This currency does not require any reserve. Reserve is the reference currency that create a confident and act as a damper to reduce the volatility of the currency. The value of the reference currency should be as stable as possible and does not change overtime in ideal situation. Gold is not because it rose 4 time to U$ in last decade. Chinese currency as world trade currency happened a few times in the last two millenniums. During the Han Dynasty, the Tang Dynasty and the Qing Dynasty. Each time, the role was dissolved with the weakening of the political, diplomatic, economic, military and social order. Some foreign factor induced and some self inflicted. The advantage of the world trading currency does not end up have a high demand which can be a disadvantage because it will push the value high. The major benefit is to simplify the trading and the exchange volatility which always kills the trade. It is not necessary high value currency means disadvantage. The U$ was strong and highly demanded after the Bretton Wood I & II agreement but it never stopped American world trade. World trading currency could not be adopted without military action. If it can be, IMF's withdraw right will be the world trading currency.

To satisfy these conditions, it is not necessary to meet all, China has gone through significant changes in all dimensions. Diplomatic strength could easily be the stronger factor while social order could play both end of the spectrum. China's social order is in a flux. It faces the modernization of social culture, wealth re-balancing, people movement to use the geographical diversity of the country and amalgamation of tribes. China has much more success outside the country. With over half century culturing the high alphabet countries (African and Near East countries tend to start with S-Z), the diplomatic policy path the world trading currency status for RMB. In a very limited scale, China had this experiment with the high alphabet countries starting 1960's when no one lent a hand to them and willing to share the wealth. It was China's policy to starve the citizen to build these relationship. Is this right? This is a trade-off. It may not be justified but the result is positive. It brought the Communist government a seat in UN Security Council unseated the KMT from Taiwan. The forming of the ASEAN created a major influence in the 3rd world countries in Asia before and after China exported cheap merchandizes at the end of last Millennium. The more recent development including the trade settlement in RMB between Hong Kong and Mainland China starting in the 2006. This is direct deviated from U$. There are more subtle way to mobilizing countries to weaning from U$. The approach is to form a basket of money that does not have to be RMB only. But in time when trading with China increase, the weight will increase. With the devaluation game of U$ getting serious, the Middle East added to the list of countries use a basket of money for trading. GlobalResearch.ca has a report on the this: China and Russian Developing Yuan-Ruble Trade Settlement, 2009.10.17 by Washington's Blog. The importance of this article is that the work started last year. The report on November 23 is the outcome. According to this report, the work started years early and quietly.

It will be very difficult to sketch a timeline for the unseat of U$ as world trading currency. Will RMB be the one? It is also questionable. Perhaps it is only an ideology if it uses a basket of money or a single currency because it always creates problem and volatility during world political struggle.

2010.11.23 Everyone is playing a chicken game of who going to ditch the U$ first; in public. China has been trading with the ASEAN (Association of South East Asian Nations) in RMB. Japan has trade the UAE with Yen; China in RMB. Russian has been trading with the Europe with limited ruble. In general they all accept the trade settlement in U$. Now, Russia and China announce that their bilateral trade will be settled in their own currency reported by China Daily (China, Russia Quit Dollar, 2010.11.23) The meaning is more than superficial. The first sign is that China has been using trade payment to get ride of the U$ because China practice the foreign exchange control. All companies have to buy the U$ from government. Now the level of U$ reserve must be at a level that the government is comfortably to hold on for the meantime. Or there is a short to mid term stability of the U$ that China is not in a hurry to dump U$. This will apply to Russia. The announcement is also at at very critical timing when the Irish bailout happens. The writing of U$ is not better than Euro is on the China wall. The U$ is not a safe heaven. The signal also have a sight negative impact on the demand of U$ for year end settlement this year and will be much deeper next year. The trading period for this year is just one and a half month to go. So the trade volume not using U$ is limited. But next year it will be more significant because China pays Russia not just for the natural resources but also the construction of the gas pipeline to China from Europe. With the leader going to use ruble and RMB as trading currency, more smaller Asian, European and African countries will follow suite to trade Russia and China using ruble and RMB which will further reduce the U$'s international trading currency throne. On the surface, this does not mean much. The deep currency has wide implication. The hope for China to buy T-bill may be fading slowly. This is the response to American's demand to appreciate RMB. With RMB in higher demand, it will naturally appreciate. With the less demand of U$, it will depreciate more. The abyss is getting wider.

2010.11.18 Gold to silver ratio has dropped below 50. The rate of change for both precious metals are fast pace. In two months ago, it moves 1 time of gold vs. 2 time of silver. In last 2 weeks, the rate of change ratio changes to 1 to 3. Tonight we see the rate of change is at almost 1 to 4. The discrepancy make the gold to silver ratio getting interesting. Silver has the precious metal demands. But due to its industrial usage (non-recoverable) it is not seriously treated by entertainyst. Now the price is high, it is recognized. Gold has high medical (targeted medication delivery) and electronic (gold plating and connection). These are non recoverable applications unlike jewelry. Silver is far more application and also non-recoverable. With the decline of film cartridge, entertainyst declare the over supply of silver because silver is not used for negative. They never know it has been stopped or at least reduced significantly for decades. The photosensitive ingredients are most dyes. Now silver has its wider application on antiseptics such as suspended silver solution. Silver's ramped up usage in printed circuit board to replace lead/zinc soldering (to reduce toxicity) has been over a decade now. You can imaging now we could not getaway from electronic, we should know how high the silver demand is. Below is a good milestone for silver's value. There may be some up and down about the 50 ratio but soon we should see the ratio beheld below 50.

2010.11.17 General Motor after wiped out the investor's equity, new shares are issued to the brave. The subscription has reported to be triple and price pushes from the U$20 TO low U$30 range while the entertainyst claiming the world's economic engine is out of steam and going to collapse. How could one promote the GM which success will rely on more sales in China and the rest of the world and denounces the economy. If the economy could not grow and will shrink, the car sales will be hit first even with the QE2. The QE2 will follow its predecessor being horde by the banks without passing through to the rest of the economy for their newly found speculation.

2010.11.10 "China is going to raise interest rate to fight inflation that will kill demands and chill out the economic recovery of the world." This is what the enterainyst claims. This is what people believes. The entertainyst goes further to yell "sell commodities, buy safe asset bond". The last recommendation tells you where the source is coming from. China's economy is never overheated in general. It does in pockets. The high end and luxury housing market has tremendous speculation but, at the same time, tremendous need from the people who evacuated to give ground to the high-rises and factories. Housing for ordinary people is always tight in China. To help the common people who do not understand mortgage, loans are available at reasonable rate. However, banks have instruction from that loans to speculators are definitely tighten through higher reserve ratio. Speculation at the stock market has gone crazy, so the government raised the stamp duty (i.e. the tax on trading on top of commission) for those frequent trader. The objective is to bring the Chinese economy down to 9% GDP growth rate rather than 12% which will create an abyss between the highly developed east cost and the still agriculture centric west. Five years ago, we remember when China was at 9% GDP growth the world had difficulty to meet the supply of base metals and the hydrocarbon (petroleum) to China. Why we believe there is an excess now when the 9% now is much bigger than the 9% 5 years ago. Is this some sort of manipulation by the West? To cool, or the proper term should be economy adjustment like the discount rate, can be done through many methods other than raising interest rate. One of the simple way is to cut the subsidize on petroleum product to let its price rises slowly to the real market value. The others will tax the luxury goods such as automobile which will become the biggest market of the world. China has to do a very delicate job on economy adjustment that will not cause harm to lower income class but suppress the spending spree of the new middle class.

2010.11.10 I see gold as a reference currency rather than the ultimate money or the real money. Gold does not have the some specific requirements of money which are portability and easy divisibility. Paper money is created to overcome the short coming of gold money. As money, it should easily transfer from one location to another to facilitate trading. If we split hair, we are using 3 types of money: government issued notes, electronic currency which we do daily payment on internet, and credit currency such as the credit card. All satisfy the portability and divisibility requirements.  However, gold can be used as a reference currency just like cesium is used by the scientist as the reference for length. A reference currency is a third currency between two currencies that can determine the relative values of the two currencies. Should the issuer of the currency owns the reference currency is another matter of policy. Why ownership is not compulsory? The rationale lies on the fact that owning means backing. Backing means the value of the currency can be stable because there is a process to increase the reference currency ownership (reserve) in order to increase the money supply. The money supply is a policy issue. Ownership of the reference currency creates the barrier to create money but does not prevent if it can be unpegged or devaluate the currency by the government. While everyone says going back to gold standard could push up the gold price or silver price, in fact, depends on how gold or silver is being used as reference currencies, they may not. Investors may have to be very agile on this.

2010.11.09 It is Déjà vu again. In the morning, silver and other precious metals were at heaven. Gold hit U$1,420. Silver hit U$29. In the afternoon, gold fell below U$1,400 to U$1,388 and silver U$26.88 on COMEX at 4:00 pm. Around 6:00 pm, things are rosy again. Silver is pushing the high of U$29 and gold recover above U$1,400 to U$1,410. The most unbelievable is that USD rose to 77.74 up 74 bps. So the correction since 1:30 pm to 4:00 pm is just temporary. The lid can be held only for a few hours. With copper broke up U$4 again along with NG above U$4, we should be very careful not to ignore this commodities rally and say it has peaked.

2010.10.26 The USD does not assert any pressure on the precious metals tonight. With USD up 51 bps the gold and silver are up. Silver recovery is strong at the order of 2.5%. If this persistent, the USD and precious metals are detached.

2010.10.23 The effect of China raising 25 bps prime rate is volatile. Interpretations come from the far sides of the both ends of the spectrum. The temperature of Chinese economy is very close to red hot but not white hot. To reduces the temperature has to be very careful. In some pocket, the temperature is white hot. These are the speculation area. For day to day life, the small industry will be impacted by the overnight discount rate because they need the short term money. For the longer term, those established will not be impacted. Those in floating rate are the business people, as mentioned earlier, will be impacted. The profit margin is low. This will force the industry to choose better product, better practice and better strategy to move a better economy rather than running sweat shop. When China started to move from export dominated to a balanced export and domestic consumer model, many small business were eliminated. This is way too capitalistic but China has never been a pure Communist country. She borrows the principle all along and pragmatically adept to whatever works. If we understand this clearly, there is no surprise we hear the shouting of "China disappoints small industry", "China overheats the economy with excessive stimulus." Up to now, China introduces stimulus either through infrastructure investment (Olympic for product introduction and trade relationship building, rebuilt Sichuan after earth quake) or through the re-announcement of old project (railway for transportation). The continuous gradually tightening specific pocket (increase bank's capital ratio to reduce speculative real-estate investment, raise stamp or tax on stock trading). With all these "misinterpretation", sometimes, one could wonder are these "misinterpretation" form the West (or specifically from the investment research firms of the West) has hidden agenda to move the market. The possibility of linking John Paulson in collaboration with Goldman Sachs on CDO is an example. According to PBS, the CDO had been advertised and promoted by marketing sub-prime loan is an example. In this case, PBS report indicates CDO will not fly if there is not enough sub-prime loan. There are sudden mushroom of sub-prime loan lent to consumer who did not have sufficient knowledge to understand the risk. Why did this happen?

2010.10.22 A cheap currency (when it is below par for exchange), it has been observed as a great way to promote export. Conversely, an expensive currency will create hindrance to export. This may not be a good description to depict the real situation. A cheap currency does not have to be advantage for export if its cost of production is high. The cost is a function of the living standard. The higher the living standard the higher relative to those lower. The notion of relative competibility is a very important criteria. It is not the exchange rate. If we accept this hypothesis, the manipulation of the exchange rate will have some influence on the promotion or the demotion of the export. The post-Second World War America is a good example. It had relatively low debt and had a lot of gold. It exchange rate continued to appreciate until the mid-1990. But its export was not hurt. When you have a cheaper currency, it will be advantage for the manufacturer's revenue. Since we most likely depend on import for part of the components. So this is a really moot point to argue a cheap currency can protect and promote export. The real factor is the quality of the product in relationship with its market acceptance. In conclusion, Zimbabwe may not be the world's most competible country.

Money Matters 2010.10.11 How strong is the silver rally? When people talk about a strong gold rally, they say it is tremendous. During the fall of commodities in the fall of 2007. It was dumped much less serious than the gold and hits the ratio of 50. Gold took off since then and people forget silver. Now, it is coming back. Within one month, the ratio dropped from 68 to 58.

2010.10.03 USD has broken down below 80. This is ugly for USD. Can it rebound? It has a huge top and a huge H&S. Technically, the chance will be high. Geopolitically, the chance will be low. So what will be next resistance point. It will be very possibly the 70. If so, what will be the commodities' price? The lowering of the currency value does not have to be reflected by the commodities price if the inflation could not be show. But the American kill the Chinese inflation generator by killing all the small manufacturers with low profit margin. The inflation will flare especially when RMB appreciate. The RMB does not drive the price directly up. It is the ASEAN currency peg that causing it because the low price merchandize manufacturing has been again shifted back to India, Malaysia, Vietnam, Thailand, Philippine and Indonesia (the ASEAN countries). The price of gold was below U$1,000 last time USD dipped below 72. To make this happens, the Euro, GBP, Yen and A$ must bet strong and willing to lost in this competitive devaluation war. Will that happen? The chance is 50/50. The European countries may bow to the American influence. This is becoming a typical complexity theory system.

2010.09.30 Association on Study of Peak Oil and Study USA on its Oil Notes today reports "Two reports from China this week show manufacturing activity continuing to grow. The official Saudi Press Agency says that Saudi exports to China will grow by 19 percent this year and that China will overtake the US as the largest purchaser of Saudi oil. The Asian Development Bank says China’s GDP will grow 9.6 percent this year and 9.1 percent in 2011. The news from China has analysts talking about oil breaking through the $80 ceiling. Oil briefly touched $93 in February, but has not been higher since the fall of 2008.". These are two important messages. The first is that the China's economy growth continues at least 9%. By implication, oil demand continues to mount. The second message is that China becomes the biggest oil customer of Saudi. This could means the oil trade payment could continue on U$ for China to get rid of the U$. As the result, U$ still reigns the business world. The second message confirms the first.

2010.09.28 Gold has peaked and going for a correction. Of course, nobody can predict how much downward correction it will be. Rather than a negative event, it is extreme positive. Despite the chart looks parabolic, we see gold continues to make correction with 10-20% advance and pullback rather than a continuous run. This is a strong indicator of non-bubble. The following is a spot gold chart that shows the zigzag journey. Updated at end of day: Gold broken the U$1,300 and stayed put at close. Now the U$1,300 will be the psychological support but the actual one is at U$1,288.

2010.09.22 USD broke below 80 after not much of struggle for the last few days. This will create a major ripple on the selling of some commodities to cover short. However, the commodities also rally quite a bit that creates short covering situation too. Gold and silver are at  new high again with oil moving towards $80. Everything is moving in all direction.

2010.09.15 Bank stocks rallied after the announcement that their Bessel Ratio could have 8 years of catch up time on Monday. The rally did not sustained on Tuesday. Majority of the US banks and Canadian banks pulled back with a meaningful lost. All these banks had a peak signal. While a lot calls this as a very good market condition but the fundamental problem is not faced. The violation of the Bessel ratio is a severe problem. If people think delaying to catch up is similar to a drug addict receives the delay of stop using drugs. Perhaps the market weight in on Tuesday which is also reflected by the USD which lost 158 bps. The market may be saying the banking system is very very sick; not a safe haven. But how to preserve the wealth when the traditional clearing house of wealth keeping become a house of playing card? It does not only affect how we do our daily living but also the security of investment vehicles. When the bank collapse, you investment account will be frozen until further notice. We know what happen to the commodities when Lehmann Brother's accounts were frozen.

2010.09.02 The news of China moves the market. The market is entering an irrational phase that it could be the beginning of a serious bear market crash or the last phase of a bull rally. Or it could be the combination of both (bull then bear as part of the bear market correction) to make the situation danger. This is the microeconomic view. From the macroeconomic view, the fog of war shrouds the growth engine or engines of the world. There is no question that BRIC countries combined together have the potential to replace American as the world's biggest economy but cannot replace American as the world's biggest consumer market. So if the BRIC grows at a pace faster or greater than the American's shrinking, the world's demand on material will grow. This is the key for the future trend of commodities. Unfortunately, economists have not get used to the American centric analyst which leading to inaccurate results. With export to the West continues to decline during the coming years, the world's economy's growth has to lie on the internal consumption. This is the development of the consumer market of the BRIC countries. We observe, subjectively, that the living standard has been improved. While the income average is only a meager fraction of the West but the population size makes up to a certain extend and it remains climbing by the fact that exporting deflation is not one of the major export fro the BRIC. The following is quoted from the newsbite from ASPO-USA today:

"China continues to grow. China’s manufacturing increased modestly in August after several months of contraction as the government implemented measures to rein in credit and slow housing speculation. Beijing also announced that passenger car sales rose 59 percent in August over 2009. While there is still trouble ahead, particularly the likely slowing of exports to the US, China’s GDP is still expected to grow by about 9 percent for the rest of 2010 and 2011.

"India reported this week that its economy grew by 8.8 percent in the 2nd quarter as compared to last year. The New Delhi is trying to increase this to 10 percent. It seems clear that increasing demand for oil from Asia will be with us for a while. "

The newsbite shows the consumer market is continue to grow in a very rapid pace. Again, this rapid pace in percentage is not necessary the long term view because of the small base of reference. But the increasing volume (absolute) is what we watch out.

2010.08.16 The EOD gold price has broken above 50MA which is above 200MA. The P&F chart shows the completion of bottom H&S and challenges the resistance at U$1,227. If break through, gold will have a stampede run.

2010.08.14 The world's largest economy, American economy, has been considered as the focus and centre of changes. This a wrong concept and will lead to wrong analysis. On paper American remains the biggest but not necessary the strongest. First the internal is not good because of high debt to GDP ratio. Second, the saving rate for people is low that would not able to pay down of the citizen debt fast (i.e. consumer demand will be moderate). The government continue to use Keynesian economy to manage the government budget could lead to catastrophic failure like the Weimar Inflation or the Japanese Deflation or British High Tax System. It is also wrong to completely discounting the influence of this huge body of economy. There are still considerable demands and productivities. However, the ratio of American to BRIC will significantly reduce in the coming years. It is also wrong to isolate each BRIC country as individual and using each individual to compare with American economy. Analysis should use BRIC as whole. There are a few reasons to do that. They have similar growth model: looks overheated but pretty much government controlled. They have the same demand model: people's quality of life continues to climb which stimulates significant consumer products at different price points. To support the improvement of quality of life will mean more demand on infrastructure built out. Singapore has been a road model of such kind of development. It does not have any natural resources but found an edge on financial centre which improved the quality of life of people. As the result, mass built-out of affordable cost housing, communication network, education facilities and road system led to more business to Singapore. BRIC countries have similar economy composition. All of them have agriculture which is the basic necessity. They have expanded beyond that to manufacturing industry to service industry to high tech industry to finance industry. One step at a time, their growth is helped out by the American's global companies which would like to milk cheap labour from BRIC. At the end, the know-how is passed on to BRIC and the BRIC started to home grown industry. It is very different from the 20th Century when this Economic Empire took strong hold on some country, the country will be under their thumbs and never have a chance to struggle free. It is not necessary the failure of the Gun and Rose policy. People are getting more knowledgeable and understand the true intention of these American global companies (or any global companies). Cisco has a dire outlook and forecast weaker revenue. If you look at Huawei it tells a different story. The weakness seen by Cisco is the also seen by Huawei. But the market share of Cisco is losing to Huawei (revenue grows from U$7B in 2005 to U$22B in 2009, 33% CAGR). Other than Cisco and Huawei, we also see Google and Baidu.

 There is no explicit solution for the equation of economy. We can only use guess work to calculate the values. Use BRIC as a single entity, we can conclude a better world economy despite the dire outlook of the West. The day that American is the major economic factor may be passé.

2010.08.11 USD jumped 200 bps. The market is not flooded with money so shell game is played; money has to cover the U$ short from somewhere and somewhere is commodities. A characteristic of a very small number of players and very thin trade. Is this a turning point? The factor is determined by what the Fed going to do with the U$. In 2008, Fed used commodities' fall to rescue U$. The method is force people to sell commodities after Lehmann Brothers' asset was frozen. At a very narrow window, clients of Lehmann Brothers had to sell the asset to pay redemption. The dumping is at any price. The result created a black hole of commodity price. Can Fed pull the same trick again? If so, another bank has to fold. This bank must have a tremendous number of client holding commodities. The only candidate that fits the bill will be Goldman Sachs. This possibility will be very low. So the chance to repeat the history could be slim but not impossible.

2010.08.10 While gold got hammered the OBV of UGSI has encouraging development. It has a lift off above the 200MA. Although the CGSI is just as lucky. So we have the case that the price and OBV are both rise above the 200MA. Therefore, we may see the gold stocks moving higher.

2010.08.04 A new twist for the gold and U$. While USD rose 0.5% gold rose 0.8%. Gold does not back down. The reason USD rises has to be related to the Euro and GBP. Both are the heavy weighted currency in the USD basket. As the result, even U$ is not strong, USD is being involuntarily jacked up relatively. U$ is not up. This could be the reason why gold gain 0.8%. As time go by, using USD to gauge the direction of gold will not valid during this match of competitive devaluation. Commodities such as base metal are not rising as quoted. However, if we look at Dr. Copper, it is on track to the old high U$3.60. In fact all base metals have the price cross over the 50MA and 200MA with 50MA up stiffly when 200MA start to level or turn. Judging from the daily change may be delusional.

2010.08.02 The USD is not looking good. Today, it crosses below the 200MA. With the 50MA falling, it is a very strong signal for a downward trend. This is also confirming a triple top without break up pattern; it is another way to say a top is put in. With this strong signal, the US equity market would be a inflation rally if there is such a possibility. The Dow loses almost 38 points with a confirmed peak (sell) indicator. This becomes a very negative picture for the American financial market. With such a weak U$, we should consider a high gold. Gold only rose a few U$ today. What does it mean? It shows U$ is weaker in comparison with other currency. This is for sure. By why gold does not climb higher? We may find the answer in oil. WTI rose U$1 to U$82.42. So a weak U$ reflects stronger commodities but not all commodities. Most of the base metals are down too. Platinum is down U$20 or 1.3%. Precious metals and base metals are weaken. This is a sign of topping; deflation or not.

2010.08.01 This is the middle of the summer. By the old adage, we should sell in May and go away. There were some exciting news that push fertilizer stocks up significantly. There is some news on the falling of iron ore and followed by the metallic coal prices. TSX is down by 100 points. Dow made the June low and confirmed a bull signal in July. This means there were buying opportunities in the middle of the summer. It can not be said that the opportunity is over but the bottom may be missed. During the first 3 quarter of the 20th Century, the summer vacation developed during the 19th Century carried forward. As the market globalized and the rhythm of trade runs around the world, summer vacation tradition remains but action goes on. There may be less big deals but nonetheless there are deals. As time goes on, the summer rhythm will be just as active. From now, where the market will be under the inflationary pressure of resources (all peaked) but the falling of the Western GDP? The BRIC is definitely marching on without question and they will take the first (China), second (India) and Third (Brazil or Russia) places and replace American, Germany and Japan. This will happen perhaps within next 5 years. It was only 3 years after China to replace Germany as the 3rd biggest economy to replace Japan as the 2nd. The GDP growth rate of India is leveling with China at the tune of 10%. American does not want to fall but the deflationary pressure of debt will definitely does not help to keep her position. So the change of guard will happen but the big question is will the world GDP decline. This is a topic that has not been visibly debated. The gap will be there. The dimple will be shown. This is why all the pressure on the commodities prices other than speculation. What we have to think hard and fast is how big is the dimple. So far the deceleration of the Western economy is low but this could change as soon as the debt increase by the QE2 and the value of USD decline. The import heavy (for resources and low prices merchandises) will force the American to go to a form of Great Depression II. In the modern days, this Great Depression II will not be measured easily due to the mobility of people. The lower echelon already suffer. The higher echelon does not have to stay at American and earn their living in America all the time. There is not necessary to do that nowadays. At the end, the dimple may not be reflected correctly. Yet the mortgage default and bankruptcy rate rally will signal this Great Depression II. Since the Wall Street banks hold up the zero cost money from Fed to shore up their balance sheet and none flows to the regional banks which bankrupt at an alarming (approaching 150+ per year), it should not be any improvement of the state government's balance sheet. The next big thing will be the bankruptcy of the state government as correctly pointed out by many economist. This time the impact will be much bigger than the fall of the British Empire because American population is much large than the British Isles. So what does this mean to those international America registered companies such as Intel or Microsoft. The U.S. government will do their best to keep them maintain their shell HeadQuarter in America but as we know most of the R&D centres are all over the world. There is not really inflow of money back to the mother ship. The price of the companies are actually going to fall if they cannot restoring their price power due to the technical competency decline and failing the use of Economic Imperialism to buy out developing world's competitors. We should take a look at the Royal Dutch Shell as an example. While the oil price continue to rise, its share price continue to fall. GE has raised the dividend only after a dramatically shock to share holder that it cut dividend last year. We see on cockroach. The day of Guns and Roses are gone. Be careful of so called global investing strategy which means investing in American companies with oversea factory. We may not see a inflationary American stock market rally.  

2010.07.25 The TSX S&P Index is definitely overbought as indicated by the steep OBV.  If there is any inflation, there may be more buying and holding. When there is buying and holding, the supply of stock in the market is becoming scarce. So it is not necessary rally is supported by high volume. When rally is supported by high volume is either short covering or panic buy. Both are not healthy indicators. Now we should debate on whether inflation will push the value of the equity which will drive up the price. It is wrong to assume the inflation will drive up the equity price in discriminately. When the product of a company has the pricing power, the inflation will pass on to the customer so the profit margin of the company could be protected. If the company loses it pricing power, for example due to vicious competition, the profit margin will not be pushed up. The value of the company may go up due to the inflation of the asset held. This is again go back to the factors that equity's value is based on. GE is a good example that its assets are world class. But the share price does not go anywhere in the last 10 years. Why? Because the rise of the BRIC which is emerged from lost price product manufacturing to high tech. Bell weathered company such as Coca Cola grows through competitors destruction does not work any more when BRIC set up the fair competition rules that do not dominated by the American Economic Empire. Analysis in the market is traditionally tied to first level of observations which manipulated by media. If you can control the media, you can control the company report. The actual fact is lying 3 or 4 layer below which Don Coxe calls the 16th page news. Why now the professional analysts have difficulty because they are not trained to analyze fact 3 or 4 level deep. This is why retail investor are in a very difficult position if they could not do their homework. This is why you cannot just buy and hold using the first level fact. You still can do that using much deeper levels of fact because this is the reason why you hold and wait for the growth opportunities.

2010.07.11 Day to day, we do our business (real or virtual) using money. We put away our salary, saving etc mostly in our bank (piggy or not). It is not surprise to me that common people see money equate the wealth. But it comes to me as a major shock that analyst and economist see money is wealth. This is saying weight is equal to mass in physics. They are related closely but not exactly the same because money is the projection of wealth. The real McCoy could not be mixed up with its shadow. Who studies economy understand the world could not develop efficiently without money which is an exchange rate (when tangible becomes the exchange medium) between goods (including arts and human life). Along that line, when did the economist and analyst forget the fundamental of economic and started to say money is wealth? The money system (use of money for trading) creates a systematic, measurable, and descriptive way to do transaction within a circle of influence (the same money system). (Note: The EU as many pointed out now that, is a number of circle of influence bond together by political whip.) Beyond the same money system, the recursive function (defining the rate of exchange is now not for object but between currencies) repeats itself. When the bank note issuer say the money is backed by something, it is a security system put in place to ensure the integrity of transaction during the lifetime of the transaction. When this integrity falls apart you will have a currency that changes its stability (exchange rate of objects) volatily fluctuates that makes the transaction's integrity jeopardized because you are not sure what is needed to complete the transaction. This has been observed by many economist that volatile foreign exchange rate (not necessary getting higher or lower) will kill international trade because the planning becomes extreme difficult. Does money really needed gold or some stable backing? The question should be divided into two parts: stable backing and whether gold is a good candidate to back money. If promise could be enforce, promise could be. The trouble with promise is that it could be fabricated. It is not necessary to be gold, anything that could not be created out of thin air can do. In fact, many new founded countries do not have any hard asset backing their currency before they were formed by need a currency for political or practical reason are simply backing the currency with trust. There is nothing wrong with trust until it evaporates. If we drill deeper on the fact that people complain about non-gold backed currency suffered from inflation. This simply not true. Materials are consumed. It is getting more scarce. So supply is reducing. The law of elasticity can tell us that the life is getting harder because we have to pay more from from a smaller pool which means lower supply and higher or unchanged demand. In a closed reference system, e.g. a country, the demand will not be the same because the population and the distribution of wealth will change. It is always the government's intention to grow the salary which means more tax revenue to pay the devaluated treasury. If we accept that, we also have to agree on the fact that the level of economic progress around the world are not even. Some will be lagged and some will be more advanced. When the advanced moves slower, they may not reduce the consumption but the lagged may increase the pace. As the result, we are witness the increase in demand. Consider the population at the beginning of the 20th Century, according to Vaughns-1-pages.com (http://www.vaughns-1-pagers.com/history/world-population-growth.htm), the world population was 1.6B. At the end of 20th Century, the population is 6.1B. A growth of roughly 4 times. This could push the price by a factor of more than 10 folds using the famous hyperfolic supply and demand curve. We should also observe that the growth rate at Asian is about 4.5 times of the West. This menas the Asian's demand on material will exceed 4.5 times because Asian was lived in a much lower living standard than the West. The West has been living on what the Est could not afford. When the table is turned, the purchasing value of a U$ reduces to a penny is not surprising.

 2010.07.08 After the new high U$1,266 on June 21, gold has gone done quit a bit to the current U$1,190 level. There is a different about U$80 dollars. This is a big drop in absolute dollar value. Is gold enter a severe correction? The following table shows the inflexion points of gold prices. What we see here is the gain is greater than the lost. One should pay attention the gain or lost is getting narrow. This is what we should watch out. This is either a base formation or a top out.

2010.06.28 U$ may be fiat and back up by no hard asset. So does currencies around the world. The Fed's balance sheet is weak but the gun will keep it going without any bankruptcy. Higher interest rate may be paid for the auction of bills and bonds but the interest rate are coming out of thin air. The people's pockets are also deep. The bottom line is the gun and the economic imperial empire will keep the U$ going. Other countries will love to have a currency stronger than theirs. The following charts (complement of stockcharts.com) shows a bowl pattern. The weekly chart shows much better than the daily chart that USD is just continuously high above the 50 and 200 period MA. The P&F shows bullish pattern. Will technical win this time over fundamental?

The following complement charts from bigcharts.com shows a very huge base for the U$. Will this mean a recovery of U$?

2010.06.27 RMB is floating again. China resumes to use the reference basket of money to evaluate the RMB. There could be a wild card on what is in the basket down the road. The current components consist of fiat currencies. In the future, there is a very high possibility to fortifying it with precious metals. The objective of adding precious metals is not to harden RMB which is hard enough but to stabilizing the world economy. By adding gold in to the money basket, it could be the beginning of gold standard again. Rather than back RMB by gold fully, which means China has to buy up gold held by the rest of the world which basically drives RMB and gold to the sky. This high value RMB and gold is no good to anybody. However, the present of gold in the money basket could stabilizing the value of RMB which reduces the volatility. This will be the key success to import and export planning. One could ask how will gold stabilize the value of RMB. It is by using weighed factors. Gold  could be heavily weighted but not backed. There is no need to have any physical gold involved because it is not backing the currency. But how could the gold tie to the RMB? This will be coming from the IMF's withdrawing right. Yes, there will be reform in IMF and it will happen in not too far future. Another way to stabilizing RMB is to create a synthetic future contract for the RMB to avoid it runaway. This future contract is the RMB denominated bond. The issuing of RMB bond has already begun. The RMB bond is purchased now using the RMB current value. When it is matured, if there is no roll over (it may be as doubtful as can be) the bond could be converted back to other currencies which is selling RMB. This is what happens to the U$ which was shorted by borrowing U$ for other currency. When expatriated, the U$ rally. Why RMB would not be pushed higher when the bond mature? I strongly believe it is not China's intention to become the first top two world settlement currencies. By holding the third position and leave the top to U$ and German mark, the expatriation could be reduced yet, there is influence in the world trade stage. In the Far East, the ASEAN (Association of South East Asian Nation) will continue to trade using the RMB to a greater extend but it remains in the family. The trade and the exchange is being closely managed by China. The runaway risk will be reduced to minimal. As the result, China uses ASEAN to take on the low price manufacturing while she took up the role of high price (high tech and big ticket items such as automobile), China controls the quality of trade and enjoy the import of deflation from the ASEAN and West while manages the appreciation of RMB within a reasonable rate.

2010.06.21 The “unpegging” of RMB to U$ was over exaggerated and completely blown out of proportion by many entertainysts. The statement from China says limited floating, not completely free float. According to PBOC, the change is needed as the balance of payment is reaching equilibrium. This confirm the view point of currency volatility risk. The spokesperson also says “"With the BOP account moving closer to equilibrium, the basis for large-scale appreciation of the RMB exchange rate does not exist," ” It is imperative that the unpeg does not mean a good thing for the American. When China started to peg, she did it to protect the export from the volatility of the currency movement. Any volatility in currency is japerdy to import/export trade because of the currency risk. It does not really just to keep the RMB low for export. Whether the RMB is really low to stimulate export is one way to see it but this also implies less U$ to be received. You are talking about giving up profit. We see how bad it could be when the Chinese low cost/profit margin manufacturing collapse due to the margin vapourized during the 2007-2009 world economic crisis. When there is no pegging, one should also consider the two ways street scenario. With such powerful currency control and huge FX reserve, the RMB could be driven down. How, sell RMB in contract in directly through bonds. When bonds are matured, the money in RMB will be converted back to other currencies. This is happening and happening fast. Today, when the reallity of unpeg sinks in, the American stock market is less enthusiastic, the commodities market almost tanked. This is a true reflection.

2010.06.21 Copper has dropped from its recent high of U$3.68 to the current level of just under U$3.00 this morning. This is a drop of over 20%. Copper being haled as the Dr. of economic and a trial and true indicator of the status of the economy. Does it reflect the past, present or future. If it is in future, how far is it in the future and is it a fixed or variable case of case? If the indicator is for the past, it does not help our investment too much. History is water under the bridge. Present and future is more interesting to us. If it is present it has the value of showing the true picture so that we can react properly if it contrast to the market's superficial view. If it is for the future, the important question will be how far in the future? Is the range change case by case or even in very case? If it even changes in one single case, it is not a very used indicator even it is very accurate. A study for the range of fluctuation for copper's interday high and low within 40 trading days over a one year period shows a range of U$0.50 to U$0.90. If this is the fluctuation we are looking at, the drop from U$3.68 to current level is just somewhere in the chaos of fluctuation. By taking into account of 200MA, copper is not in good shape. However, could it be a very wide trading range we are looking at? The fall of 20% is not necessary the right threshold? The copper price was 10% below the 200MA last week. Today, it is 5% below. This is a strong momentum movement which also confirmed by the rising of OBV. In conclusion, the copper indicator reading may be more complicated than just reading its up or down in a very short term.

2010.06.07 USD has peaked above 88 and the momentum shows a possibility to break 89. The more such the threat the more short covering or short term investment preference despite the long term dire outlook of the USD. At the same time, commodities are not getting cheaper. In any short period of time, commodities may be corrected in various ways but the average trends are not really falling due to the continuous recognition of limited reserve. What happen to some "strong" currency such as U$? There is inflation plus implosion of the economy; a very difficult situation to get out. The export is heavily impaired by the fluctuation and high value of the currency that will cut down the competiveness and deteriorate signing of deals. If any deal is done, the currency risk has to be hedged which increases the cost. Although the American economy is down turning, the inter-relationship of world economy will not benefit and to some degree affected. However, the change of leader has been obviously shifted to the BRIC. But the BRIC is not mature enough to lead yet. There will be some gap of confusion until the BRIC can have a clear grip like the West after the Second World War. A period of 10 years may need to reach the equilibrium which may be the run of this Kondratieff winter.

2010.06.02 Bull and bear is not just the name of an English pub. It is the polarity of the stock market, commodity market and bond market. So they say. They also say that in a bull market everything rises like the rubber ducky in a bath tub filling up with water. They also emphasis that in a bear market, everyone loss. The winner is who loses least. To some surprise, some claims that we are in a bear market but there is a gold bull market. Is it talking with the both sides of the mouth? We do not know. Is it possible that some asset class will rise during a bear market? With the margin clerk running at overdrive, this may not be possible. But it may be possible for a very small number of equity can do that. The most frequently quoted is Homestead which rose to the tune of 60 times from the lowest low. This Homestead was a gold producer. Deflation killed all the cost to make the production so cheap the profit margin is very high. The need for the wealth storage pushed the demand of the wealthy to the top. So there is possible but one has to be very lucky.

2010.05.24 Some analysts interpret Reuter's CRB Index that the world is heading towards deflation because the index is heading down. The following is a CRB's monthly chart (complement of Moore Research Center, Inc http://www.mrci.com/).

There is a major pullback in the year of 2008 follows by a rise that peak at the end of 2009. How accurate is this interpretation? Without a question, the index indicates a short price deflation. There is a major characteristic that has not be take into account. Price spikes due to seasonal event. In general it is a much smoother change. Any spiking is just speculative action. So by smooth out the recent volatile action, we see a much rapid rise in commodity price. But it may be too early to say this is the scenario. If we look at the CRB after 1980 the deflation is obvious until 2001. We may be witness the beginning of another deflation starting 2009. If we count the change since 2001up to now, we are still seeing 150+% inflation. If we try to collate the price oil to retail gasoline price, good luck. We have seen the peak of gasoline and fall but not falling that much and even the price of oil pulled back meaningfully but not the gasoline. If the transportation and fuel cost rises, you could pretty much bet that the food and energy bill go up.

2010.05.23 Greek's debt is visible because it borrows money (in terms of actual loan from IMF) and selling bond. For such a small country it triggers a rescue package at U$1T level. Although not all of it will be given to Greek but it compares to the world's largest economy, United States. However, the debt of American is almost invisible. People only sees the fiscal imbalance. The tradition of bond auction disguises the loan. Traditionally government auction bond to minimize cost but the loan will be repaid at the end of the period. It is like financing the operating capital of a company through the revolving door line of credit with a floating rate. Once you stopped the revolving door, the debt will accumulate like a snow ball. So there is a strange but pressing question why American still spends billions of dollar for the military and performs so called 'world police duty'? Literally, reducing the military budget will help to shrink the deficit. On the other than the military budget provides employment, maintain a huge portion of the GDP and export. So there is the vicious circle.

2010.05.13 Panic started to simmer in the markets. There was panic but people are back to complacency and then panic again. The Europe is using debt to fight debt. This old formulae never failure but has major major consequence. Consumption can be in two forms: spending of the people and war. Europe has part of it spending but not war. American does both. The damage is far severe. With debt, it creates a hole that when filled up, you lost the sovereignty of the country for a long time. During the Great Depression, American Government used all kinds of debt to restore the country. Without that the vicious circle did not break. It is true that debt will damage but you have a chance to dig yourself out. Only if you are under water with liability more than asset then you may not get out. You need the debt as the bridge funding to survive. Without the bridge funding you cannot win back the future to level of debt. Japan may be in a depression but people are living not in poverty. House may be expensive but some people can own house. Japanese Yen may be high but the high quality products can bring in revenue. It is totally different from the PIIGS. American are losing the resources because they owned by the economic empire not the country. Is Europe in big trouble? It is but not as bad as all the loan lent out by France and German are defaulted. As long as the loan is not defaulted, the balance sheet does not have to write off the loan. So the volatility should not be there if there is no market makers. The market makers play with the fear and euphoric of retail investor to squeeze them dry. The market goes up they win. The market goes down they win. They have long and short for long and short term. The market does not have to fall significantly because someone from the East will play the same game with these market makers. The only way retail investors to win this war is to understand the demand of the world. Even U$ could be the store of the money by political pressure. It does not have to be gold. U$ has done that over a century. It still can play such game as long as the economic imperial empire in favour of the American. It seems the shift to the East or North will happen sooner than expected.

2010.05.06 Without a question, the market is in big trouble. It is not just only the debt of PIIGS anymore. There are confusion on the commodities demands, bond yields, BRIC GDP growth and stability of the U$ and the American economy. People may have been betting the wrong horse. When they find the horse is not the one that they expect, after the one wanted out of the stable that causes panic. If we stand at 10,000 feet, there is a slight different this time than the crash of 2008 and 2009. So far, gold has not been dumped and gold stocks are not falling in sympathy with the market. In fact gold stocks are strong, no relatively but absolutely. To ensure a better interpretation of this situation, we have to take the situation in a broader spectrum. Copper has a correction of 20 percent with all the tell tail signs of a lower copper demand. Oil is close to 15%. Copper’s correction is triggered by the worry of slow or negative growth in China as the Shanghai Expo project is finishing up. You cannot expect the demand maintained a high all seasons. Oil’s fall is due to the demand temporarily clogged by the reduced activity in the aviation industry. Both could be resolved in short time. Gold’s strong performance signals a non-deflationary future. By combining the QE goes with the debt, inflation is not a question of will but when. Today, the market has reached some level of capitulation. It may need a few more such days to hit the bottom. Updated: At the end of the day, Dow Industrial dipped 1,000 point and rose 653 to close by down 347. There is some capitulation driven by energy sector. Next few days will be interesting.

2010.05.06 We may want to ask the question does it really Greek debt trigger this May correction? It is an obvious conclusion to draw based on the circumstantial evidence. Taking away the panic on financial, debt is deflationary for disposable income. It is also inflationary relative to the other currencies. The higher the currencies the more financial and political stability of the country. No strong currency exists without strong export and government with a highly secured society. In the case of PIIGS, their financial factors of the equation is weak. Import is high. GDP is low. These are not the ingredients of strong currency. The import dependency will be the other blade of a two blade sword. U$ is also facing the similar difficulties. Even we have the deflationary factor, the inflationary factor will spread the wild fire of inflation. Zimbabwe is the best example. She has heavy debt and almost no export but the inflation is at hundred percent per month. If it is deflationary, the price of wealth storage will rise. So the stock market, commodities and precious metals will rise. There is also another major ingredient that amplify the effect which is the BRIC factor. While the west is highly debt laden, the BRIC countries are not. They have strong export, relatively stable political and social structure. This contributes to a inflationary side of the equation. China and Australia took the lead to cool down the economy before it is overheated. China's continuous constructively increase bank reserve will create much better heavy banking system than what can be done by a bunch of Wall Street politician to the Wall Street. Whenever there is action, there is reaction. By raising the reserve in China and tax in Australia trigger the selling. This correction may not be driven by the PIIGS factor but it helps. The really reason could very possibly by the temporary removing money off the table. To confirm that we have to watch two things. The first is the continuous healthy manageable GDP growth with a slow increase in interest rate. Even moderate interest rate hike will accelerate the collapse of the PIIGS (by extension the Euroland) economy. One may argue the bond market demand higher interest rate. However, if the economy collapse even the bond market has to suffer. So the correction is needed for the runaway bull market. So far, the selling is amplified by the action of the margin clerk. We could not have a firm reading on the true direction. As usual, wealth is destroy along the way. How much to correct or will it replay the Great Depression market? It is still too early to say. One major difference between now and then is the missing of a group of huge sovereign wealth funds which long for asset. These funds are smart and patience. Time is on their side.

2010.05.05 USD Index surges from the brink of falling below 80 to a whopping 84+ in a few days after EU promises to bail out Greek. It is the bell tolling that let people aware of the PIIGS danger of contagion is real and now. Euro will be dragged down despite Germany's steady economy. Steady is not good enough. EU even wants to talk away the rating agencies down grade of any other countries in the future by threatening to replace these rating agencies' country rating function by a government agency. This is to say if private rating agencies do not follow the lead of EU, a puppet rating agency will replace their function. This threat is not just empty but ironic. A liar replaces another liar. For this reason, the money has to flee Euro to other currencies. Australian dollar is stable, Canadian dollar is table, New Zealand dollar is stable but not Japanese yen, British pound and U$. Among the last three, U$ is the less of all evil and it is highly liquid rather than first 3. U$ becomes the choice of emergency exit for now. When U$ rises, it upsets the balance of market and the margin clerks have to work overtime. Commodities and equity have risen significantly so they are the first one to hit. However, there is already signs of slowing down the dumping. In a week, the smoke will be thinner, the money will find a home. We shall see the true home of the money next week.

2010.05.03 Australia government does not only see her economy recover fast but also sees the opportunity to fix the pension underfunding by levy a very heavy 40% tax on the natural resources companies. Without question, this is a rush decision which does not only provoke giants such as BHP Billiton, Rio Tinto and Xstrata but also Canada (e.g. Ventura and Teck) but the most important one China. China's FX fund has no place to go but natural resources around the world. For the recent years, she took over many small and medium resources company not just in Australia but also in Canada, in South America, Middle East and Africa. But the most important and strategic area must be Australia because of low hanging fruits. The Australia action could meet with equal reaction which could cripple her plan. It is just like Alberta's oilsand royalty regime that created tremendous opposition, capital withdrawn and development shutdown. At the end, Alberta government has tone down the royalty regime. As the result, natural resources stock were hampered badly today and could continue for a while until the details are revealed. Then the swing will continue. The market's fear is the cockroach effect. One country could levy heavy tax on natural resources, other could follows. If any country could stand up and guarantee no such action in the future, the hot money will pour to that country. Will American and Canada follow? There may be some possibility but Canadian Harper government may be wiser. Obama government may be refrained to do so because this is the opposite of Quantitative Easing by raising any tax which is deflationary.

2010.05.03 While everyone is worry and biting nails on whether Greek will have the bail out money, there is a side story that did not catch the attention of many. Don Coxe has been identified Greeks' financial problem is only the canary of many sovereignty debts. It is not just PIIGS. How does it play out will have a profound impact on the world's financial world. Guild Investment published a commentary that the debt default could trigger a 10% market correction around the world. Therefore, it is many country's interest to put a soft cushion for the default. According to a INK Report on April 26, 2010,China is going to give a lending hand to Greek. "the stakes are extremely high for China and other countries to get the Greek situation under control. So it is not a big surprise that over the weekend People’s Bank of China Deputy Governor Yi Gang said that China was “part of the force” helping to stabilize the Greek situation according to Bloomberg news". The bad news is that the problem is much bigger and the good news is that China will be part of fire brigade.

 2010.04.028 PIIGS is not coined yesterday. These five EU countries have a history of economic struggle decades. Most probably, the Olympic Games at Barcelona and Athens did not improve the countries' economy and might be worsen it. A lot of debate held around the eligibility to remain in the EU as a member whose debt to GDP ratio should be kept below 6% while PIIGS are near or at double digit. Standard and Poor and Moody credit rating agencies cannot ignore these facts in conjunction with the industry hardship in these countries caused by the financial melt down with or without any IMF help. At a very close brink of IMF provides a package to bail out Greek the credit rating agencies down grades Greek to junk bond level. This is the repeat of history when Bearsterns, Lehmann Brothers and others failed. What the effect is to create a short covering opportunities who knows the 100% sure fact that will lead to a lower rating but has not announced. The institutes will not be that ignorant and complacent to do nothing. Rather synthetic short such as CDO from Goldman is created to benefit the situation. If all these are foreseeable where is the panic coming from ? The answer is retail investor with the help of flash trading and high frequency trader program that accelerates the market movement to ensure the world is under their thumb. There is an interesting article by Ellen Brown on these type of trading, Computerized Front Running and Financial Fraud, How a Computer Program Designed to Save the Free Market Turned Into a Monster by Ellen Brown, 2010.04.21. There will be a period of panic ranging from days to months coming as PIIGS countries come clean one by one.

 2010.04.023 Mystery of Greek's debt financier is solved. The bond market is not the white knight. Greek has to get the support funding from IMF. Or IMF does not allow Greek to fall so that its balance sheet and EU's balance sheet looks bad. Debt on top of debt. The situation is too much in parallel with the post WWI Germany. The pressure cooker is at its top limit.

 2010.04.022 The market has been in a strange mode. It discounted the fact that Greek had more debt than disclosed before. More strange, Greek does not go for EU or IMF but to the bond market which may provide some interest since last bond offering. If the world is going to collapse and these bond becomes junk bond, the sophisticated bond market should not take it. On top of all these the Irish debt is mounting. When the rest of PIIGS come clean, the whole southern Europe become the belt of debt except France. This become a tremendous opportunity for Russia to penetrate and control these long desired countries. But if the bond market does not help out but holds on to the presumably U$, its inflation rate will definitely higher than the 0.25% it pays, then the bond money will have to find a parking lot. The world economy is not recovering evenly. The East and South (Africa and Australia and Brazil) is better than the America and Northern Europe. With the threat of volcano ash that could hinder the traveling in next few years, the tourist industry is tarnished. Right at this time, better and better economic news are coming from the BRIC. If you look at I00 ETF of the world's international companies (so called global fund concept), it is not doing well. Will BRIC becomes the Atlas of the world economy? If so, this is a tall order. Holding on cash will suffer the diminishing of purchasing power. Invest in commodities is threaten by the manipulator and derivative unwind. Invest in equity is not so much safe heaven because of the off book balance syndrome. North America stock markets open low and climb in a steady way. It is a bullish sign. If finance sector collapse, it seems the epicenter will be at New York or London not Frankfurt or Toronto or Shanghai. Will it be safe to invest in these countries?

 2010.04.015 The current notion of economic recovery gears on the economic health of the West is a wrong assumption. The notion of higher oil price can hurt the world's economy recovery is also dead wrong. The Western analysts remain equate the American to the world even fair and square the BRIC is rising. The demand waning at the West does not shrink meaningfully but the BRIC's growth is stronger every day. The destruction of demand at the West is made up more than enough by the East as the domestic consumption at BRIC expand. The issue of BRIC's currencies will also rise which means the cost of commodities to the BRIC countries will be less impacted by higher U$ prices.

 2010.03.28 Unical is the trough of the China buying spree limited by the Congress. Since then the rule has been relaxed, a lot. Does China flexing the creditor muscle or what? Not necessary. Energy is always a strategic reserve for American or any nation just like the port container terminals. It is not desirable to be controlled by a foreigner no matter how poor you are. Just take a look at Hong Kong. Every freighter had to stopped at Hong Kong before transport by barge to the much shallow Pearl River or through train to the inland. Now Hong Kong is the independent political nugget that also help the China's financial and economical activities. During the 50's to 90's, Brits skimed much of the profit from this entrepot terminal. Most recently, the American entertainysts have not comment on the vital development of invasion of Chinese automobile industry to the home land America. First, the Hummer deal (gone sour), now is the Geely buying Volvo. Volvo is the Swedish pride but the American really spoil it to make it no different from any Ford car for just U$1.8B. What makes Volvo so important is exactly why Geely failed to enter the North America or World market two years ago: crash test. Volvo is famous for its cabin's safety. Now, rather than spends a few years to figure out how to pass the crash test, the technology is handed to China on a silver plate. The U$1.8B price is a bargain price consider what will happen when the Americans have to down size to a smaller car. While the Big 3 auto-manufacturer still making gasoline T-rex, Geely can easily fill the need of lower purchasing power American. For those green guys, the Chinese BYD electric card is coming. The importance of these changes are two fronts. The first is that the export to America is not just those in Wal-Mart. It is the higher price item. Not just a bit higher, it is the American's first love, automobile. Second, the infiltration of Chinese investment is no longer up held by the Congress when the real administration (the big companies) says yes even it means losing business in the future.  Will China going to revaluate the RMB? This will mean less revenue for China but lower price for American for the good sold in America. The Congress wishes to wane the cheap stuff made in China sold in Wal-Mart but now it is out flow the more money by buying big ticket items made in China. The higher the RMB, the more competitive because China will be building manufacturing plan in America using either the devaluated U$ or grant from Congress. These American built cars may have lower profit margin but China will make it as competitive as hell. China can sacrifice the FX reserve for nothing, why can't it sacrifice more for a pound of American's flesh. The competitiveness is not measured by price. It is by the ability to grow the industry and know how. China could almost pay American to take these product. Because it grows the manufacturing industry. China has the FX reserve to finance the lose until its heavy industry is on the top of the world while its domestic economy grows to feed the Chinese citizen. China purchases Bombardier trains five years ago to run the Tibet railway. Now it is selling train to Montreal, Bombardier's home turf. Scary not?

 2010.03.23 On Monday, the whole market was flooded with fear, greed and speculation. During the early morning, the instability of the Eurozone's economy suddenly hit the nerve after IMF warned about the sovereign debt deterioration. The panic created a demand of U$. USD shot up and almost broke the glass ceiling of 81. The strength of U$ apparently took the speculators by surprise. So some lamb had to be sacrificed. Commodities took a across the board hit. WTI was down to below U$79 to U$78.86 and volume was only 12% of 200 day average. Gold panic was worse because the decline continued after last Friday's almost U$18 drop. Trading was heavy, 400% of 200AV with a daily spread of $16. At the end of the day, the lost was only U$4.70. The boat rocks left and right. Some one on board will be thrown to the rough sea. The short term fluctuation is difficult to ride. Would it be day trader's paradise or hell? This morning USD climbs again by 0.3% but the panic on commodities has been subsided. Silver and heating oil is the lamb down by 0.6%. Others about 1%. Again the tight collation between commodities and U$ has started to get loose.

 2010.03.21 The following weekly complementary chart from www.stockcharts.com shows an interesting short term behavior of the WTI relative to the USD. It is in a downward trend. In a bigger scheme,  if the USD rally finishes, we can see the WTI goes up even USD remains strong to other currencies.

 2010.03.18 A very insightful analysis on China's "bubble economy" and other major economies by Guild Investment's newsletter "WE SUGGEST THAT INVESTORS LISTEN TO WHAT CHINA IS SAYING" published on March 18, 2010.

 2010.03.17 WTI flirts with U$83 again. The glass ceiling is U$84. Once broken, we are going to see triple digits oil price.

 2010.03.17 There is a market believe that American is reducing the consumption of petroleum products so there is not enough demand to support the current level of oil price. With words from OPEC that the price is in there expected range, the oil bull takes a hit. Although there is a general believe that China's growth could support the demand. However entertainyst has been singing from the old song sheet that the "mild" growth of the China will disappear soon and quickly face a economy collapse. Right after these comments, China publishes the January economy growth is 28% year over year. To someone, 28% growth is falling through the floor of demand destruction without seeing the fact that deals after deals sealed by the Chinese state own petroleum companies. It starts make somebody wonder why. First, even EIA also publishes the stats that American is not cutting down petroleum consumption NOW. After the financial crisis in 2008 and 209, people are resuming the consumption habit which will also include the merchandize transportation. If there is any destruction of demand, it is returning. The government would like the people to believe greener future by telling people are reducing consumption. The story from EIA is not. There is a interesting stats included on the imported goods. After a significant reduction in 2008 and 2009, it is more or less recovered by forecast. Is this pacifying the people? If the increase in petroleum consumption is based on the thesis of the recovery, is this too optimistic? The following is from the EIA March 10, 2010 report:

*Projected **Includes transportation diesel, heating oil and some bunker fuels. In 2008, transportation diesel (on-highway, railroad, and vessel bunkering) accounted for 70 percent of total distillate fuel usage (EIA, Fuel Oil and Kerosene Report, December 2009, Table 13). Source: EIA, Short-Term Energy Outlook, March 2010.

Second, the American big oils are losing reserve without ability to replenish the reserve because of wrong focus on high expensive oil like those in deep sea area of the Gulf. In order for them to buy cheap reserve, they have to talk it down. This is definitely a good conspiracy theory. We know we are facing peak oil plus end of cheap oil. This is not just for American. The domination of American's big oils have been fading along the control of world through the American based company is just fading day by day.

Third, American always think they are the centre and master of the universe without knowing that things have changed. To understand the world, we have to diversify our research.