Silver at 31-Year High (Poor J.P.Morgan Chase)

As you can see in the silver chart to the left: $35.57 right now (Friday 3/4/2011, 1:18 PM PST).

Paper silver (SLV) closed today at $34.69, 2.47% discount compared to physical silver.

Gold also got the bid, US Treasuries, some. Still not many takers for the world "reserve currency", US dollar.

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No Bid on US Dollar

The stock markets are down around the world due to the "unrest" in #Libya, but there's hardly any bid on the world's reserve currency, a supposed safe haven - US dollar.

Instead, investors are bidding up gold, silver, and even the US Treasuries. But the US dollar index is only marginally up.

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Max Keiser Interviewed by Helen Skopis of Athens International Radio

on April 9, 2010, on Greek debt crisis and IMF.

Max Keiser is basically saying that the Greek sovereign debt crisis and the Euro currency tumble that ensued was "manufactured" so that the European Central Bank would be discredited and Euro wouldn't dethrone US dollar as world reserve currency. By who? The Federal Reserve, Wall Street banks, UK banks and Bank of England.

Keiser calls it "financial terrorism". He's urging Greek people to stand up and take back their sovereignty. [That would mean pulling out of the European Union.]

Commenting on Greece's upcoming short-term debt auction, he says the outcome of the auction has nothing to do with the market force. It has to do with whether the Greek government "gives up" and cedes control to IMF. If it does, the auction will go well, according to Keiser. It is 100% political, he says. Political operatives using market to impose economic and political dictatorship.

People should not be paying for bankers' mistakes, but people have been made to, all over the world. Thus the No-Pay Movement he mentions in the interview, which is from Matt Taibbi's article.

(Long time ago I wrote a term paper in Development Economics class in my B-school discussing IMF's role in developing countries. In it, I said IMF was a distortion and should be abolished. I got C.)

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Turnaround Tuesday on Potential Greek Rescue by EU

more specifically by Germany, the piggy bank of EMU.

The U.S. stock market followed European bourses and spiked up on the news that there may be a rescue package for Greece, after all.

Wall Street climbs on reports of aid for Greece
(2/9/2010 Reuters via Yahoo Finance)

"NEW YORK (Reuters) - Stocks rose broadly on Tuesday, with the Dow on track for its largest daily percentage advance since July, on reports euro zone countries will come to the aid of debt-stricken Greece.

"The U.S. dollar fell against the euro, boosting commodity prices and shares of natural resources companies.

"A senior German ruling coalition source said euro zone governments have decided in principle to help Greece and that various options were being considered.

""I would see that as good news (for the stock market), knowing that there's a backer there, that those nations will be able to back up the (Greek) debt," said John O'Brien, senior vice president at MKM Partners LLC in Cleveland." [The article continues.]

They will find out what the German taxpayers and voters would say to the rescue of the Club Med member. German bunds tanked on the news. US dollar is dumped, as the need for "safe haven" has seemingly diminished, boosting the commodity prices.

The US dollar index (DXY) currenty sits at 79.79, right below the decades-long support/resistance of 80. A logical place to turn back technically.

It remains to be seen if this is simply a much-awaited DCB (dead cat bounce) after 4 dismal and often scary down-weeks, or if those 4 weeks are a part of the pattern that has already happened twice (see my TA blog).

After Greece, Spain, Portugal (where public union workers are planning a strike to protest wage freeze) will be waiting. So will Ireland and Italy. Germany's backyard - Central and Eastern European countries - is not quite sanguine, either.

If Zero Hedge is correct, it may be just a transfer of money from one piggy bank (Germany) to another (Vampire Squid). It is remniscent of a currency trade executed to perfection by George Soros in the early 1990's against the UK government.

You would almost have to admire the gall of these traders, and the total lack of morality in executing the trades...

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Obama: U.S. Must Address Currency Rates

Hail the Forex Trader in Chief!

On China, Obama says US must address currency rates
(Jeff Mason, 2/3/2010 Reuters)

"WASHINGTON, Feb 3 (Reuters) - President Barack Obama said on Wednesday China and Asia would be a huge market for U.S. exports going forward but it would be important to address currency rates to ensure American goods were not facing a disadvantage.

""One of the challenges that we've got to address internationally is currency rates and how they match up to make sure that our ... goods are not artificially inflated in price and their goods are artificially deflated in price," Obama told senators from his Democratic party.

""That puts us at a huge competitive disadvantage.""

In other words, Obama wants U.S. dollar to depreciate vis-a-vis Chinese yuan and other Asian currencies.

How is he going to achieve that? Chinese yuan is currently pegged to the U.S. dollar. Barring catastrophe (natural or man-made), U.S. dollar would continue to decline as long as Obama and his government are intent on spending out of recession. But since Chinese yuan is pegged to the US$, Chinese yuan would depreciate in tandem with the dollar.

So how is he going to force China to abandon the peg?

By lecturing the Chinese officials? By slapping tariffs on Chinese imports as a penalty until they abandon the peg?

The former would be scoffed at by the Chinese, the latter would probably damage the U.S. more than China. I'll keep thinking of other ways, but this administration has so far shown little understanding of how things work in the reality-based world, which doesn't quite work by decree. In order to figure out what this administration may do, I would have to think like them...

Maybe Mr. Obama could ask Mr. Chavez and ask him how his currency reform is doing. He could also learn from Argentina's Ms. Kirchner about how to raid people's retirement accounts and grab reserves at the central bank.

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Basis for 'Barbarous Relic' Won, over Dow and Dollar

Gold that is, and silver is not far behind.

Over the past 10 years, Dow Jones Industrial Average is pretty much flat to slightly down, U.S. dollar has lost about 25%. Gold is up almost 300%, silver is up about 230%.

To be sure, John Maynard Keynes called the gold standard 'barbarous relic', not gold itself.


James Turk, founder of GoldMoney, writing more than 5 years ago in this article, says the real 'barbarous relic' is central banking. I tend to agree.

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All That Glitters - Gold Makes All-Time High

on India rumor, and very real U.S. dollar plunge.

---------------------------------------------------
Update (8:22 PM PST): IMF sold 10 tons of gold to Sri Lanka. The latest gold price from Kitco.com:

----------------------------------------------------

Spot gold hit $1,187.40 per ounce today (still trading). This is a screen capture from a gold site Kitco.com.


The Indian government is rumored to be negotiating with IMF for the purchase of the remainder of IMF's gold (another 200 tonnes). (Here's thestreet.com's article.)

Big-shot hedge fund billionaires (Paul Tudor Jones, John Paulson, David Einhorn) have all gone long on gold. (Read the article on MarketWatch.)

Many dismiss it as "bubble". (Gold was $1045 when this article was published in early October.)

Many think gold is still "undervalued" (here and here and here).

So far, I'm very happy with my investment in gold ('paper' gold, in the form of leveraged ETN - exchange-traded notes). I wish I had had a courage to double the position when it was less than half the price of what it is at today.

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Lower Dollar to Sell More Treasuries?

Is that what Geithner and Bernanke have been doing?

Treasury Secretary Timmy Geithner periodically espouses his "support" for stronger dollar, no matter how he may get ridiculed. Fed Chairman Ben Bernanke recently said he was "watching the dollar drop closely". He may have meant that he was watching the dollar closely to make sure it weakens in an orderly manner, but it was generally interpreted as he is concerned about weak dollar. Even the spendthrift president of the U.S. chimed in, saying he was concerned about the growing government debt.

Weak dollar means stronger Euro, yen, yuan, ruble, real, etc. Foreigners who holds U.S. dollar-denominated assets (majority of them in the form of Treasury notes and bonds) doesn't like to see their assets decline in value as the dollar tumbles. So what do they do, other than protest to Geithner and Obama when they have a chance?

They buy U.S. Treasuries.

According to the Treasury Department's Treasury International Capital (TIC) data released on November 17, foreigners (including foreign central banks) increased their holdings of U.S. Treasuries in September. Treasury auctions of all durations continue to enjoy decent bid to cover ratios, and the rates are getting lower.

In September, total foreign Treasury holdings increased from $3,452.9 billion in August to $3,497.3 billion. It is a fifth-consecutive increase since April this year, coinciding with the stock market turnaround. Year over year, it marks 25% increase. Foreign central banks hold $2,369.5 billion Treasury bills, notes and bonds, or 68.6% of the total foreign holdings.

Foreigners, governments and private entities alike, are defending the dollar by buying up the Treasuries.

So, Geithner, Bernanke, and Obama don't need to do a thing. They can just sit pretty, occasionally express their verbal support for a stronger dollar to placate the foreign creditors, and simply let the dollar slide gradually. As long as the slide is gradual, they can rope in more and more buyers who hope to arrest the decline of their asset value by buying up Treasuries.

Some might say they can't do a thing. If the dollar strengthens too much or too rapidly, that would jeopadize the dollar carry trade, particularly the one engaged by the foreign governments (issuance of U.S. dollar-denominated bonds; here's a post from October, by The Debts of a Nation blog).

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US Budget Deficit Grows in October As Geithner Speaks of Strong Dollar

Talk is cheap (free) so of course that's what a budget-conscious Treasury Secretary would do: Talk.

Tim Geithner, U.S. Treasury Secretary, says the strong dollar is very important for the U.S., as he spoke in Tokyo before heading for Singapore for the APEC summit. (Unlike Chinese, Japanese apparently were too polite to laugh at him.)

Strong dollar 'very important' for US: Geithner (11/11/09 AFP via Google)

It seems Geithner opens his mouth to say this same thing every 3 months or so. However, as the U.S. dollar index chart since March shows, it's been just a talk, as actual intervention would cost money. He also talked about the administration's intention to reduce deficit in a separate interview with CNBC (near the bottom of this article).

In the meantime, his Treasury Department released the October report on receipts and cash outlays, which shows the monthly budget deficit increased again from September level. It is actually a record October high at $176.4 billion. His Department also auctioned off $81 billion worth of Treasury notes and bonds this week alone.

Talk is really cheap.

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US Dollar Under the Bus

While I was trying to recuperate from a flu over the weekend, Nancy Pelosi did a sneak attack and passed her monstrosity known as "Affordable Health Care for America Act of 2009", or H.R. 3962 (in my mind, the health care deform) on Saturday night. (I'm sure it's a bargain for $30,000 per uninsured person.) Then, as if to prevent the stock market from tanking on Monday (Pelosi's deform will cost fortune for the rest of us; she doesn't care, she's one of multi-millionaires in Congress), G20 pledged to keep stimulus in place to prop up the global economy.

As the result, U.S. dollar was thrown under the bus. Oh for the good of the world, no doubt. Dollar carry trades in various forms (such as issuing U.S. dollar-denominated sovereign debt, for example) just got started.


The next support comes around 72 on the U.S. dollar index (DXY), which tracks a basket of currencies (Euro, Japanese Yen, British Pound, Canadian Dollar, Swedish Krona, Swiss Franc) against the dollar. The last time the dollar index was in the 72 range was March - July 2008. Below that level, the currency will boldly go where no one has gone before. The area around 72 is the multi-decade low. (Remember this chart?)

The U.S. stock market cheers. Dow Jones Industrial Average is up 151 to 10,175, S&P500 up 16 to 1,086, Nasdaq up 30 to 2,143 as of 12:09 EST. What will Little Timmy and Big Ben do next?

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They've Lost Control

All President's men (and women).

Obama's Pay Czar will cut the salaries of top executives of the firms that have received the government bailout fund by whopping 90%. Can someone tell me why anyone should listen to him? He is not an elected official, only appointed by the President. What if you don't obey his orders? Is it a crime not to obey an appointed official? What would be the penalty?

• Pay Czar to Slash Compensation at Seven Firms (10/21/09 Wall Street Journal)

And the stock market tanked on the news, led by (hold your breath) financials.

U.S. dollar continued the descent, hit the 52-week low against Euro before it reversed hard upward as the stock market tanked. Not a peep from Geithner or Bernanke or their boss.

• Euro breaches $1.50 for first time in 14 months (10/21/09 AP)

Not surprisingly, crude oil and gold went higher.

• Oil hits $82 per barrel as dollar plunges (10/21/09 AP)


• Gold ends higher as dollar falls to new low versus euro (10/21/09 Market Watch)

House Democrats are calling "public option" "Medicare for Everyone" and hope everyone agrees that it's a good thing.

• House Dems want Medicare for everyone (10/21/09 The Hill)

And in Nancy Pelosi's mind, $900 billion is a chump change, and that is somehow supposed to reduce the deficit. (Hello, anybody up there?)

• House healthcare bill under $900 billion: Pelosi (10/20/09 Reuters)

In Iraq, U.S. soldiers are getting so bored they've started a book club. (Why can't they come back home?)

• U.S. troops in Iraq have time on hands (10/21/09 USA Today)

But over Afghanistan, even the Defense Secretary is getting impatient for Obama's slow decision. (No, Mr. Gates, President can't be bothered now. He's busy having a grand time partying at the White House.)

• Gates: U.S. Can't Wait on Afghan Election (10/20/09 CBS News)

Senator Lamar Alexander is fed up with the White House's "street-brawling" tactics against critics and opponents. (What else do you expect from Chicagoland?)

• Lamar Alexander to Barack Obama: No 'enemies list' (10/21/09 Politico)

Rasmussen's Daily Presidential Tracking Poll: Obama's ratings sink again, approval index nearing all-time low.

• Daily Presidential Tracking Poll (10/21/09 Rasmussen Report)

Republicans in House Committee of Ways and Means have this to say about Obama's $787 billion stimulus package (remember that one?). Let's just blame it on George Bush, shall we? To be fair, the administration has said the bulk of money will go out next year (just in time for the mid-term election, what a coincidence). Then I'm sure 6 million new jobs will be created to make up for the 7-month loss of 2.7 million jobs. (Not.)

• 7 Months After Stimulus 49 of 50 States Have Lost Jobs

Well, we just have to have another bigger and better stimulus. How about $1 trillion every quarter?

Or is it time to "wag the dog"?

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US Dollar to 50 Yen, Says Sumitomo Strategist

and the U.S. economy to double-dip in 2010.

Somehow I missed this cheerful news when it hit the wire, but here it is:

Dollar to Hit 50 Yen, Cease as Reserve, Sumitomo Says
(Shigeki Nozawa, 10/15/09 Bloomberg)

"Oct. 15 (Bloomberg) -- The dollar may drop to 50 yen next year and eventually lose its role as the global reserve currency, Sumitomo Mitsui Banking Corp.’s chief strategist said, citing trading patterns and a likely double dip in the U.S. economy.

"“The U.S. economy will deteriorate into 2011 as the effects of excess consumption and the financial bubble linger,” said Daisuke Uno at Sumitomo Mitsui, a unit of Japan’s third- biggest bank. “The dollar’s fall won’t stop until there’s a change to the global currency system.”

" “We can no longer stop the big wave of dollar weakness,” said Uno, who correctly predicted the dollar would fall under 100 yen and the Dow Jones Industrial Average would sink below 7,000 after the bankruptcy of Lehman Brothers Holdings Inc. last year. If the U.S. currency breaks through record levels, “there will be no downside limit, and even coordinated intervention won’t work,” he said." [emphasis is mine.]

If anyone in the world knows about the futility of currency intervention, it must be Japanese. Bank of Japan's massive intervention to stem the rise of yen against U.S. dollar only profitted the currency traders.

According to the article, Mr. Uno bases his prediction on the Elliott Wave theory that tells him the dollar is heading for the trough of a 40-year super-cycle that started in 1971:

"The dollar is now at wave five of the 40-year cycle, Uno said. It dropped to 92 yen during wave one that ended in March 1973. The dollar will target 50 yen during the current wave, based on multiplying 92 with 0.764, a number in the Fibonacci sequence, and subtracting from the 123.17 yen level seen in the second quarter of 2007, according to Uno."

(You can read the entire article by clicking on the link above.)

I don't profess to know enough about the Elliott Wave theory, but I think "wave five" is the last wave before the new cycle begins. What's interesting to me is that Robert Prechter, president of Elliott Wave International called for a multi-year rally of the dollar back in August, looking at the same wave five. Mr. Prechter thinks wave five is already over, and Mr. Uno thinks it continues.

If you look at the long-term monthly chart of the U.S. dollar index, the target price seems to be even lower than Mr. Uno's. The chart is from the post I wrote back in May. It looks to me like a massive "head and shoulders" formation with neckline at 80, with the "right shoulder" already formed from 2004 to 2007 and the neckline is already broken once in 2008. A technical rebound from that low of 72 was to be expected, and it did happen. The neckline was broken again in July, and the index has never regained 80 since.




The price target of this head and shoulders pattern would be the neckline minus the height of the head: 80 - (120-80) = 40

By the way, the U.S. dollar index's current decline, which started in early March, coincides with the stock market rally. Almost a mirror image. Also, the dollar index decline (and stock market advance) seems to coincide with the unwinding of the Fed's central bank liquidity swaps. (See my post.)

Today, U.S. dollar is having a sharp rebound, as the stock market is dropping fast. Currently, Dow Jones Industrial Average is down 87 points, threatening to break 10,000-mark. Nasdaq is down 17 points to 2,158, S&P 500 down 9 points to 1,088. The U.S. dollar index is up 0.235 point to 75.745.

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Sneak Attack on U.S. Dollar?

or is it the result of an on-going process that started back in March?

Politico thinks this is a "sneak attack" on U.S. dollar this week.

People at Politico are not stock market or forex traders, that's for sure. Current U.S. dollar decline is mild, compared to what has transpired since March this year.

Not to be deterred by the lack of perspective, however, Politico sets to find out...

Whodunit? Sneak attack on U.S. dollar (Eamon Javers, 10/8/09 Politico)

"It’s the biggest mystery in global finance right now: Who conducted a sneak attack on the U.S. dollar this week?

"It began with a thinly sourced but highly explosive report Monday in a British newspaper: Arab oil sheiks are conspiring with the Russians and Chinese to quit using the dollar to set the value of oil trades — a direct threat to the global supremacy of the greenback.

"Is it true? Everyone from the head of the Saudi central bank to U.S. officials scrambled to undercut the story, but no matter.

"With the U.S. economy on the ropes and America by far the world’s biggest debtor, investors aren’t feeling as secure about the dollar as they used to. And the notion of second-tier economies ganging up on Uncle Sam didn’t sound so far-fetched.

"For American officials, the possibility of the dollar losing its long-term dominance in global commerce is a nightmare scenario because it would likely mean sharply higher interest rates at home and a declining ability to finance the U.S. debt. No one believes it could really happen right now, but stories like the British report this week make it seem incrementally more likely."

While trying to undermine the Independent story by casting doubt on Robert Fisk (a highly respected veteran journalist, in my opinion), the writer concludes:

Whodunit? "No one knows."

I think I have a suspect, or an event that may have contributed to the rapid decline of the U.S. dollar. Not the decline of U.S. dollar this week, but since its recent peak back in March when the U.S. dollar index was near 90.

The U.S. Federal Reserve.

It is probably just a coincidence, but it's a little more interesting answer than "no one knows".



Take a look at this chart. This is a year-to-date daily chart of the U.S. dollar index (DXY). Red arrows on the chart indicate big negative flows out of the Fed's central bank liquidity swaps, as shown on their balance sheet. The weekly change of the swaps is shown in the table, with numbers in red corresponding to the arrows in the chart. The location of the arrows is approximate, as we don't know exactly which day of the week the Fed unwound the swap.

That's foreign currencies going back to the foreign central banks, and U.S. dollar coming back to the Federal Reserve. The Fed is not saying which central banks got how much, or what foreign currencies the Fed was and is still holding.

Where did those returning dollars go? My guess is they went to agency bonds and agency-backed MBS, thus preventing the decrease in the accommodative balance sheet. It could have gone to Treasuries to support the auction.

The dollar decline coincides very well with the stock market advance since March low. In fact, right after a sizeable chunk (over $50 billion) of dollars came back, the stock market bottomed and started the furious ascent as U.S. dollar cratered (the left-most arrow in the chart).

For fun, here's another set of charts - the top is the above DXY-Fed swap chart, vertically flipped, and the bottom is S&P 500 index.

Where is the Federal Reserve buying those agency bonds and MBS from? They are not saying. It's a trade secret. Again, my wild guess is from foreign central banks and U.S. financial institutions who get to dump them on the Fed at face value. (Well, that's how the Fed accounts for them, at face value.)

In the beginning of March, the foreign currency swap balance on the Fed's balance sheet was $375 billion. In the October 8th balance sheet, it was down to $50 billion, with about $7 billion U.S. dollar swapped back. That's a significant size for the past 2 months, and sure enough, U.S. dollar resumed the descent.

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Debt Limit Is Fast Approaching

as the U.S. dollar continues to decline and the 30-year bond auction meets tepid result today.

The debt limit is currently set at $12,104 billion.

The tiny widget on the left top corner of this blog is ticking away, and it is now at $11,949 billion.

Mere $155 billion, and the limit will be reached. That's less than one-month issue of Treasury notes and bonds these days, which averages around $180 billion for the last 3 months.

The stock market gave up a chunk of gains for the day (still positive) on the announcement of the 30-year bond auction result.

But what caught my eyes was the sale of $10 billion 16-day Cash Management Bill (CMB). It matures on October 29, and pays the same interest as 4-week bill. That's where the Primary Dealers put their money today, not 30-year bond. (For details of today's auction, please go to my site on Treasury auctions, here.)

CMB is usually used to fill temporary shortfalls in the government budget so that the government can continue to operate (=to spend more). 16 days to tide them over until Congress approves yet another debt limit increase, as Treasury Secretary Timmy Geithner requested back in August.

The U.S. government has temporary short falls in the budget permanently.

The debt limit was raised twice in the 2009 fiscal year. The second one was when the so-called stimulus bill was passed in February. Now that the Senate passed the defense bill that will cost $636 billion, the debt limit increase is a foregone conclusion.

Sea of debt, as far as eyes can see. Lovely.

The U.S. dollar index went down to 75.76 intraday, lowest in 14 months. Long-term (20-year) support at 80 has been long gone. There is a slight support around 75, a better support at 72. Below that, it's an uncharted territory. Literally.

Take a look at my post from May. Back then, the dollar index was still at the support, at 80. And that seemed dangerously low back then.

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Officials Deny UK Independent Report

Officials denied the Independent's report (see my yesterday's post) that the Gulf states, along with China, Japan, Russia and France, will phase out the pricing of oil in US dollars over the next 9 years and substitute with the basket of currencies and gold.

Officials deny UK media report on move from dollar
(10/6/09 AP via Yahoo Finance)

"LONDON (AP) -- The dollar fell Tuesday towards year lows against the euro and the yen after a report that Arab states and other countries were contemplating an end to the U.S. currency's role in the pricing oil.

"The selling was stoked by an article in Britain's "Independent" newspaper that said secret meetings were taking place between Arab states, China, Russia, Japan and France, to end dollar dealings for oil and moving instead to a basket of currencies, including the euro, the yen and the Chinese yuan.

"Officials in several of the countries either denied talks or said they had no knowledge."

"Kuwait's oil minister, Sheik Ahmed Al Abdullah Al Sabah, said there have been no talks on the topic among Gulf oil ministers. "At our level, no," he said. "I didn't even dream about it."

"And the head of the United Arab Emirates' central bank, Sultan Nasser al-Suweidi, said the Gulf nation has no plans to stop pricing oil in dollars. "There has been no meeting ... whatsoever," he told The Associated Press, adding that the dollar "will continue as the price for oil.""

"At our level"? That's interesting.

The Independent's story could be false, although Robert Fisk is a highly respected journalist.

Regardless, U.S. dollar took the beating overnight in London, and the weakness continues in the U.S. forex market. The U.S. dollar index (DXY) now stands at 76.33 at 1:59 PM EST, recovering from the day's low at 76.103 after the London forex went offline at 12:00PM EST. Right now, only New York is open for forex trading.

We will find out how Sydney and Tokyo treat U.S. dollar when they come online at 5:00 PM EST and 7:00 PM EST respectively.

In the meantime, gold shot up $26 to a new high of $1,043. It's currently trading at $1,036, on the recovering US dollar.

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UK Independent: The demise of the dollar

Following up on my previous post, here's the article by Robert Fisk at U.K. Independent:

The demise of the dollar (Robert Fisk, 10/6/09 Independent)

"In the most profound financial change in recent Middle East history, Gulf Arabs are planning – along with China, Russia, Japan and France – to end dollar dealings for oil, moving instead to a basket of currencies including the Japanese yen and Chinese yuan, the euro, gold and a new, unified currency planned for nations in the Gulf Co-operation Council, including Saudi Arabia, Abu Dhabi, Kuwait and Qatar.

"Secret meetings have already been held by finance ministers and central bank governors in Russia, China, Japan and Brazil to work on the scheme, which will mean that oil will no longer be priced in dollars.

"The plans, confirmed to The Independent by both Gulf Arab and Chinese banking sources in Hong Kong, may help to explain the sudden rise in gold prices, but it also augurs an extraordinary transition from dollar markets within nine years."

Read the rest of the article by clicking on the link above.

That sudden jump in price of gold, silver, and natural gas in early September was indeed telling us something. Maybe.

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Oil Is to Stop Being Priced in US Dollar??

Drudge Report headline (4:00pm PST):

ARAB STATES LAUNCH SECRET MOVES WITH CHINA, RUSSIA, FRANCE TO STOP USING DOLLAR FOR OIL TRADING... DEVELOPING...

Rick Santelli of CNBC apparently broke the news earlier, and I found the video (around 1:30 mark). Santelli is saying the UK's Independent will break the news tomorrow.

Now, on Sunday I posted this about IMF: "IMF the De Facto Global Central Bank Printing Fiat Money". The power that be seems to have planned everything.

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Dr. Doom (Marc Faber) Says "Buy Stocks"

because U.S. dollar will be worthless.

Marc Faber, of The Gloom, Boom and Doom Report, says there are money-making opportunities in stocks, by going long.

In his interview with Yahoo Tech Ticker,

"However, in the near term, Faber sees plenty of money-making opportunities in stocks. Sure, prices aren't as cheap as they were in March, yet he's confident, "in this environment cash will become worthless." As a result, he says investors are, "better off being in equities," for the next two to three years."

He sees value in energy and mining stocks, and some more:

• Newmont Mining (ticker symbol: NEM)
• Nova Gold (NG)
• Chesapeake Energy (CHK)
• Exxon Mobile (XOM)
• Large-cap pharma like Pfizer (PFE), Johnson and Johnson (JNJ) as defensive play
• Airlines including Thai Airways
• Russian market
• U.S. real estate
  

(If the video doesn't work (as the embed code keeps disappearing after I paste it!!), click on the link to Yahoo Tech Ticker here and view it at Yahoo.)

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U.S. Dollar Going Off The Cliff...

The U.S. Dollar index has gone off the cliff. It's currently down 1.22% (big move for fx market) for the day, at 78.31. June intraday low was 78.33.

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How Much Dollar Is Worth If Backed 100% By Gold

You can laugh it off, you can scoff at it, or you can take a mental note of it.

"A Tremendous Secret" (John Rubino, 7/15/09 Goldseek.com)

The article talks about that rumor about bank holidays in fall in which all the major currencies in the world "reset" (get devalued) against either gold or basket of currencies or IMF's SDR.

So, I decided to do some simple calculations to figure out the magnitude of devaluation if it were to occur vis a vis gold, and if the new devalued currency was to be backed 100% by gold.

Step 1. Gold reserve of the United States

I assume that the gold vault at Fort Knox contains what the government says it contains. According to Gold Council, the U.S. has 8,133.5 metric tonnes of gold as of March 2009 (from Wikipedia.org).

• 8,133.5 tonnes = 286.9 million ounces

Physical gold is trading at $939 an ounce today. So the U.S. gold reserve is currently worth:

• 286.9 million oz x $939 per oz = $269.4 billion

Step 2. Total amount of "money" in the U.S.

Here I have a problem. Which "money"?

• M0: The total of all physical currency, plus accounts at the central bank that can be exchanged for physical currency.
• M1: The total of all physical currency part of bank reserves + the amount in demand accounts ("checking" or "current" accounts).
• M2: M1 + most savings accounts, money market accounts, retail money market mutual funds,and small denomination time deposits (certificates of deposit of under $100,000).
• M3: M2 + all other CDs (large time deposits, institutional money market mutual fund balances), deposits of eurodollars and repurchase agreements.
  (from Wikipedia.org)

The Federal Reserve stopped reporting M3 in 2006, but there are private sites that claim to reconstitute M3. Here's one of them.

Not sure of which money to use, I decided to use all of them. I took the data from St. Louis Fed's FRED (one of my fave sites) for M0, M1, and M2. I eyeballed M3 from the chart at Shadow Government Statistics, and also from St. Louis Fed's discontinued M3 series chart.

• M0: $912 billion (currency in circulation)
• M1: $1,652.9 billion
• M2: $8,349.2 billion
• M3: between $12,000 billion and $14,000 billion. (I'll use $13,000 billion
  for my calculation)

Step 3. Divide the gold reserve amount by "money" in the U.S.

So that we can figure out how much $1 would be worth in gold-terms if the U.S. dollar was to be backed by gold 100%. And here's the result:

• Gold/M0: 0.295
• Gold/M1: 0.163
• Gold/M2: 0.032
• Gold/M3: 0.021

Or the flip side - how much "1 gold dollar" would be worth in current dollars:

• M0/Gold: 3.385
• M1/Gold: 6.135
• M2/Gold: 30.99
• M3/Gold: 48.255

That's why some fanatic gold bugs scream about gold hitting tens of thousands of dollars per ounce, and not so fanatic gold bugs still predict gold at $3,000 and above.

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