We are continually inundated with useless "research" and the ravings of lunatics. - But that's enough about the investment banks and their analysts....
So, what do we do when we see a piece of genuine interest?
Two things: First, we put it here so that others may consider, digest, discard or act.
Second, we give thanks that we have just launched a Global Macro fund that trades Gold, Oil, Metals and G7 Debt. (It's called Insch Insight Ltd.)
We don't know who "Harvey" is and we don't know if he knows either. In fact, we don't know if Harvey knows anything at all or what Harvey knows about anything. - But, whether he knows it or not, he just might know something about the timing of a Global Macro investment.
In other words, what Harvey says may be as good or as bad as anything you might hear from an investment bank. We thought you should know....
Subject: FW: May 23.08 commentary...important... From Harvey
Good morning Ladies and Gentlemen:
Gold closed up by 7.50 to finish strongly at $925.60. Silver continues to do its thing moving up in a strongly bullish manner to finish at 18.24 up by 32 cents. The gold open interest marginally rose on Thursday up by 497 contracts and its final OI resting spot is 439773. It is obvious the raid had little effect on holders of long gold. Silver OI dropped a further 1300 contracts and its final resting spot is 124400.
The dollar continued to sink closing down by .19 to 71.95. As I have pointed out many times, the markets go into turmoil mode once the dollar breaks into the "71" column on the USA index.
Oil reversed Thursday's losses rising by 1.38 to close at 132.19, its second highest closing ever. The CRB rose by 2.32 to close at 431.09., which is at all time high territory.
Commodity prices continue to rise as the dollar sinks. Yesterday we saw the long bond yields fall, (price rises) as investors sought the safe haven environment of bonds. The bond rose a full point.
What we are witnessing is a self perpetuating events on the markets in which the long bond yields, being mighty low are acting as a catalyst for the dumping of dollars. If the long bond yield were to rise, we would get some strengthening in the dollar as investors might want to hold these securities with a higher yield. However, it looks like foreigners are sensing massive inflation on the horizon so they are dumping bonds and thus dollars which these instruments are denominated. This forces the USA to buy its own bonds and store offshore. This massive purchase of its own bonds, lowers the bond yields but also lowers the value of the dollar as nobody wishes to hold bonds with a yield of 4% and inflation running at 12%. With the dollar sinking and the world seeing such a mess in the banking sector, there is every reason to dump shares and that is what we are witnessing. The Dow tanked again by 145 points yesterday to close at 12500.
Silver is starting to act independent of gold probably because of bank shortages and mint problems. The USA mint has stopped making 2008 silver eagles. The Bank of Nova Scotia yesterday reported to a customer requesting silver that they have only 2 bars in their inventory for sale. The Bank of Nova Scotia is the only bullion bank in Canada and 40 King St is out of silver...
The gold and silver shares fell yesterday, as the cartel did like the open interest numbers they witnessed in the morning, so they threw a tantrum and sold gold shares short again. It seems they huff and puff and nobody wishes to leave the precious metals arena. Please remember that we have only one day left for trading in the June contract and that will be Tuesday. Expect the cartel to raid the Comex gold on Tuesday as many calls are in the money and our criminal cartel do not wish our guys to exercise contracts in the money and stand for delivery. The cartel are ever mindful of their declining resource.
The open interest fall in silver is caused by some commercials covering their shorts. Silver has broken out of its downward line trend and it is now starting to assert its authority. We could see 2 or 3 dollar moves in silver in a given day.
In economic news, April home sales fell one percent to a 4.89 million annual rate. Thursday, we reported on home prices falling and this is the Achilles heal of the banks. Their collateral continues to deteriorate.
The banks need to repair their balance sheets because of the huge hole created by the housing mess. The losses on the subprime, Alt A , Prime, and credit card defaults will probably be closer to 2 trillion than what wall Street is reporting. On top of that you have derivative trading which is estimated to be 10 times the 2 trillion loss or 20 trillion dollars. The BIS data seems to back up this notion as the total derivatives rose by 40% in the credit derivative arena. Even gold derivatives rose by 40% to an astronomical 595 billion dollars.a sum greater than the entire gold held by all central banks in the world.
The banks see that their only salvation is to invest in oil and hope that the profits from oil repair their balance sheet.
Oil is the world's most important commercial asset. Gold is the worlds most important financial asset. The banks knowing that they have shorted massive gold to keep paper assets alive had no choice but to buy oil as they knew this would rise as the dollar collapses. The high cost of oil is now manifesting itself throughout the world . The airline industry is now basically bankrupt as jet fuel skyrockets. All airline stocks and the cruise lines, are falling badly as it will be hard to make money in this environment. Mining companies costs are skyrocketing. Many have reported that mining costs are now around 700 dollar per oz of gold mined.
There is no question that costs of products are rising because of the sky-high price of oil. The bankers were certainly aware of their folly but they do not care about citizenry at all.
In South Africa, in the usually safe city of Capetown we are seeing foreigners seek shelter in police stations because of mass killings.
Zimbabweans are crossing into South Africa seeking food to feed their families. Workers are afraid to show up for work at the mines in Johannesburg and mine production is fearing to be down by a full 20% because of the killings and electrical shortages.
It is certainly not a pretty picture.
In other related news, the city of Vallejo California entered into Chapter 9 bankruptcy proceedings, being the first municipality to declare bankruptcy since Orange County in 1994. This will be the first of many in California as many have difficulties in paying their bills. Next week, Jefferson county which houses the capital city of Birmingham Alabama will also seek protection.
Over in Europe, it looks to us that the sovereign nation of Spain will seek protection of some sort. They have totally obliterated their reserves. It looks like the ECB will let them die financially. This will also force the bankruptcy of Portugal. What will happen to the Euro is anybody's guess.
We have heard from any sources, the troubles at Lehman brothers. With the sinking dollar, my bet is that these guys are already talking to the Fed in a similar bailout that was fashioned for Bear Stearns.
The problem here is that the Fed is running out of valuable capital that they can exchange for this junk. They have expended already 50% of its capital and the Fed has already 90 billion of negative non borrowings. In English: all the depositors have lost their money at all the banks. The reserves that are deposited at the Fed so bankers can loan out dollars have been totally annihilated!!
There is word that Merrill Lynch also has massive problems as does Morgan Stanley. And then we have Goldman Sachs with its huge 100 billion dollars of level 3 assets that cannot be priced. Look for a huge banking mess in the coming weeks.
As I have mentioned in previous commentaries, the end game is upon us. Take delivery of your physical metal.
Have a great weekend.
Harvey.
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