Spain: the rain is pouring.

Spain's economic troubles continue. In Seeking Alpha this morning, Kosterhys notes that Spanish deficits are rising again. In addition-Kosterhys notes, "under the surface, there is an economic and fiscal collapse going on in Spain that cannot be reversed by central bank policies. And perhaps even more ominous is the political collapse that is developing parallel to the economic collapse in Spain. Please note that due to fiscal tensions with the central government in Madrid, Catalonia has just recently called for a national referendum and has officially consulted the EU on thesubject of secession from Spain. Similar requests from Basque and other regions may follow."

The desire of Catalonians for independence has been going on now for years. Actually, Catalonia would be satisfied if they had the same taxing privilage as the Basques. But, Spain's government will not agree to this proposed solution, because it would involve a large loss of revenue.

Why the mining shares will skyrocket,

Yogi Berra allegedly said that 'it is hard to predict things; especially the future.' This has a special meaning for developments in the Precious Metal (PM) market. Those of you who studied statistics know that when something is affected by two variables (A and B, for instance) there is also an interaction between A and B (denoted as AxB). So, the calculations take into consideration the size of AxB. If AxB is small, the the outcome is predetermined almost entirely by A and B. If there are three variables that determine the outcome (A,B, and C) then the interactions multiply:AxB, AxC, BxC and AxBxC. The practical application of this is that the more complex a society becomes, the more difficult it is to regulate it from the top. That is why a Market Economy is so superior to Central Planning: Central Planning has a lot of variables, Market Economy has two: supply and demand.

Back to precious metals and mining shares. Fitzpatrick has been the most accurate Chartist lately and he points out the importance of $1791/oz as a critical level for the gold price. He believes that gold will now do some 'backfilling' untill it moves past 1791. After that, it will advance to 1900 and do so rapidly. Once the 1900 level is breached, gold will move several hundred dollars.

So, why will the mining shares explode? First, because the mining shares have been pushed to ridiculous levels during the correction. But, the main reason is this: the public has been duped by the pundits (who act as shills of the regime). They will be late arriving to the party and their path to owning gold will be most efficient through buying mining shares.

Spanish soap opera: next chapter.

You knew it was too good to be true. The idea that the European states now in trouble would reduce their spending, get their bonds rolled over by the ECB and resume economic growth - it was just too good to be true.

Mario Draghi (head of the ECB) stated that it (the ECB) would do anything to preserve the European Union. In response Spanish and Italian bond rates fell. And the ECB did what? Had meetings and talked more.

There are structural impediments to doing anything. Using the Euro forces all its users to share the inadaquecies of Social Democracy. Good performers get dragged down by those who lag. And making decisions is hard, because of all the consultation that must be done. And the final decisions are usually too late to solve the problem, even if the decisions are thr right ones.

Most of all, Europe's problems are ade worse by the reverberations of the Socialists in Washington. When the US catches cold, Europe has pneumonia.

And here is Larry's latest.

I often refer to Larry Edelson. You might think that I question his conclusions, because I disagree with him. Actually, I have a lot of respect for his research; both in his cycle theory and his charting. Something seems to be wrong with his charting lately and that is somewhat troubling.

People who try to guess at what is coming in stocks and commodities have two tendencies: 1. they look at charts or 2. they look at economic data. The former are Chartists and the Latter are Fundamentalists. Most of us do both and I would characterize Larry as more a Chartist than I am. So, here are his forecasts and my critique of it.

1. The Bull Market in gold and silver remains intact;
2. He does not trust the recent breakout of gold and silver. Why? Because, while the FED action recently has been decisive, gold and silver prices have not reached record highs. FED action, however, has shortened the time to the day that the sovereign debt crisis hits the US.
3. He is cautious and urges clients to stay liquid for now.
4. He believes the Dollar will now rally and the Euro will drop, since the debt crisis is not resolved.

I agree with his conclusion #1. Gold and silver are in a bull market. I also agree re his look at QE3. It is a game changer. However, QE3 is a fake in that it is not designed to increase the circulating money supply. Its purpose is to inflate the Stock Market and the housing prices. Much of the money created will be sequestered, at least for now, by the methods I have described previously. It will become inflationary WHEN the banks will release capital into circulation. That will not happen untill O'Bungle is out of the WH.

Are we in the final phase of the gold Bull Market? Of course not. But, gold and silver have broken out and that's where I differ with Larry. He NOW feels that gold needs to close above 1,823 in order to confirm the breakout. Methinks he is moving the goal posts.

Larry also cites the rather mild reaction of gold to QE3, to wit, that we have not reached new highs in gold price.But, gold prices have not moved a lot, though they moved some and the printing is not yet under way.We saw the concerted move by various countries, so we know that those expectations were correct.  The US Dollar is moving up and the Euro is falling again. The EU is also going to  "SANITIZE" the newly created money and yes, that may delay the inflationary response to it.

My take is that gold has broken out of its correction, but it is early into the next phase. We have seen a temporary weakness, but gold is back up to 1777 now.

The PM market: 15 card monty with shells.

The gold and silver markets are like an expanded version of the three card Monty with shells. Perhaps you have seen this game or maybe even lost playing it? The Dealer puts a bean under one of three hollowed out walnut shells, shuffles them then you can bet on where the bean is located. Of course, if the game is played honestly, you have a one in three chance of being right, but the Dealer pays you only one to one odds. If the game is rigged, the Dealer removes the bean so you lose when you place your bet and the Dealer slips in the bean when/if you demand to see where the bean is.

The gold and silver markets are like this game but with 15 hollow shells. You try to follow the hand that's shuffling the shells, but the hand is quicker than the eye.

In the PM business, there are more hands shuffling the shells and ready to confuse you. First, there is the COT report. This is the Commodity Futures Trading Commission Report. A report of what? The COT refers to the Commitment of Traders; the number of Traders holding positions of 20 or more above a level established by the CFTL. Good luck running down this reference, but it is a Committee that has to do with setting rules in PM trading. There are SWAP Dealers. What are they? They are like Market Makers for stock who buy and sell stock. There is a small charge for selling you the gold and the fee goes to the SWAP Dealer. Then there are Commercial Interests (the Commercials). These are banks, mostly Central banks or Bouillon banks. Then there are the Unreported interests, which includes China. And there are individual traders and investors.

OK, so what is the picture of all this shuffling now?

First, here are the results of recent trades in gold and silver:

We see the breakout of both gold and silver, the former actually giving us a false golden cross (the 50 DMA crossing the 200 DMA). We do not expect that the Commercials like the FED would ignore this . And they haven't. The hands are moving to shuffle the bean. SWAT dealers have gone short, hedge funds are on the long side and Commercials are covering shorts. The 600 lb gorilla is moving to increase the value of the US Dollar, which is expected to drop gold prices:

This morning, the USD is up substantially. That's how the SWAP dealers know that an attempt is in the works to suppress silver and gold prices (especially silver). How low will they take silver and gold? Untill the small Traders' stop losses are hit and they are flushed out. Then the cycle will be repeated.

QE: the sword of Damocles.

In classical Keynesian economic theory, the injection of money by the Central Bank during a recession should dampen the recession and stimulate recovery. The money was supposed to be borrowed or created, but during recovery, the money was to be repaid or replaced. What this led to is a regular cycle of ups and downs and increased inflation. Republicans would win elections during the inflationary phase, put on the brakes and get voted out during the next downturn. This led to continuously higher spending and greater loss of value of the US Dollar.

This changed with the election of Pres Reagan, who went to supply side economics. This type of economics was based on the idea that a lowering of the highest tax rates acts as a money injection and would stimulate the economy. The resultant increase in economic activity would more than make up for the lost revenue due to lowering the highest tax rates.

The strategy worked. Liberals began to demagog the method as "trickle down economics" and "tax cuts for the rich." As I said the strategy worked and tax receipts went from $500B to $700B. Unfortunately, the Democrat demagoguery worked as well, Republicans lost the election and Democrats doubled spending, wiping out the gains due to the use of supply side economics.

Then came the Obama regime. The Obama regime came to power after unknown sources tried to empty the Nation's banks (via withdrawing $2B Money Market funds/hour) and the FED imposing new rules of accounting (mark to market), which made the banks instantly insolvent. If you go back to my posts in July 2009 you will find my post that contains St Louis FED data on how FED action had stopped money circulation, lowered GDP and elected Obama. The Media has covered up all this and still talks about how the recession started in 2007. However, the "Great Recession" had started in late 2008 or 2009.

Now we come to the Obama regime and how it tried to "fix" the economy. The regime nationalized many banks, Chrysler and GM, student loans and the housing market. In addition, the FED initiated QE1 and QE2 and we now have a QE3. With all the injection of money, the economy stagnates. How come?

In yesterday's Seeking Alpha, an economist by the name of Ellen Brown had pointed out that the QE's are designed to produce good feeling by stimulating the Stock Market (QE1 and QE2) while QE3 is to stimulate housing prices. And what happens to the money injected? It is sequestered in the banks as excess deposits for which the banks are paid interest. As long as this situation is maintained, inflation will remain low. But, the huge sum created by the FED hangs over the government like the sword of Damocles. Should a Republican get elected President, the FED can again wreck the economy by making the banks release this money, creating an instant tsunnamy of inflation, forcing the Republicans to raise interest rates and putting us back into a recession. The FED was not meant to have this authority.

The meeting of the HAVE NOTs.

Mario Monti, Italian PM, has just finished a meeting with Antonin Samaras, Greek PM. They reiterated their need for the EU and the Euro structure. Next on Monti's agenda is a meeting with his Irish and Spanish counterparts.

In all the turmoil of the sovereign debt crisis of Europe, people in this country do not appreciate the Europeans' need for a somewhat unified structure. The countries of Spain, France, Italy and Germany have been at war (off and on) with each other and England for centuries. Europe needs a structure that prevents such wars. The problem is not the European Union, but the use of "Social Democracy" a form of Soft Socialism that is strangling Europe.

There is another reason for an European Union: Islam. Turkey has come under the influence of Islamists who want to recreate the parasitic Ottoman Empire and Greece, Italy, Bulgaria and the Balkans are the Turkish targets. These countries need the protection of Western Europe. In addition, the catastrophic policy of the Obama regime helped the Islamist crazies of Egypt, Lybia and Tunisia to come to power threatening France, Italy and Spain. The EU desperately needs to jettison Socialism, improve its economic efficiency and get rid of Muslims acting as a fifth column of enemy agitators (community organizers).

Wind power: another fiasco.

Renewable energy is one of the cornerstones of the Liberal strategy to stop the use of coal, oil and natural gas. Like much of the Obama foreign policy, it is based on faulty assumptions and is falling apart.

I have already posted on the problems of the solar industry. This post has to do with wind energy. The occasion for this post is an article in the NY Times:

http://www.nytimes.com/2012/09/21/business/energy-environment/as-a-tax-credit-wanes-jobs-vanish-in-wind-power-industry.html?_r=1&pagewanted=all&_moc.semityn.www

You know that when the NY Times prints an article that details the failure of a Liberal policy (especially one championed by Obama) that failure has grown to catastrophic proportions.

What troubles the wind energy industry? Several things: 1. it is erratic in production; 2. its output is minuscule and insufficient; 3. the modern version kills birds; 4. it has been taken over by China and Spain and 5. it can not exist without subsidies.

Using the newest techniques of fracking (which are both efficient and clean), the Country is producing so much natural gas that it can meet all of our needs and some. We do not need to import machinery from overseas and it needs no subsidies from taxes. Doesn't it get subsidies, too? No. It is one of the lies promoted by Liberals that oil and gas use is subsidized. Oil and gas producers get an occasional TAX BREAK so they can offset some of their cost by reduced taxes. Wind farms are actually paid money from taxes collected from other people. The wind industry is dependent on the subsidy and without it they can not exist. And Congress is getting reluctant to subsidize  Chinese manufacturers who dump their wares below cost.

The Spanish bluff.

The Spanish government is doing a delicate dance, now that jawboning by Draghi reduced the rate the Spanish govt has to pay on newly issued sovereign bonds. Investors expect that Spain will have to ask for a bailout and that the ECB will buy a bunch of Spanish bonds. Hence the reduced rates.

There is another side to this coin. Spain has to ratchet up "austerity" and PM Rajoy is not keen on doing that, provoking further demonstrations. The word is that Rajoy is waiting untill the elections are over in Galicia (NW of Spain where Rajoy is from) and then bear down a bit harder.

This soap opera continues.

The Empire strikes back.

As expected, crossing the $1,700 figure, gold advanced amid heavy short covering. Last week, however, gold has been heavily shorted and some heavy hand is pushing the US Dollar Index upward again. Will this halt the advance of gold prices? Temporarily, maybe.

Europe heading into recession and China in trouble

Eurozone PMI points to recession. Eurozone manufacturing PMI increased to a preliminary 46 in September from 45.1 in August, although composite output fell to a 39-month low of 45.9. The flash PMI is consistent with GDP of -0.6% in Q3, "sending the region back into a technical recession," says Markit. German manufacturing PMI improved but still contracted, while France's manufacturing output slumped to 39.8 vs 45.3, suggesting that the country is also heading for recession.

Chinese PMI improves but still continues to shrink. China's flash HSBC PMI rose to 47.8 in September from 47.6 in August, which, if confirmed, would represent the 11th straight month of contraction in the country's manufacturing sector. The depressing figures have been weighing on markets since they came out.

OK, So now what?

A number of events have occurred recently that are very important in determining economics and finance. These events included: 1. the decision of the ECB to buy sovereign bonds; 2. the decision of the German Constitutional Court to allow for German participation in the ESM and 3. the announcement of QE3 by the FED. We have thus completed the concerted action of States to fight deflation by money printing (OK, digitizing). These actions included the Chinese decision of spending $400B on infrastructure buildouts.

We may sit back a bit, contemplating of what to expect down the road. We have seen Stock Markets react as expected: they moved up as the currencies are cheapened. We are also seeing the precious metals go up in price, reacting to the de facto devaluation of currencies. US debt has been downgraded again.

In Europe, demonstrations are starting again, protesting cuts in pensions and such. The American Media crops the pictures of the demonstrators to conceal the red flags they carry. Spanish PM Rajoy promises a new economic plan later this month. It is rumored that Spain will ask for a bailout. Hopefully, the plan will include privatizing.

Of particular importance to some of us is the anticipated rally of the gold and silver markets. Some analysts anticipate gold to hit a new high soon and reach $2000/oz before the end of the year. Miners are the place to be to make money. Some people believe that we have entered the final phase of the PM bull market which may end a year or so after the election. Gold is anticipated to hit 5-10,000/oz and silver anywhere from 150/oz to $400/oz. Hard to tell this far out.

Oh, and expect Larry to capitulate.

France: The insanity of the Left.

The French seem to be bent on choosing paths that put their nation at risk. The French Revolution destroyed France's aristocracy, depriving it of a chance to develop into an educated elite. Then, France united under Napoleon, who led them against Europe and eventually killed off much of the able bodied youth of the Country. Why, just in recent years, France has allowed immigration of the Islamic North Africa to the extent that French culture has begun to fade in its cities.

The recent election of Francois Hollande as the Socialist President of France puts the country on the road toward being an economic basket case as well. How? Leftists like Hollande have an insane attraction to the Environmentalist Wackoes of the Western World. Accordingly, the Socialists are going to raise taxes on the rich, which will drive them out of the Country. France's richest man has become a Belgian. Others will follow. But, the biggest folly is yet to come.

France has reduced its vulnerability to the oil blackmail by developing atomic power plants. Pres Hollande just accepted the "green" agenda of reducing the amount of energy from atomics from 75% to 50%. This will be done by decommissioning 24 reactors by 2025. The French government rejected 7 proposals for shale gas exploration. And the government agreed to subsidize costly biodiesel production. I am sure that solar boondoggles will follow.

Do you recognize the path? It is the path that Spain has followed under the Socialists. It lead them to 24% unemployment and being bankrupt.

Central banks open spigots.

This was a momentous week. Events went off as I expected:

1. The ECB announced it would buy sovereign bonds (and print money to do it);
2. The German Constitutional Court voted to allow bailouts (OK, I wasn't sure of this);
3. And the FED told us about QE3;
4. England had announced a QE and China had initiated a 400B building program.

The Stock Market jumped and gold vaulted past Larry's (and others') magic number.

The question we now have is: is gold back in the Bull? To answer this, let's review the price changes in gold:

The graph tells us the following:
1.Gold has broken out of the wedge formation;
2. Gold has followed up the breakout;
3. There has been serious buying, note that the black bars are much higher than the red bars;
4. The MACD is maxing out and gold has moved into the overbought territory;
5. Spot price rocketed past the 50 DMA and the 200DMA and both averages turned upward.

MY CONCLUSION: Gold has resumed its climb, but may soon pause for a breather.

Why money printing is failing.

Lord Keynes sought a way to flatten out the business cycle. The crippling recessions that hit Gr Britain in the early 1900s and later after WWI were gut wrenching for the working class. Still, the universal failure of Keynesian economics in our days gives us pause. We must examine the concepts lest our economies are permanently damaged.

Keynes believed that during a deflationary Depression, when the economy contracted severely and businesses went bankrupt, the govt could engage in deficit spending (building the infrastructure, for example) to reduce the negative effect of the economic slowdown. The deficit would then be PAID BACK DURING RECOVERY.

So, where did the application of Keyns' ideas go off the rail?

First, Keynes' theory was designed to work in a Capitalist economy.It would not work in a soft Socialism environment such as the EU. It would also fail in the current environment in the US where a deceptive elite is trying to establish Socialism.

Second, Keynes' theory requires PAYING BACK the deficit created by the govt to dampen the Recession or Depression. In both the EU and the US, the deficit just grows and is never paid down.

Third, there is a particularly inane bunch in the US now that negates the stimulatory effect of deficit spending by "sequestering." In this scheme, the Central Bank (the FED) digitizes a bunch of money to recapitalize failed economic institutions (CITI, GM, etc), gives another gob of money to the banks and then has the banks "sequester" this money as excess reserve, the FED paying them interest on this deposit. The money printed is not stimulatory(except for stocks), the economy stumbles and the deficit grows. The ECB is trying to copy this failed economic ploy by injecting money to buy sovereign bonds and then make the banks hold this money for interest paid by the ECB.

Let me state this clearly. I am not a keynesian, nor are the FED's shenanigans Keynesian economics. The Obama regime is trying to downsize the US economy so people learn to live on government payments. Continued crisis forces people to accept Socialism. Roosevelt survived in spite of the horrible economy created by the Republican Progressive Hoover and enlarged by Roosevelt.

Larry's last stand.

" While gold has rallied to just above $1,700, it has thus far failed to take out my system resistance at the $1,727 level, let alone monthly resistance at $1,740 to $1,750." Larry Edelson.

This morning, 6:32 Texas time, gold has reached 1,744. Here are some further facts indicating that Larry has been wrong, 1. Short contracts on gold had fallen from 41,000 to 11,000 and 2. the US Dollar Index had dropped another 0.5 to 79.5. I expect Larry to reverse by next week.

Larry Edelson is an accomplished commodities trader and a far better chartist than most of us will ever be. So, why does he continue in his error and how concerned should we be about his forecast that gold will drop before the big rise?

I think the explanation for Larry's erroneous forecast lies in the fact that he is mixing technical analysis with economic forecasts in a non-permissive way. That is, he believes that the ECB and the FED will not increase printing (which he believes is needed for the gold rally to rekindle) untill after the Stock Market AND the gold market crashed. So, his technical forecast is based on a belief that is proving to be incorrect. But, Larry is an honest guy and he will admit his mistake. He has already done so with the Stock Market.

Waiting for events.

The world of business and economics is now focusing on two things: 1. the decision of the German Constitutional Court and 2. the results of the meeting of the FED. And the Pundits are going crazy trying to figure out the outcome of all this. Personally, I like the formulation of Jim Grant, Head of the Portola Group, given in today's KINGWORLDNEWS.

Grant presents two metaphors for today's economic world: 1. the Truman show and 2. forces controlling a beech ball. The applicability of the Truman show is rather obscure, after all, saying that the whole world is a stage and most everything that is happening is not understood, is hardly helpful in explaining the world economic situation. But the metaphor about the beech ball is.

The FED injected nearly twenty trillion dollars into the world's financial system to combat the financial meltdown created to elect Barak Hussein Obama. The bubble created by the cash is like the air pumped into a beech ball that is held under water. The tendency of the ball is to rise, i.e. gold and silver prices would rise as the inflation caused by the cash injection would propel inflation. But, the central banks are holding down prices, preventing the inflation to occur. The resultant force is pushing the ball down. Too much push and the ball will collapse in a deflationary meltdown, too little push and the ball will pop in the air in an orgy of inflation.

Central banks and the regimes they support are full of hubris and they believe that they can direct and control world finances and the economy. The electorate of Europe and the US wants to maintain the status quo and live off deficits used to maintain government handouts. In the end, there is no substitute for hard work and there is no free lunch. Not without bankrupting the provider. The longer they hold down gold and silver prices, the faster they will rise when the central banks lose control. Even Larry agrees with that.

And here is Larry.

I often refer to Larry Edelson, so I thought I reproduce his last post. I pretty much agree with his assesment, except on the following:

1. Gold did take out the 1,727 resistance.
2. Gold is not above 1,740 and silver is not above 34, true. But, the advance in gold and silver has been rapid and they are now consolidating the advance. As for Bernanke not triggering QE3, that may happen, too. However, Bernanke might be reluctant to crash the Market now and become the scapegoat for a sudden drop in the Maket. Just as the EFSB is not a bond buying, the bond buying is not a stimulus package.  The ECB bond buying is designed to reduce interest on sovereign bonds so the countries that issue them can afford the interest they have to pay. Fixing the economy would require the scrapping of Social Democracy.
----------------------------------------------------------------------------------------------------------------------


I fail to see the merit in Mario Draghi's approach to the euro crisis. Buying "unlimited amounts" of bonds from indebted sovereign euro countries and then "sterilizing" the printed money is simply not going to work.

First, Germany's Bundesbank, by far the most powerful national central bank in the euro zone, is not squarely behind the deal. That's not a good sign.

Just hours after Draghi announced the plan, Germany's Finance Minister Wolfgang Schaeuble also jumped into the fray, warning that he stood against the European Central Bank's (ECB) bond-buying plan.

Second, Draghi plans on sterilizing the money printed by his bond-buying. That means the ECB will issue its own debt to mop up the money it's printed. So there will be no net increase in the monetary base, which is dis-inflationary ... at a time when precisely the opposite is needed, a dose of inflation.

Third, the sterilization will cause even more problems. The only countries that can afford to buy ECB bonds to mop up excess money printing are the rich euro-zone countries, mainly Germany and France.

Think that through. It means the bonds the ECB does buy, from failing sovereign nations, will put money in their coffers ... while the bonds the ECB issues will take money out of the coffers of the richer nations.
Do you think Germany and France will like to see their liquidity tightened while their suffering neighbors get all the benefits? I don't.


Fourth, by driving down short-term yields on sovereign bonds in heavily-indebted and busted euro-zone countries, the ECB will effectively shorten those countries' debt maturities.

With those busted countries falling deeper and deeper into a depression, that will merely serve to make their debt loads worse in the longer run, because debt will have to be rolled over more frequently.

Fifth, the indebted nations of Europe that will get the aid will have to get their fiscal houses in order by complying with strict policies put out by the ECB. If they don't, then the ECB backs away from buying and supporting their bonds.

Guess what? The ECB-imposed austerity measures will merely serve to make the debt crisis worse. And that's assuming countries like Spain, Italy, Portugal, etc. will be able to comply with strict austerity measures in the first place.

That's highly unlikely. Just look at how Greece has gone down the tubes with austerity measures that, in turn, forced it to go hat-in-hand time after time for more bailouts.

Put another way, if Spain, Italy, Greece etc. can't comply, they lose the ECB backing. And if they do comply, their economies simply crater more.

In short, there is no way Draghi's plan is going to work. The markets, most of which have rallied sharply on the news, are headed for one of the biggest disappointments I've ever seen. The gap between hope and reality has never been wider.


I see more trouble ahead, too. This Wednesday, Germany's Federal Constitutional Court will decide the legitimacy of the European Stability Mechanism, the funding vehicle for bailout money. There's a chance it will decide against it, which would put Draghi's plan in jeopardy.

In addition, our Fed meets this Thursday and the majority of investors and traders are expecting Ben Bernanke to announce another round of money-printing.

They're going to be sadly disappointed. Bernanke will do no such thing. While he will give the usual rhetoric that the Fed stands ready to print, and perhaps may give a few more clues about it, I strongly believe that the Fed will not initiate any money-printing until after the elections, at the earliest, and more likely, not until early 2013.

Bottom line: I don't like what I'm seeing in the markets. It's not just my gut, not just my interpretation of the news or fundamentals either.

  While the S&P has marched to a new recovery high, it remains largely unconfirmed by the advance/decline ratio, by volume, and by the Dow Transports.

  While gold has rallied to just above $1,700, it has thus far failed to take out my system resistance at the $1,727 level, let alone monthly resistance at $1,740 to $1,750.

  While silver has exploded higher too, it has also failed to take out monthly resistance at the $34 level.

Meanwhile, the euro remains below monthly resistance at the 1.28 level and the dollar is holding monthly support at the 80 level in the nearby Dollar Index futures. Crude oil has failed to get above important resistance at the $100 mark.

I see a giant trap about to slam shut. A lot of investors are going to get hurt. Don't be one of them.

Until next time ...

Best wishes,

Larry

P.S. From ECB meetings to the upcoming Fed meeting to the never-ending saga of European sovereign-debt problems, September is filled with uncertainty. But it's also filled to the brim with opportunity. And in my Real Wealth Report, I help you seize the profit potential from the opportunities these events create. Activate your risk-free trial subscription by simply clicking here now!

Draghi make it a three ring circus.

In one ring, the European Financial Stabilisation Mechanism (EFSM) struggles to come up with a Trillion Euros while it is being restricted to about 60 Billion:
http://ec.europa.eu/economy_finance/eu_borrower/efsm/index_en.htm

In the second ring, the ECB promises to buy sovereign bonds in the market for 1-3 years duration. How the bond rates will be set is up in the air

And in the third ring, the ECB will "sterilize" the money it prints to buy the bonds. How will this "sterilization" work? The ECB is going to copy FED, that's how. As the ECB prints the money to buy the bonds, it will remove an equal amount of money by asking the banks to make one week deposits to the ECB on which the banks  will be paid 0.01%. Thus, in 52 weeks the banks get a guaranteed profit of 0.52% for depositing money handed to them by the ECB.

And this worked HOW in the United States?

GCC: the next chapter of the EU Soap Opera.

Draghi made his decision to buy up Spanish, Italian, Greek and whatever bonds that the ECB can "buy" by printing money. This would save the Euro, reduce bond rates and buoy the world stock markets. So, what is this about a new chapter?

The next chapter in this soap opera is the ruling of the German Constitutional Court. The Court is to announce its findings Wednesday. The question on which the Court is to rule: Is it permitted for Germany to contribute to the European Financial Stability Mechanism fund, EFSM for short.

We are talking about two separate things here: 1. the European Central Bank printing money to buy up bonds and 2. Germany to contribute to the EFSM so a total of about 1 trillion can be dispensed. The ECB's decision does not depend on the German Court. Can the EFSM be established without German participation? In a short word, NO. Would these two decisions interact? Definitely. Without the EFSM, the EU can still survive, but the ECB would have to print more money.

Why are the Germans leery of this whole procedure? First, because they regard the problem of the bailing out of Europe as a lost cause and second, because they are afraid of hyperinflation. The Germans are more efficient, more disciplined. Heck, they almost made Marxist Socialism (misnamed as Communism) work while no one else could. And they do not want to contribute to people whom they regard as undisciplined, inefficient and lazy.

Here is a picture of the German Court in its special regalia:

Troubles multiply.

Separatist movements gain strength.

The separatist Quebec Party gained strength in Canada. The Basque and Catalunian parties as well as the Scottish separatists are waiting. Quebec separatists are always waiting in the wings. The ETA has given up violence and can now run for office. The Basques can now collect their taxes and the Catalans want the same right. Without revenues from Catalonia, Spain will have even more troubles.

Spanish banks
.
A lot of money has been withdrawn from Spanish banks and the Spanish govt is aiding its banks against EU rules.  What choice did the ECB have? None, if it wanted Spain in the EU.

Draghi's announcement Thursday was greeted with enthusiasm. The ECB will buy sovereign bonds and there is really no limit on how much. QE to infinity.

Jobless numbers in US.

The jobless numbers came out yesterday. They were devastating for the Obama regime. Firs, July's numbers were adjusted downward and August's new jobs is less than 100,000; a number that will undoubtedly revised next month.

Precious metals market responds by confirming Larry's numbers.

Gold reached 1742 and settled at 1740 for the week. Silver settled at 33.69. The Dollar index lost .95 and ended the week at just above 80. The Market is obviously expecting QE3, because Bernanke warned that the FED will take action if the economy is week and it is.

Where are the numbers heading? An interim number for gold is 2060 and for silver 49.

Iran ups the ante in Syria.

A British paper reports that Iran sent 150 high ranking Quads officers to Syria, along with weapons and ammo. At stake is Iran's supply route to Hezbollah in South Lebanon. The fission in the Islamic world has widened by Syria shelling Palestinian (Arab) refugees. France is sending anti-aircraft weapons and I expect the Saudis to respond as well.

And Mario said...

Print, print, print. The ECB will buy bonds of bankrupt European nations.

All eyes on Mario Draghi.

Mario Draghi, President of the European Central Bank (ECB) has a big day tomorrow. He is to tell the world what he intends to do. Actually, it is more "HOW" he  intends to rescue Italy and Spain.

Back in August, Draghi declared that the ECB stands ready to do whatever it takes to rescue the EU (and the Euro). What exactly are the details of "everything?" Some people think that Draghi will make a speech of generalities. Others believe that the speech will be aimed mostly at politicians of Europe, urging them to act responsibly. What exactly is meant by "responsibly?"

In other words, Europe has lost focus on what should be done. Social Democracy does not work. The government managing retirement, medical care, education and transportation does not work. Slow growth and high cost everything is a tune that Europeans danced to for decades and now the time has come to pay the piper. Only, the wallet is empty.

Europe needs to return to privatization. Unfortunately, while European intelligentsia wrote the books on how to build Social Democracy, the book does not exist on how to undo it. So, the problems grow.

Where is Larry going wrong?

As gold is reaching 1,700/oz, I have decided to study carefully why Larry is so bearish. Fortunately, he published his Technical Analysis. I do not know how he gets his cyclical trend line, but I know that's how he gets 1,727.70 breakout point. The underside of uptrend line predicts a slightly lower breakout point, but this estimation is approximate.

When I began to compose this text, gold was listed at 1,695 and silver at 32.137. Thus, silver is already past the breakout point.

Why is Larry wrong? Because he envisions that the FED will not act unless the situation gets dire. And he figures that no one but him sees the QE coming. However, traders are already betting that QE will lift gold and silver prices.

Will the Stock Market really crash?

There are a number of threads in trying to anticipate this event.

1. The Keynesian frame of thinking.
Lord Keyns' formulations were based on the assumption that other factors would stay the same. That is, compliance with govt regulations, labor cost and efficiency,etc. So, if you inject govt spending, it would stimulate the economy, recession could be avoided or made easier at the cost of increased National Debt. The latter would be paid back when the economy was humming. Why isn't it working then?

2. Why isn't the stimulus working?

a) It used to work out that spending of $1 would produce an economic growth of $4.55. This eroded to the point that the return would be dollar for dollar. Recently, the return is negative.

b) One reason is that the National Debt has been allowed to grow and grow. It has to be financed and financing it causes distortions in the flow of capital.

c) Liberals love to regulate. The regulations slow the economy, making it less efficient. Govt workers have unionized and gotten pension plans that are very expensive.

d) The Obama factor. Liberals want to downsize the US. They believe that the US has gotten rich by stealing it from others and that the well-to-do steal it from others. Liberals are working on transferring capital from the rich(who are good at using capital) to the poor(who are not). So, injected capital works less and less. Obama has been allowed to push these policies further than most Socialist (Democrat) Presidents.

e) The man-made global warming fantasy. The Obama regime has a war on fossil fuels and high cost energy is hampering our economy.

3. Balancing on a razor blade.
QE1 and QE2 were gigantic Keynesian stimuli. However, in this case, the capital injection was created by cheapening the US Dollar. What??? you say - the dollar has appreciated in value. Yes, but only because the Euro is self destructing. Besides, the value of the Dollar and gold are being manipulated. This diverts capital into unproductive use. How? The measures used to keep inflation low remove capital from productive use. The FED has a lot of money parked in banks and pays the banks interest. This makes that money a liability and not an asset. A large part of the excess money was spent in making stocks advance.

4. Why are we talking about a crash?
Earnings are beginning to drop. This will be exaggerated by the planned gutting of the military.

5. Will a QE3 prevent the coming crash?
Depends on how big, how it is implemented and whether the FED allows inflation to pick up. Inflation would fuel stock prices and would act as a tax. Depends.

The coming Fiscal Cliff.

Terms:
Fiscal Cliff: A number of events slated to occur on or about Jan 1, 2013.

The events:
1. A cut in federal programs of $109B;
2. End of Bush tax cuts -taxmageddon- $440B;
3. End of stimulus programs (TARP, Porkulus, QE2);
4. Five new taxes of 'ObamaCare ($1T?);'
5. End of all bailouts.

Expected results:

1. Since, $50B of the cuts is to be from the Pentagon budget, the military is going to be gutted.
2. Firms producing for the military are going to lay off hundreds of thousands of workers.
3. corporate profits will plummet.
4. Stock Market is overvalued. Expect a third bear market in this new century.
5. A collapse of the economy.
6. Bond market will collapse and interest rates will rise.

Wild card: QE3.

Widely expected. PMs on the rise.