Saturday, April 12, 2008

April 11/08 commentary.


We are back from our trip from  Japan and Mainland China.  During my commentary I will try and give you my experience on China's development to help you with your investment strategies.


To say that we have seen  turmoil in the financial markets these past 4 weeks,  is an understatement.  When I was in San Francisco. we got world of the bailout of Bearn Stearns.   I opined that the bailout was in reality to save JPMorgan et al. from a derivative meltdown. I still feel this way!!


Yesterday, we got word of another bailout for Washington Mutual, a large Western based thrift.  The Fed  through JPMorgan has

arranged for 1.1 billion dollars of infusion of capital to save these guys.


The biggest news of today was of course, the trade figures.  In normal times if your dollar is low, then your exports rise as the world perceives that your goods are cheaper relative to your own currency.  As I was leaving Beijing, the Euro was closing in on 1.59 and the Chinese Yuan had broken 7.00 for the first time.  The  USA dollar index early this morning was at 71.54.  The trade deficit came in an a surprising level of minus 63 billion dollars.  The market was expecting -  58 billion.  On closer examination, they used a price of oil at 84.00 per barrel basis Feb.  During the month, oil was trading around 95.00 per barrel average.  It low was 88.00 per barrel, so how on earth did these guys get their figures.

On top of this nonsense, gold is leaving the Fed Bank of NY.  This gold is foreign owned and not usa gold.  Yet the usa includes these "exports" to lessen their deficit.  On this news, the Plunge Protection team  bought dollars and sold Euros and sold gold down by 5.00 dollars.  The Dow was sent northbound up by 50 points or so.


The other big news that I would like to bring to your attention is the ECB.  First, Trichet has resisted lowering interest rates.  He is steadfast on fighting inflation.  However, the big news is that ALL ECB banks refused to sell any gold at all.  They announced for the first time NIL sales of gold.  Switzerland has also slowed its gold sales down to a trickle.


Thus, if all Europe has decided to shun away form gold sales, then the only logical candidate to supply the metal is the IMF.

The problem here is that they are supplying the metal through the leasing game.  It is also criminal activity for them as their charter strictly forbides any sale or leasing of gold unless they get 87% approval of all nations.

This is why you are hearing news that the IMF wishes to sell 400 tonnes of gold.  My bet is that 400 tonnes of gold has already left the credit side of the ledger from the IMF.


You can also safely say, that when this IMF gold is gone, no nation will supply the stuff and gold derivatives will implode in the same format has the debt derivatives have incinerated.


For the last two days, the Fed has sought to increase its balance sheet.  I promised this to you before I left.  They have already taken up 50% of their balance sheet with toxic waste and obviously they need for fresh capital as the entire financial scene implodes.

Commercial paper continues to contract which indicates that the banking crisis is still in its infancy.

The open interest on gold comex continues on the low end at 411000.  My son Lenny and I have had many discussions on this.

We tend to agree that 400,000 is in rock solid hands.  In other words, a raid will not force liquidation of long contracts.


Oil continues to stay at around 111.00 and copper hovers around the 4.00 mark.


As for China, I was totally amazed at their progress, Everywhere we turned, we saw cranes as if "this is was national bird".


More and more people are moving into the cities for work.  This process is irreversible.  China will consume has much commodities as possible.


In Beijing, the population is 15 million people. Believe it or not there are 3 million cars on the road and every day an additional 1000 cars are bought.  Traffic jams start at 3 pm and end at around 8 pm.

China uses up to 35% of the worlds total cement capacity.


We visited the huge  3 river gorge project on the Yangtzee river.  With the damming of the river, 1 million people were and are being displaced as the upstream river rises 30-50 meters.  This will supply around 15% of China's hydro-electric power.

Chongqing the capital of this region and the centre of the damming project has 33 million people.  Everywhere you turn you see skyscrapers.

Anyway, got to go and get some sleep.

I will speak to you on Saturday.

I would also like to thank my son for pitch hitting for me in my absence.




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