THE GOLD MARKET SELL OFF

As Gold sinks to new lows, the market awaits the FED decision tonight.

Well, here is a post from JimSinclair's website.
An excellent explanation for the recent decline in gold.
http://www.jsmineset.com/home.asp?RQ=EDL,1&GID=0&linkid=6
'''Posted On: Tuesday, April 29, 2008, 2:17:00 PM ESTJim's Mailbox Author: Jim Sinclair''''

"""""""He explains it well: here is an excerpt
The media claims that the FED is now hawkish, the ECB will cut faster than the FED, FED cuts will slow and the credit crisis is now over>>>>>>>>>>>>>> as they ignore the impact of falling tax revenues on the budget deficit and Central Banks efforts to diversify out of the US Dollar. """"""

Meanwhile, Financial stocks in the US are at their highest levels in recent months, as the market believes the worst is behind them. No one seems to be concerned about the US Bond Insurers or the CDO,CDS mess anymore. Meanwhile, the threat of counterparty default in the derivatives market looms large, as the housing market continues to decline. Valuing these stocks on trailing 12 month earnings(2007 earnings), and then claiming them to be undervalued is just absurd.

GOLD is still a buy on declines. Averaging on declines, with a view to build up a large GOLD holding is important, keeping the big picture in mind. After falling below $900 and then through supports at $887.50, some analysts have set targets of $850 and then just above $800.

While it is impossible to set a bottom in the near term, Gold Bullion investors must be patient.

As Warren Buffett recently said, deleveraging is a long and painful process.There is more pain to come. So don't get taken in by the recent rise in US stocks.

THE BULLISH BEAR posts on REUTERS

THE GOLD/OIL RATIO : 1/6/2008 Reuters
Post Views : 182
View
THE SURGING JAPANESE YEN : 3/10/2008 Reuters
Post Views: 82
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STARBUCKS & the US ECONOMY : 11/21/2007 Reuters
Post Views: 80
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TEMASEK HOLDINGS : 2/8/2008 Reuters
Post Views: 80
View
MBIA & The State of the Bond Insurance Industry : 2/16/2008 Reuters
Post Views: 38
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US FED Chairman : THEN AND NOW : 1/8/2008 Reuters
Post Views: 38
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OPEC OIL : 12/8/2007 Reuters
Post Views: 34
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WORLD'S LARGEST SOVEREIGN WEALTH FUNDS : 11/30/2007 Reuters
Post Views: 20
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CURRENCY ANALYSIS : 2/4/2008 Reuters
Post views: 18
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GOLD & The Patient Investor : 3/31/2008 Reuters
Post Views: 12
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JOB CUTS : 4/18/2008 Reuters
Post Views: 11
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TIME TO EXIT SOFT COMMODITIES (Food Grains) : 3/4/2008 Reuters
Post Views: 8
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ABX MELTDOWN : 3/24/2008 Reuters
Post Views: 7
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GOLD: Continues to rise against major currencies : 1/4/2008 Reuters
Post Views: 7
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US CONSUMER SENTIMENT : 4/17/2008 Reuters
Post Views: 7
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The Goldilocks Economy : Return of the Bears : 1/15/2008 Reuters
Post Views: 5
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US FED Chairman : THEN AND NOW : 1/8/2008 Reuters
Post Views: 5
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THE SURGING JAPANESE YEN : 3/10/2008 Chicago Sun Times
Post Views: 3
View

JOB CUTS

More losses at Citibank, and the Dow is up over 260 points.

Well : REALITY CHECK:
Falling consumption----> lower corporate profits----> job cuts----> Falling consumption

AT&T Cuts 4650 Jobs, Mostly Managers, Amid Line Loss (Update4)

City of London job losses could rise to 40000 - JP Morgan

JP Morgan Has Yet To Determine Number Of Job Cuts-Spokesman

FACTBOX-Global financial job cuts: many more to come

Merrill Lynch Posts $1.96B Loss; Announces 4000 Job Cuts

Goldman Cuts More Jobs, Citing `Market Conditions' (Update1)

Harley Net Falls 2.5% on US Sales; Job Cuts Planned (Update1)

AMD Warns of Low Sales and Job Cuts
AMD starts layoffs in Austin, US

Lehman Brothers confirms another 200 UK job cuts - 20 February 2008

Citigroup Reports $5.1B Loss, Cuts 9000 Jobs

Eli Lilly & Co May Slash 500 Jobs

UBS piles on misery with City job losses

US: Sara Lee cuts jobs in North America

New Motorola job cuts bring total to 10000

Google to make first big job cuts

Dell Job Cuts to Top 8800 as US Spending Slows (Update2)
Dell CEO Says to Expect More Job Cuts

JP Morgan analyst causes storm with job cuts prediction

US job losses deepen in March as employers cut 80000 posts

More layoffs, cuts as US drug makers face generics, other woes

Schering Up Most in Eight Years on Job, Plant Cuts (Update3)

Is ethanol to blame for 1100 job cuts at Pilgrim's Pride ...

Chrysler plans big tech job cuts

CONSOLIDATION IN GOLD

PATIENCE >>>>>>>Gold prices are consolidating.
After hitting new highs in 2008, gold prices appear to be rangebound in the $890-$950 range.
Gold is still a buy on declines!!!!!
The US Dollar continues to remain under pressure and Inflation concerns are growing.

Oil prices meanwhile are at new highs, even as the EURO/DOLLAR nears the 1.60 mark.

Carry trade currencies such as the Swiss Franc and the Japanese Yen, have risen sharply over the same period, for reasons of carry trade unwinding, and also flight to safety.

Emerging markets shrugged off concerns of a slowing US economy through 2007, but rapidly rising inflation appears to have put the brakes on such outperformance.
Rising fuel and food prices are forcing Central Bankers in the region to resort to tightening liquidity, maybe even allowing local currency appreciation or raising interest rates.
As a result, equities of emerging markets have corrected sharply in 2008, despite their outperformace vis a vis developed markets through 2007.

US CONSUMER SENTIMENT

Consumer sentiment is weak. Rising defaults in home mortgages, tightening lending standards and falling home prices are hurting consumption.
Food and Fuel prices also continue to rise.

DON'T BELIEVE THEM when they say that…..

• The US Dollar has bottomed out.
• The US FED will save the day!
• The Fed and US Treasury believe in a strong US Dollar policy.
• GOLD is overvalued and must be sold.
• GOLD is illiquid.
• You must Sell gold and buy stocks!!!!
• Inflation is not a threat and is under control.
• We’ve seen the last of the write downs and losses at the banks. Their books are clean now.
• Financial stocks are cheap after the massive correction over 2007.
• The Credit Crunch is over!!
• The Sub prime mess is contained, and the US economy is resilient.
• Resetting ARMs will cause no trouble at all.
• The US Consumer is in good health, and is ready to leverage up again.
• It’s a good time to buy a home in the US.
• The US Economy will turn around sometime next year, or later in 2008, once we’re over this temporary blip.
  

INSTEAD REMEMBER that

• GOLD IS MONEY
• Inflation is becoming a major dilemma for Central Banks everywhere.
• Bailouts only come to those overloaded with ‘derivative counterparty risk’ (You cannot be a threat to overall stability!!)
• Deleveraging is a long and painful process. ( even Buffet recently said so!!)
• Losses from Toxic CDOs will only increase as the housing slump deteriorates further.
• The Banks won’t lend to each other, because there is no trust.
• They don’t know the losses in their own books, let alone try guessing potential losses in the counterparty’s books.
• Rate cuts won’t solve problems of fear and uncertainty, let alone deal with an oversupply in US home inventory.
• This is an Insolvency crisis, coupled with total loss of confidence, in addition to the much talked about credit crisis.
• The Pundits who were bullish on emerging markets going into 2008 are nowhere to be seen. Some even recommend waiting for a further fall(after the massive crash) in emerging markets before attempting any fresh buying.
• The government may brush aside inflation fears…. but rising unemployment from resulting job cuts, will be a difficult issue to deal with in an election year.

What you win on the roundabout, you lose on the swing!! :Part 2

This is a follow up to my post on Friday October 5, 2007 ; which incidently also happened to be my first post.

http://thebullishbear.blogspot.com/2007/10/blog-post.html

The Currency adjusted return on US Equities is just terrible.

Long term Eurozone investors are major losers as a result.
The US is now in a recession, and conditions could get a lot worse.

THE CHINDIA MELTDOWN

CHINDIA : http://en.wikipedia.org/wiki/Chindia

Stock markets here have had a dreadful first quarter.

There seems no end to the bad news, as writedowns continue across leading Investment banks.

Local Inflation is starting to concern governments, as food and fuel prices continue to rise.

The Shanghai Composite is down almost 45% since its peak in October last year. A lot of Chinese first time investors and retail investors will learn some very hard lessons. In addition to the crash in the stock market, the chinese economy is facing rising prices at home, and the prospect of a slowing US economy.

The BSE SENSEX is down almost 25% since it Jan 2008 high. Confidence has taken a beating, and fresh buying is waiting for lower levels.

The Financial sector is down sharply, after some banks disclosed indirect exposure to 'subprime linked' assets in their US subsidiaries.

The Oil and Gas marketing companies are down, on fears of rising subsidy burdens on retail fuels.

The Exporters in the IT space, auto component and textile sector are having a difficult time dealing with a volatile but strengthening Indian Rupee

Valuations in the Capital Goods and Power sector have corrected drastically, as investor expectations are now more realistic.

Avoid the Real Estate sector and stocks of Brokerage firms. Although these stocks are down sharply from recent 52 week highs, I do not see value at current levels.

Overall, its a wait and watch approach, as the bulls have disappeared on Dalal Street in Mumbai.

APRIL FOOLS' DAY ON WALL STREET !

The US Stock markets are up over 2.5%.
and WHY ???
- The writedowns at investment banks are behind us ..............................FOR NOW!!!!
- The UBS writedown will be its last.
- The US DOLLAR is on the road to recovery.
- The Financial sector has bottomed out, and financials are leading the market rally.
- The ''Subprime Mortgage Collapse mania'' was overdone!!
- Gold has continued to fall, as the stock markets are now a safer place,( Gold is a buy on such declines, a staggered buying approach is advised)

REALITY CHECK
- Bear Stearns just went bust!!!!!!!!!!! and no one but the FED seemed to be willing to lend it $30Bn for its'''questionable/worthless collateral'''
- Philadelphia becomes the first U.S. city to halt foreclosure sales in the current crisis...
http://www.reuters.com/article/idUSN2830318520080328?pageNumber=1&virtualBrandChannel=0
-The US economy is already in a recession!!!
- Central Banks are losing the Inflation fight!

GOLD & The Patient Investor

The recent correction in commodity markets has seen GOLD correct sharply back to the early 900's in USD terms. After its recent surge, a correction was to be expected.
Food Grains, Oil, and Precious metal prices have all pulled back sharply.

The US Treasury is now looking to expand the role of the US Fed, ensuring that it provides stability to a 'shaky US Stock Market', after the recent collapse at Bear Stearns.

The US Fed will continue to lend against 'questionable'/ 'worthless' mortgage backed paper, as its strives to avert a major collapse on Wall Street. The ECB and the BOE may have to follow the FED, if the credit markets dont ease up soon..

Coming back to the Patient Long term Gold Bullion Investor:

As was the case with the May 2006 correction, declines are pretty rapid, as leveraged speculators and short term traders who enter at peak prices get caught out.

Gold is headed for new highs for reasons listed below; the intelligent and patient gold investor, must just hang in there and enjoy the ride.

INFLATION : Gold - The Inflation Hedge

Countries around the world are struggling with rising inflation, mainly led by the surging cost of food and energy.

Central Banks are losing the fight against inflation, as they look to cut rates to combat slowing growth and continue to pump money into the markets.

India's annual inflation rate accelerated to a 13 month high of 6.68 % last friday, having doubled in just a few months.

The Chinese Consumer Price Index showed prices rising at 8.7 %yoy in February, the sharpest acceleration in almost 12 years.

Eurozone consumer price inflation rose to a new peak of 3.5 % in March.

Inflation in Saudi Arabia surged to a 27-year high of 8.7% in February.

THE CREDIT CRUNCH/ INSOLVENCY CRUNCH : No end in sight

Even as the Fed cuts rates, Mortgage rates remain high, as banks hoard cash.

The US Housing market Crisis continues....and consumer confidence is at new lows.

The ECB may have to cut rates if growth slows, even though inflation is at new highs. This action could lend support to the USD, and would as a result drag down the gold price.: This would be a good time to add to gold positions. Meanwhile the USD is headed for its biggest quarterly Loss Against Euro since 2004.

Counterparty risk is a risk no one seems to be willing to take.

Overexposed and Undercapitalized => Current state at most Investment banks with leveraged Balance Sheets.

In all the commotion, everyone seems to have forgotten about the Bond Insurers, who were the centre of attention only last month.

Bringing in more regulation now, will not make the outstanding Toxic OTC Derivative positions disappear overnight. Possibly more questions may be asked, additional paper work will add to costs and further casualties may arise.

This is a problem of Solvency, which cannot be solved by Cheap Money: The very culprit of the current crisis.

This is a time for preservation of capital rather than chasing yield.

Buy gold on declines, keeping its long term outlook in mind.