U.S. Economy and Stock Market Update

U.S. Economy and Stock Market Update

Friday, September 12, 2008
Market Commentary By Benjamin Train


Fuel shortage alert after US storm:

Oil refineries in Texas put out of action by Hurricane Ike could take eight to nine days to recover, US Senator Kay Bailey Hutchison has said. The Texas senator told the CBS network that power outages and flooding at the facilities meant refined gasoline was "going to be in a shortage situation".

In an interview with CBS, Sen Hutchison said she had been told by officials at the Federal Emergency Management Agency (Fema) that oil refineries in the state were "pretty much down". Production was halted at 15 oil refineries in Texas, including the giant Exxon Mobil refinery in Baytown, ahead of the storm. Together, they make up just under a quarter of US fuel production capacity. The storm also shut down crude oil production in the Gulf of Mexico, which is responsible for a quarter of total US output.

The major indices closed lower Friday as all ten of the major economic sectors are trading with losses, last week, taking down all of this weeks earlier gains.

The early downturn is most pronounced in the financial sector (-4.0%). Financials continue to be plagued by concerns of write-downs that may still be lurking on balance sheets. "It's going to be an ugly third and fourth quarter for earnings," said Karen Olney, head of European equity strategy at Merrill Lynch. "The market hasn't quite discounted the fall in profit you have in a recession."

Also shares of Lehman Brothers were down more than 10% ahead of Friday's opening bell amid swirling rumors that the embattled Wall Street icon will sell itself over the weekend. Sources with direct knowledge of talks said, U.S. authorities were in intensive discussions with Lehman, on options including an outright sale. Barclays pulled out of talks on buying most of the troubled US bank Lehman Brothers - another setback for rescue attempts.

Barclays walked away because it was unable to obtain guarantees in relation to financial commitments faced by Lehman when markets open on Monday. The rescue effort is being coordinated by the US Treasury and the New York Federal Reserve.

The US government had hoped to arrange a bailout under which other US investments banks - such as Citigroup, JP Morgan Chase, Morgan Stanley and Goldman Sachs - would finance a new firm that would hold the most "toxic" investments of Lehman in the property and mortgage market.

The U.S. has shown its financial muscles and orchestrated one of the biggest intervention of all time in order to restore confidence in the financial markets. The dollar hit a one-year high against the euro and a basket of currencies on Thursday due to a wave of risk aversion, while the New Zealand dollar fell to a two-year low after a large central bank interest rate cut.

Britain's FTSE 100 .FTSE was down 1.3 percent, while Germany's DAX .GDAXI and the French CAC 40 .FCHI both lost 1.5 percent.

"The Euro Zone economy outlook is looking increasingly gloomy," said David Tinsley, economist at NabCapital. "The source of volatility is coming from the risky side of the equation, it's coming more from the euro zone economy rather than the U.S. economy, although there's still a substantial amount of risk there as well."

U.S. Treasuries fell and stocks rose as the markets pared some of the moves in the opposite directions seen yesterday. 10-year Treasury note fell 15/32 to 103-04/32 for a yield of 4.62%. 30-year bond tumbled 27/32 to 104-24/32 for a yield of 4.22%.

Some are speculating that the Federal Reserve may announce a rate cut on Tuesday. The US dollar went from nearly challenging its all-time low mid-July to rallying 13% over 80 today.

This has occurred with no back drop of interest rate increases, in an environment of poor US economic data, falling US bond yields making them less attractive to foreign investors, record US budget deficits and an unprecedented potentially a multi-trillion dollar bailout of Fannie Mae and Freddie Mac.

With the US dollar comfortably out of danger of going into a currency crisis, the stage now has been set that an interest rate cut won't devastate the currency.

Click to see the U.S. Dollar chart:
http://stockcharts.com/h-sc/ui?s=$USD&p=D&yr=0&mn=8&dy=0&id=p06475580727&a=112138636&listNum=3

In the UK, stocks extended losses Thursday after Bank of England policymaker David Blanchflower said there would be a deeper than forecast decline in the British economy and front-loaded rises in unemployment. However, on Friday, we saw the Sterling rally on UK rate view boosts and stock shares rise.

The Nikkei 225 Stock Average ended lower at 12,214.76. The benchmark Shanghai Composite Index fell to close at a 21-month low of 2,079.67, led by financial stocks after U.S. investment bank Lehman Brothers unveiled a restructuring plan following a $3.9 billion loss in the third quarter.

The Hang Seng China Enterprises index was down at 19,352.90 its lowest close since April 10, 2007. INDIA the 30-share benchmark Sensitive Index of the Bombay Stock Exchange lost another 323.48 points to close at 14,000.81.

The financial markets appear to be digesting the government's plan to take over Fannie Mae and Freddie Mac and Lehman's failed talks with a prospective buyer.

Elsewhere, crude oil and gold futures fell amid further strength in the greenback, but rose based on storm fears. All energy sector shares also gained. BP was up 0.4 percent, while Total rose 0.6 percent. Shares in Britain's BG Group and Spain's Repsol were up 4.6 and 0.4 percent respectively after Petrobras said the Iara oil field in Brazil could hold 3-4 billion barrels of recoverable reserves.



Market Outlook:
Get Ready for a Second-Half Squeeze

The U.S. economy has held up so far this year despite terrible conditions, but the rest of 2008 will be even tougher as businesses and consumers tighten their belts even further.

Last week, the Mortgage Bankers Association reported a fresh surge in delinquencies and foreclosures during the second quarter, indicating that deterioration in the housing market is ongoing. Coming up are: The weekly employment report, ISM indexes for manufacturing and non-manufacturing, Business Inventories, construction spending, car sales, and U.S. productivity, and a Fed meeting announcements on next
Tuesday.


Staying afloat in the second half is going to be a much more difficult challenge.

First, the lift from foreign trade, accounting for more than 90% of first-half growth, will be much smaller.

Growth in Britain ground to a halt last quarter, the euro zone contracted, as did Japan, and growth elsewhere has slowed a notch. More troubling, outside of foreign trade, the domestic economy shrank in the fourth quarter, stayed almost flat for the next two, and is set to weaken further.

The focus in the second half will be on consumers and jobs. Households contributed modestly to overall growth in the first half, as real (or inflation-adjusted) purchases rose 0.9% and 1.7% annually in the first and second quarters, respectively.

Spending is getting off to an ominously poor start in the third quarter. Monthly declines in both June and July already have put outlays in a deep hole. It would take sizable gains in both August and September to prevent real consumer spending from recording its first quarterly decline since 1991.

Through July, consumers' biggest problem was rising gasoline prices. Despite job losses, the labor markets and the tax rebates gave households enough income to increase their spending at a hefty 6.8% annual rate in the three months through July, up sharply from 3.8% in the previous three months. But that's before accounting for rising prices.

From April to July, 56% of the increase in spending went to buy gas and other energy. After taking inflation into account, that 6.8% jump turns into a 0.7% drop.

In the second half, falling gas prices, which by late August were 10% below their July peak, will help to restore some lost buying power. Still, it will take an additional 15% drop to get pump prices back to where they were earlier this year, and by the fourth quarter the spending boost from the tax rebates will be but a memory.

The growing problem is income growth. The strong-looking numbers on the overall economy belie progressively slower income gains for both households and businesses.

The government revised down its earlier estimates of wage-and-salary income in the first half, and it reported a fourth consecutive quarterly drop in corporate profits.

So far this year, income growth from wages and salaries has slowed to 2.9% annually, from 4.5% during 2007. Even excluding energy, consumer prices are rising faster than that. The pay slowdown reflects losses in jobs and hours worked, which is expected to intensify in the second half. Businesses are feeling the pressure from the weak domestic economy. The drop in profits reflects not only sagging demand but declining margins.



Tougher Lending Standards:
Tougher lending standards now make it harder for small businesses to stay afloat.


For non-financial companies, the profit from each unit of output is falling sharply. So far, minor increases in productivity have helped some businesses cope with weak demand and rising costs.

Companies are getting hit with the increasing cost of energy, financing and materials, many of which are imports whose prices are rising rapidly. Banks are increasingly cutting business lines of credit and offering small businesses credit cards. The increased cost to business owners is substantial.

This financing squeeze is likely to crimp both capital spending and consumer demand, as companies try to limit the damage to profitability by postponing projects and cutting more jobs, closing their pension plans and not funding retirement plans.



Bankruptcies Rising:

Bankruptcy is not the end to a healthy life of credit, and it will generate more stress on the financial sector ahead.

Consumers have increased their personal debt to record numbers which has generated the highest bankruptcy rate in the U.S. history. With the 94 federal judicial districts reporting increased filings daily.

Bankruptcy requests are also rising in Canada and Great Britain. Applications were up 12 percent in the first quarter of the year in Britain compared to the previous year.

U.S. Corporate, Consumer, City, County and State financial stresses aren't showing any signs of abating. The California City of Vallejo filed for bankruptcy protection in May of 2008. 34 U.S. cities, counties and towns have filed for protection. Since 1937 there have been 543 municipal bankruptcies, two-thirds of which were small tax districts established to sell municipal bonds for projects.

The California Foundation for Fiscal Responsibility said in a press release that the root cause of problems plaguing Vallejo was "promised increases in wages and benefits for government employees that are not supported by tax revenues."

With the U.S. economy limping along, other cities are particularly aware of the path Vallejo is choosing to maneuver through imbalances between tax receipts and expenses. Those expenses include fixed union contracts, overtime, pensions, and other costs associated with delivering typical municipal services.

Other cities "might not be at the crisis point we're in today, but sooner or later they're going to get there," Vallejo Mayor Osby Davis told the AP. Vallejo's plight stems from rising pay for police and firefighters under current labor contracts, including minimum staffing requirements, which have caused overtime compensation to increase.

The budget for the entire State of California is now in serious question with major shortages and deficits looming. California Governor Arnold Schwarzenegger's office predicted the state's budget deficit may reach $20 billion dollars. The State has been without a spending plan budget for almost three months.

According to MSNBC, "Job cuts announced by U.S. employers last month jumped 12% percent over a year ago to cap the busiest summer of downsizing in six years."

The U.S. jobless rate jumped in August to a nearly five-year high as employment fell for an eighth straight month, raising the risk of an extended recession as households face a struggling labor market and high inflation With job losses and the credit crisis deepening and corporate defaults expected to spike.

Number of bankruptcy filings in recent 12-month period rises to nearly 1 million, up almost 30%. As things in the economy have gotten worse, the number of people and businesses heading to bankruptcy court has spiked. According to a recent Government report, total filings rose to 967,831 from 751,056 a year earlier. Business filings jumped more than 41% to 33,822 from 23,889 in the year-ago period. Last year nearly 43,000 businesses filed for bankruptcy.

Hawaii personal bankruptcy filings jumped 50 percent as consumers struggle with job losses, rising mortgage payments, rising gas prices and credit card delinquencies.

The American Bankruptcy Institute expects filings to reach 1.2 million this year alone, as problems in the housing market have "reverberated throughout the economy," said Jack Williams, resident scholar at the watchdog group.

For June 2008, the bankruptcy rate was 4,275 new filings per day. That is 32% higher than for the same month in 2007. Bankruptcy filings tend to lag the economic conditions that create them by at least a year and often longer.

Today's economic conditions won't show up in the bankruptcy filing rate until much later. 1,174,000 bankruptcy filings are expect for 2008 alone. At the beginning of 2009, we should see another increase in the filing rate.

A record 9.16% of U.S. mortgages were in delinquency (6.41%) or foreclosure (2.75%) as of June 30, 2008. This figure will likely be even worse in the third quarter reports.

Liquidating Cases and Asset Disposition: Sales, Auctions, Appeals, Collections and DIP Financing have become big business, and they are expected to triple as a new wave of retail and home builder bankruptcies emerge.

The ranking Republican on the House Budget Committee said the U.S. government is headed toward bankruptcy if it stays on its current fiscal course. “We know that for a fact,” said Rep. Paul Ryan (R-Wis.) told CNSNews.com in a video interview.

“All the actuaries, all the objective score-keepers of the federal government, are predicting this.” To back up this claim, Ryan cited an estimate the government faces a $53-trillion shortfall to cover the costs of promised entitlement benefit programs. This entitlement benefit budget "short-fall" is now evident in every State in the United States of America.




Market Climate:
What to Expect for the Second Half for Year-End Results...

The Dow looks poised to crumble down to the 10,000 mark. The market climate for stocks has remained characterized by unfavorable valuations and unfavorable market actions. Stocks are selling off at every news announcement or trend minor rise.

Traders are, and have been, liquidating their positions before their next earnings reports, because experienced traders think that the outlook will worsen.

The danger in the second half is that companies will step up their cost-cutting, further undermining consumer spending, consumer income and savings, as corporate dividends are expected to be slashed, as well as retirement programs being cut that will further reduce overall U.S. economic growth.

2008 is already on track to be a record year for dividend cuts, with 97 companies in the S&P 500 either cutting or stopping their dividend payments in the second quarter of this year. You should expect many more will follow.

401k and IRA retirement plans have lost on the average of 20% - 40% percent so far this year alone. It is advised that you speak with your financial advisor and consider reducing your risk against any dividend collapse ahead. Adjusting your holdings to outperform the market may be a challenge in this market, but this is a serious consideration for the near term.

The economy is beginning to look like it did during the deep recessions in the early 1990s and 1973. Eric Rosengren, the president of the Boston Federal Reserve Bank, sees the situation getting much darker in the second half. Speaking of deteriorating financial conditions he said, "It may push the unemployment rate up to 6%, with more than 2 million people losing their jobs since the financial turmoil began last summer.". If the economy tips closer to what it looked like in '73, unemployment could be closer to 8% or 9%.

According to Prometheus Market Insight analyst, Erik McCurdy, "Anyone who has studied long wave theory has been expecting this decade to be comparable to the 30's with regard to the potential for a major economic collapse. Now we're entering the most dangerous period where a meaningful collapse is relatively likely."

Trends forecaster Gerald Celente, director of the Trends Research Institute in Rhinebeck, NY said, “In 2008, Americans will wake up to the worst economic times that anyone alive has ever seen,” he wrote on December 17. “Just as they didn’t see 9/11 coming and were frozen in shock when terror struck, [Americans] will be frozen in shock when terror strikes again.” He predicts “failing banks, busted brokerages, toppled corporate giants, bankrupt cities, states in default, foreign creditors cashing out of US securities…the stage is set, the big one is on its way.”



Home foreclosure filings:

Home foreclosure filings up 55 percent in July of 2008. One in every 416 US households got a foreclosure filing in August, affecting 303,879 properties nationwide, up 12 percent from July, RealtyTrac Inc. said. That means one in every 416 U.S. households received a foreclosure filling last month.

Foreclosure filings in August increased 27 percent compared to the same month a year ago. More than 90,893 properties were repossessed by lenders nationwide last month — up more than half from 43,141 in August 2007, the company said.

The top ten states in foreclosure rates were: Nevada, California, Arizona,Florida, Michigan, Georgia, Ohio, Colorado, Illinois and Indiana.

Weak sales, job losses, sinking home values, tighter home loan lending practices and a slowing U.S. economy hamstrung by high fuel prices has left some homeowners with few options to avoid foreclosure. Many can't find buyers or owe more than their home is worth and can't refinance into an affordable loan.

Banks and mortgage investors are also holding a glut of foreclosed properties and are slashing prices to get them off the books.



Recession update:

The U.S. is in a major economic deep recession with 8 consecutive months of reported job losses, record numbers of home foreclosures, falling home prices, recorded record low consumer confidence readings, numerous bank failures and unprecedented government-financed bail-outs of major financial institutions, plus the U.S. has just raised its public debt ceiling to $10.615 trillion dollars. Will the Fed continue to print and distribute vast quantities of money that creates inflationary conditions here in the U.S. ?

The banking industry is in serious trouble. Lehman Brothers, Wachovia and Washington Mutual are seeing their stock prices evaporate. Smaller banks are closing and many are failing to meet income levels that will sustain them from being examined, and in regulator violation, as examiners make their rounds, many are heading into conservatorship as I write this. Just how many additional banks are on the FDIC's watch list?

So far this year, we have bailed out Bear Stearns for $35 billion, plus IndyMac Bank, CountryWide, Fannie and Freddie.

Many people think that the Fed reducing rates down to 2% would bring down mortgage rates. Actually it is to make banks money. Until the Fannie/Freddie Federal takeover was announced, mortgage rates stayed put under the influence of the 10-year Treasury note yield.

The Fed by reducing their rates, has allowed banks to make some money, but not enough money to keep them all afloat. I expect to see additional bank failures, and a Federal Reserve breakdown showing signs in October and November of this year.

The financial sector collapse will have a major impact on the value of precious metals sector. I expect to see an aggressive boost in precious metal indexes from October through January of 2009.

Click to see the U.S. Treasury published Interest Rates:
http://www.ustreas.gov/offices/domestic-finance/debt-management/interest-rate/yield.shtml

"Growth in the economy in this decade will be the slowest of any decade since the Great Depression, right in the middle of all this financial innovation." stated former Federal Reserve Chairman Paul Volcker at a banking conference in Calgary.

The stock market crash of 1929, and the Great Depression, were preceded by a real estate crash. During that period the Dow Jones lost over 80% of its value. Today, the Dow has lost around 20% since the housing market began to go decline, according to Luke Burgess, Editor of Gold World.

The Bank of International Settlements (BIS) has continued to warn of a possible second Great Depression.

The Bank for International Settlements, the organization that fosters cooperation between central banks, has warned that the credit crisis could lead world economies into a crash on a scale not seen since the 1930s.

In its latest quarterly report, the body points out that the Great Depression of the 1930s was not foreseen and that commentators on the financial turmoil, instigated by the U.S. sub-prime mortgage crisis, may not have grasped the level of exposure that lies at its heart.

Worldwide home sales have declined. Whole towns in Spain look like ghost towns, real estate brokers say prices in China are down from peaks reached earlier this year, while the number of transactions has plunged.

According to the BIS, "complex credit instruments, a strong appetite for risk, rising levels of household debt and long-term imbalances in the world currency system, all form part of the loose monetarist policy that could result in another Great Depression."

Fannie and Freddie's massive derivatives portfolios can now be hidden from public scrutiny. These trillions of derivatives, which in all likelihood have already failed, can now be white-washed with the able assistance of the US taxpayer.

Remember this, and all other financial bailouts are funded by "Public Debt". The amount that Congress can tax its "Citizens". Now just for the record, Congress has raised the "Public Debt ceiling to $10.615,000,000.000.00 trillion U.S. Dollars.

That increase in the Statutory Limit on the Public Debt can located in Section 3083 of the 694-page Public Housing Bill passed this Summer.

This U.S. bail-out of Fannie-May and Freddie-Mac, will end up costing tax payers much more than $2 billion dollars. Some target $1.5 to $2 trillion U.S. Dollars as a cost target.


In case you may have missed it:

This is without any doubt the single largest financial failure in the history of the World. The derivatives may now become hidden from view, but the inflationary implications will become very evident, very soon.

Congresses increase in the debt ceiling of $800 billion dollars to 10.615 trillion meant that the Treasury Secretary, the Federal Reserve and the Congressional Budget Office knew that they would need more than their stated $25 billion dollars to bail-out the financial sector. What Section 3083 really meant, was that $200 billion to $300 billion was set aside for the future Freddie/Fannie bailout, and that another $500 billion was being set aside for future bail-outs of financial institutions.

The total of $800 billion dollars was the hidden cost of the "Foreclosure Prevention Act of 2008". It was passed by a 72-to-13 vote and signed into law by the President.

But what about those complex debt instruments? Debentures, derivatives, credit insurance, credit-default swaps, and deferred notes being held by Freddie and Fannie partners and some of Wall Street's largest institutions? They may not all be settled until 2011.

According to Bank of America strategist, Glen Taksler, who cautions "A failure to make coupon payments on Freddie or Freddie bonds, might not trigger some swaps contracts until 2011." According to Neil Soss, Chief Economist at Credit Suisse Group, AG., "A bail-out at Fannie and Freddie isn't as simple as it looks. You have to figure out what to do with the rest of the capital structure that isn't stocks and isn't bonds. And that's a lot of money."

According to covenants in the bond debentures, payments on debt can be deferred if "capital cushions fall below minimum levels", and payments can also be deferred if one of them falls below 125% percent of so-called critical capital, defined as half the minimum capital, required by regulators, and if the Treasury buys the debt at Freddie or Fannie's request.

Do you think the derivatives may remain hidden from view forever? I think not. And I think that $2 trillion dollars will be the settlement figure that we are now faced with, since they are now owned by the U.S. taxpayer.

Another ominous problem facing FNM and FRE is a collapse in their pension plans and retirement funds, a growing problem facing many major U.S. corporations at this time.

Retirees and current employees holding FNM/FRE stock will be wiped out. A pension fund collapse of this magnitude may create a public revolt. This alone, may trigger another massive taxpayer bailout ahead.

Last "Monday's initial market reaction to the news that Fannie Mae and Freddie Mac were going to be nationalized would normally push the US$ downward and the prices of gold and commodities upward. However, the dollar subsequently reversed upward and the commodity markets gave back most of their gains." According to Steve Saville.

We think the markets' initial reaction was correct because the nationalization of the two largest GSEs will eventually result in hundreds of billions of additional dollars being borrowed by the U.S. Treasury. In the short-term, it seems that the financial landscape is being dominated by the forced liquidation, on the part of over-leveraged hedge funds, of long positions in commodities and commodity-related equities and U.S. Government invention.

How this was, and is being done is explained in detail by Bank of Montreal's Don Coxe in his weekly web cast of September 06, 2008. He states that this was categorically the most massive Government intervention into the capital markets since the 1930's when Roosevelt closed the banks. He further explains how the Fed, and Treasury in conjunction with the CFTC and the S.E.C. "rigged" the collapse in commodities, and the planned increase in the financials and the U.S. Dollar.

Click here to watch the entire video conference:
http://events.startcast.com/events/199/B0002/code/eventframe.asp

Click here to see the moment of intervention charts:
http://www.golddrivers.com/alt/charts/articles/200809/goldsilvereuro.gif

This liquidation has been more evident in the stocks of commodity producers than in the commodities themselves, and has obviously had a huge impact within the relatively small field of gold and silver producing mining companies.

It was a huge paper short sale, and the blow up of at least one hedgefund called the Ospraie Fund, which found itself over-leveraged during the weakest time of the year for commodities, that sent gold and silver reeling, and the small gold stocks are still falling under the weight of an emotional sell off by retail investors.

The price action suggests that other commodity-focused hedge funds will soon have to follow the lead of the Ospraie fund, and shut themselves down.



Should we buy into the gold market right now?
Many analysts are calling for $640 gold while others say the bottom must be near.

Gold bullion is holding near an 11-Month Low, now near the $750/oz dollar range and continues to diverge from the Euro. However, the major gold stocks are being hammered due to the exodus of over-leveraged hedge funds.

The plunge in the gold sector over the past five trading days has been unrelenting. with today’s spot price reaching at $742.oz. $720 and $675 are major support levels for gold. The HUI index is trying to hold yesterday's low at 255 and rally from that point. The HUI is now break-even, outperforming gold which is down just $5.

Demand for physical gold and silver is soaring to levels not seen in decades. Global mine production in gold has been in decline for the last 10 years. The fundamentals for gold is pointing towards $2000/oz within a year. Silver is pointing to almost $30 per ounce within a year.

Gold demand already exceeds supply by a 1,000 tonnes a year, and this will only increase further by a current decline in gold supply and the growing increase in gold demand as well. As an example, Abu Dhabi just reported record high gold sales not seen in 30 years, with sales of gold and jewelry surged 300%.

Click to view the $HUI Gold Miners Index chart:
http://stockcharts.com/h-sc/ui?s=$HUI&p=D&yr=0&mn=8&dy=0&id=p06475580727&a=112138636&listNum=3

Further HUI rises will bolster the case for a potential rebound in gold over the next two days and perhaps, a larger rise sometime the following week. Silver dropped from $18 to $10.44 (down 42%) in just the past six weeks at the same time physical shortages and delivery delays occur worldwide.

History shows a strong correlation between the price of gold and oil. One ounce of gold typically used to buy 16 barrels of oil, but today, this ratio has dropped to extreme low levels below 8. From an historic perspective (gold vs oil) gold should be trading above $1500 levels.

Click here to view the ratio of gold to oil:
https://www.golddrivers.com/alt/charts/articles/200809/GOLDOILRATIO.gif


I see this time period as an opportunity to carefully invest in a position in the (Precious Metals) sector, and the (Natural Gas), (Coal) and (Heating Oil - Distillate stockpile) sectors.

I suggest that you watch these market sectors very carefully over the next few days and weeks ahead into the first 10 days of October. In this market, anything is possible. Remember, this is an "election year".

Is this the bottom of the precious metals sector? Or is there another one just ahead. Stay tuned and my very best of good luck to you in your investments.

Many veteran analysts such as Richard Russell and John Hathaway refer to this period of the cycle in their study of the Dow/Gold ratio. Indeed history does suggest that the DOW/GOLD ratio bottoms periodically in the 1 - 5 range.

The DOW/GOLD chart is a powerful tool in order to determine major turnarounds. The Dow/Gold ratio topped in 2000, far above 40 and is heading down now (current reading at 13.8). If the DOW/GOLD ratio can live up to its expectations, then we can expect a new DOW/GOLD bottom shortly.

Click here to view the DOW Gold ratio chart:
https://www.golddrivers.com/alt/charts/articles/200809/DOWGOLDRATIO.gif


For your reference, I have listed ten Precious Metal ETF's (Exchange Traded Funds), and ETNs (Exchange Traded Notes) and others, below:

Gold ETF (GLD) and (GLD.TO)
Central Fund of Canada (CEF)
Silver ETF (SLV)
Market Vectors Gold Miner's ETF (GDX)
Gold Long ETF (DGP)
Van Eck International Investors Gold Fund (INIVX)
Fidelity Select Gold Fund (FSAGX)
Jim Roger's Index Funds (Metal RJZ)
Canadians can also buy gold on the Toronto exchange under (IGT.TO)
Deutsche Bank Gold Double Long ETN (DGP)

Market Vectors-Coal ETF (CDNX: KOL.V)
Market Vectors Russia ETF Trust (RSX)
United States Natural Gas (AMEX:UNG)



Economics:
"Economics" is the formal term for what has been termed the "dismal science".

"Economics" is a term that dates back to the 17th century in England. The term draws on its ancient Greek roots: "oikos", meaning "house", and "nomos", meaning "law and custom," though, at its root it means "pasture", a place subject to regulation by law and/or custom. Thus, "economics" means "the way the house works", or at least is supposed to work.

Is the house broken? I believe it is, and so is the "currency" and the laws that it is based on.

The current U.S. economy is based on the currency of the U.S. Dollar, and its perceived value.

Earlier this year, at the Economic Club of New York, former Fed chairman Paul Volcker said: "Let me remind you that the dollar after all, is a fiat (fake) currency backed only by the word and policies of our government, policies exemplified by an independent Central Bank committed to maintaining price stability."


Is the U.S. Dollar stable? Is it a good investment?

It would appear not. On Monday, Sept. 8th, Russia's Central Bank has cut its holdings of U.S. debt to less than $60 billion this year and may reduce them further." said its first Deputy Chairman, Alexei Ulyukayev.


Will the massive financial bailouts push the U.S. into Depression?

"The end result of the global economic slowdown may be the U.S. announcing National bankruptcy, as the Government cannot afford the bailouts that it promised and the market will not bail out the Government." said Martin Hennecke, senior manager of private clients at Tyche.

The credit crisis is the "mother of all crises"and the modern financial system and has failed the test of the market-place." according to Mr. Volcker. But remember, this is an election year! Expect the market to begin to rally up to the election, filled with cautionary news.


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