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The Radical Press; China; Ahead of the CurveWarren Pollock Last evening I was going to present to you a Dow chart illustrating the fact that it was close to a breakout. Technically, the resistance lines that we previously highlighted were breached to the upside, and the short chart was sporting a bullish inverse head and shoulders. Who would have thought that overnight we would have a new round of London bombings, a Chinese currency revaluation, and Federal Reserve chairman Greenie throwing spanners into the wheels of irrational exuberance.
I was going to suggest that the ensuing rally would be weak, and that it would set the stage for the major downward move we have been forecasting for August or September (or October). Now, let's wait and see. At the time of this writing, Alan Greenspan stopped talking and the market went from red (down) to green. After editing the Dow closed down 61 points. ANTIOXIDANTS AND FREE RADICALS I have been told a number of times that this newsletter has radical views. If that is true at all, then they are radical only in comparison to an American press that has lost its freedom and vibrancy. The New York Times, the Washington Post, the Wall Street Journal and the Christian Science Monitor are a joke. Quality sources of information on television are marginalized, Bill Moyers providing us with an example. Seeing what has happened to his peers, Charlie Rose has become risk-averse. For now, Rupert Murdoch, Matt Drudge and Karl Rove provide to us the majority voice, the measure of being mainstream. It used to be said that it is the victor who gets to write the history books. It did not occur to me that the propagandist sculpts the present. If you are looking for the real radicals, those with heinous and harmful objectives, look to the propagandists. THE CHINESE MOVE THE CURRENCY PEG In a surprise move yesterday, Chinese central bankers moved the currency peg between the USD and the RMB "with a view to establish and improve the socialist market economic system." The Chinese have a command economy, measured and pragmatic. The announcement and move was largely symbolic. In many cases symbolism has more efficacy, impact and power than substance. This move comes at the heels of Whirlpool outbidding the Chinese Haier group for Maytag, and Chevron's overtaking of CNOOC's bid for Unocal. Mysteriously, House lawmakers canceled their hearings on the CNOOC bid. The Chinese know that sometimes you can defeat an enemy by giving him what he wants. American politicos call for direct and self-destructive action against the specter of future Chinese dominance. The Chinese use this stupidity to advantage. US Treasuries are now less attractive, which could cause the entire yield curve to rise. The move will be bad for US retail sales, individual purchasing power, the housing market, service jobs, and profit margins. The Chinese do not protect (and are not going to protect) intellectual property, which is an important source of American and European service income. Harry Potter and the Half Blood Prince has **two publishers: firstly Scholastic, and secondly Servius Snape & the Chinese Black Market Press. **[actually three, as the UK publisher is Bloomsbury] With this move, commodities will be under pressure, including oil. Nobody seems to realize that the US imports oil from China! Every piece of plastic, every manufactured good sourced from China, has an energy input. LONDON BOMBINGS, PART TWO Jeremy's suggestion to me that the London bombers of 7/7 did not know they were on suicide missions was confirmed by a Stratfor intelligence report. The first attack, and yesterday's too, had limited collateral impact. These attacks are political, designed to lock down freedom and so harm international commerce and connectivity. Our "radical" assertions will prove factual. BANK OF NEW YORK AND SETTLEMENT FAILS; TIC REPORT This newsletter was widely quoted when it identified a pattern to Treasury settlement fails that suggested all was not well in the US overnight lending system. Recently we had a small spike in settlement fails that was misinterpreted. The recent spike was a direct result of a short squeeze in the lending of Treasury securities. The short squeeze became a profit center for the Bank of New York's security lending business. If this squeeze was organic, in that it arose because of market circumstance, then no impropriety would exist. Interest rates spreads are in a "conundrum" so the settlement system might be erratic. The spike was not at the same level of magnitude as previous fatalities in clearing. If this squeeze was a construct to generate profits, then we might have an instance where a bank would be manipulating the settlement system to everyone's detriment. Alas, with recent losses against his name and no political capital to be made, Elliott Spitzer has been laying low. He will pop out into the forefront again, but he won't be looking at settlement fails. We were also a leader in covering the TIC report. When looking at that report, we have to remember that interpretation of it may no longer be straightforward. Bear market analysts may not realize that the American Jobs Creation Act of 2004 (which we described as a capital control) has been busy repatriating billions of dollars. IBM expected to bring back $9 billion because of it, which will be good for capital flows, the federal deficit, and the taxman's coffers. Benchmarks like the Dow are routinely sculpted to the desired effect. Revision-rich, the TIC report and the CRB are now subject to the same kind of sculpting. Dan Norcini is the only person I know who has the diligence and dedication to analyze the TIC report properly. REFERENCES http://www.lewrockwell.com/north/north282.html http://www.safehaven.com/article-2141.htm http://www.gold-eagle.com/editorials_04/norcini091104.html http://www.libertypost.org/cgi-bin/readart.cgi?ArtNum=52855 IN CLOSING I have been busy watching Alan Greenspan in his testimony to Congress. Nothing new here. Everyone knows that the spread between GSE asset-backed securities and Treasuries falsely assumes a government guarantee. Nobody believes that inverted yield curves are a good thing. I noticed that Greenspan and Charles Schumer kissed and made up over their row about forcing the Chinese to remove the currency peg. Could it be that in 2008, Schumer and Governor Pataki will be on opposite sides of a presidential run? Re: Chairman's Corner - Tanrange Exploration Thursday, July 21, 2005 China's Floating of Yuan
Good For Gold Dear Friends, Today the Chinese opted to float the Yuan within a specific range against a basket of currencies, effectively breaking its tie solely with the US dollar. The Chinese have not yet disclosed the constituent items and percentages of those items in the basket of currencies which the Yuan will float against. This is an undeniable move away from the US dollar and will impact the thinking of those central banks who have already or are preparing to diversify out of complete reliance on the US dollar as a reserve currency. This is what gave the markets the smell of a bottom in gold and a top in the dollar yesterday. The most important implication of this move is that it reduces the need for China to purchase US Treasuries in the amounts accumulated in the past. We will be able to evaluate this development more precisely as soon as we know the percentages of the constituents in the currency basket. This is bad news for the TIC Report so it is a weakening dollar value constituents item. This makes US Federal borrowing more difficult, turning it back toward the inland credit markets, forcing rates higher on the intermediate range US bonds. That is presently and incorrectly considered dollar positive. I conclude that the move by China is therefore presently neutral for the dollar but in a short time it will be recognized as negative. Prior to this important event, the spin had many convinced everything was dollar positive. Now that has changed to neutral. Therefore I see this strengthening the recent lows for the gold price in this reaction. At the same time, the recent highs of the US dollar now become more significant as resistance and will be viewed as a probable top range should it be revisited. My bottom line is that gold will trade to $480 then $518 to $529. The dollar will return in time to the .8050 level and much lower levels thereafter. Respectfully, Jim Sinclair Editor [Macroeconomic Newsletter]: Well the USDX is not at all weighted to Asian currencies, it might not budge as much as Jim expects. PUBLIC ANNOUNCEMENT OF THE PEOPLE'S BANK OF CHINA July 21, 2005 1 The People's Bank of China will announce the closing price of a foreign currency such as the US dollar traded against the RMB in the inter-bank foreign exchange market after the closing of the market on each working day, and will make it the central parity for the trading against the RMB on the following working day. 1 The exchange rate of the US dollar against the RMB will be adjusted to 8.11 yuan per US dollar at the time of 19:00 hours of July 21, 2005. The foreign exchange designated banks may since adjust quotations of foreign currencies to their customers. 1 The daily trading price of
the US dollar against the RMB in the inter-bank foreign exchange
market will continue to be allowed to float within a band of
0.3 percent around the central parity published by the People's
Bank of China, while the trading prices of the non-US dollar
currencies against the RMB will be allowed to move within a certain
band announced by the People's Bank of China. July 21, 2005
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