By: John Mackenzie | Tue, Jun 28, 2005
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China's National Oil Operating Company (CNOOC) $19 Billion CASH (Dollars) bid for California based Unocal has markedly upped the pot bellied poker stakes. Geopolitically, this is an enormous test of our solvency and willingness to actually return something for all this money for nothing we convey towards the Globe as ringleader in the Fiat Currency Experiment, better known as Breton Woods II.

This latest attempted acquisition is well beyond anything PC's and Vacuum Cleaners.

Politically, we can expect to hear the time honored 'National Security Issue' tossed about over the bid in addition to a growing, but pathetic u-turn over textiles at the World trade Organization.

The WTO is the same body which tiered tariffs favoring finished goods over intermediates. For manufacturers, it was a no-brainer. ZERO tariffs on finished goods versus prohibitively high tariffs on intermediate source materials. Fleece Street is only too pleased to be earning their keep bidding for 'Financial Services' with the Chinese; both Morgan's (JP & Stanley) and Goldman Sachs are openly pondering a bidder war with Exxon Mobil.

The ultimate Weapon of Financial Mass Destruction is in play.

Be bought or be sold.

CNOOC wants Unocal, we prefer the Chinese keep all those IOU's we've been sharing with them for many years.

If they are rebuffed, there remains an increasingly high probability many of the Dollars they are presently holding will go shopping for 'other' hard assets and factors of production.

Something to consider, as we advance into the unwinding before us for the remainder of 2005 and Q's 1 & 2 of 2006, it is evident our financiers want to convert worthless Fiat Currency for tangible factors of production for everything from energy to technology.

The Gold shares remain at risk in the short term.

I remain unimpressed by the recent advance in Gold Shares.

GOLD, on the other hand looks very good and in the Short term should retrace some of the recent gains before beginning a powerful journey for the remainder of 2005.

Interest Rates, Crude Oil and Hyper-Liquefaction remain the key variables.

The time honored GOLD : Dollar relationship is, for all intents and purposes, fading quietly into the dustbin of analytical metrics so vaunted, by so many. The reality is quite different of course, but if it is possible to convince people it is important, it will hold importance until it will not. GOLD is money, it is a Currency and it had been legitimized in all Major Fiat Currencies.

Figure 001: NEM Daily

Figure 002: NEM Weekly

Figure 003: NEM Monthly

Newmont is trying to resolve to the upside and has filled the gap above on the daily chart from late April.

It is interesting to note, although not visible on these charts, NEM has a gap below in the 33's.

This is precisely where the SMA's on both the weekly and monthly charts line up for a back test. The daily's MACD is getting dangerously overbought, leaving NEM open for a sharp and sudden drop after making a try for 42.50, we may have seen that attempt last week.

The charts above are congruent and not in conflict, they support one another, but what they do not show is this... the strong move upward in Gold Shares IS NOT SUGGESTED ANYWHERE.

I will reiterate the bottom for gold the HUI & XAU are in with a very high degree of probability.

This does not mean there are not going to be more trials and tribulations ahead in the very short term, and after observing the past six weeks price action, I made the decision to lock in profits and stand aside while the crooks on Fleece Street are at play.

Over the years it become an insult to be robbed, I make every effort to move aside and into safety when I see these setups occur and am not giving my clients hard earned money over to a bunch of crooks every again, much less my own if I can avoid.

Figure 004: AU / Euro

Figure 005: AU / Yen

Figure 006: AU / Swiss Franc

Figure 007: AU/ West Texas Intermediate

Figure 008: AU / CRX (Morgan Stanley Commodity Index)

Figures 004 - 006 illustrate the powerful move GOLD has made in Euro's, Yen and Swiss Francs. It is important to note, as it is rarely mentioned, the Swiss citizen's voted to remove the GOLD cover clause (non-redeemable) from their currency making it a purely FIAT currency.

We are approaching a short duration period of consolidation for these currencies. The Price of GOLD has reached 14 year highs and is in need of a minor retracement. This most recent move is very bullish for the metal longer term.

The RSI in each chart is elevated to a point of extremes in each case, in particular the Euro and Swiss Franc.

Figures 007 illustrates that the Crude Oil : Gold ratio is at an extreme as well. Something is going to give there, we have exited the majority of our WTIC Contracts from the 48's and are going to observe the timeframe into mid July before committing another trade in Crude.

Commodities, outside of Crude Oil and as expected, are underperforming the CRX as well as the CRB. We prefer the CRX as it acts far more like an exchange traded fund, many of which have been newly announced over the past four weeks.

These are in play to 'capitalize' upon the move to hard assets or so the story goes. Think back to the GLD launch... you'll know what happens next.

I very much doubt the French are enjoying paying $5.80 for a gallon of gasoline, contrary to the spin, it is an unwelcome situation being pressed hard for profit until it breaks.

Figure 009: $ Daily

Figure 010: $ Weekly

Figure 011: $ Monthly

The Dollar remains in a Fantasyland, pure and simple.

Never has so much remained at stake with respect to one Currency.

As the Globe's Reserve Currency, far too many nations have been left holding our 'Debt Bag,' while we fully enjoyed the privilege of seniorage.

Technically, we have a Bullish Cross on the Daily Chart in Figure 009. This chart suggests a period of consolidation is perhaps close to an end or within a few weeks of ending.

Figure 010 is downright creepy, suggesting a horrific plunge could be in the offing come July - August.

We shall see... the Community of Speculators has been destroyed and much of the $1.4 Trillion short bet against the Dollar has been beaten back. I doubt very much Warren Buffet was openly and honestly telegraphing his positions as publicly suggested. Any noise about Berkshire's Forex losses, are simply that, more accounting gimmicks.

Warren Buffet and Berkshire are not that dumb. Not a chance, this is a well designed ruse for those who enjoy a dose of 'High Drama' to go along with their World views. The claimed $327 million losses are most likely from another corner of the Berkshire Portfolio as buffet is rumored to have been a large buyer of Dollars at precisely the time the media was touting his Short position.

It is important to remember, in the 'Financial Economy,' everything paper is fair game.

Figure 012: XAU Daily

Figure 013: XAU Weekly

Figure 014: XAU Monthly

Figure 015: HUI Daily

Figure 016: HUI Weekly

Figure 017: HUI Monthly

In Figures 012 - 017 we see precisely the same setup and divergences between the Daily. Weekly and Monthly charts illustrated within Figures 001 - 011.

Why? There is a very simple answer to this and it is as old as Wall Street itself. It breeds opportunity for the Plutocrats. They adore money and profit. We are expendable in every instance and there are far too many of us. Please listen to Financial Sense's 2nd Hour broadcast this past weekend. Andrew McKillop discusses 'The Final Energy Crisis' and it's ramifications for us all. I listened to it last night after having discussed it Peak Oil and the ramifications with Jim earlier last week and was impressed with the result, a welcome Listen.

Confusion & Delay, followed by the Great Unwinding of DEBT Ball of Twine

Optimistic media hype as the Organization for Economic Cooperation and Development (OECD), the representative body of the richest 26 countries in the world, announced that it is sharply reducing its forecasts for every leading economy.

In addition, The OECD forecast the U.S. Current Account Deficit would continue to rise, reaching ~ $900 billion or closing in on 7% of United States GDP in 2006. In other words, the mountainous DEBT will continue to be piled higher and higher until it collapses in a dung heap that topples the 26 leading economies and everyone else as well.

It is of extreme importance you understand GDP is not as stated, it is the greatest fraud every passed on by our Government. Our Debt presently consumes ~ 17% of non-Financial GDP and it is going to move far higher in percentage terms.

Fundamentally, it is the 'Laws of Large Numbers at play.

The OECD essentially is vocalizing this. The Debts are extreme and the leverage employed in the speculative Financial Economies risks a Financial 'Accident.'

More of the same, albeit far less amorphous than the recent round of CFR Fabians finger pointing; World Trade growth is projected to slow to 7.4% from 9.4% in 2004 with Japan and Europe performing far fewer acts of levitation with respect to their Financial Economies.

Rising Interest Rates
Falling Real Estate prices
Slowing Consumer Spending
Falling Real Wage Rates
Rapidly Expanding Current Account Deficits
Wildly increasing Federal Deficits
Unemployment Rates grossly understated
Rapid Debasement of Currency
Scarcity of Vital Resources
Geo-Political Tensions
Invasion of Life, Liberty and the pursuit of Property

Welcome to the New World Order, whereby all of the above are implying an accident just around the bend, just lovely. I laid out the timeline several years in advance and it's performing as expected. 2005 will be a continual decline while 2006 will mark the awareness of the 'Greatest Depression.' Please protect yourself; this is going to be Horrific as we move forward. I cannot stress the importance of thinking years ahead right now. This runs counter to the cultural grains we, as Americans, have embedded, but is vital at this time.


Author: John Mackenzie

John Mackenzie

John Mackenzie manages private capital.

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