Investors are worried. The big question – as always – is whether the primary uptrend remains intact.

And the answer is yes.

To understand just what that target should be, let’s take a look at where we are right now.

Just before Wednesday’s sell-off, measures of the supply of stocks moved to new lows, while demand moved to new highs. This means bull-market-trading rules remain in effect. But as the cyclical bull market matures a little, we need to change the target of our buying efforts.

Although it looked like losses would be cut in the early afternoon, a lack of demand resulted in the major U.S. indices settling gently at support near the high end of the August trading range. The Dow Jones Industrial Average lost 0.4%, the Standard & Poor’s 500 Index lost 0.6%, the Nasdaq Composite Index lost 0.8%, and the Russell 2000 lost 0.5%.

All the major sector groups save healthcare finished in the red. The declines were the most severe among industrial conglomerates. The Industrials Select SPDR (NYSE: XLI) lost 1.4% thanks to a 2.5% fall in Textron Inc. (NYSE: TXT). Bank stocks were also weak as Bank of America Corp. (NYSE: BAC) dropped 2.2%. Defensive healthcare and utilities stocks were relatively buoyant with a gain of 0.1% for the Healthcare SPDR (NYSE: XLV) and just a 0.3% loss for the Utilities SPDR (NYSE: XLU).

Homebuilders were under some heavy selling pressure over the past week, likely the consequence of the U.S. Federal Reserve’s decision to slow its purchases of mortgages. By spending $1.45 trillion, the Fed kept the difference between mortgage rates and the yield on U.S. Treasury debt very low.

Now, as these purchases taper off, mortgage rates will creep higher and erode some of the awesome affordability levels that are driving buyers to take advantage of the government’s first-time homebuyer tax credit and stabilize the housing market. As a result, the iShares U.S. Home Construction ETF (NYSE: ITB) lost 2.7% on Friday and dropped 8.3% last week.

The declines of the past week have been in alignment with our expectation of a short-term correction before equities push on to what should be a more meaningful top near the 1,200 level on the S&P 500. A number of technical indicators, including the percentage of stocks over their 10-day moving average as well as breadth and volume measures, had begun to deteriorate after having moved well into overbought territory the prior two weeks.

We aim to run our portfolios for long-term holds during bull markets, so although we warned of weakness ahead we did not expect it to be serious enough to merit exiting positions. Still don’t.

The big question – always – is whether the primary uptrend remains intact. And the answer is yes. Just before Wednesday’s sell-off, measures of the supply of stocks moved to new lows, while demand moved to new highs. This means bull-market-trading rules remain in effect. But as the cyclical bull market matures a little, we need to change the target of our buying efforts.

However dramatic the action of the past few days has been, it is a sign that some normalcy is returning to the equity markets. Moving forward, it is unlikely we will see long strings of uninterrupted up days, super-strong performance in the lowest quality stocks, and high correlations between stocks. In the final push to the stimulus- and recovery-Fed reaction high that we will likely see over the next three months or so, the emphasis may shift to fundamental analysis and quality.

As you can see in the chart above, stock-performance correlations tend to spike during times of economic stress. When investors enter panic mode and analyst estimates become much less accurate, the focus shifts from individual assets to asset classes and broad sectors of the economy. In other words, when all hell breaks loose investors don’t differentiate between great companies and good companies – they throw them all out.

Once this unease subsides and economic volatility wanes, fundamental analysis once again becomes the most important driver of investment performance.  And that’s okay, because there will be plenty of opportunities as investors shift their focus from stocks that were priced for Armageddon to stocks that are poised to benefit from renewed economic expansion.

The foundations for the transition are already being laid: UBS AG (NYSE: UBS) analyst Jeffrey Palma notes that after nearly a year of downward revisions to earnings, analysts are starting to upgrade their forecasts for 2010. Estimate rebounds are largest in the cyclical materials and retail sectors. Breaking it down by region, the most promising opportunities are in commodity-related stocks in the United States, consumer stocks in Europe, and British banks.

We have recommended SPDR Metals & Mining (NYSE: XME) in our Strategic Advantage service as a great vehicle to play this trend, even though it stumbled last week. Another good one is iShares Australia (NYSE: EWA). Check out our newsletter for a much-expanded list of recommendations.

The Week in Review

Monday: The index of leading indicators jumped 0.6% in August after a 0.9% jump in July and a 0.8% jump in June. The indicators’ August performance represented the fifth consecutive monthly increase. Moreover, the 4.7% increase during these five months was the strongest showing since early 1983, which marked the beginning of one of history’s greatest bull markets.

Tuesday: Home prices backed by Fannie Mae or Freddie Mac jumped 0.3% in July. There were also indications that retail sales plummeted in the week following the Labor Day Back-to-School blitz.

Wednesday: The Federal Reserve announced it would leave interest rates unchanged. Stocks initially bounded higher before abruptly shifting direction and screaming lower. The bulls gunned the Dow Industrial Average close to the 10,000 level before things fell apart. At issue wasn’t the Fed’s target policy rate, which affects short-term interest rates. Instead, traders were apparently concerned that Fed chairman Ben Bernanke and his cohorts failed to expand its direct purchases of mortgages and government debt. This will likely result in higher long-term rates.

Credit markets, though, didn’t care, and carried on with their bull market run. Crude oil fell 4.8% to $68.33, its largest percentage loss since July on a surprise increase in inventories.

Thursday: Some momentum was lost in the housing market after weak existing homes sales numbers put an end for four straight months of gains. Sales last month came in at a million seasonality adjusted annual rate of 5.1 million — a 2.7% drop from July. We continue to see an emphasis on foreclosures with distressed sales making up 31% of total sales. The highlight: Supply of homes fell to just 8.5 months of sales, a level that is believed to reflect a balanced market. There are, however, the issues surrounding a “shadow” inventory of homes waiting for foreclosure proceedings to complete or the slightest whiff of a recovery before being listed.

Friday: The G20 wrapped up its meeting in Pittsburgh with a commitment to tighter regulation of the financial system and system to subject each country’s economic policy to a type of peer review to try to avoid the types of global imbalances — China’s export obsession and America’s credit binge — don’t happen in the future. While the latter can only be enforced by a public shaming by other countries and the International Monetary Fund, it lacks an actual penalty. But it’s a good first step.

Consumer sentiment, as measured by the University of Michigan, improved to its highest level since early 2008 after rising by nearly one-third since late last year. According to Haver Analytics, over the last 10 years there has been a 69% correlation between sentiment and growth in consumer spending.
Unfortunately, the good news didn’t extend to durable goods orders in August: There was an unexpected decline that reversed half of July’s 4.8% gain. A drop in orders for transportation equipment was fingered as the main culprit. However, this metric is quite volatility and the overall trend still points towards a rebound in the manufacturing sector.

The Week Ahead

Monday: A quiet calendar with no economic releases.

Tuesday: The latest on nationwide home prices courtesy of the excellent Case-Shiller Home Price Index. Also, we get another update on consumer confidence.

Wednesday: The government makes its final revisions to second-quarter GDP. The last revision made no change to the initial estimate of a 1% decline. In the first quarter, GDP plummeted 6.4%. Traders will be looking for indications that inventories have dropped and demand is increasing ahead of a projected inventory rebuild in the months ahead. We will also get an update on the health of the manufacturing base in the latest ISM – Chicago Business Barometer.

Wednesday will also mark the end of the third quarter.

Thursday: A busy day with an update on auto sales, personal income and spending, the latest ISM Manufacturing Index, and construction spending.

Friday: The September jobs report is expected to show a loss of 170,000 jobs compared to the 216,000 that were lost in August and a 463,000 decline in June. The unemployment rate, currently at 9.7%, will move closer to 10%. Also, we get an update on factory orders.
In summary, the start of the fourth quarter is on the horizon. We expect it to be a plus for investors, though not without growth and geopolitical scares that create S-turns and potholes. Stay positive amid the turbulence as long as corporate credit markets remain strong and the primary trend is up.

Source: Long-Term Stock-Market Uptrend to Continue

After slashing its forecast for the region in March, the ADB reversed course in its updated Asian Development Outlook (ADO) 2009. The bank said developing economies in Asia would grow by 3.9% this year, up from its previous forecast of 3.4%.

“Despite worsening conditions in the global economic environment, developing Asia is poised to lead the recovery from the worldwide slowdown,” said ADB Chief Economist Jong-Wha Lee.

However, the growth will not be evenly distributed. Economic growth in East Asia will be driven largely by China’s dynamic economy. But economic growth in Southeast Asia will be sluggish, because the recoveries of Vietnam and Indonesia will not be enough to offset weakness in Malaysia, Thailand and Cambodia.

ADB boosted its outlook for annual economic growth in China to 8.2% from 7% earlier this year, and the bank believes China’s economic expansion will accelerate to 8.9% next year. That will help push economic growth in East Asia to an annual rate of 4.4%, compared to 0.1% growth in Southeast Asia.

ADB had underestimated China’s resilience in March when it predicted just 3.6% growth for East Asia.

“In the People’s Republic of China, aggressive monetary easing and the massive fiscal stimulus package rolled out by the government bolstered the region’s largest economy, which is now expected to grow by 8.2% in 2009 and 8.9% in 2010, up from the March forecast of 7% and 8% respectively,” said ADB.

Indeed, the potency of China’s $587 billion (4 trillion yuan) stimulus plan caught many analysts off guard.  Two of the world’s key global institutions – the World Bank and the Organization for Economic Cooperation and Development (OECD) – and a large swath of investment banks were forced to raise their 2009 and 2010 growth estimates for China’s economy after the country announced second-quarter gross domestic product (GDP) growth of 7.9%.

The OECD said it now expects China’s economy to grow by 7.7% this year and the World Bank boosted its projection to 7.2% growth.  GDP will expand by 9.3% in 2010, according to OECD estimates.

BNP Paribas SA (OTC: BNPQY), Barclays Capital, Goldman Sachs Group Inc. (NYSE: GS), JPMorgan Chase & Co. (NYSE: JPM), UBS AG (NYSE: UBS), Morgan Stanley (MS), Standard Chartered Bank, and RBC Capital Markets all raised their forecasts for China’s economy as well.

China’s stimulus package gave the economy a big kick in the first half of the year, spurring bank lending and driving fixed asset investment. It even stimulated the oft-maligned Chinese consumer, boosting domestic demand while the market for exports remained dormant.

Chinese banks lent about $1.08 trillion (7.37 trillion yuan) in the first half of the year, nearly double the total loans extended throughout all of 2008.

Fixed-asset investment rose 33.5% in the first half year to $1.34 trillion (9.132 trillion yuan), according to the National Bureau of Statistics (NBS). Investment in infrastructure rose 57.4% year-over-year, with spending on railways up 126.5% and highway spending up 54.7%. Property sales were up 53% in the first six months from a year earlier.

Of course, fixed-asset investment has been consistently strong in China for the past decade. The real turnaround in the past six months has been that the frugal Chinese consumer has begun to spend more liberally.

China’s retail sales in the first half of the year rose 15% to $859.6 billion (5.87 trillion yuan).

Still, the ADB did warn Asian countries that their strong recovery is still uncertain and said they should continue to carry out stimulus measures until Western countries catch up.

“The improved regional outlook should not make developing Asian economies complacent,” said Lee. “A protracted global slowdown or the hasty withdrawal of stimulus packages can degrade the region’s ongoing recovery.”

Source: Asian Economies to ‘Lead the Recovery,’ Says ADB

Motorola’s stock is up nearly 12% since the announcement, as investors are hoping the new phone will be enough to win back some of the company’s lost market share.

However, saving Motorola’s mobile division – which the company plans to spin off – is a daunting task. The company – which invented the cell phone, as well as a plethora of other communication devices used by police and military – has seen its global market share of wireless phones fall to 2% in its second quarter this year from 31% in 1995. Mobile phone sales accounted for 33% of Motorola’s second-quarter revenue, down from 41% a year ago.

Motorola had enjoyed some success in 2004 when it released its popular Razr clamshell-style phone, which was viewed as a fashionable and useful high-tech gadget. During its four-year run, more than 110 million Razrs were sold.

However, Motorola failed to respond to innovation in the mobile phone market that was pioneered by its fiercest competitors. Apple and RIMM have whittled away at Motorola’s market share over the past five years.

With the Cliq, Motorola is trying to separate from the competition by angling its device toward a younger, less professional base. The Cliq’s biggest draw will be its quick access to social networking content from Facebook Inc., Twitter Inc. and News Corp.’s (NYSE: NWS) MySpace.

“Our initial take is favorable, and it seems that Motorola is carving out a niche in the crowded smartphone market by focusing on socially minded demographics as opposed to enterprise users or pro-sumers,” RBC Capital Markets Corp. analyst Mark Sue told Reuters. Sue upped his share target for Motorola from $8 to $10 a share.

Aside from that distinction, the Cliq includes features typically found in most any smartphone: A touch screen, slide-out keyboard, and access to an application store. It runs on Google Inc.’s (Nasdaq: GOOG) Android mobile operating system, already found on two other T-Mobile Phones.

However, if Motorola’s Android-based phones are going to take off, they’ll need bigger wireless carriers. The phones currently function on Deutsche Telecom AG’s (NYSE ADR: DT) T-Mobile USA Inc. network. But with just 34 million users, T-Mobile is the fourth-largest carrier in the United States.

For that reason, a second Android phone will be offered for Verizon Communications Inc.’s (NYSE: VZ) mobile network, which is nearly three times as large. Verizon Wireless has about 88 million subscribers and is the largest carrier in the United States.

Wall Street may be underestimating the boost in profit Motorola will get from its smartphone line in 2010, UBS AG (NYSE: UBS) analyst Maynard Um said in a note to investors. Um has upgraded the communications firm’s stock to “buy” from “neutral.” Um attributed the upgrade to the expected holiday release of the Cliq, as well as additional deals with mobile carriers in the fourth quarter.

Pricing for the Cliq was not announced, but Um anticipates recession-friendly pricing.

“We do not expect new competitor handset announcements to have a materially negative sentiment impact on Motorola, as the company is not defending share, likely only has share upside, and is likely to be an aggressor on price,” he wrote.

A sizeable boost in profit could come from the Android phones’ access to the Android Market, Google’s application store. Apple’s App Store for its iPhone and iPod Touch devices have proven to be a boon for the company, with more than 1.8 billion paid and free apps downloaded since its debut in July 2008. While many of the apps, such as those from The New York Times are free, they present consumers a strong value proposition when buying a smartphone.

However, Apple’s App Store has more than 75,000 applications available, while Google’s Android Market offers just 10,000 apps.

Motorola will add more Android-based phones next year, Chief Executive Officer Sanjay Jha said at a conference last week in San Francisco, and Avian Securities LLC analyst Matt Thornton expects Android phones to represent 30% of the total handsets it sells in 2010, Bloomberg News reported.

“It’s the first step in a long journey,” said Jha, who insists the Cliq will not make or break his company.

In March 2008, Motorola to split its core business from its mobile division after pressure from billionaire investor Carl Ichan mounted. At the time, analysts said the split would put the company in a better position to sell assets or negotiate a joint venture.

A week later, Videocon Industries Ltd., the largest electronics maker in India, said it was interested in buying Motorola’s mobile business. However, neither a sale nor split of Motorola has happened.

Motorola shares closed at $8.79 in trading yesterday (Monday), up 11 cents or 1.27%.

Source: Hot Stocks: Motorola Throws Hat Into Smartphone Ring

In a report to be released this week, the Obama administration will boost its 10-year projection for the federal budget deficit to about $9 trillion – an increase of roughly $2 trillion, or 29%, from its prior projection, Fox News reported over the weekend, citing a source from the Office of Management and Budget (OMB).

The new cumulative deficit projection – for 2010-2019 – replaces the administration’s previous estimate of $7.108 trillion. Changes in budget projections – whether they result in a surplus or a deficit – are often refined as economic conditions change. This new projection was necessary because the recession has gone on for so long, causing federal tax receipts to plunge – and because the economic rebound will be prolonged and weak, resulting in lower forecasts for future federal revenue.

Although most of the news media focuses on the Obama administration’s $787 stimulus measure, the fact is that the federal government was pushing forward with nearly $12 trillion in rebound-related financing commitments, Money Morning reported this spring.

The administration earlier this year predicted that unemployment would peak at about 9% without the financial-jump-starting initiatives and 8% with them. But U.S. joblessness zoomed skyward anyway, and stood at 9.4% last month, although many economists now say that a double-digit unemployment rate – one of 10% or more – is easily possible.

The nation’s debt now stands at $11.7 trillion. In the scheme of things, that’s more important than talking about the deficit, which only looks at a one-year slice of bookkeeping and ignores previous debt that is still outstanding.

Back in June, the non-partisan Congressional Budget Office (CBO) predicted that the federal deficit would reach $1.825 trillion this year. The CBO and the Obama administration will tomorrow (Tuesday) separately release new budget-deficit predictions. Last Wednesday, a senior White House official, speaking on the condition of anonymity, told The Associated Press that the administration estimate would reach $1.58 trillion – or triple last year’s deficit.

The report for the budget year that ends Sept. 30 also will predict Washington to spend $3.653 trillion this year, although revenue will reach only $2.074 trillion, the unnamed senior official told The AP.

“Whether it’s $1.6 trillion or $1.8 trillion, it’s pretty bad,” said Robert Bixby, executive director of the bipartisan fiscal watchdog The Concord Coalition, told Fox News. “I hope no one tries to spin that as good news.”

Total U.S. debt has soared to $11.7 trillion (the budget deficit is the “shortfall” in the annual deficit, while the debt is cumulative), having balloned to that level as a result of the multiple annual deficits that have become the norm, it seems.

Market Matters

Just who is the world’s great economic superpower these days?  At times, it seems, “as China goes, so go the world equity markets.”  Early in the week, the Shanghai Composite Index (SSE) suffered its largest percentage decline since late 2008, with the index plunging more than 20% for the month on concerns about the sustainability of China’s recovery.

The global markets watched as the Japan, Europe, and the U.S. indexes followed the SSE downward.  By mid-week, however, all eyes were back on the domestic market as another sell-off in China was overshadowed by signs of growing U.S. economic strength and reports of enhanced energy demand.

The global bailout plans moved into a new stage as the Swiss government relinquished its control over banking giant UBS AG (NYSE: UBS) by selling off its investment for a $1.13 billion profit, or a 30% annualized return.  While the U.S. government has yet to reap similar benefits, several major banks have paid off their Troubled Asset Relief Program (TARP) loans and the CEO for one of the poster children for financial distress, American International Group Inc. (NYSE: AIG), announced that his firm should be able to pay back the government and may even be able to “do something for shareholders as well.”

While many auto dealers complained about the rebate process on the “Cash for Clunkers” program, General Motors Corp. (NYSE:GRM) stepped forward and will begin providing advances to participants who continue to wait for the government to move through its traditional red-tape.

The healthcare debate (and political infighting) raged on (complete with widespread town hall civil disobedience).  Rumors that the government would remove its public-health-plan option sent related health-care stocks soaring early in the week, though the jury remains out as to how this will really play after U.S. President Barack Obama guaranteed approval of an overhaul and then bashed congressional Republicans for their efforts in blocking any plan whatsoever.

On the earnings front, the housing sector received mixed signals as Home Depot Inc. (NYSE: HD) bested expectations, while rival Lowe Companies Inc. (NYSE: LOW) fell short and reduced its outlook. Cost-cutting was widespread among retailers as The TJX Cos. Inc. (NYSE: TJX), The Gap Inc. (NYSE: GPS), and even Target Corp. (NYSE: TGT) benefited from increased margins, though sales remained lackluster at best.

Hewlett-Packard Co. (NYSE: HPQ) struggled in its PC and printer-business segments, though management expects a healthy rebound in its fiscal fourth quarter.

Fixed income benefited from some early “flight-to-quality” trades and a report that showed strong foreign demand for U.S. Treasuries in June (despite ongoing rumors to the contrary).  Stocks fell sharply in sympathy with the China sell-off, though buyers reemerged in a big way on positive signs from the earnings and economic reports.

Likewise, oil prices shook off some early week negativity and surged to 2009 highs, as a surprising plunge in inventory levels revealed growing demand – perhaps to coincide with the beginning of a global economic rebound?  On that note, U.S. Federal Reserve Chairman Ben S. Bernanke’s comments about the prospects for recovery (though slow at first) were extremely well-received as investors seemed to all but forget about following Shanghai and the U.S. markets assumed the leadership role once again.  The major domestic indexes shrugged off the weak start and pushed to new highs for the year.

Market/ Index	Year Close (2008)	Qtr Close (06/30/09)	Previous Week (08/14/09)	Current Week (08/21/09)	YTD Change
Dow Jones Industrial	8,776.39	8,447.00	9,321.40	9,505.96	+8.31%
NASDAQ	1,577.03	1,835.04	1,985.52	2,020.90	+28.15%
S&P 500	903.25	919.32	1,004.09	1,026.13	+13.60%
Russell 2000	499.45	508.28	563.90	581.51	+16.43%
Global Dow	1526.21	1,629.31	1,803.83	1,819.50	+19.22%
Fed Funds	0.25%	0.25%	0.25%	0.25%	0 bps
10 yr Treasury (Yield)	2.24%	3.52%	3.56%	3.56%	+132 bps

Economically Speaking

In addition to the Home Depot and Lowe’s earnings reports, housing news was prevalent during the week and the results were somewhat confusing.  The National Association of Home Builders reported that its Housing Market Index climbed for the second month in a row and reached its highest level in over a year.  Likewise, applications for mortgages increased for the third straight month on declining interest rates.

However, foreclosure rates remain on the rise and, according to the Mortgage Bankers Association, 13.2% of mortgages are delinquent or worse (in foreclosure); in fact, subprime mortgages are no longer the only area of concern as the unsettled labor picture has prompted homeowners with strong credit to fall behind on their prime mortgages as well.

Though housing starts fell in July, the decline was entirely attributable to apartment activity and construction of single-family homes actually rose for the fifth straight month.  Additionally, existing home sales in July surged by more than 7% as buyers took advantage of the misfortunes of others (in foreclosure), though prices continue to fall because of transactions related to these distressed properties.

In non-housing news, separate regional reports from the New York and Philadelphia Feds boosted the outlook for the domestic manufacturing sector and the overall economy.  Wholesale inflation remained benign as the producer price index (PPI) fell by a wider-than-expected 0.9% in July and prices have plummeted over the past 12 months by the largest percentage (6.8%) since records have been kept, dating back to 1947.

Be forewarned: Oil just hit a 2009-high.

U.S. Federal Reserve policymakers met for their annual conference and Fed Chair Bernanke shared a favorable assessment about the recovery process from “the most severe financial crisis since the Great Depression.”  Of course, Bernanke tempered some of his remarks and reiterated that, while the recession seems to be coming to an end, the rebound would likely be slow, with unemployment remaining a concern.

Bernanke also spoke of the need for financial regulatory reform in order to ensure the current financial debacle isn’t repeated.  The Fed also extended its Term Asset-Backed Securities Loan Facility (TALF) lending program in order to help stem the potential “challenges” that remain among commercial mortgage-backed securities.

Weekly Economic Calendar

Source: In the Race for a U.S. Economic Rebound, Growing Debt and Budget Deficits Remain the Biggest Possible Roadblock

Frankly, I’ve written so much about the UBS mess over the last year that I am sick of it…and I’m sick of the greedy, crooked UBS bankers and staff that stupidly thought they could use Swiss bank secrecy laws to cover their illegal tax evasion advice, while running up fat fees for themselves and billions in deposits for UBS.

This thoughtless criminal activity not only added to the instability of UBS – already $50 billion in the hole because of bad investments exposed by the global recession – but their conduct needlessly called into question the admirable privacy policies and bank secrecy laws of the Swiss government.

Asking for it

UBS tarnished not only its own reputation, but also that of a major nation and its people.

But worst of all, what UBS did allowed the tax bullies at the IRS to:

1) smear thousands of honest Americans who bank offshore;
2) attempt to scare away thousands more who could benefit by doing so;
3) pretend to extend U.S. tax law jurisdiction to the entire world;
4) use blatant economic blackmail against not only an errant bank, but against a friendly country that has long been a faithful ally and against its 7.6 million people.

The agreement lifts the threat of U.S. criminal prosecution against UBS, the world’s number two wealth manager by assets.

The IRS was not only willing to risk endangering the bank’s existence, but it could have dealt a major blow to the Swiss and U.S. economies. (UBS has 20,000 American employees).

The Anti-Offshore PR Campaign Rages On

You can expect that the left wing, anti-tax haven crowd will play this as the death, not only of Swiss bank secrecy, but the beginning of the end for all offshore financial centers.

Don’t they Wish!

IRS Commissioner Doug Shulman (left) crowed, “It’s a real sense that the world of bank secrecy is eroding.” According to The Times, “The agreement is likely to unnerve American customers of UBS who do not know if their names will be divulged, and could deter others from opening Swiss accounts in the future.”

On that second point, we hope not. There are still plenty of opportunities to open an offshore account with a sound financial institution…which is – sadly – is not necessarily the case in the United States.

And on the first point, I can speak for the whole of the Sovereign Society when I say that we don’t really care if illegal tax evaders are nervous. They should be.

But we certainly hope that honest, tax paying Americans (and others) who desire real financial privacy, true asset protection and expert investment advice will realize the fact that they still have the right to employ Swiss banks, investment advisors, insurance and annuity specialists – and not be scared away from the very real benefits offered by the world’s leading offshore financial center.

Swiss Banks Still Available

Whether all this will change the Swiss banking industry’s culture of secrecy based on law is doubtful in my opinion. But the IRS has made clear that their pursuit of tax evaders will not stop at UBS.

Some smaller, centuries-old private Swiss banks, however, are stepping up their efforts to attract American money, given the importance of foreign clients to the nation’s financial institutions.

Understand that the Sovereign Society does not condone tax evasion in any form, a point we have made repeatedly in our publications throughout our entire existence.

Of course there is a simple way for you to avoid personal tax troubles – file the proper IRS reports on time and pay your taxes when they’re due, as we have often explained.

We Are Prepared

To tell the truth, we at the Sovereign Society saw this coming a long time ago…

We meet regularly with Swiss and other offshore bankers, and we have agreements with reputable Swiss banks willing to accept new accounts from those who identify themselves as Sovereign Society members.

These arrangements are in full compliance with IRS and SEC rules and other U.S. laws. U.S. clients must sign an IRS Form W-9 that allows an offshore bank to report required information to the IRS.

As it has been since our founding 11 years ago, our staff is available to assist in opening a Swiss or other offshore account. Take advantage of these special Swiss banking arrangements and the advice of our Swiss advisors by visiting our member’s only website today.

We at the Sovereign Society believe that personal and financial privacy is an inherent human right, a requirement for maintaining the human condition with dignity and respect.

In all this ruckus about UBS and the IRS, the basic issues are preservation of our personal freedom and liberty versus complete government control of our lives and our fortunes.

Yours Truly,

Bob Bauman

Good day… And a Wonderful Wednesday to you! I’ve got an interesting thought for you all this morning… I think you’ll want to read what I have to tell you this morning and not just skip to the Big Finish! HA! But first, a review of what happened yesterday and in the overnight markets. Are you ready? Then let’s go!

Well… Yesterday did NOT turn out to be a Turn-Around Tuesday after all… The small rally I saw right before signing off on the Pfennig yesterday, went “poof” and it was gone. The currencies then traded in a tight range the rest of the day. The High Yielders and Commodities have really taken on some water in the past two days.

In the overnight markets, Japanese yen was the only currency other than the dollar to gain. We’ve seen this before… In fact from Sept of ‘08 through Feb of ‘09, we saw the Japanese yen and dollar move higher together… You may recall that I would question the mental capacity of a trader that thought that Japanese yen was a “safe haven” but at the same time decided that discretion would be better than valor, and not stand in front of that yen bus!

That leads me to what I really wanted to talk about today, and that is… What happens if this great run that stocks have been on since March, suddenly ends? What happens if smart people begin to take profits, and that leads to more selling, and before you know it, things are looking bleak for stocks again? Well… I doubt anyone knows… But… We can look back to last fall’s huge reversal of stocks for an indication… And I don’t like that indication!

As you know, I’ve chronicled over and over again, how stocks and currencies have been connected at the hip for some time now… This is contrary to the historical trading pattern of these two risk assets. Currencies have different pricing mechanisms than stocks, and have a low correlation to stocks… But… The markets have put stocks and currencies and even commodities in a bucket labeled “risk assets”… And all that historical trading has been shoved under the bed for now…

With that in mind, and no apparent break in the link of these asset classes in sight, although last Friday’s Jobs Jamboree gave us a glimpse of a break, but no follow up occurred, we have to believe that a stock sell off will adversely affect the nice gains the currencies have made this year since March. And with that is my chance to step up on the soap box…

Ahem… Hello? Can you hear me now? Is this microphone turned on? OK… Here we go… I long have told people that the most important thing they can do in their investment portfolios is to diversify, and to add the asset classes of currencies and metals to their portfolios. I ask them… You wouldn’t own just one stock would you? Then why own just one currency? Diversification, gives you a hedge against the potential drop in the dollar, which most people truly believe will happen eventually, but with short periods of dollar strength mixed in.

So, if one is “truly diversified” they don’t panic when the short periods of dollar strength occur… In fact, over the years, I’ve seen, what I consider to be really intelligent investors, use the short periods of dollar strength as an opportunity to add to their positions at cheaper prices…

I told the crowd in Vancouver… Markets always do what their supposed to do — just not when…

So, the dollar may have second winds here and there, and for sometimes up to 5 months, but the idea to diversifying now is to take away the risk of the markets doing what their supposed to do… now! And the idea is that eventually, the Gov’t will get what they want (a cheaper dollar to use to pay back their debts), and you will be diversified! And you’ll be singing: Jimmy crack corn and I don’t care!

Ok… I’ll get down from the soap box now… Be careful, Chuck, the balky knee might give out on you!

I had to chuckle this morning, but then the chuckles turned to crying, as I read this story on the Bloomie… “The dollar may weaken should the Federal Reserve unexpectedly say it will keep buying assets”, UBS AG, said…

What UBS is referring to here is the Quantitative Easing (QE)… And they feel that the dollar would be taken to the woodshed if the Fed decides to implement more QE…

OK, apparently, the strategist at UBS that wrote the note to Bloomberg, doesn’t read the Pfennig! For had he read it, he would have known that the Fed has taken to what I call, “stealth QE”… Recall that on Monday, I told you about a story by Chris Martenson (yes, my fat fingers on Monday typed Mortenson, UGH!) that revealed the plan that the Primary Dealers and the Fed put in place for the last auction of 7-year Treasuries. The Primary Dealers bought the bonds that nobody else wanted, and then a couple of days later, the Fed bought 47% of the purchased bonds by the Primary Dealers!

So… I guess, in the end, if most traders don’t read the Pfennig (boy, they don’t know what they’re missing! HA!), then I guess this thought about more QE might hold some water… But, here’s the rub… If the Fed can affectively buy back from the Primary Dealers what the rest of the world didn’t want, without announcing it to the world, why then, would they announce it? It’s all a shell game folks… With the cartel, I mean, the Fed Reserve in control…

Speaking of the cartel, I mean the Fed Reserve… Their FOMC meets today… And wouldn’t it be nice if we could wake up in the morning when the day was new, and see that the FOMC came clean and told everyone that they bought 47% of the Primary Dealers 7-year Treasuries after the last auction? Yeah, right, if you believe that will happen then I’m sure the Gov’t has some land it would like to sell you…

I read where 71% of economists surveyed want the FOMC to announce in their statement today following the meeting, that the recession is over… WOW! Now, that would be right up the Fed’s alley wouldn’t it? I mean how wrong have the Fed and Treasury been about this financial crisis and resulting depression since the get-go? VERY WRONG! So… Go ahead FOMC, say the recession is over… It’s my opinion, that they’ll be eating those words in the future…

Ok enough! Norway’s Central Bank, Norges Bank, is meeting this morning, and I don’t expect any movement in their internal interest rate of 1.25%… I would like to see something in writing from the Norges Bank that hints at rate hikes this year… Otherwise, the risk is for krone weakness on the announcement.

I have to think that for now, all the recent good news in Australia has been priced into the currency. The reason I say that is simply because the last couple of data reports showing positive signs for the economy have not moved the A$ one iota… Last night it was Consumer Confidence printing a nice gain of 3.7%, moving the data to the highest level since 2007… But no movement in the A$, except to follow the other High Yielders to softer ground… UGH!

Today… The data cupboard will get a workout here in the U.S. We’ll see the color of the Trade Deficit and the Budget Deficits… Of course the color will be RED! For the deficits in these two will be larger than the previous print / month, and there’s no dreaming of a turn-around any time in the near or far future!

This Budget Deficit is something that every citizen should be banging on their representatives about every day! And it’s getting worse, folks! I’ve told you about how tax receipts are near the levels of the great depression, which means the revenue to the Gov’t is falling, while the Gov’t spending continues to grow! But don’t let that get in the way of Gov’t officials telling us how everything is on the mend, and soon it will all be seashells and balloons…

Remember a couple of months ago or so, I explained to you how when we get to the other side of this deflationary asset price scenario, that we would begin to see inflation pressures? I said that those pressures would be fanned by the fact that people will have money to spend, but retailers won’t have inventory to sell them, thus, money chasing too few goods… A few people scoffed at that thought and told me I would be wrong…

Well… It was reported yesterday that wholesale inventory has shrunk for 10 consecutive months! Businesses continued to draw down wholesale inventory in June for the 10th consecutive month, with a fall of -1.7%… Oh! By the way… The 10th consecutive month is a record for continuous inventory decline, according to the U.S. Commerce Department.

So, we’ve got that to look forward to!

OK… Before I go to the Big Finish… I’ve got an interesting story to share with you!

Before I talk about the story, I want to tell you that a friend of mine just returned from Greece and Italy, and he reports that for the first time that he can recall, people there preferred euros to dollars… Hmmm…

OK, now the story… Well, it seems that it’s not just foreigners that are growing tired of choking on dollars… The LA Times reported that Communities in North Carolina, Massachusetts, Arizona and elsewhere are printing their own money to encourage shoppers to patronize local businesses. Local money was last popular during the Great Depression.

Last popularized during the Great Depression, scrip, or locally created stand-ins for U.S. currency, is making a comeback. Pittsboro N.C., population 2,500, is one of a handful of communities that launched its own money in recent months. It reports an avalanche of calls from other communities that have lost faith in the global financial system.

Pittsboro calls their own currency, the Plenty… “The Plenty is not going to get siphoned off to Wall Street, or Washington, or make a stop in Bentonville on its way to China,” said B.J. Lawson, a software entrepreneur who is president of the board of the Plenty cooperative. “It gives us self-reliance.”

Here’s a link to the complete story in the LA Times… Very interesting indeed!
http://www.latimes.com/news/nationworld/nation/la-na-scrip-money11-2009aug11,0,1371794,full.story

And… No… I’m not going to add the “Plenty” to the Currency round-up! HAHAHAHAHAHAHA!

Currencies today 8/12/09: A$ .8235, kiwi .6650, C$ .9070, euro 1.4165, sterling 1.6455, Swiss .9280, rand 8.1440, krone 6.2225, SEK 7.2715, forint 193.45, zloty 2.96, koruna 18.21, yen 95.80, sing 1.4475, HKD 7.7505, INR 48.31, China 6.8350, pesos 13.07, BRL 1.8484, dollar index 79.08, Oil $69.69, 10-yr 3.66%, Silver $14.33, and Gold… $945.70

That’s it for today…I hope you have a Wonderful Wednesday!

Chuck Butler

Source: On The Soapbox Again!

But the news – released in a government report Friday – isn’t all good: Unemployment is likely to remain high in the months to come as some of these encouraging indicators of new economic growth evolve into a painful jobless recovery.

Friday’s jobs report and other recent data “reinforce our view that the U.S. recession ended in June, and we have raised our third-quarter 2009 growth forecast to 3.5%,” Christian Broda, a Barclays Capital (NYSE ADR: BCS) economist in New York, wrote in a research report yesterday.

Alan Krueger, the U.S. Treasury Department’s top economist, said he thought forecasts that growth would resume this year were “plausible” but expressed concern about long-term unemployment, which remains as a nagging problem.

“The administration is constantly looking at how to get people back to work, how to lessen the pain of the recession,” Krueger said in a news briefing.

In the government report released yesterday, the U.S. Labor Department said that U.S. payrolls fell by 247,000 after tumbling by 443,000 in June.

Factory payrolls fell by 52,000, their smallest decline in a year. Builders shed 76,000 jobs, an improvement over June’s decline of 86,000, and service-sector payrolls fell by 119,000 last month after dropping 220,000 in June.

Monthly job losses peaked at 741,000 in January.

While optimistic about the figures, analysts warned that the unemployment rate remains high and said that American consumers are likely to feel considerable strain for months to come.

Retail sales likely dropped for the eleventh consecutive month in July. And the two leading indicators of U.S. consumer sentiment – the Reuters/University of Michigan index of consumer sentiment and the Conference Board’s confidence index – continue to show weakness.

The Reuters/UM index dropped to 66 in June from 70.8 the month before, and a preliminary report for July shows further erosion to 64.6. The Conference Board’s index fell to 46.6 in July, down from June’s 49.3.

“We have in motion a turnaround in the labor market,” James O’Sullivan, a senior economist at UBS Securities LLC (NYSE: UBS) told Bloomberg News. “For a sustained pickup in consumption, we need a sustained improvement in the job market, and hopefully that’s in process now.”

Also, the official 9.4% rate doesn’t reflect the complete unemployment picture, because it doesn’t include people who were unable to find jobs and subsequently left the work force.

The rate of unemployment was actually 10.1% in June and 10.2% in July, according to the Bureau of Labor Statistics (BLS), which includes discouraged workers in its analysis.

The jobless have also been unemployed for longer stretches of time. The number of long-term unemployed – those jobless for 27 weeks or more – jumped to 4.9 million from 4.4 million in June. That means 32.5% of the all those who are unemployed had been looking for work for longer than half a year, a statistic that was up from 28.9% in June.

That problem is particularly severe as jobless benefits for many unemployed Americans are beginning to run out. Unemployment benefits generally are offered for a period of 26 weeks.

About 540,000 people nationwide will run out of benefits by the end of September, with the clock running out on an additional million by the end of the year, according to the National Employment Law Project.

“You have this desperate situation with long-term unemployment, and now folks are running out in big numbers of unemployment benefits,” Maurice Emsellem, policy co-director of the National Employment Law Project, told the Los Angeles Times.

Long-term unemployment will also keep many young, first-time jobseekers on the sidelines as more experienced unemployed workers file back into the workforce.

“Long-term unemployment is debilitating for people trying to find jobs in the first place,” University of Texas Prof. James K. Galbraith told TIME magazine. “Even if things stabilize and start to improve, bringing the unemployment rate down below 9% is going to be a struggle.”

Source: Joblessness Continues to Plague the Economy

The momentum behind China’s economy is staggering.

“China is increasingly becoming a responsible citizen in the global community,” economist Allen Sinai of Decision Economics told The Associated Press. “No longer lawless, no longer difficult to deal with, much more responsible. It is now a powerhouse among economies and finance. And it’s a rich country.”

In just the past few weeks, two of the world’s key global institutions – the World Bank and the Organization for Economic Cooperation and Development (OECD) – and a large swath of investment banks raised their 2009 and 2010 growth estimates for China’s economy.

The OECD said it now expects China’s economy to grow by 7.7% this year and the World Bank boosted its projection to 7.2% growth.  GDP will expand by 9.3% in 2010, according to OECD estimates.

BNP Paribas SA (OTC: BNPQY), Barclays Capital, Goldman Sachs Group Inc. (NYSE: GS), JPMorgan Chase & Co. (NYSE: JPM), UBS AG (NYSE:UBS), Morgan Stanley (MS), Standard Chartered Bank, and RBC Capital Markets all raised their forecasts for China’s economy as well.

So far, BNP Paribas SA is the most bullish on China’s prospective growth, as it boosted its prediction to 8.2% this year. That would top Beijing’s 8% target.  Barclays Capital, Goldman Sachs, and JPMorgan all raised their 2009 forecasts to 7.8% growth.

“The strong acceleration in underlying economic activity is now unmistakable,” Goldman Sachs economist Yu Song told TIME magazine.

China’s Homegrown Growth

China’s $585 billion (4 trillion yuan) stimulus package gave the economy a big kick in the first half of the year, spurring bank lending and driving fixed asset investment. It even stimulated the oft-maligned Chinese consumer, boosting domestic demand while the market for exports remained dormant.

Chinese banks lent about $1.08 trillion (7.37 trillion yuan) in the first half of the year, nearly double the total loans extended throughout all of 2008.  And even though the economy is clearly on the road to recovery, it’s not likely lending will let up for the rest of the year.

BNP Paribas chief economist Chen Xingdong told Bloomberg thathe expects new loans will reach 9.5 trillion yuan by the end of 2009.

“The growth recovery has been even stronger than our anticipation,” Chen said.  “Strong fixed-asset investment growth and retail sales have started to generate real demand for industrial production.”

Fixed-asset investment rose 33.5% in the first half year to $1.34 trillion (9.132 trillion yuan), according to the National Bureau of Statistics (NBS). Investment in infrastructure rose 57.4% year-over-year, with spending on railways up 126.5% and highway spending up 54.7%. Property sales were up 53% in the first six months from a year earlier.

Of course, fixed-asset investment has been consistently strong in China for the past decade. The real turnaround in the past six months has been that the frugal Chinese consumer has begun to spend more liberally.

China’s retail sales in the first half of the year rose 15% to $859.6 billion (5.87 trillion yuan).  Retail sales in June also rose 15% from May, said NBS spokesman Li Xiaochao.

“There were two highlights in promoting domestic demand: commercial apartments sales rose by 31.7% in the first half year from the same period last year; automobile sales expanded by 17.7% year on year,” Li said.

Auto sales reached 6.1 million vehicles in the first six months, helping China to supplant the United States as the world’s largest automarket. Sales could easily surpass 12 million this year.

“The rebound has been driven by the domestic economy,” Jing Ulrich JPMorgan Chase & Co.’s Chinese equities strategist told Fortunemagazine. “The consumer proved resilient – and the government acted as a catalyst.”

“China can still achieve 8% growth,” she said. “Everything is happening very fast there.”

The One Potential Hurdle for China’s Economy

There’s no question that China’s stimulus package has been an unequivocal success. In fact, the only problem may be that it is working a bit too well.

In the United States concern about inflation prompted Federal Reserve Chairman Ben S. Bernanke to outline an “exit strategy” for the withdrawal of liquidity from the financial system. Similarly, China’s biggest challenge going forward will be clamping down on lending to keep potentially hazardous bubbles from growing in its economy.

Inflation is a particular concern, as rising commodity prices have crept into imports.

“Commodity markets around the world have bottomed and are rebounding, raising imported inflation pressures,” the People’s Bank of China (BOC) said in a report analyzing second-quarter economic trends, issued by its Financial Survey and Statistics Department. “At the same time, domestic demand continues to rebound, liquidity remains flush and inflation expectations are surfacing.”

However, as in the United States, policymakers in Beijing have said they will remain committed to “proactive fiscal policy” until it is certain a recovery is underway. In fact, some analysts don’t expect to see a significant change in policy until November, when leaders and regulators meet for their annual conference on the economy.

“We must see that the economic recovery is not on a solid foundation, and the negative impacts from the international crisis have not eased,” said Chinese Premier Wen Jiabao. “An improvement in the economy does not mean the difficult period is over.”

Indeed, stimulus must be maintained until China’s all-important export sector has recovered. And while Chinese exports climbed 7.5% from May to June, they were still down 21.4% from a year ago.

Of course that doesn’t mean Beijing will just sit back and wait for lending to reach excessive levels.

“China has achieved impressive results in reviving economic activities,” Gao Shanwen, chief economist with Essence Securities, told Reuters. “The basic tone of the appropriately loose monetary policy is unlikely to change, but there will be fine-tuning.”

The BOC has traditionally used a quota system to control lending, telling banks not to exceed specific ceilings. It may continue to do so if the central bank does not see a sufficient drop in lending. It may also choose to provide banks with a less stringent lending guidance, or range, rather than an outright ceiling.

“The banks are highly responsive to government policy,” Ha Jiming, of China International Capital Corp. Ltd. (CICC), the nation’s largest investment bank, told The Financial Times.

Punitive bill issuances are another tool in the central bank’s toolkit. In September, the BOC will require banks to buy $15 billion (100 billion yuan) in special bills. The bills will be issued at punitively low interest rates and reduce the amount of money banks have on hand to lend out.

Regardless of what methods it chooses, the BOC is clearly ready to act. But it won’t jeopardize a recovery in a preemptive assault on inflation.

The central bank “will unswervingly continue to apply appropriately loose monetary policy and consolidate the economic recovery momentum,” said Su Ning, vice governor of the People’s Bank of China.

Source: With Its Economy Ignited by Stimulus Spending, China Is Leading the Global Recovery

I mentioned yesterday that the open interest decline on Friday [in that short-covering rally] would have been somewhat offset by the big rally that we had on Monday. Well, I was only partially right. Open interest for Monday’s big day showed a staggering increase…up 12,999 contracts to 393,536…on big volume of 139,361 contracts. Friday’s improvement in o.i. got buried by more than 10,000 contracts! I was stunned! Ted Butler was flabbergasted! Ted feels that the net short position in gold is now back over 20 million ounces, as the bullion banks have increased their net short position by 20,000+ contracts since last Tuesday’s Commitment of Traders report cut-off.

With these open interest changes for Monday now public information, it is more than obvious that bullion banks prevented an explosion in the gold [and silver too?] price on Monday. The reason I say that should be crystal clear to all…because if the bullion banks hadn’t been there to take the short side against all these speculators pouring in on the long side, there would have been nobody else to take the short side and the price of gold [and silver] would have been bid to the stratosphere in a New York minute! This was not an act of strength by the bullion banks…but rather one of extreme weakness…desperation, if you will.

With this untimely [and unhappy] turn of events, Ted and I spent most of our time on the phone discussing a ‘where to from here’ scenario for the bullion banks. In five trading days, they piled on the short positions that just took them five weeks to get out of…and again have a short position that would choke a whole herd of horses…but the questions that remain to be answered are…can they, or will they?

And in silver??? I’m glad you asked. Silver also had a robust day on Monday, and its price also got trashed along with gold’s. It would be fair to presume, would it not, that silver open interest would have soared as well? Well, one would be wrong to presume that. Silver o.i. on Monday rose a magnificent 191 contracts to 98,823…on decent volume of 21,428 contracts. Ted figures that there has been little, if any, deterioration in silver open interest since last Tuesday’s cut-off. I feel [and Ted agrees] that, at the absolute maximum, there are about 7,000 speculative long contracts left to be liquidated in silver for it to be all cleaned out on the downside. In gold, it’s 50-100,000 contracts…and more than that, if we talk about returning to the lows of last November.

It should also be obvious that the bullion banks are treating the silver market like it was a bucket of nitroglycerine…which, in fact, is exactly what it is. They have the kid gloves on here. Ted Butler has always said that the silver market is the center of the universe for the bullion banks…and he would be right about that. These changes in open interest…gold vs. silver…should speak volumes to you. The bullion banks [principally JPMorgan] do not want to go back on the short side of this market.

Many times in the past, the bullion banks have used the price of gold to smash the price of silver. But the question keeps coming up…can they? Will they? If this effort we saw over the last six weeks [gold down to $907...silver to $12.45 at the lows ten days ago] was the best they can do…well, it could get interesting to the upside. But…they have the firepower in their arsenal to blast gold down at least $100 from where it is right now if they choose to. But can they…or will they? The price action in the days and weeks ahead will tell us a lot. The rest of the summer could be really interesting.

Yesterday’s Comex Delivery Report showed that 3 gold and 42 silver contracts were delivered. There were no changes in the alleged holdings at SLV…and over at GLD, a smallish 68,713 ounces were withdrawn. And at last…after six days in a row…the U.S. Mint reported no changes in their production numbers on Tuesday. Over at the Comex-approved warehouses, total silver inventories dropped by four rather small good delivery bars…3,891 ounces.

The usual N.Y. gold commentator had the following…”[This week] the European Central Bank weekly statement of condition indicated no change in “gold and gold receivables”. At a glance, this is only the second time in almost a decade nothing was reported sold. Last week’s disposal was only €2 Million – 0.09 tonnes. The ECB squadron of banks appears to have withdrawn from the market.”

“[On Monday] very powerful opposition immediately materialized on gold’s challenging important technical levels. Both UBS (NYSE:UBS) and Mitsui have remarked that the Spec long as reported by the CFTC had, as of last Tuesday, come down to levels at which they could entertain the possibility of a rally. Perhaps the CFTC data influenced the instigator of yesterday’s move. Unfortunately, as of last night, open interest had added 23,027 lots (71.6 tonnes, or 6.2%) for a $26 rise (2.8%).” [Ted's comment in a prior paragraph that gold o.i. had increased 20,000+ contracts since last Tuesday's cut-off is obviously correct. - Ed]

Before I start on my stories for the day, I want to mention something from my commentary yesterday. One of the charts provided was the contraction of the Commercial Paper market. The chart I cut and paste wasn’t overly clear…so here is the URL where I got the chart from…and it’s infinitely better. The link is here.

Over at Bill Murphy’s lemetropolecafe.com came this item of interest. It appears that a Café member e-mailed David Einhorn of Greenlight Capital to get some clarification on the switch from GLD to bullion (Did Greenlight simply redeem its GLD shares for bullion from GLD, or did Greenlight sell its GLD shares and procure the bullion from a source other than GLD?). The reply he got from Einhorn was as follows…”We didn’t discuss the transaction at that level of detail (and don’t plan to).”

Today’s first story involves the U.S. Postal Service. It appears that four unions representing the nation’s postal workers are pleading for a meeting with the White House to address possible funding shortfalls for workers’ payroll and retiree health benefits. USPS top executives are now saying that the USPS will default on a $5.4 billion payment to prefund future retiree health benefits on September 30, 2009…and may not be able to make payroll in October and will be forced to issue IOUs instead. I thank Craig McCarty for the story over at myfederalretirement.com and the link is here.

In a story out of the Financial Times in London is this headline…”China to deploy foreign reserves”…”Beijing will use its foreign exchange reserves to support and accelerate overseas expansion and acquisitions by Chinese companies…” and the link is here.

Along with Philadelphia yesterday [and the ongoing bankruptcy saga in California] is this Bloomberg story headlined “Jefferson County, Alabama, to Put One-Third of Workers on Leave”…and unpaid leave at that! The link is here.

Thanks to Bill King over at the King Report on Sunday night, came this insider story posted over at advancedtrading.com. It’s a fascinating look into the world of “proprietary algorithmic trading codes”…the story that engulfed Goldman Sachs (NYSE:GS) just recently. Despite its rather complex subject matter, the article is pretty easy to understand…and very much worth your time. The article is entitled “The Real Story of Trading Software Espionage”…and the link is here.

And lastly is another article by silver analyst Ted Butler. Now that the U.S. Commodity Futures Trading Commission is talking seriously about imposing position limits in silver, Butler says the suppression of silver prices can be broken. But only if silver investors express themselves and encourage the new regime at the CFTC, every step of the way. For the commodity exchanges will fight behind the scenes to preserve the status quo…and the illicit profit it ensures for the market manipulators. Butler’s new commentary is headlined “The Real Solution” and is linked here.

It is hard to imagine a more stupid or more dangerous way of making a decision than by putting those decisions in the hands of people who pay no price for being wrong. – Thomas Sowell

I’d forgotten that Gentle Ben was giving his semi-annual monetary policy report to the House Finance Services Committee yesterday morning. That may have been part of the reason why there was no follow-through in the gold market on Tuesday. As to what’s coming down the pipe…if you’ve carefully read what I had to say further up…it’s really a crap shoot. Either gold and silver get killed and the bullion banks cover as many shorts as they can…or the price continues to rise and the bullion banks just get more mega-short. Then there’s the issue of the CFTC’s position limit changes…if, and/or when they happen. I think I’ll flip a coin instead.

See you on Thursday.

Source: And Then There’s This…Wednesday, July 22nd, 2009

Source: Investment News Briefs Thursday, July 9, 2009