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Global Fear ... Don't Flinch

Just when you thought it was safe to go back into the water the market forces have seemingly been stirred up and have thrown off some new waves. These last few days (and weeks) have brought to the fore a number of issues but before we go a bit more into detail on a few of the issues, I want to step back andtake a bigger look over the economic landscape.

To my mind, right now, the overlying tendency which I sense right now is fear. The fear I sense is slowing creeping all over the marketplace(s). It is a fear which is oozing into every major market and marketplace in the world. Let us just take a look and some of these. I will not go into long statistical aberrations and charts and what have you but rather I will simply point out what the markets are looking at. I read an incredible amount of newspapers, magazines, websites, articles - all very informative and much of it excellent. Remember, in a globalized and instantaneous and news-addicted world, ideas and suggestions get transported immediately to every part of the globe. But what is constantly in the back of my mind and which is very often difficult to discern is the forest from the trees. Where is the forest and what is itlooking like - inflation or deflation or benign bliss?


  • The EU Constitution has been voted down by two inner-core founding members, France and the Netherlands
  • A period of "euro-sclerosis" may now be setting in upon the euro politicians and the entire "EU project", I said "may".
  • EU leadership under Barroso is weak and flagulant
  • The reforms at EU member state level are much talked about but only grudgingly implemented with the "least common denominator" approach
  • EU citizens really believe that the money for social transfer programs does grow on trees and damn it, we are all entitled to it because that's the way it was for my parents.
  • The ECB is in a conundrum on interest rate setting in a multi-gear EU where some nations are growing well and the majority look stuck in the mud
  • Britain, a strong motor, now looks to be sputtering
  • Britain housing market is waning
  • Throughout the EU there is skepticism and down right fear of job losses due to EU expansionism to the cheaper labour pools of its new Eastern Europe members
  • Demographically, the EU looks altogether "grey" with an aging population combined with a xenophobic attitude to foreign workers
  • Under the veneer of this is the creeping and ever present fear that this whole reform scenario, or as some call it, sham, cannot go on.

USA & Canada:

  • The much talked about triple deficits within the USA are still increasing and show no signs of abating. 2005 estimates now put the budget deficit at near 7% of GDP - unprecedented for the world's reserve currency nation.
  • Congress shows no signs of serious budget reforms or cutbacks in key social transfer reform or military spending reforms
  • The Iraq War is now costing unprecedented billions of USDs combined with a complete loss of face amongst its Allies.
  • Due to technological improvements, once safe white-collar jobs are now under scrutiny of being outsourced while the blue-collar jobs have since gone to low paid and illegal aliens.
  • A drip-feed diet of low interest rates has given rise to a citizenship now accustomed to "all play and no work" as home mortgages are now practically given away to anybody with a heartbeat and can sign a form. This has been accompanied by a near savings rate of zero, in actual fact, latest statistics point to a rate of 0.4% or $4 on every $1000 earned - imagine that.
  • Canada politics has succumbed to what some would call "downright disgusting" levels but who I am to disagree?
  • The Canadian economy is to a large degree highly US-coupled, which is an ever present Damocles Sword hanging over it
  • Under the veneer of this is the creeping and ever present fear that this whole housing and deficit scenario, or as some call it, sham, cannot go on.


  • The ever-present zero interest policy of BOJ has done little to dig the economy out from its deflationary grave
  • The BOJ is the number one recycler of USD paper money in order to keeps its factories above water and its citizenship in jobs
  • The never-ending Chinese Yuan revaluation discussion will not go away and may even bring more hurt to the US as many congressmen might have intended
  • The Chinese are also a heavy recycler of USD paper money in order to keep their factories ticking over
  • The Chinese need to keep all this going as millions of farmers seek better paying wages in the industrial centres and hence the ruling classes fear a band of roving farmers wreaking havoc as they are told there is no more slave-labour but higher paid work
  • The ever-present fear that Chinese banks are unsound and risk is too high having taken on too much bad debt
  • Under the veneer of this is the creeping and ever present fear that this whole "soft landing in China" scenario, or as some call it, sham, cannot go on.

The biggest underlying factor behind the three economies above is the global game of ROI verses RISK. The now fully global operating banks and equity houses have built a very complex house of cards around pyramid schemes and derivative schemes in search of global income (Return on Investment) whereby the underlying risks are most likely near unknown and are likely so convoluted and spread across multiple (unknown) parties, for that is the nature of the beast. This is why the first one who blinks in this global game of DARE could very well start a chain reaction of unforeseeable consequences. As in all societies, complexity advances until the intelligence of the players is no longer able to foresee or prepare adequately and timely for the coming onslaught. It is a story of rebuilding each time. And each time the players always think it will be different. Has fear now paralyzed governments from embarking on making logical and long-overdue decisions for fear that the consequences of their decision shall be the equivalent of pulling the lowest card out from under the delicately balanced House of Cards? I believe it has. The only alternative is then to wait for an external or exogenous event which will give one player an excuse to move but without drawing fire from the other trading partnersand thus avoid being the global scape goat.

Right now each trading bloc above is staring down a loaded gun barrel anddare not flinch.

A look at Gold :

Beyond the recent articles whereby many an analyst had postulated on a potential drop down to the $400 or even $380 level, and the HUI down to the 150 or lower, both the metal and the shares have been holding up well and even made considerable gains this week, so far. I believe there is still a potential for a drop to occur mid-term but short term we are seeing both rally along with substantial gains in silver. After taking a closer look at a few charts, I thought to highlighta few of them here.

Needless to say, from a technical perspective they are looking very interesting and relatively bullish. I am cautious as often we have seen very quick turnarounds in both gold and silver and especially silver over the past 18 months. As is shown below, some interesting information can be seen highlighted in yellowon the WEEKLY charts, not daily.

  • Both the RSI, STO combined with the boxed-off formations look very similar.
  • On the 65 week* moving average, each time the STO has bottomed, a subsequent rally has formed. Notice also that the 65 wk. average is the support line throughout, having bounced off it each time (* Aden sisters)
  • Silver may also now be in a similar formation as before
  • Equally, taking near-equidistant dividers of time, we see a "W" pattern in the making for the HUI.

I note that these are observations - not solid facts. The point is simply to provide us with potentials and to keep us aware that most things move in some sort of rhythm. Nevertheless these do tend to point to bullish behaviour in the near future.

Finally I wanted to take a look at the latest COT figures and lo and behold we see the gold action conformant with the Commercial trading lots. Over the last 6 months the Commercials have been perfectly playing the metals - relevant figures I have highlighted for you consideration.

CFTC Commitment of Traders  *Combined Futures and Options*
May 27, 2005
Reportable Positions as of May 24, 2005 Non- Reportable Positions
Speculators Commercial Total
Long Short Spreading Long Short Long Short Long Short
113,396 66,334 60,409 116,516 186,319 290,321 313,062 52,321 29,580

Changes from last report - Change in Open Interest: -229
-9,331 7,410 -653 11,214 -8,497 1,229 -1,740 -1,458 1,511

Percent of Open Interest for each category of traders
33.1 19.4 17.6 34.0 54.4 84.7 91.4 15.3 8.6

Number of traders in each category; Total Traders: 254
121 76 64 45 43 197 156    
(CONTRACTS OF 100 TROY OUNCES) Open Interest: 342,642
Chart courtesy of 321gold.com

I don't want to get much too ahead of the game right now but where does money ultimately go to in times of fear? Usually it goes to a safe haven. Could we be seeing an elevated interest in gold and silver as the global conditions are ever riskier and not well understood by all players or the risks are perfectly well understood and those players are hedging with a safe haven or is it all just coincidence? We don't know and we can only watch. But I certainlywould keep it in mind as a strong possibility.

Well, that's it for the Thursday - this week was hard. I had so much real work on my plate and could not get out my usual - more frequent - updates. So goes it sometimes... But tomorrow is Friday so we should smile andenjoy...

More on this in upcoming issues - if you would like to know more, please sign up for a free subscription to Der Invest Informant here. As well, pleasevisit the site daily and read my Latest Letter.

I would like to take a moment to let you know how much I enjoy your newsletter for just the reasons that you mention as your goals in your recent note to subscribers. I have commented to friends and students that your analyses and musings are among the most altruistic and well written that I have found online. G. O., Geneva, Switzerland
Mr. Buss, Excellent letter as always of course. I cannot express my gratitude of "having eyes and ears", within the European Community. You, Sir, are simply, an information resource of inestimable value. Danke Schoen!! JZ, USA

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