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Gold/Mining/Energy : Copper - analysis -- Ignore unavailable to you. Want to Upgrade?

To: TheSlowLane who wrote (654)	2/21/2004 5:19:35 PM
From: Condor	Respond to of 2131

Intervention Triggers Massive Short Covering Friday, February 20, 2004, 7:38:00 PM EST Author: Jim Sinclair/Dan Norcini jsmineset.com Even the Central Bankers Were Surprised! If you think today was anticipated anywhere, you are kidding yourself. The bottom line for today’s action in the yen, euro, gold and all associated items was the funds flow from Japanese intervention by selling borrowed yen for dollars which was then injected directly and massively into the US economy via the New York Federal Reserve bond-trading desk. The Japanese sell yen for dollars and send the dollars to the New York Federal Reserve by instant electronic transfer. These dollars are then invested by the New York Fed in the US bond market across all maturities, not by debiting their member banks accounts at the Fed but rather by open market purchase of all sellers. That is the nuclear difference in a non-traditional tool. The liquefying effect is the exact same mechanism that is used when increased money supply feeds into the US economy with this one delicate but nuclear difference. That difference is that when it is money supply injected into the US economy by traditional means, it goes into only the commercial banking system. That would not do the job today because the commercial banks have lost their positions as primary lenders to the Hi-Techs of the world. GM owns the mortgage company Ditech, and would not benefit directly and immediately in a massive way by the standard traditional method of increasing liquidity. Enter our now non-traditional Japanese friends. By the New York Federal Reserve using Japanese owned dollars immediately and massively produced by having borrowed (by printing) huge amounts of yen then selling those yen for dollars and shipping those dollars electronically to New York, GM wins. The non-traditional Japanese electronic bank shot is the best possible way to liquefy the new Internet-based lending system. Housing is booming now because in hot areas you can borrow 100% of the cost of the house you want to buy if your credit is above water. Yes, 100%. You need only get a copy of the Robb Report to see the 100% mortgage adds looking for big earners. What triggered this stampede today was the over crowded long side of the yen market which is a form of a short of the US dollar. What we saw today was based on the fear that the deceleration of the momentum on the upside of the US equity market might in fact presage a decline. That would be a political negative for the incumbent and a total replay of why his father lost the election even though he won the war. In order to stop a decline in the US market the Federal Reserve managed a preemptive liquefying of the system. This is an act usually done to stop a precipitous decline in equity values but was done ahead of that possibility. The Fed, ECB and BOJ were shocked by the market reaction. Today is the beginning of volatility never before witnessed on this planet. Gold will now move one day soon $50 up, down and up again. The euro will move ten cents in day. There is no stopping this as the world is awash in paper money looking for a home. Think about the following: The US market was off today in terms of the Dow by 100 points around mid afternoon. In six minutes yesterday, the equity market dropped 100 points within a very short period of time. The NASDAQ was off 22 at the same time. Selling of US securities is not what makes the US dollar go up. Yet, illogically at that time there was a major rally in the US dollar. The ultimate tool to offset a decline in the value of equities is to provide liquidity directly into the entire economic system much like adrenaline is injected directly into the heart of an expiring patient in the emergency ward. It is called the Japanese bank shot! The inviting conclusion is that the rally in the US dollar was this time a reflection of the decline in the euro and yen coming out of massive yen intervention that triggered massive long liquidation. Note that last night the euro was rising in Asia as the yen declined which was STRANGE. New less knowledgeable but huge speculators hit the panic button when the yen leaped and hammered the euro plus covered dollar shorts of all forms including long gold. And now for a quick synopsis of today’s events: The reason all this started was a decision within the Federal Reserve management to liquefy the system as a preemptive strategy due to the last six days of negative equity market price action and the implication of an equity market that begins to throw off good economic statistics rather than rise. Clearly the Fed is on the side of the incumbent. That implies that whatever is needed will be done to provide the incumbent with a bullish equity market. The cost of doing this is beyond your wildest imagination in its implications for the future. As Mr. Russell the wisest 92 year old on this planet today said, “Welcome it, as it is an opportunity to own cheap gold.” The magnitude was simply the result of massive anti-dollar positions going for cover as technical systems called for that. Last month alone the long position in yen grew by a minimum of $72 billion and much of it panicked at the same time. The duration of this will be that of any short cover when fundamentals scream the opposite. The duration of this is defined in the cost of intervention and the outrageous implications of an inflationary nature. Today will be one of the days that will be reviewed for years by academics seeking to understand the magnitude of the currency fluctuations. The answer is simply that the shorting of the dollar got so overcrowded that it corrected itself - practically speaking - all in one session. Conclusion: Stay the course. Get rid of margin only. It is going to get more and not less volatile in the weeks and months ahead. I am afraid all the administrations since Nixon have put a dagger in the heart of America by trading off traditional financial wisdom of balanced spending for political power. This day’s surprising event is the beginning of the USA’s economic death rattle and not good news for the gold bear, the dollar bull or the equity bull. If the founding fathers of the US were here now they they might attempt another revolution and find themselves in chicken coops at Gitmo.