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March 31, 2006

Heads Up For Silver



According to a reliable source, AMEX Chairman & CEO Neal Wolkoff told Bloomberg this morning that the exchange may begin offering Barclay Capital's silver ETF as soon as next week, though Barclay's petition is still pending…

This should be regarded a rumor until a formal pronouncement.

But, undoubtedly the anticipation of this fund has contributed to silver's spectacular 98 cent spike this week.

The front month COMEX contract popped above US$11 yesterday and is currently trading at about US$11.66 / oz.

Since the November '05 breakout from a 20 month triangular formation on a price chart, silver is up by almost US$4 per ounce, or a little more than 50 percent. As we had noted previously, the implied objective of this particular formation measures to about US$12; it could be extended to US$13 if we abandon some conservatism. So what's next?

My target remains at US$12 plus or minus, probably plus (US$12.66 seems to stand out in my mind).

But I would look for the onset of a correction not long after the ETF is approved for the simple reason that speculators are likely to sell the news that they've been anticipating for over a year. Yet the market may find good support above the US$10 level from two sources - ongoing gains in gold and the demand for silver that Barclays actually generates.

Speculators can be right on occasion, after all.

Vigilance is warranted, still, because there's always the risk that either the regulators balk at the petition in the last inning, or that the issuer (Barclays in this case) balks due to changes in the price of silver since initiating the ETF.

In my view there is more value in gold than silver at least up until the day that the market's focus is on inflation and money, or in the shorter term, up until the day that the stock market rolls over or a geopolitical event occurs.

The silver play that is a byproduct of this ETF news is a diversion that makes gold just that much more alluring.

Precious metals bulls' answer to this week's FOMC statement was particularly encouraging. After booking some profits, they pushed gold to a new 25 year high the very next day in an exciting feat of strength. In other words, the market brushed off the Fed's hawkish overtones faster than usual. The initial breakout point was the move through the last lowest high in the Feb-March downtrend (US$572), which occurred last night; but the new and higher high today was the decisive factor. Platinum is the only metal that has yet to confirm the metals run, but it is within an earshot.

I am cautious about Monday because April 1st makes me nervous (i.e. it's my father's birthday for one - which makes me the son of a joke!). Also, aside from the TSE index, it would be good to see the other gold stock averages confirm the breakout. The six week correction in the averages occurred mainly in the larger cap gold shares, as expected, while the silver and small cap names continued on to new highs. It is noteworthy that the corrections in most of the gold shares occurred within the context of what technical analysts refer to as bullish flags (a normal sequence of lower lows accompanied by dwindling volume), and that as of this week they are all breaking out of their flags. Of the pool of gold producers that the market considers purely gold plays, only Glamis, IAMgold and Meridian have confirmed the breakout in gold with new highs so far - all which consist in our index - but it would be nice to see confirmations from names like Anglo, Bema, Eldorado, Freeport, Gold Fields and Newmont (Goldcorp holds significant silver & copper exposure now).

If we get past Monday I think we will. The market really looks poised to finish this sequence. And in spite of my US$633 gold target, I have a feeling this rally is going to continue at this pace until we start asking, how high can it go?

It should be making central bankers and bond-holders nervous that the FOMC threat fell upon deaf ears!

INVESTMENT RECOMMENDATIONS

 

 Donald G. M. Coxe
Global Portfolio Strategist, BMO Financial Group

1. Global stock markets are pricing in nothing but good times.
Nevertheless, with the Fed, the ECB and the BOJ in tightening modes of
varying intensity, the global liquidity flood that has been lifting most
boats has crested. Adding heavily to equity positions at a time of rising
geopolitical tensions and shrinking liquidity is an unsound strategy. Use
strong rallies, particularly in US stocks, to reduce equity exposures.
2. Remain overweight in oil and gas stocks, with heavy emphasis on
Alberta oil sands companies. US refiners remain very cheap, and
Washington's lawmakers, who speak with forked tongues,
simultaneously command the oil companies to change their gasoline
mixes (at great cost), and control their price increases. We believe they
will achieve the first objective, but fail miserably in the second.
3. Remain overweight the base metal producers. Every base metal except
nickel hit alltime highs in recent weeks, but their stock prices did not.
They remain the most attractive commodity producing group (other
than the Alberta oil sands producers).
4. Remain overweight the gold and silver producers. The speculation
attendant on creation of the silver ETF has made the byproduct silver in
the typical gold deposit more profitable. Emphasize those mines with
the best reserve characteristics.
5. Ben Bernanke says the flat yield curve isn't a significant indicator that
the economy will slow down. If so, then "It's different this time" has
become the cornerstone of Fed policy. He could be right, but if you have
substantial US equity exposure, then your bond portfolio should be
betting he's wrong. Increase your US bond durations and upgrade your
portfolio quality in balanced portfolios. In bond-only portfolios, be
alert for more signs that the economy will be softening by summer, and
prepare to move from neutral to long duration.
6. The dollar is getting help from those rioters in France, and from the
market's belief that Bernanke is committed to raising rates to 5% and,
perhaps, beyond. The French rioters will go away well before Bernanke
stops tightening. By late this year, both those dollar props will be gone.
March

March 30, 2006

Prestowitz Urges Koizumi To Call for "Plaza Accord II" at G8

 
To Call for 'Plaza Accord II' at G-8

From Kyodo News Agency
Tuesday, March 28, 2006

http://asia.news.yahoo.com/060328/kyodo/d8gki7284.html

Japanese Prime Minister Junichiro Koizumi should take the lead at a
Group of Eight meeting in calling for a "Plaza Accord II," former
U.S. trade negotiator Clyde Prestowitz said Tuesday.

"We all need to cooperate on diminishing the role of the dollar in
international trade," said Prestowitz, now the president of the
Economic Strategy Institute, which he founded, at a lecture at the
Foreign Correspondents' Club of Japan.

Even though Koizumi is going to step down from the premiership in
September, he is in a good position to suggest that G-8 leaders
adopt a new Plaza Accord to help reduce current global economic
imbalances similar to those seen in the mid-1980s, when the first
accord was struck, Prestowitz said.

The 1985 Plaza Accord was signed by the then Group of Five economic
powers to coordinate foreign exchange policies. Troubled by a large
trade deficit, particularly with Japan, the United States under the
administration of President Ronald Reagan aimed to bring down the
value of the U.S. dollar against other major currencies.

Since then the world economy has gone through a radical
transformation, with China and India emerging as major economic
powerhouses. The G-5 has now expanded to the G-8 grouping Britain,
Canada, France, Germany, Italy, Japan, the United States and Russia.

But the U.S. dollar is again in a situation in which many
economists, including Prestowitz, see it as overvalued and partly
responsible for increasing trade deficits in the United States.

The U.S. government recently said its current account deficit in
2005 totaled $804.95 billion, up 20.5 percent from the previous
year, to hit a record high for the fourth straight year due to a
bigger goods trade deficit on higher imports and oil prices.

"We are back (to a similar situation to the mid-1980s with a similar
global economic imbalance), except it's bigger and there are more
players," said Prestowitz, a trade negotiator in the Reagan
administration.

To help resolve this matter, he said the United States should raise
taxes and increase financial savings, while other countries should
stimulate consumption.

As a means of solving the problem, the world needs to begin pricing
oil "not in the dollar but in a basket of currencies," such as the
yen, dollar, euro, and yuan, he suggested.

THE FIBONACCI FORECASTER

He is worth reading, but I'm putting this up a day late, sorry! 
Edited By Jeff Greenblatt
March 28, 2006
Greetings:
It was the first week of January 2001, specifically THE SECOND TRADING DAY OF THE YEAR when I had my first REAL FED EXPERIENCE because there was real cash on the line that day.  I was short a basket of internet stocks (who wasn't) that day.  Memory fails me if that was the FIRST rate slashing of the cycle but it certainly was the first rate slashing that came at the discretion of Mr. Greenspan to act between regularly scheduled FED meetings.  That much I remember.  With no warning they lowered interest rates that day and all of my internet stocks went parabolic through the roof.  My boss, who was still vacationing in Italy, called fearing the worst which I confirmed.  I had been in Las Vegas that weekend celebrating the new millennium.  I think I should have stayed an extra couple of days.....
I survived that experience and slowly over time Fed days improved over time for me.  What I've learned and you probably have as well is that FOMC meetings are market events to be strategically planned for, must be dealt with carefully and are each unique events where no two are exactly alike. One thing you can take from is it doesn't matter what they do, but they usually don't give the market what it wants.  If you can understand the hype and hysteria that starts leading up to one of these events 3-4 days prior you'll do well.  Understand the universal mind that is the mass crowd psychology behaves like a spoiled brat and if you understand the game that the FED is likely to scold the child or in the very least not give the child what it wants you can realize these Fed events become fairly predictable.   I've read or listened to the talking heads mention there would likely be a hike but it should be the last one.  People come to expect that and when they raise rates and announce on top of it they reserve the right to DO IT AGAIN, people get upset and the market sells off.
One never really knows what to expect because the charts over the past few years have reacted like the Richter scale but today those who were following the intraday commentary saw we did a fairly decent job of navigating through it. To be fair, this was one of the tougher patterns leading up to the zero hour but we did not get sucked in by that spike this morning because it seemed to be TOO EARLY to be taking off.  Also, for the past four sessions, I've been using the SOX as the guiding light and as the markets were lifting off this morning, the SOX was still lagging. 
It turned out to be one of my best FED experiences ever.  Thank you Mr. Bernanke and welcome!
THIS AND THAT
There were several of you who wanted to know why I like Jeffrey Kennedy.  Keep in mind that Prechter/Hochberg have that GSC bear market agenda but they have excellent analysts in their employment.  You can spot holes in just about any analyst's game (Kennedy and myself included) but Kennedy happens to lay out a running triangle as well as anyone I've seen.  If you can lay out a running triangle correctly, you can increase the percentage of time you will know which way a triangle will break.
Finally, my web designer tells me the new website should be ready in July.  This is behind schedule but suits me just fine since my own personal situation has in reality set me back at least a month.   For the multitudes of new readers, you get an extended chance to test drive everything here for free until then.  However, my strength is FINALLY coming back and I'm almost at 100% so that means all of the plans to turn this embryo service into a world class product are close to being back on track.
THE STOCK MARKET
Last week the NDX bottomed in an area that did not allow us to rule out a bullish expanded flat pattern.  While we still have not taken out that low we still can't rule that pattern out.  However, the bullish case took a serious hit today.  Last week I devised a credible strategy of wading through the noise and simplifying what we needed to follow in order to stay one step ahead of the game.  Follow the SOX, and it certainly isn't the first time and won't be the last time this strategy takes on added importance.  There are those of you who rely upon Dow Theory to confirm bull and bear cycles but someone ought to do some hypothesis testing on the SOX and NASDAQ/NDX to determine which is the right side of the trade.  In reality, Elliotticians are supposed to follow an important chart that has the clearest wave count.  If you've looked at the Dow or SP500 the past few days you know those were next to impossible to read clearly and perhaps misreading the SP500 count is the only mistake I did make through this FED experience.  Luckily, the SP500 is not the leader of the market from one day to the next.
We had a potential running triangle developing in the SOX and to be sure, I don't know if Jeffrey Kennedy had such a count since he follows the Futures game.   But the situation in the SOX sure looked like one.  We started out higher on  Friday.  The SOX certainly had its chance to break higher but it never did.  As a matter of fact, it never did violate the converging trend lines for that triangle either as it needed to stay under 510 or the pattern would have been negated.   Today the NASDAQ and NDX spiked but the SOX just couldn't get going, that kept me from getting overly excited this morning.  Finally, the SOX broke down as anticipated first to the lower trend line and finally below the prior low at 492.36.  By breaking THAT LOW, any bullish interpretation of that triangle is negated unless the triangle IS MUCH, MUCH LARGER and that I sincerely doubt.  The SOX also closed below a rising trend line that has supported this rally for months and is in danger of a serious drop. 
The NASDAQ came very close to last week's high but once again FAILED AT RESISTANCE.  The Dow and SP500 are also at the upper end of their respective channels and have pulled back.  You certainly have to wonder if THIS is FINALLY the time we get that deeper pullback.  We are certainly setup for it here.  For once, social mood supports this view.  Did you notice the immigration rallies this weekend?  We don't do politics here so I'm not offering up what I think of the immigration policy but I will tell you with 100% certainty the fact they are cracking down on illegal immigration is a CONTRACTIONARY MINDSET.  Think what you will about what Congress may or may not do, but they certainly had no problem with illegal immigration in this country during the bull market years of the 80s or 90s.   Couple that with an angry crowd, (today in Phoenix students walked out of class and while marching on the state Capital building looting was reported) and you have the recipe for social mood rolling over.  Who said nobody walks in LA?  On Saturday a half million people showed up and if any of you have ever lived in LA, you know its hard to get anyone in Tinseltown too excited about ANYTHING.  On Friday there was a demonstration here in Phoenix where thousands showed up bringing traffic to a crawl all over this city.  In 16 years here I've never seen anything come close to that.  Leaving the politics of the situation out, clearly something is going on with social mood and it seems to finally be reflected in the charts.
Whoever is running that Plunge Protection Team, you better start buying tomorrow morning or you'll be asleep at the wheel.   They wouldn't let that happen, would they?
In reality, this might be the first time in a long time that we could pull away from the top.  I'm not stating  the final top is in place, but I think the market gave us a clue here today as it has had several chance to recover like many times in the past year but did not. 
BOTTOM LINE:  The SOX is sitting right below important trend channels in TWO DEGREES OF TREND.  In the very least, if this was a 4th wave (or X wave) triangle we could be close to a low and there is a cluster of support in the 470-475 region.   These are numbers first discussed here two weeks ago.  However you slice it, the NASDAQ failed at resistance today.  The exact nature of the overall pattern is still not clear but if we are still going up, it likely must regroup before it makes another charge at the high again.  The NDX has a shot at the bottom of the range here which would be the February or March low again.  The Dow has a cluster of support at 11100 and the SP500 1260-70.  Before we get there, after 33 bars down on a 5min scale and 11 on the 15 min scale there is a good chance for a bounce tomorrow.  With a p/c over 1.00 we'll see what bulls can do with this. 
AUSTRALIA
The All Ords is down today after hitting a high of 5061.  Counting the reversal day in February your low to high is now 29 (Lucas) days.  What happened yesterday is what we call the NISON DOJI.  Pure dojis are where we close at the exact price point where we opened.  However, Steve Nison says the Japanese tell those of us in the west to chill out.  We are too technical and play it too close to the book.  Yesterday your open was 5045.10 and close was 5044.79.  The Nison doji is defined as a the open and close being within a buck.  You missed by 31 cents. Since you are 29 days up (a common relationship), 160 weeks up, near the top of the trend channel, put up a doji and gapped down today on the open you have a number of elements in place for a reversal.  All you need is some follow through.  I think if we continue down, you have an excellent chance of joining us. 
GOLD, SILVER AND THE XAU
The outlook here was that gold was in a B wave that was near completion.  Last Thursday it finally bottomed on the 54-55th hour of the trend which includes 18 hours up and 36 hours down.  We are now another 19 hours up but also 13 days off the low.  The two legs up are nearly equal as well as one is 24 points and the other 25.  Two legs nearly equal in terms of PRICE AND TIME.  All told we are 221 hours off the TOP back on February 2nd.  We've reached a point like other charts where we are up against a resistance zone which is the area from the March high to the February high (576-85 on the June contract).  This has the look of a larger sideways pattern and this could be the top of B right here.  So what could be going on is we've had a three leg affair down from the top for A, now a smaller 3 legs up for B and if it's going to drop, we would be close before a C wave would take it one more time to the bottom of the range.  Of course, this might not happen, but the chart has to prove it can get through resistance right here.  We are 13 days up but I'd feel much better about this outlook if for instance we were topping at 233 hours instead of 221.  We'll see, we could go sideways for 12 hours and then start a drop on the 233rd hour. 
Silver has no such problem as it continues to make new highs.  Like the All Ords, silver is also up 29 days from a February low and has started to put in a small body candles.  However this looks like another sideways consolidation.
The XAU put in a low with a first leg up and then a 2.61 extension bigger leg. This chart has an interesting relationship where the first leg off the bottom back on March 10 was 29 hours.  This leg from Thursday is 18 hours.  Here is a case of the Lucas series in action.  For those of you who are new, why is this important?  In terms of time 18 and 29 have that 1.61/.62 relationship so important to the Fibonacci sequence.   Recall the outlook here was for a leg to challenge intermediate resistance at 135-41.  We've done that.   Now we have a small gap at 134 we are filling but more importantly have to test if the area around 132 is going to become support by way of the polarity principle.  Overall, we have small degree time sequences that have just expired and will have to see if this next pullback cycle is benign or something more.
US DOLLAR
We had a low a week ago Friday and upon completion of the wave a short pullback. This leg came down to intraday support but more important turned on the 46-47 hour low to low cycle off the bottom.  That is a bullish sign especially since the bars that have followed are nice looking white candles.  We really haven't had much of a retest of the low and maybe by default, we won't.  I'd now look for a retest of recent highs now as opposed to lows.
BONDS
Recall last week we had a slow moving 5 wave sequence over a 7 day period.  The outlook was for a sharp reaction in the other direction.  We achieved that on Friday but all it did was allow us to fail at recent resistance. Today we broke through important support but DID NOT CLOSE BELOW.  If we were to finally break below this support that has held up this market for the better part of 6 months.  This is a floor in the market that has held interest rates from really starting an upward spiral.  Here is another test for you conspiracy theory buffs. Interesting how the stock market and the bond market are both at key places on the chart that could really create a lasting effect on the economic outlook not only for the rest of this year but perhaps for the rest of this presidential cycle.   We are here, right now. 
Today marks the 49th day of the current down leg in this cycle.  Sorry, but Lucas didn't bail us out of this one.  As a matter of fact, the most recent high on March 16th was the 198th trading bar off last year's top.  So this latest downtrend from the March high started on the 199th (Lucas) bar.  We may not hit a low here until the 55th bar of the current leg which is still a week away.
CRUDE OIL
We are sitting at the 61% retracement level of the down leg finally and also 28 days up.  This is another chart at a key crossroad.  Overall this pattern is very choppy so it doesn't look like it has LONG TERM UPWARD POTENTIAL but now it has to decide if it wants to make a run at the high. Due to the choppiness I'm surprised it got this far as I thought incorrectly it had a better chance of going down.  Whatever the case, tomorrow will be the key day.  We are also 139 hours up.  Tomorrow we could top at 29 days and 144 hours.  The market must make a decision.  IF not, it will continue on most likely to the 33-34 day cycle and the 162 hour cycle early next week.
Jeff
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March 29, 2006

Peak Oil Flash

A very important flash presentation on Peak Oil.

Resource Capital Research release Uranium Juniors Report

Resource Capital Research, an equity research company which focuses on small resource companies, today launched a major quarterly research report covering 22 global uranium exploration and development companies with a focus on Australia, Canada and the USA. Over 130 junior and mid cap explorers and development companies are identified with a total market capital exceeding US$7 billion.
The report reviews companies active in established uranium districts globally, including Australia, Canada, USA, Mongolia and Namibia. The report covers North American traded companies Fronteer Development Group (AMEX: FRG) and (TSX: FRG), CanAlaska Ventures (TSX-V: CVV) and (OTC BB: CVVLF), International Ranger Corp (OTC: IRNG) and Western Prospector Group (TSX-V: WNP). A feature article reviews surficial calcrete style projects which are driving valuations for a number of companies, namely, Paladin (PDN, development project, Namibia), Nova Energy (NEL, scoping study, WA), Redport (RPT, advanced exploration, WA), Uranex (UNX, advanced exploration, WA), and Extract Resources (EXT Namibia, early exploration).

To access the free summary report, go to http://www.rcresearch.com.au/feature

Wither Iron Ore Prices

It all used to be so easy. The ore-mining companies, based in the major producing countries of Brazil and Australia, would sit down once a year with their main customers, the big steelmakers of Japan and Europe, to negotiate annual contract prices. The price of iron ore remained relatively stable throughout the 1990s.

What upset this comfortable status quo was the spectacular growth of Chinese steelmaking, with its ravenous demand for imported iron ore. In turn, the pressure placed on Chinese steelmakers - which already suffer from low profits - by rising iron-ore prices has changed the structure of the price negotiations: in the current round of talks to determine annual contract prices, which will run from next month, China demanded and received a place at the negotiating table. And China is making sure its voice is heard loud and clear.

So what's the background to all of this? Simply that over the past few years, China's increasing hunger for steel has led to an unparalleled growth in domestic steelmaking - 15 years ago China made 10% of the world's steel (80 million tonnes), while this year it will make an unprecedented 33% (about 400 million tonnes). And to make that steel requires more and more iron ore, some of it mined domestically, but with a growing proportion having to be imported, principally from Australia, Brazil and, increasingly,  India. Demand by Chinese steelmakers for imported iron ore has quadrupled from 70 million tonnes in 2000 to 275 million tonnes last year.

It should perhaps be mentioned that not all steelmakers are beholden to the producers of iron ore. For example, electric-arc furnaces (EAFs, or mini-mills), which produce about one-third of the world's steel, use a feed of ferrous scrap and hence, for the most part, are not overly dependent on iron ore (although such scrap substitutes as directly reduced iron and pig iron are in fact ore-based). It is the integrated steelworks, using basic oxygen furnaces (BOFs), which produce about two-thirds of the world's steel, that depend on iron ore to feed the blast furnaces, which make the molten iron, which in turn feeds the BOF steelmaking plant.

Why the Chinese rush for iron ore? The Chinese steel industry, because of indigenous coal and iron-ore deposits, is predominantly based on the iron-ore-hungry BOF steelmaking route, which produces some 85% of China's output. A further complicating factor is that China's steelmakers also use domestically produced ore. The numbers for 2006 break down as follows: China's blast furnaces will probably produce 360 million tonnes in 2006, an increase of 30 million over 2005, which will require an additional 48 million tonnes of iron ore.

China's use of domestic ore is expected to be 528 million tonnes, which, it so happens, also represents a 48-million-tonne increase over last year, but - a big but - because local ore has a low ferrous (iron) content, this translates to only 23 million tonnes of concentrate. That leaves an ore shortfall of 25 million tonnes or so, all of which will have to be imported. So last year's record imports of 275 million tonnes of iron ore could well hit the 300-million-tonne mark in 2006.

Another wild card is that transporting iron ore is no trivial task: the material's bulk means that amounts tied up in transit at any moment are significant, and there could be a further 30 million tonnes of iron ore tied up in Chinese seaports at the moment.

That gets the numbers out of the way. What about the politics? First, we need to identify the key players whose actions will determine how the iron-ore crisis - if one can call it that - plays out. There are three: the ore miners, the steelmakers (writ large), and the Chinese.

There are just three major ore suppliers: Companhia Vale do Rio Doce (CVRD) of Brazil, and the two Anglo-Australian giants Rio Tinto and BHP Billiton. Together, the three control about 70% of seaborne iron ore. So how do the mines see things?

First and foremost, they would argue that prices must be determined by the rules of supply and demand - market forces - and at the moment, demand is strong, with spot prices currently higher than contract prices. Second, to meet the meteoric rise in ore demand, huge investment programs have been launched, and the miners argue that the levels of investment needed to meet existing and future demand can only be supported by realistic price structures. CVRD alone is investing about US$4.6 billion this year in mining and transport projects. Simply stated, if more ore is needed, then more investment is needed, and that inevitably affects the end-user prices.

Unsurprisingly, the steel industry takes a different view. There is a feeling that the unprecedented 71.5% increase in the contract price last April was more than adequate and should be held for at least another year. Steel prices had to rise in 2004 on the back of higher raw-material costs, but fell back again in 2005 as steel demand weakened. For steelmakers to pass on higher steel prices, caused by the ore-price increases, to customers this year could be trickier - especially since EAF-produced steel, which competes directly with BOF steel for many product types, has not seen any significant increase in costs for its input material, ferrous scrap.

Among steelmakers, who themselves are beginning to consolidate into bigger and stronger groups, there is also a growing desire not to be held to ransom, so to speak, by three giant ore producers. So 2006 is seeing a new new stubbornness in the air - which brings us back to Chinese steelmakers.

This year, there is a new voice in the negotiations, with Chinese steelmakers, represented by Baosteel, entering the discussions for the first time. China's greater role is directly attributable to the country's overtaking Japan as the world's largest importer of iron ore.

This year, China is expected to import a massive 43% of the world's sea-borne iron ore, probably 300 million tonnes out of a world total of 700 million tonnes. And China, having ousted Japan as the key negotiator, is feeling its way in using its huge buying power to force a settlement they deem fair. (For Japan's part, it is probably letting the Chinese take the lead in order to insist on the suppliers equaling for Japanese customers any price relief that China is able to negotiate.)

The appointment of Baosteel to negotiate for China was highly significant, especially since it was accompanied by a government ban on negotiations by all other Chinese steel companies. In effect, the action undercuts market forces by forming the Chinese industry into a single cartel for the purpose of ore negotiations.

From China's point of view, the clear rationale is to put greater pressure on the miners by combining the buying power of China's steelmakers. There is no question that the stakes are high for the Chinese steel sector: Morgan Stanley chief Asia economist Andy Xie noted on March 16 that "for many steel mills in China, the ore price amount could mean the difference between life and death in 2006 ... China may have to play hardball to stop the ore producers [from] bankrupting China's steel industry."

But are the hardball tactics working? Based on reports of the negotiations so far, it appears that both sides have had to compromise. In late February, it was reported that initial negotiations between Baosteel and the miners had broken down, for exactly the reason one would expect: price. China argued that the ore producers should act with restraint, in view of the fact that some 40% of China's 80-odd large and medium-sized steelmakers reported financial losses in 2005. Chinese industry officials have also fretted publicly over the possibility of oversupply in the global iron-ore market, as the big investments of the past two years come on line.

But such arguments cut little ice with the miners, who understand well that production declines in the Chinese steel industry, in the event negotiations failed and supply deliveries were halted, would be catastrophic for the Chinese economy. However, this is very unlikely in any case, since the custom in the industry is for the previous year's prices to be maintained if negotiations drag on beyond the usual time frame. So the ore miners have little to lose by standing fast: at worst, they will continue to be paid the same record prices they were paid last year.

As of late this month, China was continuing to hold out for price relief, with the National Development and Reform Commission (NDRC), China's top economic planning body, saying on March 15 that Chinese steelmakers would not accept higher prices, calling the miners' profits "huge and unreasonable", and pledging to fight "unacceptable" demands in order to protect the country's steel industry. "China cannot afford a further rise in prices," the NDRC report stated flatly.

The action might be having some effect: a March 27 Bloomberg report cited Australian analysts as saying that the miners might have to accept a 10% increase this year as opposed to the 20% they had originally wanted, and noted that the "big three" miners have all seen declines in their share prices because of the dispute.

The question now is whether the issue of 2006 iron-ore contract prices has gone beyond the level of companies and has become a diplomatic issue, after the revelation that the Chinese government warned the country's steelmakers that ore imports may be blocked if prices are too high.

This raises the possibility that Chinese caps on imported iron ore could be ahead; would Australia or Brazil retaliate if that step was taken? (The Australian government has already said it would be "alarmed" to see Chinese government intervention.) And what would the implications of a trade war over iron ore be for China's World Trade Organization commitments - to say nothing of the implications for its steel industry, which has become increasingly dependent on exports?

Steve Mackrell is the operations director at the Iron and Steel Statistics Bureau (www.issb.co.uk), the leading producer of steel industry statistics in the United Kingdom.

March 27, 2006

Juiced Numbers

In order to get a flavor of the statistics that are manipulated, and the effects of that manipulation, we present a partial summary of an excellent interview (conducted by Kate Welling, Editor and Publisher of Welling @ Weeden), which Williams recently gave regarding the subject of government manipulation.

Williams says that regarding “what used to be called the GNP but is now widely followed as the GDP, (and) the CPI, and the employment numbers, all have had biases built into them that result in overstating economic growth and understating inflation - - both of which are admirable political goals."

Williams has analyzed and compared the way in which the unemployment figure was historically calculated versus the way it is calculated today. He concluded that if it “were calculated (today) the way it was during the Great Depression, it is now running at about 12%." As well, he says, "Real CPI is now running at about 8%. And the real GDP is probably in contraction." Clearly, the government’s methodologies that generated these bogus numbers are all designed to paint a more favorable picture of the economy and the markets than is the reality.

He explains why contemporary unemployment numbers are bogus. Today, the unemployment number does not include those unemployed who have been discouraged and out of work for more than a year. So they are taken out of the work force completely automatically. This results in knocking about 5 million unemployed out of the broader measures of unemployment.

Thus, unemployment is about 50% higher than is commonly alleged. And thus, "Today unemployment is really up around 12%," Williams notes.

These distortions have very real, and usually adverse, consequences for citizens. Consider, Williams says, the methodology developed several years ago by Mike Boskin and Alan Greenspan for generating the Consumer Price Index. In their (erroneous in Williams' and Deepcaster's) view the CPI was supposedly overstating inflation so they "fixed" it from its prior condition of (allegedly) overstating inflation.

And here is how they did it:

Originally, the whole purpose of the CPI was to "measure the change in the cost of a fixed basket of goods over time." But Boskin and Greenspan said that we should allow for substitution because people can buy hamburger when the price of steak goes up.

But, of course, "if you allow substitutions you aren't measuring a constant standard of living, you're measuring the cost of survival." Williams correctly concludes.

But the effect of this statistical chicanery is very real and very adverse to, for example, retirees because the CPI was, and is, being used to adjust Social Security payments to compensate for increases in the cost of living.

Today, as a result of the Boskin-Greenspan "fix," it understates those increases and therefore under-compensates retirees for those costs.

In a similar manipulatory vein, the Bureau of Labor Statistics (BLS) during the Clinton Administration constructed and began to employ a weighting regimen whereby if the price of something went up it automatically got a lower weight in calculating the CPI, but if it went down in price it automatically got a higher weight. The result, of course, was, and still is, to further shaft those people (like Social Security recipients) whose income was dependent upon the CPI measure.

"If the same CPI were used today as it was used when Jimmy Carter was President, Social Security checks would be 70% higher," Williams dramatically emphasizes.

But perhaps the most outrageous aspect of the government's numbers-manufacturing business has to do with its using "hedonic pricing." ("Hedonics" is the study of how to create pleasurable sensations.) "Hedonic pricing" is the practice of creating pleasant (to the government manipulators) pricing.

Using its hedonic method, the BLS says the price really doesn't go up for a product that has "improved" in quality because the consumer is getting greater benefit or pleasure from it. Therefore, if computer power increases by a factor of 10, but the sticker price of computers has only increased by a factor of 2, then the hedonically adjusted price would be much lower for CPI calculation purposes even though the computer is actually twice as expensive (in dollars actually paid) as it was years earlier.

Williams also notes that sometimes data manipulation attempts are overt, such as the time during the administration of George Bush I, in which a computer industry official was approached and asked to boost his sales reports to the Bureau of Economic Analysis. Williams is careful to point out that manipulation is a bipartisan phenomenon.

In the Clinton Administration, the manipulation resulted from the CPI numbers being re-set using weighting. "They basically reduced the number of people being surveyed in the inner cities (which had more unemployment (Ed.)) and then claimed they replaced them statistically. But the effect was immediate. You saw a drop in all the unemployment measures that would normally be influenced by inner-city surveying. Thus, of course, the statistical replacement reflected a lot less unemployment than actually existed."

The adverse effect of this "numbers manufacturing" extends far beyond its adverse affects on any particular group such as retirees. If someone relies on these buggy statistics and invests in the stock market based on happy economic reports, they may well lose the money because of that reliance. Williams says "I am…disgusted by both parties at this point, especially because we have no one of substance taking on very severe issues, like the trade deficit and federal deficit that are going to create terrible times for people in this country if they are not addressed."

Williams focuses on what he considers, and what Deepcaster considers, "so dangerous that if it isn't addressed - - and I am afraid maybe that even if it is addressed - - that it has gone past hope of repair; and that is the fiscal condition of the Federal Government."

Typical statements of the budgetary condition of the government (by whatever administration is in power) do not include accrued pension and retiree benefit liabilities. Certainly this is not a small omission - - and usually results in differences between the official numbers and the real numbers.

Williams notes "where the official federal deficit in 2004 was reported at about $412 billion and the GAAP-based deficit was around $616 billion, they said that if you added the net present valuing of the under-funding of Social Security and Medicare, the one-year deficit in 2004 was $11.1 trillion."

In fact, the 2005 statement (of the U.S. government) shows that total downstream federal obligations at the end of September were $51 TRILLION, Williams calculated.

Of course, foreigners are financing most of this deficit spending. Williams notes that last year alone, foreign investors bought enough federal debt to cover all the debt issuance of the U.S. Treasury. But we have no assurance that this will continue. Indeed, once this foreign buying even begins to slow, U.S. interest rates must rise to finance our debt, the interest costs on which are already running at nearly $3 billion per day.

As Deepcaster has repeatedly noted, this process will eventually lead to a very high rate of inflation, high interest rates and a very sharp decline in the dollar, likely followed by a deflationary depression. Williams notes (consistently with Deepcaster's view): "Once the selling pressure starts it's going to be massive. You're going to see a lot of dumping of U.S. securities, particularly Treasuries."

"To absorb them you're going to see a sharp spike in rates or the Fed will step in, provide liquidity in market………..the end result, when it does all come together, will be something akin to hyperinflation. But at the same time, you'll also have a very depressed economy." …That possibly could evolve into a hyperinflationary depression as much as I hate to use that term."

Williams concludes by saying "so we're talking about a global crisis of unprecedented proportions. Probably one that could lead to the collapse of the current currency system."…As crazy as it sounds, I think the only thing they will be able to do is go back on some kind of gold standard." And, indeed, gold is the Bedrock Asset so far as Deepcaster is concerned. And this is why the Fed-led Cartel makes such forceful efforts to cap its price.

Finally, Williams talks about where we are today. Indeed, he says we are already in a recession. "What I found is that if you adjust the real GDP numbers that the government releases for the myriad revisions and redefinitions…you'll find that there is a happy overstatement of growth of about 3% on a year-over-year basis. The problem very simply is this - - the consumer is the primary driving force behind economic activity and the only ways that consumers can fuel consumption growth are through rising income, debt extension, or savings liquidation, that's where he gets his cash."

But the consumer is not really seeing any income growth. “Now this is where the playing around with numbers really gets good.” We've already talked about hedonics and all the other manipulations of the CPI. But they all pale next to the impact of imputations in the GDP that are an outgrowth of the theoretical structure of the national income accounts.

“Any benefit a person receives has an imputed component…when the government puts all of it's imputations into income, its growth generally remains positive and has very little relation to reality."

How do we know when the end is near? Deepcaster and Williams agree on the answer. "If I were looking for one factor to signal the onset of some really serious problems, I would watch the dollar. If you start to see a sharp sell-off, or if the selling starts to pick up a little steam and begins to look like a panic, or you start to hear talk of an Asian country dumping a little extra in the way of dollars, it will be a sign of really bad times to come."

And Williams' excellent analysis raises a further question which Williams does not address, but which Deepcaster does address. When the resulting (and nearly inevitable) crash appears near, what "cover" or "incident" will the government leaders then-in-power, create to deflect the public’s justifiable rage away from the numbers manufacturers and manipulators themselves who caused the crisis in the first place?

US drowning in paper and sinking toward recession

President Bush has signed the $US 781 Billion increase in the US Treasury's debt ceiling. With US fiscal 2006 (which ends on September 30, 2006) not yet half over, the increase for the Treasury's "debt to the penny" for the year is already $US 430.8 Billion. One dollar in five the US spends is borrowed.

No wonder that Gold did a moon shot Friday, up  $US 9.70.

The Dow remains frozen. The yield curve on Treasury debt is again inverted.
The US budget deficit for February $US 119.2 Billion. January trade deficit $US 68.5 Billion.

The world is stuck with $US 11.154 TRILLION in US financial paper assets, a figure close to US GDP.

New home sales in the US in February fell 10.5%, the biggest monthly drop in almost nine years giving the US the biggest inventory of unsold homes in more than ten years - since January 1996.

In Australia new home starts for the last three months of 2005 were down 20% from their peak during the first quarter of 2004. New housing starts in Australia have fallen in six of seven quarters up to the end of 2005.

Interview with John Williams

On Thursday evening (3/23), John Williams was interviewed by Tom Jeffries of HoweStreet.com, Vancouver, British Columbia. The interview covered John's views about the serious inaccuracies contained in US government economic data, as well as thoughts about the current condition of the US economy.

The interview runs about 25 minutes, with the audio available at "John Williams HoweStreet.com March 2006 Interview."

And for those who are not familiar with John's highly proprietary research work, listen to Tom Jeffries' interview, then be sure to visit John Williams' Shadow Government Statistics.

March 24, 2006

http://stopwaroniran.org/petition.shtml

Stop the war on Iran before it starts!  
It is with grave concern that we observe the growing threat of a new U.S. war--this time against the people of Iran. The media is filled with reports of an alleged nuclear threat posed by Iran and the assumed need for the U.S. to take military action. These reports recall the "Weapons of Mass Destruction" stories issued in the months leading up to the war on Iraq.

THE FIBONACCI FORECASTER

Edited By Jeff Greenblatt
March 23, 2006
Greetings:
The email I always seem to get from people is how can they learn more about Elliott.  My answer is to learn from the best.  I spent years following every single move Hochberg made until my forecasts were posted in Club EWI and some of them actually worked out BETTER THAN WHAT THEY WERE DOING.  They took notice, but that's another story.....
My website and ebook with the unique and original methodologies will be ready soon enough so long as I can stay out of the hospital, but until that time comes I have an idea to share with everyone.  This week is another of those FREE WEEKS at EWI.  I happen to admire great Elliotticians the way some people look at a great painting.  For the past couple of days, I've been admiring the work of Jeffrey Kennedy who happens to run the Futures desk over at EWI.  Say what you want about Prechter and their terrible forecasts over the past few years.  One thing they do have is excellent analysts on their staff.  For those of you who are new to Elliott or at an intermediate level I recommend very highly that you download ALL of Kennedy's charts.  Download the monthly Futures report then go to archives and download the past 5 daily reports which specialize in a smaller time scale.  After you do that go over ALL of his charts.  Look at how he puts the wave counts together.  It does not matter if you are interested in cattle, sugar, cocoa, etc.  This is a process that will take weeks if not months.  If you do that, I guarantee you will take your own wave understanding to the next level.
While we are on the subject of FREE WEEK, did you see Prechter's new Theorist?  He has an interesting chart and comes clean on one of his own blunders.  He presents a chart of the Dow in terms of  gold.  On this chart he makes a case the Dow has actually lost half it's value since the all time high in 2000.  I happen to think this chart is quite good.  Those of you who are socionomic students know the President's popularity rating is generally tied to social mood and the rise and fall of the markets.  So how can Bush's rating be so low while the Dow is within a few hundred points of its all time high and the SP500 is at a 6 year high?  This chart explains it.  Unfortunately for EWI the Dow is NOT measured in gold but rather in terms of the dollar.  Prechter FINALLY comes clean after all these years to tell us the wave pattern in the Dow from 2000-2002 was corrective and there is now the possibility of an all time high yet to come.  He makes the case the 2000 high MIGHT be a 3rd wave top.  Thank you very much.  It has been stated right HERE, at least 6 months ago and perhaps as long as a year ago the Dow bear was very choppy, looked corrective and may have led us to a 5th wave extension as the bear bottom in 2002 curiously ended in the vicinity of the 1998 low which also happens to be the fourth wave of one lesser degree.  This may or may not happen as that 2000-2002 wave can still be an A wave down of a larger ABC bear market but the bear market MIGHT NOT BE OF GRAND SUPERCYCLE DEGREE as Prechter contends all of these years.
THE STOCK MARKET
Last time I discussed a change of stance based on a number of factors.  I also mentioned two mitigating circumstances which were a lower probability.  One of these happened to have been a potential bullish expanded flat IF THE NDX WERE TO BOTTOM near 1660.  The figure I put out was 1662 and it stopped going down at 1660.81. So as crazy and illogical as this seems, for the time being the charts have pulled a rabbit out the hat and have stopped going down EXACTLY WHERE THEY NEEDED TO. Those of you banking on this lower probability play, good luck to you.  You'll need it but the funny thing is it can't yet be ruled out.
What happened today opened the door a bit further for your scenario as the Futures and NDX took out yesterday's low but the NASDAQ DID NOT!  One thing I've observed over time whether to the bull or bear side if the group of indices are not all on the same page the trend might poop out.   For now, the intermarket divergence has a new NDX low not being confirmed by either the NASDAQ or the SOX. 
All is not lost for the bears either.  Check out the SOX chart.  The other day we experienced some real choppy action that I said needed time to sort out because it apparently did not make any sense.  The highest probability right now is the SOX has a developing running triangle that is not yet complete.  A running triangle is one that sets a low(high) for the trend, pushed in the opposite direction and makes yet a new price extreme for that trend that is actually just the B wave and not the 5th wave low.  IF this outlook is correct, the chart will now top between 505-510 and turn down.  Taking out the high at 510 on 3/21 would invalidate this pattern. Assuming a lot for now, if this pattern is right, the thrust measurement would take it down to the 470-475 range where there is a larger cluster of support where it could stage a bigger rally.  If it were to bottom at 471 it would have had a move of a perfect Fibonacci 89 points.  We are speculating here of course but if the SOX is in a bearish running triangle the lower probability expanded flat pattern in the NDX would ultimately fail as the SOX would take the NDX along for the ride.  This pattern has quite a butterfly effect so that will be on the top of the laundry list to watch tomorrow.
The SP500 could be developing a sideways pattern of its own along with the Dow.  I wish I had something more interesting to tell you on that front.
BOTTOM LINE:  We now enter the turn window of the 233rd day off the April low from last year.   With the NDX at a fresh low today, we have made a low within one day of the window.  That would be the other mitigating factor.  When this window closes we will then be in the FED ZONE which almost always brings fireworks.  For now, it appears we start off HIGHER as in any event the SOX would still need upward motion to complete that triangle but also we are dealing with that intermarket divergence.  Then we watch and see what happens.  If the SOX blows out the triangle, we will probably get a retest or new highs but if the triangle completes, we get another small degree leg down. 
AUSTRALIA
The All Ords took out 5000 which means our forecast is on track.  It looks like it has a collision course with the upper trend channel as well as the 160-62 week window.  A new YTE reader wanted to know why the short commentary.  There are times when there is much to say and other times less is better.  Those of you who are new will come to learn in time these charts have magnets attached to them.  Once they elect a path they won't stop until they come to some cluster of Fibonacci time and price points.  The point is NO momentum indicator will stop it.  Why do some charts stay seemingly overbought or sold for extended periods of time only to reverse abruptly?  When the chart hits the time window, that's it.   In this case, the waves have been hard to count as the chart keeps going but the upper trend channel line is near 5100.  Since it's already Friday we are on the cusp of the window near the top of the channel.
GOLD, SILVER AND THE XAU
I was looking for stiff resistance on the Silver chart at 1060.  We've surpassed that as we are sitting at 1068.  Silver has fulfilled the recent forecasts for continued bullish activity.  We are now hitting a cluster of relationships (3) so we'll see what happens.
Gold is in a more complex situation as discussed on Tuesday.  The bullish candle formation that formed on Tuesday's close came to naught as we took out that low.  The wave pattern since the recent high is very choppy and why I think it is a B wave in an ABC up.  Today we turned up on the 55th hour off the low from March 10th but did not do so decisively.  We are going nowhere fast on this chart.  From where we sit right now we can get one more low before a C wave up kicks in if I've been right about this.
XAU set the fresh low discussed on Tuesday night.  This looks to completed a small degree 5th wave low but that doesn't mean we are about to have a big rally here either.  All it really means is we can finally have the test of the 135-41 polarity area
BOTTOM LINE:  The only change here could be the XAU could catch a breath of fresh air from the recent inertia.  There is a ton of overhead resistance and it has not proven in any shape or form it will be able to take it out, IF IT COULD GET THERE IN THE FIRST PLACE.  Gold is stuck in a very choppy progression that looks nearly complete.  It would be possible for it to break down here but out of this choppy progression I think it should resolve up as this looks corrective.
US DOLLAR
The dollar held its 50 week moving average much as I thought it would.  Now it is taking the shape of one of those running triangles discussed previously for the SOX.    IF this is the case we are in the latter stages and could be within a couple of weeks of a resolution to a pattern that has been going on for nearly a year.  I put up a new chart that focuses on this possibility and the one of the reasons it might work out is from where I have the 3rd wave high to the C wave low is exactly 29 weeks.  Now we are sitting at 37 weeks as the trendlines converge.  If it was going to break down, it had an excellent chance  just the other day but it did not.
BONDS
We are straddling the 110.56 area in a retest of the low.  This looks to be a very slow moving pattern since last Thursday that has finally reached the 5th wave.  Tomorrow would mark 7 days down and we could get a very sharp reaction going the other way.
CRUDE OIL
Instead of retesting the low, we pulled back up and filled the gap near 65 left between Monday and last Friday.   The whole pattern over the past month is very choppy and while we remain land locked in a trading range I wouldn't be surprised if this ultimately broke to the downside but it still needs at least 3-4 more days of this type of action.
Jeff
 For those of who are new, this is the link you follow to get to the charts.  IF you like what you see, please vote for it at the bottom of my page once a day.
The content in THE FIBONACCI FORECASTER is for educational and informational purposes only.  There is no offer or recommendation to buy or sell any security and no information contained here should be interpreted or construed as investment advice. Do you own due diligence as the information is the opinion of Jeff Greenblatt and subject to change without notice.   Please be advised to consult your investment advisor, attorney or tax professional before making any investment decisions.  Jeff Greenblatt will not accept any responsibility or be liable for any investment decisions based on the information discussed here.

Ha Ha Ha America

From the Sundance film festival.

Silver's Mushroom Cloud: THE FIRST MONTH (Fiction from 2001)


By Charles Savoie (copyright 2001)

Most of us know that a mushroom cloud is an effect seen after a nuclear blast. Silver having been subdued for virtually a generation, the time is fast approaching that low silver prices will end with an explosive termination upwards. There have been minor fireworks in silver occasionally, as the brief spike after the Buffett purchases in February 1998, and the blip up to $5.95 just after the Washington Agreement in September 1999. Due to the severe imbalance between production and consumption, which has been aggravated by powerful forces acting in concert to hold silver low in the face of the catastrophic decline in supplies, and other factors such as attempts to call in leased silver and naked short positions being impossible to cover, silver is now poised for a climb into the stratosphere---the most precipitous sustained rise in commodity history. Unlike the 1979-1980 episode, this time there will be no retreat to low prices after the big blast. Based on figures available from the Comex, Apex Silver and Personal Finance, the Comex warehouses contain only 3% of the silver necessary to rewire the U.S. power grid for superconducting power transmission, to say nothing of all the other unrelenting demands on silver consumption. Other advanced nations are also moving towards superconductivity. (The Apex 2000 annual report says one ton of silver per mile will be needed, whereas another authoritative source claims only 400 ounces. This is a case of mutual exclusion---let the reader decide who is in error. Even without superconductivity, we are still in a hole to the extent of at least 100 million ounces per annum, and when leasing stops, the unfulfilled demand is far more than sufficient to create a buying panic in silver!) What follows is a speculative account of events during the first month after the blast off in silver prices begins. It could commence in late October to December 2001 while NYSE stocks are probably in a free fall, succumbing to the same contagion factors, and a new assortment of economic negatives, which crushed the NASDAQ from over 5000 to a recent low of 1683. Against this background of economic disease and crushing public and private debt, the banking panics of the overleveraged financial system await the eruption in precious metals prices to act as the lit fuse, and, along with a dollar set to drop like a rock, will throw napalm onto the precious metals fire. No doubt the public will be called upon to bail out those involved in the gold carry trade, and as the Fed inflates the supply of dollars, inflation will reappear with unbelievable fury in gold and silver. A new confidence in precious metals as wealth and medium of exchange is soon to become prominent in the public mind, as they witnessed the severe depreciation of other assets.

Day one: silver opens on the Comex at $5.50, having drifted up from late summer lows. After the lunch hour a major leasing source announces its silver is exhausted. Prices jump to $6.75 by the sessions close. The next morning prices continue sharply up as a short covering nightmare unfolds. Unhedged silver equities surge 150 to 425% in 2 sessions. Silver passes $8.25 by days end. Gold is over $375 and climbing; platinum and palladium are north of $550. Daredevil stock traders who could not quit while they were ahead make another handsome haul by selling into the biggest rally yet, but as they watch for a price pullback, which never comes, they are shut out of additional gains and future dividends. There is no dip available to re-enter the market at lower levels with a larger position. Silver moves up strongly on a daily basis, and attempts are made to call in silver leases, which aggravates the crisis. All leasing stops abruptly, and all hell breaks loose in the silver market. One of the meanest hornets nests in financial history is unleashed! Bullion banking goes belly up, and several members of that occupation flee to nations without extradition treaties. Limit moves daily are not news as much as the word that silver is beginning to trade in a cash only market. By the end of the second week of the crisis, many industrial users cannot get delivery of metal, and the unbridled buying panic erupts---the sun catches on fire! Its deja-vu late 1979 again, except that many market participants realize this time, the crisis is exponentially worse: prices are soaring and supplies do not exist to bring the price down, so defaults are rampant. Lawsuits are filed, and silver users mess squealing worms while raving to the CFTC and Comex officials that they have to halt the alleged speculation in the silver market, still attempting to deny that a physical shortage has finally caused the price to move. Comex officials institute the rule change which wiped out the Hunts in January 1980óthey place a freeze on buy orders for silver, but this does not stop the crisis, as the physical shortage is real, and the rule change is scrapped within 2 sessions; other meddling rule changes are contemplated, but no rule changes can cure the shortage! Shareholders of corporations dependent on silver are faced with sharply declining share prices, just like 22 years ago (New York Times, February 3, 1980, section III, page 2, column 3; and Forbes, December 10, 1979, page 124). And that, after the first shock wave of NYSE declines; rolling power blackouts, layoffs, severe winter weather in the Northeast and ominous news from overseas adds to the gloom. Employees of silver consuming manufacturers face layoffs due to the raw material shortage. Holders of short positions ride a razor blade into a pool of acid in the derivative meltdown, as they cannot conjure real silver out of thin air! Forward selling treachery on the part of management guts stockholders of heavily hedged companies; a class action lawsuit will eventually reach the Supreme Court. Australian lawmakers are besieged by devastated stockholders of short selling companies. A Senator asks the Federal Reserve and the Treasury to intervene, but they have no silver; Greenspans wrinkles look deep enough for planting watermelon seeds. Investors holding physical silver smell blood in the water and are gloating, refusing to sell as the price climbs higher. Silver is now an absolute powerhouse and dynamo of wealth! Many have the attitude of holding their metal until the Grand Canyon is gone! The skyrocketing price of silver bulldozes all opposition like General Sherman marching through Georgia! Just one small Mercury dime, 1916-D in MS-70 condition now buys a nice middle class home. As Arab oil money moves into silver (exactly as it did before, New York Times, April 19, 1980, page 29, column 6), smart money from all over the world from Asian exporters to European manufacturers scrambles in a mad frenzy to get into silver and gold, realizing the price can only move higher on a sustained basis. Platinum and palladium charge past $1,500 per ounce; rhodium surpasses $7,000. Angry protestors in a vile mood picket the Bank of England daily over the disposal of their national gold treasure at far lower prices. On the floor of the U.S. House of Representatives and in the Senate, legislation is introduced to either de-list silver from Comex trading, or to force the Comex to not interfere with a new, free market in silver prices. Officials of the CFTC, NY Mercantile Exchange, Silver Users Association, hedge funds and silver mining company executives are summoned to testify at Congressional hearings concerning the suddenly recognized silver shortages, and how years of naked short selling have deepened the crisis by choking off production. The Gold Anti-Trust Action Committee becomes widely known to Americans, and Theodore Butler is invited to testify before Congress concerning his warnings about the silver manipulation, which appear in the public record on the Internet. A panel of experts including David Morgan and Robert Chapman are invited to write a series of editorials to appear in the newsletter of a national businessmens association concerning events in silver, and their suggestions for monetary reform of America. Consumers deluge retail stores, emptying the shelves of silver based items like film and mirrors, whose prices have been hastily marked up. Jewelers are accused of price gouging as they are forced to add steep mark-ups to their gold and silver items, so as not to sell below replacement cost. Hotel and motel operators are on the alert against guests stealing mirrors. A medium scale silver user is arrested in a scandal of attempting to bribe a funeral home chain operator to steal silver amalgam fillings from the deceased. All electronic products containing silver have fat surcharges imposed by manufacturers, exactly as in the last crisis (New York Times, Sunday, February 7, 1980, section IV, page 8, column 6).

By the middle of the third week, silvers rapidly expanding mushroom cloud tops out in the stratosphere, and casts an immense shadow over world markets. Real estate prices have started a steep decline. Distinguished professors of economics at super rich sponsored universities begin writing scholarly articles for arcane journals with tiny readership as to why the cataclysm in silver and gold prices has happened. Financial commentators for CNBC tilt their heads like bewildered puppies as they make remarks concerning how they just don't understand why precious metal should have ever appreciated. A previously unknown, self constituted expert a la Martin Armstrong will charge that Comex silver was all moved to London, where it is so abundant as to be coming out of the cracks in the pavement; yet United Kingdom manufacturers are on a rationing system. The voice warns that silver is in danger of falling below the price of manure; but the marketplace screams otherwise. (Melanie Johnson, Member of Parliament, admitted in a letter dated 11 December 1999 that the British government has no silver reserves, see www.gata.org). Representatives of developing nations without silver resources of their own protest to the United Nations that the developed countries are soaking up all silver production. The abrupt transition to sharply increased prices fails to unleash nearly as much scrap silver going to refiners from the public as would have been thought by some, as most of that overhang was eliminated 22 years ago. Silver disposals are tiny in contrast to the fantastic demand. Investors too numerous to count already disinvested themselves of their silver before the aggressive up-tick, having thrown in the towel in the long wait for escalating prices. Mexico and Peru both announce a total embargo on export of their silver, exactly as they did in 1979, additionally becoming buyers for their central bank reserves (New York Times, October 19, 1979, page 8, column 3 and Fortune magazine, High Stakes in the Silver Game, December 17, 1979, page 57). Consensus in the Mexican senate is reached that the nation needs to begin circulating silver coins again, and going to a Silver Standard is urged throughout Latin America. With Cuba the only Marxist regime in this hemisphere and not being a silver producer, caution is urged that miners receive market prices for their metal. India, never forgetting the negligence of Union Carbide in the Bhopal poison gas disaster on December 2 and 3, 1984, which caused 16,000 deaths, thumbs its nose at the Silver Users Association, of which Union Carbide is a member. India announces it will not export silver at any price, since they need it for their own infrastructure, repeating their actions in the crisis a generation ago (Fortune, December 17, 1979, page 57). This also presents India a chance to smirk at the United States in retaliation for the sanctions imposed by the Clinton administration over Indian tests of 5 nuclear devices in May 1998. Pleas from the Bush administration for India to release quantities of its silver are rebuffed, with the Indian ambassador repeating statements made in the wake of the crisis a generation ago that it has taken India centuries to accumulate its silver, and that they will not squander it (National Geographic, September 1981, page 307). Treasury Secretary Paul O Neill, formerly a director of Eastman Kodak, finds himself powerless to influence India, Mexico and Peru to release silver. By this point silver has already exceeded $50 per ounce, and moves beyond $75 at these announcements. All this having happened within a matter of a few weeks, the investing public, which was burned badly by Nasdaq and Dow Jones price declines, begins a pay any price stampede into physical silver and silver equities, like trying to get all the water in Lake Superior through the nozzle of a squirt gun. Gold is north of $700 per ounce while silver narrows the value ratio, but average investors, millions of them, find that the selection of quality silver mining corporations is alarmingly small, and their shares are climbing like rockets in proportion to the sudden, fantastic increase in their asset base. Investors who bought while artificial low prices were still in effect are suddenly, but solidly, rich. The same analysts who hyped bloated, near worthless securities of dot-coms with no income and tiny assets and steered tens of millions of people into ruin, are now doubly recognized for the travesty of their alleged expert status, as they failed to alert the investing public to the inevitability of silver/gold wealth impending. Back in 2000 when the market cap of Cisco was $555.4 billion for a day, some of those simple minds perhaps thought that each share was going to be worth $555.4 billion in a few more trading sessions. They believed all they had to do was invest in tech and software stocks and their investment would be raised almost literally to the power of infinity! Instead they got a lot of margin calls, some even borrowing on home equity to buy shares at the zenith of the bubble now residing in apartments. Investors who bought such stocks near the top, then rode them all the way to the bottom, feel desperately sick to see the so-called barbarous relics, silver and gold, climb to such commanding heights, and wonder why they could not see it coming, in spite of the publicized actions of various billionaires moving into silver many months earlier (Forbes, August 7, 2000, page 64 and other sources). With the facts of long-term short corner manipulation becoming more widely known, consumers organizations demand to know why market participants held the price low for years, making a gradual transition to higher prices impossible, and creating end-user product shortages. With the heat on, some regulatory agency officials think how more comfortable life would be in Algeria. The Dow has wilted below 7,000; the Nasdaq has shriveled to 950. With silver prices escalating daily, holders of physical withhold their metal from sale, taking a wait and see approach to see how high the chart will go. A deliriously happy silver investor sees a billboard while driving down the highway, and thinks, thats the size chart will be needed to plot silvers rise! By holding their silver back, victorious silver investors add more pressure to the silver environment. USA Today reports the sale of a $175,000 sports car for a pile of average circulated Franklin half-dollars. National news reports a woman who sells a few thousand silver mining shares, and buys enough fine diamonds to fill Hoss Cartwrights ten-gallon hat. An investigating Senator remembers all the silver dimes, quarters and half dollars he saw as a young man, and is haunted by the memory.

By the end of the fourth week after the silver blast-off, the Middle East blows up again, worse than before, with Israel a nonstop maelstrom of turbulence. An Islamic military alliance led by Iran invades the Saudi oilfields, having overrun Kuwait first. Petroleum stages a monumental upward spike, driving airline stocks to the ground (is this why investor David Bonderman announced his sale of 1.1 million airline shares in late August?) As happened almost 22 years ago, sharply rising precious metals prices are partly attributed to Middle East tensions and references are made to World War III (Time, January 14, 1980, page 57). We are now witnessing the most awesome price surge in commodity history! While world attention is focused on the new Middle East crisis, China bombards Taiwan with missiles for 5 hours then follows up with a massive invasion. The Reds secure control of the one time Portuguese colony just as Americans are waking up. With military tensions concerning China adding fuel to the Middle East firestorm, silver surges past $275 an ounce on the open market, and gold moves beyond $1700. Heavily hedged Australian miners are as dead as Julius Caesar! There is no more foolish talk from the Gnomes of Zurich concerning China dumping tons of silver on the world market. The Dow has plunged below 6,000 and the Nasdaq skids to 775. In contrast, certain Canadian Venture Exchange stocks, and the XAU Index, stand out like the Colossus of Rhodes! A war erupts between industrial silver users and nations withholding their silver from export. A consortium of international financing institutions offers to trade Latin American debt for silver, gold and platinum exploration rights. Shareholders of the best-positioned mining companies see their shares up a mind-blowing 60,000% due to horizontal leverage (number of ounces per share) and 25,000 buyers to every 1 seller in a global bidding war for more silver than is possibly available! Men like Gates, Soros, Kaplan, Buffett, Bacon, Fleckenstein and Tisch are vilified as vultures in some sections of the press by those who secretly envy them, and those who held silver prices below cost of production for so many years accuse the longs of engineering the crisis. Subscribers of a well-known publication want to know why it featured the viewpoint in its November 2000 issue that silver was dying as a precious metal because of alleged oversupply in the face of a well-publicized 11 years of huge deficits. Congressional hearings attended by generals, admirals and defense contractors begin concerning the depletion of silver in the U.S. Strategic Stockpile (Reuters, November 27, 2000) and why silver prices were held so low for a generation while supplies dried up, causing the crisis by making production unprofitable. Douglas Dillon, the Treasury Secretary who took the U.S. off circulating silver in 1964 after the Johnson administration denied it was going to do so, turns over in his grave. The late Treasury Secretary William Simon, of 1979-1980 Comex management, is not nominated as someone whose image should appear on silver commemorative coins. Silver rationing has been in effect for 2 weeks, with only industries vital to national defense getting it on a steady basis, plus users of medical x-ray film. A medical research team reports that silver destroys a deadly virus after antibiotics fail. In newspaper classified ads, silver based film is offered by many persons for huge premiums over what it cost a month earlier. Shareholders of highly leveraged, unhedged silver producers are gloating like a gladiator over a disemboweled opponent, as they realize that they hold title to what little silver is left in the crust of the earth, over 80% of it having been mined and consumed already (National Geographic, September 1981, page 313 and The New Boom in Silver by Jerome Smith, 1983, pages 32-34; one of the well known companies has a mine discovered in 1864 and another discovered in 1880). Management of these silver companies who avoided the mistake of being in production at or below break-even prices, suddenly has stock options collectively worth over $75 billion and surging upwards, as they are sitting on assets worth over 3,500 times the market capitalization of their companies only a few months earlier. In Vancouver and the Cayman Islands, toasts are made to the new patron saint of the silver boom, Sir Francis Drake (1540-1596), the Englishman who raided Spanish treasure galleons and plundered precious metal taken from Rio de la Plata (Silver River) on the coast of Peru. After 5 more months the gold/silver ratio has suddenly narrowed to 6 to 1 with silver leaping above $500 per ounce. The prospect is now on the horizon of silver passing gold in price! The crisis culmination of some 5,000 years of silver mining and consumption is a stunning bonanza for those who saw it coming and took positions before silver went into orbit, as the exploding world population combined with shrinking silver resources has created an opportunity for wealth unprecedented in history! Governments and individuals are forced to acknowledge that silver is not only an absolutely vital commodity in a desperate supply squeeze, but that it is indeed, along with gold, in and of itself, money, medium of exchange and currency in the truest sense of the word.

March 23, 2006

New high for Copper

copper24.gif

Spot Uranium rises to US$40.50

Up from $30.00 last October. The Most Bullish metal of all.

March 22, 2006

Can't beleive what I'm reading..

"One Bush adviser sees political promise for the President in a nuclear peril. ‘Certainly, there's going to be a serious showdown on Iran,’ he said. ‘He's very relevant on that, and that may help his numbers a little bit.’"

--Time Magazine, March 14, 2006

getting near the end..

ANNANDALE, Va. (MarketWatch) -- A couple of investment newsletters in recent days have drawn readers' attention to a subsurface pattern in the market that has very curious implications for where we are in the market's cycle.

It seems that in recent months, stocks of companies with the strongest balance sheets have markedly lagged shares of firms with the weakest financials. In fact, it has not even been close.

Late last week, for example, Richard Moroney, editor of Dow Theory Forecasts, reported that, so far in 2006, the ten percent of stocks scoring the worst according to measures of "debt levels, interest coverage, and profit margins" have gained nearly 13%, versus a less than 5% gain for the ten percent of stocks at the opposite end of the spectrum.


Moroney reported a similar pattern when stocks are ranked according to "three- and five-year growth rates, along with return on equity, assets and investment." The 10% of stocks scoring the worst on these dimensions have gained nearly 11% so far this year, in contrast to 1.4% for the 10% with the best scores on these dimensions.

In a similar vein, Standard and Poor's reported Monday that "stocks with average to low S&P Quality Rankings (B+, B, B-, and C) have continued to outperform those with high Quality Rankings in recent months." S&P's Quality Rankings are based on dividends and the quality of earnings.

What does this mean? As best as I can determine, the historical pattern is for low-quality issues to outperform the high-quality issues both at the beginning of a bull market and at its end.

Take your pick.

Consider first what happens at the beginnings of bull markets. That's typically when the economy is just emerging from a recession and economic growth is beginning to pick up momentum. Such growth will have the most dramatic impact on companies living at or close to the financial margin, since they are the ones whose very survival was most in question during the recession.

To be sure, it takes a while for this revived economic strength to filter its way down to companies' bottom lines. But the stock market is a discounting mechanism, and it doesn't wait for those balance sheets to improve before bidding these companies' stock prices strongly higher.

Hence the strong relative strength at the beginning of bull markets of stocks of companies with the lowest financial quality.

At the other end of the spectrum, consider that bull markets often come to an end in a speculative blow-off. Ironically, the companies that typically are the beneficiary, temporarily, of such speculative excesses are the lowest-quality companies. There no doubt are many reasons for this, but one is that higher-quality companies cannot possibly satisfy the demands for earnings and revenue growth demanded by an increasingly greedy investment public at that stage of the market's cycle.

By way of example, I need only remind readers of the Internet bubble of the late 1990s and early 2000.

Which of these two extremes is more likely to apply to today's markets? It would seem difficult to argue that we today are at the beginning of a new bull market, since by almost all counts we are in the fourth year of the bull market that began in October 2002. So by process of elimination we are left to conclude that we must be close to the end of a bull market.

If so, then the best that the bulls can hope for right now is that the outperformance so far this year of the lowest quality issues is merely temporary and doesn't represent a meaningful trend. I interpret this to be Moroney's meaning when he writes in his latest issue: "In our view, strength in high-quality blue chips is exactly what the broad market needs."

Are there any signs of a high quality revival? Richard Tortoriello, a quantitative equity analyst at S&P, thinks there are. He notes that the "rate of [the lowest quality issues'] outperformance has [recently] slowed."

In other words, though the lowest quality issues are still beating the highest quality ones, they aren't beating them by as much as they were before.
To be sure, this is not much more than a glimmer of hope at this point. But, when interpreting the marked relative strength recently of the lowest quality issues, this glimmer is about all that the bulls can point to.

Xstrata after Oxiana?

Copper miner Xstrata was another rumored potential predator in the sector as speculation emerged that the company is about to launch a bid for Australian copper and gold company Oxiana, according to mining analysts at Investec Securities. Oxiana closed up more than 10% in Australian trade

March 21, 2006

Bit of a worry...

The discovery of huge hidden losses at General Motors' finance arm
has raised fresh fears of bankruptcy at the world's biggest
carmaker, sending tremors through the credit derivatives markets.

The struggling group asked for a filing delay after admitting to an
extra $2 billion (£1.1 billion) in accounting errors at its finance
arm GMAC, raising total losses last year to $10.6 billion. The news
triggered a sharp spike in the cost of default insurance on GMAC's
bonds, rising 75 basis points overnight.

Car-parts supplier Dana Corp. defaulted last week on $2.5 billion of
debt, following Delphi and Tower Automotive last year.

Concern that General Motors may now be sliding towards the brink --
linked to an estimated $200 billion in credit derivatives -- has
renewed fears that the overheated credit swap market could seize up
in a crisis.

Global investors are already jittery after the crash of the
Icelandic krona, which sparked flight from hot assets as far afield
as Hungary, Turkey. and New Zealand.

There is concern that monetary tightening in Europe, Japan, and
America in unison might drain much of the excess liquidity fuelling
the global asset boom.

Timothy Geithner, president of the New York Federal Reserve, warned
in a recent speech that the $300,000 billion derivatives market had
raced ahead of the infrastructure needed to support it.

He said the plethora of new instruments may have led to a more
dangerous concentration of risk.

"They have not ended the tendency of markets to occasional periods
of mania and panic. They have not eliminated the possibility of
failure of a major financial intermediary. And they cannot fully
insulate the broader financial community from the effects of such a
failure."

"There are aspects of the latest changes in financial innovation
that could increase systemic risk in some circumstances, by
amplifying rather than dampening the movement in asset prices," he
said.

The New York Fed was caught off guard in 1998 when the Russian
default caused global bond spreads to widen further than computer
models had programmed.

Long Term Capital Management -- a hedge fund with two Nobel
laureates on its team -- was left on the wrong side of almost $100
billion in trades on Italian, Spanish, and Portuguese bonds, among
others, until it was rescued by the emergency rate cuts. The Fed
said at the time the meltdown had put the entire global financial
system at risk.

This time Mr Geithner is demanding that the International Swaps and
Derivatives Association clean up its act before -- not after -- any
credit crunch. He said the "most conspicuous" problems were in the
$12,400 billion market for credit derivatives, which has doubled in
size every year for the last decade. A "significant" proportion of
total trades do not even match up, he said.

Credit derivatives are an easy way to bet on credit quality without
having to buy actual bonds, which are less liquid. Mr Geithner said
the risk was very heavily concentrated, with America's 10 biggest
banks holding $600 billion in potential credit exposure (on $95,000
billion of notional trades), equal to 175 percent of their financial
reserves.

"The same names show up in multiple types of positions. These create
the potential for squeezes in cash markets, magnifying the risk of
adverse market dynamics," he said.

Market traders are scathing about such warnings, accusing the
watchdogs of basic ignorance. "Regulators have been going on like
this for five years now," said one veteran.

Unconvinced by such blithe assurances, the investor Warren Buffett
has been warning since 2003 that derivatives are a ticking "time
bomb," although his new metaphor is New Orleans' burst levee.

This month he was explaining it has cost Berkshire Hathaway $404
million to extract itself from derivatives inherited through General
Re, the reinsurance group.

He said: "We are a canary in this business coal mine. Our experience
should be particularly sobering because we were a better-than-
average candidate to exit gracefully.

"General Re has had the good fortune to unwind its supposedly liquid
positions in a benign market. It could be a different story for
others in the future," Mr Buffett said.

----------------------------------------------------

NASA CLIMATOLOGIST SPEAKS OUT

SCIENCE -- NASA CLIMATOLOGIST SPEAKS OUT ABOUT ADMINISTRATION'S ATTEMPTS TO SILENCE HIM: James Hansen, the head of NASA's top institute studying the climate and arguably the world's leading researcher on global warming, told CBS's 60 Minutes last night that the Bush administration is censoring what he can say to the public. As proof, Hansen displayed a 2004 email he received that read, "The White House [is] now reviewing all climate related press releases." Hansen believes global warming is accelerating, pointing to the melting Arctic and to Antarctica, where new data show massive loss of ice to the sea. "In my more than three decades in the government I've never witnessed such restrictions on the ability of scientists to communicate with the public," said Hansen. The White House disputes the science behind global warming. While Bush ignores the counsel of the world's leading scientists who warn of pending environmental disaster, he solicits the opinions of fiction author Michael Crichton who tells him the science on warming is underwhelming. The White House has also relied on the advice of oil industry lobbyist Philip Cooney who, while he worked on the Council on Environmental Quality, edited government climate reports to play down links between greenhouse gas emissions and global warming. Hansen explains the danger of the White House's ignorance: "If the ice sheets begin to disintegrate, what can you do about it? You can’t tie a rope around the ice sheet. You can’t build a wall around the ice sheets. It will be a situation that is out of our control."

Discontinuance of M3

 What Tosh!
On March 23, 2006, the Board of Governors of the Federal Reserve System will cease publication of the M3 monetary aggregate. The Board will also cease publishing the following components: large-denomination time deposits, repurchase agreements (RPs), and Eurodollars. The Board will continue to publish institutional money market mutual funds as a memorandum item in this release.

Measures of large-denomination time deposits will continue to be published by the Board in the Flow of Funds Accounts (Z.1 release) on a quarterly basis and in the H.8 release on a weekly basis (for commercial banks).

M3 does not appear to convey any additional information about economic activity that is not already embodied in M2 and has not played a role in the monetary policy process for many years. Consequently, the Board judged that the costs of collecting the underlying data and publishing M3 outweigh the benefits.

March 20, 2006

Oxiana Revise Net Mineral Resources

Total Oxiana Group Mineral Resources at year end, net of mining depletion, are estimated to contain an estimated 7.1 million ounces of gold, 72 million ounces of silver, 3.7 million tonnes of copper, and 0.9 million tonnes of zinc (0.5g/t Au, 0.5% Cu, 0.5% Zn cut-off). This represents an increase of 900,000 ounces of gold, 28 million ounces of silver, 700,000 tonnes of copper, and 900,000 tonnes of zinc over 2004 estimates. This is a substantial increase in the value of Oxiana’s Resource base.
At Sepon a reduction in oxide gold Resources of 0.9Moz of gold was due to development of more tightly constrained Resource models and to depletion. Significant mineralisation with potential to become new deposits was discovered in 2005, however insufficient drilling had been undertaken by year end for them to be fully represented in this Resource Statement. It is expected that this new material will be converted to Resources in 2006. At Prominent Hill in South Australia, 1.0Moz of gold were added through additional drilling of the eastern gold only zone and the acquisition of Golden Grove in Western Australia contributed 0.6Moz. Overall, silver Resources rose through the acquisition of Golden Grove. An additional 1.0 million tonnes of contained copper was added to the copper Resource inventory made up of approximately 700,000 tonnes from the Thengkham discoveries at Sepon and 300,000 tonnes from Golden Grove. The acquisition of Golden Grove added 903,000 tonnes of zinc and 126,000 tonnes of lead to the Resource inventory in addition to the gold, copper and silver Resources above.
The remodelling noted above, along with the redefinition of oxide-primary gold boundaries and incomplete Resource to Reserve conversion work, resulted in gold Reserves at Sepon being reduced to 0.4 million ounces net of mining depletion. Some of the potential new deposits identified in 2005 require further drilling before being available for conversion to Resources and then Reserves.

These Reserves are currently derived from the oxide and partial oxide Resource base. Copper Ore Reserves at the Khanong deposit were updated following the completion of grade control and limited extension drilling programs and remain essentially unchanged net of depletion from 2004.

Contained metal in Ore Reserves at Golden Grove increased to 453,000 tonnes of zinc, 128,000 tonnes of copper, 238,000 ounces of gold, 13 million ounces of silver and 56,000 tonnes of lead. An initial Ore Reserve for Prominent Hill is anticipated mid-2006. 2006 Resource and Reserve Program.At Sepon the gold focus will be on conversion of identified Resources to Reserves along with the ongoing program to outline Resources at new discoveries and quickly convert them to Reserves. It is expected that the primary gold Resources will be available for conversion to Reserves when feasibility studies have been completed. The copper focus will be on continuing to increase the Resource and Reserve base at Thengkham and Khanong as part of the copper expansion feasibility study.

Further conversion of Golden Grove Resources to Reserves is expected in addition to further testing of Resource potential at depth and along strike.

At Prominent Hill an updated Resource and an initial Reserve will be announced when available as part of the Bankable Feasibility Study. This Reserve optimisation work involves an extensive Group-wide drilling and evaluation
program which is well underway at all sites. Further intensive exploration and Resource development drilling also continues across the Company’s highly prospective property portfolio
with up to 25 drill rigs active.

Owen L Hegarty

Earth Bugs Keen on Space Travel


For the first time, millions of bacterial spores have been purposely exposed to space, to see how solar radiation affects them and the results supported the idea that no only could life have arrived on Earth on meteorites, but that considerable material has flowed between planets.

Gerda Horneck of the German Aerospace Centre in Cologne and her colleagues used the Russian Foton satellite for an experient.

They exposed 50 million unprotected spores of the bacterium Bacillus Subtilis outside the satellite. UV radiation from the Sun killed nearly all of the spores,and did so even when the spores were confined under quartz.

To test if meteorites might protect bacteria on their journey through space, Horneck and her colleagues mixed samples of 50 million spores with particles of clay, red sandstone, Martian meteorite or simulated Martian soil and made small lumps a centimetre across.

Between 10,000 and 100,000 spores of the original 50 million survived and when mixed with red sandstone, nearly all survived, suggesting that even meteorites a centimetre in diameter can carry life from one planet to another, if they completed the journey within a few years.

Had the rocks been a meter across, bacteria could survive a long trip indeed.

Another team team ran computer models of giant impacts like Chicxulub. In the simulations, millions of large boulders were ejected from the earth.   About 30 boulders from each Earth impact even reached Titan, and they entered Titan's atmosphere  slower than most meteors hit Earth's atmosphere. "Those reaching Titan can aerobrake and drop their fragments onto the surface," says Gladman. Big Rocks from Earth have no doubt reached Enceladus as well.

"That kind of entry should be no problem" agreed Allan Treiman of the Lunar and Planetary Institute in Houston,quoted in New Scientist. Bacteria were found in weckage of the shuttle Columbia when it re-entered Earth's atmosphere in 2003. And Earthly lichen survived when exposed to the harsh environment of space.

"Early in the history of Mars and Earth, there could have been exchange of biological material between the two planets," agrees Benton Clark, a specialist at Lockheed Martin in Colorado.

Its starting to look like the Planets, when they were young, swapped a lot of spit and that rocks from the Earth, kicked out of the solar system by Jupiters gravity are carrying earth bacteria to other solar systems.

 

New Scientist, 11 January 2002

March 19, 2006

Significant Energy Statistics

 
  • Oil reserves
  • Oil production
  • Oil consumption
  • Gas reserves
  • Gas production
  • Gas consumption
  • Coal reserves
  • Coal production
  • Coal consumption
  • Energy consumption
  • Australian oil output peaks on slippery slope

     Australian oil output may be basking in a three-year boom but shrinking fields, tougher geology and speedy development technology will force projects to peak quicker and decline faster than expected.

    A flush of new fields will make Australia the biggest contributor to Asia-Pacific's production growth for a second year running, giving regional refiners -- who import about two-thirds of their crude from outside of Asia -- new options.

    Those gains may be fleeting if recent developments are any guide, analysts and exporters say, making it tricky for buyers to plan future supplies as oilfields in Asia Pacific's fifth-largest producer ramp up fast but taper off just as quickly.

    For instance, output from the Mutineer-Exeter oilfield, off Western Australia, has nearly halved since it came onstream 11 months ago, surprising traders who had counted on a more sustained and prolonged source of supply.

    Economics of Empires

     The Austrian theory of money, credit, and business cycles teaches us that there is no in-between Scylla and Charybdis. Sooner or later, the monetary system must swing one way or the other, forcing the Fed to make its choice. No doubt, Commander-in-Chief Ben Bernanke, a renowned scholar of the Great Depression and an adept Black Hawk pilot, will choose inflation. Helicopter Ben, oblivious to Rothbard’s America’s Great Depression, has nonetheless mastered the lessons of the Great Depression and the annihilating power of deflations. The Maestro has taught him the panacea of every single financial problem—to inflate, come hell or high water. He has even taught the Japanese his own ingenious unconventional ways to battle the deflationary liquidity trap. Like his mentor, he has dreamed of battling a Kondratieff Winter. To avoid deflation, he will resort to the printing presses; he will recall all helicopters from the 800 overseas U.S. military bases; and, if necessary, he will monetize everything in sight. His ultimate accomplishment will be the hyperinflationary destruction of the American currency and from its ashes will rise the next reserve currency of the world—that barbarous relic called gold

    AMERICAN THEOCRACY Kevin Philips (Review)

    AMERICAN THEOCRACY
    The Peril and Politics of Radical Religion, Oil, and Borrowed Money in the 21st Century.
    By Kevin Phillips.
    462 pp. Viking. $26.95.

    The American press in the first days of the Iraq war reported extensively on the Pentagon's failure to post American troops in front of the National Museum in Baghdad, which, as a result, was looted of many of its great archaeological treasures. Less widely reported, but to Phillips far more meaningful, was the immediate posting of troops around the Iraqi Oil Ministry, which held the maps and charts that were the key to effective oil production. Phillips fully supports an explanation of the Iraq war that the Bush administration dismisses as conspiracy theory that its principal purpose was to secure vast oil reserves that would enable the United States to control production and to lower prices. ("Think of Iraq as a military base with a very large oil reserve underneath," an oil analyst said a couple of years ago. "You can't ask for better than that.") Terrorism, weapons of mass destruction, tyranny, democracy and other public rationales were, Phillips says, simply ruses to disguise the real motivation for the invasion.

    And while this argument may be somewhat too simplistic to explain the complicated mix of motives behind the war, it is hard to dismiss Phillips's larger argument: that the pursuit of oil has for at least 30 years been one of the defining elements of American policy in the world; and that the Bush administration unusually dominated by oilmen has taken what the president deplored recently as the nation's addiction to oil to new and terrifying levels. The United States has embraced a kind of "petro-imperialism," Phillips writes, "the key aspect of which is the U.S. military's transformation into a global oil-protection force," and which "puts up a democratic facade, emphasizes freedom of the seas (or pipeline routes) and seeks to secure, protect, drill and ship oil, not administer everyday affairs."


    Phillips is especially passionate in his discussion of the second great force that he sees shaping contemporary American life radical Christianity and its growing intrusion into government and politics. The political rise of evangelical Christian groups is hardly a secret to most Americans after the 2004 election, but Phillips brings together an enormous range of information from scholars and journalists and presents a remarkably comprehensive and chilling picture of the goals and achievements of the religious right.

    He points in particular to the Southern Baptist Convention, once a scorned seceding minority of the American Baptist Church but now so large that it dominates not just Baptism itself but American Protestantism generally. The Southern Baptist Convention does not speak with one voice, but almost all of its voices, Phillips argues, are to one degree or another highly conservative. On the far right is a still obscure but, Phillips says, rapidly growing group of "Christian Reconstructionists" who believe in a "Taliban-like" reversal of women's rights, who describe the separation of church and state as a "myth" and who call openly for a theocratic government shaped by Christian doctrine. A much larger group of Protestants, perhaps as many as a third of the population, claims to believe in the supposed biblical prophecies of an imminent "rapture" the return of Jesus to the world and the elevation of believers to heaven.

    Prophetic Christians, Phillips writes, often shape their view of politics and the world around signs that charlatan biblical scholars have identified as predictors of the apocalypse among them a war in Iraq, the Jewish settlement of the whole of biblical Israel, even the rise of terrorism. He convincingly demonstrates that the Bush administration has calculatedly reached out to such believers and encouraged them to see the president's policies as a response to premillennialist thought. He also suggests that the president and other members of his administration may actually believe these things themselves, that religious belief is the basis of policy, not just a tactic for selling it to the public. Phillips's evidence for this disturbing claim is significant, but not conclusive.

    THE third great impending crisis that Phillips identifies is also, perhaps, the best known the astonishing rise of debt as the precarious underpinning of the American economy. He is not, of course, the only observer who has noted the dangers of indebtedness. The New York Times columnist Paul Krugman, for example, frequently writes about the looming catastrophe. So do many more-conservative economists, who point especially to future debt particularly the enormous obligation, which Phillips estimates at between $30 trillion and $40 trillion, that Social Security and health care demands will create in the coming decades. The most familiar debt is that of the United States government, fueled by soaring federal budget deficits that have continued (with a brief pause in the late 1990's) for more than two decades. But the national debt currently over $8 trillion is only the tip of the iceberg. There has also been an explosion of corporate debt, state and local bonded debt, international debt through huge trade imbalances, and consumer debt (mostly in the form of credit-card balances and aggressively marketed home-mortgage packages). Taken together, this present and future debt may exceed $70 trillion.

    The creation of a national-debt culture, Phillips argues, although exacerbated by the policies of the Bush administration, has been the work of many people over many decades among them Alan Greenspan, who, he acidly notes, blithely and irresponsibly ignored the rising debt to avoid pricking the stock-market bubble it helped produce. It is most of all a product of the "financialization" of the American economy the turn away from manufacturing and toward an economy based on moving and managing money, a trend encouraged, Phillips argues persuasively, by the preoccupation with oil and (somewhat less persuasively) with evangelical belief in the imminent rapture, which makes planning for the future unnecessary.

    There is little in "American Theocracy" that is wholly original to Phillips, as he frankly admits by his frequent reference to the work of other writers and scholars. What makes this book powerful in spite of the familiarity of many of its arguments is his rare gift for looking broadly and structurally at social and political change. By describing a series of major transformations, by demonstrating the relationships among them and by discussing them with passionate restraint, Phillips has created a harrowing picture of national danger that no American reader will welcome, but that none should ignore.

    The American Dream in reverse.



    We are living the American Dream in reverse.

    The minimum wage buys less today than it did when Wal-Mart founder Sam Walton opened his first Walton's 5 & 10 in Bentonville, Arkansas in 1951.

    It would take more than $9 in 2006 to match the federal minimum wage peak reached in 1968, adjusting for inflation. At today's $5.15 an hour, it takes nearly two minimum wage workers to earn what one made 38 years ago.

    The minimum wage sets the wage floor. When the minimum wage is stuck in quicksand, it drags down wages for workers up the pay scale as well. Hourly wages for average workers are 11 percent lower than they were in 1973, despite rising worker productivity.

    It wasn't always like this. Between 1947 and 1973, worker productivity rose 104 percent while the minimum wage rose 101 percent, adjusting for inflation.

    The United States has become a downwardly mobile society. The American Dream is the American Pipe Dream for more and more people.

    The downward shift in wages is moving higher up the career ladder. The inflation-adjusted earnings of college-educated workers have fallen since 2000.

    We are breaking records we don't want to break. Record numbers of people have no health insurance.

    The share of national income going to wages and salaries is at the lowest level since 1929—the year that kicked off the Great Depression. The share going to after-tax corporate profits, which heavily benefit corporate executives and other wealthy Americans through increased dividends and capital gains, is at the highest level since 1929.

    "In 2005, for the first time since the Great Depression, Americans borrowed more than they earned," Parade magazine reports in "What People Earn."

    Fueled by obscene wage inequality and tax cuts, income and wealth are piling up at the very top. More and more jobs are keeping people in poverty instead of out of poverty. Middle-class households are a medical crisis, outsourced job or busted pension away from bankruptcy.

    Contrary to myth, the United States is not becoming more competitive in the global economy by taking the low road. We are in record-breaking debt to other countries. We have a record trade deficit, hollowed-out manufacturing base and deteriorating research and development. The infrastructure built by earlier generations of taxpayers has eroded greatly, undermining the economy as well as health and safety.

    Households have propped themselves up in the face of falling real wages by maxing out work hours, credit cards and home equity loans. This is not a sustainable course. The low road is like a "shortcut" that leads to a cliff.

    We will not prosper in the 21st century global economy by relying on 1920s corporate greed, 1950s tax revenues, downwardly mobile wages and global-warming energy policies. We will not prosper relying on disinvestment in place of reinvestment. We can't succeed that way any more than farmers can "compete" by eating their seed corn.

    As Business Week put it in a special issue on China and India, "China's competitive edge is shifting from low-cost workers to state-of-the-art manufacturing. India is creating world-class innovation hubs, and its companies are far better performers than China's."

    The United States will not succeed by shifting increasingly from state-of-the art manufacturing and world-class innovation hubs to low-cost workers.

    Contrary to myth, many European countries are better positioned for the future than the United States, with healthier economies and longer healthy life expectancies, greater math and science literacy, free or affordable education from preschool through college, universal health care, less poverty and inequality and more corporations combining social responsibility with world-class innovation.

    Among the world's 100 largest corporations in 2005, just 33 were U.S. companies while 48 were European. In 2002, 38 were U.S. companies and 36 were European. CEO-worker pay gaps are much narrower at European companies than American. Americans work over 200 hours more a year on average than workers in other rich industrialized nations.

    The United States dropped from number one to number five in the World Economic Forum's global information technology ranking. The top four spots are held by Singapore, Iceland, Finland and Denmark, with Sweden number six.

    The U.S. trade deficit increased 17 percent in 2005. As the Economic Policy Institute reports, "U.S. trade deficits increased with every major area of the world, including China (34 percent), OPEC (18 percent), Africa (15 percent), Europe (15 percent), Mexico and Canada (13 percent combined), Latin America (12 percent), and all Asian countries bedsides China (5 percent)."

    In the book How We Compete: What Companies Around the World Are Doing To Make It In Today's Global Economy, Suzanne Berger reports the findings of MIT's Industrial Performance Center study of more than 500 international companies. She observes, "Contrary to the widely held belief of many managers, we conclude that solutions that depend on driving down costs by reducing wages and social benefits—in advanced countries or in emerging economies—are always dead ends. . .

    "Strategies based on exploiting low-wage labor end up in competitive jungles, where victories are vanishingly thin and each day brings a new competitor. . . As low-end firms that compete on price move from one overcrowded segment of the market to the next, there is virtually no chance of gaining any durable advantage. The activities that succeed over time are, in contrast, those that build on continuous learning and innovation."

    Instead of pretending the problem is overpaid workers and accelerating offshoring, we need to shore up our economy from below and invest in smart, sustainable development. Raising the minimum wage is a vital step.

    The high road is not only the better road, it is the only road for progress in the future. An America that doesn't work for working people is not an America that works.

    March 18, 2006

    George Bush Goes for Broke


    A Bananna Republic is one of those places where 1 in 5 of the dollars spent by the government is borrowed, the trade deficit exceeds 6% of GNP and the President funds the state with a printing press in the basement.

    What brings things to a head is usually a sudden loss of confidence; some big debtor doesn't get paid and the currency is suddenly dumped. Next; import prices skyrocket, inflation destroys the citizens savings, and finally, when no one can get gasoline and spares the ruler is overthrown.

    The IMF is called in, a slighly more responsible leader is installed and a new currency introduced. Citizens slowly pick up the pieces, but they never trust their rulers again and henceforth keep money offshore or in Gold, buried in the backyard.

    The US printed to fund the revolutionary war, hence the phrase, "Not worth a continental", but generally, throughout the years, the US has had a currency backed by gold and been the worlds biggest creditor. In fact, the dollar was trusted and the economy so strong that it became the worlds reserve currency, replacing the British Pound.

    LBJ spent big on the War and his "Great Soceity" and so the French got so worried they asked for Gold instead. To stop the drain, Nixon ended Gold convertability and as the dollars multiplied, their individual value declined. Gold hit $850.

    Volker, by targeting the money supply and paying 18% for dollar deposits, restored confidence.

    In the 1980's, America slowly slipped from international credit to debit, and the debt went up, and up. The US had a lucky break when crisis in Russia and Asia and the internet boom sent money flowing in. During the Clinton administration it looked for a moment as if the US might not only stop adding to the Debt, but pay some off.

    But George W Bush was elected and today the US fiscal position is vastly worse than it was in 1977.

    The US just raised the debt limit to $8.2 trillion, that is, the total amount of dollars the US owes can owe holders of US government debt instruments. Well, 7.9 trillion is what the US owes Bond holders, but it has promised much to its citizens. US Comptroller General David Walker reports "the federal government's fiscal exposures now total more than $46 trillion, up from $20 trillion in 2000." So, amazingly,most of that debt was incurred by the current administration.

    Federal revenue peaked at $2.03 trillion in 2000 and then fell. Expenditures were $2.47 trillion in 2005, an alarming 38.2% above the federal government's expenditures in 2000. Even in constant 2000-dollars this was a 21.8% increase over the five years from 2000 to 2005. The administration supported both massive outlays and tax cuts, both Guns and Butter.

    As a consequence of this loss of revenue and uncontrolled spending, the US government relies on debt to cover the difference. In 2000, 1.1% of the US government's cash flow came from new debt, this grew to 20.4% in 2005.

    For every $100 spent by the US government in 2005, $20.40 came from borrowed money, whereas in 2000, it was much less than 2%.

    This new debt has been easy to service due to declining interest rates, the interest bill was $361.9 billion in 2000, but it fell to $352.3 billion in 2005.

    Low interest rates also meant a boom in housing prices, a flood of re-fi's, and more spending allowing the US government to evade the political repercusions as the federal debt climbed 40.5% from $5.63 trillion to $7.91 trillion in the same period.

    Now, as rates rise, the US will either have to massively cut spending so as to continue to meet its interest expense obligations, or just borrow more, creating a vicious circle where the government borrows more and more money to meet both current expenditures and the climbing interest bill.

    Today, the United States is so broke the "structural adjustment team" would have long ago been called in, but for its privelge of being able to pay for imports with its own currency.

    Over the last three years, all Federal Reserve Board members have either resigned or retired with replacments appointed by this administration, an unprecedented turnover. The Treasury stops reporting M3 this month and Ben Bernake, a chairman who beleived the great depression could have been avoided by monetary acomodation is in the chair.

    And people wonder why the price of Gold is rising.


     

     

    March 17, 2006

    Morning Star: Gold Stocks to avoid

    Cambior (AMEX:CBJ - News)
    Two of Cambior's three mines (one in Guyana and two in Canada) are high-cost operations. Costs at the third mine--Rosebel in Suriname--are not substantially below average. The company's extraction costs in 2005 were $305 an ounce, compared with the industry average of about $250. Cambior is also subject to a high level of operational risk due to its small number of mines. For example, milling operations were suspended at Rosebel last year due to a leakage. Because Rosebel produces about half of the company's gold, a stoppage here, even if temporary, will have a big adverse impact on overall production and revenue. Finally, Cambior's debt--at 12% of total capital--is relatively high for a gold producer. Paying down debt during flush times, like now, is considered a best practice in the mining industry. However, Cambior was only marginally profitable in 2005, and the company has not brought down its debt level. When gold prices fall and profits turn to losses, servicing this debt might become a burden the firm cannot bear, given its high operation costs.

    Bema Gold (AMEX:BGO - News)
    Bema operates two mines--one in Russia and one in South Africa. While the economics of the Russian mine are respectable with slightly below-average cash costs, the South African operation has been a drag on profits and cash flow since Bema started mining there in 2003. However, instead of improving profitability at its existing operations, the company is intent on raising production from about 290,000 ounces projected for 2005 to 1 million ounces. Given the lack of cash flow from operations, Bema has been forced to raise additional equity and debt capital to fund its exploration and expansion projects. As a result, Bema has one of the weakest balance sheets in the gold mining industry. Negative free cash flow, a weak balance sheet, and uncertain prospects make an investment in Bema little more than a speculative bet on the company's future, in our opinion.

    Hecla Mining (NYSE:HL - News)
    Given all the risks at Hecla--a relatively small production base in unattractive countries, future production not growing as much as expected, commodity prices not cooperating, as well as more financing and environmental charges--an investment in these shares remains highly speculative.

    DRDGold (NasdaqSC:DROOY - News)
    Mining gold in South Africa is a high-cost business that started more than a century ago. As more gold is mined, mines get deeper and costs generally rise. In addition, older technology and strong labor unions in South Africa also contribute significantly to the high costs prevalent in that country. Even by South African standards, DRDGold is saddled with relatively high cost and older mines. While recent efforts at operational improvements mean that DRDGold is less of a "cigar-butt investment" than before, we do not think the company is out of the woods. Even with all the improvements, we still expect the company's cash costs to be more than $300 per ounce, compared with the industry average of around $250 per ounce. For DRDGold to consistently turn a profit, gold must trade at prices comfortably above the firm's operating costs and relevant currency-exchange rates must cooperate. As a commodity producer, DRDGold has little influence over either of these factors because it is a price-taker in both the gold and the foreign-exchange markets.

    The Abu Ghraib files

    279 photographs and 19 videos from the Army's internal investigation record a harrowing three months of detainee abuse inside the notorious prison -- and make clear that many of those responsible have yet to be held accountable.

    March 16, 2006

    Westinghouse Takes Over PBMR Shareholding

    PBMR (Pty) Ltd
    2 March 2006

    The US nuclear company Westinghouse is now one of the investors in South Africa's PBMR (Pty) Ltd, the company responsible for the inherently safe Pebble Bed Modular Reactor (PBMR) technology.

    Westinghouse has decided to take over the 15% shareholding previously held by UK-government owned British Nuclear Fuels Ltd (BNFL). Westinghouse is wholly-owned by BNFL. The share transfer was part of BNFL's restructuring process and the UK government's decision to sell Westinghouse.

    PBMR's other investors are the South African Government, the South African utility Eskom and the South African Industrial Development Corporation (IDC). Eskom intends to phase out its shareholding in PBMR (Pty) Ltd in order to become a client of the technology, rather than a developer of it.

    Westinghouse is the world's pioneering nuclear power company and is a leading supplier of nuclear plant projects and technologies to utilities throughout the world. Westinghouse designs, builds, maintains and services nuclear power reactors, plants and fuel all over the globe. Today, it is the basis for approximately one-half of the world's operating nuclear plants.

    Westinghouse is also a world leader in pressurized-water reactor (PWR) technology, with its AP1000 design, an advanced/passive 1,100 MWe design that is the only generation III+ plant to receive Design Certification from the United States Nuclear Regulatory Commission.

    Jaco Kriek, CEO of PBMR (Pty) Ltd, says he is delighted about the development. "We were extremely fortunate to have had an investor like BNFL. They greatly contributed to the success of the project and remained committed even after the withdrawal in 2002 of our previous US investor, Exelon. As we now move into a new phase, we could not have asked for a better replacement and industry partner than Westinghouse. They are ideally equipped to support PBMR in the construction phase and the future marketing of the reactors and fuel on a global scale.

    Dr Regis Matzie, senior vice-president and chief technology officer of Westinghouse, firmly believes that the South African PBMR technology will become the world's first successful commercial generation IV reactor. "The PBMR technology offers an enormous potential to expand the use of nuclear energy both in the electrical generation sector and the process heat sector. Its modular size and flexibility of applications provide a unique opportunity to address markets that nuclear energy has generally not pursued in the past."

    China Daily: 'Pebble-bed' reactor to begin construction

    A US$370 million nuclear plant using a new kind of technology is expected to start its construction this year.

    The project is led by China Huaneng Group, the parent company of Hong Kong-listed Huaneng Power International Inc.

    Industry analysts said the plant's new technology, called the"pebble-bed technology," is a high-temperature, gas-cooled reactor technology that is supposedly safer.

    Nuclear plants commonly use pressurized water or boiling water reactors.

    Nine out of the 11 nuclear reactors running in China are designed with pressurized water technology imported from France and Russia, and the remaining two use Canada's pressurized heavy-water technology.

    Liu Wei, vice-president of Beijing Institute of Nuclear Engineering, yesterday said that now is not the right time to use the pebble-bed technology commercially in building reactors, because the cost is still much higher than other technologies and it can be only used in small reactors.

    Cost for building the pebble-bed reactors will be about US$500 more per kilowatt in capacity, compared with other commercialized technologies, Liu said.

    Industry analysts said the pebble-bed technology can only be used in reactors of less than 300 MW, but China is building reactors of at least 1,000 MW each.

    However, as the research evolves, the new technology could be competitive in 2020 or 2030, said Liu.

    Huaneng Group will take a 50 per cent stake in the planned190-megawatt (MW) reactor, located in Weihai of East China's Shandong Province, while China Nuclear Engineering and Construction Corp and Tsinghua University will own 35 per centand 5 per cent respectively, said Li.

    The three parties signed an investment agreement for the nuclear plant in Beijing at the end of 2004.

    The owner of the remaining 10 per cent has not been determined, but could go to a local company, Huaneng spokesman Li Zhaokiu said.

    The project is scheduled to start operation by 2010, Li said.
    (China Daily 02/22/2006 page10)

    March 15, 2006

    Spot Uranium Oxide Hits US$40.00 a pound

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    March 14, 2006

    China strategy on LME copper short to support prices -UBS

    Copper CatalogThe Chinese State Reserve Bureau's strategy in dealing with its substantial short copper position on the London Metal Exchange is likely to maintain market tightness for longer, UBS base metals analyst Robin Bhar said Friday.

    China's SRB is thought to be using a combination of buying back, delivering physical metal and rolling its short position estimated at 100,000-200,000 metric tons, Bhar said in a report.

    Given the tightness in the market, "buying back and/or rolling positions forward in a tight market showing large backwardations maintains upward pressure on prices," Bhar said.

    This is likely to prolong copper's backwardation, currently at $82 on the cash-to-three-month spread, offering better value further out on copper's forward curve than for long positions at high prices on nearby positions.

    Well, I thought copper would go up due to this.... 

    Late in 2005, LME copper prices rose sharply as participants added longs, betting that the Chinese government would have to buy copper to meet delivery obligations, said to fall Dec. 21.

    "Furthermore, with the market in deficit for the past three consecutive years, industry stocks are below critically low levels and the stocks-consumption ratio is forecast to remain below four weeks over the next three years and should continue to underpin strong copper prices," Bhar said.

    The absence of a squeeze on the Dec. 21 delivery date points to short positions having been rolled or borrowed to various delivery dates in 2006 and 2007 as nearby dates widened, he added.

    Meantime, stocks in LME warehouses in Asia have jumped over the past few months, with warehouses in Asia now holding almost all of 132,950 tons LME copper warehouse stocks.

    Chinese exports rose sharply in December and remained high in January, reflecting shipments by the SRB to LME warehouses.

    Did John Howard actually give this speech

     

     Or has someone hacked the site. Opps, no wonder I can't beleive what I'm reading. Bad URL

    During our recent celebrations of the Coalition's ten years in power, I have, as Prime Minister, been publicly reflecting on our Party's many great achievements, as was appropriate to do. But on this occasion, among old friends and senior colleagues, I wish to share some unsettling thoughts about the situation in Iraq.

    Three years ago in Sydney, when I spoke to the men and women of the Australian Defence Force, who were gathered on the deck of HMAS Kanimbla, I felt that above all other Australians, they were entitled to know from me why it is that the Government had asked them to go to the Persian Gulf and face the armed forces of a dangerous dictator.

    I said then that all the intelligence material collected over recent times, to which Australia had contributed, proved overwhelmingly that Saddam Hussein had maintained his stockpile of chemical and biological weapons and that he was on the brink of nuclear capability. This posed a real and unacceptable threat to the stability and security of our world. I said that unless Iraq was disarmed of its weapons of mass destruction ­ totally and permanently ­ then the Middle East would remain a powder keg, waiting for a match.

    I sincerely believed that was true - on the best intelligence and advice that was available at that time. On February, 2003, I told Parliament, that disarming Iraq would bring enormous benefits to the Middle East and be widely welcomed throughout the world. Unfortunately, our expectations in this matter have not yet been realised. Even so, I have continued to hold firm to our commitment, despite the ups and downs of the occupation, because our alliance with the US is vital to the security of Australia.

    On May 19, 2004, after my return from a visit to Baghdad, I told the Institute of Public Affairs in Melbourne that the situation in Iraq was rapidly improving. That the north of the country was relatively peaceful and most of the south was reasonably stable. I pointed out that Iraq was 'no longer ruled by a loathsome and homicidal dictator, and potentially hundreds of thousands of lives have been saved'. I sincerely believed that at the time.

    There had been so many encouraging signs of progress. Let me re-iterate some of the signs I mentioned in 2004, and reflect on the situation from today's perspective, as we approach the third anniversary of the occupation.

    I said then that electricity, water, telephone and sanitation were gradually being restored to pre-war levels or above. Sadly, this did not happen. As of February this year, 125 projects to provide electricity have been cancelled. Of the 136 projects that were originally pledged to improve Iraqi water and sanitation, only 49 will be ever finished.

    I said then that six major water treatment plants had been rehabilitated. Perhaps I should have pointed out that these plants had previously been destroyed by British and US bombs during the 12 years of UN sanctions against the Hussein regime. Today, the water situation in Iraq is dire. Billions of dollars have been shifted from rebuilding vital infrastructure to guarding the borders of Iraq.

    I said that all 240 hospitals as well as 1,200 health clinics were fully operational, which was the advice we had received from the then administrator, Mr Paul Bremer. Unfortunately, this turned out to be overly optimistic. On November 2004, at the start the coalition¹s pacification of the city of Falluja, the city's General Hospital was occupied by US troops and - I am sorry to say - that hospital staff were handcuffed and some patients were dragged from their beds; perhaps for good reasons. Snipers were posted on the roof of the building and ambulances were strafed. On November, 6, the BBC reported that US air strikes had reduced the newly built Nazzal Emergency Hospital to rubble.

    One doctor reportedly told Reuters, and I quote: "There is not a single surgeon in Falluja. We had one ambulance hit by US fire and a doctor wounded. There are scores of injured civilians in their homes whom we can't move. A 13-year-old child just died in my hands." Now I do not wish to labour the point. But it should be conceded that an impartial examination actions of the Coalition of the Willing during operations in Falluja has raised uncomfortable issues for our Government. On the face of it, the Geneva Conventions and core articles of the UN Declaration on Human Rights have been ignored. During the siege of Falluja, many Iraqi women and children were caught in the line of fire and some civilians were shot as they tried to swim across the Tigris. It has even been reported that weapons of dubious legality were used in Falluja, such as cluster bombs, napalm, incendiary white-phosphorus and thermobaric, or "fuel-air" explosives, which can have the effect of a tactical nuclear weapon without residual radiation.

    The International Red Cross estimates that at least 60% of those killed in the assault on the city were women, children and the elderly; a pattern of destruction that has persisted throughout the occupation of Iraq, and, as much as we would like to shut our eyes, this has served to boost the recruitment of insurgents and harden their resolve. In May last year, the city of al-Qaim near the Syrian border was the target of a major offensive known as Operation Matador, which resulted in hundreds of Iraqi casualties. This operation also displaced thousand of civilians, destroyed entire neighborhoods, polluted water supplies and put one hospital out of action. Six months later in al-Qaim, Operation Steel wiped out the General Hospital, other medical centers, some mosques and schools, even the electricity station.

    These are the facts. There are many more examples. And they raise serious concerns for the future predicament which our Government and our party may find ourselves facing. We have been lucky up to this point, because the full extent of the mayhem resulting from our U.N sanctioned occupation has not been dwelt upon by the Australian media. You can draw your own conclusions why this is so. However, having been kept well briefed on the conflict by our intelligence agencies, and I can assure you that many unpleasant details are still to emerge.

    Also, on a personal note, it would be inaccurate for me to maintain that the events unfolding during course of the occupation have left me unmoved. It has long been my habit to keep aquainted with opinions opposed to my own, and to canvas a wide range of views. If an edited version of this talk is made available, it may reference sources from the internet.

    Under international law, all military forces owe a 'duty of care' to the civilians of an occupied city. And I am starting to ask myself if this is a commitment we have betrayed. In fact, I dare to wonder if we have betrayed the very ideals that I invoked in my support of the invasion.

    In my 2004 speech to the Institute of Public Affairs in Melbourne, I said that, 'Iraq now has a growing and robust independent media, which is absolutely essential for the development and maintenance of a healthy democracy'. Well, I am afraid that was a little premature. Our US partners thought it necessary to suppress the more irresponsible organs of opinion. Several editors were arrested. And while I accepted assurances from our allies that the bombing of the Baghdad offices of Al Jazeera in 2003 was an accident, I must say, that in light of the recent unearthing of the Downing Street memo, the contents of which are available to my Government, I now hold grave doubts about the official story. All told, since the start of hostilities in Iraq, it appears that 82 media personnel have lost their lives.

    I must say, that it came as a surprise to members of my Government when General George Casey recently re-asserted the right of the US military to plant paid-for stories in the Iraqi press. We believe this sets an unfortunate precedent, in that it may lead to suspicion among Iraqi citizens that that the West prefers a paid press to a free press.

    I also noted in my 2004 speech that 'Australia had helped to re-establish the Iraqi Ministry of Agriculture, [and] set up a payments system for the 2003 harvest and used our experience to help Iraqi farmers bring in the bumper summer grains harvest'. Perhaps I should have been more forthright about that experience. For many years the Australian Wheat Board has been helping the Iraqi Government bring in bumper summer grains from Australia. We have achieved this by channelling millions of dollars of hidden commissions into the coffers of the man previously described as a loathsome and repellent dictator. To be frank, we had been privately funding a regime that we publicly claimed was a threat to the world, and I can see now that this might lead some people to question our probity.

    All in all, since the war began I have consistently maintained that the situation in Iraq was measurably better than it was under Saddam Hussein.

    I held to this belief even during the dark days of the Abu Ghraib abuses, which caused many in the region to question whether democracy would make the slightest difference. But I strongly argued at the time that the difference would be apparent for all to see, because the victims of abuse would not only able, but would be encouraged to speak out, to seek redress and to find justice.

    Sadly, very few victims have been able to find justice. And those senior figures who issued the orders to turn up the heat on detainees, have not been properly investigated. In the matter of our own citizen, David Hicks, who remains to this day Guantanamo Bay, often in solitary isolation, it is becoming increasing difficult to distinguish his predicament from that which would have faced a prisoner of Saddam Hussein. I believe the Department of Foreign Affairs has been remiss in accepting the assurances of some US officials at face value.

    I speak to you here openly, and with sadness. I have no intention of repeating or elaborating these remarks outside this room. For decades, many of you have stayed loyal the principles of our Party. However, it is not wise for any leader to mislead himself, and I have no wish to mislead you. Like our good friend Tony Blair, I too admit to episodes of anguish. I worry the situation is getting worse. Not only in Iraq, but elsewhere in the world. You will of course be making up your own minds as you watch the news in the coming weeks.

    I note that the latest US Country Reports on Human Rights concedes that in Iraq, 'civic life and the social fabric remain under intense strain from the widespread violence'. The US ambassador to Baghdad, Zalmay Khalilzad, has said we have 'opened a Pandora¹s box in Iraq'. There is mounting evidence of arbitrary detention and torture committed by government forces, both police and military.

    During my recent trip to India, also horribly touched with extremist violence, I was reminded by their soft spoken Prime Minister, Dr Manmohan Singh, that the British had seriously erred by clinging too long to their former colony. Despite widespread opposition to their presence, British politicians continued to insist that their departure would lead to chaos. Dr Singh said, 'But it would be our chaos, don¹t you see?' At that moment I understood what he was saying.

    There is tremendous pressure from the US for our troops to remain in Iraq, and of course mutual loyalty is a vital component of the alliance. But the longer the Coalition of the Willing remains, the more we are detested, and the more blood is shed. The country is already tearing itself apart, so I am asking you, could our departure really make it any worse?

    Perhaps it is time for Iraqis to regain control of their future, and for the coalition of the willing to be willing to leave the stage. When I say this, I speak as a troubled private citizen, and not as the Prime Minister of Australia.

    Flying home from India, I started to ask myself what a leader like Mahatma Gandhi would do, but I feared I would not be able to live up to the answer, unless I have some wise advice form my longtime friends. Please look into your hearts and let me know what you find.

     

    Thank you.

    March 12, 2006

    The Push for War


    Anatol Lieven considered what the US Administration hoped to gain from invading Iraq. Its interesting to read in the light of the fact its all gone wrong...
    The most surprising thing about the Bush Administration's plan to invade Iraq is not that it is destructive of international order; or wicked, when we consider the role the US (and Britain) have played, and continue to play, in the Middle East; or opposed by the great majority of the international community; or seemingly contrary to some of the basic needs of the war against terrorism. It is all of these things, but they are of no great concern to the hardline nationalists in the Administration. This group has suffered at least a temporary check as a result of the British insistence on UN involvement, and Saddam Hussein's agreement to weapons inspections. They are, however, still determined on war - and their power within the Administration and in the US security policy world means that they are very likely to get their way. Even the Washington Post has joined the radical rightist media in supporting war.

    The most surprising thing about the push for war is that it is so profoundly reckless. If I had to put money on it, I'd say that the odds on quick success in destroying the Iraqi regime may be as high as 5/1 or more, given US military superiority, the vile nature of Saddam Hussein's rule, the unreliability of Baghdad's missiles, and the deep divisions in the Arab world. But at first sight, the longer-term gains for the US look pretty limited, whereas the consequences of failure would be catastrophic. A general Middle Eastern conflagration and the collapse of more pro-Western Arab states would lose us the war against terrorism, doom untold thousands of Western civilians to death in coming decades, and plunge the world economy into depression.

    These risks are not only to American (and British) lives and interests, but to the political future of the Administration. If the war goes badly wrong, it will be more generally excoriated than any within living memory, and its members will be finished politically - finished for good. If no other fear moved these people, you'd have thought this one would.

    This war plan is not like the intervention in Vietnam, which at the start was supported by a consensus of both political parties, the Pentagon, the security establishment and the media. It is true that today - for reasons to which I shall return - the Democrats are mostly sitting on the fence; but a large part of the old Republican security establishment has denounced the idea and the Pentagon has made its deep unhappiness very clear.

    The Administration has therefore been warned of the dangers. And while a new attack by al-Qaida during the war would help consolidate anti-Muslim American nationalism, the Administration would also be widely accused of having neglected the hunt for the perpetrators of 11 September in order to pursue an irrelevant vendetta. As far as the Israeli lobby is concerned, a disaster in the Middle East might be the one thing that would at last bring a discussion of its calamitous role into the open in the US.

    With the exception of Donald Rumsfeld, who conveniently did his military service in the gap between the Korean and Vietnam Wars, neither Bush nor any of the other prime movers of this war served in the military. Of course, General Colin Powell served in Vietnam, but he is well known to be extremely dubious about attacking Iraq. All the others did everything possible to avoid service. If the war goes wrong, the 'chicken hawk' charge will be used against them with devastating political effect.

    Vietnam veterans, both Democrat and Republican, have already started to raise this issue, stirred up in part by the insulting language used by Richard Perle and his school about the caution of the professional military. As a recent letter to the Washington Post put it, 'the men described as chicken hawks avoided military service during the Vietnam War while supporting that war politically. They are not accused of lacking experience and judgment compared to military men. They are accused of hypocrisy and cowardice.' Given the political risks of failure - to themselves, above all - why are they doing this? And, more broadly, what has bred this reckless spirit?

    To understand the Administration's motivation, it is necessary to appreciate the breathtaking scope of the domestic and global ambitions which the dominant neo-conservative nationalists hope to further by means of war, and which go way beyond their publicly stated goals. There are of course different groups within this camp: some are more favourable to Israel, others less hostile to China; not all would support the most radical aspects of the programme. However, the basic and generally agreed plan is unilateral world domination through absolute military superiority, and this has been consistently advocated and worked on by the group of intellectuals close to Dick Cheney and Richard Perle since the collapse of the Soviet Union in the early 1990s.

    This basic goal is shared by Colin Powell and the rest of the security establishment. It was, after all, Powell who, as Chairman of the Joint Chiefs of Staff, declared in 1992 that the US requires sufficient power 'to deter any challenger from ever dreaming of challenging us on the world stage'. However, the idea of pre-emptive defence, now official doctrine, takes this a leap further, much further than Powell would wish to go. In principle, it can be used to justify the destruction of any other state if it even seems that that state might in future be able to challenge the US. When these ideas were first aired by Paul Wolfowitz and others after the end of the Cold War, they met with general criticism, even from conservatives. Today, thanks to the ascendancy of the radical nationalists in the Administration and the effect of the 11 September attacks on the American psyche, they have a major influence on US policy.

    To understand the genesis of this extraordinary ambition, it is also necessary to grasp the moral, cultural and intellectual world of American nationalism in which it has taken shape. This nationalism existed long before last September, but it has been inflamed by those attacks and, equally dangerously, it has become even more entwined with the nationalism of the Israeli Right.

    To take the geopolitical goals first. As with National Missile Defense, the publicly expressed motive for war with Iraq functions mainly as a tool to gain the necessary public support for an operation the real goals of which are far wider. The indifference of the US public to serious discussion of foreign or security affairs, and the negligence and ideological rigidity of the US media and policy community make searching debate on such issues extremely difficult, and allow such manipulation to succeed.

    The immediate goal is indeed to eliminate Iraq's weapons of mass destruction. There is little real fear, however, that Saddam Hussein will give those weapons to terrorists to use against the United States - though a more genuine fear that he might conceivably do so in the case of Israel. Nor is there any serious prospect that he would use them himself in an unprovoked attack on the US or Israel, because immediate annihilation would follow. The banal propaganda portrayal of Saddam as a crazed and suicidal dictator plays well on the American street, but I don't believe that it is a view shared by the Administration. Rather, their intention is partly to retain an absolute certainty of being able to defend the Gulf against an Iraqi attack, but, more important, to retain for the US and Israel a free hand for intervention in the Middle East as a whole.

    From the point of view of Israel, the Israeli lobby and their representatives in the Administration, the apparent benefits of such a free hand are clear enough. For the group around Cheney, the single most important consideration is guaranteed and unrestricted access to cheap oil, controlled as far as possible at its source. To destroy and occupy the existing Iraqi state and dominate the region militarily would remove even the present limited threat from Opec, greatly reduce the chance of a new oil shock, and eliminate the need to woo and invest in Russia as an alternative source of energy.

    It would also critically undermine the steps already taken towards the development of alternative sources of energy. So far, these have been pitifully few. All the same, 11 September brought new strength to the security arguments for reducing dependence on imported oil, and as alternative technologies develop, they could become a real threat to the oil lobby - which, like the Israeli lobby, is deeply intertwined with the Bush Administration. War with Iraq can therefore be seen as a satisfactory outcome for both lobbies. Much more important for the future of mankind, it is also part of what is in essence a strategy to use American military force to permit the continued offloading onto the rest of the world of the ecological costs of the existing US economy - without the need for any short-term sacrifices on the part of US capitalism, the US political elite or US voters.

    The same goes for the war against al-Qaida and its allies: the plan for the destruction of the existing Iraqi regime is related to this struggle, but not as it has been presented publicly. Links between Baghdad and al-Qaida are unproven and inherently improbable: what the Administration hopes is that by crushing another middle-sized state at minimal military cost, all the other states in the Muslim world will be terrified into full co-operation in tracking down and handing over suspected terrorists, and into forsaking the Palestinian cause. Iran for its part can either be frightened into abandoning both its nuclear programme and its support for the Palestinians, or see its nuclear facilities destroyed by bombardment.

    The idea, in other words, is to scare these states not only into helping with the hunt for al-Qaida, but into capitulating to the US and, more important, Israeli agendas in the Middle East. This was brought out in the notorious paper on Saudi Arabia presented by Laurent Murawiec of the Rand Corporation to Richard Perle's Defense Policy Board. Murawiec advocated sending the Saudis an ultimatum demanding not only that their police force co-operate fully with US authorities, but also the suppression of public criticism of the US and Israel within Saudi Arabia - something that would be impossible for any Arab state. Despite this, the demand for the suppression of anti-Israeli publications, broadcasts and activities has been widely echoed in the US media.

    'The road to Middle East peace lies through Baghdad' is a line that's peddled by the Bush Administration and the Israeli lobby. It is just possible that some members of the Administration really believe that by destroying Israel's most powerful remaining enemy they will gain such credit with Israelis and the Israeli lobby that they will be able to press compromises on Israel.

    But this is certainly not what public statements by members of the Administration - let alone those of its Likud allies in Israel - suggest. Rumsfeld recently described the Jewish settlements as legitimate products of Israeli military victory; the Republican Majority Leader in the House, Dick Armey (a sceptic as regards war with Iraq), has advocated the ethnic cleansing ('transfer') of the Palestinians across the Jordan; and in 1996 Richard Perle and Douglas Feith (now a senior official at the Pentagon) advised Binyamin Netanyahu to abandon the Oslo Peace Process and return to military repression of the Palestinians.

    It's far more probable, therefore, that most members of the Bush and Sharon Administrations hope that the crushing of Iraq will so demoralise the Palestinians, and so reduce wider Arab support for them, that it will be possible to force them to accept a Bantustan settlement bearing no resemblance to independent statehood and bringing with it no possibility of economic growth and prosperity.

    How intelligent men can believe that this will work, given the history of the past fifty years, is astonishing. After all, the Israelis have defeated Arab states five times with no diminution of Palestinian nationalism or Arab sympathy for it. But the dominant groups in the present Administrations in both Washington and Jerusalem are 'realists' to the core, which, as so often, means that they take an extremely unreal view of the rest of the world, and are insensitive to the point of autism when it comes to the character and motivations of others. They are obsessed by power, by the division of the world into friends and enemies (and often, into their own country and the rest of the world) and by the belief that any demonstration of 'weakness' immediately leads to more radical approaches by the 'enemy'.

    Sharon and his supporters don't doubt that it was the Israeli withdrawal from Lebanon - rather than the Israeli occupation of the Palestinian territories - which led to the latest Intifada. The 'offensive realists' in Washington are convinced that it was Reagan's harsh stance and acceleration of the arms race against the Soviet Union which brought about that state's collapse. And both are convinced that the continued existence of Saddam Hussein's regime of itself suggests dangerous US weakness and cowardice, thus emboldening enemies of the US and Israel across the Middle East and beyond.

    From the point of view of the Arab-Israeli conflict, war with Iraq also has some of the character of a Flucht nach vorn - an 'escape forwards' - on the part of the US Administration. On the one hand, it has become clear that the conflict is integrally linked to everything else that happens in the Middle East, and therefore cannot simply be ignored, as the Bush Administration tried to do during its first year in office. On the other hand, even those members of the American political elite who have some understanding of the situation and a concern for justice are terrified of confronting Israel and the Israeli lobby in the ways which would be necessary to bring any chance of peace.

    When the US demands 'democracy' in the Palestinian territories before it will re-engage in the peace process it is in part, and fairly cynically, trying to get out of this trap. However, when it comes to the new rhetoric of 'democratising' the Arab world as a whole, the agenda is much broader and more worrying; and because the rhetoric is attractive to many liberals we must examine this agenda very carefully.

    Belief in the spread of democracy through American power isn't usually consciously insincere. On the contrary, it is inseparable from American national messianism and the wider 'American creed'. However, this same messianism has also proved immensely useful in destroying or crippling rivals of the United States, the Soviet Union being the outstanding example.

    The planned war against Iraq is not after all intended only to remove Saddam Hussein, but to destroy the structure of the Sunni-dominated Arab nationalist Iraqi state as it has existed since that country's inception. The 'democracy' which replaces it will presumably resemble that of Afghanistan - a ramshackle coalition of ethnic groups and warlords, utterly dependent on US military power and utterly subservient to US (and Israeli) wishes.

    Similarly, if after Saddam's regime is destroyed, Saudi Arabia fails to bow to US wishes and is attacked in its turn, then - to judge by the thoughts circulating in Washington think-tanks - the goal would be not just to remove the Saudi regime and eliminate Wahabism as a state ideology: it would be to destroy and partition the Saudi state. The Gulf oilfields would be put under US military occupation, and the region run by some client emir; Mecca and the Hejaz might well be returned to the Hashemite dynasty of Jordan, its rulers before the conquest by Ibn Saud in 1924; or, to put it differently, the British imperial programme of 1919 would be resurrected (though, if the Hashemites have any sense, they would reject what would without question be a long-term death sentence).

    Beyond lies China. When the Bush Administration came to power, its major security focus was not the Middle East. There, its initial policy was benign neglect ('benign' at any rate in the case of Israel). The greatest fears of right-wing nationalist gurus such as Robert Kagan concerned the future emergence of China as a superpower rival - fears lent a certain credibility by China's sheer size and the growth of its economy. As declared in the famous strategy document drawn up by Paul Wolfowitz in the last year of the first Bush Administration - and effectively proclaimed official policy by Bush Jr in his West Point speech in June - the guiding purpose of US strategy after the end of the Cold War should be to prevent the emergence of any 'peer competitor'anywhere in the world.

    What radical US nationalists have in mind is either to 'contain' China by overwhelming military force and the creation of a ring of American allies; or, in the case of the real radicals, to destroy the Chinese Communist state as the Soviet Union was destroyed. As with the Soviet Union, this would presumably involve breaking up China by 'liberating' Tibet and other areas, and under the guise of 'democracy', crippling the central Chinese Administration and its capacity to develop either its economy or its Army.

    To judge by the right-wing nationalist media in the US, this hostility to China has survived 11 September, although in a mitigated form. If the US can demonstrate overwhelming military superiority in the Middle East, there will certainly be groups in the Republican Party who will be emboldened to push for a much tougher line on China. Above all, of course, they support formal independence for Taiwan.

    Another US military victory will certainly help to persuade these groups that for the moment the US has nothing to fear from the Chinese Navy or Air Force, and that in the event of a Taiwanese declaration of independence, the island can be defended with relative impunity. Meanwhile, a drastic humiliation of China over Taiwan might well be seen as a key stepping-stone to the overthrow of Communism and the crippling of the Chinese state system.

    At present these are only long-term ambitions - or dreams. They are certainly not shared even by a majority of the Administration, and are unlikely to be implemented in any systematic way. On the other hand, it's worth bearing in mind that the dominant groups in this Administration have now openly abandoned the underlying strategy and philosophy of the Clinton Administration, which was to integrate the other major states of the world in a rule-based liberal capitalist order, thereby reducing the threat of rivalry between them.

    This tendency is not dead. In fact, it is strongly represented by Colin Powell, and by lesser figures such as Richard Haass. But their more powerful nationalist rivals are in the meantime publicly committed to preventing by every possible means the emergence of any serious rival or combination of rivals to the US, anywhere in the world, and to opposing not just any rival would-be world hegemon, but even the ability of other states to play the role of great power within their own regions.

    Under the guise of National Missile Defense, the Administration - or elements within it - even dreams of extending US military hegemony beyond the bounds of the Earth itself (an ambition clearly indicated in the official paper on Defense Planning Guidance for the 2004-09 Fiscal Years, issued this year by Rumsfeld's office). And while this web of ambition is megalomaniac, it is not simply fantasy. Given America's overwhelming superiority, it might well work for decades until a mixture of terrorism and the unbearable social, political and environmental costs of US economic domination put paid to the present order of the world.

    As things stand, the American people would never knowingly support such a programme - nor for that matter would the US military. Even after 11 September, this is not by historical standards a militarist country; and whatever the increasingly open imperialism of the nationalist think-tank class, neither the military nor the mass of the population wishes to see itself as imperialist. The fear of casualties and of long-term overseas military entanglements remains intense. And all opinion polls suggest that the majority of the American public, insofar as it considers these issues at all, is far more interested than this Administration in co-operation with allies.

    Besides, if the US economy continues to stagnate or falls sharply, the Republicans will most probably not even be in power after 2004. As more companies collapse, the Administration's links to corrupt business oligarchies will become more and more controversial. Further economic decline combined with bloated military spending would sooner or later bring on the full consequences of the stripping of the public finances caused by this Administration's military spending and its tax cuts for the rich. At that point, the financial basis of Social Security would come into question, and the Republican vote among the 'middle classes' could shatter.

    It is only to a minimal degree within the power of any US administration to stimulate economic growth. And even if growth resumes, the transformation of the economy is almost certain to continue. This will mean the incomes of the 'middle classes' (which in American terminology includes the working proletariat) will continue to decline and the gap between them and the plutocracy will continue to increase. High military spending can correct this trend to some extent, but because of the changed nature of weaponry, to a much lesser extent than was the case in the 19th and most of the 20th centuries. All other things being equal, this should result in a considerable shift of the electorate to the left.

    But all other things are not equal. Two strategies in particular would give the Republicans the chance not only of winning in 2004, but of repeating Roosevelt's success for the Democrats in the 1930s and becoming the natural party of government for the foreseeable future. The first is the classic modern strategy of an endangered right-wing oligarchy, which is to divert mass discontent into nationalism. The second, which is specifically American, is to take the Jewish vote away from its traditional home in the Democratic Party, by demonstrating categorical Republican commitment not just to Israel's defence but to its regional ambitions.

    This is connected both to the rightward shift in Israel, and to the increasingly close links between the Republicans and Likud, through figures like Perle and Feith. It marks a radical change from the old Republican Party of Eisenhower, Nixon and Bush père, which was far more independent of Israel than the Democrats. Of key importance here has been the growing alliance between the Christian Right - closely linked to the old White South - and the Israeli lobby, or at least its hardline Likud elements.

    When this alliance began to take shape some years back, it seemed a most improbable combination. After all, the Christian Right and the White South were once havens of anti-semitic conspiracy theories. On the other hand, the Old Testament aspects of fundamentalist Christianity had created certain sympathies for Judaism and Israel from as far back as the US's 17th-century origins.

    For Christian fundamentalists today the influence of millenarian thought is equally important in shaping support for Israel: the existence of the Israeli state is seen as a necessary prelude to the arrival of the Antichrist, the Apocalypse and the rule of Christ and His Saints. But above all, perhaps, this coming together of the fundamentalist Right and hardline Zionism is natural, because they share many hatreds. The Christian Right has always hated the United Nations, partly on straight nationalist grounds, but also because of bizarre fears of world government by the Antichrist. They have hated Europeans on religious grounds as decadent atheists, on class grounds as associates of the hated 'East Coast elites', and on nationalist grounds as critics of unconstrained American power. Both sides share an instinctive love of military force. Both see themselves as historical victims. This may seem strange in the case of the American Rightists, but it isn't if one considers both the White South's history of defeat, and the Christian Right's sense since the 1960s of defeat and embattlement by the forces of irreligion and cultural change.

    Finally, and most dangerously, both are conditioned to see themselves as defenders of 'civilisation' against 'savages' - a distinction always perceived on the Christian Right as in the main racially defined. It is no longer possible in America to speak openly in these terms of American blacks, Asians and Latinos - but since 11 September at least, it has been entirely possible to do so about Arabs and Muslims.

    Even in the 2000 elections, the Republicans were able to take a large part of the white working-class vote away from Gore by appealing to cultural populism - and especially to those opposed to gun control and environmental protection. Despite the real class identity and cultural interests of the Republican elite, they seem able to convince many workers that they are natural allies against the culturally alien and supercilious 'East Coast elites' represented as supporting Gore.

    These populist values are closely linked to the traditional values of hardline nationalism. They are what the historian Walter Russell Mead and others have called 'Jacksonian' values, after President Andrew Jackson's populist nationalism of the 1830s. As Mead has indicated, 11 September has immensely increased the value of this line to Republicans.

    If on top of this the Republicans can permanently woo the Jewish vote away from the Democrats - a process which purely class interests would suggest and which has been progressing slowly but steadily since Reagan's day - there is a good chance of their crippling the Democrats for a generation or more. Deprived of much of their financial support and their intellectual backbone, the Democrats could be reduced to a coalition of the declining unionised white working class, blacks and Latinos. And not only do these groups on the whole dislike and distrust each other, but the more the Democrats are seen as minority dominated, the more whites will tend to flee to the Republicans.

    Already, the anti-semitism of some black leaders in the Democratic Party has contributed to driving many Jews towards the Republicans; and thanks to their allegiance to Israel, the liberal Jewish intelligentsia has moved a long way from their previous internationalism. This shift is highly visible in previously liberal and relatively internationalist journals such as the New Republic and Atlantic Monthly, and maybe even in the New Yorker. Indeed, it is no exaggeration to say that as a result the internationalist position in the Democratic Party and the US as a whole has been eviscerated.

    The Democrats are well aware of this threat to their electorate. The Party as a whole has always been strongly committed to Israel. On Iraq and the war against terrorism, its approach seems to be to avoid at all costs seeming 'unpatriotic'. If they can avoid being hammered by the Republicans on the charge of 'weakness' and lack of patriotism, then they can still hope to win the 2004 elections on the basis of economic discontent. The consequence, however, is that the Party has become largely invisible in the debate about Iraq; the Democrats are merely increasing their reputation for passionless feebleness; whereas the Republican nationalists are full of passionate intensity - the passion which in November 2000 helped them pressure the courts over the Florida vote and in effect steal the election.

    It is this passion which gives the nationalist Right so much of its strength; and in setting out the hopes and plans of the groupings which dominate the Bush Administration, I don't want to give the impression that everything is simply a matter of conscious and cynical manipulation in their own narrow interests. Schematic approaches of this kind have bedevilled all too much of the reporting of nationalism and national conflict. This is odd and depressing, because in recent decades the historiography of pre-1914 German nationalism - to take only one example - has seen an approach based on ideas of class manipulation give way to an infinitely more subtle analysis which emphasises the role of socio-economic and cultural change, unconscious identifications, and interpenetrating political influences from above and below.

    To understand the radical nationalist Right in the US, and the dominant forces in the Bush Administration, it is necessary first of all to understand their absolute and absolutely sincere identification of themselves with the United States, to the point where the presence of any other group in government is seen as a usurpation, as profoundly and inherently illegitimate and 'un-American'. As far as the hardline elements of the US security establishment and military industrial complex are concerned, they are the product of the Cold War, and were shaped by that struggle and the paranoia and fanaticism it bred. In typical fashion for security elites, they also became conditioned over the decades to see themselves not just as tougher, braver, wiser and more knowledgeable than their ignorant, innocent compatriots, but as the only force standing between their country and destruction.

    The Cold War led to the creation of governmental, economic and intellectual structures in the US which require for their survival a belief in the existence of powerful national enemies - not just terrorists, but enemy states. As a result, in their analyses and propaganda they instinctively generate the necessary image of an enemy. Once again, however, it would be unwise to see this as a conscious process. For the Cold War also continued, fostered and legitimised a very old discourse of nationalist hatred in the US, ostensibly directed against the Communists and their allies but usually with a very strong colouring of ethnic chauvinism.

    On the other hand, the roots of the hysteria of the Right go far beyond nationalism and national security. Their pathological hatred for the Clinton Administration cannot adequately be explained in terms of national security or even in rational political or economic terms, for after a very brief period of semi-radicalism (almost entirely limited to the failed attempt at health reform), Clinton devoted himself in a Blairite way to adopting large parts of the Republican socio-economic agenda. Rather, Clinton, his wife, his personal style, his personal background and some of his closest followers were all seen as culturally and therefore nationally alien, mainly because associated with the counter-culture of the 1960s and 1970s.

    The modern incarnation of this spirit can indeed be seen above all as a reaction to the double defeat of the Right in the Vietnam War - a defeat which, they may hope, victory in Iraq and a new wave of conservative nationalism at home could cancel out once and for all. In Vietnam, unprecedented military defeat coincided with the appearance of a modern culture which traditionalist Americans found alien, immoral and hateful beyond description. As was widely remarked at the time of Newt Gingrich's attempted 'Republican Revolution' of the mid-1990s, one way of looking at the hardline Republicans - especially from the Religious Right - is to see them as motivated by a classical nationalist desire for a return to a Golden Age, in their case the pre-Vietnam days of the 1950s.

    None of these fantasies is characteristic of the American people as a whole. But the intense solipsism of that people, its general ignorance of the world beyond America's shores, coupled with the effects of 11 September, have left tremendous political spaces in which groups possessed by the fantasies and ambitions sketched out here can seek their objectives. Or to put it another way: the great majority of the American people are not nearly as militarist, imperialist or aggressive as their German equivalents in 1914; but most German people in 1914 would at least have been able to find France on a map.

    The younger intelligentsia meanwhile has also been stripped of any real knowledge of the outside world by academic neglect of history and regional studies in favour of disciplines which are often no more than a crass projection of American assumptions and prejudices (Rational Choice Theory is the worst example). This has reduced still further their capacity for serious analysis of their own country and its actions. Together with the defection of its strongest internationalist elements, this leaves the intelligentsia vulnerable to the appeal of nationalist messianism dressed up in the supposedly benevolent clothing of 'democratisation'.

    Twice now in the past decade, the overwhelming military and economic dominance of the US has given it the chance to lead the rest of the world by example and consensus. It could have adopted (and to a very limited degree under Clinton did adopt) a strategy in which this dominance would be softened and legitimised by economic and ecological generosity and responsibility, by geopolitical restraint, and by 'a decent respect to the opinion of mankind', as the US Declaration of Independence has it. The first occasion was the collapse of the Soviet superpower enemy and of Communism as an ideology. The second was the threat displayed by al-Qaida. Both chances have been lost - the first in part, the second it seems conclusively. What we see now is the tragedy of a great country, with noble impulses, successful institutions, magnificent historical achievements and immense energies, which has become a menace to itself and to mankind.

    March 11, 2006

    Geiger counter ticks louder in uranium debate

     

     Richard Owen
    11mar06

    URANIUM re-emerged as the hot political topic during the past week with India pleading for access to Australia's bountiful reserves to feed an expanding nuclear power industry as investors swamped yet another alluring yellowcake float.

    Market reaction to the Toro Energy uranium exploration float in South Australia demonstrates just how hot the uranium sector has become amid speculation about the imminent death of Labor's anachronistic "three mines" policy.

    Joint venture vendors Minotaur Exploration and Oxiana were forced to roll down the shutters four days early after receiving applications for $52.5 million worth of stock almost three times the $18 million being sought.

    Australia hosts 30 per cent of the world's known uranium reserves and in the five years to June 2005 exported 46,600 tonnes of the stuff worth some $2.1 billion to 11 countries.

    Talk of sales to China and possibly India has prompted Queensland's three Liberal senators Russell Trood, George Brandis and Brett Mason to fly to Mt Isa next week to visit Valhalla one of the state's most promising uranium prospects held by West Australian junior Summit Resources.

    Although keen to see new uranium mines developed in Australia, the Federal Government is sticking for now to a policy of not sanctioning uranium sales to countries such as India and Pakistan, which have not signed the Nuclear Non-Proliferation Treaty.

    Canberra generated a great deal of excitement last year by taking over responsibility for approving new uranium mines in the Northern Territory, but Labor regimes running the uranium-rich states of Queensland, Western Australia and South Australia are continuing to adhere to the ALP's "three mines policy" until it is changed.

    The push is on in Queensland though for policy reform since right-wing ALP powerbroker and Australian Workers Union secretary Bill Ludwig took a lead role in urging the State Government to end its opposition to mining.

    However, Premier Peter Beattie tried to fend off the latest mid-week plea for a rethink on uranium policy from Mount Isa MP and Speaker Tony McGrady with the almost absurd suggestion that yellowcake production in Queensland would undermine the state's $11.5 billion export coal industry.

    The Queensland Resources Council quickly put paid to this argument by pointing out the majority of coal exported from Queensland was coking coal used to make steel  not thermal coal used to generate electricity.

    Summit Resources chief geologist Peter Rolley said the recent change in political sentiment toward uranium at both state and federal levels had been "most intriguing" against the background of Kyoto and the greenhouse gas debate.

    "We certainly haven't been lobbying any parliamentarians or environmental groups so we're finding it all very encouraging in that it's not just us pushing the wheelbarrow," he said.

    "It was very interesting to see Mr McGrady's comments."

    Summit needs to raise $10 million to fund a feasibility study on the viability of developing a $400 million mining operation at Valhalla just 40km from Mount Isa.

    "We are quietly confident, but we certainly can't commit to spending that sort of money which we would have to raise from our shareholders until there is a change in policy," Mr Rolley said.

    Queensland's three Liberal Party senators, he said, had arranged to inspect the potential mine site on Wednesday to get a better feel for the proposed project and publicly demonstrate their support.

    In a recent speech, QRC chief executive Michael Roche referred to uranium as "an unusual blind spot" in the Beattie Government's resource policy.

    "The State Labor Government's position on uranium is all the more difficult to fathom when not even Queensland's coal sector accepts the argument that keeping Queensland's uranium in the ground is somehow protecting the state's coal industry," he said.

    "The message from the Queensland coal industry is that there is room for the full energy source mix. The reality is that there is global demand for Australia's uranium and it seems odd that our State Government is happy for South Australia and the Northern Territory to benefit from the resultant investment, jobs and royalties."

    Queensland has not exported a pound of uranium oxide since the Rio Tinto-controlled Mary Kathleen mine near Mount Isa was shut down back in 1982 after producing almost 9000 tonnes.

    Uranium, however, is one of those commodities which punches well above its economic weight due to the broader political issues relating to safety, the potential impact of an accident on the environment and, perhaps more importantly, security.

    A quick flick through the latest Australian Bureau of Agricultural and Resource Economics report on commodities though will convince most readers that current constraints on uranium mining are hardly denying the country the immediate benefit of a new financial El Dorado.

    ABARE estimates Australia's mineral and energy export revenues will jump $7.7 billion or 8 per cent next financial year to $100.64 billion and peak at $103.8 billion three years later before edging down to $101.9 billion in 2010-11 as prices retrace.

    However, while revenue from uranium oxide exports is expected to double next financial year to $712 million due to soaring prices, this will account for less than 1 per cent of Australia's total resource sector export receipts.

    Exports from the three existing mines – Ranger (in the Northern Territory), and Beverley and Olympic Dam (both in South Australia) – are also forecast to plateau in 2008 at 11,284 tonnes before edging down to about 10,000 tonnes by 2010-11.

    To put this all in context there are now some 440 nuclear-reactors around the world which require 77,000 tonnes of uranium oxide concentrate containing 66,000 tonnes of uranium from mines (or the equivalent from stockpiles or secondary sources such as decommissioned weaponry) each year.

    There are also now plans to build over the next 15 years another 113 reactors, including 24 in India, 19 in China and 24 in South Africa. This would increase global consumption by about 25 per cent or almost 20,000 tonnes.

    The OECD's International Energy Agency also expects electricity demand to more than double by 2030, leaving plenty of scope for further growth in nuclear capacity in a greenhouse-conscious world.

    To put India's needs in context, there are now 15 reactors operating in the country and another eight under construction. A similar but less aggressive expansion story is under way in China which is negotiating for access to our uranium supply as a signatory to the non-proliferation treaty.

    India's consumption of uranium for power generation is expected to more than double from about 1334 tonnes a year to 3100 tonnes by 2010 – an extra 1800 tonnes a year worth about $200 million at current prices.

    Queensland could be in a position to meet some or all of that additional demand from Valhalla.

    Given a green light, Mr Rolley believes Summit could be exporting yellowcake from Queensland within three years and contributing royalties to help the Government fund the provision of crucial social services such as health and education.

    Summit is targeting output of at least 2500 tonnes of uranium oxide a year from Valhalla and a number of other nearby deposits estimated to contain more than 30,000 tonnes of uranium.

    In 1983, the Hawke government's election to power resulted in the deferment of plans to develop up to eight new uranium mines around the country.

    They included the Ben Lomond project near Townsville which had completed a bankable feasibility study for a 6800-tonne resource from which French company Total planned to produce 500 tonnes of uranium oxide and 250 tonnes of molybdenum a year.

    The project was recently acquired by Canada's Mega Uranium which also owns the Maureen uranium deposit near Georgetown, containing measured and indicated resources totalling 3000 tonnes.

    Mega has budgeted to spend $C100,000 ($A117,000) on Ben Lomond this year and a further $C500,000 at Maureen on drilling and an airborne survey to identify other targets.

    Another Canadian company called Larimide owns Queensland's other uranium prospect Westmoreland which boasts an inferred resource of 21,000 tonnes. Both companies are gambling on a change in ALP policy.

    There are another 15 known deposits scattered around the Northern Territory, South Australia and Western Australia – most of which are now the subject of speculative investment on the back of renewed exploration interest.

    However, BHP Billiton's plan to expand Olympic Dam and boost uranium output by as much as 10,000 tonnes to 15,000 tonnes a year is likely to ensure that the world's largest mining company emerges as the chief beneficiary of any sustained lift in global demand for yellowcake well into the future.

    Seven Pillars of Folly

    The oil exporters of the Persian Gulf are flush with cash. Some of that money is going towards acquiring P&O, the British shipping concern, thus sparking off the heated controversy over foreign control of U.S. ports. This has led people to worry that Arab petrodollars might be scared away from the U.S. In fact, unlike during the last oil boom of the late 1970s, relatively little of the current Arab oil surplus has been directly invested in U.S. assets or even deposited in the international banking system. This time much of the oil money has remained at home where a classic speculative mania is now being played out. Lawrence of Arabia took the title of his celebrated book from a passage in the Book of Proverbs: "Wisdom hath builded her house, she hath hewn out her seven pillars." In homage to Lawrence, we identify the seven pillars of folly upon which the Great Arab Boom has been weakly constructed.

    The first pillar is liquidity: OPEC members have earned around $1.3 trillion in petrodollars since 1998, according to the Bank for International Settlements. The extra liquidity injected into the Gulf economies by the oil price hike since 2002 is estimated at around $300 billion by HSBC. Some of this money has been spent on building up foreign currency reserves and on the acquisition of foreign companies, such as P&O. Arab takeovers of European and U.S. firms totaled $30 billion last year. Some money has even been invested in hedge funds and gold. However, a great deal has stayed in the Gulf region.

     

    This has contributed to an extraordinary explosion of bank credit in Saudi Arabia and its neighbors. Since the member countries of the Gulf Cooperation Council link their currencies to the U.S. dollar, they have also enjoyed the Federal Reserve's easy money policy. The Saudi government has recently repaid around $100 billion of outstanding debt, further contributing to domestic liquidity.

    The deposit base of Gulf commercial banks has increased by over 60% since 2000, according to a recent report from Credit Suisse. Bank loans have financed business investment, personal consumption, property development and stock margin loans, thereby boosting both the economy and asset prices.

    The second pillar is the new economy: The Gulf economies are growing rapidly, along with corporate profits. Returns on equity in the region are approaching 20%, calculates Credit Suisse. Saudi Arabia has recently joined the World Trade Organization. Kuwait is selling off some state-owned businesses. A new era of permanently high oil prices and perpetual prosperity has been hailed.

     

    The Gulf rulers are seeking to reduce their economies' dependence on oil. This is spurring a massive investment boom. Dubai is attempting to transform itself into a leading financial center and tourist resort. Saudi Arabia intends to become a world leader in fertilizer production. A bridge costing $3 billion is proposed to span the Red Sea. A new economy is coming into being. The current oil boom, unlike former ones, won't be followed by a bust, say the believers. This time it's different.

    The third pillar is the stock market: The recent performance of Arab stock markets makes the Nasdaq of the late 1990s look like a slouch. Since January 2002, the Egyptian, Dubai and Saudi stock markets are up respectively by over 1,100%, 630% and 600%. Only four years ago, Gulf companies were priced at around twice book value. Today they trade on an average of 44 times historic earnings and at over eight times book value. Gulf banks are valued at over nine times book value, according to Credit Suisse.

     

    Sabic, a Saudi conglomerate, is currently ranked among the world's 10 largest companies by market capitalization. The Saudi stock exchange has a market cap of around $750 billion. That's roughly three times the country's GDP. By comparison, the U.S. stock market reached a peak of 183% of GDP in March 2000. In fact, the relative overvaluation of the Saudi stock market is even greater than these figures suggest. Nomura analyst Tarek Fadlallah points out that as the oil industry remains in state hands, a far smaller fraction of Saudi economic activity is captured by the stock market than in the U.S.

    The fourth pillar is an IPO boom: In the late 1980s, the Japanese authorities kindled a speculative mania by floating telecom giant NTT. In unconscious imitation, the Gulf states have stimulated their mania with privatizations and IPOs at bargain prices. It is not unknown for stocks to climb 500% on the first day's trading. Applications for new issues have been oversubscribed by up to 800 times. One IPO in the United Arab Emirates attracted aggregate subscriptions greater than $100 billion, a larger sum than the UAE's GDP.

     

    The fifth pillar is a property boom: Dubai is the fastest-growing city in the world. Hundreds of new buildings are under construction, including what is planned to be the tallest building ever, the Burj Tower. Cynics point out that the capping of the world's highest property, from the Empire State Building to the Petronas Towers in Malaysia, has occasionally in the past coincided with economic crises. Reports suggest that the majority of new Dubai properties are being acquired for speculative purposes, with only small deposits put down. They are being flipped in the contemporary Miami manner.

     

    The sixth pillar is market inefficiency: Financial information in the Gulf is totally inadequate. The Saudi megacap conglomerate Sabic attracts no domestic financial analysis, says Nomura's Mr. Fadlallah. Companies report their results in a rudimentary fashion. It is against the law to sell short overpriced stocks in the Saudi market. And foreigners' financial sophistication is absent since only Gulf nationals can purchase Saudi stocks. Instead, speculators operate in an information vacuum in markets reportedly dominated by insider trading and practiced manipulation.

     

    The seventh pillar is the madness of crowds: Newspapers gleefully report stories of police called to protect banks from overeager IPO subscribers. A Saudi woman is said to have been divorced by her husband for no reason other than that he'd had lost money in the stock market. Up to two million of the 16 million Saudi population are said to be playing the market. Interest-free loans are commonly available. Saudi bank foyers are lined with LCD screens showing stock movements. A local TV station has started to provide stock market reports. The education minister has warned teachers to stop day-trading at schools. People are quitting their jobs to trade.

     

    This is a familiar tale of folly, similar in certain aspects to the global technology bubble of the late 1990s. And like the tech bubble it is set to burst. The current Gulf prosperity is a mirage created by a haze of liquidity. The Federal Reserve, which inadvertently caused the Arab bubble when it slashed interest rates in 2002, is currently mopping up that liquidity. The Gulf Arabs are likely to be rudely awoken from their speculative dreams. In fact, the Arab markets are beginning to crack: Dubai has fallen 40% from its November peak, and the Saudi market is down by around 12% in the past few days.

    There are several implications of the coming Arab crash. Speculative booms lead to capital being misallocated. Many of today's investments in the Gulf region may appear, in retrospect, as extravagant as U.S. fiber-optic expenditures in the late 1990s. As for Dubai's desire to become an international financial center, it is spookily reminiscent of Tokyo's ambition to rival New York and London in the 1980s. Japan's ambition was shattered by the collapse of its bubble economy.

    The political consequences could be more serious. Arab rulers have deliberately encouraged the boom in the hope that rising asset prices and a strong economy would distract their youthful populations from religious fundamentalism. This strategy could backfire. History teaches that when speculative bubbles burst and the public loses large sums, there is normally a political backlash. This was true of the U.S. in the 1930s, and to a lesser extent in the early 2000s, and of Japan in the 1990s. It's not hard to imagine Islamists capitalizing on a future bust with denunciations of stock-market gambling. Some of today's young Arab day-traders could well turn into tomorrow's al Qaeda recruits.

     

    March 10, 2006

    Pebble Bed Reactors: Cheaper, Safer and Almost Carbon Free

    Accepting both the peak oil hypothesis and that climate change is real raises questions about the future of nuclear power; its cost, safety and full cycle greenhouse impact. Additionally, as an Australian reader objected to my last item "Nuclear Energy Back in the Mainstream" because I recommended Uranium miners as an investment I feel its important to place my understanding of the facts on the record.

    Nuclear reactors generate energy from fission. An atom of uranium splits into two, releasing energy plus two neutrons; and if either of those neutrons hits another uranium atom it can cause that atom to split, which releases more energy and another pair of neutrons, a chain reaction. Most nuclear power today is produced by large PWRs.

    According to a 2005 IAEA report, Chernobyl caused 56 direct deaths; 47 accident workers and 9 children who died of thyroid cancer. Additionally it was estimated that as many as 4,000 people may ultimately die from long term accident-related illnesses. Greenpeace, amongst others, dispute that study's conclusions and presume the toll was higher.

    Whatever the true toll of the Chernobyl accident, even conceding a worst case scenario, what most characterises the contribution of civilian nuclear power to world energy production is its relative safety compared to all other means of energy production.

    In terms of direct deaths per terawatt produced since 1972, Coal killed 342, Hydro 883 and natural gas 85, but only 8 fatalities were recorded per terawatt of nuclear power.(1) In fact, this statistic vastly underestimates the relative hazards of fossil fuels as the indirect deaths from pollution caused by Coal powered stations worldwide is estimated at over 5 million per year.

    A 1000 MW(e) coal plant, depending on sulphur content, sends annually millions of tons of Carbon dioxide, 44 000 tonnes of sulphur oxides and 22 000 tonnes of nitrous oxides into the atmosphere causing acid rain and poor human health. Additionally, there are 320 000 tonnes of ash containing 400 tonnes of heavy metals for which abatement procedures themselves produce as much as 500 000 additional tonnes of solid waste that must be disposed of.

    If the potential future climate change impact of the billions of tons of carbon emitted yearly from conventional power plants is taken into consideration, the death toll of say, heat waves in Europe or drought in Africa may, sooner or later, need to be added to the already massive indirect costs of conventional power.

    Reactor Types

    In a Pressurised Water Reactor (PWR), the fuel (ceramic pellets) is packed into fuel rods. Fission heats water to a temperature of about 320 C and via a heat exchanger this heat generates steam that drives turbines in another loop.

    The coolant water also serves to slow the neutrons down, allowing them to be absorbed by other uranium atoms, that is, the water acts as the moderator.

    PWRs were built based on experience gained building reactors for submarines, where a high power density was required and in theory, if the coolant is lost the chain reaction stops. In practice heat from short lived decay products keep the core hot. A large PWR can produce so much power that without coolant flow the reactor can be damaged and it is this high power density that demands a massive containment structure and safety systems and personnel.

    A Pebble Bed Modular Reactor (PBMR) has thousands of pebbles rather than fuel rods. About the size of billiard balls, each micro sphere has a core of enriched uranium, about half a millimetre across, surrounded by three layers, pyrolytic carbon, silicon carbide and graphite. Pebbles are added to the top of the reactor and taken from the bottom. The fuel pebbles removed are inspected and replaced and otherwise returned to the reactor. You do not need to shut the reactor down to refuel, unlike a PWR.

    Helium is used as the coolant, entering the core at 482 C and leaving at 900 C. The high temperature of the helium and the fact that it is directly coupled to the gas turbine make a PBMR much more efficient than a PWR. A single reactor produces only about 110 MW. But, if more power is required at a site, up to 10 PBMRs can be located together and run from a common control suite; hence the name modular.

    A PBMR has a number of features that should make it much safer than a PWR. The use of pebbles means it has a considerably lower power density in the core and with a much greater surface area pebbles are better at dissipating heat. A loss of coolant therefore cannot result in a meltdown that damages the reactor. The biggest advantage of a PBMR is that as the pebbles heat, fission slows. In the event of a catastrophic cooling-system failure, the core temperature climbs to 1,600 degrees Celsius - comfortably below the balls' 2,000-plus-degree melting point - and then falls, making the reactors walk-away safe.

    A few tons of high level waste a year has to be disposed of carefully underground.

    Costs

    Vattenfall, the Swedish energy company produces electricity from Nuclear, Hydro, Coal, Gas, Solar Cell, Peat and Wind energy and has produced accredited Environment Product Declarations for all these processes.

    Vattenfall finds that averaged over the entire lifecycle of their Nuclear Plant including Uranium mining, milling, enrichment, plant construction, operating, decommissioning and waste disposal, the total amount CO2 emitted per KW-Hr of electricity produced is 3.3 grams per KW-Hr of produced power.

    Vattenfall measures its CO2 output from Natural Gas to be 400 grams per KW-Hr and from coal to be 700 grams per KW-Hr.

    Thus nuclear power generated by Vattenfall emits less than one hundredth the CO2 of Fossil-Fuel based generation. In fact Vattenfall finds its Nuclear Plants to emit less CO2 over the lifecycle than even green energy production mechanisms such as Hydro, Wind, Solar and Biomass.

    Of course, all these methods emit much less carbon than fossil fuel electricity and they all have a respected place in our energy future. Until cheap and ultra efficient large energy storage systems become available only nuclear power can replace large coal burning plants.

    Once PBMR's are in full production they may be able to generate energy at about 1.7 US cents per kWh, well below the costs of new coal, gas or wind plants, and far below the cost of other nuclear power.

    In conclusion, I'll quote from James Lovelock, who's research ultimately saved the planet when he discovered CFCs in the atmosphere in 1973.

    "Opposition to nuclear energy is based on irrational fear fed by Hollywood-style fiction, the Green lobbies and the media. These fears are unjustified, and nuclear energy from its start in 1952 has proved to be the safest of all energy sources. We must stop fretting over the minute statistical risks of cancer from chemicals or radiation... If we fail to concentrate our minds on the real danger, which is global warming, we may die even sooner, as did more than 20,000 unfortunates from overheating in Europe last summer."

    The sooner construction starts on these reactors the better.

    (1) Severe Accidents in the Energy Sector, Paul Scherrer Institut, 2001
    (2) Risk analysis at http://www.phyast.pitt.edu/~blc/book/

    SUGAR HIGH

     

    by Jim Rogers

    When I was one of the lone voices talking up commodities and China heading into the new millennium, I ran into much skepticism among the press. The writers, reporters, and anchors around the world, the so-called business media who ought to have known better, were more likely to raise an eyebrow or even turn hostile when I wanted to talk about oil, lead, and sugar more than about the "next big thing" in stocks.

    Occasionally, I like to tease these media types. During one breakfast interview in a Paris hotel, a congenial writer from a French business magazine who was much more eager to discuss the falling dollar and the surging euro-for obvious reasons (Vive la France!) asked me what I would recommend for an ordinary investor like her. I plucked a wrapped sugar cube from the bowl on the table and handed it to her. She looked at me as if I had gone mad. "Put this in your pocket and take it home," I advised, "because the price of sugar is going to go up five times in the next decade."

    She laughed, eyeing her sugar with skepticism. I told her that the price of sugar that day was 5.5 cents per pound, so cheap that no one in the world was even paying attention to the sugar business. I reminded her that when sugar prices last made their all-time record run-soaring more than 45 times, from 1.4 cents in 1966 to 66.5 cents in 1974-her countrymen were planting sugar all over France. She nodded-"Supply and demand," she said

    - and pocketed her sugar. But I suspect that she has not put any of her money where her mouth - or her pocket - is.

    No one had for years, which, of course, was my point. Sugar prices were so low for so long that it was the last business enterprising souls around the world would be likely to enter in the 1990s and early 2000s. If you are an ambitious young farmer in Brazil (or Germany or Australia or Thailand, also major sugar producing nations), do you choose to produce sugar at 5.5 cents a pound or soybeans, which closed 2003 near $8 a bushel, a six-year high? Even in the U.S., which has its own protected domestic sugar market at two to three times the world price, only the most efficient producers are surviving.

    Sugar has had its boom times in the past - that 1974 record, and another spike in 1981 during the last bull market in commodities. And if I'm right and we're in another long-term bull market in commodities, we're likely to see another sugar high. Historically, nearly everything goes up in every kind of bull market, whether it's company shares, commodities, or apartments on Park Avenue. And with world sugar prices at 85 percent or so below their all-time high, the chances of moving higher are strong. To those of us who have been here before, it is promising to note that similar supply and demand imbalances are shaping up that could push sugar prices upward over the next decade.

    The prices of a commodity usually move for a good reason, and the savvy commodities investor must be familiar with past trends and have an eye out for new ones, along with potential glitches, fundamental changes, and anything else that might affect the price of sugar. Between 1966 and November 1974, sugar made the astonishing climb, from 1.4 cents to 66.5 cents.

    How do sugar prices go up more than 45 times? By the end of 1972, there had been four straight sugar seasons with record crops. Yet consumption actually outpaced supplies in 1972, literally eating into sugar inventories over the next year. The 1973-74 sugar season began with extremely tight supply conditions worldwide; demand continued to rise. There was evidence that some big industry users were stockpiling sugar in anticipation of higher prices. Soon people were grabbing sugar off the shelves in armloads to offset rising prices. Others were grabbing cubes off restaurant tables for home use. Dinner guests were arriving with five-pound bags of sugar instead of the traditional bottle of wine or bouquet of flowers. Even people who had never given the sugar futures markets a moment's thought knew something was up when they walked into the local coffee shop and noticed that the sugar had vanished from the table. Quite simply, global demand for sugar had exceeded supply, and before long the price of sugar headed for the roof.

    Everyone had a theory for the high prices. Sugar traders had no idea where prices might be when the U.S.'s long-standing price supports expired at the end of 1974; some blamed the high prices on a "scarcity of cheap labor to harvest sugarcane"; others pointed to the failure of the European sugar-beet crop. Others even suspected that both the Soviet Union, which had just suffered two bad production years in a row in its own sugar crop, and "Arab oil money" (remember that oil crisis of the 1970s?) had moved into the sugar futures markets, along with a rise in speculation by others looking to make money from rising prices.

    Significant, too, was the fact that Americans had come to see cheap sugar as a birthright. Even those consumers (and food and beverage companies) who might have turned to the newest artificial sugar substitute, cyclamate, and thus decreased demand, quickly returned to the real thing when the FDA pulled cyclamate off the market in 1969 after reports that it might cause cancer.

    Over the next few years, companies put sugar back into their products, boosting demand. U.S. consumption did not slow down much until September 1974, when the reality of high prices finally kicked in. Soft-drink prices increased and candy bars got smaller. But before the White House published the "Presidential Proclamation" of 1975 protecting U.S. sugar producers with the same duty rates and establishing a global quota for sugar imports into the U.S., prices were heading back down.

    By December 1976 and January 1977, world sugar prices were ranging between 7 and 9 cents a pound-figures that were, according to the CRB Commodity Yearbook report at the time, "below their reported cost of production in some countries." And many, many Johnny-come-lately sugar speculators lost their money-proving, once again, the perils of rushing into a market where prices are rising 45 times, whether it's sugar or dot-coms. The forces of supply and demand put hysteria in its place, once again.

    While three straight bumper crops assured plenty of sugar in the world - prices averaged 7.81 cents per pound in 1978 - the next season saw a few glitches in the supply chain, as a result of events around the world.

    For the next 20 years - during a bear market in commodities - sugar remained plentiful, with bearish prices zigging and zagging at the low end with a few minor spikes, as typically happens in bear as well as bull markets. Gradually, sugar had gone from a respectable commodity that fed the world and supported entire economies to a victim of changing fashions in diet and health: sugar was bad for you; it made you fat, it made kids hyper, and it rotted their teeth. Meanwhile, in labs all over the world chemists were looking for substitutes, preferably noncarcinogens.

    In 1981, the U.S. Food and Drug Administration approved the artificial sweetener aspartame, and in a flash this newcomer replaced sugar in cookies, cakes, and other favorite snacks sold around the world. Diet colas were becoming more popular because they had less sugar, and if the sugar's competition had not become tough enough, in 1983 the major soft-drink companies started using literally millions of tons of high-fructose corn syrup to sweeten their beverages. Bad for sugar. (But good for corn, and a great example, by the way, of how researching one commodity might turn up some moneymaking possibilities in a different

    one.)

    By 1985, the price of sugar had made it all the way down to 2.5 cents. No one wanted to be in the sugar business. They were giving away seats on the sugar exchange at the New York Board of Trade.

    Sugar prices stayed in a bear market for the next 19 years, and were still bearish that day in early 2004 when I was teaching the French business writer about her future as a sugar baroness. World production of raw sugar had reached a record level in the 2002-03 season, and the next season produced almost as much. Brazilian exports were also at a record high. That French writer had reason to be skeptical: The price of sugar, after all, at 5.5 cents per pound at the time was not that removed from the 1.4 cent figure of 38 years earlier and a lot closer to that 2.5 cent number of 1985. In fact, most prognosticators were saying, as one analyst for the Australian and New Zealand Banking Group put it at the end of 2003 in a brief report about the market that I read, "sugar prices were likely to remain under downward pressure."

    So why was I, a few months later, confidently telling someone to buy sugar? Supply and demand. Of course, I was already a firm believer in the fact that a bull market in commodities was under way, and if, as I've noted, the history of past bull markets tells us that nearly everything makes a new all-time high, why not sugar?

    Change is upon us

    Longtime readers of my commentaries may recall that I have been waiting for the dollar to fall while US interest rates rise at the same time. Even though it may not be intuitive that the dollar could fall while interest rates rise, I think current events in both China and Japan are setting the stage for it to happen.

    To show how significant recent announcements from both China and Japan are I am going to recap the events leading up to them. If the following is too brief, I suggest you read past commentaries on my website (www.paulvaneeden.com) for more background.

    Since 1992 more than four trillion dollars of foreign capital have been invested in the US. This capital influx was due to a series of currency crises, beginning with the Brazilian Real in 1992. Capital, seeking a safe haven, poured into the United States. Initially, this influx of capital caused US interest rates to fall, US corporate profits to rise and consumer spending to increase. The resultant bull market in stocks and bonds was fertile ground for investor speculation and gave rise to the high-tech, or Internet bubble. When the high-tech bubble burst, the Federal Reserve reacted by artificially driving interest rates even lower, causing a real estate bubble in the US and averting the collapse of the broader US stock market.

    When the Southeast Asian currency crisis began in 1996 with the fall of the yen, the extraordinary amount of capital that flowed into the US caused an unprecedented rise in the US dollar exchange rate. This increase in the US dollar exchange rate in turn caused a decrease in the price of all things priced in dollars: oil, commodities, metals, gold and, of course, all US imports. Lower import prices in the US in turn lead to an expansion of the US trade deficit.

    At the same time we also saw the emergence of China as an economic powerhouse, with a massive shift of manufacturing capacity away from North America and Europe to China. In order to maximize the benefit of the strong US dollar, both China and Japan elected not to sell the trade dollars they were receiving back into foreign exchange markets. Instead, they bought US Treasuries with those dollars.

    Under normal circumstances, when a country such as Japan receives trade dollars due to its trade surplus with the United States, it sells those dollars in the foreign exchange markets. By selling dollars and buying yen, the trade imbalance would lower the exchange rate of the dollar and increase the exchange rate of the yen, thus increasing the cost of exports from Japan and increasing the cost of imports in the US, which would eventually neutralize the trade imbalance. But because both China and Japan (and several other Southeast Asian countries) withheld their trade dollars from foreign exchange markets, their export prices and US import prices were kept low. This caused an exacerbation of the US trade deficit, and it also kept US interest rates low since the bulk of those dollars were invested in US bonds.

    Oil and metal prices declined precipitously during the late 1990s because of the rise in the US dollar exchange rate. Declines in metal and oil prices were far less pronounced in many other currencies and, in fact, the gold price increased in some currencies even while it was falling in US dollars. I realized during the late 1990s that the gold price (in US dollars) would not sustain a rally until we saw the end of the rise in the dollar itself. Between 1999 and 2001 the dollar rally petered out and by 2002 the dollar was entrenched in a bear market as the combination of falling interest rates in the US and the trade deficit took their toll. Oil, commodities, metals and gold prices started rising.

    The increase in most metals and commodity prices were initially just a reflection of the falling US dollar exchange rate; however, because of the expansion occurring in China, among other things, some commodities and metals prices rose more than what could be accounted for by the dollar alone.

    The gold price, on the other hand, was almost exactly paired to the US dollar exchange rate up to the middle of 2005.

    Now we can evaluate the current situation with the twin deficits of the United States.

    The US trade deficit simply means that US residents buy more imports than what they export. The net result of the trade deficit is that US dollars are being sent to other countries, and, as mentioned earlier, under normal circumstances those dollars would have been sold in foreign exchange markets, putting downward pressure on the dollar. A weaker dollar would translate into higher prices for US imports and lower prices for US exports and that would in turn cause a reduction, or elimination, of the trade imbalance. Therefore, the US trade deficit will eventually cause the US dollar to decline. The only reason it has not yet done so is because China, Japan, and several other countries are not selling their US dollars, but investing them in US Treasuries instead.

    That brings us to the US fiscal deficit. A fiscal deficit arises when the government spends more than it receives from taxes. The US fiscal deficit is much larger than the budget deficit and contrary to what the media and politicians would like you to believe, the US fiscal condition is worsening, not getting better.

    The current debt limit for the US government is $8.184 trillion and if that limit is not raised by the middle of the month the government will likely go into default. All it means is that lawmakers will vote to increase the debt limit. But the amount by which they will increase the debt limit is what is interesting. The current proposal is for an increase of $781 billion. Why $781 billion? Probably because that is more or less what they expect the fiscal deficit will be for the next twelve months, or so.

    During fiscal 2005 (that ended on September 30, 2005) the government’s debt increased by $554 billion. Since then the debt has increased by $337 billion, which, when annualized, comes to $814 billion. Don’t be misled by budget deficits: politicians can budget all they like but their spendthrift ways become evident in the increase in debt.

    As an aside, the current debt of $8.27 trillion does not include unfunded liabilities of the US government, such as Social Security, Medicaid and Medicare. Including unfunded liabilities the US government is approximately $46 trillion in the hole.

    The fiscal deficit means the US government continually has to issue more and more debt to finance its spending and the issuance of debt means an increase in the supply of US bonds that will ultimately lead to lower bond prices and higher interest rates. This is where the trade deficit and the fiscal deficit meet. Just like the trade deficit implies the dollar will fall, the fiscal deficit will ultimately cause US interest rates to rise.

    Recall that China, Japan, and others were buying US Treasury debt (bonds) with their trade dollars instead of selling those dollars into foreign exchange markets. That is what kept the dollar afloat, but it is also what kept US medium to long term interest rates so low since no matter how much more debt the government issued, these nations stood ready to buy it.

    Looking at this I realized that we are going to witness an unexpected turn of events. When China and Japan decide to stop buying US Treasuries with their trade surplus dollars, the US dollar exchange rate will fall simultaneous with rising US interest rates. This is not intuitive since common dogma suggests currencies rise when interest rates rise and fall when interest rates fall. Yet I believe that the US dollar is going to fall while US interest rates rise.

    You probably already figured out how this works: When China and Japan stop buying US treasuries with their trade dollars they will no longer be supporting the US government’s debt issues, which means the US fiscal deficit and the resultant necessity to issue bonds will cause bond prices to fall and interest rates to rise. At the same time, China and Japan will have to do something with those dollars. My suspicion is that they will gradually start selling more and more trade dollars for their own currencies so that they can invest in their own economies.

    I am not suggesting that China or Japan will start selling massive amounts of dollars that are currently held in their foreign reserve accounts, merely that they will reduce the rate at which they are accumulating US dollars in their foreign reserve accounts.

    It has always been clear that China and Japan will support the US dollar only as long as it is in their interest and I have made the point that it is in their interest only while US consumption of their goods continues to grow. We have seen that US economic growth is faltering and therefore I believe we are at the end of their support of the dollar.

    In December a Chinese newspaper, called The Standard, printed an article that quoted Mr. Yu Yongding, a member of the monetary policy advisory committee to the People's Bank of China, as saying that China should weaken the link between the yuan (renminbi) and the US dollar to make the exchange rate more flexible and improve the Chinese government's ability to manage their economy. Yu suggested that the weighting of the US dollar in the basket of currencies against which the renminbi is set should be reduced, thereby reducing the impact that changes in the US dollar would have on the value of the renminbi.

    The next day Mr. Yu Yongding was quoted by the same newspaper as saying that Chinese firms should get ready for a strengthening of the yuan (renminbi) during the next one to two years. The "fuller the preparations, the better," he said. The same article mentions a research paper obtained by Reuters, wherein Mr. Yu Yongding suggested China could reduce the growth in its foreign reserves by running expansionary fiscal policies and investing in infrastructure and research and development.

    It seems to me that China is getting ready to do exactly what I expected they would do: start selling trade dollars and investing the proceeds into the Chinese economy. But if China abandons the dollar, Japan will follow, because supporting the dollar is not possible for either China or Japan alone: it requires both of them to act in concert.

    And indeed, last week we learned that Japan is considering raising interest rates. For almost ten years now Japanese interest rates have been near zero in an attempt to avoid a deflationary collapse. Such low interest rates meant little demand for Japanese bonds and hence virtually no investment demand for Japanese yen. Instead it created what is called the yen carry trade. Large investors could borrow yen at very low interest rates and invest those funds in higher yielding instruments such as US Treasuries. In the process yen are sold and dollars are bought. That keeps the yen exchange rate low relative to the dollar, especially in light of the US trade deficit with Japan.

    Higher Japanese interest rates would kill the yen carry trade and could even cause some of those positions to be unwound, since the biggest risk in the carry trade is an increase in the yen exchange rate.

    Higher Japanese interest rates do not only impact the yen carry trade, they impact US mortgage and other interest rates directly since funds that could have been invested in Japanese debt instruments have instead been invested in US debt instruments.

    So while we know that the dollar will fall and US interest rates will rise as a consequence of the US trade and fiscal deficits when China and Japan stop supporting the dollar, we also know that both the dollar and US bond prices will take a hit if Japan starts raising interest rates. These are all pieces of the same puzzle.

    Expectations of a stronger yen have already hurt the dollar. Since January the dollar has lost 1.69% against the yen.

    I mentioned earlier that the decline in the gold price during the 1990s was due to strengthening of the US dollar and that the increase in the gold price from 2001 to mid-2005 was due to weakening of the US dollar. However, since about June of last year the gold price has been on a tear that is clearly unrelated to the US dollar exchange rate. Is it possible that players in the global financial system were becoming aware of the impending changes in Chinese and Japanese policy towards the dollar? Could it be that they were positioning themselves for another, fairly dramatic decline in the US dollar by buying gold and other instruments that would benefit from weakness in the dollar?

    My expectation is that the dollar has to decline roughly by another 30% or so before balance can be achieved in international trade. That decline will not be uniform against all currencies, but will be predominantly against the renminbi, the yen, and other Southeast Asian currencies.

    Such a decline in the dollar will also cause the dollar-gold price to rise to around $850 an ounce and by the time this has all played out, inflation could add another one or two hundred dollars to the gold price.

    We will see.

     

    Paul van Eeden

    P.S. I will be at the Prospectors and Developers Association conference in Toronto all of this week, so there will not be a commentary on Friday.

    P.P.S. I may in future stop publishing these commentaries on Kitco so if you enjoy reading them I suggest you go to my website at http://www.paulvaneeden.com/commentary.php and register to get them by email. Rest assured that I do not sell or rent any of my subscribers’ email addresses.

    Paul van Eeden works primarily to find investments for his own portfolio and shares his investment ideas with subscribers to his weekly investment publication. For more information please visit his website (www.paulvaneeden.com) or contact his publisher at (800) 528-0559 or (602) 252-4477.

    March 08, 2006

    Party Hacks (from the Moscow Times)

    By Chris Floyd http://context.themoscowtimes.com/story/166395/
    Published: March 3, 2006
    Two weeks ago, an obscure, unelected, Republican-appointed official in California decided the future of the world. That future -- at least for the next several years -- will be an accelerating nightmare of war, corruption, repression, atrocity and terror. That's because the loyal apparatchik has, with the stroke of a pen, guaranteed the perpetuation of the Bush faction in power in 2008 and beyond.
    One of the few certainties in modern U.S. politics is that no Democrat can win the presidency without carrying California. Thanks to the Electoral College system set up by the Founding Oligarchs to keep the low-born rabble from voting directly for president, the big haul of California's electoral votes is crucial for Democrats to offset the multitude of small, sparsely populated states that reliably vote Republican. Bagging California doesn't guarantee Democratic victory, but without it, the cliffhanger electoral counts in the goosed elections of 2000 and 2004 wouldn't even have been close. Thus, the sudden, hugger-mugger decision by California Secretary of State Bruce McPherson to override the objections of his own experts and certify the eminently hackable voting machines of the politically partisan firm, Diebold, for use throughout the state means, quite simply, that the fix is in for 2008. It doesn't matter who the Democrats run -- Hillary Clinton, Barack Obama, John Edwards, George Clooney or Jesus H. Christ in an Uncle Sam suit. It won't make a bit of difference. California is lost, the presidency is lost and the Bushists are in -- already. It's over.


    After Diebold's machines failed miserably in a battery of tests last year, McPherson vowed to put their certification on hold until his own hand-picked panel of experts had fine-combed the system to a fare-thee-well, blogger Brad Friedman reports. The panel delivered their conclusions last month -- and the results were staggering, far beyond the worst fears of the most hard-core "conspiracy theorist." The panel found that Diebold's machines were riddled with curious built-in glitches that effectively "ceded complete control of the system" to hackers who could "change vote totals, modify reports, change the names of candidates and change the races being voted on."

    What's more, "hackers wouldn't need to know passwords or cryptographic keys, or have access to any other part of the system to do their dirty work," the Los Angeles Times notes. "Voters, candidates and election monitors wouldn't necessarily know they'd been rooked." A more perfect vehicle for fixing an election can hardly be imagined. And it would require nothing more than a handful of high-tech zealots, not a vast conspiracy.

    Naturally, after such a blistering condemnation, McPherson did what any official charged with guaranteeing the integrity and credibility of his state's elections would do: He approved the slipshod system by the dark of the moon, on a Friday before a holiday weekend, without any public hearings -- indeed, without waiting for the results of a pending federal review of Diebold's mole-infested code. Now, the Diebold contraptions, whose chronic "breakdowns" have featured in numerous contested elections and last-second "miracle" victories by Republican candidates across the country in recent years, will control California's pot of electoral gold.

    A good example of how this control works can be found in Alaska. There, the state Democratic Party has long been seeking an audit of some of the 2004 Diebold-counted returns, which produced a series of strange anomalies -- including awarding President George W. Bush an extra 100,000 votes that turned out to be phantoms. First, state officials blocked the request because that information, the vote count of a public election, was a "company secret" that belonged exclusively to Diebold, Friedman reports. Then they decided that the returns could be examined -- but only on the condition that Diebold and the Republican officials be allowed to "manipulate the data" before it was released. In the end, even this tainted transparency was too much for the Bushist ballot crunchers; late last month, Alaska officials suddenly declared that examining the returns would pose a dire but unspecified "security risk" to the state.

    America's votes are increasingly controlled by a small number of interrelated corporations: Diebold, ES&S and Sequoia, all of which have close political and financial ties to the Bush faction -- and to other dark forces as well. Diebold and ES&S were both bankrolled by tycoon Howard Ahmanson, who was also a major funder of the Christian "Reconstructionist" movement, which openly advocates a totalitarian theocracy in America, including the death penalty for homosexuals, slavery for debtors, stoning for sinners and stripping nonbelievers of citizenship. As journalist Max Blumenthal reports, these extremists have been welcomed as a key part of the Bushist base of politicized evangelicals, whose cadres have been quietly filling government posts for the past five years. Meanwhile, Sequoia -- whose machines racked up 100,000 "mistakes" in just one Florida county in 2004, according to a recent audit -- is owned by a business partner of the Carlyle Group, the investment firm whose insider deals and war profiteering have earned millions for the Bush family.

    Thus, the 2008 election will be conducted largely on wide-open machines programmed by avowed partisans and paymasters of a ruthless gang that has already committed demonstrable vote fraud on a massive scale in engineering narrow "victories" in 2000 and 2004. So it doesn't matter who runs, who votes or how unpopular the Bush faction becomes through the murderous ruin of its radical agenda. The "consent of the governed" will be drowned in the blood money that has bought the nation's electoral process.

    March 07, 2006

    Repricing the Planet

    COMMODITIES, IF YOU HAVEN'T NOTICED, are hot. And it's not just oil and other energy items but a broad array of stuff from metals to grains. So far, it hasn't entered the general zeitgeist as in the 'Seventies or the early 'Eighties, when everybody gained a firsthand acquaintance with soaring prices while waiting in gasoline lines or watching prices get marked up before their eyes in the supermarket. Commodities were as much a part of that misbegotten era as Watergate or Jimmy Carter's cardigan, much like tech stocks in the late 'Nineties or, until recently, real estate. Of course, by the time Hollywood gloms onto a market trend, you know it's history. So by 1983, when Trading Places -- the movie in which Eddie Murphy and Dan Aykroyd implausibly made a killing in orange juice futures by getting advance word of a crop report -- the bear market in commodities was well under way.

    Commodities aren't the subject of cocktail-party chatter -- yet -- but they have been attracting serious money from institutional investors, such as pension funds and endowments. That's according to a report from Bridgewater Associates, the highly regarded institutional management firm led by Ray Dalio, who was the subject of a Barron's Q&A last year ("Bipolar Disorder," June 13). Endowments have allocated an estimated 3.6% of their $299 billion to natural resources, as of year end, while pension portfolios had 4.1% of their $6 trillion in assets in "other" investments. The key, says the Bridgewater report: While there's been a big dollar increase in institutional investments in commodities, it's still a small slice of the pie.

    But the report says the share is apt to increase, since commodities have become "respectable" as an asset class, since they help dampen the risk of a securities portfolio via diversification and since many institutions have yet to allocate a penny to commodities. Strong global growth and loose global liquidity conditions underlie the bull case for commodities, which Market Semiotics' Woody Dorsey dubs the Repricing of the Planet. We would also add that rich valuations of equities and paltry bond yields add to the attractions of commodities.

    This hasn't caught on with the man and woman in the street as it did three decades ago, but it soon may. Unless you opened a futures account, individuals' main commodity plays were related stocks or mutual funds. That is, until a month ago, when the DB Commodity Index Tracking Fund (ticker: DBC) came to market. The exchange-traded fund is based on the Deutsche Bank Liquid Commodity Index, which consists of 35% crude oil, 20% heating oil, 12.5% aluminum, 11.25% each for corn and wheat, and 10% in gold.

    So far, the ETF is off less than a buck from where it bowed, at around 23.85. But the introduction of other commodity ETFs has been a pretty good buy signal for those commodities, according to Market Intelligence Report, a North Oaks, Minn., newsletter. If you'd bought bullion when the first gold ETF was announced in 2002, you'd have ridden bullion up from $330 an ounce to $565. To back the popular streetTracks Gold Shares (GLD), its sponsors have had to buy upwards of $6 billion worth of gold -- 300 tons at an average price of $500 an ounce, or one and a half-to-two months' world gold production. That doesn't include the smaller iShares Comex Gold fund (IAU.) An even bigger hit has been the Toronto-traded Uranium Participation Corp. (U.TO), which is up a sweet 43% since it started trading last May.

    Just the anticipation of a silver ETF sent prices of that metal last week over $10 an ounce, a 22-year high. Barclays Global Investors has been seeking clearance for the fund from the SEC since mid-2005 (when silver traded around $7), but has been fighting resistance from industrial users who fear there won't be enough of the metal around if a big slug of it is locked up to back the ETF. Ironically, the prospect of such a supply squeeze can only make silver bulls' hearts beat faster.

    There's no doubt that demand from investors who heretofore had avoided the commodity pits is giving the bull market extra oomph. But they wouldn't be interested in the first place if the fundamentals weren't positive. In other words, the tail isn't really wagging the dog.

    March 06, 2006

    US Banks walk away from US Treasury Paper

    debt.jpg

    The share of the debt of the US government owned by US banks fell to 1.7 percent in 2004 from 18 percent way back in 1982. US Treasury debt is the benchmark, the best and safest debt paper in the world, backed by the "full faith and credit of the United States".  Isn't it?

    March 04, 2006

    The financial road less traveled

     I shall be telling this with a sigh
    Somewhere ages and ages hence:

    Two roads diverged in a wood, and I--
    I took the one less traveled by,
    And that has made all the difference.
    Robert Frost

    BIS Working Paper No. 193, ponders the profound question, Procyclicality in the financial system: do we need a new macrofinancial stabilisation framework? Very deep. Very serious. But, if you chip away at the big words, breaking them down to a level of tangible meaning the paper admits and then almost asks, the system is broke, should we fix it? I say almost asks because it seems to me the listed "fixes" are just variations of the same themes that created the mess in the first place. Read More.

    Baring's attracted by Glitter...

    Baring’s John Payne has positioned his £112m Global Resources fund for a rally in base and precious metals this year.

     

    The manager said he anticipated continuingly high global demand for iron, gold and copper, so has been selling out of his oil-related stocks and into metal mining and production companies.

    Mr Payne said he had started to reduce his weighting in energy stocks in the third quarter of 2005, putting the proceeds into base and precious metal stocks.

    At the end of October, the portfolio was 27.8% exposed to base metals with 10.8% in precious metals and 60% in energy stocks. The portfolio now has 31.5% in base metals, 22.8% in precious metals and 42.2% in energy. The benchmark MSCI World All Countries Energy and Materials Index now has a 16.5% base metals weighting, with 3.4% in precious metals and 58.6% in energy.

    Mr Payne said: “The supply and demand fundamentals for several metals – zinc, aluminium and copper – are in favour of the suppliers because of strong demand from China. We expect growth in the Chinese economy of 9.8% this year. In conjunction with this, we expect good growth in the US, improvement in Germany and Japan to grow by 1% to 2%, possibly higher.”

    Gold and other precious metals, meanwhile, had experienced a slight decline in supply in the past two years as few large new mines have come on stream, according to Mr Payne. Besides, he said gold prices had been “climbing the wall of worry”, over higher energy prices, concerns over the US deficit and rising global levels of consumer debt.

    In the past month, Mr Payne has increased his holding in Australian zinc producer Zinifex from 1% to 2% of the fund. Swedish zinc producer Boliden has also been boosted from 2% to 4%. Meanwhile, he has also bolstered South African gold miner Gold Fields from 1.5% to 4% and his holding in Australian gold miner Oxiana has also increase from 1.75% to 2.75%.

    Mr Payne has mixed views on energy and is marginally underweight oil producers, while favouring oil service companies such as US services company Halliburton and Russian oil pipeline operator Transneft.

    March 02, 2006

    Merrill Raises Copper, Zinc, Coal Price Forecast

      

    March 1 (Bloomberg) -- Copper, zinc and thermal coal price forecasts were increased by Merrill Lynch & Co., the world's biggest securities firm by market value, because of increasing demand and investment funds driving prices higher.

    Merrill raised its price forecasts for four base metals, including aluminum and nickel, and thermal coal by between 5 percent and 43 percent, analyst Vicky Binns said in a note today. It made its last price revision in December.

    Copper, zinc and other metals rose to records this year, bolstered by economic growth in China that fueled demand for autos, homes and appliances. As much as $200 billion of fund money is invested in commodities, with $30 billion in base metals, Citigroup Inc. said in a Jan. 25 report.

    ``We, like everyone else in the market, have been caught out by the effect of money flowing into the commodity markets and therefore need to upgrade price forecasts,'' said Sydney- based Binns. Investment demand is being backed by rising consumption from developing countries like China, and developed economies in Europe and Japan, she said.

    The price of copper, used in pipes and wires, may average $2 a pound in 2006, 21 percent higher than a previous forecast, Merrill said. The metal has averaged $4,856.60 a ton, or $2.20 a pound, this year on the London Metal Exchange.

    ``Demand has surprised on the upside in key Chinese and Indian markets,'' said Binns. ``This has combined with supply bottleneck at the smelters to switch our small surpluses in 2006 into small deficits.''

    Zinc, Thermal Coal

    Zinc, used to protect steel from corrosion, may average $1 a pound, 43 percent more than a previous forecast, Merrill said. That compares with the average price of $2154.2 a ton, or 97.7 cents a pound, this year.

    The securities firm also raised its forecast for aluminum, used in cars and planes, by 5 percent to $1.05 a pound for 2006. Aluminum has averaged $2,417.50 a ton, or $1.1 a pound this year.

    Merrill Lynch also raised its forecasts for annual thermal coal prices to $48 a ton, from $43 a ton, due to rising rates on the spot market. Thermal coal is used to generate electricity.

    ``We believe the risks are for higher prices, with coal seen as the preferred source of power in Asia and Europe and with cement production picking up in Japan,'' Binns said. ``Supply continues to experience delays, higher costs and unavailability of truck tyres.''

    Zinifex Ltd. and Oxiana Ltd. are expected to be the biggest beneficiaries of higher prices, Merrill said.

    The brokerage raised its earnings forecast for Zinifex, the world's second-largest zinc producer, for fiscal 2006 by 50 percent to A$743 million ($552 million).

    Oxiana, an Australian copper producer, will likely post 2006 profit of A$298 million, 55 percent higher than earlier predicted, Merrill said.

    Merrill Lynch also revised its profit estimates for BHP Billiton and Rio Tinto Group, the world's largest and third- largest mining companies. It raised its fiscal 2006 profit forecasts for BHP by 7 percent to $9.9 billion, and for Rio by 8 percent to $6.6 billion.