Thomas
DeChastelain
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Bullion Charts and Commentary
posted Apr 2, 2005 at 02:04PM

Introduction


Hey speaking of feeding tubes, what about that good old US economy? It just keeps churning out those great GDP numbers doesn't it?. Of course there are some that would say that the real underlying economy is in fact brain dead..flat lined., incapable of true regenerative qualities. It is is only giving the illusion of life because of "heroic measures"; multiple feeding tubes delivering huge gobs of debt, easy credit, and stimulative spending.

Of course the question du jour is should the tubes be disconnected to let the economy die a dignified and merciful death? Or should the machines stay turned on, a glowing testimonial to the culture of life? Hmm...well some philosophical quandaries to ponder.

I am sure you have heard of a big name brokerage firm calling for a superspike in oil with prices going to triple digits? Usually one would regard this talk as being a contrarian indicator but these days you never know.

Such an occurrence would require a major producer going off-line. Venezuela?. I have no doubts that Chavez is looking for a little pay-back. As you all know the US actively supported a overthrow of Chavez for his socialist leanings. And with all due respect to John Mauldin, you don't really have to be a "madman" to get pissed off when another country not just tries to overthrow you, but that the first acts of the coup makers is to disband thier Parliament, disband their Supreme Court and rescind their Constitution - all under the rubric of promoting democracy.

Yes even the sanest man would have every right to strike back. Of course the plan here is that Chavez will turn the taps off to the US, selling all their oil to China, who more and more are looking the be holding the consumer super power card.

Well notch another one for neoconservative foreign policy. Did you know that Venezuela has over a trillion barrels locked away in its oil sands? Just a fraction of the money being spent bombing Iran, and even rarer, a little good faith diplomacy would probably go a long way in starting to unlock. It wouldn't be that hard. I mean the Saudi's are basically funding every terrorist group on the planet that has a hate on for the US, and the US has no problems getting on thier knees in genuflection.

Ok Chavez is a dolt but last I heard women are allowed to drive cars and they don't cut the heads off people. Hell, Chavez didn't even arrest, much less execute the coup leaders. He just waited until the constituionally assigned date, held "fair and free" elections, and won by a landslide.

But for now, all of those barrels may as well be on Mars.

Of course when it comes to Neoconservative foreign policy and oil producing countries the sky is the limit. When you read that the Bush people are refusing to take nuclear first stirkes off the table in their dealings with Iran...you just have to shake your head. It would be something to see corporate media spin that one!

It must be a real bitch for US citizens to see crude inventories building, and yet see the price of gas keep going up. Evidently the choke point is refining capacity. Now you would think that conservative adult leadership in the US would consider surplus refining capability to be of strategic national importance.

Aggh but we have neo-conservative leadership. Surplus capacity is "inefficient", and is hell on profit margins. When Reagan allowed the big oils to merge again, the first thing they did was take refining capacity off-line. The story that they can't build new refineries because of environmentalists is just smoke. There is nothing to stop them from building new refining capacity on any of the old sites. Besides do you really think the Republicans, who hold every lever of power in government couldn't make this happen if they really wanted to?

Basically current capacity is running at full tilt, with inadequate time to meet even deregulated maintenance time standards, and thus are only a few failed parts away from sending price shocks throughout the whole system..

As those who browse the web for insights on the market may have heard, a well-respected name in the Elliot Wave World (besides Prechter) has made a call for $200 gold. The problem with that, as I see it, is that would require a US Dollar Index to go beyond past highs, at least to 140.

And of course the problem with that, is the small fact that the US is bankrupt. Not going bankrupt, but is bankrupt. In many ways the US is like the old Elmer Fudd cartoon character who is walking off a cliff on air just before the point he realizes that something is just not right.

Now hearing that the US is in a horrible fiscal state is hardly original amongst gold talking heads. My point of contention is how it got there.

This may come as a shock to some people but NEVER in the history of humanity has a country gone bankrupt because it spent too much on schools, or providing healthcare or pension savings plans. Not once. Ever. They may get into budgetary trouble but these incidents are usually fixed with basic management techniques. You may believe that foreign aid is analogous to feeding hay to a dead horse, but a country never went bankrupt because it gave all its money away to another country.

On the other hand history is replete with examples of countries, indeed empires, going tits up because of overextended military and security spending - which became an untenable albatross around the neck of its underlying "real" economy. Trust me. You have not seen waste until you've seen a military agency outsource private contractors for $300 buck/hour to do Y2K checks on manuals for rubber boats

Just try adding up all the money the US spends on defense and on "policing" itself and you will see that a good chunk of their GDP has little to do with genuine economic activity. Indeed I would not be surprised if the percentages approach that of the Soviet Union not too long before they imploded.

People should not be surprised at this assertion. Neoconservatism is like looking at Communism through a telescope. The image in inverted and flipped over, but in the end, you are looking at the same thing

Well enough venting. On to the charts to see if the gold market is showing signs of recognition that things are circling the drain.

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Trading Thoughts

I still remain cashed up with no exposure to golds at this time. Looking at the charts it's hard to say whether the sector is bottoming along trend-line support, or simply putting in a bounce before more down price action.

With the HUI/Gold ratio still below key moving averages I remain cautious.

So right now my thoughts are to remain on the sidelines and keep watching. Wait for the sector to get oversold, or for gold stocks to show some signs of outperformance.

Good trading

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