Harry Schultz International Letter, Full Market Update

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Welcome back to FMU

From Uncle Harry:

Dear family, Nov 27, 05

There is a LOT going on at the moment, significant stuff. And many charts at the close Friday suddenly threw up some possible signals. This page & the ones that follow may give U & I a head start on some new directions that determine asset gain or loss for the next 3-6months.

For openers, the currency charts show this, as of Friday close, 11/25: a possible shorterm bullish downwedge in Swiss fr. A move up to 77.50 is needed to confirm. And rebuy if makes 79.50. A less clear possible shorterm bullish downwedge in the daily euro, the £, & even the yen. These are "probably" only sharp pullback potentials in otherwise bearish longterm charts. We'll soon see. The A$ wkly chart: ditto. C$ bullish flag on wkly chart. NZ$ rising daily. ··Yet US$ stuck on the 92 barrier. If it breaks through (as chart hints it should) the target is 100. I'll rebuy US$ at 93.00. Has bullish mini-down flag on daily chart. ··This is an apparent conflict. How can the US$ appear bullish at the same time the big commodity currencies hint of possible reversal to upside? We have a similar conflict with gold rising along all of with US$, which is abnormal. I have a possible explanation for all this but it is so outlandish, I'm going to research it further before revealing it in next HSL. If valid, it would mean all these conflicts will continue & prove to be non-conflicts, contrary to recent history, but not all history. Stay connected!

US T-bonds rally seems likely now, to 114, where it will no doubt be a sell or shortsale again. ····If INTEL breaks out over 27.50 it's not just a buy for itself but a possible buy for much of the tech sector, which would push Nasdaq to new highs, dragging DJI & S&P along. Intel needs 29.00 to confirm the 27.50 B/O-if it occurs. Note that the worldwide index has just broken to a new high. This will puzzle many who have been predicting a mkt decline shortly. But for the time being, let's just follow the money trails. That's safer than buying/selling on expectations.

Personally, I'm both long & short gold bullion, hope to cover shortside on next correction & ride the longs. But mainly I'm long lots of better acting gold shares. I sell golds when the profit is satisfactory & I want to bank them. Some of U may prefer to use profit-saving stops, but (as I said in Gold Charts R Us last Wednesday), by the time a stock falls to the stop level, U have obviously lost part of that profit, so personally I usually prefer to maximize profits. But if profit-stops suit U best, go with that. ····GCRU subs are reporting nice profits of late. Some who left the field while gold fell are back now as the scene has turned overall bullish & seems safe longterm. *** Among my longs are: Anglo American, Falconbridge, Freeport McMoran Copp, Gammon Lake, Gold Corp, Teck Cominco. But I only hold them 'til the profit is sufficient to sell (or fear of a setback), or sometimes via a close profit-stop order. The word "longterm" has been removed from the better dictionaries. ····I'm also long CCJ again, having taken profits earlier & bought back on dip. I think everyone should own this uranium stock (Cameco), & price today is satisfactory for rebuying.

IMO, the US Fed will do one more rate hike (25pts). Then a pause. ····The Fed & DC lever-pullers may not want the US$ much higher, for trade & trade deficit reasons. Watch the NZ & A$ & C$ for signs Washington is trying to slow or stop the US$ rise (however, in my new unrevealed "outrageous" theory, we may have a shock currency dichotomy coming up. ····SUGAR is the best bet commodity because it is a new source of fuel. Price is high, maybe overbought, but anything worth having gets that way now&then.

The US Fed is discontinuing disclosure of M3 data. This is disturbing news that is ruffling financial monitors. M3 was the best measure for liquidity. Will also stop certain other data, eg large size time deposits, will only release quarterly. They obviously don't want us to see what is going on. Whatever happened to transparency? The assumption here is that the politicians & bureaucrats know best what is good for the public & need not inform them. The truth is all too obvious. Look for money from Fed choppers to come. ·····Silver is going to be worth playing again anyday now. ····It's easy to get carried away by watching the gold price and fail to watch the relative strength of individual gold shares. These shares go in&out of favour. Some virtually disappear from sight. We have had to remove many from Gold Charts R Us over the past 3 years. Partly this is because gold ore is a shrinking resource for mines. Unless they make new discoveries, they have less gold left every day they mine it. And partly management varies (wildly), as in any biz. Also takeovers are constantly in play or rumoured. All of which affects a mine's price. So, to assume every gold mine company is more or less as good as any other is quite illogical.

This wordy but good article appeared on Bloomberg the other day & it has significance for both women & men. It will give courage to our female readers & give some tactic tips to the men. It seems men are (naturally) macho-in varying degrees & it shows in their trading. Men let their ego get in the way, which women apparently don't. Men can benefit from adopting some female habits in trading. U can just skim read it quickly to get the gist.

"Guys, Step Aside -- Women Are Better Investors: Matthew Lynn
Nov. 14 (Bloomberg) -- If you had a pile of money to invest, would you want a woman or a man looking after it? If you picked a fund at random, the chances are it would have a man in charge of it. Yet if you picked one run by a woman, it might perform better.

That's the claim of some who are starting funds for women. Nicola Horlick, 44, one of London's highest-profile fund managers, has just opened a division of her Bramdean Asset Management called Bramdiva to manage money for wealthy women. Horlick began the service with a punchy round of artillery fire in the battle of the sexes.

Women are better than men at running funds because they don't let their egos get in the way, she said at the launch of the fund-management service. "Nicola has always believed that women can do a better job of investment than men can," said Neil Mainland, a spokesman for Horlick in London, in an interview.
She believes "women are steadier in their approach, & less volatile," Mainland said.

Horlick isn't the only person pushing those views. Merrill Lynch & Co. published a survey this year that showed women were better at investing than men.
The Merrill poll covered 1,000 people -- half women, half men -- and concluded that females made fewer mistakes than males in financial markets. They were less likely to hold a bad investment for too long and to commit too much money to a single risky idea. And they were less likely to wildly churn their investments.
`Holding On to Losers'

"Men tend to make what we call the `glamorous' mistakes, like riding winners down, holding on to losers, buying on a tip or putting too much money in a single investment,'' said Hannah Grove, chief marketing officer of Merrill Lynch Investment Managers, in a statement on the results.

"These mistakes may make for interesting cocktail-party conversation, but in the greater scheme of things, it's the bigger, systemic failures like ignoring their asset allocation that do the greatest damage to investors' portfolios,'' she said.
The U.K. financial web site Digital Look surveyed 100,000 portfolios, & found the ones run by women rose 17 % in the year to May, compared with an 11 % advance for those managed by men.

``Overconfidence and overtrading lead to a much worse investment performance,'' said Tim Price, senior investment strategist at London-based Ansbacher & Co., in a telephone interview. "That is classic alpha-male, testosterone-fueled behaviour.''

Women's Chance

For the guys, this is worrying to hear. The logical conclusion is that men should be cleared off the trading floors. Hedge funds should be installing day nurseries. Investment banks should be getting rid of all that black granite and redecorating their offices in some nice pastel shades. The men have been in charge of the money for long enough. It's time to give the women a chance.

It may not be that simple. The markets are competitive & ruthless. If women were better at investing than men, wouldn't more of them be running the big funds?
Gender discrimination may be one reason. Yet it is also possible that the truth is more subtle than someone such as Horlick makes out. While a 'feminine' touch may well be the key to putting together a winning portfolio, it probably doesn't matter much whether such an approach appears in the office in trousers or a skirt.

'Alpha-Male' Behavior

For example, someone such as Warren Buffett, 75, the billionaire who runs Berkshire Hathaway Inc., would appear to embody many feminine values: He invests for the long term, he doesn't churn, and he buys what he knows. Except, he's a man.

Likewise, someone such as the high-profile London-based financier Robin Saunders, 43, seems to embody many male values: She makes big, high-risk plays and uses lots of leverage. Except, she's a woman.

Too much 'alpha-male' behavior is damaging for investors and companies. You shouldn't trade too much because the gains won't recoup the fees. You should research investments because just having hunches isn't good enough. And it is better to admit your mistakes earlier -- blind faith in your own judgment is a good way to get poor quickly.

But whether it's men or women who are trading on too much testosterone doesn't really matter. It's the values that count, not the sex of the person who embodies them. To contact the writer of this column: Matthew Lynn in London at matthewlynn@bloomberg.net."

On that non-sexist note, I leave U to see the charts & comments to follow. Good luck, Uncle Harry

DJ World Index

DJ World Index closed Friday Nov 25 at 230.09, ie up 2.94 on the week.

DJ World Index weekly chart - basis line on close:

Sharp reversal to new closing highs after false breakdown from Mar 2003 bearish upwedge (lower boundary of possible upwedge has been redrawn to include Oct lows). Main focus on 2001-2204 reverse head & shoulder base with 270 theoretical upside target. Spinner failed to confirm new highs in price, but shorterm strength in red timing line likely to alleviate negative bearing in blue confirming line. MACD in uncertain positive cross above zero line. Price firmly above its 85-week moving average. Chart bullish.

DJ World Index daily chart - basis line on close:

Rose above 2½ month reverse head & shoulder base; 235 likely upside target. Spinner & MACD up trending in top end of positive territory. Price action bullish but don't loose sight of would-be broadening top (B/T) from Dec '04 peak. The orthodox B/T top has three peaks at successively higher levels and, between them, two bottoms with the second bottom lower than the first (see numbers 1 through 5 on the above chart). Thus need persistent rise above 240 top boundary resistance to eradicate B/T threat, whereas any significant weakness from current levels would raise an amber flag with dip below 205 required to validate a major top. Chart shorterm bullish.

Note: free online charts of DJWI available via: www.bigcharts.com
Symbol: 26099103

Dow Industrial vs. Dow Transportation

Dow Industrial vs. Dow Transportation Index -weekly chart:

Industrials: prior head & shoulder tip voided via rise above left/right shoulder highs. Price on brink of possible upside breakout from 22-month 9757-10,940 trading range & run towards 12,123 measured target. Key momentum indicators in nascent bull mode. Modest risk of double top till 10,940 exceeded. Technical buying (on breakout) could fuel sharp rally-leg. Chart bullish.

Transports: gave lead signal of strength via explosive rise above top boundary resistance of 12-month 3360-3832 trading zone; 4418 provisional upside target. Spinner & MACD in new positive cross above zero & placed to confirmed sustained strength. Chart bullish.

Basis Dow Theory, a decisive rise above 11,000 in industrials is required to confirm the upside breakout in transports & validate a new bull cue. If seen, recent trading range activity in both indexes may provide footing for a sustained & determined rally leg.

S&P500 Index

S&P500 Mar futures closed Friday Nov 25 at 1278.30 ie, up 20.20pts on the week.

The Commitment of Traders report shows S&P500 commercial hedgers reduced 375 longs, bringing total longs to 462,553, whilst shorts reduced 703 contracts, bringing total shorts to 467,543. Large speculators are holding 59,621 longs against 67,365 shorts. And, small traders are holding 129,783 longs against 117,049 shorts.

Bullish Consensus shows S&P 500 at 70%. Says: "S&P 500 futures are moving sideways/higher in a test of short-term overhead resistance. The
Daily Bullish Consensus is up 1 to 70 and rises within the overbought
window. Short Term Momentum Oscillators are rising within the overbought window, as well. Signals remain neutral/bullish short-term. The intermediate trend is cautiously bullish/neutral." End quote.

S&P500 (continuation Cx) weekly chart - line on close:

Explosive reversal & push to new closing highs after bogus breakdown from possible Mar 2003 bearish upwedge (lower boundary of upwedge has been redrawn to include Oct lows). 2001-2004 bullish reverse head & shoulder base offers 1520 conditional upside target. Spinner in positive cross but blue confirming line vulnerable to any shorterm weakness in red timing line. Bearish divergence apparent in MACD via 2 lower lows vs. 2 higher highs in price, but remains timidly bullish as long as plotlines hold zero. Chart bullish.

S&P 500 Mar futures daily chart - line on close:

Marginally failed to complete measured target of May-Oct head & shoulder top. Current reversal/rally-leg remains within realms of possible broadening top (explained in DJWI commentary) from Dec 2004 peak; need determined rise above 1300 to void B/T risk, or forceful break below 1153 to validate major top. Momentum indicators pushing upper limits of overbought window; raises odds for shorterm consolidation decline of some sort (ie: dip towards Aug downtrend support). Chart bullish to shorterm neutral.

FMU Traders Guidelines:

Per FMU Sept 25: gamblers exited Dec longs with loss :-(. Took profits at 1st target in Dec shorts & exited 2nd ½ via trailing profit stop :-).

Per HSL 650: traders bought Dec at 1250.20 or better.

Stocks in run-away upside mode & likely to stay strong as we head into the mid Dec-mid Jan period, which is habitually the most positive period of the year for stocks.

If out, buy Mar after a pullback that holds on or above 1240-1254 closing support band (gamblers buy at 1254); sell ½ at 1284, ½ at 1294.

Sell, or sell short (toehold) on 1-dc below 1224; stop: 1-dc over 1255. Cover ½ at 1192 & use trailing stop on rest. And/or sell short a rally that clearly stops below 1295-1300 resistance; stop: 2-dc over 1300. Cover ½ at 1254, ½ at 1240.

NOTE: Traders are advised to use mini S&P's to enter/exit trades incrementally. 1 mini Cx = $50/point, compared with $250 for full size Cx (5 minis = 1 full size).

Nasdaq

Nasdaq (mini) Mar futures closed Friday Nov 25 at 1720.50 ie, up 21.50pts on the week.

Nasdaq Composite weekly breadth figures show new highs almost tripled new lows (305-105), advances crushed declines (2050-1190) & advancing volume outpaced declining volume by a healthy ration of 1.82 to 1.

Nasdaq Composite (continuation Cx) weekly chart - line on close:

3-year reverse head & shoulder base gaining credence over uncertain bearish upwedge from Oct 2002 lows. Spinner & MACD show positive crosses in lower limits of overbought territory & have scope to confirm sustained strength. Gaining traction. Chart bullish.

HSLP-Nasdaq chart (HSLP = our in-house mkt predictor) line & bar:

Rose to new closing highs after redefining lower boundary of possible Apr 2004 bearish upwedge. Note that HSLP-Nasdaq is now confronting resistance from its peak of 2000, while its benchmark index the Nasdaq Comp has retraced a mere 23% from its corresponding high. A forceful rise above 2000 resistance in HSLP-Nasdaq would trigger a new lead signal for continued strength in the Nasdaq Comp. Meantime a potential double top (in 2000 & 2005) can't be excluded. Chart neutral to bullish.

Nasdaq (mini) Mar futures daily chart - line on close:

Explosive rise above resistance of Aug downtrend. Spinner in waning bull mode after refusing to confirm new highs in price; warns at shorterm setback of some sort (ie, consolidation dip within Oct uptrend channel). Chart bullish to shorterm neutral.

FMU Traders Guidelines:

Per FMU Sept 25: exited Dec shorts via trailing profit stop :-). Took profits on 1st ½ Dec longs :-); exit 2nd ½ at mkt (or apply tight trailing stop).

Per HSL 650: exited Dec shorts with loss L. Traders then bought Dec at 1632; take full profits at mkt (or apply tight trailing stop).

If out, buy Mar Cx after a pullback that clearly holds on or above 1660-1675 closing support. Sell ½ at 1712 (if buy low) & use trailing profits stops on rest.

Sell, or sell short (small size) on 2-dc below 1640; stop: 1-dc over 1675. Cover ½ at 1595, ½ at 1566.

Market Sentiment Indicators

AAII Index shows 57.3% bulls (up firmly from 53.6% of 2 weeks ago), 16.0% bears & 26.7% neutral.

Market Vane Bullish Consensus at 69%, up from 64% of 2 weeks ago & 63% of 3 weeks ago.

UBS Index of Investor Optimism (Overall Index) rose to 47 in Oct vs. 34 in Sept & 61 in Aug.

10 Best Performing Industries in past 3-months:

Platinum & Precious Metals Index +43.93%
Internet Index +36.98%
General Mining Index +33.58%
Nonferrous Metals Index +28.26%
Heavy Construction Index +28.03%
Trucking Index +24.70%
Insurance Brokers Index +20.01%
Investment Services Index +19.84%
Asset Managers Index +19.36%
Gold Mining Index +19.34%

10 Worst Performing Industries in past 3-months:

Automobiles Index -12.14%
Automobiles & Parts Index -10.25%
Auto Parts Index -8.91%
Distillers & Vintners Index -6.74%
Travel & Tourism Index -4.89%
Multi-utilities Index -4.44%
Gas, Water & Multi-utilities Index -3.49%
Publishing Index -3.37%
Pharmaceuticals Index -3.19%
Gas Distribution Index -3.13%

10-Year T-Note

10-Year T-Note Mar futures closed Friday Nov 25 at 109^03, ie up 0^16 on the week.

10-Year T-Note Mar futures daily chart - line on close:

Technical/oversold bounce within June downtrend channel. Note that a dip that holds on or above 108^09 may form right shoulder of 6-week reverse head & shoulder base with 110^30 conditional upside target. Spinner in positive cross but requires a new higher low in red timing line to underpin uncertain base action in blue confirming line. Chart neutral.

FMU Traders Guidelines:

Per FMU 9/30: took profits at both targets in Dec shorts :-)

Active/shorterm traders buy Mar Cx on 1-dc (or decisive rise) over 109^12 for run at 110^25 profit/sell target.

Sell, or sell short on 1-dc below 108^09; stop: 1-dc over 109^00. Cover ½ at 106^00 & use trailing profit stop on remainder. And/or sell a rally that clearly stops below 111^00; stop: 1-dc over 111^08. Cover ½ at 109^05, ½ at 108^09.

CRB Futures Index

CRB futures price index closed Friday Nov 25 at 330.42, ie up 0.66pts on the week.

CRB futures price index daily chart (continuation Cx) - line on close:

Mar-Aug cup & handle base offers 346 theoretical upside target. Spinners blue confirming line in new negative rotation below zero; hints consolidation below Oct peak may not yet be complete (ie: could see deeper dip towards or to test converging support of cup & handle neckline & major support of Feb 2002 uptrend line). Chart neutral.

Gold

NY gold Feb futures closed Wednesday Nov 23 (due to US Nov 24 holiday) at 496.40 ie, up 6.20 on the week.

***NY gold ends off lows in pre-holiday trade, eyes $500/oz
Wed Nov 23, 2005.

"NEW YORK, Nov 23 (Reuters) - Gold futures in New York ended down but off session lows Wednesday as the market continued to show it resilience and held just below the psychological level of $500 an ounce, market sources said.

"COMEX gold futures opened lower as investors were seen pocketing profits ahead of the long holiday weekend, but speculative buying supported prices at the lows and the market continued to consolidate after hitting an 18-year high at $495.90 on Tuesday.

"NYMEX metals will be closed on Thursday and Friday for the U.S. Thanksgiving holiday.

"Benchmark December gold settled down 60 cents at $492.30 an ounce on the New York Mercantile Exchange's COMEX division, after dealing from 487.50 to $495.30. Its all-time high, based on the nearby futures contract, was $873, reached in January 1980.

"Final estimated COMEX gold volume reached 110,000 lots, with 10,319 switches.

"The trend is really strong, especially after a performance like today where it looked relatively weak in the morning and then we came right back up to settle above $490," said Scott Meyers, senior trading analyst at Pioneer Futures.

"Since the start of the year, COMEX gold has climbed 14 percent, or $59, on strong investor demand. Floor dealers said the market may have the ability to reach $500 an ounce next week as over the counter options expire on Monday, Nov. 28, with all settlements occurring on Nov. 30.

"We always track options expiration dates. Can you imagine what type of money upstairs is around $500? You don't think those guys are going to want the market to move toward that strike price," one COMEX trader said." End quote

Gold (continuation Cx) weekly chart - line on close:

Per comments in the Nov 9 issue of Gold Charts R Us: Here's an update of the gold chart back to 2001, showing gold moving in steps, with regular sharp falls in-between, making for ideal trading conditions. Falls of $50 to $70 make it essential to take profits & use stops to both protect profits & avoid loss. And to avoid tying up cash in losing positions for extended periods. Also avoids the emotional stress of price crashes, which typically forces nervous hands out of the mkt just before major laws develop. ooAt present gold has risen to a new step but note how often it penetrates its new intermediate support & falls to touch the longterm trendline before rising again. Note how selling & rebuying chances were constantly repeated. Remember, leverage in gold shares exaggerates what U see here in gold by 50-100% on average, up&down. So a bullion fall of 25% will normally be 37% to 50% in a gold stock. This chart page is pure gold. Wall it.

Note: Gold Charts R Us is our weekly online gold share trading service.
Special 'Two-Week Taster' offer available at $45 via:
http://www.hsletter.com/gcrupromo_special.html
oNew Subscribers only. GCRU also offers a few stocks in alternatives (oil/steel/metals) for diversification.

Gold Feb futures daily chart - line on close:

Explosive high volume rise above Oct downtrend resistance eliminated threat of Sept-Oct H&S top. Crucial 500 resistance may cap a 3-wave rise from July lows. If yes, a consolidation dip towards support of July uptrend (now 462) may develop. If not, a rise above 500 could trigger a climax rally/overshoot towards the 520-535 area. Chart neutral to shorterm bearish.

FMU Trader's gold Guidelines:

Per HSL650: whipsawed for loses in long & shorts :-(

Uptrend from July lows shorterm overstretched/uncertain; limit new longs to toehold positioning only. Gamblers buy Feb Cx if dips to 488.50 &/or 481.30; place preliminary stoploss 12-points below your entry/buy point (basis close). Take ½ profits at 509.60, ½ at 517.40 (or use tight trailing profits stop to follow upside).

Sustained break below 460 needed to overturn bullish stance.

Euro vs. US$

Euro Mar futures closed Friday Nov 25 at 1.1780 ie, down 0.0060 on the week.

Euro Mar futures weekly chart - basis line on close:

Broke pivotal neckline support of Nov-2003-Oct 2005 bearish head & shoulder top; 1.0270 theoretical downside target. Spinner signals negative to shorterm neutral as would take little upside in price to pull blue confirming line above zero. MACD rolling over in mid zone of oversold window. Chart bearish.

Euro Mar futures daily chart - basis line on close:

June-Nov head & shoulder top (produced right shoulder of larger Nov-2003-Oct 2005 H&S top); 1.1370 possible downside target. Spinner in crosscurrent bear mode; hints at short-lived bounce only. MACD in tentative upturn at mid range of oversold window. Chart bearish.

FMU Trader's Guidelines:

Per FMU 9/30: exited Dec longs with loss :-( Traders then sold short Dec on break below 1.2000.

Per HSL650: traders sold short Dec at 1.1830 (or better).

Head & shoulder tops are the most reliable of technical formations but can develop surprisingly sharp countertrend rallies if reversed to the upside (as recently seen in gold). The trend is clearly down but would become defective on any rise above Mar downtrend resistance. Stay flexible.

Sell short Mar Cx at mkt &/or after a bounce that clearly stops at or below 1.2010-1.2160 resistance band; cover ½ at 1.1440 & use trailing profit stops on rest.

Stop & reverse/buy on 1-dc (or significant intraday rise) above 1.2230; stop: 2-dc below 1.1960. Sell ½ at 1.2550, ½ at 1.2830.

NOTE: Traders are advised to use mini forex contracts to enter/exit trades incrementally. 1 mini Cx = $100/full point, compared with $1,000 for full size Cx (10 minis = 1 full size).

Yen vs. US$

Yen Mar futures closed Friday Nov 25 at .8468 ie, down .0039 on the week.

Yen Mar futures daily chart - line on close:

In waterfall downtrend from Sept high. Broke crucial July support before most of the major currency crosses against the USD & continues to be the weakest challenger. Momentum indicators itching to confirm a bounce of some sort, but with negative trend so deeply entrenched any sustained up move highly seems unlikely anytime soon.

FMU Trader's Guidelines:

Per FMU 9/30: gamblers sold short Dec at .8915; take full profits at mkt, or apply squeaky tight trailing stops to lock in gains.

Per HSL650: traders sold short Dec at .8602.

Tuff call to enter new trades in such a lengthy & exceptionally oversold downtrend from Sept peak that has yet to develop any retracement action of significance. Prefer wait for a mini bounce before initiating new longs.

Sell short Mar after a bounce that clearly fails at or below .8767-.8844 intermediate resistance; cover ½ at .8410, ½ at .8230 or use trailing stops to follow downside.

Buy on 1-dc over .8840; stop: 1-dc below .8550. Sell ½ at .9140, ½ at .9290.

Crude Oil

Crude oil Jan futures closed Friday Nov 25 at 58.71 ie, up 1.50 on the week.

The Commitment of Traders report shows crude oil commercial hedgers added 13,375 longs, bringing total longs to 543,858, whilst shorts added 8119 contracts, bringing total shorts to 473,204. Large speculators are holding 115,494 longs against 117,662 shorts. And, small traders are holding 155,678 longs against 190,543 shorts.

Bullish Consensus shows crude oil futures at 60%. Says: "Crude Oil futures are moving sideways/higher to test short-term overhead
resistance. The Daily Bullish Consensus unchanged at 60 and trends higher, well below the overbought area. Short Term Momentum Oscillators hover moderately below the neutral area. Signals remain
neutral short-term. The intermediate trend is neutral.

Crude oil Jan futures daily chart - line on close:

Slim bullish downwedge from Aug 29 peak vs. neckline breakdown in June-Nov head & shoulders top; 46.60 is measured target (but weekly chart shows major support of Feb 2004 uptrend may halt downside at 53.00). Negative pressure easing in Spinner & MACD but will require more time to develop convincing reversal/base signals. Sustained rise above Aug downtrend could spur technical buying/sharp reversal. Chart bearish to shorterm neutral.

FMU Trader's Guidelines:

Per FMU 9/30: took profits at both targets in Dec shorts :-)

Gamblers sell short Jan after bounce that clearly stops below 59.60 neckline resistance of June-Nov H&S top; cover all at 53.40.

Buy Jan on 1-dc over 60.40; stop: 2-dc below 57.00. Buy more on rise above 64.00. Take ½ profits at 67.30, ½ at 69.80.

New Stock Recommendations

Note: the energy sector is showing timid signs of a revival that hint an important reversal may be at hand (need crude oil above 64.00 to substantiate). Thus we are looking to tentatively reposition in energy stocks. Start by buying toehold positions in 1 or 2 energy stocks only & increase exposure only if /when trades move in your favor. If the reversal fizzles out, be ready to cut losses & move back to sidelines.

Atlas America (Nasdaq: ATLS - oil/gas expl-prod) high volume rise above reverse head & shoulder base. Gamblers buy bit at mkt &/or (all) buy if dips to 53.20 &/or 50.70; stop: 1-dc below 45.90.

Cardero Resources (TSXV: CDU - iron-oxide, copper & gold) (also trades AMEX: CDY) high volume rise above 20-month bullish ascending triangle. Gamblers buy if dips to 4.46 &/or 4.20; stop: 1-dc below 3.50. Speculative.

Laramide Resources (TSXV: LAM - uranium) high volume rise above bullish symmetrical triangle from Sept peak. Gamblers buy toehold at mkt &/or buy if dips to 6.56 &/or 6.05; stop: 1-dc below 4.80.

Pan American Silver Corp (Nasdaq: PAAS - gold/silver) upside breakout from bullish symmetrical triangle from Apr 2004 peak (best seen on weekly chart). Buy bit at mkt &/or buy if dips to 17.80; stop: 1-dc below 15.40.

Southwestern Energy (NYSE: SWN - oil/gas expl-prod) buy on upside breakout from 5-week reverse head & shoulder base, ie: buy at 38.80-stop; stop: 1-dc below 32.90.

Spdr Energy Sector (AMEX: XLE - index tracking) rose above bullish symmetrical triangle from Sept peak. Buy foothold at mkt &/or buy if dips to 49.40; stop: 44.70. Buy again on sustained rise over 52.00 & 55.00.

W-H Energy Svcs (NYSE: WHQ - oil/gas-field svcs) expanding potential reverse head & shoulder base below pivotal 34.00 resistance. Buy at 34.90-stop; stop: 1-dc below 29.90.

Notes:

1)Traders are strongly advised to limit total equity exposure in their portfolios to percentages outlined in the HSL Investment Box.

2)Traders must adapt recommendations to shorterm mkt direction. If strength/weakness kicks in before pullbacks to buy/sell levels are reached, enter small foothold positions at mkt. Likewise if general mkt direction moves against open positions, exit at mkt rather than waiting for stoploss levels to be hit. Your interpretation & modification based on conditions of our recommendations often makes the difference betwn profits or losses.

Stop & Sell Recommendations

Take partial profits on:
Aqualine Resources at 2.10 & then raise stop to 1.54.
Cia Vale Rio Doce at mkt & raise stop to 31.00.
Coeur D'Alene at 4.90 & then raise stop to 3.45.
Compania Vale Do Rio at 45.60 & then raise stop to 35.40.
Crucell Nv at mkt & raise stop to 19.90.
Dowa Mining at mkt & raise stop to 825.
Elementis at mkt & raise stop to 54.00.
Endeavour Silver at 2.69 & then raise stop to 1.94.
First Quantum Minerals at 31.30 & then raise stop to 24.70.
Gammon Lake (US) at mkt & raise stop to 6.80.
Higashinihon Gas at 560.
Hiland Ptnrs at 45.90 & then raise stop to 38.20.
Johnston Press at 450.
Mega Uranium (ex Maple) at mkt & raise stop to 2.30.
Mines Mgmt at mkt & raise stop to 1-dc below 5.30.
Mologen at mkt & raise stop to 6.40.
Norfolk Southern at mkt & raise stop to 37.30.
NTL Inc at 51.30.
Nvidia at mkt & raise stop to 30.30.
Precision Castparts at mkt.
Renova Energy at mkt.
Sika at 1040.
Tesco Corp at mkt & change stoploss to 14.50-stop.
Tim Participacoes at mkt & raise stop to 17.30.

Raise stop on:
Burren Energy to 680.
Cerner Corp to 83.80.
Kardan to 3.40.
Taftnet to 42.00.
XTO Energy to 34.90.

Lower stop on:
Gannet to 73.60.

Sell at mkt:
General Dynamics.
Pep Boys Manny Moe.
Prudent Bear Fd.
Vanguard Infl-Prot Fd.

Cover at mkt:
Wal Mart.

Cancel Order to:
Buy Northfolk Southern if dips to 38.50.
Sell short Bovis Homes at 585-stop.
Buy Aquiline Resources if dips to 1.62.
Buy Dowa Mining if dips to 875.
Buy Higashinihon Gas if dips to 485 & 475.

Note: HSL recom's are followed by a wide selection of investors, ranging from novice traders to professional fund managers. And, many Hslm's have requested we give partial profit taking signals (at intermediate resistance levels) to allow incremental exit from medium to large share positions. Thus, recom's to take partial profits can be given up to 3 times before a position is finally exited.

Welcome to the editorial section of FMU

***Do we really care about children?
By Walter E. Williams, Nov 2, 2005

Full link: http://www.townhall.com/opinion/columns/walterwilliams
/2005/11/02/173910.html

"I cringe with disgust when I hear politicians say, "We're doing it for the children." What's worse is so many Americans mindlessly fall hook, line and sinker for the hype. Judging by our actions, Americans could not care less for future generations, and future generations will curse us for it. Let's look at it.

"According to several respected authorities, including the Concord Coalition (co-chaired by former Sens. Warren Rudman and Robert Kerrey), the Congressional Budget Office, U.S. Treasury Secretary John Snow, and the Social Security Administration, the estimated present value of the unfunded liability of Social Security and Medicare ranges between $61 trillion and $75 trillion dollars.

"Williams," you ask, "what's this present value business?" Simply put, between $61 trillion and $75 trillion dollars is the money that would have to be put aside right now, at current interest rates, in order to meet future obligations of Social Security and Medicare. To put an astronomical sum like $61 trillion or $75 trillion in a bit of perspective: The value of our entire national output of goods and services (GDP) in 2004 was only $12 trillion.

"Congress can't put aside $75 trillion as reserves against future liabilities of Social Security and Medicare. Therefore, according to the Dallas, Texas-based National Center for Policy Analysis (NCPA), the annual rate of Social Security unfunded liabilities is growing at a $667 billion clip and Medicare's at $4 trillion.

"What does all this mean? It means little in pocketbook terms to today's Americans who are 65 years or older. They will collect their Social Security checks and their promised Medicare benefits, but not so for future generations. Here's that future according to House Ways and Means Committee testimony, given by Dr. John Goodman, president of the NCPA (May 2005). "In 2020, combined Social Security and Medicare deficits will equal almost 29 percent of federal income taxes. At that point the federal government will have to stop doing almost a third of what it does today. By 2030, about the midpoint of the baby boomer retirement years, federal guarantees to Social Security and Medicare will require one in every two income tax dollars. By 2050, they will require three in every four." And by 2070, Social Security and Medicare will consume all federal revenues.

"There are some "optimists" who seek to minimize the pending disaster that will be caused by these and other federal unfunded liabilities. They argue that the federal government can always meet its obligations through its power to tax. According to some estimates, by 2030, Social Security and Medicare obligations alone will require a 50 percent increase in payroll taxes. If tax increases are off the table, 2030 will see a 30 percent reduction in promised Social Security benefits and stringent rationing of health care services promised by Medicare. There's another "solution." Even though Congress can't increase our life-expectancy, they can raise the age of Social Security and Medicare eligibility. Were Congress to make 80 as the age for Social Security and Medicare eligibility, they'd solve the problem because most of us would be dead.

"Let's look at the raw politics of the Social Security/Medicare situation. Few, if any, of our 535 congressmen will be around in 2030 and later when the real crunch comes, but they are subject to today's, not tomorrow's, political pressures. Similarly, few of today's Americans 65 years of age and older will be around. Other than mouthing a concern for future generations, both have little economic incentive to be concerned about what happens in 2030. After all, what do they have at stake?

"In 2030, will young people in the labor force be willing to see themselves taxed at Social Security rates of 20, 30 and 40 percent to take care of some old people? I don't think that will politically fly, and they might begin to get ideas about euthanasia. In addition to economic strife, Social Security and Medicare are laying the groundwork for intergenerational conflict. Unfortunately, the politics of today don't give us room to prevent these twin disasters." End quote.

***Chinese billionaires on the rise. As one empire crumbles another rises from the ashes.

http://news.bbc.co.uk/2/hi/business/4406922.stm

"China's building boom has enriched property developers
The number of Chinese billionaires has more than doubled in the past year, according to a survey. Forbes Asia magazine's annual Chinese rich list found that there are now 10 US dollar billionaires in China compared with three a year ago.

"China's economy has been expanding rapidly, boosting the personal wealth of the country's leading entrepreneurs. Businessman Larry Rong Zhijian remains China's richest man, with an estimated fortune of $1.64bn (£929m). The son of former Chinese vice premier Rong Yiren is chairman of Hong Kong-based investment firm China International Trust and Investment Corporation.

"The combined wealth of China's 100 richest people now exceeds $41bn, the survey found, compared with $29bn a year ago." End quote.

CHINA'S RICHEST
Larry Rong Zhijian: $1.6bn
Zhu Mengyi: $1.4bn
William Ding Lei: $1.27bn
Wong Kwong Yu: $1.25bn
(Source Forbes)

***Dangers of a runaway mortgage market. The warning signs are everywhere. And conservative financial institutions -- insurers and pension funds -- are set dead in the path of the runaway train.

By Jim Jubak, Nov 18, 2005

Snippet from:
http://moneycentral.msn.com/content/P133934.asp?Printer

"The annualized rate of increase in the price of a new home fell to 1.9% in September from a peak of 16% at the beginning of 2004. You don't have to work too hard to figure out why the housing market is slowing down. The supply of home buyers isn't infinite, and every time housing prices go up, the supply of buyers shrinks a bit. But mortgage rates for a 30-year fixed loan hit 5.2% in June 2003, expanding the pool of potential buyers who, at such a low rate, could afford to buy houses even at inflated prices.

"But mortgage rates have been on the rise lately, climbing to 6.5% on average, the highest level in more than two years, according to HSH Associates. And rates are expected to keep climbing into 2006.

"Mortgage lenders have fought back against rising prices and rising mortgage rates with all kinds of mortgage products designed to make it possible for more buyers to take on more debt and still, hopefully, meet their monthly payments.

"One of the riskiest mortgage types, the option adjustable-rate mortgage, was among the fastest-growing type of mortgage in the first half of 2005. Option-adjustable-rate mortgages give the borrower the option of making payments that pay interest and principal, that pay just interest, or that pay less than the interest due each month. That last option actually increases the amount the borrower owes on the mortgage.

"And, most recently, the mortgage industry has promoted low- or no-documentation mortgages for buyers who might not qualify for a mortgage if they had to reveal information such as the size of their income or the level of outstanding debt. Low- and no-documentation mortgages made up 46% of all non-Fannie Mae and Freddie Mac mortgages in the first eight months of 2005, according to LoanPerformance, a mortgage industry risk analysis company. In 2000, such loans made up 28% of that market.

"A ladder of risk All the risky mortgage schemes aren't a problem as long as home prices keep climbing and as long as interest rates are steady or falling. If prices are climbing, the buyer and the lender can always sell the house in question for more than enough to pay the balance on the loan, even if the balance of the loan has been climbing. If interest rates are steady or falling, the low initial interest rate of an adjustable mortgage stays low, and so do those monthly payments.

"But that's all changed recently. Home prices have started to level off and some industry experts predict that prices will fall in 2006. The National Association of Realtors is still predicting a 6% increase in median home prices in 2006 after a 12% increase in 2005. But Realtors in some of the markets that have been hottest during the boom are looking for prices to decline by 5% or so next year.

"Interest rates on the 10-year Treasury note, the benchmark for many adjustable mortgages, have climbed to 4.6% from 4% in June 2005. Higher energy prices make any increase in monthly mortgage payments even more of a strain on the family budget.

"All this creates a ladder of risk that begins with the individual home buyer/mortgage holder on the lowest rung and climbs toward the top rungs of the global income markets. The risk for the individual homeowner, of course, is default on that mortgage because higher interest rates lead to higher mortgage payments. Add enough individual mortgage defaults, and the mortgage banks that made the riskiest mortgages start to feel the pain. In October, 18% of the mortgages made by Countrywide Financial, the country's largest mortgage lender, were option-adjustable-rate mortgages. Interest-only mortgages made up 19% of all mortgages for the month. Adjustable-rate mortgages of all sorts made up almost 50% of mortgages in October." End quote.

***Free Speech and Dietary Supplements

More from friend & Congressman Ron Paul
November 10, 2005

http://www.house.gov/paul/congrec/congrec2005/cr111005.htm

"Mr. Speaker, I rise to introduce the Health Freedom Protection Act. This bill restores the First Amendment rights of consumers to receive truthful information regarding the benefits of foods and dietary supplements by codifying the First Amendment standards used by federal courts to strike down the Food and Drug Administration (FDA) efforts to censor truthful health claims. The Health Freedom Protection Act also stops the Federal Trade Commissions (FTC) from censoring truthful health care claims.

"The American people have made it clear they do not want the federal government to interfere with their access to dietary supplements, yet the FDA and the FTC continue to engage in heavy-handed attempts to restrict such access. The FDA continues to frustrate consumers' efforts to learn how they can improve their health even after Congress, responding to a record number of constituents' comments, passed the Dietary Supplement and Health and Education Act of 1994 (DSHEA). FDA bureaucrats are so determined to frustrate consumer access to truthful information that they are even evading their duty to comply with four federal court decisions vindicating consumers' First Amendment rights to discover the health benefits of foods and dietary supplements.

"FDA bureaucrats have even refused to abide by the DSHEA section allowing the public to have access to scientific articles and publications regarding the role of nutrients in protecting against diseases by claiming that every article concerning this topic is evidence of intent to sell a drug.

"Because of the FDA's censorship of truthful health claims, millions of Americans may suffer with diseases and other health care problems they may have avoided by using dietary supplements. For example, the FDA prohibited consumers from learning how folic acid reduces the risk of neural tube defects for four years after the Centers for Disease Control and Prevention recommended every woman of childbearing age take folic acid supplements to reduce neural tube defects. This FDA action contributed to an estimated 10,000 cases of preventable neutral tube defects!

"The FDA also continues to prohibit consumers from learning about the scientific evidence that glucosamine and chondroitin sulfate are effective in the treatment of osteoarthritis; that omega-3 fatty acids may reduce the risk of sudden death heart attack; and that calcium may reduce the risk of bone fractures.

"The Health Freedom Protection Act will force the FDA to at last comply with the commands of Congress, the First Amendment, and the American people by codifying the First Amendment standards adopted by the federal courts. Specifically, the Health Freedom Protection Act stops the FDA from censoring truthful claims about the curative, mitigative, or preventative effects of dietary supplements, and adopts the federal court's suggested use of disclaimers as an alternative to censorship. The Health Freedom Protection Act also stops the FDA from prohibiting the distribution of scientific articles and publications regarding the role of nutrients in protecting against disease.

"This legislation also addresses the FTC's violations of the First Amendment. Under traditional First Amendment jurisprudence, the federal government bears the burden of proving an advertising statement false before censoring that statement. However, the FTC has reversed the standard in the case of dietary supplements by requiring supplement manufactures to satisfy an unobtainable standard of proof that their statement is true. The FTC's standards are blocking innovation in the marketplace.

"The Health Freedom Protection Act requires the government bear the burden of proving that speech could be censored. This is how it should be in a free, dynamic society. The bill also requires that the FTC warn parties that their advertising is false and give them a chance to correct their mistakes.

"Mr. Speaker, if we are serious about putting people in charge of their health care, then shouldn't we stop federal bureaucrats from preventing Americans from learning about simple ways to improve their health. I therefore call on my colleagues to stand up for good health care and the First Amendment by cosponsoring the Health Freedom Protection Act." End quote.

[Uncle Harry urges US readers to request their Congressmen to support this act.]

***Is the Modern Banking System Entirely Dependent on Cheap Oil?

Extract from:
http://www.lifeaftertheoilcrash.net

"Yes. The global financial system is entirely dependent on a constantly increasing supply of oil and natural gas. The relationship between the supply of oil and natural gas and the workings of the global financial system is arguably the key issue to understanding and dealing with Peak Oil, far more important than alternative sources of energy, energy conservation, or the development of new technologies.

Dr. Colin Campbell presents an understandable model of this complex (and often difficult to explain) relationship:

"It is becoming evident that the financial and investment community begins to accept the reality of Peak Oil, which ends the first half of the age of oil. They accept that banks created capital during this epoch by lending more than they had on deposit, being confident that tomorrow's expansion, fuelled by cheap oil-based energy, was adequate collateral for today's debt. The decline of oil, the principal driver of economic growth, undermines the validity of that collateral which in turn erodes the valuation of most entities quoted on Stock Exchanges. The investment community however faces a dilemma. It desires to protect its own fortunes and those of its privileged clients while at the same time is reluctant to take action that might itself trigger the meltdown. It is a closely knit community so that it is hard for one to move without the others becoming aware of his actions.

"The scene is set for the Second Great Depression, but the conservatism and outdated mindset of institutional investors, together with the momentum of the massive flows of institutional money they are required to place, may help to diminish the sense of panic that a vision of reality might impose. On the other hand, the very momentum of the flow may cause a greater deluge when the foundations of the dam finally crumble. It is a situation without precedent.

Commentator Robert Wise explains the connection between energy and the economic activity as follows:

"It's not physics, but it's true: money equals energy. Real, liquid wealth represents usable energy. It can be exchanged for fuel, for work, or for something built by the work of humans or fuel-powered machines. Real cost reflects the energy cost of doing something; real value reflects the energy expended to build something.

"Nearly all the work done in the world economy -- all the manufacturing, construction, and transportation -- is done with energy derived from fuel. The actual work done by human muscle power is miniscule by comparison. And, the lion's share of that fuel comes from oil and natural gas, the primary sources of the world's wealth.

"In October 2005, the normally conservative London Times acknowledged that the world's wealth may soon evaporate as we enter a technological and economic "Dark Age." In an article entitled "Waiting for the Lights to Go Out" Times reporter Bryan Appleyard wrote the following:

"Oil is running out; the climate is changing at a potentially catastrophic rate; wars over scarce resources are brewing; finally, most shocking of all, we don't seem to be having enough ideas about how to fix any of these things.

"Almost daily, new evidence is emerging that progress can no longer be taken for granted, that a new Dark Age is lying in wait for ourselves and our children.

". . . growth may be coming to an end. Since our entire financial order - interest rates, pension funds, insurance, stock markets - is predicated on growth, the social and economic consequences may be cataclysmic.

"If you want to understand just how cataclysmic these consequences might be, consider the current crisis in the UK as a "preview of coming attractions." On October 23, 2005 the London Telegraph reported:

"The Government has admitted that companies across Britain might be forced to close this winter because of fuel shortages. "The balance between supply and demand for energy is uncomfortably tight. I think if we have a colder -than-usual winter given the supply shortages, certain
industries could suffer real difficulties." The admission was made after this newspaper revealed that Britain could be paralyzed by energy shortages if the winter is colder than average.

"The Met Office says there is a 67 per cent likelihood of prolonged cold this year after almost a decade of mild winters. That, coupled with high fuel prices, raises the fear that industry will not be able to cope.

"The consequences of such relatively small shortfalls between supply and demand have prompted the UK government to look into draconian energy conservation measures that would be enforced via house-to-house searches by a force of "energy-police."

"This is happening despite the fact we are probably at least a few years away from peaking. You have to ask yourself, "what's going to happen when the 'real problems' start showing up?" End quote.

***Bush has borrowed more than previous 42 presidents combined!

By Melanie Hunter
CNSNews.com Senior Editor
November 04, 2005

Full link:
http://www.cnsnews.com/ViewNation.asp?Page=
\Nation\archive\200511/NAT20051104b.html

(CNSNews.com) - "President Bush and the current administration have
borrowed more money from foreign governments and banks than the
previous 42 presidents combined, a group of conservative to moderate
Democrats said Friday.

"Blue Dog Coalition, which describes itself as a group "focused on
fiscal responsibility," called the administration's borrowing
practices "astounding."

"According to the Treasury Department, from 1776-2000, the first 224
years of U.S. history, 42 U.S. presidents borrowed a combined $1.01
trillion from foreign governments and financial institutions, but in
the past four years alone, the Bush administration borrowed $1.05
trillion.

"No American political leadership has ever willfully and deliberately
mortgaged our country to foreign interests in the manner we have
witnessed over the past four years," said Rep. John Tanner (D-
Tenn.), a leader of the Blue Dog Coalition and member of the House
Ways and Means Committee. "If this recklessness is not stopped, I truly believe our economic freedom as American citizens is in great jeopardy."

***What's Happened to M3?

by David Chapman (www.DavidChapman.com)
November 23, 2005

Federal Reserve Statistical Release
November 10, 2005
Discontinuance of M3

"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).

"As a former money market/foreign exchange dealer I grew up in the business on M3. I recall back in the late 1970's when we would sit around on Thursday's awaiting the Federal Reserve's weekly release of the Money Supply numbers. The market would centre on M3. The Bond market and the Eurodollar market would soar or plummet depending on how much M3 grew on the week. Volatility was the name of the game and one could make or lose thousands or more of dollars if you correctly (or incorrectly) surmised the weekly money numbers. As the years went by the weekly money numbers lost some of their aura as they began to target bands of growth or focused elsewhere rather than on the monetary numbers. Still it was never forgotten and dutifully I would go and check the weekly releases to find out how much money supply grew. Old habits die hard.

"So what is M3? To understand what M3 is one needs to know what M1 and M2 are as well.

"M1 - Money supply that includes all coins, currency held by the public,
traveler's checks, checking account balances, NOW accounts, automatic
transfer service accounts, and balances in credit unions.

"M2 - Money supply that includes M1, plus savings and small time deposits of depository institutions, overnight repos at commercial banks, and retail mutual fund money market accounts.

"M3 - Money supply that includes M2, plus large time deposits, repos of
maturity greater than one day at commercial banks, institutional money
market accounts and Eurodollar deposits of US banks held at foreign branches and at all offices in the UK and Canada.

"Note: These are the US definitions of M1, M2 and M3. The Bank of Canada's definitions of M1, M2, and M3 may vary.

"While M1 and M2 are measurements of money that are held for the most part by the general public M3 adds the huge institutional funds to the equation. These funds are generally the most liquid funds. It does not capture all of the institutional funds but it does capture an important part of it sufficient enough to measure the growth of money in the financial system. It is M3 that has experienced the most explosive growth in the past decade. Since the end of 1995 M1 has increased a paltry 18.8% while M2 is up 89.5%. But M3 is up 130%. GDP by comparison is up roughly 67% in the same period so M3 growth is almost double GDP growth. Consumer debt has grown about 123% in the same period or about equivalent to M3 growth. Business debt is up 97%. It has taken an incredible amount of debt and money to obtain GDP growth
over the past decade. This is monetary inflation at its best.

"I have never paid a whole lot of attention to M2 and even less attention to M1. In the broader scheme of things they were just not as important as M3. Only M3 told us what was really going on with monetary growth and the big money is in the institutions. If the stock market started to jump sharply even though neither the economic situation nor the economic outlook shifted substantially one could look over at the monetary numbers and depending on how they grew get a good idea why the market was rising (or falling if M3 growth was exceptionally sluggish).

"One certainly didn't rush to look at M1. Noting that M1 grew a paltry .7% in the latest 13 weeks was not significant. While M2 up 5.2% told us a bit more we had to go to M3 and find it up 10.1% in the latest 13 weeks. There is serious money and all that money goes somewhere. The stock market has soared recently. The last time M3 was actually negative was in the early 1990's and if one recalls it was the last time we had a serious recession. Since 1995 M3 growth has soared and this corresponds with the period when the Federal Reserve under Alan Greenspan decided to effectively print their way out of the recessionary early nineties.

"M3 is very important. Indeed of the Fed's monetary numbers only M3 was of major importance and in other G7 countries we also focus on M3 including our own Bank of Canada. No word that they intend to follow. So why are they dropping M3? Well we have seen nothing to tell us why we only know they are doing it. Oh it's not that the numbers will completely disappear. For those that wish to take the time they can pore through the Flow of Funds accounts (released quarterly as Z.1 release and the H.8 bulletin released weekly for commercial banks) and piece together the former M3. Painstaking, but that is not the way it is supposed to be. European Central Bankers put great stead in M3 so why has the Fed after all these years decided to cease publication?

"Some of the reasons we have seen floated around are as follows:

* "History has shown that only failing economies e.g. Soviet Union keep
data secret (Financial Sense - Toni Straka - Unpleasant M3 Trend, November 12, 2005). An interesting premise and a theme we saw woven amongst a number of writers is that they have something to hide. The claim is that the Fed should be transparent and by not publishing the number the Fed now lacks transparency.

* "The end of publishing of M3 in March 2006 coincides with the start
of the Iranian Oil Bourse. The premise here is that the with the oil bourse
trading in Euros there will be a rush out of US$ into Euros and that M3
could drop sharply. A sharp drop in M3 would of course presage a recession as falling M3 is a characteristic of weak economic periods.

* "M3 is a measure of inflation in the economy. A somewhat unproven
rule of thumb is GDP + inflation = M3. Will be able to properly measure
inflation going forward if we don't know what M3 really is.

* "We are about to enter a period of hyperinflation and by eliminating
M3 we will not know how much liquidity the Fed is pumping into the system. Remember the Fed doesn't really print money it is the banking system that expands money supply. But the Fed influences it through open market operations. We will have to watch daily Fed repo action very carefully irrespective of whether they are going to publish Repos (RPs) as noted in the bulletin above. The Fed doing repos puts money into the system and the Fed doing reverse repos takes money out of the system. Of course as well this is the exact opposite of the collapse in M3 premised with the oil bourse above.

* "Further on the theme above a period of hyperinflation would occur as
the Fed tries to save us from a collapsing housing market and softer
consumer demand. The Fed adds more and more liquidity to the system to stave off a sharp economic decline. By not publishing Repos (RPs) as noticed in their bullet in above the Fed again is hiding what they do on a day to day basis. This will make it difficult for both currency traders and equity traders to know what the Fed is up to.

* "The conclusion is that the Federal Reserve will be hiding a
debasement of the US$.

"One writer (Recently announced reporting changes at the Fed - Captain Hook <http://www.safehaven.com/showarticle.cfm?id=4134> , November 18, 2005 on SafeHaven) compared this move by the Fed to Nixon's closing of the "gold window" in August 1971. It might be although the ceasing of the publication of a widely watched monetary number does not quite compare to a default which is effectively what the US did when they closed the "gold window". But given the importance of M3 to market watchers we do have to wonder at what the Fed wants to hide. As Captain Hook notes "we just got another "big signal" from US monetary authorities that the rules of the game are about to be changed fundamentally, once again."

"And the results might be the same. Indeed an examination of gold shows that that gold made a low November 4 near $456. By the time of this announcement Gold had climbed back to $470. Then 3 days later gold leaped and it has been on a tear ever since. This has come despite the recent rise in the US$. Indeed gold prices have been rising now for several weeks despite the strong performance of the US$. While it is possible that the US$ has a target zone of 95 based off what appears as a head and shoulders bottom it is not slowing down the recent jump in gold prices.

"Putting aside demand/supply conditions that favour gold right now the recent sharp jump in gold prices can only be explained in light of a realization that a monetary disaster is in the making. Gold is or has been breaking out in a number of currencies recently as well. Gold is the ultimate currency and when it is going up against all currencies it is telling us that something big is going to happen." End quote.

***Derivatives dealing hits record levels. The time bomb ticks….

By Jennifer Hughes in New York
Last updated: November 17, 2005

Go to:
http://news.ft.com/cms/s/f974790e-57...00e25118c.html

"The use of privately-traded derivatives reached a record in the first half of this year with the notional amount of outstanding trades worth $270,000bn, the Bank for International Settlements said on Thursday.

"Dealing in credit derivatives jumped particularly sharply but there was also strong growth in equity and commodity instruments.

"The notional amount represents the value of the underlying assets on which the derivatives are based. Based on market value, which reflects the actual cost of replacing the contracts, the market grew by 16 per cent to $11,000bn.

"While many derivatives such as futures are traded on exchanges where activity levels are closely monitored, the more nebulous over-the-counter or OTC world of instruments that are traded directly between counterparties has proved trickier to measure.

"The semi-annual report from the BIS reported a striking 60 per cent jump in the amount of credit default swaps (CDS) outstanding to $10,200bn. The instruments are a form of insurance against a company's default.

"The market for them barely existed five years ago but has exploded in the last couple of years as banks and investors such as hedge funds have used the instruments to lay off their risk to particular credit events."
End quote.

***Asian Complacency

By Stephen Roach (in Beijing)
www.morganstanley.com

"Back in Asia for the second time in a month, I have heard two recurring (and related) themes -- amazement at the ever-resilient American consumer and astonishment over the dollar's strength. This fixation only reinforces my conviction that an externally focused Asian economy remains very much a levered play on US demand. Consequently, it would be a big deal out here in Asia should the terms of engagement with the United States change - through either a shift in demand or a swing in relative prices (i.e., currencies). In my view, that's precisely the risk that looms in 2006.

"Currency fluctuations have long been one of Asia's biggest wildcards. That is very much the case again in 2005 -- largely due to the surprising
strength of the US dollar. After nearly three years of declines from early
2002 through late 2004, the greenback reversed course this year. Many of Asia's dollar-pegged currencies have followed suit -- especially the Chinese renminbi (RMB) but also the currencies of Korea, Thailand, Malaysia, Singapore, and India. The Japanese yen has been a striking exception to this trend, having weakened by 14% against the US dollar since early 2005.

"A continuation of this counter-trend rally by the dollar could pose a
serious problem for Asia. Lacking in solid support from internal demand,
Asia needs super-competitive currencies to keep its export machine running. To the extent the dollar's surprising strength drags Asian currencies along for the ride that could prove troubling for the region's growth outlook.

"China could make or break the all-important Asian export story. While much was made of Beijing's abandonment of the decade-old dollar peg on July 21, China has been reluctant to cut its currency loose. After an initial 2% adjustment vis-à-vis the dollar, the RMB has traded in a very tight range against the US currency in subsequent months. That means as the dollar has gone up, so, too, has the Chinese currency. On a broad trade-weighted basis, the RMB is up about 10% in real terms from levels prevailing at year-end 2004.

"So far, that hasn't made much of a dent in China's export trajectory.
Year-over-year gains in Chinese exports held at 30% in October -- down only slightly from the 35% surge in 2004. China competes largely on the basis of extraordinary cost differentials, product quality, increased technological savvy, and state-of-the-art infrastructure. As such, it would take a much larger appreciation in the RMB to cut into the Chinese export business.

"In recent years, China's increasingly powerful export machine has turned the Chinese economy into an engine of pan-Asian trade. China draws heavily on imports from its neighbors to provide inputs into Asia's increasingly China-centric export platform. A dollar-led strengthening of the RMB actually boosts China's purchasing power of such foreign made components. Chinese import growth was still running at a 23% annualized clip through October 2005 -- especially good news for its Asian suppliers such as Taiwan, Korea, and Japan.

"In the end, however, China's export prowess is balanced on the head of a pin -- a pin made in America. Fully 35% of all Chinese exports go to the United States. Should US domestic demand falter -- hardly idle conjecture for an over-extended American consumer that looks exceedingly vulnerable to the twin pressures of an energy shock and a possible bursting of the housing bubble -- China would quickly be in trouble.

"Everywhere I go in Asia, I hear the tale of the tough American consumer who has once again triumphed over adversity -- this time, making it through the energy shock of 2005 without even flinching. The latest estimates of 4Q05 real consumption growth by our US team -- an anemic 1.5% increase versus a 10-year trend of closer to 3.75% -- certainly draw that perception into question. In addition, mounting US-China trade frictions pose a different set of risks to the biggest piece of the Chinese export business. Whatever the reason -- a capitulation of the American consumer or Washington-led trade bashing -- there is good reason for concern on the Chinese export prognosis.

"China's Asian trading partners can hardly afford to take those concerns
lightly. A faltering of Chinese export demand would deal a serious blow to the rest of Asia. That would be especially the case in Japan, Asia's newest and possibly most exciting recovery story. In recent years, China has emerged as Japan's largest export market. Should Chinese exports falter, China's demand for Japanese-made components would slow -- posing a potentially serious problem for Japan's long-awaited rebound.

"While the US dollar has continued to strengthen in recent weeks, Asia should not count on a continuation of this trend. America is suffering from its largest current-account deficit in history -- presently running at 6.4% of US GDP and, reflecting a further shortfall of domestic US saving, probably headed into the 7.5% range by year-end 2006. Nor has the world ever had to fund such a large external shortfall -- running at nearly an $800 billion annual rate in the first half of 2005. History and established economic theory point to a resumption of the dollar's decline as a logical response to this extraordinary imbalance. A weaker dollar would change America's relative price alignment with the rest of the world -- making imports more expensive and US exports more competitive. It would probably also add to US interest rate pressures, as America's foreign creditors seek compensation for taking inordinate currency risk. The combination of a weaker dollar and higher US interest rates should finally allow the United States to turn the corner on its massive current-account imbalance.

"A renewed decline in the dollar underscores another risk that Japan could face -- a reversal of the recent depreciation of the yen. A decoupling of the yen from other Asian currencies in 2005 has provided an important prop to the nascent recovery of the Japanese economy. Yet if Japan's recovery is for real, then there is no overriding reason why its currency should continue to sag. That's especially the case given Japan's outsize current-account surplus -- an external imbalance that is normally associated with a strengthening currency. With all eyes focused on the Chinese currency issue, Japan has slipped under the currency radar screen. The day will come -- sooner rather than later, in my view -- when the yen will strengthen again. That will undoubtedly prove vexing to Japanese exporters. And with Japan's internal private consumption growth unlikely to exceed 2% by year-end 2006, according to our Japan team, the possible combination of a stronger yen and a slowing of Chinese demand could be especially problematic for a still fragile recovery of the Japanese economy.

"Asia is the most currency-sensitive segment of the global economy. That was a painful lesson from the Asian financial crisis of 1997-98 and is still very much the case today. And it's especially the case for the region's two export powerhouses -- China and Japan. If the US dollar strengthens further and Asia's dollar-linked currencies continue to follow suit, the region's export-led growth dynamic could be in trouble. If the dollar resumes its decline, as I suspect it will, those pressures would be tempered. China, however, could be an important exception. If its currency stays tightly linked to a weaker dollar, an increasingly competitive RMB may well be the breaking point for Washington's protectionist-prone politicians. That slippery slope should be avoided at all costs.

"Asia is relatively carefree these days -- riding the waves of US-centric
global growth and benefiting from the strength of China and a nascent
recovery in Japan. It's as if nothing could go wrong. Such complacency is always worrisome -- especially for a region that remains so heavily
dependent on others for its economic sustenance." End quote.

***Britons going bust: total soars by 46% in a year. Experts blame easy credit and 'want now' consumers · Government accused of allowing £1trillion debts. A taste of things to come.

The Guardian November 5, 2005

Full link:
http://www.guardian.co.uk/business/s...635079,00.html

"The number of people filing for insolvency in Britain rose by almost 50% to new record levels over the past year as consumers struggled to cope with the debts amassed in recent years, according to government figures released yesterday. The Citizens Advice Bureau said it was coping with more than a million cases of serious indebtedness after a decade in which consumers have taken advantage of cheap credit to finance a prolonged spending spree.

"Opposition parties last night accused the government of allowing Britons to build up more than £1 trillion of debt following the announcement by the Department of Trade and Industry that personal insolvencies were up by 11.6% in the third quarter of 2005 and 46% higher than in the same period a year ago.

"A total of 17,500 filed for insolvency in the third quarter of the year, the highest since records began in 1960. Of the total, 12,000 people actually went bankrupt; a rise of 31% on a year earlier while 5,500 entered an individual voluntary agreement (IVA) with creditors in an attempt to restructure debts to give them a chance of paying them off. That figure represented a jump of 95% from last year.

"Last week the Bank of England said Britain's total debt level had risen to £1.1 trillion, the equivalent of the country's entire economic output in a year and triple the size of the government's debt.

"Dan Levene, of the Citizens Advice service, said the organisation's bureaux were now dealing with 1.1m cases of serious debt problems every year, equivalent to about one in every 45 adults. The bankruptcy figures represented only the tip of the iceberg of debt problems."
End quote

***5 Reasons the Dollar is Headed for Hard Times

By Chuck Butler.
November 17, 2005

Go see:
http://www.kitcocasey.com/displayArticle.php?id=385

1) "Deficits Do Matter- Never in the history of the world has one country owed so much to other countries without experiencing a currency crisis.

"With that in mind, here are the latest deficit numbers posted on the U.S. ledger: Trade Deficit for September... $66.1 billion. Yes, that's billion with a "B" as Ronald Reagan used to say. At this rate, the trade deficit will exceed $700 billion for 2005, topping 2004's record $617.6 billion deficit by some 13%. Meanwhile, the budget deficit for October rang in at $47.2 billion.

"The markets, economists and dollar bulls keep telling us this is a new paradigm... the globalization of economies, and that old-time fundamentals toward deficits no longer matter. To which I reply, isn't this the same bad fruit they sold us back in 2000 when they told us it was a "new economy" and that stocks "could" continue to trade at 300 times over earnings? I say yes, it is...

"One day, in the not too distant future, investors and traders alike will wake up to the reality that their dream of a new paradigm for deficits was just that... a dream. At that point, we'll see a return to fundamentals, which strongly point to a weakening U.S. dollar.

2) "An administration that wants a weaker dollar - We've all heard government officials, including U.S. Treasury Secretary John Snow and President Bush, claim that a "strong dollar is in the best interests of the U.S." The problem is that they turn around and tell the Chinese they want them to adapt a flexible currency, knowing all the time that most observers believe that the Chinese renminbi is undervalued by somewhere between 25% to 40% vs. the dollar.

"Actions speak louder than words… if the Administration truly wanted a "strong dollar" they would leave China and their currency alone.

3) "Global imbalances need correcting- At the present time, the U.S. requires the trade surpluses of 10 countries to finance her deficit, which is equal to 70% of the world's surplus capital. Put another way, the U.S. contributes 70% of the world's deficits. This is an unbalanced system that needs rebalancing, which most likely would come in the form of a dollar correction.

"The 10 countries with the largest surpluses that finance the U.S. deficit are: Germany, Japan, Russia, China, Saudi Arabia, Norway, Switzerland, Canada, Singapore, and the Netherlands.

"The disparity between the world's current account surpluses and deficits continues to widen, likely to hit a record of nearly 5% of world GDP in 2006. America's massive external deficit of 6.4% of GDP in the first half of 2005 seems set to go from bad to worse over the next year, as the U.S. savings shortfall is put to a test by energy-related pressures on households and Katrina-related pressures on the federal government.

4) "A Return of The Asian Tigers- Even with the dollar's correction in 2005, it remains 30% lower than it was in February 2002 when compared against an identical basket of currencies. The majority of the dollar's weakness came versus the European and South Pacific currencies of Australia and New Zealand. The Asian currencies, by contrast, have not participated in dollar weakness… yet.

"Where do the majority of the IOU's that the U.S. issues daily end up being held? In Asia... which is why we haven't seen any correction in the current account deficit in the past 3 years of dollar weakness. The deficits are being financed by the Asians, and their currencies haven't gained vs. the dollar.

"It's about time, eh? Well, yes! And I'll tell you why... All of the Asian countries have economic growth going on at the same time. China's long awaited slowdown has never materialized, nor will it in the foreseeable future. Japan has finally put her decade-plus ordeal with deflation in the rear view mirror. Japanese corporations are beginning to make capital investments, and Japanese consumers finally have a yen to spend their yen!

"Foreign investment into the Asian stock markets continues to be strong, as