Equities, interest rates, energy, commodities and currencies now move in tandem

sbhose@microsec.in ; shamikbhose@yahoo.com

Gold will hit $1,650 before the end of the year) (the green line in the chart below) has held; gold is in a nice channel; we have broken out to new highs; and mid-March to the end of May is often a strong time of year for gold as is August to November since 2005 . This has been falling since 2000, when the Dow was incredibly expensive against gold. In 1980 methinks that ratio is eventually falling back to 1:1. So, if the Dow is at 10,000, so will gold be at $10,000. I m slightly more conservative than that. But here s my simplification of his stepping-down pattern:

sbhose@microsec.in ; shamikbhose@yahoo.com

Recent gold versus Dow behaviour suggest that even during periods of stock market volatility gold has continued to have a relatively smoother journey upwards and the ratio can get much higher in favour of gold when the blowout phase occurs.... The benefits of diversification are thus destroyed and the volatility of once low-risk portfolios greatly increases. looking further a field to alternate assets ;

These prices have been also influenced by weaker & cheaper cost of money as Fed monetized debt and flooded the system -- QE 1 ; QE 2 has seeped out to influence commodity prices = most obvious manifestation is the lack of diversification, fat tail risk!! The Query for 2011 --* Risk on Risk off + Inverted yield curve + Year Ending Comments Looking back at -- Fat Tail Risk + Bubbles

Consumption: 70% of the US economy is driven by consumption. This in turn accounts for 20% of the worlds consumption i.e. 5% of the world's population accounts for 20% of its consumption.
Talk about an imbalance! Savings: The US finances its consumption by borrowing from the Chinese, Japanese, Mid-East etc.. because they save.... One more area of deep significance is the 45% of GDP is exports for the Asian tigers , that means they are not de-coupled at all with USA in fact they are anything but given how badly American consumer and consumer credit drives demand there and how much a tiger like China needs that export market.

Risk trades will test investors through 2011 Correlations have continued to increase despite falls in individual asset volatility U.S. government debt is now over $13.7 trillion (not including estimated states' debt of $2.8 trillion and agencies' debt of $3.0 trillion). The average rollover period for the debt is 49 months. With recent deficits running over $1 trillion a year, the Treasury issues new debt and refunds old debt at a rate of about $4.3 trillion a year. A nation needs to inspire a lot of confidence to keep that Ponzi scheme alive. Unfortunately, markets know that even the U.S. government will print money to meet expenses when necessary.This leads to the question, being asked from Beijing to Brussels: Does the risk match the reward? A negative response to that question could lead to hyperinflation. Gold trading at more than $1,440 an ounce, despite no appreciable increase in the consumer price index, is much more understandable when you realize that in periods of hyperinflation , gold tends to appreciate by 2,000% to 50,000% against a hyper-inflated currency.

The Lessons Of History Quantitative easing hasn t worked for Japan. If it s going to work in the U.S., capital controls may be inevitable. The Fed must stop the seepage of liquidity overseas. It makes no sense for the Fed to take such monumental risks with its balance sheet if America isn t reaping the benefits.

Here we see the US dollar index, which shows the dollar against a basket of foreign currencies.

In Bear Market 4 stages -- stage 1: leverage killed Stage 2: denial: market goes into a quite zone Stage 3: realisation and pessimism & poison gets flushed out Stage 4: abject fear which creates the base for the next bull market to germinate

Shamik Bhose sbhose@microsec.in ; shamikbhose@yahoo.com

Another week, another new high in gold and silver. The inexorable rise continued with gold breaking out to new all-time highs at $ xxxx per ounce. It s now in positive territory for the year; But here s the action that surprised me: gold was up in the face of falling stock markets and a ranged dollar index

Shamik Bhose sbhose@microsec.in ; shamikbhose@yahoo.com

Shamik Bhose sbhose@microsec.in ; shamikbhose@yahoo.com

The best way to play a bull market buy at the right time and then just sit tight I have always said that of all the metals silver has the most potential. There is its monetary appeal. As a precious metal, investors are seeking it out because of its increasing value at a time where governments are debasing their currencies. And there is its industrial appeal. It is finding more and more uses each year in industries that, recession or no recession, are growing. I m talking particularly about its use in electrical and medical applications. Meanwhile there is an ever-increasing supply deficit. Sharelynx has charted this:

Share-lynx says: Note that since 1950, almost 925,000 tonnes have gone into demand with 570,000 tonnes of this having come from production. This leaves a shortfall of 350,000 tonnes, which has come from central bank sales, stockpiles and scrap. This deficit equals approximately 16 years of production . The scrap is running out. Meanwhile, on the futures exchanges, there seems to be a genuine supply squeeze which is pushing prices higher and higher. And since one of the bigger sellers, JP Morgan, announced the closure of its prop trading desks in late August, the price has catapulted higher.

One day silver, much as it did in 1980, is going to rise higher than your wildest dreams. (That $50 number from 1980, is somewhere north of $200 in today s money.)

Shamik Bhose sbhose@microsec.in ; shamikbhose@yahoo.com

sbhose@microsec.in ; shamikbhose@yahoo.com

Nomura set the bar pretty high with a warning that $220 a barrel might even be overly-conservative should production in Libya and Algeria shut down altogether. In 2007 Goldman had predicted a 150 $ per barrel of WTI crude price for 2010 only to see 147$ in 2008

To sum up his point, Libya has plenty of oil money and should have been able to bribe its citizens into submission. But they decided they want freedom instead. And if that is the case with Libya, which has a comparable ratio of income to population to Saudi Arabia, one might worry more about the stability of Saudi Arabia, which is of course the big one. Thats an understatement.

A New Superabundance of Game-Changing Shale Gas Will Provide 250 Years of Natural Gas A few years ago the United States was ready to import gas. In 2009 it had become the world's biggest gas producer. The U.S. achieved the change through a technological breakthrough in which firms found a way of using tiny explosions to free gas previously trapped in a common rock - shale. Tactically this makes Americans less dependent on Middle East and Suez Canal and it also means over time as this plays out the dollar will regain traction vis--vis other currencies............

60990456, 60990522, 60990205

1750 1700 1650 1600

HEA

1991 1992

1993

1994

1995

1996

1997

1998

1999

2000

Attracted by these high prices farmers in USA have planted huge crops but weather has been truant ; substantial Chinese and Russian demands as dollar has been weak has added to price rise along with massive hedge fund and index fund participation. All these connections are not linear though

A substantial tonnage of corn has been used as ethanol bio-fuel in USA with the help of generous subsidies and green lobby media campaigns; this has raised an ethical debate if food should be diverted with subsidy to become fuels as crop shortages and inflations have created riots and surging grain prices have been helped along with the Feds cheap and easy money policies

1550 1500 1450 1400 1350 1300 1250 1200 1150 1100 1050 1000 950 900 850 800 750 700 650 SOYBEAN 600 550 500 450 400 350 300 250 CORN 200 150 100 50 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 201

Raw sugar and white sugar prices have been strong and getting higher as crop shortages and demand have both played a part in the rally as has higher crude oil prices as many countries notably Brazil uses sugar ethanol to fire up flexi-fuel cars
155 150 145 140 135 130 125 120 115 110 105 100 95 90 85 80 75 70 65 60 55 50 45 40 35 30 25 N D 2005 A M J J A S O N D 2006 A M J J A S O N D 2007 A M J J A S O N D 2008 A M J J A S O N D 2009 A M J J A S O N D 2010 A M J J A S O N D 2011 S SUGAR 11 ONTINUOUS 112000 LBS [NY SCE] (30.6000 30.7600 29.0000 29.8800) LIGHT CRUDE CONTINUOUS 1000 BARRELS [NYMEX] (101.700 104.940 101.540 104.420)

CRUDE OI

38 37 36 35 34 33 32 31 30 29 28 27 26 25 24 23 22 21 20 19 18 17 16 15 14 13 12 11 10 9 8 7 6