Dear rss free blog,


It’s fearless forecasts time. The problem is not September.
The problem is that various black holes in the stock markets of the globe have
gobbled up perfectly viable neighboring bits.

The first one is the Yellow Submarine. That is my marginally
racist name for the isolated Chinese markets of Shanghai and Shenzhen, submarines they are
totally cut off from the rest of the world by Chinese exchange controls. They
are thus at the mercy of the Chinese speculator and his money.

Rumors of a crackdown on stock financing by
government-owned banks spreading the wealth with China’s stimulus program were
enough to overcome quite good Chinese corporate results during August. Chinese
shares have been in a bear phase for weeks but other speculators in the rest of
the world finally noticed and decided that bearishness was the new black. So
selling began.

Feeding it was revelations of illicit stock
tip pools run by Goldman Sachs for their richest
fast-trading clients. Turning off that spigot has left a gap in the hot money
flows into the market.

Another contributor was Dead Men Walking, my term for U.S.
financial stocks which have literally no assets except a theoretical government
guarantee: Fannie Mae, Freddie Mac, AIG, Citigroup.
Suddenly the market noticed that these were zombie stocks and sold them off.
And the rot spread to perfectly healthy financial stocks, JPMorgan to Barclays.

Now the selloff has come
despite good news on the green shoots front. The index of purchasing managers
(or whatever they call it now) is up to over the key 50% level in the US, France,
and China.
The U.S.
manufacturing sector is definitely growing for the first time in 1 ½ years.
Layoffs are falling, not fast enough but still falling. Home purchases are
creeping up in the most afflicted countries, Britain
and the US.

So what do you do now? First, do not join
the selloff. It is a phase. Secondly, look for where the growth will come.
Think about Chinese demand for raw materials; to the extent that stimulus money
is not frittered away in stock punting it will result in more spending on
production and infrastructure, leading to more demand for commodities. Housing
demand in China
is likely to pick up the slack from day-trading.

Consider currencies. Last year when markets
turned gloomy, the dollar became an attractive safe haven for inflows, despite
very low rates of return. Now Sweden
has imposed negative interest rates to those placing money with its central
bank. Switzerland
did that decades ago. Maybe we should try this and watch the foreign money flow

I get more questions about gold than any
other, maybe because I have resisted the gold bug conspiracy theories to
explain why the yellow metal is not doing as well as they think it should. As
long as the expansion of government debt does not stimulate inflation, but only
offsets deflationary trends, money supply will not trigger price increases or push
up the gold price.

So you have to look at supply and demand

For the record, one group buying gold has
been central banks, presumably ones with a current account surplus to sop
up, fed up with their losses putting their money into greenbacks
and taking a haircut on T-bills and those supposed safe mortgage issuers.
Repeat after me: there is no central bank conspiracy. There is no central bank

So where is the selling coming from? The
very exchange-traded funds whose gold buying pushed up the price six months ago
are now selling. When investors opt to get back into stocks, they sell their
gold ETFs and the managers then sell the bullion bought to back the ETF. (The
theory that the ETFs do not own the gold backing their shares is part of the
goldbug paranoid world view and false.)

Other precious metals sellers need the
money. India
is the largest gold hoarder on earth and its monsoon rains have fallen short.
So the bangles get melted down, before the farmers borrow from the loan shark
the cash they need. Cain and Abel Ambani have to pay their lawyers as they sue
each other, and probably would rather sell the solid gold cutlery than the
shares they are fighting over. India
has become a net exporter of gold rather than a lawless importer.

Chinese like gold too, but there are
so many other attractive placements available now that maybe they will sell the
solid gold 18 inch statue of the Buddha to buy an apartment.

Other gold-buyers in the Gulf
and the Moslem world may also be feeling the pinch with scandals and huge
losses in Saudi, the popping of a real estate bubble in Dubai,
and even political uncertainty in poorer countries like Egypt, Iran,
Iraq, Pakistan, Afghanistan.

Every portfolio should contain some gold,
probably in the form of ETFs, in case the central banks screw up their moves
when the deflation risks falls. But we aren’t there yet. Note that gold is now definitely not moving with oil.

Meanwhile BP
has discovered a huge new deep oilfield offshore Houston in the U.S. Gulf of Mexico with an estimated 3
bn bbls of crude. You would have thought that area had been explored to death
already. But Tiber was over 35,000 ft down.

News for our paid subscribers
follows, about specific companies we recommend. You will only make money with
this newsletter if you follow our share picks. Today we are talking about green
stocks. First off, word from Chris Loew from Japan about the impact of the
election tsunami: