Currency Values Hardly Impacts Merchandise Trade

In the eyes of the mainstream the only way to generate export growth is to devalue a currency or impose punitive tariffs on trade partners whom are deemed as 'currency manipulators'.

Yet, facts belie these misguided conventional beliefs.

Referring to the above charts, analyst Howard Simons argues, (bold highlights mine)

``First, three-quarters of the import weights and two-thirds of the export weights derive from five sources: China, Canada, Mexico, Japan, and the eurozone; the others will be aggregated for visual clarity. Let’s take a look at the imports first.

``The most prominent development over time has been the seizing of market share by China from Japan and Canada. Mexico’s share expanded after the passage of NAFTA, but it has stagnated in recent years as maquiladora plants have become uncompetitive with Asian exports. In economic terms, Mexico now is exporting labor, a factor in production, as it has lost a competitive advantage in the production itself.

``On the export side, China is displacing Japan as a customer of the US. Exports to both Mexico and Canada expanded after the passage of NAFTA, as have exports to “all-others;” this category includes important growing customers such as Brazil, India, the Middle East, and the Asian periphery.

``What is or should be striking in the pictures above are the rather constant weights for the eurozone. Given the euro’s prominence for financial flows and for traders, and given its outsized 57.6% weight in the dollar index, you might think all of the changes over the years in the rates between the dollar, the euro, and its predecessors would lead to substantial changes in trade weights.

``The US and the eurozone have structurally similar economies and factors of production. As a result, we trade in similar goods where differences in customer tastes and small quality differentials mean more than price. Moreover, much of the trade between the two zones is inter-subsidiary and represents a transfer."

True enough, (chart courtesy of netdania) despite the Euro's 5 year uptrend, this has hardly affected the trade weightings of the Eurozone vis-a-vis the US.

In addition, many other factors also seem to impact trade more than currency values, such as Free Trade Agreements, differentiation of goods, transfer pricing from inter-subsidiaries, and etc...

In other words, currency values hardly is the major factor that influences trade balances.

I'd like to interpose another perspective--how did the Euro become an export giant, in spite of the currency's elevated valuation levels?

Analyst Martin Spring enumerates the strength of Germany as the Eurozone's driver: (all bold emphasis mine)

-Germany is a hugely powerful exporting power, only recently overtaken by China, and still a far bigger exporter than the US or Japan. This year it is forecast to have a foreign trade surplus of $187 billion, not far behind China’s $219 billion.

-Despite some of the highest labour costs in the world, it has high productivity to match them.

-Due to the cohesion that comes from good employer-employee relationships, manufacturing industry has the flexibility to meet adverse circumstances. In the global recession it has kept growth in unemployment to just half a percentage point through measures such as pay cuts and state-subsidized short-time working.

-Instead of looking to currency depreciation to ease its problems, it survived the period of a strong euro by meeting competition head on. The OECD, in its latest economic survey, says the nation used the adversity to spur innovation, make allocation of resources more efficient, and invest strongly in advanced production techniques.

-Its companies have diversified internationally and outsourced to low-cost countries – about half the added value of exports is now produced abroad.

-Although Germany does, like so many countries, have a problem of high and growing public debt, it is at last addressing that problem decisively. Over the 2008-2012 period, despite the biggest stimulus programme in Europe, its debt is forecast to grow by only 17 percentage points, compared to 22 per cent in France, 33 per cent in Greece and the US, 34 per cent in the UK and 39 per cent in Japan.

-The Economist says Germany “no longer suffers from an arthritic labour market, an obese state or a suffocating tax burden.”

-At the core of the engineering sector that is the cornerstone of the nation’s industrial economy are thousands of dynamic Middelstand enterprises (small and midsized firms, often family-owned) that export almost 80 per cent of their production, selling not only highest-quality machines, but also the panoply of expert support services that go with them.

-Germany is a world leader in fields such as automotive technology and renewable energy. It can sell machinery in China at four times the cost of Chinese competitors’.

All these can be summed up into competition, division of labor, competitive advantage and high level of entrepreneurship. In short, Germany's export powerhouse came about from fundamentally embracing free market principles and not from devaluation and closed door isolationist policies.

This bring us to the surprise announcement by China to gradually allow her currency to rise. Will these alleviate the so called global imbalances?

In 2005 the yuan appreciated by 9.8%, yet there has hardly been any improvements in the trade balance (deficit) standing of the US vis-a-vis China, as shown in the above chart.

And the narrowing of the trade gap in 2008 can't be attributed to the rising Yuan, because the world suffered from convulsions of the 2008 financial crisis, which had been a far larger factor.

Besides, China then repegged her yuan to the US dollar at the onset of the crisis (also shown above-chart courtesy of Northern Trust).

So the answer is a NO--the appreciation of the yuan is unlikely to make a significant dent to the US deficits. Moreover, for as long as the US dollar is the de facto medium of account "currency standard" for global trade, the US is likely to maintain huge deficits.

However for China it could be a different story.

China's surpluses could narrow, not because of the appreciating yuan, but because of policies aimed at shifting internal dynamics.

According to Northern Trust's Paul Kasriel,

``Now, I do believe that the rate of increase in China's trade surplus will be slowing in the coming years, but not primarily because of an appreciating renminbi. But rather because rising incomes among Chinese households will lead to increased discretionary spending by them. Also, in order to keep the population relatively happy, Chinese politicians will re-allocate government spending more toward services and infrastructure spending to benefit households rather than export industries."

Bottom line: currency values signify only as one variable out of the many that influence trade activities. Therefore tunneling on the "currency" valve as means to rebalance trade by indirect (inflationism) or direct protectionism is not only fallacious and deceptive but also unwarranted.

Borrowing Howard Simons conclusion, ``the world’s protectionists are better at making noise than making sense".

Does Macro Economics Matter?

In an article, "What's the Point of Macro?" Societe Generale Dylan Grise remarked,

``So my advice to anyone about to embark upon Einhorn's path of using macro to "actively manage your long-short exposure." is to think long, hard and honestly about what your sphere of competence actually is." (thanks to my dear friend Mr. Laird Smith)

If importation of product X is my business, and suddenly our government prohibits the imports of this item and its related lines, then what's the effect to my business? Obviously I'd have to either shift to other products where imports are allowed or close shop! [yes my dad suffered from this predicament nearly 30 years ago]. In short, business conditions respond to macro policies.

Thus my corollary: The more the government intervenes in the marketplace, the more macro perspective becomes relevant, and vice versa, in determining the viability of investments.

Put differently, the usefulness of the macro perspective relative to risk-reward tradeoff depends on the expected level or degree of government interventionism or inflationism.

As a caveat, while macro does matter, we shouldn't ignore the micro developments. Importantly, we should NOT depend on mathematical formalism to make macro appraisals.

Thought Of The Day: The Keynesian Circular Thought Process

This quote from Professor William Anderson

"In the world of Keynesian economics, there really is no individual behavior that is purposeful. People don't "spend" because they believe that the purchase of a specific good or service will make them better off, but because they are "buying back the product" they have produced as workers.

"This is what one might call circular logic, and it reminds me of the imaginary exchange that Professor Israel Kirzner used to explain the circular flow of Keynesianism:

"FIRST PERSON to SECOND PERSON: Why do you eat breakfast?

"SECOND PERSON: So I can go to work.

"FIRST PERSON: Why do you go to work?

"SECOND PERSON: So I can eat breakfast.

The Road To Serfdom In North Korea

Max Borders at the Washington Examiner enumerates the "vital concepts" from Friedrich Hayek's legacy "The Road To Serfdom" which most recently hit the top spot in Amazon (due to Glenn Beck's promotion).

From Mr. Borders:

Spontaneous Order - Complex society and open markets cannot be planned. Period. Human beings just ain’t smart enough. Instead, the extended order emerges - unplanned and undesigned - due to humans interacting in complex ways according to simple rules. These rules do not specify certain social ends, but rather bring order to the diverse ends of billions of people pursuing happiness.

The Knowledge Problem - It is impossible for a single mind or group of minds to predict, plan or control the innumerable inputs, outputs and actions in a market. Instead, knowledge is dispersed among billions of people. Entrepreneurial opportunities are seized by individuals with particular, local insights, and/or expertise in some specific area the bureaucrate cannot possess.

Price System - Entrepreneurs also respond to information flows communicated through the price system. Bureaucratic control of an economy is impossible due to the loss of information communicated through prices, and due to the inability of one to gain the right kinds of information at the right times and right places. “Prices are signals, not marching orders.”

Competition as a Discovery Procedure - The circumstances of time and place are critical to the success of competitive market actors. The idea that we can aggregate economic data - like macroeconomic data - in order to say something meaningful about how things should to be coordinated is, well, a bad idea. Competition among market actors looking for opportunities to offer a previously unnoticed value to consumers is basically crowd-sourcing value creation. Innovators compete, you win."

And a fantastic example of how a society operates without or with little of these elements is North Korea.

This from the Washington Post, (all bold highlights mine)

Bowing to reality, the North Korean government has lifted all restrictions on private markets -- a last-resort option for a leadership desperate to prevent its people from starving.

In recent weeks, according to North Korea observers and defector groups with sources in the country, Kim Jong Il's government admitted its inability to solve the current food shortage and encouraged its people to rely on private markets for the purchase of goods. Though the policy reversal will not alter daily patterns -- North Koreans have depended on such markets for more than 15 years -- the latest order from Pyongyang abandons a key pillar of a central, planned economy.

With November's currency revaluation, Kim wiped out his citizens' personal savings and struck a blow against the private food distribution system sustaining his country. The latest policy switch, though, stands as an acknowledgment that the currency move was a failure and that only capitalist-style trading can prevent widespread famine.

"The North Korean government has tried all possible ways [for a planned economy] and failed, and it now has to resort to the last option," said Koh Yu-hwan, professor of North Korean studies at Dongguk University in Seoul. "There's been lots of back and forth in what the government has been willing to tolerate, and I cannot rule out the possibility of them trying to bring back restrictions on the markets. But it is hard for the government to reverse it now."

Because North Korea operates in secrecy and isolation, outside observers rely on informants and accounts from defectors. In this case, experts agree that the food shortage is dire. Several analysts who monitor and travel to North Korea said that in recent weeks, Pyongyang has abandoned almost all its rules about who can spend money and when. That would seem to indicate that Kim -- who once equated free-market trading with "egotism" and a collapse of social order -- now wants to rehabilitate the markets damaged in November...

``In the mid-1990s, amid a total collapse of the central planned economy, somewhere between 3 and 5 percent of the population -- perhaps 1 million people -- died of starvation. Meanwhile, North Koreans increasingly turned to small markets for trading and buying supplies."

Bottom line: The Road To Serfdom is about shortages, death and poverty. Even the North Korean leadership now recognizes that they can't subvert economic laws.

(hat tip Greg Ransom)

What Gold’s Latest Record Prices Mean

``The struggle against gold which is one of the main concerns of all contemporary governments must not be looked upon as an isolated phenomenon. It is but one item in the gigantic process of destruction which is the mark of our time. People fight the gold standard because they want to substitute national autarky for free trade, war for peace, totalitarian government omnipotence for liberty.” Ludwig von Mises

A major trait of bullmarket is, whatever assets we sell today will climb higher tomorrow. This implies that the most regrettable course of action in a bullmarket is to sell.

And one great example would be the gold market. Gold just set a new record in terms of nominal high (see figure 1).

Figure 1: Netdania.com[1]: Gold’s Stairway To Heaven

The monthly chart reveals that gold prices have been in a bullmarket since 2000. While true enough, there have long periods of consolidation, the general trend over the last decade has been up.

And importantly, contrary to those who allege that gold functions as safehaven during recessions or during the “deflation-symptom” crisis similar to the Bear Stearns-Lehman episode of 2008, evidence has shown otherwise—gold fell during the previous two recessions of 2001 and 2008 (see black channel lines)!

Alternatively, the most recent record run only implies that the fresh milestone high, established last week, DOES NOT presage of any forthcoming market crashes or “double dip” recessions. And if gold serves as a lead indicator as previously discussed[2], then the likelihood is to see reanimated activities in global risk markets.

At the start of the year, we were told that gold wouldn’t generate investor appetite as the menace of “deflation” continues to lurk around the corner. We even read predictions stating that gold would fall back to the $800 levels[3] way until last month[4].

However, as we have always been saying--in a world of central banking, deflation is no more than a bogeyman to rationalize more inflationism, which central bankers are likely to accommodate. After all, inflation is ALL about politics. And central bankers, in spite of their supposed “independent” role, have been the main conduits in financing government expenditures. Thus all talks of “independence” are mostly demagoguery. Fact is, global banking regulations, as the Basel Accords, have all been skewed to accommodate government expenditures[5].

Of course, one major bullish factor about gold is that mainstream STILL doesn’t get it; gold isn’t just an inflation hedge, nor is it about alternative assets[6]. It’s also been starkly misguided to impute ‘conventional’ financial valuation metrics to gold when this doesn’t apply. It’s even myopic to calculate or value gold prices premised on commodity usage. And it is also faulty to appraise gold based on global mining output. Since gold isn’t being consumed, incremental additions to the above ground supplies by existing mines hardly determine the pricing model (see previous discussion[7]).

In a decadent world of fiat money, where money printing to fulfil specific political agenda have been the most convenient route resorted to by political leaders everywhere-for the simple reason that the ignorant masses hardly understands how such surreptitious redistributive activities influences their lives- gold seems to be re-establishing its role as ‘money’.

Therefore, gold’s ascendant trend in ALL currencies have simply been manifestations that demand for gold has been transforming from mere “commodity” (jewelry and industrial usage) to “money”.

Gold is being held as reserve asset not just by the central bank, but importantly by the general public. Gold’s increased function as “reservation demand” is what usually the mainstream sees as “speculation” or “speculative hoarding” or “investment demand”.

Otherwise said, money’s “store of value” is increasingly being factored into gold prices (unit of account). Hence, relative to gold pricing, this implies that reservation dynamics or the reservation model (and not consumption model) determines gold valuations or that the exchange ratio or monetary valuations relative to fiat currency applies-- where valuations are determined by the expected changes in relationship between the relative quantity of, and the demand for, gold as money vis-a-vis paper currencies.

And possibly one day, such transformation would include the deepening of “exchange demand” or gold as ‘medium of exchange’ (see previous discussion[8]). Proof of this has been the emergence of Gold ATMs in Germany[9] and in Abu Dhabi[10].

All these, of course, are ultimately dependent on the stimulus-response and action-reaction of global political leaders on the swiftly evolving political, economic and financial sphere.

And thus, periods of weaknesses, whether from recessions or from consolidations (in technical or chart lingo the “energy fields”), has served as buying windows rather than selling opportunities.

Yet for those whom have remained sceptical and or earnestly drudge to market “timing” gold’s prices, they usually end up chasing gold prices higher-- buy high and sell low.

And this is especially brutal to those in constant denial of gold’s ascendancy; they have entirely missed out the rally for ideological reasons, and vent their frustrations by continually disparaging such developments. The odd thing is that this has already been a 10-year market process.

Yet since gold rise has been threefold, all errant attempts to “time” the market has resulted to lost or missed profit opportunities.

As the legendary trader Jesse Livermore expressed by Edwin Lefevre in the classic must read for any serious investors, “Reminiscences of a Stock Operator”,

``Disregarding the big swing and trying to jump in and out was fatal to me. Nobody can catch all the fluctuations. In a bull market your game is to buy and hold until you believe that the bull market is near its end. To do this you must study general conditions and not tips or special factors affecting individual stocks.[11]”

In short, the best returns emanate from long term investments.

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[1] Netdania.com, Forex charts

[2] See Why The Current Market Volatility Does Not Imply A Repeat Of 2008

[3] Yahoo. Finance, Gold Is "Fairly Expensive," Could Fall to $800 If Fed Moves, Midas Fund Manager Says, January 22, 2010

[4] CNN.Money, The coming gold bust

[5] See The Myth Of Risk Free Government Bonds

[6] Reuters.com, US gold sets record, ends strong as alternate asset

[7] See Gold As Our Seasonal Barometer

[8] See Financialization of Commodities: Boon Or Bane?

[9] See Creative Destruction: Electronic Payments Over Cash And Checks

[10] Financial Times Blog, Abu Dhabi’s gold ATM machine a sign of more opulence to come, May 13 2010

[11] Lefevre, Edwin, Reminiscences of a Stock Operator p.76 John Wiley and Sons

Buy The Philippine Mining Index And ASEAN Bourses On Record Gold Prices

``In all countries and all civilizations, two commodities have been dominant whenever they were available to compete as moneys with other commodities: gold and silver. At first, gold and silver were highly prized only for their luster and ornamental value. They were always in great demand. Second, they were always relatively scarce, and hence valuable per unit of weight. And for that reason they were portable as well. They were also divisible, and could be sliced into thin segments without losing their pro rata value. Finally, silver or gold were blended with small amounts of alloy to harden them, and since they did not corrode, they would last almost forever. Thus, because gold and silver are supremely "moneylike" commodities, they are selected by markets as money if they are available. Proponents of the gold standard do not suffer from a mysterious "gold fetish." They simply recognize that gold has always been selected by the market as money throughout history.”-Murray N. Rothbard

Aside from the lessons of how to treat bullmarkets, there are two factors to ascertain or discover from gold’s rise:

One: To identify bullmarkets pertinent to gold’s actions and

Second: The possible implications of the gold’s resurgence to domestic gold and metal mining related issues.

The Relevance Of Gold-ASEAN Bull Markets

The Phisix and most of Asian stock markets are in a bullmarket. That has been a mantra of ours for the longest time.

In the fullness of time, perhaps the 2008 US housing bubble crisis will be portrayed as an intermission to the current phase of the bullmarket cycle.

No, relative economic success isn’t the main force that will fuel this boom, although this will be the “rationalization” or “justification” which mainstream will obviously utilize.

Instead what will drive this boom is the global bubble cycle (or what can be described as the Austrian Business cycle) that continually plagues the present state of the markets. Such cycles signify as the consequences of the world inflationism or the mainstream’s “central banking-fractional reserve-deficit spending” policy framework.

Since money isn’t neutral and where collective money printing would impact relative assets relatively, the likely magnet for the tsunami of “counterfeit” money (money from thin air and are unbacked by real savings) are sectors or nations that has eluded from developing bubble conditions during the last bubble cycle. In other words, where the supply side hasn’t generated excess capacity or malinvestments, “speculative” money is likely to flow or get funnelled into these focal areas.

They will be embraced as a surge in domestic consumption, swelling middle class, wealth transfer, demographic dividends, urbanization and alot of many other pretexts for a boom, but eventually like all bubble cycle most of these will be exposed as tomfoolery or a scam. That’s because the forces that would underpin such booms will likely be characterized by ballooning domestic credit, in households or corporate or both, and by leveraged international money flows.

Though, of course, one big factor which we cheer of is the broadening of economic freedom in many emerging markets, as seen by growing globalization of trade, investments and labor.

However, economic freedom is diametrically opposed to inflationism. Hence, two forces are fiercely counteracting or grinding upon each other. And economic freedom would have to endure from the ordeals of the volatility elicited from the falsified pricing mechanism in the marketplace derived from the current collective interventionist policies. Remember, all current actions have future consequences. Economic freedom thus is a long term proposition in the face of the adversarial forces of hidden taxation.

And it would be an irony to say that rising gold prices seem to be a “boon” to stock markets and other financial assets or the economy. That’s because rising gold prices exhibits the pathology of the endemic nature of the political agents to debase currency for political goals. The reason why rising gold prices appears as a benediction for the markets today is due to the “sweetspot” of inflation[1]- as seen by low interest rates and tolerable instances of inflation.

As Friedrich August von Hayek explained, (bold highlights mine)

``Now the chief effect of inflation which makes it at first generally welcome to business is precisely that prices of products turn out to be higher in general than foreseen. It is this which produces the general state of euphoria, a false sense of wellbeing, in which everybody seems to prosper. Those who without inflation would have made high profits make still higher ones. Those who would have made normal profits make unusually high ones. And not only businesses which were near failure but even some which ought to fail are kept above water by the unexpected boom. There is a general excess of demand over supply-all is saleable and everybody can continue what he had been doing. It is this seemingly blessed state in which there are more jobs than applicants which Lord Beveridge defined as the state of full employment-never understanding that the shrinking value of his pension of which he so bitterly complained in old age was the inevitable consequence of his own recommendations having been followed.[2]”

ASEAN’s Bullish Momentum

This welcome phase can vividly be seen in Figure 2.

Figure 2: Bloomberg[3]: Blossoming Bull Markets In ASEAN?

For major ASEAN nations, the marketplace seems ripe for a raging bull.

Indonesia’s Jakarta Composite Index (green line) has already transcended its 2008 high (!!), while the Philippine Phisix (yellow line), Malaysia’s KLCI (red line) and Thailand’s SET (orange line) are all within spitting distance.

If all four benchmarks manage to surpass their 2008 highs, then I’d presume that the region’s bubble cycle could only accelerate.

And following the recent market stresses within the EU zone where the European Central Bank (ECB) has already reactivated their own version of quantitative easing, coupled with the soon to be operational European Financial Stability Facility (EFSF), a combined €750 loan facility from the (€440 billion) EPSF, the IMF (€ 250 billion) and the European Financial Stabilization Mechanism (€ 60 billion), aimed at “providing financial assistance to Eurozone states in difficulty”[4], monetary conditions among major developed economies are likely to be very accommodative for an extended period especially in the light of Asian conditions.

And such disparate circumstances are likely to engender and amplify arbitrage or carry trade opportunities.

In the Philippine Phisix, market internals appear to be suggestive a looming major upside thrust (see figure 4)

Figure 4: PSE: Phisix and Advance-Decline Spread

The Advance-Decline spread (lower window) which is the daily tally of advancing issues less declining issues or a measure of market breadth or sentiment seems to be on the mend as the Phisix approaches its 29-month resistance levels (Upper window).

If the Phisix is to successfully breach the present resistance levels at about 3,350, we are likely to see a tight advance decline spread similar to the March-April pattern.

And if the present momentum extends, it won’t be far fetch that a test of the 2007 high at the 3,800 level will be the next topic of our discussion.

Meanwhile, the other major force, which we earlier we pointed out[5], is the potential ‘sustained’ rally in the Euro-US Dollar.

Philippine Mining Index Due For Yearend Fireworks

The other area which is likely to benefit from rising Gold prices is none other than the mining issues (see figure 5).

Figure 5 stockcharts.com: Gold and Global Mining Stocks

As gold has reached a new milestone, the benchmark of global mining stocks continue to trail or lag.

Of course, not all mining companies are created equal. And that’s the reason why I chose the Dow Jones US Mining (DJUSMG) and S&P/TSX Global Mining Index (SPTGM) to compare with gold. The activities of the general mining issues should smooth out the activities of gold miners (lowest pane; DJAPRT Dow Jones-UBS Precious Metals Total Return Index[6])

Dow Jones US Mining represents select US based gold and coal stocks[7] while the S&P/TSX Global Mining Index[8] is a global bellwether of Aluminium, Diversified Metals, Gold and Precious Metals and Coal and Consumable fuels. Both indices, while lagging, appear to be advancing. If the past will reprise, then the component issues of both benchmarks are going to do alot of serious catching up. But again, the performances of coal, industrial metals and others haven’t matched the performance of gold miners. Yet if we are right and eventually inflation accelerates then all these will rise, but the degree of increases will likely be different.

How should these apply to the local mining index?

The Philippine mining index is essentially a gold mining index with about two-thirds of the index weightings based on gold miners. The balance is distributed between coal (Semirara about 14% of the index as of Friday’s close), industrial metals (NIHao Mineral Resources 3.2%, Geograce 3.4%, and Atlas Consolidated 9.43%-Atlas is most diversified since it has also gold and silver) and oil (Oriental Petroleum 3.13%).

Figure 6: Philippine Mining Index And GOX

This suggests that like Dow Jones US Mining, the local mining issues appear to be far underperforming both Global diversified mining (as shown above) and conspicuously the gold miners see figure 6. Year to date, the local mining index is down 17.54% even as the Dow Jones Mining is up 3.07%.

Meanwhile, another US gold miner index, the CBOE Gold Index (gold line) seems hardly correlated with our local index or with gold related mining issues within the index. The GOX is up 10.6% on year to date.

The chart above consists of the top 5 mining issues in terms of capitalization, particularly Philex (red line), Semirara (green), Lepanto (orange), Atlas (black) and Manila Mining (violet). Since Philex made a spectacular nearly fourfold rise late last year, the Philippine Mining appears to be more inclined to reflect on Philex’s movements, given that Philex has about 43% of the index market cap.

Nevertheless, while there is no clear relationship between the US GOX and local mines to the upside, they have almost been as one to the downside during the Lehman collapse in 2008.

However one interesting observation is that the gist of the runs of many mining issues seems to occur during the last semester of the year, in 2006-2007 and in 2009. Of course this excludes the shock of 2008.

Hence, it is my impression that given gold’s recent fresh highs, combined with other factors mentioned above, along with seasonal and rotational effects, my next bet is that the far oversold mining index is likely to make a dramatic encore by the yearend.

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[1] See Inflation’s Sweet Spot Augur For A Gold Breakout And Global Equity Market Rally, February 28, 2008

[2] Hayek, Friedrich August Can We Still Avoid Inflation? The Austrian Theory of the Trade Cycle

[3] Bloomberg.com, World Index

[4] Wikipedia.org, European Financial Stability Facility (EFSF)

[5] See Buy The Peso And The Phisix On Prospects Of A Euro Rally

[6] iPathETNs, Dow Jones-UBS Precious Metals Total Return Index

[7] Wikinvest.com Dow Jones US Mining

[8] Standard And Poors, S&P/TSX Global Mining Index