From Point D, the price can be arguably projected to then retrace and stabilize to/in the Finbonacci “confluence area” of $775-875 per ounce.  

Pricing Analysis Application Conclusion: As respects thwarting Commulism, the “Yuan for Gold” strategy (discussed later in Part 8) should be executed at the top of the C-D price rise ($1,300 plus). 

Rate Cuts - Assessment: 

Oil/gold and their respective associated price speculation/projection aside, now shift back to tangible reality and the dollar/export relationship piece. The even lower dollar makes U.S. export goods that much more competitive on world markets, thereby allowing the U.S. to relatively speaking, export more and therefore “mitigate” some of the growing trade imbalance, in part driven by as outlined later, Chinese “enhanced protectionist” practices. Exporting more is clearly good for economic growth, providing then the added benefit of helping further minimize any potential recession in terms of length and severity. Note here the mention of mitigation rather than reduction. This effort attacks the acceleration in the trade deficit. The rate cuts really then are solely aimed at Commulism, yet opportunistically and conveniently hidden behind appeasing the investment community demands under the smokescreen mantra of “addressing the credit crisis”.  

Analyst Note: Not discussed by the investment community is the fact that while reducing rates does intuitively tend to weaken the dollar, in this case that weakening is in part mitigated by the rather dramatic boost in U.S. exports from those rate cuts, leaving room for more – rate cuts. 

At this point in dealing with Commulism, a weaker dollar is mandatory. The U.S. has no choice. An accompanying cost with the lower dollar of course being the lowered price of U.S. assets and real estate relative to foreign buyers and there own stronger domestic currencies. The Jan. 20, 2008 NY Times highlights the flood of foreign buyers to the U.S. to pick these up on the cheap. Since the dollar needs to remain low, consider the sale (loss) of some assets (not unlike the Rockefeller Center type transactions to the Japanese in the 1980’s) to foreign interests an unfortunate U.S. cost for decades of gross neglect in managing its financial/trade/economic relationship with China. The only thing that can be done to mitigate the loss is to weed out those transactions, regardless of percent ownership sought, which in any way are connected to the Chinese government and leverage a TBD drastically upgraded Exon-Florio provision to deny it. 

As most Wall Street analysts and economists will attest, the 50 basis point cut in Fed Funds rate in September ’07, followed by 25 more each in October and December will continue doing virtually nothing substantively to fix the credit (sub-prime) crisis. Nor will the emergency 75 basis point cut on Jan. 22, 2008 and Jan. 31, 2008 Fed meeting 50 basis point cut. Neither will those  75 and 50 point rate cuts really take hold and have effect until the (potential) recession is over – end of Q3. The timing of that emergency cut then strictly a knee jerk to boost confidence, not stop recession. It provided some needed confidence support to stem a collapsing global equity market, ironically triggered by the (Societe Generale rogue trader situation) Asian market meltdown in response to overblown U.S. recessionary fears, and the accompanying asinine, at best, U.S. stimulus plan. In fact, the meltdown being an irrational herd-like response, necessitating the premature rate cut.  

Analyst Note: When one thinks about rate cut impact, did it do anything to help Merrill Lynch and its write-off? Will it do anything more for the others not yet reporting or aware of their (significant to huge) total sub-prime et al credit exposure. Will it bail out the homeowner? Will it bail out the bond insurers? The answer is an emphatic no, on all accounts.  

Given the 6+ month lag effect of rate cuts on the economy, the 225 basis point cuts will miss having any impact on stopping a potential recession in Q1 or Q2. However, they will dramatically mitigate the length and depth of that recession, if to occur. One could realistically argue if a recession begins in Q1 ‘08, and assuming worst case that the collective 225 basis point rate cut didn’t occur until Feb. 1, 2008 (which is not the case) that the economy should be coming out of recession in Q3 ’08.  

So aside from prematurely pulling the rate cut trigger for purpose to restore confidence in equity markets, why does Mr. Bernanke fundamentally cut interest rates? What is his real underlying plan and hidden agenda? The answer is simple. To mitigate the growth and effects of the Commulism induced trade imbalance (staving off/mitigating recession being a beneficial byproduct), by driving the dollar lower against an artificially manipulated and grossly undervalued Yuan.  

These rate cut(s) are really then a very subtle, if not intentionally inconspicuous in this scenario anyway, “anti-Commulism” measure. Under the premise a lower dollar helps address the surging trade imbalance, an even lower one then is better. A further 100-150 basis point reduction (beyond the recent collective 225 basis point cuts) by the Fed over the next 12-18 months would therefore not be surprising. Of course that assumes the Yuan value is still essentially fixed (manipulated – not allowed to strengthen more than the current max of 5%) at its grossly undervalued level by the Chinese government rather than allowed to naturally and fully float against the dollar and WEAST currencies, as Treasury Secretary Paulson recently again demanded of the Chinese.  

So rather than marquis them as the media et al de-facto refers to as credit crisis medicine, instead call them what they are but heretofore not referred to, even by Mr. Bernanke, as being the “Bernanke China Cuts” – and not a bad thing when considering the real economic threat is Commulism, not sub-prime/recession. Sub-prime is a substantive and difficult short term corporate write-off, not a long term driving economic fundamental. It’s worth noting the next shoe(s) to drop in this same regard will be the commercial real estate and bond insurance markets. While painful in the short term, the collective (sub-prime/commercial) credit crisis or rather necessary “credit cleansing” process has a therapeutic healing effect in improving the longer term health aspect of the credit and other financial markets.  

A year, maybe two from now, the “sub-prime/commercial/bond insurers (i.e. collective credit) crisis” as many now refer to it, will be reflected upon as a very sharp and painful but innocuous blip in the overall scheme of U.S. stock market (event impact) history, whereas China will be that much further along in its plan, making (global) enduring financial and stock market (impact) history. 

And as respects the great Shakespearean-like debate as “to recession or not to recession”, it really becomes irrelevant in the scheme of the broader relevant theme and real overarching issue of this piece – thwarting long term global Commulism, not short term U.S. recessions.  

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