So it now makes more sense -- both the FED ( and investors worried about the safety of corporate bonds ) are buying US treasuries. Therefore interest rates are going down for two reasons. QED.

You've got a bond that pays X percent, and it becomes more valuable because the rates drop, and people can only freely get bonds that pay X - 1 percent, so yours is more valuable, because it pays out more than what the easilly had bonds pay. It's a case of people chasing the highest percentage bond they can find. As I understand it, that's why the bonds are worth less when the rates increase, because who wants to pay a bunch of money for an X percent bond when you can probably get the same thing cheaper in a month or two when rates go higher.

I think what is far more serious is the following:

1 ) US corporate bonds are in a ( perceived ) crisis

2 ) WJC is toast ( if John Crudele is right about the WhiteHouse drug use ) .

3 ) World-wide financial crisis with Russia down, South America on the way, and Germany teetering unless their taxpayers can cough up cash for investment losses in Russia. They will not be happy about this if they figure out what happened.

4 ) US and UK markets heading for a recession ( or worse ) .

I do not like this scenario one bit. Y2k may be a secondary problem to the above. And much later.

Now -- if everyone is flocking to buy US treasuries, that should make short term ( and long term ) interest rates go up -- right? But -- interest rates went down today. Did the FED just increase liquidity to handle the demand? If so, this sounds very bullish for the US dollar, even if it is long term bearish for the US markets.

The article concerns a bloodbath on the U.S. corporate bond market during Friday trading. To judge how important, here's a quote from a bond trader

This is the largest MARGIN CALL on fixed-income assets in history.

Note, the trader was talking about US corportate debt and the debt of pretty well every emerging economy government in the world. Right now, there is a panic flight into U.S. Treasuries.

Thus, increasing fear everywhere is channelling the world's hot money into the apex of the inverted pyramid of debt which underpins the world's financial system. That apex is U.S. Treasury debt.

The money always had to end up there before a situation could arise where it begins to flee paper altogether. Well, it's there.

The Privateer has all gold charts and commentary now updated at our website. On the Gold commentary page, we include a link to the Reuters story mentioned above and two others. They are all - IMCO - MUST reads.

Speaking in Murmansk on 21 August, Russian President Boris Yeltsin condemned U.S. air strikes in Afghanistan and Sudan, ITAR- TASS reported. My attitude is indeed negative as it would be to any act of terrorism, military interference, failure to solve a problem through talks. I am outraged and I denounce this. Yeltsin added that it was indecent that he was not informed in advance. Yeltsin's press spokesman, Sergei Yastrzhembskii, appeared to be less critical: he suggested that with regard to terrorism, Russia and the U.S. are in the same boat, and he reaffirmed that the September summit will take place as scheduled. Communist chief Gennadii Zyuganov said that the U.S. has in fact become a terrorist state. And Liberal Democratic Party of Russia leader Vladimir Zhirinovsky said that the U.S. action should lead Russia to change its foreign policy and cancel the summit. The Russian Foreign Ministry announced it will issue a formal statement later on 21 August.

http://www.rferl.org/newsline/fulltext.html

-c

You may be interested to know that I was easily able to get through to Fidelity, and sell about 50% of my long position in the market. Bought some FDPMX at the same time, guessing that a credit crunch might be just the thing to get the dollar moving down, and gold up. I may regret having any virtual money in the markets -- even precious metals -- but it is hard to believe that they can go down much more, short of an outright US equity market crash. And -- I don't believe that will happen -- bear market yes -- crash no -- this year anyway. A run on the US dollar, or a gold rally is much more likely first.

There is another problem with terrorism. It never works quite the way the terrorist wants it to. Innocent people get killed, and the target never really gets the message anyway. I must admit I still do not have a clue why Arab terrorists want to target the US. Not very effective to target the US to alter our foreign policy. Now - nuclear blackmail, or presidential blackmail, or well chosen political contributions -- that might work.

We still do have something working for us in this country -- for now anyway. We have so many freedoms and opportunities it is hard for terrorism to take root. A terrorist in the Middle East may link up with a group in the US, and find that his/her US connections are not behaving as planned. What is the point of terrorism if you can get what you want, anyway?

Our real problems with terrorism in the US will be when we get really paranoid about security, and start detaining everyone with the wrong clothing or appearance. And -- when the 'land of opportunity' ceases to be one. I have learned over the years that conspiracies are not necessary. Natural cycles in human behavior do quite well as it is.

By the way -- if this keeps up -- just imagine what might happen when everyone has a hangover after Labor Day.

Mexico's behavior today is a little too close for comfort. This is no longer 12 thousand miles away where only the Kitcoites and Jin worry.

If you think we have border problems now with Mexico, wait 12 months.

http://www.dsausa.org/rl/Dems/PCMembers.html

First -- no US market crash in the works for a while, anyway.

Secondly, in future market crashes elsewhere in the world, gold fire sales are less likely. Reason -- the gold has already been sold.

Now -- US dollars are a different matter. So far, however, US dollar fire sales have been neutralized by 'flight to safety'. But -- that cannot last much longer.

By the way, if you think our swan dive is bad, Agentina is down 6%, Mexican Bolsa -6.4%, Brazil -9.08%, and Chile down 2%. After today, we may still have wings -- triple witching hour and all. But -- I don't know how South America will look. Looks like the Russians have decided to pack it in, and even those last minute derivatives trades will not be honored.

I wonder -- perhaps one day G Soros is going to find himself in a locked market -- permanently locked. No good being on the winning side if no one pays up.

I doubt my Mexican puts will come anywhere near covering my longs. But it does lessen the pain. Only am about 15% long if I include all assets, but even that is painful. About equal parts gold, oil and retail. Still have some SP-500 puts, but they are really out of the money. SP-500 would have to go below 600.

Interestingly, the CRY0 is down today too. Deflationary pressures continue. If CRY0 goes below 200, then I will get really nervous. Time to check on the spot commodity indices. Wonder what D.A. has to say. Bet he has his hands full.

Vix is up over 35. This gives PPT lots of ammo.

In other words please rally so I can get short again.

To see chart select dow at http://www.mrci.com/correl/

Got Gold!

Notice what Mexico is doing -- the swan dive off the cliff? I'm afraid to look at Venezuela.

All that aside, I think most of the public -- like in any nation -- does not really get upset with the things are with our leaders -- as long there is plenty. Plenty of jobs, plenty of food, etc. WJC knows that if the economy folds, he will be under alot of pressure.

Part of all this is human nature -- most Americans I know need two jobs to keep the lifestyle they are accustomed to. Even some of the female persuasion have two jobs, not just the males. What does this say? That the average hardworking American has been hoodwinked into thinking things are good right now, and that two jobs are the only way of life. Things are no where near as good as they were in the 60's when American standards of living were higher, and our moral code was followed more closely. Americans still worked hard then -- but our money went alot further -- and we weren't sucked into the debt addiction bit.

It is the old business of 'cooking the frog'. If you cook it slowly enough, the frog does not know until it is too late. But -- it you drop the frog into the boiling water, it hops out. Humans are the same way -- accepting our slowly changing lot, because we don't realize what is being done to us ( or done to us by ourselves ) .

So -- the Fatima prophesies are coming true -- Russia is to be a serious threat to the peace of the World -- a different potential Russian/Chinese 'New World Order' as you put it. So -- my premise is that there is no intentional communist conspiracy in Russia to deceive the rest of the world. The Communist government did indeed fall apart -- their military is indeed in disarray -- and were incapable of responding in the usual brutal fashion to the Chechnia situation.

But -- the insidious climate that created Communism and its near total lack of regard for the freedoms of the individual -- is still there. That is where the 'conspiracy' actually resides. Not a true conspiracy, but it would very well have the same outcome. The lines are being drawn again for the next major military confrontation in the world, and I don't like it one bit.

Unfortunately, our current foreign policy has been encouraging the rebirth or strengthening of the Communist systems. Hardly the thing to do if the 'New World Order' masterminds are really in control.