Fall of Saudi Arabia to End Dollar Reserve System?

here is a social media revolution in Saudi Arabia ... Ten million Saudis are online, 3 million belong to Facebook, and Twitter feeds are up more than 400 percent. Recently, many tweets and posts have been focused on the uprising in Tunisia. In fact, Saudi's social media activists spread videos and news updates at the peak of the street protests — and the interest has stayed high ever since. And, now, Saudi bloggers have added the unrest in Cairo to the topics receiving much attention. Will the Saudi government clamp down on this free-wheeling speech after Tunisia's social media movement helped to bring down a government? It's one of the big questions ahead for Saudi Arabia. How this authoritarian regime will live with the freedom and chaos that the Internet represents. ... The Internet poses a challenge for this conservative, mostly religious society. – National Public Radio

Dominant Social Theme: The Jasmine revolution spread unexpectedly.

Free-Market Analysis: The civil unrest in Egypt is growing fiercer. Electronic communications have been shut down throughout Egypt and massive demonstrations have been planned for today. A changing of the guard in Egypt would be a massive political shift indeed, but what if the disturbances don't stop there? What if they ultimately spread to Saudi Arabia and end up bringing down the dollar reserve system?

We suggest this possibility because we believe there are larger forces at work in the Middle East. Could it be that the power elite itself is inciting these disturbances? Is the idea, eventually, to crash the dollar and set up a global currency in its place?

The dollar reserve system is propped up by Saudi Arabia's willingness to restrict the purchase of oil to dollars, a system that has been in place since US President Richard Nixon abrogated what remained of the gold standard in 1971. But the PE is notoriously unsentimental. The Saudi elite has grown enormously wealthy from its relationship with the US and now, perhaps, for the good of a new world order, it is time for them to go. (more)

History Suggests Time Is Right to Buy Dow Stocks

Are you too late to the rally?

One of the fastest bull markets in history pushed the Dow Jones industrial average to a close near 12,000 last week, the highest point for the index of 30 blue chip stocks in two and a half years. The broader Standard and Poor's 500 index, the benchmark for most mutual funds, flirted with similar highs. An investor who bought an S&P 500 index fund at its March 2009 low has doubled his money since then, assuming dividends were reinvested.

But lost in the attention focused on Dow 12,000 is the fact that it has lagged every other U.S. market index over the past 12 months. Large companies have only recently started to take the lead. That suggests that the bull market could push ahead despite the Dow's 1.4 percent drop on Friday when concerns about political turmoil in Egypt and a couple of disappointing earnings reports gave investors reason to sell.

Markets tend to move in cycles. Riskier smaller companies often fall hardest during a recession and perform the best coming out of one. Larger companies, which often hold more of their value during downturns, tend to perform better after a recovery turns into an economic expansion. After the tech bubble popped, for instance, small companies performed better than the Dow index every year from 2003 to 2006. Dow stocks performed better from 2006 to the start of the financial crisis in 2008. (more)

Technically Precious with Merv

Riots on Thursday, gold moves lower. Riots on Friday, gold moves higher. Is there rhyme and
reason here? Thursday the students rioted. Friday the Muslim Brotherhood joined in the riots.
Yes, there was a difference. Now it’s a wait and see what the outcome will be to better guess
what next for gold.
GOLD
LONG TERM
For a very strict application of my point and figure criteria the long term P&F chart has now
broken on the down side for a bear market signal. However, we do still have a support at the
$1320 level so a move to the $1305 level would be required to break this final support.
Although the P&F criteria does give that bear signal I would be inclined to wait for the final
support break before pulling my hair out and going screaming, bear, bear. The price is close
enough so that it would only take another day or two to break the support, if it is so inclined.
We might as well wait for the break.
Going to our normal indicators we get somewhat of a similar message. Going towards the
bear but not quite there yet. Gold closed below its long term moving average line on Thursday
but bounced above the line on Friday. The moving average itself is still in an upward slope.
The long term momentum indicator remains in its positive zone but has been showing a
weakening trend for some time. It remains below its negative trigger line. The volume
indicator has been in a basic lateral path for some time now. Its trigger line has caught up with
the indicator and now the indicator is oscillating above and below the trigger line as the lateral
indicator trend continues. The trigger does remain slightly in a positive slope. With all that, the
long term rating has now started to decrease and is at a + NEUTRAL level, one step below the
bullish level.
INTERMEDIATE TERM
Well, if the long term is starting to diminish in its rating then the intermediate term should be
ahead of it. That is what we have. Gold closed below its intermediate term moving average
line and the line slope remains negative. The momentum indicator is still in its negative zone
although it has turned to the up side and is just below its neutral line. The indicator remains
below its negative sloping trigger line. As for the volume indicator, that remains just a hair
below its negative sloping trigger line. After four months of a topping process one can now say
that the topping has ended and we are in a downward trend. The intermediate term rating is
BEARISH. This is confirmed with the short term moving average line well below the
intermediate term line.
SHORT TERM
We were having a down week until Friday, when something excited gold. Now, it could be the
activities in the Middle East or it could be short covering by banks or institutions. Who Knows? (more)

Asia's Great Democratic Hope Has Lost $200 Billion In Just Three Weeks

Indian markets have been bleeding money ever since November's Diwali festivals -- ironically the time when Indian's welcome the goddess of wealth into their homes.

Markets are down $200 billion or 11 percent year-to-date and $240 billion since November 8, according to The Economic Times.

Foreign investors alone have pulled $849 million out of Indian markets so far this month.

Indian billionaire Mukesh Ambani's Reliance Industries took the biggest hit Friday, dropping 2.2%. HDFC Bank Ltd. which trades on the NYSE was the one of the few companies to stay in the green, gaining 0.30% on the Sensex.

To curb inflation the central bank announced another 0.25% rate hike on January 25, the seventh since March 2010.

Goldman Sachs' Jim O'Neill predicts the carnage will continue through the first quarter, with a slight uptick by year-end.

Multiple Indicators Point to a Correction

Friday could be one of those landmark days that mark the end of this recent rally, and it’s sad that it took the protests in Egypt to be the catalyst for a sell-off. If we follow through and all three of the major indexes fall below the middle keltner channel, it will be a major bearish sign, especially given the size of the candlestick on the daily Nasdaq chart. Unless you were quick enough to get short intraday on Friday, I think it’s prudent to wait for continued weakness to initial short positions.

If you want to go long here be very selective about your stock picking and only buy the strongest charts. A few that showed up on my scans that look the best and have been big earnings winner this week are COHR, TNAV, and HP.

Market video at the end of this post.

When you look at an extended view of the Nasdaq, Friday’s sell-off doesn’t appear to be that bad. We’re still above the 50ema and well above the 200ema, where long term investors traditionally bail. (more)

US Economic Calendar for the Week

Date	Time (ET)	Statistic	For	Actual	Briefing Forecast	Market Expects	Prior	Revised From
Jan 31	8:30 AM	Personal Income	Dec	-	0.8%	0.5%	0.3%	-
Jan 31	8:30 AM	Personal Spending	Dec	-	0.7%	0.6%	0.4%	-
Jan 31	8:30 AM	PCE Prices - Core	Dec	-	0.1%	0.1%	0.1%	-
Jan 31	9:45 AM	Chicago PMI	Jan	-	65.0	65.0	66.8	68.6
Feb 1	10:00 AM	Construction Spending	Dec	-	-0.5%	-0.5%	0.4%	-
Feb 1	10:00 AM	ISM Index	Jan	-	57.5	58.2	58.5	57.0
Feb 1	3:00 PM	Auto Sales	Feb	-	NA	NA	3.90M	-
Feb 1	3:00 PM	Truck Sales	Feb	-	NA	NA	5.56M	-
Feb 2	7:00 AM	MBA Mortgage Purchase Index	01/28	-	NA	NA	-12.9%	-
Feb 2	7:30 AM	Challenger Job Cuts	Jan	-	NA	NA	-29.0%	-
Feb 2	8:15 AM	ADP Employment Change	Jan	-	150K	150K	297K	-
Feb 2	10:30 AM	Crude Inventories	01/29	-	NA	NA	4.84M	-
Feb 3	8:30 AM	Productivity-Prel	Q4	-	2.0%	2.2%	2.3%	-
Feb 3	8:30 AM	Unit Labor Costs	Q4	-	0.0%	0.0%	-0.1%	-
Feb 3	8:30 AM	Initial Claims	01/29	-	410K	425K	454K	-
Feb 3	8:30 AM	Continuing Claims	01/29	-	3900K	3925K	3991K	-
Feb 3	10:00 AM	Factory Orders	Dec	-	-0.5%	-0.7%	0.7%	-
Feb 3	10:00 AM	ISM Services	Jan	-	57.5	57.0	57.1	-
Feb 4	8:30 AM	Nonfarm Payrolls	Jan	-	125K	150K	103k	-
Feb 4	8:30 AM	Nonfarm Private Payrolls	Jan	-	140K	163K	113k	-
Feb 4	8:30 AM	Unemployment Rate	Jan	-	9.6%	9.6%	9.4%	-
Feb 4	8:30 AM	Average Workweek	Jan	-	34.3	34.3	34.3	-
Feb 4	8:30 AM	Hourly Earnings	Jan	-	0.1%	0.2%	0.1%	-

Meet The Man Behind The Liquidating Hedge Fund That Blew Up The Gold Market

Over the past several weeks there had been rumors that the reason for the precipitous drop in gold was primarily driven by a hedge fund liquidating its futures positions. This has now been confirmed: "Yeah, that was just me liquidating my spread position," Mr. Daniel Shak, [of SHK Asset Management] 51 years old, said in an interview. "I had a significant, fully margined position. The dollar amount of the gold liquidation was very small, it was just a lot of contracts." Of course in the extremely jittery gold market, the kind of persistent marginal gross selling of contracts was all that was needed to spook weak hands into a consistent dump of the precious metal, which as we pointed out was beyond overdone. Judging by this morning's jump in the PM complex, SHK's liquidation is now not only over but about to promptly reverse as daytrading momos realize they were duped by one single guy. Look for gold to resume its upward advance as investors realize that the gold dump was nothing more than an ongoing futures position liquidation.

More from the WSJ:

A huge trade by a tiny hedge fund has sent shudders through the gold market.

Thanks to the nature of futures trading, Daniel Shak's $10 million hedge fund held gold contracts valued at more than $850 million, more than 10% of the main U.S. futures market, and the equivalent of South Africa's annual gold production.

But as gold prices started falling this year, the trade, which was a combination of being long and short gold contracts—bets that prices will both rise and fall—started going bad. Monday, he liquidated his position, and is returning money to clients.

As a result, the number of gold contracts on CME Group Inc.'s Comex division plunged more than 81,000, to about 500,000, the biggest single reduction ever. While his trade didn't account for all of the contracts, an average daily move is about 3,000 to 5,000 contracts.

That Mr. Shak and his firm, SHK Asset Management, could control one of the largest positions in the gold market underscores how leverage can enable investors to control huge positions in many commodity markets. (more)