All – hope this finds you well ...
Someone asked me this week – has society’s insanity increased or is it simply because our ‘information reach’ is so much further, faster? Factually 70% of our information is gained ‘peripherally’ (i.e. things that we’re not directly concentrating). Due to the downturn: the world is consumed in ‘focus’ and ‘getting by’ and not in any type of ‘peripheral’ knowledge gathering. Hence it’s this ‘peripheral’ knowledge that is giving us the illusion of increasing in speed. Now – having said that – it’s actually ‘both’. Because it now takes ‘catastrophic’ news to even ‘dent’ our behavior. We are in a time of information overload – and with much of the information being ‘catastrophic’ in nature. Where this impacts you and I – is that it often prevents us from putting all of the pieces of the puzzle together.
As this economic recession deepens, we will all see that the banks actually run the country, and how those 15 Goldman Sachs alumni (placed in the highest areas of Government and economic policy) are going to influence virtually everything. For example: Goldman Sachs, carrying billions in garbage toxic slime, lent over $13 Billion to AIG (through the back door), SHORTED AIG stock – and then had the gall to produce $1.8 Billion in profits for the first quarter? Why didn’t CNBC (or any major news network) notice this? How can Tim Geithner ask for $2 Trillion more for a banking system that is recording "record" profits – because he knows that a ‘Depression’ is coming!
- Another wave of Adjustable Rate Mortgages are set to reset, and that will cripple another 600k familes.
- Last week, General Growth Properties filed the biggest real estate bankruptcy in history. This is Commercial Real Estate and as more retailers and businesses fold – commercial space will be left vacant – and the Real Estate holders can’t roll-over the debt because the banks won't lend to them. This will easily eclipse the private real estate disaster that we’re presently experiencing.
- In the good old days we had $680 billion dollars a year coming to "consumers" via home refinancing – well – we’re on track for 2009 to be $36 Billion = 5%.
- By relaxing the Mark to Market standards so more business can Mark to "Fantasy", companies will post earnings that let them look solvent for a while longer as they try and unload their toxic waste and pray against hope that they can roll over their existing debt with new financing.
- And no one is talking about the other hundreds of Trillions in Credit Default Swaps (CDS's) that were written against anything and everything. That time bomb is still ticking and the fuse gets shorter every day.
This week in the Market:
The market is still clawing out gains, although you can feel the toppiness. Will the market roll over and crash downward – or will it continue to confound to the upside? Look at near-term behavior: In 2007, despite horrible economic news, people piled into the market because they couldn’t stand missing the run-up. Then, like clockwork it pulled the rug and we crashed for 7K points. Then, back around the beginning of March, 2009, everyone was so tired of losing money they stopped participating in their 401K, closed their brokerage accounts, and some even went short. Once again, when the maximum amount of people had crossed-over, "boom" up we went in a tear only equaled once, and that was in the midst of the great depression.
We’ve run up hard – and by some accounts over 30% in just 6 weeks. About two weeks ago we started hearing the “sell” and “overbought” cries and this was just a bear market bounce and we'd be retesting the lows soon. Now the mindset has changed to more and more people are beginning to get the urge to "get back in" and make back their losses. This is a crucial time for the market, probably the most important time of the last 6 months. This coming week will bring us hundreds of earnings reports. If the market simply pauses and backfills a little, but holds it's uptrend, there will be a stampede to "get back in". We could rock higher for another 2K DOW points in a matter of just a few months.
You see, the FED knows that with $13.2 trillion in hand outs and pledges, if the market were to roll over and crash again, it would show that people have lost all faith, the programs weren't working, and they'd have no more ammunition left. So, it's to the FED’s best interest to have their "Plunge Patrol Team" directly buy equities under the blanket of "unusual methods" to keep this market moving higher. The FED has already given out: TARPS, Mark to market changes, Geithner’s PPIP plan, and $Billions to 9 banks so they can lower mortgage payments on defaulting homeowners. The FED can’t let that firepower slip away. On the other hand, the data still stinks. General Growth is bankrupt. Foreclosures are up 24%, and China’s growth rate came in below estimates.
My view is that the odds still favor a move higher. Granted we need a pause (a quick slapdown), but it’s my guess that any pause gets bought right up and we soar even higher. Remember when we talked about seeing people sell Treasury Bonds – well the Treasury Bond ETF (TLT) is now at 101 and soon to dip below 100 – as investors are selling bonds they’re investing in stocks and in gold!
Speaking of gold: As you all known the physical price of gold is set by the "paper" price of trading on the Comex. Well, gold has gone lower during this run-up however, more and more investors have been demanding delivery instead of cash settlement, and they don't appear to have the gold on hand to fill the deliveries.
It's my guess there will be a short squeeze in the next month that sends gold soaring again because frankly I don't believe the dealers have the gold that Comex declares they have. I think they've been borrowing to cover, and that cannot last forever.
Here are a couple trades for you to consider:
- FSYS over 15
- ORA and other ‘GeoThermal’ Companies
- UYG, XLF, UYM have made a 50% gain for us – and we may sell and buy in if there’s a pause
- FAS – we cashed in most of our 300% gain
- SLW – has backed off to 7.41 – over 100% gain – under 7 we’re gone – but of all the silver miner/aggregators – SLW is positioned the best
- GSI – a Chinese Steel Holding Company because the Chinese are desperately getting rid of ‘dollars’ buying up real resources, like copper, steel etc. GSI has the ability to make good on that.
Be safe – and until next week, be careful.