This Week in Barrons – 11-22-09:
Thoughts – Mr. Mark Twain
Mark Twain: “A man is never more truthful than when he acknowledges himself a liar." In these days, people on financial networks often influence our actions. For example: famed guru Jim Cramer declared several months ago that housing had bottomed. Since then foreclosures have hit more all time records, mortgage defaults have hit all time records, the median price has fallen, and there is no bottom in sight. Now did Cramer really believe housing had bottomed, or did he simply lie and push the Wall Street/banker agenda. Now really, Jim can read the numbers as easily as I do, and therefore his ‘truths’ have caused people to do something that will cost them dearly. Now, when does he come out and tell us that he ‘lied’ to us? Heck, for the first time in US History, the number of foreclosed homes exceeds the number of homes for sale. Overall, about 14% of all mortgage loans were delinquent or in the foreclosure process during the quarter. That is the highest level recorded since 1972, and is up from about 10% during the same period last year. Mark Twain: “Don't tell fish stories where the people know you; but particularly, don't tell them where they know the fish.”
Mark Twain: “It is better to keep your mouth closed and let people think you are a fool than to open it and remove all doubt.” Just this week Mr. Bernanke said: “It is inherently extraordinarily difficult to know whether an asset's price is in line with its fundamental value. It's not obvious to me in any case that there's any large misalignments currently in the U.S. financial system." Mr. Bernanke, what isn’t obvious about: 122 bank failures, joblessness – charge-offs – bankruptcies – and foreclosures at record highs, gold at 1140, oil back to 80, AIG never paying us back, Goldman is making hundreds of billions, and YOU not noticing any misalignment! When you compare the 1980’s to today the misalignments are striking: Stock market P/E multiples were 8X not 26X, Dividend yields were 6% not sub-2%, Monetary policy was aimed at reducing money growth and inflation rates not creating both, Deficits were peaking and coming down not surging to 10%+ relative to GDP, Deregulation back then was in vs today it is all about re-regulation and government ownership, Credit and household balance sheets were expanding not contracting, AND Tax rates on income, capital gains, and dividends were declining then vs rising now. Sony CEO Howard Stringer said the consumer electronics industry continues to languish and he warned the recovery "will be neither a V nor a W, but an L.” Mark Twain: “Now, suppose you were an idiot, and suppose you were a member of Congress – ah but I repeat myself.”
Mark Twain: “If you tell the truth, you don't have to remember anything.”
We are all witness to a generational event – where the United States will no longer be the economic engine of the world, and our standard of living will forcefully contract. I think everyone has become comfortable of China being a huge part of the global economy, but few will come to the conclusion that China will dominate global economics in the future. The interesting part to me on China is that China has never had to depend upon us for protection. And to that regard - we have absolutely NO power over them. China laughs out loud at our inept economic advisors, and when we threaten them over the value of their Yuan, they simply say "shut up, look what you're doing to your own dollar - jackass". China will continue to shift more of their attained dollars into gold, silver and resources, as we will use our dollars (printed out of thin air and then borrowed) to bail out bankers. And how this will end is that the Fed (for the next 1 or 2 years) will continue to push stimulus, and deficit spending. Once that is proven not to work - will cause rapid inflationary pressures, and we'll roll over into a deflationary depression. Just this Thursday, hundreds of protesters chanted, marched and took over a building on the UCLA campus, where University of California regents were scheduled to vote on a 32% student fee increase. 32% is that price inflation that we’re not supposed to have? Mark Twain: “It ain't what you don't know that gets you into trouble. It's what you know for sure that just ain't so.”
Please watch and applaud Ron Paul’s push to have the Fed more closely audited. The House Financial committee approved it this week. Now it should pass after Thanksgiving, let’s keep our fingers crossed.
The fight is on, and it's getting awfully nasty out there. Back in March, the market started on a tremendous bear market bounce, however many of the shell shocked fund managers were so afraid of losing any more money they didn't catch the wave. Now that the market has passed 10K, there's a war going on, a war between those that entered in March - made their 35% and are happy and cashing out, versus those fundies that came late - are up only 10 to 15% and are pressing the market for more. We opened last week at 10,318.61, and ended the week at 10,318.16. Now as this market has run up the pattern that we’re seeing is this: we had a run to 9370, a dip, and an open at 9119 to start the next run – a close at 9622, a dip lower and an open at 9276 to start the next run – a close at 9840, and a dip, then an open at 9434 to move higher – a close at 10,081, a dip and an open at 9844 to move us back up. Now we just recently put in a close at 10426, and a dip to 10318. What’s that mean – well if we move up from here it means that this is the shallowest dip of this whole run. So the pattern suggests that we could see a bit more downside before they turn us back higher again.
On the gold front, all hell has broken loose and it's not just supply and demand, it's starting to become much wider than that. Although the ultimate push higher will come when enough people look to it as being "money" instead of a commodity, or a storehouse of value, we are also seeing all manner of possible upside pressures coming into play. People are genuinely worried that the Governments don't have the gold they say they do. Fake bars have been found in inventory in Asia, and it’s becoming increasingly clear that there just isn't enough of the "real stuff" to satisfy demand. Now, I do expect gold to take it's lumps as people who are 'trading it" take their profits and move on, and the cartels do their best to beat it lower again. But there's no doubt in my mind the economic suicide they have us on will ultimately demand that more and more Governments move toward the metal, along with the hedge funds that are gold centric, and the push for more ETF shares. Just an interesting thought here folks, in the GLD prospectus, there's no guarantees about the fineness of the gold they supposedly hold, and no real oversight of the third party auditing of the gold.
Gold and Silver will go higher. The complication now becomes – what if you make 30% on your stocks – and the dollar continues to decrease by 30% per year?
Let me wrap this up today by wishing everyone a Happy Thanksgiving, and there's so much to be thankful for, that at least we have ONE day to catch our breath and say thanks.
We’re still holding our HL purchased @ 4.50
Let’s begin to watch GDXJ – the junior gold mining ETF – there will be something there.
Until next week – be safe.