RF's Financial News

RF's Financial News

Sunday, August 21, 2011

This Week in Barrons - 8-21-11

This Week in Barons –8–21-11:

The desire for gold is not for gold. It is for the means of freedom and benefit… Ralph Waldo Emerson:

The markets are going crazy – 2,000 points erased in two weeks with 400 and 500 point up and down days. You've heard about European banking nightmares, austerity plans, ten-year treasuries falling to 1940 levels. Only a few understand why this is all happening, but we all understand that it’s bad.

As I look around I find thousands of people telling me about the evil Federal reserve, silver manipulation, high frequency trading, and the out of control bankers. Well, where were all of these people 5 years, 5 months, heck even 5 weeks ago? When you hear about Italy, Spain and Greece in trouble, and when you hear about the FDIC having to take over it's 66th bank here in the States – do NOT for a moment think that these things are not connected. I believe that we are rushing headlong into a global monetary reset. We will see debts discharged, enormous chaos as banks close up, and the derivative market implode. I know that I sound like a conspiracy theorist – but on May 13, 2001, I wrote: “It is time to buy gold. In the next ten years you're going to see the beginning of the end of the fiat currency experiment, and it will end very badly. Only gold is going to see you through it all". I was a little late to the Silver party because I didn’t understand how a metal of enormous industrial value, in huge demand and short supply, never seemed to move up or down in price. By mid 2006, I started paying attention to the Commitment of Trader Reports, and the mine supply and inventory reports. When you put these together, you begin to understand the manipulation that is going on. I started buying silver at $9.50 and since then it’s gone to over $41 an ounce.

But what about JOBS you ask? We can talk about Bank of America cutting thousands – but if you thought that going ‘green’ was going to get you there – think again. Evergreen Solar Inc. (the once-promising company that took tens of millions of dollars in incentives from state government) is now bankrupt. The company is filing for Chapter 11, and plans to cut more jobs on top of the 800 it eliminated earlier this year. So yes – JOBS are still an issue!

So what now? This coming week is the Jackson Hole Kansas City Fed symposium, and there are 2 big reasons why this is so important. One, is that it was at one of these very same Jackson Hole meetings that The Ben Bernanke announced the QE1 stimulus program. The second reason is that the economy has been declining to the point where each and every market ear will be tuned in to what The Ben Bernanke has to say when he speaks on Friday. I believe that most of the market volatility lately has been Wall Street’s desire for more QE, and that if Wall Street doesn’t get more – then we will fall and fall hard.

Now The Ben Bernanke has tried to put on a brave face in front of deteriorating economic news. The NY Fed came out this week with a ‘light’ manufacturing report, and then the Philly Fed went from positive to negative 30. We haven't seen that number since October of ‘08. So why would The Ben Bernanke NOT announce any stimulus this week? Possibly because he knows Obama is putting together his own version of a stimulus plan (to encourage jobs) that he plans on revealing after Labor Day! But I tend to think that if The Ben Bernanke doesn’t talk about QE3, Wall Street will show him how ugly they can make things – so please be careful this week.

And as for Silver and Gold – yes – you knew it was coming! Something happened this week that might be the rocket booster for gold and silver. Venezuela demanded delivery of some 211 tons of gold held in vaults in the UK, and money held by JPM etc. Now this could be huge. One of the problems with the SLV and GLD exchange traded funds is that I don’t believe that they have the gold and silver that they say they do. And as more and more people take physical delivery – you can begin to see the squirming start. Why? Because like all bankers, they've leased, sold, rented, and leveraged all the deposits. That is to say: if everyone comes knocking and asking for their gold and silver – there’s not enough to go around. And if other countries (like Venezuela) decide to call in their holdings, we are going to witness a massive panic at the upper levels. Now Hugo Chavez also nationalized his gold and silver mines, and I think others will follow suit in Peru and Bolivia. Therefore we may finally see Silver make a major move because:
- We’ve got countries trying to take back their metals.
- Bart Chilton is sending e-mails out to all the people that have written him concerning the Silver manipulations.
- We have a global economy on the verge of falling off a cliff.
- We have Gold soaring.
- And we have all the people that missed Gold, looking to buy Silver.

Which brings up the SLV again. In the back of your mind just remember that you could get trapped in some form of melt down fund. The SLV is good for quick moves, but potentially (as James T writes): “What is held there is simply certificates for the metal – and (by the way) – you don’t have the right to audit the inventory. Now there is a Canadian mint ETF called “PSLV” that is absolutely backed by the physical metal (verifiable – 400+ page inventory list) – however it does trade at a 20% premium to the SLV.”

The Market:
I can easily make a case for the market to continue to fall, but let’s suppose that the "insiders" find out that Bernanke is going to release QE3 news on Friday. We could see the market gain every day this week in anticipation. So I can make a case that we continue to crash, or that we soar higher. Heck: two days ago Deutche Bank said they still think the S&P will end the year with a 30% gain. That's a pretty major prediction, considering we're down 10% on the year right now!

Remember, we called for a summer drop, and then sometime in late September a move upward towards year-end. Now we had no clue that a 2,000 point smack-down in 2 weeks was in the cards, and I can easily make the case that without stimulus we simply continue grinding lower. Now even if The Ben Bernanke drinks the kool-aid, and announces $800 Billion in additional stimulus – I don’t think that we’ll make all new market highs. But for this moment, the trend has been established and it's down. Unless The Ben Bernanke or Obama come up with more free money for Wall Street, I don't see this drop stopping until a minimum of DOW 10K, but more likely a move to 9,400. Right now our plan is to look for more downside - especially if Bernanke gets lockjaw on Friday. But if he doesn't, and gets generous, we should see a few hundred points to the upside quickly and potentially enough to get us back to flirting with 12,500 by year-end. Be careful, but if you can grab some silver – it’s my opinion that it's going considerably higher. All in all, this is the most dangerous market I've seen in my years of doing this.

Shout Outs:
Doug L writes: “The Department of Defense is floating ideas to cut military pensions. The old deal used to be: put in 20 years and retire with 50% of your base pay. Well, they say they can't afford it any more, and want to alter it. Now this isn’t someone in the post office, or the secretary pool. This is a person that virtually wrote a blank check to the Government for everything including his LIFE – all in the name of duty, honor, and patriotism. And now Uncle Sam wants to cut his/her benefits?”

Bob W writes: “Last week saw mutual fund outflows total $40.3B, and $17B the week before. That’s the largest 2-week move out of funds since October 2008. That $57 Billion is going to leave a mark.”

We stopped out of our short term holds last week for small gains in: SPY, FCX and BTU.

Gold is now around $1,850 per ounce, and Silver’s up over $41 per ounce. The miners (however) have gone the way of the indexes again – which makes them a buying opportunity to most.

John A writes: “This could be similar to the 1980 run. As the under valuation becomes even more extreme, the public and institutional investor will suddenly rush into the gold stocks. With gold up 20% and the gold stocks flat for the year, it’s going to take a realization by the public and hedge fund community that gold stocks are extremely cheap relative to gold. But like the gold rush in 1980, if you were not in BEFROE the move, it was very difficult to pay up for the stocks.”

If we get a dip in Gold and Silver, I do think that it’s buyable – but be careful with Friday and Obama coming – and be ready to be nimble.

The theme continues to be simple – take profits and buy more currency – where currency means more: gold, silver and energy.

Please be safe out there!

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