RF's Financial News

RF's Financial News

Sunday, August 7, 2011

This Week in Barrons - 8-7-11

This Week in Barons –8–7-11:

Mad Ben – Beyond Thunder-Doom!

In a world that’s based upon energy, food, and ‘shiny stuff’ – we’re beginning to re-create an old classic movie that is filled with ‘Firsts’!
- The Fed is supposed to regulate monetary policy and ensure low inflation and full employment. Never before has it been told to "manipulate the stock market.”
- Never before has any single country run up liabilities of $100+ trillion.
- Never before has a deficit been so large, or our trade accounts so skewed.
- Never before has our dollar been so purposefully devalued.
- Never before have our politicians come up with the idea of a "Super Senate" made up of just 12 people that will have more power than the entire congress, and be Dictators.
- Never before has the U.S. debt been downgraded from AAA to AA+!

What does the downgrade mean? In a "normal" time, it would mean interest rates would have to rise. In a “normal” time it would mean massive problems all around the globe as fund managers, and pension managers that have a directive to only hold AAA rated securities need to decide if they have to sell US treasuries since they are now only AA+. The new normal is: “Mad Ben - Beyond Thunder-Doom!”

We just came through a historic "mini crash". In ten days we peeled off 1,300 DOW points, and capped it with a 500 point down day. Then on Friday we saw some of the most volatile trading I've seen since 9/11. The market was up 170 points early on, then dropped all the way to -160 then rallied back, fell down again and finally finished out the day with a 60 point gain. But all this is still just the warm up pitcher for the "big First" that all of you are going to live through over the next 4 years – a Global Depression. Like I said in last weeks letter, no single item is the doomsday pill. It's not the credit rating downgrade, the debt ceiling, the unrealized liabilities, the jobs market, the housing market, the exporting of jobs, the make believe political correctness, our schools being more worried about diversity training than mathematics, or that people are more knowledgeable about “Jersey Shore” and football than how our government and economic policy works. It's not the manipulation of every market. It's all of this combined together.

We're watching a slow moving train wreck. The question to ask yourselves is: Is it really possible that all the ills we face are the accumulation of thousands of good intentions gone wrong? Or are we in the final stages of what was planned and carried out by the real money people behind the scenes that actually run our country? Just understand that history shows that when bankers run the governments – you get what they give you. Each time it's a default. Never fails.

Consider this for a moment:
- We have 12 people in congress that have more power than anyone!
- Our President wants to raise taxes on an already crippled economy
- Our food stamp program touches 45.6 million people.
- Over 2.2 million additional foreclosed homes wait to come to market.
- Our "high paying " jobs are over $15/hour.
- $1 out of every $5 dollars in income is on the back of a social program. (FYI in PA we just passed a law where people on welfare will get free cell phones and 250 free minutes. In Florida, Comcast has to give low-income people $9.95 Internet, and computers under $150.

So, what will The Ben Bernanke do? He will print more money! Now, do we have a ‘Black Monday’ for 400 points right out of the gate? Does The Ben Bernanke talk about QE3 on Tuesday – and if he doesn’t, will the market peel off another 1,000 points in a week? Could the whole AAA down grade be a ‘non-event’ and continue Friday’s late-day bounce, in anticipation of a more liberal Fed? But just remember, whatever comes out of the next few days, it’s all just band aids. My guess is: the White house needs a strong market. Wall Street demands more QE. John Q. Public wants his 401K. Therefore, I think we get very strong language out of the FOMC meeting this week suggesting that they see the need for a new program of stimulus, and it should be here soon. That will calm the markets, and probably induce a move back up. And if those words are not forthcoming, then the market will continue downward.

If I'm right, and we're in the end game for economic expansion, and heading towards recession / depression, you need to think gold and silver for investments. I can see holding some Hong Kong dollars. I can see a position in Swiss dollars. But if all goes to hell in a hand basket, is it really possible gold will have no value either? History says no! I truly expect the new global reserve currency to be backed by gold. For 6,000 years gold and silver have been money. Our Constitution says it's the ONLY money. So, I continue to buy it.

The Market:
Factually the jobs report came out this week and it stunk – but not nearly as bad as it should have. It said that we created 117,0000 new jobs – and yes that number is about as real as me selling you land in Florida – but we still need 200,000 new jobs to be expanding. So talks of ‘double dip’ are on everyone’s lips.

Monday will certainly be an interesting day. I can make the case for another crash. I can make the case for an up day. I'm not nearly connected enough to know what Goldman and the white shoe boys are going to do. Tuesday brings us the Fed meeting and I think all eyes will be on them. If we do not hear The Ben Bernanke say that he is going to / or hint that he is going to begin the printing presses again – ‘look out below!’ Everyone knows that the unemployment rate fell because the labor pool shrunk. The Household survey said that we lost 38k jobs, which is nowhere near the requirements for a ‘recovery.’ Without The Ben Bernanke and the Fed coming up with at least 2 trillion in easing/stimulus, there is simply nothing to keep the market up.

So, hopefully you're all mostly in "cash", and considering a move to gold/silver. I know that gold is $1,600+ per ounce. I know the TV wizards say that it's a bubble. They told me that at $500 too. But last year we said gold would see $1,800 this year, and we’re almost there! From there I'd expect a top at about $2,600 over the next year.

Now – because many of you must be tired of me talking about ‘gold and silver’, here’s a potential hedging strategy: The US Post Office sells what is called the "Forever" stamp. This is the current single letter stamp that can be used forever to mail an item, with no currency denomination on it. It is currently 44 cents, and the next jump will be 50 cents in the next couple years (most people’s opinion). So, why not take on a position in postage stamps? They’re real – I just don’t know how many you can buy!

This week gold and silver could take a bit more "hit". If this market falls any more, margin calls will go out again. If you're a fund manager and you have no spare cash to meet the margin calls, you have to sell something. Some fund managers will sell more stocks, but some will sell the huge gains in their gold portfolios to generate the cash they need. If we get a dip, I’ll be buying it. Good luck! This week has the ability to be one of the most dramatic of the last two years.

Gold is now over $1,650 per ounce – with Silver’s dropped back to just over $38 per ounce. The market continues to punish the miners as it does everyone else – so if you have the chance to get into the ‘physical’ metal – or the ETF (Gold = GLD, Silver = SLV) please do. There is a buying opportunity coming for the miners, and just follow me on twitter for that notification.

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

Please be safe out there!

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1 comment:

  1. The obvious solution to the entire melt down is lowering the price of oil to stimulate the economy. Oil today quietly went to 80 a barrel today. At 55 -70 range the world economy comes roaring back. What do you think?