“All the Gold which is under or upon the earth is not enough to give in exchange for virtue!” … Plato
Dangerous Times Ahead:
- This will be somewhat of an abbreviated letter – due to (a) the holiday weekend, and (b) the fact that I’m at the Telluride Film Festival (TFF) – with my older son – enjoying the venue and ‘some’ of the film offerings. A few thoughts about TFF from a pure outsider:
1. Standing in line for 90+ min. to get into a movie – only to have the movie ‘not’ start on time – is soooo ‘yesterdays weather!’
2. The experience gets worse when you stand in line for 90+ min. and NOT get into the movie!
3. Then getting chastised by the venue chair-person BECAUSE of standing in line 90 min. for the movie and THEM not being prepared for 90 min. wait times.
4. Then someone asking the question: “Well how would you do it differently?”
5. That’s easy: Apply the APPLE model to it – from handling lines / to ‘genius’ bar / to subscription models / to downloads / to payments / to even VIEWING the movie.
6. But it’s clear that I don’t know or understand film – so we’ll leave it at that!
- This weekend I also noticed that drivers were hitting things and just continuing on – basically a hit-something-n-run. I did a little digging and noticed that hit-n-run incidents are on the increase. Lawmakers think that with the economy in the toilet, drivers are being forced to make a decision - pay the rent, or pay car insurance. Many drivers are giving up the insurance, and therefore are forced to make a choice when they hit something. They either will ‘run like heck’ and hope they get away with it, or do the right thing and pay the consequences for causing the hit. But pay up with what? They have no money, no job, and their home is worth less every day. Moreover, the incidence of robbery, snatch-n-grabs, along with home invasions are escalating by leaps and bounds. When people have ‘nothing to lose’ they are often more willing to ‘lose it!’
- Jobs – Jobs – Jobs. Well, on Friday morning the Non-Farm Payroll report told us that we had ‘0’ job growth in the month of August. They also went back and revised the last two months of data lower by 58,000 jobs. The ‘0’ growth figure included 87,000 birth/death model jobs – so in reality we lost jobs. The unemployment rate remained the same – which simply tells us that more and more people are giving-up looking for work. The U6 / underemployment rate remained over 16%. As we speak – I'm waiting for the government to revise it’s previous GDP numbers showing up that this has been a 3-year recession (the single longest recession in US history). Sure they juiced the numbers so Obama could make it look like we improved, but inject $13 Trillion into any economy and you should see some growth. But you see that it’s not sustainable, simply a desperate measure that continues to kick the can down the road.
- More Stimulus – but we have no money! Once an economy is addicted to stimulus, it cannot stop or the economy crashes. And now we’re stuck in a loop where we need ever-bigger jolts of stimulus to give ever-lesser economic response. We are the classic junkie – who needs bigger doses of junk to get less and less results. And the problem is compounded by the fact that we have no money. This week the Chicago Fed Governor came out in favor of "more accommodation". There's going to be more stimulus coming, and it's going to boost the stock market when it hits.
Well, the market puked on Friday over the jobs report. But it's not just the jobs report. Include what’s happening in Europe – because that is tantamount to the end of a massive global experiment. The Euro is on borrowed time, the PIIGS (Portugal, Italy, Ireland, Greece, and Spain) are broken, and Germany is tired of shouldering the load. Over the next two weeks, Germany is going to have their Constitutional vote concerning giving the ECB the right to lay off those bonds, and this is going to be very interesting. The German people are tired and angry, and really don’t want this whole Euro thing any longer. Greece and Italy are on life support, and need to be allowed to fail. But when they do (despite the ECB actions) it's going to hit a lot more people around the world than most expect. Because of derivatives, our banks have more than $160 Billion worth of exposure to the area, and therefore that ripple effect comes home to roost fairly quickly.
So this month is going to be very special to watch. Between the Obama jobs speech on Thursday, the German Constitutional vote, and the two-day FOMC meeting – just about anything could happen. There could easily be 400 points swings in the market. For instance, on Thursday when Obama makes his presentation, the very next day is the German vote. If things don't go the way the bankers want, I could envision us being clobbered for 400 points.
It's certainly not a time to get brave. I think we get a huge gob of new stimulus announced at the Sept 20th FOMC meeting, and that should ignite a rally of some form. Until then, we need to be cautious. With the shortened week, and the upcoming speech and vote – I think that it's going to get "lumpy" here.
If everyone didn’t get ‘shaken out’ of gold – and in fact piled into gold when we suggested (around $1,751 per ounce) – you should sitting pretty right now, with gold just slightly shy of another all time high. With most Europeans afraid of the banks going under, the buying of gold and silver has been relentless, and there's no reason for that to end.
For the coming week, it's all about what comes out of Europe Sunday and Monday. If nothing blows up, we should get a small bounce higher. But if something ugly does hit, we will be visiting the lows again soon.
As far as stocks go, we had a tremendous week. Looking for a good swing trade, we bought 8 positions early in the week and watched them soar. We then sold out of half positions on Thursday, locking in those gains, and taking the rest off the table early Friday. We got $3/share on RIMM, $13/share on CLF, $6/share on DECK, etc. We did however lose 25 cents per share on CSC, as it gapped down on us Friday.
We’re still holding our GDX (basket of miners) along with individual miners – and we’re being rewarded as the market finally realizes that with gold at virtually all-time highs – the miners are going to show some huge profits during the next earnings season.
Gold is now closing in on $1,900 per ounce, silver is close to $42, and the miners are waking up – we like where we are.
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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