Sunday, June 3, 2012
This Week in Barrons - 6-3-2012
This Week in Barrons – 6-3-2012 To QE or not To QE - That is the question? Any economic activity for the past few years has been based on the $Trillions that The Ben Bernanke put into the system when his banking fraternity collapsed. It was the bailouts, the "cash for clunkers" and the myriad of other programs that were initiated – along with the desire to get interest rates to zero – that stimulated economic activity. Go back YEARS in our writings and you'll see us talking about the stimulus being exactly the same as a drug to a junkie. The first shot gets them high. Then it takes two, then four, and then 10, and they are still not as high as they were on his very first dose. Monetary stimulus works in exactly the same fashion – you constantly need more, or the economy retreats. So, we started with QE1 (QE stands for Quantitative Easing and it was designed to bring down interest rates), but the effects of QE1 wore off, and then came QE2. Then the effects of QE2 wore off, and then came “Operation Twist” which is due to expire in June. And the debate begins: - Some say: "No Way" is The Ben Bernanke going to let loose with more stimulus – he is going to sit back and let the "great recovery" take hold. More stimulus could be seen as a political nightmare – being this close to a major election. - And some say: – “Are you nuts? Without Fed stimulus, this economy crumbles in on itself and crashes." I’m in the camp that says that he's going to pull a rabbit out of his printing press and initiate another QE program! As for the political comments: Do you think Obama (who has trampled everything in his path to do what he wants to do) really gives a flying tomato if it looks "funky" that the Fed moved just 6 months ahead of his election? This is the guy that rammed Obama-Care down our throats. A piece of legislation that over 90% of business owners don’t want, and over 75% of the people hate. His voting base could care less about what the politics look like. As long as their 401k’s are moving up, and he can take credit for saving the economy, he'll hold a gun to The Ben Bernanke's head and order him to do more QE. And it seems that this opinion has been gaining some momentum over the past week: “The probability of more Fed stimulus when Operation Twist ends in June has gone up to 80% from 50%,” says Morgan Stanley's David Greenlaw. “Winter month optimism has faded away, and The Fed is likely to do what it can to provide some support." The numbers tell us that our economy is NOT in a soft patch. This is NOT a bump in the road. The economy is doing exactly what it is supposed to do when the effects of stimulus wear off – it’s fading fast. This past week: - the jobs and the layoff numbers were horrid, - housing prices fell 2% in the 20 city Case Schiller index, - manufacturing activity dropped, - and first quarter GDP was below 2%! Speaking of jobs – on Friday we were looking for 155,000 jobs created in the month of May – and we only got 69,000! But even that number included 204,000 ‘birth/death’ jobs (that do not exist); therefore, we really LOST over 140,000 jobs during the month of May! Now, if you add it all up: - jobs are non-existent, - layoffs are growing, - housing is still falling, - manufacturing is slowing, - interest rates are at 200 year lows, - wages are not keeping up with inflation, - 47 million people are on food stamps, - 40% of our youth are unemployed, - Europe is swirling the toilet, - And China is in a slowdown and will get worse. If the Fed does nothing, then unemployment will spike back up to 9%, Obama's chances of winning the election go down another 30%, and Romney fires The Ben Bernanke when he wins! The Ben Bernanke was hired because he knew what to do in a depression. Well – it’s not working and he’s panicking! Therefore, I think a stimulus package is coming, and the reason that it hasn't been announced is because of Europe. Things are so ugly there, that at any minute Greece could leave the EU, and Spain could declare a bank holiday (as Spain is actually worse than Greece.) The situation is even more complicated if we get involved in Syria or Iran. So The Ben Bernanke can’t afford to use all of his ammunition, and then when something massive happens – have nothing to rush in with. But as we said before, this market is going sideways and down until they hear the words “more stimulus.” But we are not in a fight for our economy; our economy is a result of our politicians. Remember the article Charley Reese wrote back in 1985? “One hundred senators, 435 congressmen, one president and nine Supreme Court justices - 545 human beings out of the 235 million - are directly, legally, morally and individually responsible for the domestic problems that plague this country. I can't think of a single domestic problem, from an unfair tax code to defense over-runs that is not traceable directly to those 545 people. When you fully grasp the plain truth that 545 people exercise the power of the federal government, then it must follow that what exists is what they want to exist. If the tax code is unfair, it's because they want it unfair. If the budget is in the red, it's because they want it in the red. If the Marines are in Lebanon, it's because they want them in Lebanon...” Wicked things are going on all around us and unfortunately I don't think we can escape without some awfully tough times. I hope I'm wrong, but I keep buying silver and gold! The Market: Well since last week: - we have lost over 1,000 DOW points, - we have crashed through the 200-day moving average, - and we have seen the entire Month of May only produce 4 up days. I also think that between the jobs report and the massive dump that the market took on Friday, Obama's advisors are probably screaming at The Ben Bernanke to do something and do it soon. But did you see that gold was up $50+ on Friday? That's because when the world saw our jobs report, they knew that we were one step closer to hearing from The Ben Bernanke. Europe is already dead, and the destruction of the PIIGS nations is accelerating faster than monetary policy can offset it. Only one person has the amount of money necessary to fight this, and it’s The Ben Bernanke. Remember, he lent Europe $16 TRILLION under the table back in 2008! You can make the case that we are heading into something that is many times worse than what we saw in 2008 - 2009. Back then – China was still soaring, Europe was supposedly safe from the U.S. Banks, and back then we had NOT spent $25 Trillion (that we didn’t have) to fight off a depression! Now we are facing it with all those ills very much intact. Many have asked me (over the past 3 months) if I was still a gold and silver bull. I always answer with a question: “If indeed the entire world is going into a recession/depression, if the US dollar's role is reduced as a reserve currency, if the Euro fails, if war breaks out in Iran/Syria – what would you rather have – a pocket full of gold, dollars, euros, yen, or Yuan? I will take the gold and silver. We are facing a deflationary time economically, and an inflationary time monetarily. Those combined are strange bedfellows. As people deleverage (and cannot find the kind of employment that supports a 3 or 4 percent growth in GDP) we will slowly slide sideways and down. But I think we get a stimulus bill out of the Feds, and I think it lights up the market for Obama's campaign. If that's correct, then “Watch Out Below” in 2013, because then I'm fairly convinced we'll be revisiting the lows set in 2008/09. Now, if there is no rescue from the Fed, then we will continue to slide sideways and down from here. Clearly going short makes the most sense; however, any day there could be a new plan, or a new Europe and instantly we would be up 400 points. Going long is no picnic either – as each day where there is no announcement of new, free money is another day we head south. Tips: Our mining stocks are doing well, as we got into the miners and the juniors a couple weeks ago. The GDX we got at 41.72 is over 46 now. Some are asking if it's too late to get into the miners from here – maybe. Remember, the gold miners really have it made – as they dig the stuff that everyone wants. But in really bad times, they are often looked at as "stocks first" and thus sold off – versus a good way to play the increasing price of gold! My opinion is that it is not too late and they have more room to run. It was just February when the GDX was at 58. Currently I’m holding: - GDXJ at 19.50 (currently 20.74) – stop at entry - GDX at 41.72 (currently 46.62) – stop at entry - EXK at 7.96 (currently 9.42) – stop at entry - SYNC at 10.88 (currently 11.82) – stop at entry - GLD (ETF for Gold) – in at 158.28, (currently 157.95) – no stop, AND - SLV (ETF for Silver) – in at 28.3 (currently 27.81) – no stop. To follow me on Twitter and get my daily thoughts and trades – my handle is: taylorpamm. Please be safe out there! Disclaimer: Expressed thoughts proffered within the BARRONS REPORT, a Private and free weekly economic newsletter, are those of noted entrepreneur, professor and author, RF Culbertson, contributing sources and those he interviews. You can learn more and get your free subscription by visiting:
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