This Week in Barrons – 12-16-2012
Mayan Madness – It’s already here. On December 21the Mayan calendar screeches to a halt. Pacal Votan (the Mayan "Science Guy") did NOT predict the end of the world, but rather predicted an end to a cycle. The Mayans observed cycles in the stars, and calculated the grand cycle of the sun to be a 26,000 year journey. The Mayan ‘long count’ calendar cuts that cycle into 5,125 year segments, and it’s this current segment that will expire on Dec 21. What that means (according to Pacal) is that “the end of an age” will have passed. While that means the sun’s orbit around the constellations has finally concluded, Pacal also added that man (in this past cycle) would be very obsessed with material things, technological things, ruthless for possessions and forget nature and human dignity. This ‘new age’ (beginning December, 2012) would usher in an era where people would once again realize that the obsession with material things and ignoring nature would not be the way to happiness. So, is the world going to end – no. Will a major catastrophe happen – probably not. Well, some people say that a catastrophe has already happened. I am not going to address the events in Sandy Hook, CT this week. Words cannot describe – but my feelings, thoughts, and prayers certainly go out for any and all effected. And maybe that was the catastrophic event that Pacal spoke of – or maybe it was some of the following:
- An active shooter goes off in Portland, shooting up a mall.
- The North Koreans launch a successful long-range missile.
- In NY a man pushes another onto the subway tracks.
- Two kids shoot a woman and then post the video on Facebook.
- In Detroit, 34.5% of the people are on food stamps and 45.7% are no longer in the labor force.
- Syria fires scud missiles at insurgents.
- Teens ask a woman for a smoke, and then kill her when she replies ‘Get a job.’
- 13 year-old boys were busted for a knifepoint robbery of condoms, and candy at Walgreens.
- Two boys, aged 7 and 11, hold a woman at gunpoint, while demanding her car and cell phone.
Let's hope the Mayans are right and this age of death, destruction and selfish lust passes.
This week The Ben Bernanke announced that he would replace Operation Twist with an outright purchase of long bonds totaling $45 Billion a month – as we suggested last week. However, the interesting news in the release was that he would keep the stimulus in place until the unemployment rate went under 6.5% - basically forever. And that is why gold and silver are so important.
There are many ways to buy silver including: silver eagles, bullion bars, and ‘junk silver’. What is ‘junk silver’? ‘Junk Silver’ are coins (like quarters and dimes) that were minted prior to 1964 actually contained 90% silver. So (years ago) dealers started offering bags of ‘junk silver’ based on the face value of the coins in the bag. Usually they are sold in $1,000 bags or $500 ‘half bags’ worth of coins. If you believe that silver will go to $0 – then this may be the investment for you – as the coins will still be worth the currency value of the minting. So silver could fall to $0, but a roll of 40 quarters would still be worth $10. In 1965 a $1,000 bag of quarters and dimes, was worth about $1,000. But due to the debasing of the dollar and silver increasing in value, a bag now sells for over $25,000. So four 1964 quarters (or ten 1964 dimes) now cost $25. As The Ben Bernanke continues to destroy our currency, the precious metals don't really have much choice but to go higher. Therefore, this week’s release by the Fed was really quite large, and more aggressive than in the past. Understand that the Chinese (and others that hold a lot of dollar reserves) are not going to sit around and watch their value fall. They will be buying gold, oil, silver, lumber, land and more ‘stuff’. Moving out of dollars into something ‘solid’ simply makes a lot more sense than letting The Ben Bernanke print them into oblivion.
The Ben Bernanke is going to print money (QE4) until the unemployment rate falls below 6.5%. Currently his printing stands at $85 Billion a month, but when that is found lacking in market response, he'll make it $100 B, then onto $120 B, etc. Some will argue that as more and more people fall out of the labor force – the unemployment rate will come down fairly soon. Unfortunately, it’s my opinion that if we hit 6.5% unemployment because so many are not looking for work – then social unrest will be our first priority.
When the news first hit about QE4 the market didn't quite know what to make of it. But within 30 minutes they figured it was ‘good’ and we were up 65 DOW points. As The Ben Bernanke prints dollars and buys long dated paper from the broker dealer primary banks, the broker dealers make massive profits on that buying. Those profits will offset the losses that they’re holding on all of the mortgage backed securities and CDS’s that they previously purchased. Interestingly, after Ben’s Q&A session you could feel the market acting oddly. The Ben Bernanke was telling everyone that a lot of the problems are the fault of the politicians bickering and the fiscal cliff. He said that while the Fed is doing it's best, they can't do all the lifting alone, and Washington isn't helping. Now, I don’t think they are giving up on trying to end this year on a big bright note, and The Ben Bernanke certainly gave them the ammo to do it. Therefore, I'm still cautiously leaning long.
Remember when The Ben Bernanke was appointed, he was incredibly confident and almost pompous about his ability to solve any and all economic problems via monetary policy. Remember his famous talk: "We have this thing called a helicopter...." in reference to printing hundred dollar bills and raining them down across the land from a helicopter. He was so sure he could fix anything he often snickered at people that questioned him. But now (in 2012) he's not the same guy. His policies and the injected trillions have not solved anything. He realizes that for all his huffing and puffing, we're in a world of trouble, and he knows there is no way out. I really do believe that after Ben’s Q&A, it cemented (in a lot of people’s minds) that "Hey, we really are screwed here." In any event, the Fed is going to print, the games will continue and we're still going to see the market fade or pop over fiscal cliff talks.
On Friday China and Germany posted PMI's that were above the estimates. And as you know the market is very concerned about the fiscal cliff. Every whisper, rumor, and talking head moves the market up or down. There is no defense for it, and there is no way to be protected from it. You must either sit on your hands or take small positions and only hold them for a few days. Honestly, if the market was at DOW 8K, we could buy and hold any of this junk and look forward to the last push higher. But we're at DOW 13K, and close to the all time market high. That is no time to just load up, ignore the ups and downs and "know" you're going to be okay. Between the resistances of multi year highs, a lousy economy, a lousy Government, a fiscal cliff, and other problems – it will be a massive struggle to force this market over the top – so please trade carefully.
With the supposed resurgent strength of the Chinese economy, the material sector lit up nicely on Friday. I had considered putting out BTU as a buy on Twitter, but was afraid for the ‘pop and drop’ so I refrained.
We’re seeing that the Chinese lust and necessity for gold (and commodities in general) is increasing. David S wrote us that gold premiums in Hong Kong rose to their highest level in about five months. Also China is bypassing the U.S. dollar by signing direct currency deals with other countries such as: Brazil, UAE, Australia, Russia, and Turkey. Chinese companies are also going on a worldwide buying spree for commodities, most recently talking about buying more gold miners and copper projects in Africa. At some point, China has to eliminate its currency being ‘pegged’ to the U.S. dollar. To do that, their currency must be seen as a valuable, stable asset. That means that China needs to convert its foreign currency reserves into gold. Currently China holds only a tiny proportion of its official foreign exchange reserves in gold (just 1.6%). If China wants to increase its reserves to meet its emerging market peers and make its currency a true global currency, it must buy somewhere between 3,000 and 6,000 tons of gold. When China purchased between 1,000 and 2,000 tons of gold – the gold price doubled. And, if China were to increase by that amount – they would need to acquire the equivalent to the entire global gold output (approximately 3,000 tons / yr.) – further signaling potential price increases for the metals.
In looking for possible short-term plays, I came up with Petroleo Brasilerio S/A (PBR) on Friday. After falling from 24 back in October, it bottomed at the 18 level, and has started back up. While the chart picture isn't perfect, if it can continue to hold over the 19.50 level, there's a decent chance it's ready to make a move back up and even if it only retraced half the fall, it would be a good gainer. You might consider looking at it. Also, if this market holds up, I'd consider purchasing: Alpha Natural Resources (ANR) over 9.80, James River Coal Company (JRCC) over 3.80, Petroleo Brasilerio S/A (PBR) over 19.50, and Nokia (NOK) over 3.90.
My current short-term holds are:
- DIA – Call Options for Jan 132’s – in at 1.91
- DBA – in at 28.30 (currently 28.48) – stop at entry
- NFLX – in at 90.07 (currently 93.38) – stop at 92
- SPY – in at 141.97 (currently 142.15) – stop at 142
- VALE – in at 18.52 (currently 19.60) – stop at 19
- SIL – in at 24.51 (currently 23.21) – no stop yet
- GLD (ETF for Gold) – in at 158.28, (currently 164.10) – no stop ($1,695.80 per physical ounce), AND
- SLV (ETF for Silver) – in at 28.3 (currently 31.20) – no stop ($32.22 per physical ounce).
To follow me on Twitter and get my daily thoughts and trades – my handle is: taylorpamm.
Please be safe out there!
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