This
Week in Barrons – 9-1-2013
As the World Turns
We’ve seen some disturbing elements concerning gold come out of
India recently. Currently, India runs
the world’s third largest account deficit. They have been having a very hard time
defending their currency, and they've employed a lot of underhanded tricks
to try and halt its erosion. In a twisted flashback to what the U.S. did
back in the 30's (when our government confiscated everyone's gold), India
appears to be running straight down the same track. Since the middle
of last year, India has implemented 24 "gold un-friendly" actions in
order to have their citizens avoid buying gold, and instead use their own currency
(the Rupee) for transactions and savings. Each one of these 24 measures has failed
miserably, and the latest action in the Indian stock market shows that things
are indeed – broken – over there.
The people of India have cherished gold for thousands of years. From Temples to jewelry, Indians have always
known that "gold is king". They
learned during centuries of tumult that personal ownership of gold would afford
them some protection of their family wealth. Unfortunately India’s government has lost
control of their economy. And (just like
in the U.S.), when things get desperate – they look for money in every nook and
cranny. The Indian Government knows that their citizens want gold much
more than they want Rupee's, and they continue to try ways to push them away
from gold. They have:
- Increased gold import duties –
3 times,
- Asked the jeweler’s guild to
stop selling gold bars,
- Halted sales of gold coins,
- Increased taxes on gold, and
- Implemented trading stoppages.
One of the largest components of their large trade deficit is their
importation of gold to satisfy consumer demand. Therefore, the government is taking measures
to halt importing gold. The idea being that
if there is no gold coming into the country, there will be no gold to buy. Currently the government is also starting a
program where banks are trying to get customers to "sell" their gold –
to the banks – in exchange for currency. The government knows that they will have to
offer a premium for the gold, but that's okay – because they print the Rupees
anyway. If they have to print more of
them to pay the premium, so be it. I
think India is going to try and settle some of the gap in their trade deficit
account by amassing ‘extra’ gold from it’s citizens and selling it into the
market.
The problem is that the Indian people aren't going to change 2,500
years of culture overnight. I can’t see husbands
deciding that they would rather have slips of paper adorning their wives necks rather
than gold necklaces. But desperate
countries do desperate things. I think
that their next step will be to forcibly "take-back" a percentage of
the average citizen’s gold. The very
same thing the U.S. did to our citizens in 1933.
I bring this topic up for a couple reasons. One, to demonstrate that it isn’t just the
U.S. and Europe that are technically insolvent and desperate. There are many countries in this same
situation. Second, since I am a stout
believer in holding gold, this will cause a disturbance to the gold market when
it happens. When the government of India
grabs a large portion of gold from their citizens, and sells it back to the world
to satisfy it’s account deficit – this will indeed have a large impact on the
gold market.
I don't think that the price of gold will actually fall that far,
and I think that the June lows are the lows for many years to come. But, if the Indian government announces that
they are going to implement a form of confiscation with the determination to
sell it into the market, the price of gold will go down. But in what currency? Gold is priced in home currency – dollars –
rupees – euros – yen, etc. If India dumps tons of gold into the market, I
think that India and her neighbors will indeed see their currency reset on
value, but all across the globe others will scramble to get their hands on as
much gold as they can – so that they can "hide it", and thereby
support the global price. If I'm right and this plays out over the next
year, I could easily see a pretty hefty dip hit gold's price, only to see it
soar right back up and even considerably higher.
What we're seeing is another country in the death throws of a
failed (print-till-you-drop) economic policy. I dislike the idea of a global melt down and
reset, but I cannot ignore the fact that one is coming. We've seen Greece, Spain, Italy, Ireland, and
Portugal – all kick the can down the road. We've seen the U.S. up its debt ceiling a
dozen times. We've seen Japan come out
with a monetary ‘shock and awe’ program. And India will need to try their way as well.
Keep your eyes open for news out of India, and when you see it, prepare
yourself to "buy the dip". The
initial action will hit the global gold market, but it will not be the end of
gold's rise.
Oh – before I forget - I hope you all can forget about all this
craziness for a few days and enjoy your Labor Day holiday with family and
friends. Some good food, good drink and good company can do wonders
for the soul, if even for just a couple days.
The Market...
This week, the DOW was only off 200 points from beginning to end
of week. The Fed’s taper, tensions over
the Middle East, combined with some poor results coming from the emerging markets
– has the markets more eager to play "safe than sorry". The current market action resembles walking
on eggshells. One word out of a Fed head
about tapering, or one Kerry appearance on TV – and we’re down 100 DOW
points. There's simply too much going on
out there for anyone to feel that they can take a new position and not have it
tossed right back in their face. The
fact that we're ONLY down 200 this week is a true testament to how savage the
appetite for stocks still is out there. With
all of the ills facing the globe, we could easily fall another thousand points.
We still have crazy Ben Bernanke and his band of Merry Fed heads
to deal with on September 18th. If he
announces tapering (even if it's just "Taper Light" of $10B), I think
that this market will have a tough time continuing upward. And with President Obama asking Congress for
approval on his bombing plan – that should give the market time to put in a
bounce this week. It won't take us to
the old highs, you can’t marry it, but I do think it will be buyable for a
decent trade.
D.S. wrote us with some
information from legendary investor – Jim Rogers. Mr. Rogers is a commodity and gold guru and
owns a fair amount of oil and gold. He
told Reuters: "If there is going to
be a war, and it sounds like America's desperate to have a war, commodities and
gold are going to go much, much higher. Stocks
are going to go down, but commodities are going to go up. No matter how well the plans are made, strange
things happen in war, and who knows what unintended consequences will come. But, throughout history, whenever you had
war, things like food prices have gone up a lot, energy prices have gone up a
lot, along with copper and lead."
Mr. Rogers goes on to comment about emerging markets: “India, Indonesia, Turkey — all have huge balance of trade deficits – which they've been able to finance by printing artificial ‘free’ money. This artificial sea of liquidity is going to end, and when it ends, all of the people depending on this free money are going to suffer – and suffer badly. We haven’t seen much of anything yet. Normally, in bear markets, things go down 40 to 80 percent, and people give up. People throw their shares out of the window. We have not yet seen panic and terror, but we will when central banks finally pull back from their easing. This is the first time in recorded history that all major central banks have been flooding the market with artificially printed money – all at the same time. When this ends, it's going to be a huge mess."
Mr. Rogers goes on to comment about emerging markets: “India, Indonesia, Turkey — all have huge balance of trade deficits – which they've been able to finance by printing artificial ‘free’ money. This artificial sea of liquidity is going to end, and when it ends, all of the people depending on this free money are going to suffer – and suffer badly. We haven’t seen much of anything yet. Normally, in bear markets, things go down 40 to 80 percent, and people give up. People throw their shares out of the window. We have not yet seen panic and terror, but we will when central banks finally pull back from their easing. This is the first time in recorded history that all major central banks have been flooding the market with artificially printed money – all at the same time. When this ends, it's going to be a huge mess."
Tips:
I stopped out of FCX last week for a $2 gain. When looking at the charts – I’m thinking the
following look good for a trade:
-
SLCA
over 24.00,
-
UNXL
over 19.65,
-
FMC
over 67.50 is interesting, and
-
LL over
103.00 could pop nicely.
My
current short-term holds are:
-
FB – in at 25.61 (currently 41.32) - stop at 39.00,
-
SIL – in at 24.51 (currently 15.43) – no stop
-
GLD (ETF for Gold) – in at 158.28, (currently
134.71) – no stop ($1,396.10 per physical ounce), AND
-
SLV (ETF for Silver) – in at 28.3 (currently 22.67)
– no stop ($23.46 per physical ounce).
To
follow me on Twitter and get my daily thoughts and trades – my handle is:
taylorpamm.
Please
be safe out there! a
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