Want to Lose Weight – Buy Stocks / Want to Make Money – Buy Gold!
OK, remember when we talked about (a) the run on the Italian banks, (b) The Ben Bernanke edging toward QE3, and (c ) inflation soaring; well – they’re all here with us!
Factually:
- Nearly 2/3 of small-business executives say they're not expecting to add to their payrolls in the next year and another 12% plan to cut jobs, according to a new Chamber of Commerce survey.
- CSCO just announced they were going to cut 10,000 jobs to "cut costs".
- Moody’s just downgraded Ireland’s debt - with outlook negative – because they believe that Ireland will need "further rounds of funding" once the current bailout dries up at the end of 2013.
- Novellus and AMAT both are cutting their 2011 chip equipment spending outlook, citing weak spending.
- Our Trade Im-Balance went from $-42.7B to $-50.2B!
- Deutsche Bank and its MortgageIT unit seek to dismiss a $1B lawsuit by the U.S. government. The suit accuses the bank of lying to qualify thousands of high-risk mortgages for FHA insurance, thereby making them "highly marketable" for resale.
- JP Morgan is to pay a $9M fine for Philadelphia City bid rigging for their city bonds.
- The CPI ‘core’ (a measure of inflation) came out with a gain of 0.3, which is purely inflation.
- The Empire State manufacturing report came out at -3.7, which continues the ‘negative’ trend line.
And then there’s the debt ceiling – that we’ve increased 80 times since WWII, but what would happen if we wouldn’t increase it? Stocks would fall because a huge number of publicly traded companies get their money via contracts with the Government – and depend upon Uncle Sam for their revenues. No revenues and stocks fall. But what would happen to interest rates? Common thinking says they would have to rise sharply and people would bail out of treasuries. Well, let’s think through that a bit. OK – if people can’t buy stocks due to no revenue; can’t flee to Europe because they're falling apart; some will buy gold and silver, so they will soar; some will buy Brazil, Hong Kong, China and India; but the absolute bulk of the money will "HAVE" to go back to Uncle Sam. There's nowhere else for it to go. And it’s my contention that with a stampede of people buying treasuries, rates would actually fall.
Bizarre? You bet. But more likely, it's all a head fake anyway. So what happens when they raise the debt ceiling - frankly not a lot? Sure we'll get the knee jerk reaction and stock will rejoice for a bit, and gold and silver will pull in a bit. The spending cuts they're jockeying for are all smoke and mirrors – we’re still broke. And afterward gold and silver will rise and The Ben Bernanke will announce QE3.
Now someone wrote in and asked me when I think that this will really ‘hit the fan?’ I said sometime in early 2013. Right now Obama is fighting for his life. His approval rating is in the toilet. (In a recent poll they put Obama against ‘a Republican’ (NO NAME) and the Republican won!) But to save face, since he can't create jobs and he can't fix the economy, he can push Wall Street and The Central bank to keep the market's elevated. That way he can point to your 401K and say "see, in 2008 the financial sector was blowing up, the DOW was at 6600 and look at it now! My policies saved your retirement and there's more to come.” With that in mind, they'll do all they can to keep this market looking like it's not in intensive care. They might not be able to pull it off, but they'll try. Now, what happens come January of 2013 when either Obama is sworn back in or we get a "new guy?" What's changed? We're still broke; we still can't afford our social programs; there's still no industry; and the "best job" is at Wal-Mart! So, it's my guess that it would be the perfect time for a massive pullback. I could see sometime in the Spring of 2013, the world would pull off a “Bretton Woods” type agreement where the whole world defaults and we emerge with a new currency, new reserve, etc.
The Market:
First off, I'm going to harp on Gold and silver. If you did NOT take advantage of the big silver dip, and if you didn't take advantage of the bear raid in gold, I feel bad for you. You might not see those prices again. Even if all you did was buy the GLD when it dipped down to 145, you'd be up 10 dollars a share now. I personally purchased more coins – and the silver raid was a pure gift and we took advantage of that too. Gold hit another high this week – and the miners are rejoicing!
It was interesting when Ron Paul asked The Ben Bernanke (in his remarks to Congress this week): "Mr. Bernanke, is gold money?" The Ben Bernanke said "No". Well of course – to him - Gold is the anti-money. It's like Kryptonite to superman, because you can't just "print" more gold. If I had 35 U.S. / Central Bank dollars in 1915 and one ounce of gold, in 2011 the $35 would be worth about 2.45 cents; and the one ounce of gold would buy me a finely tailored Italian suit – the decision is yours.
This market is moving now on the idea that The Ben Bernanke is setting the stage for QE3 sometime later in the year, and Wall Street is the FIRST PLACE that gets QE. I think that all we can do is to continue to trade stocks, take our profits and continue to buy gold and silver. On Friday we picked up five positions, and when the bell rang all five were green: BEXP, PCX, NBR, FCX and POT.
Right now the S&P has been rescued from below it’s 50 day moving average, and the DOW looks to be forming some kind of temporary bottom. So, I think they'll try and rally us up through some more earnings before they once again yank the rug and we fall back pretty sharply.
Until Bernanke announces QE3, I think the pressure will be to the downside. Yes they'll try and save the day with "new" rescue news about Greece or Ireland or Italy, but that's just daily manipulation to keep us from sinking. We can be sure that the closer we get to QE3, the higher materials and oil will go. If we lose say 131.20 on the SPY we'll go short for a while, but if we exceed 133.20 we'll go long. In the meantime, be careful okay?
Tips:
Our long term holds still look like: SLV, NG, AAU, DNN, AVL, SLW, SQM and USSIF.
What a week for the metals and the miners! Gold is approaching $1,600 per ounce and Silver is looking at the $39 level. The miners continue to do well for us – and DNN is beginning to recover nicely from the Japan fiasco.
But we’re still taking our profits and buying more gold, silver and energy.
Please be safe out there!
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