Want to Impress the Teacher – Bring an Apple to Class!
Did you see Apple's earnings? They were truly incredible. Do you know why? Well the first thing that comes to mind is that they sold a lot of iPhones and iPads. Yes, that’s what made the earnings, but that’s just the end result of something tremendous. Years ago GM, Ford, DuPont, GE were no different from Apple. In fact, years ago, many companies in America were just like Apple. They invented and created great products and people devoted themselves to buying them. But then Uncle Sam stepped into the car industry, the chemical industry, and into virtually every area of manufacturing and effectively screwed it up. Has anyone voiced the opinion that the reason the U.S. is still a leader in ‘technology’ is because the U.S. government doesn’t micro-manage it. Technology is like America was 100 years ago. 100 Years ago, two people could start baking pies in their kitchen, sell them around town and eventually become Swanson frozen foods. Today that would be illegal. But in technology, two people can build a gadget in their garage and sell it over the Internet and become a Dell or an Apple. Technology is really the last bastion of freethinking, ambition and drive that people have left. Why is it that none of Uncle Sam’s ventures can create $20B in profits in a quarter? Amtrak – nope – it’s broke! The Post Office – nope – it’s broke! Medicare, Medicaid, Pension Funds, FDIC – nope – all broke! ONE of the things that made America great was that anyone with a dream could cobble something together in their home, test market it around town, and if things went well, would become a success. Now the U.S. shuts down your child’s lemonade stand because you have no permit, and it's got to be made in an approved kitchen. Uncle Sam kills everything it touches. For the most part, technology is still "free" to dream, and create, and we do that well. The minute Uncle Sam gets involved, that industry too will become subpar!
On a different note – David S writes: If you're still bearish on long-term silver prices, you'd better reconsider your stance. Dollar-denominated Chinese silver futures started trading on the Hong Kong Mercantile Exchange on Friday. This development will grant Asian investors direct access to the metal, and will blunt the U.S. dominance in silver-bullion trading. It's also highly bullish for long-term silver prices.
On a political note: I listen to both sides of the debt ceiling debate and I shake my head. Not because of the wrangling and bickering, but rather because most people really think that these groups are interested in healing America. All they are interested in is their own pet projects and dreams. Steve Forbes writes: Given where negotiations are today on the budget/deficit, the country will actually show slowing GDP, increasing unemployment combined with reduced benefits. The U.S. could easily slip into a deep recession and possibly, depression. Values will be challenged. This will be no ordinary rebound.
Factually:
- A judge yesterday dismissed a lawsuit of over $1B against Goldman Sachs from Australia's Basis Yield for fraudulently selling securities to it, in a 2007 CDO. The judge made her decision based on a Supreme Court ruling that U.S. securities-fraud laws apply only to transactions in the U.S! WHAT – it’s only ‘fraud’ if the transaction occurs within the U.S?
- A panel of judges rejected a new SEC rule that would give investors more power to oust corporate directors. The court said the SEC acted "arbitrarily and capriciously" because it failed to adequately analyze its economic costs and benefits!
- On 7/19 over 50,000 contracts of silver were "traded" in about 4 minutes. Now one contract is 5,000 ounces of silver. So you’re telling me that someone dumped 250M ounces of silver ($10B) in a minute. That is about one/third of ALL the silver mined in an entire year on this planet!
Finally – an audit of the Fed's emergency lending programs by the Government Accountability Office, ordered by the financial reform law passed last year and released Thursday, revealed: "that the Federal Reserve provided more than $16 trillion in total financial assistance to some of the largest financial institutions and corporations in the United States and throughout the world." In a statement: “This is a clear case of socialism for the rich and rugged, you're-on-your-own individualism for everyone else." Our Federal Reserve, with no Governmental oversight sent $16 trillion to banks around the world! But wait, we found out that the CEO of JP Morgan Chase (Mr. Jamie Dimon) served on the New York Fed's Board of Directors at the same time that his bank received more than $390 Billion in financial assistance from the Fed. Moreover, JP Morgan Chase served as one of the clearing banks for the Fed's emergency lending programs. Then what happened? Obama appointed another JPM employee, Mr. Bill Daley to be his "Chief of Staff". Do you really think that this is simply coincidence?
The Market:
So the market went up, and up, and up this week. Frankly it was quite the amazing performance considering the ills that face us from Europe, our own debt dilemma, and deteriorating economic news. For instance has anyone been paying attention to the layoffs picture? Cisco, Lockheed and Borders laid off over 23,000 – and that’s on top of the Challenger layoff report that was over 43,000.
Yet the market responds to good earnings – and for the most part they're coming in nicely. However, looking between the lines, Americans are beginning the credit card journey again. If you buy a big screen TV today, your payments don't start till June of 2012, yet the store books the sale in total. Are those ‘good earnings’?
In any event, the market rallied this week and we got lucky catching a large portion of it. But of course the question is, what now? The last run up basically ran out of steam at the 12,800 level on the DOW. Thursday we hit a high of 12,751 and faded off, and Friday we faded off again. So, is this just a pause ahead of the weekend? Was everyone too worried about bad news out of Greece, or more bombings in Oslo? Or is this just a market running out of gas as we get half way through earnings, and we've heard from most of the majors?
On Friday afternoon, there was something of a meltdown concerning the debt ceiling talks, and Boehner simply walked away. Evidently Obama is still pressing for tax hikes, and we all know that tax hikes aren't the problem. The problem is that we spend more on programs than we take in. Obama is blaming the Republicans and scaring the old folks with the rhetoric about how they won't get social security, Medicare and Medicaid. In any event, it's going to be a burden to the market.
I tend to think that we're in "stall" mode here. Of course we're going to get some form of wicked one day-pop when they finally hike the debt ceiling and kick that can down the road, but the market feels tired. I'm siding with the idea that we're going to try one more time to attack 12,800, and we might actually get it for a day, but then we will slide back down for a while as August is usually a flat month, and September often sees true selling.
As I look out over the week ahead, the pace of earnings starts to slow. The market will hope for a good resolution to the debt issue, and will do its best to rally on it. But again, we all know that's coming, and we all know it's basically priced-in; so any "pop" could be a last gasp. I think it's probable that we do more selling later in the week than buying.
Just remember the fiscal issues surrounding: Greece, Italy, Spain, Portugal, Belgium, and Ireland are not solved. That can was kicked down the road by the IMF/EU. And the U.S. still can’t pay its bills. At some point, either this economy improves, or we’ll see QE3. In the not so distant future all of this will come to a head, and you're going to live through history. That will be exciting!
Tips:
Our long term holds still look like: SLV, NG, AAU, DNN, AVL, SLW, SQM and USSIF.
We come into the new week carrying a few positions; we sold out of quite a few and booked profits on Friday morning. We still have some CRK, POT and NBR, but we will bail out quickly if things don’t go our way on Monday.
It was another great week for the metals and the miners! Gold is over $1,600 per ounce and Silver is over $40. The miners continue to do well for us – and even DNN gained over 9% on Friday – and is continuing to recover nicely from the Japan fiasco.
The theme is simple – take profits and buy more gold, silver and energy.
Please be safe out there!
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