"Saepe mendosus, nunquam
dubius"
The "Often Wrong But Seldom In Doubt"
School of Economics and Government
WILL THEY EVER LEARN?
Former Fed Chairman Greenspan says Congress
should let the Bush-era tax cuts expire in order to help trim the mushrooming
budget deficit. I guess all his experience and education has NOT YET taught him
that the only realistic way to cut Government Deficits is by way of GDP
GROWTH. And that any 1 or even 2 year extension will do more harm than good
as no businessman would ever take any action based on a tax policy that
expires in less than 2 years. Does that answer your questions as to why
businesses are sitting on their cash instead of investing? UNCERTAINTY BREEDS
INACTION. For your information, in 1929 corporations were also sitting on
record amounts of cash on their balance sheet.
The Philly Fed July Index of Manufacturing
Activity fell to 5.1 and the New York Fed's Empire State Index of
Manufacturing Activity plunged to 5.08 from June's reading of 19.57. This
economy is not getting better it's getting worse, just as I warned you it
would. Not because I have a crystal ball, but because it is just the natural
result of the phony numbers generated in the 1st quarter by borrowing sales
and other numbers (like inventory) from the future and then comparing to the
worst recessionary year in since 1930.
Meanwhile, the
Government has been relentlessly trying every trick in the book as well as
pumping $100's of billions into the stock market in their attempt to fool the
public into believing that their $870 billion nonsensical Stimulus (welfare) Package
is working and creating jobs. Do the continuous extensions of unemployment
benefits not tell us what the TRUE unemployment picture really is?
Even the Fed's own Beige Book has now put off
any real recovery for another 5 to 6 years. As long as the policies of the
USA, Europe, China and Japan continue on with out change, recovery will only
become possible after a complete collapse, forcing, after 100 years, a change
in direction away from Socialism and back towards Capitalism, which is the
only solution that can possibly save us.
Meanwhile, the Government has been doing
everything they can think of to paper over the ever expanding cracks by
juicing up the US Dollar and the Stock Markets, including making every
attempt to drive down the price of GOLD. However, all manipulations will fail
as they must eventually come up against REALITY and God's Natural Laws of
Economics.
TRADING THE MARKETS
If you have trading experience and have
actually studied the data, you should know that Rising Volatility and Declining
Volume on rallies are always associated with Bear Markets Rallies. Bull
Markets are always accompanied by Rising Volume and steadily Increasing
Prices.
For nearly 100 years, there was a standard
rule for gauging long term Entry and Exit points in the Stock Market. If the
DJIA Dividend Yield fell to 3%; sell and don't come back until it was over
6%. This simple Rule of Thumb worked wonderfully until Doctor Greenspan
became Wall Street's Keynesian Master Bubble Maker in 1987. What ever
happened to his belief in the GOLD STANDARD that he held up until he became
Chairman? At the top of the 2000 Bull Market, the DJIA was only yielding
1.32%, not that anyone but me and a few others cared or even noticed. It's a
scary thought, but at the March 2009 Bottom, the DJIA Dividend Yield had only
increased to 4.6%, and now it's back below 3%. Dividends matter, especially
during Bear Markets. When Capital Gains and decent Bond Yields become Distant
Memories, the only logical reason for investors to buy stocks is to get higher
and safer dividend yields than can be had from Treasuries because below the
surface, there is nothing positive going on.
FINREG:
THE FRANK - DODD, SCREW AMERICA, BILL EXAMINED
Without blinking an eye the Administration did
more yesterday to guarantee the next financial crisis than FDR did with his
New Deal. With the single stroke of a pen, President Barack Obama set in
motion 243 new formal rule-making bodies and 11 different federal agencies.
Each of the 243 new bodies will create employment for hundreds of banking
lobbyists as they try to shape what the final laws will actually look like.
And when the rules are finally written, thousands of lawyers will bill
millions of hours as the richest incumbent financial firms that caused the
last crisis figure out how to manipulate the new system.
Yesterday, the Washington law firm, Jones Day
snapped up the Securities and Exchange Commission head enforcement division
lawyer, and J.P. Morgan Chase assigned more than 100 teams to examine the
legislation. By delegating so much to the regulators, Congress is inviting
everyone interested in the outcome to make more and more campaign
contributions, as they will try and succeed in intervening in the regulatory
process to influence the regulators. Nothing is settled.
It's a gold mine for Lawyers, Lobbyists and
members of Congress.
So if the banks, lawyers, lobbyists and
Congress were the big winners, who are the losers? Small banks, entrepreneurs
and of course, you the Taxpayer.
Smaller community banks who were not part of
the subprime (mortgage) meltdown do not have the same resources that the
Goldman Sachs of this world do to hire armies of lawyers and lobbyists to
shape and comply with new regulations. The cost of compliance will eat up a
much larger share of the smaller bank revenue and profits.
PERMANENT BAILOUT AUTHORITY
Then there is what the Dodd-Frank Bill does not
do: It does nothing to stop future Government bailouts. Instead, it makes
the TARP bailout system permanent. The Bill's "orderly liquidation"
process empowers regulators to seize any firm they deem a threat to our
financial system and liquidate them. These powers are not subject to judicial
review and do nothing to ensure that the firms' creditors won't receive 100%
of their irresponsibly lent money back in future taxpayer funded bailouts.
Even though the lack of a broadly accepted process for closing down large
financial institutions helped lead to the massive bailouts of 2008 and 2009,
this liquidation process is even more problematic. Such governmental
discretion to seize private property is unconstitutional but who knows what
the courts will eventually rule, given the kind of ideologues that are being
appointed to the courts.
And speaking of taxpayer-funded bailouts, the
Bill does nothing to address Fannie Mae and Freddie Mac whose activities were
primarily instrumental for the financial crisis in the first place and to
this day still bleed $50 billion a quarter.
Washington looks increasingly like a
public-works jobs program for lawyers and lobbyists, a "profit center
for professionals who are in business for themselves."
The Dodd-Frank Bill is the perfect extension
of Washington. Instead of encouraging the U.S. economy to invest in
engineers, technology, new products and new businesses, it requires firms to
invest in lawyers and lobbyists just to stay alive. It will do nothing to
help create new wealth or new net jobs, but will transfer more wealth to
lobbying and law firms in Washington, D.C. In addition, it will definitely
encourage firms to move their Headquarters and expansion plans OFFSHORE - Did
I hear the word Outsourcing?
TRUSTING THE SAME REGULATORS THAT FAILED LAST
TIME
The legislation establishes a new 10-member
Financial Stability Oversight Council composed of regulators that would be
responsible for monitoring and addressing system-wide risks to the financial
system. This Council would also have nearly unlimited powers to draft
financial firms into the regulatory system and even force them to sell off or
close pieces of themselves. Unfortunately, it is extremely difficult to
detect systemic risk before a crisis has occurred, and the Council would
serve mainly as a group to blame for failing at their impossible assigned
task. On the other hand, its huge powers are much more likely to destabilize
the financial system by stifling innovative products while failing to detect
dangers posed by existing ones.
New Innovation Killing Regulations: The Bill also creates a new Bureau of Consumer
Financial Protection with broad powers to regulate the financial products
and services that can be offered to consumers. The new agency would nominally
be part of the Federal Reserve System, but it would have extraordinary
autonomy. This autonomy would impede the efforts of existing regulators to
ensure the safety and soundness of financial firms, as rules imposed by the
new agency would conflict with that goal. For most consumers, this would make
credit more expensive and harder to get.
MICROMANAGING THE MARKET
The Conference Committee also added a form of
the "Volcker rule" that would largely prohibit any bank or
other institution with FDIC-insured deposits from undertaking proprietary
trading or from owning or sponsoring hedge funds or private equity funds.
While the legislation does reject the near-total ban on such investments, the
difference between legitimate and traditional activities and those the
Volcker rule seeks to ban would be difficult, if not impossible, to
determine. Attempting to do so would require an intrusive, expensive
regulatory compliance system that, by its nature, would micromanage
day-to-day activities.
FANNIE AND FREDDIE ARE STILLBORN
Despite much rhetoric about ending bailouts,
the Bill does nothing to address Fannie Mae and Freddie Mac, two of the
largest recipients of federal bailout money. These two government-sponsored
enterprises, now in federal receivership, almost single handedly fueled the
housing bubble. When it popped, taxpayers found themselves on the hook for
between $2- $5 trillion in government money. The failure to address their
future is a serious error and shows just how hollow are claims that this
agreement will prevent future crises.
These are just some of the more obvious flaws
in the Bill. There is no doubt that all these added costs will be passed onto
consumers in the form of higher bank, ATM and credit card fees and put a
strain on lending at the worst possible time for our economy. The Dodd-Frank
Bill will force banks to either take on more risk to recoup earnings
diminished by this Bill or behave far too conservatively in order to stay out
of the clutches of the regulators.
In the wake of the latest batch of
"double-dip" chatter, the market's attention is shifting back to
the Federal Reserve. Investors are asking a simple question:
What will the Fed do if the economy goes into
recession again?
These guys have already done just about
everything they can ... pulled every trick out of their hats ... and bailed
out and backstopped virtually the entire financial system! But, all of that
free money did was help boost another bubble in ASSET prices, it hasn't done
a heck of a lot for the "real" economy. Unemployment remains
stubbornly high and getting worse. Housing continues to slump. Investment is
anemic and overall confidence is lacking. To put it mildly, the Fed is just
pushing on a string - and more pushing isn't going to do a darn bit of good
for those living in the real world!
The last time Treasuries were this high (low
interest rates) was during the depths of the 2008-2009 Collapse. The world
bond markets are twice the size of the world stock markets and bond investors
are typically more sophisticated than stock investors. So to see Treasuries
failing to confirm the stock market rally by remaining elevated (falling
interest rates) is a major warning sign of Depression.
The questions every investor should be asking
him or herself today are:
·
Have central bankers'
policies really solved the issues that took down the financial system in
2008?
·
·
Do I have faith that Ben
Bernanke is in control and can manage the Sovereign Debt Crisis not if, but
when it comes to the US?
·
·
Do I truly believe that
now is a great time to invest in stocks?
·
HOW NOW DOW
Golden Cross vs Death Cross
Quite a number of death crosses ( the 50-day moving average
cutting the 200-day moving average from above) are still in play and only a golden
cross - the 50 day cutting the 200 from underneath - can negate the
bearish signals sent by all those Death Crosses.
THE BEST STRATEGY FOR NOW
Start scaling into your Short positions in
FAZ, BGZ, TZA & ERY
"We are at a very critical juncture"
Although the bulls seem to be in the driver's
seat now, they are unable to decisively cross over the 200 day goal line
(MA). If they don't score big soon, then the bears will take over. This
"Tug of War" will go on until one of the sides wins and is able to
answer the $1 trillion question - double dip or no double dip.
BLACK POOLS, SPEED TRADING, PROGRAM TRADING
The manipulation (200 to 300 point swings
every 2nd day over the last few months) make the Black Pools and the Bear
Raids of the 20's and 30's look like child's play compared to today. All that
plus 24 hour trading across multiple exchanges and trading platform, makes it
almost impossible to get precise technical readings, especially when using
Elliott Wave. What closing prices are to be used? Nevertheless, by focusing
on the big picture, we can still get a good handle on what is going on beneath
the surface.
In eight weeks, stocks lost back what it took
six months or more (going all the way back to February) to gain. We are
currently completing Wave 2 of a larger Wave I of C (or Wave III). Either
way, I think there could still be one more minute rally left for stocks to
finish consolidating the decline that began April 26th. That last rally leg
should be completed by as early as Monday or by the end of the week at the
latest. It should then be followed by a dramatic selloff (down 20% to 35%).
In summation, we could have another week or so of stock price manipulations
before being ready to fall off the precipice that we are now on.
STOP LOSS ORDERS
The last few months should have convinced you
once and for all as to the value of ALWAYS using stop loss orders. So
whatever your trading strategy is for this coming week (scaling into new
shorts or waiting for the Break Down before taking new short positions), Stop
Loss orders must be part of your trading strategy. Or you can take initial
small positions and short more as the Market approaches 10,700. Take you
losses if the market breaks substantially above 10,700.
GOLD
With $2.4 trillion in foreign reserves, China
has more reserves than the International Monetary Fund (IMF). So far, the
People's Bank of China is facing huge currency losses and with just over
1,000 tons of Gold, China has been buying more Gold in order to hedge itself
against the inevitable depreciating Dollar and Euro. However, China has much
too many Dollars and Euros and not enough Gold - but that is changing. BUY
GOLD.
Gold's recent drop correlates strongly to the
Euro rally of the last few weeks. Did the ECU really fix anything or did
they, like the FED, just temporarily paper over a problem? Prior to the Euro
taking off, Gold was beginning to bounce off support at $1240 setting up an
explosive breakout. Then, the Euro took off and investors who got caught on
the wrong side of the trade were forced to liquidate positions, which put
selling pressure on Gold. The fact that Gold is now trading relative to the
Euro, rather than the Dollar, is yet another sign that the market and its
core relationships are breaking apart. Look at this latest weakness in Gold
as what it really is: A chance to buy insurance (Gold) at cheaper rates.
Though I can't say for certain that the PM stocks have bottomed just yet, in
this minor down cycle, I have the utmost confidence that this correction will
be the final one before the start of a momentous move to the upside. If you
don't own Gold yet, it's not too late. In fact, any excuse you have now for
not buying Gold will seem shallow and meaningless when the Dollar begins tanking
along with its buying power and your standard of living.
A
HISTORY LESSON
At Gold's bottom in April 2001, the Dow/Gold
ratio (DJIA divided by gold price) was 41.2. It now stands at 7.9: When Gold
peaked in January 1980, the Dow/Gold ratio reached "one," meaning
they were both selling for about the same price. To hit that same ratio
today, Gold will have to go higher and the Dow simultaneously lower. The
continuously improving fundamental reasons Gold will rise are far from over,
while a second leg down in the broader markets seems almost like a lock at
this point in time.
The cost for being defensive is only the
opportunity cost of being wrong, while if my scenarios are right, then my defensive
actions will be the difference between being wiped out and doing not only OK,
but maybe even very well.
SILVER
Recently, there was a new Silver fund which
was established June 30, 2010 under the laws of the Province of Ontario,
Canada. It is the Sprott Physical Silver Trust. According to the
prospectus, the Trust was created to invest and hold all of its assets in
physical Silver bullion, and will not speculate with regard to short-term
changes in Silver prices. The units may be bought and sold on the NYSE, ARCA
and the TSX like any other exchange-listed securities. It seems obvious that
the new Sprott Silver Trust is going to take even more physical Silver off
the market which, in turn, should put ever increasing upward pressure on
Silver prices.
CENTRAL
FUND OF CANADA
It is a closed end fund that I have been
recommending to you for over 5 years now. It invests 66 2/3% of its money in
Gold Bullion and 33 1/3% in Silver bullion. It too trades on the NYSE and
TSX, but is a Canadian Company that keeps all of its assets in Canadian
Banks, not subject to any potential confiscation of American's PM assets.
During the last parabolic phase for Silver in
1979/80, Silver went from a low of $5.90 on January 2nd, 1979 to trade above
$50.00 per ounce in January 1980 for an increase of more than 700% in just
over one year. Such a percentage increase from the current price for Silver
would represent a future parabolic top price of $126.00.
Generally, the rule of thumb is that Gold
offers relative stability and Silver offers greater volatility. Therefore,
the amount of additional risk an investor is willing to take should determine
the Gold/Silver ratio in his/her portfolio.
SPECIFIC BUY OR SELL RECOMMENDATIONS AS WELL
AS TRADING STRATEGIES ARE RESERVED FOR SUBSCRIBERS
GOOD
LUCK AND GOD BLESS
Give yourself the investing advantage by
getting a 4 month special $99
TRIAL subscription today. The $99 can then be applied towards a 2 year
subscription.
The one year (13 month) subscription is only $299 and a two year
subscription is only $449.
To subscribe, simply mail a check (don't forget to include your email
address) for the required amount to:
To get you to try a subscription to UNCOMMON COMMON SENSE, I am offering
all new subscribers a ONE year 90 day risk-free subscription for the reduced
price of only $199. You've got nothing to lose: Love It or your Money Back.
To subscribe, simply mail a check for the
required amount to:
Aubie Baltin CFA, CTA, CFP, PhD.
UNCOMMON COMMON SENSE
2078 Bonisle Circle
Palm Beach Gardens FL.
33418
aubiebat@yahoo.com
561-840-9767
Please Note: This article is
for education purposes only and is designed to help you make up your own mind,
not for me to make it up for you. Only you know your own personal
circumstances so only you can decide the best places to invest your money and
the degree of risk that you are prepared to take. The Information on data
included here has been gleaned from sources deemed to be reliable, but is not
guaranteed by me. Nothing stated in here should be taken as a recommendation
for you to buy or sell securities.
|