"The
moment the idea is admitted into society that property is not as sacred as
the laws of God, and that there is not a force of law and public justice to
protect it, anarchy and tyranny commence. If 'Thou shalt not covet' and 'Thou
shalt not steal' were not commandments of Heaven, they must be made
inviolable precepts in every society before it can be civilized or made
free." --John Adams, A Defense of the American Constitutions, 1787
We are
quickly catching up to that infamous “can” that keeps getting
kicked down the road when it comes to the QE’S. Whether or not the Fed
was successful in creating any growth or stimulating any amount of pent-up
demand is debatable, but what it has been successful in, is provoking a great
deal of speculative activity, pushing both the Bond and Stock markets up to
widely overbought ranges. However, there was never any realistic prospect of
creating a beneficial "wealth effect" for the economy as a whole; since
none of the $800 billion QE1 or the $600 billion QE2 found its way to Main
Street. The historical evidence is clear: The public only increases spending
and their debt levels if the perceived increases are of "permanent
income" -- not the one shot welfare type gifts.
Wealth is driven by the creation of long-term cash flows through permanent
jobs and productive investment, not by boosting the valuation of existing
paper assets by the FED lowering interest rates, encouraging speculation.
There was no reason for people to take much of a permanent signal from
fluctuations in a stock market that has lost more than half of its value
twice in a decade (and is likely to lose a good chunk of its value again, in
the near future; if history is any guide).
IS ANOTHER CRISIS ON THE HORIZON?
If the economy starts to falter, as it seems to now
be doing, the great expectations for another QE have become less likely,
given the mood of today’s Congress; hence the necessity for the
government to create another crisis in a hurry. But the reality of seeing QE3
any time soon is far from assured.
Back in the 1930’s it was the Keynesian
argument that each $1 of government infusion would create $3 to $4 of new
private Investment. However, there is overwhelming evidence that the reverse
is true. Throughout the 1930’s and WW2’s massive government
spending, it was not until 1947 that we got the 1st dollar of new
private investment. We now know that it takes $2.5 to $3 of government
spending to generate only $1 of new investment. TARP (QE1) and QE2 did NOT
work – unless you call bidding up paper assets working -- which will
make the Fed's political opponents object all the more strenuously to
approving a new QE3.
“If QE1 and 2 were both dumb and costly, why
would any sane person demand more of the same?"
The Fed is running out of ammunition and more
importantly credibility. What we are seeing is the gradual abandonment of the
Keynesian theory of “print money to save-the-economy” strategy,
that never had a lot of logic behind it and has been proven to be wrong time
and again (even some in high liberal academic circles have since come to the
conclusion that the Keynesian “Create Demand Strategy” never
worked).
In propping up both the stock and bond markets (by
driving down interest rates to unsustainable low levels) the FED has only
succeeded in making the average American's life worse (through a hike in the
cost of real goods and services, especially food and energy prices). Does
anyone really believe that the CPI is only 1.5%?
As a life long diabetic I
know that, both the stock markets and the economy’s sugar highs are due
for the natural crash that always follows “Sugar Highs”.
The risks are now extreme; not only because of
psychological and sentiment risk, but the environment of the past few years has
been one of massive government and Wall Street propaganda generated
euphoria. Any return of fear and
uncertainty, in conjunction with the US’s weakened overall financial
condition now being highlighted in the media all around the world, could
bring about the Depression that I have been warning about: Unless there is a
complete about face away from Socialism back to our Constitutional
Capitalism.
It is too
late?
Probably, unless a new dynamic leader emerges who
understands Free Market Capitalism and is swept into power with clear,
filibuster proof, majorities in both houses of Congress; a perquisite to
implementing the sweeping changes that would be required to turn around the
direction that the US has been going in ever since 1929. This is not a Democrat
vs. Republican tirade: Both parties have been equally guilty. Even Nixon in
1971 stated that “We are all Keynesians Now” as he destroyed the
last vestiges of the Gold Standard. The result Prices have been exploding and
the US Dollar has been depreciating ever since.
In a solidly trending bull market, an investor can
make any number of risk management mistakes and still pull through ok. In a
climate like this one however, the same litany of once-forgiving mistakes can
spell disaster although risk management is always important but at times like
we are now in, it is a matter of life and death (in financial terms at
least). Now is not the time to go it
alone.
Lately the word, "crisis" can feel like an
overused term. But the simple fact is that crisis is everywhere: There is a
financial crisis in almost every economy around the world, a crisis in
leadership and a crisis of faith in our government. War and terrorism is
spreading across the entire Middle East and North Africa, and and.
HOW NOW DOW
Grave macroeconomic policy mistakes have been made by
the Central Planners (government) and we are all going to pay the price. A
massive decline is coming, shortly or starting later in 2011,
or perhaps delayed into early 2012 if Bernanke can manage to get a large enough
QE3. But the QE tactics are disastrous for our economy in the long run. They
are doing nothing for households, small businesses or small banks, which are
the backbone of our historically strong capitalist economy. Fifty three
percent of all people either are receiving government assistance in America
or are employed by the government. This is Socialism folks, not Capitalism
and that is the problem. Socialist policies are coupled with an obsession to
pump up a few large, mega banks and Wall Street to the tune of trillions of
fiat dollars that do not find their way to Main Street but go directly to
paying billions in bonuses, some of which is returned as political
contributions.
In my constant search for reliable information, I was
having lunch (my treat) with a real estate developer friend of mine and he
related some startling facts. He told me of several successful housing
construction companies, who like him, were large enough to have employed
hundreds of people, maybe thousands if all aspects of construction industry
are considered. On average, they used to build 200 - 500 homes a year, but
are now down to less than 50 and are having trouble selling those 50, so they
are buying the homes themselves and renting them out to try and keep their
few remaining key employees and recoup some of their costs. That’s a
90% drop in new home building, a far greater number than the lying government
statistics that we are getting fed by the mainstream media and Wall Street.
Furthermore, he and these developers if they improve
their land, with roads, water, and sewers, with the intent of selling lots
and then building on those lots, since you can't build if you do not have the
land and infrastructure – they get penalized for those improved lots by
being reassessed for property tax purposes. In other words, he cannot move
forward because the increased cost of property taxes makes his speculation on
finding a buyer cost prohibitive. You can't rent improved building lots out,
and in this ragged economy there are few buyers interested in building, so
there is no cash flow possibility in land development.
During that same lunch, I also discovered that several
high up individuals who work for the Federal Banking Regulators have chosen
to take early retirement. They
did so just to get away from the terrible environment they have been working
in due to all the 1000’s of idiotic new regulations being passed by an
ignorant U.S. Congress who have no understanding whatsoever of the true
causes of the meltdown. Congress simply threw in1000’s of pages of
senseless new regulations, of course never examining themselves as to their
culpability in creating the problems in the first place. These laws are so
bad that the regulators are getting out before they get blamed for the coming
disaster.
The down payment and repayment cash flow requirements,
as well as other increased underwriting requirements, make it almost
impossible to get or give a loan. Small town bankers, the backbone to
America's community economic growth, are scared and intimidated by senseless
Congressional Laws that are virtually shutting down our economy. You won't
hear this in the media, nevertheless it is happening. This is just one of the
many reasons why I have been calling for history’s biggest BEAR TRAP
preceding a multi-century crash starting in the not too distant future.
It has been the large, too big to fail bankers, Wall
Street corporations and politicians who think that they are above the law
that are responsible for the dire situation our country is now in. So
Congress has decided to throw new laws and regulations at anyone and everyone
to cover up their own misguided, greedy mistakes. Then, in order to both
cover it up and assure their own re-election, the Central Planners have the
audacity to give trillions of dollars to those same firms in QE1 and QE2
while providing nothing but scraps for households, small businesses or the
5000 small community banks.
The DOW has been down for six weeks in a row.
Apparently most money
managers feel that the end of QE2 is going to kill the market/economy. So
they are selling and asking questions later. BUT, this week is options
expiration and in my opinion, we can expect a 200-300 point intraday Dow
rally going into the expiration. IF IT DOES NOT HAPPEN, THEN CONSIDER HOW
WEAK THE MARKET REALLY IS.
Like it or not, the slowing down
of the economy will translate into reduced earnings, regardless of the
majority of analysts glowing up beat earnings projections: Which according to Kudlow
is the mother’s milk of rising stock markets.
LINKEDIN was probably the one and only IPO to have
doubled in price on its 1st day since 2007 and has probably
signaled the end of what everybody has been calling a Bull Market. At the
Last peak in 2007 117 IPO doubled in price on their 1st day.
WATCH OUT FOR THE BULL TRAP; that
it does not trap you.
GOLD
Gold/Silver stock investors are panicky!!! BUT,
should they be???? Parabolas by definition must sell off sharply, but from which
point. Silver first reached the beginning of a parabolic move at $30 or $35 -
should you have sold out then? In hindsight you should have sold out at $49,
but hindsight also has told us that timers are never the big winners (witness
2006 and 2008). Then like now, not knowing the exact highs or lows, In my
missive “Sell In May & Go Away” I also recommended selling 3
or 6 month call options against your long Gold and Silver positions. All
those who have listened are laughing all the way to the bank. Now may be the time to be looking to buy back any of your short options
that are in danger of being exercised and/or take profits on your long Puts
on Silver and/or Gold.
The only ones who make money by consistently trading
are the brokers.
Should you panic and dump now: Only if
you have a financial death wish. Now is the time to make your buy list and
accumulate your favorite stocks into any further individual weakness. That is
what I am doing now and will send out my list to subscribers with the July 1st
letter. Remember, we are only 2/3 through the Golden Bull Market with the
most explosive 1/3 (5th Elliott Wave) still to come. Stay with Aubie!
ELLIOTT WAVE
It never ceases to amaze me how everyone
who can say 3 waves up interspersed by 2 waves down call themselves Elliot wave experts and
then promptly apply other technical analysis to their EW readings to make
them say what they want. They don’t realize that Elliott Wave must
stand by itself since it is the only system that is NOT a trend following
Technical forecasting system.
Just look at the weekly $HUI $GOLD Charts. Gold stocks are more oversold than
at any time during the last 24 months. Either Gold collapses or the stocks
rally and are now giving you the best buying
opportunity since 2008. How many times do I have to remind you that Gold is a market unto itself and is
not correlated to any other market; except for short periods of time.
Similar to 2008, we see that the Gold stocks are falling against Gold,
yet Gold is quietly strengthening against Oil, Industrial Metals and the
S&P 500. The real price of Gold began to strengthen across the board in
September 2008 and it was only a month later that the sector bottomed.
Gold and Gold stocks are starting to move in the right direction. As
the economy stalls and the equity market peaks, more money will move out of
risk assets and into Gold and then the Gold shares. We are already seeing the
start as Gold is firming in relative terms. There may be a bit more weakness
in the Gold stocks, but ultimately this summer should post a major low and
the Gold stocks will be in a fantastic position heading into 2012.
According to the 'real' Fed Funds Rate from data supplied by the
Federal Reserve, it shows 'real rates' to be negative (-3%), and heading
lower. According to the Gibson Paradox, whenever 'real rates' are negative,
Gold is accumulated by those who are interested in wealth preservation. It
should be noted that the data supplied by the Federal Reserve is 'massaged'
to suit their own best possible outcomes. If we were
to use data supplied by John Williams of Shadowstats.com the 'real rate'
would be negative -8%. This means that anyone with money in the bank at 1% is
losing 7% while paying income tax on the 1%!
SILVER: Shadowstats.com uses a formula that was used by the government up to
1980 and his calculation shows Silver would need to be priced at nearly $400
to match the purchasing power of $50 in 1980.
The mismanagement of economies by Keynesians, guarantees that the
monetary inflation that is now above 10% per year will continue to provide
the liquidity for Gold and Silver prices to continue to rise.
Harry Truman once said, "I never give them hell. I just tell the truth and they think its hell."
“I
always tell the truth and only the ones who refuse to listen think its hell”
Aubie
GOOD LUCK AND GOD BLESS
If you need cogent
analysis and clear reasoning, If your time matters as much as your
investments, then UNCOMMON COMMON SENSE is the service for you. My job is to
find you the best of the best, making sure your radar is pointed in the right
direction and weeding out all the noise: So that you can make an informed
decision for yourself.
We are coming
into the most trying times in our nation’s history. Is now the time you
want to be going it alone?
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Aubie Baltin CFA, CTA, CFP, PhD. June 13th, 2011
2078 Bonisle
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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. All Information
and 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. I am not a registered
investment advisor
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