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UNCOMMON COMMON
SENSE
For People Who Think
Or do they? Everybody thinks they know that the world is on the verge
of a banking and financial crisis, but it is just
one of the major effects of the real problem: SOCIALISM has reached the end
of its rope. It has run out of other peoples’ money.
Stocks are down big and one of the main reasons is -- Europe. The
machinations over how to deal with massive debt, a bailout plan and Greece's
continuing viability as a member of the European Union (EU) is quickly coming
to a head. Just as I have been warning anyone who would listen over the last few months that it would. Politicians
and bankers may have only a small window of opportunity to deal with this
explosive situation in the heart of Western Civilization.
Investors are becoming increasingly skeptical that European leaders
will succeed at jump-starting the region's economy and preventing a messy
exit from the EU by Greece. That, in turn, is causing money runs on European
Banks as people from all walks of life withdraw from the Euro and mistakenly
dump their money into what they naively think is a safe harbor - US Dollars,
hence the big slide in stocks throughout the World.
European leaders are scrambling to meet to try and find a way to keep the
region's debt crisis from spiraling out of control. They also have to first
face and then plan for what I think is the inevitable, and that is a
departure of Greece from the European Union, realistically followed by
Portugal, Ireland and maybe Spain. The ramifications will be felt throughout
the global equity and financial markets.
SILLY ME, BUT THE RAMIFICATIONS ARE SO DIRE THAT I THINK THEY WILL
SUCCEED IN KICKING THE CAN DOWN THE ROAD AT LEAST ONE MORE TIME.
I do not see any solutions even being discussed, let
alone agreed upon. It looks like things must get a lot worse before they can
get better.
If you have not already sold out, then I think the only solution is to
buy some meager amount of insurance (puts) and hang on! But be prepared to
sell into any trumped up solution because there are no good, acceptable voluntary solutions. How could
there be when the problem is Socialism and the only possible solutions are
all couched in Capitalism. And that goes for the USA as well. All the recent
elections have gone against any form of Capitalist solutions by electing
Socialists and Communists while getting rid of any politician who even
mentions austerity (reduced benefits, longer work hours, more flexible hiring
rules, etc.)
THE AMERICAN
BUBBLE
Because of FED mismanagement and interest-rate pegging, the market is
artificially medicated. All of the rates and spreads are unreal. The yield
curve is not market driven. Supply and demand for savings and investment,
futures, inflation, risk, and discounts by investors - none of these free
market forces exist anymore. The price of money is dictated by the Fed (but
they cannot dictate savings and investment) While Wall Street merely attempts
to front-run the Fed’s next move. They and the politicians are allowed
to trade on inside information, but we peons go to jail if we do.
As long as the hedge fund traders and fast-money boys believe the Fed
can keep everything pegged, we may limp along for awhile
longer. The minute they lose confidence, they will unwind their trades and
then watch out below!
On the margin
Nobody owns the Treasury Bonds; they just rent them. Trillions in
Treasury paper is funded by repos. You buy $100M in Treasuries and
immediately put them up as collateral for overnight borrowings of $98M.
Traders can capture the spread as long as the price of the bond is stable or
steadily rising, as it has been for the last 10 years or so. If the bond
drops 2%, the spread and all your collateral will be wiped out. This is a very
Dangerous Game but made to look easy.
If that
happens, the massive repo structures, which is debt owned by still more debt
will start to unwind and create a panic in the Treasury Bond market. People
will realize that “the Emperor
has no clothes.” The
Fed slowly but surely is destroying the capital markets by pegging and
manipulating the price of money and debt capital: Interest rates signal
nothing anymore. Even the yield curve signals nothing anymore because it is
totally manipulated. The very idea of "Operation Twist" is an
insult to everyone’s intelligence (and that says it all).
Capital markets are at the heart of Capitalism and they are not
working. (They destroyed the money market and CD accounts). Savers,
especially seniors and those near retirement are being crushed at a time when
we desperately need savings. The Federal government is borrowing when it is
broke. Wall Street is arbitraging the Fed's monetary
policy by borrowing overnight money at 10 basis points and investing it in
10-year Treasuries at a yield of 200 basis points, capturing the profit and
laughing all the way home to their pig sties. The Fed has become a captive of
the politicians, traders and robots on Wall Street where out and out theft is
condoned. MF GLOBAL is but one example and the recent Facebook IPO is
another. The public be damned when there is a dishonest buck to be made. And
they wonder why the public is NOT coming back to the market?
We are in the
final innings of a debt super-cycle and I think the likely next move is a
breakdown of the U.S. government bond market (history’s largest Ponzi
scheme). Since it is the heart of the world’s financial markets, you
can draw your own conclusions. All of the rates and spreads are unreal. It
may be the only game in town, but the public has finally gotten wise and
decided not to play. Buy gold and silver and salt it away under your mattress
as it offers much better safety and returns.
A Golden Alternative
Investors should look instead at the Market Vectors
Gold Miners ETF (NYSE: GDX), which mimics the Gold Bugs Index (NYSE: HUI). It
is trading at a P/E of 13. This kind of valuation is near historical lows,
making precious metals producers (as a group) a very compelling investment.
That’s not to say they can’t get a bit cheaper. But consider
this: The very first time GDX traded at these prices was back in October
2007. At the time, gold was trading under $800 and silver under $15. Both
metals are now double those levels. Yet the gold and silver producers
are still trading at October 2007 prices. This can’t last. The HUI Amex Gold Bugs Index generated a new buy signal on May 21st.
This argues for a wave 5-up in
Gold, Silver and Precious Metals to have started, confirmation will come
after the 30 day stochastic joins the HUI PPI on a buy signal. Wave 5 is typically the most dramatic
wave for precious metals and mining stocks. The HUI Purchasing Power
Indicator buy signal (Wave 5) is coming at a time of extreme oversold levels
in many indicators such as the Daily and Weekly Full Stochastics,
and are at a place where key support levels from declining triangle and wedge
patterns have been reached, making an excellent set up for a strong and
lengthy rally.
Ten days ago gold and silver miners were at Vector
Vest 2nd lowest ranking of their 225 industry groups. On Friday, they closed up 10 rankings.
The World Gold Council has recently released the Q1,
2012 Gold Demand report. Gold demand grew 16% over the past 12 months to
1,098 tons, which had a value of just $59.7B spent on gold in the entire
world in Q1 2012.
Investment demand again dominated as under owned
gold continues to be accumulated worldwide. Gold investment demand (for gold
bars, coins and ETFs and similar products) grew by 13% year-on-year to 389.3
tons in Q1 2012, equating to a demand value of just US $21.2 billion. The key
drivers of this increase came from China and ETFs. Global demand was boosted
by China posting a quarterly record of 98.6 tons of investment demand up 13%
from Q1 2011. This increase was a result of investors’ continued move
to preserve wealth amid ongoing concerns over rising inflation. This suggests
debt may have again reached bubble proportions in finance, the leveraged
banking sector and the tech sector.
When the bubbles in these sectors burst, some of that capital will
flow into the very small, physical gold market. This could lead to
dramatically higher prices and means that our long held price target of
$2,400/oz (the inflation adjusted high from 1980)
for year end 2012 is becoming increasingly conservative.
The game is rapidly reaching its crescendo. The slide into the Great
Depression is resuming. As an example, the CA budget deficit has doubled
since their last guesstimates in January. JPM “suddenly” lost $2
billion going on $4 billion with potential for more. On May 13th,
over 230,000 unemployed people lost benefits and the government uses these
numbers to claim that the percentage of the unemployed dropped. More bank
runs were reported in Greece on May 15th and on May 18th,
there were also simultaneous bank runs in Italy and Spain. They won’t
be putting their money back into the banks any time soon. Every shark in the water smells blood.
DANGER, DANGER, DANGER
The
worldwide financial structure is crumbling. When stocks reach the 2009 lows,
the banking system will implode. Banks will begin closing by the score. The
collateral for bank deposits is land and buildings, which are losing value by
the day. If banks are in trouble, so are most businesses and depositors.
Someday the public will awaken and there will be an astounding run on the
banks as panicked depositors try to get out the door with what little money
they have left. It is preferable to keep most of your liquid money in Gold
under your mattress than in banks.
The
financial structure’s rot is too great to overcome. Chaos is coming, a
result of massive un-payable debts created by 60 years of ever increasing
Socialism. The final result of the Socialism inspired housing boom will be a
wasteland of boarded up houses, the exact opposite promised by the
government. Millions of home buyers have been fleeced of their savings and
then evicted. The medical system will also collapse as it too is rotten to
the core …dispensing drugs and destructive treatments that kill, maim,
and mutilate to rack up huge incomes for the purveyors of this massive dose
of medical quackery. The system was broke before Obamacare
and now we are about to add 50 million new non-paying clients as well as new
mandates. Brilliant!
Remember,
not one solution to the 2008 financial crises has been installed only more
debt, no big banks liquidated, no end to massive Government deficits, no
discharge of huge big bank home inventory, no revival of the housing market,
no return of US industry from abroad, no stop to endless costly wars, debt
downgrades galore, no end to the propaganda pumped out by the Main Stream
Media (MSM). Nothing has changed in the last 4 years except an additional $5 trillion in debt and $15
trillion in counterfeit money printing and more debt to fuel the collapse.
The Big Daddy of Government Organized Crime
is yet to come to fruition…a total collapse of the banking system. The
AJC of June 19th revealed the incestuous relationship between the
banks and federal and Georgia banking supervisory authorities. The banks are
hiding losses and overstating assets with the approval of the authorities.
Says the AJC: “Operating mostly in secret, state bank examiners
repeatedly overlook risky lending policies, portfolios bulging with loans
gone bad, inept management…etc.” This is likely taking place in
every state. One report says that nationwide, banks have overstated assets by
3 trillion dollars. That is huge and there is no way it can be covered by the
Federal government, especially in this new era of austerity. The gap is
growing daily. The only real money the banks have is the deposits by
individuals and businesses from their earnings and sales. Anyone who thinks
their money is safe because of the FDIC suffers from delusions. The ability
of the criminal ruling class to paper over insolvency is coming to its
inevitable end. Every day another crack opens in the dike. Recently, it was
reported that Bank of America is short $50 billion of operating capital.
Remember, the majority of bankers are like government bureaucrats…dumber
than a “sack of rocks”. Recently, we learned they have placed
huge amounts of their money market funds under their control into European
banks as they cannot let Europe fail and they are desperate for yields.
Another Brilliant Low Risk Move
We all know what happened to MF
Global. Customer deposits were stolen by Obama’s crony (Corzine). And you know what happened to MF
Global and Corzine? NOTHING!
Just
a sham - a Government inquiry, with no arrests and no return of client monies
by either, MF Global, Corzine or the exchange. Those
who follow conditions there know a financial collapse is imminent. In
Barron’s this week we learned that “…European debt holders
are likely to face a 90% haircut, far greater than the 30% that had been anticipated.”
We were not surprised. That will impact the money market funds. It is matter
of when, not if. Recall my early warnings about the subprime mess and the
housing bubble back in earl 2007…the government authorities said
“no problem, go back to sleep, sheeple.”
They are playing the same game once more.
HOW NOW DOW
OK, we sold in May, but we didn’t go away, and the market
promptly dropped. BUT NOW WHAT?
THE
OBVIOUS IS OBVIOUSLY WRONG
THE ELECTION INDICATOR: During election years, the stock market has risen by an average of 11%
dating back to 1928. June, July, and August are – by far – the
best-performing months during an election year. More
importantly, stocks have only had three negative years over the past 21 election
cycles. There is a common sense element that goes into this indicator. During
election years, it's in the best interest of the current Administration to do
EVERYTHING in its power to prevent stocks from going lower. After all,
Americans usually vote with their wallets.
Billionaire investor Jim Rogers is known for being
extremely bearish on stocks. However, he's bullish on stocks for the rest of
2012. He expects the current Administration "to print money like crazy
in an effort to get reelected." After the recent market pullback, stocks
are no longer up on the year. The election year indicator says that we should
just about be at our maximum downside. On the upside, we have a chance of
about 8% to 10%, which would give us the
Super Bull Trap that I have been
expecting. But it is much to
dangerous to play the upside.
GOLD AND SILVER
There's no
doubt the world is on tilt. U.S. stocks tumbled for a 4th
week in a row, pushing the S&P 500 to its longest losing streak since
August. The MSCI BRIC Index (MXBRIC), which tracks stocks in Brazil, Russia,
India and China are all entering a Bear Market, fell more than 20% thus far,
from this year's peak.
As I have
mentioned in numerous past missives, this was to be expected. And as I have
also been harping over and over again, governments the world over will be
spending and printing money like the drunken counterfeiters that they are. It
is the wrong thing to do as not only will papering the world with Fiat money
not solve the problem, it will make the problems a lot worse in the long
run. But since my present focus
is on GOLD and SILVER, it will make my projections of $6250 Gold and $300
silver by 2017 virtually a lock as well as $2,400 Gold and $55 silver by year
end 2012.
It's no
wonder the leaders of the world's wealthiest nations, the G8, said that their
governments were going to spend more in Europe to revive the continent's
struggling economy - a complete opposite turn from the idea that the way to
recovery was through strict fiscal austerity: It’s obvious that they
haven’t a clue as to what must be done to solve theirs or the
world’s problems. They have never even considered SPENDING
LESS. With more money printing already confirmed, both gold and silver
should move higher, a lot higher - and along with it - the companies within
their sector.
If you had
the TRUST and GUTS to follow my recommendation to buy gold and silver
securities from my last letter?
Congratulations. I think you will be very well rewarded. If you didn’t, it's definitely
not too late. Over the last 2 weeks, gold and silver stocks have risen from
the 2nd worst of 225 industries to 12th worst. As a
result of the recent slump, a lot of very good companies in the precious
metals are more oversold than they have ever been including one of my
newly discovered favorite silver companies:
MAG
Silver (TSX:MAG) (NYSE.A: MVG $7.10).
An Absolute
Must (BUY).
Last week,
MAG Silver announced that its 100% owned Cinco de
Mayo project, has the largest Carbonate Replacement Deposit (CRD): “The world’s most
important silver project. To get
a basic understanding of MAG's Cinco de Mayo
project, one of the world's foremost mining figures in Mexico said that Cinco de Mayo has the potential to be "an absolute monster." What I
discovered confirms that Cinco de Mayo is a company
maker on its own. The market doesn't understand how truly big Cinco really is and what it could possibly be worth
because MAG already holds an interest in one of the highest grade silver
deposits in the world and it’s clearly overshadowing Cinco de Mayo for the time being. Wait and see what
happened as drilling results start to pour in.
Cinco de Mayo Carbonate Replacement Deposits
("CRD"): CRD's represent approximately 40% of Mexico's historic
10-billion ounce silver production over the last 400 years. The beauty of
CRDs are that they have the potential for large, high grade tonnage as well
as the potential for substantial base metal tonnage and are the most
environmentally friendly. In other words, they're cheap to mine and leave a
minimal environmental footprint. Permitting is therefore relatively easy. I
could go on, but I am running out of space and besides, you should check it
out for yourselves.
GOOD LUCK AND GOD BLESS
Our Memorial Day
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Aubie Baltin
CFA, CTA, CFP, PhD.
2078 Bonisle Circle
Palm Beach Gardens FL. 33418
uncommon@aubiebaltin.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 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.
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