The Writing Is On The Wall
"The budget should be balanced, the Treasury should be refilled, public debt should be reduced, the arrogance of officialdom should be tempered and controlled, and the assistance to foreign lands should be curtailed lest Rome become bankrupt. People must again learn to work, instead of living on public assistance."
- CICERO - 55 BC
THE DANGER TO AMERICA
Although we are in the TOPPING OUT PHASE, we are not likely to see a strong decline without a series of record breaking sentiment sell signal, trend-revealing indicators. While a few of the indicators have been giving off sell signals, it is not enough to overcome the Government, Wall Street and the media’s propaganda machines and their Plunge Protection Gang. So, most are only giving warning signals that the markets are pausing, but not necessarily starting a serious decline just yet. However, that could change soon as Congress goes after the number ONE player of the stock market manipulator team and against Obama’s wishes have now started a criminal investigation.
As usual, Congress knows not what they are doing. Paying a fine no matter how large sweeps everything under the rug and life goes on as usual. The real question is, “Who Pays the Fine?” Criminal charges bring out a “fight back at all costs” to save their own hides. Tell tale deals are made exposing higher-ups all the way to Congress and the President. We ain’t seen nothin yet.
According to investigators, those BANKS involved in the price fixing of Gold are: Bank of Nova Scotia , Barclays PLC, Credit Suisse Group AG , Deutsche Bank AG , Goldman Sachs Group Inc., J.P. Morgan Chase & Co., Society General SA, Standard Bank Group Ltd. and UBS AG. With the biggest banks in world price fixing Gold, how can you trade it?
What a market!
What a rally! Nearly every single day since the February 5th, 2010 pivot low, the major stock indexes have rallied. Every intra-day sell-off is bought by the Government’s PLUNGE PROTECTION TEAM and the stock indexes move right back up. Every time, since the beginning of the market's existence, it has been easy money and artificially low rates that have lead to a bubble. Countries in Europe such as Greece, Italy, Spain, Portugal, Ireland and even England are facing huge debt problems, yet the markets do not care and climb higher on any utterance from DRAGI. In the US, another wave of foreclosed homes is about to hit the market and yet home builder stocks are trading up substantially. Despite a sharp drop in demand, Oil and Gasoline were trading at very high levels and the market views the high prices as a positive, while the talking heads say that it is due to demand and nothing to do with the shrinking value of the dollar. That is until the Goldman investigations began.
Is it not amazing that no one questions where all the toxic assets that the banks are holding have gone too? Ever since the FASB "mark to market" accounting rule was suspended (not gone away), those toxic assets have seemed to simply vanish. This is looking like a replay of 1929 and 2007 all over again. The markets declined in 2000 only to find a low in 2002. From that low, it rallied on a surge in liquidity, ultra low interest rates and massive tax cuts into the 2007/08 top. This time, the top will not take 5 years to form. There is much more internal damage today than there was back then and more importantly, there will be tax increases instead of tax cuts that will be a prime mover this time around. Unemployment is very high and the housing market is still in huge trouble. Now we have unheard of $1.5 trillion deficits continuing out as far as the eye can see. However, until the market bubble (which has not yet been recognized and won’t be, until after the bubble has burst), the rally rolls on.
The Stock Markets and Global Real Estate along with Commodities are now in advanced bubble territory.
From real estate to technology, the stock market to commodities and back to real estate and the stock markets, investors have been moving from one bubble to the next over the last 10 years. Paulson made his fortune betting against the pack, but that's not how most professionals act. "The incentive is not to be a contrarian on Wall Street because (if you have not yet made your name) it won’t be long before you are treated as a pariah. You are tolerated as long as you are right, but fired on your first mistake. So most professionals go along to get along, it’s easier and safer. I am proud to tell you that I have been fired from every major firm that I worked for without a single blotch or complaint on my escutcheon. This herding mentality created by the speedy dissemination of information, combined with the ease of trading thanks to computerization and new vehicles such as ETFs, plus low interest rates explains why we’re living in the “age of ever quicker successive bubbles.”
Ultra low interest rates always lead to speculation and bubbles.
What’s the current bubble?
China is always high on everyone's buy list and their Government’s Stimulus Package of $650 billion is four times larger than the US’s Stimulus Plan given the size of their economy in relation to the US. But when it comes to real estate, China, Canada and Australia are in bubble territory, but they still have strong economies with solid banking systems. In Canada, a 20% down payment is the barest minimum that must be put up before you could ever dream of getting a mortgage. China, Canada and Australia have been raising their interest rates in an attempt to cool down their overheating economies so as to head off any bubbles forming that they know must eventually burst. It seems that they have learned from the mistakes of others and the strength of their currencies show it. China has finally awakened and it too has started to curtail lending and raised rates, but I think China may have waited too long and she will be caught up in the same kind of morass as the US and Europe are in as they end up with massive unemployment. But unlike us, China has massive reserves without any unfunded liabilities. But massive social unrest is lurking in their background and their stock market looks like it topped out back in November 2009 just has I had been warning it would.
Those listed above are country specific bubbles; the two biggest worldwide bubbles that are getting ready to implode are the over inflated US Stock Markets and the US Treasury Bond Market. Except for the US, the world’s stock and bond markets have already topped out sometime between November 2009 and January 2010, with China leading the way down. So far, the declines have been orderly and are being labeled as much needed corrections. However, the explosions will come as the US Stock and Bond Markets implode on top of a mountain of debt, unfunded liabilities and soon to be sky rocketing Gold prices.
Facts That Investors Need to Know
The steps the Federal Government is taking to reignite the economy may be good for Wall Street’s big banks and a few big corporations, but they're not good for your health and your financial well being and even worse for the overall economy as Obama has lead the country into a hard turn left on a mountain of ever increasing unsustainable debt.
THE INDIA LESSON
Behind the wheel of India’s massive, billion people strong economy, you’ll find the world’s most honest central bank. The Reserve Bank of India has never wavered from their responsibility of fighting inflation. So where is all of India‘s unbridled growth coming from?
It’s real simple, actually. It’s a process called “Liberalization,” or “Freedom” and yes, Capitalism and we’ve seen it work everywhere from South America to Eastern Europe to South East Asia. You want proof: Just compare North and South Korea or East and West Germany or more currently Brazil and Chavez’s Venezuela. Freedom (Laissez Faire Capitalism) Works, Central Planning (Socialism) does not. As complicated as it might sound, the process is actually quite simple…the Government just has to get out of the way. That’s all.
Sure, the economists and politicians make it quite complicated in the course of history in order to aggrandize themselves and their wallets, but that’s all it boils down to; whether it’s the end of a Communist regime or the collapse of a Socialist Party and their politics and the rise of Conservative Free Market Economics as is now happening in India and South East Asia. The Government gets out of the way and allows individual entrepreneurs, both large and small and everyone in between, to go about their business. As soon as that happens and exchange controls are eliminated and once equal protection under the law is offered to foreigners, foreign investors rush in with their money, latest technology and most of all, their management skills. Local entrepreneurs realize that they finally have an opportunity to build something for themselves and money comes out of its hiding places. What follows is an explosion of wealth like nothing else you’ll ever see and only FREE MARKET CAPITALISM can produce. Brazil vs. Venezuela today is another good comparison example.
We saw the same thing happen in England under Thatcher and here at home under Reagan, but unfortunately Reagan was followed by Bush who reverted to Keynesian Socialism and promptly raised taxes and lost his next election. Clinton tried a massive Socialist Health Care plan that was soundly defeated but he was saved by Newt and a new class of Conservative Republicans, whose policies Clinton wisely adopted and claimed as his own. Then along came Bush II, a Socialist in Republican clothing (a NEOCON), who gave us not only the largest entitlement (Prescription Drugs) program in history but two unpopular wars to boot. Obama was then elected on a promise of change, but he never spelled out exactly what kind of change he was talking about. It was not until he took office that we discovered that it was only a change for more of the same and at a lot faster pace as he shifted from creeping Socialism (Progressivism) into accelerated Marxism. In a little over 5 years of complete Democrat control of the Government, the US is now in its most dire economic and political straights in its history.
We have one chance to overt disaster. This coming November, Conservatives must take back the reigns of power and immediately shift the country back to FREE MARKET CAPITALISM before it’s too late and the US plunges into a truly Great Depression (much worse than the 1930’s when our currency and the country’s solvency were never in jeopardy like they are today). This time, the US will also drag most of the rest of the western world down with it into Depression (World Wide Depression usually leads to war).
Just like Bible Prophecy, warnings are never meant to come true, all that has to be done to overt tragedy is to change our ways.
Chinese Currency Fall-Out?
Experts around the world believe a rise in the Chinese Yuan and a corresponding fall in the U.S. Dollar are all but inevitable and will be good for both the US and China as well as everyone else. Certainly not if we start Trade Wars in the process. What they don't seem to realize is that this could trigger a massive rise in inflation and a plunge into Depression.
From running out of oil to a worldwide glut of oil (just as I have been predicting over the years), there is no such thing as shortage in a FREE MARKET. From a purely technical perspective, the next leg up could carry the price of crude back up to the $100 a barrel area but only if the Governments start manipulating its price. That price level will once again push us into the Depression danger zone. Also worth watching are changes in industrial commodity prices, which have climbed to their highest level since the outset of the financial crisis. Many of these commodities aren’t traded in the futures pits and therefore aren’t subject to speculation that could periodically distort their true value. They therefore offer insights into both economic activity and inflation trends. And the gains we’ve seen in the last year suggest that should growth continue, the world could quickly segue into a period of high inflation.
The US economy is in the midst of, at best, a tepid recovery that could run for no more than a few months longer. But we could very well slide back into Recession as early as next month. Key indicators of this happening include: Increasing unemployment, more weakness in the housing and commercial real estate sectors and no improvement in bank lending.
It’s worth noting from an investment perspective, what has happened during previous anemic expansionary periods. In the five previous brief expansions in the US during the last 60 years, each of which lasted a mere 12 quarters or less, in each of those periods, the peak in economic growth occurred in the first or second quarter of the recovery. While it’s not official yet, many economists are pointing to the third quarter of last year as marking the end of the Recession. So it won’t be surprising if we learn, with the benefit of hindsight, that we’ve already seen the peak rate of growth in economic activity during this so called expansion.
Stocks as a whole may not have reached their apex just yet, but we could be close to that point right now. Remember that the stock market is an excellent discounting mechanism. It rallied strongly last year when the data rolling in was abysmal, and it will start to head south again before the economy shows many signs of contracting. If the current expansion lasts just to the end of the current quarter, that means the market is likely to start to discount the next downturn shortly.
THE GREATER FOOL THEORY
Right now, the markets seem to be caught in the grip of the “greater fool” theory – the adage that says you can buy stocks with declining top line growth and pay 20+ times earnings because there will always be a greater fool to buy them from you at a higher price. Fortunately, there's a way you can take advantage of those fools. You can profit from the current momentum in the market, while making sure you come out ahead when the music stops.
In many ways, the current recovery is most akin to the expansion that occurred from 1971 to 1973: Weak economic growth coupled with rapid monetary stimulus that threatens to give way to mounting inflationary pressures. The Stock Market rally during that time lasted 17 months. A similar performance today would mean a Stock Market peak in August or September. Also using 1971-1973 as a guidepost, the Stock Market’s upside from the peak in the rate of economic growth was less than 10%, which would cap the return this time around at less than 5% above today’s prices.
Pressure is mounting for China to allow their currency to rise relative to the dollar. When this happens, an unpleasant consequence (which US policymakers have given absolutely no thought to) is likely to be another leg up in the Commodity Bull Market. A stronger Yuan makes commodities all less expensive to them and it gives the Chinese greater reason to invest their massive currency reserves in something other than depreciating US Dollars. This is not mere speculation on my part: Chinese officials have already signaled their intention to stockpile more commodities especially Gold and now Silver.
During the last period of Yuan appreciation (that ended with the financial crisis), industrial commodity prices essentially doubled. I won’t venture a guess as to how high they’ll rise this time around, but I can say it will add to the inflationary pressures already building. Fortunately, we’re already holding what are likely to be the new growth stocks for this environment: Gold, Silver and their stocks in particular are set to be the biggest beneficiaries.
Technically, Gold is looking great, after taking out resistance between $1150/oz and $1160/oz, it looks set to challenge the December 2009 record highs. Gold has reached multiyear and all time record highs in Euros, Pounds, Yen and other currencies (check out their charts) and given the strong technicals and fundamentals, Gold may soon replicate that performance in dollars.
BEAR MARKET TRIGGER
The majority of the markets fell on the news regarding the SEC's investigation of fraud by Goldman Sachs. Oil and some other commodities were particularly hard hit. But Gold has held it’s up trend, moving steadily higher and building a solid base from which to break out of. Elsewhere in Europe, Gold is at its all time highs in Euros, Swiss Franks, German Marcs and GBP terms. The Market subsequently rallied 100 points plus but could not hold and then broke for 158 points. That could have been the pin that bursts this bubble.
Gold is trading up as the Goldman news would normally be bullish for Gold (but the manipulators are hard at work) since it remains a hedge against financial risk. But for a day, it led market participants to sell all assets and pile into perceived safer assets such as the US Dollar strictly because of Paulson’s potential involvement in the fraud and the possibility that he may have to liquidate his huge Gold positions in order to pay off redemptions: Which, by the way, is patently ridiculous.
Technically, Gold was already in a consolidation phase prior to the revelations and they may have exacerbated Gold's $25 one day correction. This short term correction is due to speculative leveraged trading by investment banks and hedge funds. However, over the long term, Gold is not correlated with equities and major indices such as the benchmark S&P 500. This can clearly be seen in the performance of Gold versus the S&P 500 over the last 10 years. Any emotional sell-offs based on fear are perfect buying opportunities.
Gold's Parabolic Move is Coming Soon
You, as an INDIVIDUAL, CAN CONTROL your future. There are critical forecasts that every investor needs to know to protect their wealth. Heed these warnings and you can successfully protect yourself and become wealthier in doing so. (Continue to subscribe to UNCOMMON COMMON SENSE and keep abreast of what you must do to stay ahead of the game.)
You all know by now that I am and have always been a big believer in the absolute must rise of Gold and Silver: I have been and am still projecting $1,650 to $2,000 before January 2016 on its way to my final target for GOLD OF $6,250 by 2017 that I called for way back in both 2003 and 2005.
I look forward to you all staying with me on this journey. Thus far, it has been tough as more and more supposedly Gold Bugs keep coming out of the woodwork along the way warning of a sell-off, the latest ones to $600. But for this Natural Born Contrarian, it was easy to STAY THE COURSE. All battles are won LONG BEFORE they are ever fought. Not only is that true in war, but it's especially true when it comes to trading and investing. STAY WITH AUBIE.
GOOD LUCK AND GOD BLESS
Market action from March 2007 to March 2010 highlights quite succinctly why projecting the consequences of today’s Government actions into the future is so important for your overall investment success. I apologize for not seeing the obvious, most recent, new bubble while it was being created with the trillions of dollars injected into the banks. During the last five years, I have demonstrated how to incorporate projected consequences of government actions and contrarianism into your investing by pinpointing the best contrarian investments that can both protect you and make you money during times of adversity. If you're serious about investing, you don't want to miss out on the information revealed by UNCOMMON COMMON SENSE.
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UNCOMMON COMMON SENSE
Aubie Baltin CFA, CTA, CFP, PhD. March 1st, 2015
2078 Bonisle Circle
Palm Beach Gardens FL. 33418
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.