Wednesday, January 5, 2011

Stocks Bounce Back; Slaughter of PMs Continues; Predictions 2011, Part 2

After unexpectedly rosy employment data from ADP - showing US employment gains of 295,000 in December - failed to lift market futures, the major indices opened with a decidedly negative bias, sending the Dow down by nearly 40 points at the open with the others in tow.

As it turns out, however, the open, or just minutes into trading, witnessed the lows of the day, as unusual an event as a hole-in-one perhaps, or as a Democrat (or a Republican, for that matter) voting to cut spending.

Stocks levitated into positive territory until about the noon hour, then lazily spent the rest of the session moderating around the highs. A bit of a spark at the end of the day caused them all to close very close to or at their highs. So, we have a market that does nothing but go up, endlessly, it appears, run by HFTs (high frequency traders) and their trusty computer algorithms. It should be obvious - though it is not - to anyone who's studied markets and/or finance for more than 20 minutes that such a system cannot endure.

Meanwhile, the same Ponzi schemers traders have managed to make gold and silver look like the worst investments since 17th century tulip bulbs, smacking the two widely-held precious metals down for the second consecutive day. A glance at kitko daily charts clearly indicates that the manipulations by JP Morgan and HSBC are still in place, with their boundless short position being unwound during the US sessions, allowing them to BTD (Buy the Dip) as they surpress the spot price to a level at which they can semi-comfortably unload.

Nobody really knows how large the short positions of these two banks really are, or, worse yet, the extent of manipulation in gold, but if the past two days - and especially today, as the metals receded while oil spiked, breaking the correlated commodity trade - offer any kind of guide, they must be into it up to their stuffed shirt pockets.

We are currently in an inverted market in which the worst, riskiest and most speculative investments - paper money, stocks - continue to rise unabated and the most intrinsic, solid and stable investments (also those with a stellar track record the past 10 years) - gold and silver - are being shunned by the kleptocracy. All the while the Wall Street swindlers are telling you to buy equities and sell your gold and silver, because, according to them, they're "in a bubble," constitutes the worst form of the shell game, because as you sell your gold and silver to buy stocks from them, they are buying, yes, sir! gold and silver.

The best strategy these days is to play along with them, buying when they force the price of PMs lower, because, if they're doing it out of desperation, the prices are sure to rise. Demand for physical gold and silver (not ETFs or "holdings") is at historic highs and will remain there as long as there is artificial suppression and unrelenting money printing by central banks.

Dow 11,722.89, +31.71 (0.27%)
NASDAQ 2,702.20, +20.95 (0.78%)
S&P 500 1,276.56, +6.36 (0.50%)
NYSE Composite 8,040.04, +17.86 (0.22%)

In a reversal from Tuesday's trade, advancing issues led decliners, 4116-2407. NASDAQ new highs: 148; new lows: 8. NYSE new highs: 175; new lows: 8. The diminishing number of new highs (as compared to Tuesday, a down market day) and the bottoming out of new lows continues to scream "sell, sell, sell" louder than even Jim Cramer's mindless sound effects. The levitation is nearly at an end, there are fewer and fewer stocks left to pump, left the pumpers lift the actual dead and dying weight at or near bottoms.

These new high-low figures are at extremes and the small number of stocks making new highs indicates a market top as does the paucity of analysts willing to put near-term objectives out in front of their faces. Normally, a sell-off would be imminent, though with the controlled nature of the US markets, almost anything could happen.

NASDAQ Volume 2,072,631,625
NYSE Volume 5,273,362,500

Oil bounced back up over the $90 mark, closing at $90.30, a gain of 92 cents on the day. Gold fell $5.10, to $1,373.70, while silver shed another 31 cents, to $29.20, though both were much lower mid-day.

Predictions 2011: Part 2

When we left on on Monday, the discussion had turned to unemployment, which we said would run past 10% in 2011. What wasn't said was that the corollary, employment, would continue to show faint signs of life, though what the BLS and the government number crunchers also won't tell anyone is that high-paying jobs in tech, manufacturing and other businesses are still being downsized, only to be replaced by low-wage service jobs. Essentially, the middle class is being downsized by enormous corporate interests which have a vested interest in boosting their bottom lines.

In essence, over the past 40 years, America has gone from being one of the most productive economies evre seen on the face of this planet, to being one of the most destructive, in terms of lost opportunity, capacity utilization and middle class wealth destruction. This shift away from productive, capital-building enterprises to service-related companies with the emphasis toward domestic consumption will only accelerate in the coming year unless radical changes are made to our tax laws and industrial policy, a thing that currently does not exist.


The race to the bottom of the fiat money pit will continue unabated in 2011, and probably accelerate in the second half of the year as the Fed's Zero Interest Rate Policy (ZIRP) and 2nd round of Quantitative Easing (QE2) continue to keep the economy like a patient in traction. The patient will be reported as doing better, though still unable to move on its own. Thus, when the Fed's latest ploy (QE2) runs out in June, there will be need for further stimulus and it will have to be n the form of expanding the money supply, slipping it into the balance sheets of the illiquid banks and letting the proceeds sit on the bloated balance sheet of the Federal Reserve.

While Europe has openly stressed austerity, there's little evidence that it's doing anything different than what our own Fed is doing, as they go from one bailout to another - from Greece, to Ireland, to Portugal, Spain, Italy. The issues in the EU are so extreme and dangerous, the US dollar will look like a good bet by comparison. But the real strengthening currencies will be in developing nations like India, China, Malaysia, Korea and those with raw materials, like (surprisingly) Peru, Brazil, Ecuador, Indonesia and the mainstays, Canada (though they're stressed as well) and Australia. Any nation displaying fiscal discipline would serve as a good place to hedge US dollars, though they are difficult to find.

As the world becomes an increasingly dangerous place, deployment of capital will seek alternatives to the developed world, but inflation in growing economies could offset any currency gains. It's a strange and fast-paced trade in currencies, not for the inexperienced or those with limited capital to put at risk. The US dollar will fare well against almost all other competing currencies. Destruction of the world's reserve currency takes time, and a year is just a small part of the breaking tableau.


Tying back to the constant hum of government printing presses, increased monetary stimulus will eventually find an outlet in hard goods and raw materials. Food prices already are at record levels in many parts of the world, energy continues to feel demand strains, though the relatively slow pace of growth and the inexorable pull of political power worldwide will put a brake on some of this trade. While climate concerns top the list as far as grains and most foodstuffs are concerned, manipulation in metals - precious and otherwise - may cause violent swings and price dislocations. In an environment created to obfuscate and confuse price discovery mechanisms, an absolute rise in prices is definitely not a slam dunk, though the inflationary push seems to point in that direction.

Eventually, price will meet demand, or lack thereof, and some equilibrium found before riots and starvation become the norm. Your best bets for 2011 are still gold and silver, with the latter being the favored instrument as it seeks to re-establish the 15-1 gold-silver ratio. Both should appreciate well in excess of 15%, so $1500 gold should be an easy target and silver may bust right through $40 per ounce in rapid manner.

As far as oil is concerned, apart from the rigged and artificial aspects of how it is traded, crude prices cannot exceed $100 for very long, if they even reach them. Absolute price inflation will crimp demand, and, thus, set the wheel back to "go" again, so don't expect oil prices to skyrocket or decline much at all. Stable prices would be best for all parties (except those selling the stuff, short term), and that's what we may get. There's about a 30% chance oil prices actually fall on slack demand, back under $75, but not much further, though a price around $60 per barrel would go a long way toward global growth, though the supply/demand numbers simply don't add up well for that to be much more than a wing and many prayers.

Besides gold and silver, rare earth investments are tricky and unless you discover a mother lode of ytterbium in your back yard, best avoided as another needless paper chase and probably over-hyped. All well-stocked commodity cabinets should have the requisite PMs, plus canned foods and bottled water in case of the absolute end. Guns if you got 'em, ammo if you have the guns.

Friday: Stocks, indices, politics and cultural trends to watch.

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