Relative Price Inflation; Getting Off the Investment Grid; Permanent Backwardation in Gold

Since today's trading was nothing but another typical "buy the dip" on low volume type of affair, after Caterpillar (CAT) posted truly ugly first quarter results and existing home sales were likewise horrible, today's post contains some random thought and ideas about the state of the economy and a link to an article by Professor Antal Fekete, one of the few honest economists in the world.

I'll take IBM for 200, Alex... er, make that 175.

I've always been skeptical of yields on dividend stocks, because, in a market-clearing event like 2001 or 2008, these stocks all lose on a per share basis. Yes, your yield rises, but at the expense of share price. At best, you break even; at worst, you lose and the dividend gets cut, a la 2008.

I don't believe the RE market is actually improving. Where I live (upstate NY), RE prices were not greatly affected by the bubble bursting, but now they're headed south, with lots of Fannie Mae foreclosures showing up after the courts were clogged with them for years (still are).

Cash, silver, land still appear as safe havens, though the recent decline in paper silver has had the opposite effect on physical. Current premiums are now ranging from 25-35%, making the actual price for physical silver closer to $30 per ounce then the post $22 and change.

Land is still a little pricey, especially if it's good farm land, but I'll still take wooded acres because you can cut and use the wood for all kinds of useful things, like buildings, fences, and heat (burns good), and once cleared, viola, farm land. I'm thinking more in terms of small organic garden plots rather than macro-farming, enough to feed a few families. Doesn't take much. The average back yard will feed three-to four families of four.

Cash is your best defense despite the scourge of inflation. If deflation occurs, cash is king, and with a huge crown. That's when you can buy assets on the cheap, which is investing 101 - buy low, sell high - ya know.

I'm still a deflationista, because I look around a lot. You can buy tomatoes at $2.49 a pound at the popular Wegmans' grocery stores, or hit the same thing for $1.59 at Price Rite or even Wally World. Don't get me started on limes, a must for my favorite Bloody Mary, at 3 for $2 at Wegmans, but 4 for a buck at Price Rite.

The Price Rite's and Aldi's are in poor 'hoods, so the sucker middle class gets raped at the "safe" stores. The dimwits in the inner cities, though, are buying mostly Cheetos and crap rather than good food with the SNAP cards, so, they'd just die off, albeit at lower prices.

My point is, get off the investment grid. Buy local (farmers markets are awesome), horde cash, and, when and if the silver mania subsides, more shiney.

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A True Small Business Success Story

Start a business. Anything. Get paid in cash, if possible. Don't become another debt slave with a shitty job.

Here's my 100% true story: I think it was about 1992. I was broke, living with my brother and he wanted rent. I had $12 in pennies, my car, a little gas and a computer and printer. I took those pennies, rolled them up, took them to the bank, got $12, bought $12 worth of stuff at the dollar store - mostly cleaning supplies - printed up some cards that said "Happy House" and took my goods door-to-door in my neighborhood (in the city, a little distance from the dollar store). I sold what I had in about an hour, went back to the dollar store twice that day to re-supply and again hit the streets.

In one day - ONE DAY! - I had $45, more merchandise and people calling me with orders and questions. My biggest seller were sponges. I was able to get a big bag of them for $1, broke them up and sold them for $50 each. People would buy six or eight at a time. Also, Old Dutch Cleanser (like Comet), which I got 2 for a buck and turned around at $1 each.

In a week, I netted over $400, and then got a huge order from a guy who ran a cleaning business for about $250. I did all this in three residential blocks, barely tapping the market.

I did this for about a month, paid all my bills and took a job with a friend as a painter, which paid extremely well, and still kept getting orders over the phone. I didn't pursue the business further, but, looking back, figure I could have made serious money had I kept at it.

So, my advice, find a service which you can handle, print up some cards or use the internet. There are opportunities everywhere for self-starters. Avoid self-pity and self-defeating attitudes and people who are negative. You have worth and if you allow yourself to overcome your fear of failure, you will succeed.

(Just a side note: When I started my "Happy House" business, I was worried that people would see that I was just buying stuff at the dollar store and turning it over. Never happened. Years later, I realized that I was providing a service: bringing those cheap goods to their doors, and that was the "value added" aspect. Add value to an existing product or service and you can't miss. I know a guy who goes to the farmer's market every morning, brings home vegetables and sells them from his front yard. His day is done by 1:00 in the afternoon, and he plays a lot of golf in good weather. There are success stories everywhere - many on ebay - of people pulling themselves out of bad situations. You are no different.)

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Professor Fekete on permanent gold backwardation:

http://www.professorfekete.com/articles/AEFWhoSaidDragon.pdf

Dow 14,567.17, +19.66 (0.14%)
NASDAQ 3,233.55, +27.49 (0.86%)
S&P 500 1,562.50, +7.25 (0.47%)
NYSE Composite 9,019.90, +25.78 (0.29%)
NASDAQ Volume 1,626,128,625
NYSE Volume 3,288,661,500
Combined NYSE & NASDAQ Advance - Decline: 3644-2759
Combined NYSE & NASDAQ New highs - New lows: 225-85
WTI crude oil: 88.76, +0.75
Gold: 1,421.20, +25.60
Silver: 23.32, +0.364

Avoiding the Obvious Global Slowdown, Stocks Ramp Higher to End Week

With the nation focused on the manhunt in the Boston bombings, Wall Street types took the opportunity to bid up prices on risk assets, which is really all they know how to do.

Despite the best efforts of the insiders trading against each other and hoping with all their hearts to lure retail suckers into the market, the major indices still ended the week with losses.

For the week, the Dow lost 318 points, and was held in check today by IBM, as Big Blue missed earning and revenue estimates and was down 8% in heavy trading.

The NASDAQ lost 88 points through the week; the S&P 500 dropped 33.

The G20 meeting in Washington was nothing more than the usual gap-fest, with nothing of importance coming out of the fete.

Boston continues to be locked down as infantile efforts by our nation's security forces try to catch a lone 19-year-old kid accused of committing - with his now-dead-brother - the Boston bomb attacks.

The wall-to-wall coverage of this non-event has allowed CNBC and Bloomberg talking heads to sidestep the issue of the rapid deterioration of the US economy.

Stay tuned for further non-developments.

Dow 14,547.51, +10.37 (0.07%)
NASDAQ 3,206.06, +39.70 (1.25%)
S&P 500 1,555.25, +13.64 (0.88%)
NYSE Composite 8,994.12, +72.94 (0.82%)
NASDAQ Volume 1,710,872,500
NYSE Volume 3,876,484,750
Combined NYSE & NASDAQ Advance - Decline: 4538-1852
Combined NYSE & NASDAQ New highs - New lows: 213-68
WTI crude oil: 88.01, +0.28
Gold: 1,395.60, +3.10
Silver: 22.96, -0.285

'A Little Off the Top, Please': Stocks Get Trimmed Again; Gold, Silver Shortages Occurring Worldwide

The weirdness engendered by the recent gold and silver smash-down will not relent. While the paper price represented by the gold and silver ETFs (GLD and SLV) is unrelenting. As soon as the central banks sent the paper prices of precious metals reeling, regular people (and reportedly some not-so-regular people) worldwide have headed to their coin shops and online outlets to purchase as much physical in coins and bars as possible, at prices 20-40% over the paper price.

For those not familiar with this kind of activity, it's known as decoupling, disintermediation or dislocation. The paper price, represented by the traded funds, has decoupled from the reality of the physical price, and, that's a very important, if not disruptive, development.

What it means is that buyers are now not satisfied with the published prices and the market will determine for what one buys or sells gold and silver. That's the premium, and stories are running rampant on the internet of buyers lined up in droves outside coin shops. On ebay, the current price for an ounce of silver is now closer to $30, rather than the smacked-down price of around $23. Gold, though dearer, is seeing similar premiums for physical delivery and shortages are developing worldwide.

What's at the bottom of all this - and the reason for the price smash-down in the first place - is liquidity, or, if you will, supply, and, money velocity.

Simply put, the COMEX and JP Morgan, were facing imminent supply issues, i.e., they could not stand for delivery on contracts which wished to be paid in physical metal. Rumor has it that the long-standing practice of these two titans of trade was to settle in cash, with a premium. Beyond their shortages, this is a central banking issue of liquidity and trust. In particular, the US central bank - the Federal Reserve - cannot allow the price of gold, in particular, and its cousin, silver to erode confidence in the dollar, thus the smack-down, using naked shorts, to the tune of 400 million tonnes.

A few things the Fed, the COMEX and JP Morgan did not anticipate - the unintended consequences - were a run on physical demand rather than panic selling, which actually was the first thing that happened in the paper markets, where the heavily-hedged big players were forced to cover margin calls, thus selling their shares (not their physical metals, of which they owned exactly zero) and forcing the price down further.

The rush to physical was completely unforeseen, obviously, since now, the price for paper assets are far less than that of the physical (the premium effect). So, anybody looking to settle contracts on the COMEX in physical assets will get far less, but the COMEX will have to pay more to purchase the physical asset to settle up, which, if the math is correct (and it always is), means that the COMEX will eventually default on obligations to settle in physical assets and instead pay in cash. Buyers will be quite unhappy to receive cash rather than metal, and, ka-boom, down goes the COMEX, maybe JP Morgan, and maybe even the Fed. We are witnessing the beginning of the end of the craven, evil, debt-is-money fiat system backed by nothing and the rise of real money, gold and silver.

Expect the paper price - the price quoted by the ETFs or the COMEX to become increasingly irrelevant and also expect the CFTC to do what they always do: nothing. Prices of the precious metals have been manipulated by the large players with the help of central banks for decades, and the jig is finally up. This drama will play out over the next three to nine months, but the fallout will be devastating to the global financial system, whose proponents only know how to print, print and print more to solve liquidity and solvency problems.

It can't work, won't work and has never worked, especially now that people have awakened to the rapacious ways of the money-lenders and bankers and are demanding honest currency with no counter-party risk: gold and silver and other hard assets. The global financial system is close to implosion.

This impending implosion is being reflected in stocks, which have taken it on the chin three of four days this week, and the direction of trade is beginning to seriously head in the other direction. Illiquid and insolvent banks backing companies with fudged balance sheets and earnings reports via cost-cutting, wage-shorting and stock repurchasing are beginning to appear unattractive in terms of risk. The reality is that equity investors hold nothing but paper and promises to be paid, nothing more, and those "assets" are looking shakier and shakier as the global economy grinds inexorably to a halt.

Dow 14,537.14, -81.45 (0.56%)
NASDAQ 3,166.36, -38.31 (1.20%)
S&P 500 1,541.61, -10.40 (0.67%)
NYSE Composite 8,921.18, -27.18 (0.30%)
NASDAQ Volume 1,771,593,625.00
NYSE Volume 4,382,134,000
Combined NYSE & NASDAQ Advance - Decline: 2662-3651
Combined NYSE & NASDAQ New highs - New lows: 103-128
WTI crude oil: 87.73, +1.05
Gold: 1,392.50, +9.80
Silver: 23.24, -0.062

Wall Street is Becoming a Falling Stock Zone

Is anyone other than the Fed governors and CNBC hosts convinced that ZIRP and QE aren't exactly working?

For the second day out of the past three, stocks suffered severe, across-the-board losses, extending the pullback that began on Friday.

The worst performing index has been the NASDAQ, which has dropped nearly 100 points since the close on Thursday (1300.18).

Dow stocks, predominated by high-yielding, dividend-producing income companies - the creme de la creme - have fared better, though the index is still down 247 points and there are still two days remaining in the trading week.

While the recent moves may be described as a precursor of the time-honored tradition of "sell in May and stay away," the directionality is troubling, because the US is supposed to be in a recovery.

Not helping matters much are the oddities coming out of Boston in the aftermath of Monday's bomb strikes, and Washington, where packages containing ricin have been showing up with increasing frequency.

Larger issues loom in Europe, where data continues to deteriorate, even in Germany, thought to be the bastion of strength.

Corporate earnings have been less-than-encouraging as well. Today's numbers from Bank of America (BAC) were notably weak, spurring the drop at the opening bell.

Still, the losses have not reached even three percent, so it may well be too early to make a call that direction has changed, though, as has been pointed out repeatedly here and elsewhere, bull markets do not last forever, and this one is heading into its 50th month.

Key data this week has included a wicked drop in the Empire State manufacturing index, from 9.2 to 3.1, a negative reading (-0.2) on CPI for March and a drop-off in building permits, suggesting that the housing sector may not be quite as healthy as the pundits have been preaching.

Volume on the day was particularly heavy, a signal not lost on both bulls and bears; decliners outpaced advancing issues four-to-one; new lows, for the first time this year, superseded new highs, and by a rather large amount, another key metric.

After the bell, both American Express (AXP) and eBay (EBAY) missed gross revenue targets and just barely beat (each by a penny) the per share earnings forecasts.

Commodities continue to be beaten down as deflationary forces appear to be winning at the present time. Depending upon which side you butter your bread, that may be good or bad news.

There is good news in oil, which hit a multi-month low. If prices for crude continue to depress and remain so, it won't be long before driving Americans finally get a break at the gas pump.

Gold and silver continue to be on sale, though shortages in physical metal are widespread and premiums over spot prices are ranging anywhere from 16 to 35 percent. If that condition persists, forget the gold and silver ETFs, they will eventually break down as the backers are unable to deliver physical metal on contracts.

LATE BREAKING: Senate votes down gun control "compromise" measure. Long live the 2nd amendment!
and...
Europe's leading parliamentarian, Nigel Farage:



Dow 14,618.59, -138.19 (0.94%)
NASDAQ 3,204.67, -59.96 (1.84%)
S&P 500 1,552.01, -22.56 (1.43%)
NYSE Composite 8,955.47, -130.96 (1.44%)
NASDAQ Volume 1,889,783,125
NYSE Volume 4,579,846,000
Combined NYSE & NASDAQ Advance - Decline: 1382-5083
Combined NYSE & NASDAQ New highs - New lows: 87-178 (this could be huge!)
WTI crude oil: 86.68, -2.04
Gold: 1,373.10, -14.30
Silver: 23.24, -0.383

Global Financial Condition Cannot Be Sustained

Hyperbole aside, Monday's market events need to be taken in context with current conditions before examining the relief rally on Tuesday.

Stocks were close to record highs, advancing steadily from the November lows and putting the first three months of 2013 in frothy territory. A reversal - and not just a one-day, buy-the-dip kind of drop - was long overdue and is likely to continue because all economic data over the past three weeks have disappointed.

Eventually, stocks will coincide with reality, as they did on Monday, spurred on by China's announcement that their economy continues to slow. That news sent all Asian equity markets into a tailspin and put a negative tone on the European markets and eventually to the US as well. The slide was a global one, reflecting conditions that have even the usually-rosy IMF predicting slow global growth of around two percent, which is probably an overstatement.

Investors need to be aware of macro conditions that are causing disruptions and dislocations. China's continued courting of bi-lateral trade and currency deals with other nations - blunting US dollar hegemony - is an outlier, the impact of which should not and cannot be underestimated. The days of petro-dollar dominance are coming to an end and likely are occurring faster than those in "control" wish to consider. The ramifications of the US losing reserve currency status are deep and will put America in a non-competitive condition, not something that anyone is currently considering.

Japan's experiment with inflation may not be as seamless or painless as its architects will admit. The volatility since the beginning of the BOJ's massive buying spree is disrupting the carry trade of easy money. A slip-up or miscalculation - highly likely - could cause the target of two percent inflation to be overshot by a wide margin, spurring hyper-inflation and portending a worldwide financial calamity.

Thus, Monday's broad, massive, global selloff appears to be only the first volley from the forces of deflation, which, even with worldwide money-printing gone wild, is a relentless adversary.

As for the gold smack-down, the fingerprints of central bankers - especially our own Federal Reserve - are all over it. The rationale for the take-down of the precious metal can best be explained by two articles: one by Paul Craig Roberts, here, the other by Bill Downey at GoldTrends.net, here.

Broadly speaking, a dislocation between paper prices and physical metal on hand was causing a major problem which needed a creative, though underhanded and heavy-handed solution.

The timing of the bomb blasts in Boston could not have been more prescient for markets, as the tragedy put all other news on back burners, to the point that none of the three nightly network news shows even made mention of the stock market travails or the plunge in gold and all other commodities. Regular scheduling on CNBC was pre-empted by network coverage from the scene of the crime. For the ill-informed, all they'll know is that stocks staged yet anothr miraculous rally on Tuesday, and that all is well in the world at a time when the wheels of industry and finance are practically falling off, wheeling out in all sorts of odd directions.

Sooner or later, governments and their financiers simply can't fake it any more. Today's network whining over the "tax gap" of $500 billion annually being under-reported or not reported at all is only a symptom of the malady of over-taxation. People just have to "cheat" just to get by, and, with the numbers of food stamp recipients rising to all-time highs, the government is a willful participant in pushing people over the edge and into the "underground" economy, which has flourished since 2000 and especially since 2008.

Governments are bloated with debt and false promises, their central bankers morally, intellectually and financially bankrupt. The system will implode or explode. Different countries will have different results, though most will suffer deepening and discouraging depression and deflation. Central banks have printed over $25 trillion in fresh money since 2008, shoring up the balance sheets of zombie banks in the US, Europe and elsewhere, but the money has not flowed beyond the banks' vaults.

Financial repression will continue until massive dislocations can no longer be ignored. Financial reporting by major firms is mostly fraudulent, as many firms have bought back massive blocks of stock, making their earnings per share comparisons easy, but, eventually, weaker than the headline numbers being touted.

Wall Street may be waking up to the fact that revenue growth simply is not happening and that current levels will be difficult to maintain.

These are just a few of the issues facing global financial tinkerers. At some point, they will not have answers when problems confront them. Their time is running out.

Keep a close eye on the new highs - new lows. When that rolls over and there are more new lows than new highs for more than three days, it could be the first signal that the bull market is over and the bears are about to claw the market to pieces. That indicator has bee widely in favor of new highs for a long time, but recently has tightened, with the gap closing significantly on Monday and Tuesday.

Dow 14,756.78, +157.58 (1.08%)
NASDAQ 3,264.63, +48.14 (1.50%)
S&P 500 1,574.57, +22.21 (1.43%)
NYSE Composite 9,082.58, +128.63 (1.44%)
NASDAQ Volume 1,447,797,375
NYSE Volume 3,740,603,750
Combined NYSE & NASDAQ Advance - Decline: 5111-1368
Combined NYSE & NASDAQ New highs - New lows: 137-87
WTI crude oil: 88.72, +0.01
Gold: 1,366.40, +5.30
Silver: 23.34, -0.016