Commentary for the Week of March 8

Death of Navy SEALs Eclipses Silliness on Wall Street

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Shares will get violently crushed on Monday at worst, or gyrate wildly throughout the day at best, now that Standard & Poor’s has downgraded U.S. Treasury debt to a still-delusional AA+. Whatever happens in the silly, benighted world of stocks and bonds, it would be a shame if Wall Street’s headless-chicken act overshadows the deaths of 30 American troops in Afghanistan over the weekend. Twenty-two of them were Navy SEALs from the same elite unit that killed Osama bin Laden in Pakistan in May. They were the best of the best among America’s fighting forces, and their deaths will raise further, grave doubts about the U.S. mission in Afghanistan. When the Russians were there for nine years fighting the mujahedin, we marveled from the sidelines at how the insurgents, armed with U.S.-made Stinger missiles, were proving to be more than a match for Brezhnev’s 40th Army. Now it’s our turn to apply all that we have learned about asymmetrical warfare. The generals say the war is winnable – but then, they always say that. Whether it is winnable or not, the pretense is fading that the Afghanis alone will be able to hold a murderous Taliban at bay as the U.S. draws down its troops ahead of Mr. Obama’s re-election bid. Neither should Americans pretend that giving the Taliban free rein in Afghanistan will be without serious consequences.  For in fact, if and when all of our troops eventually do come home, no U.S. company with offices or operations outside of North America will be safe from bombings, shootings, kidnappings and extortions. Problems Dwarf Presidency In the meantime, perhaps the President should follow Lyndon Johnson’s principled example by resigning. With a war that is going badly and an economy that is headed into Depression, the Republicans are going to have

Deflation Returns with a Thunderclap

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An interesting day, for sure. But a surprise?  It shouldn’t have been, since even the Guvvamint’s statisticians and spinmeisters seem to have noticed that The Great Recession is back with a vengeance. Under the circumstances, anyone so stupid as to be loaded to the gills with stocks deserved the full brunt of yesterday's devastation.  The stock market’s collapse surely didn’t take us by surprise. The night before, under the headline “This Rally Is….Doomed!” we’d disseminated the following alert to subscribers: “The strong bounce off yesterday’s apparently oversold low is a fraud, and it is doomed, so we’ll have a very strong incentive to short every… rally target we can find…”  We’d also made the following declaration in commentary published here yesterday:  “Lest any of our own readers be shrouded by the fog of the Mainstream Media’s coverage of the financial markets and global economy, we’ll state for the record that the technical evidence is overwhelming that the Mother of All Bear Rallies begun in March of 2009 is over.” If we sound pleased that the market appears, finally, to be having a massive heart attack, it’s because stocks for too long have been the captive of quasi-criminal forces that could charitably be described as pond scum.  The good news is that when the Dow is trading 10,000 points lower in a few years, no longer doing the bidding of high-frequency traders, mountebanks, thimble-riggers, Murphy men and arse bandits, that will set the stage for a true bull market that will run for a generation. At that point, with “money” no longer available interest-free and in practically unlimited quantities for rampant speculation, stocks will rise once again on their individual merits, savings will have a purpose, and capital will seek out its most productive uses. We hope we’re around when all

Headlines Fail to Explain Market’s Gyrations

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Pity the Wall Street Journal for having to gin up an explanation each day for whatever it is that the stock market did the previous day. We reflected on the difficulty of this task, and its inherent futility (and silliness), while discarding a stack of old newspapers yesterday morning. Markets Show Relief, for Now was the above-the-fold headline that greeted subscribers on Monday’s Money and Investing page.  And just how had this show of relief manifested itself? In fact, the steep fall of the broad averages had moderated somewhat on Friday, allowing the Dow Industrials to close down less than a hundred points. Moreover, on Sunday night there was evidence of a strong rally globally ahead of the powerful surge that was to occur in U.S. markets the following morning. Sunday night’s news had concerned the debt-limit deal just approved by the House of Representatives. We had anticipated the stock market’s rally on the news, but also the rally’s immediate failure, in the following trading alert disseminated to subscribers Sunday night. It was headlined, “Watch for a Bull Trap”:  “If a political deal is barfed up before Monday’s night’s supposed deadline, stocks will have nowhere to go but up.  This will not be because traders think the deal is bullish for the market or the economy, but because they expect other traders to react as though it were.  Since nothing could be further from the truth, we should expect the rally to be over rather quickly.  My hunch is that it would be a good short sale with the Dow up between 100-120 points…” And so it went.  Any bull who bought Monday’s opening bar was quickly trapped by a hellacious selloff that was still in progress as we went to press Wednesday afternoon.  The Wall Street Journal was of

Deal Has Something for Everyone to Hate

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Were we perhaps too hasty in condemning the debt-ceiling bill? Evidence surfaced yesterday that it may not be such a bad piece of legislation after all. First, stocks took their steepest dive in recent memory, sending the Dow Industrials 266 points lower.  It was like watching a little brat who enjoys setting the curtains on fire and torturing toads get a good spanking.  Then we came across the news story Tycoons Laughing All the Way to the Bank linked at the blog of one of our oldest, dearest – and most politically Progressive -- friends, Glenn Klotz.  “The wealthy and their huge international corporations own Washington now and do as they please,” wrote Glenn, a conscientious man of the left -- although perhaps no longer an Obama supporter. “Democracy is DEAD. The Republic is DEAD. In its place is a Corporate Plutocracy.”  In other words, the status quo has been nicely preserved, snatched from the jaws of a Congress that briefly appeared hell-bent on – ugh! – fiscal reform. So, if Wall Street fears the bill, and the hard left thinks Obama and the Democrats have sold out to “the rich,” then how bad can it be, really?  A law that we can all hate for one reason or another sounds a lot better to us than one that has pleased, for starters, Harry Reid’s flock. And did we mention that Rep. Bernie Sanders, the only declared socialist in Congress, voted against it?  That kind of news deserves to be celebrated with a shot and beer, not debated.  And consider a side-benefit we’ll all enjoy once Mr. Obama has signed the bill into law:  The story will be off the front page, finally – replaced by news that the polar ice caps are still melting, that politicians and movie stars

Time to Pay the Piper

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[Our good friend Doug Behnfield – by far the savviest financial advisor we know -- was hard at work Sunday, prepping an ultra-rare 1972 Citroen he’s restoring for a $10,000 paint job in Florida. He had just fixed the air conditioner in his wife’s Cayenne – a day’s work that would have cost him $1,200 if the Boulder Porsche dealership had done it. He had also just put the finishing touches on the essay below.  It explains why America is in for some very hard times as we work off debts that have been accumulating for decades.  Doug is no pessimist, however.  Far from it.  He says that although we face a deflationary depression that will exact big sacrifices from all of us, America will be better for it, able to return to the core strengths that made the country great. RA] Genius survives the test of time. Beethoven, the Beatles. The Brothers Grimm, Hans Christian Anderson. T. Rowe Price, Bob Farrell. Stan Salvigsen and David Rosenberg.  The Pied Piper by the Brothers Grimm describes the consequences of stiffing the creditor -- in this case the rat exterminator paid in florins -- after a job well done. The Village of Hamelin loses all of her children (except for the crippled boy who can’t keep up) when the piper lures them to a cave that is sealed up by an avalanche. Grim indeed. Today our Nation is facing the mother of all due bills now that we’ve had our heads extricated from the sand by the Tea Party. Congress and the President have settled on a fiscal restructuring plan that calls for $2.4 trillion in savings over the next decade, an increase in the debt ceiling and the creation of a congressional committee to recommend long-term fiscal reforms. The legislation acknowledges

As Housing Slump Deepens, Rental Market Booms

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Vacancy rates here in Denver are as low as they’ve been in more than a decade, pushing rents sharply higher even as the housing market continues to slump.  This reportedly is happening all over the nation as tightened mortgage-lending rules move home ownership beyond the reach of millions of would-be buyers.  Many of today’s renters could probably have qualified for mortgages under the loose standards that obtained just a few years ago.  These days, however, even if they could get their hands on the money, a growing number of would-be homeowners are passing up the American dream in order to avoid the hassles and expense that come with it. So many are doing this, in fact, that they’ve even sparked bidding wars for rental units in Colorado and elsewhere. We heard about this from the bank president of a local branch, a 27-year-old who owns eight rental properties and first became a homeowner himself when he was 19. He said that demand for rentals is so strong these days that he no longer even has to advertise properties to get them leased quickly; word of mouth is all that’s needed.  Run a rental ad on Craig’s list, he says, and in just a day or two you’re swamped with applications. And in numerous instance where apartment-hunters have shown up, only to learn that a unit had already been rented, they’ve offered to pay more for it -- much more. Just recently, the banker said, a guy offered to pay $1450 a month for an apartment that had just been rented for $1300. Some are willing to sign extended leases for two, three or even five years, the banker said, but with demand so strong, there’s little incentive for landlords to accommodate. “Honey, Let’s Sell the House…” Who’s doing the renting? 

We’ll Take 13-to-1 Odds Against a Weekend Deal

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Bullion and the broad averages went their separate ways yesterday, each reflecting the failure of our elected leaders to break the deadlock over a debt ceiling. Perhaps we can save Wall Street’s speculators some anxiety by reminding them of what the outcome will be – i.e., a political compromise that will leave in place nearly all of the problems that the debate over America’s fiscal policy was supposed to settle. Given that nothing of substance is coming, we should expect stocks, gold and silver to resume the uptrends they were in before the news media started to confuse the picture with loose speculation about lowered credit ratings, a U.S. default, the curtailment of government services, massive public-sector layoffs and a whole bunch of other things that were never, ever going to happen. About the only thing that remains uncertain at this point is whether the legislative sausage we should all expect will be extruded literally at the eleventh hour on Monday; over the weekend – most probably on Sunday; or perhaps at some later date by way of an “extension” (Now that’s something Democrats and Republicans can agree on!)  Our hunch is that the deal will be struck Sunday night, and if you want to bet on it you can get pretty good pass-line odds at InTrade.  As of around 8 p.m. EDT Thursday, wagering on the site implied there’s a 7.5 percent chance that Congress will increase the debt ceiling to at least $15.1 trillion before midnight Sunday. 13-to1 sound like a pretty good odds to us, but they seem to be getting juicier by the hour, and we wouldn’t be surprised to see them go to 20-to-1 or higher if there’s still no deal in place when the NYSE shuts down for the weekend today at 4:00 p.m.

Soros Throws in the Towel

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Ah, what a day!  Even George Soros has decided to throw in the towel, so difficult has it become to find a winner one can stick with and still satisfy the regulators. The $25 billion that Soros had working in the markets returned just 2.5% last year and has lost 6% so far this year.  Judging from the numbers, it’s probably safe to say that he’s been underweighted in bullion. Very underweighted. But why?  Does he perhaps know something that Rick’s Picks readers do not?  Hard to say just what that would be, since the fundamentals that have been pushing gold higher were cemented in place when the Federal Reserve System was created in 1913.  Soros doesn’t strike us as the kind of guy who would be unmindful of the dollar’s 95% depreciation since then – especially since some of his biggest scores have been leveraged bets against various currencies. And what easier bet could there be than to pile up ingots against the day when the most endangered currency of them all receives its coup de grace? We don’t imagine he would have been socking it all away in real estate. Even a fool can see not only that real estate prices, both commercial and residential, are being propped up by government bailouts, Fed sleight-of-hand and malfeasant accounting, but that they still have a long way to fall. Not the kind of thing that would interest someone as savvy as Soros. Anyway, we don’t envy him the task of managing all of his billions privately, since one false move could wipe out 20% of his net worth overnight. Imagine the stresses of having to keep jockeying huge sums of cash around when it’s an absolute given that only the bold contrarian will win in the end.  Not that we

Gold’s Surge Predicting Deal Will Be Sausage

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Our elected leaders need only look at the chart below to see how the budget stalemate will turn out.  Gold has been rising at an exceedingly steep pitch since early July, implying that whatever deal emerges from the sausage factory on Capitol Hill, it will not much affect the ongoing destruction of the dollar that began in earnest in 1913 with the creation of the Federal Reserve System. The Fed, as we know, was charged with conducting monetary policy and supervising the banking system. However, events of the last few years have allowed the central bank’s directors to expand its mandate to….as Buzz Lightyear would put it, infinity and beyond. The dire implications of this for the U.S. dollar have not been lost on bullion investors and traders, even if conventional thinking would deign to suggest that precious-metal prices have come too far, too fast. But compared to what? Over the last decade, bullion has outperformed just about every asset class you can name. The fact that it is now moving away from the pack of investment also-rans suggests not that buyers have run amok, but that the destruction of the dollar has entered a new and perhaps cataclysmic phase. What will replace the dollar when it utterly fails, as it must? Although gold may not pass political muster right now as America’s and the world’s next choice for money, no one can be certain that it won’t be drafted into the role.  After all, how many tried and true alternatives are there? In the meantime, we think the bull market has barely gotten started and that penny stocks that have languished for years will trade at ten or perhaps even a hundred times their current values before the bull has run its course. We’re so confident about this that

Traders Just Itching to Celebrate a Deal

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U.S. stocks fared somewhat worse than we’d expected on Monday, although the moderate weakness that occurred was a far cry from the collapse a hysterical news media had prepared us for.  Index futures got hit hard Sunday night, to be sure, but it was the kind of stage-managed weakness that occurs nearly every Sunday night. Typically, professional traders take advantage of whatever mood swings weekend news stories have stirred up. In this case, the nervous Nellies were primed to dump stocks at fire-sale prices, stampeded by a scare-mongering press that would have us believe the global financial system will unravel if Democrats and Republican’s can’t work things out.  On Friday, Mr. Obama planted the seeds of fear in the Mainstream Media’s tapioca-filled head, alluding to the possibility that the stock market would punish House Speaker Boehner for walking out on him. The major news outlets eagerly bought into this claptrap, and their fearful drumbeat grew louder and louder as the weekend wore on. By early Sunday evening, when index futures began to trade, widows and pensioners were sufficiently panic-stricken that they became the patsies of Murphy Men eager to fade their action. The Sunday-night crew has traditionally run off-hours sessions like a carnival midway, and they lost no time taking shares down to levels where buyers faced little risk. The E-Mini S&Ps plummeted the equivalent of 150 Dow points moments after trading began at 6:15 p.m. EDT.  That turned out to be the worst of the selling, much as we had anticipated, and stocks moved steadily higher for the next 19 hours.  We’d warned subscribers of a Sunday-night trap in the following note disseminated two hours before trading started:  “Securities markets were set to open Sunday night with no U.S. debt deal in place to calm investors.  This is the