Commentary for the Week of March 8

It was Christmas in July yesterday, statistically speaking. Jobless claims fell last month, private businesses hired more workers than had been expected, and retail activity picked up enough to get vendors talking about reining in discounts. Wouldn’t that be swell for them!  By the time actual Christmas rolls around, we could all be paying retail – retail! – for all kinds of great stuff, putting America back on track for the kind of sustained recovery that might last until, oh, maybe early January.  One thing’s for sure: Shoppers won’t have much trouble binging beyond their means if they’ve been getting the same offers from the banks that we have recently. Balance transfer loans at rates under 2% now seem to be the norm, even though it wasn’t too long ago that the fees were more in line with what Frankie the Camel charges guys who are keen on preserving their kneecaps. Kneecaps were not even a distant concern on Wall Street. Ebullient as ever and wildly oblivious to the discouraging word, speculators greeted the news by embracing risk as though tomorrow would never arrive. The Dow Industrial Average was up more than 120 points shortly before the close, and although it sold off slightly in the final moments, shares looked poised for yet another risk-embracing spree into week’s end.  At the bell, the blue chip average had gained nearly half of the 900 points we predicted here on June 30.  Speculators’ devil-may-care lunge for shares was especially impressive given that the price of oil --- and therefore the future price of nearly everything else – was in a steep climb, extending a rally that in less than two weeks has tacked $10 onto the price of a barrel. That can add up in a world that consumes 80 million barrels

Gold and silver racked up another day of solid gains yesterday, providing some of the most encouraging technical signs we’ve seen in several months.  Most impressive was that numerous bullion-related issues that we track were able to generate fresh, bullish “impulse legs” on their hourly charts, much as we might expect from a rally with more than merely short-term potential. (Click here if you’d like to learn more about our proprietary Hidden Pivot Method.) This was true not only for Comex precious-metal contracts, but for such high-octane performers on the equity side as Silver Wheaton, a Rick’s Picks favorite that has been on a rampage, gaining nearly 22% in less than three weeks. Although we’re always eager to go-with-the-flow, it is our practice to closely monitor rallies like this one lest we be caught unawares by the sort of nasty downdrafts that are common in prolonged corrections. The purpose of such corrections is to shake loose all but the hardiest bulls, and that is why we are always guarding against the unpleasant surprise.  Technical analysis aside, we remain open to points of view that differ from our own, currently bullish, outlook for bullion.  To help readers keep an open mind, here is a bearish note that turned up yesterday in the Rick’s Picks forum. The author is Cam Fitzgerald, a frequent contributor. He argues that the looming 2012 election will put a lid on commodity prices. Cam begins his post by addressing the sunny outlook of “Charles,” who wrote that predicting a bullion rally “just ahead” is a no-brainer. ‘Sympathetic’ Decline “I am not with you, Charles. There is something else at play now that relates to elections next year. Commodities will decline and so will the commodity induced inflation threat. This is not bullish for metals. Gold and Silver,

Gold and silver showed some spunk yesterday, extending for a third day their steepest rally in nearly ten weeks.  Relative to Friday’s gut-churning lows, August Gold was up $40 yesterday while July Silver has risen $2.22.  The latter was the better performer percentage-wise, gaining 6.6% compared to gold’s still-impressive 2.7%.  Does this portend an end, at last, to the tiresome correction from early May’s summit? We’ll likely know soon, since both metals are an easy rally’s distance from achieving crucial benchmarks identified by Hidden Pivot analysis. (Want the precise, proprietary numbers? Click here for a free trial-subscription, including access to a chat room that hums with trading activity 24/7.)  If our benchmarks are hit, it would generate bullish “impulse legs” on the respective hourly charts of both gold and silver, increasing the likelihood of a sustained move higher. We should note, however, that false starts have plagued bullion since they put in correction lows, respectively, on May 5 and May 12. Those lows came within a whisker of “midpoint pivots” we’d flagged here in timely fashion.  A basic tenet of the Hidden Pivot Method is that corrections in bull markets typically fail to reach the ‘d’ targets of abcd downtrends (see chart above). Bullion’s price action since early May has precisely conformed to this rule, although the lengthiness of the correction is starting to induce the sort of tedium that can send futures quotes soaring or plummeting on a given day for no particular reason. One might infer that bullion traders have grown so bored and frustrated that they will do the kinds of crazy things we all do when tedium tries to wriggle through the narrows of life’s Bollinger Bands. However, there’s a problem with that theory, since it is not humans who are doing most of the trading,

Share valuations ahead of Dot-Com Bust II have been crazy-stupid, demonstrating yet again, to borrow Mencken’s line, that no firm in the IPO business will ever go broke underestimating the intelligence of the American investor.  Witness the huge markups paid last May for IPO shares of the still profit-less LinkedIn, a company that purports to network business contacts between individual users. Instead, and as far as we can surmise, LinkedIn has grown its subscriber base using viral techniques, mailing out link “requests” to people like your editor, who thus far has failed to throttle such e-mails. The result is that, although LinkedIn has collected a zillion names, e-mail addresses and personal data from registrants, the registrants themselves are only tenuously tied, a vast nervous system unconnected to a brain.  Of course, this didn’t stop investors from trampling each other to pay ridiculous prices for LNKD stock when the company went public last May.  Shares expected to fetch around $35 soared to $122.70 on opening day and currently trade for around $94. This is notwithstanding the fact that LinkedIn, like Facebook, has yet to develop a revenue model even remotely capable of vindicating the outlandish multiples speculators seem willing to pay for an equity stake. Meanwhile, even as the thimble-riggers and confidence men at Goldman and other Wall Street firms salivate over the prospect of retailing insider shares of Facebook to the rubes at superheated premiums, Google is threatening to eat Facebook’s lunch and perhaps make Mark Zuckerberg’s Great New Idea the next Internet has-been. How scared is Facebook?  Some bloggers have accused the company of hiring moles to churn out hostile comments on Google+, a new social networking service that has generated such hot demand that Google had to suspend invitations to try the beta version.  And the reviewer at

[Guest commentator Edward Furst, introduced here a couple of weeks ago in an essay about Young Americans for Liberty, has some disturbing news concerning the way economics is taught at the nation’s colleges.  It would seem that more than a few professors are either poorly informed about the subject, or, like Paul Krugman, downright nutty. Moreover, their ideological bias is pushing the already dismal science beyond the pale of reason. The good news is that young people like Edward, a Mises Institute graduate and online rabble rouser, are fighting hard to combat economic ignorance. In the essay below, we glimpse the young libertarian and former collegian at work. RA] Over the next seven years, the Federal Government is poised to squander triple the amount of money spent fighting WWII. And that’s adjusted for inflation! Total unfunded liabilities on the federal ledger consistently exceed the GDP of the entire world.  The government could raise the top marginal income tax rate to 100% for all those shysters making more than $250K annually and not even cover the deficit. They could liquidate the assets of every Fortune 500 company and every billionaire in America, yet red ink would still flow from Imperial fountain-pens like human and animal waste down the Ganges. “Fear Not!” say the demagogues. “It’s not a spending problem, but a revenue problem!” Once upon a time, such deluded statements earned one a trip to the doctor.  Now, they get you an esteemed economics faculty position at some prestigious university.  I got to know this phenomenon well when I studied Principles of Macroeconomics under Anne Gongwe, a professor at Colorado State University. Anne is a delightful person, but I must say, her Ph.D. would better serve as kindling for Rick’s readers during the coming collapse than as a qualification to inculcate

Gin up a garden-variety short squeeze in the index futures Sunday night, add a dollop of surprisingly less-than-horrific news from Europe, and before you know it the Dow Industrials are in an upthrust that could carry another 900 points, topping 13,000.  That’s not the way things were supposed to play out.  The story had it that the Fed would do everything in its power to force stocks sharply lower so that investors would flee into the dubious safety of Treasury paper. That in turn would strengthen the dollar, paving the way for yet more promiscuous monetization after this afternoon’s expiration of the abortive QE2 program.  Perhaps the Masters of the Universe are still planning to implement this scheme, but with stocks falling from a higher, giddier plateau?  We should know within a few weeks. Meanwhile, in theory the central bank will have some time to play with, since the Fed’s budget allows for the purchase of Treasurys with the interest on Treasury paper already held in its portfolio. (Ah, yes: How can it be called “monetization” if the Fed is actually “paying” for the Bills, Bonds and Notes it buys?) We’ll leave it to bloggers and the not-quite-ready-for-prime-time media to examine the Fed’s method of paying for whatever it must buy at the next auction.  They’re likely to find elements of Ponzi, Rube Goldberg, and Bernie Madoff, but they’ll first need to get past the stench of it to peel away some layers. In the meantime, with sovereign banks, U.S. households, hedge funds and other would-be buyers becoming increasingly skeptical toward Treasury debt, it seems plausible the central bank will deplete its interest “income” more rapidly than policymakers might hope. What to Look For Concerning the stock market, lest our bullish forecast worry or frighten any right-thinking permabears, we would

On rare occasions, Rick’s Picks will offer a 30-to-1 horse to subscribers who want to take a flyer. This time, it is Kodak that is the object of our greed. The stock has been trading erratically on the prospect of a favorable settlement of a patent case brought against Apple and Research in Motion. Winning the lawsuit would be a big score for Kodak, since licensing fees worth as much as a billion dollars are at stake.  Not bad for a company that almost went out of business because it failed to foresee the digital revolution in photography. Because the Rochester, NY firm still holds 11,000 patents, more than a thousand of them in digital imaging, its very survival hinges on aggressive licensing of intellectual property. Although we have no strong feelings right now about EK shares, a longtime reader of ours who sometimes sends us hot tips thinks “EK to win” looks like a good bet. The tipster, Phil C., affirmed his enthusiasm yesterday in an e-mail that we duly conveyed to subscribers in the chat room. (Don’t subscribe? Click here for a free trial.) The breathless subject header read as follows: “Two-Minute Warning, Crunch Time. Ninth Inning”. As for the message itself, it was bursting with hopefulness, although understandably lacking in guarantees: “Whichever sport you choose, this is the crucial time to take maximum advantage of the opportunity in EK. Either a settlement gets announced at any moment, or the ITC rules after Thursday's close in the US. I believe the chart says the stock is going higher. The catalyst of the decision/settlement only determines how fast and to what level the stock rises? As indicated previously, $5 is the short term minimum target. I now believe that in the intermediate term $6 is possible with an eventual

Comex Silver ended the day near the edge of an abyss, threatening to plunge, eventually, to as low as $25 if even mild selling continues for the next few days.  Specifically, our downside target for the July contract would be $25.13 if the futures were to settle for two consecutive days beneath the key low at $32.30 recorded on May 12. That number is what users of our proprietary trading system call a “Hidden Pivot,” and we were initially encouraged when the futures reversed very precisely from it and moved higher over the last few weeks. However, although the rally has looked constructive, it still needs to surpass the two labeled peaks shown in the chart to clinch a bullish outlook for the intermediate- to long-term. Unfortunately, the rally appears to be dying without having gotten past the two crucial highs, implying that the big A-B-C down-pattern will complete to its ‘D’ target at $25.13.  That number is the Hidden Pivot “sibling” of the $32.30 midpoint pivot, and if it were to be achieved, it would represent an almost precise 50% retracement from early May’s highs. Of course, the futures could still get second wind and steam higher, emerging from the danger zone with a print above 42.325 (Peak #2).  But it would take quite a leap from here – about 25 precent.  Moreover, in order to re-energize bulls sufficiently to vault Silver above $50, the rally would need to traverse the entire $2.85 distance between peaks #1 and #2 without a significant pause. In the meantime, as noted above, the futures will remain vulnerable to a 25% downdraft to $25.13 if they slip decisively below $32.30. Worst Case for Gold Although Gold futures have looked somewhat better, the decline of the last several days has brought them even closer

You don’t need to be a chartist to see that the stocks will need to test the key low made in mid-March before anything serious happens. For the Dow Industrials, that would imply a fall of 378 points from these levels to 11556, or about three percent. What then?  Although a bounce seems likely,  we wouldn’t expect it to last for more than a few days, if that long.  Moreover, because the support is so obvious, we should expect the Indoos to dive toward it in the days ahead rather than approach it gingerly.  After all, why would traders buy the blue chip average as it is falling if they “know” it’s going to fall at least to the support?  We might expect such buying and for a bullish turn to come from somewhere above 11556 if the market had a reason to rally. In fact, The Great Recession seems to be edging toward another flirtation with Depression – one predicated on further, intractable weakness in the real estate sector, along with whatever psychological fatigue is about to hit as a result of QE2’s epic failure to stimulate much of anything. With respect to the stock market, we would ordinarily employ the Hidden Pivot Method to forecast price action for this summer. (You can learn to do this yourself, and to do it impressively well, by clicking here).  In this case, however, our target of 11506 only gets us halfway to the next logical low.  Once again, you needn’t be a swami to see that the Industrial Average will fall to 11000 if the mid-March low gives way.  The only question is, how quickly will it happen?  Our hunch is, very quickly, especially given the prospect of a budget battle on Capitol Hill. Although until recently we had viewed the