Commentary for the Week of March 8

[So deep and pervasive are the economic lies in which we have all become immersed that few even question how the U.S. economy could be recovering when its foundations are rotted beyond remedy or repair.  A solution is at hand nonetheless, says Rick’s Picks contributor and forum regular Rich Cash, but it’s not going to come from the politicians or the Fed; rather, it will be punitively imposed on us by the collapse of a debt pyramid that as of this moment has placed a very real liability of $178,311 on every man, woman and child in America. Below, we give Rich free rein to say what cannot be said in a State of the Union speech – to say that the nation will not emerge from its long wallow until we face up to some hard economic truths. RA] *** 235 years after the first Declaration of Independence, a Revolution founded on the highest Constitutional principles of liberty and general welfare is well overdue according to Thomas Jefferson, who figured a revolution every twenty years was healthy for our Republic... We the People hereby declare… One definition of insanity is renominating to high office the same candidates and their friends representing special interests from both sides of the aisle, yet expecting different results. In January 2011, the usual suspects, some dating from the Nixon Administration and Vietnam War, began to throw their hats into the media-circus ring. It is finally time for fundamental reform, not just another quickie brand label or slogan change. A conspiracy of special revolving-door interests enriched themselves running this country into bankruptcy facing insolvency. We the people are on red alert. It is high time for real reform and repeal of white collar military Crime without Punishment. A passel of crooks took over Wall Street

We’re still not sure whether CNBC was making a joke or simply advertising its ignorance with a recent headline, “Accounting Tweak Could Save Fed from Losses,”   This was a tweak about as subtle and ingenuous as Bernie Madoff’s balance sheet.  What the central bank did was revise and advantage its own rules so that if some financial catastrophe were to inflict huge losses on the Federal Reserve System, the U.S. Treasury would take the hit, not the Fed itself.  Oh, and taxpayers needn’t be concerned about the presumptuousness of this coy arrangement, since the changes provide for the Fed to pay back the losses with future profits.  Do we really need to point out to CNBC et al. that any such profits would have to come almost entirely from…interest income on Treasury bills, bonds and notes held by the Fed? Who would have believed that the nation’s banking system would one day be powered by the feather merchants’ version of a perpetual motion machine, or that the bulk of America’s liquid “wealth” could be stored on a few computer chips no bigger than a piggy-bank’s snout? As we now know, all it takes to pull off this scam is a credulous press, an ignorant Congress, and central bankers so cynical that they actually believe the public is too stupid to understand what’s going on.  Thus is Helicopter Ben able to say with a straight face: “Under a scenario in which short-term interest rates rise very significantly, it’s possible that there might come a period where we don’t remit anything to the Treasury for a couple of years. That would be I think a worst-case scenario.”  Hello!!!!  Are we actually supposed to believe that the day this Zimbabwean twist on quantitative easing is announced, that it won’t send the dollar into

This one-hour demonstration of the Hidden Pivot Method (recorded Wednesday) focuses on two promising stocks for 2011. One is copper miner currently trading near $1 that was brought to our attention by a friend, a Canadian analyst who told us about Western Silver before it tripled in price. The other is a company with a secure niche processing a mineral that is thought to be abundant but for which demand is about to explode beyond existing supplies.

They’re they go again!  No sooner had we finished praising the Wall Street Journal for their blunt assessment of the coming train wreck in municipal bonds than they do a hit-job on gold.    The article, which appeared in Thursday’s editions, would seem to have exhausted the inventory of clichés employed by establishmentarians these days to put the knock on the yellow stuff. Here’s their short list: Worries that China will “slam the brakes on its economy” Improving U.S. stats that diminish gold’s safe-haven status A too-strong rally in 2010 that has made “some” fund managers skeptical Stepped-up redemptions in SPDR Gold Shares A hike in margin requirements by the CME Markets that are “increasingly betting” against new Fed stimulus And if all that weren’t enough, the authors of this piece, Carolyn Cui and Liam Poleven, trotted out Dennis Gartman, the Darth Vader of the precious-metals world, to spout the kind of vague hyperbole that could sound even dumber a few months down the road, as so many of Gartman’s bearish pronouncements on bullion have over the years.  “Everywhere you went,” said Gartman, “everyone you knew was aggressive long [sic]. That’s a bad sign because it means everybody has already bought.” We might ask, have you bought gold yet?  How about your relatives? Friends? Neighbors? That’s what we thought.  It’s not exactly as ubiquitous as beer in the ‘fridge, is it? You can write Gartman c/o Kitco, to set the record straight. As for the bullet points listed above, even taken together they have about as much heft as a bullish economic forecast from the Fed chairman. For starters, although China’s slamming on the brakes could conceivably send the global economy into a fatal tailspin, that would only put more pressure on the Fed to monetize Treasury debt. Concerning the alleged improvement

We often disparage the Wall Street Journal for being too spineless to tell it like it is when reporting on the state of the economy, but with last Friday’s lead story, New Hit to Strapped States, they pulled no punches. You can almost pick a paragraph at random and get a sense of how serious the cities’ credit problems are. This paragraph, for instance “Municipalities borrowed $122 billion of variable rate demand debt in 2008, roughly twice the amount of these types of loans borrowed the year before…”  How did they get in so deep?  The answer lies in the way they navigated the shoals of 2008. While most muni-bond debt is long-term, scads of jerry-rigged credit deals were struck that year to get municipal borrowers past the crunch.  For the most part, this involved the use of so-called letters of credit – guarantees by large banks to backstop municipal borrowers when they were having trouble raising cash via bond auctions. Under the circumstances, noted the Journal, “Many municipalities scrambled to convert the debt into other instruments, including variable-rate demand obligations, which are long-term bonds with interest rates that reset periodically. For a fee, big banks guaranteed many of these deals.” Now, the letters of credit are expiring, and although borrowers must have believed in 2008 that it would be easy to renew them a few years hence, this has not proven to be the case. In fact, if banks are willing to issue letters of credit at all, it is at prohibitively steep premiums.  For municipal borrowers, the only alternative is to pay increasingly punitive auction rates at a time when they are struggling just to pay their bills.  On Friday, those rates hit 5.01 percent for 30-year, Triple-A general obligation bonds, reflecting a ratcheting up of perceptions of

Although we see nothing scary in gold’s so far 5.5 % fall from early December’s record highs, we’re monitoring the February Comex contract closely for the first hint that the selloff might be about to turn ugly. At the moment, that would require a drop of a little less than $50, to below 1317.40, without any intervening rallies lasting longer than a day.  With the futures trading around 1365 late Sunday night, there is obviously not much margin for comfort, since quick, $50 selloffs are not that unusual with gold currently trading at historical heights. How likely is a swoon of that magnitude (which would turn our intermediate-term outlook for gold bearish)?  We estimate the odds at around 40 percent right now. However, using our proprietary Hidden Pivot Method to forecast price action over the near term, we expect no worse than 1321.20 before the February futures contract takes a bullish turn.  Granted, that’s just $4 from our danger zone – too close for us to lay odds that the support itself will not be breached. But it would take more than that to signal danger, since, as we mentioned above, the plunge would need to occur without any intervening rallies. This rule helps us to sort out stage-managed selloffs designed to scare gold down to bargain levels from the real McCoy – i.e., nasty declines that ae likely to continue for months or longer. If gold’s current correction is going to turn into a long, drawn-out affair, it should signal it in advance by smashing through the three piror lows shown in the chart without any big bounces along the way.  There is one other number to watch: 1313.10, since that it our worst-case target for the near-term, as well as our minimum downside objective if the higher hidden

We were hoping a bell would ring to signal a decisive end to the Mother of All Bear Rallies, now in its 22nd month, but it looks like we’ll have to settle for the next best indicator of The Top -- namely, Facebook’s IPO, prospectively the hottest ticket on Wall Street since Time-Warner merged with America Online. Who would have believed, in these harrowing economic times, that investors would practically trample each other for a chance to buy shares in the Web’s version of the Brooklyn Bridge?  That, evidently, is what the Street’s glib promoters have in mind when Facebook's IPO eventually happens: a buying stampede that will make Google’s initial public offering in 2004 seem as subdued as a PTA bake sale. However, there are so many sharks circling this deal that even if it raises the $55 billion or more that is expected, it will be just chum floating on the tide. Meanwhile, with no IPO even scheduled yet, how enthusiastic are investors? Extremely. A poker buddy of ours who attended a NYC investment banker’s sales pitch on Facebook the other day returned to Colorado with the religious fervor of someone who’d been to the Sermon on the Mount. Because the IPO is unlikely to materialize before 2012, however, that could make it difficult to determine exactly when the hubris on Wall Street is peaking, setting stocks up for The Big One we've all known is coming.  If and when the IPO happens, you can bet that the public offering being hatched by Facebook’s Machiavellian founder, Mark Zuckerberg, and the Svengalis at Goldman Sachs will be the Last Big Deal of this era. Goldman stands to reap a fortune if the IPO comes off as expected – an awesome feat, considering it will have been achieved when the U.S. economy was deleveraging more

We’ve shied away from the Arizona shooting because we didn’t want to open a can of worms in the Rick’s Picks forum.  However, because the tragic rampage at a Tucson political gathering has completely dominated the news since Saturday, when it occurred, and because the shockwaves are likely to reverberate for weeks, months or even years, we’ll say a few words and leave it at that. We were initially surprised that a news story about a nut with a gun who murders six people at a political forum and seriously injures 14 others could take flight the way this story has. With all the fatal shootings that have occurred in recent years -- in schools and office buildings, at social gatherings, religious enclaves, Army bases, post offices, college campuses and elsewhere-- we’d have thought Americans had grown inured to news of yet another murderous spree. What’s different about this spree, apparently, is that its purpose, if indeed there was one, has been conflated with the angry political mood over President Obama’s attempt to radically remake the nation’s health care system. One might have thought the political furies had spent themselves when Obamacare slashed and burned its way through Congress last year in search of votes. But with mounting threats to dismantle the legislation piece-by-piece starting to gel, perhaps it was inevitable that those who have supported Obamacare all along would unleash a new round of salvos at those who would deign to challenge it.  In fact,  the barrage they’ve launched is more like an A-bomb in that it would risk damaging the entire social and legal infrastructure of free speech in order to silence Obamacare’s most strident critics.  Redneck, or Zen One of them, as we know, is Sarah Palin, and it is upon her that the political left has trained

(Our good friend Doug B., The World’s Smartest Financial Advisor as far as we’re concerned, is still bullish as all get-out on muni bonds, notwithstanding the swipe we took at them last week in a commentary entitled “Muni Bond Yields Are Pumped for a Reason.” Doug says a perfect storm of bad news brought bond prices down to levels where an investor would have to have been crazy to pass them up. He also thinks fears of widespread defaults by strapped cities are overblown. For some outside-of-the-box thinking, read his aggressively contrarian commentary below -- and then, dear forum readers, if you disagree, don't pull your punches.  Oh, and one more thing: Before you start reading, click here to sign up for January 18's free demonstration, "A Hidden Pivot Analysis of Two Promising Stocks for 2011.) “I want to clarify a few things for you and your readers about my Muni Bond Buy. First, I am buying garden variety leveraged closed-end muni funds, managed mostly by Blackrock, Invesco/VanKampen and Nuveen. The funds contain mostly (85% plus) investment grade long term issues and the 7.5% yields are a function of leverage and modest (4-6%) discounts to NAV. They contain everything from GOs, Revs, Escrowed, tobacco, hospital, etc. I am placing some measure of confidence on the credit analysis capabilities of the managers. But the motivation for the purchase was not some big macro optimism on municipal balance sheet repair. It was because these funds got crushed overnight in November when it became clear that a flood of new supply was going to be crammed into year-end due to the likelihood that the Build America Bond Program would not be renewed for 2011 following the Republican landslide. The specter of huge supply ran straight into the most negative sentiment for bonds in years. Along with the