Bullion prices seem likely to remain under pressure for the rest of the year now that Moody’s has trained its water hose on…Spain! Yesterday, the ratings firm dithered its way into the headlines with a threat to downgrade Iberian debt. Presumably, this was done at the behest of Geithner, Bernanke & Friends. Regardless of who ordered the hit, it sufficed to touch off yet another headless-chicken scramble into the alleged “safety” of the U.S. dollar. The timing of this conspiratorial boost to the buck suggests that the Plunge Protection Team is getting better at its job with each passing month. By our runes, the dollar was poised for a breakdown. Lo, just as the selloff begun on Monday was starting to snowball, the dollar whipped around and began a steep rally that was still in force at yesterday’s close. If we’d stage-managed the turn ourselves using Hidden Pivots to time the announcement, we could not have picked a more opportune spot for Moody’s and its masters to spring a trap on dollar shorts. Curiously, although the threat did its job, turning a weak dollar lethal to anyone betting against it -- while of course knocking gold and silver futures for a loop -- Spain’s borrowing costs remained largely unchanged. Spanish bond yields actually ended the day lower, suggesting, as the Wall Street Journal put it, that “investors may have become immune to such warnings.” Do lenders know something that the rating service does not? At the very least, it would appear that they had the jump on Moody’s, since yields on 12- and 18-month bills issued by Spain had risen a full percentage point since mid-November. Dealing Off the Bottom From a technical standpoint the Dollar Index, currently trading around 80.24, will become an odds-on bet to hit a minimum 82.23
Commentary for the Week of March 8
High-Diving Investor Climbing, Climbing….
– Posted in: Commentary for the Week of March 8 FreeTreasury Bonds got savaged yesterday, but more-devastating carnage lies just ahead if our analysis from last week proves correct. Wall Street, for its part, seems to view the impending firestorm as though it were a Yule log. The Dow Industrials rose nearly 50 points on light volume, never even dipping into negative territory. We’ve seen divers boldly ascend a 70-foot tower and jump into a big wet sponge, but the stock market seems positively arrogant about the dive it will inevitably take onto concrete. Just a week ago, we told you to brace for the worst: “Falling T-Bond Threatens Illusion of Fed Control”. At the time, yields on the 30-Year were around 4.43%, but we predicted that 4.82% was on its way, and thence 5% and…away-we-go. Yesterday’s plunge in T-Bond prices pushed yields to 4.56%, so we’re already a third of the way there in just five trading days. A rise of 13 basis points over that period may not seem like reason to panic, but when you consider that trillions of dollars worth of debt – and hundreds of trillions of dollars worth of hyper-leveraged derivatives bets – will be subjected to the higher rates, you begin to understand why the stock market’s arrogant insouciance is worth troubling over. Ben’s Big Problem Adding to Ben Bernanke’s Big Problem is that the plunge in T-Bond prices has been so steep. If the dollar were falling now as well, it would probably trigger a panic, accelerating the fall of both. The fact that the dollar has been doing no worse than holding its own for the last month or so suggests not only that the herd instinct dominates the institutional investment scene, but also that expectations of a eurodisaster have made the dollar the only game in town, at least for
A World in Upheaval
– Posted in: Commentary for the Week of March 8 Free(The following essay by Cam Fitzgerald, an occasional contributor to Rick’s Picks, drew nearly three dozen responses since being posted Sunday evening, so we are letting it run for another day. Cam sees a world on the brink of financial, economic and political disaster. If the global economy and trade were to collapse – hardly a longshot bet at this point – he notes that there is no “Plan B.” We had better come up with one soon, says Cam, or we could all wind up wallowing in feudal darkness for decades. RA) The T-Bond market is groaning. Like a great, creaking ship lurching to one side, the sounds of shifting portfolio positions have grown louder and more ominous by the hour, accompanied by the clamor of bailout pleas and a mad scramble for the life rafts. Rates are on the rise and prices falling. Bonds are dead, long live Bonds! The pirates off the stern, meanwhile, smell blood and are sizing up the opportunity to take down one of the fattest, easiest targets they have seen in all their sorry lives. They know they can take this craft down with words alone. If only they can spread fear above board and on the decks, they know the crew and its passengers will rush for safety, setting off a panic that sees all hands clinging to the rails on one side, capsizing the ship. But there are not enough life preservers! Blimey! It’s a salty, seafaring epic in the making. Meanwhile, back in the landlubber’s world there seem to be quite a few asset classes that are being stretched and distorted. Equities in domestic markets have virtually regained their pre-recession highs in the absence of any real buyers other than high-frequency computer traders. Most other investors, insiders, mutual funds and individuals
It’s Business as Usual, Says Tea Party’s Meckler
– Posted in: Commentary for the Week of March 8 FreeIn a rebuke to the Republican Party, Tea Party co-founder Mark Meckler issued a stern reminder yesterday that last month’s GOP landslide was not supposed to usher in a period of pork-laden compromises on Capitol Hill. “If the Republicans choose to go down the wrong path,” Meckler told Fox’s Neil Cavuto, “they’re going to get punished at the ballot box in two years.” He said the Republicans’ back-room deal with President Obama to extend Bush-era tax breaks is already proving far too costly, since it is being greased with budget-busting earmarks and other costly political goodies. Cavuto himself estimated that when the wrangling was done the deal would hit a trillion dollars, most of it in tax breaks, but he called the proposal beneficial overall. Would Meckler himself vote for it if it were stripped of all spending provisions except for the 13-month extension of unemployment benefits? Cavuto asked. “Absolutely not,” Meckler insisted. He told Cavuto that he could never look his kids in the eye if he had voted to burden them with billions of dollars of new debt. The only solution – the one voters resoundingly endorsed in November – is to go “cold turkey,” said Meckler. “It’s time for hard remedies. To [pretend] otherwise is not fair to our children and grandchildren.” GOP’s ‘Prince of Pork’ Although there are provisions in the deal that would somewhat soften the blow of estate taxes, Meckler said the tax should be eliminated entirely. “I’m just a simple guy,” he said, “and a death tax is wrong.” He also was critical of the Republicans’ decision to put Kentucky Rep. Hal Rogers in charge of the House Appropriations Committee. Meckler has called Rogers “the prince of pork,” and he regards the Congressman’s new committee assignment as a sign that nothing has really
Gold and Silver Ebb, but Not the Larger Trend
– Posted in: Commentary for the Week of March 8 Free[Gold and silver have been hit hard this week, so it is probably a good time to remind ourselves that the factors that have been driving bullion prices higher for the last decade are still very much in place – are indeed more powerful than ever. In the following interview, Greg Weldon of Weldon Financial explains why this is so. We are grateful to our friends Michael Campbell and Robert Zurrer at MoneyTalks for sharing the interview with Rick's Picks' readers. RA] Michael Campbell: What are the implications of solving a huge debt problem by taking on more debt? Greg Weldon: It’s more than Ireland or Greece when you think that 25 out of 27 EU nations are in violation of rules on either debts or deficits relative to their GDPs. We’ve been saying for a long time that for Europe to bail out Europe is ridiculous. To think that the U.S. is going to commit a trillion dollars to any foreign bailouts is even more ludicrous. Really, the spark in the stock markets around the world was that comment from an unnamed U.S. official that the United States promised to buoy up the International Monetary Fund with another trillion dollars. The European Central Bank has been in a program to buy debt, but they sterilized that money they put in the system by withdrawing it at the back end. So they are not even really playing ball to begin with to the degree that the Fed has in the U.S. Having said that, the European Central Bank is expanding their balance sheet again. The Bank of Japan balance sheet just hit a new interim high. The U.S. bought a lot of bonds and unfortunately they’ve had mortgage roll-ups, so they haven’t yet net expanded their balance sheet to new
Falling T-Bond Threatens Illusion of Fed Control
– Posted in: Commentary for the Week of March 8 FreeHelicopter Ben said so many dumbfounding things the other night on 60 Minutes that we wouldn’t know where to begin if we were to go after him. His ostensible interviewer, Scott Pelley, was clearly out of his depth, so it looks like we’ll have to wait until Bernanke faces Rep. Ron Paul on Capitol Hill before we get a clearer picture of the issues the Fed chairman would have us believe he is managing. During the CBS segment that aired Sunday night, the Fed chief denied printing money, but Pelley failed to press him on this whopping technicality. Bernanke also said he could throttle inflation in an instant if it becomes necessary. That absurdity, too, sailed right over Pelley’s head – either that, or he simply didn’t care about the economy-killing implications of the banker’s implied “solution” – i.e., higher interest rates. On that score we have some potentially very bad news -- not only for the Fed chairman, but for all debtors. Take a look at the chart above and you’ll see why. The price of the 30-Year Treasury Bond future has been falling hard for two months, with a corresponding increase in yields. The interest rate on the long Bond was 3.73% when the slide began; now it’s around 4.43% -- a rise of nearly 20%. Rick’s Picks expects the March T-Bond to keep falling, presumably to a “Hidden Pivot” support at 120 10/32. At that point, yields will have risen to about 4.60%. Things could get really ugly, however, if the support fails, since that has the potential to send the futures plummeting all the way to 117 22/32. At that price, the long-term interest rate would be around 4.82%. Spread this asphyxiating rate over public borrowing, adjustable mortgages and revolving credit, and the extra tab would
Big Squeeze Is On in Gold and Silver
– Posted in: Commentary for the Week of March 8 FreeGold and Silver swept all obstacles aside Monday, pushing already steep rallies into hyperdrive. Even a firm dollar failed to check the buying spree. At the opening bell, we were looking for Comex February Gold to surge to at least $1425; however, by day’s end it had done even better, rallying $24 to peak intraday at 1429.40. And although March Silver fell 11 cents shy of our minimum projection of 30.465, there was such power behind the nearly $1.00 rally that the target seems all but guaranteed to be reached during the night session. All of this must have come as bad news to technically oriented bears who saw a head-and-shoulders top forming in February Gold. Look at it now (in the chart below) and you’ll see that the last two days’ price action have transformed the pattern into chopped liver. We hesitate to break out the bubbly at this point, however, because the steep pitch of bullion’s ascent is manifestly unsustainable. This implies that it won’t be pretty when the move swoons into a correction. Even so, in the days ahead, Rick’s Picks will try to provide Hidden Pivot benchmarks that long-term investors and swing traders can use to hedge bullish exposure in precious metals. We are somewhat exposed ourselves via an 800-share stake in Silver Wheaton (SLW) that was showing a paper profit of $21,376 at yesterday’s high, 40.99. Our forecast has been calling for a minimum 41.65 in the stock, but it has gotten there more quickly than we’d expected, requiring a likely adjustment today or tomorrow. Still, certain widely followed gold stocks appear to have room to move, assuming a 622.78 projection for the Gold Bugs Index (HUI) materializes. The index topped yesterday at 591.71, driven by a 10-point rally, but the Hidden Pivot target at
Stocks Chug Higher, Impervious to Bad News
– Posted in: Commentary for the Week of March 8 FreeThe stock market shrugged off appalling jobs data on Friday to close higher, much as we might have expected. Although Beadledom’s best and brightest had been looking for unemployment to remain unchanged at 9.6% for November, it actually jumped to 9.8%, at least according to the official tally. (Shadowstats’ John Williams has offered convincing evidence that the true unemployment number is above 20%.) It was also announced that employers created just 39,000 jobs in November, down sharply from the previous month. Stocks initially fell on the news, but bears were easily repelled by the so-far invincible OPM/QE2 juggernaut in the opening minutes of the session. At their most fearful, sellers managed to push the Dow down only 43 points. The broad averages oscillated tediously for the next six hours, presumably until there was not a single seller left; then, they lurched higher to finish with the best rally of the session, achieving all of the day’s gains in the final fifteen minutes of the trading week. Over the weekend, pundits would reflexively focus on the stock market’s amazing resilience in the face of such awful news. No doubt similar behavior was evinced in the staterooms and parlors of the Titanic when it was first learned that the ship had struck an iceberg. Statistically-minded bulls may want to make note of the fact that the Dow would hit 35000 sometime around August 2014 if it continues to rise at Friday’s pace. More immediately, as we implied here in an earlier commentary, stocks are almost certain to continue higher for the remainder of the year. Short-covering opportunities are becoming increasingly scarce and may have dried up altogether on Friday with the revelation that horrific unemployment data alone will not suffice to diminish the flow of OPM into shares. What If…? If there was any chance
Demand for Silver Can Only Grow
– Posted in: Commentary for the Week of March 8 FreeOur friend and colleague Sean Rakhimov, editor of SilverStrategies.com, is an astute observer of the silver scene, as well as a charter graduate of the Hidden Pivot Course. In the essay below, Sean explores some of the reasons why silver will be increasingly in demand in the years to come, especially by sovereign and institutional buyers. He writes as follows: Over the last several months, we have been pondering if governments will come into the silver market. Before we get into that, it is important to note that governments are very different animals and that there are over two hundred of them out there. Therefore, it is a very liberal generalization to lump them all together as if their needs, objectives and agendas were the same. Expecting them all to act in the same fashion for the same reasons is a big stretch. That said, it's the stigma, the psychological effect, the sentiment and the message it would send to markets that prompts us to group them together in investors' minds as a market force. This same topic has been argued in the gold space for several years and now it has come to pass that central banks worldwide have thrown in the towel and became net buyers of gold. Should it be different for silver? By the way, did you notice, how silver silently became mainstream again, and more and more headlines now read "Gold and Silver..." whereas only a couple of years ago silver was nowhere in sight of anyone except the dreaded silver bugs. Much has been made about "manipulation" in gold and, particularly of late, in the silver market. Scores of articles have been written on the subject, and things got as far Washington , D.C., where the CFTC held hearings on the subject. We don't
Squeeze Could Hang Bears on Ropes Till 2011
– Posted in: Commentary for the Week of March 8 FreeSay one thing for DaBoyz, they have infinite patience to wait until things turn their way, as things nearly always do. Stocks had been grinding sideways for nearly two months, but yesterday the prop-desk provocateurs instantly transformed the picture to their liking, goosing the broad averages into a powerful short squeeze that could keep the market buoyant for the remainder of the year. What was most impressive about this feat is that it leveraged some employment news that wouldn’t have elicited so much as a yawn in the good old days. Supposedly, the private sector added 93,000 non-farm jobs in November, up from 82,000 a month earlier. This is surely better news than we’ve grown accustomed to, but it is not good news per se, especially considering that jobs would have to grow at several times the current rate for nearly a decade to replace the estimated eight million positions lost to the Great Recession. Based on anecdotal evidence, it’s hard to tell where the new jobs are coming from. It surely is not from the professions, which, to hear it first-hand from friends who are lawyers, Realtors and stockbrokers, remain in the doldrums. Nor is it in the trades, although one Master Electrician we know has been working overtime on big commercial jobs in Denver for more than a year. In Boulder, where the economy has remained relatively strong, the biggest area of growth seems to be, no kidding, Mexican restaurants. In nearly every instance where a moderate to expensive restaurant has closed and a new one taken its place, the replacement has been a tacqueria. The only exception that springs to mind is a Ted’s Montana Grill that opened just off Boulder’s main pedestrian thoroughfare. The steak house, one of a chain of restaurants owned by Ted Turner,