Commentary for the Week of March 8

After a long holiday weekend, U.S. stocks came stumbling out of the gate Monday, unable to determine how, or even whether, they should react to yet more “strength” in the dollar.  We’ve wrapped the word “strength” in quotes because it is only in relationship to a euro enfeebled by financial crisis that the dollar could ever appear to be strong. And so it was yesterday, with the Dollar Index rallying to within 0.66 points of an ambitious, 81.80 target we’d sent out to subscribers the night before.  We had thought the latest eurocrisis had been laid to rest with the imposition last week of a bailout package on Ireland. The country had officially requested help, after all, and one might have thought that the ratification of the deal would have been automatic.  Turns out, the Irish people themselves will have a say, since their parliament will meet on December 7 to pass a budget that may or may not incorporate the provisions of the bailout.  Those provisions evidently were not buried in fine print, since fully one percent of Ireland’s population marched on Saturday to protest them – to protest the tough strictures that the bailout, worth an estimated €85 billion, would impose.  For starters, any money borrowed would have to be repaid at 6.7%, a return that even the most aggressive hedge funds are not achieving in these deflationary times. And for two, the Irish would have until 2015 to get the budget deficit down under 3% of GDP, in accordance with EU rules. If that’s the best that lenders have to offer, then at least 50,000 to 100,000 Irishmen who marched over the weekend would rather tell the IMF to shove it than accept all the strings that would come attached to the deal.  And If the Vote Is

With Ireland in the throes of an IMF-style bailout, we are being told not to worry about Portugal and Spain, since they are supposedly in significantly better shape. To be sure, Portugal is already living under stringent austerity measures, and Spain’s sovereign borrowing is nowhere near that of Ireland, let alone Greece, relative to GDP. So why are lenders imposing punitive interest rates on both? Simply because they smell blood. Not only are private lenders unwilling to help, they are actively betting against Spain and Portugal with credit default swaps that effectively raise the likelihood of a collapse when oddsmakers run out of room to lay off the action.  Opportunity moves to size, as traders like to say, and when they have something as large and juicy as a transnational bailout fund to target, it is all but guaranteed that they will. After all, there is a huge payoff if they stick with the bet until Europe breaks.  How do you think George Soros got so rich? Meanwhile, the very assurance from Brussels that Iberia can get by without a bailout probably ensures the opposite. Only thing is, when Spain and Portugal reach that point – meaning, when currently punitive borrowing rates become literally prohibitive – the jig will be up for Europe. It is one thing to pretend that Greece and Ireland’s boats have been floated, since they were initially alone in needing a rescue. But when Spain’s broad stern starts to slide into the deep, sucking Portugal into the vortex, the pretense that Europe’s nearly trillion dollar rescue fund can turn back the financial mob will evaporate entirely. For now, it doesn’t help perceptions that Spain and Portugal are themselves guarantors of the current rescue package, which is worth nearly one trillion dollars. That’s like having California be a

Liberty has been under assault lately, with Big Government seizing on economic adversity as an opportunity to further its reach into every home, into every life. We are reminded of how precious are our freedoms by the letter below, from an old and very dear friend of ours who who recently began serving a six-year sentence at a minimum security prison. A commodity trader and hedge fund manager, his crime, mainly, was to have promiscuously mingled personal funds with those of clients. Although he does not profess his innocence, the experience of being “put away” has made him fearful of a federal judicial system that be believes has concentrated too much power in unjust hands.  He writes as follows: A heart-felt generic message to you my dear friends, who maintain contact with the evil felon during the holidays. Send me a note, an e-mail, and any prayers such as lighting candles, toasting to my health with strong or mild drink or just a joke or three. Life here is not really hard, but it IS after all, voluntary incarceration. Voluntary you ask? Yes, no fences, no guns or gun towers -- just a severe consequence should we walk out and be brought back chained and disgraced, resentenced and sent to a minimum (fenced, gunned) security prison. But, today, some of our Mexican drug types disappeared, presumably southward (I do not know, or only knew them by sight) into the obscurity of perhaps the Mexican nation? In any event, I wish them well in their furtive freedom. First “Secular” Holiday Freedom is such a precious thing as you all know. The Thanksgiving celebration, the world's first secular ‘holy” day under Lincoln, was designed to bridge the various faiths, most of which clashed seriously, and have a common ground. But, one thing

[Nearly three years of strenuous efforts by the Fed to lift home prices has not added even a dime’s worth of inflation to the average dwelling. Perhaps it’s time to try a new approach by bailing out beleaguered homeowners, more than 35 million of whom owe more on their mortgages than their properties are worth.  In the essay below, our astute friend Doug B, a Colorado-based financial advisor and formidable outside-of-the-box thinker, asserts not only that debt forgiveness can help return the real estate market to health, but also that lenders are likely to support it when they ponder the alternative of empty houses falling rapidly into an unsaleable state of neglect. RA] With the latest round of discovery in the real estate market characterized by the foreclosure crisis, it is time to ponder the concept of Jubilee. Originally coined in Deuteronomy and Leviticus, Jubilee refers to forgiving of debt. Not being a student of the Bible, I shouldn’t try to interpret the reasons why it became law in the days of the Old Testament; but being a student of the Housing Bubble, I think I can weigh in on what it means for price discovery as we embark on the “C” Wave of the real estate market collapse. One look at the Case-Shiller Housing Index and you can see that calls for a bottom here or even another 10% lower is wishful thinking under the theology of Bob Farrell’s 10 Market Rules to Remember. Household Debt Ratio John Mauldin has written several thoughtful commentaries on how the carelessness in mortgage underwriting during the bubble will continue to create enormous friction in the foreclosure process, while revealing who the rightful owners are for much of the paper gone bad. Suffice it to say that the Financial Crisis still has some life in

Last week’s financial headlines offered a study in contrasts. On the ostensibly sunny side of the news was the explosive evacuation coaxed forth by General Motors' IPO. Economic optimists must have rejoiced at this spectacle, oversubscribed and charged with hubris as it was. Just like in the good old days, speculators and Wall Street bunko artists couldn’t get enough of a bad thing. Or are we perhaps being unfair to GM?  At best, we’d say the jury is still out, given that it has taken $50 billion worth of Federal largesse to elevate the once-mighty automaker from basket case to dubious recovery story. Nowhere in the torrent of stories about the IPO was there even a word about the actual cars that GM builds. Not that this would be a concern on Wall Street, with its idiot savant focus on the deal itself. For the record, we’ll mention that the latest Consumer Reports is not exactly gung-ho on GM’s, um, product.  Although the company has made strides in engineering and quality, notes the magazine, it still has a ways to go before it catches up with foreign competitors. (And let’s not even mention the Volt, a GM hybrid that looks like it will take every bit of a planned $7000 subsidy to dislodge the car from showrooms.) So if the hoopla-and-hubris surrounding GM was last week’s “good” news, what was the bad?  In case you missed it, a bankruptcy-in-progress that will eventually dwarf GM’s took another small step toward the abyss. We are of course referring to the latest bond sale by the Golden State -- a $10 billion debacle that drew such a tepid response that California was forced to cancel a second debt offering this week worth $267 million.  Too bad they don’t have a Federal Reserve-type bank of their own to take

Readers of these commentaries will already know that I don’t like to go too terribly far out on a limb when forecasting bullion’s next leap. I’ve always preferred to forecast long-term trends one predictable step at a time – a cautious but reliable way of seeing things that has attracted many like-minded subscribers over the years. There have been times when this approach contrasted sharply with my dire outlook for the economy. In the late 1990s, for instance, the column that I freelanced to the Sunday San Francisco Examiner was probably the most bearish rant published regularly in a big-circulation newspaper.  Examiner readers would not likely have imagined that, on the guru side of my life, I was getting things consistently right in a stock-and-commodities letter that went out each day to professional option traders. I got it right because, rather than follow my instincts -- which, to put it charitably, stink --  I used coldly mechanical indicators. Contrast that with the shoot-from-the-hip showmanship of Mr. Bet-a-Million, my colleague Jim Sinclair.  Although his style and methods differ radically from my own, I have only respect for the man and for the way he has stuck to his guns on gold no matter what was happening in the markets. When an ounce was trading for around $1200 back in 2008, so certain was Sinclair that the price would rise to at least $1650 by this January that he baited doubters with a $1 million bet. Did he perhaps know something?  Of course not. No one could possibly know for certain where gold would be trading three years from a given date. But he did know – and never tired of telling us -- that the U.S. Government had embarked on the most reckless credit expansion in human history – a blowout

(When we talk about “honest money,” most of us have in mind a currency that can be freely exchanged for gold. In the essay below, Steven George Fair, a frequent contributor to the Rick’s Picks forum, explains why the choice of what we deem money is fraught with concerns about the very nature of liberty, and about our willingness to order our economic lives with money that has been imposed on us by feudal overlords. Ralph Waldo Emerson once wrote that “A man is usually more careful of his money than he is of his principles.”  And therein lies the problem, even for those who would attempt to make a fresh start with bullion-backed money. Ultimately, it’s not the backing that is crucial, but the freedom for individuals to decide for themselves what is acceptable as money. RA) There is sage wisdom in the study of history.  Historically, the same arguments that are raging today in regard to economics, government, and Nature are the same arguments that have always raged.  The only change is the players, and no real change occurs in us because, after all we are men and women, male and female, rib of my rib. Culturally there are those tribal cultures that base wealth on time to eat, laugh, play, and enjoy family.  And then there are the traders: those that stretch out to gather more than is needed to sustain happiness, seeking obsessive control. I'll focus on the traders.  Each generation thinks they are different, and superficially they are -- in the way they wear their hair, pierce their bodies, or color their skin.  Beyond the superficial new way of being, we are the products of where we come from, or where we think we come from.  Our generational arguments are based in belief in Creation

In a perfect world, the Dow might have plummeted 500 points yesterday while gold and silver took flight like bats out of hell.  Oh well. Sometimes you just have to take what you get. And what we got was a merely moderate selloff in the broad averages accompanied by commensurate weakness in bullion.  Actually, weakness was the story across-the-board, affecting nearly all classes of investment assets. The disinterested observer might have inferred that traders and speculators around the world (investors have become extinct) were strongly in sync, spooked by China’s apparent desire to rein in growth, but also by the re-emergence of critical financial problems for Ireland and Portugal. Assuming investors were indeed of a more or less singular mind – and my apologies if the use of the word “mind” here has offended anyone --  it’s a bloody wonder that U.S. stocks didn’t get pulped. But they didn’t. And although sellers seemed to have had little trouble pushing the Industrial Average down by 200 points, the index seemed hostile to the prospect of giving up any additional ground. At its intraday lows, the Dow was down around 223 points; but most of the day it hovered well above the lows, down 180 or so points (which is where it closed).  Some might have sensed the hand of the Plunge Protection Team in preventing a rout. Perhaps. But who needs a PPT when just a small trickle of liquidity from a glutted banking system can propel shares skyward on any given day? And let’s not overlook the fact that, other than Kudlow,  there are no individual investors in the stock market any longer – only institutional hacks charged with deploying OPM to stay weighted in stocks, even if the earth should open up and swallow Manhattan, Chicago and a few

Time for a reality check in bullion – and in the dollar while we’re at it – since anxiety about the price action in both seems to be rampant these days. The latter, as represented by the NYBOT Dollar Index, exceeded a bullish trigger price of ours yesterday by 0.02 points, causing some gnashing of teeth in the Rick’s Picks chat room. Gold and silver investments are quite popular in this forum, to put it mildly, and signs of strength in the dollar, however faint, are usually seen as threatening.  Before we get upset about the prospect of a resurgent greenback, however, let’s consider why it has been rallying in the first place.  Quite obviously, this has been a response to rumblings in Europe, where Ireland and Portugal have recently re-emerged as the financial basket-cases-of-the-month. We’ve seen this movie before, though, and that’s probably why the U.S. dollar’s upward adjustment has been relatively muted this time around. There are other reasons as well. For even in a financial world that has been steeping for way too long in an economically fatal brew of delusion, stupidity and moral blindness, and in which, each day, cosmic quantities of Other People’s Money (OPM) are deployed in sham markets with wanton recklessness, the flight-to-safety story was becoming a difficult sell. Some of you may recall that the word “safety” was once used interchangeably with “quality,” as in “flight-to-quality,” when referring to the sandpiper-like shifting of global liquidity into dollar assets, most significantly Treasurys, in times of crisis. Nowadays, however, the word “quality” is rarely used in connection with the dollar because it would be an affront even to the village idiot’s intelligence – to Tim Geithner’s intelligence, for all we know. Those PIIGS Again… Not that such considerations would altogether discourage the OPM crowd from