Commentary for the Week of March 8

(The bear’s lament penned by our friend Erich Simon provoked such a torrent of comments that we’re letting it run for a second day. Is the upward drift of stocks since March of 2009 actually a stealth bull market cloaked in some of the most depressing economic data since the Great Depression?  You can weigh in with your own thoughts on this by clicking here!  RA) Are stocks in a  short-lived sweet spot engineered to coincide with next month’s elections?  Or is there something much bigger in store: a Megabull market engineered by the Fed and Wall Street that will run for years?  And don’t discount this possibility merely because the economy has been so weak.  After all, in the last two decades, free markets have gone into eclipse and now serve not the public, but Masters of the Universe who seem able to manipulate prices any which way they choose, regardless of “fundamentals.” It’s also possible we’re at the point of global saturation, where there are not enough investible resources to satisfy demand.  And the government is not exactly a neutral bystander any more (not that it ever was).  The U.S. has taken an increasingly active role in propping up key stocks -- and even the broad averages, if you believe all those stories about the Plunge Protection Team. I don’t recall exactly where the trendline from the dot-com bust comes in these days, but it’s somewhere around Dow 12800.  The Industrial Average is trading now around 11000, but if it were to push past that trendline, you can be sure that some gurus would be making hay with predictions of Dow 36000.  Actually, they wouldn’t be the first, since there’s a book out with the title “Dow 36000”.  It was published in 2000, and although it’s considered something of

Take a look at the graph below if you think the central banks have things under control. The chart shows the yen’s relentless rise since summer, punctuated by a single, nasty plunge on September 15. That was the day the Bank of Japan intervened in the currency markets for the first time in six years, prompted by concerns that the yen’s steep rise would hurt Japan’s export-based economy, and by the fact that the yen had recently spiked to a 15-year high versus the dollar. The intervention obviously failed, since the yen quickly recouped the loss and is now trading significantly higher than before the intervention.  Because we have heard little from the Japanese since, however, we can only infer that they know enough to shut up rather than pretend they can bully speculators. Repeat a threat often enough, and eventually you become a laughing stock. If Japan has thrown everything but the kitchen sink at the yen with no success, one can only imagine what it’s going to be like when it’s the Fed’s turn to “manage” the U.S. dollar. So far, the dollar has managed itself, albeit with plenty of help from central banks around the world that are even more keen on beating down their respective currencies than the U.S. is the dollar.  But this is just small potatoes, a warm-up before the fat lady sings.  Japan’s efforts to push down the yen have been geared toward padding the profits of its domestic manufacturers, and the scope of these efforts has therefore been commensurate in size with actual trade in physical goods. But the sums involved pale in comparison to the nearly quadrillion-dollar shell game that the world’s financiers have created with dollar-denominated securities. Don’t even think about trying to push that market around when it discovers

Bullion bears had better not get their hopes too high in the wake of yesterday’s nasty plunge in precious metals. The price of an ounce of gold on Comex fell $40 from high to low, or about 3%, and silver fared even worse, falling from 23.53 to 22.47, or nearly 4.5%.  We see this action as purely corrective, however, since none of the factors that have been driving silver and gold higher have changed. For starters, the Fed remains committed to massive new rounds of quantitative easing, which can only feed on itself by driving buyers away from future Treasury auctions. The global financial system is further roiled by Japan’s abortive efforts to hold down the yen, and by China’s simultaneous efforts to push it up.  Bottom line, the world’s major currencies, all of them fundamentally worthless, remain in a hopeless state of chaos relative to each other. If that is bearish for gold and silver, then this week’s toxic spill in the Danube is bullish for Hungarian tourism. We’d anticipated short-term trouble for bullion in yesterday’s commentary, which bore the following headline: A Hair-Trigger Alert for Bullion-Watchers.  The trigger we were referring to was a rally in the U.S. dollar, which has been in a relentless decline since early June. Were the dollar to reverse direction with a dead-cat bounce or perhaps something more, that would put downward pressure on gold and silver prices. This dynamic was present yesterday to some degree, although the NYBOT Dollar Index (DXY) began the day on weakness, breaking beneath some Hidden Pivot supports we’d flagged for subscribers. This occurred overnight, but when U.S. markets opened Thursday morning, the dollar reversed sharply, and that’s when gold and silver began to fall in earnest. Some Clues Although it’s impossible to predict exactly how far the

We want to pay very close attention to the rally in gold and silver right now, since a stall following such a dizzying climb could send bullion quotes into a 10% dive before most traders could react.  We said here yesterday that silver in particular looks like it could use a rest; indeed, a key stock that Rick’s Picks follows closely and in which we have a long position may already be anticipating it. Specifically, Silver Wheaton (SLW) has resisted the strong upward pull of futures prices over the last two days, and for the last two weeks has acted as though there’s a ton of supply just above. Because of this, we bought some November near-the-money puts in SLW yesterday as a hedge, and if SLW continues to hover we may buy a few more.  As for gold, the Comex December contract still has $30 of upside before it reaches a compelling Hidden Pivot target at 1381.70, and we expect it to be reached. But if there is any loss of momentum over the next couple of days, gold will begin to feel the pull of gravity as it has not since early July. How will we know when bullion’s rally is about to lurch into reverse?  There are two things we’ll be monitoring very closely. One is the creation of bearish “impulse legs” on charts of lesser degree. In theory, no significant price reversal can occur on the longer-term charts without a similar occurrence on the lesser charts first. Another way to look at it is that every great bull market ends, and bear market begins, with a tiny abcd downtrend on the one-minute bar chart. So far, however, the corrective downtrends in both gold and silver are consistently failing to reach their corrective ‘d’ targets.  This is bullish

The other day, we asked what kind of benighted Wall Street lackey would be so bearish on gold and silver these days as to advise their immediate sale.  With nearly every central bank in the world on a monetary wilding spree, how, one might ask, could bullion prices possibly fall?  And, yes, they will someday -- in a big way. But that day probably lies well down the road, since there is almost no chance that a world hopelessly addicted to central-bank “free” money is about to go cold turkey. Europe’s move toward austerity is arguably the only fiscal threat to bullion’s powerful bull market right now, but at the end of the day it is no more a counterforce to global money-mania than a sand castle is to the pounding surf of a hurricane. In any event, long before the supposed bubble in gold and silver bursts, the dollar would have to collapse, taking the global economy with it into a deflationary Marianas Trench. Until that day arrives, however, one would have to be crazy to think that the bull market in precious metals is anywhere near an end.  For now, we’ll stick with a litmus test we proposed here earlier to determine when the bull market is ending. Specifically, we wrote that Joe Sixpack would be telling his poker buddies about mineralization levels in Ghana before bullion peaks. So far, though, as is plain to see, Joe Sixpack has not even discovered mining stocks, let alone Ghana core samples. Let’s Out the Bears Speaking of Wall Street lackeys who are bearish on bullion, we’d like to list them publically so that they will be as harmless as belled cats the next time they appear on CNBC (with predictions that will typically lag actuality by months, if not years). If

Now comes a survey that says the American public has soured on free trade. This is one populist sentiment that few politicians have the guts to debate, let alone oppose.  Under the circumstances, perhaps we were wrong when we wrote here the other day that a move in Congress to sock China with punitive new tariffs would fail simply because the destructive consequences of the Smoot-Hawley Tariff of 1930 are too well-known. Some have even argued that Smoot-Hawley, which raised tariffs on more than 20,000 imported goods to record levels, is what triggered the Great Depression. Whatever the case, economists in particular -- even such as Alan Greenspan, who, on voluminous evidence, couldn’t pass an Econ-101 midterm exam -- seem to understand that tariffs are generally a bad thing, at least in theory. Although tariffs are intended to level the playing field and keep the U.S. from getting flooded with cheap foreign goods, the risk is that they will provoke retaliation and, ultimately, a trade war that can devastate manufacturers on both sides of the Pacific. From a purely economic viewpoint, one might ask what’s the harm if we let China sell us merchandise for less than it costs them to make it?  Won’t that only benefit consumers? We pose these questions rhetorically, however, since there most surely is harm if the Chinese (for one)  are deliberately underpricing goods in order to put our manufacturers out of business.  Succeeding at this would give their exporters monopoly pricing power, meaning they could charge as much as the traffic will bear for the goods they sell us. Even so, we risk having our own manufacturers grow less competitive, and ultimately obsolete, if tariffs are too high. Ideally, they should be just high enough to give domestic manufacturers some breathing room while they

With December Gold closing on the $1340 target that we disseminated a while back, it's time for a fresh perspective.  We wouldn't want readers to get the glum idea that $1340 is as good as we think it's going to get. Far from it. The way gold and silver have been acting lately, it feels more like bullion prices are just getting off the launching pad. Naturally, there’s no shortage of skeptics who would tell investors to hold off buying until precious metals have corrected some. You’d be wary about diving in yourself if you were a financial advisor who’d kept clients out of gold for the last decade, even as its price has more than quintupled. But we think any investor who is cautious on bullion right now is going to regret it when, come January, prices are at least 10-15% higher. Can we think of a reason for caution, just for the sake of argument? Not a good one – unless you perhaps believe that the central banks are about to jack up interest rates and smother the world’s tepid economy with a mega dose of austerity. The rationale most often cited these days for being cautious on bullion is that its price has simply been too hot not to cool down. Fair enough. But it is just as reasonable to ask why prices should cool down, given the unprecedented money blowout that is occurring throughout the world. And the word “blowout” is hardly an exaggeration.  Japan, its primacy as an exporter on the line, is in a fight-to-the-death to suppress the yen’s value relative to the dollar. But look at the chart above if you want to see how little they’ve accomplished. Although the Bank of Japan’s opening shot on September 15 obviously spooked speculators, causing the

With a little more than a month to go, what’s left of the Congressional campaign promises to be the nastiest, most entertaining political spectacle in many a year. Your editor covered the political scene himself as a fledgling reporter for the Atlantic City Press, and at times it was quite a thrill. The highlight of one particularly heated mayoral election that drew 32 candidates was when one of them jumped on the back of the police chief and sank his teeth into the cop’s head. In the end, the man who won the race subsequently went to prison -- nothing unusual for Atlantic City, since that’s where most of the town’s mayors (and quite a few city supervisors as well)  wound up during the stretch of years between 1970 and 1990 that included the creation of the town’s ill-fated casino business. Even by Atlantic City standards, though, the rough and tumble of this year’s congressional elections is something to behold.  On Wednesday, New York Tea Party candidate Carl Paladino threatened to “take out” a New York Post reporter who’d asked Paladino to prove his accusation that Democratic challenger Andrew Cuomo had cheated on his now-ex wife. Paladino ducked the question and asked the reporter about a “goon” the Post had sent to photograph his daughter, who reportedly was born to a mistress and kept secret from his wife for a decade. Whom do you root for in these exchanges?  Probably half of the Post’s editorial staff really are goons – overweening, egregiously misguided muckrakers who would sell their children for an exclusive interview with…Lindsay Lohan. Paladino didn’t specify how he would make good on his threat, but if he should succeed, having one fewer editorial hack in this world would probably not be such a terrible thing. Allred Smear Tactics Over on the

Should we be worried now that the Wall Street Journal has “discovered” the bull market in gold?  Relax. This bull market has years to go. It’s so powerful, in fact, that it will easily be able to shrug off yesterday’s front-page headline in the Journal, “Gold Vaults to New High,” and continue into the ozone. With the price of gold up 353% since 2000, the Journal was bound to notice the bull market sooner or later.  A related headline on page two further qualified gold’s leap to new record highs as being related to “global worries.”  This is true as far as it goes, but it overlooks the fact that gold has risen even in years when we weren’t so worried. And that is what we like most about the bull market in bullion: Whatever investment “story” has been out there over the last decade, gold as an asset class has led the pack.  It has flourished during periods when investors were worried about inflation, but also when they were worried about deflation.  The rally has weathered good economic times and bad, high and low unemployment, and a secular decline in interest rates. Gold has performed well when corporate bonds were in favor, and when they were not. Its price has risen when muni bonds and Treasurys were all the rage, and when both have been out of favor. If hell or high water lie ahead, we expect that neither will diminish gold’s allure. There’s Midas to Consider All of which makes it difficult to put the knock on the stuff. Not that we can blame the Journal and their ilk for trying. For how could they not when Gold’s price has quintupled off the lows? However, the arguments that skeptics are trotting out are so feeble that gold bulls should