UNCOMMON COMMON SENSE
For People Who Think
Aubie Baltin CFA, CTA, CFP, PhD.
RECESSION 2010…DEPRESSION 2011WASHINGTON IS THE PROBLEM, NOT THE SOLUTION: Will we ever learn that the only solutions that have any chance at all of reversing the Deflationary Spiral that we and the rest of the world are in are FREE MARKET CAPITALISTIC Solutions?
LOOK OUT BELOW!!
FED'S DIM RECOVERY OUTLOOK: The Federal Reserve struck a more cautious tone about the strength of the U.S. economic recovery, indicating Europe's debt crisis poses a risk to US growth. The Fed in a 9-1 decision retained its pledge to hold rates at record-low levels for an "extended period." Doing so, they say, will energize the rebound. That would be funny if it was not so damaging to our country and economy. They act as if their zero interest rate policy has been working. Basically, all the Fed is trying to do is blame someone else for their failure. Statistics don't lie, but liars use statistics and that is exactly what has been going on for quite some time. Don't they realize that reporting erroneous #'s only buys time until the revisions come in?
STIMULUS OR AUSTERITY:
OBAMA, GEITHER & SUMMERS' G20 AGENDA
Engagement with the G8-20 has been the only component of the Administration's strategy to even attempt to defuse the global financial crisis and encourage economic recovery. Once again, Obama and his flunkies are looking to place blame. Their contention that stronger growth with solid job creation here in the U.S. depends on an expanding global economy is pure nonsense. Exports represent less than 15% of our economy, so how much growth from the rest of the world is required to make a meaningful difference, especially when Europe is embarking on an opposite austerity program. To even attempt to convince the majority of the more solid countries to pass a new Stimulus Bill is simply pie in the sky thinking. Besides, the ECB is, unlike our FED, truly independent and would certainly not go along with any new Inflationary Currency weakening stimulus. In all the years that we have had G8-20 meetings, not once have they ever agreed on anything meaningful and there are no more reasons today than at any time in the past to come up with anything meaningful this time either. This is exactly what the markets are telling us.
Question: If our economy is so strong and growth is accelerating, why do we need a new Stimulus Bill? And by the way, were any of you surprised that the GDP numbers are being revised downwards?
The very same people (Bernanke, Geithner, Wall Street, the Media and all their Economists) who have consistently shown themselves to be untrustworthy are looking more and more like the clowns that they really are; when they try to convince us that paper money is less risky than Gold and Silver. That statement alone illustrates their complete lack of credibility and understanding of risk and reward, as they contend that any austerity in the USA will lead to a "very rough second half": Especially in terms of the jobs market.
But can they all be that stupid? Some must be just paid shills and/or blind ideologues of the political class. They refuse to see that the path this Government is on: By using simple math in conjunction with the bullish continuation patterns of Gold and Silver bullion, which have minimum targets of $1850 and $35 respectively (and that's in the relatively short run) GOLD is shouting loud and clear at them, but I guess "None are as Deaf and Blind as those who refuse to Hear or See". We, on the other hand, must learn to trust our own common sense and then maintain the courage of our convictions. (Using Stops along the way just in case we are wrong.)
Does anyone really believe that a 3% Yuan appreciation against the US Dollar will make a meaningful difference: When empirical evidence tells us that quite the opposite is true?
Government regulations have NEVER solved any of the problems they were designed to fix and this time will be NO different. This is especially true when the major problems that overhang the financial systems of the world, such as Derivatives, FNM and FRE are not even being addressed. Neither are the two major direct causes of the Financial Crisis: The Community Reinvestment Act and the gutting of Glass Steagall. Sarbanes Oxley, their last attempt at reform, only succeeded in pushing 50% of New Foreign Company listings and underwriting business offshore to London, Hong Kong and Frankfurt. The effect of their short sighted regulations, which are really nothing more than an attempt to vilify and blame Wall Street for their own failures, will accelerate "OUT SOURCING" like you can not even imagine. But what will end up being even worse is that it will hamstring the growth of "Small Business". Last but far from least is how can a 3000 Page Bill be good for anything else besides causing more harm than Good?
MAKING MONEY IN ALL KINDS OF MARKETS
THE FIRST MISTAKE most investors make is in using the exact same investment approach regardless of the type of market they are in. The largest victims of this type of investment bias are Buy and Hold investors. The buy and hold method is a terrific approach to use during a raging secular Bull Market, such as what we saw from 1982 through 2000. But, it is during a secular Bear Market (which is what we are in today), that the buy and hold approach will destroy your wealth.
NOTE: We are currently in a Raging Secular Bull Market for Gold and Silver.
The Second Biggest Mistake (maybe it should be the first) and what some may consider the worst mistake of all is insisting that the all markets are monoliths and have to do what they expect them to do - thus refuse to use stops. They turn what should be manageable losses of 10% or 15% into non-recoverable 100% losses. It is perfectly fine to have conviction but just in case you are human, use protective stops and for heaven's sake never allow big profits to turn into losses.
"It ain't what you don't know that gets you into trouble. It's what you think you know for sure that just ain't so" - Mark Twain
The whole idea is that in order to consistently make money over time, one must adjust one's trading strategies and methods of operation to the market that we are in. Unfortunately, this is an idea that is ignored by most analysts, advisors and investors and of course, by all losing investors.
The biggest advantage that Elliott Wave has over all other methods of projecting the future is that it tells you within 3%- 5% when you are wrong. So, you can liquidate and then sit back, in cash, and re-evaluate your positions and your thinking.
As an aside, that also means that we can be in a Secular Bear in one Market while being in a Secular Bull Market in another - just as we are in today. A Bear Market in stocks and a Bull Market in Gold and Silver.
LEARNING FROM THE PAST
There was the equivalent to today's PLUNGE PROTECTION TEAM after the 1929 Stock Market crash. It was formed by the big banks under the leadership of JP Morgan. On one of the crash days, this syndicate purchased large amounts of key stocks well above their offering prices in an effort to halt the collapse. And they were successful, at least on that day. But the crash resumed the following day and the bankers reluctantly stepped aside realizing that they were simply throwing good money after bad. The 'Plunge Protection Team' of today is much more powerful than their counterparts of the late 1920s and early 30's because, to a large extent today they are now using the public's money and today they are comprised of the Federal Reserve, SEC and U.S. Treasury along with a few of the largest banks and brokers around the world. This entity has the wherewithal to throw huge amounts of money into the market.
Nevertheless, the markets are governed by natural law and even though you can fool Mother Nature for a time, no amount of money can turn a Bear into a Bull for any great length of time. Believe it or not, this Bear Market is a parallel to the 1929-1932 Bear Market, but much bigger in magnitude, when the Dow lost 90% of its value. Why? Well, for one very good reason: The 1982-2000 Bull Market was 2.5 times bigger than its predecessor of 1921-1929 and a Bear Market is always a virtual mirror image of the Bull Market that preceded it and follows the old fighters' adage: "The bigger they are the harder they fall".
Recently, the most often asked question that I have been getting is: How will the Gold STOCKS respond should the economy go into Depression and the overall stock market crash? Which is what I have been calling for and which I believe is inevitable, despite the efforts of the Government, Treasury and FED with their printing presses "out of thin air" money creation and Debt Monetization. There is no such thing as a sure thing, especially given the fact that the precious metal shares and in particular the junior companies were killed in the 2008 Crash and most have not YET fully recovered in spite of a new record all time high in Gold prices.
There are always extenuating circumstances: Unfortunately, today almost 70% of all trades are not undertaken for fundamental reasons, but rather by speed trading governed by algorithms and program trading governed mostly by momentum. This means that when a general stock market crash occurs, and the margin calls go out, the momentum players sell their precious metal shares along with everything else because they still have a bid. But remember the one cardinal Law: "The Truth Always Wills Out". During the initial stock market crash of 1929, Gold share prices crashed as well, but thereafter despite the continuing vicious Bear Market; the price of Gold shares advanced solidly even with no increase in the Gold price, which was then fixed at $20.67 until January 1934 when FDR raised the price to $35 per ounce where they stayed until 1971.
The propensity of hedge funds and the ilk, is to sell everything into a general stock market decline, like 2008; And that was at a time when there were very few who believed in Gold, nor did any of the most influential economists and analysts have the slightest inkling of what was about to happen to the economy. But today with most now able to at least know that the writing is on the wall (even though they have trouble reading it) they all fear that a debt crisis is looming on the horizon and the World's Central Bankers are now creating trillions of dollars of new "out of thin money" at the first signs of trouble. Nevertheless, world economies have entered a deflationary spiral that will be followed by hyper-inflation as the governments and their central bankers have no other answer (wrong of course) but to print money in their attempts to prop up prices and halt the Depression. Gold is finally becoming recognized as a quasi currency and the ultimate safe haven.
My RECOMMENDATIONS HAVE NOT CHANGED
- Do not sell your core Gold and Silver bullion holdings: Add to your positions on weakness (they are gifts) as the manipulators try to halt every advance. They have been failing for 10 years and their losses now amount to 100's of billions of dollars maybe even $trillions; and you ain't seen nothin yet.
- It is OK to sell options against your stock holdings when it looks like they and Gold may have reached a temporary peak. But the accent is on TEMPORARY. You may also try to technically trade your junior positions if you must, but the real big money will be made by holding on and riding out the corrections and turning all those profits into long term capital gains.
- When the explosion does come, you will not believe the prices or the speed that they can rise to. (80% of the 1971 -1980 rise occurred in the last 3 months) Remember my LT Projection is still $6,250 for Gold and we are only now just beginning to see the odd projections of $3,000 and $5,000 coming out and for the first time. We are even seeing the occasional $10,000 projection. Don't be too surprised to see $25,000 projections coming from the very same people who hated Gold between $200 and $1,100. But alas, that is all part of the game. We still have another 6 years minimum before this GOLDEN Bull stomps his last. All I need is my 2.7 seconds on the Bull named "Fu Man AU".
You can only be bullish on commodity prices if you are bullish on the world economies. I contend that the world economies have entered the 4th Kondratieff winter Depression stage, which means that worldwide demand for most commodities will drop precipitously (except for Food Stuffs). Commodity prices will reflect this reality dropping to levels that, for the most part, would be considered unimaginable today. Remember, during the Asian crisis in 1998, oil prices dropped to $10 a barrel and The Economist magazine during that time made the argument for $4.00 per barrel. In a Kondratieff winter, the whole world-not just Asia-will be in an economic crisis that could last 10 to 20 years.
I STRONGLY SUGGEST THAT YOU GO TO THE ARCHIVES A READ MY DECEMBER 2007 LETTER: "GOLD AND A KONDRIETIEFF WINTER"
I hope that you have been paying attention to warnings for and to what is happening to the Chinese Stock Market. They have done the exact same (socialist) things as we have when it comes to their Real Estate Market so naturally they too will suffer the exact same consequences for the exact same reasons.
All too many have mistakenly put their faith in China to pull the world out of its mess. Well, Chinese stock prices are telling us that this won't happen. The index reached a high of 6,089 in October 2007. It has recently closed at 2,650. If that isn't a Bear Market, I don't know what is. The low in 2009 was 1,665. That price bears (pun intended) watching, because a break below that level would indicate desperate times for the Chinese and world economies.
Remember this - China's economy is only ¼ the size of the US and they are an export oriented economy. Not the Buyer of Last Resort that the US is. They are not Capitalists, they are Communists turned Fascist, which is akin to Socialists and their Government is even more corrupt than ours is. So, they must and will make the same mistakes as we have and continue to do. Socialism works until they have stolen and used up all of the wealth that the Wealth Producers were saving. When you eat your SEED CORN starvation must by definition follow. Every farmer knows that, especially if he never went to university to study Keynesian Socialist Economics.
HOW NOW DOW
"This year occurs in a cycle which shows the ending of the Bull Market and the beginning of a prolonged bear campaign. . .when the decline sets in, it must be in proportion to the advance. . .When the time cycle is up, neither Republican, Democrat, nor our good President Hoover can stem the tide…It is Natural Law. Action equals action in the opposite direction." -W. D. Gann, The Outlook for 1929, pub. Nov. 1928
I am confident that the second wave of the crash will soon be upon us, if it has not already started. Like Gann before me, I confidently predict that those in power or those who come to power in 2010 and 2012 will not be able to change the path of the inevitable, even if they knew what to do. Knowing what to do is one thing; getting the majority to go along with it is quite another.
This Bear Market in stocks is following the great stock Bull Market of 1982-2000. The previous Kondratieff Winter Bear Market, which saw the Dow lose 90% of its value between 1929 and 1932, following the third Great Autumn Stock Bull Market of the roaring '20s.
The rally from the initial low in March 2009 is similar to the rally in the 1929-1932 Bear Market. That rally just like this one was precipitated by a massive infusion of money by the Federal Reserve and a steep cut in interest rates, which saw stocks regain 50% of their losses into April 1930. But then the Bear Market resumed in earnest and I expect this bear is about to do the same now. The key number to keep in mind is the March 2009 low of 6,470. If this is broken, we should anticipate that the Dow will fall at the very least to the 5,000 point area to start.
The decline must always be in proportion to the advance. No one can reverse the tide in mid-stream; as all Bear Markets are governed by Natural Law.
THE DEADLY "BEAR CROSS"
In the international markets, on Friday we saw the 50 day MA cross below the 200 day MA in both the London FTSE and Australia's SPASX200; this event has happened (China) or is about to happening in several other major indices worldwide as well, including the DOW Industrials, S&P 500 and NDX in the U.S. All I can say is "LOOKOUT BELOW"
"At what level of government debt and future commitments does the possibility of a government default go from being unthinkable to inevitable?"
There are more and more newly converted Gold commentators who are NOW calling for the price of Gold to rise to somewhere between $3,000 and $10,000 per ounce. The numbers will continue to increase as they attempt to distinguish themselves in their belated efforts to make up for lost time. Now that the new trend of central bank behavior has been firmly established, a steady stream of New Gold Bugs will be jumping on the Golden Band Wagon; with ever increasing price projections.
It is rare for investors to be presented with a scenario where both the fundamentals for a particular investment and the behavior of major "players" in the market are so unequivocally bullish - yet the investment itself remains at a still "bargain" price. In this one respect, we can "thank" the manipulation by the Governments and their bankers, for allowing investors, who have been late to understand the necessity of precious metals in every investor's portfolio, to still enter the market at what are still very attractive prices. The good news for new converts as well as for those of you with already established positions is that the Manipulators have not given up. They are caught with their hands in the cookie jar, but there are no more cookies, instead they are trapped with huge short positions and as much as a trillion dollars of unrealized losses. Can you imagine what will happen when they are eventually forced to throw in the towel; as eventually they must? My target date is still 2017.
Even using "official" inflation numbers, (which we all know are greatly understated), the price of Gold would have to more than double - just to equal the 1980-high ( which at that time had much less favorable fundamentals for Gold). However, when we use real inflation numbers (i.e. those supplied by John Williams of Shadowstats.com), Gold would have to rise to $7,500/oz to equal the1980 record.
Mohamed El-Erian, who runs Pimco and has lived through several financial crises, also recently issued a report to his investors. He described the new, dangerous state of today's global economy like this: "The world is on a journey to an unstable destination, through unfamiliar territory, on an uneven road and, critically, having already used its spare tire."
Marc Faber bluntly stated recently that "all Western Governments are bankrupt." Those still gambling their wealth by holding Fiat banker-paper, rather than protecting their wealth with precious metals are simply acting like deer, paralyzed by the approaching "headlights". According to Faber, precious metals are the best place for wealth preservation. In an environment of money-printing and high volatility, physical Gold is the best thing to own. Faber also says the fiscal situation is much worse than it is made out to be. U.S. Government leaders will try to postpone the hour of truth, pushing the problems off for future Presidents and Congressmen. However, we will have to face our own debts. If we realize that our own future is at risk, we might be more serious about changing course.
I have never agreed with professor GRUBMAN, but even he is now projecting Depression.
GOOD LUCK AND GOD BLESS
The Market action that I foresaw from March 2007 to March 2009 highlights quite succinctly why projecting the consequences of today's Government actions into the future is so important for your overall investment success. During the last three years, I have demonstrated how to incorporate projected consequences of Government actions and contrarianism into your investing by pinpointing the best investments that can both protect your wealth and make you money during times of adversity. Do you really want to miss out on the information revealed by UNCOMMON COMMON SENSE. Subscribe today.
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UNCOMMON COMMON SENSE
Aubie Baltin CFA, CTA, CFP, PhD.
2078 Bonisle Circle
Palm Beach Gardens FL. 33418
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Please Note: This article is for education purposes only and is designed to help you make up your own mind, not for me to make it up for you. Only you know your own personal circumstances so only you can decide the best places to invest your money and the degree of risk that you are prepared to take. All Information and data included here has been gleaned from sources deemed to be reliable, but is not guaranteed by me. Nothing stated in here should be taken as a recommendation for you to buy or sell securities. I am not a registered investment advisor.
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