Hope vs Reality

I know that it is not polite to beat one's own drum, but I don't know what better way I can use to highlight the differences between what I have been writing about over the last few years and the backward looking dribble that has been permeating our TV screens. This has been led by Steve Leisman, an Economics Reporter, and Larry Kudlow, an Economist who's claim to fame is that he once worked in the Reagan Administration, both of whom are nothing more than touts and are used primarily to over speak and to shout down any and all non-Pollyannaish economists and analysts who mistakenly are invited to give their opinion on the state of the US, world economies and stock markets (casinos). From Greece, which is thought not to really matter since it's only 2% of ECM, to China, who was picked to lead the world out of recession and whose market topped out more than 7 months ago: No matter that China has only recently (but obvious to me months ago) started raising interest rates and curtailing their banks lending policies in an effort to overt the financial catastrophe that has plagued other countries elsewhere around the world It has been my best performing short over the last few weeks, with my calls on the FXP (short China ETF) that went from $1 to over $9.

There is no question that I am quite different from the traditional economists, perhaps it's because of the way most economists are trained. I think that the tradition of most mainstream economists are steeped in Keynesian Socialism, which means they are intellectually bankrupt and that is why they have, for the most part, been unable to foresee any of the big inflection points in the economy until after they are hit over the head with them. They seem unable to do anything but predict either a continuation or a return to the way things were before, even after major turning points. That is what happens when the world is steeped in Keynesian Socialist Economics.

I decided to come out of retirement and start "UNCOMMON COMMON SENSE" only because I thought that I had something vastly different and important to bring to the investment and economics community. There would be at least one voice out there willing to swim against the tide of BS and tell the truth. Judging by the plethora of emails and phone calls that I have received over the last 5 years (thanking me for having saved them), I am glad I did. The money is nice too, but some of those emails are worth more to me than all the money (TEA) in China.

The chaos I have been warning about is just beginning.

The key to understanding the continuation of disruptive and chaotic events is the realization that nothing has been fixed, no remedy put in place, no reform agreed upon, no liquidation of impaired bank assets completed, and no work done toward creating a more stable system.

U-G-L-Y! Is the word that best describes what has been happening.

Suddenly the world is waking up to the idea that maybe the Greece problem is bigger than just Greece. All of a sudden, people are thinking that maybe Europe's debt and growth crisis might just be a precursor to what will be happening in various degrees throughout the rest of the world and especially here in the USA. What may have finally awakened traders was that, even after the three year rescue plan was announced, two-year Greek debt was still yielding over 10%. This was a clear sign that the markets do not believe that Greece can stick to its austerity measures. But more importantly, it is the beginning belief that the world's artificially LOW interest rates can't go any lower and that the RAPE of the public by their respective governments cannot go on much longer without sinking into the depths of HYPER-INFLATION. Besides, doing more of the same as what got you into trouble in the first place never works and never will!!

We are now witnessing how nearly impossible it is to put realistic austerity measures in place and how difficult it will be to put just the barest minimum of measures, which must be the first of many rescue packages in place. While Greece, because of its size, should be no problem, who is going to fund the rest of the PIGS' bailouts. And then there is the unthinkable, England, and sooner than anyone anticipates, the USA as well.

GOLD AND THE DOLLAR

The primary reason we are seeing the US Dollar and Treasuries rally (safe haven buying) is due to the belief that Gold and Silver are not big enough to absorb all the safe haven seeking, panic buying. But we all (should) know that panic anything is never the right thing to do. Translated that means that the rush to be long Treasuries and the Dollar must surely in the end be the wrong thing to do. The buy commodity story, while not dead, is certainly going to come under tremendous pressure as it faces the impact of a weaker Europe, USA and a government induced slow-down in China; which by the way is happening for the very same reasons as every other FED induced recession throughout history.

WILL WE EVER LEARN?

UNIONS RIOTING

Are the Greek Union riots in the streets just the inevitable outcome and a precursor to a 100 year UNION led Socialization of economies all over the world including right here in the USA? What will we do then? Do not underestimate the extent of social unrest that could rip through Europe first, followed by the USA and then the rest of the WORLD, as some rationalization of Government employee must become part of any solution.

The standard belief is that "There really is only one solution: Cut spending and increase taxes." This is, of course, wrong since it's just more of the same Socialist solutions that over time have been proven never to work. What is really needed is a good dose of Capitalism beginning with a Reaganesque-like treatment of the Air Traffic Control strikers.

Our economy is diverse enough that we can side step this issue for a little while longer and comparatively speaking, we are in better shape than Europe is right now (only because we have the world's only reserve currency). But how much longer will the world continue to accept our printing of multiple trillions of dollars of counterfeit money; especially given the ever increasing rate of Socialism and our ever increasing Deficits and Debt creation.

But make no mistake: We could be seeing our own future play out right now on the streets of Athens.

Bear markets begin unannounced, usually when optimism and positive headlines are prevailing (like right NOW).

SAME OL SAME OL

As far as the US markets are concerned, the perennial wrong headed belief is that the real wild card is the employment report. Economists were looking for a flat number and anything that meaningfully deviates from that expectation (up or down) will lead to an explosive move. So naturally, the markets behaved and will continue to act exactly the opposite of what the perennial Bulls are expecting.

So far, the US equities market has proved to be extremely resilient and on a relative basis, US equities could outperform other global stock markets. But remember that "out-performance" is a relative term -- don't confuse it with absolute returns. If the global markets slide 40% and we only slide 20%, guess what? And that would only be because we can still print unlimited dollars, but again, for how much longer?

Although it's possible we could see US interest rates go even lower (how much lower than zero can they possibly go), sooner or later reality does set in. Besides, how often must this low interest policy keep failing before Bernanke and Geithner wake up to the fact that ultra low rates and easy credit are the problem, NOT the solution?

I've said it before and I'll say it again: The chaos you're seeing right now in Europe is a rare look into the future of what's about to happen here in the United States - including...

  • Fiat paper money losing its value at a near-record pace - and likely to plunge dramatically lower, gutting the purchasing power of your dollars ...
  • Gold surging to $1,250 per ounce and beyond ...
  • Long-term interest rates rising and going through the roof ...
  • Key stock market sectors swinging wildly, as much as 5% and more per day ...

HOW NOW DOW?

Markets of all kinds usually don't turn on a dime. They need time and space to change direction and this is referred to as either a topping or bottoming process. The most prominent two characteristics are:

  • The range of its high to its low is between 10 and 15 percent with a clearly defined lower boundary of support,
  • It lasts anywhere from three to eighteen months.

Now look at any chart of the S&P 500. The latest triple digit drops produced a clear topping formation. Its support line is defined by the lows of early November and mid-February. The 1000 point sell-off low was an additional test of this already established trend-line.

If you measure from the April high of 1,220 down to the low of 1,066 you get a range of 12.6 percent. This meets characteristic #1 of a topping process. And going back to the October low - we are in the eighth month, thus fulfilling the minimum time requirement for characteristic #2.

WHAT TO EXPECT NOW...

I see a warning crack signaling the end of the medium-term rally off the March 2009 low. A warning crack is a very steep, but short fall at the end of a huge bull move. Typically it's followed by a rally back to the highs or sometime even to token new highs. The recent 1000 point sell-off had many ingredients of a panic move. Especially interesting was the public's urge to find culprits to blame for the massive plunge.

However, history shows that overvalued markets can hit air pockets because everyone who is willing to buy is already invested. What's more, value investors will not easily step in to buy a market with a monthly price-to-earnings ratio of 22.8 and a dividend yield of 1.9 percent. Add it all up and you'll understand why I think Black Thursday was an important day for the stock market. It probably marked a short-term low. But at the same time, it signaled the end of the March 2009-2010 bull move.

There's an old Wall Street saying: "Nobody rings a bell at the top or the bottom of a market."

Well, I have to disagree because Thursday's warning crack was indeed a ringing bell. Most investors are not listening! Will You?

We have already initiated our beginning shorts -- and you can add to your positions as they enter their respective profit zones. Remember to use 20% trailing Stops if using Options and 10% if you are in the ETF'S themselves.

CAN EUROPE AND THE WORLD BE SAVED?

Make no mistake: The Europeans are fighting for their economic and financial lives. They felt compelled to violate the terms of their own Constitution (written when calmer heads than now drew up the rules) to put their package together. Maybe that's why they are structuring this as "off balance sheet" financing and placing it in an Enron-like "special purpose entity". Oh Ya, that is sure to work out very well.

The real question is, "Will doing more of the same (printing more money and keeping interest rates low) work?" Is it enough to pull Europe back from the brink? Could it be enough to reignite the equity bull market? I think NOT.

It may be enough to postpone the cascading effect of systemic risk that looked about ready to engulf Europe. But all the big bailout will do is buy the EU some time; it will not solve any of its deeper problems, it will only make them worse. The EU action may prevent any Sovereign defaults now, but it will also slow the process of change that a sovereign default would have wrought.

Ultimately, it's a longer term negative for the Euro currency and without a significant rebound in the global economy; Europe will find itself dealing with magnified versions of the same problems sooner than they think. It's also going to cause political and social unrest as the more productive Europeans such as Germany rally against the bailouts.

CHINA

Another one in the Pollyannaish scenario going forward is China. While their massive stimulus plan avoided the 2008 Recession, it exacerbated instead of fixed the problem, as government interference in an economy is wont to do by just kicking it down the road a bit.

The cure for a recession is the recession itself. Recessions are needed to reset asset allocations and valuations, by allowing poorly managed enterprises to fail, so as to set the stage for the next growth phase.Recessions are an inherent part of the process of Government interference in the Socialist/Capitalist process. You can't avoid them unless we go completely to Laissez Faire Capitalism. (Which I realize is only a pipe dream.)

Over the last 7-8 months, China has been desperately attempting to cool inflation via Government intervention. Additionally, it seems like up to $440 billion of stimulus money has either been looted or lost and they face the distinct possibility of a Chinese banking crisis, together with a government engineered recession. Fascists, which is what China is, are exactly the same as Socialists, Central Planners and therefore they make the exact same mistakes with the exact same results.

HANG ON TO YOUR WALLETS

China's SSEC stock average is down 25 percent since their August 2009 highs, and down 20 percent so far in 2010 having hit new lows on May 12th. Any further drop below 1,750 could be catastrophic, targeting a complete collapse. Yet, nobody is talking about this.

With massive sovereign debt concerns in Europe added to a crashing Chinese stock market, this suggests a declining world aggregate demand that does not bode well for U.S. export hopes or for international conglomerate corporations that make up the U.S. Dow 30.

AUSTRALIA

In its infinite Socialist wisdom, are compounding their problems by instituting a 40% tax on all mining companies. In the best of times this would be a terrible policy, but in this environment it could prove disastrous to the Australian economy if the big mining firms decide to shelve their expansion plans and close down some of their less and what would now become unprofitable mines.

The London FTSE, German DAX, Canadian Toronto TSX, Hong Kong's HSI, China's SSEC, and Australia's SPASX200 all look to me like they have all recently completed their first phase (Wave 1 or A) of a GIANT Bear Market and are now close to completing their Dead Cat Bounce (Wave 2 or B) up, which I believe is very near completion. The good news is that means catastrophic Wave (3 or C) down is about to start providing some terrific shorting opportunities. The best way to play the coming down draft is by buying PUTS on their respective country's ETF's.

GOLD

The next nations to face the sovereign debt scrutiny are Italy, Spain, Portugal, France, and then England. The fireworks show is just beginning and with each new episode, the Gold price will soar.

  • Gold will rise until given proper recognition, then it will rise some more.
  • Gold is not so much a hedge against price inflation, but rather against a failed monetary system. Gold is desperately needed to anchor all the failed fiat paper currency systems.
  • Quantitative easing is monetary hyper-inflation that is fueling Gelds' Bull Market.
  • Gold has been the top performing asset for the last 10 years while the US Stock Markets have been in multi-year decline, when measured in real (Gold) terms.
  • The US Treasury most likely has no Gold reserves, since the Clinton-Rubin gang leased it and sold it all.
  • If Gold were revalued to $5,000, most national banking systems would be restored to solvency.

We face the largest debt bubble in recorded history - and it is not a matter of IF, but only when it will burst. The longer it takes, the worse the consequences will be.

Europe's moves were a clear signal to the world that it's a "race to the bottom" in terms of currency devaluation with every central bank in the world willing to turn their currency into toilet paper.

WHAT TO DO NOW ABOUT GOLD AND SILVER

If you have to ask this question, then you are not a subscriber or you have not been heeding my advice, so the first thing that you should do is buy a subscription.

To my loyal subscribers, it's easy: JUST SIT BACK, RELAX AND ENJOY THE RIDE.

You all can increase your positions on weakness in your favorites stocks, which for me at this time are: LIHR, NEM, EGO, IAG, GSS, AXK, RIC, SLW, HL, SVM, CDE, and EXK.

NOTE: Do not chase, use the manipulated afternoon sell-offs when adding to your positions.

Gold's Parabolic Move is Coming Soon....or it may have already started?

You probably already know that I am a big believer in the coming rise in Gold and Silver. My recent letters project the Gold price to hit between $2,450 and $3,500 and this could possibly happen by early next year Long term, my target remains $6,250 by 2017.

DON'T MISS THIS MOVE

I look forward to you joining me on this journey and I look forward to having you as a one of my most valued subscribers as we all not only survive the coming world financial disaster, but prosper financially while the Pollyannas go crazy.

For my current subscribers, I greatly appreciate your business and trust you have positioned your portfolio to profit handsomely in the coming months.

I've said it before and I'll say it again: The chaos you're seeing right now in Europe is a gift; a rare sneak preview of what's about to happen right here in the United States - including...

  • Fiat paper money losing its value at a near-record pace - and likely to plunge dramatically lower, gutting the purchasing power of your dollars ...
  • Gold surging to $2,000 per ounce and beyond ...
  • Long-term interest rates going through the roof ...
  • Key stock market sectors swinging wildly, 3% ... 4% ... 5% and more per day ...

GOOD LUCK AND GOD BLESS

Market action 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 five years, I have demonstrated how to incorporate projected consequences of government actions and contrarianism into your investing by pinpointing the best contrarian investments that can both protect you and make you money during times of adversity. If you're serious about investing, you don't want to miss out on the information revealed by UNCOMMON COMMON SENSE.

 

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UNCOMMON COMMON SENSE
Aubie Baltin CFA, CTA, CFP, PhD.
2078 Bonisle Circle
Palm Beach Gardens FL. 33418
aubiebat@yahoo.com
561-840-9767
78 percent of the yearly gold supply--is made into jewelry.

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