The Reaper Market Comments

November 25, 2002

Gold

Gold is overall under accumulation with the commercial, central bank and big bank interests heavily on the short side. If this is a bull market in gold, once February gold closes above $326 and then above $332, then we should see gold and the mining shares skyrocket. February gold closing below $310 and then below $300 would certainly take the glitter away. Gold often has a seasonal turning point low around the turn of the year. Gold bugs would certainly consider such a low to be the ultimate Christmas gift--give real money, not paper bags and/or stuff!

As the U.S. Dollar rallies, gold tends to sell off. ...Wars tend to be inflationary and bullish for gold and silver. ...Negligible U.S. interest rates make owning gold cost free, with the only risk of holding real money that of a gold price decline. The long-term trend in gold remains bullish. ...China will one day have a gold backed renminbi. Before then, Islam will have a gold backed dinar. ...Silver tends to move with gold. Copper mines remain a major source of silver production. Fully 75% of silver comes from the mining of other metals, such as copper and nickel. Mining cutbacks and increased demand have helped copper primarily, silver secondarily. The decade-old 100 million ounce annual silver shortfall continues. Above ground stocks have covered the deficit. Two thirds of silver is used in electronics and the like, cost insignificant. ...Slipping auto sales have hurt palladium prices, but platinum surprisingly remains the strongest of the metals. ...February gold turns bullish above $326 and $332, bearish below $310 and $300. ...March silver turns bullish on a strong close above $4.65 and $4.70, bearish below $4.30. ...January platinum only turns bearish/neutral on a weak close below $565.

Recommendation

Futures investors who are scale down purchasing call options in February gold--hold. Only exit these call options on a weak close by February gold below $310. Futures investors may purchase February gold on a strong close above $326 and above $332 with $309 open protective stops, holding for a test of at least $342, maybe $400.

The U.S. Dollar

Technically, by all rights, the U.S. Dollar Index should be freefalling. But, to date, no tamale. In a debt-deflating world, where the largest portion of that debt is denominated in U.S. Dollars, the world's reserve currency, it is the demand for U.S. Dollars to service all this global debt that is propping up the U.S. buck. Of course, $128 trillion in derivatives are looming out there still, but that is another story for another time. Suffice it to say, too, the Fed's explosive runaway growth in the money supply--no limits according to Mr. Magoo, Alan Greenspan--with M3 up a whopping $32.6 billion in August, with M2 and MZM ever climbing at a record breaking rate, has not yet kicked in. The offset is that the velocity/turnover of money continues to sink. Result: Stalemate, stagflation, with deflation ala Japan occurring so far. The Fed cannot push on a wet or dry string. The Fed can make all the money in the world available, but if that credit is not borrowed, and if its turnover is molasses-in-January slow, then the economy sputters.

So, there is no joy in Moneyville at the Fed when businesses will not or do not qualify to borrow, and consumers show signs of borrowing exhaustion (80% of U.S. GDP). It is of concern that both housing and retail stocks are bearish, often a forerunner of a decline in the real thing, consumer cutbacks. ...A quick word on the housing bubble: Mortgage debt in the U.S. is close to 21 times greater than margin debt was at the stock market's peak. Moreover, Americans are buying second homes by refinancing their first homes (16X the market cap of the S&P 500), according to a U.S.A. Today cover story, in and of itself contrary opinion sell signal. Whoever is denying a housing bubble is not only blowing bubbles but smoke as well! Housing construction fell 11.4% in October! ...Amidst all this tomfoolery, the U.S. Dollar is only yielding 1.25% (Fed overnight rate).

The U.S. current account deficit of $500 billion is generating the need or nearly $2 billion a day of cash inflows into the U.S. And the latest U.S. trade deficit of $38.03 billion was the second highest on record. ...When the U.S. Dollar finally goes, well, the bigger they are, the harder they fall.

General Market Comments

I am continuing to pinpoint the post-Thanksgiving/early December time frame as the most likely time frame for a market turning point. The confluence of turning point, fundamental, astrophysical, political and economic evidence increasingly is dovetailing then. My best guess presently is by mid-December we could see gold and silver, and mining stocks moving higher, long with eurocurrencies and the Australian and New Zealand Dollar. On the other side, the bear side, U.S. stocks and the U.S. Dollar are most likely headed lower then. I will more heavily weight the Reaper's Long-Term Investor's Portfolio accordingly then if these trends start to develop, as well as establish trend following futures contracts and positions.

At this time the financial markets--stocks, bonds, currencies, and metals--are pretty much treading water, biding their time, sometimes jerking up, sometimes down. Even the CRB Index has turned choppy, although the soybean complex is coming to life again. The January CRB Index needs a strong close above 232.5 to reestablish its uptrend.

What occurs in late November/early December that coincides with my turning points? All of this weird, harsh, record breaking weather and earth changes, and El Nino, are joined by the Leonid meteor showers now and on December 5th by a solar eclipse. As above so below? If so, fireworks are upcoming. Ho, ho, ho?!!! ...The terrorists at al Qaeda have been rumbling about becoming the Grinch who stole Christmas in the U.K. and U.S. by disrupting the late November/early December Christmas shopping season, the make it or break it time frame for retailers. Sweet ole Saddam Hussein (sic) has until December 8th to tell the U.N. inspectors where he has buried all his weapons' treasure or else, well, we will let King George do it! War, baby, war! ...Saddam has never been big on Christmas gifts of disclosure, so when December 8th comes and goes, we should not be surprised if Saddam has not complied with the U.N. requests for full and open disclosure of all his weapon systems. U.S. Deputy Defense Secretary Paul Wolfowitz has accordingly ordered all U.S. military bases to draw up emergency plans to deal with terrorists' attacks by mid-December at the latest. King George and Court would prefer to wait until after the first of the year to invade Iraq's oil fields, it being Christmas and all, but...war is a wildcard, and Iraq's oil is one heck of a Christmas bonus for an ailing economy! ...Death (war) at the time of the Rebirth of Light. Hmm. Quite a paradox.

I want to review some key market highlights: The U.S. stock market--If the December DJIA closes above 8800 it turns bullish; if it closes below 8200 it turns bearish. The overall trend remains bearish for stocks. When we find 69.2% of investors having stock market exposure, near an all-time high (Bernstein--Merrill Lynch), odds are we have not seen the low. (Fully 50% of advisors are bullish also.) When retirement plans of 360 of the 500 companies which comprise the S&P 500 are underfunded by $243 billion, odds are we have not yet seen the low. That is a lot of profit drawdown well into the future, despite the seasonal tendency for the stock market to rally this time of year. When we realize that 40% of goods and services are less expensive than they were this time last year, that stiff competition from 40 cents an hour labor in China, whose exports were up 31% in October, with foreign investment there $50 billion this year alone--that is quite a drawdown on U.S. profits, too. This also suggests we have not seen the low. With upwards of $2 billion in profits flowing overseas each month, we conclude the earnings outlook is not good for U.S. companies. When we focus on the fact that the core earnings of the S&P is 9X, with yields of 1.7%, we conclude the stock market could easily fall another 50% on a value basis. So, odds are we have not reached the low in stocks. But the DJIA needs to bust 7400 with conviction to send stocks lower with a vengeance.

India and the U.S. trump Italy as top gold jewelry exporters.