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Jim Rogers On Gold

Daily Ticker Writes: Jim Rogers Forecasts a Drop to $900

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Commodities investor Jim Rogers tells The Daily Ticker that gold, having lost its luster as a safe haven, could drop to $900 or $1,000 in the next 1-2 years. Longer term, he has a very different forecast. Gold will soar to “well beyond $1,900 an ounce,” topping its record $1,920 high reached in September 2011, says Rogers, author of Street Smarts: Adventures on the Road and in the Markets. The reason: “massive currency debasement” around the world. “Every major central bank in the world is printing a lot of money plus war, chaos, riots in the street, governments failing,” says Rogers.

Despite that forecast, Rogers warns investments not to consider gold – or any other investment — safe. “I would never use the word ‘safe’ when I’m speaking about investing.”

There are only a few investors that I listen to when they speak. Jim Rogers is one of them. A brilliant and very interesting guy.  So, when he says something you better listen. I highly recommend that you click on the link and listen what he has to say. The video is just 2 minutes long. 

My stock market timing work kind of confirms his thesis on gold. I already talked about gold in one of my previous posts CLICK HERE and the fact that I don’t really understand it or know how to value it properly.

Jim mentions that he anticipates gold to decline further over the next few years to shake out the bulls before resuming its bull market due to currency debasement and inflation. My work confirms this as a highly probably scenario. 

As the markets and the economy decline over the next few years in a deflationary environment, so should the gold.  As we bottom in 2016 and begin the inflation cycle I talked about before, gold should start appreciating. Perhaps significantly. Just my two cents. 

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Buffett Can’t Find Any Stocks

Reuters Writes: Buffett lauds Bernanke but laments lack of investment bargains

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(Reuters) – Warren Buffett said on Thursday he would recommend reappointing Ben Bernanke as Federal Reserve chairman, while adding that low interest rates have inflated asset values and complicated his hunt for investments at his company Berkshire Hathaway Inc.

The billionaire investor spoke one day after the central bank surprised investors by postponing its expected wind-down of monetary stimulus, which has in five years more than tripled the Fed’s balance sheet to above $3.6 trillion.

“Since the panic of five years ago, he’s done a terrific job,” Buffett said on CNBC television in a joint interview with Brian Moynihan, chief executive of Bank of America Corp.

Asked if he would reappoint Bernanke when his term expires, Buffett said: “That’s what I would do.”

Nevertheless, at an event later Thursday afternoon at Georgetown University, Buffett said that the Fed’s eventual exit from its monthly bond-buying program will carry unforeseen risks.

“We are in an experiment which hasn’t really been tried before,” he said, adding that “buying securities is usually easier than selling securities.”

Read The Rest Of The Article Here

As the article indicates Mr. Buffett  claims not to be able to find any bargains or value stocks. I second that sentiment.   As of right now I am unable to find any worthwhile value stocks at all. There are some special situations here and there, but overall everything is either fairly priced or overpriced.

That in itself is not necessary a problem.  It is the nature of the stock market to cycle up and down to provide trading opportunities. However, when you combine the current macro economic backdrop with the fact that most stocks are too expensive, the situation is not pretty.

Can they get even more expensive? Of course they can, but as my stock market timing work indicates that shouldn’t last for long. The stock market is in the topping process and when complete we should receive a number of confirmations that the bear market is back. Once again, I don’t believe we have to wait too much longer now.  

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Stock Market Update, Sept 19th, 2013

Sept 19 2013 chart

 

I continue to advice to maintain a long position for the time being, but be ready to switch direction at a moments notice.  

Even though I am “Bear” anticipating the market to decline significantly over the next few years, I do have to admit the chart and other technical indicators look strong here. This is a very interesting time. Will the market go on to set a new high or will it be unable to push much higher from here? Will it pause or reverse here? 

All we can do for now is maintain our long position and wait for a confirmation that the bear market is here. Are we there yet or will March of 2014 (as I have mentioned earlier) be the actual top? The market did open a bunch of gaps at 15,300 that it will have to go down in order to close, but at least for now the short term picture looks fairly good here.  There is no need to fight that. 

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Reality Of Today’s FED Move

Bloomberg Writes: The Fed’s ‘No Taper’ Sparks a Trading Frenzy

 

S&P 500 5-minute

The Federal Reserve surprised nearly everyone today when its Open Market Committee announced at 2 p.m. that it would not taper its $85 billion in monthly bond purchases because it is concerned about weakness in the economy. The announcement led to an across-the-board rally as investors hurried to plow money into stocks and commodities.

The market reaction was instantaneous: According to data off my Bloomberg terminal, between 1:59 p.m. and 2:00 p.m., the Dow Jones Industrial Average jumped 141 points, from 15,485 to 15,626. Over the next two and a half hours, the Dow added another 50 points to close up 147 points on the day.

Read The Rest Of The Article Here 

On a more serious note, while the market and most people celebrate I see it from a different perspective. While most market participants see it as “The Fed will not taper $85 Billion per month stimulus” I see it as “The Fed CANNOT taper $85 Billion per month stimulus”. 

There is a significant difference between these two statements. You see, Ben Bernanke and the Fed understand that if they stop the QE bond purchasing program the following things will happen within a short period of time. 

  • Interest rates will shoot up. 
  • Dollar will strengthen. 
  • Deflation will finally be evident. 
  • Stock market will collapse. 
  • Real estate market and auto sales will collapse. 
  • The US Economy will tank. 

They do not want to allow that to happen for obvious reasons. However, the laws of physics cannot be bypassed. Sooner or later all of the things above will happen irregardless of what the Fed does. 

I do find it troubling that the market only went up 150 points or so. That is a fairly weak performance considering what has happened. In no uncertain terms the FED told everyone that it will keep this credit financed speculation party going for as long as possible. 

The biggest mistake I think everyone is making is the fact that they believe the FED has control of the markets. That is not even close to reality. They do not control anything. Don’t be surprised if the market reverses tomorrow and begins its next let down. 

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More Cocaine For Everyone

It was well past midnight, but everyone was still partying.  Although the booze and drugs were running low, the party was still in full swing.  The entire school was there. Real estate alphas, derivative betas, the car club and who could forget about the speculator zetas.  As sunrise approached everyone was starting to get tired. Some people were even talking about calling it a night and going home.

That was until a good lad Ben Bernanke kicked in the door and yelled  “I got it, let’s party”.  As he opened his duffle bag and emptied the contents on the couch, everyone in the house went wild. There it was. Two kilos of pure Columbian coke. More than enough for everyone.  The party was back on.

As the clock hit 9 am, the house was surprisingly silent.  When the campus police opened the door there were bodies everywhere. Some were laying there motionless and not breathing, some were simply passed out, some were twitching while others sat silently staring at the wall.  As the medical examiner took the bodies out, it was not till much later that the cause of the tragedy was revealed.  For most, there was simply too much coke that night. 

If you are wondering, that is exactly what happened in the stock market today. 

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Derailed Recovery

Forbes Writes: Mixed Messages For Bernanke Shouldn’t Derail QE Taper, Despite Lower Inflation

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As investors intensify their scrutiny of the Federal Reserve, economic indicators continue to send out mixed messages.  Inflation, as measured by the CPI, eased once again in August, according to theBureau of Labor Statistics, but remains relatively anchored, indicating Chairman Ben Bernankeand the FOMC could be closer to tapering quantitative easing, possibly on Thursday.

Mixed economic indicators continue to baffle a market that seems to have prepared for a reduction in the Fed’s supportive asset purchases, or QE.  Inflation, one of the main monetary factors observed by Fed officials, has been consistently low, yet not alarmingly so.  Over the past 12-months, CPI is up a meager 1.5%, down from 2% in July.

While the U.S. economy has remained relatively resilient, with GDP growing 2.5% in the second quarter, it is by no means out of the woods, as the labor market remains weak and financial conditions have tightened, particularly in mortgage markets which are closely scrutinized by the Fed, Goldman Sachs’ economics research team said.

The Federal Reserve, which is in the midst of a transitional period as Chairman Bernanke’s term expires early in 2014, is looking to reduce its level of asset purchases to avoid inflating asset bubbles and creating further imbalances.  Investors are looking for the FOMC to cut down on QE on Thursday, possibly reducing asset purchases by $5 to $10 billion to $75 to $80 billion a month.

In order to continue with the plan laid out by Bernanke in his previous conference, in which the Fed expects QE to end by mid-2014, Fed officials will want to see a pickup in inflation that strengthens their view that deflation is not a looming problem.  “While the stabilization in core [CPI] is likely sufficient for Fed officials to start the tapering process [Thursday], officials are counting on some acceleration in coming quarters,” explained Jim O’Sullivan, chief economist at High Frequency Economics, who added, “such acceleration will likely be needed for a full wind-down of QE and will almost certainly be needed before the tightening cycle begins.”

Read The Rest Of The Article Here

A very good overall summary of the existing US Economic and Financial Market state that comes to a wrong conclusion.  It somehow assumes that the Fed and US Government are in control of the US Economy and will direct it into whatever direction they wish to improve existing metrics and to maintain the course.

However, that is a fools assumption.  They are not in control of anything. The 2007-2009 meltdown was a clear example of that. No matter what they have tried,  the market kept going down until it hit its March 2009 technical bottom and reversed itself. If that doesn’t convince you of the fact that they have no control, nothing will.

Now, the article states that the policies the Fed has instituted are design to avoid future financial asset bubbles and volatility associated with it. What it fails to mention is that we are ALREADY in the largest financial credit bubble of all time. Bigger than 2007.  And guess what, it was done on purpose by the Fed to avoid a deeper recession.

As Fed cut back on QE, interest rates will go up and in doing so will collapse the real estate market, the stock market and the overall economy.  Oh, I forgot to mention something. It will not be fast and will most likely take years. However, the process itself has already started. Get your affairs in order.  

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US Auto Sales Are About To Crash

Bloomberg Writes: American Auto Sales Seen at Annual 16 Million With Profit

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The U.S. auto market is poised for a fifth straight year of growth for just the second time since World War II. The recovery from the recession has been so robust that the debate is now whether sales will reach 2000’s record levels — and whether that would even be a good thing. 

Deliveries of new cars and light trucks may rise to 16.1 million next year, the average estimate of 13 analysts in a survey by Bloomberg News. That’s about 500,000 more vehicles than automakers are on pace to sell this year and while it’s within reach of 2007’s 16.15 million, it’s well short of the 17.4 million peak.

Since the annualized pace of auto deliveries in August exceeded 16 million for the first time in six years, analysts have been looking back at the last time sales were so brisk. Six years ago, while sales were still above 16 million, Detroit was losing billions, saddled with high costs and poor cars.

“It’s not just the number 16 that’s amazing,” George Magliano, chief economist for IHS Automotive, said by telephone. “It’s the fact that it’s coming effortlessly. We’re not dumping cars and trucks into the fleets. We’re not using humungous incentives to move them. It’s a reflection of people’s willingness to buy and the strength of the product out there.”

Read The Rest Of The Article Here

Listen, I don’t know why this was so difficult to understand.  All improvements in the US Economy over the last 5 years were caused by a massive infusion of credit and money supply at ridiculously low interest rate. Nothing else. The recovery is an artificial one and is coming to an end.  

It is not different for auto sales. As a matter of fact, today it easier to get an auto loan than to get a doctor’s appointment. I am once again hearing things like, “If you got a pulse, you will get an auto loan”. Well, that’s great, but didn’t we already see this in the real estate sector just 7 years ago. We all know how that ended.

It’s essentially the same situation with car sales. The recovery from the recession has NOT been robust as the article states. This is a simple matter of a Financial bubble that the FED has once again blown. It is massive and it will blow up. When it does, car sales will collapse along with everything else.  

It will be great to be a used (excuse me, “pre-owned”) car buyer over the next few years with all of the repossessions that are surely to flood the market. 

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46.5 Million Americans Live In Poverty. Blame The US Government.

Associated Press Writes: Poverty rate stuck at 15 percent; record 46.5 million

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WASHINGTON — The nation’s poverty rate remained stuck at 15 percent last year despite America’s slowly reviving economy, a discouraging lack of improvement for the record 46.5 million poor and an unwelcome benchmark for President Barack Obama’s recovery plans. 

More than 1 in 7 Americans were living in poverty, not statistically different from the 46.2 million of 2011 and the sixth straight year the rate had failed to improve, the Census Bureau reported Tuesday. Median income for the nation’s households was $51,017, also unchanged from the previous year after two consecutive annual declines, while the share of people without health insurance did improve but only a bit, from 15.7 percent to 15.4 percent.

“We’re in the doldrums, with high poverty and inequality as the new normal for the foreseeable future,” said Timothy Smeeding, an economics professor at the University of Wisconsin-Madison who specializes in income inequality. “The fact we’ve seen no real recovery in employment and wages means we’ve just flatlined.”

Read The Rest Of The Article Here

I am not sure why anyone would be surprised with this. Over the  last decade US has instituted policies that basically benefit the rich or those involved in the financial sector at the cost of the middle class and the poor.

Cutting interest rates close to ZERO basically provides an unlimited money supply to those already in power or with money and allows them to speculate on financial or real estate assets without risk. That in turn makes them even more money.  Since the working poor don’t have such an access they are left behind by default. I don’t see anything in the US Economic policy that would change that any time soon.

Weather this is an economic, social or political issue is for you to decide. However, I would just mention that the US Economy cannot perform well if so many people are left behind. It might work for a while, but eventually it catches up to the rest of the US Financial system.  In this case, as the US Financial Asset Bubble (the bubble that is basically artificially keeping the US Economy afloat) implodes, there will be hell to pay. 

Maybe it’s a good idea for someone to open a Guillotine manufacturing company in the US. 

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How The Stock Market Really Works (PART 1)

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People have a lot of misconceptions about how the stock market works. The primary two are…

  1. That the stock market is random and
  2. News, events, policy, governments, etc…. drive the stock market.

After in depth study of the market over the last 15 years, nothing could be further from the truth. The market is NOT random and news/events, etc… have no impact on the overall trajectory of the stock market. As a matter of fact, it is the market that drives events and not the other way around.

So, how does the market work? The stock market is a lot more complicated than most people believe. You see, most people view it as a two dimensional (2-D) representation of time moving up and down over time. It is a very simplistic view to take, but that’s what everyone does.  

However, the market is A LOT more complicated than that. Before I tell you what I mean, allow me to bring your attention to something else for a second. I want you to realize that Mother Nature does not produce 2-D systems. Nothing in nature is 2-D while everything in nature is at least 3 Dimensional (3-D). Look around you. Everything in the physical realm, from planets to atoms exists in 3-D.

What does this have to do with the stock market? Everything.

The stock market is NOT a 2-D environment. It exists in at least a 3 Dimensional environment. It is our human mind that cannot comprehend that and as such forces the stock market chart into the 2-D (Time/Price) chart.

Let me give you an example. Take a look at the 3-D tunnel above. Imagine a snake moving away from you by hugging the walls of the tunnel. Well, that is a 3-D movement. However, if you take this same tunnel and turn it so you face it head on, the ONLY movement you will see is UP and DOWN 2-D movements within the tunnel.

That is exactly what we see on the stock market chart. Yet, the market is a lot more complicated. Not only does it have up and down movements, it moves sideways (in volume) as well.  When one understand that, one can take financial/market analysis to the next level and predict the timing of the stock market moves mathematically with great accuracy.

This concludes Part 1 of How The Stock Market Really Works. 

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Hey China, What Is That On Your Balance Sheet

Reuters Writes: Analysis: China eyes private funds to tackle bad-debt buildup, avoid bailout

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(Reuters) – Faced with a chorus of warnings that China risks choking on bad debts, Beijing is pushing banks to raise private capital in an effort to head off the need for a second government bailout in as many decades.

The hangover from a credit binge that powered China’s swift recovery from the global financial crisis, combined with the economy’s slowdown, has prompted expectations of a repeat of the early 2000s, when Beijing shored up its major banks with hundreds of billions of dollars.

Right now, however, authorities appear focused on pushing banks to bolster their balance sheets by aggressively enforcing new international bank capital requirements, known as Basel III.

Some analysts say warnings of an impending crisis are overdone.

Goldman’s analysts calculate that China’s total debt-to-GDP ratio has surged by 60 percentage points since the global financial crisis. It says such a rapid increase is often associated with financial crises, even if the absolute level of debt is not excessive.

“China must get to a point where it can get back on a healthy growth path that is not dependent on massive amounts of credit every year,” said Fitch’s Chu last month.

Read The Full Article Here

As I have written many times before. I believe China is in big trouble. The article above clearly illustrates the fact.

Basically, no one really knows what is on the balance sheet of Chinese Banks. Not the government, not bondholders, not investors and in many cases not even the banks themselves. However, the nonperforming loan numbers being thrown out by some analyst are downright scary.

Does Chinese Government sees/understands that and by pushing banks to raise private capital trying to “Scam” outside investors while minimizing impact on Chinese economy in case of a collapse?

I believe so. What they are trying to do is recapitalize the banks before Credit Time Bomb in Chinese financial system goes off.  Mind you, any collapse can happen very fast in China. Just as it happened for Lehman Brothers in the US in 2008. Once nonperforming loans truly blow up and liquidity dries up, most Chinese banks might fight themselves insolvent literally overnight (just as Lehman did). Be aware and beware of this.  

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