Back in January, we predicted $50 dollar silver by mid-summer. Well it looks like we are right on track to meeting our projections. Silver has been unrelenting in the past few weeks. I’ve even had trouble timing my own short-term transactions due to its uncharacteristically strong trends—it just hasn’t given any room. And with the current market sentiment, I don’t think silver will be giving much back in terms of corrections.
I’d say it’s already created a nice floor in the mid to upper 30s. I could only wish for another buying opportunity at anything below that.
I don’t foresee any significant changes until June 25th, which is when QE2 officially ends.
If there is a QE3, I would expect another strong upswing in metals prices from the added inflation. If there’s not, I still believe silver will serve as a safe haven from overvalued stocks coming off their QE2 binge.
Either way, the general economy has not improved. On deck we’re facing down a bond market implosion, unabated unemployment, and a housing market that will witness another 20-30% markdown. And now you can tie it all in with lot of public unrest, which the US is also not immune from at this stage in the game.
Precious metals, agriculture and oil, are my favorites going forward. Silver appears to be where gold was around 2.5- 3 years ago, when it started breaking out 600-700/oz mark. There's plenty of upswing left before it begins to cool down.
With commodities up, I'm in the mood for some more bearish talk. If the current loses continue, Nenner may have accurately predicted a top at 12,300 for the Dow-- back in November, which I believe was when these interviews were shot. Are we now spiraling down towards 5,000: that is the question.
Nenner is one of the odder characters around--although he did spend 12 years at Goldman, probably gouging investors. One of his methods of forecasting is using the sun's patterns.
He makes interesting points in his arguments that we are actually in a deflationary period. Although we are heavily printing paper currency, real wages are not rising—don’t forget to add in unemployment and municipalities flirting with defaults. Banks have also also cut domestic lending.The only logical explanation for this would be gridlock in the flow of capital (deflation).
Money printing through bailouts is never an ideal scenario, but whats really preventing the US from getting any of the side benefits of inflation is the misallocation of funds-- which is precisely what’s going on. Bernanke is focused on bailing out the financial industry and a few other fortune 500 firms. However, mortgages remain underwater and productive industries have not been spurred on. If he would have attacked the issues directly instead of pandering to the banking sector, we would have seen a turnaround in the economy.
Trickle down has been debunked. Yes, the liquidity is in the hands of the top 2-3 percent of the population, major investors, speculators and banks are moving paper currency around the world into emerging markets and commodities, but this is proving to be dysfunctional over long periods, especially for Americans.
And this is ties in exactly to where I would disagree with Nenner-- his bullish outlook on bonds and to a lesser extent, gold topping out at 2,500. I see bonds and as a terrible investment, especially as a safe haven through the economic downturn. I'd reweight the argument in favor of commodities and to a lesser degree, the emerging markets.
The dollar continues near its four month lows while oil and silver are picking up where they left off last weekend. Silver closed at $33.94-- breaking through its previous highs. It’s starting to look like it may be telegraphing another week of gains.
Oil is down, but it is holding up its resistance due to the ongoing turbulence in the Middle East along with the growing realization that peak oil may be more than just talk. I’m not as certain on crudes short term performance as opposed to metals, but a floor could be forming.
If you are in the paper oil & silver markets, another profit taking sell off may come within a few more weeks. However, it is clear that the residual bullish sentiment on equities, from the holiday months is well behind us. Things aren’t looking good for the dollar, municipal bonds and even stocks, as states flirt with insolvency.
Stocks are coming off their 52 week highs – spurred on by steady rounds of QE2, yet the underlying weakness in the economy, including joblessness remains unchanged. This anomaly will continue to threaten to set the SP500 into a post-QE2 correction. We are now flirting with another nosedive due to political destabilization-- as attempts at imposing austerity measures have been met with resistance within the Mid-East and here in Wisconsin.
What the infamous Wall Street Journal map depicts is an overly leveraged and woefully mismanaged political structure that is on the verge of imploding due to years of catering to corporate demands, including tax credits, subsidies and a total lack of governance. Essentially corporations have either demanded to operate rent free here or chosen to go abroad and benefit from wage arbitrage. As a result, corporations and the ever increasing unemployed are creating huge voids in government coffers; as they’re now both on the doll. All of this is being bankrolled by the US government’s ability to print money. We should see states seeking FED funding within the year. And if the states aren’t bailed out the municipal bond marketwill become the 2011 version of the mortgage back securities crash of 2008.
Eventually this domino line will stop at the US dollar. And we wonder why silver and gold investments are quickly becoming household names.
“Deutsche Borse will own about 59-60 percent of the joined entity.”1
You got guys like Larry Kudlow, who are purportedly shocked by the Deutsche Borse/NYSE deal. The fact of the matter is that Germany has been a nation focused on real production, real trade and hasn’t relied on easy credit (or outright fraud) for growth-- and has now gone shopping for assets with its coffers. If we take anything away from this deal, it should be the German craftsmanship, focus on production and saving-- which are just some of the reasons for their decade’s long trade surpluses.
This problem goes all the way down to the grass roots of our business practices. The reality is that American business men gave up on its countries workers long ago; any work they could send abroad has been. We've covered the Reagan administration's anti union stance in other articles-- this was the primary catalyst for the destruction of the american work force. Comparatively, Germany has one of the most unionized workforces in the world-- so the big business argument against them is either irrelevant or quite the contrary. And to their own detriment, large parts of upper management have also been placed on the chopping block. Who did they plan on managing once they shipped everything overseas? We’ll turn this sinking ship around when we actually take pride in producing again, not hocking derivatives of work.
A REPEAT OF THE AUTO INDUSTRY'S 20 YEAR SLIDE
As far as the deal goes, in the long run, the US may actually turn out the winner, as Germany may end up taking unneeded exposure to the underlying weakness in the US market. The stock market is a volatile mess and it’s just recently gotten back to its pre-Lehman highs-- I'd say it’s overvalued. A lot of the gains seem cyclical while the underlying structural problems remain intact-- so the Duetsche Borse deal may not be as sweet as it seems (for Germans).
It seems the Germans have been suckers before. The beleaguered US auto sector provides an interesting case of in regards to US-German mergers-- more specifically, the Daimler-Chrysler merger, which didn’t take long to end up as a failure. As I recall, Chrysler was a dead weight and the move dragged Daimler’s earnings throughout the partnership. Perhaps the only thing Chrysler may have brought to the table was its domestic distribution channels, which granted more inroads to Mercedes. This may be the only realized benefit for Duetsche Borse as well.
Here's a headline from 2007, “DaimlerChrysler announced on Monday its plan to sell 80.1 of Chrysler to Cerberus in a 5.5 billion Euros ($7.45 billion) deal. The future Daimler AG will retain a 19.9 stake in Chrysler. The deal unravels a $36 billion "merger of equals" between Daimler-Benz and Chrysler Corp. in 1998, an attempt to create a global automotive powerhouse.” 3
The auto industry seems to have stabilized, but it’s no longer the global juggernaut it once was… So due to its own failures it looks like Wall Street will be traveling down a beaten path.
Real-time: 2:26PM EST NYSE real-time data - Disclaimer
1. Today’s Range 96.05 - 97.39
2. 52 week 95.85 - 107.29
3. Open 96.10
4. Vol / Avg. 455,945.00/351,875.00
The municipal bond market is entering a new phase/trend where it will face some scrutiny-- this goes along with the austerity forecasts expected this year. For all intents and purposes, the majority of states are already insolvent. The question is how long until they're bailed out. And in the mean time will there be enough bad press to really depress the municipal bond market further?
The Google chart above shows the quick rebound in the bond market from the effects of the financial collapse. However, this time the crisis will stem directly out of munis. There are essentially two interrelated factors that will continue to kick the can down the road for munis; the reserve currency status and foreign or market sentiment of the continued easing.
The political will in Washington could be the wild card in this scenario. With the GOP now in control of the house, there’s a small possibility that they’d follow through with their rhetoric and let the bonds default-- something they wouldn’t dare fathom in regards to the business sector, which has now returned to pre-Lehman levels through massive injections of free cash. I don't beleive this will happen. A more likely scenario will be a conditional bailout-- where many public services will be slashed, while a few protected sectors including police and prison (CXW) spending would be likely to remain unchanged.
Shorting the bond market may seem like a no brainer if you don’t include the essential fraud or wealth transfer that is created through quantitative easing. We do feel that there are opportunities to ride the downward pressure, but these may be prone to a quick upswing from more QE— especially considering the 2008 chart.
QE will eventually lead to a significantly weaker dollar. And with the amount of debt leveraged by most American households, at this point, I really don’t see a viable alternative to a 50% haircut on the US dollar.
Essentially what is needed in the economy is a purging of the bad debts created by over 10 years of irresponsible lending and borrowing. The direct bailout of the banking sector basically eliminated all of its accounts payables while allowing it to keep its receivables on the books, (i.e. leaving only borrowers on the hook for the billions in bad loans). The same will go for the states, with the masses bearing most of the costs of poor policy through austerity measures.
However, the question remains on how to time your bets against or for the municipal bond market. We do see some shorter-term opportunities to short, along with a possible QE 3 or other bail out scenario taking place by summer or early fall. However the long term outlook for municipalities should remain grim, as the new normal sets in for states.