As the Dollar Gets Crushed, the Sell Off Continues

Good Morning Readers.

Well yesterday I wrote that we would see a euphoric day of trading and today we would be back to “normal”. Well I was wrong. I forgot that to be considered a long term trader these days means that you hold a stock for longer than twenty minutes. There was a spark of euphoria in the market yesterday but that lasted until about 10:30. The market then began a sell off and floundered for the rest of the day.

As I write this today it is very difficult to predict which way the market will move. On one hand we have Secretary of the Treasury, Tim Geithner, in a letter to Congress warning that a failure to raise the $14.3 trillion debt limit “would have a catastrophic economic impact.” He claims that we now have until August 2^nd to raise the legal limit on federal borrowing because of higher than anticipated tax revenues. He said that a failure to raise the debt ceiling would lead to a potential default on the federal debt.

We all know that Dr. Bernanke is a very smart man. He graduated from Princeton with a Doctorate in Economics and his Doctoral Dissertation was on “The Great Crash of 1929.”  He has based his entire game plan on not repeating the mistakes that were made during the depression. What scares the hell out of me is that he is playing with live ammo. The rally in the stock market has been entirely driven by the injection of money into the economy and the Federal Open Market Committee’s (FOMC) policy of keeping interest rates at 0%. He stated in his press conference that he intends to maintain its exceptionally low target for federal funds for an extended period of time. He did concede that although the second round of security purchases was effective, it had little effect on the still high unemployment rate.

I have a friend that used to like to go to Atlantic City to play poker. He told me that he didn’t like going anymore because now the game is high stake players that go all in one hand. What scares me is that Dr. Bernanke has gone all in on his “one hand of poker” and if he is wrong the America that we knew and loved is finished. What is even scarier is that the unrest we have seen in Greece, Ireland and Portugal will look like a ride on Disneyland compared to the unrest we will see in this country if we do not get a handle on our debt and get the middle class worked back to work at a salary that is livable.  Below see a chart of the U.S Dollar Index Fund (UUP).

Up until yesterday the US was on a silver euphoria high. I warned my readers to expect a correction and yesterday it began. Back in January I alerted my readers to buy The Gold and Silver ETF’s (GLD & SLV). If you did you saw a nice run up and hopefully took some nice profits in the SLV ETF. I believe that GLD may flounder a bit but gold will be $1600 an ounce by June or July. The point that I am making is that once the euphoria for gold and silver stabilize the world will wake up to the fact that China is not playing nice in the sandbox and we have got to renew our harvesting of the ample REE’s this country possesses.  Meanwhile all of the mining stocks are getting taken to the woodshed and beaten with a 2x4. I however will stick to my thesis that the world is in critical need of Rare Earth Elements (REE’s) and China has a control of 97% of them. They have stated that they will cut exports by 50% and to add insult to injury they will add a 10% tariff to all exports.  We are trying to play catch up but it will take a while. Once my picks are permitted we will see some very nice gains in these holdings. You can panic and sell or you can use this pullback as an opportunity to buy these holdings at fire sale prices. I will continue to be long Lynas Corp. (LYSCF), US Gold (UXG), General Moly (GMO) which is selling at a bargain price because of delays in obtaining the water permits, Ucore (UURAF), Tower Hill Mines (THM), Avalon Metals (AVL), Dennison Mines (DNN), Western Lithium (WLDCF) and my latest pick Tasman Metals (TASXF).

I have a nice gain on my SLV trade so if the mining stocks continue to sell off I will put my money where my mouth is and add to some positions.

As I write this post the DOW is down 60 points in the futures and 8 points in the S&P.

Good Luck today and stay tuned!