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Good Morning Readers
If you listen to the media, they talk of
nothing but bubbles. Real estate bubbles, bubbles in Gold and Silver, bubbles
in uranium, etc. However, there is one bubble that is never mentioned. It is
the bubble that will break the back of the glorious rally we have experienced
in the market since 2009. It is the corporate earnings bubble.
Let me start by telling you I love the song
“Where or When”. One of the lines in the song goes like this.
“Everything that has happened for the first time, seem to be happening
again.” Let’s look at the facts. Dr. Bernanke is a brilliant man.
He did his doctoral thesis on the book “The Great Crash of 1929”
by John Kenneth Galbraith. If you haven’t read this book I advise all
of my readers to do so because “Everything that has happened for the
first time, seem to be happening again.” He is sure that what went
wrong in the first depression was that they pulled back on the injection of
money into the economy too soon. He has vowed not to make this mistake again.
He has been true to his conviction and has continued to pump trillions of
dollars into the economy while keeping interest rates at zero. The
corporations on Wall Street have had a party. FREE MONEY!!!! The result has
been twofold. The good news is that the Wall Street corporations have had
record profits, which is what drove the market up to unprecedented heights.
The bad news is that like a drug pusher Dr. Bernanke has become our enabler.
Our economy, like a heroin addict is addicted to “quantitative
easing.” At the first real sign of stopping the flow of cheap money
into the system the stock market will collapse like the house of cards it has
been built upon. If Dr. Bernanke holds true to his promise to end QE2 at the
end of June we will see the corporate earnings bubble pop and it will look
like Déjà Vu all over again. Only this time we will be saddled
with a debt that cannot be repaid. I read in the Investor’s Business
Daily a staggering statistic. For every one dollar the government spends we
must borrow forty six cents. According to Porter Stansberry (who is also a
brilliant man) in two years if we continue along the path we are on, if every
working person in this country is taxed at 100% of their salary, we still
will not be able to pay the interest on the debt we owe. I fear we have come
too far. What we have seen play out in Portugal, Ireland and Greece is going
to seem like a ride at Disneyland if things do not change in this country and
fast.
For the first time, in a long time, there is
someone on the other side of the table in the GOP who is tough, and
smart. I speak of the Speaker of the House John Boehner. In Speaker Boehner,
President Obama and Senator Harry Reid have met their match. He is determined
to get our fiscal house in order and I think he has the ear of the middle
class hard working American’s who are picking up the tab for the
reckless spending spree we have been on. I believe that President
Obama and Senator Harry Reid are both good men. I believe that they genuinely
care about people who are less fortunate than others but the fact remains
that the lessons learned in Portugal, and Greece must be heeded. According to
last week’s Barron’s 50% of our population do not pay taxes.
Instead they are content to live off of the “entitlement programs”
that both President Obama and Senator Reid have generously doled out. Senator
Reid and President Obama’s program will appeal to those who are
not paying taxes at this point, and will appeal to the majority of those in
the lower income brackets who are convinced that the “rich” are
not paying their fair share of the income tax burden when in fact it is the
highest income tax payers, the highest income earners, who are paying hugely
more than their fair and reasonable share. I find their program utterly lacking
and economically illogical. We are facing in the U.S. the prospect that the
majority soon shall not be paying any taxes at the federal level at all,
while an ever smaller number of people at the highest income levels pay
virtually the entire cost of government. We are reaching that point in a
democracy when the majority, seeing that they can elect government intent
upon supplying the majority with programs paid for by a steadily declining
minority, pushes those they’ve elected to do even more.
Speaker Boehner, however, cares about
something else. He cares to not let our once great nation become delegated to
that of a third world status nation. This nation has been built on the
principles of hard work. The Constitution of the United States guarantees all
Americans life liberty and “the pursuit of happiness.” It does
not guarantee us happiness. Happiness is something that must be achieved by
hard work and determination. Live your life with purpose. Don’t just do
“whatever” or “whatever” may be just what you get. I
know this sounds cold and heartless but we cannot continue to fund the
entitlement programs for people who choose to not work and be a productive
member of our society.
SLV I can only tell you what I have done and
that is I sold half of my position @ 38.85 and will continue to keep a tight
mental stop under the rest. Gold (GLD) seems to be making good on my
prediction of reaching $1550.00 an ounce in 2011 before we see the inevitable
correction. I continue to be long in US Gold (UXG), International Tower Hill Mines
(THM), Avalon Rare Earth Metals (AVL), the Lynas Corporation (LYSCF), General
Moly (GMO), Ucore (UURAF) and despite what is said in the media I continue to
be very bullish on Uranium. I own long positions in Uranium Energy (URG) and
Denison Mines (DNN).
I expect the market to trade flat for the
next few weeks but keep a close eye and ear on John Boehner. If he gets his
way all of the earnings you have realized in the DOW and S&P will
evaporate before your eyes. You'll wish you had owned some precious metals
and REE's.
As I said in posts two weeks ago,
“it’s time to start playing defense.”
Stay Tuned!
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