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An important swing in the pendulum is due to manifest itself in the
near future. Leverage with gold mining stocks and silver mining stocks depends
upon containment of costs. Whether of energy costs (primarily diesel), or
materials (like steel & lumber), or labor itself (also in shortage), even
equipment (rigs in dire shortage with long waiting periods), the mining firms
need to contain costs in order to make their stocks effective investments
from which to exploit the rising gold & silver prices. The biggest
breakout in the entire collection of commodity prices during the last two
months has been in crude oil, with much attention given it. The gold price
hit 1000 then pulled back. The silver price hit 21 then pulled back. Crude
oil hit 100, then promptly continued its powerful
march to 135. Energy prices might be on the verge of a pullback, even a
powerful pullback. My forecast is for a pullback to 100 in crude oil this
summer, which is soon to begin. The topping process is underway. Bank destruction will push the gold price back above 1000 again, at a
time when the energy prices soften. This should vastly improve
the business profitability of mining companies. The totally unreported story
lately is that banks face larger losses, as housing prices continue their
historic decline, ensuring profound additional bond losses. Banks have openly
admitted it. Watch for the bond insurers to basically go bust, belly up,
after failing to replace their capital core. The charts tell the story. The
financial press networks do not, as they continue to obey their advertisers
who pay the bills and dictate the messages, even if totally false. This USGovt Administration might do well to formalize a new
cabinet post, Secy of Information, in keeping with
a tradition started seventy years ago in Berlin.
When the system reacts to the next round of bank losses, the further
breakdown of the USEconomy, and the ongoing corporate
failures complete with mammoth job losses, the response will be of vast US
Federal Reserve and USGovt stimulus, rescue, and
actual programs. We are at the verge of an even more relentless
rise in monetary inflation. It requires pressure valves. The recent
beneficiary has been crude oil, but next is gold & silver.
In my opinion, the USFed is impatiently waiting for
the USGovt, via the Administration and Congress, to
initiate its important programs for mortgage relief. No progress has been
seen in months for the New Resolution Trust Corp to revive the secondary
mortgage market, to create a burial site for critically wounded mortgage
bonds, and to negotiate new loans in refinance of growing numbers of
under-water home loans. The Case-Shiller
home price decline for the 20 major metropolitan areas in March was 2.2%
monthly, or 14% annually. This means home prices are accelerating downward.
That should be been a loud ugly wakeup call, but it failed to attract
attention or marshal forces into action. SO THE ONGOING HOME PRICE DECLINE
AND FAILURE TO INSTALL A NEW R.T.C. GUARANTEES THE NEXT ROUND OF BIG BANK
LOSSES. The charts tell the story. My words are less necessary.
The crude oil price seems to be
straining near a possible near-term top. At least official efforts are being
designed toward that end. Global economic slowdown is a reality. North America and European Union show the signs of
strain. Asia will soon, probably after the Olympics this August in China. If not
less physical demand, reduced speculation from goofy Congressional rules
proposed against speculators will discourage their bets in crude oil. We are
likely to see a migration toward something else. My guess is gold &
silver, especially after the Big Second Round of bank destruction is painfully
evident.
The XLE energy stock index is a good
forward indication of any imminent rollover toward a lower crude oil price.
It has indeed signaled a lower price. My forecast is for a summertime decline
in crude oil down to the 100 mark, with the first thud to 110. A long uptrend has
lasted over three years. The preliminary initial signs are evident of a
breakdown in that uptrend. A breakdown correction is coming for the XLE stock
index, down to below the 80 level, and toward the 75 to 80 range where the
moving averages await. The correction in the XLE gives a strong signal of
imminent correction in the crude oil price.
The gold price has recovered in the last
month. Next it must gather itself, consolidate for a week or so, before it
continues upward. This chart is extremely bullish to technicians, resembling
a launching pad. Support is to be found at the 920-930 range. Support is also
offered from the 20-week moving average around the 900 level. The bullish stochastix crossover is important. The next gold price
target is still 1150 to 1200. The response to the bank sector will be huge,
as a whiff of panic enters the room.
The Oil versus Gold Ratio represents the
benefit versus cost ratio for precious metals mining firms. The profits are
derived off gold output. Their expenses contain energy as a major component.
The ratio is ready to fall, signaled by a possible crossover soon in the stochastix indicator. Notice a sizeable gap in the 0.127
to 0.131 range, which usually is filled over time. The big upcycle this spring eclipsed the high levels established
from summer 2006 to autumn 2007. Next comes the
pendulum swing back toward the mean, in a reversion. Profits from energy
investments are due to roll into gold.
The XLE versus HUI Ratio represents a
good forward indicator on the benefit/cost ratio for gold mining firms, in
energy producers versus miners. The XLE and HUI stock indexes each
concentrate most weight on the bigger firms. A reversal seems evident and
underway. The correction shows progress a little ahead of the commodity ratio
of oil versus gold above. The same type of gap is evident, in need of fill.
It also shows a possible crossover soon in the stochastix
indicator. This chart is very unstable. A move down comes imminently.
The BKX bank stock index is staring at
the precipice, for huge additional declines. The technical breakdown receives
little press or network coverage, probably because it smashes their
propaganda messages from the last month or more. The bank recovery is nowhere
visible. In fact, several important banks have announced increased expected
losses in just the last couple weeks, precisely as my forecast has stated
consistently and without hesitation. Housing prices are accelerating
downward, which precede yet another round of bank bond losses. My forecast is for future losses to be centered mainly in the prime
rated category, and losses to be larger in magnitude than the subprime category. Prepare for a second
bigger and more painful round of bank destruction. Their balance sheets are
depleted of capital. They are not prepared with loss reserves or basic
remaining capital to withstand what comes next. Their core capital is on a
net basis totally borrowed. Major bank names and many midsized banks will be
forced into bankruptcy in the next year or more, as they fail to resupply cash into capital. Another major breakdown is in
progress. The bearish triangle base, shown recently in another public
article, has been breached. The target is 56 in an earth-shattering
decline. Even Goldman Sachs was downgraded by a major analyst this week. Be
clear in the message, that the entire US financial industry is
insolvent, in ruins, and not easily remedied. The sector has been led to the
toilet by housing bubble that busted dramatically in a very predictable
manner. A nation cannot build an economy atop a housing bubble and expect to
survive.
The HGX homebuilders stock
index also shows a dire decline continuation, as they face
ruin. Their stated losses have not abated at all. Of course, with record high
home inventory for sale, the builders must stop building homes, which strains
the inventory glut. That simple fact is missing by analysts, maybe since
poorly trained in economics, and since compromised by paychecks. This
beleaguered group has already faced two major stock index declines. They are
due for a third imminently. The pennant pause pattern shows early signs of
breakdown. During the entire six months of consolidation, notice no
improvement to the moving average alignment (in red & blue). They remain
in downward bias. The housing prices continue down. A national insolvency
story is not properly being told. This homebuilder group must go extinct.
The MFX mortgage finance stock index
shows yet more devastation. This index receives little attention. The
mortgage industry faces ruin also, especially since fees from refinanced
loans are a virtual impossibility. That is the urgent need! Another important
decline comes imminently. The 50% decline last autumn will be repeated. A new
bearish triangle is evident, which also displays a breakdown. The target is 26 in the next few months.
To date, 261 lending institutions have gone bust. Check the excellent website
‘Implode-o-Meter’ by Aaron Krowne for
details.
The bond insurer MBIA is the largest,
and it is doomed to go bust in dramatic fashion. This event is written in
stone. If not the downgrade of its own corporate bond rating, then surely
their payouts on failed mortgage bonds will kill them. The former makes
recapitalization impossible, while the latter drains them into bankruptcy. As
MBIA and its small group of competitors go down in flames, the bank industry will entire utter turmoil of unmistakable terms.
Calls will be made for nationalization, as in USGovt
takeover of bond insurance. Such calls will join those for the mortgage
Resolution Trust Corp. While the self-serving nitwits in Congress argue with
the syndicate representatives in the Administration, the national home equity
and bank capital will continue to tragically burn. THE NATIONAL RESPONSE WILL
BE MONETIZATION OF BANK AND EVENTUALLY HOME EQUITY BANKRUPTCY AND INSOLVENCY.
Gold & silver will skyrocket as policy kicks into gear during
desperate times. The irony, another black eye to the financial
sector, is that MBIA will likely continue to bear a shiny AA or AAA rating,
even as it goes bankrupt. That is a fine closing statement for this article.
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