"A fondness for power is
implanted in most men, and it is natural to abuse it, when acquired." --
Alexander Hamilton
"Dependence begets subservience and venality,
suffocates the germ of virtue, and prepares fit tools for the designs of
ambition." -- Thomas Jefferson
WHERE ARE WE NOW?
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The
Value Line Geometric Average peaked in 1998 and then made a double TOP in
2006;
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The Value
Line Arithmetic Index peaked in May 2011, a Fibonacci 13 years later;
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The
Real DJII (DJII/Gold) TOPPED in July1999 and the list of stocks making
NEW ALL TIME HIGHS has been shrinking ever since;
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The
Arithmetic DJII reached it peak on May 2, 2011;
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Taking a broad look at the big picture, we see
sure signs of internal WEAKNESS and the formation of a very large and broad
top forming. Based on historic Elliot Wave and Kondratieff cyclical analysis,
the Next Major Down Wave is projected to lose a minimum of 50%, similar to
what we witnessed in 2007-2009.
The reality is that the FED will be seen to have
very limited, long term capability of control highlighted by a complete loss
of confidence, showing impotence when faced with CREDIT DEFLATION like we've
never seen before.
OUTRIGHT DEFLATION
I warned everyone the last time that the ECB and
IMF's 146 billion Euro bailout was only a stopgap measure and would fail,
since none of the real problems were even addressed, let alone repaired. That
is true for the latest bailout as well, which only managed to give the Euro
and the European Stock Markets ONE day of relief. Have you noticed all the
good (?) it's done for all the banks both here and in Europe?
Has the time finally come where they (WE) must
address the rest of the PIIGS including ITALY? Since the problem is no longer
one of a LIQUIDITY SQUEEZE, but is more of a structural problem that is not
even been looked at yet, could it be marking the beginning of the end of the
EUROPEAN UNION and/or the EURO? Are Europe and the US heading for outright
deflation? To me, it all looks like a House Of Cards and just like all Houses
of Cards, it must eventually come tumbling down.
I sure hope that you were not surprised by the
latest GDP revisions to the 4th qtr 2010 and the 1st qtr 2011 because we sure
weren't
THE LATEST ECONOMIC REPORTS
The whole world, but especially our American
economists, financial analysts and media talking heads were completely
surprised, shocked and overwhelmed by the financial news and job reports that
hit us last week. That is, every one was surprised but US. Their excuses are
running anywhere from the Japanese earthquake and tsunami to Republican
intransigents, but again we know better. WHY? Because we concentrate on the
BIG picture and especially on the unintended consequences of government
actions. We study the effects of the rules and regulations that Washington
imposes; the hidden tax increases and bailouts that the media does not report
- all have unintended consequences. There is so much focus on making sure
that the rich pay their FAIR SHARE and companies that are out of Obama's
favor lose what are being called TAX LOOP HOLES. Let's not forget Obama Care
that was rammed down our throats, even though 70% of the population was
against it. Their unintended consequences such as new real investment and
hiring have been paralyzed. As I have explained many times, these directives
from on high, such as the stopping of all drilling in the Gulf, and the new
emission regulations that come directly from the EPA all have their
unintended consequences. The ban on drilling alone has cost us upwards of
200,000 high paying jobs and the list goes on.
THE LATEST JOBS REPORT
The Bureau of Labor Statistics reported that in
the month of June, only 18,000 net new jobs were created. That means our
Central Planners' policies have failed completely. The budget deficit was
driven up and created no new jobs. Even the 18,000 figure is a lie; the true
number is much worse. The
Birth/Death adjustment in June was 131,000. In other words, the Labor
Department took a wild eyed guess that 131,000 jobs probably
were created by new businesses they think might have started up in
June. Without that supposition, the economy actually lost 113,000 jobs. May's
figure was revised lower to 25,000 new non-farm payroll jobs being created
from what was originally reported as 54,000. But again, if you back out the
206,000 pretend jobs, May saw a decline of 181,000 jobs. So, for the two
months of May and June, the economy lost 294,000 jobs. Then, if you consider
we need to create 150,000 new jobs each month just to keep pace with
population growth, this means the economy fell short of breakeven by 594,000
jobs. Not only are we not creating new jobs to get those who are unemployed
back to work, but the situation is worsening.
TEENAGE UNEMPLOYMENT
Those of you who have teenagers have probably
noticed that this has been a terrible summer for young people to find a job.
The Department of Labor reported that a smaller share of 16-19 year-olds are
working than at anytime since 1948. Only 24% of teens have jobs, compared to
42% as recently as the summer of 2001. So instead of learning valuable job
skills like getting out of bed before noon, showing up on time, being
courteous to customers, operating a cash register or fork lift -- millions of
kids will spend their summer just hanging out and getting into trouble.
Congress, led by Nancy Pelosi, in its infinite
wisdom and completely devoid of economic literacy, pushed through increases
of the minimum wage in stages to $7.25 an hour in 2009 from $5.15 in 2007.
Anyone with a modicum of economic common sense ought to understand that
raising the cost of hiring the young and unskilled while employers are
slashing payrolls was not the right or smart thing to do. But not to place
the whole blame on her; the Center for American Progress, the think tank for
the Obama White House, recently recommended another increase to $8.25 an
hour. Though the U.S. unemployment rate is 9.1%, these brilliant thinkers
assert that a rising wage would "stimulate economic growth to the tune
of 50,000 new jobs.'" So if the government orders employers to pay more
to hire workers when they're already not hiring, they'll somehow hire more
workers. By this logic, if we raised the minimum wage to $50 an hour we'd
have full employment in no time at all. "Meanwhile, back on planet Earth
in 2009, just before the last wage hikes, roughly seven million teens were
working. Now there are less than five million with a job and paycheck."
-- The Wall Street Journal
HOW IS IT POSSIBLE TO CREATE A REASONABLE JOBS
CREATION STRATEGY WHEN WE CANNOT EVEN GET RELIABLE STATISTICS FROM THE
GOVERNMENT? And where is our (watch dog) media throughout all of this?
Obama must be living in a dream world, if he
thinks any one time tax break will get companies to repatriate their foreign
profits, when America treats corporations and Capitalism itself, worse than
any other nation on earth.
THOSE DEADLY DERIVITIVES
What about those deadly Derivatives that I have
been warning about for 5 years that no one seems to even want to acknowledge
let alone discuss? WHY? Does it make one an alarmist and/or an extremist?
They are nevertheless simmering and hidden somewhere on the books of the
major banks. While the world's banks, governments and their regulators sleep,
there is $1,200 trillion of Derivatives pyramided against only $60 trillion
world GDP. It is these very same Derivatives that US Banks have underwritten
on the European PIIGS' Bonds to the European Banks that will bring the European
debt crisis home to America. (Will the US taxpayer then be on the hook for
another bailout?)
The 55th Bank of 2011 was closed this past week.
Another danger that I have never seen mentioned are the dollar reserves of
only $2.2 trillion that the FDIC holds against demand deposits of
approximately $100 trillion. The paper game went out of control in the mid
1990s, and is getting worse every day with each bailout. In a world of finite
resources, we are facing infinite electronic Fiat money creation. Another
crisis (and crash?) is just a matter of time even without the EMU problems
and the US government partisan lunacy.
Ours and the rest of the G-7's demographics are
dramatically changing for the worse this decade and next, no matter what
fudges and band aids are put together this month and next; the Social
Security and Healthcare financial problems are get steadily larger.
INCOME TAXES (Factoid)
US tax revenues since the 1930s have been roughly
constant at 19.5% of GDP over a wide range in marginal tax rates. That's
right, federal tax revenue is about the same percentage of GDP whether the
marginal tax rate is 28%, as during the Reagan years, or 91% under FDR. In
the 1980s, when the top marginal individual rate dropped from 70% to 28%, the
economy improved dramatically and gross federal income tax revenue increased
by 91.3%; that created 45 million new jobs in the succeeding 10 years. The
rich end up paying more when marginal rates are lower as the incentive to
avoid and/or evade taxes is reduced or completely eliminated. But more
importantly, GDP growth improves so dramatically, increasing net income tax
revenue when tax rates are slashed (Elementary Supply Demand Economics).
THE COMING MELTDOWN
Two years ago, in the midst of the subprime
market meltdown, I warned my subscribers that "the most recent financial
crisis won't be the last." At the time, I wasn't certain exactly what
form the next crisis would take -- or when it would strike. But Now We Know.
And one other thing I'm certain about is this crisis will be worse
than the last one, partly because the economies involved are in weaker shape
now than they were back then and because even fewer "experts" and
policymakers are anticipating it. So when it occurs, they will be utterly
unprepared to deal with it, especially now that Washington is in a DEEP
POLITICAL FREEZE. Fortunately, there is time to for us to prepare -- but
there is no time to waste.
Swapping paper dollars for Gold and Silver bullion
is the only strategy for individuals that makes sense. Silver and Gold mining
companies all seem to be maximizing their mine's life spans as against
maximizing current profits; by mining lower grade reserves, they are
reporting less than expected earnings but extending the size and life of
their mines. Given Gold and Silver's dramatic price increases, buying mining
shares seems to me to be the best way of buying Gold and Silver at a
significant discount.
HOW NOW DOW
It is my considered opinion that the cyclical
Bull Market that began in March 2009 will top out in conjunction with the 6
and 12 year cycle "Tops", due to peak some time between now and
January 2012. Perhaps another 300 to 500 point rally should be enough to snap
the BULL TRAP shut and/or an increase in the debt ceiling in conjunction with
an extension of QE2 (of course they won't call it QE anything)?
Due to the round the clock trading on multiple
exchanges in conjunction with Quick and Program Trading and the tremendous
amount of manipulation taking place by Central Banks throughout the world
(each with their own particular agenda), it has become very difficult if not
impossible to get reliable technical analysis in the short and intermediate
terms. However the long term, which takes into account the fact that HUMAN
NATURE never changes, still is and will always be able to give the astute
analyst, who keeps a larger focus on the big picture, reliable readings
against which he can decipher medium and intermediate term readings. This, in
conjunction with Economic and Political analysis and brushing away all the
propaganda coming out of our inept left wing media, can still produce
reliable insights into what is happening beneath the surface.
As of today, there are large, long term patterns
coming to a head that are giving early but clear signals that there is a
major TOP due sometime between NOW and January 2012.
Although I am expecting a Break Out Rally to new
highs, there are no guarantees, which for me is much too dangerous to play at
this time. It takes a very special trader who can change his/her mind on a
dime. So for the time being, KEEP YOUR SHORTING POWDER DRY! If we get a rally
due to the raising of the debt limit, (which is no real solution) use that
rally to short into. This top will be a multi-century top. It will
also produce that "BULL TRAP" to end all bull traps that I have
been talking about, leading into the worst Bear Market declines in recorded
history. Remember nothing in nature ever goes in a straight line, so there
will always be numerous short and intermediate term rallies and selloffs in
between major moves.
The first major Down Wave could last 3 to 5
years. There will no doubt be corrective rallies along the way. Once you get
the major direction right, market timing, if played correctly, will present
fantastic trading opportunities at least during the first stage of this
coming Bear Market, which could last anywhere between 10 to 40 years. But
Beware: As this Bear Market begins, there will be questions regarding
counterparty risk, similar to what was happening in 2008-2009, only much,
much worse as banks and financial institutions all over the world begin
failing. If history is any guide, there is the strong probability that we
will also witness the beginning of World War III. If you must trade, stick to
trading Gold and Silver and/or VERY SPECIAL situations.
GOLD & SILVER
India's Gold and Silver imports surged 200% to
$17.7 Billion in Q2 and Chinese Bullion demand is also surging. Furthermore,
the important long term factor of robust global and massive Asian demand
should continue to help drive the price of Silver and Gold to much higher
levels.
China's growing number of asset managers has
recently been approved to raise $70 billion for allocation overseas and they
are also seeking additional funds to invest in Gold and precious metals as
soaring inflation spurs interest in alternative assets as a way to protect
wealth against steady rising inflation.
Massive and continuing demand for Gold and Silver
in China and India, along with their steady shrinking of their US Dollar
holdings is not being covered by the Media.
GLOBAL SUPPLY AND PEAK GOLD
Meanwhile, growing global demand is being
confronted with anemic supply increases - highlighting the real possibility
that peak Gold is much more a reality than peak Oil. Kingsgate Consolidated's
Director, Gavin Thomas, a highly respected mining expert, believes that the
peak of Gold mining has been reached. He told Bloomberg that Gold production
has not increased in spite of the price of Gold nearly tripling over the last
10 years. As demand was increasing, the grades of Gold mined and the number
of large discoveries has been steadily falling.
Simplistic and superficial analysis of the demand
for Gold continues, despite the availability of excellent research clearly
showing why Gold and Silver are safe haven assets and offer very important
diversification opportunities in these uncertain times.
5 BULLISH REASONS FOR BUYING GOLD NOW
1.
Gold is
near the bottom of a cycle.
2.
3.
History
and Elliott Wave says the next move should be UP Big!
4.
5.
The
Market is entering its most favorable and consistent seasonal rally period.
6.
7.
Central
Banks have reversed course and plan to add to their Gold hordes.
8.
9.
South
African Production Continues to decline and the political climate for adding
new investment is deteriorating.
10.
Gold's recent price action has only served to
reinforce my estimated long term bullish projection target of $6,250/oz.
The correlation between the Gold price from 1968
until 1979 and from early 2000 until today is an amazing 89.65%! More
specifically, the correlation from 1975 until April 1979 and from January
2008 until today is an astonishing 97.83%. This suggests that Gold will reach
an ultimate top of $6,000 plus per troy ounce before reaching any bubble
stage. Remember prices always overshoot both on the upside and downside. Gold
and Silver are not (yet) in bubble territory, and large gains remain,
especially if world monetary and fiscal policy continue in their present vein
and fundamental supply-and-demand trends remain unchanged. As far as change
goes, it is my estimation that most changes will be for the worse (better for
Gold), given the government's history of making idiotic policy changes.
Seasonally the poorest two months for the
precious metals are traditionally May and June. One of the best months, where
Gold's average move has been 15%-20% through the end of the year starts in
August. So July seems to be an excellent month to start accumulating your
favorite PM stocks along with bullion. (I must sound like a broken record.)
Aubie Baltin CFA, CTA, CFP, PhD.
2078 Bonisle Circle
Palm
Beach Gardens FL. 33418
aubiebat@yahoo.com
561-840-9767
Please
Note: This
article is for education purposes only and is designed to help you make up your
own mind, not for me to make it up for you. Only you know your own personal
circumstances so only you can decide the best places to invest your money and
the degree of risk that you are prepared to take. All Information and data
included here has been gleaned from sources deemed to be reliable, but is not
guaranteed by me. Nothing stated in here should be taken as a recommendation
for you to buy or sell securities. I am not a registered investment advisor
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