The Emperor Has No Clothes

MARKET(S) UPDATE

IT'S TIME TO FACE THE TRUTH

I have been warning as far back as February that Greece and Spain are in reality, in the midst of a complete system breakdown that invariably will encompass the rest of Europe and then engulf the USA as well. This credit crisis, as they call it, is just an effect and not the root cause of the problem, which is a Socialist crisis. Socialism can never stand on its own two feet; it is a parasite and can only survive as long as it can confiscate the wealth that the Capitalist Free Market generates. But like every other parasite, it eventually destroys its host. Margaret Thatcher explained it the most clearly and concisely when she said, "Eventually Socialism has to run out of other people's money." That is exactly what is now happening all over Western Europe, England and yes, America as well. Socialism has borrowed to such an excess that it has just about killed the host that laid the golden eggs that kept it alive.

Last month, just as the European leaders declared the Greek crisis resolved, I again warned you that it was not resolved and it just marked the first of what will be many more crises to come; with the next one likely to be Spain with a 25% unemployment rate, then France and then Italy to follow shortly thereafter. Eleven other European nations, if not already in depression, are definitely in at least recession. With austerity measures already driving unemployment skyward to 25%+ you can expect riots in the streets and a revolt at the election boxes. The public will most likely completely reject all austerity measures and replace all who are for them with far left Socialists and Communists and drive all of Europe into depression.

Once the USA sees what is going on in Europe, hopefully we will wake up and realize that we have gone too far left and drive all the Socialists out of office. However, it will be too little and probably too late as the Republicans will not know what to do with all their new found power and the USA will first follow and then lead the rest of the world into depression.

DANGER: If I am right, history teaches us that the next step will be war as war always follows depression and world depression always leads to world war.

YOU HEARD IT HERE FIRST

In the US, the Democrats and their media lackeys are so used to lying to themselves that they cannot recognize the truth even it it hits them on the head; they still act and think that Obama will sweep to victory, but he won't. Even he cannot overcome the tsunami of history that is sweeping the world.

THE BEAR IS ON ITS HIND LEGS AND GROWLING

The Greek market is already below its 2009 lows and Spain is not far behind. The bear will drive each country in turn below their 2009 lows and that will include the USA. However, that does not mean that you must go out and sell everything. We are most likely at or approaching an oversold low and could bounce starting this Monday.

We all know that I am stubborn and I cannot let go of my opinions easily; that Bernanke, Geithner and the rest of his gang of thieves will come up with QE3 soon and make every effort and use every weapon they have in their arsenal to attempt to drive this market higher: Maybe high enough to make a new, all time high above 14,200 on the Dow, in an all out effort for the Democrats to win the election. Should they win, the accompanying celebration will then mark a rise in the DJII that slams shut the biggest bull trap in history and will start a bear market that will make 1929 look like a picnic.

SENTIMENT

"The economy is picking up"; "there are more new jobs now being created and there is in general a feeling that the economy is getting better." "Even real estate is supposedly bottoming". Is this all true? Only if you believe the government's massaged phony statistics.

Barron's big money poll shows 84% are bullish of which 55% are very bullish and expect to be big buyers over the next 6-12 months. On the other hand, only a bare 14% are bearish or and less than 5% are super bearish. Any time we have a big majority on one side or the other, they are always wrong at the extremes. I won't bore you by citing all the terrific news coming over the air waves and newspapers, nor will I cite you any of the B.S. coming out of the mouths of the politicians in an ever increasing crescendo.

HOPE SPRINGS ETERNAL

Rest assured neither Apple nor Google or Facebook will reach $1000 per share anytime in the near future. Of course, Silicon Valley is busy pointing out the differences between now and 1999, when you did not even need revenue let alone earnings to go public, while today, Apple and Google are generating huge profits month after month and there are still a billion Chinese who still don't have even a cell phone yet. Apple's steady flow of innovations will never cease even though Steve Jobs is no longer with us and he and his vision and drive will be easily replaced. Sure, guys like Steve Jobs come along every day. Don't they?

THE EUROPEAN PONZI SCHEME

The unraveling of the giant European Bond Bubble default is now clearly becoming visible in Europe. Off the radar, but even of more importance, is the debt smothering both US states and especially municipalities. The defaults have begun and will continue to rise as exorbitant salaries, pensions and health benefits take an ever increasing amount of a declining tax base. Bond and Munis are NO longer safe havens for your money.

OTHER VISIBLE SIGNS OF A TOP

The construction of the Empire State building began right after the crash in 1929. If you believe in coincidences, two of the tallest buildings (one in the US, the One World Trade Center and the other in Toronto, the tallest residential building in the world were both recently completed. Both Manhattan and Canadian real estate (especially Toronto) are still near their real estate bubble peaks. GET OUT WHILE THE GETTING IS STILL GOOD.

SPECIAL WARNING TO MY CANADIAN FRIENDS

Get out of all your speculative real estate holdings, while you can. The old adage that when the US catches a cold, Canada catches pneumonia still holds true. Canada cannot possibly continue to prosper with both the USA and Europe heading first into recession and then depression. At least the Canadian Banks are still sound.

EUROPE HEADING INTO DECLINE

The Euro Zone could break up at any time now and trigger a "full-blown panic" in financial markets: As this real worry increases, European Banks are suffering from increasing depositor flight as they witness a slump to rival the Great Depression. In its World Economic Outlook report, the International Monetary Fund (IMF) said the collapse of a crisis-torn single currency could not be ruled out. It warned that a disorderly exit of even only one member country would have untold worldwide ramifications. Signifying the mood of caution among the world's central bankers, 71% of those polled said gold was a more attractive investment than it had been at the start of last year.

Central banks made their largest purchases of gold in more than four decades last year and have continued to buy record amounts of the precious metal thus far in 2012.

THE EUROPEAN STOCK MARKETS

February 3rd was the day the rally off the December 19th bottom died, and it's been an erratic, indecisive, up and down market ever since. There has been an insidious sequence of up and down days, brought on by an incessant inflow of ECB money. None the less, I haven't been able to make any substantial money going either long or short. Thank Goodness For Trailing Stops. It's given me a living, but no real money. So the time has come to take a break and see where this market wants to go. My bet was over the past few weeks that it probably will go down first before heading back for that finally RALLY that will trigger the BIGGEST BULL TRAP IN STOCK MARKET HISTORY. But as of right now, it is only a 50-50 bet. So, hold on to your puts, maybe buy a few more, BUT be cautious and keep your tight 10% TRAILING STOPS.

HOW NOW DOW

The longer this sideways trend continues the larger and more powerful the eventual breakout trend, up or down will be. It really boils down to letting the market tell us what its next Major move will be.

The economic data has been abysmal lately, Durable Goods orders were down sharply, Housing prices down, and Housing starts were also down. The Fed left the market with the impression that it would soon be printing more money: Hinting QE3 may be on the horizon.

TECHNICAL ANALYSIS

Should prices fall below 12,250 in the Industrials, or below 1290 in the S&P500, that would suggest a huge decline is just getting started: If those levels hold, I believe a strong up rally into the fourth quarter 2012 is still possible (there is no end to the manipulation). The charts for the S&P500 and the DOW are getting close to finishing a Head and Shoulders top pattern... FOR NOW PATIENCE IS THE WORD.

GOLD

I always had in the back of my mind that gold could selloff to the $1525 level, but I did not think it would do so, since more and more Central Banks are favoring Gold and the IMF warns of a possible "Collapse of the Euro" and "Full Blown Panic in Financial Markets." So this latest Selloff in Gold is not logical unless the market is being manipulated in a last ditch effort to maintain the value of both the Euro and the US Dollar.

IS THE CORRECTION IN GOLD OVER?

It was just last week that I felt that I had to re-make the case for my being a gold Bull (that in and of itself is a sure sign of a Bottom) and this week, we're talking about gold again - but with good reason. When there's a market correction such as we are having, it is a good idea to take a step back to re-think ones perspective, to make sure that I am not just being stubborn in refusing to admit that I was wrong. So I did step back and re-evaluated my entire reasoning only to find that I am more convinced than ever of my position on gold and silver.

It strikes me very curious to see such large-scale movements following the mutterings of Ben Bernanke - doubly so when he says he's not doing anything. Yet his supposed inaction doesn't undo one iota the harm he's already done, nor does it do anything to solve the serious underlying problems that drove the world to crisis in the first place. On top of all that, he is lying. The printing presses are running full blast, without which neither our Government nor Europe could pay their bills. Nothing changed from one moment to the next, and yet a large number of people in the precious metals market decided to sell. I can only wonder at their reasoning - who on earth would buy gold just because they thought Bernanke would announce QE3 on a given day? Or who could possibly imagine that just because he does not announce the next QE that one is not coming: Does it then follow that this long-term secular bull market for precious metals is over? What about Europe? The biggest of their problems, Italy, France and Spain and as an afterthought Ireland, Portugal and of course Greece are not even in the news. But rest assured they soon will be as their problems are still not only festering in the background but are actually getting worse. One by one, elections are replacing relatively conservative leaders with Socialists /Communist leaders, who are the cause of the problems in the first place, because the public does not want to accept the austerity measures imposed in order to get the financial bailout necessary to get their financial house in order. The USA will soon be in their exact same situation.

THE WORLD'S POPULATIONS REFUSAL TO ACCEPT THE FACT THAT THE FREE LUNCH IS OVER. IN POINT OF FACT, THERE NEVER WAS SUCH A THING AS A FREE LUNCH; THERE IS ONLY DELAYED PAYMENT WHICH IS NOW COMING DUE. The Piper must always be paid.

I don't know about you, but I'm more than happy to take more cheap gold off the hands of weaker investors as well as take some more great gold stocks off of fearful hands at bargain basement prices. After all, this market is only 2/3rds over. Gold still has another 5 years and $4,000 plus yet to run at a minimum.

I have been right on for GOLD for going on 11 years. I was right when I urged you all to hang on and buy into weakness in the face of most of the Gold and Silver Bugs turning Bearish in 2006, 2008 and 2011. Well, hanging on THEN and NOW will also turn out to be the right thing to have done.

2011's $1,920 peak Gold Price only marked the end of Wave 3; we still have Wave 5 yet to come and in commodity markets, Wave 5s are most often the largest and strongest; taking up as much of the advance as both Waves 1 and 3 combined, which should just about do it. (1,700 X 2 + 1,700 =$5,100) + $250. So forget CRAMER, stick with AUBIE! After almost 10 years, even CRAMER now thinks that gold deserves a place in every portfolio. Let's hope that everyone takes his advice that gold should be at least 5% to 10% of every portfolio. That alone will push gold way past $10,000/oz.

GOLD AS A SAFE HAVEN ASSET

Further confirmation of gold's continuing renaissance as a safe haven asset was recently given by the IMF who warned that a "growing shortage of safe assets" poses a threat to "global financial stability." Don't you all feel more comfortable now? What would we do without the IMF to guide US? (LOL). We certainly don't need the politically correct IMF to tell us what to do. But it is just some outside confirmation of my thoughts and bodes well for gold in the coming years. We should soon see gold once again as a leading if not the ultimate safe haven asset. After 11 years, it's about time the so called experts began to see the light.

Goldman Sachs' Gold ETF in India Sees 11 Fold Surge in Volume.

TECHNICAL ANALYSIS FOR GOLD

I like to use a 26-week rate of change ROC system to find winning sectors. Just this past week, my system signaled that it was time to buy gold.

Gold looks like a great long-term investment, but there's one investment group that might perform even better in the coming months...

Gold Mining Stocks: You see, production costs are relatively fixed for mining companies. As the price of the gold increases, most of that increase becomes profit for miners. In the long term, miners should outperform gold in a bull market and that is exactly what we have been seeing. In the past three years, gold is up approximately 120%. Meanwhile, the Gold Miners ETF (GDX) is up more than 160%. Over the past year however, that has not been the case. - Gold has outperformed the gold stocks by over 25%, but I think that trend is about to change. We can compare the value of gold bullion to gold miners with a simple ratio, the GLD/GDX ratio. High values of this ratio indicate that miners are undervalued. As gold miners started their big run up on price, the ration was near 3.0, just as it is now. I expect gold miners to outperform the metal over the coming months and year, just as they did the last time they were this undervalued.

There's no question: Gold stocks are cheap.

Many of the sector's stocks trade with lower earnings multiples than the S&P 500. Earnings growth is in double digits. Some pay dividends close to 2%. With the exception of the massive selloff in October 2008, the sector is now cheaper - relative to the price of gold itself - than it has been at any time since the gold bull market began 11 years ago. Fundamentally speaking, the sector is a screaming buy.

AN OBSERVATION: "Two things are infinite. The universe and human stupidity and I am not sure about the universe" -- Albert Einstein

"Asian economies are based on production and savings. Western economies are based on consumption and debt. What you are seeing is simply the reshuffling of wealth and capital and opportunity appropriately." In all my life, I have never perceived so many diverse, powerful events to the global financial system and economy. The total instability of the current monetary system is on the way to a grand disruption from unstoppable events. The USA is slowly but surely being isolated, alienating friend and foe alike. When you expand your economy by increasing your debt, there comes a point where you cannot keep up with the interest on the debt, let alone the debt itself. Paper currencies are promises to pay. Gold and silver are the payment itself.

What people have to realize and I know this is in direct contrast to what CNBC would say about any of the five major banks, but they are all totally insolvent. They have never been more insolvent. The word insolvent means BROKE. Without the generosity of the Federal Accounting Standards Board, all the banks would be declared "Bankrupt" and in liquidation proceedings by now. In addition, all the sovereign bonds are nothing more than JUNK bonds now with big red lights flashing warning signals. Nothing can stand alone any more without huge infusions of cash ($5 trillion in just the last two months). That's TRILLION with a capital T. The whole European Market is crumbling and with it will also go the USA.

All the banks in France are now experiencing a huge outflow of capital pushing leverage levels to 100 to 1 plus.

Europe's entire banking system is a $46 trillion plus sewer of toxic debt: DEBT that is leveraged at 30 to 1 and still growing. Lehman was leveraged at 30 to 1 when it went under in 2008. Is the Fed going to produce another $46 trillion to bail out all of Europe? If they don't what comes next? I wonder if anyone really understands the gravity of the situation the world is in. I just saw a video of the Obama Health Care Bill. It will cost at least one trillion more per year than is claimed by Congress. That is not my figuring, but that of the Congressional Budget office.

We are in the last innings of a very bad ball game. We are coping with the crash of a 30-year-long debt super-cycle and the aftermath of an unsustainable Treasury Bond Bubble.

Quantitative easing is making it worse by facilitating more public-sector borrowing and preventing debt liquidation in the private sector-very temporary non-sustainable measures at best and both are erroneous steps in my view. The Federal Government is not getting its financial house in order. We are on the edge of a crisis in the bond markets. THE WORLD'S COMPLETE FINANCIAL SYSTEM IS IN GRAVE DANGER.

The Fed is destroying the capital market by pegging and manipulating the price of money and debt. Interest rates signal nothing anymore because it is totally manipulated. The very idea of "Operation Twist" is an abomination.

Capital markets are at the heart all business and they are not working. Why? Because interest rates are being manipulated. Savers are being crushed when we desperately need savings. The Federal Government continues borrowing even though it is broke. Wall Street is abrogating the Fed's monetary policy by borrowing overnight money at 10 basis points and investing it in 10-year Treasuries at a yield of 200 basis points, capturing the profit and laughing all the way to the bank. The Fed has become a captive of the traders and robots on Wall Street.

If we are in the final innings of a debt super-cycle, what is the catalyst that will end the game?

The likely catalyst is the EXPLOSION of the US Government Bond Market Bubble. It is the heart of the fixed income market and therefore, the world's financial system.