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Quote of the Day

Wednesday, May 09, 2012

May 9, 2012 -- On April 26, 2010 -- 674 NYSE stocks hit new 52-week highs. That was an initial danger signal, suggesting a coming top. Then on April 3, 2012, Granville's on-balance-volume figures showed the Market reaching its peak of momentum, a second danger signal.

 

On January 18, 2011 my PTI recorded a low figure of 6209. By January 20, 2011 my PTI recorded 6198. Yesterday my PTI dropped 6 points off its high of 6394 to a May 8 figure of 6388. So it's clear that my PTI is still fluctuating in its broad range area, and that it has not, so far, given me a decisive buy or sell signal.

 

Between the years 2007 and 2009, we experienced the first part of a vicious bear market. The violence and rapidity of the losses in that bear market were shocking to most people, who had never lived through a bear market. In fact, I'd say that the retail public was so shocked and wounded by the 2007 to 2009 bear market that they have stayed out of the stock market ever since. Many people lost the better part of their assets between 2007 through 2009.

 

That early part of the bear market scared the hell out of the Bernanke Fed. It scared them so much that they came in with their whole money-printing apparatus. That was enough to halt the bear market temporarily. But once the primary trend of the market turns down (or up, for that matter) no force on earth can permanently reverse the primary trend.

 

Now, for all the Fed's money printing shenanigans, the US economy is dealing with its poorest recovery from any recession since WWII. Britain, despite massive central bank printing, is back in recession again. And much of Southern Europe remains in recession.

 

What the Fed and other central banks have succeeded in doing is blowing up our debts to the point where they will never be paid off (with the same dollars that we use today). The Congressional Budget Office says that our public debt in 2008 was 41% of GDP, and that it will surge to 72% in years to come.

 

Meanwhile, while we are creating the greatest amount of debts ever seen in history, the unemployment rolls grow ever-bigger. Government handouts grow larger, and the number of food-stamp recipients also expands (now 46 million US families receive food stamps).

 

As for investments, the wealthy and the middle classes search for safe islands where they can be assured of the return of their money. In their frantic search for safety, they have driven Treasury yields to unheard of lows.

 

The debt, the debt, what about the debt? Ah, the Fed has a plan. Let the inflation rate remain at 2% or more, and time will take care of the debt. When today's dollar (which is what our debt is denominated in) is worth ten cents in purchasing power, our current debt will look minuscule.

 

All of which means that the Fed intends to keep inflation at 2% or more "forever."

 

Against the inflation desires of the central banks, there is the problem of world over-production of goods and materials. Over-production leads to deflation. If the Fed does nothing, the markets (stocks, commodities) will normally fall. Which is why we're seeing such a sluggish stock market. It's really a market that is waiting for the next sure thing - which is - QE3. It's only a matter of when for QE3, not whether.

 

In the meantime, almost everything is deleveraging or deflating, from houses to TV sets.

 

The stock market is once again fascinated by certain tech stocks. Analysts are competing with each other on calling the next number for Apple (800, 900 or 1,000). Every hedge fund has Apple or Google in its portfolio.

 

I've been saying that the magic number for the Dow is 10,000. Once the Dow breaks 10,000, the bear will be back. The bear market that began in 2007 to 2009 is not over. That bear has simply been resting.

 

By the way, when I announced yesterday that I was just in cash and PRPFX, I did not mean that I had sold my gold bullion. I consider gold outside my regular investments. I don't trade bullion. I hold it as a unit of wealth. I know that one hundred years from now, bullion will possess purchasing power. The dollar? I don't know. I do know that the history of every fiat currency is a descent into worthlessness. No fiat money has ever survived. Try spending a handful of Confederate dollars. Or how many greenbacks will it take to buy a car?

 

Speaking of cars, driving around San Diego I note that the car business is absolutely everywhere. Car lots, used car lots. Gas stations, car repair yards, everywhere I look it's cars, cars, cars.

 

In the Great Depression of the 1930s, cars were much less prominent. I remember (1920s) my father turning over the engine of our car with a hand crank. Those were the days before self-starters. Ah, memories.

 

The forces of deflation finally hits gold which at last broke below 1600. From here on, gold is a major guessing game. The 1600 level held stubbornly week after week. Now that gold is below 1600, I'm guessing that gold could be in for an important correction.

 

Should you hold your "paper gold" (paper gold is anything that is not actual bullion). How strong is your stomach? I think that there's a good chance that paper gold (GLD, CEF, GDX, GDXJ, SGOL, etc.) could undergo full corrections. After today I am sitting with cash, PRPFX and bullion. That's going to be my position until I can get a better fix on this market.

 

There are too many "ifs" going around now for me to get a real feel for this market. Germany, Greece, France, gold, deflation, Apple, silver, emerging markets, Facebook; nothing but questions. The old Wall Street adage tells us -- "when in doubt, get out." And the truth is that I'm full of doubts today.

 

Speaking of Facebook, the worry is that willing buyers won't be able to get all the shares they want. A sign of the times. We're split between greed and fear. In the middle, between fear and greed, are doubts. Even if you've cleaned out your portfolio and are sitting with all cash, you worry about the future of cash. What will your cash buy one year from now, five years, ten years? Perhaps ten years from now, you might look back and say, "What a damn fool I was. I should have put all my money into gold bullion. Hey, lend me a ten dollar bill will you, I've got to blow my nose."

 

Yes, I believe that could happen.

 

TODAY'S MARKET ACTION:

 

My PTI was down 7 at 6381. The moving average is 6376, so my PTI is bullish by 5.

 

The Dow was down 97.03 to 12835.06.

 

Transports were down 74.86 to 5159.33.

 

Utilities were down 0.39 to 467.01.

 

NASDAQ was down 11.56 to 2934.71.

 

S&P 500 was down 9.14 to 1354.58.

 

There were 974 advances and 2,066 declines on the NYSE.

 

There were 61 new highs and 82 new lows.

 

Total Volume on the NYSE and associated exchanges was 4.26 billion.

 

Bonds: Yield on the 10 year T-note was 1.826. Yield on the long T-bond was 3.026. Yield of the 91 day T-bill was 0.091.

 

Dollar Index was up 0.34 at 80.08.. Euro was down 0.82 at 129.48. Yen was up 0.19 at 125.54. Currency Prices as of 1 PM Pacific Time.

June gold was down 10.30 to 1594.20. July silver was down 0.21 to 29.24.

 

June light crude was down 0.20 to 96.81.

 

My Most Active Stocks Index was down 1 at 260.

 

The Big Money Breadth Index was down 6 at 1004.

 

GDX was up 0.85 at 43.02.

 

HUI was up 7.48 at 409.91.

 

CRB Commodity Index was down 0.30 at 294.83.

 

The VIX was up 1.03 at 20.08.

 

Permanent Portfolio Fund (PRPFX) was down 0.36 to 47.59 (previous day closing). YTD Return: 3.25%

 

Late Notes -- The usual process. The European markets close, and if there were no disasters, buying comes into the US markets, and the markets make up for any losses incurred during the day.

 

Our generous Uncle Sam: "Over the last three decades, annual spending on the top federal programs for the poor and near-poor -- such as Medicaid, food stamps and Pell grants -- soared from $126 billion (in inflation adjusted 2011 dollars) to $625 billion. Today, the average poor person receives $13,000 in federal aid, up from $4,300 in 1980. Programs that transfer wealth to the middle classes are even more massive, with Social Security consuming $725 billion last year and Medicare $560 billion. All told, the US spends nearly $2.1 trillion on social programs, 60% of all federal spending." (Courtesy of The Week)

 

Well, what do you know. June gold ended down only 10.3 to close a smidgen BELOW 1600. Who bought yesterday's dip? My bet, some central bank or more likely the Chinese.

 

Question -- what are the Chinese going to do with their $2 trillion in fiat money. Smart answer -- carefully swap it for bullion and eventually back the yuan with part-gold (which would end the Yankee dollar as the world's reserve currency).

 

Late, late notes -- The market fooled me today. Instead of rallying at the end, the Dow closed the session very near its low for the day -- down 97 points, Trannies down 74, and Utilities down forty cents. It's a tough and tricky market, no wonder the in-an-out traders are pulling their hair out. And no wonder a few old-time hedge funds are sending the money back to subscribers and quitting.