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Quote of the Day

Friday, May 04, 2012

May 4, 2012 -- "The market always does what it's supposed to -- but never when." An old Wall Street adage.



Friends in the advisory business often ask me how I know what I'm going to write. I tell them, I write about what I'm thinking about at the time.


Yesterday the New York Times included the biggest picture I've ever seen in the Times attached to an obituary. The half page picture was of Junior Seau, famous star linebacker out of the San Diego Chargers. I used to see Junior on the beach here in La Jolla. He was always dressed in shorts and flip-flops. Junior was friendly and talked to anyone who approached him. One time I talked to Junior, and I was amazed by his huge size. His arms were like my thighs, and I got an appreciation of the sheer size of most NFL players. From the seats in the stadium or on TV Junior didn't look any bigger than most of the players.


Today all of San Diego mourned Junior's death by suicide. Junior, besides many concussions, had a string of bad breaks including a divorce and some mean business set-backs. But as they say, a person commits suicide over his whole life, not just one incident. I've stopped watching football. I don't like to see grown men mauled in a brutal sport. A coach once said, "Dancing is a contact sport. Football is a collision sport". Russell opinion -- nobody gets out of the NFL in one piece. Even in MMA or ultimate fighting, they stop the fight when one fighter is hurt. In football when you get hurt, they give you an injection and you keep on playing.




It's difficult to make people believe that there's a difference between an investment for a possible profit and a store of wealth. But rich people know the difference. When a man has made as much money as he can, he starts worrying about losing that money. That's the time when he wants to own "eternal stores of wealth." Yesterday "The Scream", a painting by Munch, sold at auction for a record $119 million. I doubt if the buyer cares whether that painting will be worth $100 million, $50 million or $200 million ten years from now. The buyer knows that he owns a priceless work of art, something that will double in value in case of wild inflation or something that will be worth $60 million during the worst deflation.


Even if the dollar becomes worthless as a unit of exchange, the Munch painting will still be worth a fortune in what ever unit of money is in favor ten or fifty years from now.


All of which tells us something about gold. For over five thousand years, gold has represented purchasing power. No matter what form of money was in existence at the time, gold possessed purchasing power. Which is why many wise men own gold.


If I asked you to leave something for your great grandkids in a package to be opened one hundred years from now, would you leave them a wad of hundred dollar bills or one hundred gold coins? If you had any brains you would pick the gold coins. I'd venture that Warren Buffet would also pick the coins. Why? Because we know that one hundred years from now the gold coins would represent value and purchasing power and the dollar might not exist. End of story.


La Jolla is a wealthy town. Walking around La Jolla you note that this town is unlike most of the country. La Jolla is an isolated town built on wealth. But I have a secret barometer. I often call out to a local deli to order a sandwich. In normal times it takes 20 minutes from the time I call the order in until the time the sandwich is delivered. But lately I note that I call in my order, and five minutes later the order is delivered here. Evidently, business is very slow at the deli and my order goes out immediately.


I also hear that the La Jolla restaurants have slowed down in April -- for the first time in this recession. Evidently, what's happening in the rest of the country is finally hitting La Jolla.


As I write the Dow is down 180 points. This is the first decisive move out of the Dow in weeks. The Transports are also down 60 points. The sharp decline in the two D-J Averages tells me that the recession is due to deepen during the months ahead -- in late-summer and fall.


The Averages have been sitting almost motionless for weeks. Now they have moved, and the move is downward. I am writing this three hours into today's session. Today is Friday. I'm most interested to see whether we have a rally at the close of today's session. If the market closes weak today, I will take it as a bearish omen. I don't like dull markets that turn southward when the action finally appears.


By the way, as I write -- Apple, Google, Amazon and Microsoft are all trading down. Note RSI on all four stocks. Except for AMZN, the other three are trading below their 50-day moving averages. Obey all stop-losses. No one knows what lies ahead. There's a GAP in Apple's chart at around 578. Looks like that gap will be filled at a price of at least 569.
















My PTI was down 4 at 6392. The moving average is 6375, so my PTI is bullish by 17.


The Dow was down 168.32 to 13038.27.


Transports were down 56.69 to 5227.64.


Utilities were up 0.68 to 467.88.


NASDAQ was down 67.96 to 2956.34.


S&P 500 was down 22.47 to 1369.10.


There were 759 advances and 2288 declines on the NYSE.


There were 58 new highs and 53 new lows.


Total Volume on the NYSE and associated exchanges was 3.92 billion.


Bonds: Yield on the 10 year T-note was 1.879. Yield on the long T-bond was 3.073. Yield of the 91 day T-bill was 0.076.


Dollar Index was up 0.28 at 79.50. Euro was down 0.63 at 130.89. Yen was up 0.66 at 125.25. Currency Prices as of 1 PM Pacific Time.

June gold was up 10.40 to 1645.20. July silver was up 0.422 to 30.432.


June light crude was down 4.05 to 98.49.


My Most Active Stocks Index was down 11 at 262.


The Big Money Breadth Index was down 10 at 1018.


GDX was up 0.17 at 44.05.


HUI was up 2.02 at 421.99.


CRB Commodity Index was down 4.31 at 297.15.


The VIX was up 1.60 at 19.16.


Permanent Portfolio Fund (PRPFX) was down 0.34 to 48.20 (previous day closing). YTD Return: 4.58%.



Late Notes -- The market (Dow) closed roughly on its low for the day, which I consider bearish (no real rally). Transports closed down 50 points, which was about their low for the day.


June gold closed up 10.40 at 1645.20 and still above 1600. Gold looks fine to me. Sit with it, and consider your gold part of your estate. GDX closed higher which is a good sign for the gold miners.