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Quote of the Day

Monday, May 07, 2012

May 7, 2012 -- "The US Constitution is less than a quarter the length of the owner's manual for the 1998 Toyota Camry, and yet it has managed to keep 300 million of the world's most unruly, passionate, and energetic people safe, prosperous and free." -P.J. O'Rourke

 

Despite what you hear, the fundamentals remain. The world is creating too many goods. There's too much merchandise for sale. The US and Europe can't absorb it all. Ultimately, this means one thing. A lot of manufacturers will have to either merge, consolidate or go out of business.

 

The Fed can't reverse the facts by printing more money. So it's become a battle of the currencies -- or who can produce the cheapest and most competitive currency. How do you cheapen a currency? You print too much of it. This was impossible to do when the gold standard was in existence. But without the discipline of gold, there's nothing to stop a central bank from creating any amount of currency.

 

This creating of ever-more fiat currency is leading inexorably to rising inflation. Inflation won't be visible right away -- but when it finally does hit it will appear with suddenness and it will be violent. Once the consumer public gets wind of it, the winds of inflation will blow like an unstoppable hurricane.

 

This is a particularly fascinating period of the year coming up. We have a presidential election in view. The election could easily swing on the state of the economy. The economy could depend on the stock market, and the stock market could depend on whether Bernanke gives the market more stimulus in the way of QE3.

 

Obviously, Obama would love a QE3. But Bernanke can't be too obvious and too obviously political. If the employment figures continue to be lousy, that would give Bernanke all the excuse he needs to bring on QE3.

 

Thus, this election like no other, swings on the economy and possibly even on events as they materialize in Europe. I note that the Dow futures were down 186 points over the weekend, which is a large number for the futures. Based on the futures, today (Monday) could be a down day, and a down day now could be discounting the coming employment figures.

 

So what do we watch? What we watch is the Dow and the stock market. My PTI has been weakening a bit over the past week or so, but it is still bullish in that it has not issued a sell signal.

 

A lot of subscribers write to ask me what I think of Romney. I like him over Obama, but I think Obama will win. Obama has the women's vote which is huge. Obama probably has the black vote and the Jewish vote. Obama has the anti-big Business vote and the "I hate Wall Street" vote. So my guess is that Obama will win but with one caveat.

 

If the stock market turns decisively down and the employment figures remain rotten, I think Obama could lose. I've never seen an election that depended so much on Joe six-pack's wallet. Money rules the world, money rules politics, money means power, and the lust for money has ruined many a man.

 

Last night the Dow futures were down as much as minus 186. The Dow spent most of today wiping out last night's losses. But what's the matter with me? Try as I might, I can't learn to love this market. True, my PTI has not issued a sell signal (which is good), but I note that too darn many stocks are breaking down. Joe Granville's work shows that upside (bullish) momentum topped out for this market on April 3, and I must say that the market acts like Joe is right. I'm clean of stocks now, and I doubt if I'll buy anything until this market cleans up its act. Too many things for me to worry about at this time.

 

I just finished the book, "Boomerang," and if that book doesn't make you feel woozy (afraid), I don't know what would.

 

I see that Warren Buffett has bought the Buffalo newspaper, and now he announces that he wants to buy more newspapers. Warren is gaining a huge audience, and he seems to have an opinion on just about everything. The publicity seems to have gone to his head, but who doesn't love to be loved.

 

TODAY'S MARKET ACTION:

 

My PTI was up 2 at 6394. The moving average is 6375, so my PTI is bullish by 19.

 

The Dow was down 29.74 to 13008.53.

 

Transports were up 17.62 to 5245.26.

 

Utilities were down 0.43 to 467.45.

 

NASDAQ was up 1.42 to 2957.76.

 

S&P 500 was up 0.48 to 1369.58.

 

There were 1,652 advances and 1,379 declines on the NYSE.

 

There were 60 new highs and 54 new lows.

 

Total Volume on the NYSE and associated exchanges was 3.54 billion.

 

Bonds: Yield on the 10 year T-note was 1.878. Yield on the long T-bond was 3.061. Yield of the 91 day T-bill was 0.086.

 

Dollar Index was up 0.11 at 79.61. Euro was down 0.35 at 130.54. Yen was down 0.11 at 125.14. Currency Prices as of 1 PM Pacific Time.

June gold was down 6.10 to 1639.10. July silver was down 0.31 to 30.12.

 

June light crude was down 0.55 to 97.94.

 

My Most Active Stocks Index was up 10 at 272.

 

The Big Money Breadth Index was down 2 at 1016.

 

GDX was down 0.38 at 43.67.

 

HUI was down 5.49 at 416.50.

 

CRB Commodity Index was up 0.31 at 297.46.

 

The VIX was down 0.22 at 18.94.

 

Permanent Portfolio Fund (PRPFX) was down 0.18 to 48.02 (previous day closing). YTD Return: 4.19%.

 

 

Late Notes -- It's a few minutes to the close of today's session, and the Dow is down 13 points. I'm assuming that the Dow will close, near even -- just slightly up or down, but this market is not my cup of tea. I see Apple, Google, Amazon are closing up, and that alone deserves three cheers.

 

The VIX has been quietly creeping up and today it was 18.94. Just a hint of nervousness. But wait, the Transports closed up again with the Dow down near the close. The truth -- I feel safer and happier with zero stocks in my portfolio at this time. So I missed the fat profits in the Apple run-up. I also missed the Apple collapse from 640 to 565.

 

With it all, I sense the very big picture, and I'm talking about deflation -- too much merchandise being produced. Europe is voting growth over austerity, but that doesn't seem to be bothering the markets. It's an amazing group of markets -- nothing excites them and nothing scares them -- for now. Only 60 new highs on the NYSE today, Mmmmmm?

 

Gold still closing above 1600. Are the Chinese accumulating gold or are the central banks buying it? Somebody's buying.