Gold, Is the Future Still Bright or Fading?

Great editorial from Chris Puplava on Financial Sense Online, Gold, Is the Future Still Bright or Fading?

It has to be great because it does mention the issue I posted the other day. Performance Of Gold During Recession. :D

Chris wrote

• While the inverse correlation of gold to the stock markets was cited above as a bullish support for gold, it can also work against gold. If the stock market bottoms this year there is a good chance that it will be associated with a top in gold, not necessarily “THE” top in gold for this cycle but “A” top. This relationship can be seen by comparing gold with the S&P 500 in the 1973 and 1981 recessions during the prior secular bull market in gold. The figure below normalizes gold to 100 at the onset of the recession and the x-axis is the duration in months before and after the recessions began. What is interesting to note is that gold is following a similar path to what was seen in the recessions highlighted below. If gold follows the 1973 path then it should be peaking in the next month or so at a new high before undergoing a sizable correction, which is certainly possible given gold’s close proximity to its former high. If gold follows the 1981 recessionary path, then we could see strength in gold for another six months before a correction is seen. At either rate, both recessions witnessed a peak in gold anywhere from 13-19 months after the recession began, pointing to a top of intermediate nature in gold’s future in the next six months.
  
  

Do read the editorial in full because it is good with Chris presenting the bullish and bearish case for gold. Gold, Is the Future Still Bright or Fading?

Chris Puplava Calls It Turning Japanese

Posted yesterday: With US Fed Rates At 0.25% (or Zero), Would US Turn Into A Japan Redux?

FinancialSense market commentator, Chris Puplava, made the following editorial, Turning Japanese?

• With the two major headwinds of slowing credit growth and an unfavorable demographic trend facing the U.S. economy, sub par economic growth and a continuation of the current secular bear market will dominate the years ahead. The U.S. is likely to mirror the Japanese experience, though probably to a lesser extent due to a more aggressive central bank and strong fiscal policy. It already appears the U.S. is indeed following the experience of Japan as our stock market (S&P 500) has followed closely with the path of the Japanese Nikkei 225 index. Real stock prices for both the S&P 500 and the Nikkei 225 have displayed uncanny resemblance as seen below, with the real S&P 500 from 1984-2008 overlaid with Nikkei 225 experience from 1974-2008.
  
  
  The experience in Japan could very well play out in the U.S. as the rally Japan experienced from late 1998 to 2000 would correspond with a cyclical bull market beginning in the first half of 2009 through 2010. This coming cyclical bull market will be supported by a massive fiscal policy by the Obama administration and continued QE by the Fed as well as an oversold market. As the rest of the world begins to recover, foreign governments and investors will be diverting more of their assets towards strong emerging market growth as the case for emerging markets is not dead but simply taking a breather (and thus indirectly for commodities). Foreigners will also become increasingly concerned with the Fed’s balance sheet as well as record U.S. budget deficits for the next two years, which will likely weigh on the US dollar as the decade closes. By the Fed keeping long-term interest rates low through the purchase of buying U.S. Treasuries, the Fed will have to look the other way as the dollar weakens. A weaker USD will lead to higher import inflation and higher commodity prices. This renewed inflation threat may contribute to another recession down the road, which is likely why the Fed is considering issuing its own debt to help mop up the liquidity they’ve thrown at the system.

• The current rally may have some legs left in it to push the markets back up to their November highs, but further downside action and consolidation are likely ahead before the bears head back to their caves. Support for further downside action comes from the FSO Financial Stress Index, which has greatly recovered from the lows seen in October, though still at the extreme levels seen in the last bear market. Clearly the Fed and Treasury’s efforts are starting to pan out, but what is also clear is that they still have work to do to return normalcy and stability to the markets. We are getting closer to a bottom, though the time to deploy sidelined cash will be in 2009 as risk still remains elevated.

See also: Bernanke's Japanese edge

CEOs Booted With Insane Bonus And Severance Packages!

I was reading Chris Puplava's market wrap, Why So Depressed?, when I came upon the following passage.

• In case you hadn’t heard, real wages for the average consumer have DECLINED this decade unlike Wall Street heads who have been showered with multi million dollar bonuses. They have received these bonuses as a reward for helping expand the financial economy’s largess to produce a generational credit bubble and for selling our asset-backed slime all over the world, damaging our financial institution’s credibility in foreigners’ eyes. Those same Wall Street CEOs have been punished for their crimes by getting the boot with outlandish bonuses and severance packages as the small list below highlights.



• 1. Lloyd Blankfein: Goldman Sachs Group Inc. – $67.9 million bonus received in 2007.
• 2. Charles Prince: Citigroup Inc. – Retires with a $42 million package in 2007
• 3. Stanley O’Neal: Merrill Lynch & Co. Inc. – Retires with $161.5 million in 2007
• 4. Angelo Mozilo: Countrywide Financial Corp – Retirement package of $23.8 million, while refusing to accept $37.5 million severance package in 2007
• 5. Martin J. Sullivan: AIG - $47 million severance package received in 2008

Holy Cow!

This is ABSOLUTELY MADNESS!!!!!!!!!!!!!!! TOTALLY INSANE!!!!!!!!!!!!!!!!

And if there was something that needs to be fixed is these disgustibating, grotesque and outlandish CEO pay packages!!

Spinning that Wheel For Wells Fargo

The following passage from FinancialSense market commentator, Chris Puplava, highlights the spin put on Wells Fargo.

• One of the main problems with the financial media is selective reporting of information where the ugly details of economic and company data are blatantly ignored while their emphasis is primarily, if not entirely, on the positive details. This is exactly what we saw last Wednesday (07/16/08) with the earnings release by Wells Fargo that propelled the stock northward by 33% at one point, and also boosted the financial sector to see one of their biggest daily rallies in more than a decade. The media emphasized two points on the Wells Fargo earnings report, which were an earnings surprise and a 10% dividend increase, while ignoring two glaringly negative tidbits.
  
  The financial media reported that Wells beat earnings but they did not say HOW the company beat analyst estimates. Wells Fargo earned $1.8 billion in the last quarter beating analysts polled by Thomson Financial who expected earnings of $1.6 billion. The media conveniently left out that the company changed their policy of writing off home equity loans where payments were more than 180 days late, rather than 120, thus deferring $265 million in charge-offs. Subtracting the $265 million from the company’s earnings would have led to earnings of $1.535 billion, or 4.1% BELOW analyst estimates. Second, the company quadrupled its provision for loan losses, another tidbit that was conveniently left out on many CNBC segments commenting on the company’s earnings.
  
  Make no mistake, things are not improving for either the economy or financial markets as the credit crisis and housing depression move up the food chain as evidenced by American Express’ earnings report this week (emphasis added).
  
  American Express reports 38% drop in net income
  Market Watch, 07/21/08
  
  American Express reported a 38% drop in second-quarter earnings Monday and warned that it won't be able to meet long-term financial targets until the economy improves.
  
  The credit card company said that even its most creditworthy, long-standing customers felt the effects of the economic slowdown that's currently sweeping the U.S…
  
  "With bad debt occurring even in the superprime card segment, AmEx's earnings clearly show that the credit crisis is going upscale, which does not bode well for the U.S. economy," Red Gillen, a senior analyst at consulting firm Celent, commented via an email exchange…
  
  The environment has weakened significantly since then, particularly during the month of June," Chenault (CEO) added…

Read the rest of the brilliant write-up here: Banking on Foolishness: Financial Spinsters At It Again

Puplava's Who Should You Believe?

FinancialSense's market commentator, Chris Puplava, has written a very good piece today called Who Should You Believe?

• Those most pessimistic on the economy and stock market have been proven right over and over again over the last year and a half, with those who listened to their calls for caution preserving their wealth instead of watching it evaporate, which has been the fate of those following the permabulls. Wall St. economists, financial pundits, and government talking heads have been dead wrong and led many astray, though what has been most surprising is that investors continue to follow the advice of those who didn’t even see this train wreck coming, with examples provided below. (click here for rest of the article )

Rates Rally Gives Bounce to Markets

The Dow had a nice day as the Bulls fight back and FSO Market Commentator, Chris Puplava notes that the Interest Rate Rally May Be Over Short-Term, but Ripple Effects Will Only Worsen Housing Situation.

• The bond sell-off that began last month with the 10-year UST rising from a low of 4.602% on May 11th to a high of 5.316% yesterday may have reached a short-term top with the RSI near 90, the highest level seen in more than 20 years. Readings over 70 have marked peaks in interest rates previously (as marked below), and the current reading near 90 hints at either a pause or a pullback in rates.
  
  
  

Lastly, do give Ms. Claire Barnes, of Apollo Investment Management made the following remarks.

• Some commentators were reassured that US first quarter reporting passed without financial disaster, and concluded that new age financing had painlessly dispersed systemic risk. My suspicion, on the contrary, was that market-fundamentalist accounting is postponing the emergence of problems: judgment is no longer required to be exercised in provisioning, and prudence is deemed old-fashioned - instead we have "fair value", relying either on a mechanistic marking-to-market, by reference to last trade. The nature of niche markets is that when problems emerge, they first become illiquid (and even more easily manipulated); only later when other options have been exhausted can a single distressed-seller cause prices to fall off a cliff. I then discovered that US accounting rules require holders of CDO paper to value it with reference to questionable models (such as the aptly-named Monte Carlo simulations) from the far-from-disinterested rating agencies. 'I knew it was bad but...' says John Succo (must read). 'The levels at which investors are carrying [mortgage-backed securities] paper is not reflecting underlying reality as the holders simply hold their collective breath and the rating agencies ignore a worsening environment.'
  
  Before buying a money market fund or structured product, remember the old maxim:
  
  'More money has been lost reaching for yield than at the point of a gun.'
  
  And before assuming that a money market fund will be liquid when you need it, consider the Paper Chase.

The US Interest Rate Issue

In today's FSO Market Wrap, Market Commentator, Chris Puplava addresses the interest rates issue. Wall Street Reconnects With Main Street

• The current equity slide may continue as Wall Street readjusts to Main Street reality amidst a rising interest rate environment and continued housing slump despite CNBC constantly suggesting a possible bottom. It’s anyone’s guess how far and long the markets will correct. But one thing has remained constant over the past year, and that is the market's ability to surprise to the upside. Private equity deals and M&A activity may put a floor under the markets, but this is less likely to be the case with rising interest rates that reduce their profit projections by raising the cost of borrowing debt to fund their deals. It seems as if all eyes have now turned from watching the Fed and China to watching interest rates, and movements in the Treasury markets may be the key indicator to determine when the correction in the markets may subside.

How Now Brown COw?

Keeping an open mind on what is happening is certainly wise. FSO market commentator, Chris Puplava has another wonderful detail analysis on the going-ons: Blue Skies or Rough Water Ahead, Which Is It? Keeping an Open Mind.

Talking about FSO, the FSO team has a financial broadcast everyday Saturday. And here is the link to the transcript for last Saturday broadcast: Transcript for The BIG Picture

Most worthwhile reading of course is the section where they talk about the market: Stock Market Sell off: What It's Telling Us

Bad Moon Rising?

Chris Puplava, Financial Sense market commentator has another brilliant write-up today: Bad Moon Rising?

The following part is worth noting:

------------------------
What I want to comment on is that of the cumulative -$4.2 trillion trade deficit since 2000, $1.2 trillion of that deficit has come from oil imports. Oil imports represent 29% of the cumulative trade deficit since 2000!

Addicted to oil, you better believe it! We have shipped $1.2 trillion dollars to Mexico, Canada, the Middle East, and Venezuela to purchase a product that doesn’t last, that returns no dividends, no income, no return on investment -- it’s completely consumed! In contrast to our country exporting our dollars overseas for a consumable product, the nations receiving our dollars invest them into their economies to improve productivity, quality of life, or they recycle them back into our country buy buying our treasuries where they receive interest on their investment.

We ship our dollars (wealth) overseas for oil and then to compound the wealth transfer, our government pays interest to foreigners on this exported wealth when they buy our treasuries, shipping even more of our wealth overseas. Who do you think is the loser and winner in this trade?

We have nothing to show for the money we ship overseas as our wealth is transferred to oil exporting nations and what we buy is consumed. These nations are building wealth while we consume it! By improving our alternative technology industries here in the United Sates and reducing our dependency on foreign nations exporting oil to us, we will be able to keep more and more of our dollars within our borders and recirculating within our economy instead of making other nations wealthy at the expense of our dependency.

View On US Consumer

Chris Puplave has a very interesting commentary on the US Consumer: A Bird's Eye View of the U.S. Consumer: 7th Inning Stretch or 9th Inning?

The point that very much worth highlighting is the following issue:

• Seventh Inning Stretch or Ninth Inning?

  The importance of the growth in debt can not be overstated as the fuel for our service and financial economy that supports the U.S. consumption appetite that has grown to 70% of GDP as shown by Figure 1 shown again.

  
  

  Figure 1

  
  

  
  Source: Moody’s Economy.com/BEA, Federal Reserve Board (FRB)

  
  

  When consumer and corporate appetite for more debt contracts a retrenchment in consumer spending and capital investment ensues that leads to a recession. Since1950 there has only been one period when there was a sharp contraction in household debt growth that didn’t lead a recession, and also only one period of a contraction both corporate and consumer debt growth that didn’t lead to a recession -- only one exception in over a half century.

  
  

  The exception with household debt growth without a resulting recession occurred in the middle 1960s. What helped prevent a recession was the corporate sector picking up the slack as corporate debt growth remained in the high single to low double digit rates. When the corporate debt growth rate began to slow, a rebound in consumer debt growth was already underway preventing a recession.

  
  

  In the 84/85 mid-cycle slow down, both consumer and corporate debt growth contracted significantly at the same time without a resulting recession. The likely reason for a recession not resulting was due to the levels from which both dropped and fell. Both fell from the high teens to high single digit rates, still strong growth rates. It was only when rates fell sharply to low digits, or even negative rates in the case of corporate debt growth, when a recession resulted in 1990. When both have contracted to low single digit rates we have had a recession, no exception.

  
  

  As is shown below, household debt growth has contracted sharply, principally due to a drop in mortgage debt as seen in Figure 19. This is likely sending us a recessionary warning as there has only been one exception to contracting household debt growth without a recession as mentioned above (mid 1960s). What is alarming is corporate debt growth looks like it is rolling over and if corporate debt growth and subsequent spending contracts, the alarm bells will be loudly ringing as there has been no exception of the absence of a recession when both fall to low single rates.

  
  

  Figure 21

  
  

  
  Source: Moody’s Economy.com/FRB

  
  

  The YOY rate of change is a relative number expressed in percentage terms. The relative trends in consumer and corporate debt growth is alarming, but the absolute debt growth in corporate and consumer debt growth is downright frightening. Take a look.

  
  

  Figure 22

  
  

  
  Source: Moody’s Economy.com/FRB

  
  

Claire Barnes of Apollo Management carried the following note on her website.

• 12 Feb 07:The US 'housing finance breakdown: a saga of corruption, stupidity, and government complicity' is now being tracked by The Mortgage Lender Implode-o-Meter. The Apollo Asia Fund owns no HSBC shares.

And oh, the US Market had another record shattering day again.

http://money.cnn.com/2007/02/14/markets/markets_0530/index.htm?postversion=2007021418

• Record-shattering day on Wall Street
  Dow industrials close at highest point ever as do utilities and transportation averages; S&P 500 hits 6-1/2-year high.
  By Jessica Dickler and Alexandra Twin, CNNMoney.com staff writers
  February 14 2007: 6:16 PM EST
  NEW YORK (CNNMoney.com) -- Stocks rallied across the board Wednesday, pushing the Dow Jones industrial average to a new all-time record, after investors cheered comments from Federal Reserve Chairman Ben Bernanke.
  
  The Dow (up 87.01 to 12,741.86, Charts) jumped 0.7 percent to close at a record high, taking out its previous record from two weeks ago. The blue-chip barometer also hit a record trading high during the session.

The Falling Oil.

Well the US light crude oil prices is falling. The US light crude oil prices for February delivery fell $1.62 to settle at $54.05 a barrel on the New York Mercantile Exchange. ( see Oil Prices Settle at 19-Month Low and Crude Sinks After Inventories Data )

Chris Puplava, Financial Sense Market commentator has brought up a very interesting issue: Betting on Oil: Opportunity of the Decade?

His conclusions were..

• With China and India still growing at an astonishing pace, global oil production in decline, global oil spare production capacity thin, OPEC cutting production, oil inventories not excessive, and energy valuation multiples at bargain-basement levels, investors may well be rewarded by purchasing energy shares under these conditions as the energy sector is likely to be one of the biggest manias of the decade.

Give that article a good read.

And here is other articles of reading interest: What's Behind the Crash in Crude Oil? by Gary Dorsch, Chris Droke Oil and Gas: What's the Story for 2007? , Th*nk*ng (P-oil-ITICS) by Fred Cederholm and The World's Push for Power by Chris Mayer

Cheers!