Archive for August, 2009:
Investors rushing back to stocks, currencies, and other risk-based assets are overlooking one of the greatest values in the market today…
“The shortage of gold and silver coins and bars we experienced last year has largely been overcome…The premiums for investment-size coins and bars have returned to normal levels. In 2008, premiums were two to three times their normal price – if product could be found. Oftentimes, it was unavailable at any price.”
That’s from Asset Strategies International’s most recent “Always Something Interesting” Alert from last week. Rich & Michael Checkan went on to report that bullion bars and coins were available to investors at a reasonable premium (“mark-up”) across the board.
In last year’s stock market crash and the ensuing financial panic, you may recall a spike in demand for physical gold. Premiums for coins and bullion soared, and demand ballooned far too fast for supply to keep up. If you actually managed to find a few gold coins, chances are you were looking at a mark-up of about 20% …something that really spoiled the opportunity.
Now, to be sure, the situation has calmed…but we’re not necessarily out of the woods yet…
Another of our precious metals dealers – Nick Bruyer from First Federal – focuses on buying investment-quality coins with serious value potential for collectors. He usually looks over hundreds of different issues each year, just to find the handful of rare, high-quality coins that are sought after by investor and collector alike.
Well according to Nick, there’s still a bit of a supply squeeze at the high-end… “[we quickly] sold out of the last 2008 tenth Oz. China Gold Pandas, and hundreds of callers were being turned away. Worse yet, the U.S. government had not released the 2009 Tenth Ounce Gold Eagle bullion coins – sold out since last summer – and later announced that they have no plans to produce ANY this year!”
For the last word on coins and premiums, we went to our Investment Director and Commodity Expert, Eric Roseman…
“Premiums have come down – especially on gold coins – in some specific situations…but silver premiums – especially at retail – remain too high for most investors to consider.”
“Precious metals are an important keystone in any portfolio…and we always recommend keeping about 10% of your portfolio in gold and silver, especially coins. Not only is this a long-term bid to preserve your purchasing power, but also portfolio insurance…a hedge against the catastrophic risk that’s all too apparent in today’s markets.”
“August is traditionally marked by high volatility across all asset classes, including the metals. But we remain very bullish on the gold mining sector as we soon approach the strongest stretch of seasonal strength for the sector. So – assuming you can find some reasonable premiums in the market – this could be a great time to build your stash of coins for the uncertain months ahead.”
Yours in Personal Sovereignty,
Matthew Collins, A-Letter Editor
Original Source: The Sovereign Society
Nymex Natural Gas (NG)
Short term outlook in Natural gas remains bearish. While some consolidation might be seen in near term, upside recovery is expected to be limited by 3.25/60 fibonacci resistance zone, (38.2% and 50% retracement of 4.162 to 2.692). Current decline, which is part of the whole down trend from 13.69, is expected to resume sooner or later to next long term projection target at 2.50 after completing the consolidation. Nevertheless, decisive break of 3.60 will be an important signal that natural gas has bottomed out and will turn focus to 4.16 resistance.
In the bigger picture, whole medium term fall from 13.69 resumed after completing triangle consolidation from 3.155. Such decline is treated as the third leg of the long term consolidation pattern that started at 15.78 back in 2005. Hence further fall should be seen to next target of 100% projection of 15.78 to 4.593 from 13.69 at 2.50 and possibly below. Nevertheless, we’re expect strong support between 1.96 (02 low) and the 2.5 projection target to finally conclude the whole decline from 13.69. On the upside, break of 4.162 resistance will now be an important signal that natural gas has finally bottomed out.
Nymex Natural Gas Continuous Contract 4 Hours Chart
Nymex Natural Gas Continuous Contract Daily Chart
Comex Silver (SI)
Intraday bias in Silver remains on the upside for the moment with 14.475 minor support intact. As discussed before, the break of 61.8% retracement of 15.185 to 13.495 at 14.54 indicates that fall from 15.185 to 13.495 is possibly a correction only and rise from 12.435 is still in progress. Further rise should now be seen to retest 15.185 resistance first and break will target the current medium term top at 16.25 next. On the downside, below 14.475 will bring consolidation but another rise would still be in favor as long as 14.04 support holds.
In the bigger picture, the outlook in Silver is rather mixed for the moment with main question on whether it’s topped out at 16.25 already. We’re still slightly favoring the case that silver’s medium term rebound from 8.4 has completed at 16.25 after touching 16.08 key support turned resistance, with bearish divergence condition in daily MACD. It’s also possible that silver is forming a head and shoulder top pattern too (ls: 14.635, h: 16.25, rs: 15.185?). However, a break of 13.495 near term support is at least needed first to give us more confidence on this case while break of 12.435 support will be the confirmation. However, a break above 15.185 resistance will in turn shift favors back to the case that rise from 8.4 is still in progress for another taken on 16.08/19.55 medium term resistance zone.
Comex Silver Continuous Contract 4 Hours Chart
Comex Silver Continuous Contract Daily Chart
Crude oil price drops to 72.3 in Asia Monday as driven by decline in stock markets. Strength in Japanese yen after DPJ’s election victory and worse-than-expected earnings results by Chinese companies trigger selloffs.
The Democratic Party of Japan got 308 of 480 lower-house seat, ending the single-party government by Liberal Democratic Party in almost half a century. The DPJ pledged to revive the nation’s economy through cutting tax, boosting consumer spending and limiting the power bureaucrats. The result is welcomed by the market. However, any positive reaction in the stock, FX or bond markets should be short-lived as the outcome has been widely anticipated.
Both Japanese yen and the Nikkei 225 stock average surged at early trading sessions but the latter faltered after rising to 10767. Japanese yen jumps to 92.62, the highest level in 7 weeks, against the dollar. Strength in the currency in fact hurts exports and is detrimental to the nation’s economy.
Shares in China tumbles with the Shanghai Composite Index sliding -5.4% to 2707. In august, the benchmark contract lost -21%, the biggest decline since -25% loss in October 2008. In the first half of the year, the Chinese government implemented massive stimulus measures and provided ample liquidity to boost economy. This boosted both business investments and market sentiment. However, most of the money in the stimulus plan has been spent and the government explicitly announced to curb excessive lending recently, investors began to worry that the growth momentum in the world’s fastest growing country would not sustain.
Gold price also edges lower to 957 as USD strengthens against major currencies other than Japanese yen. Silver, following the yellow’s suit, also retreats to 14.65.
While plunging -1% to 92.6 against the yen, the dollar rises against ‘high-yield’ currencies. Against the Australian dollar, the greenback slides to 0.84 after failing to break a new high last Friday. Possible slowdown in China’s economic growth also triggers worries on Australia’s economy and Australia is a huge exporter of base metals. RBA Governor Glenn Stevens mentioned several times that growth in China has important impact on Australia.
Commitments of Traders
- Crude Oil: Net speculative long positions surged to 39532 contracts after declining for 2 weeks. Sharp rally in crude oil price and expectations on better demand outlook boosted investments
- Natural Gas: Net shorts increased further, continued to move in opposite direction with gas price. The trend is still bearish as investors remained concerned about the huge gas storage. Although oil-to-gas ratio has reached record high level, the phenomenon will likely persist in the medium term
- Gold: Net speculative long positions rebounded to 183K after dropping for 2 straight weeks. Just like the price in gold price, net long positions in the yellow metal hovers around high level but with no breakthrough
- Silver: Net speculative long positions for silver rose to the highest in 10 weeks. Improvement in economic outlook should benefit silver more than gold as the former has been widely used in industrial applications
- Platinum: Net long positions made another record high at 14732 contracts last week. A pullback may be seen next week as the end of US’ ‘cash for clunker’ auto rebate program might have affected demand for the noble metal. Moreover, failure of Impala’s strike to boost price suggested that buying interest might have stalled
WTI crude oil price plunges below 71 in European morning. In August, the benchmark contract probably stays flat or only edges slightly higher after modest decline in the previous month. Tumble in China stock markets trigger selloffs in commodities whose strong rises in the first half of the year were driven by stockpiling in China.
The Shanghai Composite Index fell -6.7% to close at 2668. On monthly basis, the gauge plummeted -22% and has become the worst performing stock index in the world in August. Commodity shares had a broad-based decline. Baoshan Iron plunged -7% as the company said that ‘the global economy hasn’t recovered substantially and the foundations for a domestic recovery aren’t solid’. Oil companies slid as the Chinese government may reduce the frequency of adjusting fuel price in order to support the economy. Sinopec and Petrochina dropped -10% and -6.7% respectively as the refinery sector may suffer.
In Japan, the Nikkei 225 Stock Average slipped -0.4% to 10493 as Japanese yen surged and housing starts dropped -32.1% yoy in July, worse than market expectation of -30.3%.
In European morning, stocks sink with both of Germany’s DAX index France CAC 40 index losing -0.6%.We have a light calendar today and stock trading is likely range-bounded in Europe.
The chart below shows that WTI and Brent crude oil traded at similar price level week. We believe this was driven by draw in Cushing stockpile as well as better market expectation on US oil demand. Although recent weekly data have shown that fuel demand should have been troughed, it remained far below levels seen in previous years. Moreover, as driving season comes to an end, we suspect we will see significant stockpiles again in coming weeks.
Currently trading at 956, gold continues to move within a narrow range. USD’s relative strength against high yield currencies today should exert downward pressure on the yellow metal. However, there’s possibility for the dollar to decline tomorrow. The RBA will meet Tuesday to discuss about rate decision. While the street has been priced in the first rate hike in 1Q09, the market is looking for a change of tone in the policy statement – from neutral to tightening bias. Should this speculation materialize, the Australian dollar will rise strong against the dollar and such rally should boost other currencies (except USD and JPY).
By Bob Prechter
The following is an excerpt from Robert Prechter’s Elliott Wave Theorist. Elliott Wave International is currently offering Bob’s recent Elliott Wave Theorist, free.
On February 23, EWT called for the S&P to bottom in the 600s and then begin a sharp rally, the biggest since the 2007 high. The S&P bottomed at 667 on March 6. Then the stock market and commodities went almost straight up for three months as the dollar fell.
On March 18, Treasury bonds had their biggest up day ever, thanks to the Fed’s initiating its T-bond buying program. The next day, EWT reiterated our bearish stance on Treasury bonds. T-bond futures declined relentlessly from the previous day’s high at 130-15 to a low of 111-21 on June 11.
That’s when there were indications of impending trend changes. The June 11 issue called for interim tops in stocks, metals and oil and a temporary bottom in the dollar. The Dow topped that day and fell nearly 800 points; silver reversed and fell from $16 to $12.45; gold slid about $90; and oil, which had just doubled, reversed and fell from $73.38 to $58.32. The dollar simultaneously rallied and traced out a triangle for wave 4. Bonds bounced as well. As far as I can tell, our scenarios at all degrees are all on track.
Corrective patterns can be complex, so we should hesitate to be too specific about the shape this bear market rally will take. But from lows on July 8 (intraday) and 10 (close), the stock market may have begun the second phase of advance that will fulfill our ideal scenario for a three-wave (up-down-up) rally. In concert with rising stocks, bonds have started another declining wave, and the dollar appears to have turned down in wave 5 (see chart in the June issue), heading toward its final low. Although commodities should bounce, their wave patterns suggest that many key commodities will fail to make new highs this year in this second and final phase of partial recovery in the overall financial markets.
Meanwhile, our forecast for a change in people’s attitudes to a less pessimistic outlook is proceeding apace. Here are some of the reports evidencing this change:
More than 90 percent of economists predict the recession will end this year. [The] vast majority pick 3rd quarter as the time. (AP, 5/27)
Manufacturing and housing reports this week may offer signs that the recession-stricken U.S. economy is within months of hitting bottom, economists said. (USA, 6/15)
Fewer people say they’ve prospered over the past year than in decades, a USA TODAY/Gallup Poll finds. Over the past two months, however, expectations for the future have brightened significantly amid rising optimism about a stock market rebound and economic turnaround. “I think the administration is going in the right direction,” says… Now 36% of those surveyed in the Gallup-Healthways well-being poll say the economy is getting better. That’s not exactly head-over-heels exuberance, but it is double the number who felt that way at the beginning of the year and a notable spike in the nation’s frame of mind. Thirty-three percent say they’re satisfied with the way things are going in the United States; in January, just 13% did. (USA, 6/23/09)
If only to confirm the socionomic causality at work, an economist quoted in the article above muses, “The one anomaly in the puzzle is that people shouldn’t be feeling better because the jobs market is so terrible and unemployment is likely to keep rising.” Of course it would be an anomaly, and people should not feel better, if mood were exogenously caused. But it is endogenously regulated, and it precedes social actions, which produce events such as job creation and elimination. That people feel better is evident in our rising sociometer, the stock market. If the rally continues, economists will soon agree that the Fed’s “quantitative easing” and Congress’ massive spending are “working.” Those predicting more inflation and hyperinflation will have the last seeming confirmation of their opinions. Then, a few months from now, some economists will probably express similar puzzlement when the stock market starts plummeting again despite the fact that the economy has improved.
But all of these considerations are temporary. Conditions are relative, and behind the scenes, the depression has been, and still is, grinding away.
For more information, download the FREE 10-page issue of Bob Prechter’s recent Elliott Wave Theorist. It challenges current recovery hype with hard facts, independent analysis, and insightful charts. You’ll find out why the worst is NOT over and what you can do to safeguard your financial future.
Robert Prechter, Chartered Market Technician, is the founder and CEO of Elliott Wave International, author of Wall Street best-sellers Conquer the Crash and Elliott Wave Principle and editor of The Elliott Wave Theorist monthly market letter since 1979.
This Wednesday morning, I received a phone call from Rob Vrijhof, (right) our long time investment and banking associate in Zurich and a member of the Sovereign Society Council of Experts.
Rob called my attention to the announcement today by the venerable Wegelin & Co., Switzerland’s oldest private bank, that it will stop doing business in the United States and with Americans.
Founded in 1741, the St. Gallen-based bank, said their decision was a response to stricter measures introduced in the U.S. against tax evasion and projected changes in U.S. estate tax laws, which could make some non-U.S. citizens liable for U.S. taxes if they inherit U.S. securities.
The bank did not mention new U.S. government demands that offshore banks giving investment advice to U.S. persons must register and qualify under SEC rules…which is itself a blatantly illegal attempt to extend American law well beyond its normal jurisdictional area (which ends at the U.S. border, regardless of what the feds may have you believe).
So drastic have the IRS/SEC extraterritorial measures become that even members of the U.S. Congress have protested they go too far.
In their letter to investors, Wegelin bank said Swiss banks were being forced into “an untenable position,” and in all fairness, they make a good point…
Given the lack of clear definitions in the IRS proposed rules, Wegelin believes the imposition of being expected – by the IRS – a to know which clients were liable to pay U.S. taxes is “an impossible undertaking.”
“The danger of inadvertently making false declarations to the U.S. tax authorities will be too great,” the letter went on to explain.
The bank gave the United States an added zinger, saying it believes the U.S. government overestimates its attraction as a financial center, thus Wegelin is advising its clients to pull out of all U.S. securities investments.
So the inevitable question, then…Are more banks going to follow in Wegelin’s footsteps?
Bob Bauman, JD
Legal Counsel for The Sovereign Society
Article Source: Sovereign Society
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Stroll down any aisle at your local grocery store on an average day and you’ll likely see thousands of items of all kinds made by any number of producers. Many times there are six or eight brands of the same item. And they come in all sizes.
But even though store shelves are currently full, there may soon come a time when that is not the case…
As the U.S. Federal deficit grows beyond the current historic levels there will come a time when a correction comes. A devaluing of the dollar has already begun. It will be followed by inflation that could become so severe that food and other necessities become unaffordable or unattainable.
It is happening right now in Latvia, where the government’s current budget deficit is estimated to be about 12 percent of the gross domestic product (GDP), according to the International Heritage Tribune.
So as the Latvian government cuts wages and spending in order to bring down its deficit and qualify for a bailout from the International Monetary Fund, “Austerity is rippling down the social hierarchy, as the affluent cancel vacations, middle-class people fret about social descent, and Dickensian scenes of destitution multiply,” the Tribune says.
Many of the people there can simply no longer afford to feed themselves.
Currently, the U.S. is running a budget deficit of about 13 percent of GDP and spending almost $2 for every $1 it takes in. It doesn’t take a Pythagoras to understand that math like that doesn’t add up.
So if you want to prepare yourself for Latvian-type circumstances and ensure your family has food to weather such a storm, you need to begin stockpiling food and water now. And even if you don’t believe things in the U.S. can get that bad, it’s a good idea to have some food and water stored in the event of a natural disaster that affects the food and water supply for a short time.
You should always keep on hand at least a three-day supply of food.
It’s easy to stockpile a few cans of meats, soups and vegetables, as well as some rice and grains, to get you through a short-term emergency. You can do this by buying a few extra things each time you go to the grocery store. Remember, canned foods have a shelf-life of about two years, so rotate your stock.
For longer-term situations, planning in advance can save you from tremendous hardship when catastrophe strikes. To prepare, you should have a good stockpile of both canned and freeze-dried foods. All canned soups, fruits, vegetables and meats should be kept in a dry, cool space.
Be smart with your planning and purchasing and you can accumulate food that will sustain you for a long time at very little cost. But, don’t gather things your family will not eat. Oatmeal, Ramen noodles and Bisquick are great things to have on hand in an emergency, and they aren’t expensive. Plus, don’t forget to add commonly used spices, which help to make any food more palatable.
Freeze-dried foods and military style Meals Ready to Eat (MREs) are convenient types of foods to have on hand for emergencies. They are available from outdoor supply stores, survivalist stores and via the Internet. There are various types of MREs that can be purchased in kits with quantities to feed families for up to a year.
Warehouse stores like Costco sell freeze-dried emergency food kits in plastic buckets with as many as 275 servings for about $85. That would be enough to feed a family of four for three weeks.
When buying these pre-packaged meal kits, be sure you compare the packages for list of meals and ingredients included before making your purchase. Some tend to scrimp on their offerings and provide just enough to survive but not enough for a hearty, filling meal.
How much food should I save?
You can never have too much food set aside for a crisis because you can’t know ahead of time what the crisis will be or how long it will last. Will a three-day supply be enough? One week? A month? Three? A year?
You hope it doesn’t have to last long, but you never know. So it’s best to start small and work from there. And start with a definite plan.
There are several things to consider. How many are in your family? How many additional people would you bring under your roof? What is the nature of the crisis – natural disaster, terrorist attack, economic collapse or fuel shortage?
Get started by securing a three-day supply. If you are feeding a family of four for three days you will need to plan on three breakfast meals, three lunches and three dinners.
The main point is to prepare. That way, if the U.S. should turn into a Latvia – or a 19th century London – you won’t find yourself on a diet of meager meals, scraping to get by.
Yours in Liberty,
Article Source: Sovereign Society
And Why YOU Should Be Concerned…
Despite the fact that it’s misleading, a headline from the Associated Press article caught my eye last night…
The fear-mongering title? “Millions face shrinking Social Security payments.” The harsh reality? This is exactly the prescription that America needs right now to restore long-run government fiscal prudence.
Of course, “shrinking payments” isn’t really what the Associated Press meant…
The article goes on to explain, payments are only shrinking because the actuaries of the program estimate that there won’t be a cost of living adjustment (COLA) for the next two years.
Why? Deflation, of course!
If only the Associated Press had hired an economist – lord knows there should be plenty mulling about after the epic job losses in the financial services sector – they would know that deflation actually means an increase in purchasing power…
And since the Consumer Price Index – which is used to determine COLA – is down 2.1% year over year, Social Security recipients actually are enjoying a windfall gain: their checks can buy 2.1% more goods and services than they could last year, despite containing the same dollar amount.
Add in all the companies going out of business and offering products at record lows, and it’s a pretty good time to be on fixed income…for now. Only a central banker lacks the common sense and basic knowledge of economics necessary to understand that deflation isn’t some evil thing.
So payments aren’t really shrinking. In fact, they’re increasing, as they always have and always will.
Furthermore, Getting rid of COLA altogether would go a long way to ensuring the future solvency of Social Security.
In fact, since Social Security has been running at a deficit since March – ten years before the actuaries expected – it’s an idea that should be implemented immediately, and permanently.
Of course, that’s not the kind of position that’ll get a politician re-elected.
Nope, the policies of creating inflation, then adding in COLA to entitlement programs will continue, increasing the burden on Social Security — which already faces (with sister program Medicare) over $50 trillion in unfunded liabilities (promises made to retirees, particularly Baby Boomers, which it doesn’t yet have the money to pay out).
And since politicians keep those liabilities off the government’s books, it looks like we have a much more “responsible” Federal debt of only $11.7 trillion dollars.
Try doing some creative accounting like that at a company and see how long you can keep out of prison.
The last person to invest in a Ponzi scheme is the person that loses the most – 100% of their “investment” – and they lose it the fastest.
There’s no real solution to this destruction of your wealth – other than to provide for your own retirement and preserve as much of it as you can offshore. After all, as these programs face greater problems, there’s no telling when or how politicians may come back for more.
Andrew Packer, Managing Editor of The Sovereign Individual
Article Source: Sovereign Society