Investing Advice

Closing a Chapter

2011-11-07T04:47:00.000-05:00

Good Morning Readers,

It is with a certain sadness that I write this morning to tell you of my decision to stop writing my daily blog. When I began writing I never imagined I would garner the readership I have. I am truly flattered. Writing on a daily basis, however, has become a “full time job” and has distracted me from my trading. Mistakes have been made. I feel I cannot do both jobs well.

So in closing, I want you all to know that I am still here and if you ever have any questions or thoughts you want to bounce off of someone I will always answer. I wish you all the best in your trading.

God Bless you all.

Yours Truly,

George Maniere

http://investingadvicebygeorge.blogspot.com/

maniereg@gmail.com

With man this is possible,

With God all things are possible.

Greece and the Gold and Silver Hedge

2011-11-03T06:13:00.000-04:00

I can’t be the only person that findsit a bit ironic that the fate of the global economy rests on the decision of whetheror not Greece remains a member of the European Union. Make no mistake, ifGreece leaves the European Union there will be a global ripple effect thatwould almost certainly plunge the global economy into a recession.

On Monday Prime Minister George Papandreoucalled for a vote by the Greek people to decide whether or not they want toremain in the EU. Putting aside the consequences that this vote may have, thiswas a stunning show of democracy in a world that is ruled by banks and money.

The summit on the French Riviera hadbeen meant to focus on reforms of the global monetary system and steps to reinin speculative capital flows, but this shocking decision by Papandreou onMonday to call a referendum on a new EU/IMF aid package for his country hasupended the talks.

The threat of a Greekexit from the euro zone hung over a meeting of G20 leaders on Thursday afterFrance and Germany made it clear that Athens must decide urgently whether itwants to stay in the 12-year-old currency bloc.

Like a schoolboy, Papandreou wassummoned to Cannes on the eve of the summit and given a stark warning by FrenchPresident Nicholas Sarkozy and German Chancellor Angela Merkel, both clearlyangered by his gambit, which has sent global stock markets and the Eurocurrency spiraling lower.

They made it crystal clear that theGreek prime minister to bring forward the vote to early December and insistedit be focused on the broad issue of whether Greece wants to stay in the European Union. Merkeland Sarkozy made it clear that the vote not be limited to a new 130 billioneuro bailout package. Oddly this is something which a majority of Greeksoppose.

Before leaving he said the referendum couldtake place on December 4 and would be focused on whether we want to remain inthe euro zone.

Merkel and Sarkozy also made clear that Athenswould not receive an 8 billion euro aid tranche it desperately needs to avoiddefault until the referendum had passed.

Should it fail, the EU/IMF aid would end,plunging Greece into a disorderly default that would reverberate across the17-nation euro zone, engulfing big economies like Italy and Spain.

"Our Greek friends must decide whetherthey want to continue the journey with us," Sarkozy told reporters at ajoint news conference with Merkel after the crisis talks.

The German chancellor, describing thediscussions with Papandreou as "tough and hard," said the goal ofstabilizing the euro was ultimately more important than saving Greece if it didnot want to be saved.

On Thursday morning, the leaders of France,Italy and Spain, the German finance minister and the heads of the InternationalMonetary Fund, European Central Bank and other top EU officials will meet tolook at ways of accelerating the implementation of an anti-crisis packageagreed on October 27.

That plan, which includes debt relief forGreece, a recapitalization of European banks and a leveraging of the bloc'srescue fund, the European Financial Stability Facility (EFSF), was meant tostem the two-year old crisis before Papandreou's referendum call sent the blocinto damage control mode. The referendum adds a further layer of complexity anduncertainty to an already complex crisis.

Most importantly, it starts off a politicalmechanism that could eventually result in Greece leaving the euro.

As the mini euro zone summit is taking place,Merkel will be holding talks with U.S. President Obama, who is due to arrive inCannes early on Thursday. Heading into an election year, Obama is worried theeuro zone crisis could blow up and hit the struggling U.S. economy.

Ben Bernanke, the chairman of the U.S. FederalReserve, announced on Wednesday that the central bank was slashing itsprojections for growth and raising forecasts for unemployment.

The meeting of leaders from the world's 20major economies will formally begin with a working lunch that had been meant tofocus on the world economy, but is now likely to be dominated by Europe's debtwoes.

Sarkozy met Chinese President Hu Jintao onWednesday as part of a European effort to convince the world's emerging powersto help boost the firepower of the bloc's bailout fund.

But Jintao told the French president that itwas up to Europe to solve its debt woes. China's deputy finance minister ZhuGuangyao said after the talks that Beijing needed more details from Europebefore considering any bigger investment in the EFSF.

This leaves no doubts about Europe'sability to contain the debt crisis has put Italy firmly in the firing line.

The risk premium on Italian bonds oversafe-haven German Bunds has hit euro-lifetime highs this week, despite EuropeanCentral Bank buying of its bonds.

Italian Prime Minister Silvio Berlusconi hasscrambled to come up with measures to placate markets, holding an emergencycabinet meeting to accelerate budget reforms amid mounting calls for hisresignation.

One thing is for sure. This will not end well.The best we can hope for is that it ends quickly.

My suggestion is to load up on goldand silver. If the worst does materialize the world will run as quickly aspossible to the ultimate hedge.

For 50 years I have been a gold andsilver bug. However it was only until about 3 years ago that I started to getinvolved with the gold and silver ETFs. Right away I liked the liquidity of theETFs. Stacking physical gold and silver was a lifelong hobby but my wife’spatience was wearing thin, I mean there are only so many places to hide thecoins. The ETFs gave me a means to own the gold and silver without ever havingto touch it. Add to this that it could be bought and sold as soon as my orderwas placed and I felt I had found a new friend.

I started my journey by buying theSPDR Gold Trust (GLD) and the iShares Siler Trust (SLV). I later learned aboutseveral of the leveraged plays like UGL and AGQ.

If things do not turn out well withGreece and the EU I suggest that everyone has 20% of their portfolio in goldand silver.

Silver, Molycorp, Greece and Greenspan

2011-11-02T06:36:00.000-04:00

I must get 20 emails a day asking me if I believe thatthe silver market is rigged. I answer thesame way every time. Yes!!!!!!!!!!!!!!

I have asked a few of my hedge fund buddies and a fewwere kind enough to comment on what many consider this highly contentioussubject.

The Silver Institute states that it believes in an openand transparent silver market. The CFTC handed this investigation to its ownEnforcement Division three years ago after issuing letters in 2004 and2008. We are still waiting for their findings.

Jeffrey Christian, Managing Director and founder of CPM Group, who has at times been accusedof being a government plant by some ardent supporters of the silvermanipulation theory, is not shy when it comes to voicing his position on thetopic. He says that people who hold physical silver do so not just an investment;they do so as more as a religion.

For a few decades now, gold and silver analystsand investors have debated the validity of allegations concerning preciousmetals price manipulation through COMEX futures contracts by a cartel thatsupposedly includes large bullion banks as well as the US Treasury and FederalReserve. By maintaining an overly large short position in the silver futuresmarket these banks have been at times able to suppress the price of the whitemetal in the face of bullish fundamentals.

However, the US Commodities Futures Trading Commission(CFTC) at the urgent request of independent investors has looked into theallegations of price manipulation in the silver market. In 2010, the mostrecent investigation began when independent bullion trader Andrew Maguire wentpublic with allegations of manipulation of the gold and silver markets byJPMorgan Chase and HSBC, which prompted a class action lawsuit againstthe two banks. In September of this year, HSBC wasdropped from the lawsuit with reports that the plaintiffs and the bank hadentered into a tolling agreement, which is often used to allow sides tonegotiate a settlement while also leaving plaintiffs the ability to file a newcomplaint if negotiations prove ineffectual.

Although the current investigation by the CFTC isconsidered ongoing and Commissioner Bart Chilton has said he believesviolations have take place, the CFTC has yet to finalize its investigation.

And so, the battle rages on between those who ardentlybelieve that large banks like JPMorgan are actively suppressing the price ofsilver and those who think the likes of Gold Anti-Trust Action (GATA) are merely in the business ofselling conspiracy theories and not interested in the truth.

That begs the question, if this conspiracy is sowidespread why is the gold mining industry not screaming blue murder over it? Theanswer is simple. Miners are hesitant to go up against the government, whichmust approve their mining permits, and the bullion banks, to which they turn tofor financing. However, Christian rebutted that bullion banks are not the onlyfinancial entities providing non-bank financing. He believes the mining firmsare headed by sophisticated, educated executives who can look at the evidenceand say there is nothing here to support these allegations. I have to focus onrunning a business and running it profitably and running it efficiently andthis is, again, a giant distraction.

In response to an audience member’s direct question abouthis position on the allegations against JPMorgan and HSBC, Christian said hedoesn’t believe that these banks hold an undue concentrated position in theCOMEX silver futures market. Their positions in the market are rather primarilyhedge positions of physical or OTC market transactions, forward purchases andmetal that is leased out.

Another question concerned CME’s decision to raise marginrequirements when prices are rising. A better question would be why haven’tthey lowered the margin requirements now that volatility in silver has fallen?

Christian defended CME’s raising margin requirements bysaying that there has never been a default of a major exchange or clearinghousein the US because the exchanges require people to prove they have the financialwherewithal to cover their positions. He said higher margin requirements arenot a negative for those holding long positions, but are rather harder on thoseholding naked short positions, which are not backed by physical collateral.Naked shorts must increase their margin balance to prevent defaults.

Two of the biggest names in the rare earths industryoutside of China have endured a stark contrast in fortunes over the past twoweeks.

Colorado-based MolycorpInc. (NYSE:MCP) announced on October 20 thatit would be opening a new processing plant in California months ahead ofschedule, with the expected start-up date now slated for early 2012.

To coincide with the early start for the new facility,Molycorp also announced they would soon be restarting operations at their MountainPass minein order to build stock for the plant.

The 3,500 tons of rare earth oxides equivalent (REO)expected from the facility should push Molycorp’s total output in 2012 up to8,000-10,000 tons of REO.

Capacity at Mountain Pass is then anticipated to jump to19,050 tons of REO in 2013 with the completion of Phase 1 of Project Phoenix, a$781 million expansion and modernization project at Mountain Pass that couldeventually see the complex generating 40,000 tons of REO per year.

In a companystatement, CEO Mark Smith explained that Molycorp are acceleratingour start-up because of robust rare earth oxide markets and very favorableproject economics.

By accelerating the start-up, they also further de-riskthe overall project by allowing for a more orderly and sequential start-up ofthe various circuits of this highly complex plant.

Analysts speaking to Reuters pointed out that theacceleration was a positivesign forMolycorp in the face of lingering criticism that the company lacks significantreserves of high value heavy rare earth elements (HREE), and added that thenews could add some stability to prices that are expected to rise in lateNovember when China is scheduled to release its rare earths production andexport quotas for 2012

Lynas Corp. (ASX:LYC), meanwhile,suffered a setback in their quest for a license from the Malaysian governmentto import rare earths from their Mount Weld mine in Australia to an advancedmaterials processingplant thecompany is building in Kuantan, Malaysia.

A jointstatement releasedon October 19 bythe Malaysian Ministry of International Trade and Industry and the Ministry ofScience, Technology and Innovation confirmed that “[Lynas] is not authorized toimport any rare earth ores into Malaysia without the prior approval of theAtomic Energy Licensing Board (AELB).”

The importation of rare earth ores into Malaysia, awould-be importer has to be issued a two-stage authorization. At this point intime, Lynas was neither issued an AELB Class E (Import/Export) license nor doesit qualify yet for a permit to import rare earth ores into Malaysia.

A response fromLynas immediately following the statement from the Malaysian government pointedout that “no decision is expected to be made for some weeks,” and highlightedpressure from activist groups and politicians who oppose the Kuantan facilityas the reason behind the announcement from the Malaysian authorities.

A week earlier on October 12, the AELB revealed that ithad received a long-term waste management plan from Lynas, which an IAEA panelhad recommended the company submit before the import licensing phase for theKuantan facility went ahead.

It was confirmed that AELB have received the long-termwaste management plan from Lynas but we have not analyzed it yet.

The plan will not be made public as I do not consider itsubmitted until we make sure it is in accordance with international standards.

Analysts believe Lynas will eventually secure an importlicense, but cautioned that the politics surrounding the deal did pose alegitimate threat.

If it was a regulatory decision, Lynas should be able tojump through any hoops. But if it is a political decision, then the risk of amore negative outcome increases.

Acouple of days ago former Fed Chairman Alan Greenspan stated that the Eurozoneis doomed to fail because the divide between the northern and southerncountries is just too great.

The statement is based upon the fundamentalmake-up of Eurozone participants and that they will never be able to worktogether. There was an expectation during its creation in 1999 that thesouthern members would behave just as those countries in the north. Hisexample, the Italians would behave just like the Germans. The exact oppositehas happened.

What came about was a system where the northerncountries began subsidizing the excess consumption of those in the south. Throwin a global economic downturn and then all of a sudden you have a sovereigndebt crisis.

Greenspan predicts that as the fiscal problems ofPortugal, Spain, Italy and Greece grow worse, the influx of goods from Germanyand France will dry up. When this happens, the standard of living for thesouthern Eurozone members will decline.

The effect of the divergent cultures in theEurozone has been grossly underestimated. The only way to have severalcurrencies from divergent nations lumped together is if they are culturallyclose, such as Germany, the Netherlands and Austria. If they aren't, it simplycan't continue to work.

Greenspan feels that, to a very large extent,what's driving the United States at the moment is Europe due to the fact thatthere's one single integrated global stock market.

As for our debt problems at home, Greenspan saidit will be difficult to get any sense of consensus on Capitol Hill to solveproblems. The current political environment is the most polarized he has seensince the beginning of his career.

A necessity in solving the U.S. debt would be toaddress the revenue aspect of the budget. He said we can accomplish this byeliminating tax breaks, loopholes and other measures that drive down federalrevenue.

Furthermore much fiscal policy is implemented, notthrough spending increases, but through tax credits and other so-called taxexpenditures. The markets should respond to them as they do spending cuts, withlittle contraction in economic activity. We thus could get a very largepositive impact on the deficit from such reductions, with minimum negativeimpact on the economy.

Greenspan gave his support to the President'sSimpson-Bowles Commission deficit reduction plan that was presented months agoto help rein in federal spending and boost revenue, but that plan was met withstiff resistance from lawmakers on both sides of the aisle in Congress.

The presumption we can rein in our budget deficitswithout inflicting some fiscal pain is utterly unrealistic."

The take is that the euro cannot survive becauseof the differences between Eurozone members. Eurozone dysfunction has shownitself in the negotiating processes to save Greece. There was no actualrestructuring of their institutions, which is needed going forward. Expect moreproblems for the Eurozone and the euro in the very near future when Italy'swell-being is on the table - and there are no easy fixes for the EU'sthird-largest economy.

Last Chance to Buy Gold and Silver At a Discount

2011-11-01T05:37:00.000-04:00

Last Thursday, October 20^th, all was right inthe world. We had rallied past every key technical indicator; Europehad announced that they had come to an agreement to save the default of Greeceand Spain,andItaly and Portugal. Peace and prosperity would once aging reign in the landof Leonardo da Vinci,and the home of the greatest art ever created. The food is not too bad either.

Last Friday I think everyone took the day off as there wassuch relief from the news out of Europe that no one wanted to jinks it byshowing up. Anyway it was Friday, Europe would be saved and we had a one monthclosing higher in the markets than we had in 40 years. We deserved a rest and Fridaywas the day.

Well what a difference a day makes. Last week’s passage of the Eurozone financial rescue plan impactedthe markets as traders continue to evaluate its worth. The markets are also whisperingand watching the Fed for any news about a QE3 initiative but the Feds steadfastlydeny any such plan.

Initialrelief over Europe's latest attempt to end its debt crisis faded fast yesterday(Monday) as investors fretted about the plan'slack of detail and grew more skeptical about Italy's turnaround effort.

Oneday after European leaders announced a series of measures aimed in part atenticing investors back to the region's debt markets, bond buyers demandedhigher yields on Italianand Spanish debt. An auction of new Italian bonds was met with weak demand,forcing the nation to pay higher interest rates than in previous sales.

Theresponse from bond markets underscores how challenging it will be for Europeanleaders to convince financial markets that last Thursday's broad agreement issweeping enough to enable troubled countries such as Italy and Spain to worktheir way out from mountains of debt. The plan calls for beefing up theregion's bailout fund, recapitalizing banks and reducing Greece's debt burden.

Atthis point, it’s pretty obvious that this recoveryis fake.

Since2009, this recovery has been manufactured, bought and paid for by governmentsfrom here to U.K.

Lastweek, the latest EU bailout plan was just another example of a governmentthrowing money at their problems - and really putting off the real issues untilnext month or next year.

Today,I want to show you two questions you need to answer so you can navigate these perilouseconomic waters this year.

Ask yourself; isthe EconomyGrowing or Shrinking?

Asa trader, I’m always watching to see if an economy is expanding or contracting?What is the trend of the market? Are the people in this country confident andassured or are they afraid that today may be their last day at work?

Todetermine this, I found this chart of the U.S.GDP.

A Government-Spending Induced Expansion HasCome!

TheGDP figures show how the U.S. economy is faring. A negative number shows thatthere is an economic contraction. A positive number shows economic expansion.

Rightnow, we’re showing a positive number. But there’s just one problem with that.It’s not consumers who are promoting this growth - it’s the government. Thepoliticians are stepping in to keep the economy afloat.

Inother words, it’s not a healthy expansion. So I don’t expect it to last long.

Thegood news: even if these numbers show a false start to the economy, they stillgive me some insight on what traders are seeing. Long-term, I’m still cautious.I know the enormous sums of money that the government spent to get theseeconomic results. They can’t keep that up forever.

Sooneror later, the economy will fall onto the backs of the consumer once again (aswe saw in early August). When this happens, we’ll likely go back into aneconomic contraction.

Thistells me that I can be bullishin the financial markets for short spurts here and there. But long-term, italso tells me to be cautious and to make sure I trade accordingly.

Toprepare for this in my trading, I can always cut down my lot sizes for eachtrade. That will decrease my risk just in case the markets turn on me.

Also,if my trades are comfortably above their breakeven point, I’ll quickly move mystop-losses so I can assure myself of some gains just as soon as I feasiblycan.

Finally, Should I Be On Offense or Defense?

Thenext thing to keep in mind is whether you should be trading offensively ordefensively. Offensive plays involve buying the high-yielding equities and defensiveplays are the “safe haven” currencies like the gold and silver that tend torally when stocks fall. As of last week, the world markets seem to think thisEU bailout plan is enough to force a market rally for a while. Therefore, themood of the market can be favorable for taking a bit of risk during thesetimes.

However,I would be cautious. Right now, we have economies drunk on tons of printedmoney. In my opinion, there’s no way this EU plan will hold up in thelong-term. For now, it just looks like the EU is kicking the can down the roadonce again and saving their problems for another time. The problem is thatevery time we kick the can down the road it gets bigger and it’s beginning tohurt my foot.

Oncethe markets wise up to this fact, we’ll see the hangover from all this. Stockswill fall - and that’s when you’ll want to bring out your defensive team. Yourdefensive team will include a basket of both physical and paper gold and silverETFs.

Thetrick is knowing which ETFs to buy. I own a basket of safe gold and silver ETFs.I own SPDR Gold Trust ETF (GLD), Sprott Physical Gold Trust (PHYS), iSharesGold Trust ETF (IAU) and I bounce in and out of ProShares Ultra Gold ETF (UGL).I also own iShares Silver Trust ETF (SLV), Sprott Physical Silver Trust (PSLV),Silver Wheaton (SLW) and I bounce in and out of ProShares Ultra Silver ETF (AGQ).

Inconclusion if the market rallies gold and silver will move up modestly but ifthe markets will sell off (which is just a matter of time) gold and silver willbe our safe ports in the storm. And if the FOMC whispersQE3 gold and silver will go parabolic. So while the market stages its rally Iexpect gold and silver to sell off and I will be a buyer on any pullbacks.

The Facebook of China

2011-10-31T04:33:00.000-04:00

Every weekend I go through a different sectorand I pull up companies and then I go through their chart. Going through thetechnical analysis portion process usually takes the list down to 20 stocks orso. I will then take those 20 stocks and do the fundamental analysis on thecompanies. I look for market capitalization, revenue, growth, P/E and get afeeling if this company is something that interests me.

This weekend I went through the technologysector and came across a company called Renren (RENN).

Renren Inc. (Renren), formerly Oak PacificInterative, is a social networking Internet platform in China. Renren generatesrevenues from online advertising and Internet value-added services (IVAS). TheCompany's platform enables its users to connect and communicate with eachother, share information and user-generated content, play online games, listento music, shop for deals and a range of other services. Its platform includes:Renren.com, Game.renren.com, Nuomi.com and Jingwei.com. The Company is also adeveloper and operator of Web-based games and offers the games throughgame.renren.com. Renren.com is the Company's primary social networking Websitein China. Game.renren.com is its online games center. Nuomi.com is Renren'ssocial commerce sites in China. Nuomi.com is an independent new business of OakPacific Interactive Co. (OPI) that offers a daily deal on the local servicesand cultural events. I’ve dubbed it the Facebook of China.

What really caught my eye was that there is acompany Tencent Holdings Limited that is an investment holding company that is principallyengaged in the acquisition of an Internet value-added services, mobile andtelecommunications company. They want to gain access to more white-collarprofessionals and compete with Sina Corporation.

SINA Corporation (SINA) is an online media company.The Company provides services through five business lines, including SINA.com(online news and content), SINA Mobile (MVAS), SINA Community (Web 2.0 andsocial networking-based services and games), SINA.net (search and enterpriseservices), and SINA E-Commerce (online shopping). These business lines providean array of services, including region-focused online portals, MVAS, socialnetworking service (SNS), such as micro-blog and album, blog, audio and videostreaming, album, online games, e-mail, search, classified listings, fee-basedservices, e-commerce and enterprise e-solutions.

While they had a 52 week high of $147.12 theyclosed on Friday at $87.39. After doing my due diligence I realized that whilethis company has a market cap of $5.8 billion it is an all purpose social siteand is sort of played out and are headed down because the appeal of the companyis too broad. The Chinese are looking for a company that will appeal to theprofessional white collar class. Renren fits this demographic perfectly.

Let’s take a look at the chart of Sina below.

As we can see in this chart of Sina thisappears to be a company that has had its day. The classic head and shoulderspattern, the death cross and a month of consolidation under the 200 day movingaverage all signal that this stock will continue to sell off.

On the other hand let’s take a look at thechart of Renn below.

As we can see this is a relatively new companythat did what most IPO’s do they opened and then sold off. After a month ofconsolidation in October on Friday October 28^th it broke the 50 daymoving average in convincing fashion and shows all of the technical signs ofbreaking out.

In conclusion, while Sina has proven to be afine company, I believe their day is past. If I may borrow an analogy from our marketspast does anyone remember Yahoo trading for $400.00 a share? Well now it is Google’sturn. Renren will come out of thisbattle the winner because they appeal to a more affluent and youngerdemographic. Today Monday, October 31, 2011 I will open a position in REN at $7.01.In suggest you take a look at these two holdings and if you agree with me opena position too.

Friday After the Rally

2011-10-28T06:33:00.000-04:00

Yesterday on Thursday the market rallied off of a planthat the Euro zone leaders had promised and investors had demanded. That alonecame as a relief to markets given how low expectations had fallen. The S&P notonly broke the key resistance level of 1257 but blew away the 200 day movingaverage and closed at 1284.59. The Dowbroke the psychologically 1200 level and closed at 12208.55. Sadly, the planfalls short of the comprehensive plan that Euro zone leaders had promised andthe best hope is that this deal buys a little more time.

The only significant new element to emerge fromWednesday’s meeting was the decision to ask Greekprivate bond holders to accept a 50% haircut on their exposures.The Euro zone believes this can be achieved on a voluntary basis, therebyavoiding credit default swaps. When I read this I made me think of the scenefrom the Godfather where Vito Corleone and Luca Brazzi met with a band leaderand told him sign the agreement because either your signature or your brainswill be on the paper. I believe that the saga is far from over because the dealthat was worked out still leaves Greece with a debt that is 120% of their grossdomestic product by 2020, a figure that I feel is far above what any rationalperson would consider sustainable.

There was even less detail on boosting the EuropeanFinancial Stability Facility (EFSF).Theoretically the bailout fund will act as an insurer, guaranteeing the firstloss on sovereign bonds and could also provide seed capital to special purposeinvestment vehicles with additional funding from public and private investors.This leaves me somewhat skeptical that this plan will work because it dependson foreign governments such as China agreeing to invest. It’s not clear howmuch capital might provide but where the Chinese are involved it’s not going tobe quid pro quo as history will bear out that they never do anything that isnot in their best interest. They have long coveted becoming a major player inthe International Monetary Fund (IMF).

So this begs the question is this plan for real or wasthat a photo op on Wednesday to buy a little more time? The Euro zone isgambling that the market will judge the sum of the parts to be greater than thewhole but there is simply no new money on the table. The crucial issue is who bearthe losses of the debt crisis have not even begun to be answered. So long asIreland, Portugal, Italy and Spain’s contagion can be treated asproblems of liquidity and not solvency it may not matter but that requires anurgent revival in confidence and economic growth. And that is asking too muchof this deal.

Still the market got what it wanted – a plan forcontaining the European contagion. Whether it has a chance of working we’llleave for another day. Are the debt dealscoming out of this latest summit of EUleaders sufficient enough to address the region's economic woes?

Thedeal euro-zone leaders hammered out in the early hours of Thursday sparked aworld-wide stock rally. But the market moves belied widespread caution aboutthe accord among economists and analysts—and even some of the decision-makersin the debt crisis.

Manypointed out the summit announcements lacked critical details that must behashed out in the weeks and months ahead, and then put into effect. "Theimplementation challenge is as high, if not higher, than the designchallenge," Mohamed El-Erian, chief executive of Pimco.

So where doesthis leave our economy and how do we move forward from here? As soon as thedeal was announced our dollar sold off and money immediately began to pile backinto equities. The Asian and European Markets were all up modestly but the riskplay is back on. In the futures commodities are flat while it looks like gold will take a break silver is up over 1%.Please see chart below.

As we can see from yesterday’s chart the S&P not onlytook out the 1257 resistance but blew away the 200 day moving average. Therally was too strong for a plan that has questions still to be answered but itgave the market what it has been craving – a risk on atmosphere. I have made ashopping list and I will be looking to add CAT, FCX, INTC, EOG, GLD, SLV, AGQ,SLW, MCD and PM. I would like to add LUFK, CLR, JCI, WPRT and USB on anypullbacks.

We are in astrong earnings season, the CPI is up, there seemsno chance of another recession and now with the European contagion seeminglyworked out it would appear that the market will rally to at least the end ofthe year. While there will be some speed bumps along the way I will not besurprised to see 1350 by the end of the year. So get out your shopping list andon any pullbacks it’s time to wade into the water. Wednesday Europe promised usa very profitable Christmas.

Today Europe Promised Us a Profitable Christmas

2011-10-27T05:06:00.000-04:00

We may own stocks we are writing about and may have position in these companies. We are not providing any investment advise on this blog and there is no solicitation to buy or sell any particular company here. We are simply sharing our thoughts for educational purposes only. Always consult with your qualified financial adviser before making any investment decisions.

On Wednesdaynight EST, Euro zone leaders struck a deal with private banks and insurers forthem to accept a 50 percent loss on their Greek government bonds under a planto lower Greece's debt burden and try to contain the two-year-old euro zonecrisis.
Theagreement was reached after more than eight hours of hard-nosed negotiationsinvolving bankers, heads of state, central bankers and the InternationalMonetary Fund and aims to draw a line under spiraling debt problems that havethreatened to unravel the European single currency project.
Under thedeal, the private sector agreed to voluntarily accept a nominal 50 percent cutin its bond investments to reduce Greece's debt burden by 100 billion Euros,cutting its debts to 120 percent of GDP by 2020, from 160 percent now.
At the same time,the euro zone will offer credit enhancements to the private sector totaling 30billion Euros. The aim is to complete negotiations on the package by the end ofthe year, so that Greece has a full, second financial aid program in placebefore 2012.
The value ofthat package, EU sources said, would be 130 billion Euros -- up from 109billion Euros when a deal was last struck in July, an agreement thatsubsequently unraveled.
The summitallowed the EU to adopt an ambitious and credible response to the crisis thatis sweeping across the Euro zone.
As well asthe deal on deeper private sector participation in Greece Euro zone leadersalso agreed to scale up the European Financial Stability Facility (EFSF), their440 billion euro ($600 billion) bailout fund set up last year.
The fund hasalready been used to provide help to Ireland, Portugal and Greece, leavingaround 290 billion Euros available. Around 250 billion of that will beleveraged 4-5 times, producing a headline figure of around 1.0 trillion Euros,which will be deployed in a variety of ways.
Leaders hopethat this will be enough to stave off any worsening of the debt problems inItaly and Spain, the region's third and fourth largest economies respectively.
The EFSFwill be leveraged in two ways, either by offering insurance, or first-lossguarantees, to purchasers of euro zone debt in the primary market, or via aspecial purpose investment vehicle that will be set up in the coming weeks andwhich is aimed at attracting investment from China and Brazil. The methodscould be combined, giving the EFSF greater flexibility.
The leveragecould be up to one trillion (Euros) under certain assumptions about marketconditions and investors' responsiveness in view of economic policies.
As with theJuly 21 agreement, which quickly broke down when it became difficult to securesufficient private sector involvement and market conditions rapidly worsened,the concern is that Thursday's deal will only work if the fine print can bepromptly agreed with the private sector.
CharlesDallara, the managing director of the Institute of International Finance (IIF),said those he represented were committed to making the deal work.
On behalf ofthe private investor community, the IIF agreed to work with Greece, euro areaauthorities and the IMF to develop a concrete voluntary agreement on the firmbasis of a nominal discount of 50 percent on notional Greek debt held byprivate investors with the support of a 30 billion euro package.
As part ofefforts to attract investors into the special purpose vehicle attached to theEFSF, Sarkozy said he would talk to Chinese President Hu Jintao in the coming days.Beijing has so far been a big buyer of bonds issued by the EFSF, which istriple-A rated by credit agencies.
Earlier,U.S. stocks rallied after news emerged of the intention to boost the power ofthe EFSF fund, while the euro fell as investors awaited details that areunlikely to be forthcoming until next month.
Leaving thesummit venue at 4.30 a.m., Jean-Claude Trichet, the outgoing head of theEuropean Central Bank, said he was cautiously optimistic that the deal couldhelp stabilize the unrest in European financial markets and economies.
So wheredoes this leave our economy and how do we move forward from here? As soon asthe deal was announced our dollar sold off and money immediately began to pileback into equities. The Asian and European Markets were all up strongly and therisk on play is back. In the futures commodities are up big while it looks likegold and silver will take a break. Please see chart below.

The mosttelling sign is that The S&P futures are set to open at 1258.9 which is onepoint over the resistance that the S&P had steadfastly held on to. A breakabove 1257 is a very bullish indication and signals that we will rally to theend of the year.
We are in astrong earnings season, the CPI is up, there seems no chance of anotherrecession and now with the European contagion seemingly worked out it wouldappear that the market will rally to at least the end of the year. While there willbe some speed bumps along the way I will not be surprised to see 1350 by theend of the year. So get out your shopping list and on any pullbacks it’s timeto wade into the water. Today Europe promised me a profitable Christmas.

The Fireworks in Europe Confirm that Goild and Silver are Still the Safe Havens.

2011-10-26T06:12:00.000-04:00

Expecting good news from Europe today? Guess again. The market seemed toprice in what they expect to hear tomorrow as the Dow fell 207 points to close at 11706, the S&P fell 25.14points and closed at 1229.05 and the NASDAQ fell 61.02 points to close at 2638.42. Whilethis seems like a drastic sell off we must remember that it was only one monthago that the S&P was putting in a bottom at 1100.

Gold blew past $1,700 today on a slew of grim U.S. economic data anddeepening concerns over the European sovereign-debt crisis. The dollar gotweaker against the Euro but most important was the uncertainty from themeetings tomorrow in Europe which I conclude were the main factor in thismarket selloff. Confusion reigned in Europe over whether a key meeting offinance officials to resolve the debt morass Wednesday had been canceled. Bythe end of the day it was reported in the Wall Street Journal that this was not a rumor. The financeministers had cancelled their meeting. The meeting of the Heads of State of the17 Euro countries will be held and everyone has promised to bring theirfireworks.

The EuropeanUnion is doomed to fail because the divide between thenorthern and southern countries is just too great. At the outset of thecreation of the euro in 1999, it was expected that the southern Eurozoneeconomies would behave like those in the north; the Italians would behave likeGermans. They didn’t. Instead, northern Europe fell into subsidizing southern Europe’sexcess consumption or its current account deficits.

Ipredict that as the south's fiscal crisis deepens, the flow of goods from the north will stop altogether andsouthern Europe's standard of living will go down. The effect of the divergentcultures in the Eurozone has been grossly underestimated. The only way to haveseveral currencies from divergent nations lumped together is if they areculturally close, such as Germany, the Netherlands and Austria. If they aren’t,it simply can’t continue to work.

This is so pathetic. They are talking as if the questionis do you want the rescue check in the blue envelope or the green envelope?There is no rescue check. Unless they start getting one of Dr.Bernanke's helicopters, we may have a problem. So let's pretend thereis a real problem tomorrow, nothing firm, not even agreement in principle.Something messier than the market wants, how many points come out? That begsthe question how does it happen? The European politicians are acting as if thisis a rational process but this can turn irrational very rapidly. If theyaccidentally have one misstep they could have a situation that creates afirestorm. Then it could be ugly. You could give back more than half of what wegained since the October lows.

If you thought silver and gold were not safe havens anymore – think again. Gold closed at 1706. Silver closed at 33.05.The safe havens of gold andsilver are alive and well. I was particularly amazed at the response to mynewsletter today “silver waits to breakout.” I received 39 comments on the postand to my surprise most of them were about silver as a safe haven currency. Itmade me think my prediction of $50.00 silver by year’s end was not that faroff.

So how do we trade this economic tsunami? Let’s take a look at the chartbelow.

As you can see we gave back 207 pointsand closed the day just 29 points from our level of resistance that had takensince August to break through.

I added GLD, IAU, SLV and PSLV to my alreadyoverweight positions. I then added DZZ and ZSL as a hedge against them forsome protection. Yesterday I had the good fortune to load the boat with SPXU and it moved up 6% onrumors. Tomorrow will be the real rest. If there is no consensus from themeeting tomorrow in Europe we could be at 1160 in a day.

In conclusion, on Monday when theS&P bounced off of the 100 day moving average and I knew that Europe wastwo days away I loaded the boat with gold, silver and SPXU. These are the onlyspeculative stocks I own. I think we will see a major selloff on Wednesday andThursday. We will then see a day of consolidation on Friday and next week ifEurope can come to some sort of agreement we will see the market rally to theend of the year.

Enjoy the ride!

Silver Waits to Break Out

2011-10-25T04:03:00.000-04:00

To 250 million people in 51 countries in the world theword for money is the same word as the word for silver. Silver literally meansmoney. According to Noble Laureate MiltonFriedman the majority of monetary metal throughout history hasbeen silver, not gold. Goldis the money of kings while silver is the money of gentlemen.

Before we make a case for silver being money, let’s takea look at whatis money? I believe money is the grease or oil that lubricates thesupply lines that bring goods and services to where they are needed. Withoutmoney our economy would be reduced to barter. The problem with barter is thatyou would not only have to find someone that has what you want but he would alsohave to have what you want in return. Let’s face it, in this modern world ofinfinite goods and services this would be a complete disaster.

So no matter what we use as a medium of exchange be itgold, silver, paper or sea shells we need an unrestricted supply of money tokeep the economy lubricated. Money is a unit of storage or a proxy for valuethat must be something completely different from what is being exchanged. Thisis why money must float freely in value to coincide with the law of supply anddemand.

Whatis the true value of silver? I have no idea. Silver likeanything else will fluctuate with the laws of supply and demand. I do knowthis. If you are waiting for industry or the fiat printing of paper to sendsilver through the roof, you may be waiting a long time. That is because like abeautiful work of art is in the eye of the beholder the value of silver asmoney is perceived. It doesn’t come with an instruction manual.

So here’s where I come down on this. A dollar used tohave stamped on it “Silver Certificate.”

They were produced in response to silver agitation bycitizens who were angered by the FourthCoinage Act. The Coinage Act had effectively placed theUnited States on the GoldStandard which was fine but with each subsequent act the value ofthe dollar was debased. So in 1878 Silver Certificates were printed. One silvercertificate could be traded for a silver dollar. Well in 1960 silver wastrading for $1.29 which meant that a silver dollar was worth more than a silvercertificate. In March 1964 Secretary ofthe Treasury C.Douglas Dillon halted redemption of silver certificates forsilver dollars and while you could still trade with Silver Certificates. Thenew currency was the FederalReserve note which still exists today.

I like to buy on AMPEX soI was on their web site and it would take 37 one dollar Federal Reserve notesto buy one American Eagle One Dollar coin. Last Spring in the last week ofApril it would have taken over 50 one dollar Federal Reserve notes to buy one AmericanEagle One Dollar coin. So I ask you, in the long term, whichway do you think silver will go? Let’s take a look at a chart of SpotSilver below.

As you can see silver has been in a consolidation periodfor the last month. For those of you that like the market to move at warp speedlet me save you the suspense. It doesn’t.

In conclusion, after the volatility that silver has gonethrough since January of this year I think it’s healthy for it to consolidate.When Silver breaks out again it will be to the upside.

As The S&P Goes - So Goes SPXU and UPRO

2011-10-24T07:07:00.003-04:00

Abovemy desk I have a big sign that says “themarket will always do what the market has always done, misdirect, confuseand confound.” The way the S&Phas been behaving since August is proof perfect that this slogan is as true asever.

For those of you not conversant with the Ultra Pro Shares ETFs Pro SharesUltra Pro S&P 500 (UPRO)is a triple leveraged fund that seeks a 300% return on the performance of theS&P for a single day. Conversely, The Pro Shares Ultra Pro Short S&P500 (SPXU)seeks a triple leverage or 300% return on the inverse performance of theS&P 500.

Forthose of you that read me on a regular basis you know that I was certain backin August that the S&P would break the support line of 1100 and from therewould go to 1050 / 1020 and if things got very tight it would go to 960. OnOctober 3^rd I was sure that I would be right as I watched the S&Pbreak the 1100 support and hit an intraday low of 1078 before closing at 1100.One or two more days of trading below 1100 would confirm my thesis and I would addto my already overweight position of SPXU. Well I was wrong. Two days at 1100on the S&P and it began its march up and I was forced to sell at about 1140and admit that I had been fooled again. Let’s take a look at the chart below.

Asthis chart will show the S&P kept its march up and about two weeks ago itformed a consolidation area between 1200 and 1220. There it remained for severalweeks. The S&P attempted to continue to consolidate lastweek as it traded sideways in the $1200-$1220 range. On Friday the S&P500 closed the week out at the highest prices it hasseen since the decline that began in August. Buyers, however, remained impatientand only allowed a week or two of rest. This is a good show of strength as the S&Pcould have easily experienced a deeper pullback and still remained healthy.While I believe the S&P will need to take a more extended breather, (especiallywith the uncertainty from Europe) it may make a run towards $1260-$1270. Thisis a key level to watch in the near term as it marks a prior support level fromJune and the approximate area of the 200-day moving average. If it breaksthrough the 200 DMA we will rally to the end of the year. While S&Pstill has plenty of overhead resistance, the rallyfrom its recent lows has been staggering.

Inconclusion, I think that Fridays rally to 1138 was less of a rally and more ofa short covering. I expect to see a pullback to the 1220 level today but thereare other factors involved.

According to the Wall StreetJournal, European leadersare nearing agreement on a plan that would see the region's banks raise around€100 billion ($139 billion) in fresh capital, said three people familiar withmarathon talks taking place here on Sunday.

I must interject thatthe great JesseLivermore taught us that it is not the news that means anything it is howthe market reacts to the news that is important.

The bank-recapitalization plan is the easiest piece of athree-pronged bargain that the 17euro-zone nations are hoping to reach during meetings that began Sunday andwill continue through at least Wednesday. There remain disagreements on theother two measures—steps to boost the firepower of the bloc's €440 billionbailout fund and, critically, to deal with Greece's spiraling public debtthrough a complex restructuring.

German Chancellor AngelaMerkel, left, walks with IMF Managing Director Christine Lagarde, center,and ECB PresidentJean-Claude Trichet during a roundtable meeting of euro-zone members at an EU summit in Brussels onSunday.

European Union finance ministers discussed the bank planduring a 10-hour session on Saturday. SwedishFinance Minister Anders Borg said on his way out of the meeting they hadagreed to the foundations of a plan. Today will be a very interesting day.

Triple Leveraged ETFs

2011-10-21T05:22:00.000-04:00

Lately I have had many readers write to me about thefamily of Direxion Triple Leveraged ETF Funds and the Ultra ProShares ETF’s.These are relatively new funds. The first fund was the Ultra ProShares ETF, SPXU.SPXU was first introduced in 2009. This Ultra Short ProShares ETF seeks areturn that is three times the return of an index or other benchmark (target) for a single day, as measured from one net asset value (NAV) calculation tothe next. Due to the compounding of dailyreturns, ProShares' returns over periods other than one day will likely differin amount and possibly direction from the target return for the same period.Investors should monitor their holdings consistent with their strategies, asfrequently as daily.

There are two companies that I know of that offer thistripled leveraged short ETF, the Direxion Company and the Ultra Pro SharesETFs. There is an ETF for just about any sector you want to short. There are 5different Russell sectors (midcap, energy, financial, etc). Not to belabor thisbut if you want to triple leverage short it – there is an ETF for you. I haveone favorite sector and that is the S&P. Oddly the S&P is the onlysector that you can triple leverage both short and long. The short is calledSPXU and the long is called UPRO.

When you think the S&P is going to sell off you wouldlook for an entry point that would give you some wiggle room for it to movedown. For the last few months theS&P has been range bound.

Please see the chart below.

As we can see on this chart today the S&P traded at ahigh of 1219.53 and a low of 1197.54 and closed the day at 1215.39. This wasone of the least volatile days that I have experienced in the S&P for awhile and just stood aside. I have found that trading SPXU works better ifthere are more volatile swings in the price.

Well let’s get to it. If you are of the faint of heart don’teven think about touching one of these stocks. In fact when you are tradingthese stocks you can’t even trade another stock. In fact you will barely havetime for a bathroom break. You will see why on the next chart below.

What we are seeing here is a chart of the S&P foryesterday’s trading in I minute increments. We are also seeing the chart hasbeen changed from a daily chart to a one day chart. Another importantdistinction is that the four bands (Blue, orange, green and pink) have beenchanged from regular moving averages to exponential moving averages. Thedifference between a regular moving average and an exponential moving average isthat a regular moving average is simply an unweighted mean of all of theprevious numbers or data that came before it and if all of the numbers areadded up and divided by the number of days we would have a simple movingaverage SMA. This can best be expressed by the formula

Anexponential moving average (EMA) is also called a weighted moving average. Theweight for each older data point is decreased exponentially. This formula canbest be expressed as . The point of an exponential moving averagewhen it applies to the movement of stocks is that the moving averages havegreater validity as they are move through the day. As you move through the daythe moving average bands carry greater meaning and give you more clues as towhich way the stock will move and since a trade like this is or should be forone day this becomes very important. So when you open up your chart make sureyou set your moving averages to Exponential moving averages.

Another very important tool is the MACD and the histogram. Ihave always found that the MACD and histogram was a powerful tool but whenusing this tool on a one day chart the chart will almost predict what is comingnext. I have found the histogram to be the one true leading indicator intechnical analysis but when the chart is set for one minute it is eerie how theMACD will give you a 1 or 2 second heads up as to what is about to happen. Justtake a look at the chart above and notice how the MACD mirrors the movement ofthe actual data on the chart.

The chart that we have been working on is SPXU which is a tripleleveraged ETF of shorting the S&P. Well what if you thought the S&P wasgoing higher what ETF would you use? You are in luck because Ultra ProShareshas a triple leveraged ETF for going long the S&P. It is called UPRO and itworks exactly as SPXU except it is the inverse.

This is the exact tool and technique that the hedge funds use. Solet’s go over some ground rules. The 1 minute chart is 6 ½ hours of your life.If you have any other stocks make sure you put in your bid and ask before theday begins because you won’t have time once the day gets rolling. The only timeyou will ever take your eyes off the screen is when you take a pee, when youplace a buy and when you sell.

Take a look at the chart I bought in at 10:15 today and sold at12:20. I then had to wait until 1:20 to buy back in and sold at 2:15PM. I then waitedfor what seemed like an eternity but was able to buy in again at 2:50 and soldfor the final time at 3:30. The market never gave me another chance to buy backin.

OK now is the bad news. You knew there was going to be some badnews right. This is poker on steroids. Take a look at the chart. The biggestmove I had was $0.17the rest were less so how do you make a lot of money at this? You have to have commit a lotof capital to it. I consider myself a small player but the smallest position Ihad was $20,000.00.

Let’s do the math. From 10:15 until 12:20 I made $0.17 a share.From 1:20 to 2:15 I made $.06 a share and from 2:50 to 3:30 I made $0.17 ashare. That is a total of $0.40 a share for the day but when you are playing inlots of 10,000 shares that’s a $4,000 pay day.

In conclusion, I have a story about a hedge fund buddy of minethat I was having a beer with one night. He‘s not the kind of guy that talksthe talk. He is more the type of guy that walks the walk. I asked him straightout one night what was the smallest trade he ever made and he told me 1 millionshares. It wasn’t bragging. He was almost embarrassed to tell me. Start puttingthat kind of fire power under a technique like this and you can put up a strongbatting average. I would suggest that if anyone wants to try this techniquethat they do it on paper first to iron out the kinks and get a good feel forworking like this. Practice this technique before you commit and capital.

An Unprecedented 26 Million Americans Are Now Underemployed

2011-10-20T12:53:00.002-04:00

Whilethe number of unemployed workers has held steady at around 14 million in recentmonths, another telling measure of frustration in the labor market—the numberof underemployed individuals—rose for a third consecutive month in September,by almost a half of a million people.

Almost9.3 million Americans are considered underemployed, defined by the Bureau ofLabor Statistics as working part-time for economic reasons, such as unfavorablebusiness conditions or seasonal declines in demand.

That'sup from just over 8 million in July, but down from a peak of about 9.5 millionin September 2010. In addition, about 2.5 million individuals are considered"marginally attached to the labor force," meaning they were not inthe labor force, wanted and were available for work, and looked for a jobsometime in the prior 12 months. (They are not counted as unemployed because theyhad not looked for a job in the past four weeks prior to the survey.)

Puttogether, almost 26 million Americans are either unemployed, marginallyattached to the labor force, or involuntarily working part-time—a numberexperts say is unprecedented.

Thelabor force is substantially underutilized relative to what we experienced inmost of the post-World War II period.

From2003 to 2007, before the latest recession, the number of people workingpart-time for economic reasons as a percent of the labor force averaged about 3percent, or approximately four million people. Over the past 12 months, theaverage has been about 6 percent.

Toget a more accurate understanding of the struggles that many Americans face,that base should be broadened even further. He says it's important to considerpeople who are working, but at substandard wages. About 20 percent of adultshave jobs that pay poverty-level wages (the poverty line is currently $22,500 ayear). I'd consider that to be another version of underemployment—mainly jobsthat are just too low-quality. Americans who fall below the poverty line makeless than $10.50 an hour.

Thelabor market is just not delivering for Americans what it should be delivering.The weaknesses are on multiple dimensions—one is just the quantity of jobs, andthe other is the quality of jobs that do exist."

Economistssay the high number of underemployed workers is a sign of the tough economictimes. One of the things that seems to be happening these days is thatcompanies in an uncertain environment are tending to take people on part-timeinstead of full-time because they don't want to make that full-time commitment.By taking on part-time employees instead of full-timers, companies aren'tforced to pay benefits or bring on employees for extended periods of time. It'salso a lot more difficult to let full-time workers go.

That'sleft millions of Americans trying to make ends meet by working multiplepart-time jobs. There are a lot of people today who are self-employed, and theygo through periods of their life where they're cobbling together various jobsor projects or consulting assignments or temporary work.

TedSchnell of Elgin, Ill., is one of those people. For the first time in his 27years as a journalist, the now 52-year-old father of five found himselfunemployed in December 2010 after being laid off by Sun-Times Media. SinceJanuary, he's worked part-time for a former colleague who started a local newssite. Schnell has written about his experiences on his blog Laid off at 51: Seeking joy in change.

Fora few weeks earlier this year, Schnell was able to land two copyediting jobs attwo regional Patch.com sites, but AOL, which owns Patch,slashed its freelance budget soon after and he lost one of those positions."It's miserable in terms of what I'm making," Schnell says. Inaddition, he says he's stuck in a house that's worth substantially less thanhis mortgage, and he's had to ask his father to help with payments. Schnell,like many older underemployed Americans, says he's worried that he may getpassed over by potential employers because of his age. He remains discouraged."For every 50 to 100 resumes I send out, I may get one interview," hesays.

Update on Rare Earths

2011-10-19T07:12:00.000-04:00

Back In 2000 the United States granted Beijing Most-Favored-Nationstatus and let the communist regime join the World Trade Origination (WTO). Sadly this move was obviously not well thoughtout and has caused our present problem of securing our ever growing need forthe most coveted 17 rare earth elements. According to the US GovernmentAccountability Office (GAO), not only did we abandonour capacity to produce these critical elements but restarting mines andproduction plants could take up to 15 years.

As reported by RobertMaginnis, a new Pentagon report to congress admits our military iscritically dependent on Chinese produced for high end weaponry. This dependencywas a self inflicted wound that demonstrated how naïve we were regarding Red China.They are a regime that is ready t leverage any advantage.

As has been documented by many of my colleagues, Chinaproduces 97% of all rare earth elements (REE). 17 ofthese elements have unique magnetic properties critical for high tech militaryequipment such as advanced fighters, lasers, precision guided missiles and 21^stcentury consumer technology found in iPhones, iPads, wind turbines and MRI and CATmachines.

We knew more than a decade ago the Chinese intended tomonopolize the REE market and then use that position for its advantage. Beijingis playing this out as scripted as it cut back on exports and has shown aninclination to use those exports to leverage disagreements.

Prior to 1990, the US was the global leader in the productionof REE’s. That changed because the Chinese would do it for $0.10 a day and nobathroom breaks. Meanwhile, China created a monopoly with a combination of cheaplabor, nonexistent environmental standards and state subsidized loans.

China’s state owned banks granted subsidized loans to promotesocial stability through full employment. Those loans created such a massive miningsector that most of the mining sector never recovered their operating costs andpredictably global prices plunged. The plunging REE prices helped fuel thetechnological revolution but the West became hooked on cheap Chinese REE’s asuses expanded from cathode ray tubes to components for wind turbines, hybridcars, laptop computers, cellular phones and at least 36 sophisticated weaponsplatforms.

Now China is consolidating the REE sector and Beijing’s monopolyis working, but the monopoly can be temporary if nations like the US actquickly. As I have written rare earths are not all that rare but they areexpensive to mine and extract. The risk adverse mining sector are not likely toact without government assistance.

So what should America do to reduce its almost totaldependence on Chinese REE’s?

The Pentagon has stated that we need to start stockpilingcertain elements like dysprosium, yttrium, praseodymium and neodymium for themost critical weapons manufacturing. They further call for granting higherpriority to weapons manufacturing over commercial production. That seemsprudent until non Chinese REE sources are readily available. Finally out of thesix domestic REE companies assessed only one has the facilities and experienceto reduce all 17 elements. That company is Molycorpwhich operates the MountainPass facility and indicates its intention to restart operations in 2012. Thebad news is that Molycorp lacks the manufacturing assets and facilities toprocess these rare earths into finished components such as permanent magnets.There have been reports that Molycorp will be cooperating with the US Departmentof Energy Ames Laboratory in an effort tofocus on creating commercial grade REE magnets which are critical forminiaturization. Add to this that Molycorp does not have substantial amounts ofheavy rare earths such as dysprosium, which is used for heat resistantpermanent magnets used in defense systems.

China is an economic piranha, not a free market. We need torebuild our REE supply system and stop being economically bullied by China. Weneed to start protecting our defense and private industries from Beijing’s abusivetrade policies.

After SPXU Has its Day - We Will Move to UPRO

2011-10-18T06:09:00.000-04:00

Severalweeks ago, for the second time, I called for a buy of SPXU too early. The ProShares Ultra Pro Short S&P 500 (SPXU) seeks a triple leverage or 300% return on theinverse performance of the S&P500. Conversely, Pro Shares Ultra Pro S&P 500 (UPRO) is a triple leveraged fund that seeks a 300%return on the performance of the S&P for a single day. If you believe as Ido that we are setting up for a leg down on the S&P then SPXU is the bestway to profit from this trade. Of course it goes without saying that timelytrading makes all the difference in a stop order getting executed and a day ofraising my stop. I and I am sure a few have my readers have experienced bothand the latter scenario is not only more satisfying but it is also very profitable.

Please seethe chart below.

A look atthis chart will show that although it the S&P n closed at 124.86 on Friday Iknew that it was a fake out and it gave it all back today. This also confirmsthat the breakout we saw on Friday was not for real and I conclude that we willgo back and test the 1100 level. If we were to break the 1100 level we wouldhave resistance at 1050 / 1020 and finally 960 before complete capitulation.

I do not seeus going past 1050 but it is important to bear in mind that this is a factor ofmany things. For one we have the recapitalization of the European banks andmost economists have come to the consensus that it would cost seven trillionEuro. The bad news is that Europe does not have seven trillion Euro to recapitalizethe banks. So as I wrote in a recent article Europe is Broke! Add to this thatso far the earning reports have been disappointing, gold is forecast to dropanother $12.00 today and Angela Merkel has been complaining that the contagionin the European banks is due to the US banks. All of this adds up to onecertainty – the US markets are going to sell off. I believe that yesterday wasa prelude to the sell off that has just begun.

As I havewritten, I saw this coming two weeks ago and yes I was early with my predictionand got stopped out three times. This time, however, I see no white knightriding to save the day. Last night Asian stock markets dropped asa slowdown in China's economy added to fresh concerns about the ability ofEurope's leaders to substantially contain the euro-zone debt crisis. Asinvestors look toward a meeting on Sunday October 23^rd of Europeanleaders for a sweeping solution to Europe's debt crisis, a spokesman for GermanChancellor Angela Merkel on Monday warned against hoping that all theeuro-zone's debt woes would be resolved by then. ChancellorMerkel reminded everyone that the dreams that on Monday everything will beresolved and everything will be over will again not be fulfilled.

Going forward, I believe that the market is more likely toturn over the next few weeks than gain ground, as it will experience some hardtests. As I have written, the market risks further disappointment October 23 asit has priced in a solution to the problems as if somehow everything negative thathas been lingering unsolved for the past 2 years will miraculously disappear inone week.

My regular readers know that I do not use this forum as a bullypulpit to espouse any political views. I see a chance to write as a way to helppeople learn how to profit from whatever events come our way. I see the bestway to profit from this event is to short the S&P by using SPXU. When themarket bottoms (which it will) then sell SPXU and go long the S&P by movingto UPRO.

In conclusion, at this moment the world is falling apart atevery turn. Global markets have run up too far and too fast and it’s time topay the piper. The markets will sell off of correct (if you like) and we willfind our footing and move on. After this sell off we will rally until the endof the year. Don’t get me wrong there will be choppy waters ahead but we willnavigate these turbulent waters and come out of this storm stronger and maybe,just maybe, we may have learned a hard lesson. Don’t spend what you don’t have!Borrowing your way to prosperity has never worked and it never will.

Pivot Points, Europe Broke Again and Silver

2011-10-17T07:11:00.000-04:00

As Iwrite at 5:20AM the futures are up marginally and we are on the cusp. On Fridaywe broke resistance of 1220 and closed the day at 1224.58. This is what I havebeen waiting for. Will the S&P rally to the end of the year, or will theS&P sell off and then begin a rally to the end of the year. One of thosetwo things will happen and by the end of this week we will know which one itwill be. Make a shopping list because this week you may want to put some ofthat cash we have been hoarding to work. The great Jesse Livermore used to callthese pivot points. We are at the cusp of a pivot point. While it may be alittle choppy, one way or the other we will rally to the end of the year.

This was an amazing week! Besides the fact that we got to see somegreen on the board, the week was totally eclipsed by the latest off Broadway versionof “The Mouse That Roared” as Slovakiatook the world to the brink and for one bright shining moment held the fate ofthe world in its hands.

On Thursday, October 13^thsomewhere in the second act, Slovakia approved Europe's enhanced bailout fundcompleting the ratification process across the 17 euro countries and all wasright with the world.

There is just one small little babyhic-cup. Europe is toast! The likelihood of Europe surviving grows slimmerevery day. Let’s get this straight right away. Europeans are not happy with theEuro and the common citizens feel the whole creation of the EuropeanUnion was a big mess. The European politicians don’t see this as apolitical problem but rather as a logistical one because they have to somehowsell the consolidating of the bonds to the public.

If the European Union is going to survive it has to make the hardchoice. It must consolidate all of the existing national debts into one “Eurobond.” Thesimple fact is that the failure to do this will cause the banks to fail andthen we get to see the man behind the curtain. The truth about the accountingwill rise to the surface.

The lack of mark to market accounting that was installed as aquick fix following 2007 has only severed to make the bank’s balance sheetseven more obtuse. Remember Collateralized Debt obligations (CDO’S)and CreditDefault Swaps (CDS) – that’s the man behind the curtain.

The outstanding derivatives would have wiped out much more if leftmark to market. What was not told was that you can’t pool mortgages. In orderto foreclose on a property, you have to produce the mortgage to show you havethe legal right to that property. When mortgages were made, they were typicallyresold and then they were pooled, sliced into tranches and no single investorheld the mortgage anymore. Anyone who understands the law and the marketsshould have known this is why mortgages were never pooled previously. It’s like trying to seize your neighbor’shouse claiming you were the rightful owner. In the real world the court wouldask where is your proof of mortgage? This is how many people were able to stayin their house for 3 years or more without paying a penny in mortgage or taxpayments.

This is a small but accurate example of the mess that is going onin Europe. Politicians better start waking up. This is the entire financialsystem they are fooling around with. For far too long politicians have beenmasking reality to keep the game going hoping nobody notices the man behind thecurtain. WE have to revise the world’s monetary system before it wipes outeveryone’s future. This is not politics as usual.

Aninteresting and potentially tradable condition is unfolding this week in thesmall silver market. Traders worldwide are watching to see if silver“respects” its May lows or instead falls below them to test/establish newcorrection lows.

Just below is a chart ofthe largest silver ETF, (SLV) asa proxy for silver, the commodity.

A look at this chart willshow a picture of Silver’s (SLV) late-April sell-off of 40% the first week of May.For almost three months silver seemed to consolidate and began a run up when itran into resistance at $42.00. I can only conclude that the investors who hadbought up in this range wanted out of silver even. From there it bounced from$38.00 to $42.00 when Dr. Bernankeannounced “Operation Twist.” This sent the dollar up and investors fleeing gold and silver. A lookat the chart will show that silver lost 25% in 1 week. It has fought its wayback to close on Friday at $31.34 and that begs the question where do we gofrom here?

There is no doubt that silver has had atumultuous year. There is also not a doubt in my mind that silver will continueto increase in value as long as we continue the printing of fiat paper to solveour financial problems. My regular readers know that I am fond of GeraldLoeb. In his epic tome “The Battle for InvestmentSurvival” he writes that it is human nature to see more dollars tan we had lastweek and think that we are doing well financially. This however is sheer folly.The true test of a currency is not how many you have but rather what is thevalue of the currency. Voltaire said in the 1700’s “paper currencies will always revert totheir intrinsic value – zero.” This leaves the question where does the averageman go to protect the value of his money? This leads me to gold and silver.

Gold and silver have always been currency. It has always been so. Thereare many that would argue that gold is money and silver is an industrial metal.I would beg to differ.

According to Black’s Law Dictionary, it meansgold, silver, or paper money used as circulating medium of exchange. In itsstrict technical sense money means coined metal, usually gold or silver, uponwhich the governments stamp has been impressed to indicate its value.

I think the U.S. Mint might make a case that we can establishas to the current status, and this is what is clearly stated on their Web site.

AmericanEagle Silver Bullion Coins are affordable investments,beautiful collectibles, thoughtful gifts and memorable incentives or rewards. Above all, as legal tender, they’re the only silver bullion coinswhose weight and purity are guaranteed by the United States Government. They'realso the only silver coins allowed in an IRA.

In an email from one of my readers he said that $1923was the peak for gold and could spend the next few years correcting. $50 silverwill depend on gold, the odds of which look extremely low. The correction in USDeither finished on Friday or will soon, as with TLT.Equities and metals are set up for an interim fall.

Inconclusion, I try never to look at any holding in the micro lens (exceptleveraged ETFs like SPXU,UPRO,TZAand FAZ).I try and look out further into the future and see where a particular stock orcommodity will be in one, two or three years. Bearing this in mind I willcontinue to do what I have always done and that is when the occasion is right Iwill buy physical, gold and silver and in the short term keep an eye on thetrading ranges of gold (GLLand UGL)and Silver (ZSLand AGQ).

Will Gold and Silver Continue Their Run Up?

2011-10-14T05:25:00.000-04:00

I had atleast six emails today asking if the run in gold and silver were over. Theanswer is most definitely – Maybe!!!! My regular readers know that I have beenpredicting silverat $50.00 an ounce by year’s end. I believe that the drivers of gold andsilver remain intact. The fact is that there is a sense that gold and silverhas moved too far – too fast and as a result, people are not inclined to chasethe trade.

For the sakeof this article I will use the ETF GLDto represent the move in gold and I will use the ETF SLVto represent the move in silver.

Let’s not forgetthat silver had its own parabolic move from January until the last week ofApril and the people who bought in the last week of April will not soon forgiveor forget. To add to this Gold experienced a parabolic move of its own fromJuly through September when it ran from $1200.00 an ounce to $1925.00. Theaverage investors see the correlation between the two moves and are notinclined to chase either trade. The factis that in September gold was extremely overbought and it needed a pullback toconsolidate before the next leg up.

The mediawas squawking that gold was in a bubblebut this is complete nonsense. When we speak of a bubble let’s look at gold inthe context of other markets. An example of a bubble in gold would be a look atit from 1972 to when it rallied up until 1979. That was close to a 1000% rise.Gold, since 2001, when it traded for $250.00 an ounce ran up to $1925.00 whichis a rise of about nine times. So we have a tangible item that represents aglobal currency for the last 5000 years that has on an inflation adjusted basisnot even reached $2200.00.

While thereare many things still favoring this secular gold move there is no doubt we arestill in a very cyclicalbear market now.

Please seethe chart of gold below.

As you cansee, when the chart is pulled out over just three years, every six months or sogold comes back to the trend line, consolidates and then continues its run up.This chart shows me exactly what I expect to see. What I expect to see is thespot price of gold at about $2500.00 by year’s end.

Silver, on the other hand, has just finished its second majorcorrection this year. The second one that took place at the end of Septemberwas as parabolic as the one that took place in the 1^st week of May.This second decline causedsilver to lose nearly half its value. This decline has pushed the silverindicator to the second most oversold value in a decade.

Given the sharpselloff over the last few months it is not at all surprising to see silver inoversold territory. This begs thequestion – how oversold is it in relation to other corrections? According tothe silverVIX, silver is at its most oversold reading in the past decade with 2008the only exception. Talk about volatility as the silver VIX showed the mostoverbought condition in April, with silver exceeding 2004, 2006 and 2008 peaks,and then see the most oversold reading six months later. Given the deeplyoversold condition silver finds itself in, is now a good time to take advantageof the recent price decline? The answer is yes and no.

Please take alook at the chart below.

A look atthis chart will show that silver has begun to consolidate and move sidewaysthrough the middle of October. Stocks usually put in this pattern before theybreak out and I expect my prediction of $50.00 an ounce by year’s end to bearout.

Now that I’veput that out there I must say that I could be wrong about silver. If silver’sbreakout fails to continue the correction it has made in the last month,beginning next week we could see a down leg that could take us to the $20.00level heading into November. What makes watching silver over the next week soincredibly important is that for the last year the market has seemed to use theS&P 500 as a proxy and all assets may get bid into yearend as it works offits oversold condition.

Inconclusion, if the US dollar continues to advance after it cools off a bit, weare likely to see both gold and silver sell off or trade flat at best. Pleasesee the chart below.

Right nowthe USDIndex is above the 200day moving average (DMA) as well as its 50DMA which are converging near $76.00 and would represent strong support ona short term correction in the USD Index. For the all clear to be signaled by silver,we would likely need to see the USD Index break below $76.00. As long as theUSD remains above the 200 DMA I think playing defense for precious metals isthe proper strategy.

Quest Rare Minerals A gem in Quebec

2011-10-13T05:29:00.000-04:00

I wrote anarticle yesterday about General Moly and one of my readers wrote back and toldme that a lot more readers would like to read more of my thoughts on the worldof Heavy Rare Earth Elements (HREE).I immediately thought of my favorite company in the HREE sector and that isQuest Rare Minerals (QRM).

The flagshipproject of Quest is a site called Strange Lake. The StrangeLake site is located close to Canada’s Quebec / Labrador border region. TheStrange Lake site has a very interesting history. In the b1970’s it was ownedby the IronOre Company of Canada (IOC). According to CEO, Peter Cashin the project wasnot far from a production decision when the bottom fell out iron ore market. Sadlythe project became relatively dormant, exchanging hands several times untilQuest came along.

PatrickCollins is Quest’s senior project geologist for the Strange Lake project. Mr.Collins was present when the first drill hole was made and he will see the explorationprogram through its completion. Quest has published a 43-101compliant mineral estimate for the Strange Lake project in 2011. The depositcontains140.3 metric tons of rare earth mineral resources at the indicatedlevel, with an estimated 93% total rare earth oxide and an estimated 89.6metric tons of recourses at the inferred level with an average grade of 88%total rare earth oxide.

Quest RareMinerals (QRM) is located in one of the mostmining friendly regions of the world, Quebec. Quest Rare is an explorationcompany focused on the identification and discovery of new world-class rareearth deposit opportunities. The company is led by CEO, PeterCashin, I wrote anarticle yesterday about General Moly and one of my readers wrote back and toldme that a lot more readers would like to read more of my thoughts on the worldof Heavy Rare Earth Elements (HREE).I immediately thought of my favorite company in the HREEE sector and that isQuest Rare Minerals (QRM).

Quest iscurrently working on several high-potential rare earth projects in Canada’spremier rare earth exploration areas. The flagship project of the company isthe Strange Lake Project. The current scope of the project plans for theexcavation of HREE material by means of open pit mining and will provide 4,000tons per day to a plant that is located in the vicinity of the deposit. Questhas two other projects: the Misery Lake project of north-eastern Québec and thePlaster Rock area of north-western New Brunswick. Quest continues to pursuehigh-value project rare earth opportunities throughout North America.

The depositis one of the largest and richest potential HREO deposits in the world. 67% ofits value comes from the presence of critical REO’s as the term was recentlyused by the US Department of Defense. Overall, all aspects of the Strange Lakeproject and he management team are very impressive. The pre-feasibilitystudy should be completed by the first quarter of 2012.

The Capexfor Quest has been 913 million dollars. This includes $563 million for the PreliminaryEconomic Assessment and $350 million for a separation plant. The proposed startof production is mid 2015. There is a 35% tax rate in Quebec and producing12,100 tons per year there should be a 25 year mine life.

Inconclusion, according to PremierJean Charest, Quebec is more than ready to meet Japan's metal needs.Charest will be visiting Japan to meet with business leaders and politicians totry to persuade them to participate in the ambitious development of northernQuebec.

Speaking toa contingent from Tokyo, Charest said that Japan has major needs. They are aprosperous country. They are leaders in technology, and, like other countries,they have a private sector that has accumulated a lot of money for investment.

Like much ofthe world, Japan has been frustrated by Chinese control over a number of rareearths used in high-tech and military applications and is looking for a newsource of supply. Charest said Quebec is a perfect option. Please take a lookat the chart below.and ahighly-respected management and technical team with a proven mine-finding trackrecord.

A look atthis chart will show that since September Quest has been severely sold off. In truth all of the rare earth mining companies have suffered the same fate.Indeed on October 4^th Quest hit an intraday low of $1.71. It hasalmost doubled since then and is well on its way back.

Inconclusion, if my readers want to invest in a company that has what it takes tobe profitable, I suggest they take a long hard look at these Quest RareMinerals because no matter how many PR firms are hired by the myriad ofcompanies, Quest Rare Minerals has the ingredients to be successful andprofitable. At yesterday’s closing price it is a bargain.

Molycorp and General Moly

2011-10-12T06:47:00.000-04:00

One of the best known names in the rare earthmarket is a company, Molycorp (MCP),is stealing headlines yet again. The company announced that it is exploringheavy rare earth elements (HREE)deposits surrounding the company’s Mt.Pass mine in California. Many analysts have been critical of Molycorp’s Mt.Pass mine because it is lacking substantial heavy rare earths which are some ofthe rarest and highest priced elements in the group of 17elements that make up the rare earth block of minerals. While some of thelight rare earths like neodymium and cerium may have greater demand, the heavyrare earths are more valuable.

By increasing the total HREE concentration thecompany is hoping to build the value of their company. However, many analystsare questioning not only the timing of this announcement shortly after thecompany’s share price took a nose dive, but also the time frame in which the CEOMark Smith stated the company could produce on the deposit.

The news of the deposit started with anarticle in the New York Times in which CEO Mark Smith was quoted as saying “thatthe company might be able to begin producing heavy rare earths in a little overa year from now,” adding, “the ore is near the surface and would require verylittle strip mining.”

DrJohn Burba, the company’s executive vice president gave a presentation in WashingtonDC about the new HREE deposits. According to Unocal, the three deposits all containover 4 percent total rare earth oxide (TREO)with very significant HREE content. If correct, the percentage of TREO wouldmake the finding a world class deposit.

What is a bit disconcerting to me is that asthe shares fall – new discoveries emerge. Molycorp’s share price felldramatically late last month as JP Morgan downgraded its rating, sending shockwaves through many pother rare earth mining firms. Please see chart below.

As this chart shows Molycorp got knocked downby the J.P.Morgan downgrade but after selling off it seems to be trying to stage abreakout. After putting in a $79.16 52 week high it closed yesterday at $35.86.

If DR. Burba’s assertions of the HREE pans outthis would be a very bullish sign for Molycorp.

I have written several articles on a fantastic stock, General Moly (GMO). General Moly is aU.S.-based mineral company engaged in the exploration, development and miningof molybdenum ("moly").The company has two world-class assets, its 80% interest in the Mt. Hope project and the Liberty project. Both are located incentral Nevada. These assets are two of the best primary molybdenum developmentproperties in the world. Once production commences at Mt. Hope and Liberty, General Moly is expected to become the world's largest primarymoly producer.

General Moly is in thehome stretch of being permitted. Yesterday,General Moly announced that Final Draft Environmental Impact Study (EIS) on theMtHope Project would be completed by the end of this month (October).

I have writtenseveral articles about General Moly and to be sure they have had more thantheir fair share of Black Swans but to the credit of CEO, BruceHansen and the entire management team they have dealt with every problemwith full disclosure and total transparency. There have been no mistakes madeand no short cuts taken. The management team has performedspectacularly at every turn and I see no evidence of that changing. I concludethat the stock based on the fundamental analysis should be trading at the $10to $12.00 range. Indeed the afore mentioned price of molybdenum that myanalysis was based on was $15.00 a pound and as I write this, Freeport MacMoran (FCX)one of the largest copper producers in the world, reported that they had soldthe molybdenum (which I said was a byproduct of copper mining) at a price of$18.00 per pound. I believe this is hedge funds continuing to try and drive theprice down and judging by what I see on the tape they are beginning to run outof gas. Yesterday the stock closed at $3.00 but I do not see it trading therefor much longer so I would encourage anyone who is interested in making aprofit to take a look at this project and if you like what you see stake youclaim at a very discounted price.

I have learnedthrough bitter experience to “never say never” but as I have previously statedI see the probability of this project coming to fruition as 80 to 90%. Surelysomebody in Nevada wants a billion dollar mine to operate there. Consider thetax revenues generated for the State and the town of Eurekaand the thousands of good paying jobs this project will create.

SPXU Was The Right Call But Too Early

2011-10-11T07:53:00.000-04:00

Several weeks ago I called for a buy of SPXU. The ProShares Ultra Pro Short S&P 500 (SPXU) seeks a triple leverage or 300% returnon the inverse performance of the S&P 500.Conversely, Pro Shares Ultra Pro S&P 500 (UPRO) is a triple leveraged fund that seeksa 300% return on the performance of the S&P for a single day. If youbelieve as I do that we are setting up for a leg down on the S&P then SPXUis the best way to profit from this trade.

On September 14^thI wrote an article calling for a break above 1140 on the S&P as a sign togo long UPRO. Yesterday my inbox was full of posts thanking me for thisanalysis. Seems many readers have made a nice 20% return since then.

Despite this week’s rally I believe the bear market rallyisn’t over. The traditional definition on Wall Street is that bearmarket rally’s end once stocks have fallen 20 percent and I believe thisone won’t be any different. At its intraday low this past Tuesday, the S&P500 was off 21.6% from its May 2^nd high, marking the 16^th“official” bear market since 1940. Before Tuesday’s close, stocks rallied backabove the 20% threshold on hopes that Euro–zone officials would be hatching abigger and broader bailout plan.

While after the day’s 4% reversal, the equity benchmarkcontinued to rocket higher the next two days and ended the week about 16% belowthe May high. While many readers have profited from my call for UPRO, in myopinion, these investors shouldn’t presume that the dance with the bear isover. Tuesday’s pattern did not meet the explosion in volume that typicallycomes with a climatic capitulation. Once a bottom is formed it generally takesseveral months to complete the bottoming process. The ugly news is thathistorically this bottoming process could involve a further 10 to 12% declinewith heavier volume.

Over the last 70 years, bear markets have averaged 32%decline and a median 28.8% drop. The deepest bear market ended November 2008following the collapseof Lehman Brothers, with more than half of the equity market’s value wipedout from the 2007 top. However, the equity losses credited to the housingcrisis were even deeper if you ignore a slight 47 day respite at the end of theyear when the benchmark snapped back by 24%. However it continued to lose morethan another 20% before finally bottoming out in May 2009 at the ominousintraday level of 666.76

Yesterday the S&P 500 and UPRO ran up 40 points onvery anemic volume. Please see chart below.

A look at this chart will show two different pictures.One is a picture of a strong rally and the other is a picture of head fakerally. If the S&P pulls back today the next call will be for a move down tothe S&P to some level between about 1020 / 1050. Such a potential dropwould represent a 10 to 15% plunge from current levels in the preceding weeksand presumably signal continued fears around eurozone debt crisis and weak economic data here in the U.S.

If this bear market I am predicting holds true, the U.S.will find itself in good company. The majority of major markets in the worldare in bearterritory. At last count 20 of the 29 major world markets – from Italy toChina to even Columbia were in bear market territory.

In conclusion, I believe this is a Lehman Brotherssituation in Europe and our dance with the bear is far from over. Europe is inrecession and the U.S. and China will be there soon.

To further illustrate my point I believe we are near thatemotional point that occurs near the end of bear markets when sentiment gets sonegative that there is nearly no one left to keep selling and therefore arebound must ensue. This capitulation typically occurs with a few down days orstrong reversal days on very high volume.

Own Treasuries or Gold and Silver

2011-10-10T04:08:00.000-04:00

The drop in price of gold and silver is because they areconsidered to be in a bubble. In my opinion a bubble is when the underlyingasset trades in high volumes at prices that are inflated to their true values. Thereare economists that assert that asset prices often deviate from their intrinsicvalues. Because it is often difficult to determine what the intrinsic value ofan asset is bubbles are often seen in retrospect like when sudden drops inprices appear. They are seen as a crash or a bubble burst. It is important torecognize that prices of a bubble can fluctuate erratically and make itimpossible to predict from supply and demand alone.

The new safe havens are perceived as the dollar and USTreasuries. To prove this point the media points to that fact that gold andsilver have sold off. They pointed to the strengthening of the dollar andreported that the safe haven was US Treasuries. Please see the chart of the TLTbelow.

As we can see on this chart the treasuries ran up fromAugust to October as the dollar grew stronger. However what the media failed tomention is that the United States is bankrupt! Imagine investing in US debt for30 years. It reminds me of the old cartoon where the guy says I will gladly payyou for a hamburger next Tuesday for one today. As if he ever had any intentionof paying for it in the first place. Investing in 30year Treasuries is the ultimate bubble.

I admit it. I have been a gold and silver bug since I was8 years old. As far as I know I’m the only 13 year old that asked for a doubleeagle for my birthday present. You should have seen the look on my dad’s facewhen I came out with that. Back then it was a hobby and my grandma taught methe love of numismatics. Now it’s serious business.

There are too many very smart people who couldn’t careless about gold and silver. Who am I to say they’re wrong? They chose to investin high yielding, large cap stocks and are content to trade their positions(buy on the dips and sell on the rips) and collect their yields while theywait. In all honesty, half my portfolio is a diversified collection of thesestocks. The other half however is more risky. I like SPXU andUPRO,which are plays on the S&P.

I like the gold and silver trade. My favorite juniorminer is US Gold (UXG)and while the sheep were herded into the US treasuries thanks to the talkingheads, I was buying US Gold (UXG) at @.$2.22 a share and my favorite silverstock Silver Wheaton b(SLW) at$27.45 a share. Please see these two charts below and notice how they correlateto the run up in the TLT.

Please take note that as TLT hit its highs UXG hitextreme lows. Please see chart of SLW below.

Again, please take note that as TLT hit its highs SLW hitits extreme lows.

In conclusion, thetreasuries have been very strong in the last few weeks but it won’t last. Thedollar which has been beaten down has for a short bright shining moment it hadits day in the sun as it was the best house on the worst block. Compared to theimminent Greekdefault, the contagion in Europe, the global economic slowdownand the tepid economic conditions here in the treasuries are on the way backdown. Let us not forget that no matter what may come out of the mouths of thepoliticians a key to this administration is to keep the dollar low. This is theonly way we will be able to pay off the staggering debt we have amassed. Adollar that is worth 70% of what we borrowed makes it 30% easier to pay backthe debt. This will not stop. The debasement of the currency will continue.

After gold’s parabolic moveit is healthy for a stock to pull back before it begins its move up again. Myexpectation is for gold to rise to a minimum of $2000.00 by the end of the yearand if we use the generous historicratio of gold to silver of 50 to 1 silver will be $50.00 by theyear’s end.

Wave Cycles and a Day Full of News

2011-10-07T07:14:00.002-04:00

Gerald Loeb, in his classic tome “The Battle forinvestment Survival”, wrote that an investor must be proficient in fundamentalanalysis and must have working knowledge of technical analysis but in the endit is the man that can walk outside, breathe the air and know which way thewind is blowing that will be successful.

I must admit that I never put much credence into thesewave and cycle theories but I think that it is important in this world of high frequency,algorithmic trading that it is important that I understand these theories butalso do my bests to help my readers understand them as well.

Today I wanted to write about different wave analysistheories that are becoming more and more a part of the markets algorithmictrading that accounts for about 80% of the trading that takes place. The waveprincipal incorporates cyclical and secular movements in financial markets inan effort to capture the overall psychology of the investors. Cycle analysishas played a significant role for investors in determining the future directionof financial assets over the past century.

Riskier assets such as commodities have shown cyclicaltendencies over the decades and there have been a number of studies that haveexplained the historical wave patterns of commodities such as the Elliot WavePrincipal, the Kondratieff cycle and the Longwave Principle.

Wave analysis, as it relates to the markets is simply thestudy of supply and demand of a stock based on a specific criterion. The ElliotWave Principle focuses on price action, where the Kondratieff and Longwavetheories combine specific data points.

The most coveted to these cycles is the Elliot WavePrinciple which is a form of analysis that traders use to analyze marketcycles. He underlying theme in the Elliot Wave is to identify investorpsychology and attempt to create a technique to measure this psychology and howinvestors react to events.

Ralph Nelson Elliot developed the principles of theElliot Wave during the 1930’s and published his theory of market behavior in abook “The Wave Principle” min 1938.The theory analyzes specific price movementsor waves which determine a point in a cyclical trend. An example of his theoryis that long term bull markets move up in five waves while long term bearmarkets move down in three waves. During the upward bull market movement eachwave is accompanied by corrections (labeled A, B and C) which are downwardcycle waves.

There are three basic rules for the Elliott Waveprinciple:

1. Wave2 cannot retrace more than 100% of wave 1.

2. Wave3 can never be the shortest of the three impulse waves.

3. Wave 4 can never overlap wave 1.

The second theory is called the Kondratieff Cycle. TheKondratieff Cycle is a theory based on a study of price behavior combined witheconomic data which includes wages, interest rates, raw material prices andother factors that affect economies. Kondratieff was convinced that his studyof economic, social and cultural life proved that economic cycles existed andcould be used for the purpose of anticipating future economic developments. Thewave theory is centered on a growth and a contraction phase of the long wave,when growth and deflation are at their peaks respectively. The analysis differsin that it is less technically oriented and analysis specific economic data pointsto determine levels of waves.

The Longwave principle is based on the belief the Kondratieff Cycle repeats itself over time. While the Kondratieff Cycle appliesto past events, The Longwave Cycle looks at many factors to determine where weare presently and uses that information to forecast the future price action andeconomic activity. The Longwave Principle looks at the life cycle of aneconomy and uses those points to project the psychology of market investors.

The concept of a commodity super cycle grabbed the attentionof the investment community after the Federal Reserve announced QE2 during thesummer of 2010. With the economy reeling, many thought that a shot of liquiditywould drive inflation higher and eventually create growth and higher inflation.The question for most analysts is whether commodity prices could climb two orthree fold despite moving higher by 70 percent since the lows reached in Marchof 2009.

One analysis that can be used to forecast a super cyclein commodities is to examine the long term price trends and apply the ElliottWave Principle. The pattern for price expansion or growth is depicted as a fiveprice swing sequence from mid 2002 to late 2008. Five waves were completed andreversed during the financial crisis of 2008 – 1009 which quickly ended the cyclewith a crash of commodity prices. Please see chart below.

I chose this chart of the Reuters / Jefferies CRB Indexbecause over the years from 2002 to 2009 it is a perfect proxy chart that illustratesthe Elliott Wave. It illustrates the 5 waves perfectly.

Markets have rebounded and there are some factors thatcould take commodity prices above the recent 2008 highs.

I will finish my thoughts on the wave cycles in anotherpost but before I take my leave I wanted to spend a bit of time talking aboutthe news coming out today.

U.S. equities are expectedto stay steady on Friday after sharp gains in the previous session, with futuresfor the S&P 500 staying flat, for the Dow Jones gaining 0.08 percent andfor the Nasdaq 100 falling 0.07 percent.

At 8:30 EST the LaborDepartment will release the employment report. Economists forecast that a totalof 60,000 jobs were created in September compared with no new jobs in August.The unemployment rate is seen at 9.1 percent, a repeat of the August rate.

The CommerceDepartment will release wholesale inventories for August. Economists predictinventories to rise 0.5 percent versus a 0.8 percent increase in July.

The Economic Cycle Research Institute releases itsweekly index of economic activity for Oct. 1. In the prior week the index read121.9.
The Federal Reserve will issue August consumer credit.Economists in a Reuter’s survey forecast consumer credit to raise $7.75 billionversus an $11.97 billion increase in July.

The U.S. House of Representatives and the Senate willvote next Wednesday on three long-delayed trade deals with South Korea, Panama and Colombia.

The Bank of Japankept monetary policy unchanged on Friday, holding off from tapping its depletedpolicy arsenal for now although fears of a global recession and Europe's debtcrisis are clouding the outlook for the fragile economy.

Credit agency Moody's cut its ratings on British banksLloyds and Royal Bank of Scotland on Friday and said it expected the UKgovernment would have to continue to support the country's systemicallyimportant financial institutions.

Today the FTS Eurofirst 300 index of top Europeanshares rose 0.7 percent after the European Central Bank's offer on Thursday tohelp struggling banks. Japan's Nikkei average rose 1percent.

In conclusion, there will be a lot of news to digesttoday and it all has the potential to move the market. It promises to be a veryinteresting day.

Debt Crisis in Europe and As Dollar Weakens Gold, Silver and Miners Rise

2011-10-06T05:15:00.000-04:00

If you want to know future then pay attention to Europe.Pay attention to the policymaker’s decisions regarding the debt. Pay attentionto Greece. Whilemany of us have been waiting for ages for Greece to default on itsinsurmountable debt, it looks like the wait might be over. It's now beenrealized that Greece isn't going to make its deficit targets that were agreedupon when the country took its loans from the IMF andEuropeanCentral Bank. While the deficit was originally supposedto be only 7.8% of the nation's GDP, due to slowdowns and poor forecasts, thedeficits will now be a whopping 8.5% of GDP.This is putting even more pressure on the already fragile nation, which is evencloser to a default as the deficits continue to eat away at the nation'seconomy.

In the Europe Union there has been little political will tomake the hard choices. The gross domestic product (GDP) is going to slow and Iwould not rule out a recession. This should really get interesting for the Europolicy makers as they attempt to stave off the inevitable.

The lack of money to hold the EU together seems to be theprimary concern. TheEuropean Financial Stability Fund has approximately 440billion Euros in committed capital but the members haven’t agreed on futurefunding requirements. Add to this that the ECB has only10 billion Euros andPortugal, Ireland, Greece and Spain’s debt is somewhere in the neighborhood of600 Billion Euros and you can see the problem. It only takes 4th grade math tocome to the conclusion that the system is severely undercapitalized and some ofthese countries are supposed to be part of the solution. This is where therubber meets the road.

Severalweeks ago I had a wonderful conversation with a colleague regarding the riseand the fall of the Euro. My friend was very articulate and presented acompelling argument. The article concerned itself with the European Union’sattempt to create a United States of Europe. No more taxation when goodscrossed boarders and as a residual effect they would have the strongestcurrency in the world.

As we spoke, I was struck bythe historic precedent of allowing politicians to make decisions in areas thatthey are not qualified to make. Itbrought me back to reading some of Martin Armstrong’s writings where he told astory of a major Australian public company that had asked his firm to run itstreasury operations assuming the hedging risks. When Mr. Armstrong told this company his fee, they politely refused andinstead hired a hot shot young trader in his late 20s. He immediately boughthimself a flashing new Porsche as a gift for landing himself a seven figurejob. To make a long story short within a week he had lost the company $80million. Needless to say the board members of the company were not too pleasedand they immediately called Mr. Armstrong’s firm back in and with their tailbetween their legs and meekly agreed to Mr. Armstrong’s original fee. The boardhad learned, the hard way that they would be best served by hiring a companythat knew something about an economic model.

It is an oldproverb that a lawyer that acts as his own counsel has a fool for a client.What this firm learned the hard way was that they should not make decisionsregarding hedging without some expertise. You wouldn’t hire a lawyer or adentist to fix your car? While this is a broad generalization the analogy worksquite well.

As I havestated the logic of creating the Euro currency to represent 17 nations was atface value a very good idea. Easy trade across borders would stimulate theentire European continent as goods and services would flow and thereby createwealth for all European nations. This was a great idea right? Wrong!

While theconsolidating of the European currency was a wonderful idea, it only addressedhalf the problem. Consolidating the debt of Europe into a singlenational debt was the first necessary step. I am notsaying that that you throw all future debt into one pot. Nor am I saying thatyou create a national debt on a level with a single interest rate. What I amsaying is that you discount the debt of the weak and it must be all accumulatedpast debt, not debt going forward. Future state debt would become local debtdistinguished from federal debt as is the case in the USA. The consolidation ofpast debt would be at market value and not at some fictitious par value becausesome politician wants to score some brownie points.

Inconclusion, the creation of a single monetary system without creating a singlemonetary debt can only lead to failure. The failure to have consolidated theEuro debt is far more dangerous than most seem to understand. History is a catalogueof solutions. The problem is that you must first read them!

There seemsto be a shortage of places to hide in these perilous economic waters of late.For the last few weeks the dollar has reigned and gold and silver have beenrelegated to second class status and were summarily sold off. Ihave written that there is a correlation between a strongdollar and weak commodities and equities. Today we had our reversal. Please seethe chart below.

A look atthe chart above will show that the dollar has started its pull back and righton cue Gold and silver stepped in to fill the safe haven void. GLDclosed up 1.15% at $159.46 and SLVclosed up 2% at $29.66. One of my favorite miners Silver Wheaton (SLW)closed up 6.89% at $29.34 and my favorite junior miner US Gold (UXG)closed up 10.92% at $3.86.

In conclusion, the dollarhas been very strong in the last few weeks but we knew it couldn’t last. Thedollar has been beaten down and for a short bright shining moment it had itsday in the sun as it was the best house on the worst block. Compared to theimminent Greek default, the contagion in Europe, the global economic slowdownand the tepid economic conditions here in the US the dollar had its day.

After gold’s parabolic moveit is healthy for a stock to pull back before it begins its move up again. Myexpectation is for gold to rise to a minimum of $2000.00 by the end of the yearand if we use the generous historic ratio of gold to silver of 50 to 1 silverwill be $50.00 by the year’s end.

Before I take my leave Iwould be remiss not to mention that I was able to double my position Wednesdayin the GDX ETF whichis the gold miners ETF. For one moment I had to clean my glasses because theGDX was trading as low as $50.70. Let’s not forget that the GDX was trading inthe upper $60.00 range last week and I saw a pullback to this level as adistant memory. This was a gift. With aclose of $54.88 yesterday it’s not too late to join the party.

Silver Beaten Down By Strong Dollar

2011-10-05T05:00:00.000-04:00

Yesterday, I had several readers ask if it was possiblethat my theories on silver going to $50.00 to $60.00 by year’s end were wrong. Itold them yes, It might go to $100.00 by mid March. I have often stated thatI believe that silver is incredibly undervalued. While this sounds like anoutrageous claim, silveris actually rarer than gold. This is because silver has industrial applicationsand every day our technologies require more and more silver to operate. Silverthat is above the ground has been diminished by 91% since 1980, while thestockpile of gold has grown 600%. Indeed most of the industrial silver that isused ends up in landfills and I believe that one day this will be a source recycledsilver.

Mostreaders would rather own 40 ounces of silver rather than one ounce of gold.See Chart Below.

Thatbegs the question, are there other places people can go for safe havens? They askedbecause it is hard to look at the board everyday and see silver getting beatendown. Today the Dow was as low as 240 points in the red. This should be a timefor gold and silver to shine.

Theanswer to my readers is that now treasuries and the US Dollarare perceived as the safehavens. The astute investor, the one that understands that the dollar onlylooks good is because the Euro looks so bad is the one that realizes that thedollar is just temporarily the best. It is the best house on the worst block.What madness to put your dollars in treasuries or hold dollars. Every day youdo so you lose value. I will, once again, remind my readers that as GeraldLoeb taught us it is not the amount of dollars you have it is the value ofthe dollars you have.

Iwould like to point out two differences in the spot prices gold and silver. Ido not believe gold will go much lower than $1500.00 an ounce. Silver however,despite being a hedge against the weak dollar also has industrial uses. If theeconomy continues to weaken silver could fall as far a $21.00 an ounce but alook at the chart below will show that silver has seemingly put in a firm levelof support at $26.00.

Iam not saying that it is out of the realm of possibility for us to test $21.00silver least we forget that it was in 2008 that I was buying silver Morgan for$15.00 an ounce. What I am saying is that you would not be able to buy silverfor $21.00 an ounce. There would be margin hikes and premiums from the sellersand dealers. Indeed, last weekend I visited three very reputable distributors, AMPEX, Gainesville and Northwest Territorial Mint and all three of thesedealers were mysteriously out of stock on one ounce silver coins. I can onlyconclude that they are willing to sit on them until the price of silver goesback up.

Sowhy has silver mysteriously fallen in price? In my opinion it is because thedollar has grown so strong. Please take a look at the chart below.

As you cansee the dollar has risen from $73.00 to $79.43 in less than a month. There havebeen reports of JPMorgan shorting 3.3 billion ounces of silver and I’m sure that has nothelped the cause but the fact remains that gold and silver have remained weakbecause of the strong dollar.

In conclusion, selloffs should not be feared but ratherembraced. We have been given an opportunity to by silver and gold at possiblyonce in a lifetime opportunities. Lest we forget the miners my favorite isSilver Wheaton (SLW).Today I was able to pick up a nice position in this company for $26.00 a share.For goodness sakes, it has only broken $32.00 4 days ago and two weeks ago itwas trading in the $40.00 range. I would suggest that positions be acquired inphysical silver and then buy the paper trades like SLV,PSLVand AGQwhich I bought today at $98.00 and sold three hours later at $108.00.

Strong Dollar Equals Weak Equities and Weak Commodities

2011-10-04T05:11:00.000-04:00

For the last severalweeks I have had readers mailing me asking why gold and silver have beenselling off. The answer is very simple. There is a strong correlation between astrong dollar and weak commodities. The dollar is no different than anything onearth – it will always follow the path of least resistance. As the dollar growsstronger commodities sell off or become cheaper. Take a look at the chart ofthe dollar below.

I look at this chartwill show that in late August – early September The FOMCinitiated “Operation Twist”. “Operation Twist” was a plan that took the money that wasmaturing from the short term bonds the FOMC had bought during QE2 andwere rolled into longer 20 and 30 year treasuries that carried a higher yield. This caused the dollar to growstronger because the yields on longer treasuries are higher.

With any investment theold saying is “no risk – no reward”. However with treasuries that have a strongyield there is not the same risk as there is with equities or commodities. Theprice of equities and commodities fluctuate but with treasuries you are assuredthat there will be no fluctuation in price and the yield will remain the same. Whywould you buy an equity that would yield the same as a treasury and have therisk that the yield could be lowered or the price of the equity went down ifthe company had a bad year? With treasuries you are buying surety and comfort.

I would like to take alook at two commodities and show how the stronger dollar has impacted theirprice. Please see chart below.

As we can clearly seefrom this chart of the spot price of gold as soon as “Operation Twist” was begun the dollar grew strongerand the hedge that gold had served against the weak dollar sold off. There wasno need to hedge a weak dollar because the dollar was strong. Please see thechart below of silver.

A look at this chart ofsilver will look almost identical to the chart of gold. When “Operation Twist”was instituted the dollar grew stronger and silver sold off. There was no needto hedge the dollar with silver.

Before I conclude myessay I would like to point out two differences in the spot prices gold andsilver. I do not believe gold will go much lower than $1500.00 an ounce. Silverhowever, despite being a hedge against the weak dollar also has industrialuses. If the economy continues to weaken silver could fall as far a $21.00 anounce. I am certainly not saying that you would be able to buy silver for$21.00 an ounce. There would be margin hikes from the sellers and also Ivisited three very reputable distributors to day AMPEX, Gainesville and Northwest Territorial Mint and all three of these dealers were mysteriously out of stock onone ounce silver coins. I can only conclude that they are willing to sit onthem until the price of silver goes back up.

In my opinion the reasonthese dealers would rather hold the silver then sell it is because I believethat silver will one day be worth more than gold. I believe that silver isincredibly undervalued. While this sounds like an outrageous claim, silver isactually rarer than gold. This is because silver has industrial applicationsand every day our technologies will require more and more silver to operate.Silver that is above the ground has been diminished by 91% since 1980, whilethe stockpile of gold has grown 600%. Take a look at this video FutureMoney Trends. The video is a verycompelling piece that makes a case for silver eventually being worth more thangold. This may be the last chance we will ever get to buy silver at theseprices.

SPXU on the Way Down and UPRO on the Way Up

2011-10-01T17:12:00.001-04:00

Wow! What a week! Friday ended the worst quarter for the stock market since 2010. After another choppy day, as expected, stocks sold off Friday, 10/28/11, at 3PM to close the day down 240 points o the Dow, 29 points on the S&P and an amazing 65 points on the NASDAQ. The close of 10903 on the Dow was seen as a psychological level of the already fragile economy turning from bad to worse.

All summer the markets have been beaten by the growing fears of a possible default by Greece and the likelihood of a global recession. The choppy data has led to bouts of buying and selling and it was not unusual to see 300 point swings on a slow day. The Dow, S&P 500 and the Nasdaq each have lost more than 12% this quarter. That’s the first that has happened since 2008.

The short story is that there has been some technical damage done. The market is broken and weak. I believe that the weakness is the start of a longer decline because bonds are increasing in value (which means a stronger dollar) and interest rates are low. Commodities will continue to sell off which is definitely an indication that the market economic activity is going to be weak.

Add to this that traders have made big moves in response to US economic data, which has suggested a slowdown. Europe continues to struggle and developing countries like China, which have been driving global growth, are showing signs of weakness. All the stars are in a line for a likely recession in the U.S.

The Pro Shares Ultra Pro Short S&P 500 (SPXU) seeks a triple leverage or 300% return on the inverse performance of the S&P 500. If you believe as I do that we are setting up for a leg down on the S&P then SPXU is the best way to profit from this trade. For several weeks I have been writing that SPXU was about to break out and I have taken my fair share of barbs for calling the leg down too early.

Monday, earnings season begins and if Friday was any indication of what investors have in mind for what they are likely to see and hear then Friday’s selloff was a prelude. Please see chart below.

The chart shows that the S&P has finally capitulated to the trend line. While there will still be resistance at 1120, once the S&P breaks that resistance level it will go to between 1020 and 1050 rather quickly. When it does I will sell the SPXU and buy UPRO. Once the S&P tests 1020 - 1050 it will work its way back up 1200. The best way to profit from this is to use UPRO.

Pro Shares Ultra Pro S&P 500 (UPRO) is a triple leveraged fund that seeks a 300% return on the performance of the S&P for a single day.

In conclusion, earnings report or no earnings report, the market is broken and it needs to heal. The S&P will need to test the 1020 / 1050 level before it can once again begin its assent. While it goes through these growing pains why not profit by using these tailor made stocks SPXU for the ride down and UPRO for the ride up.

Enjoy the ride!

Blog and Email are correct.

2011-09-29T06:50:00.000-04:00

I am in Florida visiting my mom who is not doing well. More important things than the market

2011-09-26T16:17:00.000-04:00

SPXU, UPRO and AGQ

2011-09-26T13:24:00.002-04:00

A look at the chart of the S&P from Fridays close shows that while it did pull back 1.68% to close at $20.51 all of the indicators are in place for a test of the 1100 resistance level. This resistance level is very week and once it breaks this level it will go to 1020 / 1050 within three weeks. At this point you will want to sell SPXU and buy UPRO as the S&P will move back to 1200.
To further illustrate the market’s weakness on Friday I bought AGQ at $120.00 and I also bought puts on AGQ at $110 at the October 3 strike level. AGQ closed at $118.64. Spot Silver closed on Friday at $30.21 and SLV closed at 29.98 and PSLV closed the trading day at 14.52. Meanwhile gold sold off $90.00 to close at $1662.20. Please see the chart of AGQ and SLV below:

Both of these charts show one of two things. Either this is a total capitulation of the silver market which I can only conclude means even weaker global growth as silver has many industrial uses or it is a classic head fake to shake out anyone that had an inkling of going long.
In conclusion, tomorrow will be a very important day. The failure of the IMF and the ECB to take decisive action in Europe, particularly Greece tomorrow will shake the entire global economy. The downgrade of the French banks didn’t help and could well tip Europe into a full blown crisis. This would have a global ripple effect that would push the Western World into an economic recession but significantly worsen the outlook for the global economy.
Before I take my leave, I must say I find it a bit ironical that the contagion in tiny island of Greece could set off this ticking time bomb. Is there any good news? As long as the politicians keep kicking the can down the road, there won’t be any good news for quite a while. It’s like trying to put the fire out after the house has burned down. There is nobody that I have read that believes that another bailout of Greece will work. Greece has already defaulted. It’s just paper work and everyone is waiting for the inevitable, so let’s get on with it. At least that will be a small step in the right direction.
As I write I am long SPXU, SLV, PSLV and AGQ.

GDX Has Given Us a Nice Secondary Buy point

2011-09-21T05:38:00.000-04:00

There has been a growing numbers of investing experts have been declaring that gold is a bubble: an insanely overvalued asset whose price is bound to burst.

I believe that there is no basis for that opinion. Understanding why I feel this way can help point an investor toward clearer thinking about the frenzied precious metal markets.

I agree that gold seems expensive. At its recent price of $1,813 an ounce, gold is off only slightly from the record high of $1,912 touched on Sept. 6. Gold is up more than 40% over the past year, largely on fears that paper currencies like the dollar won't retain their value.

While many investors are saying that gold is overvalued I do not agree. Until the central banks stop the printing of fiat money the price of gold will continue to rise. There are people who say gold is in a bubble. This is not something I agree with. A bubble occurs when the price of the underlying asset is not supported by the value of the asset. As long as the central banks continue to print fiat paper currency I think gold is heading for $2,500, $5,000 or even $10,000 an ounce.

What the teachings of Martin Armstrong have taught us is that gold is the mean or the standard around which all currencies dance or float as they are worth more in times of deflation (like now) and less in times of inflation.

I don't know how to determine the fundamental value of gold and I don’t believe anyone else who can but there is one aspect of gold investing where it is possible to make rational estimates of value. The stocks of gold-mining companies by historical standards seem cheap. This is based not on subjective forecasts of continuing printing of fiat paper money but rather on objective measures of stock-market valuation.

I believe we haven't seen low valuations like this since 2008. Financially, gold miners have never been in better shape. A look at the Market Vectors Gold Miners exchange-traded fund (GDX) which holds 30 gold mining stocks will bear out this thesis.

Several big gold-mining companies—among them, Barrick Gold (ABX) and Newmont Mining (NEM)—are trading around 14 times their earnings over the past four quarters, virtually matching the Standard & Poor's 500-stock index ($SPX) at 14.5 times earnings. Even with gold at record highs, the shares of gold miners are trading at an industry wide average of roughly 18 times earnings, at 2.4 times book or asset value (versus 2.0 times for the overall stock market) and at one of the lowest ratios on record to the price of the metal itself. Yet mining companies have rarely if ever been more profitable, and should be able to generate high returns so long as gold stays above $1,500 or $1,600.

Gold stocks aren't a low-risk play. Like the metal itself, they can burn you, especially if you expect to get rich quick. Gold mining has been the classic boom-bust industry, with managements squandering money on acquisitions and bad investments during the fat years and retrenching during the lean years. This is why I recommend buying the GDX ETF. GDX holds 30 of the top gold mining companies in the world. The risk of a bad move by one company is spread out so a bad decision by one company is spread out. I only see upside potential in the GDX.

Please see the chart below.

As you can see from this chart GDX had a hard time breaking the $55.00 level. I can only assume that this was due to the human emotion that people would rather hold gold above the ground rather than hold real wealth in the ground.

Once GDX broke $55.00 it ran up to over $60.00 and gave $55.00 one more test but then moved quickly up along with the price of gold. This is because the valuations of extracting gold from the ground were so compelling that the miners finally had their day. With the average cost of extracting and ounce of gold from the ground at under $900.00 the margins are simply too compelling to ignore.

I believe that GDX has given us a nice secondary buy point – one we are not likely to see again. If you do not yet have a position in GDX I suggest you open a small position here and wait because gold may still pull back a bit more. If you can buy this ETF for $62.00 or less it’s a great buy and I will be adding to my position if it pulls back to that level.

General Moly - The Ultimate Confidence Stock

2011-09-20T07:04:00.000-04:00

Several Days I wrote an article on a fantastic stock, General Moly (GMO). General Moly is in the home stretch of being permitted. The Record of Decision (ROD) is drawing to a conclusion and while the water rights were approved, they were appealed. When the town had a hearing on the appeal they had about two hundred chairs to make sure everyone that wanted to attend would be comfortable. Well two ranchers showed up and as it turned out their ranches are not in the vicinity that would be impacted by the mine. I can only conclude that they see money and want some.

General Moly is a U.S.-based mineral company engaged in the exploration, development and mining of molybdenum ("moly"). The company has two world-class assets, its 80% interest in the Mt. Hope project and the Liberty project. Both are located in central Nevada. These assets are two of the best primary molybdenum development properties in the world. Once production commences at Mt. Hope and Liberty, General Moly is expected to become the world's largest primary moly producer.

While General Moly has endured more than its fair share of problems, I remain firmly committed to this stock as the management team has met every obstacle with complete transparency and integrity.

Last week Hanlong mining chief executive Mr. Steven Hui Ziao, was prevented from leaving Australia after being accused of insider trading allegations. He is suspected of being guilty of insider trading activities in relation to Bannerman Resources and Sundance Resources. It should be duly noted that Mr. Hui Ziao has been terminated from the Hanlong Company.

Coincidentally, yet unrelated, General Moly (GMO) announced that Nelson Chen, Chief Operating Officer of Hanlong Mining will replace Steven Xiao, Managing Director of Hanlong Mining Investment as Hanlong (USA) Mining Investment's designee to the General Moly Board of Directors, pursuant to the Hanlong transaction announced in March 2010. Mr. Chen will serve on the Technical committee.

Mr. Chen has 11 years of audit and M&A transaction advisory experience. He was involved in a large number of financial due diligence and acquisition advisory transactions with a focus on leading engagements servicing Chinese clients. He has extensive experience in many industries including mining, manufacturing, consumer products, financial services, real estate.

CEO, Bruce Hansen said "I am pleased to welcome Nelson Chen to our Board as a Director. Nelson has been one of the key Hanlong personnel with whom we have worked with since announcing the Hanlong transaction in March 2010 and he is extremely knowledgeable of our business and our financing transaction."

Please see the chart below.

As a look at the chart above will show, since the announcement of insider trading by Mr. Hui Ziao and the announcement of Mr. Chen to the board of General Moly these two unrelated incidents have caused the short sellers to do everything in their power to break the resolve of General Moly.

In conclusion, as far as I know these two gentlemen never met. Mr. Hui Ziao was dismissed as an employee of Hanlong and Mr. Chen is a prestigious representative of the Hanlong Company. The fact that General Moly has held up to the barrage of short selling for the last week is a testament to the strength and resiliency of both the management team and the massive mountain of molybdenum that General Moly represents. While I myself have a stake in the company there are many investors that have believed in this company through thick and thin and I believe after having done a careful analysis of the company General Moly is as close to being a sure thing as there can be in the world of stock market investing. I believe that General Moly is the ultimate confidence stock.