Euro crisis; the hidden agenda

May 20th, 2010

Watch out for emergencies. They are your big chance.
Fritz Reiner

While everyone is focusing on the so called obvious factors, they have missed the most important factor; the real reason behind the crisis. The crisis started in Greece and the top EU members knew they were going to bail out Greece and potentially any other member that needed help, but they pretended that they would not. One of the obvious reasons for the bailout was not to protect Greece, but to save the bond holders; most of the bond holders are foreigners. That’s the same reason the banks were bailed out in the US, to protect the large shareholders; it’s all a game of smoke and mirrors.

Our hypothesis is that the main reason that the Euro crisis was allowed to evolve was to deflate the Euro. Note that we have stated many times in the past that we have now entered into the competitive currency devaluation era, where the theme is or will soon be “devalue or die”. Or maybe we should add “devalue or die trying to”, for nations are going to do whatever it takes to keep their products competitive in the global market. We recently spoke of this phenomenon in two separate articles Currency-devaluation-a-race-to-the-bottom and the devalue or die era is picking up steam

Germany was knocked out of the top place and replaced by China as the world’s largest exporter and that must have hurt. Thus by allowing the crisis to progress, the EU could, in fact, devalue the Euro without actually issuing new currency. And then when things started to look really bad, they could pretend to help by approving a huge package, but this package would now devalue the euro even more. Thus with one stone they killed two birds in the sense that it produced double the effect. If they had approved a bailout package immediately, the euro would not have shed as much as it did. In a matter of months the Euro dropped almost 24%; in the currency markets, this is considered to be a very large move.

Another factor to consider is that no government wants to pay its debt in a stronger currency; governments borrow money so that they can pay it back with cheaper currency.

Thus while one currency might appear to be appreciating against another; the truth is that they are all falling down, some faster than others. Take a look at some long term commodity charts, and you will notice that most of them are in up trends, regardless of which currency they are priced. For example, a 3 year chart of gold priced in any currency shows that it’s in an uptrend. The race to the bottom has picked up in intensity. We would not be surprised now if some sort of crisis hits Asia soon; this would complete the circle perfectly. A position in precious metals is recommended; view this as a hedge/insurance against another potential crisis; if you have no position wait for a pull back before deploying new money.

Crises refine life. In them you discover what you are.
Allan K. Chalmers

 

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Is Apple Overvalued?

May 19th, 2010

From top to bottom of the ladder, greed is aroused without knowing where to find ultimate foothold. Nothing can calm it, since its goal is far beyond all it can attain. Reality seems valueless by comparison with the dreams of fevered imaginations; reality is therefore abandoned.
Emile Durkheim,1858-1917, French Sociologist

Let’s do some simple math.

There are roughly 910 million shares of apple in existence and the entire company has a valuation of 231 billion dollars.

To put things into perspective let’s examine the valuation of the following companies.

 

Stock

Valuation in billions

Comments

ABX

43

The worlds largest Gold company

NEM

28

 

CDE

 

One of the world’s largest Silver producers. It has over 269 million ounces of silver in reserve.

DD

34

one of the worlds chemical giants

FCX

29

One of the worlds top copper producers

CCJ

9.7

One of the worlds largest uranium producers

SWC

1.42

North Americas largest Palladium producer

SII

10.69

One of the worlds largest sellers of oil and gas services

CHK

14.5

Largest producer of Natural gas in the US

VLO

11

One of the largest refiners in the US

HRB

5.6

The largest tax preparer in the US

CLF

7

A large producer of Iron

ADM

17.4

One of the worlds largest agricultural conglomerates

     

All the above companies put together would still have a valuation lower than that of AAPL. Roughly, they would have a combined valued of 214 billion. If one had to choose between buying AAPL and all the above companies, the wise choice would be to dump AAPL and jump into the above companies, especially since we are in the midst of a commodity bull. With left over change, you could purchase HL, KGC, RGLD, and you still would have some money left over.

Some other facts to consider

BHP is the largest mining company in the world and yet its valuation is well below that of AAPL, as of Monday it has a valuation of 182 billion shares.

You would be able to buy all the following Gold mining companies and still have a huge amount of change left.

  • Barrick Gold $40 billion
  • Goldcorp $29.478 billion
  • Kinross Gold $13.50 billion
  • Agnico-Eagle Mines Limited 9.84 billion
  • Eldorado Gold Corporation $7.95 billion
  • Yamana Gold Inc. $8.17 billion
  • IAMGOLD Corporation $6.87 billion
  • Red Back Mining Inc $5.80 billion
  • Osisko Mining Corp. $2.86 billion
  • Centerra Gold $3.03 billion

 

 

What would you do given the choice; buy apple or purchase a stake in some of the top commodities based companies in the world.

 

Tactical Investor

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Dow’s new highs all lies

May 17th, 2010

 

All pain is either severe or slight, if slight, it is easily endured; if severe, it will without doubt be brief.
Marcus T. Cicero,c. 106-43 BC, Great Roman Orator, Politician

As the saying goes, a picture speaks a thousand words and the charts below quite clearly illustrates that the Dow has not put in a single new high in the past 3 years.

clip_image002

When the Dow is priced in Gold all we get is a long term down trend line. This clearly illustrates how the masses are being fooled into believing that these illusory highs are real highs.

clip_image004

When the Dow is priced in Canadian dollars, we also get a similar picture though not as striking as when it’s priced in Gold.

clip_image006

When priced in Australian dollars the picture is almost as striking as when it’s priced in Gold. These charts clearly illustrate the sinister nature of inflation; your wealth is literally being stolen right in front of your eyes.

Conclusion

Inflation the silent killer tax is being used to fleece the masses; you work hard for your money, you pay taxes and instead of getting a pat on your back you get a kick in the cahones. Welcome to the real world. The way to protect oneself from this insidious disease is to stay one step ahead of the central bankers. Precious metals are one way to hedge oneself, but they are not the only way and not always the best option. For example, from the mid 1990’s to 1999 the dot.com era was a good way to stay ahead of the inflation game, and then from 1998 to roughly 2006, real estate was a good bet, and so on. Given the rate at which new money is being created and the fact that many nations are reaching the point of no return in terms of paying back their debt, it would be extremely wise to have a position in precious metals (Gold, Silver, etc). In fact, having a position in any commodity is a good idea for the current commodity bull still has a long way to go before a long term top is put in.

 

You know the world is going crazy when the best rapper is a white guy, the best golfer is a black guy, the tallest guy in the NBA is Chinese, the Swiss hold the Americas Cup, France is accusing the U.S. of arrogance, Germany doesn’t want to go to war, and the three most powerful men in America are named Bush, Dick, and Colon.
Chris Rock Comedian

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Trichet, Euro bailout bought time that’s all, nothing more

May 16th, 2010

Observation more than books and experience more than persons, are the prime educators.

Amos Bronson Alcott,1799-1888, American Educator, Social Reformer

 

There is a need for a quantum leap in the governance of the euro area," European Central Bank (ECB) President Jean-Claude Trichet told Der Spiegel magazine.

Echoing his call, ECB Executive Board member Juergen Stark said turbulence in the euro zone would calm down only if member countries reformed their economies and cut their deficits.

"We have bought time, nothing more," he said in an interview with the Frankfurter Allgemeine Sonntagszeitung.

Euro zone governments agreed a 750 billion euro ($1 trillion) rescue last weekend to end a crisis of confidence in the euro triggered by financial problems in Greece, which had threatened to envelop the region’s much bigger economies.

"It is not an attack on the euro," he said. "It is clear that it is the primary responsibility of the Europeans to take the appropriate measures in order to counter the present severe tensions which have erupted in Europe."

Trichet has long urged euro zone governments to cut budget deficits to stop debt piling up. The failure of the Greek government to take this advice led to a debt crisis that risked spreading to other euro zone countries with similar problems.

"There need to be major improvements to prevent bad behaviour, to ensure effective implementation of the recommendations made by ‘peers’ and to ensure real and effective sanctions in case of breaches."

In Zagreb, EU Economic and Monetary Affairs Commissioner Olli Rehn said bailouts had to be harsh to avoid encouraging reckless behaviour by governments.

"This mechanism must be made so unattractive that no leader of any (EU) country is voluntarily tempted to resort to this system," Rehn said in a speech.  Full story

 

Exactly, we could not have said it better; if any help is offered (we are against this, but if the measures implemented are harsh enough it might just work) the restrictions should be so painful that it will make others think twice before breaking the rules. So far, all we have is talk; let’s see if it turns into action.

Now the head of European central bank finally agrees with what we have been saying all along. As we have stated before when bankers make comments that actually make sense one should pay heed to them. We feel that only a severe lesson will be sufficient enough to trigger the other laggards into finally pushing in long term meaningful measures to balance their budgets. Until then they will nod yes but in terms of actions nothing will change; it will be the business as usual.

The Euro has already hit one of our targets; when it was trading at or close to new highs we stated that it would trade down to the 120 ranges before putting in a bottom. However, the picture has changed slightly, and it now appears that the Euro could potentially trade down to the 115 ranges. We recommended shorting the Euro Via Euo several times, but at this point in the game, we think it’s a bit late to open up new positions, unless the Euro mounts a strong rally over the next few weeks.

Related Articles

Euro; the Worst is yet to come,  May 12, 2010

Euro shock and awe bailout, more like shock and shake May 10, 2010

Ulterior motive behind Greek Bailout, May 3, 2010

Roast the PIIGs; End the Euro crisis April 30, 2010 

The Threat of Hyperinflation real or not?

May 15th, 2010

 

Try not to become a man of success but rather to become a man of value.
Albert Einstein

Higher Gold and Petrol prices are some of the clear signs that inflationary forces are gathering steam. Do not confuse inflationary forces with inflation; inflation is defined as an increase in the supply of money.

There are several reasons why inflation could become a threat in the years to come

1) Government spending is going through the roof; they seem to think that we will never have to pay this money back.

2) Unfunded liabilities for Medicare, social security, etc, add up to over $108 trillion. This is a ticking time bomb for everyone claims that our national debt is high but in comparison to the unfunded liabilities, the national debt is child’s play.

3) As the Fed has dropped interest rates almost to Zero, it has very little firepower left. It could take rates to the negative level and pay people to borrow money; this will really stimulate the economy in the short run before burning it up completely. However, this option is more of a dream than a reality. The truth is that fed is almost out of options. If the economy should slow down and move back into a recessionary phase, then the only option available would be to print boat loads of money. The net result would be stagflation; higher inflation and slow growth and also the odds of entering a hyperinflationary phase would go up significantly.

Look at the price of Petrol; when oil was trading at $140, petrol was selling for 3.30-3.50 a gallon. Oil recently did not even make to $85 but the cost of petrol is already 3 plus dollars a gallon. Based on this it would be fair to state that when oil trades back to the 140 ranges, the price could surge to the $6-$7 ranges.

Many point out that we could face deflationary scenario for years to come. Well, this might be true; there is nothing wrong with hedging yourself, that’s what investing is all about. One should not bet all of one’s money on a single strategy.

In an inflationary and hyperinflationary environment, commodities perform very well. Having positions in precious metals, base metals, energy, and select agricultural stocks would be a good way to protect hedge oneself. One should also have some of their assets in pure bullion (Gold, Silver, etc.).

For those who are against precious metals, one other option is to invest in TIPS and one of the ways of doing this is through TIP, iShares Barclays TIPS Bond Fund.

  You cannot have what you do not want.

John Acosta, Poet

 

Disclosure

We have positions in Gold and Silver bullion

Tactical Investor

Ultimate Futures Timing System

Unemployment will remain at lofty levels as some jobs are never coming back

May 15th, 2010

 

  Sometimes I lie awake at night, and I ask, ‘Where have I gone wrong?’ Then a voice says to me, ‘This is going to take more than one night.

Charlie Brown

 

The story below clearly illustrates that a huge swath of jobs are never coming back. Jobs in these sectors have been permanently eradicated, and thus it is going to make the task of finding replacement jobs even harder, especially since many of these individuals are in their late 40’s to early 60’s. They are basically going to have to learn new skills and that is not an easy thing to do at such an age, especially when you have dedicated your whole life to a specific job.

Worse yet the remaining jobs in the in the clerical field, secretarial, travel agency field, auto market sector, etc, are going to keep coming under pressure. As we see it employment numbers will remain high even when the economy starts to show real signs of life; so far, the so called signs of improvement are all bogus.

For the last two years, the weak economy has provided an opportunity for employers to do what they would have done anyway: dismiss millions of people — like file clerks, ticket agents and autoworkers — who were displaced by technological advances and international trade. The phasing out of these positions might have been accomplished through less painful means like attrition, buyouts or more incremental layoffs. But because of the recession, winter came early.

The tough environment has been especially disorienting for older and more experienced workers like Cynthia Norton, 52, an unemployed administrative assistant in Jacksonville.

“I know I’m good at this,” says Ms. Norton. “So how the hell did I end up here?”

Administrative work has always been Ms. Norton’s “calling,” she says, ever since she started work as an assistant for her aunt at 16, back when the uniform was a light blue polyester suit and a neckerchief. In the ensuing decades she has filed, typed and answered phones for just about every breed of business, from a law firm to a strip club. As a secretary at the RAND Corporation, she once even had the honor of escorting Henry Kissinger around the building. But since she was laid off from an insurance company two years ago, no one seems to need her well-honed office know-how.

Ms. Norton is one of 1.7 million Americans who were employed in clerical and administrative positions when the recession began, but were no longer working in that occupation by the end of last year. There have also been outsize job losses in other occupation categories that seem unlikely to be revived during the economic recovery. The number of printing machine operators, for example, was nearly halved from the fourth quarter of 2007 to the fourth quarter of 2009. The number of people employed as travel agents fell by 40 percent.

This “creative destruction” in the job market can benefit the economy.

Ms. Norton has sent out hundreds of résumés without luck. Twice, the openings she interviewed for were eliminated by employers who decided, upon further reflection, that redistributing administrative tasks among existing employees made more sense than replacing the outgoing secretary. The problem cannot be that the occupation she has devoted her life to has been largely computerized, she says.

“You can’t replace the human thought process,” she says. “I can anticipate people’s needs. Usually, I give them what they want before they even know they need it. There will never be a machine that can do that.” Full Story

The smart thing to do now would be to start training ASAP for jobs in the nuclear industry, oil and gas industry, health sectors, utility sector (power transmission), etc for this is where the growth lies. We are leaving out the high tech sectors such as computer programming, biotech, chemical engineer, petroleum engineer, etc, because we feel that the average person is not going to want to put in the time it takes to study those filed.

The smartest thing to do is to live 1-2 standards below your level and to put the money you save into long term investments in the commodity’s sectors (precious metals, energy stocks, select plays in the agricultural sector, etc)for this entire sector is in a long term bull market.

 

   Here’s to you and here’s to me, and I hope we never disagree. But, if that should ever be, to HELL with you, here’s to ME!

Anonymous,

 

Related articles

Continuous Strength in the precious metals sector signifies all is not well May 4,2010

The Engineering of a financial crisis April 8, 2010

 

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Markets climb on a wall of worry and fall down a cliff of Joy

May 14th, 2010

Companies are reporting higher profits, supposedly more people are getting jobs and as a result those that stopped looking for jobs are now more optimistic about landing a new job, Consumer sentiment is improving, retail sales rising, unemployment insurance claims are down and the list goes on.

So why is the market falling; perhaps the market has already priced in all this, and it needs something more to power it. Perhaps it also senses that all this so called good news is just a short term development and that the potential for extremely bad news is rather high. Before the correction started to gather steam we warned that the lack of volume was a sign that all was not well. Precipitously low market volume a sign that a correction is imminent, May 5, 2010

Bottom line; tread carefully as this market is extremely overextended. The action of the past few days clearly illustrates that the market is falling down a cliff of Joy. Mass psychology dictates that the best time to buy is when there is blood in the streets and the best time to sell is when everyone is celebrating; its time to take a stand or risk falling down the lemmings.

 

Related articles

Continuous Strength in the precious metals sector signifies all is not well May 4,2010

The Engineering of a financial crisis April 8, 2010

 

Ultimate Futures Timing System

Dow, Gold, Copper and the Loonie

May 14th, 2010
Dow

The first wave of selling has completed and the markets are racing upwards on very light volume; this is a very bearish development. Worse yet the Dow mounted one of the largest one day point gains in years this Monday and yet the volume was at best mediocre. A very clear signal that the smart money is selling into strength and not buying the crap that the economy has entered into a new paradigm. The problems of Europe have not vanished and we have a bank and real estate bubble brewing in China. Thus the potential to get hit from all sides is rather strong.

clip_image001

Rising volume, lower prices and rising prices and lower volume are both very negative developments. At this point of the game it appears that we are still not out of the woods.

Gold

Has also moved up strongly but it’s extended its gains when it is already trading in the very overextended ranges. The current pattern could produce more price gains but it is also a very dangerous pattern for when it reverses it could lead to very strong pull back. Caution is warranted in the short term.

Copper

Is still trading below 330; the longer it takes to trade to this level, the more likely the market is to mount a stronger correction. A failure to trade hold above the 330 ranges if they are tested again will lead to a drop to the 280-290 ranges.

Canadian dollar

It mounted a Relief rally; there is a daily sell signal in effect and more downside is expected before it trades to new highs.

 

Related Articles

More Euro woes; Wage cuts May 13, 2010

World’s 1st gold ATM; a sign of a top? May 13, 2010

Euro; the Worst is yet to come,  May 12, 2010

Euro shock and awe bailout, more like shock and shake May 10, 2010

Ulterior motive behind Greek Bailout, May 3, 2010

Roast the PIIGs; End the Euro crisis April 30, 2010 

Strategist states that southern Europe Countries Need Wage Cuts; easier said than done

May 13th, 2010

  If you lead the people with correctness, who will dare not be correct?
Confucius,BC 551-479, Chinese Ethical Teacher, Philosopher

 

Financial markets are showing they have their doubts, with markets in Europe and Asian drifting lower Wednesday after Monday’s initial euphoria over the initial 750 billion euro package announced by European Union officials over the weekend."Is the package big enough?" asked Paul Lambert, the current director of currency and macro strategies at Polar Capital who’s also held roles at Deutsche Asset Management, UBS, Citibank and the Bank of England. "That depends on the success of the debt consolidation in the periphery [and] whether they’re ultimately able to have falling real wages so that they can come back in line with the core."

Much criticism has been lobbed at places such as Greece for high public sector wages, which will now be brought down sharply by the government as part of the agreement for its bailout package. That’s also been one of the key reasons Greeks have taken to the streets over weeks that have turned violent at times. On Wednesday, Spain announced a plan to reduce public wages 5% this year and freeze them in 2011 while suspending a pension hike. The moves come as the government there fears being dragged into a situation similar to Greece’s.

"I’ve observed that if any country in the emerging markets had been offered a loan package like the Greeks were offered before they got the eventual loan package they got, people wouldn’t have been rioting on the streets, they would have been saying thank you," said Lambert at a Morningstar Investment Conference in London.

"The fact they’re rioting on the streets means ultimately there may not be the ability of the Greeks to see a 20% fall in real wages," he said. Full Story=

Yeah we would like to see how long individuals are willing to keep quiet once the government starts to cut their salaries, increase taxes and cut benefits. People used to the good life do not take kindly to such measures, they are going to get rid of the existing government, (Greece is the lead candidate for such a move) and replace it with one that is more sympathetic to their cause. The only way to solve this is by the properly (instead of the miserably program called shock and awe, more like shock and shake) is for the Euro zone to set an example. They need to let one country default; this will send a strong message to the others that if they don’t wake up, a sledge hammer is going to fall right on their heads and snap them out of their coma.

In the short term this is a very painful strategy, but long term this would be very beneficial to the Euro, as it would give it credibility and make it a true front runner as a challenger to the US dollar. Investor will have more faith in a nation that is willing to take strong measures to protect its currency.

 

Things turn out best for those who make the best of the way things turn out.
Jack Buck

 

VIP Futures 1 year win ratio 84.6%

Tactical Investor

VIP futures 5 year win ratio 75%

 

http://www.dailyreckoning.net/investing

Strategist states that southern Europe Countries Need Wage Cuts; easier said than done

May 13th, 2010

  If you lead the people with correctness, who will dare not be correct?
Confucius,BC 551-479, Chinese Ethical Teacher, Philosopher

 

Financial markets are showing they have their doubts, with markets in Europe and Asian drifting lower Wednesday after Monday’s initial euphoria over the initial 750 billion euro package announced by European Union officials over the weekend."Is the package big enough?" asked Paul Lambert, the current director of currency and macro strategies at Polar Capital who’s also held roles at Deutsche Asset Management, UBS, Citibank and the Bank of England. "That depends on the success of the debt consolidation in the periphery [and] whether they’re ultimately able to have falling real wages so that they can come back in line with the core."

Much criticism has been lobbed at places such as Greece for high public sector wages, which will now be brought down sharply by the government as part of the agreement for its bailout package. That’s also been one of the key reasons Greeks have taken to the streets over weeks that have turned violent at times. On Wednesday, Spain announced a plan to reduce public wages 5% this year and freeze them in 2011 while suspending a pension hike. The moves come as the government there fears being dragged into a situation similar to Greece’s.

"I’ve observed that if any country in the emerging markets had been offered a loan package like the Greeks were offered before they got the eventual loan package they got, people wouldn’t have been rioting on the streets, they would have been saying thank you," said Lambert at a Morningstar Investment Conference in London.

"The fact they’re rioting on the streets means ultimately there may not be the ability of the Greeks to see a 20% fall in real wages," he said. Full Story=

Yeah we would like to see how long individuals are willing to keep quiet once the government starts to cut their salaries, increase taxes and cut benefits. People used to the good life do not take kindly to such measures, they are going to get rid of the existing government, (Greece is the lead candidate for such a move) and replace it with one that is more sympathetic to their cause. The only way to solve this is by the properly (instead of the miserably program called shock and awe, more like shock and shake) is for the Euro zone to set an example. They need to let one country default; this will send a strong message to the others that if they don’t wake up, a sledge hammer is going to fall right on their heads and snap them out of their coma.

In the short term this is a very painful strategy, but long term this would be very beneficial to the Euro, as it would give it credibility and make it a true front runner as a challenger to the US dollar. Investor will have more faith in a nation that is willing to take strong measures to protect its currency.

 

Things turn out best for those who make the best of the way things turn out.
Jack Buck

 

VIP Futures 1 year win ratio 84.6%

Tactical Investor

VIP futures 5 year win ratio 75%