The race to the bottom is on! The only question remaining: Who will blink first?

I am referring to the race to default.  As you will see when reading the stories below, the USA and the EU have major cracks in the foundation.  Should Greece and/or Portugal default on debt the Euro would suffer accordingly. However, if and when California (or any number of other states in trouble) defaults, the US$ will suffer.  Witnessing this Greek tragedy of a race unfold (pun intended) may be interesting if not entertaining,  but the winner is in fact inconsequential.  

The big picture take away offers the most value for those looking to invest.  I can say with abundant clarity, both the USA and EU will need to create prodigious amounts of fiat currency to deal with the ongoing financial chaos.  This dramatic increase in the already bloated supply of fiat currencies will lead to an ever increasing demand for a constant and ancient store of value.  The store I refer to is of course that ‘barbarous relic’ known as Gold.  

Allow me a moment of clarification in regards to the word ‘default’.  Sources tell me Webster’s is changing the definition of the word default.  You know the word to mean: 

De-Fault (di-fawlt) -Noun 1. failure to meet financial obligations.

However, in light of the current political environment both in the USA and abroad, the new definition for the word default will be:

De-Fault (di-fawlt) -Noun 1. An instance of coming to the rescue, esp. financially: a government default of a large company.

Because of this change, the word ‘bailout’ will no longer be required and shall be stricken from the lexicon.

Greece and Portugal face ’slow death’ over debt crisis – Telegraph.co.uk

Greece and Portugal are likely to suffer a “slow death”, as higher debt costs cause the economy to “bleed” economic potential, Moody’s credit ratings agency has warned.  Moody’s Investors Service said unless the two countries reverse their large current account deficits, wealth generated would increasingly have to be used to pay off rising debt costs as investors demand more to hold Greek and Portuguese bonds. To compensate, the governments would have to keep raising taxes, which in turn could smother investment and drive out wealth creators, Moody’s said. “The risk of a ’sudden death’ is negligible, but the likelihood of a ’slow death’…is high,” the report said.  Moody’s warned that the window of time the countries have in which to act “will not be open indefinitely”, adding that Greece would have “significantly less time” than Portugal.

Read More…

California Creditors Dread IOUs With Aid Plea Failing – Bloomberg

Jan. 13 (Bloomberg) — California’s hopes are fading for federal help in closing a projected $19.9 billion deficit that has caused the lowest-rated state’s borrowing costs to rise 24 percent since September. “We recognize they have enormous problems,” David Axelrod, senior adviser to President Barack Obama, said in an interview. “But we can’t solve all of those problems from Washington.” Investors are growing more concerned that California, whose debt rating was cut today by Standard & Poor’s, will repeat last year’s fiscal crisis that forced it to use IOUs to pay bills. With Governor Arnold Schwarzenegger seeking $6.9 billion in federal assistance to narrow the deficit, the extra yield paid on the state’s 10-year bonds over AAA-rated municipal securities rose to 1.31 percentage points yesterday from 1.06 points on Sept. 11, according to Bloomberg fair market value index data.

Read More… 

Rosenthal Capital Management runs the Fortune’s Favorite Family of Funds, including Fortune’s Favor I, Fortune’s Favor Precious Metals and Fortune’s Favor Offshore. For more information visitwww.rosenthalcapital.com

Tags: California, default, EU, euro, Greece, obama, US$, USA

Comments feed (RSS 2.0), comment or trackback from your site.

That’s it! I’ve had it! Enough!

Let’s dispense with the absurd, ludicrous, vacuous debate about “imminent” Fed tightening.  The financial airwaves and print are full of this idiotic expectation that the Fed will reduce liquidity soon.  Allow me to be clear: THE FED WILL NOT REDUCE LIQUIDITY AT THIS TIME.

The Fed cannot reduce liquidity because the economic environment is tenuous at best and tragic at worst.  If you don’t want to take my word for this assessment, reading the FOMC minutes from December would be a good start to your education.  You will note that the private session comments from the Fed do not correlate with the public Fed statements made during the same period.  Perhaps this misdirection by the Fed is the cause of all the financial media drivel about possible Fed tightening. Whatever the case, I’ve listed four stories below that should, along with the FOMC’s own emissions,  put to rest the useless notion of Fed tightening.

Stock Market Investing: Expect Q4 earnings, released over the next few weeks, to be lackluster (Alcoa’s announcement today is the first example of disappointment). Subdued EPS results along with continued employment, consumer credit and real estate woes will succeed in limiting the Fed’s ability to change policy. This sad realization will send the US$ lower, commodity prices higher and perhaps extend the equity market rally for a bit longer.

Maintain a close watch on the Treasury market. The recent selloff in bonds/increase in rates has been problematic as mortgage rates have climbed. It would be in the best interest of government for a little volatility and weakness to hit the equity markets and drive the fear trade into treasuries effectively bringing down rates.

Miller Tabak on Payroll Figures:

Beyond Friday’s lackluster headline payroll figures, the “real” unemployment rate (or U6) rose to 17.3% and the average hourly work week remained near record lows at 33.2. In addition, the average duration of unemployment rose to 29.1 weeks as the ranks of the long-term (or “permanently”) unemployed continue to swell. Furthermore, the household survey showed a decline of 589,000 employed persons to the lowest level since 2003, according to Miller Tabak.

In sum, fewer people are working, more Americans are dropping out of the labor pool and those who are working are working fewer hours: Average hourly earnings up just 2.2% vs. a year ago in December, lowest rate since 2004 and vs. an average gain of 3.3% over the prior decade, according to Miller Tabak.

“Net-net, we are not in your typical WWII recovery and major headwinds still remain,” writes Miller Tabak equity strategist Peter Boockvar.

Consumer Credit in U.S. Drops Record $17.5 Billion

By Vincent Del Giudice

Jan. 8 (Bloomberg) — Consumer credit in the U.S. dropped a record $17.5 billion in November as unemployment close to a 26- year high discouraged borrowing and banks limited access to loans.

A labor market that’s shed 7.2 million jobs since the recession started in December 2007 is restraining consumer spending that accounts for about 70 percent of the economy. Fed policy makers have said tighter bank lending standards and reductions in credit lines are hampering the recovery.

“Double-digit unemployment is eroding consumer confidence and the uncertainty is prompting consumers to pay down their credit card debts,” said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. “We have not seen such a wholesale reduction in consumer credit since the last time we had double-digit unemployment rate following the early ‘80s recessions.” READ MORE…

America slides deeper into depression as Wall Street revels: December was the worst month for US unemployment since the Great Recession began. By Ambrose Evans-Pritchard

…The Fed’s own Monetary Multiplier crashed to an all-time low of 0.809 in mid-December. Commercial paper has shrunk by $280bn ($175bn) in since October. Bank credit has been racing down a hair-raising black run since June. It has dropped from $10.844 trillion to $9.013 trillion since November 25. The MZM money supply is contracting at a 3pc annual rate. Broad M3 money is contracting at over 5pc….

… This has not stopped an army of commentators is trying to bounce the Fed into early rate rises. They accuse Ben Bernanke of repeating the error of 2004 when the Fed waited too long. Sometimes you just want to scream. In 2004 there was no housing collapse, unemployment was 5.5pc, banks were in rude good health, and the Fed Multiplier was 1.73. READ MORE…

Delinquency rate rises for mortgages – WSJ

WSJ reports more than 6% of commercial-mortgage borrowers in the U.S. have fallen behind in their payments, a sign of potential troubles ahead as nearly $40 billion of commercial-mortgage-backed bonds come due this year. The percentage of loans 30 days or more delinquent rose to 6.07% in December from 5.65% a month earlier, according to data provider Trepp. That is the highest delinquency rate since the advent of commercial-mortgage-backed securities.

By year end, delinquency rates on loans for hotels, shopping malls and other commercial properties could rise to between 9% and 14%, according to Jefferies analysts, as high unemployment levels and a depressed housing market inhibit consumer spending. As retailers, hoteliers, restaurateurs and other businesses find it difficult to keep up with their rent payments or to meet rent increases written into their leases, their landlords will find it just as hard to keep up with their mortgages. “As cash flow declines materialize … loans that are current will face pressure,” said Aaron Bryson, an analyst with Barclays Capital.

Follow up on our China post…

China overtakes US as world’s largest auto market – AFP

AFP reports China’s auto sales surged past those in the United States in 2009 to make the Asian nation the world’s biggest car market, industry data showed, but analysts warned sales would slow this year. The China Association of Automobile Manufacturers said more than 13.64 million units were sold last year, marking an increase of 46.15% from the 9.4 million units sold in 2008, Xinhua news agency reported. Auto output for 2009 increased 48.3% to 13.79 million units, Xinhua said. Calls to CAAM to confirm the figures went unanswered… Analysts welcomed the news, but warned that China car sales could hit the brakes this year. “We are still optimistic about the outlook for this year but it will be quite difficult to achieve the growth rates of 2009,” John Zeng, a Shanghai-based analyst at IHS Global Insight, told AFP. “This year will see a high single-digits growth rate of nine to 10 percent.”

Rosenthal Capital Management runs the Fortune’s Favorite Family of Funds, including Fortune’s Favor I, Fortune’s Favor Precious Metals and Fortune’s Favor Offshore. For more information visit www.rosenthalcapital.com

Tags: ben bernanke, China, consumer credit, earnings, employment, Fed, stock market investing, unemployment, US$

Comments feed (RSS 2.0), comment or trackback from your site.

Investment strategy: Many factors will affect our investment strategy in 2010 not the least of which will be the continued development of the Chinese dragon. The transformation of China into an economic powerhouse will lead to many dynamic investment opportunities for those who can separate the proverbial wheat from the shaft.

I can think of no better international combine driver than our own research guru, Gary Rosenthal. When he simply touches a shaft of wheat a loaf of bread materializes. Am I bias because he is my father as well as a partner at RCM? Maybe, but proof of his personal success can be found under the ‘Charts & Graphs’ page of our website www.rosenthalcapital.com. Review ‘Gary’s Rosenthal’s rollover IRA’ section and judge for yourself whether my sentiments are justified or exaggerated.

Welcome to Our Research Room:

Bret: Gary, China has offered fertile soil from which to reap investment returns for some years now. Why do you feel 2010 may offer continued opportunity?

Gary: On Friday Jan. 1st 2010 a China and Asean free trade deal began. This is a major event on par with China being allowed into the World Trade Organization in Dec. 2001. I believe this Asean free trade deal among nearly 1.9bn people will further accelerate the growth in Asia. Furthermore, China has established initial agreements to settle trade in local Asian currencies, not the US$. The stage is set for Asia to roar away from the U.S. and to establish the Yuan (Rinmembi) as a hard currency.

Bret: Forgive this question for being the softball it is and riddle me this: What do you believe is in store for the US$ this year and how would you structure a portfolio to benefit.

Gary: Softball? More like a pumpkin or watermelon! Take my previous comments, add Quantitative Easing (unlimited Dollar printing) to declining Dollar demand in Asia and you have the blueprint for a dramatically lower Dollar over time. An appropriate long term investment strategy: Precious metals, industrial metals, energy, agriculture and well researched high growth Chinese equity ideas.

Stories reported since Jan. 1 2010 supporting the Chinese theme:

Asian consumers most upbeat, American sentiment dips – Reuters.com

Reuters.com reports consumer confidence is strongest in emerging Asia, Brazil and Australia, but weakened slightly in the United States in the fourth quarter as Americans worried about job security, a survey showed. Consumer sentiment was highest in Indonesia, followed by India and Brazil, and was weakest in Japan and South Korea, according to the survey conducted by Nielsen Company a month ago. Globally, the Nielsen Global Consumer Confidence Index averaged a reading of 87 points in the fourth quarter, little changed from the third quarter but 5 points higher than the second quarter. The U.S. reading dipped to 82 in the fourth quarter from 84 three months earlier, reflecting concern about rising unemployment and ranking U.S. confidence at 18th among the 29 markets surveyed worldwide. 

China raises key interbank rate – WSJ

The Wall Street Journal reports China’s central bank unexpectedly raised a key interbank market interest rate Thursday for the first time in nearly five months, signaling a change in its policy focus toward pre-empting inflation risks in the new year. The tightening move, in the form of a higher yield in its weekly bill sale, came less than a day after the People’s Bank of China hinted its priorities had shifted toward managing inflation expectations and away from single-mindedly supporting economic growth. It also shows the PBOC still prefers using liquidity management tools, rather than policy interest rates, to guide market funding costs gradually higher before inflation becomes a real threat, analysts said. In its weekly open-market operation, the central bank sold 60 bln yuan ($8.8 bln) worth of three-month bills at 1.3684% Thursday, after keeping the yield unchanged at 1.3280% since Aug. 13. The PBOC drained a net 137 bln yuan from the money market this week, its biggest weekly fund withdrawal in nearly three months. The central bank has been draining liquidity for 13 consecutive weeks.

 Jan. 6 (Bloomberg) — China overtook Germany as the world’s top exporter last year, data compiled by Global Trade Information Services Inc. show. 

China shipped products worth $957.7 billion in the first 10 months of 2009, while Germany sold goods worth $917.7 billion to customers abroad, according to an Internet database operated by Columbia, South Carolina-based GTI. Exports from China exceeded German shipments every month since April last year, data show.

China has already slipped past Germany to become the world’s third-largest economy and is forecast to overtake Japan this year, assuming the No. 2 spot behind the U.S. Exports have driven a 15-fold increase in China’s economy to more than $3.8 trillion since the nation opened its doors to foreign trade and investment in 1978. READ MORE…

China approves stock futures, margin trading – AP  

AP reports Chinese regulators have approved the launch of stock futures and a trial run of margin trading, a state news agency said, in a move that could help boost stock prices and increase the role of China’s securities markets in financing economic development. It will take about three months to complete preparations for stock futures, the China News Service said Friday. It said the trial of margin trading – buying stocks with cash borrowed from a broker – might be followed by full-scale use but gave no indication when that might happen. The decision was long-awaited by investors. Rumors that the innovations might be introduced this week helped to push up stock prices. They fell back when the changes failed to materialize.

Tags: China, investment strategy, precious metals, Quantitative Easing, US$, yuan

Comments feed (RSS 2.0), comment or trackback from your site.

A confluence of dubious “positive” economic numbers, supplied by the U.S. government, has given rise to the US$ bull during the month of December.  If we are to believe the financial media, the debate is over: the US$ reigns supreme again. Almost every day over the last few weeks another commentator, analyst or self-styled market guru jumps on the US$ bull bandwagon.

Question: Is it a bull or a byproduct of the animal that is being panegyrized?

The answer of course will evidence itself over time.  For now, it seems a little perspective is in order. Please review the US$ chart below.  As you will see, the December rally, so far, appears to be a bounce in an overall steep downtrend. In my next post, we will review the impact of the December US$ strength on various commodity markets.  I believe, you will find the results…revealing. 

Tags: economic numbers, U.S. government, US$

Comments feed (RSS 2.0), comment or trackback from your site.

Welcome to the ‘happy holidays’ edition of the RCM blog.

I thought we should begin with a little year end wisdom:

“Life isn’t about waiting for the storms to pass. It’s about learning to dance in the rain.” – Vivian Green

Managing capital during the last two years required the ownership of solid wading boots and a strong hurricane slicker. For those of you still standing I commend you. In fact, feel free to join us while we dance a jig.

In a nod to the time of year and the tendency for factual stories to be laced with pure fiction, I offer you the following two economic anecdotes.

To begin, let’s review the housing fable released today. Market participants responded to the details with a cheer, an equity market rally and a strong US$ bid. However, as with most fables, one must read between the lines to grasp the true meaning. In the case below, I have boldfaced the important detail and the moral of the story becomes clear. The “good” news about November was in fact fabricated at the expense of future months…

ECONX Existing Home Sales Rise Again
The Existing Home Sales report for November brought good news on a number of fronts. Specifically, sales increased 7.4% from October to a seasonally adjusted annual rate of 6.54 million units (consensus 6.25 mln); median prices rose slightly to $172,600 from $172,200 in October.

Based on the November sales pace, the supply of unsold homes dipped to 6.5 months from 7.0 months. The surge in home sales was driven by a rush of purchasers aiming to capture the benefit of the first-time homebuyer tax credit that they feared might expire at the end of November.

That benefit was ultimately extended, however, so the National Association of Realtors thinks it is quite possible there will be a “measurable decline” in home sales the next few months before another surge starting in spring…

Low financing rates and relatively low prices, though, continue to provide strong support to the housing recovery. If there is a point of consternation for the stock market, it is the idea that uplifting data like this could force the Fed to raise rates sooner than previously expected. That would be tolerable if there was a concomitant pickup in hiring activity, but absent that, higher rates would be a retardant on the housing recovery since it would reduce affordability…

Separately, there is a residual concern that the encouraging signs in the housing market will ultimately unleash a load of shadow inventory being held by banks and current homeowners, who have been waiting for improved conditions to list the homes for sale. The added supply could keep pressure on prices…

…Below, we have the next chapter in the ongoing saga of economic recovery. Rumplestiltskin, a.k.a. the US government, would like to tell the story of economic recovery. Upon the original unrevised GDP release, the US$ rallied due to the “better” than expected number. Today, during a quiet holiday week, the real GPD number reveals a “surprisingly” lower growth rate…

ECONX Q3 GDP- Final +2.2% vs +2.8% consensus, prelim +2.8%

ECONX Q3 Personal Consumption- Final +2.8% vs +2.9% consensus, prelim +2.9%

ECONX A Surprise Revision to Q3 GDP
In surprising fashion, the revision to Q3 GDP was fairly substantial. According to the third estimate from the Bureau of Economic Analysis, GDP grew at a 2.2% annual rate in the third quarter versus 2.8% in the second estimate. A slight downward revision to personal consumption expenditures, which were said to be up 2.8% (versus prior 2.9%) from the preceding period played a part in the downgrade, as PCE contributed just 1.96 percentage points to the change in real GDP versus 2.07 percentage points for the second estimate…

Other gauges that were adjusted to show a lower contribution to the change in real GDP included gross private domestic investment (from 0.91 to 0.54), the change in private inventories (from 0.87 to 0.69), imports (from -2.53 to -2.59), and government spending (from 0.63 to 0.55). Separately, the GDP price index was revised down as well from 0.5% to 0.4%. Core PCE was reported to be up 1.2% quarter-over-quarter versus 1.3% for the second estimate. This inflation gauge won’t alter the Fed’s assured view on near-term inflation pressures.

…So, will the 2010 economic fable resemble a Grimm fairy tale or an uplifting Christmas story? Only time will tell. I will be traveling over the next two weeks, but if duty calls I will post. Until then, enjoy the rest of 2009 and have a happy and healthy.

Tags: GDP, housing, US$

Comments feed (RSS 2.0), comment or trackback from your site.

…the US$’s strength as well as the strength in the Treasury bond market does however, provide some consternation. Apparently, other factors have overshadowed the Fed meeting this week and driven the direction of markets. Many attribute the strength of the US$ to troubles developing in Europe. The fears of a debt default in Greece have led some to believe the viability of the EU is in question. We believe this fear is unfounded and would instead direct your attention to the following story…

House narrowly passes $290 billion increase in debt limit - WSJ
WSJ reports the House approved a short-term $290 billion extension in the nation’s debt ceiling, delaying a decision until February about a larger increase in the borrowing cap. The vote comes less than a week after House Majority Leader Steny Hoyer (D., Md.) said he intended to seek a $1.8 trillion increase in the ceiling to support federal government borrowing through 2010. A decision was made to seek the more modest increase after it became clear the larger increase may have failed to win support in the Senate. The Senate must still take up the two-month increase, which it is expected to do next week.

…The decision to delay the “larger increase in the borrowing cap” in our opinion added fuel to a short covering rally already underway in the US$. I will note that the vote has only been delayed and will no doubt be passed in the not to distant future.

In short, year-long trends remain in place although severely tested this week. Seasonality would suggest equity market strength during the last two weeks of the year. Volatility as judged by the VIX index has remained subdued during this week’s shenanigans and would add credence to the idea of a resumption in seasonal trends.

More homes are poised to hit the market – LA Times
LA Times reports a supply of 1.7 million homes headed for sale because of foreclosure or delinquency looms over the nation’s housing market, which could dampen progress toward recovery should the Obama administration fail in its efforts to aid struggling homeowners, researchers said. A variety of measures to keep discounted bank-owned properties off the market — including moratoriums on foreclosures by major lenders and federal initiatives aimed at keeping people in their homes with mortgage payments they can afford — has helped increase a backlog of so-called shadow inventory 55% in the year ended Sept. 30, according to a report released Thursday by First American CoreLogic, a Santa Ana-based real estate research firm.

Tags: Fed, foreclosures, housing market, obama, US$, vix, volatility

Comments feed (RSS 2.0), comment or trackback from your site.

The volatility of precious metals prices will continue to astound. For those requiring a courage boost, I offer the following information as succor…

The Precious Metals market is minuscule - Matterhorn Asset Management
The graph below shows how small the gold and silver industries and markets are in relation to major US corporations and to total world financial assets. The market capitalisation of the silver industry is only $ 9 billion and of the gold industry $ 200 B whilst Microsoft is valued at $250 B and Exxon 350 B.

Both the silver and gold industries as well as the physical markets are so small that any increase in demand is likely to drive prices very substantially higher.

Zerohedge further exposes the BLS Friday jobs report as a worthless…

Even as the BLS and the administration are trying to cover up the real state of unemployment affairs using assorted semantic gimmicks of just what it means to be unemployed, and as companies provide adjusted EPS numbers, while actual earnings continue to collapse, the true barometer of spending, provided by the Financial Management Service, tax withholdings (net of refunds), continues to paint the truest picture of just what is really happening with both America’s consumer and the corporate world….

…On a rolling 12 month basis, individual tax withheld has dropped by nearly 8% YoY, from $1.42 trillion to $1.31 trillion, while company witholdings are down a whalloping 64%, from $274 billion to just under $100 billion! Read More…

Of course, the Obama administration is aware of the true nature of the unemployment problem…

WASHINGTON – President Barack Obama called for a major new burst of federal spending Tuesday, perhaps $150 billion or more, aiming to jolt the wobbly economy into a stronger recovery and reduce painfully persistent double-digit unemployment. Read More…

Geithner said to be seeking TARP extension until next October -

Bloomberg.com reports Treasury Secretary Timothy Geithner plans to tell Congress that the Obama administration will extend the $700 billion financial-rescue program until next October, according to people familiar with the matter. While the Troubled Asset Relief Program expires on Dec. 31, Geithner can extend it by notifying Congress. A letter notifying Congress of the extension could come as soon as today, said the people, who declined to be identified. Andrew Williams, a Treasury Department spokesman, declined to comment. The TARP, passed in October 2008 to prevent a collapse of the financial system, has drawn criticism from Congressional opponents of taxpayer-funded bailouts of banks including Citigroup Inc. The Obama administration, preparing the ground for an extension, has emphasized that the program may also be used to aid homeowners and small companies.

Both actions above are US$ bearish, precious metals bullish. Add to the mix the recent zero-rate U.S. Treasury auction and you can see why our Gold and Silver investment thesis remains intact…

U.S. Treasury zero-rate auction matches record low
WASHINGTON, Dec 8 (Reuters) – The 0.000 percent high yield on the U.S. Treasury’s four-week bill auction on Tuesday matches the lowest on record for the security, the Treasury’s Bureau of the Public Debt said.

The Treasury’s auction of $29 billion in four-week bills at a strong 5.33 bid-to-cover ratio marks only the fourth time that the security was sold at a zero rate. The other three zero-rate auctions occurred in December 2008, near the height of the financial crisis.

Tags: Geithner, gold, jobs, obama, precious metals, silver, U.S. treasury, US$

Comments feed (RSS 2.0), comment or trackback from your site.

NEW YORK (CNNMoney.com) — The news that the sovereign wealth fund of Dubai requested a postponement of billions of dollars of debt this week could pose a big problem for U.S. banks…

…Bove said the underlying problem is that there is a lot of uncertainty floating around. For example, there’s little information available about counterparty derivatives, guarantees that transfer default risk from lenders to other financial institutions. And it’s unknown how much of Dubai World’s debt guarantee is held by U.S. banks. Read More…

Stock Market Investing: The above story along with many others have filled the airwaves and blogosphere over the last 4 days. I will refrain from adding my voice to the din. Moreover, endeavoring to postulate on the repercussions seems to me a fool’s errand. The sheer plethora of moving parts and back room deals makes a supposition worthless.

I will, however, offer some insight to a more pressing question: How will this event effect the US$, the equity markets and the price of Gold?

An avid reader of this blog will find the answer both simple and familiar. Bad news on the global economic front equates to good news for the U.S. equity markets and the price of precious metals, Gold and Silver.

Investment Strategy: The legend for deciphering this market environment:

Neg.Eco.News = Con’t.Q.E.; (Q.E. = Quantitative Easing; catchall for liquidity creation)

Con’t.Q.E. = Con’t.US$.Dval.; (US$. Dval = US$ devaluation)

Con’t. US$.Dval = Exponential Gold and Silver price increases + higher US equity prices

This legend, in all likelihood, will remain in force until major policy changes occur within the White House, U.S. Treasury and Fed. Never in history has the systematic devaluation of a currency led to sustained economic recovery and long-term growth. However, without fail, said devaluation leads to inflation, often hyperinflation, and a flight out of the currency into hard assets. The move unfolding in the price of Gold and Silver will be for most unimaginable, but for the few, the proud, the aware, it will be a move of a lifetime.

Tags: Dubai, Fed, gold, hyperinflation, Inflation, investment strategy, precious metals, Quantitative Easing, silver, stock market investing, U.S. treasury, US$, white house

Comments feed (RSS 2.0), comment or trackback from your site.

Mid-week and the economic numbers continue to disappoint. However, equity investors should take heart and view the chart above. This is a monthly chart illustrating the direction of the US$ and the inverse relationship with the S&P500. The chart dates back to 2000, but you can see the correlation has become more intense in the last 12 months.

So, as long as this correlation holds, remember bad economic data equals good equity market performance due to continued Fed accommodation that leads to a weaker US$…

Fed’s Bullard says possible Fed won’t hike rates until 2012

Housing Starts Crater
The talk that housing starts were stabilizing hit a snag in October as new housing starts plummeted 10.6% to 529,000 units from 592,000. The consensus forecasted an increase in starts to 600,000…Single family starts fell 6.8% to 476,000 and is at its lowest level since May. Multi-family starts fell a whopping 34.5% as only 53,000 new units were started. Multi-family starts have never been this low since the index was created in 1959

Gold bars allocated to the Trust in connection with the creation of a Basket may not meet the London Good Delivery Standards and, if a Basket is issued against such gold, the Trust may suffer a loss. Neither the Trustee nor the Custodian independently confirms the fineness of the gold bars allocated to the Trust in connection with the creation of a Basket. The gold bars allocated to the Trust by the Custodian may be different from the reported fineness or weight required by the LBMA’s standards for gold bars delivered in settlement of a gold trade, or the London Good Delivery Standards, the standards required by the Trust. If the Trustee nevertheless issues a Basket against such gold, and if the Custodian fails to satisfy its obligation to credit the Trust the amount of any deficiency, the Trust may suffer a loss. Read More…

I mentioned Monday, “Make sure your precious investment is backed by the actual metal.” Below you will find an excerpt from the Gold ETF (GLD) prospectus. This same language can be found in the Silver ETF (SLV) prospectus. Take heed of these warnings. I fear in a world that has become numb to a long list of possible side effects to the drugs taken, you may view this prospectus in the same light. Don’t make that mistake! These are very real warning that could effect your financial health. Why even take the risk, when there are so many quality alternatives? Please, feel free to log onto our website http://www.rosenthalcapital.com/ for a complete discussion of said alternatives…
…Meanwhile, the best in the business are coming our way. To Touradji and Paulson I will say, from all of us at RCM, welcome to our world!

Paulson & Co. to launch new gold fund January 1; Paulson to personally invest about $250 mln in new gold fund - Reuters

Touradji Capital Management LP, the New York hedge-fund firm that oversees about $2.7 billion, bought 2.23 million shares of Barrick Gold Corp., the world’s biggest gold producer, while selling shares in SPDR Gold Trust, the largest exchange-traded fund backed by bullion. Read More…

Tags: economy, Fed, gold, housing market, precious metals, silver, US$

Comments feed (RSS 2.0), comment or trackback from your site.

Stock Market Investing: No change from last week. The technicals didn’t get much better but an overwhelming tsunami of weak economic data helped to drive the US$ lower and drove both hard asset prices and equity prices higher.Read More…

…Meanwhile, even as Brazil implements policy changes to stop its currency from appreciating, the Real advances adding credence to the Economist theory of a Forex crisis approaching …Read More…

Investment Strategy: Ride the wave! This market behavior reminds me of the waters off Jupiter Beach, FL, where I live. Right now I’m looking at a beautiful expanse of ocean as far as the eye can see (don’t hate the player, hate the game) and I see perfect 5ft. rollers washing up on shore. The break is speckled with surfers all the way down to Juno Beach pier where the best are attacking the biggest swells.

The picture seems perfect but the key word from the description above is ATTACKING. I sat through brunch on Sunday next to a local surfer girl. She was around 16 and had everything going for her with the tiny exception of crutches and a rather large bandage on her foot.

While the surf was perfect for humans, it was also an absolute delight for the sharks. Do you see where I’m going with this? When investing in today’s markets you can enjoy the ride but you better remember the sharks are circling.

Time to review the details from last week. Follow the bouncing ball and you will get to the inevitable conclusion that hyperinflation is raging toward us like a Hammerhead that smells blood….

Fed’s Fisher says Q3 US GDP growth probably not quite as robust as originally reported, closer to 2.5% – Reuters

November University of Michigan-prelim 66.0 vs 71.0 consensus, October 70.6

Initial Claims Continue to Fall
Initial claims again beat consensus estimates as claims fell from 514,000 new claims to 502,000 for the week ending Nov. 7. While the drop in claims doesn’t represent a clear turning point, for the second consecutive week claims have fallen below the 520,000 to 550,000 range that it seems to have been stuck at during the previous month. The market is going to take the drop as a sign that the labor sector is beginning to turn around, but we’ve seen a similar decline in claims before when initial claims fell below the 550,000 threshold at the end of September…

The drop in continuing claims was not due to workers finding new jobs, but due to people running out of unemployment benefits. Approximately, 7,000 unemployed workers lost their benefits every day. Congress recently passed an extension of the unemployment benefits that gave all unemployed workers an additional 14 weeks of unemployment insurance payment and an additional six weeks to workers that live in states where the unemployment rate is above 8.5%. Obama signed the extension into law on Nov. 6. The extension will stop the downward trend in continuing claims…

More workers are still losing their jobs than finding new ones and we expect the data to show a slight uptick in unemployed workers over the next three months. Due to timing of the releases, the data will not show the results of the unemployment extension until the Nov. 25 release. This means that the continuing claims numbers will show a decline in next week’s reported numbers.

…The details above represent “blood in the water” that requires the Fed to remain easy. However, these policies that balloon money supply have fueled the decline in the value of the US$. I have written volumes about this vicious cycle. For the sake of new readers I will repeat the RCM mantra: Hyperinflation is a currency event not an economic event.

I am forever baffled by the ignorance of many financial commentators when asked about inflation. They point to economic troubles and scoff at the very idea of inflation but applaud Fed policy and cheer rapidly inflating asset prices. Do they not see the oxymoron? Or are they simply morons? (OK, true that was trite and a little unfair but it couldn’t be helped.)

Hyperinflation is rapidly spreading worldwide because currencies around the globe are being devalued in an effort to keep up with the Bernanke “helicopter” drops of US$. The world is heading toward a Forex crisis as the Economist article below suggests. Our response to this roller coaster: Please hold on to the (GOLD) bar…

The Economist on Gold and Forex:

Developed-country governments have attempted to control bond yields through quantitative easing and to support stockmarkets through ultra-low interest rates. But they cannot support their currencies as well without risking problems in the bond and equity markets. Gold’s surge may indicate that investors fear the next stage of the crisis will occur in the foreign-exchange markets.

Brazil’s real is up 1.1 percent against the dollar this month, even after imposing a tax in October on foreign stock and bond investments and increasing foreign reserves by $9.5 billion in October in an effort to curb the currency’s appreciation. The real has risen 33 percent this year.

…As you can see, the march toward hyperinflation and perhaps a currency crisis seems inevitable. The best defense: Precious metals, Gold & Silver. A note of caution: Make sure your precious investment is backed by the actual metal. More on that topic next time…

Tags: ben bernanke, Brazil, Dollar, Fed, forex, GDP, gold, hyperinflation, investment strategy, obama, precious metals, silver, stock market investing, US$

Comments feed (RSS 2.0), comment or trackback from your site.