By Roger Wiegand

Jun 11 2008 11:42AM

Keeping Score On Nonsense Is A Full Time Job

• We should have been building a file on market reporting nonsense over the past few five years but it would have been a full time job and we don’t have the time. Instead of a librarians list, we summarize today some critical reasons as to why traders and investors should not give-up on gold and silver. We simply lost control while producing this list and wrote 20 instead of 10. This list took only 15 minutes and we do have time and space constraints.
• We had a credit crunch caused by derivatives but now it’s structurally contained and mostly over. Greenspan’s give-away cash in the US spread to other nations through origination of derivatives. The contagion has only begun to spread and the 10% pittance of acknowledged bad paper allegedly managed at the banks leaves 90% lurking, hidden in banks’ balance sheets.
• The American banking system is sound as a dollar. Bear Stearns was a one time event. We are in the early stages of an enormous rolling bank-credit crash. Questions on Lehman Brothers have recently surfaced but the larger hidden mess is the regional banks holding portfolio majorities in real estate loans. Thousands of banks are at risk including construction loans failing next. Stress in banks has barely started. There will be thousands of bank failures.
• The U.S. Dollar has stopped selling, has formed a new base and will now rally. Technically, the dollar has mini-rallies on the way down to oblivion. Bernanke has only one card left to play and that is to keep printing dollars. His rate cutting bullets are near the end and he is cornered. Big financial players the world over are tossing out dollars and tiny business people on the street in foreign nations are refusing to take them at all. The Euro is the new choice; FOR NOW.
• Bond holders can breathe a sigh of relief as corporations are back on track to recovery. Bonds are the next contagion and prices are crashing everywhere. US paper is preparing to sink in price and rise in yield much to the chagrin of Benny and Hank. Corporates are being down-graded with new acceleration. Bond traders are now in charge of interest rates not Benny. Largely unnoticed is the impending failure of municipals as cities, towns and counties financially go under. You’ll know their end is near when fire, police and trash haulers are laid-off.
• The housing industry in the USA and other western nations had some overbuilding but new buyers have emerged and we are on the road to recovery. Some new buying has emerged in those states and regional locations most advanced in the housing downturn. This buying is primarily bottom-fishing to purchase at drastically reduced prices. These huge discounts must be acknowledged and acted upon in many more markets before the housing crunch is over. Meanwhile, foreclosures and walk-aways are accelerating at a faster pace dumping millions in new empty inventory on the markets driving prices down even faster. Builders enter bankruptcy at a faster pace and now some of the formerly well-financed national builders are in danger of failures, too. Housing is in a shambles and gets much worse until 2011-2012.
• Since the number of home buyers is slightly down, there is plenty of cheap mortgage money available. Lenders have been so burned-off in these nasty markets even those buyers with stellar credit are having difficulty finding a mortgage. Most are not looking to buy or take a loan and those that are suffer unusual scrutiny. The majority of prospective new buyers are simply waiting for lower prices ahead. This takes years not months to play out.
• The mortgage and housing industry had some tough times but things are fine and you can now buy their shares for some splendid gains. Countrywide, the largest mortgage originator in America formerly writing 20% of all loans is under investigation and is technically bankrupt. It remains to be seen if Bank of America will close on their purchase of Countrywide as this deal is fraught with immeasurable liability. The mortgage industry has lost thousands of jobs with more losses ahead.
• Consumers have some small unemployment issues but joblessness is only 5.5% and therefore is manageable. The help wanted index is the lowest since the Truman Administration telling us jobs are not only scarce but nearly impossible to find. Michigan unemployment is officially just above 7% when in reality it’s more like 16-17% unemployed with thousands in more losses just ahead. Nationally, the posted unemployment rate is 5.5% but the true rate is 11-12% and rising fast. We forecast a 1930’s national jobless rate of 25% or WORSE WITHIN THREE YEARS.
• The global auto industry and more specifically the U.S. Big Three have plenty of cash and credit and are in the midst of reformation taking them back on track to new profits. Ford has $29 Billion in cash and is burning through it at a high rate. Their sales are in the tank with almost none of their products deemed desirable. Chrysler might go down faster with only $10 billion in cash on-hand, and new reports say GM is at risk to BK on a pile of valueless derivatives. Watch Toyota, the proxy for the global auto industry’s health. They are off -10% on new sales reports.
• Energy costs have gotten expensive but the top is in and crude oil is going back to $50 and gasoline is plentiful. Oil supplies are 2-3mm barrels per day short of demand. Gasoline will rise even faster even if oil stays static. Refinery bottlenecks guarantee this as crude is backing- up in transport ships waiting for refinery manufacturing. Iran has 18 ships waiting, fully loaded with sour crude, the most difficult to refine. Four larger supplying nations are avowed enemies of the US with declining production for several reasons. Oil is going to $150 this summer and $200 within 2-3 years. An Iran attack could temporarily seize-up the markets driving prices to the moon.
• The U.S. Government is sound as the dollar. Money supply is growing at a modest 2-3%. The US Government is currently printing dollars (digitally) at a rate of 16-17%, which is simply not sustainable. Even if this rate were constant, (it is not) the dollar’s valuation would be cut nearly in half in one year. Over-burdened with social program costs’ and politicians pouring on the pork along with the forever war, there is zero chance the government’s credit can be maintained. We have seen new and open discussions telling us the credit of the largest economy is the world will be down-graded from AAA. This eventual down-grade makes all borrowing more costly in America.
• Inflation is contained and next year we might have to fight deflation. We have stagflation right now with insolvency on the horizon in several sectors of the global economy. Food and energy with some services are sky-rocketing with inflation while durable goods and expensive discretionary purchases are shelved with no savings, cash or credit available. Hyperinflation in our view is a sure thing.
• The highs are in for gold and silver. The market will be over-run with central bank gold selling should these markets get out of hand. Technically, we forecast gold at a minimum price of $2,960 with a probability of much higher prices. Silver is near $17 and $50 is a sure thing with our expectations of $176 to $256 within five years. Markets ebb and flow with cycles and profit-taking. Do not be fooled with hollow selling bearish news and threats by those who prefer gold sell-off to lower prices. Gold is the only real money in the world and its rally has barely begun. Also, keep in mind the adjusted for inflation gold and silver prices have farther to go.
• The USA Gross Domestic Product (GDP) is manageable and should be lessening this fall. America’s GDP is getting worse after lingering in the minus column near $55 Billion per month for some time. Latest news tells us GDP is now over -$60 Billion per month and worsening.
• The US Consumer Price Index shows no inflation with energy costs and CPI unchanged. The CPI is a rigged price and energy costs are flying higher. While these phony numbers can still move markets this is only because the media and the herd still attributes some value to them. Smart traders go immediately opposite jaw-boning speeches and government reported numbers. They are pure fiction.
• Food costs are up slightly but supplies are sound and we should manage without too much trouble. Grains and other foods are sinking in production as demand skyrockets. Rice prices are double, corn should exceed our forecast $7.48-$8.00 per bushel price and soybeans are doing the same thing. Wheat in the bins for immediate delivery is at shocking 40 year low in the face of unprecedented global demand. We fully expect grain rationing in the USA later this year or early next year. An overly hot summer will expand prices even more, which we forecast.
• The US Federal Deficit is manageable. Our national treasury and finances are way beyond any hope of covering all the costs. The budget is a joke, more expense is being piled on and social security is toast within 5-10 years, despite reports saying its ok until 2040. The war is super expensive and a broadening of the war seems probable. These bills will never be paid as there is no hope of paying even a tiny portion. Now the Federal Reserve has given itself new powers to COVER ALL THE GLOBAL INVESTMENT DERIVATIVE DISASTERS, WHICH ARE SO LARGE THEY ARE IMMEASUREABLE. THEY CLAIM THESE NEW POWERS TO SAVE THE BANKS.
• Retail Sales are soft but we think they have bottomed and the consumers buying power continues. Retailers are tanking with breath-taking speed. Hollowed out shopping centers are everywhere and several large restaurant chains are filing BK. There is no discretionary cash to eat out any more. The cheapest places to eat and buy stuff are McDonald’s and Wal-mart, which continue to do well as the others are disregarded.
• Durable goods orders are a little soft but by this fall we should be on the come-back trail for new orders. Durable goods are the worst sector for financial performance other than credit. Furniture, appliances, cars, and other non-essential toys are in the dumpster. The only sector on the upscale temporarily is television sets. This is because there is a major change-over to High-Definition Television and more importantly, families are shunning expensive forays to restaurants, movies, and malls. Nesting and savings are the growth industries.
• Consumer Confidence is a little worrisome but once some of these indicators recover so will the consumers. Consumer confidence is terrible. John Williams of Shadow Government Statistics, tells us “The Reuters/University of Michigan Sentiment measure fell by -4.5% month-to-month in May to the lowest level since 1980 and it collapsed to an annual contraction of -32.3%, the steepest annual downturn in the history of the series.” Not only is lack of confidence rising but new horror stories of hungry families losing homes hit the news with increasing frequency.

Statistical Market Manipulation Fine-Tuned

Government numbers dudes cranking out funny statistics have lots of tools at their disposal.

1. They have formulas in place that have been used regularly for years to control CPI, M-3 money growth and inflation. These are mandated to keep a lid on heavy government pension and social security obligations. Further, these phony stats imbue an all-is-well ambiance.
2. The jobs reports are so outlandish, jerking up and down with the wind and continuous re-adjustments, some reporters are now openly mocking them on big business television.
3. Construction is a huge US business and stats are difficult to define and prove. Consequently it’s fertile ground for openly lying on those unemployed. The largest jobs growth is in government for buying votes.

Be an independent thinker and focus on debt reduction, stock-piling of personal needs, and most of all get busy trading and investing in gold and silver. You will not be disappointed and could earn some splendid gains.

Spring Buying Cycle Has Arrived

Watch for new rallies in most all commodities markets in late August. We should see channelized mini-rallies in gold and silver this summer. The bloom is off the rose and the off-schedule, nasty “Sell-in-May-And-Go-Away” arrived. However, our summer forecast is a mild haircut in most stock shares including precious metals. The only action to prevent selling is our stunningly time-worthy Plunge Protection Team who had multiple recent failures to prop shares. Will they win during the June push-‘em-up event? We think with all the other market dangers they will prop their little hearts out and not permit the Dow and S&P 500 to get out of control. In our newsletter, Trader Tracks, we provide weekly guidance and extra e-mail alerts to report our best new trades and offer suggestions for trade management.

Whatever you do, make a concerted effort to stay with the trend and hang onto your core holdings of preferred shares, cash, and coins. Physical gold should never be sold or, traded but rather accumulated steadily on a monthly savings plan and squirreled away. Big traders are always ready to buy on the dips and normally never sell their gold and silver. You would be amazed how quickly your physical gold and silver will accumulate using this strategy.