Friday, March 11, 2011

Current Market Conditions

It is critical to remain objective when risking capital so lets take a quick look at where we stand as we come to the end of a volatile week.

The SPX experienced it's first breach of the 50 day moving average since Bernanke announced plans to continue openly propping up asset prices in his Jackson Hole speech last August.  In fact, a glance at the chart almost looks like someone drew it and there were no actual market participants involved.  Makes you wonder right?

This might be a good time to clarify that statement as recent emails have caused me to see that some readers do not understand what is going on with the Federal Reserve's criminal theft of your wealth.
The Federal Reserve is not a government agency it is a private bank owned by it's member banks, most of which are European.  There are many excellent books covering this topic and if you feel that this is conspiracy talk you should do some homework.  The US Treasury creates bonds and offers them for sale through the Federal Reserve's primary dealers who operate in concert with the central bank's controlling New York branch.  The primary dealers are required to bid in order to maintain stability in the auction process.  Currently, the dealers buy the bonds from the treasury, hold them for 2 weeks and sell them to the Federal Reserve at a slightly higher price.  These banks, and the Fed's NY trading desk, have been in the stock market purchasing futures and related instruments in order to keep the market on a nice easy accent for some time now.

The key here is to think about the bigger picture.  The US is running deficits of over $1,200,000,000,000/yr as they have televised fights over how to cut $40bil or 3%/yr and they are issuing debt to finance this overspending and their central bank is purchasing the debt printing fresh dollars to exchange for it. The WSJ editorial page tells you that there is no problem because they can just sell the debt back onto the market later but think about what would happen to the price of those securities if they were offered for sale along with the tsunami of bonds used to finance the ongoing operating cost of this giant welfare system?  The price would collapse.  Since prices and interest yields on bonds have an inverse relationship, the cost of this behavior could be enough to cause debt service on new issuance to rise dramatically, eating an even larger portion of tax revenues.  Do you see how this can become a negative vortex?  If a company behaved this way it's creditors would force it into bankruptcy.

This behavior is concerning because it gives assets an artificial price.  Savers are punished in this environment as short term rates are near zero and asset prices are not discovered by market participants.

One excellent way to protect yourself if by purchasing something that is not subject to manipulation.  Deeply over-sold physical commodities such as a house that Countrywide Financial had a $200,000 note on and is fire-selling for $25,000 would be a good use of funds.  This way you control a physical commodity, a dwelling, and you can rent that at market rates.  You will always be able to demand the market rate for shelter regardless of what happens to the instrument that you accept as payment.

Another way to protect yourself is to purchase physical gold or silver.  This can not be easily faked in small quantities such as 1oz coins.  Try to buy one a month for security.  Collecting them is fun too.  Do not ever store them in your home and be careful of trusting your bank's vault which is a member of the Federal Reserve System discussed above.  Private storage options should be considered or clever hiding only telling one trusted person, possibly your attorney.

Notice how the recent sell off has not impacted the price of precious metals.

Gold has retreated nearly 2% in this current sell-off.  This is a very bullish sign.  One problem that the economic criminals are running into is that if they artificially sell down the price of gold the Asian demand for physical delivery has created a constant bid in the market.  The Chinese Yuan will soon be the new world reserve currency.  Believe the unbelievable if you want to drink in front of the herd.

Finally, you will need some capital gains and the miners are your best bet.  This sell-off has unfairly smashed the miners.  One reason this happens is that the average sheep has a Jim Cramer Mad Money portfolio of AAPL, BBY, NFLX and AMZN stock worth $100k.  He makes 10% on that as the Fed manipulates.  Next he thinks, "If I margin this account I could make another 10% using borrowed money!"  Good idea, speculative mining stocks are his best bet.  Margin call on the main portfolio, dump the spec trades.  Miners are trading down 20% in some cases this week when the metal in the ground is down 2% as shown above.

I can't tell you what to buy and how much to pay for it in this post but I am available for consulting.  Always pick mining stocks carefully as we have discussed ad nauseum on this site.

Good luck.

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