Timing & trends

Sorry, Draghi, it ain’t going to work …"I see a giant trap about to slam shut"

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Posted by Larry Edelson - Uncommon Wisdom

on Monday, 10 September 2012 07:43

I fail to see the merit in Mario Draghi’s approach to the euro crisis. Buying “unlimited amounts” of bonds from indebted sovereign euro countries and then “sterilizing” the printed money is simply not going to work.

First,  Germany’s Bundesbank, by far the most powerful national central bank in the euro zone, is not squarely behind the deal. That’s not a good sign.

Just hours after Draghi announced the plan, Germany’s Finance Minister Wolfgang Schaeuble also jumped into the fray, warning that he stood against the European Central Bank’s (ECB) bond-buying plan.

Second, Draghi plans on sterilizing the money printed by his bond-buying. That means the ECB will issue its own debt to mop up the money it’s printed. So there will be no net increase in the monetary base, which is dis-inflationary … at a time when precisely the opposite is needed, a dose of inflation.

Third,  the sterilization will cause even more problems. The only countries that can afford to buy ECB bonds to mop up excess money printing are the rich euro-zone countries, mainly Germany and France.

Think that through. It means the bonds the ECB does buy, from failing sovereign nations, will put money in their coffers … while the bonds the ECB issues will take money out of the coffers of the richer nations.

Do you think Germany and France will like to see their liquidity tightened while their suffering neighbors get all the benefits? I don’t think so!

Fourth, by driving down short-term yields on sovereign bonds in heavily-indebted and busted euro-zone countries, the ECB will effectively shorten those countries’ debt maturities.

With those busted countries falling deeper and deeper into a depression, that will merely serve to make their debt loads worse in the longer run, because debt will have to be rolled over more frequently.

Fifth, the indebted nations of Europe that will get the aid will have to get their fiscal houses in order by complying with strict policies put out by the ECB. If they don’t, then the ECB backs away from buying and supporting their bonds.

Guess what? The ECB-imposed austerity measures will merely serve to make the debt crisis worse. And that’s assuming countries like Spain, Italy, Portugal, etc. will be able to comply with strict austerity measures in the first place.

That’s highly unlikely. Just look at how Greece has gone down the tubes with austerity measures that, in turn, forced it to go hat-in-hand time after time for more bailouts.

Put another way, if Spain, Italy, Greece etc. can’t comply, they lose the ECB backing. And if they do comply, their economies simply crater more.

In short, there is no way Draghi’s plan is going to work. The markets, most of which have rallied sharply on the news, are headed for one of the biggest disappointments I’ve ever seen. The gap between hope and reality has never been wider.

I see more trouble ahead, too. This Wednesday, Germany’s Federal Constitutional Court will decide the legitimacy of the European Stability Mechanism, the funding vehicle for bailout money. There’s a chance it will decide against it, which would put Draghi’s plan in jeopardy.

In addition, our Fed meets this Thursday and the majority of investors and traders are expecting Ben Bernanke to announce another round of money-printing.

They’re going to be sadly disappointed. Bernanke will do no such thing. While he will give the usual rhetoric that the Fed stands ready to print, and perhaps may give a few more clues about it, I strongly believe that the Fed will not initiate any money-printing until after the elections, at the earliest, and more likely, not until early 2013.

Bottom line: I don’t like what I’m seeing in the markets. It’s not just my gut, not just my interpretation of the news or fundamentals either.

  • While the S&P has marched to a new recovery high, it remains largely unconfirmed by the advance/decline ratio, by volume, and by the Dow Transports.
  • While gold has rallied to just above $1,700, it has thus far failed to take out my system resistance at the $1,727 level, let alone monthly resistance at $1,740 to $1,750.
  • While silver has exploded higher too, it has also failed to take out monthly resistance at the $34 level.

Meanwhile, the euro remains below monthly resistance at the 1.28 level and the dollar is holding monthly support at the 80 level in the nearby Dollar Index futures. Crude oil has failed to get above important resistance at the $100 mark.

I see a giant trap about to slam shut. A lot of investors are going to get hurt. Don’t be one of them.

Until next time …

Best wishes,


P.S. From ECB meetings to the upcoming Fed meeting to the never-ending saga of European sovereign-debt problems, September is filled with uncertainty. But it’s also filled to the brim with opportunity. And in my Real Wealth Report, I help you seize the profit potential from the opportunities these events create. Activate your risk-free trial subscription by simply clicking here now!

larry edelson

Larry Edelson has over 34 years of investing experience with a focus in the precious metals and natural resources markets. His Real Wealth Report (a monthly publication) and Power Portfolio provide a continuing education on natural resource investments, with recommendations aiming for both profit and risk management.

For more information on Real Wealth Report, click here.
For more information on Power Portfolio, click here.


Timing & trends

Gold "A Bit Overcooked" & "This party is just getting started"

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Posted by Ben Traynor - Mark Leibovit Comment

on Friday, 07 September 2012 07:18

"Thursday’s announcement of a bond buying program on the part of the ECB was expected but welcomed news nonetheless in the precious metals markets. Gold and Silver have been leading the charge over the last few weeks as the powers that be in Europe, and here in the U.S. have talked about taking action to stimulate their economies. With more money printing now virtually guaranteed, traders are looking for inflation hedges, and of course are turning to the metals. This action has pushed the price of gold back above $1700/ounce.

Picture 1

The recent buying push has also caused both gold and silver to break their long term downtrend lines. Gold’s downtrend line has been in place for a year and silver’s for 16 months. The action this week has also pushed each over its 50 week moving average (the blue line). This is bullish action, however in each case the stochastic (circled) is in overbought territory, which means that we can expect a pullback of some sort before the uptrend resumes. As money printing becomes the remedy of choice for worldwide economies, the appeal of gold and silver will only grow. This party is just getting started as we are now entering the positive season for gold and silver prices." -  Mark Leibovit via his VR GOLD LETTER Published This Morning September 7, 2012 


Gold "A Bit Overcooked" Ahead of US Nonfarms Data, "Bazooka" from ECB "Is Just a Can Kick Down the Road"

by Ben Traynor BullionVault

SPOT MARKET prices for buying gold rose to $1698 an ounce Friday morning, in line with where they started the week, while stock markets also rose, following yesterday's announcement of the European Central Bank's bond market intervention plan.

US Treasuries fell, while commodities were broadly flat, with the exception copper, which posted gains. Copper traders are now more bullish than at any time since last October, according to a survey by newswire Bloomberg, which sites "mounting speculation" about central bank stimulus measures, such as a third round of quantitative easing (QE3) from the Federal Reserve.

A day earlier, gold hit its highest level in six months at $1713 per ounce Thursday, although it fell following the publication of a stronger-than-expected ADP Employment Report, a precursor to today's official August nonfarm payrolls release.

"There is definitely long liquidation going on after the ADP number," says one trader in Singapore.

"People spent the whole of yesterday buying gold and it is a bit overcooked up here. Now we have good data and the market is struggling to see how it can get a bad [nonfarm] payrolls data."

"The consensus expectation for today's nonfarm payrolls is 130,000 [jobs added in August]," says a note from Rabobank this morning, "although in reality it may [now] have been revised upwards...the final clues for today's nonfarm payrolls were positive, at least for the economic recovery, not for the chances of QE3."

Prices to buy silver meantime climbed to $32.40 per ounce this morning – on course for a 2% weekly gain – while on the currency markets, the Euro rose to its highest level in more than two months, a day after ECB president Mario Draghi announced the new Outright Monetary Transactions program, aimed at tackling the Eurozone crisis by buying distressed Eurozone sovereign bonds.

"OMTs will enable us to address severe distortions in government bond markets which originate from, in particular, unfounded fears on the part of investors of the reversibility of the Euro," Draghi told Thursday's press conference.

There will be "no ex-ante limits" on the size of OMTs, Draghi added. 

"This is your bazooka," Organisation for Economic Cooperation and Development chief Jose Angel Gurria told the Financial Times yesterday, having used that phrase earlier in the week when urging the ECB to act.

OMTs will target debt of up to three years in maturity, Draghi said, and will also be fully sterilized – meaning the ECB will sell other securities to absorb the liquidity created.

In addition, OMT purchases will be subject to conditionality, meaning governments would have to enter into some form of bailout program with at least the possibility of bond purchases by the European Financial Stability Facility, or its scheduled permanent successor the European Stability Mechanism. Governments that fail to fulfill their bailout commitments could face a withdrawal of ECB support. 

Benchmark 10-Year Spanish bond yields fell to their lowest level since April this morning, dipping below 5.7% – two percentage points below their high in July. Italian 10-Year yields hit a six-month low at just over 5%.

Neither Italy nor Spain has formally requested a bailout, although Spain's government agreed a €100 billion credit line in June to finance the restructuring of its banking sector.

Germany's Constitutional Court is due to rule next Wednesday on whether or not the creation of the ESM is at odds with German law.

"Investors still view gold as a non-paper currency and I don't think anything the ECB said or did yesterday has changed people's psyche," says Simon Weeks, head of precious metals at Scotia Mocatta.

"Really they just kicked the can down the road." 

In Switzerland meantime, the central bank may be considering a de facto devaluation of the Swiss Franc, moving its price floor for the Euro-Franc exchange rate from SFr1.20 to SFr1.30, FT Alphaville reports.

Over in China, the world's second-biggest gold buying nation behind India last year, Beijing has approved 1 trillion Yuan worth of infrastructure spending, equivalent to around $158 billion.

"With clear signs of a worsening slowdown of economic growth, China's central government has finally taken real actions," says Bank of America Merrill Lynch economist Lu Ting.

"They are clearly stepping up the infrastructure investment push to help boost confidence and revive growth," adds Zhang Zhiwei, chief China economist at Nomura in Hong Kong.

"We believe the decision for the Chinese government to intensively announce these projects over the past two days signals a significant change in its policy stance from the incremental and reactive approach to a more decisive and proactive approach."

In November 2008, China announced a 4 trillion Yuan stimulus package as a response to the global financial crisis.

The deputy governor of India's central bank meantime has again cautioned Indians against buying gold, following comments he made in July.

"Because interest rates are very low, people are investing in gold," said KC Chakrabarty on Friday.

"But the poor should never invest in gold for whenever they have purchased gold, it either lands up in the temple or in the hands of the moneylender or, at the most, it may be given away during a daughter's marriage."

Earlier this week, key figures in India's bullion industry expressed fears that gold import duties may be hiked for the third time this year.

Ben Traynor


Thinking of ? Make it safer, cheaper and easier with BullionVault...

Editor of Gold News, the analysis and investment research site from world-leading gold ownership service BullionVaultBen Traynor was formerly editor of the Fleet Street Letter, the UK's longest-running investment letter. A Cambridge economics graduate, he is a professional writer and editor with a specialist interest in monetary economics. Ben writes and presents BullionVault's weekly gold market summary on YouTube and can be found on 

(c) BullionVault 2012

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.


Timing & trends

History & Current Signals For These September Markets

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Posted by Gary D. Halbert - Forecasts & Trends

on Thursday, 06 September 2012 08:22

September is often a bad month for the stock markets, historically speaking, and this year it could be especially turbulent. In addition to all the uncertainty about the weak US economy, there is uncertainty about what the Fed may do just ahead and what, if anything, will be done to address Europe’s recession and debt crisis. In addition, there is the looming presidential election which no doubt will go hyperbolic this month.

To begin this discussion, with all of its variables, let’s take a look at the precarious position the US stock market is in based on recent price action. The Dow Jones Industrial Average failed once again to break out decisively above overhead resistance at the 13,250 level in August.


This is the third time this year that the DJIA has failed at this level, and that could be a bearish development on its own – before we take into account a number of additional potentially negative possibilities that could show up this month. Let’s consider them.

The global stock markets are looking for answers on three big fronts in September:

  1. Can European leaders and policy makers put into action the promises made this summer for dealing with the debt crisis?
  2. Will the sputtering US economy get another dose of monetary stimulus on September 13 at the conclusion of the next monetary policy meeting?
  3. Will the next batch of data show China’s economy getting better or worse? Some worry that China’s economy will be the next to fall into a recession.

Any one of these issues could undermine investor confidence to the point that it triggers a new bear market in stocks. All of this comes against the backdrop of a very close US presidential election that could determine the country’s fiscal path for years to come. And all of this follows the month of August when trading volume in the markets was exceptionally weak, perhaps in anticipation of fireworks this month.

Central bankers in both Europe and the US will play a pivotal role in September, as we will see if their hints of more monetary easing – which kept stocks aloft during the summer months – come true.

There is a meeting of the European Central Bank this Thursday (Sept. 6), and the markets are looking to see whether the ECB will cut rates. More importantly, the markets will be watching to see if European leaders will approve purchasing sovereign debt of troubled countries.

This issue takes center stage following ECB President Mario Draghi’s recent comments that the ECB would do whatever it takes” to defend the euro. Draghi pledged to buy short-dated Spanish and Italian bonds one month ago, and now the market hopes to see him add details about the size and scope of such purchases and any other “non-standard” forms of easing that might be on the table.

The European Commission is expected to have a proposal on a banking union by next Tuesday (Sept. 11), ahead of the EU leader’s summit in December. The ECB is expected to then have the supervisory role, and the proposed new “European Stability Mechanism” – if Germany’s court backs it – could then be used to recapitalize European banks.

That decision is expected to come on Wednesday of next week (Sept. 12), when a German Constitutional Court will decide whether the proposed new European bailout fund, the ESM, is legal. If approved, the much larger ESM would succeed the current limited EFSF bailout fund. Many also believe that this month could be the time when European leaders decide once and for all whether or not to issue “Eurobonds” which Germany vehemently opposes.

Finally, there is a critical decision that will likely come this month in regard to Greece. Earlier this year, Greece formally requested additional time for implementing further austerity measures. The European Commission, the ECB and the IMF – the so-called “Troika” – are expected to render a decision before the end of September.

Germany and France have refused to extend the time frame thus far, and Athens is scrambling to make cuts. The Troika will be assessing whether Greece will ever be able to get out from under its onerous debt burden, which is 160% of its GDP. It remains to be seen what the Troika will decide. If the answer is no, Greece could decide to default and exit the euro. We all know what that will mean for the global stock markets!

Then there’s the key Fed Open Market Committee (FOMC) policy meeting that also begins next Wednesday, which could determine whether the Fed will conduct a new round of easing this fall. Fed Chairman Ben Bernanke, in his Jackson Hole speech Friday, again said the Fed could do another round of easing, if necessary, giving the markets fresh commentary to consider as that important meeting approaches (more on this below).

Before the Fed meeting next Wednesday is this Friday’s key release of the August employment report, the day after President Obama’s big convention speech. The August employment report is the last big data point for the Fed to consider ahead of the upcoming FOMC meeting. It is also one of three final employment reports ahead of the US election, and political analysts expect employment to be a big factor for voters.

Ahead of Friday’s report, economists expect that just under 120,000 jobs were created in August, following 163,000 new jobs in the July report. That could be a big disappointment which could send the stock markets lower.

Finally, there are concerns on the part of some that China’s economy will fall into recession next year. I don’t happen to believe that China will fall into recession just ahead. China’s economy has slowed this year, but growth is still believed to be somewhere north of 3-4%, maybe even 5%.

These are just some of the key unknowns that will likely be resolved – or not resolved – this month. If you think about it, there are no clear-cut answers for any of these problems. And the equity markets could react negatively, no matter what decisions are reached or not reached.

Now let’s turn our eyes to the latest economic reports from the US.

The Economy Sends Mixed Signals in August

The Commerce Department revised its estimate of 2Q GDP growth from 1.5% to 1.7% (annual rate), following growth of 1.9% in the 1Q. The latest report was right in line with the pre-report consensus and confirms once again that economic growth is anemic.

The Consumer Confidence Index unexpectedly plunged from 65.4 in July to 60.6 in August, the lowest since last November. The pre-report consensus was for an increase to 66.0, so the dive was a surprise. Yet the University of Michigan Consumer Sentiment Index actually increased in August to 74.3 for reasons unknown. However in that same survey, 50% said their current situation is worse than it was five years ago. That tells the real story.

The Consumer Confidence Index, which was based on a survey conducted August 1 - 16 with about 500 randomly selected people nationwide, underscored that anxiety. The Index is widely watched because consumer spending accounts for 70% of GDP. It has remained well below the 90 reading that indicates a healthy economy – a level it hasn’t touched since the recession began in December 2007.

In the latest reading, the percentage of consumers expecting business conditions to improve over the next six months declined to 16.5% from 19% the month before. Those expecting more jobs in the months ahead declined to 15.4% from 17.6%, while those expecting fewer jobs rose to 23.4% from 20.6%.

On the manufacturing front, the ISM Index dipped below the key 50.0% mark in July, falling to 49.8%. This morning, the Institute for Supply Management reported that the Index fell further in August to 49.6%. Any reading below 50.0% in the Index is an indication that the economy is contracting.

On the unemployment front, initial claims for unemployment benefits rose to 372,000 in last Thursday’s report, up from 368,000 the prior week. The August unemployment report will be out this Friday, and the consensus is that it will remain unchanged at 8.3%.

Fortunately, not all the economic news of late has been bad. Durable goods orders in July were better than expected at 4.2%, up from 1.6% the month before. Retail sales were better than expected in July at 0.8%, up from -0.7% in June. Industrial production rose 0.6% in July, up from 0.1% in June. Factory orders were also better than expected in July. The Index of Leading Economic Indicators rose to 0.4% in July, up from -0.4% in June.

On the housing front, there was also some good news. Existing home sales rose to the highest level in over two years in July at 4.47 million units. New home sales also matched a two-year high in July, up 3.6% to 372,000 units. New permits for building homes rose 6.8% in July to 812,000 units, the highest rate since August 2008. Housing starts, on the other hand, unexpectedly fell 1.1% to 746,000 units in July.

While there was some good news in the economic reports released in August, the big drop in consumer confidence has to be concerning. Consumer spending, as we all know, is the big driver of the economy, and the significant drop in August is not a good sign.

Where Does the US Economy Go From Here?

The US economy is lousy, we can all agree on that. But what does it look like beyond this year? What follows is an updated snapshot of consensus economist estimates for GDP growth (quarter over quarter %) and the unemployment rate going out to the 1Q of 2014. The consensus estimates come from Bloomberg surveys of dozens of economists on a regular basis.

As shown in the first chart below, GDP growth is expected to still be below 2% in the 1Q of 2013. Economists are then expecting GDP to grow by 2.4% in 2Q 2013, 2.6% in 3Q '13, 2.8% in 4Q '13 and 2.95% in 1Q 2014. Unfortunately, 3%+ GDP growth is not expected at any point in the next year and a half.


Along with sub-3% GDP growth, economists aren’t expecting a significant drop in the unemployment rate over the next year and a half either. The consensus expectation for unemployment is 8% or higher through 2Q 2013, and then it dips by 20 basis points per quarter over the next three quarters. The unemployment rate does not drop below 8% until the 3Q of next year. By Q1 2014, the unemployment rate is only expected to be down to 7.5%, based on the average estimate of the economists surveyed.


As always, keep in mind that these estimates are those of “mainstream” economists, many of whom are employed by big banks and institutions. As a group, they are often wrong and their projections work on the theory that we won’t have a recession or another financial crisis – neither of which can be ruled out, in my opinion.

Bernanke’s Jackson Hole Speech – Mixed Signals

Analysts far and wide were hoping for clues in the Fed Chairman’s speech last Friday at the annual economic symposium in Jackson Hole, WY. Some came away optimistic that the Fed will announce QE3 at the upcoming FOMC meeting on September 12-13, while others felt just the opposite. So depending on who you read, you could have taken either position.

In his speech, Bernanke made the case that the first two rounds of QE were successful in helping the economy, a position that many would argue. He also suggested that QE3 – if it were to happen – would also be beneficial. In addition, he also stated:

“Unless the economy begins to grow more quickly than it has recently, the unemployment rate is likely to remain far above levels consistent with maximum employment for some time…. The Federal Reserve will provide additional policy accommodation as needed to promote a stronger economic recovery and sustained improvement in labor market conditions in a context of price stability.”

These remarks and others made The Wall Street Journal's MarketWatch.com conclude that Bernanke “made it clear that he’s ready to pull the trigger. The only question that remains is whether it will happen in mid-September or December.”

But while Bernanke made clear that the Fed is willing to intervene via QE3 – if necessary – he also left no doubt that he wants to avoid this if at all possible. Bernanke continued to caution that there are hard-to-quantify downside risks to QE, including higher inflation and the question of how the Fed will unload potentially several trillion dollars in debt securities at some point.

Then there is the question of timing, given that this is an election year. Would the Fed move to implement QE3 at its September 12-13 meeting next week, or would it wait until December? Some argue that the Obama administration would be reluctant to publicly endorse another large round of asset purchases by the Fed, as it would be seen as an admission by the White House that the economy is in dire straits. Privately, however, I would think the Obama administration would welcome it.

At the end of the day, most observers agree that the Fed is willing to do QE3, but probably only if it looks like the economy could be tipping into a recession. Time will tell. If Bernanke does not announce QE3 at next week’s press conference on Thursday (Sept. 13), then I think it’s safe to assume the Fed will do nothing until after the election.

My Thoughts on the Republican Convention

Finally, I suppose I should comment on the Republican convention. Overall, I thought it was very good. With the help of his wife, a couple of very good personal videos and a good closing speech, I think Mitt Romney accomplished what he needed to do. Even the talking heads on MSNBC and CNN agreed.

Many conservatives wished that Romney had been tougher on President Obama, but apparently he and his advisers felt it was better for him to stay above the fray and hope to convince undecided voters that he is human after all. While more post-convention polls will be out later this week, it looks like Romney got a “bounce” of 4-5 points. We’ll see. In any event, the race should remain fairly close.

The bigger question is, what do the Democrats do for three days starting tonight? Without much of a record to run on, the Obama campaign has spent almost all of its money trying to demonize Romney, which hasn’t worked. If they try to do that for four days on national TV, the relatively few viewers that are watching these conventions will tune out early-on.

So it will be most interesting to see what they come up with. The speaker line-up is not very impressive overall, although Bill Clinton’s speech tomorrow night will draw a lot of attention as it should. Other speakers include Harry Reid, Nancy Pelosi, John Kerry and Jimmy Carter.

Most notably, Hillary Clinton will not make an appearance, much less a speech. The most powerful woman in the Democrat Party will not even attend. Hmmm…. Makes you wonder who made that decision – Obama or Hillary?

“2016: Obama’s America” Movie – You Need to See It

Last week, I encouraged you to go see 2016, especially because it is a documentary on Barack Obama’s life and the major influences on him. I admitted that I learned several things about our president that I did not know. I’m not much of a movie goer, but I am going to see it a second time this weekend. I can’t remember the last time I saw a movie twice in theater. You really need to see it!

Over this summer, I have raised the possibility that some of President Obama’s policies have been a part of a grand plan to reduce America’s dominance in the world. Based on the huge response I have received with regard to that notion, it is clear that many of you agree on this point. That is why you need to see this movie. It is eye-opening.

I said this last week, but it bears repeating. I believe that this film will set off alarm bells, even among some liberals. I suspect that more than a few liberals will come away from the movie and conclude: Wait, that’s NOT what I signed up for! If you see the movie, you will know exactly why I say this.

Here is the link to the 2016 movie trailer: http://2016themovie.com.

Have a great week, and keep your seatbelts fastened for a potentially wild September.

Wishing summer wasn’t drawing to a close,

Gary D. Halbert

"Gary D. Halbert, ProFutures, Inc. and Halbert Wealth Management, Inc. are not affiliated with nor do they endorse, sponsor or recommend any product or service advertised herein, unless otherwise specifically noted."

Forecasts & Trends is published by ProFutures, Inc., and Gary D. Halbert is the editor of this publication. Information contained herein is taken from sources believed to be reliable, but cannot be guaranteed as to its accuracy. Opinions and recommendations herein generally reflect the judgment of Gary D. Halbert and may change at any time without written notice, and ProFutures assumes no duty to update you regarding any changes. Market opinions contained herein are intended as general observations and are not intended as specific investment advice. Any references to products offered by Halbert Wealth Management are not a solicitation for any investment. Such offer or solicitation can only be made by way of Halbert Wealth Management’s Form ADV Part II, complete disclosures regarding the product and otherwise in accordance with applicable securities laws. Readers are urged to check with their investment counselors and review all disclosures before making a decision to invest. This electronic newsletter does not constitute an offer of sales of any securities. Gary D. Halbert, ProFutures, Inc. and all affiliated companies, InvestorsInsight, their officers, directors and/or employees may or may not have investments in markets or programs mentioned herein. Securities trading is speculative and involves the potential loss of investment. Past results are not necessarily indicative of future results.


Timing & trends

Prepare! - "The only way the world-debt problem is going to be solved"

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Posted by Richard Russell - Dow Theory Letters

on Wednesday, 05 September 2012 08:54

The Debt can never be paid off through "normal" means. Paying off by normal means would entail a huge, really killer boost in taxes and a brutal unmerciful, slashing of entitlements. The national debt of the US is now well over $16 trillion and growing at the rate of over one trillion dollars a year.

The only way the US's debts can ever be seriously addressed is to devalue the dollar

The US owns the world's greatest hoard of gold. Here's what I think the authorities have to do. They should unilaterally, overnight raise the price of gold to a high value, maybe around $10,000 an ounce. Thus, each dollar would be worth one ten-thousandth of an ounce of gold. This would allow our enormous debt to be paid off with vastly devalued dollars.

This would be inflationary, since everyone who owned gold would own a pile of devalued dollars. The huge increase in the number of dollars would drive prices up, and that would work against the current forces of deflation. 

Nations owning gold would in turn (in order to compete) -- devalue their own currencies, and thus be able to pay off their own "impossible" debts. In the end, a new world monetary system would have to be established, but the terrible problem of a planet choking on debt would be solved. 

I think this is the only way the world-debt problem is going to be solved. It will, in the end, be solved by devaluation (as Roosevelt did in 1933, when he suddenly and unilaterally raised the price of gold from 20 to 35 dollars an ounce). Interestingly, we now hear an increasing amount of talk regarding gold entering the world monetary system. Furthermore, I think we are going to hear even more about gold in future months. Smart, wealthy, well-informed investors will start accumulating gold. (Soros and Paulson are doing it already. I don't doubt that Soros has inside information.)

I also believe that the US will, in due time, start backing its currency with part-gold and the dollar will be convertible into gold at around $10,000 an ounce. This will render the dollar the most wanted currency in the world.

I believe the Chinese are onto the same idea. But as of now, China does not own as much gold as they desire, which is one reason China has rushed headlong into the gold business -- China is currently the world's biggest producer of gold. It is also why China is encouraging its own people to buy and accumulate gold. China knows that gold is the future of the world monetary system.

Ed Note: Central Banks are buying Gold, here's 3 articles: 

Central-Bank Gold Buying Seen Reaching 493 Tons In 2012

Is Central Bank buying just a driving force behind gold or much, much more!

Central Bank Action "Good for Gold", ECB Bazooka Needed as Pressure on Spain Intensifies


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Russell also offers a TRIAL.  (two consecutive up-to-date issues) for $1.00 (same price that was originally charged in 1958). Trials, please one time only. Mail your $1.00 check to: Dow Theory Letters, PO Box 1759, La Jolla, CA 92038 (annual cost of a subscription is $300, tax deductible if ordered through your business).

Investors Intelligence is the organization that monitors almost ALL market letters and then releases their widely-followed "percentage of bullish or bearish advisory services." This is what Investors Intelligence says about Richard Russell's Dow Theory Letters: "Richard Russell is by far the most interesting writer of all the services we get." Feb. 19, 1999.

Below are two of the most widely read articles published by Dow Theory Letters over the past 40 years. Request for these pieces have been received from dozens of organizations. Click on the titles to read the articles.

"Rich Man, Poor Man (The Power of Compounding)"

"The Perfect Business"


Timing & trends

Market Update: Stocks, Bonds, Oil, Gold US Dollar

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Posted by Peter Grandich - Grandich.com

on Tuesday, 04 September 2012 08:33

With Summer unofficially behind us now, we enter three of the more interesting months of every trading year.

U.S. Stock Market - The “Don’t Worry, Be Happy” crowd on Wall Street shall eat up the perception that Bernanke and the FED have or will be in QE3 mode. Despite numerous fundamental and technical reasons for concern, it’s been my belief that the path of least resistance remains up, not down. I continue to think a marginal, new all-time high is possible.


U.S. Bonds – Thanks to QE3 unfolding, I continue to hope the 10yr. T-Bond yield can get down to 1.25% It would be a screaming short if and when it does. U.S. bonds look to be the worse investment vehicle for the next decade.


U.S. Dollar – Despite something like 95%-98% bulls, the U.S. Dollar managed only a dead-cat bounce and is rolling over as we speak. This is in the face of Europe still a basket case (what does that say about the dollar once Uncle Sam shows to be even a bigger basket case next year?). The only party that doesn’t know the U.S Dollar is terminally ill is the U.S. Dollar.


Gold - The “mother” of all gold bull markets has had a classic consolidation/correction in a secular bull market that still has much left on the upside.

Please remember we shall be collecting funds for the “Tokyo Rose” of gold bears when we go to new highs.


Oil and Natural Gas Triple-digit oil is around the corner. Natural gas remains an avoid.



Special Note - The one fly in the ointment for many markets remains the belief it’s a question of when, not if, war breaks out between Israel and Iran. There are all sorts of signs suggesting it’s indeed when and the number of possible scenarios that can unfold if and when this take place are many. We shall see if and when the time comes and go from there.


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