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After sliding to its lowest levels in history this week, the flagging US dollar has captured the limelight. And it certainly should. The dollar is like nothing else, a critical linchpin that links every market and asset of global importance. The implications of the dollar’s fall from grace are profound and universal. |
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Considering that it is a world of serial bubble-blowing, one can't help but wonder how so many participants get trapped at the top. Yes, the mania in residential housing has had its unique aspects, but the housing market became rather intense along with the impetuous action in crude oil, gold and silver that climaxed in the first part of 1980. |
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As a stock-market sector, gold stocks are obscure, increasingly volatile, and seemingly perpetually unloved. Yet investors and speculators choose to own them anyway. Why? Because in the past gold stocks have greatly amplified gold’s underlying gains. Traders are betting this outperforming behavior will continue in the future. |
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Despite the fact that the Fed still believes that a recession is unlikely to occur, Bernanke & Co. followed up on last week’s emergency 75 basis point rate cut with a 50 basis point kicker on Wednesday. |
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The financial markets are always exhilarating. And as a student of the markets, I’ve learned over the years that their dynamics leave no room for boredom. Whether bull, bear, or monotonous grind in either direction, there is always something new and exciting going on. |
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| Until this week, each swoon in the stock market was followed by not much more than "three-day wonders" – also there were a few of the common one and a half day rallies – often seen within a severe decline. |
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Over the past half-century, the United States has seen its global dominance in dozens of industries slip away. One plum that we have maintained is our gargantuan financial services industry, whose contribution to total GDP more than tripled between 1947 and 2005. However, the current global financial crisis, manufactured on Wall Street and exported to the entire world, may result in the U.S. losing its financial crown as well. |
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Gold is definitely not the only commodity enjoying a very happy new year. The strong global investment demand for precious metals has spilled over into silver as well. |
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On the near term, the big step was down started two weeks ago as a number of indexes took out their August lows leading to the same failure for the senior indexes last week. |
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For members of Congress desperate to avoid recession, the takeaway message that Fed Chairman Bernanke delivered in his testimony this week was that a successful stimulus package needs to be rapid and targeted. |
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The young new year has not been very happy at all for the stock markets. In the first five trading days of 2008 alone, the S&P 500 bled a brutal 5.3%. This sharp slide nearly doubled the SPX’s losses since early October to 11.2%. Once a general-market correction exceeds 10%, Wall Street gets nervous. |
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Our view last May was that the bull market would end with a burst of "Rational Exuberance". By that we meant that the conclusion would be exciting and likely to be timed to the key change in the yield curve. |
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Holding onto its "all is well" bias like a terrified cowboy on an enraged bull, Wall Street has managed to convince itself, and much of the world, that inflation is a non-issue. |
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The title Intellectual Hysteria may seem like a non-sequiter. Regretably it is not, and starting with Thomas Malthus at the end of the 1700s, there have been some outstanding examples of otherwise introspective intellectuals becoming high-profile preachers of doom and gloom. |
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As our economic ship continues to spring leaks, the goldilocks crowd still clings to the false belief that the Fed can easily keep us afloat with a few more rate cuts. |
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From their lows in the early 2000s, base metals prices have soared to achieve highs in the last couple years that many would have thought unheard of. Traders that were long in both the futures and the stocks of the mining companies that bring these metals to market have seen legendary gains. |
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If you are a gold-stock investor, the dark cold days surrounding the winter solstice seem exceptionally fitting this year. As the warm sunlight has largely fled the northern hemisphere, so has bullish sentiment largely fled the gold stocks. |
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Despite Washington and the Fed working fast and furiously to destroy international confidence in the US dollar, it still remains the currency of choice for pricing many international markets. Among these is gold. Regardless of where this metal is mined, it is almost always priced and sold in US dollars. |
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Investing and speculating in gold stocks is a very risky business. While they tend to greatly leverage the underlying gains in gold during a secular gold bull, individual stocks face a wide variety of perils on their journey to legendary gains. As a scary recent example illustrates, sometimes these perils can be catastrophic. |
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Without question, the Bush administration’s mortgage rescue plan will exacerbate, not alleviate, the problems in the housing market. As the plan will sharply reduce the ability of new buyers to make purchases, it really amounts to a stay of execution and not a pardon. |
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As part of our theme, for the past few weeks we've mentioned that often severe liquidity crises cleared a number of acute problems in November and the markets recorded a rebound in December. Last week this was accompanied by the mention of a cyclical model that had called for a high close to October 12-14, had also been calling for an important low near the end of November. |
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As internal debates in the Gulf and Asian nations intensify over the need to continue propping up the U.S. economy, dangerous signals this past week from the Fed, Freddie Mac, and Wall Street may be pushing them to finally let go of the lifelines that have kept America afloat. |
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In only two weeks market forces are providing another outstanding instruction on the nature of credit and liquidity.
Given a year or so of such instruction, it may get through to the more flexibly-minded policymakers, as well as Wall Street pundits. |
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The launch of the party that eventually overwhelmed traditional banking can be said to have started somewhere between the incredible opening chords of Chuck Berry's "Roll Over Beethoven" and Keith Richard's distinctive riffs in the Stone's "Satisfaction". It wasn't just the culture of music that changed, but most everything including the hard-earned culture of prudent banking. That's in commercial as well as central banking.
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For the vast majority of Americans who usually don’t follow trends in the crude oil futures market, the Global “Oil Shock” only caught their attention after gasoline prices suddenly jumped 15% at the pump this month. Last week, West Texas Sweet crude oil surged to an all-time high of $98.62 /barrel, and greased the skids under the Dow Jones Industrials for a 4% plunge to the 13,000 level, zapping the value of investors’ 401k accounts. |
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When home prices skyrocketed in the early part of this decade, everyone seemed to forget that the subprime borrowers were high risk by definition. Now that losses are snowballing, lenders are belatedly rethinking the “wisdom” of making such loans in the first place. |
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Reversals from extreme overbought daily and weekly readings in gold generally take five to nine days to correct back to the 50-day moving average (with an initial bounce from the 20-day moving average) and produce a decline of 35 points in the daily RSI(14). Therefore we should be looking for a bounce from $795 and support around $760 by the beginning of next week with an RSI(14) reading in the mid 40's. |
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In real time, credit contractions don't always follow a straight line. However, in the fullness of time they seem to have gone by rather quickly. Perhaps Merrill's report of a $5 billion write down was an attempt to get out all the bad news and then some. |
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"A rabbit's instinct is to dodge," we had explained. "It sees a wolf coming…it darts one way, then it turns suddenly and goes the other way. The charging wolf is heavier. His momentum keeps him going in the same direction, so he's likely to miss the rabbit. It's a survival instinct…rabbits dodge because the rabbits that couldn't dodge were eaten by wolves before they had a chance to reproduce… |
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Recent reports of better than expected job growth and a 3.9% gain in 3rd quarter GDP have spawned much talk about how the resilience of the American consumer is enabling the country to weather the subprime storm. |
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Gold, which was a scoffed-at pariah not too many years ago, suddenly finds itself on the verge of being almost sexy again. With this metal now challenging its all-time nominal high from January 1980, I am hearing from more ordinary non-market-following folks who are newly interested in gold investing. |
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Investors in gold and silver have been richly rewarded the last few weeks as they have exploded to the upside. As we write this on Wednesday morning, gold is sitting on 839 (up 19) in the spot market and silver at 15.64 (up .40). |
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The global commodities bull has sure been flexing its muscles in recent years. And this is a result of our growing world’s insatiable demand for the hard commodities that feed widespread industrialization and modernization. Since these commodities are finite in nature, an economic imbalance has emerged that has showcased incredible market activity. |
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Yesterday, as the dollar fell to new record lows and oil and gold prices surged to new highs, Wall Street remained fixated on wholly meaningless government data that managed to report the lowest inflation in the last half century. |
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I was thrilled to see that Junior Mogambo Rangers all over the place sent me the AP news article by Anne D'Innocenzio titled "Living Paycheck to Paycheck Gets Harder", which shows how attuned their delicate Mogambo Economic Senses (MES) have become to the tremors of economic calamity (inflation in prices). |
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What would it take to send the U.S. economy—and New York’s—into free fall? A doomsday primer. |
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Four leading members of the Bush administration's economic team, including Ed Lazear, Chairman of the Council of Economic Advisors, Commerce Secretary Carlos Gutierrez, Al Hubbard, director of the National Economic Council, and Jim Nussle, director of the Office of Management and Budget, convened on a CNBC panel earlier this week and confidently forecast that the economy would avoid a recession. |
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Since the middle of August alone, gold has powered 18% higher driving a 40% rally in the HUI gold-stock index. Just a week ago the Ancient Metal of Kings closed near $768, its highest nominal levels seen since its famous January 1980 super spike. |
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In an exchange earlier this week on CNBC, a guest explained that rising oil prices can not cause inflation because prices for other goods must fall as spending is diverted to pay for more expensive oil. That explanation prompted host Becky Quick to ask: “If rising oil prices do not cause inflation, then what does?” Since that question was left unanswered on the air, I thought I would take the time to answer it here. |
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Has gold risen too rapidly in its latest price moves? While long term prospects remain good, short term volatility may move the price downwards as external factors come in to play. |
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After powering above $85 per barrel this week, crude oil is one of the hottest commodities around. Although this week’s stellar prices haven’t yet reached oil’s all-time inflation-adjusted highs near $100 from way back in spring 1980, these new nominal record prices are really getting speculators’ blood flowing. |
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Analysts say the current high price for platinum could be temporary, although further supply disruptions could drive it a little higher yet. |
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Would you like to have your commentaries posted on our site?
Send your contact information and your article to design@microcaptraders.com |
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We are witnessing a generational bull-market in natural resources. The boom is due to the ongoing urbanisation and industrialisation of vastly populated developing nations in Asia and Latin America. |
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I had the Mogambo Bunker Of Paranoid Hysteria (MBOPH) in total lockdown, as I instinctively sensed something was wrong. Most things looked normal, however, and even though oil had risen to over $88 a barrel, the stock market was holding up fairly well, the bond market was holding up, and even Total Fed Credit (the stuff from which money-from-thin-air, the stuff of which price-inflation-from-thin-air, is originally created) was doing nothing much, either, and was actually down by another $3.2 billion last week. |
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Remember a few years ago when several books were published with titles, like, Dow 40,000, Dow 22,000, Dow 36,000, Dow 39,000. This was in late 1999 and early 2000 at the then top of the internet bubble and with the Nasdaq and the Dow hitting highs. Exuberance was everywhere. |
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Coming at a time when rate increases were needed to combat the sinking dollar and surging gold, oil and other commodity prices, Ben Bernanke’s 50 basis point cuts in the Fed funds and discount rates this week may go down as the most irresponsible move in Fed history. |
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