By James M. Carrillo
Sr. Portfolio Adviser, Swiss America
Aug 7, 2008
With the Dollar gaining in value, Oil dropping, Gold losing some value and Stocks rebounding is it time to panic and abandon Gold and get bullish on stocks and the U.S. Dollar?
Lets start with the stock market rally. The Dow dropped rapidly from 14,000 to 11,000 and the S&P500 (chart below) from 1600 to 1200 because of the banking crisis and rapidly rising commodities prices, now bargain hunters are coming into the market buying up the stocks because the worst is over, right?
Analysis shows that while it sounds good nothing could be further from the truth, bank liquidity is horrid as witnessed by several majors freezing Home Equity lines of credit in the past 2 weeks JP Morgan, Bank of America, Citi Bank and today Morgan Stanley, this trend dries up liquidity and limits bank earnings. Credit Cards are being used at the highest rate ever and that is sure to cause the next wave of problems because people are running up there credit card debt in order to maintain there lifestyle.
Secondly, people are celebrating the demise of Oil which has recently had headlines such as Oil prices PLUNGE, Gas prices drop below $4.00, drivers feel relief? Sounds great BUT, oil prices were $60.00 a barrel in 2007 and we are celebrating a drop to $119.00 from a high of $145.00 in 2008. My math tells me oil prices have doubled in just one year, this is massive inflation no matter how you look at it. Don't forget there is a lag between cause and effect and the effects of this are not yet fully felt by the consumer.
The third and most important factor in the market "relief" is the "Fed bailout". All is well, or is it? The Fed is no longer reporting the money supply (M3) which is the amount of money being placed into circulation.They have taken all of the bad debt of companies like Bear Stearns and given the good paper and assets to JP Morgan to name one instance. Then they kept the bad paper themselves and offered the banks as much money as they need to stay open, for now. They gave carte blanche access of unlimited cash to Fannie Mae and Freddie Mac, the largest mortgage companies in the world to slow down the mortgage meltdown. The question you need to ask yourself is this, where is this money coming from? The answer is simple, YOU and ME not today, but very very soon. This is also known as Monetary Inflation print, print, print. Sounds great but the more you print the less value it ultimately has and we are printing at the fastest clip in history. The FED is robbing Peter to pay Paul, also known as a ponzi scheme.
If these things sound scary to you, they should because its frightening and the ramifications of this may very well be the end of our currency and wealth. You see this is just a big show for our creditors because we need MORE money and the only way to keep getting more investment money from foreign countries is to make it look good (doctor the books) for the people we are getting all the money from to support our massive debt, namely China and the Middle East. Do you realize that China and the Middle East could be the benefactors of all of this? That they are the ones buying the bad debt of our banks, financial institutions and mortgage companies. What happens when YOU can't make payments on YOUR mortgage? They come and take it right? THINK ABOUT IT! The owners of our home mortgage debt and bank deposits are in China, Saudi Arabia and the other countries who refer to us as the infidels! Is it possible they could call our debt? Pay up! They won't want our worthless paper folks.
Take a look at the reality of the market charts below very carefully and make up your mind because to me this is the time to be thankful for what could be ONE LAST CHANCE to get out of paper and into Gold because nothing has changed. If anything they are about to get far worse.
As you can see above, the major moving averages the lines below the price are in tact if gold drops we should be buying aggressively. Look at 2006-2007 (Very similar pattern) the next wave up could be to well over $2,000.00 according to most analysts.
S&P 500 Monthly
As you can see above. The Stock Markets cleanest index has broken its major moving averages and rallies should be sold.
The Dollar chart is the most important thing of all, this is the market that is the mirror image of Gold. Gold is the anti dollar as it loses value Gold gains. For the past 6 months it is flat and we are being told its gaining strength. I wish I could manufacture trillions of anything and make it worth more but the fact is the MORE there is of something, the less its worth. The fed is manufacturing massive amounts of dollars to bailout banks, mortgages, brokerage companies and pay the enormous growing interest on our massive budget deficit then selling it to foreign countries who have liquidity once again, namely The Middle East and China.
The press and government may be telling us all is well but I don't swallow it, do you?
Bottom line, don't be fooled, use this short term market fix as an opportunity to adjust your portfolio before the next onslaught.
Fed's no fool, are Americans? -4-1-08 by Jim Carrillo