Thursday, May 15, 2008

Perceptions Change Like The Weather


Until today, there has been a pervasive "perception" that the credit crisis is waning, and that the US Dollar had bottomed and is in the midst of a "rally". Folks, this is a bubble of bullshit that is about to burst. Wishful thinking, daydreaming, d-e-l-u-s-i-o-n...call it what you will. POP! Pffft! ...and it's back to reality.

In fundamentals alone, this "perception" lacks a single dose of reality. Just today, in a speech, Fed Chairman Bernanke said the credit crisis continued to confound the economy. "Events continue to unfold," he said, adding that "the financial stress we continue to experience" stemmed from a separation of lending and distribution of credit to investors. Hmm, sounds like a credit crisis in full swing to me. The Dollar "rally" ended today with news from the ECB that growth in the Euro Zone is robust and inflation is steady. Understand that the perceived Dollar "rally" is based solely on current [and continued] weakness in the Euro, and not a single straw of fundamental reality.

This evening we see news that Japanese GDP is up:

TOKYO (Thomson Financial) - The Japanese economy grew at a faster-than-expected pace in the first quarter as brisk exports to emerging markets like China offset slower demand in the United States, government data showed on Friday.
The Cabinet Office said gross domestic product grew 0.8 percent in real terms in the

January-March quarter and at an annualized rate of 3.3 percent.

With Japanese inflation running hot in a country that imports ALL of it's Oil, could we soon hear talk of a rise in Japanese interest rates and a rising Yen? Can you Dollar Bulls say, "DOINK!"

Europe and Japan are on the verge of putting the US economy in their rear view mirrors. The biggest of all fears in these two economic partners is that a slowdown in the US economy would drag their economy's down, and that their strong currencies would weigh heavily on their respective export sales. The World Economy is moving forward in spite of the US economic slowdown.

The interesting thing about perceptions is that they're just like the weather, they change. As it becomes ever clearer that the ECB is not going to be cutting interest rates soon, if at all, and that the Bank Of Japan may soon have the "strength" to raise interest rates, the US Dollar will begin to be perceived for what it really is...burnt toast.

This morning, the Precious Metals caught the sent of soon to be changing perceptions. A mid day dip in Oil prices the only thing holding Gold back today from a long awaited breakout from it's oppressive two month consolidation. The most amusing aspect of today's dip in Oil prices were the market headlines touting it's effect on stock prices: Stocks advance after retreat in oil prices. The media is so misleading [as if that needed to be said]. Oil prices had completely retraced their entire dip by the 4PM close of markets in New York and stood at 124.51, +0.29 at 5:15PMest.

...the Philadelphia Federal Reserve said regional manufacturing activity is contracting in May at a much slower pace than in April...

Guys, it's slowing. The pace that it is slowing is irrelevant.

...the Fed said nationwide industrial output sank for the second straight month in April by 0.7 percent, due to big cutbacks in the automotive and other manufacturing industries. The drop was more than double analysts' average prediction.

Perhaps if industrial production was just "slowing" instead of "sinking"...

The Labor Department said the number of laid off-workers applying for jobless benefits rose last week by 6,000 to 371,000 -- near the average analyst forecast, and suggesting that the labor market remains weak but in check.

The labor market is substantially weaker than the Labor Department would ever allow you to believe...

The media cannot get the inflation story straight:

On Wednesday:

Stocks advance after lower inflation reading
Wall Street advances after better-than-expected consumer price report eases inflation concerns
NEW YORK (AP) -- Wall Street advanced Wednesday after a better-than-expected report on consumer prices tempered some of the market's concerns about inflation.

On Thursday:

Gold, Silver Futures Rebound on Demand for Inflation Hedge
May 15 (Bloomberg) -- Gold rose for the first time this week on speculation higher energy costs and a weaker dollar will boost demand for the precious metal as a hedge against inflation. Silver also gained.

And today's most shocking headline:

Government Inflation data at Odds with Reality
In an age where governments of every political stripe distort economic data to promote their own self-interests, it’s hardly surprising that they present inflation statistics that are wildly at odds with the reality faced by consumers and businesses, and regarded with utter disbelief. In the latest US government report on inflation for instance, there was a glaring “seasonal adjustment,” for energy prices that cast great doubt as to the accuracy of the findings.

US Labor Dept apparatchiks said consumer prices rose a smaller than expected 0.2% in April, tamed by energy prices, which were unchanged last month. Utilizing an obscure “seasonal adjustment,” Labor figured that gasoline prices actually fell 2% in April, which doesn’t reflect the reality of what consumers were paying at the pump. Furthermore, the IMF’s global food price index rose 43% over the last 12-months, but the US consumer price index for food is only 5.1% higher.

Wall Street cheered the tame inflation rate, reckoning it gives the Federal Reserve more time to peg the fed funds rate at 2%, to jig-up the stock market with massive money injections. But the folks who aren’t fooled by the government’s propaganda on inflation are the American people, whose dollars buy less with each passing month. The inflation tax is the great thief of the middle class.

For the 12-months through April, prices for US imports were 15.4% higher. Yet Wall Street economists massaged the data, and explained that wholesalers and retailers are absorbing the higher costs out of reluctance to increasing prices and driving away customers. Should we trust the inflation statistics conjured-up by government apparatchiks, or rather, place greater faith in the depreciating dollars and cents that flow through the commodity markets each business-day?

Five weeks ago I "boldly" predicted Gold and Silver would see new highs by Memorial Day. Obviously, that looks highly unlikely. Am I sorry I made that prediction? In a word, NO. All things being equal, I think we could all agree that both Gold and Silver would have made substantial new highs by Memorial Day. I have made every effort in the past five weeks to keep before you the fundamental reasons to be invested in Gold and Silver. These fundamental reasons for owning Precious Metals are only stronger today than they were just five weeks ago. If this is your first correction/consolidation in the Precious Metals markets, consider yourself now a veteran. If the past two months have been "nothing new", I'm certain you know what lies ahead. On that note I will now boldly predict that in the next up leg of this secular Bull Market in Precious Metals, percentage gains in Silver will nearly double those of Gold.

As the threat of inflation grows each day... As the mention of inflation begins to dominate the headlines... A rising tsunami of investment in Gold and Silver is sure to follow.

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