Hello World,
I am participating in a Panel Discussion on April 29th at Gainey Ranch Golf Club in Scottsdale, Arizona and want to invite you to attend.
Registration is in process, but time is running out to ensure your seat at this lively discussion. A delicious continental breakfast is included in the inexpensive registration fee.
Deflation? Recession? Hyper-Inflation? Stagnation? Inflation? -- A panel of leading experts will give you their bottom line opinions! Elliott Pollack, Fletcher Wilcox, and H. L. Quist will provide a lively discussion on the concerns of business owners/investors. Adequate time will be provided for audience questions.
Friday, April 29, 2011
8:30AM—9:00AM Continental Breakfast
9:00AM—11:00AM Round Table
Gainey Ranch Golf Club
7300 E. Gainey Club Drive
Scottsdale, Arizona 85258
RSVP ASAP to ensure your seat
Cost::$25.00/Person
Checks made payable to:
H. L. Quist and
Mailed to: Kas Baird
c/o Grand Canyon Title
10607 N. Hayden Rd., F-102
Scottsdale, AZ 85260 by April 15th,
Or
Pay by credit card at the link below
https://www.paypal.com/cgi-bin/webscr?cmd=_s-xclick&hosted_button_id=SR58Y9JWQXZ9A
Be sure to indicate the number of persons attending by updating your information on the payment page.
Questions? email hlquist at djmwealth dot com
-- H. L. Quist
Showing posts with label Inflation. Show all posts
Showing posts with label Inflation. Show all posts
Tuesday, April 19, 2011
Monday, January 3, 2011
Free Preview of CMV For January, 2011
Hello World,
The CMV Recommended List grew 45.17% in 2010!!!
The comparative results for 2010 were as follows:
The CMV Portfolio +45.17%
Dow Jones Industrial Avg. +10.95%
S&P 500 +12.80%
NASDAQ Composite +17.36%
Below is a preview of the CMV (Contrarian Market View) Newsletter for January, 2011. See the end of this post for a free book offer with the purchase of a subscription to the full monthly newsletter. (Note: due to the limitations of a blog post the appearance of this preview is not as it will appear in the actual subscriber copy.)
January, 2011
H. L. Quist’s
Contrarian Market View
Newsletter
* * * *
REMINDER
Free Presentation and Luncheon Courtesy of
Golden Peaks Resources (GDPEF).
(Shareholders Only)
Reservations are Required.
Respond to: H.L Quist at 602 840-4117
or hlquist@djmwealth.com
January 14, 2011
The Sanctuary
11:30 a.m. - 2 p.m.
* * * *
Market Overview
Absent the following events that could have a material impact and alter or change our outlook for 2011, CMV offers its’ Contrarian forecast for 2011. These “X” factors are:
1. A Cyber attack on Wall St., the banking industry or government that would significantly impair commerce and confidence in our government ability to curtail this type of activity.
2. A series of terrorist attacks on highly visible and innocent targets that would instill fear in the populace.
3. A breakout of hostilities in the Korean Peninsula or the Mid-East.
Assuming none of these above events occur, here is CMV’s best guesstimate of major events that will influence your business, your investments and your family in 2011.
1. The Economy and Financial Markets Will Surprise to the Upside.
Barron’s Magazine polled 10 prominent strategists and investment managers who collectively see the S&P 500 finishing 10% higher than this year’s close at 1258 or 12.80%. Despite the Fed’s Reflation Plan to prop up asset prices while maintaining interest rates at historical lows they all agree that inflation will not be a problem. David Kelly at JP Morgan Funds forecasts the highest S&P earnings at $98/sh for 2011 and the 10 year T-Note at 4.25% by the end of 2011. When questioned as to what sector will best perform in the year ahead, 5 out of the 10 picked technology as the number one performer. Remarkably, none of the 10 experts chose precious metals in their four or five favorite sectors. One could assume that they missed the numero uno sector (gold funds) which have out-performed all sectors for the past 10 years. CMV’s position is that S&P earnings are going to be tempered by higher raw material costs and the 10 year T-Note could be a full 100 BPS or more above the consensus of 4.00% despite Bernanke’s attempt to “cap” it. Inflation by the end of 2011 will be the most off-repeated word in the English language but remains foreign to Wall St..
Despite the fact that the US economy will not reach the Nirvana of robust earnings, low interest rates and no inflation as forecast by these experts, the economy and the markets will surprise to the upside and you should be fully invested after mid-January. An added impetus will be provided by the major banks who will aggressively increase their business lending in 2011 contrary to prominent pundits.
2. The Us Dollar Loses Luster.
CMV described in the December issue that China and Russia had organized the Shanghi Co-Operation Organisation (SCO) which garnered very little notice in the US media. In mid-November China allowed its’ currency, the yuan, to be bought and sold outside the mainland for the first time. This is a critical step moving to full convertibility of the yuan and Americans are oblivious of the impact this will have on the international financial landscape and the value of the USD. The goal of China and Russia and other states that are coming on board SCO, is to circumvent the USD in international trade and allow countries to settle transactions in currencies other than the USD. The dollar has been the world’s reserve currency for over 60 years and 2011 will mark the beginning of the end of the dollar’s role. When China severs the yuan’s link to the USD, the value of our currency will sink like a rock in a swimming pool and the prices of imported goods will skyrocket.
3. The “Shock and Awe” Real Estate Loan Program.
The Obama Administration is actively in negotiations with Fannie Mae (FNM), Freddie Mac (FRE), and the Federal Housing Administration (FHA) to develop a new government program that would be aimed at reducing loan balances where borrowers owe more than their homes are worth. FNM and FRE which own or guarantee about half of the all the mortgages in the US, would transfer the reduced loans to the FHA and of course, losses will be absorbed by you guess who! In addition FNM and FRE and other lenders plan to recoup somewhere between $200 and $400 billion from banks who sold them the toxic subprime loans. CMV expects FNM and FRE to be “restructured” ostensibly using the bank proceeds. CMV sees this imitative as a “game changer” and will stop the bleeding in the residential real estate market in 2011 if the plan comes together. The plan will be adopted by the US Treasury and the Obama Administration without review of Congress and the cost heaped on you and I, the taxpayers.
4. The Bond Bubble To An Asset Bubble.
The Federal Reserve Board Chairman’s goal is to create asset inflation by driving investors from near zero return bonds to higher risk appreciating assets — stocks, commodities and eventually real estate. In CMV’s opinion, Mr. Bernanke will succeed in the near term. There is an almost inestimable amount of trillions in government, corporate and municipal bonds that are, and will be ever-increasingly, diverted to risk assets. Viola! Asset inflation. We have Mr. Bernanke’s “100% certainty that the Fed can control inflation.” CMV believes that the Chairman will fail on this promise. Unfortunately, with Federal deficits running in excess of a trillion per year, the US Treasury issuing new debt and re-funding old debt at about $4.3 trillion per year, interest rates will rise, reminiscent of the late 70s. In late 2011 and into 2012 CMV believes that US bond investors will conclude that they will never be paid back with anywhere near close to the same purchasing power and the Fed will find itself in a series of accelerating QE programs which will inevitably lead to Hyper-Inflation. CMV doesn’t know what the time frame may be but in the end trillions of dollar denominated debt will disappear and never be repaid. More on pages 3 and 4.
5. City and State Governments Will Default.
Meredith Whitney, the Wall St. analyst who accurately forecast the sub-prime debt crisis well in advance, recently said that there will be “fifty to one hundred sizable Muny defaults amounting to hundreds of billions of dollars in the next 12 months.” In addition, some analysts are also including the states of Illinois, New York and California as candidates for default. Many defaults would have occurred in 2010 had it not been for $140 billion in Build America Bonds that these governments used to pay interest on old debt, salaries to employees and pension payments to retirees. The BABs are scheduled to end on December 31, 2010.
On December 27, however, Republican Congressman John Mica said, “I can almost guarantee” that the program for subsidized bonds will be funded next year. Ignoring the Tea Party’s mandate, Mica is playing to Wall St. which made $700 million in the past 2 years on fees off of BABs! Proving once again that the system is corrupt and will fail.
Austerity measures could be met with denial, anger and rioting. It’s human nature for US citizens to take the position that ‘It can’t happen here” and refuse to accept the possibility that we’re no different than Euroland, Latin America or even third world countries. Civil unrest could be the primary event of 2011 and 2012. George Soros, who CMV revealed as “the most dangerous man in America” basks in the glory of the chaos he’s created in his quest to kill the capitalistic system and profit from its demise.
Ben’s Inflation Bubble
It is difficult for the average person to grasp the meaning of the term and the presence of “inflation” for a number of reasons:
-- We’re constantly reminded by the talking (Wall St.) heads on CNBC that “there is no inflation” because it undermines their purpose of a “Goldilocks” economy..
-- The Bureau of Labor Statistics has modified the methodology that produces the Consumer Price Index (CPI) to the extent that the index is worthless. Removing food prices from the core index at a time when these prices are exploding is a perfect example how government deceives its citizens while it steals from them.
-- Economists tell us that we can’t have price inflation during periods of high unemployment, low money velocity and low GDP growth whereas it has suddenly appeared when those conditions exist.
-- People don’t equate Fed monetary policy and fiscal stimulus with asset and price inflation which is the direct result of current policy. Inflation is first and foremost a monetary phenomenon.
Let’s look at some specifics:
Corn is closing in on $6.00/bushel — up 50% since June.
Spring wheat is $12/bushel — up 20% from a year ago.
Feeder cattle is $124.75/100 wt — up 25% from a year ago.
Coffee is $2.25/lb — up 7.5% in a week.
Sugar is $32.5/lb — up 12% in a week.
Cotton is $1.50/lb — up over 100% in a year.
To fully appreciate the cause and effect that’s going unnoticed in virtually all areas of the US (except farming country) is the incredible boom in farm land prices. According to the WSJ (December 9, 2010) two tracts of farmland in O’Brien County in Iowa sold recently for $9,700/acre. The article says that “land fever is running rampant” in the mid-west. John Deere & Co. Says that net farm cash income will rise 31% this year and it’s the most profitable agricultural year in US history! CMV can’t think of any group of hard-working Americans who deserve it more but consumers won’t agree. Do Not blame it on our farmers!
Land prices are a factor of higher crop prices but what’s driving crop prices? Some experts claim there’s a global food shortage particularly in China but there’s also the inescapable fact that our exports are priced in USD and our currency is melting as fast as a snowball in Phoenix in July. Washington is ecstatic that exports are soaring but now you know why the reign of the USD is going to end — and much sooner than experts figure.
Here’s another aspect of this emerging picture that isn’t obvious. Americans, since 2008, have been buying groceries and goods on a “just in time” basis or a few items at a time. When it becomes apparent to homemakers that prices are escalating they’ll buy in larger quantity. Bingo — demand impacts supply — prices increase and panic buying could ensue. Consumers will be shocked by the increases in food prices in 2011.
Another sign of the times. Copper has popped to $4.25/pound. It has been reported that one US source is hoarding close to a billion dollars of copper by warehousing the metal at the London Metal Exchange! China is utilizing the same technique hoarding uranium, rare earths and gold. The Chinese have this whole future scenario figured out and are trading dollars now for goods needed later. In addition to massive price increases, could we see a trade war? We’re on the cusp — The Future isn’t what it used to be!
Ben Bernanke’s objective through QE2 is to create asset inflation and at the same time (with 100% certainty) control wage and price inflation. Will he follow in the footsteps of his mentor, Alan Greenspan, who set out to inflate real property prices but failed to intercede to curtail the mania that followed? Or, will he turn off the QE spigot and raise the Fed funds rate? In CMV’s opinion, the Fed Chairman doesn’t make that decision — the banksters and politicians who “anointed” him make that decision. Bernanke is simply a hired gun. By the end of 2011 the economy will be running on all cylinders and the banksters and the President won’t want it to stop. The result? Ben’s Bubble — the Fed’s FIFTH since the seventies. Asset bubbles create profits. Investors take profits and pay taxes. It’s like the 1990s all over again. The same market frenzy during the .com bubble created a budget surplus and made Bill Clinton the teflon man. BO wants to replicate his success.
As CMV has reiterated numerous times — this new bubble is the “Last Rodeo.” Our creditors will lose confidence in our fiscal and monetary management and will refuse to lend to the world’s largest debtor nation..Our citizens will also lose confidence in the purchasing power of their currency. The result? HYPERINFLATION. Ben will lose his job and the privately controlled Federal Reserve Bank of the United States will be dissolved. When? It’s just a matter of time.
The 2011 (Good) Surprise
In September 2010, CMV saw a change underway in the economy that most economists, market analysts and observers missed. While most experts were focused on the “double dip” and a decelerating economy ahead, CMV saw stealth evidence that the US economy was about to surprise on the upside in the fourth quarter. Here are some observations that validate CMV’s forecast for a sharp economic rebound in 2011.
-- The Nation’s GDP rose at a 2.6% rate in the third quarter of 2010 and the consensus projection was a 2.4% growth for the fourth quarter. CMV saw a massive increase in exports amongst other signs that would result in a much higher GDP growth in Q4. The port of Los Angeles’ activity was nearly at 2007 levels. Barron’s had boldly forecast a 4% GDP increase and CMV saw an increase of 4.5%. As of this writing economists are scrambling to revise their estimates upward for Q4 and the year 2011.
-- The cost of money was never cheaper and corporate balance sheets were never stronger at the end of Q3. Private Equity firms and Wall St. can’t resist “free money” plus the obvious flow of funds exiting bonds that would be a catalyst for a dramatic turnaround in the stock market and corporate investment. Wal-Mart and Coca Cola borrowed massive amounts of capital through the sale of bonds at an absurd yield of a fraction over T-Notes. CMV rests its case. Bernanke’s QE2 announcement in August was frosting on the cake. The “Fix” was in.
-- The election results, in CMV’s opinion, had much more of a significant economic impact than most may have been willing to admit. A huge cloud of “uncertainty” was lifted from the shoulders of those businessmen and women who make the decisions on corporate expansion, capital investment and hiring that ultimately would reverse the unemployment picture. An increase in new jobs in Q1 2011 will lead to a further increase in 2011 GDP. CMV cautioned however that unemployment would not drop to (what has been considered normal) 5 to 6% The “new normal” will be more like 8% but that will still spur the economy in 2011.
-- As late as the end of November the National Retail Foundation and retail pundits were projecting a modest increase in Christmas sales. CMV, the true Contrarian, saw a much different picture. Consumers were saving at a 5% to 6% rate during the entire year of 2010, credit card outstanding consumer debt was finally declining and “frugal fatigue” would result in a robust Christmas season. As of this writing sales are estimated at $451 billion, or up nearly 4% over 2009 and very close to 2007 highs. The surprise of course, was Internet sales up about 15% to $36 billion and a new phenomenon appeared which foretells problems for the sector. Best Buy reported a dramatic drop in sales. Why? A potential buyer walks into Best Buy shopping for a wide-screen TV with all the bells and whistles and gets the full demo and info from the sales clerk. He then pulls out his cell phone, locates a site that directs him to an Internet vendor that offers exactly the same model for 20% less. Before the ex-potential customer leaves the store he buys the TV on-line. Retail sales may be up on the aggregate but there is a massive marketing shift and re-apportioning of the pie. Another certainty, sales taxes are coming on all on-line transactions — but prices will still remain cheaper.
For those experts who maintained steadfastly that consumer spending would not increase when there’s high unemployment, don’t know how to assess a change in public sentiment. CMV takes the position that American’s should be accumulating as much cash and investing every available dollar in order to prepare for the Great Reckoning which is a virtual 100% certainty. We just don’t know WHEN.
Your writer was on a panel with two other pundits over a year ago. One was the Treasurer of the State of Arizona and the other a stock market broker and analyst. Both of these experts maintained that there wouldn’t be an upside economic reversal (the likes we’re about to see) because so much money was lost and consumers and investors were so psychologically damaged they would refrain from taking any risk. Since March, 2009 the S&P 500 has produced a return of 81.6% through November 2010. High beta stocks not including the resource sector are up a hard-to-believe 213.3% according to Barron’s! As a testament to investor’s appetite for risk, margin debt is now $269 billion which is the highest since the over-leveraged market prior to the September 2008 crash. These panelists like a majority of Americans, missed the “bus to Omaha.”
CMV can understand our State Treasurer’s negative outlook. Every day he had to deal with a mounting deficit and borrow $2 billion to keep the lights on at the Capitol. CMV fully recognizes that the fiscal situation at all levels, federal, state, and city, is unsustainable and can not continue. The choice that leadership at all levels has taken is to INFLATE the problem away which is now underway. Like an Alka-seltzer, its’ a ‘Fizz’ or, temporary relief. Assets will appreciate, tax revenues will increase and an euphoria of relief will change sentiment and all will appear that all is well again. CMV’s value to you is that amidst all the gloom we saw the bloom despite the fact that the petals will again wilt and fall. NOW is the time to make serious money. By the time that the herd decides to join the game it will be too late. The party will be over.
Randall Forsyth writing in Barron’s on December 17, 2010, articulated exactly what CMV has told you ad nauseam:
“...the Federal Reserve’s adoption of QE2 may turn out to be mere footnotes to the bigger story. 2010 could be the watershed marking the beginning of the end of the dollar-based, Western-centric monetary system...”
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Happy New Year!
-- H. L. Quist
Wednesday, December 1, 2010
Free Preview of CMV for December, 2010
Hello World,
Below is a preview of the CMV (Contrarian Market View) Newsletter for December. See the end of this post for a free book offer with the purchase of a subscription to the full monthly newsletter. (Note: due to the limitations of a blog post the appearance of this preview is not as it will appear in the actual subscriber copy.)
The CMV Portfolio continues to outperform all the major indices up 30.1% YTD whereas the S&P 500 is up 6.47%. Investors who are concentrated in Sector #5 (Precious Metals) are experiencing unrealized gains of 30% to 40% YTD.
CMV believes that it should be instructive and worthwhile to review our forecasts and observations for the past eleven months in order to assess the relevance and value of this newsletter to its' subscribers. The January 2011 issue will feature CMV's forecasts for the year ahead. Here's a capsule of 2010.
January
This inaugural issue was primarily devoted to articulating the philosophy and methodology of the Contrarian Market View (CMV). We stated:
CMV is not a market timer, but we don't want to be 100% exposed at a major turn in the market.
In our opinion, the most effective way to deal with continuing market volatility in the future is through "Active Management." Some of the observations made by CMV eleven months ago were:
"The state of California could file bankruptcy in early 2010 absent a Fed bailout." (The bailout came in the form of $30 Billion in Build America Bonds guaranteed in part by the Federal Government.)
"The USD (US Dollar) further rallied sharply from 74 to 78 propelled by the downgrade of Greece's sovereign debt...Ultimately however, CMV expects a significant devaluation of the USD..." (The USD continued to rally as CMV reversed its' position and reached a high of 88 on the Index in June, 2010. It has returned to the 80 range at the end of November.)
CMV recommended a Contrarian purchase of Ford (F) at $10.00/sh and a stock in an unknown sector known as "rare earths" (REE) at $3.86/sh. (As of this date Ford is up 59% and REE is up 158%.)
CMV recommended the purchase of TBT, an ETF that would profit from rising bond yields and forecast that the 10 year T-Note yield could exceed 5% in 2010. (CMV reversed its position in May, 2010 to TLT. The forecast was premature and bond yields declined in mid-2010 as fear of a "double dip" grabbed the headlines.)
February
CMV introduced its' subscribers to the "Inflation Jeannie" whose reference was taken from the 60's sitcom "I Dream of Jeannie" starring Barbara Eden and Larry Hagman. A sudden rise in the Producer Price Index (PPI) in the preceding November, foreshadowed (in CMV's opinion) the rise in inflation and Jeannie's appearance from a dormant state in her bottle. (The threat of a "double dip" and deflation by mid-year forced Jeannie to return to the confines of her bottle only to resurface again in late 2010.)
As early as February 2010, CMV made this political forecast:
"All of those senators and congressman and women who supported this Keynesian irresponsible spending also face a rebuke and defeat in November." (Pretty good call 10 months in advance.)
And,
"The current Tea Parties will end the power hungry far-left progressive's desire to take control of this country." (Not 100% but the spending will be significantly cut.)
"Its' been CMV's consistent position that the solution to the entire real estate market is a formal devaluation of the USD." (QE2 is a formal devaluation of the USD. CMV believes that QE2 is another short-term fix that will lead to adverse longer-term consequences but should lift real property values.)
March
CMV vividly disclosed why the banks were not lending to businesses using a chart from the Federal Reserve that revealed that commercial and industrial loans at all commercial banks had declined by $600 billion from 2007 to 2009. Unknown to the average investor and business person, the commercial banks were borrowing from the Fed at a minuscule rate of .25% and then loaning it back to the Fed at 1% and the Fed in turn used the money to buy US Treasury Bonds. Unknown to perhaps 99% of the US population, there weren't sufficient number of bidders to buy US debt at some of the auctions and the Fed became the secret "direct buyer" for the unsold bonds.
(The above charade has now been replaced or augmented by QE2 whereby the Fed creates the money out of thin air and buys the bonds.)
Despite a poll of newsletter writers that showed that bullish sentiment at 34.1% was the lowest since the bottom of the stock market in March, 2009, the CMV portfolio was up over 6% YTD and the commodity Sector exceeded that number. CMV alerted its' subscribers to the duplicitous motives of George Soros, who while attending the World Economic Forum in Davos, Switzerland, claimed that gold was in a bubble and it would soon burst. Bullion dropped $49 the next day and the world's most devious market manipulator added $421 million of the ETF GLD to his portfolio shortly after his announcement.
(CMV would soon name George Soros as the "Most Dangerous Man in America" before Glenn Beck exposed him.)
April
CMV took the Contrarian View that the economy and the stock market would continue to outperform the dire forecasters who were mouthing "double dip." CMV said:
"...[consumer] spending could surprise on the upside. Ford's sales and profits will be the industry's leader." (Barring an unforseen event, Christmas 2010 will confound the experts also.)
(CMV was overly optimistic on the growth of the GDP in the 4% range for 2010 unless the fourth quarter exceeds all projections.)
As early as April CMV highlighted the massive short position in silver held by J. P. Morgan Chase. (As reported in the November issue of CMV, two lawsuits have been filed against the bullion banks for fraud. Bart Chilton, an officer for the Commodity Futures Trading Commission (CFTC) stated publicly that he had reason to believe that fraud has been committed.)
In the summer of 2009 H. L. Quist's How To Profit From The Coming Inflationary Boom And Avoid The Next Crash was released which alerted readers (p. 23) to the House Committee on Education & Labor's study on the government's conversion of all privately held 401K and IRA retirement plans to a government retirement account (GRA) managed by the Social Security Administration. In the April issue of CMV, we informed our subscribers that the focus had evolved to requiring the GRA to purchase US Treasury debt. The warnings have now reached Code Red.
(The Obama Administrations has set its eyes on an estimated $3.6 trillion in IRA's and an additional $2.4 trillion in 401K's to save the US from bankruptcy. It is imperative that you go to the following sites and discover for yourself that the proposal to confiscate your wealth is far beyond the discussion stage. The Argentina government ‘confiscated' all private plans in 2009.)
http://www.gpo.gov/fdsys/pkg/FR-2010-02-02/html/2010-2028.htm
http://www.americanthinker.com/2010/09/retirement_fund_trillions_lure.html
http://www.dol.gov/ebsa/newsroom/fslifetimeincomeoptions.html
May
CMV issued a Special Bulletin on May 9, 2010 in response to the European debt crisis and the "flash crash" in the US. The DOW had declined 7.4% or 771 points off its' April 26th high. CMV's recommendation based on its Risk Tolerance Model was:
CONSERVATIVE: 80% Bonds (#1 PTTRX) 20% Gold & Silver (#5)
MODERATE: 60% Bonds (#1 PTTRX) 20% Gold & Silver (#5) 20% US Equities (#2)
AGGRESSIVE: 10% Bonds (#1 PTTRX) 40% Gold & Silver (#5) 20% US Equities (#2) 10% each (#3, 4 & 6)
SPECULATIVE: 0% Bonds, 50% Gold & Silver (#5) 10% Each (#2,3,4,6, &8)
(As the second half of 2010 unfolded, Bonds (TLT and PTTRX) performed well. Precious Metals, Uranium and Rare Earths substantially out-performed all of the markets. CMV attributes its right recommendations to good luck and vision and sincerely hopes they have worked out well for you.)
CMV then issued another Special Bulletin on May 18, 2010 recommending that subscribers consider the following action:
1. Reduce exposure by 50% on all US equities except GRX, FAIRX & SHSAX.
2. Reduce exposure on all International Equities by 50%
3. Switch position from TBT (short bonds) to TLT (long bonds)
4. Sell GLD and SLV at market and replace with PHYS or SGOL.
(CMV's concern was that the PIIGS debt crisis in Euroland, the oil disaster in the gulf, inflation in China, and the Obama administration's declaration of war against Wall St. could create a contagion that would cause a sharp market decline.
The S&P 500 had already declined almost 10% since April. On May 29, 2010 CMV recommended the sale of all US Equities with the exception of FAIRX. Despite the sell-off in equities CMV made several bold recommendations:
"CMV has a sense that this group (Precious Metals) is poised for a major breakout to the upside." (Gold bullion was $1181/oz and Silver was at $18.26/oz at the time. GDXJ was at $25.74/sh. The break-out occurred. Au reached $1410/oz, Ag reached $28/oz and GDXJ topped $36/sh.
"RRLMF (which was admitted to the NYSE/AMEX and changed its' symbol to REE) is the best (rare earth) prospect in the US...The stock is down almost 20% this year. It's a BUY." (REE was at $3.11/sh as of May 1, 2010 and dropped further in June before reaching $13/sh in October.)
June
In the June issue, CMV raised the question Is The Pro-Growth / Inflation Trade Over? Talking heads on CNBC proclaimed that a "double dip recission" was in the offering. On June 7th, CMV issued another Special Bulletin aimed at those investors who had an AGGRESSIVE or SPECULATIVE Risk Tolerance, suggesting the use of a number of Short Positions to hedge portfolios in the event of a major market sell off.
(Fortunately the major sell-off in the equity markets never materialized and CMV recommended on October 1, 2010 that all short positions be sold at a minor loss or what should be considered as a cost of insurance.)
CMV, exhibiting its x-ray vision accurately forecast the Fed's most provocative strategy in June when we said:
"To counter the sudden trend change (double dip recession) the Fed, the US Treasury and the Keynesian-controlled Congress will resort to creating more fiat currency and deficit spending..." (Ben Bernanke announced QE2 in August.)
Concerned that the ETF trustees of gold and silver bullion did not have the actual metal on deposit to back the ETF shares, CMV recommended the sale of GLD and SLV.
(GLD showed a profit YTD of 11.35% and SLV 12.27%. The jury is still out on whether or not there's skullduggery at J. P. Morgan Chase and HSBC banks.) On November 29, 2010 an article written by Nadezm Walayat in "Market Oracle" indicated that WikiLeaks Founder Julian Assange would soon release information on several major banks that could cause financial contagion panic. Could it be JPM's silver scam? Could it be BofA/Countrywide who has committed "flagrant violations" and "unethical practices"? BofA stock as down 3% on November 30, 2010.
July
CMV's correct assessment of the downturn in the economy and the recommended asset reallocation proved to be profitable:
TLT produced an unrealized gain of 5.14% during the month as the 10 year yield fell from 3.25% to 2.93%.
The DOW was down 6.27% and the S&P 500 7.57% for the month and the new short positions gained as much as 5.57% for QID.
Despite the decline in the equity markets gold reached an all-time high of $1257/oz. Gold rallied despite the sharp rally in the USD to 88.50 on the Index. Gold was "bifurcating" from the USD.
CMV's report that there was a severe supply-demand imbalance in Uranium gave investors an opportunity to lock in recommended names at low prices. U3O8 was $40/lb in July. (It reached $60/lb in November.)
August
Anecdotal evidence that the US economy was decelerating was everywhere. US Treasury Bond yields were declining as the 10 year reached 2.89% and Fed Chairman Ben Bernanke formally announced that the Fed would purchase more US debt in the future. His comments from November, 2002 that there would never be a depression in this country because "The Fed has at its disposal a new technology called the printing press" (which your author had based his investment strategy on at that date) was about to ring true.
CMV concluded that, despite all the gloom and doom and Robert Prechter's (Elliot Wave International) forecast of the DOW declining to 1,000:
"The combination of increased consumer demand, Quantitative Easing and devaluation of the US dollar will, you guessed it, create a temporary but devastating INFLATIONARY BOOM and BUST. CMV rejects the strategy but recognizes the opportunity to profit from it.
(As the holiday season approaches the retail-experts have done a 180° turn and now forecast a robust increase of 4% to 5% in consumer spending over last year. CMV saw it coming in August.)
In anticipation of a major supply imbalance of uranium CMV recommended two microcaps in this Sector. MGAFF at $.60 and DNN at $1.50.
(As of November 30, 2010, MGAFF is up 136% and DNN 107%.)
September
CMV poked a little fun at pundits and forecasters who called for a major sell-off in the US equity markets during the historically dangerous months of September and October. Namely, James Miekka who dubbed his theory the HINDENBURG OMEN after the devastating crash of the German airship in 1937. (All four short positions were down modestly for the month as evidence that a crash did not occur.)
We introduced George Soros the "Most Dangerous Man In America" to it's subscribers in September which provoked a critical question:
"How do you make a living, manage your investments and plan for retirement when there are those in power who want to destroy capitalism?"
(And, CMV would add, profit from its demise.)
CMV's most prophetic statement was:
"CMV sees a relatively short period of Deflation followed by a sharp increase in the prices of hard and soft commodities..."
(Not surprisingly that's exactly what has happened. In 16 months cotton rose from $.45/lb to a high of $1.50/lb in November.)
CMV issued a dire warning for MUNY Bond investors in September:
"There's about $3 Trillion invested in MUNY BONDS with cities facing a cash crunch and huge undisclosed unfunded pension liabilities. CMV recommends a SELL on MUNYS."
(There was a mass exodus from MUNYS in November and redemptions took many mutual funds down over 10%. What was regarded as a "safe haven" became a conservative investor's nightmare that few had ever dreamed of.)
October
The CMV portfolio gained a robust 12% in September as our forecast proved to be accurate and it paid dividends. Sector #5 (Precious Metals) had an average unrealized gain in excess of 25% for the month. In Sector #8 (Special Situations) REE topped $9.00/sh from a low of $2.00 in July and MCP and TASXF were up over 100% YTD. SALZF which was recommended on March 1, 2010 at $.86/sh was acquired by Talison Lithium, Ltd. at a premium of 125% over the entry price.
September also marked the reappearance of the Inflation Jeannie as few saw the rapid change from a fear of Deflation to a revival of the Inflation Trade within a couple of months. CMV encouraged its subscribers to employ the new paradigm to wealth accumulation:
MACRO INVESTING WITH ACTIVE MANAGEMENT
Bond yields were rising and PTTRX topped out at a 14% unrealized gain YTD but dropped 3% in September. MUNY BONDS imploded and when the Build America Bonds (BAB) ends, many cities and states will be SOL.
CMV gave its subscribers a tutorial in Patience in October regarding #8 Special Situations:
"Three months ago 100% of the names in this sector were in negative territory. CMV didn't FLINCH one iota. When you invest in resource exploration stocks you must have knowledge, conviction and patience. If you don't possess these attributes you'll never make SERIOUS money in this sector."
CMV recommended a penny stock GRGNF on October 1, 2010 at $.22/sh. As of November 30th, the stock is up over 100%.
November
As a direct result of the counter revolution (the elections) CMV made this very bold forecast:
"CMV believes that there will be a sea change in public sentiment in 2011 that will reverse high unemployment and increase the nation's GDP and tax receipts."
(It didn't take long to see tangible results of this intangible. Fortified by more certainty (politically), and tired of "frugal fatigue," consumers appeared ready to spend, spend, spend at Christmas.)
CMV issued its second tutorial on QUANTIFYING RISK which was very well received and gave subscribers confidence to invest in sectors they were told were, and they perceived as, "too risky."
(As of October 31, 2010 the CMV Portfolio was up 25.23% YTD whereas the S&P 500 was a little north of 5.00%. Investors concentrated in Sectors 4, 5, and 8 had realized and unrealized gains of 30% to 50%.)
November marked another sea change in Washington as the U.S. Treasury, up against a debt ceiling of $14 trillion, a FDIC faced with a task of closing 700 banks and no funds to pay off depositors and a Federal Reserve creating trillions of funny money so the government can keep the lights on, became the "bill collector from hell". As pointed out in the November CMV.
--Fannie and Freddie and other government agencies are requiring all the banking institutions that sold them toxic mortgage debt to repurchase those loans. Estimates range from $100 to $500 billion. When this contentious issue is settled the banks will pay.
--The Justice Department has stepped up filing criminal complaints against bank officers who could be held personally and corporately liable for a wide range of misdeeds and face hefty fines and imprisonment.
--The SEC has recently raided a number of hedge funds charging them with insider trading which, if found guilty, will generate substantial fines and imprisonment.
--The IRS which has recruited 16,000 new agents in preparation of enforcing Obamacare, are aggressively stepping up tax collections while waiting for the premium "tax" to kick in.
What may turn out to be CMV's best recommendation was:
"The opportunity to profit in Microcaps in the resource and commodity sectors will be available for a limited time period going forward. CMV's position is clear and concise. Make some serious money while the opportunity exists and then get the heck out of the markets. CMV's value to you is discovering the opportunity and to advise you when the game is over."
(The only thing CMV can't forecast — how much time do we have?)
December
Inflation:
The feature article in the November 18th Wall St. Journal headlined:
INFLATION IS VIRTUALLY FLAT
"A key gauge of US inflation has fallen to its lowest level since record-keeping began in 1957, underscoring the continued weakness in the economy...When volatile food and energy are subtracted, prices were unchanged last month...clothing prices fell for the third consecutive month."
CMV believes that the American public is being deliberately spoon-fed deflationary dis-information for a specific purpose. Briefly CMV will offer a rebuttal.
As reported previously, cotton prices have soared from $.45/lb sixteen months ago to a high of $1.50/lb in November, 2010 and have backed off to the $1.25 range. Here's what's happening in the real world outside of US Bureau of Labor Statistics (BOLS):
--Shandong Zaozhuang Tianlong Knitting has raised prices on Ralph Lauren Polo t-shirts and track suits as much as 70%.
--Unitedtex sells $24 million annually in shirts and jackets to the GAP and they're increasing prices 4% to 30%.
--Ningbo Seduno Group which sells about $30 million in men and women's clothes to the US per year has increased prices by 20% since July.
Chinese clothing manufacturers are faced with a "major squeeze." US retailers are also being squeezed. At some point US consumers will feel the squeeze in the form of higher prices.
Food prices are not included in the BOLS CPI numbers. Here's what Phoenix area shoppers are faced with in a grocery market that is considered as one of the most competitive in the US:
Food Item Increase Over 2009
Turkey, 16 pounds + 7.1%
Cube Stuffing, 14 oz +29.2%
Pumpkin Pie Mix, 30 oz +18.9%
Frozen Green Peas, 1 lb +46.3%
Whole Milk, 1 gallon +21.9%
On November 23, 2010 The Federal Reserve Minutes released to the public downgraded the Fed's outlook for the US economy and indicated that it wouldn't return to its former vitality for five years or more and the jobless rate could exceed 8% for two more years. The Fed Minutes also revealed several other key points. One, they "considered" capping long-term interest rates, and two, if growth surprises to the upside next year it will not trigger any quick reversal in policy.
The dichotomy should be obvious but its' relevance shouldn't be missed. If the Fed sees anemic growth for several years, why would they need to cap long-term bond rates? The market would dictate the rates. And, if the economy surprised on the upside their plans are to invoke the "Greenspan Plan" and allow another bubble to inflate.
Here's CMV's simple interpretation of the Fed's Micro-Managed Stimulus Plan (MMSP):
1. Convince the public that there is no consumer price inflation.
2. Create asset inflation through devaluation of the USD and a perceived growth in equity and net worth (Revisit 2002-2007)
3. Cap the Fed's and Treasury's borrowing costs while paying interest on the $14 trillion existing federal debt with cheaper dollars.
4. Increase federal, state and municipal tax revenue through investor's personal and corporate asset sales (revisit .com bubble) and with increased consumer confidence and spending.
5. Support the administration's plan to "confiscate" 401K and IRA assets and/gold bullion to pay down the federal debt to a perceived manageable level.
Real Estate
A Positive Sign Of The Times
In mid-November a grandiose grand opening signaled (to CMV a "change" in the real estate market — at least in the Scottsdale area. Your writer attended a festive preview of Safari Drive St. Collection which is a stylish, mid-rise urban neighborhood located in the heart of Scottsdale at Camelback and Scottsdale Roads. The combination of flats, town homes, and live / work lofts ranged from 1250 sq. ft. To 1795 sq. ft. and prices ranged from $419,500 to $699,500 — decidedly reduced pricing compared to the market peak in 2007.
Hundreds of guests were given a red carpet introduction to Safari Drive with a champagne glass that was filled by a lovely young lady who was hanging upside down suspended by an unobtrusive tripod a la "Circus Solei". The symbolism of the inverted lady didn't go unnoticed to your writer — who interpreted it as a contrarian sign that the upside-down market was over. More importantly, there hasn't been an upscale open house complete with dining and music in the Valley of the Sun for almost three years.
As evidence that a new era in real estate development is upon us is exhibited by the financial structure of the deal. Four major nationally-known brand corporate names are the developers who are partnered with the FDIC who acquired the project through a take-over of a closed bank. The local builder and marketer is Geoffrey Edmunds & Associates who is bringing this project to market at precisely the right time.
Another bit of anecdotal evidence that a real estate recovery is underway is a home builder client has just purchased four lots in an upscale Scottsdale development to build four luxury spec's. His concern? "Do I have a three year time frame?" CMV confirmed that in its' opinion his timing probably couldn't be better.
International:
CMV stated, after the temporary resolution of the Greek Tragedy, that the crisis in Euroland was far from over. Another one of the PIIGS is now bogged down in the mud — Ireland. More ominous however, is German Chancellor Angela Merkel's assertion that the Euro was in an "exceptionally serious situation" which accelerated a sell-off in the common currency. The unspoken reality is that the European Union which the globalists ballyhooed as the remedy to cure all future monetary crises is on the verge of collapse. The ultimate solution? The WoCu — a world currency which includes the US.
Un-noticed by most observers was the report on FOX News recently of the meeting between Dmitry Medvedev of Russia and China's Wen Jiabao. The two rising global powers have sealed their Shanghai Co-Operation Organization (SCO) agreement (revealed by The Myth Buster on November 14, 2010 on Gabcast). The principal purpose of this alignment of the two communist countries is to establish a new economic order and circumvent the USD in trading. The SCO represents a teutonic shift away from several centuries of European and US political and banking dominance. What's critical to CMV subscribers and investors is that gold will be the reserve basis of their new economic order. Informed reports indicate that both countries, who are major gold producers, are NOT exporting any bullion. If you remove these two countries plus a 30% to 40% reduction in production from South Africa out of the supply equation, the price of bullion must move higher. Think $2,000/oz by December 31, 2011.
Below is a preview of the CMV (Contrarian Market View) Newsletter for December. See the end of this post for a free book offer with the purchase of a subscription to the full monthly newsletter. (Note: due to the limitations of a blog post the appearance of this preview is not as it will appear in the actual subscriber copy.)
December, 2010
H. L. Quist's
Contrarian Market View
Newsletter
H. L. Quist's
Contrarian Market View
Newsletter
The CMV Portfolio continues to outperform all the major indices up 30.1% YTD whereas the S&P 500 is up 6.47%. Investors who are concentrated in Sector #5 (Precious Metals) are experiencing unrealized gains of 30% to 40% YTD.
Market Overview
CMV believes that it should be instructive and worthwhile to review our forecasts and observations for the past eleven months in order to assess the relevance and value of this newsletter to its' subscribers. The January 2011 issue will feature CMV's forecasts for the year ahead. Here's a capsule of 2010.
January
This inaugural issue was primarily devoted to articulating the philosophy and methodology of the Contrarian Market View (CMV). We stated:
CMV is not a market timer, but we don't want to be 100% exposed at a major turn in the market.
In our opinion, the most effective way to deal with continuing market volatility in the future is through "Active Management." Some of the observations made by CMV eleven months ago were:
"The state of California could file bankruptcy in early 2010 absent a Fed bailout." (The bailout came in the form of $30 Billion in Build America Bonds guaranteed in part by the Federal Government.)
"The USD (US Dollar) further rallied sharply from 74 to 78 propelled by the downgrade of Greece's sovereign debt...Ultimately however, CMV expects a significant devaluation of the USD..." (The USD continued to rally as CMV reversed its' position and reached a high of 88 on the Index in June, 2010. It has returned to the 80 range at the end of November.)
CMV recommended a Contrarian purchase of Ford (F) at $10.00/sh and a stock in an unknown sector known as "rare earths" (REE) at $3.86/sh. (As of this date Ford is up 59% and REE is up 158%.)
CMV recommended the purchase of TBT, an ETF that would profit from rising bond yields and forecast that the 10 year T-Note yield could exceed 5% in 2010. (CMV reversed its position in May, 2010 to TLT. The forecast was premature and bond yields declined in mid-2010 as fear of a "double dip" grabbed the headlines.)
February
CMV introduced its' subscribers to the "Inflation Jeannie" whose reference was taken from the 60's sitcom "I Dream of Jeannie" starring Barbara Eden and Larry Hagman. A sudden rise in the Producer Price Index (PPI) in the preceding November, foreshadowed (in CMV's opinion) the rise in inflation and Jeannie's appearance from a dormant state in her bottle. (The threat of a "double dip" and deflation by mid-year forced Jeannie to return to the confines of her bottle only to resurface again in late 2010.)
As early as February 2010, CMV made this political forecast:
"All of those senators and congressman and women who supported this Keynesian irresponsible spending also face a rebuke and defeat in November." (Pretty good call 10 months in advance.)
And,
"The current Tea Parties will end the power hungry far-left progressive's desire to take control of this country." (Not 100% but the spending will be significantly cut.)
"Its' been CMV's consistent position that the solution to the entire real estate market is a formal devaluation of the USD." (QE2 is a formal devaluation of the USD. CMV believes that QE2 is another short-term fix that will lead to adverse longer-term consequences but should lift real property values.)
March
CMV vividly disclosed why the banks were not lending to businesses using a chart from the Federal Reserve that revealed that commercial and industrial loans at all commercial banks had declined by $600 billion from 2007 to 2009. Unknown to the average investor and business person, the commercial banks were borrowing from the Fed at a minuscule rate of .25% and then loaning it back to the Fed at 1% and the Fed in turn used the money to buy US Treasury Bonds. Unknown to perhaps 99% of the US population, there weren't sufficient number of bidders to buy US debt at some of the auctions and the Fed became the secret "direct buyer" for the unsold bonds.
(The above charade has now been replaced or augmented by QE2 whereby the Fed creates the money out of thin air and buys the bonds.)
Despite a poll of newsletter writers that showed that bullish sentiment at 34.1% was the lowest since the bottom of the stock market in March, 2009, the CMV portfolio was up over 6% YTD and the commodity Sector exceeded that number. CMV alerted its' subscribers to the duplicitous motives of George Soros, who while attending the World Economic Forum in Davos, Switzerland, claimed that gold was in a bubble and it would soon burst. Bullion dropped $49 the next day and the world's most devious market manipulator added $421 million of the ETF GLD to his portfolio shortly after his announcement.
(CMV would soon name George Soros as the "Most Dangerous Man in America" before Glenn Beck exposed him.)
April
CMV took the Contrarian View that the economy and the stock market would continue to outperform the dire forecasters who were mouthing "double dip." CMV said:
"...[consumer] spending could surprise on the upside. Ford's sales and profits will be the industry's leader." (Barring an unforseen event, Christmas 2010 will confound the experts also.)
(CMV was overly optimistic on the growth of the GDP in the 4% range for 2010 unless the fourth quarter exceeds all projections.)
As early as April CMV highlighted the massive short position in silver held by J. P. Morgan Chase. (As reported in the November issue of CMV, two lawsuits have been filed against the bullion banks for fraud. Bart Chilton, an officer for the Commodity Futures Trading Commission (CFTC) stated publicly that he had reason to believe that fraud has been committed.)
In the summer of 2009 H. L. Quist's How To Profit From The Coming Inflationary Boom And Avoid The Next Crash was released which alerted readers (p. 23) to the House Committee on Education & Labor's study on the government's conversion of all privately held 401K and IRA retirement plans to a government retirement account (GRA) managed by the Social Security Administration. In the April issue of CMV, we informed our subscribers that the focus had evolved to requiring the GRA to purchase US Treasury debt. The warnings have now reached Code Red.
(The Obama Administrations has set its eyes on an estimated $3.6 trillion in IRA's and an additional $2.4 trillion in 401K's to save the US from bankruptcy. It is imperative that you go to the following sites and discover for yourself that the proposal to confiscate your wealth is far beyond the discussion stage. The Argentina government ‘confiscated' all private plans in 2009.)
http://www.gpo.gov/fdsys/pkg/FR-2010-02-02/html/2010-2028.htm
http://www.americanthinker.com/2010/09/retirement_fund_trillions_lure.html
http://www.dol.gov/ebsa/newsroom/fslifetimeincomeoptions.html
May
CMV issued a Special Bulletin on May 9, 2010 in response to the European debt crisis and the "flash crash" in the US. The DOW had declined 7.4% or 771 points off its' April 26th high. CMV's recommendation based on its Risk Tolerance Model was:
CONSERVATIVE: 80% Bonds (#1 PTTRX) 20% Gold & Silver (#5)
MODERATE: 60% Bonds (#1 PTTRX) 20% Gold & Silver (#5) 20% US Equities (#2)
AGGRESSIVE: 10% Bonds (#1 PTTRX) 40% Gold & Silver (#5) 20% US Equities (#2) 10% each (#3, 4 & 6)
SPECULATIVE: 0% Bonds, 50% Gold & Silver (#5) 10% Each (#2,3,4,6, &8)
(As the second half of 2010 unfolded, Bonds (TLT and PTTRX) performed well. Precious Metals, Uranium and Rare Earths substantially out-performed all of the markets. CMV attributes its right recommendations to good luck and vision and sincerely hopes they have worked out well for you.)
CMV then issued another Special Bulletin on May 18, 2010 recommending that subscribers consider the following action:
1. Reduce exposure by 50% on all US equities except GRX, FAIRX & SHSAX.
2. Reduce exposure on all International Equities by 50%
3. Switch position from TBT (short bonds) to TLT (long bonds)
4. Sell GLD and SLV at market and replace with PHYS or SGOL.
(CMV's concern was that the PIIGS debt crisis in Euroland, the oil disaster in the gulf, inflation in China, and the Obama administration's declaration of war against Wall St. could create a contagion that would cause a sharp market decline.
The S&P 500 had already declined almost 10% since April. On May 29, 2010 CMV recommended the sale of all US Equities with the exception of FAIRX. Despite the sell-off in equities CMV made several bold recommendations:
"CMV has a sense that this group (Precious Metals) is poised for a major breakout to the upside." (Gold bullion was $1181/oz and Silver was at $18.26/oz at the time. GDXJ was at $25.74/sh. The break-out occurred. Au reached $1410/oz, Ag reached $28/oz and GDXJ topped $36/sh.
"RRLMF (which was admitted to the NYSE/AMEX and changed its' symbol to REE) is the best (rare earth) prospect in the US...The stock is down almost 20% this year. It's a BUY." (REE was at $3.11/sh as of May 1, 2010 and dropped further in June before reaching $13/sh in October.)
June
In the June issue, CMV raised the question Is The Pro-Growth / Inflation Trade Over? Talking heads on CNBC proclaimed that a "double dip recission" was in the offering. On June 7th, CMV issued another Special Bulletin aimed at those investors who had an AGGRESSIVE or SPECULATIVE Risk Tolerance, suggesting the use of a number of Short Positions to hedge portfolios in the event of a major market sell off.
(Fortunately the major sell-off in the equity markets never materialized and CMV recommended on October 1, 2010 that all short positions be sold at a minor loss or what should be considered as a cost of insurance.)
CMV, exhibiting its x-ray vision accurately forecast the Fed's most provocative strategy in June when we said:
"To counter the sudden trend change (double dip recession) the Fed, the US Treasury and the Keynesian-controlled Congress will resort to creating more fiat currency and deficit spending..." (Ben Bernanke announced QE2 in August.)
Concerned that the ETF trustees of gold and silver bullion did not have the actual metal on deposit to back the ETF shares, CMV recommended the sale of GLD and SLV.
(GLD showed a profit YTD of 11.35% and SLV 12.27%. The jury is still out on whether or not there's skullduggery at J. P. Morgan Chase and HSBC banks.) On November 29, 2010 an article written by Nadezm Walayat in "Market Oracle" indicated that WikiLeaks Founder Julian Assange would soon release information on several major banks that could cause financial contagion panic. Could it be JPM's silver scam? Could it be BofA/Countrywide who has committed "flagrant violations" and "unethical practices"? BofA stock as down 3% on November 30, 2010.
July
CMV's correct assessment of the downturn in the economy and the recommended asset reallocation proved to be profitable:
TLT produced an unrealized gain of 5.14% during the month as the 10 year yield fell from 3.25% to 2.93%.
The DOW was down 6.27% and the S&P 500 7.57% for the month and the new short positions gained as much as 5.57% for QID.
Despite the decline in the equity markets gold reached an all-time high of $1257/oz. Gold rallied despite the sharp rally in the USD to 88.50 on the Index. Gold was "bifurcating" from the USD.
CMV's report that there was a severe supply-demand imbalance in Uranium gave investors an opportunity to lock in recommended names at low prices. U3O8 was $40/lb in July. (It reached $60/lb in November.)
August
Anecdotal evidence that the US economy was decelerating was everywhere. US Treasury Bond yields were declining as the 10 year reached 2.89% and Fed Chairman Ben Bernanke formally announced that the Fed would purchase more US debt in the future. His comments from November, 2002 that there would never be a depression in this country because "The Fed has at its disposal a new technology called the printing press" (which your author had based his investment strategy on at that date) was about to ring true.
CMV concluded that, despite all the gloom and doom and Robert Prechter's (Elliot Wave International) forecast of the DOW declining to 1,000:
"The combination of increased consumer demand, Quantitative Easing and devaluation of the US dollar will, you guessed it, create a temporary but devastating INFLATIONARY BOOM and BUST. CMV rejects the strategy but recognizes the opportunity to profit from it.
(As the holiday season approaches the retail-experts have done a 180° turn and now forecast a robust increase of 4% to 5% in consumer spending over last year. CMV saw it coming in August.)
In anticipation of a major supply imbalance of uranium CMV recommended two microcaps in this Sector. MGAFF at $.60 and DNN at $1.50.
(As of November 30, 2010, MGAFF is up 136% and DNN 107%.)
September
CMV poked a little fun at pundits and forecasters who called for a major sell-off in the US equity markets during the historically dangerous months of September and October. Namely, James Miekka who dubbed his theory the HINDENBURG OMEN after the devastating crash of the German airship in 1937. (All four short positions were down modestly for the month as evidence that a crash did not occur.)
We introduced George Soros the "Most Dangerous Man In America" to it's subscribers in September which provoked a critical question:
"How do you make a living, manage your investments and plan for retirement when there are those in power who want to destroy capitalism?"
(And, CMV would add, profit from its demise.)
CMV's most prophetic statement was:
"CMV sees a relatively short period of Deflation followed by a sharp increase in the prices of hard and soft commodities..."
(Not surprisingly that's exactly what has happened. In 16 months cotton rose from $.45/lb to a high of $1.50/lb in November.)
CMV issued a dire warning for MUNY Bond investors in September:
"There's about $3 Trillion invested in MUNY BONDS with cities facing a cash crunch and huge undisclosed unfunded pension liabilities. CMV recommends a SELL on MUNYS."
(There was a mass exodus from MUNYS in November and redemptions took many mutual funds down over 10%. What was regarded as a "safe haven" became a conservative investor's nightmare that few had ever dreamed of.)
October
The CMV portfolio gained a robust 12% in September as our forecast proved to be accurate and it paid dividends. Sector #5 (Precious Metals) had an average unrealized gain in excess of 25% for the month. In Sector #8 (Special Situations) REE topped $9.00/sh from a low of $2.00 in July and MCP and TASXF were up over 100% YTD. SALZF which was recommended on March 1, 2010 at $.86/sh was acquired by Talison Lithium, Ltd. at a premium of 125% over the entry price.
September also marked the reappearance of the Inflation Jeannie as few saw the rapid change from a fear of Deflation to a revival of the Inflation Trade within a couple of months. CMV encouraged its subscribers to employ the new paradigm to wealth accumulation:
MACRO INVESTING WITH ACTIVE MANAGEMENT
Bond yields were rising and PTTRX topped out at a 14% unrealized gain YTD but dropped 3% in September. MUNY BONDS imploded and when the Build America Bonds (BAB) ends, many cities and states will be SOL.
CMV gave its subscribers a tutorial in Patience in October regarding #8 Special Situations:
"Three months ago 100% of the names in this sector were in negative territory. CMV didn't FLINCH one iota. When you invest in resource exploration stocks you must have knowledge, conviction and patience. If you don't possess these attributes you'll never make SERIOUS money in this sector."
CMV recommended a penny stock GRGNF on October 1, 2010 at $.22/sh. As of November 30th, the stock is up over 100%.
November
As a direct result of the counter revolution (the elections) CMV made this very bold forecast:
"CMV believes that there will be a sea change in public sentiment in 2011 that will reverse high unemployment and increase the nation's GDP and tax receipts."
(It didn't take long to see tangible results of this intangible. Fortified by more certainty (politically), and tired of "frugal fatigue," consumers appeared ready to spend, spend, spend at Christmas.)
CMV issued its second tutorial on QUANTIFYING RISK which was very well received and gave subscribers confidence to invest in sectors they were told were, and they perceived as, "too risky."
(As of October 31, 2010 the CMV Portfolio was up 25.23% YTD whereas the S&P 500 was a little north of 5.00%. Investors concentrated in Sectors 4, 5, and 8 had realized and unrealized gains of 30% to 50%.)
November marked another sea change in Washington as the U.S. Treasury, up against a debt ceiling of $14 trillion, a FDIC faced with a task of closing 700 banks and no funds to pay off depositors and a Federal Reserve creating trillions of funny money so the government can keep the lights on, became the "bill collector from hell". As pointed out in the November CMV.
--Fannie and Freddie and other government agencies are requiring all the banking institutions that sold them toxic mortgage debt to repurchase those loans. Estimates range from $100 to $500 billion. When this contentious issue is settled the banks will pay.
--The Justice Department has stepped up filing criminal complaints against bank officers who could be held personally and corporately liable for a wide range of misdeeds and face hefty fines and imprisonment.
--The SEC has recently raided a number of hedge funds charging them with insider trading which, if found guilty, will generate substantial fines and imprisonment.
--The IRS which has recruited 16,000 new agents in preparation of enforcing Obamacare, are aggressively stepping up tax collections while waiting for the premium "tax" to kick in.
What may turn out to be CMV's best recommendation was:
"The opportunity to profit in Microcaps in the resource and commodity sectors will be available for a limited time period going forward. CMV's position is clear and concise. Make some serious money while the opportunity exists and then get the heck out of the markets. CMV's value to you is discovering the opportunity and to advise you when the game is over."
(The only thing CMV can't forecast — how much time do we have?)
December
Inflation:
The feature article in the November 18th Wall St. Journal headlined:
INFLATION IS VIRTUALLY FLAT
"A key gauge of US inflation has fallen to its lowest level since record-keeping began in 1957, underscoring the continued weakness in the economy...When volatile food and energy are subtracted, prices were unchanged last month...clothing prices fell for the third consecutive month."
CMV believes that the American public is being deliberately spoon-fed deflationary dis-information for a specific purpose. Briefly CMV will offer a rebuttal.
As reported previously, cotton prices have soared from $.45/lb sixteen months ago to a high of $1.50/lb in November, 2010 and have backed off to the $1.25 range. Here's what's happening in the real world outside of US Bureau of Labor Statistics (BOLS):
--Shandong Zaozhuang Tianlong Knitting has raised prices on Ralph Lauren Polo t-shirts and track suits as much as 70%.
--Unitedtex sells $24 million annually in shirts and jackets to the GAP and they're increasing prices 4% to 30%.
--Ningbo Seduno Group which sells about $30 million in men and women's clothes to the US per year has increased prices by 20% since July.
Chinese clothing manufacturers are faced with a "major squeeze." US retailers are also being squeezed. At some point US consumers will feel the squeeze in the form of higher prices.
Food prices are not included in the BOLS CPI numbers. Here's what Phoenix area shoppers are faced with in a grocery market that is considered as one of the most competitive in the US:
Food Item Increase Over 2009
Turkey, 16 pounds + 7.1%
Cube Stuffing, 14 oz +29.2%
Pumpkin Pie Mix, 30 oz +18.9%
Frozen Green Peas, 1 lb +46.3%
Whole Milk, 1 gallon +21.9%
On November 23, 2010 The Federal Reserve Minutes released to the public downgraded the Fed's outlook for the US economy and indicated that it wouldn't return to its former vitality for five years or more and the jobless rate could exceed 8% for two more years. The Fed Minutes also revealed several other key points. One, they "considered" capping long-term interest rates, and two, if growth surprises to the upside next year it will not trigger any quick reversal in policy.
The dichotomy should be obvious but its' relevance shouldn't be missed. If the Fed sees anemic growth for several years, why would they need to cap long-term bond rates? The market would dictate the rates. And, if the economy surprised on the upside their plans are to invoke the "Greenspan Plan" and allow another bubble to inflate.
Here's CMV's simple interpretation of the Fed's Micro-Managed Stimulus Plan (MMSP):
1. Convince the public that there is no consumer price inflation.
2. Create asset inflation through devaluation of the USD and a perceived growth in equity and net worth (Revisit 2002-2007)
3. Cap the Fed's and Treasury's borrowing costs while paying interest on the $14 trillion existing federal debt with cheaper dollars.
4. Increase federal, state and municipal tax revenue through investor's personal and corporate asset sales (revisit .com bubble) and with increased consumer confidence and spending.
5. Support the administration's plan to "confiscate" 401K and IRA assets and/gold bullion to pay down the federal debt to a perceived manageable level.
Real Estate
A Positive Sign Of The Times
In mid-November a grandiose grand opening signaled (to CMV a "change" in the real estate market — at least in the Scottsdale area. Your writer attended a festive preview of Safari Drive St. Collection which is a stylish, mid-rise urban neighborhood located in the heart of Scottsdale at Camelback and Scottsdale Roads. The combination of flats, town homes, and live / work lofts ranged from 1250 sq. ft. To 1795 sq. ft. and prices ranged from $419,500 to $699,500 — decidedly reduced pricing compared to the market peak in 2007.
Hundreds of guests were given a red carpet introduction to Safari Drive with a champagne glass that was filled by a lovely young lady who was hanging upside down suspended by an unobtrusive tripod a la "Circus Solei". The symbolism of the inverted lady didn't go unnoticed to your writer — who interpreted it as a contrarian sign that the upside-down market was over. More importantly, there hasn't been an upscale open house complete with dining and music in the Valley of the Sun for almost three years.
As evidence that a new era in real estate development is upon us is exhibited by the financial structure of the deal. Four major nationally-known brand corporate names are the developers who are partnered with the FDIC who acquired the project through a take-over of a closed bank. The local builder and marketer is Geoffrey Edmunds & Associates who is bringing this project to market at precisely the right time.
Another bit of anecdotal evidence that a real estate recovery is underway is a home builder client has just purchased four lots in an upscale Scottsdale development to build four luxury spec's. His concern? "Do I have a three year time frame?" CMV confirmed that in its' opinion his timing probably couldn't be better.
International:
CMV stated, after the temporary resolution of the Greek Tragedy, that the crisis in Euroland was far from over. Another one of the PIIGS is now bogged down in the mud — Ireland. More ominous however, is German Chancellor Angela Merkel's assertion that the Euro was in an "exceptionally serious situation" which accelerated a sell-off in the common currency. The unspoken reality is that the European Union which the globalists ballyhooed as the remedy to cure all future monetary crises is on the verge of collapse. The ultimate solution? The WoCu — a world currency which includes the US.
Un-noticed by most observers was the report on FOX News recently of the meeting between Dmitry Medvedev of Russia and China's Wen Jiabao. The two rising global powers have sealed their Shanghai Co-Operation Organization (SCO) agreement (revealed by The Myth Buster on November 14, 2010 on Gabcast). The principal purpose of this alignment of the two communist countries is to establish a new economic order and circumvent the USD in trading. The SCO represents a teutonic shift away from several centuries of European and US political and banking dominance. What's critical to CMV subscribers and investors is that gold will be the reserve basis of their new economic order. Informed reports indicate that both countries, who are major gold producers, are NOT exporting any bullion. If you remove these two countries plus a 30% to 40% reduction in production from South Africa out of the supply equation, the price of bullion must move higher. Think $2,000/oz by December 31, 2011.
The rest of the newsletter is only available to paid subscribers and includes the portfolio of recommendations.
Subscription box in in the left side bar here on the blog.
"GREED" and "PROFIT" are now available for you iPad users.
You can also pay for the year's subscription to the CMV (just $99) plus receive both books free (USA addresses only) by clicking here for the paypal payment window link.
Financial Questions? Contact hlquist at djmwealth dot com
-- H. L. Quist
Thursday, September 30, 2010
Free Preview of October CMV Newsletter
Hello World,
Below is a preview of the CMV (Contrarian Market View) Newsletter for October. See the end of this post for a free book offer with the purchase of a subscription the full monthly newsletter. (Note: due to the limitations of a blog post the appearance of this preview is not as it will appear in the actual subscriber copy.)
October, 2010
H. L. Quist's
Contrarian Market View
Newsletter
Market Overview
Given your inquiries and comments, many CMV subscribers are confused, flummoxed and depressed. The common thread in the preponderance of your emails and calls is your inability to determine the future direction of the economy or in a more macro sense, the direction of the country. This issue of CMV is deliberately dedicated to bring clarity and profitability into your life. Focusing on the economy and reducing the possible outcome to a minimum, CMV envisions three distinct scenarios looking forward to 2011 and beyond:
1. The Bernanke Re-Flation Plan Succeeds
On September 21st, the Federal Reserve's Open Market Committee made it abundantly clear that it wants more INFLATION. The Committee announced, "Measures of underlying inflation are currently at levels somewhat below those the committee judges most consistent, over the longer run, with its mandate to promote maximum employment and price stability."
In short, we know what the Fed will do. What we don't know is, will their strategy be successful? CMV believes it will and it could open the door to enormous profit-making opportunities for you — IF you dare to share CMV's vision.
Under this scenario the following results most likely would occur:
The new Congress would cut off additional stimulus funds, extension of unemployment benefits etc., thereby putting more pressure on the Fed to create "growth and employment opportunities." (As stated)
The Fed would undertake massive Quantitative Easing (QE-2) which would flood the markets with liquidity and further devalue the US dollar.
Stock and commodity prices would surge as a result and the appetite for risk would become ravenous. Bond investors would nail down profits while freeing up multi-trillions of investment capital that eventually would find its' way into real estate.
In the early stages of the RE-FLATION CYCLE, manufacturers and retailers would discover pricing power and new profit margins, employment demand would increase, consumer sentiment would turn positive and the illusion of permanent prosperity would return echoing the sights and sounds of THE GREENSPAN PLAN of 2002.
THE BERNANKE RE-FLATION PLAN is another short-term fix that ultimately results in another longer-term problem — a crack-up boom. As the Wall St. Journal editorial opined on September 23rd, "Central Bankers who wish for more inflation usually get their wish, and the result is rarely benign." In the interim, however, enormous profits can be realized. (See pages 15-18)
2. The Bernanke Re-Flation Plan Fails.
Ultimately it will. It's simply a matter of time. CMV's position is that there is one LAST RODEO — meaning, the RE-FLATION PLAN will be the last desperate attempt to cover up all the Fed and political transgressions of the past 50 years. The only question is, will the US (and most of the world) have a temporary reprieve before THE GREAT RECKONING? CMV's answer is yes.
Let's reduce these two widely divergent scenarios to the minimum. Given a choice between INFLATION and DEFLATION (aka Depression) what choice would bankers take? Inflation, of course! Why? The Fed believes (firmly) that they can prevent Inflation from getting out of control. Deflation, on the other hand, is a death knell that has little chance of resuscitation. Although it hardly needs to be said, the following results would quite possibly occur.
Gross Domestic Product (GDP) would continue its decline and return to negative in 2011-2012.
Unemployment would rise significantly above the Bureau of Labor's fallacious 10% and consumer sentiment would plunge. Prices of most goods and services would decline dramatically as demand disappears.
The Federal Debt and the Budget Deficit both would explode as the Treasury's tax revenue plummets and QE-2 balloons. An international monetary crisis looms large as the prospect of default by the US on its sovereign debt becomes possible.
Fed Chairman, Ben Bernanke, has resolved that this scenario will not occur on his watch.
3. Slogging To The Future.
What in the world is a "slogging economy?" A perfect model is Japan from 1990 to the present. Remember, Japan's efficient and torrid economy in the 1980s was the model for all the world to duplicate. What has the 20 year SLOG produced?
The Nikkei Dow reached almost 40,000 at the end of 1989. A resounding crash took the index down to 7,000 and their market has never recovered.
The outrageously over-valued real estate market which sported the highest inflated prices in the world collapsed about 70% and has only recovered modestly since the 90s. The Japanese acquired trophy real estate properties all over the world at premium prices such as Pebble Beach, the Rockefeller Plaza, etc. and either walked from their obligations or sold at severe discounts.
Interest rates for both borrowers and savers have consistently been the lowest in the world. Global investors have for years borrowed in Yen at about one percent and invested elsewhere at much higher yields in what is known as the "carry trade." The lesson learned is that low interest rates did not result in domestic economic growth. Is the US dollar the carry trade currency of the future?
The point of this exercise is that, in CMV's opinion, option number one is the most likely. The outcome of a successful RE-FLATION will present unique and alternative investment opportunities for those who dare to be different. As you will soon discover by reading the remainder of this issue of CMV, the INFLATION TRADE has already begun. Here's the bottom line:
The Bernanke Re-Flation Plan, if successful, should present unique profit opportunities for outsized gains that should be realized during the next two to three years. An inflation-induced boom will end in a resounding crash. You and your family are dependent on your ability to see that the future isn't what it used to be!
RARE EARTHS (REE)
It appears that most readers of CMV have missed the opportunity in Rare Earth Elements that was presented to them many months ago. Advisor clients of H. L. Quist, however, discovered them in their portfolios. To get your attention and validate CMV's recommendations here are some of the results:
Symbol Date - Recommended Entry - Price/Sh Current - Price/Sh Unrealized Profit
MCP -- 8-20-10 -- $13.00 (1) -- $26.00 -- 100%
REE -- 1-01-10 -- $3.86 (2) -- $8.60 -- 123%
TASXF -- 8-01-10 -- $.81 -- $1.84 -- 128%
(1) #1 on the NYSE with an increase of 25.3% for the week ending 9/24/10.
(2) In July, 2010 the price/share declined to $2.00. Ranked #1 on NYSE/AMEX at 36.8% increase for the week ending 9/24/10
What are these 17 elements and what are they used for? Molycorp Minerals (MCP), the owner of a mine in Mountain Pass, California, and has the richest REE deposit outside of China, provides the following:
"Rare Earth materials create enabling technologies that are found throughout Hybrid Electric Vehicles (HEV), Plug-in HEVs (PHEV), all-Electric Vehicles (EV) as well as in standard gasoline or diesel vehicles. Powerful neodymium-iron-boron (NdFeB) magnets are vital in the electric motor and regenerative braking systems found in the above electric vehicle categories and are also crucial to several other systems in the vehicles. Virtually all HEV, PHEV, and EV on the road today also rely on Rare Earths (primarily lanthanum) in the battery pack which stores energy normally wasted during coasting and braking and saves it until needed by the electric motor. To estimate positive impacts to our environment, the US EPA assumes each HEV will have twice the mpg and only half the emissions as an equivalent gas or diesel vehicle. For every 100,000 HEVs (such as the Toyota Prius) that replace existing vehicles we save well over 1 million pounds of CO2 emissions per year and 4.8 million gallons of fuel. HEV, PHEV, and EV contain from 20 to 25 pounds of Rare Earths, where a standard vehicle can contain on the order of 10 pounds. Demand for energy-efficient electric vehicles is growing significantly. Global demand is projected to be 4 to 6 million vehicles per year by 2013 so the impact on the Rare Earth market could be staggering. Additional Rare Earth supply sources must come on line to support this growing industry. Hybrid electric vehicles: Headlight glass: neodymium. Hybrid electric motor and generator: neodymium, praseodymium, dysprosium, and terbium. Component sensors: ytterbium. LCD screen: europium, ytterbium, cerium. Glass and mirrors polishing powder: cerium. UV cut glass: cerium. Diesel fuel additive: cerium and lanthanum. Hybrid NiMH battery: lanthanum and cerium. Catalytic converter: cerium/zirconium and lanthanum." Source: Molycorp Minerals, 23 Jul 10
In August, the Chinese government which controls 97% of all the existing production of REEs, announced that they would cut their exports which amounted to about 64 million metric tons in 2005, by 70%. Two of the primary REEs, cerium oxide and lanthanum oxide increased in price by over 2,000% on the news! Now, here's the big news — if the above is not compelling enough to get your attention — from the September 24th issue of the WSJ:
"The Department of Defense is completing a study to identify the potential national security risks of rare-earth dependency."
In addition, the House Committee on Science & Technology in late September began marking up a bill that would encourage the US government to hedge against rare earth shortages. It's well within the area of possibility that the federal government would declare rare earths as "strategic to the national security" and purchase a proven deposit. Could MCP or REE be a prospect?
The Re-Flation of Real Estate
The Central Planners in Washington now recognize that despite all the loan modification programs like HAMP and other initiatives, the housing sector is not going to lead America to an economic recovery. In fact, it could lead to either Option #2 or #3 as outlined in the MARKET OVERVIEW, (Page 1). There are about 11 million residential properties whose mortgage balances exceed the home's value and a shadow inventory of an additional 3.7 million vacant homes. David Rosenberg, Chief Economist at Gluskin Sheff says, that if prices drop another 5% to 10%, 40% of all American homeowners would be "underwater" on their mortgages. That would be catastrophic for not only the homeowners but the real estate industry and the US economy.
Added to this witches brew of "toil and trouble" is that investors in 2,300 residential mortgage securities, worth approximately $500 billion, are suing the banks that originated or are servicing faulty subprime mortgage loans to repurchase them. The lawsuits contend that the originators stuck them with "flawed loans marred by poor underwriting and faulty appraisals" (WSJ September 23, 2010). Can you say fraud?
Here are a few of the prospective re-purchasers and their potential liability:
Bank of America -- $35.2 billion
J. P Morgan Chase -- $23.9 billion
Deutsche Bank -- $14.1 billion
Royal Bank of Scotland -- $ 9.4 billion
And, the list goes on. The question is, to what extent will these buy-backs effect the reserves of these banks? The principal benefactors of the buy-backs would be Fannie and Freddie and by proxy, the US taxpayer.
The Good News?
If, and it's unquestionably a big IF, the BERNANKE RE-FLATION PLAN is successful, there should be re-mediation of the mortgage mess. Here's why. Mortgage debt is a constant. The appreciation of real property values through inflation will reduce the number of 11 million homeowners that are underwater. More importantly it will change market sentiment and psychology.
A significant number of home owners, witnessing an uptick of home prices in their neighborhood, will be encouraged to pay their mortgage and wait to walk. Investors also witnessing the uptick will be encouraged to invest risk capital in search of a higher return and the residential market will be on its way to recovery. CMV believes that, as simple as this solution may seem, RE-FLATION will begin to fix the problem. Funny, why didn't the MOTUS (Masters of The Universe) think of that?
Or, have they?
Serious Money
Macro Investing
For example, Oppenheimer Gold & Special Minerals Fund (OPGSX). During the past ten years, this fund has had an average annual return of 24% which includes the precipitous drop of 30% during the crash of 2008. In fact, this sector is the only one that has not only made a 100% "V" correction but has gone on in 2010 to robust new highs up 35% as of September 24, 2010. Most individual names in the portfolio mirror this result. The message here is that:
TRADITIONAL PORTFOLIO MODELS ARE DOOMED TO FAIL
My friend is again my client.
It is CMV's opinion that the investment climate in America and quite possibly the entire world has radically changed. The clouds are dark, foreboding and unpredictable. Buy & Hold, Asset Allocation, Model Portfolios, and even stock picking based upon earnings and fundamentals are no longer the keys to wealth accumulation. Macro Investing with Active Management has become the new model for sophisticated investors.
David Einhorn of Greenlight Capital said in a recent WSJ article:
"For years I had believed that I didn't need to take a view on the market or the economy because I considered myself a ‘bottom-up' investor. The lesson I've learned is that it isn't reasonable to be agnostic about the big (Macro) picture."
Mr. Einhorn has placed a huge macro bet that gold prices will continue to rise because of concerns that the out-of-control US budget and federal debt has a negative impact on the US dollar. Do you want to follow the "smart money" or follow the advice of an advisor who still believes that Microsoft, GE and GM are good growth stocks?
There is no question that High Frequency Trading (HFT) has un-leveled the playing field. Another "Flash Crash" is almost inevitable. Super computers such as "The Beast" featured previously in CMV contribute greatly to market volatility. On any day the HFT is buying high risk assets and the next day makes a 180° turn to safe-haven US treasuries or currencies.
CMV took a Macro View years ago when he told audiences and clients that Macro Trends were the key to investing. Realtors, for example, refused to accept the fact that the boom was unsustainable.
The irony, of course, is that there is SERIOUS MONEY to be made in MACRO INVESTING at exactly this point in time and CMV can position you if you are serious about SERIOUS MONEY.
Assuming that the BERNANKE RE-FLATION PLAN succeeds these are a few of the Macro sectors that should significantly outperform any other investing strategy:
The Devaluation of the US Dollar — Sell Short
The Appreciation of Precious Metals — Buy Long
The Panic Demand for Rare Metals — Buy Long
The Number One Alternative Energy (Nuclear) — Buy Long
The Rise in Interest Rates (US Treasuries) — Sell Short
The Rise in Commodities — Buy Long
There is one critical supposition to support CMV's Macro Investing. If CMV is correct, the US is at the cusp of a short-term inflationary cycle that could morph into Hyper-Inflation. All of the above sectors should perform extremely well given this environment BUT it will come to a calamitous end when it has run its' course in a "crack-up boom." CMV's strategy is simple and direct:
When the next crash occurs CASH will be king. That cash may be in Canadian or Aussie dollars or Swiss francs but those that have no debt and cash will be wealthy, independent and positioned to seize opportunity. The non-believers will become wards of the government.
CMV's favorite metaphor has lifted her lovely body out of the bottle. While the talking heads on CNBC continue to remind us that "there is no inflation" evidence to the contrary is surfacing everywhere. To wit:
Arizona cotton farmers are celebrating as they prepare for the harvest of this year's cotton crop. Early in 2009 the market price of cotton was about $.40/lb. Last week, cotton for October delivery reached $1.09/lb — the highest price since (get this) the Civil War!
Retailers, with lean inventories and current and discounted sales are faced with a major dilemma. Should they restock at higher prices or wait and hope they can get through the Christmas rush with current inventory.
In a related sector, Nike reported a 9% increase in operating profit of $559 million in its latest quarter due to improvement in demand for its athletic apparel and less costly discounting. What impact will the 150% increase in cotton prices have on Nike next quarter?
The travel industry has reported that Americans have spent much more on airplane seats, hotel rooms and rental cars than experts had projected. Hotel revenue which plunged 30% from 2007 to 2009 has now recaptured all the decline in less than a year. Revenue passenger miles has returned to 2007 traffic levels at the airlines which have increased fares 3.9%. Travel employment increased 2.5% in the second quarter of 2010. What's ahead? Increased prices, of course.
Steel prices have risen for some types of products as high as 12% and as low as 1% since this past summer. China, which produces about 50% of the world's output, has cut production 3% to 5% and recently increased its prices on plate steel by 12%.
Other base metal prices that have risen off their 2009 lows are:
Aluminum + 65% -- Nickel +154%
Zinc +105% -- Copper +164%
Tin +120% -- Titanium +265%
Lead +151%
The penultimate evidence that inflation is poised to have a decided impact on personal budgets will be witnessed by shoppers. Commodity prices have already seen a market increase this year.
"GREED" and "PROFIT" are now available for you iPad users.
You can also pay for the year's subscription to the CMV (just $99) plus receive both books free (USA addresses only) by clicking here for the paypal payment window link.
Assuming that the BERNANKE RE-FLATION PLAN succeeds these are a few of the Macro sectors that should significantly outperform any other investing strategy:
The Devaluation of the US Dollar — Sell Short
The Appreciation of Precious Metals — Buy Long
The Panic Demand for Rare Metals — Buy Long
The Number One Alternative Energy (Nuclear) — Buy Long
The Rise in Interest Rates (US Treasuries) — Sell Short
The Rise in Commodities — Buy Long
There is one critical supposition to support CMV's Macro Investing. If CMV is correct, the US is at the cusp of a short-term inflationary cycle that could morph into Hyper-Inflation. All of the above sectors should perform extremely well given this environment BUT it will come to a calamitous end when it has run its' course in a "crack-up boom." CMV's strategy is simple and direct:
Make Huge Gains And Get The Heck Out of Dodge!
(The Financial Markets)
When the next crash occurs CASH will be king. That cash may be in Canadian or Aussie dollars or Swiss francs but those that have no debt and cash will be wealthy, independent and positioned to seize opportunity. The non-believers will become wards of the government.
The Inflation Jeannie Reappears
CMV's favorite metaphor has lifted her lovely body out of the bottle. While the talking heads on CNBC continue to remind us that "there is no inflation" evidence to the contrary is surfacing everywhere. To wit:
Arizona cotton farmers are celebrating as they prepare for the harvest of this year's cotton crop. Early in 2009 the market price of cotton was about $.40/lb. Last week, cotton for October delivery reached $1.09/lb — the highest price since (get this) the Civil War!
Retailers, with lean inventories and current and discounted sales are faced with a major dilemma. Should they restock at higher prices or wait and hope they can get through the Christmas rush with current inventory.
In a related sector, Nike reported a 9% increase in operating profit of $559 million in its latest quarter due to improvement in demand for its athletic apparel and less costly discounting. What impact will the 150% increase in cotton prices have on Nike next quarter?
The travel industry has reported that Americans have spent much more on airplane seats, hotel rooms and rental cars than experts had projected. Hotel revenue which plunged 30% from 2007 to 2009 has now recaptured all the decline in less than a year. Revenue passenger miles has returned to 2007 traffic levels at the airlines which have increased fares 3.9%. Travel employment increased 2.5% in the second quarter of 2010. What's ahead? Increased prices, of course.
Steel prices have risen for some types of products as high as 12% and as low as 1% since this past summer. China, which produces about 50% of the world's output, has cut production 3% to 5% and recently increased its prices on plate steel by 12%.
Other base metal prices that have risen off their 2009 lows are:
Aluminum + 65% -- Nickel +154%
Zinc +105% -- Copper +164%
Tin +120% -- Titanium +265%
Lead +151%
The penultimate evidence that inflation is poised to have a decided impact on personal budgets will be witnessed by shoppers. Commodity prices have already seen a market increase this year.
"GREED" and "PROFIT" are now available for you iPad users.
You can also pay for the year's subscription to the CMV (just $99) plus receive both books free (USA addresses only) by clicking here for the paypal payment window link.
Financial Questions? Contact hlquist at djmwealth dot com
-- H. L. Quist
Thursday, August 12, 2010
Will Fannie and Freddie Reduce Your Loan Next Week?
Hello World,
Is a Homeowners Debt Forgiveness Plan in the works as early as this Tuesday?
See my youtube video (see sidebar here on the blog or) go to youtube.com/hlquist.
-- H. L. Quist
Wednesday, April 28, 2010
Inflation "Jeannie" is out of Her Bottle!
Hello World,
Well the Inflation "Jeannie" is out of the bottle and I am having a love affair and we are making money together! Watch and listen to my youtube and podcast on the opportunities to recover profits.
Both on on the sidebar here on the blog. Just click and learn.
My Contrarian Market View Newsletter will aid investors and you can realize profits of 200 - 300% this year. Subscribe today, by clicking on the sidebar here on the blog.
-- H. L. Quist
Well the Inflation "Jeannie" is out of the bottle and I am having a love affair and we are making money together! Watch and listen to my youtube and podcast on the opportunities to recover profits.
Both on on the sidebar here on the blog. Just click and learn.
My Contrarian Market View Newsletter will aid investors and you can realize profits of 200 - 300% this year. Subscribe today, by clicking on the sidebar here on the blog.
-- H. L. Quist
Friday, April 2, 2010
Free Preview of April CMV Newsletter
Hello World,
FREE PREVIEW of the April CMV Newsletter section. (The recommended list is available only to paid subscribers.) (The actual newsletter is better looking, due to the limitations of blog posts.)
We are repeating our offer of a free copy of "The Aftermath of Greed" and "How to Profit From The Coming Inflationary Boom" with a paid subscription to the Contrarian Market View e-Newsletter -- a $140 value for the price of $99. This offer is open to US residents (books shipped to a single address only) and will be available for a limited time only.
Here is the link to subscribe today http://bit.ly/CMVyearbook
.
The Economy:
Double Dip or Skinny Dip? In market terms, is the economy headed for a second recession or is a recovery at hand and is it time to jump back into the pool? (Swimsuit or not!) Contrary to a plethora of pundits who maintain that the US is on the precipice of financial collapse, CMV believes that the economy is going to surprise on the upside. We were courageous and correct when we re-committed to the equity market on April 1, 2009, and firmly believe that the economy will continue to outperform its' most vocal critics.
There's no question that portents of gloom and doom from Conservatives — particularly since the passage of Obamacare --- have obscured the positive. Be assured, CMV has not switched allegiance and moved to the left. Our position has always been consistent — when addressing the issue of money, you must separate political ideology from economic reality. A little history to make the case in point.
1975 - 1977
The oil embargo and Nixon's self-inflicted crisis and humiliation sent the economy and the markets into a free fall. The Dow fell 50% and the real estate market gave your writer the opportunity to buy a bankrupt premium residential property in Phoenix for $22/sq. Ft. Despite the election of a Trilateral Socialist as President who resurrected (again) John Maynard Keynes, we experienced a V correction within those two years. Look at the charts. The Dow rebounded 100% off its lows. And, by 1978 the real estate and commodity markets (Gold to $850/oz) were going ballistic despite rapidly rising interest rates. The prime rate rose to 21.5% and mortgage rates to 17% by 1980. Of course, the inflationary ‘crack-up boom' followed in 1980, but those investors and pundits who focused on the political and fiscal ineptitude of Jimmy Carter, missed the boat to Omaha. (Buffet discovered value investing in Omaha during this time period.)
1983 - 1985
The Recession of 1980-82 initially was a nightmare for Ronald Reagan. Official unemployment of 10.4% was higher then than the peak experienced in 2009. Despite Paul Volker's determination to kill the inflation dragon with high interest rates, the GDP jumped to 5.1% in the first quarter of 1983, 9.3% in the second quarter and remained at an incredible 8% for the next three quarters. The Garn- St. Germain Act, Supply Side Economics, Michael Milkin and The Plaza Accord were the stimulants which led to Black Monday in 1987, and the real estate collapse of 1989. The recovery in 1983 to 1985 was indeed robust and we suspect that those liberals hoping for Reagonomics to fail also missed the boat to Omaha.
1991 - 1993
The collapse of the real estate market — primarily commercial — the enactment of FIRREA (Financial Institution Reform and Recovery Enforcement Act) which formed the Resolution Trust Corp and closed 747 banks and thrifts in the US, created a similar mind-set amongst the real estate industry that exists today. Your writer forecast a real estate boom in 1992, which proved to be the longest and most profitable period in real property value growth in US history. It also marked the beginning of the .com bubble. Another robust recovery for those that had vision and courage and took a Contrarian view in 1991. (Isn't that what this is all about?)
2002 - 2005
The bursting of the .com bubble beginning March, 2000 followed by 9-11 brought a new level of negative psyche to all markets. "The Greenspan Plan," so named by this writer, was a deliberate strategy promulgated by the Federal Reserve to stimulate consumer spending. Memories should recall that it was the RE-FI cash-out phenomenon that not only created a "shop to you drop" mentality, it also gave birth to the sub-prime residential and credit bubble and Wall Street's Master of the Universe (MOTU) highly-leveraged and speculative bets. What most observers and participants failed to see early in the fall of 2002, was the rebound opportunity for all asset classes. This writer strongly encouraged investors to get fully invested in real estate, equities and commodities in the fall of 2002. Gains in equities and commodities of 200% to 400% from 2002 to 2006 were common. The key, of course, was an exit strategy to get the hell out of Omaha in 2007.
2010 - 2011
The rebound in the equity markets from March, 2009 has been rewarding to those who had capital and courage. Your writer re-committed to equities on April 1, 2009 — one year ago. The snap-back in gold from $700/oz in November,. 2008 to $1,220 one year later was as spectacular as it was rewarding for Contrarians. Real estate has not joined in the party because of the extent of physical and psychological damage brought on by the MOTU, well-documented by this writer in both of his books. So, what is CMV's outlook for the next two years?
1. Blue Chip Economic Indicators, a poll of 50 economists, all maintain that there will NOT be a second recession in 2010 and 2011. CMV agrees. The "crash" will come later.
2. The Blue Chip consensus expects the GDP to be a little less than 3% this year and a little over 3% in 2011. They also forecast unemployment to drop to 8.8%, by the end of 2011. CMV forecasts a higher GDP in the range of 4% to 5% for both years and unemployment to dip to 8% by the end of 2011.
3. The Blue Chip consensus expects consumer spending to remain in the 1.2% to 2% gains. CMV accurately forecast a robust fourth quarter of 2009 and sees the consumer much more confident going forward. The pundits say the consumer won't spend when unemployment remains high. CMV reminds the reader that unemployment remained above 10% from January through June of 1983, yet real consumer spending soared at an annual rate of 6.1%. CMV does not expect a repeat performance of 1983, but spending could surprise on the upside. Ford's sales and profits will be the industry's leader.
A few words on REAL ESTATE. Given the volume of e-mails and the anguish expressed by Realtors and developers, capitulation must be near. One Realtor remarked, "It will take several years for the market to recover," Employment opportunities are emerging in markets like Phoenix, which created 20,000 new jobs in February. Migration will soon follow. A new "enhanced" mortgage relief plan has just been announced (March 26,2010) which will require mortgage servicers to reduce principal if homeowners owe up to 15% more than the home is worth, to reduce payments to within 31% of the income and to skip payments altogether for the unemployed. Sophisticated investors are now willing to exchange zero returns on bonds for risk assets. Your writer's Realtor spouse and daughter have had more activity in the past month than in the past two years. Deals have been made, escrows opened and closed. There is a light at the end of the tunnel and it isn't a train! Market psychology can change rapidly. It's time to get back into the pool.
The China Syndrome
Do you remember the 1979 flick starring Michael Douglas, Jack Lemmon and the appropriately cast "Pink Lady" Jane Fonda? The film dealt with a cover-up of a potential meltdown of the Ventana Nuclear plant in California. Today, the potential for a currency meltdown between China and the US looms as ominous as a nuclear version.
At issue is China's past decision to peg its currency, the Yuan, to a fixed rate of 6.83 to the US dollar. The US claim (by the Keynesians) is that the resultant undervalued Yuan or currency manipulation combined with Chinese export subsidies has resulted in burgeoning trade deficits for the US, weakening our own manufacturing base and loss of millions of American jobs while China has prospered mightily. Recently, 130 members of Congress wrote a letter to the US Treasury demanding that unless China revalues the Yuan upward, the US should impose tariffs on Chinese goods. That's just what the US needs — a trade war with its number one banker. Duh!
To the Chinese, perception is more important than reality. If they bow to US demands, they appear weak, therefore China will delay the inevitable longer and when it best serves its interests And, what will be the result to the US when China revalues? US imports from China (which just about now covers everything) will appreciate in price thereby aggravating our inflation picture. On the plus side, our exports will be more competitive thereby expanding the US manufacturing base and reduce the trade deficit. Which do you prefer?
The bigger picture, of course, is that China has accumulated $2.5 trillion in US dollar reserves. They hold the ultimate trump card and already is re-shuffling the deck to recycle the shrinking dollar. What happens when China creates sufficient internal demand for its goods and doesn't need the US market? Our children could be speaking Mandarin. The most significant Mega-trend of our lifetime has been the shift in global power from Great Britain after World War II to the US and now from the US to China.
A Showdown At The OK (Gold) Corral
CMV and The Myth Buster have often reported on the market manipulation of gold and silver suppressing the price of both metals. A formal hearing was held at the US Commodity Futures Trading Commission on March 25, 2010. The charges presented to Gary Gensler, Chairman of the Commission were:
Comex data shows that the price of gold and silver are suppressed.
There is a direct correlation of price suppression and the positions of two US banks.
The Bank Derivatives Reports from Treasury Department Office of the Comptroller of the Currency (OCC) indicates these two banks are JP Morgan Chase and HSBC (formerly Hong Kong Shanghai Bank).
Appropriate enforcement action is required.
This writer's friend and hero, Bill Murphy, who founded The Gold Anti-Trust Action Committee (www.gata.org) many years ago, has implicated the US Government, the Federal Reserve and the major bullion banks as the perpetrators of the illegal scheme. Their motive, GATA says, is to maintain the purchasing power of the US dollar artificially high by concealing inflation and as a result, keep interest rates artificially low. Given the backdrop of the precarious state of the US and global economy, this issue has more relevance today than ever before. CMV suggests that you go to www.marketforceanalysis.com (Adrian Douglas) for a summary of the claims. To highlight the issue, from July to November, 2008, the two banks cited above went from having just 9% of the total net short position of silver to 99% thereby representing the entire net short position which is illegal. A short position is intended to suppress the price and the holder profits at a decline in price. As CMV indicated in previous issues, JP Morgan Chase, by virtue of its short position, would have been in serious financial condition if the price of silver increased. Of critical importance to you as an investor, JP Morgan Chase is the custodian of the silver in the SLV ETF. HSBC is the custodian in the GLD ETF. It's conceivable that neither of these institutions have the metal to meet their obligations as custodians.
President Barrack Obama (BO) in appointing Mr. Gensler to Chair the CFTC has vowed to clean up the corruption and bring transparency to these markets. Question is, will Gensler look into the abyss now confronted with these facts and clean up the mess or will he retreat and the bankers will maintain their control, as they have since 1913? CMV maintains that investors could demand delivery of bullion at contract expiration which will blow the lid off this entire scheme and both metals could reach levels never envisioned.
As a side note, despite the manipulation, gold has, since 2000, appreciated 10.1% a year against an average of All currencies. Some examples are:
US Dollar 14.9%
Swiss Franc 10.1%
UK Pound 15.1%
China Yuan 12.6%
Think back to 2000 and all of the financial advisers that told their clients that gold was "too risky" and a "barbarous relic." Pretty sound advice, huh?
One very important anomaly. The USD has rebounded in March from 81.00 to a high of 82.20 on the index which normally would be negative for gold. In spite of this dollar rally, gold has risen from $1,085/oz to $1,113/oz. We may have reached the point of BIFURCATION. Just like 1977 to 1980, gold will rise despite dollar strength and a dramatic increase in interest rates.
Interest Rates
CMV reported in the March issue of the "failed" auction of US Treasuries. 11% of the bonds at the February 10th auction were purchased by the Federal Reserve due to the lack of bids. A sudden drop in investor demand in the weak March 22nd auction further highlights the scenario forecast by The Myth Buster over a year ago. The 10 year note jumped from about 3.65% to 3.89% despite the fact that it was not offered in this auction. So, what is causing rates to rise?
Concern in Europe that Greece and other countries (PIIGS) may default on their debt.
The passage of Obamacare and the prospect of higher deficits in the US.
Social Security will record its first cash flow deficit (about $29 billion) in history this year, six years before forecasts.
US Treasuries have a higher yield than some US corporate bonds — a first in US history.
Echoing this concern, Steve Rodosky, head of Treasury and Derivative Trading at bond giant PIMCO said he was increasingly worried about the US fiscal outlook. In two days, 30 year mortgages were quoted at 5.125% up from 4.875%. Rates on many mortgages are linked to the 10 year Note. For CMV readers, TBT, our bond short strategy rose sharply from about $47/ sh to almost $50. Volume on the ETF skyrocketed from 5 million shares to over 15 million. The handwriting is on the wall. Read it! TBT should be a core holding. The Bond Bear Market has begun.
Additional fiscal concerns. Charles Krauthammer, who is a brilliant political analyst and who appears nightly on FOX News, said on Bill O'Reilly's Show on March 22nd, that the BO plan to raise hundreds of millions of dollars annually to attempt to meet the President's horrific deficits is a VAT — Value Added Tax — The European's answer to the constant dilemma that the US most assuredly faces. For those of you who haven't experienced it, you'll be forced to tack on a 10% to 25% (or more) tax on every retail purchase you make. (Possibly excluding food and health care.) Add $6,000 to that car you buy. When will this happen? Immediately after the mid-term election to be effective January 1, 2011. (Germany 19%, France and Italy 20%, Scandinavia 25%).
The biggest concern facing middle class America is the real prospect of the US Government's conversion of 401(K) and IRA and other retirement accounts. Sound absurd? In H L Quist's How To Profit From The Coming Inflationary Boom And Avoid The Next Crash, (p. 23) he cited nine months ago that the House Committee on Education and Labor had reviewed a proposal by Teresa Ghilarducci, a Professor of Economic Policy Analysis at the New School for Social Research in New York, to eliminate tax breaks for 401(K), IRAs and other retirement plans and convert them into Guaranteed Retirement Accounts (GRA) managed by the Social Security Administration. Now the focus has shifted to require that these plans purchase US Treasury Debt! These Marxists are totally committed to redistribute America's wealth and they can't resist this pool of trillions of dollars of private capital — particularly now when investors are backing off the purchase of US paper. If this attempt to "fundamentally change the United States of America" doesn't create a revolt, nothing will.
President BO, is doing his best to solve the unemployment problem. It is estimated that the IRS will hire 16,000 new employees to administer Obamacare and they've set aside $10 billion dollars in start-up funding. Unemployment in Virginia in counties close to DC have only 4% unemployment prior to the expansion of the IRS. The massive and highly remunerated bureaucracy that will grow during this presidency will absolutely destroy any chance of fiscal sanity.
What does this all translate to? Where are we, as a nation and it's economy, headed?
Rising inflation, morphing into;
Hyper-inflation, which leads to;
A Crack-Up Boom, which ends in;
US default and bankruptcy.
The only thing CMV can't tell you is, WHEN.
Subscribe to the CMV Newsletter and get real contrarian asset management assistance.
-- H. L. Quist
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.
April, 2010
H. L. Quist's
Contrarian Market View Newsletter
H. L. Quist's
Contrarian Market View Newsletter
Market Overview
The Economy:
Double Dip or Skinny Dip? In market terms, is the economy headed for a second recession or is a recovery at hand and is it time to jump back into the pool? (Swimsuit or not!) Contrary to a plethora of pundits who maintain that the US is on the precipice of financial collapse, CMV believes that the economy is going to surprise on the upside. We were courageous and correct when we re-committed to the equity market on April 1, 2009, and firmly believe that the economy will continue to outperform its' most vocal critics.
There's no question that portents of gloom and doom from Conservatives — particularly since the passage of Obamacare --- have obscured the positive. Be assured, CMV has not switched allegiance and moved to the left. Our position has always been consistent — when addressing the issue of money, you must separate political ideology from economic reality. A little history to make the case in point.
1975 - 1977
The oil embargo and Nixon's self-inflicted crisis and humiliation sent the economy and the markets into a free fall. The Dow fell 50% and the real estate market gave your writer the opportunity to buy a bankrupt premium residential property in Phoenix for $22/sq. Ft. Despite the election of a Trilateral Socialist as President who resurrected (again) John Maynard Keynes, we experienced a V correction within those two years. Look at the charts. The Dow rebounded 100% off its lows. And, by 1978 the real estate and commodity markets (Gold to $850/oz) were going ballistic despite rapidly rising interest rates. The prime rate rose to 21.5% and mortgage rates to 17% by 1980. Of course, the inflationary ‘crack-up boom' followed in 1980, but those investors and pundits who focused on the political and fiscal ineptitude of Jimmy Carter, missed the boat to Omaha. (Buffet discovered value investing in Omaha during this time period.)
1983 - 1985
The Recession of 1980-82 initially was a nightmare for Ronald Reagan. Official unemployment of 10.4% was higher then than the peak experienced in 2009. Despite Paul Volker's determination to kill the inflation dragon with high interest rates, the GDP jumped to 5.1% in the first quarter of 1983, 9.3% in the second quarter and remained at an incredible 8% for the next three quarters. The Garn- St. Germain Act, Supply Side Economics, Michael Milkin and The Plaza Accord were the stimulants which led to Black Monday in 1987, and the real estate collapse of 1989. The recovery in 1983 to 1985 was indeed robust and we suspect that those liberals hoping for Reagonomics to fail also missed the boat to Omaha.
1991 - 1993
The collapse of the real estate market — primarily commercial — the enactment of FIRREA (Financial Institution Reform and Recovery Enforcement Act) which formed the Resolution Trust Corp and closed 747 banks and thrifts in the US, created a similar mind-set amongst the real estate industry that exists today. Your writer forecast a real estate boom in 1992, which proved to be the longest and most profitable period in real property value growth in US history. It also marked the beginning of the .com bubble. Another robust recovery for those that had vision and courage and took a Contrarian view in 1991. (Isn't that what this is all about?)
2002 - 2005
The bursting of the .com bubble beginning March, 2000 followed by 9-11 brought a new level of negative psyche to all markets. "The Greenspan Plan," so named by this writer, was a deliberate strategy promulgated by the Federal Reserve to stimulate consumer spending. Memories should recall that it was the RE-FI cash-out phenomenon that not only created a "shop to you drop" mentality, it also gave birth to the sub-prime residential and credit bubble and Wall Street's Master of the Universe (MOTU) highly-leveraged and speculative bets. What most observers and participants failed to see early in the fall of 2002, was the rebound opportunity for all asset classes. This writer strongly encouraged investors to get fully invested in real estate, equities and commodities in the fall of 2002. Gains in equities and commodities of 200% to 400% from 2002 to 2006 were common. The key, of course, was an exit strategy to get the hell out of Omaha in 2007.
2010 - 2011
The rebound in the equity markets from March, 2009 has been rewarding to those who had capital and courage. Your writer re-committed to equities on April 1, 2009 — one year ago. The snap-back in gold from $700/oz in November,. 2008 to $1,220 one year later was as spectacular as it was rewarding for Contrarians. Real estate has not joined in the party because of the extent of physical and psychological damage brought on by the MOTU, well-documented by this writer in both of his books. So, what is CMV's outlook for the next two years?
1. Blue Chip Economic Indicators, a poll of 50 economists, all maintain that there will NOT be a second recession in 2010 and 2011. CMV agrees. The "crash" will come later.
2. The Blue Chip consensus expects the GDP to be a little less than 3% this year and a little over 3% in 2011. They also forecast unemployment to drop to 8.8%, by the end of 2011. CMV forecasts a higher GDP in the range of 4% to 5% for both years and unemployment to dip to 8% by the end of 2011.
3. The Blue Chip consensus expects consumer spending to remain in the 1.2% to 2% gains. CMV accurately forecast a robust fourth quarter of 2009 and sees the consumer much more confident going forward. The pundits say the consumer won't spend when unemployment remains high. CMV reminds the reader that unemployment remained above 10% from January through June of 1983, yet real consumer spending soared at an annual rate of 6.1%. CMV does not expect a repeat performance of 1983, but spending could surprise on the upside. Ford's sales and profits will be the industry's leader.
A few words on REAL ESTATE. Given the volume of e-mails and the anguish expressed by Realtors and developers, capitulation must be near. One Realtor remarked, "It will take several years for the market to recover," Employment opportunities are emerging in markets like Phoenix, which created 20,000 new jobs in February. Migration will soon follow. A new "enhanced" mortgage relief plan has just been announced (March 26,2010) which will require mortgage servicers to reduce principal if homeowners owe up to 15% more than the home is worth, to reduce payments to within 31% of the income and to skip payments altogether for the unemployed. Sophisticated investors are now willing to exchange zero returns on bonds for risk assets. Your writer's Realtor spouse and daughter have had more activity in the past month than in the past two years. Deals have been made, escrows opened and closed. There is a light at the end of the tunnel and it isn't a train! Market psychology can change rapidly. It's time to get back into the pool.
The China Syndrome
Do you remember the 1979 flick starring Michael Douglas, Jack Lemmon and the appropriately cast "Pink Lady" Jane Fonda? The film dealt with a cover-up of a potential meltdown of the Ventana Nuclear plant in California. Today, the potential for a currency meltdown between China and the US looms as ominous as a nuclear version.
At issue is China's past decision to peg its currency, the Yuan, to a fixed rate of 6.83 to the US dollar. The US claim (by the Keynesians) is that the resultant undervalued Yuan or currency manipulation combined with Chinese export subsidies has resulted in burgeoning trade deficits for the US, weakening our own manufacturing base and loss of millions of American jobs while China has prospered mightily. Recently, 130 members of Congress wrote a letter to the US Treasury demanding that unless China revalues the Yuan upward, the US should impose tariffs on Chinese goods. That's just what the US needs — a trade war with its number one banker. Duh!
To the Chinese, perception is more important than reality. If they bow to US demands, they appear weak, therefore China will delay the inevitable longer and when it best serves its interests And, what will be the result to the US when China revalues? US imports from China (which just about now covers everything) will appreciate in price thereby aggravating our inflation picture. On the plus side, our exports will be more competitive thereby expanding the US manufacturing base and reduce the trade deficit. Which do you prefer?
The bigger picture, of course, is that China has accumulated $2.5 trillion in US dollar reserves. They hold the ultimate trump card and already is re-shuffling the deck to recycle the shrinking dollar. What happens when China creates sufficient internal demand for its goods and doesn't need the US market? Our children could be speaking Mandarin. The most significant Mega-trend of our lifetime has been the shift in global power from Great Britain after World War II to the US and now from the US to China.
A Showdown At The OK (Gold) Corral
CMV and The Myth Buster have often reported on the market manipulation of gold and silver suppressing the price of both metals. A formal hearing was held at the US Commodity Futures Trading Commission on March 25, 2010. The charges presented to Gary Gensler, Chairman of the Commission were:
Comex data shows that the price of gold and silver are suppressed.
There is a direct correlation of price suppression and the positions of two US banks.
The Bank Derivatives Reports from Treasury Department Office of the Comptroller of the Currency (OCC) indicates these two banks are JP Morgan Chase and HSBC (formerly Hong Kong Shanghai Bank).
Appropriate enforcement action is required.
This writer's friend and hero, Bill Murphy, who founded The Gold Anti-Trust Action Committee (www.gata.org) many years ago, has implicated the US Government, the Federal Reserve and the major bullion banks as the perpetrators of the illegal scheme. Their motive, GATA says, is to maintain the purchasing power of the US dollar artificially high by concealing inflation and as a result, keep interest rates artificially low. Given the backdrop of the precarious state of the US and global economy, this issue has more relevance today than ever before. CMV suggests that you go to www.marketforceanalysis.com (Adrian Douglas) for a summary of the claims. To highlight the issue, from July to November, 2008, the two banks cited above went from having just 9% of the total net short position of silver to 99% thereby representing the entire net short position which is illegal. A short position is intended to suppress the price and the holder profits at a decline in price. As CMV indicated in previous issues, JP Morgan Chase, by virtue of its short position, would have been in serious financial condition if the price of silver increased. Of critical importance to you as an investor, JP Morgan Chase is the custodian of the silver in the SLV ETF. HSBC is the custodian in the GLD ETF. It's conceivable that neither of these institutions have the metal to meet their obligations as custodians.
President Barrack Obama (BO) in appointing Mr. Gensler to Chair the CFTC has vowed to clean up the corruption and bring transparency to these markets. Question is, will Gensler look into the abyss now confronted with these facts and clean up the mess or will he retreat and the bankers will maintain their control, as they have since 1913? CMV maintains that investors could demand delivery of bullion at contract expiration which will blow the lid off this entire scheme and both metals could reach levels never envisioned.
As a side note, despite the manipulation, gold has, since 2000, appreciated 10.1% a year against an average of All currencies. Some examples are:
US Dollar 14.9%
Swiss Franc 10.1%
UK Pound 15.1%
China Yuan 12.6%
Think back to 2000 and all of the financial advisers that told their clients that gold was "too risky" and a "barbarous relic." Pretty sound advice, huh?
One very important anomaly. The USD has rebounded in March from 81.00 to a high of 82.20 on the index which normally would be negative for gold. In spite of this dollar rally, gold has risen from $1,085/oz to $1,113/oz. We may have reached the point of BIFURCATION. Just like 1977 to 1980, gold will rise despite dollar strength and a dramatic increase in interest rates.
Interest Rates
CMV reported in the March issue of the "failed" auction of US Treasuries. 11% of the bonds at the February 10th auction were purchased by the Federal Reserve due to the lack of bids. A sudden drop in investor demand in the weak March 22nd auction further highlights the scenario forecast by The Myth Buster over a year ago. The 10 year note jumped from about 3.65% to 3.89% despite the fact that it was not offered in this auction. So, what is causing rates to rise?
Concern in Europe that Greece and other countries (PIIGS) may default on their debt.
The passage of Obamacare and the prospect of higher deficits in the US.
Social Security will record its first cash flow deficit (about $29 billion) in history this year, six years before forecasts.
US Treasuries have a higher yield than some US corporate bonds — a first in US history.
Echoing this concern, Steve Rodosky, head of Treasury and Derivative Trading at bond giant PIMCO said he was increasingly worried about the US fiscal outlook. In two days, 30 year mortgages were quoted at 5.125% up from 4.875%. Rates on many mortgages are linked to the 10 year Note. For CMV readers, TBT, our bond short strategy rose sharply from about $47/ sh to almost $50. Volume on the ETF skyrocketed from 5 million shares to over 15 million. The handwriting is on the wall. Read it! TBT should be a core holding. The Bond Bear Market has begun.
Additional fiscal concerns. Charles Krauthammer, who is a brilliant political analyst and who appears nightly on FOX News, said on Bill O'Reilly's Show on March 22nd, that the BO plan to raise hundreds of millions of dollars annually to attempt to meet the President's horrific deficits is a VAT — Value Added Tax — The European's answer to the constant dilemma that the US most assuredly faces. For those of you who haven't experienced it, you'll be forced to tack on a 10% to 25% (or more) tax on every retail purchase you make. (Possibly excluding food and health care.) Add $6,000 to that car you buy. When will this happen? Immediately after the mid-term election to be effective January 1, 2011. (Germany 19%, France and Italy 20%, Scandinavia 25%).
The biggest concern facing middle class America is the real prospect of the US Government's conversion of 401(K) and IRA and other retirement accounts. Sound absurd? In H L Quist's How To Profit From The Coming Inflationary Boom And Avoid The Next Crash, (p. 23) he cited nine months ago that the House Committee on Education and Labor had reviewed a proposal by Teresa Ghilarducci, a Professor of Economic Policy Analysis at the New School for Social Research in New York, to eliminate tax breaks for 401(K), IRAs and other retirement plans and convert them into Guaranteed Retirement Accounts (GRA) managed by the Social Security Administration. Now the focus has shifted to require that these plans purchase US Treasury Debt! These Marxists are totally committed to redistribute America's wealth and they can't resist this pool of trillions of dollars of private capital — particularly now when investors are backing off the purchase of US paper. If this attempt to "fundamentally change the United States of America" doesn't create a revolt, nothing will.
President BO, is doing his best to solve the unemployment problem. It is estimated that the IRS will hire 16,000 new employees to administer Obamacare and they've set aside $10 billion dollars in start-up funding. Unemployment in Virginia in counties close to DC have only 4% unemployment prior to the expansion of the IRS. The massive and highly remunerated bureaucracy that will grow during this presidency will absolutely destroy any chance of fiscal sanity.
What does this all translate to? Where are we, as a nation and it's economy, headed?
Rising inflation, morphing into;
Hyper-inflation, which leads to;
A Crack-Up Boom, which ends in;
US default and bankruptcy.
The only thing CMV can't tell you is, WHEN.
Subscribe to the CMV Newsletter and get real contrarian asset management assistance.
-- H. L. Quist
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