This year Christmas has come before December, especially if you are a money center bank, a brokerage house, insurance company, or car manufacturer. For regular people though the holiday may not arrive at all. Such is the way things happen when the Government gets involved.

The news is out now that Citigroup will receive another $20 billion, with guarantees for $306 billion in assets, before the holiday season ends. In fact they should have the money, your money, in hand before the holiday season officially starts this Friday. Santa it seems has a 401k.

The good part of this is that Citi should not fail. Thus money will be stable in over 100 countries around the world, for the time being. Another bonus that New York City officials must love is that Citi will not be sold off in parts, and thus tens of thousands of additional jobs should be secure. And there is a better than 50% chance that many of the major bonuses that help the Big Apple float will be paid out (contractual obligations don’t end when the company gets a Government bailout). And in all honesty that is a good thing for the U.S. economy too, as long as they spend the money and not hoard it in fear of future layoffs.

The bad thing is that none of the officials tasked with resolving the financial crisis the nation is in foresaw this event. Chriss Dodd and Barney Frank didn’t see it coming, not because they were asleep at the wheel like when they promised Fannie Mae and Freddie Mac would be ok, because they were too busy blaming anyone but themselves for missing the problem. Treasury Secretary Paulson missed it. Fed Chairman Ben Bernanke missed it too.

Not one of these men, each tasked with identifying this continuing problem, envisioned this problem. They have dozens of staffers and hundreds working behind the scenes crunching numbers. Yet they all missed the chance of this happening. And the public is left to assume that it was so sudden they couldn’t have known.

Not true.

“I believe that the move to junk rating of ACA, the probable $6 - 12 billion loss at JP Morgan [significantly higher than expected], eventual losses from Citigroup - which reinsures itself, oil breaking $100 a barrel, and the multiple overseas investments will all hit the market in mid-January 2008. Thus I think a move to 11,000 is more than probable.”

I said that in December of 2007. That’s without being a stockbroker for years, without financial racords, conversations with CEO’s, discussion of the Fed, data from international sources, or Congressional committees. Just me reading the news and analyzing the public information.

I in fact went on to say

“Will those experiencing deflation outweigh the inflation fears? And if more people lose their homes how much of our financial institutions are we willing to sell to avoid the harshest realities of a crash?”

I knew Citigroup was in trouble a year ago. I knew there would be a major crisis from the mortgage industry, and that a bear market would hit the stock market. And I defined it several times, months in advance, in detail. The main thing I have been wrong on is the severity and speed at which all these things happened.

My point about this is simple. If I can figure out how bad things were, and most likely will continue to get, then what the hell were all these people whose only job is to figure this out doing!?

If they can’t get off they political posteriors, open their Government entrenched eyes, and understand the degree of a problem that is apparent to a guy on a computer in Binghamton – without even a stock ticker – they why are we giving them control of $700 billion and more? How can we expect that a single dollar of that money will be put to a use that is effective?

Case in point. Citigroup is in big trouble. They insure themselves internally. They are failing. So what is the value of the $306 billion in assets today, what was it yesterday? Are we guaranteeing a value that was intially set for these assets, the current market value of these assets, or are we getting to pick up the debt and bad loans of Citigroup mixed in with actual assets? The difference is very important. And I doubt if Barney Frank and Chris Dodd are even aware that this question should be asked.

I asked how much are we willing to sell to avoid a problem a year ago. Today I am looking forweard and I have to ask a different question. How much of the American capitalist system the nation functions on are we willing to lose to avoid the pain of this crisis? And if we are willing to comnpromise the basis of our economy, how do we prevent losing the freedoms a solcialist nation cannot tolerate?

Labels: Barney Frank, Ben Bernanke, Chris Dodd, Citigroup, Federal Reserve, financial news, mortgage bailout, New York City, Treasury Secretary Paulson

The bailout deal that was rejected on Monday by the House of Representatives was a bad deal. And the result was a Congress divided, a media blitz, polispeak galore, finger pointing, and a 777 point drop in the Dow Jones Index.

Most focus on the drop in the Dow Jones. The media love to play that up. I even heard the number increasing as the night went on. Some newscasters call the drop “a nearly 800 point drop”, or “nearly a 1000 point fall”. Talk about exploiting the facts to gain viewership.

The fact is that nothing that happens will stop the drop in the market. The second that short-sales are allowed back into the market, bigger drops will occur. All that stopping these trades has done is increase the power of the drop. Because while the numbers look big right now, the actual affect is not nearly as big. That’s because of the current value of the Dow Jones Index. But as the Dow drops, these big sell-offs become more meaningful and powerful. And they feed a bear market like honey.

But the bailout, now trying to be spun into a “loan” by pundits and politicians, is horrible. Because it fails to answer 2 simple questions. How much is being assumed in bad debt, and how do taxpayers get repaid?

The first problem goes like this. Under the deal laid out on Sunday, at least 3 separate payments would be given to Treasury Secretary Paulson to buy bad loans. The value of what he pays for the loan is unknown. Would he pay the original price of the loan, the current value, the real absolute value? No idea, nor was one required by the legislation. Thus he could buy all the bad debt at the top price, ensuring taxpayers could never break even or be repaid.

The second problem is that there has been nothing said on how taxpayers get the money back. The money is coming out of our pockets. We know that. To the tune of about $10,000 per person. And it will likely be collected from higher taxes for EVERYBODY. But how are we to be repaid. Will we get tax credits in the future? Or a check? Or guaranteed lower taxes (though how much lower and lower than what level is yet another question)? If you can’t say how we will get repaid how can we believe we ever will.

To deal with these 2 major issues the politicians that were trying to rush this version of the bailout proposed this bit of eyecandy. Executives would no longer get ‘golden parachutes’. Yea! It’s nice that the Government is in effect starting on the path to regulate how much money anyone should be paid. It’s very socialist of them. Still I can agree that paying someone that bankrupts or severely damages a company millions is folly. Though I see no problem paying them is they create a bigger stronger more profitable company than they took charge of. But the legislation is unclear if a great executive doing a great job is free of the same stipulations and restrictions.

And all of this says nothing to the power suddenly endowed to the offices of Secretary of the Treasury and Fed Chairman. They get control of more money than 1/3 the countries of the world make combined. And if you think that Congress can watch over those positions and keep them in check remember that it was the brilliant and attentive eyes of Banking Committee leader Barney Frank that said in July of 2008 that Fannie Mae and Freddie Mac could not fail, and that he saw no problems in the financial markets.

And another unseen problem of the bailout deal that was thrown out is its effect on the nation. This deal would have effectively kicked out the last leg holding New York as the financial center of the world. And it still might happen. And with that loss of status means tens of millions of dollars lost to the nation and New York State.

This is not a game with obvious consequences. Some things have to be thought about. And because some of those most responsible for this mess don’t want the blame, they are insisting on the most speed in passing the buck and a deal.

The bailout will cost over $1 trillion by the time it’s all said and done. The stock market will fall as the dust settles and every industry with debtors lines up to be next to be paid. And eventually things will improve. Such is the nature of markets and trade.

But if the main questions I have asked are not answered in future bailout proposals, because of the rewording of what the deal is called, or political favor to a Presidential candidate, or rushing to soften the ultimate downturn of the bear market, or just because no one was smart enough to ask, then the real cost will be far worse than just the money thrown away.

Labels: American economy, Barney Frank, Congress, Dow Jones Index, Federal Reserve, small business, stock market, Treasury Secretary Paulson

Well how much fun are you having today? If you hold investments, it may not be a fun day at all.

Back in the 4th quarter of 2007 I said I believed the Dow Jones Industrial Index would hit 11,000. I thought this would be a move in the late 1st to 2nd quarter. I was wrong… on the timeframe. But this is not a pat yourself on the back kind of moment.

With Indy Mac having failed and fears rampant over whether Freddie Mac and/or Fannie Mae will follow there should be no doubt that the Dow will cross into the 10,800 area on Monday. Add crude oil prices that are continuing to rise on fears from Iran and you get a bad situation. But perhaps the real culprit for this current situation is the Fed (Federal Reserve).

The Fed has been providing banks extra money to ensure their solvency, but not requiring that loan reserves be increased. It’s kind of like stopping a leak in your tub by adding more water. The problem is not getting fixed and may get far worse. And all the panic about the mortgage industry seems to have done nothing but whip up polispeak from political candidates and political parties, each looking to sway voters.

Loan reserves must be raised at all financial institutions. That especially means Fannie Mae and Freddie Mac. And several institutions need to fail. That of course means that some people will lose their homes. Nothing can, or should be done about that.

When I some will lose their homes I don’t just mean the roughly 4% of homeowners that are in default. I include in that group those that will fail this winter due to the cost of heating oil increases. I expect that in total some 7% of homes are in danger of foreclosure this year. While it’s not a nice thing to say, they need to lose their homes for the economy to survive.

This is not unlike the enormous wash-out that occurred when the internet bubble broke in the stock market. Money was lost, as it should have been, and opportunities were created. Those that made bad financial decisions, whether corporate or individuals, lost and others benefited from that loss. It’s a standard cycle in the markets.

Of course what is likely to happen is that Congress (with it’s 9% approval rating – sure to go lower) will take taxpayer money and bailout homeowners and financial institutions alike. Thus more water will fill the leaky tub. Undoubtedly the current Administration will be blamed (even more than they should) and the war in Iraq (and possibly Afghanistan) will be identified as the cause of all these ills. Which is false.

The outcome will probably be a surge for Senator Obama, who prefers a bailout. This may lead to him being elected and higher taxes to pay for that bailout. And if anyone thinks a bailout of this size will be limited to just the top 1% of the nation they are insane.

I believe, looking at current factors several things are highly probable:

1. Confidence in all financial will go lower forcing the need for more liquidity
2. Several institutions will fail – focused mostly on those dealing with housing markets first
3. Interest rates will increase by 1pt by the end of 2008, increasing another 1pt early in 2009.
4. Crude oil prices will jump to maybe $160 a barrel by mid-September as winter starts, with a commensurate move in heating oil prices.
5. Gasoline will reach $5.15 a gallon
6. Home foreclosure will hit 5.5%
7. Bankruptcies will increase by 3%
8. Higher energy prices will be blamed for the further slowdown in corporate profits and significantly lower (negative) holiday sales in the 4th quarter.
9. A Democratic Congress will be re-elected
10. Senator Obama will likely be elected
11. Republicans will be blamed
12. Taxes will be increased for all incomes by 3% by 2009
13. Corporate taxes will be increased by 10% early in 2009
14. Inflation will soar unchecked by 3 - 5%
15. Unemployment will grow to 8.5% by December 2008

While each of these items may or may not happen they are all interrelated. I expect each item to happen, at least to the degree I stated, generally in the timeframe given.

As money tightens, gold will be a hedge and prices for all precious metals will soar again. Credit will get severely crunched, and credit card rates will fly. The debt load on the average American will increase from the current $6,000 to $8,500. Most of this increased debt will be from higher energy costs. Thousands of small businesses will shutdown.

As a result of all these things I expect that the Dow Jones will drop to 10,200 by December. If I am correct about Congress and Senator Obama – for the reasons stated – then I further expect a drop to 9,300 during 2009. A significant bear market indeed.

The main problem is that the solutions being looked at now raised taxes and increased liquidity, fail to resolve the actual problem. And the combination will weaken the dollar, to a point where holding U.S. bonds is unattractive. I won’t even mention the increase in retirees and Social Security.

But there is opportunity. I see the housing markets as a great buy, for those willing to hold for 5 years. Buys in the secondary city markets will probably do best having a lower purchase cost and holding value better.

Several financial stocks will be excellent buys. Some have far better balance sheets than others, but will be blasted by the same investor fears as those in bad shape. Companies like Citigroup are trouble spots as they reinsure their own loans and thus hide them better on the balance sheets. Financials will lead the markets down, but they also will signal the start back.

Coal will likely start to regain interest in the quest for alternative energy sources. I expect nuclear energy will also get a push, with at least 1 new nuclear plant being authorized to be built in 2009. I expect a call to switch to ethanol produced by grass and sugar to go initially unheeded until mid-2010. Further harming the ethanol push is the fact that there will be a glut of ethanol by mid-2009 through 2011.

Bond rates will be more attractive in 2009 than today with the likely increases in interest rates. Of course inflation rises will remove that benefit.

There may be other sources of opportunity but they will be guided by factors including but not limited to:

Iran
Iraq and Afghanistan wars
Crude oil prices
Heating oil prices
Inflation
Unemployment
Manufacturing and Industrial layoffs
Retiree growth rates
Healthcare costs
International political stability
Another terrorist attack on the United States

That is the outlook that I have based on what is currently ongoing in the world today. Some of this is just my on interpretation, some my deduction. But I believe that if only ½ of my expectations occur, the general outcomes as stated are accurate.

But look around and determine your own answers. Better to be prepared than taken by surprise.

Labels: Congress, Crude oil prices, Dow Jones Index, election 2008, ethanol, Federal Reserve, Freddie Mac, gold stocks, heating oil, real estate, Senator Barack Obama, stock market

If you are anything like the average person in America when you think of the Treasury you might think of the IRS first. Some may think of the Federal Reserve. Even a few may think of the Secret Service. But how many would think of a dollar bill?

Obviously we all know that the Treasury is responsible for making the money we all use every day. And of the trillions of dollars made in the past 40 years or more, little has changed besides the signatures on the various denominations. In fact the Dollar has remains the same for so long that the term greenback, or greenmail, and so on are easily recognized to represent or involve the U.S. currency.

It’s also obvious to anyone who has lived overseas or collects currency from overseas (or as close as either neighboring nation) that we are a rarity in the world. We are currently one of the few nations that can claim a uniform size and color to its currency. But that was until today.

Why? Because there exists another thought that some Americans think of when they think of the Treasury or the currency. It’s along the lines of “pain in the a**”. And their reasons for saying so have merit. Because they are Americans that have problems with their vision or are blind.

So I can understand their issue. Every bill looks the same as another. It can be quite difficult to work out. But this is hardly a new issue as I mentioned before.

In fact, when the Government was sued because of how the Dollar looks and feels they went into court and said just that. The blind and vision impaired have long ago adapted to the currency question, and that to make changes would cause extreme financial difficulty. But the Court of Appeals wouldn’t buy it. So there may be changes in the works shortly.

Now I am not a fan of changing the Dollar. I agree that the cost is not justified, near term or long term. More aesthetically I always dislike the way European currency was of differing sizes and colors. It reminds me of Monopoly money more than a currency. I just never could take it too seriously. And with some of the exchange rates I’ve seen in my life, some of those currencies were worth just about that.

But perhaps more than that I disagree with the Courts reasoning. They seem to be creating laws from the bench. They are creating arguments that prosecutors are supposed to make. And they are doing so with a sarcasm that is, in my opinion, unbefitting judges of their level.

“The court said using the government's logic, people could argue there's no need to build wheelchair ramps because people without use of their legs can crawl or ask for help from strangers.”

That logic, if it has been summarized correctly, is insulting. The comparison doesn’t work unless you want to adopt an ultra-liberal interpetation. Such an interpetation is fine – if you are not a judge making a landmark decision. If for no other reason this makes them wrong.

Of course there are many overseas that have their own snarky, bitter and twisted, bollox comments about America finally following their lead. But since I don’t make fun of those currencies, even though some of their bills look more like poor hankercheifs – and are valuable enough to be used as one – I’m not going to pay attention to that.

What do you think? Do you want an orange Dollar bill the size of maybe a Candyland set money, and a blue 5 Dollar bill the sice of a small envelope? Do you think that the inevitable lobbying for a pink currency bill, or a yellow bill, or a black one is worth your taxes? Is this the issue we really want the Treasury to increase their budget (and inevitably our taxes that fund their budget) on? Or would you prefer to keep the dollar the same and get a better tax code, or maybe a better Fed Chair that can stay on top of the economy? 3 Judges have made their decision for you, but at least you still get an opinion here.

Labels: American currency, blind, Federal Reserve, IRS, Monopoly, Secret Service, Treasury, U.S. Dollar, vision impaired

Over the past 9 days the potential for a Democratic nominee to be identified in the U.S. Presidential race became clearer, crude oil has topped $100 a barrel, China has begun to recover from winter ice storms and started the Lunar Year of the Rat. Each of these items has helped to place upward pressure on the spot price of the precious yellow metal commodity gold. Thus today we are at a point where record profits are being reported by some gold mining stocks, and gold spot prices have breach historic levels.

And I’m not surprised.

I have mentioned,

“As these facts are absorbed by the markets, increased volatility and further upward pressure on gold should continue. It’s likely that the Philadelphia Gold and Silver Index and Amex Gold Bugs Index will reflect this pressure. Several Canadian gold miners are also likely to have a short-term boost as they will have increased sales due to lack of competition.

Perhaps most important will be the timing of all these events. If they are moderately spread out and occur individually I expect that they will not be able to retard the move in gold. Combined or occurring close together the effect will be magnified.”

When I made this statement gold spot prices were above $920, now on February 21st they have reached $948. That’s roughly a 3% increase in 9 days, and a continuation of the trend established at the beginning of this year. And it’s not limited to just gold commodity prices.

Barrick Gold Corp reported a 28 percent gain in fourth-quarter profit, or 61 cents a share, beating the estimate of 14 analysts. Barrick was able to attain this while production in 2007 fell 6.7 percent to 8.06 million ounces.

Given that fact, what would an investor or analyst think when you consider that supply is in the throes of shrinking due to power outages and other factors in South Africa. One example is DRDGold, which dropped production 13% in the 4th quarter, and yet is up 4.4% today.

But the growth is not limited to just these companies.

The TSX material stocks gold sub-sector is up 1.4 percent. That includes the aforementioned Barrick and Goldcorp. Other companies around the world on the rise include Exxaro, AngloGold Ashanti, and many others.

The facts are that China and India need gold. Even in a global slowdown their demand has increased pressure on supply. Recession and inflation fears and a lagging stock market in the United States have not diminished though they are not leading world headlines this moment. Oil prices are foreseeable going to continue higher and place more pressure on world economies, especially if OPEC cuts production rates as expected. And the prospect of a Democratic President in America is generally seen as a negative for the stock market, further spurring a move to gold to hedge investments. I have said,

“All stock markets, all financial markets, move on emotion first. That’s given. And few things are more emotional that 1.25 basis point moves by the Fed in a week. But fundamental facts of the markets always come to fore and correct the emotion. To me, $1000 gold, and higher gold stocks across the world, is as fundamentally sound today as when I discussed it earlier this month and in December of 2007.”

I’m no analyst, nor am I making an advisement. But I do believe that the factors are in place, and the results are like dominoes falling. Unless investor sentiment changes, which actions by Warren Buffett and the IMF have not been able to counter to date, I see nothing to stop this trend.

Now I will go one step better. If supply remains constrained, as we can see is likely, and the U.S. economy has the mild recession now being stated by the Federal Reserve. If oil production is cut, in combination with the recent U.S. refinery accident that has placed pressure on capacity, and Senator Barack Obama becomes the Democratic nominee for the President of the United States. If all those actions occur, which seem 80% probable to me at this time, then I believe that gold spot prices in excess of $1125 are possible by the end of this year. Commensurate with this move should be gains among the gold mining stocks across the world.

Labels: AngloGold Ashanti, Barrick Gold Corp, China, DRDGold, Federal Reserve, gold spot prices, Goldcorp, OPEC, Senator Barack Obama, stock market, U.S. economy, Warren Buffett

Crude oil prices have been on a seesaw of volatility, most notably since hitting $100 a barrel in January of this year. Since that time there have been recession fears in America, massive rate cuts by the Federal Reserve, horrendous losses by most financials due to the mortgage sub-prime loans, and drops in the stock markets to near bear levels. That says nothing of the current growing battle between Venezuela and Exxon.

Overall the pressure has been on the downside of pricing, as many of the indicators express a likelihood of reduced demand as industries slow down. Yet not all the pressure is one sided. And the economic outlook is seen as not as bleak as once thought.

"The market has been struggling with whether we are recession-bound or not," John Kilduff, senior vice president for energy at brokerage MF Global in New York said. "That's an indicator [Japan’s economy] that whether or not we are, there's some life out there in the rest of the world and energy demand could hold up."

It’s this factor that has added to the price of crude oil recently, topping $95 a barrel on February 14th. But I think there is an aspect that has yet to be factored into the market. That factor has nothing to do with Federal Reserve Chairman Ben Bernanke’s thoughts the U.S. economy will rebound at the end of the year. It has little to do with the lack of effort of states like Michigan to create a renewable portfolio standard. It has everything to do with Venezuela.

It’s a given that the 90,000 barrels of low quality crude exported by Venezuela to the U.S. is a fraction of what the nation used. The threatened cut of sales to the United States is more likely to have a negative effect on Venezuela than effect America or impact crude prices significantly. But it’s the ally of Venezuela, or more accurately the ally of Hugo Chavez that matters. That ally would be Iran.

Iran is a major oil exporter, and no friend of America. In recent months there have been several conversations of mutual support between Iran and Venezuela, and condemnation of the U.S. It is this mutual anti-American sentiment that could drive up prices beyond an OPEC reduction in supply might create.

If the current court actions continue to favor Exxon over Petroleos de Venezuela, and negotiations fail with ConocoPhillips causing them to follow in Exxon’s direction it could start a landslide against that nation. In the face of that kind of pressure, and the refusal to sell oil to America, Iran may join with Venezuela in a stance against America. This combination of political action and national leadership prejudices is an unknown that I have yet to see any analyst or blogger mention. It’s probable that the reason for that is the unlikely nature of it coming to pass. But unlikely is not improbable.

Beyond this scenario the more likely thing to expect is that OPEC will be cutting production levels during the March 5th meeting. Without a dramatic downturn in the U.S. and world economies, in that order of importance, a return to $100 a barrel will likely happen again for a brief period before the summer and then drop back into the mid -90’s. But I believe a surge will occur along with a resurgence of the American economy in the 3rd and 4th quarters. I will say that by the end of 2008 oil breaking $110 is likely.

Now let’s see if this comes to pass.

Labels: Ben Bernanke, ConocoPhillips, Crude oil prices, Exxon, Federal Reserve, hugo chavez, Iran, John Kilduff, MF Global, OPEC, Petroleos de Venezuela, Venezuela

It’s amazing the various views and means by which so many try to predict where the gold markets will go and for how long. There is the fundamentals view, which I tend to agree with, charts, moving averages, economic indicators, lucky shoes, and so on. Each one has there own merit, and detractions. And to give you an idea, here is one thought I’ve recently seen.

“When you take a look at gold stocks they also are badly lagging the metal. Even though they made new 52-week highs early in January they underperformed the metal when they did so. This is important, because usually the XAU/gold and HUI/gold ratios lead gold and gold stocks. It is bullish when gold stocks outperform gold and when they both go up and gold stocks lag that is a powerful negative divergence that usually spells some sort of top being made.

I do expect the broad market to continue to rally - and expect that rally to keep a bid under gold stocks and commodities. But once the broad market tops, and I expect this to happen in March, I think we will see a big 25-30% correction in commodities and gold stocks. The Chinese stock market is likely to fall 40-60%! If we get such a correction I look to see the XAU bottom in the 130-145 area.”

Sounds a bit ominous doesn’t it?

Then there are the views I hold. That we know supply will tighten due to the multiple mines that shut down because of the power outages. Those outages are expected to last another month or so. Demand in China and India has consistently been on the rise, but the recent winter storms in China have affected millions. Businesses have shut down and people have been stranded. Thus their demand should decrease for a short period, then spike and normalized.

The U.S. economic outlook is still bleak. Though the Federal Reserve has cut rates dramatically in January that won’t really hit the economy till the 3rd quarter at best. A recession in America is a fact to many people and industry sectors. Oil, though down from January highs remains above year ago levels. And the U.S. stock market is leading the world markets lower, with financials still not done with the mortgage crisis.

Based on my observations, gold continues to be a strong choice. Given that many of the gold miners have pulled back, either through regional difficulties or profit taking. Considering the moves they made in the positive compared to the losses in the broad market a pause is to be expected.

Gold and gold stocks are a hedge versus a weak dollar, bad economic forecasts and weak general stock market movements. For the various gold investments to correct 30%, you would expect several of those factors to improve. At this point there is no indication that it will happen. In fact, once the unpredictable conditions of weather and power are resolved, the obvious expectation is that gold should increase since the other factors look to take several months more to even begin to improve.

Thus the question is what will be correct. Will gold and gold stocks fall into a bear market of their own, pulled down because of chart and moving day averages? Or will the fundamentals of demand and weak economics continue to propel gains made in January.

I’ve heard many arguments for both. And each always has their days when they are proven correct. But considering gold is again at the $900 level, plus my own personal preference to fundamentals, I say the charts will be wrong.

As always time will tell. Keep an eye on when the power comes back on, and the storm recovery is done. I think a spike will hit the gold stocks and the spot prices, and growth will continue till May or a bit later. And I still expect to see $1000 gold spot prices, with a commensurate move in individual gold stocks, long before then.

Labels: bear market, Chinese stock market, economic forecasts, economic indicators, Federal Reserve, gold spot prices, gold stocks, HUI, moving averages, XAU

Gold has hit $921 and the U.S. House of Representatives has passed a $146 billion stimulus package. The Fed is set to cut rates another .50 basis points, or so the world hopes, and financials are rising in the stock market.

So the run in gold and gold stocks is over? Not necessarily.

The fact is that little has changed. The mortgage crisis still has at least one more quarter to go. Oil may not be at the record levels set recently, but it is far above year ago levels. The cost of heating and gasoline are hitting the pockets hard, and the economy is slowing down causing fears of job loss. Demand is still high in China and India, and the political outlook in the world is no less volatile than it has been for years. And a recent power outage in South Africa looks like it will cause even more tightening of supplies.

In the most optimistic outlook, the rate cuts will not take a hold until late in the 3rd quarter at the earliest. Companies and individuals are now looking to pay off debt and not expand. The stimulus package will likely fail as many Americans will use the funds that will come in the late spring or summer to shore up debts and bills rather than going on a spending spree. And all this is just in America.

That also assumes that oil stays at current levels, no additional political instability, the mortgage crisis ends completely in this quarter, and the world economies have no surprises. It also assumes that new housing sales pick up from the 28 year low that was just broken, and a return to mid 1990’s or 2000 levels. How likely is that?

I expect that analysts are going to cut production rates across the board for the South African gold miners, and slash quarterly and year expectations. [Already gold miners like AngloGold Ashanti, Gold Fields and Harmony Gold have had thier share prices hit] Miners in other parts of the world should get a boost if new mines come on-line during the potential 6 weeks that South Africa is down, like Goldnev Resources Inc which just had positive results on recent core drilling tests.

So a glut in the gold market is not going to happen any time soon. Nor is political stability a reality. Oil is high, and the U.S. economy is lagging. And this says nothing of how the Dollar is valued versus the world currencies.

Given all this, do you think that calls for gold at $1000 just a week ago are inflated? Do you think that gold stocks have hit the wall of their appreciation?

All stock markets, all financial markets, move on emotion first. That’s given. And few things are more emotional that 1.25 basis point moves by the Fed in a week. But fundamental facts of the markets always come to fore and correct the emotion. To me, $1000 gold, and higher gold stocks across the world, is as fundamentally sound today as when I discussed it earlier this month and in December of 2007.

But then again I’m not a specialist. [You might want to look at what the one of the specialist – Goldman Sachs - had to say back in the ancient time of November 29, 2007 though] I suppose only time, demand, and investors will show what is the right view.

Labels: AngloGold Ashanti, Federal Reserve, Gold Fields, gold stocks, Goldnev Resources, Harmony Gold, housing sales, mortgage crisis, South Africa, stimulus package

Are the Chinese stock markets poised to drop again? And if they do will it be a buying opportunity or the beginning of a bear market? Those are the questions that are on the minds of stock traders and investors as the Asian markets stumble lower. Perhaps the only answers will come from America, predominantly from the Fed and the economy,

So far Monday there has been a 5.5% drop in the Shanghai Composite Index, with Hong Kong down 4.7%. This is following the drop in U.S. markets on Friday, and reflects the insecurity many have about the next moves of the U.S. Federal Reserve. Expectations after last weeks astounding .75 basis rate cut were that this week’s regularly scheduled meeting would provide another .50 basis point rate cut. Those expectations have come under question and the markets have sold in the face of that uncertainty.

The lagging U.S. economy is causing ripples throughout the world. Fears of a recession in America have hit financial sectors across the globe. While the Fed’s rate cuts have been a strong reassurance, the underlying weakness of the economy is still a factor that affects everyone. Many are looking to see if the proposed stimulus package will be enacted in time and with enough force to avert further slowdowns. The final effect of the stimulus plan is debatable though.

So as the Chinese financial sector bobs like a buoy on the ocean, fears of further losses both near-term and long term are abounding. One thing that is not being spoken about is a benefit that only China has in this year. The Olympics.

Unlike the forced injection of capital planned in the U.S., China has the Olympic Games which will bring in capital to its communications, travel, lodging, and services industries. This boost is temporary, but is enormous. 2nd and 3rd quarter numbers are bound to get a bonus, and coupled with continued lower rates from America could overcome any world recession fears.

The real questions seem to be, is America in a recession, how long will it last, and how slow will it be. There is no question that world interest rates will be going lower, led by America. It’s likely that another .50 - .75 basis points will be dropped before the end of the year. Most might agree that it could happen as soon as the end of the 2nd quarter.

Perhaps the only sector that is weathering the questions and intermediate volatility with relative ease has been the mining sector. Huge demand for gold and other base metals continues to be on the rise in China and India. Prices for gold remain at virtual record levels, with futures markets still trending up.

So whether or not the Fed moves rates this week or not, the real questions will take a month or 2 to be resolved. Until then cautious decisions and opportunities will rise and fall like an Olympic pole vaulter. [Obviously joke writing is not my main pursuit.]

Labels: Federal Reserve, financial sector, Hong Kong, Olympic games, Shanghai Composite Index, stock market