Last year I was looking at the gold markets and speculated that gold would surge along with several of the gold stocks. On December 6, 2007 I rebuffed the claims of Goldman Sachs when they stated to sell gold. At the time the spot price was $855.

In January of 2008 I pointed out a few gold stocks:

• Streettrack Gold Trust
  
• Barrick Gold Corp.
  
• Agnico Eagle Mines Ltd.
  
• Goldcorp Inc
  
• Western Goldfields Inc
  
• Agnico-Eagle Mines Ltd
  
• Alamos Gold Inc
  
• Anatolia Minerals Development Ltd
  
• European Goldfields Ltd
  

- each of which was soaring. At the same time I was pointing out my belief of what would happen to gold spot prices, oil, and the Dow Jones Index.

"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."

Which lead me to state

"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."

How close did I get? $1035. Close enough for me and many others. And then gold drifted down. The power outages in South Africa were resolved, oil prices peaked and then dropped. The world was consumed with the problems of the mortgage bailout and then the credit crisis. Major financial institutions failed and/or were on the brink of collapse as politicians (like Barney Frank), The Fed, and the Secretary of Treasury all scurried around like rats on a sinking ship.

Now we have entered 2009 with several important facts known. Interest rates are at all-time lows, the mortgage crisis has yet to be abated, oil is on the rise again - albeit from lower levels than seen in recent years. The American economy is leading the world into a depression, and at our helm is a new inexperienced highly liberal Democrat. None of these things are positives.

The American Government is about to spend even more money than all of 2008 combined, with a Democrat-led Congress that has no desire to reign in the Democrat President. Both his policies as stated and his indicated primary goals are wastes of money on a grand scale few countries could ever command as their GDP.

Thus we are seeing gold sit at $879, the Dow at 9034. That's just about 2000 points lower than my initial expectations for 2008, but above the lows of the year - barely. What will happen next?

In a move much like what was seen in 2008 we will see gold and gold stocks rise. I again call for gold spot prices to hit $1125, with gold stocks reaching new 52 week highs. This will likely be coupled with a reduction in oil production, increases in crude oil prices (to a high of around $105 a barrel again), an ethanol glut, higher energy costs, increase home losses, the failure of more financial institutions, the bankruptcy of at least 1 major auto company, and higher unemployment.

The new stimulus plan envisioned by President Obama, some $850 billion dollars (about 5x the Bush stimulus), will stabilize investor fears and consumer confidence for 1 quarter. Then the resulting fact that most of the money was spent on mortgages, credit cards, bills, or placed into bank accounts and mattresses will be seen. And the economy will drop again. The stock market will drop to about 7600 - as I stated in 2008. The bear will roar.

Gold and gold stocks will be one of a few places investors and those that fear financial institutions will run to. Crude oil will be another. Demand will outweigh supply, and emotion will propel prices ahead of that. For 9 months of the year the economy will be abysmal.

If I am as correct as I was in 2008, then my expectation for gold will be in excess of 90% correct. In terms of the Dow I am being overly generous, if my past predictions are accurate. And Crude oil will likely exceed and then under-perform my belief.

While many will feel my thoughts are overstated, as they did and were partially correct in 2008, I believe that the overall outlook is less stable than in 2008. Politics internationally are as bad with Israel and Palestine trading rockets and Iran moving forward on creating nuclear weapons. Fewer banks are making loans, and fewer people and businesses are qualified to get them. Democratic spending is looking to increase the national debt to levels unseen, without any real expectation of improvement. Government interference with private business is greater than ever before - with the Government consistently proving it has no clue on how to run anything.

It is quite early in the new year. Our new President has yet to be sworn in. Much in the world is in flux. So I hope to be wrong, I hope very wrong, in what I am predicting. But I believe that at the end of this new year I will be no less than 60% correct. How you act on that is up to you.

Labels: American economy, bear market, Congress, crude oil, Dow Jones Index, gold spot prices, mortgage crisis, President Barack Obama, stimulus package

As the 4th quarter moves steadily towards the holidays and businesses across the nation collectively hold their breath, I decided to look forward to 2009. What are some of the things that I see coming economically in the new year?

Dow Jones Index at 7600. Yep that’s a bleak statement. It’s not what anyone is asking for in their wishlist to Santa this year (except a few masochistic short-sellers). This is definitely a lump of coal.

But I will say something that you really aren’t expecting. That’s the upside in my view.

The 4th quarter of 2008 is going to be bad. Very Bad. We all know it. We knew it when before Halloween businesses were already getting their Christmas displays in order. They needed sales that bad. And still do.

Unemployment is up, financial companies are laying off people in the thousands, and the prospect of inflation looms larger by the day. Add to that recipe a Democratic President (a historically bad indicator for the economy) who’s policies – based on his voting records – are extremely left leaning, a Democrat-led Congress, the worst Speaker of the House ever, and you get a big mess.

But there is the fact that over $1.2 trillion has been spent this year to bailout the mortgage and credit crisis. The money has been the worst spent money I have seen since Waterworld was made. And the fact that no one has control over how or where this money is being spent, just means that it is being spent poorly and ineffectively.

So all that is left to look forward to is the thought that the auto makers are now first in line to ask for their own bailout, to be followed by retailers, pharmaceuticals, airlines and probably every other industry in America. And Congress will likely pony up the money for each of them.

But let us not forget that Congress has included the people in their spend at will program. So far a 2nd stimulus plan is being conceived, growing from an initial hidden $50 billion, to $150 to $300, and now is being speculated at $500 billion dollars. Nancy Pelosi doesn’t just screw up, she does it with swings to the bleachers.

Any one of these things would not hurt the stock market that much. And the by-product of severely deflated oil prices would be a boon to business in the mid-term. But it’s all happening at once. Saving on energy doesn’t matter much when you have no sales revenue.

The weakness in the stock market can bee seen in that just before the presidential election, the big institutions watched the polls and sold to get out of the way before President Obama was voted in. His promises to raise taxes, and his historic voting record were not overlooked. The only pause in selling came to allow smaller investors a chance to buy into the market and raise prices for the next wave of selling. My guess is that most of the money is sitting in cash right now, waiting for an opportunity in anything but stocks. At least in the U.S.

This means that New York City will get crushed this year. Bonuses from financials are getting scrutinized and thus being cut across the board. That means less money in the tri-state area, and thus a bad Northeast holiday season. That means the east coast will suffer and the nation as a rippling effect.

I’m sure some believe the polispeak that Wall Street and Main Street are separate – a concept only politicians could come up with. But this is how I see it all playing out.

Holiday sales will be off from last years rate, further pressuring the Dow Jones Index. Unemployment will increase going into the New Year, and inflation will start to rise.

President Obama will get inaugurated and the Dow will drop 500 points. This is not a racial reaction, but a political one. Within a week or so of that date a $300 billion 2nd stimulus plan will be passes raising the market temporarily. Several forward indicators will suggest a negative 4th quarter and 1st quarter 2009. Home sales will drop again – due to fewer loan approvals. Home prices should drop in proportion, with foreclosures increasing.

Oil prices should stabilize at around $65 - $70 per barrel to start the year as speculation and alternative investments will drive the price higher. Gold and precious metals should all increase dramatically in a similar manner to that of 2008. Growth in China will likely stall as well, especially since the boost from the Olympics will have faded.

President Obama will be forced to state that he will not raise corporate taxes, and a smaller increase in capital gains will be proposed. Taxes will increase roughly 3% on all income groups.

HD television service will cause a disruption across the nation and millions realize they need different television set, and will spike retail sales – but this is a false increase in the economy. It will be read as a positive indicator by politicians though.

Several mid-sized financials will fail, blame will go to short-sellers and corporate greed. Increased regulations will be passed that will not address the potential for bad business decisions, and the markets will sell again in fear of a more socialized America. The first rounds of nationalized healthcare will be discussed. The national debt will run higher, the deficit even more so as new spending will have no check from Congress.

Confidence in the U.S. Treasuries will weaken, and several nations will begin to sell in hopes of buying national debt of England and a few isolated nations. There will not be a run on America as this would instantly plunge the world into a depression. But the fear will accelerate pressure on the markets. The Fed will lower interest rates again to counter these fears, and to again increase loan availability. Inflation will start to gain attention in the media.

Unemployment will hit a 20 year high, again raising fears of a depression. And Iran and Russia will take aggressive stances in the world stage. Oil will run on this fear, as will gold. But direct crisis will be averted for the time being.

I expect all of this to happen in the first quarter of 2009. It is my expectation that to some degree every item I mentioned will occur. The importance and effect of each of these items will depend on timing and reaction as they all play off of each other. But the net result will be a 7600 Dow Jones Index, or lower.

I expect that this will be the bottom of the market. Smaller investors will flee the markets, and discussion of Federal intervention to save 401K’s will begin. This will also be seen as socialistic, but the need will outweigh these fears. The market will likely hover in this bottom range for the 2nd Quarter.

I’m not sure what might happen next.

I hope that I am wrong an most of these expectations. I would love to see the market gain confidence and rally in the face of these events. I hope that President Obama can rise to the occasion and lift the economic and personal spirits. But that is yet to be seen.

If I am as correct as I was in 2008, then 60 – 70% of what I have said will occur, though not exactly in my timeframe. Take that as you will.

Labels: Congress, corporate taxes, Dow Jones Index, gold spot prices, mortgage bailout, Nancy Pelosi, New York City, Polispeak, stock market, U.S. economy, Wall Street

As the Dow Jones Index tumbles again, down some 200 points today, I had to look back on some of the things I’ve said recently. I can’t say I am surprised at the condition of the market, nor the outlook being discussed now. On reflecting I found that I mentioned many of these things back in November 2007.

“The Fed's huge new credit facility, announced on Tuesday, "can help in a rather small way ... but the underlying risks will remain with the institutions that borrow from the Fed, and this does nothing to change their capital," National Bureau of Economic Research President Martin Feldstein noted.

And I stated.

“I had a friend recently ask me what I thought would be happening to the economy, and my answer was it’s going to get bad. Perhaps recession bad. And I added that the current group of Democratic candidates may only make it worse.

I say this because of several factors. Not the least of which are, the housing crisis, the financial sector, the cost of oil, and potential tax ramifications based on the current plans announced by candidates.”

Perhaps I was too general. Maybe I could have been more clear.

“One broker, whom I respect and consider quite sharp [even when I disagree], had an interesting comment on my predictions. 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.”

Maybe if could have seen what would be the effects

“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.”

Fine, all that having been said at points in the past, what do I have to say now?

We need to see the stock market crash. Seriously it needs to drop to my target of 11,000 I called for in 2007. And every single action by the Fed and Congress to stop this will only create a bigger and longer lasting problem.

At the moment the Government is trying to create an artificial floor for the market. The reason is to give investors a false sense of hope and a bit of political momentum. Neither is worth the problem it is creating. The Fed has reacted too slowly and in moderation thus not correcting any of the liquidity issues. Huge rate cuts may look impressive, but since they don’t have an effect for months if not a year, the short-term effect is windowdressing. A series of stagard smaller cuts (started far earlier) over a period of time is far more effective.

Injecting money into the pockets of citizens is also a waste of money. The momentum and problems are not with people failing to buy things, it’s with the cost of the things being purchased. If oil costs are up 40% then there is just that much less to spend in a discrectionary manner.

Giving people money in the middle of chaos means that the money will either go to pay immediate bills or stashed away for the possible immediate need to pay a bill. Rather, let the emotion and the weakness in the market play out and then give the stimulus. Otherwise you are throwing money down a drain hoping it will eventually clog if you dump enough. And we are weakening the dollar in the process, which hurts the very economy we are trying to fix.

The financials are not done with the mortgage crisis. Some would like to divert attention from this, but the fact is that we are still in the crisis. And a great number of people will lose their homes. The housing market will have it’s crash, which is long overdue, and credit will be harder to get. All of which is normal.

For too long people have had too much credit without any security to back it on. A full generation of young adults have grown up thinking that this was the norm. We need this correction to get back to reality.

Want lower oil prices? Develop new sources of energy. Not because it’s an ecological thing to do, or because of some nightmare dreamed up based on barely enough information to make an estimate on. We need to do it because it will create jobs that can’t be exported, will lower dependance on oil, and infuse the economy with cash. It also means that the equity structure of the market will change, several blue chips will lose value and new ones will be created. Such is a dynamic market, which we don’t have now.

Gold will strike my target of $125 and oil $1125 this year. And they will both do so far faster than I expected if we continue to weaken the dollar and fix they symptoms and not the problem. Loss is part of an investment, as is long-term gain based on fundementals. To try to prevent one prevents the other.

This will feel bad, and unemployment may hit, gasp, 8%. 30 years ago that was a massive win. And it’s not a bad thing. If we aren’t throwing money at the public because they aren’t as comfortable as they were 5 years ago. If politicians had balls they would say this. Social entitlements should only be for those in need, not thouse that need to want.

The end of the 1st quarter will be another round of write-off for financials. And the market will continue to flounder as they try to stabilize their losses. At least one major financial will fail (actually will be forced to merge because they are too big to fail). And at 11,000 the market will stabilize and slowly rise. Growth will begin at that point at a moderate and unimpressive 1% or 7% in the market.

If gold moves as I expect, and the Government stops wasting money in stimulus plans, then there will be a sale in the commodity and an influx in the market. If wind and solar get a few positive laws there will be a spur in that arena and oil will drop slightly after hitting my target. IF taxes are increased, as was voted on yesterday, then the problem will extend into 2009 3rd quarter.

Patience, calm and paying attention to the underlying fundementals will do investors and homeowners more good than cutting rates and suggesting purchases of new Ipods that people can’t afford to have anyway. Shifting energy plans away from ethanol, which is driving up food prices and thus inflation, is also smart.

What will I do with my $600 from the Government stimulus plan? Leave it in the bank until I have a bigger purchase item I need for my business. I’ve already cleared my debt, and keep minimal revolving credit. My investments are balanced and long-term so the current moves don’t faze me. Unlike the Governments rush to do something – even if they have no idea what to rush and do, I have a plan and that allows me to sit and wait to see what happens.

So now you have my thoughts. I’ve factored in the lower refining levels due to the accident earlier this year. I’ve factored in the lesser supply of gold from South Africa, and the Olympics in China. I’ve looked at the real estate market, and the Dow Jones. So until the Dow hits 11,000 (plus minus 100 points or so – I’m not that good) oil and gold rise further and we enter the 3rd quarter it’s just time to accept the pain. But I’m sure this being an election year all of that will get mucked up by political ambitions.

We shall see.

Labels: China, Crude oil prices, Dow Jones Index, economic forecasts, ethanol, gold spot prices, green energy usage, mortgage crisis, Olympic games, tax increase

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

Mid-day February 11, 2008 gold futures prices have risen to $927. Gold continues to move forward, taking many of the gold stocks along with it. In fact speculation in the most precious yellow metal has grown dramatically on a global level. In China, Beijing Caishikou Department Store sold out of two tones of gold bars in less than 2 hours.

“The real value of gold is not that it provides a quick, speculative fix, but its capacity to provide a sure and steady means of protecting wealth and to enhance risk-adjusted returns,” said Hou Huimin, vice-chairman of China Gold Association.

With a weak dollar, spikes in oil prices - which are consistently above year ago levels, and an outlook of an unknown time period for an American recession gold hedges seem more attractive everywhere. And outside factors continue to add to this upward trend in prices.

Already the effect of Venezuelan President Hugo Chavez threatening to cut America off from that nations oil supply has added to the price of oil, while power shortages in South Africa have forced many mining companies to lower production, boosting in turn platinum and gold futures. This is having a net effect being seen in the Philadelphia Gold and Silver Index rising .73%, along with the CBOE Gold Index up .26% and the Amex Gold Bugs Index up .76%

Will the gold mining stocks of South Africa take a hit? Of course, and many other mining stocks will drop along with them. But that is hardly an indication of a bear market any more than the fact that once those mines are back online gold spot prices will drop. In a few weeks supply and demand factors will shift again with the aforementioned miners increasing supply. But the real factors moving gold in all the various investment markets is not the short-term actions that are the fodder of traders.

Protecting wealth and risk adjusted returns are the main concern right now as global markets look weaker by the day. With global instability and the other factors that are growing with no end in sight, I believe that gold will continue to increase in price. $1000 gold spot prices are not the top in my opinion but a stepping stone to a higher level. Whether shortages due to difficulty in mining or nature, increased demand in emerging markets like India and China, or economic weakness and general bear markets in stock markers globally I do not see a substantial retreat of gold or gold stocks in 2008.

Labels: Amex Gold Bugs, CBOE Gold Index, emerging markets, gold spot prices, gold stocks, hugo chavez, Philadelphia Gold and Silver Index, South Africa

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

Some days I wish I was not previously a stock broker. Sometimes I hope that what I feel are likely outcomes in the stock market do not come to fruition. But time and again I find that I get it right, not always on the timing or the exact figures, but the trend. And I did it again.

Back on December 26, 2007 I wrote a post Will 2008 be a lump of coal or a nice present for investors? In essence I felt that the beginning or 2008 would be a horrible year for many investors. This also went in line with my thinking about gold and gold stocks.

Directly I stated,

“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.”

Key in on the fact that oil has already hit $100 a barrel this year, and Citigroup announced

“The biggest hit came from a $18.1 billion write-down in the value of its investment portfolio. But the bank also set aside $4 billion on Tuesday to cover anticipated losses on loans to U.S. consumers — a sign that deflated home prices, high energy and food costs, and rising unemployment are making it difficult for many customers to keep up with their payments.”

I am wrong in that the Dow Jones Index closed today at 12,501. That is a far cry from 11,000 but all the financials have yet to announce their losses, oil has not maintained $100 a barrel or more, the Fed is cutting rates, and all the 4th quarter numbers are yet to be reported. Even so, the Dow now stands 12.5% below the high and beyond correction territory. It is a mere 7.5% from a bear market.

Is America in a recession? Will gold spot prices hit $903 as have been projected by some brokerage houses? Will more Americans lose their homes?

I would say yes to all. I could very well be wrong, and I hope that I will be. But I don’t see an end to this problem in the near-term. The Fed cannot prevent many of these issues with the application of rate cuts.

Those that are in trouble, or will be, with their mortgages will not be helped by lower rates as that will not cap increased heating and gasoline prices. Small businesses are not going to be able to get new loans as easily even with lower rates as financials scramble to find cash to absorb the losses they are experiencing. Effectively some degree of pain must happen and is not preventable.

I say all this for one reason. So that you my readers can be prepared. If I am correct even in part, then this nation will encounter times we have not seen for quite a while. I doubt that we will see the inflation and unemployment that existed in the 1970’s (when I was a child) but I am sure that we will see levels that those under 30 have never experienced.

Credit will get crunched, and credit card debt will increase for a time. New loans will become far harder to achieve. And costs of fuel will go higher even if ethanol additives were readily available for widespread distribution today.

And then there is the political component. Don’t be lured into the cheap vote purchases offered by some candidates. The stimulus plan proposed by Senator Clinton, equating to $500 per person filing taxes is a ploy. It’s a one time gift that will help no one. It may help you pay a bill, say heating, for a month but will do nothing else for you. Rather a tax cut might help more, adding $50 a week to your paycheck. Either way, don’t sell your vote on a quick fix that is neither.

Further, if a Democrat is elected expect the impending pain to be trebled. Increased costs for nationalized healthcare and other social entitlements will hit the pocket books. That is not to say that a Republican in office will avert any of this. They will not. Just that the historical fiscal impact of a Democratic President is view more harshly, whether or not they are the best person for the position.

So my readers, be prepared. If I am right on the trend, and it seems that I am increasingly becoming so, those that are ready will endure best. And I only wish the best.

Labels: bear market, Citigroup, credit card debt, democrat, Dow Jones Index, gold spot prices, mortgage crisis

So gold continues to rise. And as this incredible run continues, the call for it to end abruptly increase. Many have stated that they see this as an aberration. That none of the factors in the market support such a strong and steady rise. Fear is moving along with the price, as often occurs when dramatic changes happen.

But there are a few that feel this rise is not only justified it’s completely logical. Those events such as the mortgage crisis, weak Dollar, Fed rate cuts, oil per barrel prices and other factors have to equate to a move in gold spot prices. This says nothing of the increase in demand coming from China and India.

In one particular case we see that Chip Hanlon on TheStreet.com has made a case for 9 gold stocks that can benefit from the continuing interest in gold. One of those stocks you may recall from a recent post here, which has made new 52 week highs recently. That stock is Newmont Mining and in the number 1 position on the list.

“…an unhedged giant that produces gold in many corners of the world, from North America to South America to Asia. Gold bugs, who tend to dislike companies that hedge their production for any reason, tend to favor this stock as a leading large-cap choice.”

In the number 2 position is another popular and oft mentioned Goldcorp.

"Record gold production for the company in 2007 is expected to be followed by another record in 2008, and the company just announced its first monthly dividend a few days ago."

Perhaps one of the more interesting items on the list is the number 10 pick. The Silver ETF is the last choice on that list. It would seem that silver is a contra-indicator. By that I mean, once silver begins to have its run, gold tends to end its run. Since silver has not been influenced yet, it would indicate that gold has more room to go.

“…silver tends to rally most strongly at the end of major gold moves (as do the most junior, speculative mining shares). The fact that silver has not yet blown off suggests to me that more upside remains.”

The entire concept is interesting since this article looks at riding the run of gold and working on the ultimate question in all stock purchases – timing. Not only has he picked 9 gold stocks to ride the bull, he has also looked at riding the one position that may indicate the end of the run and the growth of perhaps a gold bear.

Never doubt that the people over at TheStreet.com are on the ball.

Labels: Chip Hanlon, Fed rate cuts, gold spot prices, Goldcorp, mortgage crisis, Newmont Mining, oil per barrel, Silver ETF, TheStreet.com, weak Dollar